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 September 30, 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 October 31,
    2009Common
      Stock, $1.00 Par Value
            524,694,757











MARSHALL & ILSLEY CORPORATION
 QUARTERLY
REPORT ON FORM 10-Q
 FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
 
 TABLE
OF CONTENTS
 PART
      I. FINANCIAL INFORMATION
                PageITEM 1. FINANCIAL STATEMENTS
                2CONSOLIDATED BALANCE SHEETS (Unaudited)
                2CONSOLIDATED STATEMENTS OF INCOME – THREE MONTHS ENDED
      (Unaudited)
                3CONSOLIDATED STATEMENTS OF INCOME – NINE MONTHS ENDED
      (Unaudited)
                4CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
      (Unaudited)
                5NOTES TO THE FINANCIAL STATEMENTS
      (Unaudited)
                6ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
                40OVERVIEW
                42OTHER NOTEWORTHY TRANSACTIONS AND EVENTS
                45NET INTEREST INCOME
                47CREDIT QUALITY AND ALLOWANCE FOR LOAN AND LEASE
      LOSSES
                54OTHER INCOME
                66OTHER EXPENSE
                67INCOME TAXES
                70LIQUIDITY AND CAPITAL RESOURCES
                70OFF-BALANCE SHEET ARRANGEMENTS
                75CRITICAL ACCOUNTING POLICIES
                75FORWARD-LOOKING STATEMENTS
                82ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                83ITEM 4. CONTROLS AND PROCEDURES
                85PART
      II. OTHER INFORMATIONITEM 1A. RISK FACTORS
                86ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS
                87ITEM 6. EXHIBITS
                88SIGNATURES
                89EXHIBIT INDEX
                90EX-11
                90EX-12
                91EX-31(i)
                92EX-31(ii)
                93EX-32(i)
                94EX-32(ii)
                95




1
 Table of Contents




PART
I - FINANCIAL INFORMATION
 
 ITEM 1.  FINANCIAL STATEMENTS
 
 MARSHALL & ILSLEY CORPORATION
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 ($000’s except share data)
 
 September
      30,
              
              
              December
      31,
              
              
              September
      30,2009
              
              
              2008
              
              
              2008Assets:Cash
      and cash equivalents:Cash
      and due from banks
              
              $
              674,747
              
              
              $
              851,336
              
              
              $
              982,132Federal
      funds sold and security resale agreements
              
              
              40,739
              
              
              
              101,069
              
              
              
              68,623Money
      market funds
              
              
              33,666
              
              
              
              120,002
              
              
              
              59,938Total
      cash and cash equivalents
              
              
              749,152
              
              
              
              1,072,407
              
              
              
              1,110,693Interest
      bearing deposits at other banks
              
              
              1,531,018
              
              
              
              9,684
              
              
              
              8,727Trading
      assets, at fair value
              
              
              270,326
              
              
              
              518,361
              
              
              
              162,767Investment
      securities:Available
      for sale, at fair
      value
              
              
              6,310,124
              
              
              
              7,430,552
              
              
              
              7,131,346Held
      to maturity, fair value $124,341 ($243,395 at December 31, 2008and
      $256,463 at September 30, 2008)
              
              
              120,054
              
              
              
              238,009
              
              
              
              251,902Loans
      held for sale
              
              
              271,139
              
              
              
              220,391
              
              
              
              152,740Loans
      and leases
              
              
              45,835,175
              
              
              
              49,764,153
              
              
              
              50,264,502Allowance
      for loan and lease losses
              
              
              (1,413,743
              )
              
              
              (1,202,167
              )
              
              
              (1,031,494
              )Net
      loans and leases
              
              
              44,421,432
              
              
              
              48,561,986
              
              
              
              49,233,008Premises
      and equipment, net
              
              
              569,875
              
              
              
              564,789
              
              
              
              541,799Goodwill
              
              
              611,746
              
              
              
              605,144
              
              
              
              2,097,025Other
      intangible assets
              
              
              139,920
              
              
              
              158,305
              
              
              
              139,574Bank-owned
      life insurance
              
              
              1,181,564
              
              
              
              1,157,612
              
              
              
              1,158,392Other
      real estate owned (OREO)
              
              
              351,216
              
              
              
              320,908
              
              
              
              267,224Accrued
      interest and other assets
              
              
              2,017,757
              
              
              
              1,478,270
              
              
              
              1,245,700Total
      Assets
              
              $
              58,545,323
              
              
              $
              62,336,418
              
              
              $
              63,500,897Liabilities
      and Equity:Deposits:Noninterest
      bearing
              
              $
              8,286,269
              
              
              $
              6,879,994
              
              
              $
              6,359,020Interest
      bearing
              
              
              33,434,120
              
              
              
              34,143,147
              
              
              
              33,680,582Total
      deposits
              
              
              41,720,389
              
              
              
              41,023,141
              
              
              
              40,039,602Federal
      funds purchased and security repurchase agreements
              
              
              718,106
              
              
              
              1,190,000
              
              
              
              2,230,421Other
      short-term borrowings
              
              
              822,520
              
              
              
              2,868,033
              
              
              
              4,036,777Accrued
      expenses and other liabilities
              
              
              1,370,032
              
              
              
              1,370,969
              
              
              
              977,552Long-term
      borrowings
              
              
              7,511,960
              
              
              
              9,613,717
              
              
              
              9,714,687Total
      Liabilities
              
              
              52,143,007
              
              
              
              56,065,860
              
              
              
              56,999,039Equity:Preferred
      stock, $1.00 par value; 5,000,000 shares authorized;1,715,000
      shares 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; 373,764,081 shares issued (272,318,615 sharesat December 31, 2008 and 267,455,394 shares at September 30,
      2008)
              
              
              373,764
              
              
              
              272,319
              
              
              
              267,455Additional
      paid-in capital
              
              
              4,295,403
              
              
              
              3,838,867
              
              
              
              2,063,165Retained
      earnings
              
              
              1,930,715
              
              
              
              2,538,989
              
              
              
              4,513,574Treasury
      stock, at cost:  5,453,457 shares (6,977,434 shares atDecember
      31, 2008 and 7,434,382 shares at September 30, 2008)
              
              
              (150,590
              )
              
              
              (192,960
              )
              
              
              (205,713
              )Deferred
      compensation
              
              
              (37,355
              )
              
              
              (40,797
              )
              
              
              (38,736
              )Accumulated
      other comprehensive income, net of related taxes
              
              
              (22,278
              )
              
              
              (157,952
              )
              
              
              (107,803
              )Total
      Marshall & Ilsley Corporation shareholders' equity
              
              
              6,391,374
              
              
              
              6,260,181
              
              
              
              6,491,942Noncontrolling
      interest in subsidiaries
              
              
              10,942
              
              
              
              10,377
              
              
              
              9,916Total
      Equity
              
              
              6,402,316
              
              
              
              6,270,558
              
              
              
              6,501,858Total
      Liabilities and Equity
              
              $
              58,545,323
              
              
              $
              62,336,418
              
              
              $
              63,500,897See
      notes to financial statements.






2
 Table of Contents






MARSHALL & ILSLEY CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 ($000’s except per share data)
 
 Three
      Months Ended September 30,2009
              
              
              2008Interest
      and fee incomeLoans
      and leases
              
              $
              547,505
              
              
              $
              714,099Investment
      securities:Taxable
              
              
              43,565
              
              
              
              68,959Exempt
      from federal income taxes
              
              
              10,671
              
              
              
              13,034Trading
      securities
              
              
              136
              
              
              
              368Short-term
      investments
              
              
              1,200
              
              
              
              2,191Total
      interest and fee income
              
              
              603,077
              
              
              
              798,651Interest
      expenseDeposits
              
              
              133,633
              
              
              
              213,858Short-term
      borrowings
              
              
              1,546
              
              
              
              34,645Long-term
      borrowings
              
              
              79,207
              
              
              
              109,499Total
      interest expense
              
              
              214,386
              
              
              
              358,002Net
      interest income
              
              
              388,691
              
              
              
              440,649Provision
      for loan and lease losses
              
              
              578,701
              
              
              
              154,962Net
      interest income (loss) after provision for loan and lease
      losses
              
              
              (190,010
              )
              
              
              285,687Other
      incomeWealth
      management
              
              
              66,678
              
              
              
              71,349Service
      charges on deposits
              
              
              33,564
              
              
              
              36,676Gain
      on sale of mortgage loans
              
              
              11,771
              
              
              
              4,537Other
      mortgage banking revenue
              
              
              934
              
              
              
              961Net
      investment securities gains (losses)
              
              
              (1,517
              )
              
              
              987Bank-owned
      life insurance revenue
              
              
              10,347
              
              
              
              12,763Gain
      on termination of debt
              
              
              56,148
              
              
              
              -OREO
      income
              
              
              4,317
              
              
              
              3,965Other
              
              
              45,623
              
              
              
              52,594Total
      other income
              
              
              227,865
              
              
              
              183,832Other
      expenseSalaries
      and employee benefits
              
              
              179,175
              
              
              
              184,018Net
      occupancy and equipment
              
              
              33,297
              
              
              
              31,655Software
      expenses
              
              
              7,704
              
              
              
              6,508Processing
      charges
              
              
              33,623
              
              
              
              33,202Supplies,
      printing, postage and delivery
              
              
              8,376
              
              
              
              9,289FDIC
      insurance
              
              
              17,813
              
              
              
              6,005Professional
      services
              
              
              23,541
              
              
              
              16,493Amortization
      of intangibles
              
              
              5,889
              
              
              
              5,999OREO
      expenses
              
              
              56,445
              
              
              
              14,111Other
              
              
              43,119
              
              
              
              52,520Total
      other expense
              
              
              408,982
              
              
              
              359,800Income
      (loss) before income taxes
              
              
              (371,127
              )
              
              
              109,719Provision
      (benefit) for income taxes
              
              
              (148,170
              )
              
              
              26,378Net
      income (loss)
              
              
              (222,957
              )
              
              
              83,341Less:  Net
      income attributable to noncontrolling interests
              
              
              (402
              )
              
              
              (203
              )Net
      income (loss) attributable to Marshall & Ilsley
      Corporation
              
              
              (223,359
              )
              
              
              83,138Preferred
      dividends
              
              
              (25,068
              )
              
              
              -Net
      income (loss) attributable to Marshall & Ilsley Corporation common
      shareholders
              
              $
              (248,427
              )
              
              $
              83,138Per
      share attributable to Marshall & Ilsley Corporation common
      shareholders:Basic
              
              $
              (0.68
              )
              
              $
              0.32Diluted
              
              $
              (0.68
              )
              
              $
              0.32Dividends
      paid per common share
              
              $
              0.01
              
              
              $
              0.32Weighted
      average common shares outstanding (000's):Basic
              
              
              366,846
              
              
              
              258,877Diluted
              
              
              366,846
              
              
              
              259,224See
      notes to financial statements.






3
 Table of Contents






MARSHALL & ILSLEY CORPORATION
 CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 ($000’s except per share data)
 Nine
      Months Ended September 30,2009
                
                
                2008Interest
      and fee incomeLoans
      and leases
                
                $
                1,671,002
                
                
                $
                2,224,248Investment
      securities:Taxable
                
                
                164,096
                
                
                
                218,212Exempt
      from federal income taxes
                
                
                34,468
                
                
                
                41,170Trading
      securities
                
                
                3,574
                
                
                
                1,361Short-term
      investments
                
                
                2,228
                
                
                
                7,278Total
      interest and fee income
                
                
                1,875,368
                
                
                
                2,492,269Interest
      expenseDeposits
                
                
                409,995
                
                
                
                705,837Short-term
      borrowings
                
                
                8,419
                
                
                
                126,207Long-term
      borrowings
                
                
                274,693
                
                
                
                341,554Total
      interest expense
                
                
                693,107
                
                
                
                1,173,598Net
      interest income
                
                
                1,182,261
                
                
                
                1,318,671Provision
      for loan and lease losses
                
                
                1,675,617
                
                
                
                1,187,264Net
      interest income (loss) after provision for loan and lease
      losses
                
                
                (493,356
                )
                
                
                131,407Other
      incomeWealth
      management
                
                
                195,197
                
                
                
                217,988Service
      charges on deposits
                
                
                102,932
                
                
                
                110,255Gain
      on sale of mortgage loans
                
                
                38,339
                
                
                
                18,603Other
      mortgage banking revenue
                
                
                3,219
                
                
                
                2,883Net
      investment securities gains
                
                
                81,220
                
                
                
                27,155Bank-owned
      life insurance revenue
                
                
                27,625
                
                
                
                37,126Gain
      on termination of debt
                
                
                68,446
                
                
                
                -OREO
      income
                
                
                9,849
                
                
                
                6,788Other
                
                
                144,945
                
                
                
                161,264Total
      other income
                
                
                671,772
                
                
                
                582,062Other
      expenseSalaries
      and employee benefits
                
                
                521,601
                
                
                
                545,254Net
      occupancy and equipment
                
                
                99,527
                
                
                
                94,110Software
      expenses
                
                
                21,317
                
                
                
                19,090Processing
      charges
                
                
                101,157
                
                
                
                98,992Supplies,
      printing, postage and delivery
                
                
                26,400
                
                
                
                32,609FDIC
      insurance
                
                
                82,150
                
                
                
                10,022Professional
      services
                
                
                64,719
                
                
                
                48,140Amortization
      of intangibles
                
                
                17,526
                
                
                
                17,921OREO
      expenses
                
                
                124,846
                
                
                
                49,323Other
                
                
                109,555
                
                
                
                140,084Total
      other expense
                
                
                1,168,798
                
                
                
                1,055,545Loss
      before income taxes
                
                
                (990,382
                )
                
                
                (342,076
                )Benefit
      for income taxes
                
                
                (467,295
                )
                
                
                (178,272
                )Net
      loss
                
                
                (523,087
                )
                
                
                (163,804
                )Less:  Net
      income attributable to noncontrolling interests
                
                
                (1,193
                )
                
                
                (640
                )Net
      loss attributable to Marshall & Ilsley Corporation
                
                
                (524,280
                )
                
                
                (164,444
                )Preferred
      dividends
                
                
                (75,040
                )
                
                
                -Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                
                $
                (599,320
                )
                
                $
                (164,444
                )Per
      share attributable to Marshall & Ilsley Corporation common
      shareholders:Basic
                
                $
                (1.97
                )
                
                $
                (0.63
                )Diluted
                
                $
                (1.97
                )
                
                $
                (0.63
                )Dividends
      paid per common share
                
                $
                0.03
                
                
                $
                0.95Weighted
      average common shares outstanding (000's):Basic
                
                
                304,450
                
                
                
                259,146Diluted
                
                
                304,450
                
                
                
                259,146See
      notes to financial statements.






