UNITED
      STATESSECURITIES
      AND EXCHANGE COMMISSIONWashington,
      D.C. 20549Form
      10-Q(Mark
    One)[X]
                          QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended March 31, 2009OR[  ]
                          TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the transition period from __________ to __________Commission
      file number  1-33488MARSHALL
      & ILSLEY CORPORATION(Exact
      name of registrant as specified in its charter)Wisconsin
                          20-8995389(State
      or other jurisdiction of
                          (I.R.S.
      Employerincorporation
      or organization)
                          Identification
      No.)770
      North Water StreetMilwaukee,
      Wisconsin
                          53202(Address
      of principal executive offices)
                          (Zip
      Code)Registrant's
      telephone number, including area code:  (414)
      765-7801None(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 by check mark whether
      the registrant has submitted electronically and posted on its Corporate
      Web site, if any, every Interactive Data File required to be submitted and
      posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
      the preceding 12 months (or such shorter period that the registrant was
      required to submit and post such files).Yes[  ]No   [  ]Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting
      company.  See the definitions of “large accelerated filer,”
      “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
      Exchange Act.
                            Large
      accelerated
      filer   [X]      Accelerated
      filer    [  ]   Non-accelerated
      filer   [  ] (Do not check if a smaller
      reporting company)     Small reporting
      company [  ]Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange
      Act).     Yes   [  ]       No   [X]Indicate the number of shares
      outstanding of each of the issuer's classes of common stock as of the
      latest practicable date.Class
                          Outstanding at April 30,
    2009Common
      Stock, $1.00 Par Value
                          265,722,191













MARSHALL
& ILSLEY CORPORATION


TABLE OF CONTENTS
    PART I. FINANCIAL
      INFORMATIONITEM 1. FINANCIAL STATEMENTS
                  2CONSOLIDATED BALANCE SHEETS
      (Unaudited)
                  2CONSOLIDATED STATEMENTS OF INCOME
      (Unaudited)
                  3CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      (Unaudited)
                  4NOTES TO FINANCIAL
      STATEMENTS
                  5ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  27OVERVIEW
                  28OTHER NOTEWORTHY TRANSACTIONS AND
      EVENTS
                  29NET INTEREST INCOME
                  30PROVISION FOR LOAN AND LEASE LOSSES AND CREDIT
      QUALITY
                  34OTHER INCOME
                  39OTHER EXPENSE
                  40INCOME TAXES
                  41LIQUIDITY AND CAPITAL
      RESOURCES
                  41FORWARD-LOOKING
      STATEMENTS
                  49ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
                  50ITEM 4. CONTROLS AND PROCEDURES
                  52PART II. OTHER
      INFORMATIONITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
      AND USE OF PROCEEDS
                  53ITEM 6. EXHIBITS
                  54SIGNATURES
                  55EXHIBIT INDEX
                  56EX-11
                  56EX-12
                  57EX-31(i)
                  58EX-31(ii)
                  59EX-32(a)
                  60EX-32(b)
                  61
  1
 Table of Contents


PART
I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL
  STATEMENTS


MARSHALL
& ILSLEY CORPORATION


CONSOLIDATED BALANCE SHEETS(Unaudited)


($000’s
except share data)


March
      31,
                                  
                                  
                                  December
      31,
                                  
                                  
                                  March
      31,2009
                                  
                                  
                                  2008
                                  
                                  
                                  2008Assets:Cash
      and cash equivalents:Cash
      and due from banks
                                  
                                  $
                                  744,861
                                  
                                  
                                  $
                                  851,336
                                  
                                  
                                  $
                                  1,359,808Federal
      funds sold and security resale agreements
                                  
                                  
                                  49,698
                                  
                                  
                                  
                                  101,069
                                  
                                  
                                  
                                  238,913Money
      market funds
                                  
                                  
                                  285,307
                                  
                                  
                                  
                                  120,002
                                  
                                  
                                  
                                  58,443Total
      cash and cash equivalents
                                  
                                  
                                  1,079,866
                                  
                                  
                                  
                                  1,072,407
                                  
                                  
                                  
                                  1,657,164Interest
      bearing deposits at other banks
                                  
                                  
                                  116,353
                                  
                                  
                                  
                                  9,684
                                  
                                  
                                  
                                  9,216Trading
      assets, at fair value
                                  
                                  
                                  686,723
                                  
                                  
                                  
                                  518,361
                                  
                                  
                                  
                                  195,195Investment
      securities:Available
      for sale, at fair value
                                  
                                  
                                  7,540,076
                                  
                                  
                                  
                                  7,430,552
                                  
                                  
                                  
                                  7,530,947Held
      to maturity, fair value $192,324($243,395 at December 31, 2008 and
      $331,429 at March 31, 2008)
                                  
                                  
                                  187,551
                                  
                                  
                                  
                                  238,009
                                  
                                  
                                  
                                  322,466Loans
      held for sale
                                  
                                  
                                  305,082
                                  
                                  
                                  
                                  220,391
                                  
                                  
                                  
                                  192,694Loans
      and leases
                                  
                                  
                                  48,939,572
                                  
                                  
                                  
                                  49,764,153
                                  
                                  
                                  
                                  49,107,698Allowance
      for loan and lease losses
                                  
                                  
                                  (1,352,117
                                  )
                                  
                                  
                                  (1,202,167
                                  )
                                  
                                  
                                  (543,539
                                  )Net
      loans and leases
                                  
                                  
                                  47,587,455
                                  
                                  
                                  
                                  48,561,986
                                  
                                  
                                  
                                  48,564,159Premises
      and equipment, net
                                  
                                  
                                  570,303
                                  
                                  
                                  
                                  564,789
                                  
                                  
                                  
                                  513,305Goodwill
                                  
                                  
                                  607,954
                                  
                                  
                                  
                                  605,144
                                  
                                  
                                  
                                  2,095,368Other
      intangible assets
                                  
                                  
                                  150,154
                                  
                                  
                                  
                                  158,305
                                  
                                  
                                  
                                  151,100Bank-owned
      life insurance
                                  
                                  
                                  1,165,887
                                  
                                  
                                  
                                  1,157,612
                                  
                                  
                                  
                                  1,141,858Other
      real estate owned (OREO)
                                  
                                  
                                  344,271
                                  
                                  
                                  
                                  320,908
                                  
                                  
                                  
                                  177,806Accrued
      interest and other assets
                                  
                                  
                                  1,448,357
                                  
                                  
                                  
                                  1,478,270
                                  
                                  
                                  
                                  847,070Total
      Assets
                                  
                                  $
                                  61,790,032
                                  
                                  
                                  $
                                  62,336,418
                                  
                                  
                                  $
                                  63,398,348Liabilities
      and Equity:Deposits:Noninterest
      bearing
                                  
                                  $
                                  6,988,312
                                  
                                  
                                  $
                                  6,879,994
                                  
                                  
                                  $
                                  6,137,771Interest
      bearing
                                  
                                  
                                  32,576,052
                                  
                                  
                                  
                                  34,143,147
                                  
                                  
                                  
                                  32,589,048Total
      deposits
                                  
                                  
                                  39,564,364
                                  
                                  
                                  
                                  41,023,141
                                  
                                  
                                  
                                  38,726,819Federal
      funds purchased and security repurchase agreements
                                  
                                  
                                  2,513,039
                                  
                                  
                                  
                                  1,190,000
                                  
                                  
                                  
                                  3,614,947Other
      short-term borrowings
                                  
                                  
                                  2,823,244
                                  
                                  
                                  
                                  2,868,033
                                  
                                  
                                  
                                  3,430,483Accrued
      expenses and other liabilities
                                  
                                  
                                  1,100,063
                                  
                                  
                                  
                                  1,370,969
                                  
                                  
                                  
                                  970,055Long-term
      borrowings
                                  
                                  
                                  9,538,664
                                  
                                  
                                  
                                  9,613,717
                                  
                                  
                                  
                                  9,671,977Total
      Liabilities
                                  
                                  
                                  55,539,374
                                  
                                  
                                  
                                  56,065,860
                                  
                                  
                                  
                                  56,414,281Equity:Preferred
      stock, $1.00 par value; 5,000,000 shares authorized; 1,715,000shares issued and outstanding of Senior Preferred Stock, Series B
      (liquidation preference of $1,000 per share)
                                  
                                  
                                  1,715
                                  
                                  
                                  
                                  1,715
                                  
                                  
                                  
                                  -Common
      stock, $1.00 par value; 272,318,615 shares issued (272,318,615shares at December 31, 2008 and 267,455,394 shares at March 31,
      2008)
                                  
                                  
                                  272,319
                                  
                                  
                                  
                                  272,319
                                  
                                  
                                  
                                  267,455Additional
      paid-in capital
                                  
                                  
                                  3,841,725
                                  
                                  
                                  
                                  3,838,867
                                  
                                  
                                  
                                  2,060,783Retained
      earnings
                                  
                                  
                                  2,419,433
                                  
                                  
                                  
                                  2,538,989
                                  
                                  
                                  
                                  4,989,349Treasury
      stock, at cost: 6,617,041 shares (6,977,434 shares atDecember
      31, 2008 and 8,338,022 shares at March 31, 2008)
                                  
                                  
                                  (182,840
                                  )
                                  
                                  
                                  (192,960
                                  )
                                  
                                  
                                  (231,160
                                  )Deferred
      compensation
                                  
                                  
                                  (36,533
                                  )
                                  
                                  
                                  (40,797
                                  )
                                  
                                  
                                  (44,713
                                  )Accumulated
      other comprehensive income, net of related taxes
                                  
                                  
                                  (75,606
                                  )
                                  
                                  
                                  (157,952
                                  )
                                  
                                  
                                  (67,558
                                  )Total
      Marshall & Ilsley Corporation shareholders' equity
                                  
                                  
                                  6,240,213
                                  
                                  
                                  
                                  6,260,181
                                  
                                  
                                  
                                  6,974,156Noncontrolling
      interest in subsidiaries
                                  
                                  
                                  10,445
                                  
                                  
                                  
                                  10,377
                                  
                                  
                                  
                                  9,911Total
      Equity
                                  
                                  
                                  6,250,658
                                  
                                  
                                  
                                  6,270,558
                                  
                                  
                                  
                                  6,984,067Total
      Liabilities and Equity
                                  
                                  $
                                  61,790,032
                                  
                                  
                                  $
                                  62,336,418
                                  
                                  
                                  $
                                  63,398,348See
      notes to financial statements.


2
 Table of Contents


MARSHALL
& ILSLEY CORPORATION


CONSOLIDATED STATEMENTS OF INCOME(Unaudited)


($000’s
except share data)


Three
      Months Ended March
      31,2009
                  
                  
                  2008Interest
      and fee incomeLoans
      and leases
                  
                  $
                  566,334
                  
                  
                  $
                  783,528Investment
      securities:Taxable
                  
                  
                  63,117
                  
                  
                  
                  77,556Exempt
      from federal income taxes
                  
                  
                  12,255
                  
                  
                  
                  14,403Trading
      securities
                  
                  
                  1,449
                  
                  
                  
                  607Short-term
      investments
                  
                  
                  628
                  
                  
                  
                  2,916Total
      interest and fee income
                  
                  
                  643,783
                  
                  
                  
                  879,010Interest
      expenseDeposits
                  
                  
                  138,089
                  
                  
                  
                  272,774Short-term
      borrowings
                  
                  
                  3,992
                  
                  
                  
                  53,590Long-term
      borrowings
                  
                  
                  99,956
                  
                  
                  
                  122,262Total
      interest expense
                  
                  
                  242,037
                  
                  
                  
                  448,626Net
      interest income
                  
                  
                  401,746
                  
                  
                  
                  430,384Provision
      for loan and lease losses
                  
                  
                  477,924
                  
                  
                  
                  146,321Net
      interest income (loss) after provision for loan and lease
      losses
                  
                  
                  (76,178
                  )
                  
                  
                  284,063Other
      incomeWealth
      management
                  
                  
                  62,682
                  
                  
                  
                  71,886Service
      charges on deposits
                  
                  
                  35,313
                  
                  
                  
                  35,681Gain
      on sale of mortgage loans
                  
                  
                  9,814
                  
                  
                  
                  8,452Other
      mortgage banking revenue
                  
                  
                  993
                  
                  
                  
                  912Net
      investment securities gains
                  
                  
                  72
                  
                  
                  
                  25,716Bank-owned
      life insurance revenue
                  
                  
                  9,316
                  
                  
                  
                  12,395Gain
      on termination of debt
                  
                  
                  3,056
                  
                  
                  
                  -OREO
      income
                  
                  
                  2,568
                  
                  
                  
                  1,036Other
                  
                  
                  52,892
                  
                  
                  
                  55,155Total
      other income
                  
                  
                  176,706
                  
                  
                  
                  211,233Other
      expenseSalaries
      and employee benefits
                  
                  
                  155,188
                  
                  
                  
                  174,664Net
      occupancy and equipment
                  
                  
                  33,793
                  
                  
                  
                  31,202Software
      expenses
                  
                  
                  6,598
                  
                  
                  
                  6,233Processing
      charges
                  
                  
                  33,722
                  
                  
                  
                  32,085Supplies,
      printing, postage and delivery
                  
                  
                  9,094
                  
                  
                  
                  11,768Professional
      services
                  
                  
                  19,181
                  
                  
                  
                  13,479Amortization
      of intangibles
                  
                  
                  5,794
                  
                  
                  
                  5,945OREO
      expenses
                  
                  
                  32,623
                  
                  
                  
                  14,949Other
                  
                  
                  49,164
                  
                  
                  
                  25,240Total
      other expense
                  
                  
                  345,157
                  
                  
                  
                  315,565Income
      (loss) before income taxes
                  
                  
                  (244,629
                  )
                  
                  
                  179,731Provision
      (benefit) for income taxes
                  
                  
                  (152,982
                  )
                  
                  
                  33,300Net
      income (loss)
                  
                  
                  (91,647
                  )
                  
                  
                  146,431Less:  Net
      income attributable to noncontrolling interests
                  
                  
                  (319
                  )
                  
                  
                  (222
                  )Net
      income (loss) attributable to Marshall & Ilsley
      Corporation
                  
                  $
                  (91,966
                  )
                  
                  $
                  146,209Preferred
      dividends
                  
                  
                  (24,959
                  )
                  
                  
                  -Net
      income (loss) attributable to Marshall & Ilsley Corporation common
      shareholders
                  
                  $
                  (116,925
                  )
                  
                  $
                  146,209Per
      share attributable to Marshall & Ilsley Corporation common
      shareholders:Basic
                  
                  $
                  (0.44
                  )
                  
                  $
                  0.56Diluted
                  
                  $
                  (0.44
                  )
                  
                  $
                  0.56Dividends
      paid per common share
                  
                  $
                  0.01
                  
                  
                  $
                  0.31Weighted
      average common shares outstanding (000's):Basic
                  
                  
                  264,544
                  
                  
                  
                  259,973Diluted
                  
                  
                  264,544
                  
                  
                  
                  262,269See
      notes to financial statements.





3
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)
 ($000’s)
 
 Three
      Months Ended March 31,2009
                        
                        
                        2008Net
      Cash Provided by/(Used in) Operating Activities
                        
                        $
                        (63,732
                        )
                        
                        $
                        84,301Cash
      Flows from Investing Activities:Proceeds
      from sales of securities available for sale
                        
                        
                        46,023
                        
                        
                        
                        105,759Proceeds
      from maturities of securities available for sale
                        
                        
                        342,246
                        
                        
                        
                        368,643Proceeds
      from maturities of securities held to maturity
                        
                        
                        50,804
                        
                        
                        
                        52,798Purchases
      of securities available for sale
                        
                        
                        (488,323
                        )
                        
                        
                        (305,392
                        )Net
      decrease/(increase) in loans and leases
                        
                        
                        352,247
                        
                        
                        
                        (1,575,567
                        )Purchases
      of premises and equipment, net
                        
                        
                        (16,890
                        )
                        
                        
                        (19,214
                        )Acquisitions,
      net of cash and cash equivalents acquired
                        
                        
                        (454
                        )
                        
                        
                        (476,625
                        )Net
      proceeds from sale of OREO
                        
                        
                        49,684
                        
                        
                        
                        14,413Net
      cash provided by/(used in) investing activities
                        
                        
                        335,337
                        
                        
                        
                        (1,835,185
                        )Cash
      Flows from Financing Activities:Net
      increase/(decrease) in deposits
                        
                        
                        (1,460,417
                        )
                        
                        
                        1,939,958Net
      increase in short-term borrowings
                        
                        
                        1,281,558
                        
                        
                        
                        132,935Proceeds
      from issuance of long-term borrowings
                        
                        
                        375
                        
                        
                        
                        809,389Payments
      of long-term borrowings
                        
                        
                        (63,461
                        )
                        
                        
                        (1,093,401
                        )Dividends
      paid on preferred stock
                        
                        
                        (21,676
                        )
                        
                        
                        -Dividends
      paid on common stock
                        
                        
                        (2,630
                        )
                        
                        
                        (79,868
                        )Purchases
      of common stock
                        
                        
                        -
                        
                        
                        
                        (130,870
                        )Proceeds
      from the issuance of common stock
                        
                        
                        2,105
                        
                        
                        
                        7,393Net
      cash provided by/(used in) financing activities
                        
                        
                        (264,146
                        )
                        
                        
                        1,585,536Net
      increase/(decrease) in cash and cash equivalents
                        
                        
                        7,459
                        
                        
                        
                        (165,348
                        )Cash
      and cash equivalents, beginning of year
                        
                        
                        1,072,407
                        
                        
                        
                        1,822,512Cash
      and cash equivalents, end of period
                        
                        $
                        1,079,866
                        
                        
                        $
                        1,657,164Supplemental
      Cash Flow Information:Cash
      paid/(received) during the period for:Interest
                        
                        $
                        286,504
                        
                        
                        $
                        488,201Income
      taxes
                        
                        
                        (119,001
                        )
                        
                        
                        (4,244
                        )See
      notes to financial statements.






4
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to Financial Statements
 March 31,
2009 & 2008 (Unaudited)
 
 1.
              Basis
      of Presentation
 
 The
      accompanying unaudited consolidated financial statements should be read in
      conjunction with Marshall & Ilsley Corporation’s Annual Report on Form
      10-K for the year ended December 31, 2008.  In management’s
      opinion, the unaudited financial information included in this report
      reflects all adjustments consisting 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 ended March 31, 2009 and
      2008.  The results of operations for the three months ended
      March 31, 2009 and 2008 are not necessarily indicative of results to be
      expected for the entire year.
 
 2.
              New
      Accounting Pronouncements
 
 On
      January 1, 2009, the Corporation adopted the provisions of Statement of
      Financial Accounting Standard No. 160, Noncontrolling
      Interests in Consolidated Financial Statements, an amendment of Accounting
      Research Bulletin No. 51 (“SFAS 160”).  The provisions of
      SFAS 160 establish accounting and reporting standards for ownership
      interests in consolidated subsidiaries held by parties other than the
      parent, previously known as minority interests and now known as
      noncontrolling interests, including the accounting treatment upon the
      deconsolidation of a subsidiary.  This statement clarifies that
      a noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as a separate component within
      total equity in the consolidated financial
      statements.  Additionally, consolidated net income is to be
      reported with separate disclosure of the amounts attributable to the
      parent and to the noncontrolling
interests.
 
 SFAS
      160 is being applied prospectively, except for the provisions related to
      the presentation of noncontrolling interests.  As of March 31,
      2009, December 31, 2008 and March 31, 2008, noncontrolling interests of
      $10,445, $10,377 and $9,911, respectively, have been reclassified from
      Accrued Expenses and Other Liabilities to Total Equity in the Consolidated
      Balance Sheets.  For the three months ended March 31, 2009 and
      2008, net income attributable to noncontrolling interests of $319 and
      $222, respectively, is included in net income.  Prior to the
      adoption of SFAS 160, noncontrolling interests were a deduction to
      determine net income.  Under SFAS 160, noncontrolling interests
      are a deduction from net income used to arrive at net income attributable
      to the Corporation.  Earnings per common share has not been
      affected as a result of the adoption of the provisions of SAS
      160.
 
 In
      April 2009, the Financial Accounting Standards Board (“FASB”) issued the
      following three FASB Staff Positions intended to provide additional
      application guidance and enhance disclosures regarding fair value
      measurements and impairments of investment
  securities:
 
 FASB
      Staff Position (“FSP”) FAS 157-4, Determining
      Fair Value When the Volume and Level of Activity for the Asset or
      Liability Have Significantly Decreased and Identifying Transactions That
      Are Not Orderly (“FSP FAS 157-4”), provides additional guidance for
      estimating fair value in accordance with SFAS No. 157, Fair Value
      Measurements, when the volume and level of activity for the asset
      or liability have decreased significantly.  FSP FAS 157-4 also
      provides guidance on identifying circumstances that indicate a transaction
      is not orderly.
 
 FSP
      FAS 115-2 and FAS 124-2,
      Recognition and Presentation of Other-Than-Temporary Impairments
      (“FSP FAS 115-2”), amends current other-than-temporary impairment guidance
      in GAAP for debt securities to make the guidance more operational and to
      improve the presentation and disclosure of other-than-temporary
      impairments on debt and equity securities in the financial
      statements.  This FSP does not amend existing recognition and
      measurement guidance related to other-than-temporary impairments of equity
      securities.
 
 As
      permitted, the Corporation elected to early adopt the provisions of FSP
      FAS 157-4 and FSP FAS 115-2 as of January 1, 2009.  See Note 6 –
      Investment Securities for information regarding the impact of adopting FSP
      FAS 157-4 and FSP FAS 115-2.
 
 5
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 FSP
      FAS 107-1 and Accounting Principles Board (“APB”) 28-1, Interim
      Disclosures about Fair Value of Financial Instruments (“FSP FAS
      107-1 and APB 28-1”), requires disclosures about the fair value of
      financial instruments in interim reporting periods of publicly traded
      companies as well as in annual financial statements.  The
      provisions of FSP FAS 107-1 and APB 28-1 are effective for the
      Corporation’s interim period ending on June 30, 2009.  FSP FAS
      107-1 and APB 28-1 amends only the Corporation's disclosure
      requirements.
 
 
 3.
              Fair
      Value Measurements
 
 The
      Corporation adopted, except as discussed below, Statement of Financial
      Accounting Standard No. 157, Fair Value
      Measurements (“SFAS 157”).  SFAS 157 provides enhanced
      guidance for using fair value to measure assets and
      liabilities.  The standard generally applies whenever other
      standards require or permit assets or liabilities to be measured at fair
      value.  Under the standard, fair value refers to the price at
      the measurement date that would be received to sell an asset or paid to
      transfer a liability in an orderly transaction between market participants
      in which the reporting entity is engaged.  The standard does not
      expand the use of fair value in any new circumstances.  As
      permitted, adoption of SFAS 157 was delayed for certain nonfinancial
      assets and nonfinancial liabilities to January 1,
  2009.
 
 All
      changes resulting from the application of SFAS 157 were applied
      prospectively.  The effect of adoption has been recognized in
      either earnings or other comprehensive income, depending on the applicable
      accounting requirements for the particular asset or liability being
      measured.
 
 Fair-Value
      Hierarchy
 
 SFAS
      157 establishes a three-tier hierarchy for fair value measurements based
      upon the transparency of the inputs to the valuation of an asset or
      liability and expands the disclosures about instruments measured at fair
      value.  A financial instrument is categorized in its entirety
      and its categorization within the hierarchy is based upon the lowest level
      of input that is significant to the fair value measurement.  The
      three levels are described below.
 
 Level
      1- Inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.
 
 Level
      2- Inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial instrument.  Fair
      values for these instruments are estimated using pricing models, quoted
      prices of securities with similar characteristics or discounted cash
      flows.
 
 Level
      3- Inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.  Fair values are initially valued
      based upon transaction price and are adjusted to reflect exit values as
      evidenced by financing and sale transactions with third
      parties.
 
 Determination
      of Fair Value
 
 Following
      is a description of the valuation methodologies used for instruments
      measured at fair value on a recurring basis, as well as the general
      classification of such instruments pursuant to the valuation
      hierarchy.
 
 Trading
      Assets and Investment Securities
 
 When
      available, the Corporation uses quoted market prices to determine the fair
      value of trading assets and investment securities; such items are
      classified in Level 1 of the fair value
  hierarchy.
 
 For
      the Corporation’s investments in government agencies, residential
      mortgage-backed securities and obligations of states and political
      subdivisions where quoted prices are not available for identical
      securities in an active market, the Corporation determines fair value
      utilizing vendors who apply matrix pricing for similar bonds where no
      price is observable or may compile prices from various
      sources.  These models are primarily industry-standard models
      that consider various assumptions, including time value, yield curve,
      volatility factors, prepayment speeds, default rates, loss severity,
      current market and contractual prices for the underlying financial
      instruments, as well as other relevant economic
      measures.  Substantially all of these assumptions are observable
      in the marketplace, can be derived from observable data or are supported
      by observable levels at which transactions are executed in the
      marketplace.  Fair values from these models are verified, where
      possible, against quoted prices for recent trading activity of assets with
      similar characteristics to the security being valued.  Such
      methods are generally classified as Level 2.  However, when
      prices from independent sources vary, cannot be obtained or cannot be
      corroborated, a security is generally classified as Level
    3.
   6
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 The
      Corporation’s Private Equity investments generally take the form of
      investments in private equity funds.  The private equity
      investments are valued using the valuations and financial statements
      provided by the general partners on a quarterly basis.  The
      transaction price is used as the best estimate of fair value at
      inception.  When evidence supports a change to the carrying
      value from the transaction price, adjustments are made to reflect expected
      exit values.  These nonpublic investments are included in Level
      3 of the fair value hierarchy because they trade infrequently and,
      therefore, the fair value is
unobservable.
 
 Estimated
      fair values for residual interests in the form of interest only strips
      from automobile loan securitizations are based on a discounted cash flow
      analysis and are classified as a Level
3.
 
 Derivative
      Financial Instruments
 
 Fair
      values for exchange-traded contracts are based on quoted prices and are
      classified as Level 1.  Fair values for over-the-counter
      interest rate contracts are provided either by third-party dealers in the
      contracts or by quotes provided by the Corporation’s independent pricing
      services.  The significant inputs, including the LIBOR curve and
      measures of volatility, used by these third-party dealers or independent
      pricing services to determine fair values are considered Level 2,
      observable market inputs.
 
 Certain
      derivative transactions are executed with counterparties who are large
      financial institutions (“dealers”).  These derivative
      transactions primarily consist of interest rate swaps that are used for
      fair value hedges, cash flow hedges and economic hedges of interest rate
      swaps executed with the Corporation’s customers.  The
      Corporation and its subsidiaries maintain risk management policies and
      procedures to monitor and limit exposure to credit risk to derivative
      transactions with dealers.  Approved dealers for these
      transactions must have and maintain an investment grade rating on
      long-term senior debt from at least two nationally recognized statistical
      rating organizations or have a guarantor with an acceptable rating from
      such organizations.  International Swaps and Derivative
      Association Master Agreements (“ISDA”) and Credit Support Annexes (“CSA”)
      are employed for all contracts with dealers.  These agreements
      contain bilateral collateral arrangements.  Notwithstanding its
      policies and procedures, the Corporation recognizes that unforseen events
      could result in counterparty failure.  The Corporation also
      recognizes that there could be additional credit exposure due to certain
      industry conventions established for operational
    efficiencies.
 
 On
      a quarterly basis, the Corporation performs an analysis using historical
      and market implied default and recovery rates that also consider certain
      industry conventions established for operational efficiencies to estimate
      the potential impact on the reported fair values of these derivative
      financial assets and liabilities due to counterparty credit risk and the
      Corporation’s own credit risk.  Based on this analysis, the
      Corporation determined that the impact of these factors was insignificant
      and did not make any additional credit risk adjustments for purposes of
      determining the reported fair values of these derivative assets and
      liabilities with dealers at March 31,
2009.
 
 Certain
      derivative transactions are executed with customers whose counterparty
      credit risk is similar in nature to the credit risk associated with the
      Corporation’s lending activities.  As is the case with a loan,
      the Corporation evaluates the credit risk of each of these customers on an
      individual basis and, where deemed appropriate, collateral is
      obtained.  The type of collateral varies and is often the same
      collateral as the collateral obtained to secure a customer’s
      loan.  For purposes of assessing the potential impact of
      counterparty credit risk on the fair values of derivative assets with
      customers, the Corporation used a probability analysis to estimate the
      amount of expected loss exposure due to customer default at some point in
      the remaining term of the entire portfolio of customer derivative
      contracts outstanding at March 31, 2009.  While not significant,
      the Corporation did factor the estimated amount of expected loss due to
      customer default in the reported fair value of its customer derivative
      assets at March 31, 2009.
 