4
 Table of Contents






MARSHALL & ILSLEY CORPORATION
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 ($000’s)
 Nine
      Months Ended September 30,2009
                
                
                2008Net
      Cash Provided by Operating Activities
                
                $
                828,767
                
                
                $
                561,840Cash
      Flows from Investing Activities:Net
      increase in short-term investments
                
                
                (1,521,332
                )
                
                
                (13
                )Proceeds
      from sales of securities available for sale
                
                
                1,245,647
                
                
                
                122,524Proceeds
      from maturities of securities available for sale
                
                
                1,228,936
                
                
                
                971,069Proceeds
      from sales of securities held to maturity
                
                
                -
                
                
                
                1,633Proceeds
      from maturities of securities held to maturity
                
                
                119,040
                
                
                
                122,735Purchases
      of securities available for sale
                
                
                (1,097,075
                )
                
                
                (624,699
                )Net
      decrease/(increase) in loans and leases
                
                
                1,989,954
                
                
                
                (3,443,587
                )Purchases
      of premises and equipment, net
                
                
                (42,105
                )
                
                
                (71,106
                )Cash
      paid for acquisitions, net of cash and cash equivalents
      acquired
                
                
                (479
                )
                
                
                (476,625
                )Proceeds
      from divestitures
                
                
                -
                
                
                
                2,460Net
      proceeds from sale of OREO
                
                
                207,193
                
                
                
                67,204Net
      cash provided by/(used in) investing activities
                
                
                2,129,779
                
                
                
                (3,328,405
                )Cash
      Flows from Financing Activities:Net
      increase in deposits
                
                
                733,073
                
                
                
                3,255,764Net
      decrease in short-term borrowings
                
                
                (2,514,236
                )
                
                
                (648,774
                )Proceeds
      from issuance of long-term borrowings
                
                
                375
                
                
                
                1,282,056Payments
      of long-term borrowings
                
                
                (1,989,112
                )
                
                
                (1,484,046
                )Dividends
      paid on preferred stock
                
                
                (64,551
                )
                
                
                -Dividends
      paid on common stock
                
                
                (8,953
                )
                
                
                (244,990
                )Proceeds
      from the issuance of common stock
                
                
                561,987
                
                
                
                25,606Purchases
      of common stock
                
                
                -
                
                
                
                (130,870
                )Other
                
                
                (384
                )
                
                
                -Net
      cash (used in)/provided by financing activities
                
                
                (3,281,801
                )
                
                
                2,054,746Net
      decrease in cash and cash equivalents
                
                
                (323,255
                )
                
                
                (711,819
                )Cash
      and cash equivalents, beginning of year
                
                
                1,072,407
                
                
                
                1,822,512Cash
      and cash equivalents, end of period
                
                $
                749,152
                
                
                $
                1,110,693Supplemental
      Cash Flow Information:Cash
      paid/(received) during the period for:Interest
                
                $
                770,216
                
                
                $
                1,240,144Income
      taxes
                
                
                (118,564
                )
                
                
                76,742See
      notes to financial statements.






5
 Table of Contents




MARSHALL & ILSLEY CORPORATION
 Notes to Financial Statements
 September 30, 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 (“2008 10-K”).  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 and nine months ended
      September 30, 2009 and 2008.  The results of operations for the
      three and nine months ended September 30, 2009 and 2008 are not
      necessarily indicative of results to be expected for the entire
      year.  The Corporation issued its consolidated financial
      statements by filing them with the Securities and Exchange Commission (the
      “SEC”) on November 9, 2009 and has evaluated subsequent events up to the
      time the consolidated financial statements were
  filed.
 
 
 2.
              New
      Accounting Pronouncements
 
 In
      June 2009, the Financial Accounting Standards Board (“FASB”) issued the
      FASB Accounting Standards CodificationTM
      (the “Codification”) to become the single official source of
      authoritative, nongovernmental U.S. Generally Accepted Accounting
      Principles (“GAAP”), except for rules and interpretive releases of the
      SEC, which are also sources of authoritative GAAP for SEC
      registrants.  The Codification is effective for financial
      statements issued for interim and annual periods ending after September
      15, 2009. The Codification did not change GAAP but reorganizes the
      literature using a consistent structure organized by topic, subtopic,
      section and paragraph, each of which is identified by a numerical
      designation.  As the Codification was not intended to change or
      alter existing GAAP, it did not impact the consolidated financial
      statements. However, the Corporation ceased using prior GAAP references
      and is using the new Codification when referring to GAAP in these Notes to
      Consolidated Financial Statements.
 
 New
      accounting guidance issued after the effective date of the Codification
      will be issued in the form of Accounting Standards Updates
      (“ASUs”).  ASUs will not be considered authoritative in their
      own right, but instead will serve to update the
    Codification.
 
 In
      September 2009, the FASB issued ASU 2009-12, Investments in Certain
      Entities that Calculate Net Asset Value per Share (or its Equivalent)(“ASU 2009-12”), which provides additional guidance on how the fair
      value of alternative investments such as private equity investments should
      be estimated and requires additional disclosures of the investment’s
      attributes.  Under the updated guidance, the fair value of
      investments within its scope can be determined using the investment’s net
      asset value per share or its equivalent.  The Corporation
      elected to early adopt ASU 2009-12 as of September 30, 2009, as
      permitted.  The impact of adoption was not
      significant.  See Note 3- Fair Value Measurements in the Notes
      to Financial Statements for more information regarding the attributes of
      the Corporation’s private equity
investments.
 
 In
      June 2009, the FASB issued SFAS No. 166, Accounting
      for Transfers of Financial Assets – an amendment of FASB Statement No.
      140 (“SFAS 166”) and SFAS No. 167, Amendments
      to FASB Interpretation No. 46(R) (“SFAS 167”). These two standards
      are not yet part of the Codification.  SFAS No. 166 eliminates
      the concept of a “qualifying special-purpose entity,” changes the
      requirements for derecognizing financial assets, and requires additional
      disclosures regarding an entity’s continuing involvement in and exposure
      to risks related to transferred financial assets. SFAS 167, which amends
      FASB Interpretation No. 46 (revised December 2003), replaces the
      quantitative approach previously required for determining which enterprise
      should consolidate a variable interest entity with a consolidation
      approach focused on which enterprise has the power to direct the
      activities of a variable interest entity and the obligation to absorb
      losses of the entity or the right to receive benefits from the
      entity.  SFAS 167 also requires ongoing reassessments of whether
      an enterprise is the primary beneficiary of a variable interest entity,
      and eliminates an exception indicating that a troubled debt restructuring,
      as defined by the Debt Topic of the Codification, was not an event that
      required reconsideration of whether an entity is a variable interest
      entity and whether  an enterprise is the primary beneficiary
      of  a variable interest entity.   SFAS No. 166
      and 167 are effective for
      the Corporation on January 1, 2010. The Corporation is evaluating the
      impact that adoption of SFAS 166 and 167 will have on the consolidated
      financial statements.
 
  6
 Table of Contents
  MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
 In
      May 2009, the FASB issued the Subsequent Events Topic of the Codification,
      which sets forth general standards for potential recognition or disclosure
      of events that occur after the balance sheet date but before financial
      statements are issued or are available to be issued.  This topic
      became effective in the second quarter of 2009 and did not have a material
      impact on the consolidated financial
statements.
 
 In
      April 2009, the FASB issued additional application guidance and required
      enhanced disclosures regarding fair value measurements and impairments of
      investment securities.
 
 Additional
      application guidance included in the Fair Value Measurements and
      Disclosures Topic of the Codification relates to estimating fair value,
      when the volume and level of activity for the asset or liability have
      decreased significantly and for identifying circumstances that indicate a
      transaction is not orderly.  Application guidance included in
      the Investments – Debt and Equity Securities Topic of the Codification
      amended previous 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.  No
      amendments were made related to the recognition and measurement guidance
      related to other-than-temporary impairments of equity
      securities.  As permitted, the Corporation elected to early
      adopt this application guidance as of January 1, 2009.  See Note
      7 – Investment Securities in Notes to Financial Statements for information
      regarding the impact of adopting this application
  guidance.
 
 Enhanced
      disclosures related to the Financial Instruments Topic of the Codification
      require disclosures about the fair value of financial instruments in
      interim reporting periods of publicly traded companies as well as in
      annual financial statements.  These disclosure provisions were
      effective for the Corporation’s quarter ended June 30,
      2009.  See Note 3 – Fair Value Measurements and Note 14 – Fair
      Value of Financial Instruments in Notes to Financial Statements for
      information regarding the fair value of financial instruments at September
      30, 2009.
 
 On
      January 1, 2009, the Corporation adopted updated accounting and reporting
      guidance under the Consolidation Topic of the Codification 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.  The updated accounting and
      reporting guidance 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 now reported with separate disclosure of the amounts
      attributable to the parent and to the noncontrolling
      interests.
 
 The
      changes to the Consolidation Topic of the Codification were applied
      prospectively, except for the provisions related to the presentation of
      noncontrolling interests.  As of September 30, 2009, December
      31, 2008 and September 30, 2008, noncontrolling interests of $10.9
      million, $10.4 million and $9.9 million, respectively, have been
      reclassified from Accrued Expenses and Other Liabilities to Total Equity
      in the Consolidated Balance Sheets.  For the three months ended
      September 30, 2009 and 2008, net income attributable to noncontrolling
      interests of $0.4 million and $0.2 million, respectively, is included in
      net income.  For the nine months ended September 30, 2009 and
      2008, net income attributable to noncontrolling interests of $1.2 million
      and $0.6 million, respectively, is included in net
      income.  Prior to the adoption of Consolidation Topic of the
      Codification, noncontrolling interests were a deduction to determine net
      income.  Under the updated Consolidation Topic of the
      Codification, noncontrolling interests are a deduction from net income
      used to arrive at net income attributable to the
      Corporation.  Earnings per common share was not affected as a
      result of the adoption of the provisions of the updated Consolidation
      Topic of the Codification.




7
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  3.
                Fair
      Value Measurements
 
 The
      Fair Value Measurements and Disclosures Topic of the Codification
      generally applies whenever other topics require or permit assets or
      liabilities to be measured at fair value.  Under the topic, 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 topic does not expand the use of fair value in any
      new circumstances.
 
 Fair-Value
      Hierarchy
 
 The
      Fair Value Measurements and Disclosures Topic of the Codification
      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.
   8
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 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 Corporation’s ownership interest in
      partners’ capital to which a proportionate share of net assets is
      attributed and the valuations provided by the general partners on a
      quarterly basis.  These nonpublic investments are included in
      Level 3 of the fair value hierarchy because the fair value is not readily
      determinable and the redemption of the investments will occur via
      distribution through the sale of the underlying investments of the private
      equity fund.  The private equity fund lives are generally ten
      years and the majority of the private equity distributions are expected to
      occur in the next five to ten years.  At September 30, 2009,
      unfunded private equity commitments were approximately $50
      million.
 
 Estimated
      fair values for residual interests in the form of interest only strips
      from automobile loan securitizations were 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.  The fair value of over-the-counter
      interest rate contracts are measured using discounted cash flow analysis
      that incorporates significant inputs, including LIBOR curve, derivative
      counterparty spreads and measurements of volatility.  Interest
      rate contracts that are valued using discounted cash flow analysis through
      use of models, and other observable inputs are considered Level
      2.
 
 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 unforeseen 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 September 30,
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 September 30, 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 September 30,
2009.
 
  9
 Table of Contents


MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 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 September 30, 2009
  ($000’s):
 
 Quoted
      Prices in Active Markets for Identical Assets or Liabilities (Level
      1)
                  
                  
                  Significant
      Other Observable Inputs (Level 2)
                  
                  
                  Significant
      Unobservable Inputs (Level 3)Assets
    (1)Trading
      Assets:Trading
      securities
                  
                  $
                  -
                  
                  
                  $
                  18,425
                  
                  
                  $
                  -Derivative
      assets
                  
                  
                  -
                  
                  
                  
                  251,901
                  
                  
                  
                  -Total
      trading assets
                  
                  $
                  -
                  
                  
                  $
                  270,326
                  
                  
                  $
                  -Investment
      securities available for sale (2)Investment
      securities
                  
                  $
                  154
                  
                  
                  $
                  5,593,363
                  
                  
                  $
                  201,866Private
      equity investments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  68,870Total
      investment securities available for sale
                  
                  $
                  154
                  
                  
                  $
                  5,593,363
                  
                  
                  $
                  270,736Accrued
      interest and other assets:Financial
      guarantees - credit protection purchased
                  
                  $
                  -
                  
                  
                  $
                  14
                  
                  
                  $
                  -Liabilities
      (1)Other
      short-term borrowings
                  
                  $
                  -
                  
                  
                  $
                  6,696
                  
                  
                  $
                  -Accrued
      expenses and other liabilities:Derivative
      liabilities
                  
                  $
                  -
                  
                  
                  $
                  220,228
                  
                  
                  $
                  11,600Financial
      guarantees - credit protection sold
                  
                  
                  -
                  
                  
                  
                  198
                  
                  
                  
                  -Total
      accrued expenses and other liabilities
                  
                  
                  -
                  
                  
                  
                  220,426
                  
                  
                  
                  11,600




(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 13 – Derivative Financial
      Instruments and Hedging Activities in Notes to Financial Statements for
      further information.  Level 3 derivative liabilities represent
      the fair value of the derivative financial instrument entered into in
      conjunction with the sale of the Corporation’s shares of Visa, Inc.
      (“Visa”) Class B common stock.  See Note 17 – Guarantees in
      Notes to Financial Statements for additional information regarding
      Visa.
 
 (2)
              The
      investment securities included in Level 3 are primarily senior tranche
      asset-backed securities.  The amounts presented are exclusive of
      $390,643 of investments in Federal Reserve Bank and FHLB stock, which are
      bought and sold at par and are carried at cost, and $55,228 in affordable
      housing partnerships, which are generally carried on the equity
      method.
   10
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  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 nine months ended September 30,
      2009 ($000’s):
 Investment Securities
      (1)
                  
                  
                  Private Equity
      Investments (2)
                  
                  
                  Other
      Assets
                  
                  
                  Total
                  
                  
                  Derivative
      LiabilitiesBalance
      at December 31, 2008
                  
                  $
                  135,953
                  
                  
                  $
                  65,288
                  
                  
                  $
                  5,903
                  
                  
                  $
                  207,144
                  
                  
                  $
                  -Net
      payments, purchases and sales
                  
                  
                  (1,008
                  )
                  
                  
                  706
                  
                  
                  
                  (255
                  )
                  
                  
                  (557
                  )
                  
                  
                  -Discount
      accretion
                  
                  
                  49
                  
                  
                  
                  -
                  
                  
                  
                  160
                  
                  
                  
                  209
                  
                  
                  
                  -Net
      transfers in and/or out of Level 3
                  
                  
                  (2,860
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,860
                  )
                  
                  
                  -Total
      gains or losses (realized or unrealized):Included
      in earnings
                  
                  
                  -
                  
                  
                  
                  228
                  
                  
                  
                  52
                  
                  
                  
                  280
                  
                  
                  
                  -Included
      in other comprehensive income
                  
                  
                  34,993
                  
                  
                  
                  -
                  
                  
                  
                  (606
                  )
                  
                  
                  34,387
                  
                  
                  
                  -Balance
      at March 31, 2009
                  
                  $
                  167,127
                  
                  
                  $
                  66,222
                  
                  
                  $
                  5,254
                  
                  
                  $
                  238,603
                  
                  
                  $
                  -Net
      payments, purchases and sales
                  
                  
                  (1,048
                  )
                  
                  
                  426
                  
                  
                  
                  (194
                  )
                  
                  
                  (816
                  )
                  
                  
                  -Discount
      accretion
                  
                  
                  41
                  
                  
                  
                  -
                  
                  
                  
                  148
                  
                  
                  
                  189
                  
                  
                  
                  -Net
      transfers in and/or out of Level 3
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
      gains or losses (realized or unrealized):Included
      in earnings
                  
                  
                  -
                  
                  
                  
                  3,869
                  
                  
                  
                  10
                  
                  
                  
                  3,879
                  
                  
                  
                  14,743Included
      in other comprehensive income
                  
                  
                  18,439
                  
                  
                  
                  -
                  
                  
                  
                  (273
                  )
                  
                  
                  18,166
                  
                  
                  
                  -Balance
      at June 30, 2009
                  
                  $
                  184,559
                  
                  
                  $
                  70,517
                  
                  
                  $
                  4,945
                  
                  
                  $
                  260,021
                  
                  
                  $
                  14,743Net
      payments, purchases and sales
                  
                  
                  (902
                  )
                  
                  
                  2,833
                  
                  
                  
                  (4,624
                  )
                  
                  
                  (2,693
                  )
                  
                  
                  (3,143
                  )Discount
      accretion
                  
                  
                  44
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  44
                  
                  
                  
                  -Net
      transfers in and/or out of Level 3
                  
                  
                  31,447
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  31,447
                  
                  
                  
                  -Total
      gains or losses (realized or unrealized):Included
      in earnings
                  
                  
                  -
                  
                  
                  
                  (4,480
                  )
                  
                  
                  238
                  
                  
                  
                  (4,242
                  )
                  
                  
                  -Included
      in other comprehensive income
                  
                  
                  (13,282
                  )
                  
                  
                  -
                  
                  
                  
                  (559
                  )
                  
                  
                  (13,841
                  )
                  
                  
                  -Balance
      at September 30, 2009
                  
                  $
                  201,866
                  
                  
                  $
                  68,870
                  
                  
                  $
                  -
                  
                  
                  $
                  270,736
                  
                  
                  $
                  11,600Unrealized
      gains or (losses) for the period included in earnings attributable to
      unrealized gains or losses for financial instruments still held at
      September 30, 2009
                  
                  $
                  -
                  
                  
                  $
                  (671
                  )
                  
                  $
                  -
                  
                  
                  $
                  (671
                  )
                  
                  $
                  (14,743
                  )




(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.
   11
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 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 September 30, 2008
      ($000’s):
 Quoted
      Prices in Active Markets for Identical Assets or Liabilities (Level
      1)
                    
                    
                    Significant
      Other Observable Inputs (Level 2)
                    
                    
                    Significant
      Unobservable Inputs (Level 3)Assets
    (1)Trading
      Assets:Trading
      securities
                    
                    $
                    -
                    
                    
                    $
                    69,532
                    
                    
                    $
                    -Derivative
      assets
                    
                    
                    214
                    
                    
                    
                    93,021
                    
                    
                    
                    -Total
      trading assets
                    
                    $
                    214
                    
                    
                    $
                    162,553
                    
                    
                    $
                    -Investment
      securities available for sale (2)Investment
      securities
                    
                    $
                    244
                    
                    
                    $
                    6,510,832
                    
                    
                    $
                    172,966Private
      equity investments
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    72,434Other
      assets
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,756Total
      investment securities available for sale
                    
                    $
                    244
                    
                    
                    $
                    6,510,832
                    
                    
                    $
                    251,156Liabilities
      (1)Other
      short-term borrowings
                    
                    $
                    -
                    
                    
                    $
                    6,634
                    
                    
                    $
                    -Accrued
      expenses and other liabilities:Derivative
      liabilities
                    
                    $
                    (1,215
                    )
                    
                    $
                    69,852
                    
                    
                    $
                    -




(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 13 in Notes to Financial
      Statements for further information.
 
 (2)
              The
      amounts presented are exclusive of $327,323 of investments in Federal
      Reserve Bank and FHLB stock, which are bought and sold at par and are
      carried at cost, and $41,791 in affordable housing partnerships, which are
      generally carried on the equity
method.


12
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  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 nine months ended September 30,
      2008 ($000’s):
 
 Investment Securities
      (1)
                
                
                Private Equity
      Investments (2)
                
                
                Other
      Assets
                
                
                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
                
                
                $
                80,457Net
      payments, purchases and sales
                
                
                (3
                )
                
                
                3,092
                
                
                
                (965
                )
                
                
                2,124Discount
      accretion/(premium amortization)
                
                
                (2
                )
                
                
                -
                
                
                
                183
                
                
                
                181Net
      transfers in and/or out of Level 3
                
                
                56,007
                
                
                
                -
                
                
                
                -
                
                
                
                56,007Total
      gains or losses (realized or unrealized):Included
      in earnings
                
                
                -
                
                
                
                613
                
                
                
                -
                
                
                
                613Included
      in other comprehensive income
                
                
                -
                
                
                
                -
                
                
                
                764
                
                
                
                764Balance
      at June 30, 2008
                
                $
                72,392
                
                
                $
                61,559
                
                
                $
                6,195
                
                
                $
                140,146Net
      payments, purchases and sales
                
                
                10,746
                
                
                
                9,834
                
                
                
                (626
                )
                
                
                19,954Discount
      accretion
                
                
                31
                
                
                
                -
                
                
                
                173
                
                
                
                204Net
      transfers in and/or out of Level 3
                
                
                129,691
                
                
                
                -
                
                
                
                -
                
                
                
                129,691Total
      gains or losses (realized or unrealized):Included
      in earnings
                
                
                -
                
                
                
                1,041
                
                
                
                -
                
                
                
                1,041Included
      in other comprehensive income
                
                
                (39,894
                )
                
                
                -
                
                
                
                14
                
                
                
                (39,880
                )Balance
      at September 30, 2008
                
                $
                172,966
                
                
                $
                72,434
                
                
                $
                5,756
                
                
                $
                251,156Unrealized
      gains or losses for the period included in earnings attributable to
      unrealized gains or losses for financial instruments still held at
      September 30, 2008
                
                $
                -
                
                
                $
                165
                
                
                $
                (2,020
                )
                
                $
                (1,855
                )




(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.
 
 Assets and Liabilities
      Measured at Fair Value on a Nonrecurring
  Basis
 
 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 consumer-related 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 $277.2 million
      and $88.8 million was recorded for loans with a recorded investment of
      $857.1 million and $375.1 million at September 30, 2009 and September 30,
      2008, respectively.  See Note 9 – Allowance for Loan and Lease
      Losses in Notes to Financial Statements for more
    information.


13
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  OREO
      is recorded at fair value based on property appraisals, less estimated
      selling costs, at the date of transfer. Subsequent to transfer, OREO is
      carried at the lower of cost or fair value, less estimated selling costs.
      The carrying value of OREO is not re-measured to fair value on a recurring
      basis but is subject to fair value adjustments when the carrying value
      exceeds the fair value, less estimated selling costs.  At
      September 30, 2009 and 2008, the estimated fair value of OREO, less
      estimated selling costs amounted to $351.2 million and $267.2 million,
      respectively.
 
 On
      January 1, 2008, the Corporation adopted new guidance under the Financial
      Instruments Topic of the Codification, which 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.  This guidance 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.  The Financial Instruments Topic of the Codification
      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.






14
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  4.
                Comprehensive
      Income
 
 The
      following tables present the Corporation’s comprehensive income
      ($000’s):
 Three
      Months Ended September 30, 2009Before-Tax
      Amount
                  
                  Tax
      (Expense) Benefit
                  
                  Net-of-Tax AmountNet
      loss
                  
                  
                  
                  
                  
                  
                  
                  $
                  (222,957
                  )Other
      comprehensive income (loss):Unrealized
      gains (losses) on available for sale investment
securities:Arising
      during the period
                  
                  $
                  59,330
                  
                  
                  $
                  (21,108
                  )
                  
                  $
                  38,222Reclassification
      for securities transactions included in net income
                  
                  
                  (2,787
                  )
                  
                  
                  975
                  
                  
                  
                  (1,812
                  )Total
      unrealized gains (losses) on available for sale investment
      securities
                  
                  $
                  56,543
                  
                  
                  $
                  (20,133
                  )
                  
                  $
                  36,410Unrealized
      gains (losses) on derivatives hedging variability of cash
      flows:Arising
      during the period
                  
                  $
                  547
                  
                  
                  $
                  (191
                  )
                  
                  $
                  356Reclassification
      adjustments for hedging activities included in net income
                  
                  
                  16,349
                  
                  
                  
                  (5,722
                  )
                  
                  
                  10,627Total
      net gains (losses) on derivatives hedging variability of cash
      flows
                  
                  $
                  16,896
                  
                  
                  $
                  (5,913
                  )
                  
                  $
                  10,983Unrealized
      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
                  )
                  
                  
                  69
                  
                  
                  
                  (281
                  )Total
      unrealized gains (losses) on funded status of defined benefit
      postretirement plan
                  
                  $
                  (350
                  )
                  
                  $
                  69
                  
                  
                  $
                  (281
                  )Other
      comprehensive income, net of tax
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  47,112Total
      comprehensive income (loss)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (175,845
                  )Less:  Comprehensive
      income attributable to the noncontrolling interests
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (402
                  )Comprehensive
      income (loss) attributable to Marshall & Ilsley
      Corporation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (176,247
                  )Three
      Months Ended September 30, 2008Before-Tax
      Amount
                  
                  Tax
      (Expense) Benefit
                  
                  Net-of-Tax AmountNet
      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  83,341Other
      comprehensive income (loss):Unrealized
      gains (losses) on available for sale investment
securities:Arising
      during the period
                  
                  $
                  (56,128
                  )
                  
                  $
                  19,630
                  
                  
                  $
                  (36,498
                  )Reclassification
      for securities transactions included in net income
                  
                  
                  (207
                  )
                  
                  
                  72
                  
                  
                  
                  (135
                  )Total
      unrealized gains (losses) on available for sale investment
      securities
                  
                  $
                  (56,335
                  )
                  
                  $
                  19,702
                  
                  
                  $
                  (36,633
                  )Unrealized
      gains (losses) on derivatives hedging variability of cash
      flows:Arising
      during the period
                  
                  $
                  (15,034
                  )
                  
                  $
                  5,262
                  
                  
                  $
                  (9,772
                  )Reclassification
      adjustments for hedging activities included in net income
                  
                  
                  11,552
                  
                  
                  
                  (4,043
                  )
                  
                  
                  7,509Total
      net gains (losses) on derivatives hedging variability of cash
      flows
                  
                  $
                  (3,482
                  )
                  
                  $
                  1,219
                  
                  
                  $
                  (2,263
                  )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
                  
                  
                  (497
                  )
                  
                  
                  184
                  
                  
                  
                  (313
                  )Total
      unrealized gains (losses) on funded status of defined benefit
      postretirement plan
                  
                  $
                  (497
                  )
                  
                  $
                  184
                  
                  
                  $
                  (313
                  )Other
      comprehensive income (loss), net of tax
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (39,209
                  )Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  44,132Less:  Comprehensive
      income attributable to the noncontrolling interests
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (203
                  )Comprehensive
      income attributable to Marshall & Ilsley Corporation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  43,929






15
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
   Nine
      Months Ended September 30, 2009Before-Tax
      Amount
                
                Tax
      (Expense) Benefit
                
                Net-of-Tax AmountNet
      loss
                
                
                
                
                
                
                
                $
                (523,087
                )Other
      comprehensive income (loss):Unrealized
      gains (losses) on available for sale investment
securities:Arising
      during the period
                
                $
                198,132
                
                
                $
                (69,843
                )
                
                $
                128,289Reclassification
      for securities transactions included in net income
                
                
                (46,655
                )
                
                
                16,329
                
                
                
                (30,326
                )Total
      unrealized gains (losses) on available for sale investment
      securities
                
                $
                151,477
                
                
                $
                (53,514
                )
                
                $
                97,963Unrealized
      gains (losses) on derivatives hedging variability of cash
      flows:Arising
      during the period
                
                $
                11,274
                
                
                $
                (3,945
                )
                
                $
                7,329Reclassification
      adjustments for hedging activities included in net income
                
                
                47,903
                
                
                
                (16,766
                )
                
                
                31,137Total
      net gains (losses) on derivatives hedging variability of cash
      flows
                
                $
                59,177
                
                
                $
                (20,711
                )
                
                $
                38,466Unrealized
      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
                
                
                (1,049
                )
                
                
                294
                
                
                
                (755
                )Total
      unrealized gains (losses) on funded status of defined benefit
      postretirement plan
                
                $
                (1,049
                )
                
                $
                294
                
                
                $
                (755
                )Other
      comprehensive income, net of tax
                
                
                
                
                
                
                
                
                
                
                135,674Total
      comprehensive income (loss)
                
                
                
                
                
                
                
                
                
                
                (387,413
                )Less:  Comprehensive
      income attributable to the noncontrolling interests
                
                
                
                
                
                
                
                
                
                
                (1,193
                )Comprehensive
      income (loss) attributable to Marshall & Ilsley
      Corporation
                
                
                
                
                
                
                
                
                
                $
                (388,606
                )Nine
      Months Ended September 30, 2008Before-Tax
      Amount
                
                Tax
      (Expense) Benefit
                
                Net-of-Tax AmountNet
      loss
                
                
                
                
                
                
                
                
                
                $
                (163,804
                )Other
      comprehensive income (loss):Unrealized
      gains (losses) on available for sale investment
securities:Arising
      during the period
                
                $
                (87,660
                )
                
                $
                30,646
                
                
                $
                (57,014
                )Reclassification
      for securities transactions included in net income
                
                
                (340
                )
                
                
                119
                
                
                
                (221
                )Total
      unrealized gains (losses) on available for sale investment
      securities
                
                $
                (88,000
                )
                
                $
                30,765
                
                
                $
                (57,235
                )Unrealized
      gains (losses) on derivatives hedging variability of cash
      flows:Arising
      during the period
                
                $
                (23,197
                )
                
                $
                8,119
                
                
                $
                (15,078
                )Reclassification
      adjustments for hedging activities included in net income
                
                
                29,529
                
                
                
                (10,335
                )
                
                
                19,194Total
      net gains (losses) on derivatives hedging variability of cash
      flows
                
                $
                6,332
                
                
                $
                (2,216
                )
                
                $
                4,116Unrealized
      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
                
                
                (1,553
                )
                
                
                576
                
                
                
                (977
                )Total
      unrealized gains (losses) on funded status of defined benefit
      postretirement plan
                
                $
                (1,553
                )
                
                $
                576
                
                
                $
                (977
                )Other
      comprehensive income (loss), net of tax
                
                
                
                
                
                
                
                
                
                
                (54,096
                )Total
      comprehensive income (loss)
                
                
                
                
                
                
                
                
                
                
                (217,900
                )Less:  Comprehensive
      income attributable to the noncontrolling interests
                
                
                
                
                
                
                
                
                
                
                (640
                )Comprehensive
      income (loss) attributable to Marshall & Ilsley
      Corporation
                
                
                
                
                
                
                
                
                
                $
                (218,540
                )






16
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 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 September 30, 2009Income(Numerator)
                
                Average
      Shares (Denominator)
                
                Per
      Share AmountBasic:Net
      loss attributable to Marshall & Ilsley Corporation
                
                $
                (223,359
                )Preferred
      stock dividends
                
                
                (25,068
                )Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                
                $
                (248,427
                )
                
                
                366,846
                
                
                $
                (0.68
                )Effect
      of dilutive securities:Stock
      option, restricted stock and other plans
                
                
                
                
                
                
                -Diluted:Net
      loss attributable to Marshall & Ilsley Corporation
                
                $
                (223,359
                )Preferred
      stock dividends
                
                
                (25,068
                )Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                
                $
                (248,427
                )
                
                
                366,846
                
                
                $
                (0.68
                )Three
      Months Ended September 30, 2008Income(Numerator)
                
                Average
      Shares (Denominator)
                
                Per
      Share AmountBasic:Net
      income attributable to Marshall & Ilsley Corporation
                
                $
                83,138Preferred
      stock dividends
                
                
                -Net
      income attributable to Marshall & Ilsley Corporation common
      shareholders
                
                $
                83,138
                
                
                
                258,877
                
                
                $
                0.32Effect
      of dilutive securities:Stock
      option, restricted stock and other plans
                
                
                
                
                
                
                347Diluted:Net
      income attributable to Marshall & Ilsley Corporation
                
                $
                83,138Preferred
      stock dividends
                
                
                -Net
      income attributable to Marshall & Ilsley Corporation common
      shareholders
                
                $
                83,138
                
                
                
                259,224
                
                
                $
                0.32






17
 Table of Contents


MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
   Nine
      Months Ended September 30, 2009Income
      (Numerator)
                  
                  Average
      Shares (Denominator)
                  
                  Per
      Share AmountBasic:Net
      loss attributable to Marshall & Ilsley Corporation
                  
                  $
                  (524,280
                  )Preferred
      stock dividends
                  
                  
                  (75,040
                  )Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                  
                  $
                  (599,320
                  )
                  