 7
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
  Assets
      and liabilities measured at fair value on a recurring basis are
      categorized in the tables below based upon the lowest level of significant
      input to the valuations as of March 31, 2009
  ($000’s):
  Quoted
      Prices in
                              
                              
                              SignificantActive
      Markets for
                              
                              
                              Other
                              
                              
                              SignificantIdentical
      Assets
                              
                              
                              Observable
                              
                              
                              Unobservableor
      Liabilities
                              
                              
                              Inputs
                              
                              
                              Inputs(Level
      1)
                              
                              
                              (Level
      2)
                              
                              
                              (Level
      3)Assets
    (1)Trading
      Assets:Trading
      securities
                              
                              $
                              -
                              
                              
                              $
                              385,344
                              
                              
                              $
                              -Derivative
      assets
                              
                              
                              85
                              
                              
                              
                              301,294
                              
                              
                              
                              -Total
      trading assets
                              
                              $
                              85
                              
                              
                              $
                              686,638
                              
                              
                              $
                              -Investment
      securities available for sale (2)Investment
      securities
                              
                              $
                              46
                              
                              
                              $
                              6,886,438
                              
                              
                              $
                              167,127Private
      equity investments
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              66,222Other
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,254Total
      investment securities available for sale
                              
                              $
                              46
                              
                              
                              $
                              6,886,438
                              
                              
                              $
                              238,603Liabilities
      (1)Other
      short-term borrowings
                              
                              $
                              -
                              
                              
                              $
                              168
                              
                              
                              $
                              -Accrued
      expenses and other liabilities:Derivative
      liabilities
                              
                              $
                              55
                              
                              
                              $
                              257,223
                              
                              
                              $
                              -
  (1)
                            The amounts
      presented above exclude certain over-the-counter interest rate swaps that
      are the designated hedging
      instruments in fair value and cash flow hedges that are used by the
      Corporation to manage its interest rate
      risk.  These interest rate swaps are measured at fair value on a
      recurring basis based on significant other observable inputs and are
      categorized as Level 2.  See Note 12 – Derivative Financial
      Instruments and Hedging Activities in Notes to Financial Statements for
      further
information.
 
 (2)
                        The investment
      securities included in Level 3 are primarily senior tranche asset-backed
      securities.  The amounts presented are exclusive of $362,890 of
      investments in Federal Reserve Bank and FHLB stock, which
      are bought and sold at par and are carried at cost, and $52,099 in
      affordable housing partnerships, which
      are generally carried on the equity
      method.
 
 Level
      3 Gains and Losses
  The
      table presented below summarizes the change in balance sheet carrying
      values associated with financial instruments measured using significant
      unobservable inputs (Level 3) during the three months ended March 31, 2009
      ($000’s):
  Investment
                                        
                                        
                                        Private
      EquitySecurities
      (1)
                                        
                                        
                                        Investments
      (2)
                                        
                                        
                                        Other
                                        
                                        
                                        TotalBalance
      at December 31, 2008
                                        
                                        $
                                        135,953
                                        
                                        
                                        $
                                        65,288
                                        
                                        
                                        $
                                        5,903
                                        
                                        
                                        $
                                        207,144Net
      payments, purchases and sales
                                        
                                        
                                        (1,008
                                        )
                                        
                                        
                                        706
                                        
                                        
                                        
                                        (255
                                        )
                                        
                                        
                                        (557
                                        )Discount
      accretion
                                        
                                        
                                        49
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        160
                                        
                                        
                                        
                                        209Net
      transfers in and/or out of Level 3
                                        
                                        
                                        (2,860
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (2,860
                                        )Total
      gains or losses (realized or unrealized):Included
      in earnings
                                        
                                        
                                        -
                                        
                                        
                                        
                                        228
                                        
                                        
                                        
                                        52
                                        
                                        
                                        
                                        280Included
      in other comprehensive income
                                        
                                        
                                        34,993
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (606
                                        )
                                        
                                        
                                        34,387Balance
      at March 31, 2009
                                        
                                        $
                                        167,127
                                        
                                        
                                        $
                                        66,222
                                        
                                        
                                        $
                                        5,254
                                        
                                        
                                        $
                                        238,603Unrealized
      gains or losses for the periodincluded in earnings attributable tounrealized gains or
      losses for assets still heldat March 31,
      2009
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        191
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        191
  (1)
                        Unrealized
      changes in fair value for available-for-sale investments (debt securities)
      are recorded in other comprehensive income, while gains and losses from
      sales are recorded in Net investment securities gains in the Consolidated
      Statements of Income.
   8
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
  (2)
                            Private
      equity investments are generally recorded at fair
      value.  Accordingly, both unrealized changes in fair value and
      gains or losses from sales are included in Net investment securities gains
      in the Consolidated Statements of
Income.
 Assets
      and liabilities measured at fair value on a recurring basis are
      categorized in the tables below based upon the lowest level of significant
      input to the valuations as of March 31, 2008
  ($000’s):
 Quoted
      Prices in
                                                
                                                
                                                SignificantActive
      Markets for
                                                
                                                
                                                Other
                                                
                                                
                                                SignificantIdentical
      Assets
                                                
                                                
                                                Observable
                                                
                                                
                                                Unobservableor
      Liabilities
                                                
                                                
                                                Inputs
                                                
                                                
                                                Inputs(Level
      1)
                                                
                                                
                                                (Level
      2)
                                                
                                                
                                                (Level
      3)Assets
    (1)Trading
      Assets:Trading
      securities
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                44,608
                                                
                                                
                                                $
                                                -Derivative
      assets
                                                
                                                
                                                332
                                                
                                                
                                                
                                                150,255
                                                
                                                
                                                
                                                -Total
      trading assets
                                                
                                                $
                                                332
                                                
                                                
                                                $
                                                194,863
                                                
                                                
                                                $
                                                -Investment
      securities available for sale (2)Investment
      securities
                                                
                                                $
                                                313
                                                
                                                
                                                $
                                                7,101,539
                                                
                                                
                                                $
                                                16,390Private
      equity investments
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                57,854Other
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                6,213Total
      investment securities available for sale
                                                
                                                $
                                                313
                                                
                                                
                                                $
                                                7,101,539
                                                
                                                
                                                $
                                                80,457Liabilities
      (1)Accrued
      expenses and other liabilities:Derivative
      liabilities
                                                
                                                $
                                                308
                                                
                                                
                                                $
                                                124,796
                                                
                                                
                                                $
                                                -
 
 (1)
                              The amounts
      presented above exclude certain over-the-counter interest rate swaps that
      are the designated hedging
      instruments in fair value and cash flow hedges that are used by the
      Corporation to manage its interest rate
      risk.  These interest rate swaps are measured at fair value on a
      recurring basis based on significant other observable inputs and are
      categorized as Level 2.  See Note 12 in Notes to Financial Statements
      for further
  information.
 
 (2)
                              The
      amounts
      presented are exclusive of $312,155 of investments in Federal Reserve Bank
      and FHLB stock, which
      are bought and sold at par and are carried at cost, and $36,483 in
      affordable housing partnerships, which
      are generally carried on the equity
      method.
 
 Level
      3 Gains and Losses
  The
      table presented below summarizes the change in balance sheet carrying
      values associated with financial instruments measured using significant
      unobservable inputs (Level 3) during the three months ended March 31, 2008
      ($000’s):
  Investment
                                        
                                        
                                        Private
      EquitySecurities
      (1)
                                        
                                        
                                        Investments
      (2)
                                        
                                        
                                        Other
                                        
                                        
                                        TotalBalance
      at January 1, 2008
                                        
                                        $
                                        2,066
                                        
                                        
                                        $
                                        54,121
                                        
                                        
                                        $
                                        9,030
                                        
                                        
                                        $
                                        65,217Net
      payments, purchases and sales
                                        
                                        
                                        14,319
                                        
                                        
                                        
                                        2,682
                                        
                                        
                                        
                                        (977
                                        )
                                        
                                        
                                        16,024Discount
      accretion
                                        
                                        
                                        5
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        209
                                        
                                        
                                        
                                        214Total
      gains or losses (realized or unrealized):Included
      in earnings
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,051
                                        
                                        
                                        
                                        (2,020
                                        )
                                        
                                        
                                        (969
                                        )Included
      in other comprehensive income
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (29
                                        )
                                        
                                        
                                        (29
                                        )Balance
      at March 31, 2008
                                        
                                        $
                                        16,390
                                        
                                        
                                        $
                                        57,854
                                        
                                        
                                        $
                                        6,213
                                        
                                        
                                        $
                                        80,457Unrealized
      gains or losses for the periodincluded in earnings attributable tounrealized gains or
      losses for assets stillheld at March 31,
      2008
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (57
                                        )
                                        
                                        $
                                        (2,020
                                        )
                                        
                                        $
                                        (2,077
                                        )
  (1)
                              Unrealized
      changes in fair value for available-for-sale investments (debt securities)
      are recorded in other comprehensive
      income, while gains and losses from sales are recorded in Net investment
      securities gains in the
      Consolidated Statements of
Income.
 
 (2)
                            Private
      equity investments are generally recorded at fair
      value.  Accordingly, both unrealized changes in fair value and
      gains or losses from sales are included in Net investment securities gains
      in the Consolidated Statements of
Income.
 9
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 Loans
      held for sale are recorded at lower of cost or market and therefore are
      reported at fair value on a nonrecurring basis.  Such fair
      values are generally based on bids and are considered Level 2 fair
      values.  Nonaccrual loans greater than an established threshold
      are individually evaluated for impairment.  Impairment is
      measured based on the fair value of the collateral less estimated selling
      costs or the fair value of the loan (“collateral value
      method”).  All renegotiated loans are evaluated for impairment
      based on the present value of the estimated cash flows discounted at the
      loan’s original effective interest rate (“discounted cash flow
      method”).  A valuation allowance is recorded for the excess of
      the loan’s recorded investment over the amount determined by either the
      collateral value method or the discounted cash flow
      method.  This valuation allowance is a component of the
      Allowance for loan and lease losses.  The discounted cash flow
      method is not a fair value measure.  For the collateral value
      method, the Corporation generally obtains appraisals to support the fair
      value of collateral underlying loans.  Appraisals incorporate
      measures such as recent sales prices for comparable properties and costs
      of construction.  The Corporation considers these fair values
      Level 3.  For those loans individually evaluated for impairment
      using the collateral value method, a valuation allowance of $163,976 and
      $47,929 was recorded for loans with a recorded investment of $1,220,396
      and $359,013 at March 31, 2009 and March 31, 2008,
      respectively.  See Note 8 – Allowance for Loan and Lease Losses
      in Notes to Consolidated Financial Statements for more
      information.
 
 The
      Corporation has adopted Statement of Financial Accounting Standard No.
      159, The Fair
      Value Option for Financial Assets and Financial Liabilities, Including an
      Amendment of FASB Statement No. 115 (“SFAS 159”).  SFAS
      159 permits entities to choose to measure many financial instruments and
      certain other items generally on an instrument-by-instrument basis at fair
      value that are not currently required to be measured at fair
      value.  SFAS 159 is intended to provide entities with the
      opportunity to mitigate volatility in reported earnings caused by
      measuring related assets and liabilities differently without having to
      apply complex hedge accounting provisions.  SFAS 159 does not
      change requirements for recognizing and measuring dividend income,
      interest income, or interest expense.  The Corporation did not
      elect to measure any existing financial instruments at fair
      value.  However, the Corporation may elect to measure newly
      acquired financial instruments at fair value in the
  future.
 
  10
 Table of Contents
 MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 
 4.
                        Comprehensive
      Income
 
 The
      following tables present the Corporation’s comprehensive income
      ($000’s):




Three
      Months Ended March 31, 2009Before-Tax
                    
                    
                    Tax
      (Expense)
                    
                    
                    Net-of-TaxAmount
                    
                    
                    Benefit
                    
                    
                    AmountNet
      loss
                    
                    
                    
                    
                    
                    
                    
                    $
                    (91,647
                    )Other
      comprehensive income (loss):Unrealized
      gains (losses) on available for sale investment
securities:Arising
      during the period
                    
                    $
                    112,266
                    
                    
                    $
                    (39,428
                    )
                    
                    $
                    72,838Reclassification
      for securities transactions included in net income
                    
                    
                    (246
                    )
                    
                    
                    86
                    
                    
                    
                    (160
                    )Total
      unrealized gains (losses) on available for sale investment
      securities
                    
                    $
                    112,020
                    
                    
                    $
                    (39,342
                    )
                    
                    $
                    72,678Unrealized
      gains (losses) on derivatives hedging variability of cash
      flows:Arising
      during the period
                    
                    $
                    614
                    
                    
                    $
                    (215
                    )
                    
                    $
                    399Reclassification
      adjustments for hedging activities included in net income
                    
                    
                    14,555
                    
                    
                    
                    (5,094
                    )
                    
                    
                    9,461Total
      net gains (losses) on derivatives hedging variability of cash
      flows
                    
                    $
                    15,169
                    
                    
                    $
                    (5,309
                    )
                    
                    $
                    9,860Unrealized
      gains (losses) on funded status of defined benefit postretirement
      plan:Arising
      during the period
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Reclassification
      for amortization of actuarial loss and prior service creditamortization included in net
    income
                    
                    
                    (350
                    )
                    
                    
                    158
                    
                    
                    
                    (192
                    )Total
      unrealized gains (losses) on funded status of defined benefit
      postretirement plan
                    
                    $
                    (350
                    )
                    
                    $
                    158
                    
                    
                    $
                    (192
                    )Other
      comprehensive income, net of tax
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    82,346Total
      comprehensive income (loss)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (9,301
                    )Less:  Comprehensive
      income attributable to the noncontrolling interest
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (319
                    )Comprehensive
      income (loss) attributable to Marshall & Ilsley
      Corporation
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    (9,620
                    )Three
      Months Ended March 31, 2008Before-Tax
                    
                    
                    Tax
      (Expense)
                    
                    
                    Net-of-TaxAmount
                    
                    
                    Benefit
                    
                    
                    AmountNet
      income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    146,431Other
      comprehensive income (loss):Unrealized
      gains (losses) on available for sale investment
securities:Arising
      during the period
                    
                    $
                    31,196
                    
                    
                    $
                    (11,233
                    )
                    
                    $
                    19,963Reclassification
      for securities transactions included in net income
                    
                    
                    (94
                    )
                    
                    
                    33
                    
                    
                    
                    (61
                    )Total
      unrealized gains (losses) on available for sale investment
      securities
                    
                    $
                    31,102
                    
                    
                    $
                    (11,200
                    )
                    
                    $
                    19,902Unrealized
      gains (losses) on derivatives hedging variability of cash
      flows:Arising
      during the period
                    
                    $
                    (57,147
                    )
                    
                    $
                    20,001
                    
                    
                    $
                    (37,146
                    )Reclassification
      adjustments for hedging activities included in net income
                    
                    
                    5,730
                    
                    
                    
                    (2,005
                    )
                    
                    
                    3,725Total
      net gains (losses) on derivatives hedging variability of cash
      flows
                    
                    $
                    (51,417
                    )
                    
                    $
                    17,996
                    
                    
                    $
                    (33,421
                    )Unrealized
      gains (losses) on funded status of defined benefit postretirement
      plan:Arising
      during the period
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Reclassification
      for amortization of actuarial loss and prior service creditamortization included in net
    income
                    
                    
                    (528
                    )
                    
                    
                    196
                    
                    
                    
                    (332
                    )Total
      unrealized gains (losses) on funded status of defined benefit
      postretirement plan
                    
                    $
                    (528
                    )
                    
                    $
                    196
                    
                    
                    $
                    (332
                    )Other
      comprehensive income (loss), net of tax
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (13,851
                    )Total
      comprehensive income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    132,580Less:  Comprehensive
      income attributable to the noncontrolling interest
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (222
                    )Comprehensive
      income attributable to Marshall & Ilsley Corporation
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    132,358






11
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
  5.
                  Earnings
      Per Common Share
 
 A
      reconciliation of the numerators and denominators of the basic and diluted
      per common share computations are as follows (dollars and shares in
      thousands, except per share
data):




Three
      Months Ended March 31, 2009Income
                            
                            
                            Average
      Shares
                            
                            
                            Per
      Share(Numerator)
                            
                            
                            (Denominator)
                            
                            
                            AmountBasic:Net
      loss attributable to Marshall & Ilsley Corporation
                            
                            $
                            (91,966
                            )Preferred
      stock dividends
                            
                            
                            (24,959
                            )Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                            
                            $
                            (116,925
                            )
                            
                            
                            264,544
                            
                            
                            $
                            (0.44
                            )Effect
      of dilutive securities:Stock
      option, restricted stock and other plans
                            
                            
                            
                            
                            
                            
                            -Diluted:Net
      loss attributable to Marshall & Ilsley Corporation
                            
                            $
                            (91,966
                            )Preferred
      stock dividends
                            
                            
                            (24,959
                            )Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                            
                            $
                            (116,925
                            )
                            
                            
                            264,544
                            
                            
                            $
                            (0.44
                            )Three Months Ended
      March 31, 2008Income
                            
                            
                            Average
      Shares
                            
                            
                            Per
      Share(Numerator)
                            
                            
                            (Denominator)
                            
                            
                            AmountBasic:Net
      income attributable to Marshall & Ilsley Corporation
                            
                            $
                            146,209Preferred
      stock dividends
                            
                            
                            -Net
      income attributable to Marshall & Ilsley Corporation common
      shareholders
                            
                            $
                            146,209
                            
                            
                            
                            259,973
                            
                            
                            $
                            0.56Effect
      of dilutive securities:Stock
      option, restricted stock and other plans
                            
                            
                            
                            
                            
                            
                            2,296Diluted:Net
      income attributable to Marshall & Ilsley Corporation
                            
                            $
                            146,209Preferred
      stock dividends
                            
                            
                            -Net
      income attributable to Marshall & Ilsley Corporation common
      shareholders
                            
                            $
                            146,209
                            
                            
                            
                            262,269
                            
                            
                            $
                            0.56




The table
below presents the options to purchase shares of common stock not included in
the computation of diluted earnings per common share because the exercise price
of the outstanding stock options was greater than the average market price of
the common shares for the periods ended 2009 and 2008 (anti-dilutive
options).  As a result of the Corporation’s reported net loss for the
quarter ended March 31, 2009, all of the stock options outstanding were excluded
from the computation of diluted earnings per common share (shares in
thousands):
 Three
      Months Ended March 31,2009
                      
                      2008Shares
                      
                      33,162
                      
                      19,157Price
      Range
                      
                      $8.55
      - $36.82
                      
                      $24.97
      -
$36.82




At March
31, 2009, outstanding warrants to purchase 13,815,789 shares of the
Corporation’s common stock were not included in the computation of diluted
earnings per common share for the three months ended March 31, 2009 because of
the reported net loss, and the exercise price of the warrant issued in
connection with the Corporation’s participation in the U.S. Treasury
Department’s Capital Purchase Program of $18.62 per share was greater than the
average market price of the common shares for the period ended March 31,
2009.
   12
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
  Effective
      January 1, 2009, the Corporation adopted FSP No. EITF 03-6-1, Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities(“FSP EITF 03-6-1”).  Under FSP
      EITF 03-6-1, unvested share-based payment awards that provide
      nonforfeitable rights to dividends (such as restricted stock units granted
      by the Corporation) are considered participating securities to be included
      in the computation of earnings per share pursuant to the “two-class
      method” described in FASB Statement No. 128, Earnings
      per Share.  There was no impact to the Corporation’s
      current or prior periods presented as a result of the adoption of FSP EITF
      03-6-1.
 
 
 6.
                Investment
      Securities
 
 The
      amortized cost and fair value of selected investment securities, by major
      security type, held by the Corporation were as follows
      ($000's):
 March
      31, 2009
                                
                                
                                December
      31, 2008
                                
                                
                                March
      31, 2008Amortized
      Cost
                                
                                
                                Fair Value
                                
                                
                                Amortized
      Cost
                                
                                
                                Fair Value
                                
                                
                                Amortized
      Cost
                                
                                
                                Fair ValueInvestment
      securities available for sale:U.S.
      treasury and government agencies
                                
                                $
                                5,447,899
                                
                                
                                $
                                5,545,963
                                
                                
                                $
                                5,664,947
                                
                                
                                $
                                5,679,970
                                
                                
                                $
                                5,879,048
                                
                                
                                $
                                5,893,264States
      and political subdivisions
                                
                                
                                911,880
                                
                                
                                
                                919,900
                                
                                
                                
                                874,183
                                
                                
                                
                                880,497
                                
                                
                                
                                880,542
                                
                                
                                
                                897,900Residential
      mortgage backed securities
                                
                                
                                301,394
                                
                                
                                
                                288,500
                                
                                
                                
                                175,740
                                
                                
                                
                                165,757
                                
                                
                                
                                114,608
                                
                                
                                
                                112,213Corporate
      notes
                                
                                
                                152,980
                                
                                
                                
                                149,779
                                
                                
                                
                                133,844
                                
                                
                                
                                134,295
                                
                                
                                
                                10,000
                                
                                
                                
                                10,000Cash
      flow hedge - corporate notes
                                
                                
                                484
                                
                                
                                
                                484
                                
                                
                                
                                121
                                
                                
                                
                                121
                                
                                
                                
                                -
                                
                                
                                
                                -Corporate
      notes
                                
                                
                                153,464
                                
                                
                                
                                150,263
                                
                                
                                
                                133,965
                                
                                
                                
                                134,416
                                
                                
                                
                                10,000
                                
                                
                                
                                10,000Asset
      backed securities (a)
                                
                                
                                210,755
                                
                                
                                
                                144,534
                                
                                
                                
                                211,676
                                
                                
                                
                                110,931
                                
                                
                                
                                214,608
                                
                                
                                
                                200,153Equity
                                
                                
                                115
                                
                                
                                
                                46
                                
                                
                                
                                115
                                
                                
                                
                                127
                                
                                
                                
                                115
                                
                                
                                
                                313Private
      Equity investments
                                
                                
                                66,234
                                
                                
                                
                                66,222
                                
                                
                                
                                65,300
                                
                                
                                
                                65,288
                                
                                
                                
                                57,866
                                
                                
                                
                                57,854Federal
      Reserve Bank & FHLB stock
                                
                                
                                362,890
                                
                                
                                
                                362,890
                                
                                
                                
                                339,779
                                
                                
                                
                                339,779
                                
                                
                                
                                312,155
                                
                                
                                
                                312,155Affordable
      Housing Partnerships
                                
                                
                                52,099
                                
                                
                                
                                52,099
                                
                                
                                
                                43,481
                                
                                
                                
                                43,481
                                
                                
                                
                                36,483
                                
                                
                                
                                36,483Foreign
                                
                                
                                4,405
                                
                                
                                
                                4,405
                                
                                
                                
                                4,403
                                
                                
                                
                                4,403
                                
                                
                                
                                4,399
                                
                                
                                
                                4,399Other
                                
                                
                                4,423
                                
                                
                                
                                5,254
                                
                                
                                
                                4,465
                                
                                
                                
                                5,903
                                
                                
                                
                                5,988
                                
                                
                                
                                6,213Total
                                
                                $
                                7,515,558
                                
                                
                                $
                                7,540,076
                                
                                
                                $
                                7,518,054
                                
                                
                                $
                                7,430,552
                                
                                
                                $
                                7,515,812
                                
                                
                                $
                                7,530,947Investment
      securities held to maturity:States
      and political subdivisions
                                
                                $
                                186,551
                                
                                
                                $
                                191,324
                                
                                
                                $
                                237,009
                                
                                
                                $
                                242,395
                                
                                
                                $
                                321,466
                                
                                
                                $
                                330,429Foreign
                                
                                
                                1,000
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000
                                
                                
                                
                                1,000Total
                                
                                $
                                187,551
                                
                                
                                $
                                192,324
                                
                                
                                $
                                238,009
                                
                                
                                $
                                243,395
                                
                                
                                $
                                322,466
                                
                                
                                $
                                331,429




(a)
                As
      of March 31, 2009, the Corporation incorporated a discounted cash flow
      valuation methodology, which involves an evaluation of the credit quality
      of the underlying collateral, cash flow structure and risk adjusted
      discount rates, with market or broker quotes for certain senior tranche
      asset backed securities that met the criteria of FSP FAS 157-4 for the use
      of such a valuation methodology.  Primarily as a result of this
      change, the fair value of these securities increased, however, the amount
      was not material.  This change was accounted for as a change in
      estimate and included in the unrealized gain included in other
      comprehensive income for the three months ended March 31,
      2009.
 
  13
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 The
unrealized gains and losses of selected securities, by major security type were
as follows ($000’s):
 March
      31, 2009
                              
                              
                              December
      31, 2008
                              
                              
                              March
      31, 2008Unrealized
                                Gains
                              
                              
                              Unrealized
                                Losses
                              
                              
                              Unrealized
                                Gains
                              
                              
                              Unrealized
                                Losses
                              
                              
                              Unrealized
                                Gains
                              
                              
                              Unrealized
                                LossesInvestment
      securities available for sale:U.S.
      treasury and government agencies
                              
                              $
                              131,499
                              
                              
                              $
                              33,435
                              
                              
                              $
                              93,541
                              
                              
                              $
                              78,518
                              
                              
                              $
                              75,165
                              
                              
                              $
                              60,949States
      and political subdivisions
                              
                              
                              20,480
                              
                              
                              
                              12,460
                              
                              
                              
                              19,387
                              
                              
                              
                              13,073
                              
                              
                              
                              21,966
                              
                              
                              
                              4,608Residential
      mortgage backed securities
                              
                              
                              935
                              
                              
                              
                              13,829
                              
                              
                              
                              214
                              
                              
                              
                              10,197
                              
                              
                              
                              133
                              
                              
                              
                              2,528Corporate
      notes
                              
                              
                              234
                              
                              
                              
                              3,435
                              
                              
                              
                              464
                              
                              
                              
                              13
                              
                              
                              
                              -
                              
                              
                              
                              -Cash
      flow hedge - corporate notes
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Corporate
      notes
                              
                              
                              234
                              
                              
                              
                              3,435
                              
                              
                              
                              464
                              
                              
                              
                              13
                              
                              
                              
                              -
                              
                              
                              
                              -Asset
      backed securities
                              
                              
                              -
                              
                              
                              
                              66,221
                              
                              
                              
                              -
                              
                              
                              
                              100,745
                              
                              
                              
                              137
                              
                              
                              
                              14,592Equity
                              
                              
                              -
                              
                              
                              
                              69
                              
                              
                              
                              12
                              
                              
                              
                              -
                              
                              
                              
                              198
                              
                              
                              
                              -Private
      Equity investments
                              
                              
                              52
                              
                              
                              
                              64
                              
                              
                              
                              52
                              
                              
                              
                              64
                              
                              
                              
                              52
                              
                              
                              
                              64Federal
      Reserve Bank & FHLB stock
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Affordable
      Housing Partnerships
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Foreign
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Other
                              
                              
                              831
                              
                              
                              
                              -
                              
                              
                              
                              1,438
                              
                              
                              
                              -
                              
                              
                              
                              225
                              
                              
                              
                              -Total
                              
                              $
                              154,031
                              
                              
                              $
                              129,513
                              
                              
                              $
                              115,108
                              
                              
                              $
                              202,610
                              
                              
                              $
                              97,876
                              
                              
                              $
                              82,741Investment
      securities held to maturity:States
      and political subdivisions
                              
                              $
                              4,933
                              
                              
                              $
                              160
                              
                              
                              $
                              5,562
                              
                              
                              $
                              176
                              
                              
                              $
                              9,034
                              
                              
                              $
                              71Foreign
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Total
                              
                              $
                              4,933
                              
                              
                              $
                              160
                              
                              
                              $
                              5,562
                              
                              
                              $
                              176
                              
                              
                              $
                              9,034
                              
                              
                              $
                              71




The
      following table provides the gross unrealized losses and fair value,
      aggregated by investment category and the length of time the individual
      securities have been in a continuous unrealized loss position, at March
      31, 2009 ($000’s):




Less
      than 12 Months
                      
                      
                      12
      Months or More
                      
                      
                      TotalFair
                        Value
                      
                      
                      Unrealized
                        Losses
                      
                      
                      Fair
                        Value
                      
                      
                      Unrealized
                        Losses
                      
                      
                      Fair
                        Value
                      
                      
                      Unrealized
                        LossesU.S.
      treasury and government agencies
                      
                      $
                      342,841
                      
                      
                      $
                      5,316
                      
                      
                      $
                      1,058,923
                      
                      
                      $
                      28,119
                      
                      
                      $
                      1,401,764
                      
                      
                      $
                      33,435States
      and political subdivisions
                      
                      
                      91,205
                      
                      
                      
                      3,083
                      
                      
                      
                      127,602
                      
                      
                      
                      9,537
                      
                      
                      
                      218,807
                      
                      
                      
                      12,620Residential
      mortgage backed securities
                      
                      
                      141,812
                      
                      
                      
                      8,573
                      
                      
                      
                      57,652
                      
                      
                      
                      5,256
                      
                      
                      
                      199,464
                      
                      
                      
                      13,829Corporate
      notes
                      
                      
                      91,239
                      
                      
                      
                      3,435
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      91,239
                      
                      
                      
                      3,435Asset
      backed securities
                      
                      
                      995
                      
                      
                      
                      4
                      
                      
                      
                      143,119
                      
                      
                      
                      66,217
                      
                      
                      
                      144,114
                      
                      
                      
                      66,221Equity
                      
                      
                      46
                      
                      
                      
                      69
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      46
                      
                      
                      
                      69Private
      Equity investments
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      64
                      
                      
                      
                      -
                      
                      
                      
                      64Federal
      Reserve Bank & FHLB stock
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Affordable
      Housing Partnerships
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Foreign
                      
                      
                      1,150
                      
                      
                      
                      -
                      
                      
                      
                      400
                      
                      
                      
                      -
                      
                      
                      
                      1,550
                      
                      
                      
                      -Other
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
                      
                      $
                      669,288
                      
                      
                      $
                      20,480
                      
                      
                      $
                      1,387,696
                      
                      
                      $
                      109,193
                      
                      
                      $
                      2,056,984
                      
                      
                      $
                      129,673




The
      investment securities in the above table were temporarily impaired at
      March 31, 2009.  This temporary impairment represents the amount
      of loss that would have been realized if the investment securities had
      been sold on March 31, 2009.  The temporary impairment in the
      investment securities portfolio is the result of increases in market
      interest rates since the investment securities were acquired and not from
      deterioration in the creditworthiness of the issuer.  At March
      31, 2009, the Corporation does not have the intent to sell these
      temporarily impaired investment securities until a recovery of fair value,
      which may be maturity, and it is more likely than not that the Corporation
      will not have to sell the investment securities prior to recovery of fair
      value.
   14
 Table of Contents
 MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
  7.
                Loans
      and Leases
 
 The
      Corporation's loan and lease portfolio, including loans held for sale,
      consisted of the following
($000's):
 March
      31,
                          
                          
                          December
      31,
                          
                          
                          March
      31,2009
                          
                          
                          2008
                          
                          
                          2008Commercial,
      financial and agricultural
                          
                          $
                          14,576,302
                          
                          
                          $
                          14,880,153
                          
                          
                          $
                          14,900,926Cash
      flow hedge - variable rate loans
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          153Commercial,
      financial and agricultural
                          
                          
                          14,576,302
                          
                          
                          
                          14,880,153
                          
                          
                          
                          14,901,079Real
      estate:Commercial
      mortgage
                          
                          
                          12,998,926
                          
                          
                          
                          12,541,506
                          
                          
                          
                          11,573,266Residential
      mortgage
                          
                          
                          5,711,033
                          
                          
                          
                          5,733,908
                          
                          
                          
                          5,357,741Construction
      and development
                          
                          
                          8,251,351
                          
                          
                          
                          9,043,263
                          
                          
                          
                          10,367,516Home
      equity loans and lines of credit
                          
                          
                          5,025,092
                          
                          
                          
                          5,082,046
                          
                          
                          
                          4,722,121Total
      real estate
                          
                          
                          31,986,402
                          
                          
                          
                          32,400,723
                          
                          
                          
                          32,020,644Personal
                          
                          
                          1,951,956
                          
                          
                          
                          1,929,374
                          
                          
                          
                          1,665,482Lease
      financing
                          
                          
                          729,994
                          
                          
                          
                          774,294
                          
                          
                          
                          713,187Total
      loans and leases
                          
                          $
                          49,244,654
                          
                          
                          $
                          49,984,544
                          
                          
                          $
                          49,300,392




During
the quarter ended March 31, 2009 and 2008, loans transferred to OREO amounted to
$128,213 and $86,946, respectively.  These amounts are considered
non-cash transactions for cash flow purposes.
 