                  
                  304,450
                  
                  
                  $
                  (1.97
                  )Effect
      of dilutive securities:Stock
      option, restricted stock and other plans
                  
                  
                  
                  
                  
                  
                  -Diluted:Net
      loss attributable to Marshall & Ilsley Corporation
                  
                  $
                  (524,280
                  )Preferred
      stock dividends
                  
                  
                  (75,040
                  )Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                  
                  $
                  (599,320
                  )
                  
                  
                  304,450
                  
                  
                  $
                  (1.97
                  )Nine
      Months Ended September 30, 2008Income
      (Numerator)
                  
                  Average
      Shares (Denominator)
                  
                  Per
      Share AmountBasic:Net
      loss attributable to Marshall & Ilsley Corporation
                  
                  $
                  (164,444
                  )Preferred
      stock dividends
                  
                  
                  -Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                  
                  $
                  (164,444
                  )
                  
                  
                  259,146
                  
                  
                  $
                  (0.63
                  )Effect
      of dilutive securities:Stock
      option, restricted stock and other plans
                  
                  
                  
                  
                  
                  
                  -Diluted:Net
      loss attributable to Marshall & Ilsley Corporation
                  
                  $
                  (164,444
                  )Preferred
      stock dividends
                  
                  
                  -Net
      loss attributable to Marshall & Ilsley Corporation common
      shareholders
                  
                  $
                  (164,444
                  )
                  
                  
                  259,146
                  
                  
                  $
                  (0.63
                  )





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 and nine months ended September 30, 2009 and for the nine months ended
September 30, 2008, all of the stock options outstanding were excluded from the
computation of diluted earnings per common share (shares in
thousands):
  Three
      Months Ended September 30,
                
                Nine
      Months Ended September 30,2009
                
                2008
                
                2009
                
                2008Shares
                
                32,289
                
                24,165
                
                32,289
                
                29,272Price
      Range
                
                $4.76
      - $36.82
                
                $15.36
      - $36.82
                
                $4.76
      - $36.82
                
                $8.55
      - $36.82
  
 An
outstanding warrant to purchase 13,815,789 shares of the Corporation’s common
stock issued in connection with the Corporation’s participation in the U.S.
Treasury Department’s Capital Purchase Program was not included in the
computation of diluted earnings per common share for the three and nine months
ended September 30, 2009 because of the reported net loss.  In
addition, the $18.62 per share exercise price of the warrant was greater than
the average market price of the common shares for the three and nine month
periods ended September 30, 2009.
   18
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  Effective
      January 1, 2009, the Corporation adopted updated guidance in the Earnings
      Per Share Topic of the Codification.  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 the Earnings Per
      Share Topic of the Codification.  There was no impact to the
      Corporation’s current or prior periods presented as a result of the
      adoption of this accounting topic.
 
 
 6.
                Business
      Combinations
 
 On May
27, 2009, the Corporation acquired the investment team and managed accounts of
Delta Asset Management (“Delta”), an institutional large-cap core equity money
manager based in Los Angeles, California.  Delta, an operating
division of Berkeley Capital Management LLC, had approximately $1.2 billion in
assets under management as of April 30, 2009.  Total consideration in
this transaction amounted to $5.1 million, consisting of 775,166 shares of the
Corporation’s common stock valued at $6.52 per common share.  This is
considered a non-cash transaction for the purposes of the Consolidated Statement
of Cash Flows.  Initial goodwill, subject to the completion of
appraisals and valuation of the assets acquired and liabilities assumed,
amounted to $3.8 million.  The estimated identifiable intangible
assets to be amortized (customer relationships and noncompete agreement),
subject to a completed valuation, amounted to $1.2 million.  The
goodwill and intangibles resulting from this acquisition are deductible for tax
purposes.
 
 
 7.
                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):
 
 September
      30, 2009
                
                
                December
      31, 2008
                
                
                September
      30, 2008Amortized
      Cost
                
                
                Fair Value
                
                
                Amortized
      Cost
                
                
                Fair Value
                
                
                Amortized
      Cost
                
                
                Fair ValueAvailable
      for sale:U.S.
      treasury and government agencies
                
                $
                4,420,214
                
                
                $
                4,503,112
                
                
                $
                5,664,947
                
                
                $
                5,679,970
                
                
                $
                5,578,898
                
                
                $
                5,567,319States
      and political subdivisions
                
                
                849,123
                
                
                
                893,314
                
                
                
                874,183
                
                
                
                880,497
                
                
                
                878,675
                
                
                
                855,642Residential
      mortgage backed securities
                
                
                238,802
                
                
                
                236,381
                
                
                
                175,740
                
                
                
                165,757
                
                
                
                103,544
                
                
                
                99,536Corporate
      notes
                
                
                10,000
                
                
                
                10,000
                
                
                
                133,844
                
                
                
                134,295
                
                
                
                10,000
                
                
                
                10,000Cash
      flow hedge - corporate notes
                
                
                -
                
                
                
                -
                
                
                
                121
                
                
                
                121
                
                
                
                -
                
                
                
                -Corporate
      notes
                
                
                10,000
                
                
                
                10,000
                
                
                
                133,965
                
                
                
                134,416
                
                
                
                10,000
                
                
                
                10,000Asset
      backed securities (1)
                
                
                209,385
                
                
                
                148,664
                
                
                
                211,676
                
                
                
                110,931
                
                
                
                213,368
                
                
                
                146,899Equity
                
                
                115
                
                
                
                154
                
                
                
                115
                
                
                
                127
                
                
                
                115
                
                
                
                244Private
      Equity investments
                
                
                68,882
                
                
                
                68,870
                
                
                
                65,300
                
                
                
                65,288
                
                
                
                72,446
                
                
                
                72,434Federal
      Reserve Bank & FHLB stock
                
                
                390,643
                
                
                
                390,643
                
                
                
                339,779
                
                
                
                339,779
                
                
                
                327,323
                
                
                
                327,323Affordable
      Housing Partnerships
                
                
                55,228
                
                
                
                55,228
                
                
                
                43,481
                
                
                
                43,481
                
                
                
                41,791
                
                
                
                41,791Foreign
                
                
                3,758
                
                
                
                3,758
                
                
                
                4,403
                
                
                
                4,403
                
                
                
                4,402
                
                
                
                4,402Other
                
                
                -
                
                
                
                -
                
                
                
                4,465
                
                
                
                5,903
                
                
                
                4,752
                
                
                
                5,756Total
                
                $
                6,246,150
                
                
                $
                6,310,124
                
                
                $
                7,518,054
                
                
                $
                7,430,552
                
                
                $
                7,235,314
                
                
                $
                7,131,346Held
      to maturity:States
      and political subdivisions
                
                $
                119,054
                
                
                $
                123,341
                
                
                $
                237,009
                
                
                $
                242,395
                
                
                $
                250,902
                
                
                $
                255,463Foreign
                
                
                1,000
                
                
                
                1,000
                
                
                
                1,000
                
                
                
                1,000
                
                
                
                1,000
                
                
                
                1,000Total
                
                $
                120,054
                
                
                $
                124,341
                
                
                $
                238,009
                
                
                $
                243,395
                
                
                $
                251,902
                
                
                $
                256,463




(1)
              Beginning
      in 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 the new accounting guidance
      included in the Fair Value Measurements and Disclosures Topic of the
      Codification, 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 nine months ended September 30,
2009.
   19
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The unrealized gains and losses of
selected securities, by major security type were as follows
($000’s):
  September
      30, 2009
                  
                  
                  December
      31, 2008
                  
                  
                  September
      30, 2008Unrealized
      Gains
                  
                  
                  Unrealized
      Losses
                  
                  
                  Unrealized
      Gains
                  
                  
                  Unrealized
      Losses
                  
                  
                  Unrealized
      Gains
                  
                  
                  Unrealized
      LossesAvailable
      for sale:U.S.
      treasury and government agencies
                  
                  $
                  107,355
                  
                  
                  $
                  24,457
                  
                  
                  $
                  93,541
                  
                  
                  $
                  78,518
                  
                  
                  $
                  42,824
                  
                  
                  $
                  54,403States
      and political subdivisions
                  
                  
                  46,112
                  
                  
                  
                  1,921
                  
                  
                  
                  19,387
                  
                  
                  
                  13,073
                  
                  
                  
                  8,437
                  
                  
                  
                  31,470Residential
      mortgage backed securities
                  
                  
                  2,599
                  
                  
                  
                  5,020
                  
                  
                  
                  214
                  
                  
                  
                  10,197
                  
                  
                  
                  37
                  
                  
                  
                  4,045Corporate
      notes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  464
                  
                  
                  
                  13
                  
                  
                  
                  -
                  
                  
                  
                  -Cash
      flow hedge - corporate notes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Corporate
      notes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  464
                  
                  
                  
                  13
                  
                  
                  
                  -
                  
                  
                  
                  -Asset
      backed securities
                  
                  
                  6
                  
                  
                  
                  60,727
                  
                  
                  
                  -
                  
                  
                  
                  100,745
                  
                  
                  
                  35
                  
                  
                  
                  66,504Equity
                  
                  
                  39
                  
                  
                  
                  -
                  
                  
                  
                  12
                  
                  
                  
                  -
                  
                  
                  
                  129
                  
                  
                  
                  -Private
      Equity investments
                  
                  
                  52
                  
                  
                  
                  64
                  
                  
                  
                  52
                  
                  
                  
                  64
                  
                  
                  
                  52
                  
                  
                  
                  64Federal
      Reserve Bank & FHLB stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Affordable
      Housing Partnerships
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Foreign
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Other
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,438
                  
                  
                  
                  -
                  
                  
                  
                  1,004
                  
                  
                  
                  -Total
                  
                  $
                  156,163
                  
                  
                  $
                  92,189
                  
                  
                  $
                  115,108
                  
                  
                  $
                  202,610
                  
                  
                  $
                  52,518
                  
                  
                  $
                  156,486Held
      to maturity:States
      and political subdivisions
                  
                  $
                  4,481
                  
                  
                  $
                  194
                  
                  
                  $
                  5,562
                  
                  
                  $
                  176
                  
                  
                  $
                  4,724
                  
                  
                  $
                  163Foreign
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  4,481
                  
                  
                  $
                  194
                  
                  
                  $
                  5,562
                  
                  
                  $
                  176
                  
                  
                  $
                  4,724
                  
                  
                  $
                  163




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 September 30, 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
              
              $
              45,572
              
              
              $
              435
              
              
              $
              1,169,834
              
              
              $
              24,022
              
              
              $
              1,215,406
              
              
              $
              24,457States
      and political subdivisions
              
              
              1,804
              
              
              
              86
              
              
              
              19,477
              
              
              
              2,029
              
              
              
              21,281
              
              
              
              2,115Residential
      mortgage backed securities
              
              
              48,437
              
              
              
              2,589
              
              
              
              55,052
              
              
              
              2,431
              
              
              
              103,489
              
              
              
              5,020Corporate
      notes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Asset
      backed securities
              
              
              -
              
              
              
              -
              
              
              
              147,466
              
              
              
              60,727
              
              
              
              147,466
              
              
              
              60,727Equity
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Private
      Equity investments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              64
              
              
              
              -
              
              
              
              64Federal
      Reserve Bank & FHLB stock
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Affordable
      Housing Partnerships
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Foreign
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Other
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              $
              95,813
              
              
              $
              3,110
              
              
              $
              1,391,829
              
              
              $
              89,273
              
              
              $
              1,487,642
              
              
              $
              92,383




The
investment securities in the above table were temporarily impaired at September
30, 2009.  This temporary impairment represents the amount of loss
that would have been realized if the investment securities had been sold on
September 30, 2009.  The temporary impairment in the investment
securities portfolio is the result of market interest rates since the investment
securities were acquired and not from deterioration in the creditworthiness of
the issuer.  At September 30, 2009, the Corporation does not intend to
sell these temporarily impaired investment securities until a recovery of
recorded investment, which may be at maturity, and it is more likely than not
that the Corporation will not have to sell the investment securities prior to
recovery of recorded investment.
 
  20
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  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 September 30, 2008
($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
                
                $
                1,852,361
                
                
                $
                47,465
                
                
                $
                428,847
                
                
                $
                6,938
                
                
                $
                2,281,208
                
                
                $
                54,403States
      and political subdivisions
                
                
                394,040
                
                
                
                17,162
                
                
                
                137,247
                
                
                
                14,471
                
                
                
                531,287
                
                
                
                31,633Residential
      mortgage backed securities
                
                
                35,411
                
                
                
                2,390
                
                
                
                53,142
                
                
                
                1,655
                
                
                
                88,553
                
                
                
                4,045Corporate
      notes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Asset
      backed securities
                
                
                145,026
                
                
                
                66,504
                
                
                
                -
                
                
                
                -
                
                
                
                145,026
                
                
                
                66,504Equity
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Private
      Equity investments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                64
                
                
                
                -
                
                
                
                64Federal
      Reserve Bank & FHLB stock
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Affordable
      Housing Partnerships
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Foreign
                
                
                1,150
                
                
                
                -
                
                
                
                400
                
                
                
                -
                
                
                
                1,550
                
                
                
                -Other
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
                
                $
                2,427,988
                
                
                $
                133,521
                
                
                $
                619,636
                
                
                $
                23,128
                
                
                $
                3,047,624
                
                
                $
                156,649




The
amortized cost and fair value of investment securities by contractual maturity
at September 30, 2009 ($000’s):
 
 Available
      for Sale
              
              
              Held
      to MaturityAmortized
      Cost
              
              
              Fair
      Value
              
              
              Amortized
      Cost
              
              
              Fair
      ValueWithin
      one year
              
              $
              440,031
              
              
              $
              448,933
              
              
              $
              18,620
              
              
              $
              18,849From
      one through five years
              
              
              3,780,835
              
              
              
              3,849,018
              
              
              
              46,546
              
              
              
              48,329From
      five through ten years
              
              
              790,391
              
              
              
              816,720
              
              
              
              54,888
              
              
              
              57,163After
      ten years
              
              
              1,234,893
              
              
              
              1,195,453
              
              
              
              -
              
              
              
              -Total
              
              $
              6,246,150
              
              
              $
              6,310,124
              
              
              $
              120,054
              
              
              $
              124,341




The gross
investment securities gains and losses, including Wealth Management
transactions, amounted to $3,645 and $5,003 for the three months ended September
30, 2009, respectively and $1,892 and $902 for the three months ended September
30, 2008, respectively.  The gross investment securities gains and
losses, including Wealth Management transactions, amounted to $89,093 and $7,503
for the nine months ended September 30, 2009, respectively and $31,370 and
$4,118 for the nine months ended September 30, 2008,
respectively.  See the Consolidated Statements of Cash Flows for the
proceeds from the sale of investment securities.
 
  21
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  8.
                Loans
      and Leases
 
 The
      Corporation's loan and lease portfolio, including loans held for sale,
      consisted of the following
($000's):
 
 September
      30,
                
                
                December
      31,
                
                
                September
      30,2009
                
                
                2008
                
                
                2008Commercial,
      financial and agricultural
                
                $
                13,041,096
                
                
                $
                14,880,153
                
                
                $
                15,185,457Real
      estate:Commercial
      mortgage
                
                
                13,884,313
                
                
                
                12,541,506
                
                
                
                12,114,061Construction
      and development
                
                
                6,314,187
                
                
                
                9,043,263
                
                
                
                9,759,719Residential
      mortgage
                
                
                5,135,195
                
                
                
                5,733,908
                
                
                
                5,674,451Home
      equity loans and lines of credit
                
                
                4,812,616
                
                
                
                5,082,046
                
                
                
                5,053,088Total
      real estate
                
                
                30,146,311
                
                
                
                32,400,723
                
                
                
                32,601,319Personal
                
                
                2,268,122
                
                
                
                1,929,374
                
                
                
                1,902,123Lease
      financing
                
                
                650,785
                
                
                
                774,294
                
                
                
                728,343Total
      loans and leases
                
                $
                46,106,314
                
                
                $
                49,984,544
                
                
                $
                50,417,242




Loans are
presented net of unearned income and unamortized deferred fees, which amounted
to $108,528, $149,894 and $146,284 at September 30, 2009, December 31, 2008 and
September 30, 2008, respectively.
 