 
 8.
                Allowance
      for Loan and Lease Losses
 
 An
      analysis of the allowance for loan and lease losses follows
      ($000's):




Three
      Months Ended March 31,2009
                          
                          
                          2008Balance
      at beginning of period
                          
                          $
                          1,202,167
                          
                          
                          $
                          496,191Allowance
      of loans and leases acquired
                          
                          
                          -
                          
                          
                          
                          32,110Provision
      charged to expense
                          
                          
                          477,924
                          
                          
                          
                          146,321Charge-offs
                          
                          
                          (340,223
                          )
                          
                          
                          (135,829
                          )Recoveries
                          
                          
                          12,249
                          
                          
                          
                          4,746Balance
      at end of period
                          
                          $
                          1,352,117
                          
                          
                          $
                          543,539




As
      of March 31, 2009 and 2008, nonaccrual loans and leases totaled $2,074,553
      and $774,137 and renegotiated loans totaled $445,995 and $97,
      respectively.
 
 For
      purposes of impairment testing, nonaccrual loans greater than one million
      dollars and all renegotiated loans were individually assessed for
      impairment.  Renegotiated loans are evaluated at the present
      value of expected future cash flows discounted at the loan’s effective
      interest rate.  Nonaccrual loans below the threshold were
      collectively evaluated as homogeneous pools.  The required
      valuation allowance is included in the allowance for loan and lease losses
      in the Consolidated Balance
Sheets.
   15
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 At March
31, 2009 and 2008, the Corporation’s recorded investment in impaired loans and
leases and the related valuation allowance are as follows ($000's):
  March
      31, 2009
                                
                                
                                March
      31, 2008Recorded
                                
                                
                                Valuation
                                
                                
                                Recorded
                                
                                
                                ValuationInvestment
                                
                                
                                Allowance
                                
                                
                                Investment
                                
                                
                                AllowanceTotal
      nonaccrual and renegotiated loans and leases
                                
                                $
                                2,520,548
                                
                                
                                
                                
                                
                                $
                                774,234Less:  nonaccrual
      loans held for sale
                                
                                
                                (113,737
                                )
                                
                                
                                
                                
                                
                                (1,288
                                )Total
      impaired loans and leases
                                
                                $
                                2,406,811
                                
                                
                                
                                
                                
                                $
                                772,946Loans
      and leases excluded from individual evaluation
                                
                                
                                (838,941
                                )
                                
                                
                                
                                
                                
                                (413,933
                                )Impaired
      loans evaluated
                                
                                $
                                1,567,870
                                
                                
                                
                                
                                
                                $
                                359,013Valuation
      allowance required
                                
                                $
                                1,026,947
                                
                                
                                $
                                222,827
                                
                                
                                $
                                251,583
                                
                                
                                $
                                47,929No
      valuation allowance required
                                
                                
                                540,923
                                
                                
                                
                                -
                                
                                
                                
                                107,430
                                
                                
                                
                                -Impaired
      loans evaluated
                                
                                $
                                1,567,870
                                
                                
                                $
                                222,827
                                
                                
                                $
                                359,013
                                
                                
                                $
                                47,929




The
average recorded investment in total impaired loans and leases for the quarters
ended March 31, 2009 and2008 amounted to $2,271,378 and $817,146,
respectively.
 
 The amount of cumulative charge-offs
recorded on the Corporation’s nonaccrual loans outstanding at March 31,2009 was
approximately $665.1 million.
 
 9.
              Financial
      Asset Sales
 
 The
      Corporation discontinued, on a recurring basis, the sale and
      securitization of automobile loans into the secondary
      market.  The carrying values of the remaining retained interests
      associated with the securitizations are reviewed on a monthly basis to
      determine if there is a decline in value that is other than
      temporary.  The propriety of the assumptions used based on
      current historical experience as well as the sensitivities of the carrying
      value of the retained interests to adverse changes in the key assumptions
      are reviewed periodically.  The Corporation believes that its
      estimates result in a reasonable carrying value of the retained
      interests.
  Retained
interests and other assets consisted of the following ($000’s):
  March
      31, 2009Interest-only
      strips
                                  
                                  $
                                  5,254Cash
      collateral accounts
                                  
                                  
                                  35,271Servicing
      advances
                                  
                                  
                                  68Total
      retained interests
                                  
                                  $
                                  40,593
  There
      were no impairment losses associated with the remaining retained interests
      held in the form of interest-only strips and cash collateral accounts in
      the first quarter of 2009.  For the three months ended March 31,
      2008, impairment losses amounted to $2.3 million.  The
      impairment in the first quarter of 2008 was primarily the result of the
      differences between the actual credit losses experienced compared to the
      expected credit losses used in measuring the retained
      interests.
 
 Net
      trading gains associated with the auto securitization-related interest
      rate swap amounted to $0.4 million and $0.8 million for the three months
      ended March 31, 2009 and 2008,
respectively.
 
 At
      March 31, 2009, securitized automobile loans and other automobile loans
      managed together with them, along with delinquency and credit loss
      information, consisted of the following
  ($000’s):




Securitized
                    
                    
                    Portfolio
                    
                    
                    Total
      ManagedLoan
      balances
                    
                    $
                    286,743
                    
                    
                    $
                    668,054
                    
                    
                    $
                    954,797Principal
      amounts of loans 60 days or more past due
                    
                    
                    2,155
                    
                    
                    
                    1,110
                    
                    
                    
                    3,265Net
      credit losses year to date
                    
                    
                    1,681
                    
                    
                    
                    669
                    
                    
                    
                    2,350






16
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
  10.
                    Goodwill
      and Other Intangibles
 
 The
      changes in the carrying amount of goodwill for the three months ended
      March 31, 2009 were as follows
($000’s):




Commercial
                        
                        
                        WealthBanking
                        
                        
                        Management
                        
                        
                        Others
                        
                        
                        TotalGoodwill
      balance at December 31, 2008
                        
                        $
                        327,246
                        
                        
                        $
                        157,121
                        
                        
                        $
                        120,777
                        
                        
                        $
                        605,144Purchase
      accounting adjustments
                        
                        
                        -
                        
                        
                        
                        2,810
                        
                        
                        
                        -
                        
                        
                        
                        2,810Goodwill
      balance at March 31, 2009
                        
                        $
                        327,246
                        
                        
                        $
                        159,931
                        
                        
                        $
                        120,777
                        
                        
                        $
                        607,954




Purchase
      accounting adjustments for Wealth Management represent adjustments made to
      the initial estimates of fair value associated with the acquisition of
      Taplin, Canida & Habacht
(“TCH”).
 
 
 The
      changes in the carrying amount of goodwill for the three months ended
      March 31, 2008 were as follows
($000’s):
 Commercial
                            
                            
                            Community
                            
                            
                            WealthBanking
                            
                            
                            Banking
                            
                            
                            Management
                            
                            
                            Others
                            
                            
                            TotalGoodwill
      balance at December 31, 2007
                            
                            $
                            922,264
                            
                            
                            $
                            560,332
                            
                            
                            $
                            114,572
                            
                            
                            $
                            87,777
                            
                            
                            $
                            1,684,945Goodwill
      acquired during the period
                            
                            
                            327,257
                            
                            
                            
                            81,335
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            408,592Purchase
      accounting adjustments
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,831
                            
                            
                            
                            -
                            
                            
                            
                            1,831Goodwill
      balance at March 31, 2008
                            
                            $
                            1,249,521
                            
                            
                            $
                            641,667
                            
                            
                            $
                            116,403
                            
                            
                            $
                            87,777
                            
                            
                            $
                            2,095,368




Goodwill
      acquired during the first quarter of 2008 included initial goodwill of
      $408.6 million for the acquisition of First Indiana.  Purchase
      accounting adjustments for Wealth Management represent adjustments made to
      the initial estimates of fair value associated with the acquisition of
      North Star Financial
Corporation.
 
 At
      March 31, 2009, the Corporation’s other intangible assets consisted of the
      following ($000’s):
 Gross
                              
                              
                              
                              
                              
                              NetCarrying
                              
                              
                              Accumulated
                              
                              
                              CarryingAmount
                              
                              
                              Amortization
                              
                              
                              AmountOther
      intangible assetsCore
      deposit intangible
                              
                              $
                              254,229
                              
                              
                              $
                              (138,336
                              )
                              
                              $
                              115,893Trust
      customers
                              
                              
                              28,424
                              
                              
                              
                              (5,015
                              )
                              
                              
                              23,409Tradename
                              
                              
                              3,975
                              
                              
                              
                              (617
                              )
                              
                              
                              3,358Other
      intangibles
                              
                              
                              6,787
                              
                              
                              
                              (1,647
                              )
                              
                              
                              5,140$
                              293,415
                              
                              
                              $
                              (145,615
                              )
                              
                              $
                              147,800Mortgage
      loan servicing rights
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              $
                              2,354




At
      March 31, 2008, the Corporation’s other intangible assets consisted of the
      following ($000’s):
 Gross
                            
                            
                            
                            
                            
                            NetCarrying
                            
                            
                            Accumulated
                            
                            
                            CarryingAmount
                            
                            
                            Amortization
                            
                            
                            AmountOther
      intangible assetsCore
      deposit intangible
                            
                            $
                            254,229
                            
                            
                            $
                            (118,709
                            )
                            
                            $
                            135,520Trust
      customers
                            
                            
                            11,479
                            
                            
                            
                            (3,209
                            )
                            
                            
                            8,270Tradename
                            
                            
                            1,360
                            
                            
                            
                            (257
                            )
                            
                            
                            1,103Other
      intangibles
                            
                            
                            4,155
                            
                            
                            
                            (620
                            )
                            
                            
                            3,535$
                            271,223
                            
                            
                            $
                            (122,795
                            )
                            
                            $
                            148,428Mortgage
      loan servicing rights
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            2,672




Amortization
      expense of other intangible assets for the three months ended March 31,
      2009 and 2008 amounted to $5.5 million and $5.6 million,
      respectively.
   17
 Table of Contents
 MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 Amortization
      of mortgage loan servicing rights amounted to $0.3 million for the three
      months ended March 31, 2009 and 2008,
  respectively.
 
 The
      estimated amortization expense of other intangible assets and mortgage
      loan servicing rights for the next five fiscal years are
      ($000’s):




2010
                    
                    $
                    22,4442011
                    
                    
                    19,0232012
                    
                    
                    16,5862013
                    
                    
                    14,1642014
                    
                    
                    12,225




11.
                Deposits
 
 The
      Corporation's deposit liabilities consisted of the following
      ($000's):
 March
      31,
                            
                            
                            December
      31,
                            
                            
                            March
      31,2009
                            
                            
                            2008
                            
                            
                            2008Noninterest
      bearing demand
                            
                            $
                            6,988,312
                            
                            
                            $
                            6,879,994
                            
                            
                            $
                            6,137,771Interest
      bearing:Savings
      and NOW
                            
                            
                            3,628,284
                            
                            
                            
                            3,454,085
                            
                            
                            
                            3,186,623Money
      Market
                            
                            
                            10,613,915
                            
                            
                            
                            10,753,000
                            
                            
                            
                            11,673,038CD's
      $100,000 and over:CD's
      $100,000 and over
                            
                            
                            11,757,126
                            
                            
                            
                            12,301,142
                            
                            
                            
                            10,207,200Cash
      flow hedge - Institutional CDs
                            
                            
                            22,933
                            
                            
                            
                            27,737
                            
                            
                            
                            30,510Total
      CD's $100,000 and over
                            
                            
                            11,780,059
                            
                            
                            
                            12,328,879
                            
                            
                            
                            10,237,710Other
      time
                            
                            
                            5,945,355
                            
                            
                            
                            5,743,480
                            
                            
                            
                            4,616,596Foreign
                            
                            
                            608,439
                            
                            
                            
                            1,863,703
                            
                            
                            
                            2,875,081Total
      interest bearing
                            
                            
                            32,576,052
                            
                            
                            
                            34,143,147
                            
                            
                            
                            32,589,048Total
      deposits
                            
                            $
                            39,564,364
                            
                            
                            $
                            41,023,141
                            
                            
                            $
                            38,726,819




12.
                Derivative
      Financial Instruments and Hedging
Activities
 
 The
      following is an update of the Corporation’s use of derivative financial
      instruments and its hedging activities as described in its Annual Report
      on Form 10-K for the year ended December 31, 2008.  There were
      no significant new hedging strategies employed during the three months
      ended March 31, 2009.
 
 The
      Corporation has strategies designed to confine these risks within the
      established limits and identify appropriate risk / reward trade-offs in
      the financial structure of its balance sheet.  These strategies
      include the use of derivative financial instruments to help achieve the
      desired balance sheet repricing structure while meeting the desired
      objectives of its customers.
 
 Trading Instruments and Other
      Free Standing
Derivatives
 
 The
      Corporation enters into various derivative contracts which are designated
      as trading and other free standing derivative contracts.  These
      derivative contracts are not linked to specific assets and liabilities on
      the balance sheet or to forecasted transactions in an accounting hedge
      relationship and, therefore, do not qualify for hedge accounting under
      SFAS 133.  They are carried at fair value with changes in fair
      value recorded as a component of other noninterest
  income.
   18
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 Trading
      and other free standing derivatives are used primarily to focus on
      providing derivative products to customers which enables them to manage
      their exposures to interest rate risk.  The Corporation’s market
      risk from unfavorable movements in interest rates is generally
      economically hedged by concurrently entering into offsetting derivative
      contracts.  The offsetting derivative contracts generally have
      nearly identical notional values, terms and indices.  The
      Corporation uses interest rate futures to economically hedge the exposure
      to interest rate risk arising from the interest rate swap (designated as
      trading) entered into in conjunction with its auto securitization
      activities.
 
 The
      following tables summarize the balance sheet category and fair values of
      trading derivatives not designated as hedging instruments under SFAS
      133:




Notional
                                      
                                      
                                      
                                      FairAmount
                                      
                                      
                                      
                                      ValueMarch
      31, 2009
                                      
                                      ($
      in millions)
                                      
                                      Balance
      Sheet Category
                                      
                                      ($
      in millions)Assets:Interest
      rate contracts - swaps
                                      
                                      $
                                      4,844.8
                                      
                                      Trading
      assets
                                      
                                      $
                                      297.9Interest
      rate contracts - purchased interest rate caps
                                      
                                      
                                      184.0
                                      
                                      Trading
      assets
                                      
                                      
                                      1.2Equity
      derivative contracts - equity indexed CDs
                                      
                                      
                                      49.2
                                      
                                      Trading
      assets
                                      
                                      
                                      2.2Equity
      derivative contracts - warrants
                                      
                                      
                                      0.1
                                      
                                      Trading
      assets
                                      
                                      
                                      0.1Total
      assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      301.4Liabilities:Interest
      rate contracts - swaps
                                      
                                      $
                                      4,690.0
                                      
                                      Accrued
      expenses and other liabilities
                                      
                                      $
                                      253.8Interest
      rate contracts - sold interest rate caps
                                      
                                      
                                      203.8
                                      
                                      Accrued
      expenses and other liabilities
                                      
                                      
                                      1.2Interest
      rate contracts - interest rate futures
                                      
                                      
                                      1,427.0
                                      
                                      Accrued
      expenses and other liabilities
                                      
                                      
                                      0.1Equity
      derivative contracts - equity indexed CDs
                                      
                                      
                                      49.1
                                      
                                      Accrued
      expenses and other liabilities
                                      
                                      
                                      2.2Total
      liabilities
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      257.3Net
      positive fair value impact
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      44.1Notional
                                      
                                      
                                      
                                      FairAmount
                                      
                                      
                                      
                                      ValueMarch
      31, 2008
                                      
                                      ($
      in millions)
                                      
                                      Balance
      Sheet Category
                                      
                                      ($
      in millions)Assets:Interest
      rate contracts - swaps
                                      
                                      $
                                      3,194.3
                                      
                                      Trading
      assets
                                      
                                      $
                                      149.3Interest
      rate contracts - purchased interest rate caps
                                      
                                      
                                      93.7
                                      
                                      Trading
      assets
                                      
                                      
                                      1.0Equity
      derivative contracts - equity indexed CDs
                                      
                                      
                                      3.1
                                      
                                      Trading
      assets
                                      
                                      
                                      -Equity
      derivative contracts - warrants
                                      
                                      
                                      0.1
                                      
                                      Trading
      assets
                                      
                                      
                                      0.3Total
      assets
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      150.6Liabilities:Interest
      rate contracts - swaps
                                      
                                      $
                                      2,821.9
                                      
                                      Accrued
      expenses and other liabilities
                                      
                                      $
                                      123.8Interest
      rate contracts - sold interest rate caps
                                      
                                      
                                      93.7
                                      
                                      Accrued
      expenses and other liabilities
                                      
                                      
                                      1.0Interest
      rate contracts - interest rate futures
                                      
                                      
                                      2,221.0
                                      
                                      Accrued
      expenses and other liabilities
                                      
                                      
                                      0.3Total
      liabilities
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      125.1Net
      positive fair value impact
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      25.5
   19
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
  The
following tables summarize the income statement categories of the gain or (loss)
recognized in income on trading derivatives not designated as hedging
instruments under SFAS 133:
  Amount
      ofGain
      or (Loss)Category
      of Gain or (Loss)
                                                                  
                                                                  Recognized
      in IncomeRecognized
      in Income
                                                                  
                                                                  on
      DerivativeThree
      Months Ended March 31, 2009
                                                                  
                                                                  on
      Derivative
                                                                  
                                                                  ($
      in millions)Interest
      Rate Contracts – Swaps
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  $
                                                                  3.2Interest
      Rate Contracts – Purchased Interest Rate Caps
                                                                  
                                                                  Other income - Other
                                                                  
                                                                  
                                                                  1.0Interest
      Rate Contracts – Sold Interest Rate Caps
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  
                                                                  (1.0
                                                                  )Interest
      Rate Contracts – Interest Rate Futures
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  
                                                                  (0.5
                                                                  )Equity
      Derivative Contracts – Equity-Indexed CDs
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  
                                                                  -Equity
      Derivative Contracts – Warrants
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  
                                                                  (0.0
                                                                  )Amount
      ofGain
      or (Loss)Category
      of Gain or (Loss)
                                                                  
                                                                  Recognized
      in IncomeRecognized
      in Income
                                                                  
                                                                  on
      DerivativeThree
      Months Ended March 31, 2008
                                                                  
                                                                  on
      Derivative
                                                                  
                                                                  ($
      in millions)Interest
      Rate Contracts – Swaps
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  $
                                                                  11.3Interest
      Rate Contracts – Purchased Interest Rate Caps
                                                                  
                                                                  Other income - Other
                                                                  
                                                                  
                                                                  1.0Interest
      Rate Contracts – Sold Interest Rate Caps
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  
                                                                  (1.0
                                                                  )Interest
      Rate Contracts – Interest Rate Futures
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  
                                                                  (6.5
                                                                  )Equity
      Derivative Contracts – Warrants
                                                                  
                                                                  Other
      income - Other
                                                                  
                                                                  
                                                                  (0.2
                                                                  )






20
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)




Fair
Value Hedges and Cash Flow Hedges


The
      Corporation uses various derivative instruments that qualify as hedging
      relationships under SFAS 133.  These instruments are designated
      as either fair value hedges or cash flow hedges.  The
      Corporation recognizes these derivative instruments as either assets or
      liabilities at fair value in the statement of financial
      position.
 
 The
      Corporation employs certain over-the-counter interest rate swaps that are
      the designated hedging instruments in fair value and cash flow hedges that
      are used by the Corporation to manage its interest rate
      risk.  These interest rate swaps are measured at fair value on a
      recurring basis based on significant other observable inputs and are
      categorized as Level 2.  See Note 3 – Fair Value Measurements in
      Notes to Financial Statements for additional
  information.
 
 The
      following tables summarize the balance sheet category and fair values of
      derivatives designated as hedging instruments under SFAS
    133:
 WeightedNotional
                                                                        
                                                                        Balance
                                                                        
                                                                        Fair
                                                                        
                                                                        
                                                                        AverageDerivative
                                                                        
                                                                        Hedged
                                                                        
                                                                        Amount
                                                                        
                                                                        Sheet
                                                                        
                                                                        Value
                                                                        
                                                                        
                                                                        RemainingMarch
      31, 2009
                                                                        
                                                                        Type
                                                                        
                                                                        Item
                                                                        
                                                                        ($
      in millions)
                                                                        
                                                                        Category
                                                                        
                                                                        ($
      in millions)
                                                                        
                                                                        
                                                                        Term
      (Years)AssetsInterest
      rate contracts:Receive
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        Corporate
      notes - AFS
                                                                        
                                                                        $
                                                                        57.4
                                                                        
                                                                        Investment
      securities
                                                                        
                                                                        $
                                                                        0.5
                                                                        
                                                                        
                                                                        
                                                                        1.3Total
      assets
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        0.5LiabilitiesInterest
      rate contracts:Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Institutional
      CDs
                                                                        
                                                                        $
                                                                        25.0
                                                                        
                                                                        Deposits
                                                                        
                                                                        $
                                                                        (2.6
                                                                        )
                                                                        
                                                                        
                                                                        27.2Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Callable
      CDs
                                                                        
                                                                        
                                                                        5,746.5
                                                                        
                                                                        Deposits
                                                                        
                                                                        
                                                                        3.0
                                                                        
                                                                        
                                                                        
                                                                        13.6Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Brokered
      Bullet CDs
                                                                        
                                                                        
                                                                        209.3
                                                                        
                                                                        Deposits
                                                                        
                                                                        
                                                                        (13.4
                                                                        )
                                                                        
                                                                        
                                                                        4.2Pay
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        Institutional
      CDs
                                                                        
                                                                        
                                                                        550.0
                                                                        
                                                                        Deposits
                                                                        
                                                                        
                                                                        22.9
                                                                        
                                                                        
                                                                        
                                                                        1.1Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Fixed
      rate bank notes
                                                                        
                                                                        
                                                                        428.2
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        (43.3
                                                                        )
                                                                        
                                                                        
                                                                        7.4Pay
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        FHLB
      advances
                                                                        
                                                                        
                                                                        1,060.0
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        91.5
                                                                        
                                                                        
                                                                        
                                                                        2.8Pay
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        Floating
      rate bank notes
                                                                        
                                                                        
                                                                        429.6
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        27.8
                                                                        
                                                                        
                                                                        
                                                                        2.0Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Medium
      term notes
                                                                        
                                                                        
                                                                        6.9
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        (0.1
                                                                        )
                                                                        
                                                                        
                                                                        18.9Total
      liabilities
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        85.8Net
      negative fair value impact
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        (85.3
                                                                        )WeightedNotional
                                                                        
                                                                        Balance
                                                                        
                                                                        Fair
                                                                        
                                                                        
                                                                        AverageDerivative
                                                                        
                                                                        Hedged
                                                                        
                                                                        Amount
                                                                        
                                                                        Sheet
                                                                        
                                                                        Value
                                                                        
                                                                        
                                                                        RemainingMarch
      31, 2008
                                                                        
                                                                        Type
                                                                        
                                                                        Item
                                                                        
                                                                        ($
      in millions)
                                                                        
                                                                        Category
                                                                        
                                                                        ($
      in millions)
                                                                        
                                                                        
                                                                        Term
      (Years)AssetsInterest
      rate contracts:Receive
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        Variable
      rate loans
                                                                        
                                                                        $
                                                                        100.0
                                                                        
                                                                        Loans
      and leases
                                                                        
                                                                        $
                                                                        0.2
                                                                        
                                                                        
                                                                        
                                                                        0.3Total
      assets
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        0.2LiabilitiesInterest
      rate contracts:Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Institutional
      CDs
                                                                        
                                                                        $
                                                                        50.0
                                                                        
                                                                        Deposits
                                                                        
                                                                        $
                                                                        (1.3
                                                                        )
                                                                        
                                                                        
                                                                        28.2Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Callable
      CDs
                                                                        
                                                                        
                                                                        2,232.9
                                                                        
                                                                        Deposits
                                                                        
                                                                        
                                                                        5.2
                                                                        
                                                                        
                                                                        
                                                                        12.2Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Brokered
      Bullet CDs
                                                                        
                                                                        
                                                                        210.8
                                                                        
                                                                        Deposits
                                                                        
                                                                        
                                                                        (3.1
                                                                        )
                                                                        
                                                                        
                                                                        5.2Pay
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        Institutional
      CDs
                                                                        
                                                                        
                                                                        800.0
                                                                        
                                                                        Deposits
                                                                        
                                                                        
                                                                        30.5
                                                                        
                                                                        
                                                                        
                                                                        1.5Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Fixed
      rate bank notes
                                                                        
                                                                        
                                                                        100.0
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        (0.1
                                                                        )
                                                                        
                                                                        
                                                                        8.1Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Fixed
      rate bank notes
                                                                        
                                                                        
                                                                        354.5
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        (18.6
                                                                        )
                                                                        
                                                                        
                                                                        7.7Pay
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        FHLB
      advances
                                                                        
                                                                        
                                                                        800.0
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        68.0
                                                                        
                                                                        
                                                                        
                                                                        4.3Pay
      fixed rate swaps
                                                                        
                                                                        Cash
      Flow
                                                                        
                                                                        Floating
      rate bank notes
                                                                        
                                                                        
                                                                        550.0
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        23.3
                                                                        
                                                                        
                                                                        
                                                                        1.7Receive
      fixed rate swaps
                                                                        
                                                                        Fair
      Value
                                                                        
                                                                        Medium
      term notes
                                                                        
                                                                        
                                                                        7.0
                                                                        
                                                                        Long-term
      borrowings
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        19.9Total
      liabilities
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        103.9Net
      negative fair value impact
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        $
                                                                        (103.7
                                                                        )






21
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)




The
effect of fair value hedges under SFAS 133 on the Consolidated Statements of
Income for the three months ended March 31, 2009 and 2008 ($ in
millions):




Three
      Months Ended March 31, 2009Amount
      of
                        
                        
                        
                        Amount
      ofDerivatives
                        
                        Category
      of
                        
                        Gain
      (Loss)
                        
                        Category
      of
                        
                        Gain
      (Loss)Designated
      as
                        
                        Gain
      (Loss)
                        
                        Recognized
                        
                        Gain
      (Loss)
                        
                        RecognizedHedging
      Instruments
                        
                        Recognized
      in Income
                        
                        in
      Income
                        
                        Recognized
      in Income
                        
                        in
      Incomeunder
      SFAS 133
                        
                        on
      Derivative
                        
                        on
      Derivative
                        
                        on
      Hedged Item
                        
                        on
      Hedged ItemInterest
      rate contractsInterest
      expense:
                        
                        
                        
                        Interest
      expense:Deposits:
                        
                        
                        
                        Deposits:Receive
      fixed rate swaps
                        
                        Institutional
      CDs
                        
                        $
                        0.4
                        
                        Institutional
      CDs
                        
                        $
                        (0.1
                        )Receive
      fixed rate swaps
                        
                        Callable
      CDs
                        
                        
                        (40.1
                        )
                        Callable
      CDs
                        
                        
                        103.4Receive
      fixed rate swaps
                        
                        Brokered
      Bullet CDs
                        
                        
                        0.5
                        
                        Brokered
      Bullet CDs
                        
                        
                        1.1Long-term
      borrowings:
                        
                        
                        
                        
                        Long-term
      borrowings:Receive
      fixed rate swaps
                        
                        Fixed
      rate bank notes
                        
                        
                        (8.4
                        )
                        Fixed
      rate bank notes
                        
                        
                        10.6Receive
      fixed rate swaps
                        
                        Medium
      term notes
                        
                        
                        (0.1
                        )
                        Medium
      term notes
                        
                        
                        0.1Receive
      fixed rate swaps
                        
                        Other
                        
                        
                        -
                        
                        Other
                        
                        
                        0.1Total
                        
                        $
                        (47.7
                        )
                        Total
                        
                        $
                        115.2Three
      Months Ended March 31, 2008Amount
      of
                        
                        
                        
                        Amount
      ofDerivatives
                        
                        Category
      of
                        
                        Gain
      (Loss)
                        
                        Category
      of
                        
                        Gain
      (Loss)Designated
      as
                        
                        Gain
      (Loss)
                        
                        Recognized
                        
                        Gain
      (Loss)
                        
                        RecognizedHedging
      Instruments
                        
                        Recognized
      in Income
                        
                        in
      Income
                        
                        Recognized
      in Income
                        
                        in
      Incomeunder
      SFAS 133
                        
                        on
      Derivative
                        
                        on
      Derivative
                        
                        on
      Hedged Item
                        
                        on
      Hedged ItemInterest
      rate contractsInterest
      expense:
                        
                        
                        
                        
                        Interest
      expense:Deposits:
                        
                        
                        
                        
                        Deposits:Receive
      fixed rate swaps
                        
                        Institutional
      CDs
                        
                        $
                        1.3
                        
                        Institutional
      CDs
                        
                        $
                        (1.0
                        )Receive
      fixed rate swaps
                        
                        Callable
      CDs
                        
                        
                        1.0
                        
                        Callable
      CDs
                        
                        
                        3.2Receive
      fixed rate swaps
                        
                        Brokered
      Bullet CDs
                        
                        
                        3.2
                        
                        Brokered
      Bullet CDs
                        
                        
                        (3.1
                        )Long-term
      borrowings:
                        
                        
                        
                        
                        Long-term
      borrowings:Receive
      fixed rate swaps
                        
                        Fixed
      rate bank notes
                        
                        
                        17.9
                        
                        Fixed
      rate bank notes
                        
                        
                        (17.4
                        )Receive
      fixed rate swaps
                        
                        Medium
      term notes
                        
                        
                        -
                        
                        Medium
      term notes
                        
                        
                        (0.1
                        )Receive
      fixed rate swaps
                        
                        Other
                        
                        
                        -
                        
                        Other
                        
                        
                        0.1Total
                        
                        $
                        23.4
                        
                        Total
                        
                        $
                        (18.3
                        )
  For
      the three months ended March 31, 2009 and 2008, respectively, the impact
      to net interest income due to ineffectiveness was not
      material.
 