 For the
nine months ended September 30, 2009 and 2008, loans transferred to OREO
amounted to $425,274 and $276,776, respectively.  These amounts are
considered non-cash transactions for cash flow purposes.
 
 
 9.
              Allowance
      for Loan and Lease Losses
 
 An
      analysis of the allowance for loan and lease losses follows
      ($000's):
 Three
      Months Ended September 30,
                
                
                Nine
      Months Ended September 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Balance
      at beginning of period
                
                $
                1,367,782
                
                
                $
                1,028,809
                
                
                $
                1,202,167
                
                
                $
                496,191Allowance
      of banks and loans acquired
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                32,110Provision
      for loan and lease losses
                
                
                578,701
                
                
                
                154,962
                
                
                
                1,675,617
                
                
                
                1,187,264Charge-offs
                
                
                (541,593
                )
                
                
                (163,295
                )
                
                
                (1,494,931
                )
                
                
                (707,943
                )Recoveries
                
                
                8,853
                
                
                
                11,018
                
                
                
                30,890
                
                
                
                23,872Balance
      at end of period
                
                $
                1,413,743
                
                
                $
                1,031,494
                
                
                $
                1,413,743
                
                
                $
                1,031,494




As of
September 30, 2009, December 31, 2008 and September 30, 2008, nonaccrual loans
and leases totaled $2,250,061, $1,526,950 and $1,260,642 and renegotiated loans
totaled $935,260, $270,357 and $89,486, respectively.  Loans past due
90 days or more and still accruing interest amounted to $13,084, $14,528 and
$12,070 at September 30, 2009, December 31, 2008 and September 30, 2008,
respectively.
 
 For
      purposes of impairment testing, nonaccrual loans greater than one million
      dollars and all renegotiated loans were individually assessed for
      impairment.  Consumer-related 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.


22
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  At
September 30, 2009 and 2008, the Corporation’s recorded investment in impaired
loans and leases and the related valuation allowance are as follows
($000’s):
 
 September
      30, 2009
                
                
                September
      30, 2008Recorded
                
                
                Valuation
                
                
                Recorded
                
                
                ValuationInvestment
                
                
                Allowance
                
                
                Investment
                
                
                AllowanceTotal
      nonaccrual and renegotiated loans and leases
                
                $
                3,185,321
                
                
                
                
                
                $
                1,350,128Less:  nonaccrual
      loans held for sale
                
                
                (128,067
                )
                
                
                
                
                
                (34,255
                )Total
      impaired loans and leases
                
                $
                3,057,254
                
                
                
                
                
                $
                1,315,873Loans
      and leases excluded from individual evaluation
                
                
                (733,458
                )
                
                
                
                
                
                (606,461
                )Impaired
      loans evaluated
                
                $
                2,323,796
                
                
                
                
                
                $
                709,412Valuation
      allowance required
                
                $
                1,437,036
                
                
                $
                369,463
                
                
                $
                429,678
                
                
                $
                111,660No
      valuation allowance required
                
                
                886,760
                
                
                
                -
                
                
                
                279,734
                
                
                
                -Impaired
      loans evaluated
                
                $
                2,323,796
                
                
                $
                369,463
                
                
                $
                709,412
                
                
                $
                111,660




The
      average recorded investment in total impaired loans and leases for the
      quarters ended September 30, 2009 and 2008 amounted to $3,293,191 and
      $1,239,674 respectively.  For the nine months ended September
      30, 2009 and 2008, the average recorded investment in total impaired loans
      and leases amounted to $2,901,353 and $1,011,239,
      respectively.
 
 The
      amount of cumulative net charge-offs recorded on the Corporation’s
      impaired loans outstanding at September 30, 2009 was approximately
      $765,869.
 
 
 10.
              Financial
      Asset Sales
 
 The
      Corporation discontinued, on a recurring basis, the sale and
      securitization of automobile loans into the secondary
    market.
 
 As
      a result of clean-up calls and other events, the Corporation acquired the
      remaining loans from the auto securitization trusts in the third quarter
      of 2009 and recognized net gains of $5.2 million.  The loans
      were returned as portfolio loans at fair value.  The Corporation
      no longer participates in the securitizations, and therefore no longer has
      any retained interests or any future obligations.  For the nine
      months ended September 30, 2009, net gains on the securitization of
      automobile loans amounted to $5.5
million.
 
  11.
              Goodwill
      and Other Intangibles
 
 The changes in the carrying amount of
goodwill for the nine months ended September 30, 2009 were as follows
($000’s):
  Commercial
      Banking
                
                
                Wealth
      Management
                
                
                Others
                
                
                TotalGoodwill
      balance at December 31, 2008
                
                $
                327,246
                
                
                $
                157,121
                
                
                $
                120,777
                
                
                $
                605,144Goodwill
      acquired during the period
                
                
                -
                
                
                
                3,789
                
                
                
                -
                
                
                
                3,789Purchase
      accounting adjustments
                
                
                -
                
                
                
                2,813
                
                
                
                -
                
                
                
                2,813Goodwill
      balance at September 30, 2009
                
                $
                327,246
                
                
                $
                163,723
                
                
                $
                120,777
                
                
                $
                611,746




Goodwill
      acquired during the second quarter of 2009 includes initial goodwill of
      $3.8 million for the acquisition of Delta.  See Note 6 –
      Business Combinations in Notes to Financial Statements for additional
      information regarding this acquisition.  Purchase accounting
      adjustments for Wealth Management represent adjustments made to the
      initial estimates of fair value associated with the December 2008
      acquisition of Taplin, Canida & Habacht
  (“TCH”).


23
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The
      changes in the carrying amount of goodwill for the nine months ended
      September 30, 2008 were as follows
($000’s):
 Commercial
      Banking
                  
                  
                  Community
      Banking
                  
                  
                  Wealth
      Management
                  
                  
                  Others
                  
                  
                  TotalGoodwill
      balance at December 31, 2007
                  
                  $
                  922,264
                  
                  
                  $
                  560,332
                  
                  
                  $
                  114,572
                  
                  
                  $
                  87,777
                  
                  
                  $
                  1,684,945Goodwill
      acquired during the period
                  
                  
                  327,375
                  
                  
                  
                  81,365
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  408,740Purchase
      accounting adjustments
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,340
                  
                  
                  
                  -
                  
                  
                  
                  3,340Reallocation
      of goodwill
                  
                  
                  -
                  
                  
                  
                  (33,000
                  )
                  
                  
                  -
                  
                  
                  
                  33,000
                  
                  
                  
                  -Goodwill
      balance at September 30, 2008
                  
                  $
                  1,249,639
                  
                  
                  $
                  608,697
                  
                  
                  $
                  117,912
                  
                  
                  $
                  120,777
                  
                  
                  $
                  2,097,025
  Goodwill
      acquired during 2008 included initial goodwill of $408.7 million for the
      acquisition of First Indiana Corporation.  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 and a reduction due to the divestiture of a
      component of North Star Financial Corporation.  During the
      second quarter of 2008, management consolidated certain lending activities
      and transferred the assets and the related goodwill from the Community
      Banking segment to the National Consumer Lending Division reporting unit,
      which is a component of Others.
 
 At
      September 30, 2009, the Corporation’s other intangible assets consisted of
      the following ($000’s):




Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Net
      Carrying AmountOther
      intangible assets:Core
      deposit intangible
              
              $
              216,852
              
              
              $
              (109,615
              )
              
              $
              107,237Trust
      customers
              
              
              29,354
              
              
              
              (6,523
              )
              
              
              22,831Tradename
              
              
              3,975
              
              
              
              (882
              )
              
              
              3,093Other
      intangibles
              
              
              7,228
              
              
              
              (2,398
              )
              
              
              4,830$
              257,409
              
              
              $
              (119,418
              )
              
              $
              137,991Mortgage
      loan servicing rights
              
              
              
              
              
              
              
              
              
              $
              1,929




At
      September 30, 2008, the Corporation’s other intangible assets consisted of
      the following ($000’s):
 
 Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Net
      Carrying AmountOther
      intangible assetsCore
      deposit intangible
              
              $
              254,228
              
              
              $
              (128,911
              )
              
              $
              125,317Trust
      customers
              
              
              11,384
              
              
              
              (3,766
              )
              
              
              7,618Tradename
              
              
              1,335
              
              
              
              (386
              )
              
              
              949Other
      intangibles
              
              
              4,147
              
              
              
              (1,027
              )
              
              
              3,120$
              271,094
              
              
              $
              (134,090
              )
              
              $
              137,004Mortgage
      loan servicing rights
              
              
              
              
              
              
              
              
              
              $
              2,570




Amortization
      expense of other intangible assets for the three months ended September
      30, 2009 and 2008 amounted to $5.6 million and $5.7 million,
      respectively.  For the nine months ended September 30, 2009 and
      2008, amortization expense of other intangible assets amounted to $16.7
      million and $17.0 million,
respectively.
 
 Amortization
      of mortgage loan servicing rights amounted to $0.3 million for each of the
      three months ended September 30, 2009 and 2008,
      respectively.  For the nine month periods ended September 30,
      2009 and 2008, amortization of mortgage loan servicing rights amounted to
      $0.8 million and $0.9 million,
respectively.


24
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The
      estimated amortization expense of other intangible assets and mortgage
      loan servicing rights for the next five fiscal years are
      ($000’s):
 
 2010
                
                $
                21,0322011
                
                
                18,0042012
                
                
                15,4942013
                
                
                13,3132014
                
                
                11,442




The
      Intangibles – Goodwill and Other Topic of the Codification adopts an
      aggregate view of goodwill and bases the accounting for goodwill on the
      units of the combined entity into which an acquired entity is integrated
      (those units are referred to as reporting units).  A reporting
      unit is an operating segment as defined by the Segment Reporting Topic of
      the Codification, or one level below an operating
  segment.
 
 The
      Intangibles – Goodwill and Other Topic of the Codification provides
      guidance for impairment testing of goodwill and intangible assets that are
      not amortized.  Goodwill is tested for impairment using a
      two-step process that begins with an estimation of the fair value of a
      reporting unit.  The first step is a screen for potential
      impairment and the second step measures the amount of impairment, if
      any.
 
 The
      Corporation has elected to perform its annual test for goodwill as of June
      30th.  Other than goodwill, the Corporation did not have any
      other intangible assets that are not amortized at September 30,
      2009.
 
 As
      a result of applying the first step of goodwill impairment testing to
      determine if potential goodwill impairment existed at June 30, 2009,
      Trust, Private Banking, and Brokerage, the three reporting units that
      comprise the Wealth Management segment, and the Capital Markets reporting
      unit “passed” (fair value exceeded the carrying amount) the first step of
      the goodwill impairment test.  The Commercial segment and the
      National Consumer Banking reporting unit “failed” (the carrying amount
      exceeded the fair value) the first step of the goodwill impairment test at
      June 30, 2009 and were subjected to the second step of the goodwill
      impairment test.
 
 The
      second step of the goodwill impairment test compares the implied fair
      value of the reporting unit goodwill with the carrying amount of that
      goodwill.  The implied fair value of goodwill is determined in
      the same manner as the amount of goodwill recognized in a business
      combination is determined.  The fair value of a reporting unit
      is allocated to all of the assets and liabilities of that unit (including
      any unrecognized intangible assets) as if the reporting unit had been
      acquired in a business combination and the fair value of the reporting
      unit was the price paid to acquire the reporting unit. The excess of the
      fair value of the reporting unit over the amounts assigned to its assets
      and liabilities is the implied fair value of goodwill.  The
      allocation process is performed solely for purposes of testing goodwill
      for impairment. Recognized assets and liabilities and previously
      unrecognized intangible assets are not adjusted or recognized as a result
      of the allocation process.
 
 The
      Corporation completed the second step of the process and determined that
      goodwill for the two reporting units that failed step one of the goodwill
      impairment tests and one reporting unit that marginally passed step one of
      the goodwill impairment test was not
impaired.
 
 The
      implied fair value of a reporting unit’s goodwill will generally increase
      if the fair value of its loans and leases are less than the carrying value
      of the reporting unit’s loans and leases.  The fair value of
      loans and leases was derived from discounted cash flow analysis as
      described in Note 14 – Fair Value of Financial Instruments in Notes to
      Financial Statements.
 
 The
      stress and deterioration in the national real estate markets, liquidity
      stress and current economic conditions have depressed prices buyers and
      sellers are paying and receiving for bank-related assets, especially loans
      and leases.  As a result, the allocation of the fair values to
      the assets and liabilities assigned to the individual reporting units was
      less than their reported carrying values.  See Fair Value
      Measurements within Critical Accounting Policies in Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      for further discussion about goodwill impairment
  tests.


25
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  12.
                  Deposits
 
 The
      Corporation's deposit liabilities consisted of the following
      ($000's):
 September
      30,
                    
                    
                    December
      31,
                    
                    
                    September
      30,2009
                    
                    
                    2008
                    
                    
                    2008Noninterest
      bearing demand
                    
                    $
                    8,286,269
                    
                    
                    $
                    6,879,994
                    
                    
                    $
                    6,359,020Interest
      bearing:Savings
      and NOW
                    
                    
                    6,023,494
                    
                    
                    
                    3,454,085
                    
                    
                    
                    3,151,074Money
      Market
                    
                    
                    10,402,907
                    
                    
                    
                    10,753,000
                    
                    
                    
                    10,639,554CD's
      $100,000 and over:CD's
      $100,000 and over
                    
                    
                    10,909,210
                    
                    
                    
                    12,301,142
                    
                    
                    
                    12,661,354Cash
      flow hedge - Institutional CDs
                    
                    
                    15,828
                    
                    
                    
                    27,737
                    
                    
                    
                    13,766Total
      CD's $100,000 and over
                    
                    
                    10,925,038
                    
                    
                    
                    12,328,879
                    
                    
                    
                    12,675,120Other
      time
                    
                    
                    5,787,060
                    
                    
                    
                    5,743,480
                    
                    
                    
                    5,283,277Foreign
                    
                    
                    295,621
                    
                    
                    
                    1,863,703
                    
                    
                    
                    1,931,557Total
      interest bearing
                    
                    
                    33,434,120
                    
                    
                    
                    34,143,147
                    
                    
                    
                    33,680,582Total
      deposits
                    
                    $
                    41,720,389
                    
                    
                    $
                    41,023,141
                    
                    
                    $
                    40,039,602




13.
              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 2008
      10-K.  There were no significant new hedging strategies employed
      during the nine months ended September 30,
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 the
      Derivatives and Hedging Topic of the Codification.  They are
      carried at fair value with changes in fair value recorded as a component
      of other noninterest income.
 
 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 used 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.  See Note 10 – Financial Asset Sales in Notes to
      Financial Statements.


26
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  As
      permitted under the by-laws of Visa, during the second quarter of 2009 the
      Corporation sold its 998,826 shares of Visa Class B common stock for $35.4
      million to a qualified purchaser.  At the time of the sale, the
      conversion ratio of Visa Class B common stock to Visa Class A common stock
      was 0.6296.  That exchange ratio can change based on the outcome
      of certain litigation matters as described in Note 24 - Guarantees in
      Notes to Consolidated Financial Statements in Item 8 of the 2008
      10-K.  Concurrently with the sale, the Corporation and the
      purchaser entered into a derivative transaction whereby the Corporation
      will make cash payments to the purchaser whenever the conversion ratio of
      Visa Class B common stock to Visa Class A common stock was reset to an
      amount less than 0.6296.  The purchaser will make cash payments
      to the Corporation when the litigation is settled and the ultimate
      settlement results in a return of cash or additional shares of Visa common
      stock to the purchaser.  The Corporation determined that the
      initial fair value of the derivative was equal to the Corporation’s Visa
      U.S.A membership proportion of the unfunded estimated fair value of the
      litigation settlement amount, which was determined to be a liability of
      $14.7 million.
 
 As
      explained in the 2008 10-K, the Corporation’s estimate of the fair value
      of the litigation settlement amount was based in part on the announced
      settled litigation and based in part on an estimate of the amount required
      to settle the unresolved matters.  Estimating the amount
      required to settle the unresolved matters involved a significant amount of
      judgment that cannot be verified other than by information provided by
      Visa.  As a result, the Corporation has determined that the
      estimated fair value should be classified in Level 3 of the fair value
      hierarchy.
 
 On
      June 30, 2009, Visa announced that it had decided to deposit $700 million
      into the litigation escrow account previously established under its
      retrospective responsibility plan.  Despite the funding, Visa
      did not disclose any updates about the litigation matters that would
      change the Corporation’s estimate of the fair value of the litigation
      settlement amount.  As a result of the deposit, the conversion
      ratio of Visa Class B common stock to Visa Class A common stock was
      revised to 0.5824 and the Corporation was required to make a $3.1 million
      payment to the counterparty in the third quarter of
  2009.
 
 Financial
      guarantees are financial instruments whose value is derived from the
      credit risk associated with the debt of a third-party issuer (the
      reference entity) and which allow one party (the protection purchaser) to
      transfer that risk to another party (the protection
      seller).  Financial guarantees expose the protection purchaser
      to the creditworthiness of the protection seller, as the protection seller
      is required to make payments under the contract when the reference entity
      experiences a credit event, such as a bankruptcy, a failure to pay its
      obligation or a restructuring.  The seller of credit protection
      receives a premium for providing protection but has the risk that the
      underlying instrument referenced in the contract will be subject to a
      credit event.
 
 The
      Corporation is both a purchaser and seller of credit protection in the
      financial guarantees market.  The Corporation primarily uses
      financial guarantees to mitigate credit risk associated with the
      derivative receivables associated with loan participations (bought and
      sold).
 
 Upon
      a credit event, the seller of protection would typically pay out only a
      percentage of the full notional amount of net protection sold, as the
      amount actually required to be paid on the contracts takes into account
      the recovery value of the reference obligation at the time of
      settlement.  The Corporation does not use notional as the
      primary measure of risk management for credit derivatives because notional
      does not take into account the probability of occurrence of a credit
      event, recovery value of the reference obligation, or related cash
      instruments and economic hedges.
 
 At
      September 30, 2009, the maximum potential amount of future payments
      (undiscounted) that the Corporation, as a seller of protection, could be
      required to make under the credit derivative amounted to $10.1 million, of
      which $1.9 million matures within one year and $8.2 million matures in one
      to five years.  The fair value of the credit derivative amounted
      to a negative $0.2 million at September 30, 2009 and is included in the
      Accrued expenses and other liabilities category of the Corporation’s
      Consolidated Balance Sheets.
 
 At
      September 30, 2009, the maximum potential amount of future receivables
      that the Corporation, as a purchaser of protection, may be eligible to
      receive under the credit derivative amounted to $3.5 million, of which
      $0.5 million matures within one year, $1.1 million matures in one to five
      years, and $1.9 million matures in five to ten years.  At
      September 30, 2009, the fair value of the credit derivative was immaterial
      and is included in the Accrued interest and other assets category of the
      Corporation’s Consolidated Balance
Sheets.
 27
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The
      following tables summarize the balance sheet category and fair values of
      trading instruments and other free standing
  derivatives:
 
 September
      30, 2009
                
                Notional
      Amount
                  ($
      in millions)
                
                Balance
      Sheet Category
                
                Fair
      Value
                  ($
      in millions)Assets:Interest
      rate contracts - swaps
                
                $
                4,796.2
                
                
                Trading
      assets
                
                $
                244.2Interest
      rate contracts - options
                
                
                169.6
                
                
                Trading
      assets
                
                
                1.6Equity
      derivative contracts - equity indexed CDs
                
                
                84.7
                
                
                Trading
      assets
                
                
                6.1Total
      assets
                
                
                
                
                
                
                
                $
                251.9Liabilities:Interest
      rate contracts - swaps
                
                $
                4,388.1
                
                
                Accrued
      expenses and other liabilities
                
                $
                212.6Interest
      rate contracts - options
                
                
                151.7
                
                
                Accrued
      expenses and other liabilities
                
                
                1.5Equity
      derivative contracts - equity indexed CDs
                
                
                84.4
                
                
                Accrued
      expenses and other liabilities
                
                
                6.1Equity
      derivative contracts - Visa
                
                
                1.0
                
                
                Accrued
      expenses and other liabilities
                
                
                11.6Total
      liabilities
                
                
                
                
                
                
                
                $
                231.8Net
      positive fair value impact
                
                
                
                
                
                
                
                $
                20.1September
      30, 2008
                
                Notional
      Amount
                  ($
      in millions)
                
                Balance
      Sheet Category
                
                Fair
      Value
                  ($
      in millions)Assets:Interest
      rate contracts - swaps
                
                $
                4,181.7
                
                
                Trading
      assets
                
                $
                88.1Interest
      rate contracts - options
                
                
                166.5
                
                
                Trading
      assets
                
                
                1.2Equity
      derivative contracts - equity indexed CDs
                
                
                98.1
                
                
                Trading
      assets
                
                
                3.7Equity
      derivative contracts - warrants
                
                
                0.1
                
                
                Trading
      assets
                
                
                0.2Total
      assets
                
                
                
                
                
                
                
                $
                93.2Liabilities:Interest
      rate contracts - swaps
                
                $
                3,114.1
                
                
                Accrued
      expenses and other liabilities
                
                $
                64.9Interest
      rate contracts - options
                
                
                166.5
                
                
                Accrued
      expenses and other liabilities
                
                
                1.2Interest
      rate contracts - interest rate futures
                
                
                1,854.0
                
                
                Accrued
      expenses and other liabilities
                
                
                (1.2
                )Equity
      derivative contracts - equity indexed CDs
                
                
                98.1
                
                
                Accrued
      expenses and other liabilities
                
                
                3.7Total
      liabilities
                
                
                
                
                
                
                
                $
                68.6Net
      positive fair value impact
                
                
                
                
                
                
                
                $
                24.6
   28
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The
      following tables summarize the income statement categories of the gain or
      (loss) recognized in income on trading instruments and other free standing
      derivatives for the three and nine months ended September 30, 2009 and
      2008:




Category
      of Gain or
              
              Amount
      of Gain or (Loss) Recognized in Earnings on Derivative ($ in
      millions)(Loss) Recognized in
              
              Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,Contract
              
              Income on Derivative
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Interest
      Rate Contracts – Swaps
              
              Other
      income - Other
              
              $
              2.4
              
              
              $
              3.5
              
              
              $
              6.0
              
              
              $
              14.4Interest
      Rate Contracts – Options
              
              Other
      income - Other
              
              
              (1.0
              )
              
              
              0.5
              
              
              
              0.2
              
              
              
              1.2Interest
      Rate Contracts – Options
              
              Other
      income - Other
              
              
              0.9
              
              
              
              (0.5
              )
              
              
              (0.1
              )
              
              
              (1.2
              )Interest
      Rate Contracts – Interest Rate Futures
              
              Other
      income - Other
              
              
              (0.3
              )
              
              
              (0.7
              )
              
              
              (1.0
              )
              
              
              (3.1
              )Equity
      Derivative Contracts – Equity-Indexed CDs
              
              Other
      income - Other
              
              
              0.0
              
              
              
              -
              
              
              
              0.0
              
              
              
              -Equity
      Derivative Contracts – Warrants
              
              Other
      income - Other
              
              
              (0.1
              )
              
              
              (0.1
              )
              
              
              (0.1
              )
              
              
              (0.3
              )Equity
      Derivative Contracts – Visa
              
              Other
      income - Other
              
              
              (0.0
              )
              
              
              -
              
              
              
              (14.7
              )
              
              
              -




Fair
Value Hedges and Cash Flow Hedges
 
 The
      Corporation uses various derivative instruments that qualify as hedging
      relationships under the Derivatives and Hedging Topic of the
      Codification.  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 the Derivatives and
      Hedging Topic of the Codification:
 September
      30, 2009
                
                Derivative
      Type
                
                Hedged
      Item
                
                Notional
      Amount
                  ($
      in millions)
                
                Balance
      Sheet Category
                
                Fair
      Value
                  ($
      in millions)
                
                
                Weighted
      Average Remaining Term (Years)LiabilitiesInterest
      rate contracts:Pay
      fixed rate swaps
                
                Cash
      Flow
                
                Institutional
      CDs
                
                $
                250.0
                
                Deposits
                
                $
                15.8
                
                
                
                1.6Receive
      fixed rate swaps
                
                Fair
      Value
                
                Brokered
      Bullet CDs
                
                
                209.3
                
                Deposits
                
                
                (11.0
                )
                
                
                3.7Receive
      fixed rate swaps
                
                Fair
      Value
                
                Callable
      CDs
                
                
                5,990.4
                
                Deposits
                
                
                (37.2
                )
                
                
                13.9Receive
      fixed rate swaps
                
                Fair
      Value
                
                Institutional
      CDs
                
                
                25.0
                
                Deposits
                
                
                (1.1
                )
                
                
                26.7Pay
      fixed rate swaps
                
                Cash
      Flow
                
                FHLB
      advances
                
                
                1,060.0
                
                Long-term
      borrowings
                
                
                69.3
                
                
                
                2.3Pay
      fixed rate swaps
                
                Cash
      Flow
                
                Floating
      rate bank notes
                
                
                192.1
                
                Long-term
      borrowings
                
                
                12.9
                
                
                
                1.7Receive
      fixed rate swaps
                
                Fair
      Value
                
                FHLB
      advances
                
                
                280.0
                
                Long-term
      borrowings
                
                
                (4.8
                )
                
                
                2.9Receive
      fixed rate swaps
                
                Fair
      Value
                
                Fixed
      rate bank notes
                
                
                630.0
                
                Long-term
      borrowings
                
                
                (33.9
                )
                
                
                5.7Receive
      fixed rate swaps
                
                Fair
      Value
                
                Medium
      term notes
                
                
                6.6
                
                Long-term
      borrowings
                
                
                (0.0
                )
                
                
                18.4Total
      liabilities
                
                
                
                
                
                
                
                
                
                
                $
                10.0Net
      negative fair value impact
                
                
                
                
                
                
                
                
                
                
                $
                (10.0
                )






29
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
   September
      30, 2008
                    
                    Derivative
      Type
                    
                    Hedged
      Item
                    
                    Notional
      Amount
                      ($
      in millions)
                    
                    Balance
      Sheet Category
                    
                    Fair
      Value
                      ($
      in millions)
                    
                    
                    Weighted
      Average Remaining Term (Years)LiabilitiesInterest
      rate contracts:Pay
      fixed rate swaps
                    
                    Cash
      Flow
                    
                    Institutional
      CDs
                    
                    $
                    550.0
                    
                    Deposits
                    
                    $
                    13.8
                    
                    
                    
                    1.6Receive
      fixed rate swaps
                    
                    Fair
      Value
                    
                    Brokered
      Bullet CDs
                    
                    
                    210.1
                    
                    Deposits
                    
                    
                    3.1
                    
                    
                    
                    4.7Receive
      fixed rate swaps
                    
                    Fair
      Value
                    
                    Callable
      CDs
                    
                    
                    5,954.4
                    
                    Deposits
                    
                    
                    94.2
                    
                    
                    
                    13.6Receive
      fixed rate swaps
                    
                    Fair
      Value
                    
                    Institutional
      CDs
                    
                    
                    25.0
                    
                    Deposits
                    
                    
                    (0.9
                    )
                    
                    
                    27.7Pay
      fixed rate swaps
                    
                    Cash
      Flow
                    
                    FHLB
      advances
                    
                    
                    1,060.0
                    
                    Long-term
      borrowings
                    
                    
                    38.4
                    
                    
                    
                    3.3Pay
      fixed rate swaps
                    
                    Cash
      Flow
                    
                    Floating
      rate bank notes
                    
                    
                    500.0
                    
                    Long-term
      borrowings
                    
                    
                    12.1
                    
                    
                    
                    2.5Receive
      fixed rate swaps
                    
                    Fair
      Value
                    
                    Fixed
      rate bank notes
                    
                    
                    100.0
                    
                    Long-term
      borrowings
                    
                    
                    1.2
                    
                    
                    
                    7.6Receive
      fixed rate swaps
                    
                    Fair
      Value
                    
                    Fixed
      rate bank notes
                    
                    
                    336.4
                    
                    Long-term
      borrowings
                    
                    
                    (7.7
                    )
                    
                    
                    7.5Receive
      fixed rate swaps
                    
                    Fair
      Value
                    
                    Medium
      term notes
                    
                    
                    7.0
                    
                    Long-term
      borrowings
                    
                    
                    0.0
                    
                    
                    
                    19.4Total
      liabilities
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    154.2Net
      negative fair value impact
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    (154.2
                    )






The
effect of fair value hedges under the Derivatives and Hedging Topic of the
Codification on the Consolidated Statements of Income for the three and nine
months ended September 30, 2009 and 2008 ($ in millions):
 Interest
      rate contracts
                
                Category
      of Gain (Loss) Recognized in Income on Derivative
                
                Amount
      of Gain (Loss) Recognized in Income on Derivative
                
                Category
      of Gain (Loss) Recognized in Income on Hedged Item
                
                Amount
      of Gain (Loss) Recognized in Income on Hedged ItemThree
      Months Ended September 30,
                
                
                
                Three
      Months Ended September 30,2009
                
                
                2008
                
                
                
                2009
                
                
                2008Interest
      expense:
                
                
                
                
                
                
                Interest
      expense:Deposits:
                
                
                
                
                
                
                Deposits:Receive
      fixed rate swaps
                
                Institutional
      CDs
                
                $
                (0.9
                )
                
                $
                1.0
                
                Institutional
      CDs
                
                $
                1.3
                
                
                $
                (0.7
                )Receive
      fixed rate swaps
                
                Callable
      CDs
                
                
                284.3
                
                
                
                72.5
                
                Callable
      CDs
                
                
                (217.7
                )
                
                
                (35.4
                )Receive
      fixed rate swaps
                
                Brokered
      Bullet CDs
                
                
                4.5
                
                
                
                2.6
                
                Brokered
      Bullet CDs
                
                
                (2.7
                )
                
                
                (1.9
                )Long-term
      borrowings:
                
                
                
                
                
                
                
                
                Long-term
      borrowings:Receive
      fixed rate swaps
                
                FHLB
      advances
                
                
                5.8
                
                
                
                -
                
                FHLB
      advances
                
                
                (4.8
                )
                
                
                -Receive
      fixed rate swaps
                
                Fixed
      rate bank notes
                
                
                15.2
                
                
                
                5.9
                
                Fixed
      rate bank notes
                
                
                (10.3
                )
                
                
                (4.3
                )Receive
      fixed rate swaps
                
                Medium
      term notes
                
                
                0.1
                
                
                
                0.2
                
                Medium
      term notes
                
                
                0.1
                
                
                
                (0.1
                )Receive
      fixed rate swaps
                
                Other
                
                
                -
                
                
                
                -
                
                Other
                
                
                (0.1
                )
                
                
                (0.1
                )Total
                
                $
                309.0
                
                
                $
                82.2
                
                Total
                
                $
                (234.2
                )
                
                $
                (42.5
                )Interest
      rate contracts
                
                Category
      of Gain (Loss) Recognized in Income on Derivative
                
                Amount
      of Gain (Loss) Recognized in Income on Derivative
                
                Category
      of Gain (Loss) Recognized in Income on Hedged Item
                
                Amount
      of Gain (Loss) Recognized in Income on Hedged ItemNine
      Months Ended September 30,
                