  22
 Table of Contents
 MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 
 The
effect of cash flow hedges under SFAS 133 for the three months ended March 31,
2009 and 2008 ($ in millions):
  March
      31, 2009Category
      of
                                                                      
                                                                      AmountAmount
      of
                                                                      
                                                                      Amount
      Reclassified
                                                                      
                                                                      ReclassifiedGain
      (Loss)
                                                                      
                                                                      from
      Accumulated OCI
                                                                      
                                                                      from
      Accumulated OCIDerivatives
      in SFAS 133
                                                                      
                                                                      Recognized
      in OCI on Derivative
                                                                      
                                                                      into
      Earnings
                                                                      
                                                                      into
      EarningsCash
      Flow Hedging Relationships
                                                                      
                                                                      (Effective
      Portion)
                                                                      
                                                                      (Effective
      Portion)
                                                                      
                                                                      (Effective
      Portion)Gross
                                                                      
                                                                      
                                                                      Tax
                                                                      
                                                                      
                                                                      Net
                                                                      
                                                                      
                                                                      
                                                                      Gross
                                                                      
                                                                      
                                                                      Tax
                                                                      
                                                                      
                                                                      NetInterest
      rate contracts
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      Interest
      and fee incomeInvestment
      securities - Corporate notes AFS
                                                                      
                                                                      $
                                                                      0.4
                                                                      
                                                                      
                                                                      $
                                                                      (0.1
                                                                      )
                                                                      
                                                                      $
                                                                      0.3
                                                                      
                                                                      Investment
      securities - Corporate notes AFS
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -Interest
      rate contracts
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      Interest
      expenseDeposits:
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      Deposits:Institutional
      CDs
                                                                      
                                                                      
                                                                      0.2
                                                                      
                                                                      
                                                                      
                                                                      (0.1
                                                                      )
                                                                      
                                                                      
                                                                      0.1
                                                                      
                                                                      Institutional
      CDs
                                                                      
                                                                      
                                                                      4.6
                                                                      
                                                                      
                                                                      
                                                                      (1.6
                                                                      )
                                                                      
                                                                      
                                                                      3.0Long-term
      borrowings:
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      Long-term
      borrowings:FHLB
      advances
                                                                      
                                                                      
                                                                      (0.7
                                                                      )
                                                                      
                                                                      
                                                                      0.3
                                                                      
                                                                      
                                                                      
                                                                      (0.4
                                                                      )
                                                                      FHLB
      advances
                                                                      
                                                                      
                                                                      7.6
                                                                      
                                                                      
                                                                      
                                                                      (2.7
                                                                      )
                                                                      
                                                                      
                                                                      4.9Floating
      rate bank notes
                                                                      
                                                                      
                                                                      0.7
                                                                      
                                                                      
                                                                      
                                                                      (0.3
                                                                      )
                                                                      
                                                                      
                                                                      0.4
                                                                      
                                                                      Floating
      rate bank notes
                                                                      
                                                                      
                                                                      2.2
                                                                      
                                                                      
                                                                      
                                                                      (0.7
                                                                      )
                                                                      
                                                                      
                                                                      1.5Other
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      Other
      (1)
                                                                      
                                                                      
                                                                      0.2
                                                                      
                                                                      
                                                                      
                                                                      (0.1
                                                                      )
                                                                      
                                                                      
                                                                      0.1$
                                                                      0.6
                                                                      
                                                                      
                                                                      $
                                                                      (0.2
                                                                      )
                                                                      
                                                                      $
                                                                      0.4
                                                                      
                                                                      
                                                                      
                                                                      $
                                                                      14.6
                                                                      
                                                                      
                                                                      $
                                                                      (5.1
                                                                      )
                                                                      
                                                                      $
                                                                      9.5(1)
      Represents amortization for the three months ended March 31, 2009 from the
      termination of
swaps.
   March
      31, 2008Category
      of
                                                            
                                                            AmountAmount
      of
                                                            
                                                            Amount
      Reclassified
                                                            
                                                            ReclassifiedGain
      (Loss)
                                                            
                                                            from
      Accumulated OCI
                                                            
                                                            from
      Accumulated OCIDerivatives
      in SFAS 133
                                                            
                                                            Recognized
      in OCI on Derivative
                                                            
                                                            into
      Earnings
                                                            
                                                            into
      EarningsCash
      Flow Hedging Relationships
                                                            
                                                            (Effective
      Portion)
                                                            
                                                            (Effective
      Portion)
                                                            
                                                            (Effective
      Portion)Gross
                                                            
                                                            
                                                            Tax
                                                            
                                                            
                                                            Net
                                                            
                                                            
                                                            
                                                            Gross
                                                            
                                                            
                                                            Tax
                                                            
                                                            
                                                            NetInterest
      rate contracts
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            Interest
      and fee incomeLoans
      and leases - Variable rate loans
                                                            
                                                            $
                                                            0.5
                                                            
                                                            
                                                            $
                                                            (0.2
                                                            )
                                                            
                                                            $
                                                            0.3
                                                            
                                                            Loans
      and leases - Variable rate loans
                                                            
                                                            $
                                                            0.3
                                                            
                                                            
                                                            $
                                                            (0.1
                                                            )
                                                            
                                                            $
                                                            0.2Interest
      rate contracts
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            Interest
      expenseDeposits:
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            Deposits:Institutional
      CDs
                                                            
                                                            
                                                            (14.5
                                                            )
                                                            
                                                            
                                                            5.1
                                                            
                                                            
                                                            
                                                            (9.4
                                                            )
                                                            Institutional
      CDs
                                                            
                                                            
                                                            2.0
                                                            
                                                            
                                                            
                                                            (0.7
                                                            )
                                                            
                                                            
                                                            1.3Long-term
      borrowings:
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            Long-term
      borrowings:FHLB
      advances
                                                            
                                                            
                                                            (32.2
                                                            )
                                                            
                                                            
                                                            11.3
                                                            
                                                            
                                                            
                                                            (20.9
                                                            )
                                                            FHLB
      advances
                                                            
                                                            
                                                            2.5
                                                            
                                                            
                                                            
                                                            (0.9
                                                            )
                                                            
                                                            
                                                            1.6Floating
      rate bank notes
                                                            
                                                            
                                                            (10.9
                                                            )
                                                            
                                                            
                                                            3.8
                                                            
                                                            
                                                            
                                                            (7.1
                                                            )
                                                            Floating
      rate bank notes
                                                            
                                                            
                                                            0.7
                                                            
                                                            
                                                            
                                                            (0.2
                                                            )
                                                            
                                                            
                                                            0.5Other
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            Other
      (1)
                                                            
                                                            
                                                            0.2
                                                            
                                                            
                                                            
                                                            (0.1
                                                            )
                                                            
                                                            
                                                            0.1$
                                                            (57.1
                                                            )
                                                            
                                                            $
                                                            20.0
                                                            
                                                            
                                                            $
                                                            (37.1
                                                            )
                                                            
                                                            
                                                            $
                                                            5.7
                                                            
                                                            
                                                            $
                                                            (2.0
                                                            )
                                                            
                                                            $
                                                            3.7(1)
      Represents amortization for the three months ended March 31, 2008 from the
      termination of
swaps.




The
      gain recognized in income representing the ineffective portion of the
      hedging relationships and excluded from the assessment of hedge
      effectiveness was not material for the three months ended March 31, 2009
      and 2008.  The estimated reclassification from accumulated other
      comprehensive income related to cash flow hedges in the next twelve months
      is approximately $57.8
million.
 
 
 13.
                Postretirement
      Health Plan
 
 The
      Corporation sponsors a defined benefit health plan that provides health
      care benefits to eligible current and retired
      employees.  Eligibility for retiree benefits is dependent upon
      age, years of service, and participation in the health plan during active
      service.  The plan is contributory and in 1997 and 2002 the plan
      was amended. Employees hired after September 1, 1997, including employees
      hired following business combinations, will be granted access to the
      Corporation’s plan upon becoming an eligible retiree; however, such
      retirees must pay 100% of the cost of health care benefits.  The
      plan continues to contain other cost-sharing features such as deductibles
      and coinsurance.
  23
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 Net
      periodic postretirement benefit cost for the three months ended March 31,
      2009 and 2008 included the following components
  ($000's):
 
 Three
      Months Ended March 31,2009
                            
                            
                            2008Service
      cost
                            
                            $
                            235
                            
                            
                            $
                            238Interest
      cost on APBO
                            
                            
                            980
                            
                            
                            
                            984Expected
      return on plan assets
                            
                            
                            (396
                            )
                            
                            
                            (435
                            )Prior
      service amortization
                            
                            
                            (560
                            )
                            
                            
                            (593
                            )Actuarial
      loss amortization
                            
                            
                            210
                            
                            
                            
                            75Net
      periodic postretirement benefit cost
                            
                            $
                            469
                            
                            
                            $
                            269
  Benefit
      payments and expenses, net of participant contributions, for the three
      months ended March 31, 2009 amounted to $1.2
  million.
 The
      funded status, which is the accumulated postretirement benefit obligation
      net of fair value of plan assets, as of March 31, 2009 is as follows
      ($000’s):




Total
      funded status, December 31, 2008
                          
                          $
                          (36,576
                          )Service
      cost
                          
                          
                          (235
                          )Interest
      cost on APBO
                          
                          
                          (980
                          )Expected
      return on plan assets
                          
                          
                          396Employer
      contributions/payments
                          
                          
                          1,212Subsidy
      (Medicare Part D)
                          
                          
                          (195
                          )Total
      funded status, March 31, 2009
                          
                          $
                          (36,378
                          )




14.
                Business
      Segments
 
 The
      Corporation’s operating segments are presented based on its management
      structure and management accounting practices.  The structure
      and practices are specific to the Corporation; therefore, the financial
      results of the Corporation’s business segments are not necessarily
      comparable with similar information for other financial
      institutions.
 
 Based
      on the way the Corporation organizes its segments, the Corporation has
      determined that it has four reportable segments:  Commercial
      Banking, Community Banking, Wealth Management and
  Treasury.
 
 During
      the second quarter of 2008, management consolidated certain lending
      activities and transferred the related assets and goodwill from the
      Community Banking segment to the National Consumer Lending Division
      reporting unit, which is a component of Others.  Prior period
      segment information has been adjusted to reflect the
    transfer.
 
 Total
      Revenues by type in Others consist of the following ($ in
      millions):
 Three
      Months Ended March 31,2009
                          
                          
                          2008Capital
      Markets Division
                          
                          $
                          13.0
                          
                          
                          $
                          14.5National
      Consumer Banking Division
                          
                          
                          40.0
                          
                          
                          
                          27.5Administrative
      & Other
                          
                          
                          13.7
                          
                          
                          
                          42.0Other
                          
                          
                          66.9
                          
                          
                          
                          72.3Total
                          
                          $
                          133.6
                          
                          
                          $
                          156.3
   24
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
   Three
      Months Ended March 31, 2009 ($ in millions)Eliminations,Commercial
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Community
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Wealth
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Corporate
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      ReclassificationsBanking
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Banking
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Management
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Treasury
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Others
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Overhead
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      &
      Adjustments
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      ConsolidatedNet
      interest income
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      199.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      173.4
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      15.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (14.6
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      54.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (19.5
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (7.1
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      401.7Provision
      for loan and lease losses
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      154.4
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      133.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      10.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      180.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      477.9Net
      interest income afterprovision for loan and lease
      losses
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      45.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      39.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      5.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (14.6
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (125.1
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (19.5
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (7.1
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (76.2
                                                                                                                                                                      )Other
      income
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      26.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      47.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      64.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      11.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      78.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      33.1
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (86.4
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      176.7Other
      expense
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      57.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      178.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      56.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      10.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      98.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      29.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (86.7
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      345.2Income
      before income taxes
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      14.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (91.1
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      13.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (13.6
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (144.7
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (16.1
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (6.8
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (244.7
                                                                                                                                                                      )Provision
      (benefit) for income taxes
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      5.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (36.4
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      5.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (5.4
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (106.0
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (9.5
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (7.1
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (153.0
                                                                                                                                                                      )Net
      income (loss)
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      8.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (54.7
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      7.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (8.2
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (38.7
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (6.6
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      0.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (91.7
                                                                                                                                                                      )Less:  Noncontrolling
      interest
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (0.3
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (0.3
                                                                                                                                                                      )Segment
      income
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      8.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (54.7
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      7.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (8.2
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (38.7
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (6.6
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (92.0
                                                                                                                                                                      )Identifiable
      assets
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      25,478.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      18,322.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      1,676.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      8,866.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      7,807.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      3,323.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (3,685.8
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      61,790.0Three
      Months Ended March 31, 2008 ($ in millions)Eliminations,Commercial
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Community
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Wealth
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Corporate
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      ReclassificationsBanking
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Banking
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Management
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Treasury
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Others
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      Overhead
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      &
      Adjustments
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      ConsolidatedNet
      interest income
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      188.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      196.1
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      14.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      1.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      44.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (8.4
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (7.0
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      430.4Provision
      for loan and lease losses
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      120.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      26.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      2.9
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (3.5
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      146.3Net
      interest income afterprovision for loan and lease
      losses
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      68.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      169.4
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      11.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      48.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (8.4
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (7.0
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      284.1Other
      income
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      24.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      43.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      74.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      11.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      111.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      29.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (83.8
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      211.2Other
      expense
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      64.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      159.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      60.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      3.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      96.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      14.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (84.0
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      315.6Income
      before income taxes
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      29.1
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      54.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      25.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      8.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      63.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      6.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (6.8
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      179.7Provision
      (benefit) for income taxes
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      11.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      21.6
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      10.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      3.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (8.0
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      1.4
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (7.0
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      33.3Net
      income
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      17.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      32.4
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      15.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      5.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      71.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      5.1
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      0.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      146.4Less:  Noncontrolling
      interest
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (0.2
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      (0.2
                                                                                                                                                                      )Segment
      income
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      17.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      32.4
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      15.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      5.2
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      71.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      5.1
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      -
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      146.2Identifiable
      assets
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      27,406.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      19,373.5
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      1,484.3
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      8,951.8
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      6,679.7
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      2,750.0
                                                                                                                                                                      
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      (3,247.7
                                                                                                                                                                      )
                                                                                                                                                                      
                                                                                                                                                                      $
                                                                                                                                                                      63,398.3
   25
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 March 31,
2009 & 2008 (Unaudited)
 15.
                  Guarantees
 
 Securities
      Lending
 
 As
      described in Note 24 – Guarantees, in Notes to Consolidated Financial
      Statements in Item 8 of the Corporation’s 2008 Annual Report on Form 10-K,
      as part of securities custody activities and at the direction of trust
      clients, the Corporation’s Wealth Management segment lends securities
      owned by its clients to borrowers who have been evaluated for credit risk
      in a manner similar to that employed in making lending
      decisions.  In connection with these activities, Marshall &
      Ilsley Trust Company N.A. (“M&I Trust”) has issued an indemnification
      against loss resulting from the default by a borrower under the master
      securities loan agreement due to the failure of the borrower to return
      loaned securities when due.  The borrowing party is required to
      fully collateralize securities received with cash or marketable
      securities.  As securities are loaned, collateral is maintained
      at a minimum of 100 percent of the fair value of the securities plus
      accrued interest and the collateral is revalued on a daily
      basis.  The amount of securities loaned subject to
      indemnification was $6.8 billion at March 31, 2009, $8.2 billion at
      December 31, 2008 and $10.1 billion at March 31, 2008.  Because
      of the requirement to fully collateralize the securities borrowed,
      management believes that the exposure to credit loss from this activity is
      remote and there are no liabilities reflected on the Consolidated Balance
      Sheets at March 31, 2009, December 31, 2008 and March 31, 2008, related to
      these indemnifications.
 
 Capital
      Support Agreement
 
 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 first
      quarter of 2009, the Corporation entered into a capital support agreement
      with SPF that replaced all prior agreements. Under the terms of the
      agreement, the Corporation would be required to contribute capital, under
      certain specific and defined circumstances and not to exceed $90.0 million
      in the aggregate and for no consideration, should certain asset loss
      events occur. The agreement expires June 30, 2009 and contains terms that
      provide for three month renewals with all of the significant terms,
      including maximum contribution limits, remaining unchanged.  At
      March 31, 2009, the estimated fair value of the contingent liability under
      the agreements that is recorded within other liabilities in the
      Consolidated Balance Sheet and corresponding expense which is reported in
      the line Other within Other Expense in the Consolidated Statements of
      Income amounted to $4.4 million.  As of May 10, 2009, no
      contributions have been made under the
  agreement.
 
 Visa
      Litigation Update
 
 There
      have been no material changes to the status of the Visa litigation matters
      since December 31, 2008.  See Note 24 – Guarantees, in Notes to
      Consolidated Financial Statements in Item 8 of the Corporation’s 2008
      Annual Report on Form 10-K.
 
 16.
                  Other
      Contingent Liabilities
  In
      the normal course of business, the Corporation and its subsidiaries are
      routinely defendants in or parties to a number of pending and threatened
      legal actions, including, but not limited to, actions brought on behalf of
      various classes of claimants, employment matters, and challenges from tax
      authorities regarding the amount of taxes due.  In certain of
      these actions and proceedings, claims for monetary damages or adjustments
      to recorded tax liabilities are asserted.  In view of the
      inherent difficulty of predicting the outcome of such matters,
      particularly matters that will be decided by a jury and actions that seek
      large damages based on novel and complex damage and liability legal
      theories or that involve a large number of parties, the Corporation cannot
      state with confidence the eventual outcome of these matters or the timing
      of their ultimate resolution, or estimate the possible loss or range of
      loss associated with them; however, based on current knowledge and after
      consultation with legal counsel, management does not believe that
      judgments or settlements in excess of amounts already reserved, if any,
      arising from pending or threatened legal actions, employment matters, or
      challenges from tax authorities, either individually or in the aggregate,
      would have a material adverse effect on the consolidated financial
      position or liquidity of the Corporation, although they could have a
      material effect on operating results for a particular
    period.
 26
 Table of Contents
 
  ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
      OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  MARSHALL
& ILSLEY CORPORATION
 CONSOLIDATED
AVERAGE BALANCE SHEETS (Unaudited)
 ($000’s)
  Three
      Months Ended March 31,2009
                            
                            
                            2008AssetsCash
      and due from banks
                            
                            $
                            803,166
                            
                            
                            $
                            952,967Trading
      assets
                            
                            
                            584,985
                            
                            
                            
                            178,308Short-term
      investments
                            
                            
                            570,380
                            
                            
                            
                            332,197Investment
      securities:Taxable
                            
                            
                            6,607,387
                            
                            
                            
                            6,668,786Tax-exempt
                            
                            
                            1,081,673
                            
                            
                            
                            1,242,520Total
      investment securities
                            
                            
                            7,689,060
                            
                            
                            
                            7,911,306Loans
      and leases:Loans
      and leases, net of unearned income
                            
                            
                            49,815,699
                            
                            
                            
                            48,609,992Allowance
      for loan and lease losses
                            
                            
                            (1,245,441
                            )
                            
                            
                            (557,477
                            )Net
      loans and leases
                            
                            
                            48,570,258
                            
                            
                            
                            48,052,515Premises
      and equipment, net
                            
                            
                            569,270
                            
                            
                            
                            509,260Accrued
      interest and other assets
                            
                            
                            3,650,360
                            
                            
                            
                            4,416,056Total
      Assets
                            
                            $
                            62,437,479
                            
                            
                            $
                            62,352,609Liabilities
      and EquityDeposits:Noninterest
      bearing
                            
                            
                            6,481,719
                            
                            
                            
                            5,628,370Interest
      bearing
                            
                            
                            33,185,443
                            
                            
                            
                            32,099,428Total
      deposits
                            
                            
                            39,667,162
                            
                            
                            
                            37,727,798Federal
      funds purchased and security repurchase agreements
                            
                            
                            1,950,080
                            
                            
                            
                            3,557,653Other
      short-term borrowings
                            
                            
                            3,774,011
                            
                            
                            
                            2,857,920Long-term
      borrowings
                            
                            
                            9,570,721
                            
                            
                            
                            10,020,481Accrued
      expenses and other liabilties
                            
                            
                            1,122,499
                            
                            
                            
                            1,151,385Total
      Liabilities
                            
                            
                            56,084,473
                            
                            
                            
                            55,315,237EquityMarshall
      & Ilsley Corporation Shareholders' Equity
                            
                            
                            6,342,617
                            
                            
                            
                            7,027,463Noncontrolling
      interest in subsidiaries
                            
                            
                            10,389
                            
                            
                            
                            9,909Total
      Equity
                            
                            
                            6,353,006
                            
                            
                            
                            7,037,372Total
      Liabilities and Equity
                            
                            $
                            62,437,479
                            
                            
                            $
                            62,352,609






27
 Table of Contents




OVERVIEW
 
 For the
three months ended March 31, 2009, the net loss attributable to the
Corporation’s common shareholders amounted to $116.9 million or $0.44 per
diluted common share compared to net income attributable to the Corporation’s
common shareholders of $146.2 million or $0.56 per diluted common share for the
three months ended March 31, 2008.
 
 The net
loss attributable to the Corporation’s common shareholders for the three months
ended March 31, 2009 includes $25.0 million or $0.09 per diluted common share
for dividends on the Series B preferred stock issued to the U.S. Treasury in the
fourth quarter of 2008 under the Capital Purchase Program. The remaining
decrease in income attributable to the Corporation’s common shareholders in the
first quarter of 2009 compared to the first quarter of 2008 was primarily due to
the increase in the provision for loan and lease losses and the continued
elevated levels of operating costs associated with collection efforts and
carrying nonperforming assets.
 
 The
recessionary economy, which includes rising unemployment, and the weak national
real estate markets continued to adversely affect the Corporation’s loan and
lease portfolio during the first quarter of 2009. Since December 31, 2008,
nonperforming loans increased $724.8 million or 40.0% and amounted to $2,536.6
million at March 31, 2009.  Approximately $175.6 million of the
increase is related to troubled debt restructurings which the Corporation refers
to as renegotiated loans and reflects, in part, the impact of the Corporation’s
Homeowner Assistance Program. In addition, the amount of impairment during the
first quarter of 2009 remained elevated due to the continued depressed state of
underlying real estate collateral values.  As a result, net
charge-offs and the provision for loan and lease losses were significantly
higher in the first quarter of 2009 when compared to the first quarter of
2008.  For the three months ended March 31, 2009, the provision for
loan and lease losses amounted to $477.9 million compared to $146.3 million for
the three months ended March 31, 2008, an increase of $331.6
million.  On an after-tax basis, this increase amounted to
approximately $212.1 million or $0.80 per diluted common share.
 
 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 increase in expense associated
with collection efforts and carrying nonperforming assets, net of related
revenue, amounted to $20.7 million for the first quarter of 2009 compared to the
first quarter of 2008, which on an after-tax basis was approximately $13.2
million or $0.04 per diluted common share.
 
 Despite
average loan and deposit growth, declining asset yields and the inability to
continue to lower deposit pricing in the low interest rate environment, together
with the increase in nonperforming loans, resulted in lower net interest income
in the first quarter of 2009 compared to the first quarter of
2008.  Equity market volatility persisted during the first quarter of
2009.  That volatility along with downward pressure in the equity
markets resulted in lower wealth management revenue in the first quarter of 2009
compared to the first quarter of 2008. An increase in mortgage loan closings,
primarily due to re-financings, and sales of those loans to the secondary market
resulted in mortgage banking revenue growth in the first quarter of 2009
compared to the first quarter of 2008. Operating expenses, excluding the
expenses associated with collection efforts and carrying nonperforming assets
and the reversal of the Visa Inc. (“Visa”) litigation accrual in the first
quarter of 2008, declined 1.6% in the first quarter of 2009 compared to the
first quarter of 2008 despite the increase in Federal Deposit Insurance
Corporation (“FDIC”) insurance premiums on deposits. That decline reflects lower
incentive compensation and the impact of the expense reduction initiatives
announced in the Corporation’s fourth quarter of 2008 earnings release. As a
result of recently enacted legislation that requires combined reporting for
Wisconsin state income tax purposes, 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 in the first quarter of
2009.
 
 The
allowance for loans and leases amounted to $1,352.1 million or 2.75% of total
loans and leases outstanding at March 31 2009 compared to $543.5 million and
1.10% at March 31, 2008. Net charge-offs amounted to $328.0 million or 2.67% of
average loans and leases for the three months ended March 31, 2009 compared to
$131.1 million or 1.08% of average loans and leases for the three months ended
March 31, 2008.
 
 At March
31, 2009, the Corporation’s Tier 1 regulatory capital ratio was 9.17% or $1,764
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%.
 
 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. However, management
expects net interest margin compression is more likely than net interest margin
expansion in the near term. Commercial and industrial loans contracted slightly
in the first quarter of 2009 compared to the fourth quarter of
2008.  Commercial and industrial loan growth is expected to be in the
low single-digits 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 March 31, 2009, construction and development loans
were 16.8% 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 growth in
2009 compared to 2008 is expected to be relatively modest. Wealth management
revenue will continue to be affected by market volatility and
direction.
   28
 Table of Contents
 
 Management
expects the prevailing economic and difficult real estate market conditions will
last through 2009 and likely into 2010 in some of the Corporation’s
markets.  A weak and unstable economy and rising unemployment has
resulted in increased stress in consumer loans, particularly consumer mortgage
and home equity loans and lines of credit. The Corporation expects nonperforming
asset levels will remain elevated.  Nonperforming loans are expected
to increase over the next few quarters reflecting the broader economic
stress.
 
 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 assets, net
charge-offs and the provision for loan and lease losses that will be recognized
in the remainder of 2009.  In addition, the timing and amount of
charge-offs will continue to be influenced by the Corporation’s strategies for
managing its nonperforming loans and leases.  If the economy and real
estate markets deteriorate more than management currently expects, the
Corporation will continue to experience increased levels of nonperforming
assets, increased net charge-offs, a higher provision for loan and lease losses,
lower net interest income and increased operating costs due to the expense
associated with collection efforts and the operating expense of carrying
nonperforming assets.
 
 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 for a discussion of the various risk factors that could cause actual
results to differ materially from expected results.
 
 OTHER
NOTEWORTHY TRANSACTIONS AND EVENTS
 
 Some of
the other more noteworthy transactions and events that occurred in the three
months ended March 31, 2009 and 2008 consisted of the following:
 
 First
quarter 2009
 
 The State
of Wisconsin recently 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.
 
 First
quarter 2008
 
 On
January 2, 2008, the Corporation completed its acquisition of First Indiana
Corporation (“First Indiana”).
 
 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.
 
 During
the first quarter of 2008, the Corporation recognized an additional income tax
benefit of approximately $20.0 million, or $0.08 per diluted common share,
related to how the TEFRA (interest expense) disallowance should be calculated
within a consolidated group.
 
 
 29
 Table of Contents
 
 
 NET INTEREST
INCOME
 
 
 Net
interest income is the difference between interest income on earning assets and
interest expense on interest bearing liabilities.
 
 Net
interest income for the first quarter of 2009 amounted to $401.7 million
compared to $430.4 million reported for the first quarter of 2008, a decrease of
$28.7 million or 6.7%. During the past year, net interest income has been under
pressure as the fall of interest rates has caused interest rates on earning
assets to decline more rapidly than the rates paid for interest bearing
liabilities. The Corporation’s inability to continue to lower deposit pricing in
the low interest rate environment due to competition for deposits and a shift in
deposit mix to higher cost deposits has contributed to lower net interest
income.  In addition, net interest income has been compressed as a
result of the higher levels of nonperforming assets.
 
 Average
earning assets increased $1.6 billion or 2.9% in the first quarter of 2009
compared to the first quarter of 2008.  Average loans and leases
accounted for $1.2 billion of the growth in average earning assets in the three
months ended March 31, 2009 compared to the three months ended March 31,
2008.  Average investment securities, short-term investments and
trading assets increased approximately $0.4 billion in the first quarter of 2009
over the prior year first quarter.
 
 Average
interest bearing liabilities were relatively unchanged in the first quarter of
2009 compared to the first quarter of 2008, and amounted to $48.5
billion.  Average interest bearing deposits increased $1.1 billion or
3.4% in the first quarter of 2009 compared to the first quarter of
2008.  Average total borrowings decreased $1.1 billion or 6.9% in the
first quarter of 2009 compared to the same period in 2008.
 
 Average
noninterest bearing deposits increased approximately $0.8 billion or 15.2% in
the three months ended March 31, 2009 compared to the three months ended March
31, 2008.
 
 The
growth and composition of the Corporation’s quarterly average loan and lease
portfolio for the current quarter and previous four quarters are reflected in
the following table  ($ in millions):
 
 Consolidated Average Loans
and Leases
 2009
                                                                                                              
                                                                                                              
                                                                                                              2008
                                                                                                              
                                                                                                              
                                                                                                              Growth
      Pct.First
                                                                                                              
                                                                                                              
                                                                                                              Fourth
                                                                                                              
                                                                                                              
                                                                                                              Third
                                                                                                              
                                                                                                              
                                                                                                              Second
                                                                                                              
                                                                                                              
                                                                                                              First
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              PriorQuarter
                                                                                                              
                                                                                                              
                                                                                                              Quarter
                                                                                                              
                                                                                                              
                                                                                                              Quarter
                                                                                                              
                                                                                                              
                                                                                                              Quarter
                                                                                                              
                                                                                                              
                                                                                                              Quarter
                                                                                                              
                                                                                                              
                                                                                                              Annual
                                                                                                              
                                                                                                              
                                                                                                              QuarterCommercial
      loans and leasesCommercial
                                                                                                              
                                                                                                              $
                                                                                                              14,745
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              14,888
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              15,002
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              15,086
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              14,389
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2.5
                                                                                                              %
                                                                                                              
                                                                                                              
                                                                                                              (1.0
                                                                                                              )
      %Commercial
      lease financing
                                                                                                              
                                                                                                              
                                                                                                              547
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              534
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              511
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              517
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              522
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4.9
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2.4Total
      commercial loans and leases
                                                                                                              
                                                                                                              
                                                                                                              15,292
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              15,422
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              15,513
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              15,603
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              14,911
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2.6
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (0.8
                                                                                                              )Commercial
      real estate
                                                                                                              
                                                                                                              
                                                                                                              12,872
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              12,203
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              11,942
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              11,703
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              11,507
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              11.9
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5.5Residential
      real estate loans
                                                                                                              
                                                                                                              
                                                                                                              5,768
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,675
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,631
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,525
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,182
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              11.3
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1.6Construction
      and Development LoansCommercialConstruction
                                                                                                              
                                                                                                              
                                                                                                              3,966
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,577
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,433
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,431
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,463
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (11.1
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (13.3
                                                                                                              )Land
                                                                                                              
                                                                                                              
                                                                                                              854
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              913
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              986
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              992
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              973
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (12.3
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (6.5
                                                                                                              )Commercial
      construction & development
                                                                                                              
                                                                                                              
                                                                                                              4,820
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,490
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,419
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,423
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,436
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (11.3
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (12.2
                                                                                                              )ResidentialConstruction
      by individuals
                                                                                                              
                                                                                                              
                                                                                                              834
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              938
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,009
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,013
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,010
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (17.4
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (11.1
                                                                                                              )Land
                                                                                                              
                                                                                                              
                                                                                                              2,094
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,200
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,254
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,419
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2,511
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (16.6
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (4.8
                                                                                                              )Construction
      by developers
                                                                                                              
                                                                                                              
                                                                                                              923
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,158
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,275
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,518
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,595
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (42.1
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (20.4
                                                                                                              )Residential
      construction & development
                                                                                                              
                                                                                                              
                                                                                                              3,851
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,296
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,538
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,950
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,116
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (24.7
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (10.4
                                                                                                              )Total
      construction and development loans
                                                                                                              
                                                                                                              
                                                                                                              8,671
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              9,786
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              9,957
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              10,373
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              10,552
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (17.8
                                                                                                              )
                                                                                                              
                                                                                                              
                                                                                                              (11.4
                                                                                                              )Personal
      loans and leasesHome
      equity loans and lines
                                                                                                              
                                                                                                              
                                                                                                              5,064
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,071
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              5,027
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,835
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4,670
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              8.4
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (0.1
                                                                                                              )Other
      personal loans
                                                                                                              
                                                                                                              
                                                                                                              1,942
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,878
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,766
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,693
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              1,590
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              22.1
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              3.4Personal
      lease financing
                                                                                                              
                                                                                                              
                                                                                                              207
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              211
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              196
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              199
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              198
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              4.0
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              (2.3
                                                                                                              )Total
      personal loans and leases
                                                                                                              
                                                                                                              
                                                                                                              7,213
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              7,160
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              6,989
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              6,727
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              6,458
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              11.7
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              0.7Total
      consolidated average loans and leases
                                                                                                              
                                                                                                              $
                                                                                                              49,816
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              50,246
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              50,032
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              49,931
                                                                                                              
                                                                                                              
                                                                                                              $
                                                                                                              48,610
                                                                                                              
                                                                                                              
                                                                                                              
                                                                                                              2.5
                                                                                                              %
                                                                                                              
                                                                                                              
                                                                                                              (0.9
                                                                                                              )
      %




Total
consolidated average loans and leases increased $1.2 billion or 2.5% in the
first quarter of 2009 compared to the first quarter of 2008.
   30
 Table of Contents
 
 Total
average commercial loan and lease growth was $0.4 billion or 2.6% in the first
quarter of 2009 compared to the first quarter of 2008. Compared to the fourth
quarter of 2008, total average commercial loans and leases decreased $0.1
billion or 0.8%. The weak economy has resulted in commercial customers reducing
expenses and paying down their debt, delaying capital expenditures and reducing
inventories. Management expects that year-over-year commercial loan and lease
growth (as a percentage) will be in the low single-digit percentage range in
2009 compared to 2008.
 
 Total
average commercial real estate loan growth was $1.4 billion or 11.9% in the
first quarter of 2009 compared to the first quarter of 2008. Compared to the
fourth quarter of 2008, total average commercial real estate loans increased
$0.7 billion or 5.5%. The Corporation continues to experience slowing in
construction and development activity and to some extent throughout its
commercial real estate business in response to the weak economy. Commercial real
estate loan growth in 2009 is expected to be relatively modest.
 
 Total
average residential real estate loan growth was $0.6 billion or 11.3% in the
first quarter of 2009 compared to the first quarter of 2008. Compared to the
fourth quarter of 2008, total average residential real estate loans increased
$0.1 billion or 1.6%. From a production standpoint, residential real estate loan
closings in the first quarter of 2009 were $0.8 billion compared to $0.4 billion
in the fourth quarter of 2008 and $1.4 billion in the first quarter of 2008.
Over 80% of new mortgage volumes in the first quarter of 2009 were associated
with re-financings due to low interest rates. The Corporation sells some of its
residential real estate production (residential real estate and home equity
loans) in the secondary market.  Selected residential real estate
loans with rate and term characteristics that are considered desirable are
retained in the portfolio.  For the three months ended March 31, 2009
and 2008, real estate loans sold to investors amounted to $0.7 billion and $0.5
billion, respectively.  At March 31, 2009 and 2008, the Corporation
had approximately $112.7 million and $68.7 million of residential mortgage loans
and home equity loans held for sale, respectively.  Gains from the
sale of mortgage loans amounted to $9.8 million in the first quarter of 2009
compared to $8.5 million in the first quarter of 2008.
 
 Total
average construction and development loans declined $1.9 billion or 17.8% in the
first quarter of 2009 compared to the first quarter of 2008 and declined $1.1
billion or 11.4% since the fourth quarter of 2008. Certain construction and
development loans currently have a higher risk profile because the value of the
underlying collateral is dependent on the real estate markets and these loans
are somewhat concentrated in markets experiencing elevated levels of
stress.  Construction and development loans consist of:
 
 Commercial
Construction - Loans primarily to mid-sized local and regional companies
to construct a variety of commercial projects.
 
 Commercial Land -
Loans primarily to mid-sized local and regional companies to acquire and develop
land for a variety of commercial projects.
 
 Residential Construction by
Individuals - Loans to individuals to construct 1-4 family
homes.
 
 Residential Land -
Loans primarily to individuals and mid-sized local and regional builders to
acquire and develop land for 1-4 family homes.
 
 Residential Construction by
Developers - Loans primarily to mid-sized local and regional builders to
construct 1-4 family homes in residential subdivisions.
 
 The
decrease in construction and development loans has been due to payments,
transfers to other loan types when projects are completed and permanent
financing is obtained, loan sales and charge-offs. Construction and development
loans held for sale amounted to $72.9 million at March 31, 2009. 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. Period-end construction and development loans
amounted to $8,251 million which was 16.8% of total loans and leases outstanding
at March 31, 2009 and is $420 million less than average construction and
development loans for the three months ended March 31, 2009.
 
 Total
average personal loan growth was $0.8 billion or 11.7% in the first quarter of
2009 compared to the first quarter of 2008. Approximately $0.4 billion of the
growth was attributable to home equity loans and lines of credit and $0.2
billion of the growth was attributable to consumer auto loans. Compared to the
fourth quarter of 2008, total average personal loans increased $0.1 billion or
0.7%. Credit card loans averaged $0.3 billion in the first quarter of 2009.
Credit card loans are not significant to the Corporation’s loan and lease
portfolio.
   31
 Table of Contents
 
 The
growth and composition of the Corporation’s quarterly average deposits for the
current and previous four quarters are as follows ($ in millions):
 
 Consolidated Average
Deposits




2009
                                      
                                      
                                      2008
                                      
                                      
                                      Growth
      Pct.First
                                      
                                      
                                      Fourth
                                      
                                      
                                      Third
                                      
                                      
                                      Second
                                      
                                      
                                      First
                                      
                                      
                                      
                                      
                                      
                                      PriorQuarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Quarter
                                      
                                      
                                      Annual
                                      
                                      
                                      QuarterNoninterest
      bearing depositsCommercial
                                      
                                      $
                                      4,849
                                      
                                      
                                      $
                                      4,470
                                      
                                      
                                      $
                                      4,305
                                      
                                      
                                      $
                                      4,168
                                      
                                      
                                      $
                                      4,004
                                      
                                      
                                      
                                      21.1
                                      %
                                      
                                      
                                      8.5
                                      %Personal
                                      
                                      
                                      979
                                      
                                      
                                      
                                      985
                                      
                                      
                                      
                                      1,005
                                      
                                      
                                      
                                      1,056
                                      
                                      
                                      
                                      1,018
                                      
                                      
                                      
                                      (3.9
                                      )
                                      
                                      
                                      (0.6
                                      )Other
                                      
                                      
                                      654
                                      
                                      
                                      
                                      608
                                      
                                      
                                      
                                      599
                                      
                                      
                                      
                                      604
                                      
                                      
                                      
                                      607
                                      
                                      
                                      
                                      7.9
                                      
                                      
                                      
                                      7.7Total
      noninterest bearing deposits
                                      
                                      
                                      6,482
                                      
                                      
                                      
                                      6,063
                                      
                                      
                                      
                                      5,909
                                      
                                      
                                      
                                      5,828
                                      
                                      
                                      
                                      5,629
                                      
                                      
                                      
                                      15.2
                                      
                                      
                                      
                                      6.9Interest
      bearing depositsSavings
      and NOWSavings
                                      
                                      
                                      887
                                      
                                      
                                      
                                      883
                                      
                                      
                                      
                                      902
                                      
                                      
                                      
                                      882
                                      
                                      
                                      
                                      820
                                      
                                      
                                      
                                      8.1
                                      
                                      
                                      
                                      0.3NOW
                                      
                                      
                                      2,624
                                      
                                      
                                      
                                      2,340
                                      
                                      
                                      
                                      2,391
                                      
                                      
                                      
                                      2,391
                                      
                                      
                                      
                                      2,382
                                      
                                      
                                      
                                      10.2
                                      
                                      
                                      
                                      12.2Brokered
      NOW
                                      
                                      
                                      19
                                      
                                      
                                      
                                      5
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      n.m.
                                      
                                      
                                      
                                      312.7Total
      savings and NOW
                                      
                                      
                                      3,530
                                      
                                      
                                      
                                      3,228
                                      
                                      
                                      
                                      3,293
                                      
                                      
                                      
                                      3,273
                                      
                                      
                                      
                                      3,202
                                      
                                      
                                      
                                      10.2
                                      
                                      
                                      
                                      9.4Money
      marketMoney
      market index
                                      
                                      
                                      6,541
                                      
                                      
                                      
                                      7,085
                                      
                                      
                                      
                                      7,848
                                      
                                      
                                      
                                      8,335
                                      
                                      
                                      
                                      8,401
                                      
                                      
                                      
                                      (22.1
                                      )
                                      
                                      
                                      (7.7
                                      )Money
      market savings
                                      
                                      
                                      1,069
                                      
                                      
                                      
                                      1,143
                                      
                                      
                                      
                                      1,224
                                      
                                      
                                      
                                      1,339
                                      
                                      
                                      
                                      1,383
                                      
                                      
                                      
                                      (22.7
                                      )
                                      
                                      
                                      (6.5
                                      )Brokered
      money market
                                      
                                      
                                      3,021
                                      
                                      
                                      
                                      2,413
                                      
                                      
                                      
                                      1,473
                                      
                                      
                                      
                                      1,525
                                      
                                      
                                      
                                      1,903
                                      
                                      
                                      
                                      58.7
                                      
                                      
                                      
                                      25.2Total
      money market
                                      
                                      
                                      10,631
                                      
                                      
                                      
                                      10,641
                                      
                                      
                                      
                                      10,545
                                      
                                      
                                      
                                      11,199
                                      
                                      
                                      
                                      11,687
                                      
                                      
                                      
                                      (9.0
                                      )
                                      
                                      
                                      (0.1
                                      )TimeCDs
      $100,000 and overLarge
      CDs
                                      
                                      
                                      4,152
                                      
                                      
                                      
                                      3,714
                                      
                                      
                                      
                                      3,881
                                      
                                      
                                      
                                      4,074
                                      
                                      
                                      
                                      4,203
                                      
                                      
                                      
                                      (1.2
                                      )
                                      
                                      
                                      11.8Brokered
      CDs
                                      
                                      
                                      7,888
                                      
                                      
                                      
                                      9,059
                                      
                                      
                                      
                                      8,295
                                      
                                      
                                      
                                      7,090
                                      
                                      
                                      
                                      5,102
                                      
                                      
                                      
                                      54.6
                                      
                                      
                                      
                                      (12.9
                                      )Total
      CDs $100,000 and over
                                      
                                      
                                      12,040
                                      
                                      
                                      
                                      12,773
                                      
                                      
                                      
                                      12,176
                                      
                                      
                                      
                                      11,164
                                      
                                      
                                      
                                      9,305
                                      
                                      
                                      
                                      29.4
                                      
                                      
                                      
                                      (5.7
                                      )Other
      CDs and time
                                      
                                      
                                      5,861
                                      
                                      
                                      
                                      5,499
                                      
                                      
                                      
                                      5,152
                                      
                                      
                                      
                                      4,813
                                      
                                      
                                      
                                      4,655
                                      
                                      
                                      
                                      25.9
                                      
                                      
                                      
                                      6.6Total
      time
                                      
                                      
                                      17,901
                                      
                                      
                                      
                                      18,272
                                      
                                      
                                      
                                      17,328
                                      
                                      
                                      
                                      15,977
                                      
                                      
                                      
                                      13,960
                                      
                                      
                                      
                                      28.2
                                      
                                      
                                      
                                      (2.0
                                      )ForeignForeign
      activity
                                      
                                      
                                      866
                                      
                                      
                                      
                                      1,583
                                      
                                      
                                      
                                      1,813
                                      
                                      
                                      
                                      1,834
                                      
                                      
                                      
                                      1,965
                                      
                                      
                                      
                                      (55.9
                                      )
                                      
                                      
                                      (45.3
                                      )Foreign
      time
                                      
                                      
                                      257
                                      
                                      
                                      
                                      823
                                      
                                      
                                      
                                      800
                                      
                                      
                                      
                                      942
                                      
                                      
                                      
                                      1,285
                                      
                                      
                                      
                                      (80.0
                                      )
                                      
                                      
                                      (68.8
                                      )Total
      foreign
                                      
                                      
                                      1,123
                                      
                                      
                                      
                                      2,406
                                      
                                      
                                      
                                      2,613
                                      
                                      
                                      
                                      2,776
                                      
                                      
                                      
                                      3,250
                                      
                                      
                                      
                                      (65.5
                                      )
                                      
                                      
                                      (53.3
                                      )Total
      interest bearing deposits
                                      
                                      
                                      33,185
                                      
                                      
                                      
                                      34,547
                                      
                                      
                                      
                                      33,779
                                      
                                      
                                      
                                      33,225
                                      
                                      
                                      
                                      32,099
                                      
                                      
                                      
                                      3.4
                                      
                                      
                                      
                                      (3.9
                                      )Total
      consolidated average deposits
                                      
                                      $
                                      39,667
                                      
                                      
                                      $
                                      40,610
                                      
                                      
                                      $
                                      39,688
                                      
                                      
                                      $
                                      39,053
                                      
                                      
                                      $
                                      37,728
                                      
                                      
                                      
                                      5.1
                                      %
                                      
                                      
                                      (2.3
                                      )
      %




Total
consolidated average deposits increased $1.9 billion or 5.1% in the first
quarter of 2009 compared to the first quarter of 2008. Average noninterest
bearing deposits increased approximately $0.8 billion or 15.2% in the first
quarter of 2009 compared to the first quarter of 2008 and increased $0.4 billion
or 6.9% compared to the fourth quarter of 2008.  Average interest
bearing deposits increased $1.1 billion or 3.4% in the first quarter of 2009
compared to the first quarter of 2008 and decreased $1.4 billion or 3.9%
compared to the fourth quarter of 2008. The decrease in average interest bearing
deposits in the first quarter of 2009 compared to the fourth quarter of 2008 was
due to brokered CDs that matured or were called due to the rate structure and a
decline in higher-priced foreign activity and time deposits. Of the $1.1 billion
increase in average interest bearing deposits over the prior year, average
savings and NOW increased $0.3 billion and average time deposits increased $3.9
billion.  The growth in savings and NOW and time deposits was offset
by declines in average money market deposits of approximately $1.0 billion and
foreign deposits of $2.1 billion in the first quarter of 2009 compared to the
first quarter of 2008. The decline in average money market and foreign deposits
reflects the competitive pricing environment.
 
 Historically,
noninterest bearing deposit balances tended to exhibit some seasonality with a
trend of balances declining somewhat in the early part of the year followed by
growth in balances throughout the remainder of the year.  A portion of
the noninterest balances, especially commercial balances, is sensitive to the
interest rate environment.  Larger balances tend to be maintained when
overall interest rates are low and smaller balances tend to be maintained as
overall interest rates increase.
 
 The
Corporation continued to experience shifts in the deposit mix.  In
their search for higher yields, both new and existing customers have been
migrating their deposit balances to higher cost deposit
products.  Management expects this behavior to continue.
   32
 Table of Contents
 
 Total
borrowings amounted to $14.9 billion at March 31, 2009 compared to $13.7 billion
at December 31, 2008. During the first quarter of 2009, the Corporation
re-acquired and extinguished $42.1 million of long-term borrowings at a gain of
$3.1 million that is reported as gain on termination of debt in the Consolidated
Statements of Income.
 
 The
Corporation’s consolidated average interest earning assets and interest bearing
liabilities, interest earned and interest paid for the three months ended March
31, 2009 and 2008, are presented in the following tables ($ in
millions):
 
 Consolidated
Yield and Cost Analysis




Three
      Months Ended
                                                                                      
                                                                                      Three
      Months EndedMarch
      31, 2009
                                                                                      
                                                                                      March
      31, 2008Average
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      AverageAverage
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      Yield
      or
                                                                                      
                                                                                      
                                                                                      Average
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      Yield
      orBalance
                                                                                      
                                                                                      
                                                                                      Interest
                                                                                      
                                                                                      
                                                                                      Cost
      (b)
                                                                                      
                                                                                      
                                                                                      Balance
                                                                                      
                                                                                      
                                                                                      Interest
                                                                                      
                                                                                      
                                                                                      Cost
      (b)Loans
      and leases: (a)Commercial
      loans and leases
                                                                                      
                                                                                      $
                                                                                      15,292.2
                                                                                      
                                                                                      
                                                                                      $
                                                                                      147.2
                                                                                      
                                                                                      
                                                                                      
                                                                                      3.90
                                                                                      %
                                                                                      
                                                                                      $
                                                                                      14,910.1
                                                                                      
                                                                                      
                                                                                      $
                                                                                      231.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.25
                                                                                      %Commercial
      real estate loans
                                                                                      
                                                                                      
                                                                                      17,691.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      205.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.70
                                                                                      
                                                                                      
                                                                                      
                                                                                      16,943.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      276.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.56Residential
      real estate loans
                                                                                      
                                                                                      
                                                                                      9,619.4
                                                                                      
                                                                                      
                                                                                      
                                                                                      120.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      5.08
                                                                                      
                                                                                      
                                                                                      
                                                                                      10,297.6
                                                                                      
                                                                                      
                                                                                      
                                                                                      164.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.43Home
      equity loans and lines
                                                                                      
                                                                                      
                                                                                      5,064.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      64.8
                                                                                      
                                                                                      
                                                                                      
                                                                                      5.19
                                                                                      
                                                                                      
                                                                                      
                                                                                      4,670.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      80.0
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.89Personal
      loans and leases
                                                                                      
                                                                                      
                                                                                      2,148.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      29.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      5.54
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,788.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      31.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.98Total
      loans and leases
                                                                                      
                                                                                      
                                                                                      49,815.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      566.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.62
                                                                                      
                                                                                      
                                                                                      
                                                                                      48,610.0
                                                                                      
                                                                                      
                                                                                      
                                                                                      784.0
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.49Investment
      securities (b):Taxable
                                                                                      
                                                                                      
                                                                                      6,607.4
                                                                                      
                                                                                      
                                                                                      
                                                                                      63.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      3.83
                                                                                      
                                                                                      
                                                                                      
                                                                                      6,668.8
                                                                                      
                                                                                      
                                                                                      
                                                                                      77.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.69Tax
      Exempt (a)
                                                                                      
                                                                                      
                                                                                      1,081.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      18.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.94
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,242.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      21.0
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.85Total
      investment securities
                                                                                      
                                                                                      
                                                                                      7,689.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      81.4
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.26
                                                                                      
                                                                                      
                                                                                      
                                                                                      7,911.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      98.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      5.03Trading
      assets (a)
                                                                                      
                                                                                      
                                                                                      585.0
                                                                                      
                                                                                      
                                                                                      
                                                                                      1.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      1.33
                                                                                      
                                                                                      
                                                                                      
                                                                                      178.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      1.51Other
      short-term investments
                                                                                      
                                                                                      
                                                                                      570.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.45
                                                                                      
                                                                                      
                                                                                      
                                                                                      332.2
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      3.53Total
      interest earning assets
                                                                                      
                                                                                      $
                                                                                      58,660.1
                                                                                      
                                                                                      
                                                                                      $
                                                                                      650.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.50
                                                                                      %
                                                                                      
                                                                                      $
                                                                                      57,031.8
                                                                                      
                                                                                      
                                                                                      $
                                                                                      886.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      6.25
                                                                                      %Interest
      bearing deposits:Savings
      and NOW
                                                                                      
                                                                                      $
                                                                                      3,530.1
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.13
                                                                                      %
                                                                                      
                                                                                      $
                                                                                      3,202.0
                                                                                      
                                                                                      
                                                                                      $
                                                                                      7.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.97
                                                                                      %Money
      market
                                                                                      
                                                                                      
                                                                                      10,631.2
                                                                                      
                                                                                      
                                                                                      
                                                                                      16.4
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.62
                                                                                      
                                                                                      
                                                                                      
                                                                                      11,687.2
                                                                                      
                                                                                      
                                                                                      
                                                                                      85.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.96Time
                                                                                      
                                                                                      
                                                                                      17,901.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      119.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.71
                                                                                      
                                                                                      
                                                                                      
                                                                                      13,960.4
                                                                                      
                                                                                      
                                                                                      
                                                                                      155.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.47Foreign
                                                                                      
                                                                                      
                                                                                      1,122.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.33
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,249.8
                                                                                      
                                                                                      
                                                                                      
                                                                                      23.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.96Total
      interest bearing deposits
                                                                                      
                                                                                      
                                                                                      33,185.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      138.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      1.69
                                                                                      
                                                                                      
                                                                                      
                                                                                      32,099.4
                                                                                      
                                                                                      
                                                                                      
                                                                                      272.8
                                                                                      
                                                                                      
                                                                                      
                                                                                      3.42Short-term
      borrowings
                                                                                      
                                                                                      
                                                                                      5,724.1
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.0
                                                                                      
                                                                                      
                                                                                      
                                                                                      0.28
                                                                                      
                                                                                      
                                                                                      
                                                                                      6,415.6
                                                                                      
                                                                                      
                                                                                      
                                                                                      53.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      3.36Long-term
      borrowings
                                                                                      
                                                                                      
                                                                                      9,570.7
                                                                                      
                                                                                      
                                                                                      
                                                                                      99.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.24
                                                                                      
                                                                                      
                                                                                      
                                                                                      10,020.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      122.3
                                                                                      
                                                                                      
                                                                                      
                                                                                      4.91Total
      interest bearing liabilities
                                                                                      
                                                                                      $
                                                                                      48,480.3
                                                                                      
                                                                                      
                                                                                      $
                                                                                      242.0
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.02
                                                                                      %
                                                                                      
                                                                                      $
                                                                                      48,535.5
                                                                                      
                                                                                      
                                                                                      $
                                                                                      448.6
                                                                                      
                                                                                      
                                                                                      
                                                                                      3.72
                                                                                      %Net
      interest margin (FTE)
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      408.9
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.82
                                                                                      %
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      437.5
                                                                                      
                                                                                      
                                                                                      
                                                                                      3.09
                                                                                      %Net
      interest spread (FTE)
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.48
                                                                                      %
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      2.53
                                                                                      %




(a)
                Fully
      taxable equivalent (“FTE”) basis, 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 net
interest margin FTE decreased 27 basis points from 3.09% in the first quarter of
2008 to 2.82% in the first quarter of 2009. During the past year, net interest
income has been under pressure as the decline in interest rates has caused the
yield on earning assets to decline by 175 basis points compared to the decline
in the cost for interest bearing liabilities of 170 basis points. The
Corporation’s inability to continue to lower deposit pricing in the low interest
rate environment due to competition for deposits and a shift in deposit mix to
higher cost deposits have contributed to lower net interest income and reduced
net interest margin. In addition, net interest income has been compressed as a
result of the higher levels of nonperforming assets. The growth in noninterest
bearing deposits was beneficial to net interest income and the net interest
margin in the first quarter 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. Recent
growth in noninterest bearing deposits as well as the benefits of improved
pricing on newly originated and renewed loans should, to some extent, help
offset the near term net interest margin challenges facing the Corporation.
However, management expects net interest margin compression to be more likely
than net interest margin expansion in the near term. Net interest income and the
net interest margin percentage can vary and continue to be influenced by loan
and deposit growth, product spreads, pricing competition in the Corporation’s
markets, prepayment activity, future interest rate changes, levels of nonaccrual
loans and various other factors.
   33
 Table of Contents
 