                
                
                Nine
      Months Ended September 30,2009
                
                
                2008
                
                
                
                2009
                
                
                2008Interest
      expense:
                
                
                
                
                
                
                
                
                Interest
      expense:Deposits:
                
                
                
                
                
                
                
                
                Deposits:Receive
      fixed rate swaps
                
                Institutional
      CDs
                
                $
                (0.4
                )
                
                $
                1.6
                
                Institutional
      CDs
                
                $
                1.4
                
                
                $
                (0.6
                )Receive
      fixed rate swaps
                
                Callable
      CDs
                
                
                125.9
                
                
                
                (30.1
                )
                Callable
      CDs
                
                
                63.2
                
                
                
                92.2Receive
      fixed rate swaps
                
                Brokered
      Bullet CDs
                
                
                1.5
                
                
                
                (1.9
                )
                Brokered
      Bullet CDs
                
                
                3.6
                
                
                
                3.2Long-term
      borrowings:
                
                
                
                
                
                
                
                
                Long-term
      borrowings:Receive
      fixed rate swaps
                
                FHLB
      advances
                
                
                5.8
                
                
                
                -
                
                FHLB
      advances
                
                
                (4.8
                )
                
                
                -Receive
      fixed rate swaps
                
                Fixed
      rate bank notes
                
                
                (9.9
                )
                
                
                9.1
                
                Fixed
      rate bank notes
                
                
                20.0
                
                
                
                (5.3
                )Receive
      fixed rate swaps
                
                Medium
      term notes
                
                
                0.0
                
                
                
                0.1
                
                Medium
      term notes
                
                
                0.2
                
                
                
                -Receive
      fixed rate swaps
                
                Other
                
                
                -
                
                
                
                -
                
                Other
                
                
                0.1
                
                
                
                0.1Total
                
                $
                122.9
                
                
                $
                (21.2
                )
                Total
                
                $
                83.7
                
                
                $
                89.6




For the
three and nine months ended September 30, 2009 and 2008, respectively, the
impact to net interest income due to ineffectiveness was not
material.
   30
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The
      effect of cash flow hedges under the Derivatives and Hedging Topic of the
      Codification for the three months ended September 30, 2009 and 2008 ($ in
      millions):
 
 Three
      Months Ended September 30, 2009
                
                Amount
      of Gain (Loss)
                    Recognized
      in OCI on Derivative
                    (Effective
      Portion)
                
                Category
      of Amount Reclassified from
                  Accumulated
      OCI into Earnings
                  (Effective
      Portion)
                
                Amount
      Reclassified from
                  Accumulated
      OCI into Earnings
                  (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
                
                $
                (0.2
                )
                
                $
                0.1
                
                
                $
                (0.1
                )Interest
      rate contracts
                
                
                
                
                
                
                
                
                
                
                
                
                Interest
      expenseDeposits:
                
                
                
                
                
                
                
                
                
                
                
                
                Deposits:Institutional
      CDs
                
                
                (0.5
                )
                
                
                0.2
                
                
                
                (0.3
                )
                Institutional
      CDs
                
                
                3.1
                
                
                
                (1.0
                )
                
                
                2.1Long-term
      borrowings:
                
                
                
                
                
                
                
                
                
                
                
                
                Long-term
      borrowings:FHLB
      advances
                
                
                (7.3
                )
                
                
                2.5
                
                
                
                (4.8
                )
                FHLB
      advances
                
                
                10.3
                
                
                
                (3.6
                )
                
                
                6.7Floating
      rate bank notes
                
                
                8.8
                
                
                
                (3.1
                )
                
                
                5.7
                
                Floating
      rate bank notes
                
                
                3.0
                
                
                
                (1.0
                )
                
                
                2.0Other
                
                
                -
                
                
                
                -
                
                
                
                -
                
                Other
      (1)
                
                
                0.1
                
                
                
                (0.1
                )
                
                
                0.0$
                0.6
                
                
                $
                (0.3
                )
                
                $
                0.3
                
                
                
                $
                16.3
                
                
                $
                (5.6
                )
                
                $
                10.7(1)
      Represents amortization for the three months ended September 30, 2009 from
      the termination of
swaps.






Three
      Months Ended September 30, 2008
              
              Amount
      of Gain (Loss)
                  Recognized
      in OCI on Derivative
                  (Effective
      Portion)
              
              Category
      of Amount Reclassified from
                Accumulated
      OCI into Earnings
                (Effective
      Portion)
              
              Amount
      Reclassified from
                Accumulated
      OCI into Earnings
                (Effective
      Portion)Gross
              
              
              Tax
              
              
              Net
              
              
              
              Gross
              
              
              Tax
              
              
              NetInterest
      rate contracts
              
              
              
              
              
              
              
              
              
              Interest
      and fee incomeLoans
      and leases - Variable rate loans
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              Loans
      and leases - Variable rate loans
              
              $
              -
              
              
              $
              -
              
              
              $
              -Interest
      rate contracts
              
              
              
              
              
              
              
              
              
              
              
              
              Interest
      expenseDeposits:
              
              
              
              
              
              
              
              
              
              
              
              
              Deposits:Institutional
      CDs
              
              
              (1.5
              )
              
              
              0.6
              
              
              
              (0.9
              )
              Institutional
      CDs
              
              
              3.4
              
              
              
              (1.2
              )
              
              
              2.2Brokered
      Money Market
              
              
              (0.1
              )
              
              
              -
              
              
              
              (0.1
              )
              Brokered
      Money Market
              
              
              -
              
              
              
              -
              
              
              
              -Long-term
      borrowings:
              
              
              
              
              
              
              
              
              
              
              
              
              Long-term
      borrowings:FHLB
      advances
              
              
              (9.1
              )
              
              
              3.1
              
              
              
              (6.0
              )
              FHLB
      advances
              
              
              4.9
              
              
              
              (1.7
              )
              
              
              3.2Floating
      rate bank notes
              
              
              (4.4
              )
              
              
              1.5
              
              
              
              (2.9
              )
              Floating
      rate bank notes
              
              
              3.0
              
              
              
              (1.0
              )
              
              
              2.0Other
      (1)
              
              
              0.1
              
              
              
              -
              
              
              
              0.1
              
              Other
      (1)
              
              
              0.2
              
              
              
              (0.1
              )
              
              
              0.1$
              (15.0
              )
              
              $
              5.2
              
              
              $
              (9.8
              )
              
              
              $
              11.5
              
              
              $
              (4.0
              )
              
              $
              7.5(1)
      Represents amortization for the three months ended September 30, 2008 from
      the termination of swaps.






31
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The
      effect of cash flow hedges under the Derivatives and Hedging Topic of the
      Codification for the nine months ended September 30, 2009 and 2008 ($ in
      millions):
 
 Nine
      Months Ended September 30, 2009
                  
                  Amount
      of Gain (Loss)
                    Recognized
      in OCI on Derivative
                    (Effective
      Portion)
                  
                  Category
      of Amount Reclassified from
                    Accumulated
      OCI into Earnings
                    (Effective
      Portion)
                  
                  Amount
      Reclassified from
                    Accumulated
      OCI into Earnings
                    (Effective
      Portion)Gross
                  
                  
                  Tax
                  
                  
                  Net
                  
                  
                  
                  Gross
                  
                  
                  Tax
                  
                  
                  NetInterest
      rate contracts
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Interest
      and fee incomeInvestment
      securities - Corporate notes AFS
                  
                  $
                  0.2
                  
                  
                  $
                  (0.1
                  )
                  
                  $
                  0.1
                  
                  Investment
      securities - Corporate notes AFS
                  
                  $
                  (0.3
                  )
                  
                  $
                  0.1
                  
                  
                  $
                  (0.2
                  )Interest
      rate contracts
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Interest
      expenseDeposits:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Deposits:Institutional
      CDs
                  
                  
                  (0.8
                  )
                  
                  
                  0.3
                  
                  
                  
                  (0.5
                  )
                  Institutional
      CDs
                  
                  
                  12.7
                  
                  
                  
                  (4.4
                  )
                  
                  
                  8.3Long-term
      borrowings:
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Long-term
      borrowings:FHLB
      advances
                  
                  
                  2.0
                  
                  
                  
                  (0.7
                  )
                  
                  
                  1.3
                  
                  FHLB
      advances
                  
                  
                  27.2
                  
                  
                  
                  (9.5
                  )
                  
                  
                  17.7Floating
      rate bank notes
                  
                  
                  9.9
                  
                  
                  
                  (3.5
                  )
                  
                  
                  6.4
                  
                  Floating
      rate bank notes
                  
                  
                  7.8
                  
                  
                  
                  (2.7
                  )
                  
                  
                  5.1Other
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  Other
      (1)
                  
                  
                  0.5
                  
                  
                  
                  (0.2
                  )
                  
                  
                  0.3$
                  11.3
                  
                  
                  $
                  (4.0
                  )
                  
                  $
                  7.3
                  
                  
                  
                  $
                  47.9
                  
                  
                  $
                  (16.7
                  )
                  
                  $
                  31.2(1)
      Represents amortization for the nine months ended September 30, 2009 from
      the termination of
swaps.






Nine
      Months Ended September 30, 2008
              
              Amount
      of Gain (Loss)
                  Recognized
      in OCI on Derivative
                  (Effective
      Portion)
              
              Category
      of Amount Reclassified from
                Accumulated
      OCI into Earnings
                (Effective
      Portion)
              
              Amount
      Reclassified from
                Accumulated
      OCI into Earnings
                (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
              
              $
              0.2
              
              
              $
              (0.1
              )
              
              $
              0.1Interest
      rate contracts
              
              
              
              
              
              
              
              
              
              
              
              
              Interest
      expenseDeposits:
              
              
              
              
              
              
              
              
              
              
              
              
              Deposits:Institutional
      CDs
              
              
              (5.8
              )
              
              
              2.1
              
              
              
              (3.7
              )
              Institutional
      CDs
              
              
              10.0
              
              
              
              (3.5
              )
              
              
              6.5Brokered
      Money Market
              
              
              -
              
              
              
              -
              
              
              
              -
              
              Brokered
      Money Market
              
              
              -
              
              
              
              -
              
              
              
              -Long-term
      borrowings:
              
              
              
              
              
              
              
              
              
              
              
              
              Long-term
      borrowings:FHLB
      advances
              
              
              (12.1
              )
              
              
              4.2
              
              
              
              (7.9
              )
              FHLB
      advances
              
              
              12.0
              
              
              
              (4.2
              )
              
              
              7.8Floating
      rate bank notes
              
              
              (5.8
              )
              
              
              2.0
              
              
              
              (3.8
              )
              Floating
      rate bank notes
              
              
              6.7
              
              
              
              (2.3
              )
              
              
              4.4Other
              
              
              -
              
              
              
              -
              
              
              
              -
              
              Other
      (1)
              
              
              0.6
              
              
              
              (0.2
              )
              
              
              0.4$
              (23.2
              )
              
              $
              8.1
              
              
              $
              (15.1
              )
              
              
              $
              29.5
              
              
              $
              (10.3
              )
              
              $
              19.2(1)
      Represents amortization for the nine months ended September 30, 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 and nine months ended
      September 30, 2009 and 2008, respectively.  The estimated
      reclassification from accumulated other comprehensive income related to
      cash flow hedges in the next twelve months is approximately $67.5
      million.






32
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  14.  Fair
Value of Financial Instruments
 
 The
      carrying amount and estimated fair values for on and off-balance sheet
      financial instruments as of September 30, 2009 are presented in the
      following table.  Derivative financial instruments designated as
      hedging instruments are included in the book values and fair values
      presented for the related hedged items.  Derivative financial
      instruments designated as trading and other free standing derivatives are
      included in Trading assets and Derivative liabilities.  See Note
      3 – Fair Value Measurements and Note 13 – Derivative Financial Instruments
      and Hedging Activities in Notes to Financial Statements for additional
      information regarding trading and other free standing
      derivatives.
 September
      30, 2009Carrying
      Amount
                  
                  
                  Fair Value($
      in millions)Financial
      assets:Cash
      and short term investments
                  
                  $
                  2,280.2
                  
                  
                  $
                  2,280.2Trading
      assets
                  
                  
                  270.3
                  
                  
                  
                  270.3Investment
      securities available for sale
                  
                  
                  6,310.1
                  
                  
                  
                  6,310.1Investment
      securities held to maturity
                  
                  
                  120.1
                  
                  
                  
                  124.3Net
      loans and leases
                  
                  
                  44,692.6
                  
                  
                  
                  40,847.8Interest
      receivable
                  
                  
                  176.2
                  
                  
                  
                  176.2Financial
      liabilities:Deposits
                  
                  $
                  41,720.4
                  
                  
                  $
                  42,216.9Short-term
      borrowings
                  
                  
                  1,540.6
                  
                  
                  
                  1,546.4Long-term
      borrowings
                  
                  
                  7,512.0
                  
                  
                  
                  7,140.6Derivative
      liabilities
                  
                  
                  232.0
                  
                  
                  
                  232.0Interest
      payable
                  
                  
                  163.0
                  
                  
                  
                  163.0




Where
      readily available, quoted market prices are utilized by the
      Corporation.  If quoted market prices are not available, fair
      values are based on estimates using present value or other valuation
      techniques.  These techniques are significantly affected by the
      assumptions used, including the discount rate and estimates of future cash
      flows.  The calculated fair value estimates, therefore, cannot
      be substantiated by comparison to independent markets and, in many cases,
      could not be realized upon immediate settlement of the
      instrument.  The current reporting requirements exclude certain
      financial instruments and all nonfinancial assets and liabilities from its
      disclosure requirements.  Accordingly, the aggregate fair value
      amounts presented do not represent the underlying value of the entire
      Corporation.
 
 The
      following methods and assumptions are used in estimating the fair value
      for financial instruments.
 
 Cash and
      short-term investments
 The
      carrying amounts reported for cash and short-term investments approximate
      the fair values for those assets.
 
 Trading assets and investment
      securities
 Fair
      value is based on market prices where available.  The fair value
      of trading assets and investment securities are categorized as Level 1,
      Level 2 and Level 3, based on the inputs to the valuations.  See
      Note 3 – Fair Value Measurements in Notes to Financial Statements for
      additional information.
 
 Net loans
      and leases
 The fair
value of loans and leases was derived from discounted cash flow
analyses.  Loans and leases as of  September 30, 2009 were
grouped into1,929pools
based on similar characteristics such as maturity, payment type and payment
frequency, rate type and underlying index, recent loan-to-value (LTV) measures
and various types of credit indicators such as recent FICO scores and the
Corporation’s internal loan rating system.  Credit spreads
were
   33
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  derived
      from observable information wherever possible.  In cases where
      observable information was not available because of inactive markets or
      the change in the loan characteristics such as declining collateral
      values, certain adjustments were judgmentally made to estimate credit
      spreads consistent with the manner the Corporation believes market
      participants would assess the fair value of the loan pool.  The
      Corporation has estimated that increasing or decreasing the credit spreads
      by the equivalent of
      a 2 credit rating adjustment could affect the aggregate fair value
      of the loans and leases by approximately $0.6
      billion or 1.4% of the net carrying value of total loans and leases
      at September 30, 2009.  The fair value of loans held for sale is
      based on the expected sales price.  At September 30, 2009, the
      fair value of net loans and leases is considered Level 2 and Level 3 in
      the fair value hierarchy.
 
 Deposits
 The
      fair value for demand deposits or any interest bearing deposits with no
      fixed maturity date is considered to approximate the carrying
      value.  Time deposits with defined maturity dates are considered
      to have a fair value which approximates the book value if the maturity
      date was within three months of the measurement date.  The
      remaining time deposits are assigned fair values based on a discounted
      cash flow analysis using discount rates that approximate interest rates
      currently being offered on time deposits with comparable
      maturities.  At September 30, 2009, the fair value of deposits
      is considered Level 2 in the Fair Value
  Hierarchy.
 