 PROVISION FOR
LOAN AND LEASE LOSSES AND CREDIT QUALITY
 
 The
following tables present comparative consolidated credit quality information as
of March 31, 2009 and the prior four quarters:
  Nonperforming
Assets
 ($000’s)
 2009
                              
                              
                              2008First
                              
                              
                              Fourth
                              
                              
                              Third
                              
                              
                              Second
                              
                              
                              FirstQuarter
                              
                              
                              Quarter
                              
                              
                              Quarter
                              
                              
                              Quarter
                              
                              
                              QuarterNonaccrual
                              
                              $
                              2,074,553
                              
                              
                              $
                              1,526,950
                              
                              
                              $
                              1,260,642
                              
                              
                              $
                              1,006,757
                              
                              
                              $
                              774,137Renegotiated
                              
                              
                              445,995
                              
                              
                              
                              270,357
                              
                              
                              
                              89,486
                              
                              
                              
                              16,523
                              
                              
                              
                              97Past
      due 90 days or more
                              
                              
                              16,099
                              
                              
                              
                              14,528
                              
                              
                              
                              12,070
                              
                              
                              
                              17,676
                              
                              
                              
                              12,784Total
      nonperforming loans and leases
                              
                              
                              2,536,647
                              
                              
                              
                              1,811,835
                              
                              
                              
                              1,362,198
                              
                              
                              
                              1,040,956
                              
                              
                              
                              787,018Other
      real estate owned
                              
                              
                              344,271
                              
                              
                              
                              320,908
                              
                              
                              
                              267,224
                              
                              
                              
                              207,102
                              
                              
                              
                              177,806Total
      nonperforming assets
                              
                              $
                              2,880,918
                              
                              
                              $
                              2,132,743
                              
                              
                              $
                              1,629,422
                              
                              
                              $
                              1,248,058
                              
                              
                              $
                              964,824Allowance
      for loan and lease losses
                              
                              $
                              1,352,117
                              
                              
                              $
                              1,202,167
                              
                              
                              $
                              1,031,494
                              
                              
                              $
                              1,028,809
                              
                              
                              $
                              543,539


Consolidated
Statistics
 2009
                                    
                                    
                                    2008First
                                    
                                    
                                    Fourth
                                    
                                    
                                    Third
                                    
                                    
                                    Second
                                    
                                    
                                    FirstQuarter
                                    
                                    
                                    Quarter
                                    
                                    
                                    Quarter
                                    
                                    
                                    Quarter
                                    
                                    
                                    QuarterNet
      charge-offs to averageloans and leases
      annualized
                                    
                                    
                                    2.67
                                    %
                                    
                                    
                                    5.38
                                    %
                                    
                                    
                                    1.21
                                    %
                                    
                                    
                                    3.23
                                    %
                                    
                                    
                                    1.08
                                    %Total
      nonperforming loans and leasesto total loans and
      leases
                                    
                                    
                                    5.15
                                    
                                    
                                    
                                    3.62
                                    
                                    
                                    
                                    2.70
                                    
                                    
                                    
                                    2.07
                                    
                                    
                                    
                                    1.60Total
      nonperforming assets to total loansand leases and other real
      estate owned
                                    
                                    
                                    5.81
                                    
                                    
                                    
                                    4.24
                                    
                                    
                                    
                                    3.21
                                    
                                    
                                    
                                    2.47
                                    
                                    
                                    
                                    1.95Allowance
      for loan and lease lossesto total loans and
      leases
                                    
                                    
                                    2.75
                                    
                                    
                                    
                                    2.41
                                    
                                    
                                    
                                    2.05
                                    
                                    
                                    
                                    2.05
                                    
                                    
                                    
                                    1.10Allowance
      for loan and lease lossesto total nonaccrual loans and
      leases
                                    
                                    
                                    65
                                    
                                    
                                    
                                    79
                                    
                                    
                                    
                                    82
                                    
                                    
                                    
                                    102
                                    
                                    
                                    
                                    70Allowance
      for loan and lease lossesto total nonperforming loans and
      leases
                                    
                                    
                                    53
                                    
                                    
                                    
                                    66
                                    
                                    
                                    
                                    76
                                    
                                    
                                    
                                    99
                                    
                                    
                                    
                                    69
  Nonperforming
loans and leases consist of nonaccrual, troubled-debt restructured loans which
the Corporation refers to as renegotiated, and loans and leases that are
delinquent 90 days or more and still accruing interest. Nonperforming assets
consist of nonperforming loans and leases and other real estate owned (“OREO”).
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 and the expenses of holding OREO. Nonperforming assets
increased $748.2 million or 35.1% at March 31, 2009 compared to December 31,
2008.
 
 Every
major category of loans and leases experienced an increase in nonperforming
loans and leases except other consumer loans and leases during the first quarter
of 2009. Those increases reflect the varying degrees of economic stress
throughout the Corporation’s markets.  Nonperforming loans and leases
continue to be concentrated in construction and development loans which
represented 48.4% of total nonperforming loans and leases at March 31, 2009. In
aggregate, nonperforming loans and leases in the Arizona, Florida and the
correspondent business channels represented 52.7% of total nonperforming loans
and leases at March 31, 2009.
 
 During
the first quarter of 2009, the Corporation worked closely with Huntington
Bancshares Incorporated to re-assess the value of the underlying collateral that
supports the loans with Franklin Credit Management Corp. (“Franklin”). Based on
that assessment, the loans to Franklin were restructured. As a result, a
charge-off of $33.8 million was taken on Franklin and the remaining $69.1
million was placed in nonperforming status.  At March 31, 2009,
nonperforming loans associated with Franklin consisted of $17.3 million reported
as nonaccrual and $51.8 million reported as renegotiated. Nonperforming loans
associated with Franklin are reported in commercial loans and leases in the
Major Categories of Nonperforming Loans & Leases and are included in Others
in the Geographical Summary of  Nonperforming Loans & Leases
tables presented below.
   34
 Table of Contents
 
 The
Corporation has worked aggressively to isolate, identify and assess its
underlying loan and lease portfolio credit quality and has developed and
continues to develop strategies to reduce and mitigate its loss
exposure.  During the first quarter of 2009, the Corporation sold $104
million of nonperforming loans and $24 million of potential problem loans. At
March 31, 2009, the Corporation held $113.7 million of nonaccrual loans and
$16.6 million of potential problem loans that are intended to be sold and have
been charged down to their net realizable value. Since the first quarter of
2008, the unpaid principal balance of nonperforming loans and potential problem
loans sold was approximately $991.4 million.
 
 Generally,
loans that are 90 days or more past due as to interest or principal are placed
on nonaccrual.  Exceptions to these rules are generally only for loans
fully collateralized by readily marketable securities or other relatively risk
free collateral and certain personal loans.  In addition, a loan may
be placed on nonaccrual when management makes a determination that the facts and
circumstances warrant such classification irrespective of the current payment
status.  At March 31, 2009, approximately $672.4 million or 26.5% of
the Corporation’s total nonperforming loans and leases were less than 30 days
past due.  In addition, approximately $273.7 million or 10.8% of the
Corporation’s total nonperforming loans and leases were greater than 30 days
past due but less than 90 days past due at March 31, 2009.  In total,
approximately $946.1 million or 37.3% of the Corporation’s total nonperforming
loans and leases were less than 90 days past due at March 31, 2009.
 
 At March
31, 2009, nonperforming loans and leases amounted to $2,536.6 million or 5.15%
of consolidated loans and leases compared to $1,811.8 million or 3.62% of
consolidated loans and leases at December 31, 2008 and $787.0 million or 1.60%
of consolidated loans and leases at March 31, 2008.
 
 Nonaccrual
loans, the largest component of nonperforming loans, are considered to be those
loans with the greatest risk of loss due to nonperformance and amounted to
$2,074.6 million or 4.21% of total loans and leases outstanding at March 31,
2009 compared to $1,527.0 million or 3.05% of total loans and leases outstanding
at December 31, 2008 and $774.1 million or 1.6% of total loans and leases
outstanding at March 31, 2008. The amount of cumulative charge-offs recorded on
the Corporation’s nonaccrual loans outstanding at March 31, 2009 was
approximately $665.1 million or 48.3% of the unpaid principal balance of the
affected nonaccrual loans and 24.3% of the unpaid principal balance of its total
nonaccrual loans outstanding at March 31, 2009.  These
charge-offs have reduced the carrying value of these nonaccrual loans and leases
which reduced the allowance for loan and lease losses required at the
measurement date.
 
 Renegotiated
loans and leases amounted to $446.0 million at March 31, 2009 compared to $270.4
million at December 31, 2008 and $0.1 million at March 31, 2008. After
restructuring, renegotiated loans generally result in lower payments than
originally required and therefore, have a lower risk of loss due to
nonperformance than loans classified as nonaccrual. The Corporation’s instances
of default and re-default on renegotiated loans has been relatively low.
However, the Corporation’s experience with renegotiated loan performance is
relatively new and does not encompass an extended period of time. In order to
avoid foreclosure in the future, the Corporation has restructured loan terms for
certain qualified borrowers that have demonstrated the ability to make the
restructured payments for a specified period of time. The Corporation’s
foreclosure abatement program includes several options.  The
Corporation has primarily used reduced interest rates and extended terms to
lower contractual payments.  In addition, the Corporation recently
announced that it extended its foreclosure moratorium on all owner-occupied
residential loans for customers who agreed to work in good faith to reach a
successful repayment agreement through June 30, 2009. At March 31, 2009,
restructured construction and development loans amounted to $156.2 million or
35.0% of total renegotiated loans and leases and residential real estate, home
equity and other consumer loans amounted to $217.1 million or 48.7% of total
renegotiated loans and leases.  As previously discussed, $51.8 million
or 11.6% of renegotiated loans and leases at March 31, 2009 was attributable to
Franklin. Approximately $232.4 million or 52.1% of total renegotiated loans and
leases at March 31, 2009 were related to renegotiated loans and leases in
Arizona.
 
 Loans 90
days past due and still accruing amounted to $16.1 million at March 31, 2009
compared to $14.5 million at December 31, 2008 and $12.8 million at March 31,
2008.
 
 In
addition to its nonperforming loans and leases, the Corporation has loans and
leases for which payments are presently current, but which management believes
could possibly be classified as nonperforming in the near
future.  These loans are subject to constant management attention and
their classification is reviewed on an ongoing basis.  At March 31,
2009, such loans amounted to $1,176.1 million or 2.39% of total loans and leases
outstanding compared to $880.6 million or 1.76% of total loans and leases
outstanding at December 31, 2008.
 
 
 35
 Table of Contents
 
 
 The
following table shows the Corporation’s nonperforming loans and leases by type
of loan or lease at March 31, 2009 and December 31, 2008.
 
 Major Categories of
Nonperforming Loans & Leases
 ($ in
millions)
 March
      31, 2009
                                                  
                                                  
                                                  December
      31, 2008Percent
                                                  
                                                  
                                                  Non-
                                                  
                                                  
                                                  %
      Non-
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  Percent
                                                  
                                                  
                                                  Non-
                                                  
                                                  
                                                  %
      Non-Total
                                                  
                                                  
                                                  of
      Total
                                                  
                                                  
                                                  Perform-
                                                  
                                                  
                                                  Perform-
                                                  
                                                  
                                                  Total
                                                  
                                                  
                                                  of
      Total
                                                  
                                                  
                                                  Perform-
                                                  
                                                  
                                                  Perform-Loans
                                                  
                                                  
                                                  Loans
                                                  
                                                  
                                                  ing
      Loans
                                                  
                                                  
                                                  ing
      to
                                                  
                                                  
                                                  Loans
                                                  
                                                  
                                                  Loans
                                                  
                                                  
                                                  ing
      Loans
                                                  
                                                  
                                                  ing
      to&
                                                  
                                                  
                                                  &
                                                  
                                                  
                                                  &
                                                  
                                                  
                                                  Loan
      &
                                                  
                                                  
                                                  &
                                                  
                                                  
                                                  &
                                                  
                                                  
                                                  &
                                                  
                                                  
                                                  Loan
      &Leases
                                                  
                                                  
                                                  Leases
                                                  
                                                  
                                                  Leases
                                                  
                                                  
                                                  Lease
      Type
                                                  
                                                  
                                                  Leases
                                                  
                                                  
                                                  Leases
                                                  
                                                  
                                                  Leases
                                                  
                                                  
                                                  Lease
      TypeCommercial
      loans & leases
                                                  
                                                  $
                                                  15,108
                                                  
                                                  
                                                  
                                                  30.7
                                                  %
                                                  
                                                  $
                                                  401.9
                                                  
                                                  
                                                  
                                                  2.66
                                                  %
                                                  
                                                  $
                                                  15,442
                                                  
                                                  
                                                  
                                                  30.9
                                                  %
                                                  
                                                  $
                                                  180.5
                                                  
                                                  
                                                  
                                                  1.17
                                                  %Commercial
      real estate
                                                  
                                                  
                                                  12,999
                                                  
                                                  
                                                  
                                                  26.4
                                                  
                                                  
                                                  
                                                  294.9
                                                  
                                                  
                                                  
                                                  2.27
                                                  
                                                  
                                                  
                                                  12,542
                                                  
                                                  
                                                  
                                                  25.1
                                                  
                                                  
                                                  
                                                  188.2
                                                  
                                                  
                                                  
                                                  1.50Residential
      real estate
                                                  
                                                  
                                                  5,711
                                                  
                                                  
                                                  
                                                  11.6
                                                  
                                                  
                                                  
                                                  476.7
                                                  
                                                  
                                                  
                                                  8.35
                                                  
                                                  
                                                  
                                                  5,734
                                                  
                                                  
                                                  
                                                  11.5
                                                  
                                                  
                                                  
                                                  324.3
                                                  
                                                  
                                                  
                                                  5.66Construction
      and Development:Commercial
      land andconstruction
                                                  
                                                  
                                                  4,643
                                                  
                                                  
                                                  
                                                  9.5
                                                  
                                                  
                                                  
                                                  378.3
                                                  
                                                  
                                                  
                                                  8.15
                                                  
                                                  
                                                  
                                                  5,063
                                                  
                                                  
                                                  
                                                  10.1
                                                  
                                                  
                                                  
                                                  314.7
                                                  
                                                  
                                                  
                                                  6.22Residential
      constructionby individuals
                                                  
                                                  
                                                  752
                                                  
                                                  
                                                  
                                                  1.5
                                                  
                                                  
                                                  
                                                  125.0
                                                  
                                                  
                                                  
                                                  16.63
                                                  
                                                  
                                                  
                                                  881
                                                  
                                                  
                                                  
                                                  1.7
                                                  
                                                  
                                                  
                                                  99.2
                                                  
                                                  
                                                  
                                                  11.26Residential
      land andconstruction by developers
                                                  
                                                  
                                                  2,856
                                                  
                                                  
                                                  
                                                  5.8
                                                  
                                                  
                                                  
                                                  723.4
                                                  
                                                  
                                                  
                                                  25.33
                                                  
                                                  
                                                  
                                                  3,099
                                                  
                                                  
                                                  
                                                  6.2
                                                  
                                                  
                                                  
                                                  603.4
                                                  
                                                  
                                                  
                                                  19.47Total
      construction and development
                                                  
                                                  
                                                  8,251
                                                  
                                                  
                                                  
                                                  16.8
                                                  
                                                  
                                                  
                                                  1,226.7
                                                  
                                                  
                                                  
                                                  14.87
                                                  
                                                  
                                                  
                                                  9,043
                                                  
                                                  
                                                  
                                                  18.0
                                                  
                                                  
                                                  
                                                  1,017.3
                                                  
                                                  
                                                  
                                                  11.25Consumer
      loans & leasesHome
      equity loans andlines of
      credit
                                                  
                                                  
                                                  5,025
                                                  
                                                  
                                                  
                                                  10.2
                                                  
                                                  
                                                  
                                                  123.2
                                                  
                                                  
                                                  
                                                  2.45
                                                  
                                                  
                                                  
                                                  5,082
                                                  
                                                  
                                                  
                                                  10.2
                                                  
                                                  
                                                  
                                                  86.5
                                                  
                                                  
                                                  
                                                  1.70Other
      consumerloans and leases
                                                  
                                                  
                                                  2,151
                                                  
                                                  
                                                  
                                                  4.3
                                                  
                                                  
                                                  
                                                  13.2
                                                  
                                                  
                                                  
                                                  0.61
                                                  
                                                  
                                                  
                                                  2,142
                                                  
                                                  
                                                  
                                                  4.3
                                                  
                                                  
                                                  
                                                  15.0
                                                  
                                                  
                                                  
                                                  0.70Total
      consumer loans & leases
                                                  
                                                  
                                                  7,176
                                                  
                                                  
                                                  
                                                  14.5
                                                  
                                                  
                                                  
                                                  136.4
                                                  
                                                  
                                                  
                                                  1.90
                                                  
                                                  
                                                  
                                                  7,224
                                                  
                                                  
                                                  
                                                  14.5
                                                  
                                                  
                                                  
                                                  101.5
                                                  
                                                  
                                                  
                                                  1.41Total
      loans & leases
                                                  
                                                  $
                                                  49,245
                                                  
                                                  
                                                  
                                                  100.0
                                                  %
                                                  
                                                  $
                                                  2,536.6
                                                  
                                                  
                                                  
                                                  5.15
                                                  %
                                                  
                                                  $
                                                  49,985
                                                  
                                                  
                                                  
                                                  100.0
                                                  %
                                                  
                                                  $
                                                  1,811.8
                                                  
                                                  
                                                  
                                                  3.62
                                                  %
  Nonperforming
commercial loans and leases amounted to $401.9 million at March 31, 2009
compared to $180.5 million at December 31, 2008, an increase of $221.4
million.  Approximately $69.1 million of the increase in nonperforming
commercial loans and leases at March 31, 2009 compared to December 31, 2008 was
attributable to Franklin. While this portfolio has generally shown increased
stress, the remainder of the increase is attributable to a small number of
larger loans that are not concentrated in any particular industry.
 
 Consistent
with recent quarters, nonperforming real estate loans were the primary source of
the Corporation’s nonperforming loans and leases and represented 78.8% of total
nonperforming loans and leases at March 31, 2009.  Nonperforming real
estate loans amounted to $1,998.3 million at March 31, 2009 compared to $1,529.8
million at December 31, 2008, an increase of $468.5 million or
30.6%.
 
 Nonperforming
commercial real estate loans amounted to $294.9 million at March 31, 2009
compared to $188.2 million at December 31, 2008, an increase of $106.7 million
or 56.7%. Nonperforming business real estate loans increased $68.0 million or
69.5% and nonperforming multifamily loans increased $37.6 million or 43.8% at
March 31, 2009 compared to December 31, 2008. These portfolios have generally
shown increased stress in all of the Corporation’s markets.
 
 Nonperforming
1-4 family residential real estate loans increased $152.4 million or 47.0%
compared to December 31, 2008 and amounted to $476.7 million or 8.35% of total
1-4 family residential real estate loans at March 31, 2009.  Increased
economic stress on consumers has resulted in further deterioration in these
loans most notably in Arizona, which contributed $120.2 million or 78.9% of the
increase in nonperforming 1-4 family residential real estate loans at March 31,
2009 compared to December 31, 2008. At March 31, 2009, $184.8 million or 38.8%
of nonperforming 1-4 family residential real estate loans were renegotiated
loans.
 
 Nonperforming
construction and development loans amounted to $1,226.7 million at March 31,
2009 compared to $1,017.3 million at December 31, 2008, an increase of $209.4
million or 20.6%. Nonperforming construction and development loans represented
61.4% of the Corporation’s nonperforming real estate loans and 48.4% of the
Corporation’s total nonperforming loans and leases at March 31, 2009.
Nonperforming construction and development loans in Arizona account for $642.8
million or 52.4% of total nonperforming construction and development loans at
March 31, 2009.
   36
 Table of Contents
 
 Nonperforming
consumer loans and leases amounted to $136.4 million at March 31, 2009 compared
to $101.5 million at December 31, 2008, an increase of $34.9 million or 34.4%.
All of the increase was attributable to home equity loans and lines of credit.
Renegotiated consumer loans and leases, predominantly home equity loans and
lines of credit, accounted for $20.2 million or 57.8% of the increase in
nonperforming consumer loans and leases at March 31, 2009 compared to December
31, 2008.
 
 The
following table presents a geographical summary of nonperforming loans and
leases at March 31, 2009 and December 31, 2008.
 
 Geographical Summary of
Nonperforming Loans & Leases
 ($ in
millions)
  March
      31, 2009
                                                            
                                                            
                                                            December
      31, 2008Percent
                                                            
                                                            
                                                            Non-
                                                            
                                                            
                                                            %
      Non-
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            Percent
                                                            
                                                            
                                                            Non-
                                                            
                                                            
                                                            %
      Non-Total
                                                            
                                                            
                                                            of
      Total
                                                            
                                                            
                                                            Perform-
                                                            
                                                            
                                                            Perform-
                                                            
                                                            
                                                            Total
                                                            
                                                            
                                                            of
      Total
                                                            
                                                            
                                                            Perform-
                                                            
                                                            
                                                            Perform-Loans
                                                            
                                                            
                                                            Loans
                                                            
                                                            
                                                            ing
      Loans
                                                            
                                                            
                                                            ing
      to
                                                            
                                                            
                                                            Loans
                                                            
                                                            
                                                            Loans
                                                            
                                                            
                                                            ing
      Loans
                                                            
                                                            
                                                            ing
      to&
                                                            
                                                            
                                                            &
                                                            
                                                            
                                                            &
                                                            
                                                            
                                                            Loan
      &
                                                            
                                                            
                                                            &
                                                            
                                                            
                                                            &
                                                            
                                                            
                                                            &
                                                            
                                                            
                                                            Loan
      &Geographical
      Summary
                                                            
                                                            Leases
                                                            
                                                            
                                                            Leases
                                                            
                                                            
                                                            Leases
                                                            
                                                            
                                                            Lease
      Type
                                                            
                                                            
                                                            Leases
                                                            
                                                            
                                                            Leases
                                                            
                                                            
                                                            Leases
                                                            
                                                            
                                                            Lease
      TypeWisconsin
                                                            
                                                            $
                                                            18,040
                                                            
                                                            
                                                            
                                                            36.6
                                                            %
                                                            
                                                            $
                                                            306.8
                                                            
                                                            
                                                            
                                                            1.70
                                                            %
                                                            
                                                            $
                                                            18,048
                                                            
                                                            
                                                            
                                                            36.1
                                                            %
                                                            
                                                            $
                                                            180.4
                                                            
                                                            
                                                            
                                                            1.00
                                                            %Arizona
                                                            
                                                            
                                                            7,043
                                                            
                                                            
                                                            
                                                            14.3
                                                            
                                                            
                                                            
                                                            1,068.3
                                                            
                                                            
                                                            
                                                            15.17
                                                            
                                                            
                                                            
                                                            7,489
                                                            
                                                            
                                                            
                                                            15.0
                                                            
                                                            
                                                            
                                                            857.5
                                                            
                                                            
                                                            
                                                            11.45Minnesota
                                                            
                                                            
                                                            5,186
                                                            
                                                            
                                                            
                                                            10.5
                                                            
                                                            
                                                            
                                                            218.8
                                                            
                                                            
                                                            
                                                            4.22
                                                            
                                                            
                                                            
                                                            5,210
                                                            
                                                            
                                                            
                                                            10.4
                                                            
                                                            
                                                            
                                                            146.2
                                                            
                                                            
                                                            
                                                            2.81Missouri
                                                            
                                                            
                                                            3,532
                                                            
                                                            
                                                            
                                                            7.2
                                                            
                                                            
                                                            
                                                            70.0
                                                            
                                                            
                                                            
                                                            1.98
                                                            
                                                            
                                                            
                                                            3,491
                                                            
                                                            
                                                            
                                                            7.0
                                                            
                                                            
                                                            
                                                            59.2
                                                            
                                                            
                                                            
                                                            1.70Florida
                                                            
                                                            
                                                            3,071
                                                            
                                                            
                                                            
                                                            6.3
                                                            
                                                            
                                                            
                                                            244.3
                                                            
                                                            
                                                            
                                                            7.95
                                                            
                                                            
                                                            
                                                            3,086
                                                            
                                                            
                                                            
                                                            6.2
                                                            
                                                            
                                                            
                                                            172.8
                                                            
                                                            
                                                            
                                                            5.60Kansas
      & Oklahoma
                                                            
                                                            
                                                            1,135
                                                            
                                                            
                                                            
                                                            2.3
                                                            
                                                            
                                                            
                                                            27.0
                                                            
                                                            
                                                            
                                                            2.38
                                                            
                                                            
                                                            
                                                            1,282
                                                            
                                                            
                                                            
                                                            2.6
                                                            
                                                            
                                                            
                                                            35.6
                                                            
                                                            
                                                            
                                                            2.77Indiana
                                                            
                                                            
                                                            1,581
                                                            
                                                            
                                                            
                                                            3.2
                                                            
                                                            
                                                            
                                                            75.7
                                                            
                                                            
                                                            
                                                            4.79
                                                            
                                                            
                                                            
                                                            1,613
                                                            
                                                            
                                                            
                                                            3.2
                                                            
                                                            
                                                            
                                                            51.7
                                                            
                                                            
                                                            
                                                            3.21Others
                                                            
                                                            
                                                            9,657
                                                            
                                                            
                                                            
                                                            19.6
                                                            
                                                            
                                                            
                                                            525.7
                                                            
                                                            
                                                            
                                                            5.44
                                                            
                                                            
                                                            
                                                            9,766
                                                            
                                                            
                                                            
                                                            19.5
                                                            
                                                            
                                                            
                                                            308.4
                                                            
                                                            
                                                            
                                                            3.16Total
                                                            
                                                            $
                                                            49,245
                                                            
                                                            
                                                            
                                                            100.0
                                                            %
                                                            
                                                            $
                                                            2,536.6
                                                            
                                                            
                                                            
                                                            5.15
                                                            %
                                                            
                                                            $
                                                            49,985
                                                            
                                                            
                                                            
                                                            100.0
                                                            %
                                                            
                                                            $
                                                            1,811.8
                                                            
                                                            
                                                            
                                                            3.62
                                                            %
  Almost
every major geographical area experienced an increase in nonperforming loans and
leases in the first quarter of 2009. Those increases reflect varying degrees of
economic stress throughout the Corporation’s markets.
 
 At March
31, 2009, nonperforming loans in Arizona amounted to $1,068.3 million compared
to $857.5 million at December 31, 2008, an increase of $210.8 million or 24.6%.
Nonperforming loans in Arizona represented 42.1% of total consolidated
nonperforming loans and leases at March 31, 2009 and continue to be the largest
concentration of nonperforming loans in the Corporation’s loan and lease
portfolio.  Nonperforming construction and development loans made up
approximately $642.8 million or 60.2% and nonperforming residential real estate
loans made up approximately $336.2 million or 31.5% of nonperforming loans in
Arizona at March 31, 2009.
 
 Nonperforming
loans in Florida amounted to $244.3 million at March 31, 2009 compared to $172.8
million at December 31, 2008 an increase of $71.5 million or
41.4%.  Approximately $144.2 million or 59.0% of nonperforming loans
in Florida at March 31, 2009 were construction and development
loans.
 
 OREO is
principally comprised of commercial and residential properties acquired in
partial or total satisfaction of problem loans.  OREO amounted to
$344.3 million at March 31, 2009, compared to $320.9 million at December 31,
2008.  At March 31, 2009, properties acquired in partial or total
satisfaction of problem loans consisted of construction and development of
$258.3 million, 1-4 family residential real estate of $72.5 million and
commercial real estate of $13.5 million. Since December 31, 2008, OREO
construction and development properties net increased $12.6 million, 1-4 family
residential real estate properties net increased $9.4 million and commercial
real estate properties net increased $1.4 million. For the three months ended
March 31, 2009, OREO additions amounted to $128.2 million. Sales, valuation
adjustments and capitalized costs resulted in a net decrease in OREO of $104.8
million in the first quarter of 2009. As a result of the soft real estate market
and the increased possibility of foreclosures due to the elevated levels of
nonperforming loans, management expects that OREO will continue to increase
throughout the remainder of 2009.
   37
 Table of Contents
 
 The
following table presents the reconciliation of the allowance for loan and lease
losses for the current quarter and the prior four quarters:
 
 Reconciliation of Allowance
for Loan and Lease Losses
 ($000’s)
 2009
                              
                              
                              2008First
                              
                              
                              Fourth
                              
                              
                              Third
                              
                              
                              Second
                              
                              
                              FirstQuarter
                              
                              
                              Quarter
                              
                              
                              Quarter
                              
                              
                              Quarter
                              
                              
                              QuarterBeginning
      balance
                              
                              $
                              1,202,167
                              
                              
                              $
                              1,031,494
                              
                              
                              $
                              1,028,809
                              
                              
                              $
                              543,539
                              
                              
                              $
                              496,191Provision
      for loan and lease losses
                              
                              
                              477,924
                              
                              
                              
                              850,443
                              
                              
                              
                              154,962
                              
                              
                              
                              885,981
                              
                              
                              
                              146,321Allowance
      of banks and loans acquired
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              32,110Loans
      and leases charged-offCommercial
                              
                              
                              65,481
                              
                              
                              
                              101,223
                              
                              
                              
                              32,850
                              
                              
                              
                              39,892
                              
                              
                              
                              4,464Real
      estate
                              
                              
                              264,989
                              
                              
                              
                              576,017
                              
                              
                              
                              123,990
                              
                              
                              
                              362,625
                              
                              
                              
                              123,815Personal
                              
                              
                              7,433
                              
                              
                              
                              8,591
                              
                              
                              
                              6,263
                              
                              
                              
                              5,643
                              
                              
                              
                              6,872Leases
                              
                              
                              2,320
                              
                              
                              
                              655
                              
                              
                              
                              192
                              
                              
                              
                              659
                              
                              
                              
                              678Total
      charge-offs
                              
                              
                              340,223
                              
                              
                              
                              686,486
                              
                              
                              
                              163,295
                              
                              
                              
                              408,819
                              
                              
                              
                              135,829Recoveries
      on loans and leasesCommercial
                              
                              
                              2,003
                              
                              
                              
                              2,059
                              
                              
                              
                              2,277
                              
                              
                              
                              2,295
                              
                              
                              
                              875Real
      estate
                              
                              
                              7,412
                              
                              
                              
                              2,953
                              
                              
                              
                              6,938
                              
                              
                              
                              4,269
                              
                              
                              
                              2,280Personal
                              
                              
                              1,185
                              
                              
                              
                              1,078
                              
                              
                              
                              1,439
                              
                              
                              
                              1,172
                              
                              
                              
                              1,167Leases
                              
                              
                              1,649
                              
                              
                              
                              626
                              
                              
                              
                              364
                              
                              
                              
                              372
                              
                              
                              
                              424Total
      recoveries
                              
                              
                              12,249
                              
                              
                              
                              6,716
                              
                              
                              
                              11,018
                              
                              
                              
                              8,108
                              
                              
                              
                              4,746Net
      loans and leases charged-off
                              
                              
                              327,974
                              
                              
                              
                              679,770
                              
                              
                              
                              152,277
                              
                              
                              
                              400,711
                              
                              
                              
                              131,083Ending
      balance
                              
                              $
                              1,352,117
                              
                              
                              $
                              1,202,167
                              
                              
                              $
                              1,031,494
                              
                              
                              $
                              1,028,809
                              
                              
                              $
                              543,539
  Net
charge-offs amounted to $328.0 million or 2.67% of average loans and leases in
the first quarter of 2009 compared to $679.8 million or 5.38% of average loans
and leases in the fourth quarter of 2008 and $131.1 million or 1.08% of average
loans and leases in the first quarter of 2008.
 
 Consistent
with the year ended December 31, 2008, net charge-offs in the first quarter of
2009 were concentrated in three areas which the Corporation refers to as
business channels.  Net charge-offs for the Arizona business channel
amounted to $120.8 million, net charge-offs for the Florida business channel
amounted to $24.9 million and net charge-offs for the correspondent banking
business channel amounted to $51.2 million which includes the $33.8 million
charge-off related to Franklin as previously discussed. Included in net
charge-offs were the net charge-offs related to the loans that were sold during
the three months ended March 31, 2009. The aggregate net charge-offs for these
three business channels amounted to $196.9 million or 60.0% of total net
charge-offs for the three months ended March 31, 2009. By comparison, the
aggregate net charge-offs for these three business channels amounted to 68.9% of
total net charge-offs for the year ended December 31, 2008.
 
 Net
charge-offs for the Florida business channel amounted to $205.9 million for the
year ended December 31, 2008, or on average, approximately $51.5 million per
quarter.  Despite the increase in nonperforming loans, net charge-offs
for the Florida business channel amounted to $24.9 million in the first quarter
of 2009. Management believes the lower loss levels are an indication that the
high level of credit losses in this business channel are
stabilizing.
 
 Net
charge-offs of real estate loans amounted to $257.6 million or 78.5% of total
net charge-offs in the first quarter of 2009.  For the three months
ended March 31, 2009, approximately $176.4 million of the real estate loan net
charge-offs were construction and development loan net charge-offs.
 
 As
previously discussed, real estate related loans, especially construction and
development real estate loans, were the primary contributors to the increase in
nonperforming loans and leases and net charge-offs in the first quarter of
2009.  Real estate related loans made up the majority of the
Corporation’s nonperforming loans and leases at March 31,
2009.  Historically, the Corporation’s loss experience with real
estate loans has been relatively low due to the sufficiency of the underlying
real estate collateral.  In a stressed real estate market such as
currently exists, the value of the collateral securing the loans has become one
of the most important factors in determining the amount of loss incurred and the
appropriate amount of allowance for loan and lease losses to record at the
measurement date.  The likelihood of losses that are equal to the
entire recorded investment for a real estate loan is remote.  However,
in many cases, rapidly declining real estate values have resulted in the
determination that the estimated value of the collateral was insufficient to
cover all of the recorded investment in the loan which has required significant
additional charge-offs.  Declining collateral values have
significantly contributed to the elevated levels of net charge-offs and the
increase in the provision for loan and lease losses that the Corporation
experienced in recent quarters.
   38
 Table of Contents
  As
previously stated, the amount of cumulative charge-offs recorded on the
Corporation’s nonaccrual loans outstanding at March 31, 2009 was approximately
$665.1 million or 48.3% of the unpaid principal balance of the affected
nonaccrual loans and 24.3% of the unpaid principal balance of its total
nonaccrual loans outstanding at March 31, 2009.  These
charge-offs have reduced the carrying value of these nonaccrual loans and leases
which reduced the allowance for loan and lease losses required at the
measurement date.
 Consistent
with the credit quality trends noted above, the provision for loan and lease
losses amounted to $477.9 million in the first quarter of 2009. By comparison,
the provision for loan and lease losses amounted to $850.4 million in the fourth
quarter of 2008 and $146.3 million in the first quarter of 2008. The provision
for loan and lease losses is the amount required to establish the allowance for
loan and lease losses at the required level after considering charge-offs and
recoveries.  The ratio of the allowance for loan and lease losses to
total loans and leases was 2.75% at March 31, 2009 compared to 2.41% at December
31, 2008 and 1.10% at March 31, 2008.
 
 Management
expects nonperforming loans and leases and OREO balances to remain elevated for
the remainder of 2009.  Nonperforming loans and leases are expected to
continue increasing over the next few quarters in response to broader economic
stresses.  It is expected that the rate at which larger
construction-related loans go to nonperforming status will likely decrease while
the rate at which consumer-related loans go to nonperforming status will likely
increase. 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 assets, net charge-offs and the provision for loan and lease
losses that will be recognized in the remainder of 2009.  In addition,
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 will continue to proactively manage its problem loans and
nonperforming assets and be aggressive to isolate, identify and assess its
underlying loan and lease portfolio credit quality.  The Corporation
has developed and continues to develop strategies, such as selective sales of
nonperforming loans and restructuring loans to qualified borrowers, to mitigate
its loss exposure.  Construction and development loans tend to be more
complex and may take more time to attain a satisfactory
resolution.  Depending on the facts and circumstances, acquiring real
estate collateral in partial or total satisfaction of problem loans may continue
to be the best course of action to take in order to mitigate the Corporation’s
exposure to loss.
 
 OTHER
INCOME
 
 Total
other income in the first quarter of 2009 amounted to $176.7 million compared to
$211.2 million in the same period last year, a decrease of $34.5 million or
16.3%.  Total other income in the first quarter of 2008 included gains
resulting from Visa’s redemption of 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 for the three months ended March 31,
2008.  Excluding net investment securities gains from the VISA
redemption in the first quarter of 2008, total other income in the first quarter
of 2009 decreased $7.6 million or 4.1% compared to the first quarter of
2008.
 
 Equity
market volatility persisted during the first quarter of 2009.  That
volatility along with downward pressure in the equity markets resulted in lower
wealth management revenue in the first quarter of 2009 compared to the first
quarter of 2008. Wealth management revenue amounted to $62.7 million in the
first quarter of 2009 compared to $71.9 million in the first quarter of 2008, a
decrease of $9.2 million or 12.8%. Assets under management were $29.7 billion at
March 31, 2009 compared to $30.4 billion at December 31, 2008 and $25.8 billion
at March 31, 2008. Assets under administration were $101.5 billion at March 31,
2009 compared to $104.4 billion at December 31, 2008 and $105.4 billion at March
31, 2008. Sales pipelines have remained stable since the fourth quarter of 2008.
However, customer conversions are taking longer due to protracted investor
decision-making processes.  Revenue from operations outsourcing
services continued to grow during the first quarter of 2009. Wealth management
revenue will continue to be affected by market volatility and direction through
the remainder of 2009.
 
 Service
charges on deposits amounted to $35.3 million in the first quarter of 2009 and
was relatively unchanged compared to the first quarter of 2008.
 
 Total
mortgage banking revenue was $10.8 million in the first quarter of 2009 compared
to $9.4 million in the first quarter of 2008, an increase of $1.4 million or
15.4%. Residential mortgage and home equity loans sold in the secondary market
amounted to $0.7 billion in the first quarter of 2009 compared to $0.5 billion
in the first quarter of 2008.
 
 Net
investment securities gains amounted to $0.1 million in the first quarter of
2009 compared to $25.7 million in the first quarter of 2008.  During
the first quarter of 2008, in conjunction with its 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.
   39
 Table of Contents
 
 Bank-owned
life insurance revenue amounted to $9.3 million for the three months ended March
31, 2009 compared to $12.4 million for the three months ended March 31, 2008, a
decrease of $3.1 million or 24.8%.  The decline in revenue reflects
the lower crediting rates due to the interest rate environment and lower death
benefit gains in the first quarter of 2009 compared to the first quarter of
2008.
 
 Gain on
the termination of debt amounted to $3.1 million in the first quarter of
2009.  During the first quarter of 2009, the Corporation re-acquired
and extinguished $42.1 million of debt.  The debt consisted of small
blocks of various bank notes issued by the Corporation and M&I Marshall
& Ilsley Bank (“M&I Bank”).  The size of the blocks ranged
from $4.1 million to $11.8 million with a weighted average buyback price of
approximately 92.7% of par.
 
 OREO
income primarily consists of gains from the sale of OREO and amounted to $2.6
million in the first quarter of 2009 compared to $1.0 million in the first
quarter of 2008.  The carrying value of OREO properties sold amounted
to $52.7 million in the first quarter of 2009 compared to $13.5 million in the
first quarter of 2008.
 
 Other
income in the first quarter of 2009 amounted to $52.9 million compared to $55.2
million in the first quarter of 2008, a decrease of $2.3 million or 4.1%. During
the first quarter of 2008, a final settlement for three branches in Tulsa,
Oklahoma that were sold in the fourth quarter of 2007 resulted in additional
gain of $2.4 million.
 
 
 OTHER
EXPENSE
 
 Total
other expense for the three months ended March 31, 2009 amounted to $345.2
million compared to $315.6 million for the three months ended March 31, 2008, an
increase of $29.6 million or 9.4%.
 
 Total
other expense for the three months ended March 31, 2009 compared to the three
months ended March 31, 2008 included increased credit and collection-related
expenses and increased expenses associated with the acquisition, valuation and
holding of OREO properties. Approximately $22.2 million of the operating expense
growth in the first quarter of 2009 compared to the first quarter of 2008 were
attributable to these items.
 
 During
the first quarter of 2008, Visa established an escrow for certain litigation
matters from the proceeds of its IPO.  As a result, the Corporation
reversed part of its litigation accruals that were originally recorded due to
the Corporation’s membership interests in Visa in an amount equal to its pro
rata share of the funded escrow.  Included in total other expense for
the three months ended March 31, 2008 is the reversal of $12.2 million related
to the Visa litigation matters.
 
 The
Corporation’s expense in the three months ended March 31, 2009 compared to the
three months ended March 31, 2008, excluding the items discussed above, declined
$4.8 million or 1.6% despite the increase in FDIC insurance premiums on
deposits.  This expense decline reflects in part lower incentive
compensation and the impact of the expense reduction initiatives announced in
the fourth quarter of 2008.
 
 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 divided by the sum of total other income (including
Private Equity revenue but excluding other 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
March 31, 2009 and 2008 were:
  Three
      Months EndedMarch
      31,
                              
                              
                              March
      31,2009
                              
                              
                              2008Consolidated
      Corporation
                              
                              
                              59.0
                              %
                              
                              
                              50.6
                              %
  The
efficiency ratio for the first quarter of 2009 was adversely affected by the
increase in credit and collection-related expenses and net expenses associated
with OREO properties.  The estimated adverse net impact to the
Corporation’s efficiency ratio for the three months ended March 31, 2009 from
these items was approximately 6.9%.
 
 The
efficiency ratio for the first quarter of 2008 was adversely affected by the
increase in credit and collection-related expenses and net expenses associated
with OREO properties. However, the efficiency ratio for the first quarter of
2008 was positively impacted by the reversal of the liability related to the
Visa litigation matters.  The estimated net positive impact to the
Corporation’s efficiency ratio for the three months ended March 31, 2008 from
these items was approximately 1.1%.
   40
 Table of Contents
 
 Salaries
and employee benefits expense amounted to $155.2 million in the first quarter of
2009 compared to $174.7 million in the first quarter of 2008, a decrease of
$19.5 million or 11.2%.  Salaries and employee benefits related to
credit and collection increased approximately $1.8 million in the three months
ended March 31, 2009 compared to the three months ended March 31, 2008.
Incentive compensation decreased $14.2 million in the first quarter of 2009
compared to the first quarter of 2008.
 
 Net
occupancy and equipment expense for three months ended March 31, 2009 amounted
to $33.8 million, compared to $31.2 million for the three months ended March 31,
2008, an increase of $2.6 million or 8.3%. The increase reflects the effect of
de novo branch expansion activities.
 
 Professional
services expense amounted to $19.2 million in the first quarter of 2009 compared
to $13.5 million in the first quarter of 2008, an increase of $5.7 million or
42.3%.  Increased legal fees and other professional fees associated
with problem loans contributed approximately $2.7 million to the increase in
professional services expense in the first quarter of 2009 compared to the first
quarter of 2008.  Consulting fees associated with updating certain
internal systems also contributed to the increase in professional services
expense for the three months ended March 31, 2009 compared to the three months
ended March 31, 2008.
 
 OREO
expenses amounted to $32.6 million in the first quarter of 2009 compared to
approximately $14.9 million in the first quarter of 2008, an increase of $17.7
million.  Approximately $13.8 million of the increase for the three
months ended March 31, 2009 compared to the three months ended March 31, 2008
was due to valuation write-downs and losses on disposition which reflects both
the increased levels of foreclosed properties and the rapid decline in real
estate values during the first three months of 2009.  Approximately
$3.9 million of the increase for the three months ended March 31, 2009 compared
to the three months ended March 31, 2008 reflects the costs of acquiring and
holding the increased levels of foreclosed properties.  The
Corporation expects that higher levels of expenses associated with acquiring and
holding foreclosed properties will continue. Valuation write-downs and losses on
disposition will depend on real estate market conditions.
 
 Other
expense amounted to $49.2 million in the first quarter of 2009 compared to $25.2
million in the first quarter of 2008, an increase of $24.0 million or
94.8%.  Deposit insurance premiums increased $13.2 million in the
first quarter of 2009 compared to the first quarter of 2008.  As
previously discussed, other expense for the three months ended March 31, 2008
included the reversal of $12.2 million related to the Visa
litigation.
 
 
 INCOME
TAXES
 
 For the
three months ended March 31, 2009, the benefit for income taxes amounted to
$153.0 million or 62.5% of the pre-tax loss. In February 2009, the State of
Wisconsin passed legislation that requires combined reporting for state income
tax purposes effective January 1, 2009. 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.
 
 For the
three months ended March 31, 2008, the provision for income taxes amounted to
$33.3 million or 18.5% of pre-tax income.  As a result of the Internal
Revenue Service’s (“IRS”) decision not to appeal a November 2007 US Tax Court
ruling related to how the TEFRA (interest expense) disallowance should be
calculated within a consolidated group and the position the IRS had taken in
another related case, the Corporation recognized an additional income tax
benefit related to years 1996-2007 of $20.0 million for its similar issue in the
first quarter of 2008.
 
 
 LIQUIDITY AND
CAPITAL RESOURCES
 
 Total
equity was $6.25 billion or 10.12% of total consolidated assets at March 31,
2009, compared to $6.27 billion or 10.06% of total consolidated assets at
December 31, 2008 and $6.98 billion or 11.02% of total consolidated assets at
March 31, 2008.
 
 On
February 19, 2009, the Corporation’s Board of Directors declared a $0.01 per
share dividend on its common stock for the first quarter of 2009.
 
 During
the first quarter of 2009, the Corporation issued 383,890 shares of its common
stock for $1.8 million to fund its obligation under its employee stock purchase
plan (the “ESPP”).  During the first quarter of 2008, the Corporation
issued 110,172 shares of its common stock for $2.2 million to fund its
obligation under the ESPP.
   41
 Table of Contents
 
 On
November 14, 2008, as part of the Corporation’s participation in the
Capital Purchase Program (the “CPP”), the Corporation entered into a Letter
Agreement with the United States Department of the Treasury (the
“UST”).  Pursuant to the Securities Purchase Agreement – Standard
Terms (the “Securities Purchase Agreement”) attached to the Letter Agreement,
the Corporation sold 1,715,000 shares of the Corporation’s Senior Preferred
Stock, Series B (the “Senior Preferred Stock”), having a liquidation preference
of $1,000 per share, for a total price of $1,715 million.  The Senior
Preferred Stock qualifies as Tier 1 capital and pays cumulative compounding
dividends at a rate of 5% per year for the first five years and 9% per
year thereafter.
 
 The
Securities Purchase Agreement provided that the Corporation may not redeem the
Senior Preferred Stock during the first three years except with the proceeds
from one or more “Qualified Equity Offerings” (as defined in the Securities
Purchase Agreement), and that after three years, the Corporation may redeem
shares of the Senior Preferred Stock for the per share liquidation preference of
$1,000 plus any accrued and unpaid dividends.  Pursuant to the
American Recovery and Reinvestment Act (the “ARRA”), which was signed into law
in February 2009, CPP participants are permitted to redeem the preferred stock
issued under the CPP at any time, subject to consultation with the appropriate
federal banking agency.  However, the Corporation’s Restated Articles
of Incorporation contain the redemption restrictions described above. The
Corporation may seek Board of Directors and shareholder approval in the future
to amend the Restated Articles of Incorporation to allow the Corporation to
redeem the Senior Preferred Stock at any time after consultation with the
Federal Reserve Board.
 
 As long
as any Senior Preferred Stock is outstanding, the Corporation may pay quarterly
common stock cash dividends of up to $0.32 per share, and may redeem or
repurchase its common stock, provided that all accrued and unpaid dividends for
all past dividend periods on the Senior Preferred Stock are fully
paid.  Prior to the third anniversary of the UST’s purchase of the
Senior Preferred Stock, unless Senior Preferred Stock has been redeemed or the
UST has transferred all of the Senior Preferred Stock to third parties, the
consent of the UST will be required for the Corporation to increase its common
stock dividend to more than $0.32 per share per quarter or repurchase its common
stock or other equity or capital securities, other than in connection with
benefit plans consistent with past practice and certain other circumstances
specified in the Securities Purchase Agreement.  As previously
described, the Corporation recently reduced its quarterly common stock cash
dividend to $0.01 per share.  The Senior Preferred Stock will be
non-voting except for class voting rights on matters that would adversely affect
the rights of the holders of the Senior Preferred Stock.
 
 As a
condition to participating in the CPP, the Corporation issued and sold to the
UST a warrant (the “Warrant”) to purchase 13,815,789 shares (the “Warrant
Shares”) of the Corporation’s common stock, at an initial per share exercise
price of $18.62, for an aggregate purchase price of approximately $257.25
million.  The term of the Warrant is ten years.  The Warrant
will not be subject to any contractual restrictions on transfer, provided that
the UST may only transfer a portion or portions of the Warrant with respect to,
or exercise the Warrant for, more than one-half of the initial Warrant Shares
prior to the earlier of (a) the date on which the Corporation has received
aggregate gross proceeds of at least $1,715 million from one or more Qualified
Equity Offerings, and (b) December 31, 2009.  If the
Corporation completes one or more Qualified Equity Offerings on or prior to
December 31, 2009 that result in the Corporation receiving aggregate gross
proceeds equal to at least $1,715 million, then the number of Warrant Shares
will be reduced to 50% of the original number of Warrant Shares.  The
Warrant provides for the adjustment of the exercise price and the number of
Warrant Shares issuable upon exercise pursuant to customary anti-dilution
provisions, such as upon stock splits or distributions of securities or other
assets to holders of the Corporation’s common stock, and upon certain issuances
of the Corporation’s common stock at or below a specified price range relative
to the initial exercise price.  Pursuant to the Securities Purchase
Agreement, the UST has agreed not to exercise voting power with respect to any
shares of common stock issued upon exercise of the Warrant.
 
 Pursuant
to the Securities Purchase Agreement, until the UST no longer owns any shares of
the Senior Preferred Stock, the Warrant or Warrant Shares, the Corporation’s
employee benefit plans and other executive compensation arrangements for its
Senior Executive Officers must continue to comply in all respects with
Section 111(b) the Emergency Economic Stabilization Act of 2008 and the
rules and regulations of the UST promulgated thereunder.
 
 The
Securities Purchase Agreement permits the UST to unilaterally amend any
provision of the Letter Agreement and the Securities Purchase Agreement to the
extent required to comply with any changes in applicable federal
statutes.
 
 For
accounting purposes, the proceeds of $1,715 million were allocated between the
preferred stock and the warrant based on their relative fair
values.  The initial value of the Warrant, which is classified as
equity, was $81.12 million.  The entire discount on the Senior
Preferred Stock, created from the initial value assigned to the Warrant, is
being accreted over a five-year period in a manner that produces a level
preferred stock dividend yield which is 6.10%.  At the end of the
fifth year, the carrying amount of the Senior Preferred Stock will equal its
liquidation value.
   42
 Table of Contents
 
 Preferred
dividends accrued on the Senior Preferred Stock amounted to $25.0 million during
the first quarter of 2009.  On February 17, 2009, the Corporation paid
the quarterly dividend covering the period from November 14, 2008 through
February 15, 2009 in the amount of $21.7 million.
 
 The
Corporation had a Stock Repurchase Program under which up to 12 million shares
of the Corporation’s common stock could be repurchased
annually.  During the first quarter of 2008, the Corporation acquired
4,782,400 shares of its common stock in open market share repurchase
transactions under the Stock Repurchase Program.  Total cash
consideration amounted to $124.9 million. As a result of the restrictions
contained in the Securities Purchase Agreement, the Corporation allowed the
Stock Repurchase Program to expire and did not reconfirm the Stock Repurchase
Program for 2009.
 
 At March
31, 2009, the net loss in accumulated other comprehensive income amounted to
$75.6 million, which represented a positive change in accumulated other
comprehensive income of $82.3 million since December 31, 2008.  Net accumulated
other comprehensive income associated with available for sale investment
securities was a net gain of $15.6 million at March 31, 2009, compared to a net
loss of $57.1 million at December 31, 2008, resulting in a net gain of $72.7
million over the three month period.  The net unrealized loss
associated with the change in fair value of the Corporation’s derivative
financial instruments designated as cash flow hedges decreased $9.9 million
since December 31, 2008, and amounted to $92.8 million at March 31, 2009,
compared to a net loss of $102.7 million at December 31, 2008.  The
amount required to adjust the Corporation’s postretirement health benefit
liability to its funded status included in accumulated other comprehensive
income amounted to an unrealized gain of $1.6 million as of March 31,
2009.
 
 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)
 March
      31, 2009
                                                                                                                        
                                                                                                                        
                                                                                                                        December
      31, 2008Amount
                                                                                                                        
                                                                                                                        
                                                                                                                        Ratio
                                                                                                                        
                                                                                                                        
                                                                                                                        Amount
                                                                                                                        
                                                                                                                        
                                                                                                                        RatioTier
      1 Capital
                                                                                                                        
                                                                                                                        $
                                                                                                                        5,107
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        9.17
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        5,357
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        9.49
                                                                                                                        %Tier
      1 Capital Minimum Requirement
                                                                                                                        
                                                                                                                        
                                                                                                                        2,229
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        4.00
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        2,257
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        4.00Excess
                                                                                                                        
                                                                                                                        $
                                                                                                                        2,878
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        5.17
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        3,100
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        5.49
                                                                                                                        %Total
      Capital
                                                                                                                        
                                                                                                                        $
                                                                                                                        7,159
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        12.85
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        7,445
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        13.19
                                                                                                                        %Total
      Capital Minimum Requirement
                                                                                                                        
                                                                                                                        
                                                                                                                        4,458
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        8.00
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        4,514
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        8.00Excess
                                                                                                                        
                                                                                                                        $
                                                                                                                        2,701
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        4.85
                                                                                                                        %
                                                                                                                        
                                                                                                                        $
                                                                                                                        2,931
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        5.19
                                                                                                                        %Risk-Adjusted
      Assets
                                                                                                                        
                                                                                                                        $
                                                                                                                        55,725
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        
                                                                                                                        $
                                                                                                                        56,428
  LEVERAGE
RATIOS
 ($ in
millions)
 
 March
      31, 2009
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      December
      31, 2008Amount
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      Ratio
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      Amount
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      RatioTier
      1 Capital
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      5,107
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      8.34
                                                                                                                                                                                                                                                                                                      %
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      5,357
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      8.56
                                                                                                                                                                                                                                                                                                      %Minimum
      Leverage Requirement
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      1,837
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      3,062
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      3.00
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      5.00
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      1,877
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      3,129
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      3.00
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      5.00Excess
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      3,270
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      2,045
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      5.34
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      3.34
                                                                                                                                                                                                                                                                                                      %
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      3,480
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      2,228
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      5.56
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      -
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      3.56
                                                                                                                                                                                                                                                                                                      %Adjusted
      Average Total Assets
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      61,250
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      
                                                                                                                                                                                                                                                                                                      $
                                                                                                                                                                                                                                                                                                      62,587
  The
Corporation manages its liquidity to ensure that funds are available to each of
its banks to satisfy the cash flow requirements of depositors and borrowers and
to ensure the Corporation’s own cash requirements are met.  The
Corporation maintains liquidity by obtaining funds from several
sources.
 
 The
Corporation’s most readily available source of liquidity is its investment
portfolio.  Investment securities available for sale, which totaled
$7.5 billion at March 31, 2009, represent a highly accessible source of
liquidity.  The Corporation’s portfolio of held-to-maturity investment
securities, which totaled $0.2 billion at March 31, 2009, provides liquidity
from maturities and amortization payments.  The Corporation’s loans
held for sale provide additional liquidity.  These loans represent
recently funded loans that are prepared for delivery to investors, which are
generally sold shortly after the loan has been funded.
   43
 Table of Contents
 
 Depositors
within the Corporation’s defined markets are another source of
liquidity.  Core deposits (demand, savings, money market and consumer
time deposits) averaged $23.5 billion in the first quarter of
2009.  The Corporation's banking affiliates may also access the
federal funds markets, the Federal Reserve’s Term Auction Facility or utilize
collateralized borrowings such as treasury demand notes, FHLB advances or other
forms of collateralized borrowings.
 
 The
Corporation’s banking affiliates may use wholesale deposits, which include
foreign (Eurodollar) deposits.  Wholesale deposits, which averaged
$11.2 billion in the first quarter of 2009, are deposits generated through
distribution channels other than the Corporation’s own banking
branches.  The weighted average remaining term of outstanding brokered
and institutional certificates of deposit at March 31, 2009 was 10.4
years.  These deposits allow the Corporation’s banking subsidiaries to
gather funds across a national geographic base and at pricing levels considered
attractive, where the underlying depositor may be retail or
institutional.  Access to wholesale deposits also provides the
Corporation with the flexibility not to pursue single service time deposit
relationships in markets that have experienced some unprofitable pricing
levels.
 
 The
Corporation may use certain financing arrangements to meet its balance sheet
management, funding, liquidity, and market or credit risk management
needs.  The majority of these activities are basic term or revolving
securitization vehicles.  These vehicles are generally funded through
term-amortizing debt structures or with short-term commercial paper designed to
be paid off based on the underlying cash flows of the assets
securitized.  These facilities provide access to funding sources
substantially separate from the general credit risk of the Corporation and its
subsidiaries.
 
 M&I
Bank has implemented a global bank note program that permits it to issue and
sell up to a maximum of US$13.0 billion aggregate principal amount (or the
equivalent thereof in other currencies) at any one time outstanding of its
senior global bank notes with maturities of seven days or more from their
respective date of issue and subordinated global bank notes with maturities more
than five years from their respective date of issue.  The notes may be
fixed rate or floating rate and the exact terms will be specified in the
applicable Pricing Supplement or the applicable Program
Supplement.  This program is intended to enhance liquidity by enabling
M&I Bank to sell its debt instruments in global markets in the future
without the delays that would otherwise be incurred.  At March 31,
2009, approximately $8.9 billion of new debt could be issued under M&I
Bank’s global bank note program.
 
 Bank
notes outstanding at March 31, 2009 amounted to $4.1 billion of which $1.9
billion is subordinated.  A portion of the subordinated bank notes
qualifies as supplementary capital for regulatory capital purposes.
 
 The
national capital markets represent a further source of liquidity to the
Corporation.
 
 During
the second quarter of 2008, the Corporation filed a shelf registration statement
with the Securities and Exchange Commission enabling the Corporation to issue up
to 6.0 million shares of its common stock, which may be offered and issued from
time to time in connection with acquisitions by the Corporation and/or other
consolidated subsidiaries of the Corporation.  At March 31, 2009,
approximately 1.14 million shares of the Corporation’s common stock could be
issued under the shelf registration statement for future
acquisitions.
 
 On
November 6, 2007, the Corporation filed a shelf registration statement pursuant
to which the Corporation was initially authorized to raise up to $1.9 billion
through sales of corporate debt and/or equity securities with a relatively short
lead time.
 
 The
Corporation and/or M&I Bank may repurchase or redeem its outstanding debt
securities from time to time, including, without limitation, senior and
subordinated global bank notes, medium-term corporate notes, MiNotes or junior
subordinated deferrable interest debentures and the related trust preferred
securities.  Such repurchases or redemptions may be made in open
market purchases, in privately negotiated transactions or otherwise for cash or
other consideration.  Any such repurchases or redemptions will be made
on an opportunistic basis as market conditions permit and are dependent on the
Corporation’s liquidity needs, compliance with any contractual or indenture
restrictions and regulatory requirements and other factors the Corporation deems
relevant. During the first quarter of 2009, the Corporation re-acquired and
extinguished $42.1 million of debt.  The debt consisted of small
blocks of various bank notes issued by the Corporation and M&I
Bank.  The size of the blocks ranged from $4.1 million to $11.8
million with a weighted average buyback price of approximately 92.7% of
par.
 
 The
market impact of the recession and deterioration in the national real estate
markets has resulted in a decline in market confidence and a subsequent strain
on liquidity in the financial services sector.  However, participation
in the CPP in 2008 provided the Corporation with $1.7 billion in cash and
significantly increased its regulatory and tangible capital
levels.  Management expects that it will continue to make use of a
wide variety of funding sources, including those that have not shown the levels
of stress demonstrated in some of the national capital
markets.  Notwithstanding the current national capital market impact
on the cost and availability of liquidity, management believes that it has
adequate liquidity to ensure that funds are available to the Corporation and
each of its banks to satisfy their cash flow requirements.  However,
if capital markets deteriorate more than management currently expects, the
Corporation could experience stress on its liquidity position.
   44
 Table of Contents
 
 OFF-BALANCE
SHEET ARRANGEMENTS
 
 At March
31, 2009, there have been no substantive changes with respect to the
Corporation’s off-balance sheet activities disclosed in the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2008.  The
Corporation continues to believe that based on the off-balance sheet
arrangements with which it is presently involved, such off-balance sheet
arrangements neither have, nor are reasonably likely to have, a material impact
to its current or future financial condition, results of operations, liquidity
or capital.
   CRITICAL
ACCOUNTING POLICIES
 
 The
Corporation has established various accounting policies which govern the
application of accounting principles generally accepted in the United States in
the preparation of the Corporation’s consolidated financial
statements.  The significant accounting policies of the Corporation
are described in the footnotes to the consolidated financial statements
contained in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2008, and updated as necessary in its Quarterly Reports on Form
10-Q.  Certain accounting policies involve significant judgments and
assumptions by management that may have a material impact on the carrying value
of certain assets and liabilities.  Management considers such
accounting policies to be critical accounting policies.  The judgments
and assumptions used by management are based on historical experience and other
factors, which are believed to be reasonable under the
circumstances.  Because of the nature of judgments and assumptions
made by management, actual results could differ from these judgments and
estimates which could have a material impact on the carrying values of assets
and liabilities and the results of operations of the
Corporation.  Management continues to consider the following to be
those accounting policies that require significant judgments and
assumptions:
 
 Allowance
for Loan and Lease Losses
 
 The
allowance for loan and lease losses represents management’s estimate of probable
losses inherent in the Corporation’s loan and lease
portfolio.  Management evaluates the allowance each quarter to
determine that it is adequate to absorb these inherent losses.  This
evaluation is supported by a methodology that identifies estimated losses based
on assessments of individual problem loans and historical loss patterns of
homogeneous loan pools.  In addition, environmental factors, including
economic conditions and regulatory guidance, unique to each measurement date are
also considered.  This reserving methodology has the following
components:
 
 Specific
Reserve.  The Corporation’s nonaccrual loans and renegotiated
loans form the basis to identify loans and leases that 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.  For impaired loans, impairment is measured using
one of three alternatives: (1) the present value of expected future cash flows
discounted at the loan’s effective interest rate; (2) the loan’s observable
market price, if available; or (3) the fair value of the collateral for
collateral dependent loans and loans for which foreclosure is deemed to be
probable.  In general, these loans have been internally identified as
credits requiring management’s attention due to underlying problems in the
borrower’s business or collateral concerns.  A quarterly review of
nonaccrual loans, subject to minimum size, and all renegotiated loans is
performed to identify the specific reserve necessary to be allocated to each of
these loans.  This analysis considers expected future cash flows, the
value of collateral and also other factors that may impact the borrower’s
ability to make payments when due.
 
 Collective Loan
Impairment.  This component of the allowance for loan and lease
losses is comprised of two elements.  First, the Corporation makes a
significant number of loans and leases, which due to their underlying similar
characteristics, are assessed for loss as homogeneous pools.  Included
in the homogeneous pools are loans and leases from the retail sector and
commercial loans under a certain size that have been excluded from the specific
reserve allocation previously discussed.  The Corporation segments the
pools by type of loan or lease and the business channel that originated the loan
or lease. Using historical loss information, loss is estimated for each
pool.
 
 The
second element reflects management’s recognition of the uncertainty and
imprecision underlying the process of estimating losses.  The
Corporation has identified certain loans within certain industry segments that
based on financial, payment or collateral performance, warrant closer ongoing
monitoring by management.  The specific loans mentioned earlier are
excluded from this analysis.  Based on management’s judgment, reserve
ranges are allocated to industry segments due to environmental conditions unique
to the measurement period.  Consideration is given to both internal
and external environmental factors such as economic conditions in certain
geographic or industry segments of the portfolio, economic trends, risk profile,
and portfolio composition.  Reserve ranges are then allocated using
estimates of loss exposure that management has identified based on these
economic trends or conditions.
   45
 Table of Contents
 
 The
Corporation has not materially changed any aspect of its overall approach in the
determination of the allowance for loan and lease losses.  However, on
an on-going basis the Corporation continues to refine the methods used in
determining management’s best estimate of the allowance for loan and lease
losses.
 
 The
following factors were taken into consideration in determining the adequacy of
the allowance for loan and lease losses at March 31, 2009:
 
 The
Corporation’s problem loans continue to be primarily real estate related loans
in areas that were previously experiencing substantial population growth and
increased demand for housing such as Arizona and Florida, and in the
correspondent banking business.  The Corporation’s higher growth
markets have been disproportionately affected by the excess real estate
inventory and deterioration in the national real estate markets as the economy
deteriorated into recession. Rising unemployment, the recession and illiquid
real estate markets have resulted in an increasing number of borrowers that are
unable to either refinance or sell their properties and consequently have
defaulted or are very close to defaulting on their loans.  In this
stressed housing market that is experiencing increasing delinquencies and
rapidly declining real estate values, the adequacy of collateral securing the
loan becomes a much more important factor in determining expected loan
performance.  In many cases, rapidly declining real estate values
resulted in the determination that the collateral was insufficient to cover the
recorded investment in the loan.  These factors resulted in the
Corporation’s loan and lease portfolio experiencing significantly higher
incidences of default and a significant increase in loss severity in recent
quarters. The Corporation has taken these factors into consideration in
determining the adequacy of its allowance for loan and leases.
 
 At March
31, 2009, allowances for loan and lease losses were established for a
Midwest-based correspondent bank holding company. Allowances for loan and lease
losses continue to be carried for exposures to accommodation (hotels/motels) and
motor vehicle and parts dealers.  While most loans in these categories
are still performing, the Corporation continues to believe these sectors present
a higher than normal risk due to their financial and external
characteristics.
 
 The
Corporation’s primary lending areas are Wisconsin, Arizona, Minnesota, Missouri,
Florida and Indiana.  Recent acquisitions are in relatively new
markets for the Corporation.  Included in these new markets is the
Kansas City metropolitan area and Tampa, Sarasota, Bradenton and Orlando,
Florida and the Indianapolis and central Indiana market.  Each of
these regions and markets has cultural and environmental factors that are unique
to it. Segmenting loan pools by type of loan or lease and the business channel
that originated the loan or lease is used to measure the impact of these factors
on both new and existing business channels.
 
 Almost
every major geographical area experienced an increase in nonperforming loans and
leases in the first quarter of 2009. Those increases reflect varying degrees of
economic stress throughout the Corporation’s markets.At March 31, 2009,
nonperforming loans in Arizona amounted to $1,068.3 million compared to $857.5
million at December 31, 2008, an increase of $210.8 million or 24.6%.
Nonperforming loans in Arizona represented 42.1% of total consolidated
nonperforming loans and leases at March 31, 2009 and continue to be the largest
concentration of nonperforming loans in the Corporation’s loan and lease
portfolio.  Nonperforming construction and development loans made up
approximately $642.8 million or 60.2% and nonperforming residential real estate
loans made up approximately $336.2 million or 31.5% of nonperforming loans in
Arizona at March 31, 2009. Nonperforming loans in Florida amounted to $244.3
million at March 31, 2009 compared to $172.8 million at December 31, 2008 an
increase of $71.5 million or 41.4%.  Approximately $144.2 million or
59.0% of nonperforming loans in Florida at March 31, 2009 were construction and
development loans. Construction and development real estate loans that are
concentrated in the west coast of Florida and Arizona have been the primary
contributor to the increase in nonperforming loans and leases and net
charge-offs in recent quarters.
 
 At March
31, 2009, nonperforming loans and leases amounted to $2,536.6 million or 5.15%
of consolidated loans and leases compared to $1,811.8 million or 3.62% of
consolidated loans and leases at December 31, 2008, an increase of $724.8
million or 40.0%. Consistent with recent quarters, nonperforming real estate
loans were the primary source of the Corporation’s nonperforming loans and
leases and represented 78.8% of total nonperforming loans and leases at March
31, 2009. Nonperforming construction and development loans, a subset of
nonperforming real estate loans, represented 48.4% of total nonperforming loans
and leases at March 31, 2009.  Nonperforming real estate loans
amounted to $1,998.3 million at March 31, 2009 compared to $1,529.8 million at
December 31, 2008, an increase of $468.5 million or 30.6%. Nonperforming
commercial loans and leases amounted to $401.9 million at March 31, 2009
compared to $180.5 million at December 31, 2008, an increase of $221.4 million.
While this portfolio has generally shown increased stress, the increase is
attributable to a small number of larger loans that are not concentrated in any
particular industry. Nonperforming consumer loans and leases amounted to $136.4
million at March 31, 2009 compared to $101.5 million at December 31, 2008, an
increase of $34.9 million or 34.4%. All of the increase was attributable to home
equity loans and lines of credit. Renegotiated consumer loans and leases,
predominantly home equity loans and lines of credit, accounted for $20.2 million
or 57.8% of the increase in nonperforming consumer loans and leases amounted at
March 31, 2009 compared to December 31, 2008.
   46
 Table of Contents
 
 Nonaccrual
loans, the largest component of nonperforming loans, are considered to be those
loans with the greatest risk of loss due to nonperformance and amounted to
$2,074.6 million or 4.21% of total loans and leases outstanding at March 31,
2009 compared to $1,527.0 million or 3.05% of total loans and leases outstanding
at December 31, 2008, an increase of $547.6 million or 35.9%. The amount of
cumulative charge-offs recorded on the Corporation’s nonaccrual loans
outstanding at March 31, 2009 was approximately $665.1 million or 48.3% of the
unpaid principal balance of the affected nonaccrual loans and 24.3% of the
unpaid principal balance of its total nonaccrual loans outstanding at
March 31, 2009.  These charge-offs have reduced the carrying
value of these nonaccrual loans and leases which reduced the allowance for loan
and lease losses required at the measurement date.
 
 Renegotiated
loans and leases amounted to $446.0 million at March 31, 2009 compared to $270.4
million at December 31, 2008, an increase of $175.6 million or 65.0%. After
restructuring, renegotiated loans generally result in lower payments than
originally required and therefore, should have a lower risk of loss due to
nonperformance than loans classified as nonaccrual. The Corporation’s instances
of default and re-default on renegotiated loans has been relatively low.
However, the Corporation’s experience with renegotiated loan performance is
relatively new and does not encompass an extended period of time. In order to
avoid foreclosure in the future, the Corporation has restructured loan terms for
certain qualified borrowers that have demonstrated the ability to make the
restructured payments for a specified period of time. The Corporation has
primarily used reduced interest rates and extended terms to lower contractual
payments. At March 31, 2009, restructured construction and development loans
amounted to $156.2 million or 35.0% of total renegotiated loans and leases and
residential real estate, home equity and other consumer loans amounted to $217.1
million or 48.7% of total renegotiated loans and leases. Approximately $232.4
million or 52.1% of total renegotiated loans and leases at March 31, 2009 were
related to renegotiated loans and leases in Arizona. The present value of
expected future cash flows discounted at the loan’s effective interest rate was
the primary method used to measure impairment and determine the amount of
allowance for loan and lease losses required for renegotiated loans and leases
at March 31, 2009.  Significant judgment is required to estimate
expected future cash flows.
 
 Net charge-offs amounted to $328.0
million or 2.67% of average loans and leases in the first quarter of 2009. Net
charge-offs of real estate loans amounted to $257.6 million or 78.5% of total
net charge-offs in the first quarter of 2009.  For the three months
ended March 31, 2009, approximately $176.4 million of the real estate loan net
charge-offs  were construction and development loan net charge-offs.
The Corporation’s construction and development real estate loans continued to
exhibit the most increase in impairment.  In addition, commercial
loans whose performance is dependent on the housing market also continued to be
adversely affected.
 
 Net
charge-offs in the first quarter of 2009 were concentrated in three areas which
the Corporation refers to as business channels.  Net charge-offs for
the Arizona business channel amounted to $120.8 million, net charge-offs for the
Florida business channel amounted to $24.9 million and net charge-offs for the
correspondent banking business channel amounted to $51.2 million. The aggregate
net charge-offs for these three business channels amounted to $196.9 million or
60.0% of total net charge-offs for the three months ended March 31, 2009. That
concentration of net charge-offs in the first quarter was consistent with the
Corporation’s experience in 2008. The aggregate net charge-offs for these three
business channels amounted to 68.9% of total net charge-offs for the year ended
December 31, 2008.
 
 Based on
the loss estimates discussed, management determined its best estimate of the
required allowance for loans and leases.  Management’s evaluation of
the factors previously described resulted in an allowance for loan and lease
losses of $1,352.1 million or 2.75% of loans and leases outstanding at March 31,
2009.  The allowance for loan and lease losses was $1,202.2 million or
2.41% of loans and leases outstanding at December 31,
2008.  Consistent with the credit quality trends noted above, the
provision for loan and lease losses amounted to $477.9 million in the first
quarter of 2009. The resulting provision for loan and lease losses are the
amounts required to establish the allowance for loan and lease losses at the
required level after considering charge-offs and
recoveries.  Management recognizes there are significant estimates in
the process and the ultimate losses could be significantly different from those
currently estimated.
 
 Income
Taxes
 
 Income
taxes are accounted for using the asset and liability method.  Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  The
effect on tax assets and liabilities of a change in tax rates is recognized in
the income statement in the period that includes the enactment
date.
   47
 Table of Contents
   The
determination of current and deferred income taxes is based on complex analyses
of many factors, including interpretation of Federal and state income tax laws,
the difference between tax and financial reporting basis of assets and
liabilities (temporary differences), estimates of amounts currently due or owed,
such as the timing of reversals of temporary differences and current accounting
standards.  The Federal and state taxing authorities who make
assessments based on their determination of tax laws periodically review the
Corporation’s interpretation of Federal and state income tax
laws.  Tax liabilities could differ significantly from the estimates
and interpretations used in determining the current and deferred income tax
liabilities based on the completion of taxing authority
examinations.
  The
Corporation accounts for the uncertainty in income taxes recognized in financial
statements in accordance with the recognition threshold and measurement process
for a tax position taken or expected to be taken in a tax return in accordance
with Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN
48”), Accounting for
Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109.
FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosures.
  In
February 2009, the State of Wisconsin passed legislation that requires combined
reporting for state income tax purposes effective January 1, 2009. 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.
 
 As a
result of the Internal Revenue Service’s decision not to appeal a November 2007
US Tax Court ruling related to how the TEFRA (interest expense) disallowance
should be calculated within a consolidated group and the position the IRS has
taken in another related case, the Corporation recognized an additional income
tax benefit related to years 1996-2007 of $20.0 million for its similar issue
during the first quarter of 2008.
 
 The
Corporation anticipates it is reasonably possible that unrecognized tax benefits
up to approximately $20 million could be realized within 12 months of March 31,
2009.  The realization would principally result from settlement with
taxing authorities as it relates to the tax benefits associated with a 2002
stock issuance.
 
 Fair
Value Measurement
  The
Corporation measures fair value in accordance with Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements  and the additional guidance provided by Financial
Accounting Standards Board Staff Position FSP FAS 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly, collectively “SFAS 157”.  SFAS 157 provides a
framework for measuring fair value under accounting principles generally
accepted in the United States of America.  SFAS 157 defines fair value
as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.  SFAS 157 addresses the valuation techniques used to
measure fair value.  These valuation techniques include the market
approach, income approach and cost approach.  The market approach uses
prices or relevant information generated by market transactions that are
identical to or comparable with assets or liabilities.  The income
approach involves converting future amounts to a single present
amount.  The measurement is valued based on current market
expectations about those future amounts.  The cost approach is based
on the amount that currently would be required to replace the service capacity
of an asset.
  SFAS 157
establishes a fair value hierarchy, which prioritizes the inputs to valuation
techniques used to measure fair value into three broad levels.  The
fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3).  The reported fair value of a financial
instrument is categorized within the fair value hierarchy based upon the lowest
level of input that is significant to the instrument’s fair value
measurement.  The three levels within the fair value hierarchy consist
of the following:
  Level 1 -
Inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
  Level 2 -
Inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the
financial instrument.  Fair values for these instruments are estimated
using pricing models, quoted prices of financial assets or liabilities with
similar characteristics or discounted cash flows.
  Level 3-
Inputs to the valuation methodology are unobservable and significant to the fair
value measurement.  Fair values are initially valued based upon a
transaction price and are adjusted to reflect exit values as evidenced by
financing and sale transactions with third parties.
   48
 Table of Contents
   These
measurements involve various valuation techniques and models, which involve
inputs that are observable, when available.  A description of the
valuation methodologies used for financial instruments measured at fair value on
a recurring basis, as well as the general classification of such instruments
pursuant to the valuation hierarchy is disclosed in Note 3 – Fair Value
Measurements in Notes to Consolidated Financial Statements.
  In
addition to financial instruments that are measured at fair value on a recurring
basis, fair values are used in purchase price allocations and goodwill
impairment testing.
  Other
than Level 1 inputs, selecting the relevant inputs, appropriate valuation
techniques and determining the appropriate category to report the fair value of
a financial instrument requires varying levels of judgment depending on the
facts and circumstances.  The determination of some fair values can be
a complex analysis of many factors.  Judgment is required when
determining the fair value of an asset or liability when either relevant
observable inputs do not exist or available observable inputs are in a market
that is not active.  When relevant observable inputs are not
available, the Corporation must use its own assumptions about future cash flows
and appropriately risk-adjusted discount rates.  Conversely, in some
cases observable inputs may require significant adjustments.  For
example, in cases where the volume and level of trading activity in an asset or
liability have declined significantly, the available prices vary significantly
over time or among market participants, or the prices are not current, the
observable inputs might not be relevant and could require significant
adjustment.
  Valuation
techniques and models used to measure the fair value of financial assets on a
recurring basis are reviewed and validated by the Corporation at least quarterly
and in some cases monthly.  In addition, the Corporation monitors the
fair values of significant assets and liabilities using a variety of methods
including the evaluation of pricing service information, using exception reports
based on analytical criteria, comparisons to previous trades or broker quotes
and overall reviews and assessments for reasonableness.
  
 New
Accounting Pronouncements
  A
discussion of new accounting pronouncements that are applicable to the
Corporation and have been or will be adopted by the Corporation is included in
Note 2 in Notes to Financial Statements contained in Item 1 herein.
 
 
 FORWARD-LOOKING
STATEMENTS
 
 Items 2
and 3 of this Form 10-Q, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Quantitative and Qualitative
Disclosures about Market Risk,” respectively, contain forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.  Such forward-looking statements
include, without limitation, statements regarding expected financial and
operating activities and results which are preceded by words such as “expects”,
“anticipates” or “believes”.  Such statements are subject to important
factors that could cause the Corporation’s actual results to differ materially
from those anticipated by the forward-looking statements.  These
factors include those referenced in Item 1A. Risk Factors, in the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2008 and as may be
described from time to time in the Corporation’s subsequent SEC
filings.
   49
 Table of Contents
   ITEM 3. QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET RISK
 The
following updated information should be read in conjunction with the
Corporation’s Annual Report on Form 10-K for the year ended December 31,
2008.  Updated information regarding the Corporation’s use of
derivative financial instruments is contained in Note 12 – Derivative Financial
Instruments and Hedging Activities in Notes to Financial Statements contained in
Item 1 herein.
 
 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 and market value 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 limit 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 of the assets and liabilities held by the
Corporation.  The net change in net interest income in different
market rate environments is the amount of earnings at risk.  The net
change in the present value of the asset and liability cash flows in different
market rate environments is the amount of market value at
risk.  Policies are in place to assure that neither earnings nor
market 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 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 cash flows 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 projects future net interest
income levels in several different interest rate
environments.  Earnings at risk are calculated by modeling net
interest income in an environment where rates remain constant, and comparing
this result to net interest income in a different rate environment, and then
expressing this difference as a percentage of net interest income for the
succeeding 12 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 the year
(+25bp per quarter), and a gradual decrease of 100bp across the entire yield
curve over the course of the year (-25bp per quarter) for the balance sheet
as of March 31, 2009:
  Hypothetical Change in Interest
      Rates
                          
                          Impact to 2009100
      basis point gradual rise
      in rates
                          
                          
                          1.4
                          %100
      basis point gradual decline in rates
                          
                          
                          (5.1
                          )
      %




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 and changes in spread between key market
rates.  These results also 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 the timing, magnitude, and
frequency of interest rate changes as well as changes in market conditions and
management strategies.






50
 Table of Contents





Equity
Risk




In
addition to interest rate risk, the Corporation incurs market risk in the form
of equity risk.  The Corporation invests directly and indirectly
through investment funds, in private medium-sized companies to help establish
new businesses or recapitalize existing ones.  These investments
expose the Corporation to the change in equity values for the portfolio
companies.  However, fair values are difficult to determine until an
actual sale or liquidation transaction actually occurs.  At March 31,
2009, the carrying value of total private equity investments amounted to
approximately $66.2 million.




At March
31, 2009, Wealth Management administered $101.5 billion in assets and directly
managed $29.7 billion in assets.  Exposure exists to changes in equity
values due to the fact that fee income is partially based on equity
balances.  Quantification of this exposure is 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.






51
 Table of Contents






ITEM 4. CONTROLS AND
    PROCEDURES


The
Corporation maintains a set of disclosure controls and procedures that are
designed to ensure that information required to be disclosed by it in the
reports filed by it under the Securities Exchange Act of 1934, as amended, are
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and to ensure that information required to be
disclosed by the Corporation in such reports is accumulated and communicated to
the Corporation’s Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.  The Corporation carried out an evaluation, under the
supervision and with the participation of its management, including its
President and Chief Executive Officer and its Senior Vice President and Chief
Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange
Act.  Based on that evaluation, the President and Chief Executive
Officer and the Senior Vice President and Chief Financial Officer conclude that
the Corporation’s disclosure controls and procedures are effective as of the end
of the period covered by this report for the purposes for which they are
designed.





There
have been no changes in the Corporation’s internal control over financial
reporting identified in connection with the evaluation discussed above that
occurred during the Corporation’s last fiscal quarter that have materially
affected, or are reasonably likely to materially affect the Corporation’s
internal control over financial reporting.





52
 Table of Contents






PART
II - OTHER INFORMATION
 ITEM 2. UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF
PROCEEDS.
 
 The
following table reflects the purchases of Marshall & Ilsley Corporation
stock for the specified period:
 
 Total
      Number
                                          
                                          
                                          Maximum
      Numberof
      Shares
                                          
                                          
                                          of
      Shares thatPurchased
      as
                                          
                                          
                                          May
      Yet BeTotal
      Number
                                          
                                          
                                          Average
                                          
                                          
                                          Part
      of Publicly
                                          
                                          
                                          Be
      Purchasedof
      Shares
                                          
                                          
                                          Price
      Paid
                                          
                                          
                                          Announced
      Plans
                                          
                                          
                                          Under
      the PlansPurchased
      (1)
                                          
                                          
                                          per
      Share
                                          
                                          
                                          or
      Programs
                                          
                                          
                                          or
      ProgramsJanuary
      1 to January 31, 2009
                                          
                                          
                                          23,526
                                          
                                          
                                          $
                                          12.09
                                          
                                          
                                          
                                          N/A
                                          
                                          
                                          
                                          N/AFebruary
      1 to February 28, 2009
                                          
                                          
                                          5,318
                                          
                                          
                                          
                                          12.64
                                          
                                          
                                          
                                          N/A
                                          
                                          
                                          
                                          N/AMarch
      1 toMarch 31, 2009
                                          
                                          
                                          34,844
                                          
                                          
                                          
                                          4.34
                                          
                                          
                                          
                                          N/A
                                          
                                          
                                          
                                          N/ATotal
                                          
                                          
                                          63,688
                                          
                                          
                                          $
                                          7.90
                                          
                                          
                                          
                                          N/A




(1)
                Includes
      shares purchased by rabbi trusts pursuant to nonqualified deferred
      compensation plans.
 
 In
connection with the Corporation’s participation in the Capital Purchase Program
(“CPP”), the consent of the United States Treasury will be required for the
Corporation to repurchase its common stock other than in connection with benefit
plans consistent with past practice and certain other specified
circumstances.  See Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources in
the Corporation’s 2008 Annual Report on Form 10-K for additional information
regarding the CPP.
 
 The
Corporation’s Share Repurchase Program expired and was not reconfirmed in April
2009.
 
  53
 Table of Contents
 ITEM
6. EXHIBITS.
  Exhibit
      11
                      -
                      Statement Regarding
      Computation of Earnings Per Common Share, Incorporated by Reference to
      Note 5 of Notes to Financial Statements contained in
      Item 1 - Financial Statements
      (unaudited) of Part I - Financial Information
      herein.Exhibit
      12
                      -
                      Statement
      Regarding Computation of Ratio of Earnings to Fixed
    Charges.Exhibit
      31(i)
                      -
                      Certification of
      Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under
      the
      Securities Exchange Act of 1934, as
      amended.Exhibit
      31(ii)
                      -
                      Certification of
      Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under
      the
      Securities Exchange Act of 1934, as
      amended.Exhibit
      32(a)
                      -
                      Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350.Exhibit
      32(b)
                      -
                      Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section
    1350.
 
 54
 Table of Contents
 
 
 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/ Patricia R.
Justiliano
 ______________________________________
 Patricia R. Justiliano
 Senior Vice President and Corporate
Controller
 (Chief Accounting
Officer)
 
 
 
 
 /s/ James E. Sandy
 ______________________________________
 James E. Sandy
 Vice President
 
 
 
 
 May 11,
2009
   55
 Table of Contents
   EXHIBIT INDEX
    Exhibit
      Number
                  
                  Description of
      Exhibit(11)
                  
                  Statement
      Regarding Computation of Earnings Per Common Share, Incorporated by
      Reference
      to Note 5 of Notes to Financial Statements contained
      in Item 1 - Financial
      Statements (unaudited) of Part I - Financial Information
      herein.(12)
                  
                  Statement
      Regarding Computation of Ratio of Earnings to Fixed
    Charges.(31)(i)
                  
                  Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule
      15d-14(a) under
      the Securities Exchange Act of 1934, as amended.(31)(ii)
                  
                  Certification of
      Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under
      the Securities Exchange Act of 1934, as amended.(32)(a)
                  
                  Certification of
      Chief Executive Officer pursuant to 18 U.S.C. Section 1350.(32)(b)
                  
                  Certification of
      Chief Financial Officer pursuant to 18 U.S.C. Section
  1350.
  
 56