 Borrowings
 Short-term
      borrowings are generally carried at cost that approximates fair
      value.  Long-term debt is valued using discounted cash flow
      analysis with discount curves developed using several
      methods.  Wherever possible, the Corporation uses pricing from
      industry accepted services or recently observed transactions in the
      Corporation’s long-term debt to develop the discounting
      curves.  The observed transactions are between unaffiliated
      parties where there has been sufficient transaction volume to conclude
      that the observed pricing is representative of the fair value of the
      long-term debt obligation.  In the absence of representative
      observed transactions, the Corporation develops discount curves based on
      current incremental borrowing rates for similar types of
      arrangements.  The fair value of borrowings is considered Level
      2 in the Fair Value Hierarchy.
 
 Off-Balance
      Sheet Financial Instruments
 
 Fair
      values of off-balance sheet financial instruments have been estimated
      based on the equivalent fees, net of expenses, that would be charged for
      similar contracts and customers at September 30, 2009 ($ in
      millions):
 September
      30, 2009Loan
      commitments
                  
                  $
                  13.2Commercial
      letters of credit
                  
                  
                  0.2Capital
      support agreement
                  
                  
                  3.2Standby
      letters of credit
                  
                  
                  9.5




15.
              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.






34
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  Net
      periodic postretirement benefit cost for the three and nine months ended
      September 30, 2009 and 2008 included the following components
      ($000’s):
 
 Three
      Months Ended September 30,
                  
                  
                  Nine
      Months Ended September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Service
      cost
                  
                  $
                  235
                  
                  
                  $
                  238
                  
                  
                  $
                  704
                  
                  
                  $
                  714Interest
      cost on APBO
                  
                  
                  980
                  
                  
                  
                  983
                  
                  
                  
                  2,939
                  
                  
                  
                  2,951Expected
      return on plan assets
                  
                  
                  (396
                  )
                  
                  
                  (435
                  )
                  
                  
                  (1,187
                  )
                  
                  
                  (1,305
                  )Prior
      service amortization
                  
                  
                  (560
                  )
                  
                  
                  (593
                  )
                  
                  
                  (1,678
                  )
                  
                  
                  (1,779
                  )Actuarial
      loss amortization
                  
                  
                  210
                  
                  
                  
                  76
                  
                  
                  
                  629
                  
                  
                  
                  226Net
      periodic postretirement benefit cost
                  
                  $
                  469
                  
                  
                  $
                  269
                  
                  
                  $
                  1,407
                  
                  
                  $
                  807




Benefit
payments and expenses, net of participant contributions, for the three and nine
months ended September 30, 2009 amounted to $1.2 million and $3.6 million,
respectively.
 
 The
      funded status, which is the accumulated postretirement benefit obligation
      net of fair value of plan assets, as of September 30, 2009 is as follows
      ($000’s):
 
 Total
      funded status, December 31, 2008
              
              $
              (36,576
              )Service
      cost
              
              
              (704
              )Interest
      cost on APBO
              
              
              (2,939
              )Expected
      return on plan assets
              
              
              1,187Employer
      contributions/payments
              
              
              3,593Subsidy
      (Medicare Part D)
              
              
              (585
              )Total
      funded status, September 30, 2009
              
              $
              (36,024
              )






16.
              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.
  Total
      Revenues by type in Others consist of the following ($ in
      millions):
 Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30,
                
                
                September
      30,2009
                
                
                2008
                
                
                2009
                
                
                2008Capital
      Markets Division
                
                $
                13.1
                
                
                $
                9.6
                
                
                $
                39.3
                
                
                $
                36.0National
      Consumer Banking Division
                
                
                45.3
                
                
                
                36.7
                
                
                
                125.4
                
                
                
                97.4Administrative
      & Other
                
                
                13.7
                
                
                
                5.5
                
                
                
                62.7
                
                
                
                59.3Other
                
                
                59.9
                
                
                
                65.3
                
                
                
                196.2
                
                
                
                202.5Total
                
                $
                132.0
                
                
                $
                117.1
                
                
                $
                423.6
                
                
                $
                395.2






35
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  Three
      Months Ended September 30, 2009 ($ in millions)Eliminations,Commercial
                
                
                Community
                
                
                Wealth
                
                
                
                
                
                
                
                
                Corporate
                
                
                ReclassificationsBanking
                
                
                Banking
                
                
                Management
                
                
                Treasury
                
                
                Others
                
                
                Overhead
                
                
                &
      Adjustments
                
                
                ConsolidatedNet
      interest income
                
                $
                234.1
                
                
                $
                181.4
                
                
                $
                18.4
                
                
                $
                (82.6
                )
                
                $
                55.2
                
                
                $
                (12.0
                )
                
                $
                (5.8
                )
                
                $
                388.7Provision
      for loan and lease losses
                
                
                304.2
                
                
                
                158.7
                
                
                
                14.0
                
                
                
                -
                
                
                
                101.8
                
                
                
                -
                
                
                
                -
                
                
                
                578.7Net
      interest income afterprovision for loan and lease
      losses
                
                
                (70.1
                )
                
                
                22.7
                
                
                
                4.4
                
                
                
                (82.6
                )
                
                
                (46.6
                )
                
                
                (12.0
                )
                
                
                (5.8
                )
                
                
                (190.0
                )Other
      income
                
                
                11.2
                
                
                
                49.4
                
                
                
                68.6
                
                
                
                69.6
                
                
                
                76.8
                
                
                
                37.6
                
                
                
                (85.3
                )
                
                
                227.9Other
      expense
                
                
                77.0
                
                
                
                211.0
                
                
                
                66.7
                
                
                
                10.5
                
                
                
                100.2
                
                
                
                29.3
                
                
                
                (85.7
                )
                
                
                409.0Income
      before income taxes
                
                
                (135.9
                )
                
                
                (138.9
                )
                
                
                6.3
                
                
                
                (23.5
                )
                
                
                (70.0
                )
                
                
                (3.7
                )
                
                
                (5.4
                )
                
                
                (371.1
                )Provision
      (benefit) for income taxes
                
                
                (54.3
                )
                
                
                (55.6
                )
                
                
                2.4
                
                
                
                (9.4
                )
                
                
                (24.4
                )
                
                
                (1.0
                )
                
                
                (5.8
                )
                
                
                (148.1
                )Net
      income
                
                
                (81.6
                )
                
                
                (83.3
                )
                
                
                3.9
                
                
                
                (14.1
                )
                
                
                (45.6
                )
                
                
                (2.7
                )
                
                
                0.4
                
                
                
                (223.0
                )Less:  Noncontrolling
      interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (0.4
                )
                
                
                (0.4
                )Segment
      income
                
                $
                (81.6
                )
                
                $
                (83.3
                )
                
                $
                3.9
                
                
                $
                (14.1
                )
                
                $
                (45.6
                )
                
                $
                (2.7
                )
                
                $
                -
                
                
                $
                (223.4
                )Identifiable
      assets
                
                $
                23,764.4
                
                
                $
                16,855.2
                
                
                $
                1,704.9
                
                
                $
                8,804.6
                
                
                $
                7,666.4
                
                
                $
                1,196.1
                
                
                $
                (1,446.3
                )
                
                $
                58,545.3Three
      Months Ended September 30, 2008 ($ in millions)Eliminations,Commercial
                
                
                Community
                
                
                Wealth
                
                
                
                
                
                
                
                
                
                
                Corporate
                
                
                ReclassificationsBanking
                
                
                Banking
                
                
                Management
                
                
                Treasury
                
                
                Others
                
                
                Overhead
                
                
                &
      Adjustments
                
                
                ConsolidatedNet
      interest income
                
                $
                191.2
                
                
                $
                194.2
                
                
                $
                15.4
                
                
                $
                21.6
                
                
                $
                39.4
                
                
                $
                (14.4
                )
                
                $
                (6.7
                )
                
                $
                440.7Provision
      for loan and lease losses
                
                
                97.2
                
                
                
                62.3
                
                
                
                1.7
                
                
                
                -
                
                
                
                (6.2
                )
                
                
                -
                
                
                
                -
                
                
                
                155.0Net
      interest income afterprovision for loan and lease
      losses
                
                
                94.0
                
                
                
                131.9
                
                
                
                13.7
                
                
                
                21.6
                
                
                
                45.6
                
                
                
                (14.4
                )
                
                
                (6.7
                )
                
                
                285.7Other
      income
                
                
                28.2
                
                
                
                47.4
                
                
                
                73.2
                
                
                
                12.0
                
                
                
                77.7
                
                
                
                29.3
                
                
                
                (84.0
                )
                
                
                183.8Other
      expense
                
                
                64.7
                
                
                
                173.8
                
                
                
                79.6
                
                
                
                5.0
                
                
                
                92.6
                
                
                
                28.3
                
                
                
                (84.2
                )
                
                
                359.8Income
      before income taxes
                
                
                57.5
                
                
                
                5.5
                
                
                
                7.3
                
                
                
                28.6
                
                
                
                30.7
                
                
                
                (13.4
                )
                
                
                (6.5
                )
                
                
                109.7Provision
      (benefit) for income taxes
                
                
                23.0
                
                
                
                2.2
                
                
                
                2.9
                
                
                
                11.4
                
                
                
                (1.2
                )
                
                
                (5.2
                )
                
                
                (6.7
                )
                
                
                26.4Net
      income
                
                
                34.5
                
                
                
                3.3
                
                
                
                4.4
                
                
                
                17.2
                
                
                
                31.9
                
                
                
                (8.2
                )
                
                
                0.2
                
                
                
                83.3Less:  Noncontrolling
      interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (0.2
                )
                
                
                (0.2
                )Segment
      income
                
                $
                34.5
                
                
                $
                3.3
                
                
                $
                4.4
                
                
                $
                17.2
                
                
                $
                31.9
                
                
                $
                (8.2
                )
                
                $
                -
                
                
                $
                83.1Identifiable
      assets
                
                $
                25,948.9
                
                
                $
                18,826.5
                
                
                $
                1,544.2
                
                
                $
                8,476.2
                
                
                $
                8,892.4
                
                
                $
                1,418.7
                
                
                $
                (1,606.0
                )
                
                $
                63,500.9






36
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  Nine
      Months Ended September 30, 2009 ($ in millions)Eliminations,Commercial
                
                
                Community
                
                
                Wealth
                
                
                
                
                
                
                
                
                Corporate
                
                
                ReclassificationsBanking
                
                
                Banking
                
                
                Management
                
                
                Treasury
                
                
                Others
                
                
                Overhead
                
                
                &
      Adjustments
                
                
                ConsolidatedNet
      interest income
                
                $
                648.4
                
                
                $
                521.0
                
                
                $
                48.3
                
                
                $
                (130.8
                )
                
                $
                166.0
                
                
                $
                (51.0
                )
                
                $
                (19.6
                )
                
                $
                1,182.3Provision
      for loan and lease losses
                
                
                652.0
                
                
                
                609.1
                
                
                
                30.5
                
                
                
                -
                
                
                
                384.0
                
                
                
                -
                
                
                
                -
                
                
                
                1,675.6Net
      interest income afterprovision for loan and lease
      losses
                
                
                (3.6
                )
                
                
                (88.1
                )
                
                
                17.8
                
                
                
                (130.8
                )
                
                
                (218.0
                )
                
                
                (51.0
                )
                
                
                (19.6
                )
                
                
                (493.3
                )Other
      income
                
                
                52.6
                
                
                
                153.0
                
                
                
                202.0
                
                
                
                141.0
                
                
                
                257.6
                
                
                
                123.5
                
                
                
                (258.0
                )
                
                
                671.7Other
      expense
                
                
                204.2
                
                
                
                601.2
                
                
                
                192.3
                
                
                
                39.6
                
                
                
                301.1
                
                
                
                89.6
                
                
                
                (259.2
                )
                
                
                1,168.8Income
      before income taxes
                
                
                (155.2
                )
                
                
                (536.3
                )
                
                
                27.5
                
                
                
                (29.4
                )
                
                
                (261.5
                )
                
                
                (17.1
                )
                
                
                (18.4
                )
                
                
                (990.4
                )Provision
      (benefit) for income taxes
                
                
                (62.1
                )
                
                
                (214.5
                )
                
                
                11.2
                
                
                
                (11.8
                )
                
                
                (154.0
                )
                
                
                (16.5
                )
                
                
                (19.6
                )
                
                
                (467.3
                )Net
      income
                
                
                (93.1
                )
                
                
                (321.8
                )
                
                
                16.3
                
                
                
                (17.6
                )
                
                
                (107.5
                )
                
                
                (0.6
                )
                
                
                1.2
                
                
                
                (523.1
                )Less:  Noncontrolling
      interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1.2
                )
                
                
                (1.2
                )Segment
      income
                
                $
                (93.1
                )
                
                $
                (321.8
                )
                
                $
                16.3
                
                
                $
                (17.6
                )
                
                $
                (107.5
                )
                
                $
                (0.6
                )
                
                $
                -
                
                
                $
                (524.3
                )Identifiable
      assets
                
                $
                23,764.4
                
                
                $
                16,855.2
                
                
                $
                1,704.9
                
                
                $
                8,804.6
                
                
                $
                7,666.4
                
                
                $
                1,196.1
                
                
                $
                (1,446.3
                )
                
                $
                58,545.3Nine
      Months Ended September 30, 2008 ($ in millions)Eliminations,Commercial
                
                
                Community
                
                
                Wealth
                
                
                
                
                
                
                
                
                
                
                Corporate
                
                
                ReclassificationsBanking
                
                
                Banking
                
                
                Management
                
                
                Treasury
                
                
                Others
                
                
                Overhead
                
                
                &
      Adjustments
                
                
                ConsolidatedNet
      interest income
                
                $
                574.7
                
                
                $
                587.9
                
                
                $
                44.5
                
                
                $
                42.9
                
                
                $
                126.1
                
                
                $
                (36.9
                )
                
                $
                (20.5
                )
                
                $
                1,318.7Provision
      for loan and lease losses
                
                
                987.0
                
                
                
                196.0
                
                
                
                7.2
                
                
                
                -
                
                
                
                (2.9
                )
                
                
                -
                
                
                
                -
                
                
                
                1,187.3Net
      interest income afterprovision for loan and lease
      losses
                
                
                (412.3
                )
                
                
                391.9
                
                
                
                37.3
                
                
                
                42.9
                
                
                
                129.0
                
                
                
                (36.9
                )
                
                
                (20.5
                )
                
                
                131.4Other
      income
                
                
                79.1
                
                
                
                139.2
                
                
                
                225.3
                
                
                
                34.1
                
                
                
                269.1
                
                
                
                88.5
                
                
                
                (253.2
                )
                
                
                582.1Other
      expense
                
                
                210.6
                
                
                
                510.6
                
                
                
                206.1
                
                
                
                13.2
                
                
                
                293.1
                
                
                
                75.8
                
                
                
                (253.9
                )
                
                
                1,055.5Income
      before income taxes
                
                
                (543.8
                )
                
                
                20.5
                
                
                
                56.5
                
                
                
                63.8
                
                
                
                105.0
                
                
                
                (24.2
                )
                
                
                (19.8
                )
                
                
                (342.0
                )Provision
      (benefit) for income taxes
                
                
                (217.5
                )
                
                
                8.2
                
                
                
                22.7
                
                
                
                25.5
                
                
                
                10.7
                
                
                
                (7.4
                )
                
                
                (20.5
                )
                
                
                (178.3
                )Net
      income
                
                
                (326.3
                )
                
                
                12.3
                
                
                
                33.8
                
                
                
                38.3
                
                
                
                94.3
                
                
                
                (16.8
                )
                
                
                0.7
                
                
                
                (163.7
                )Less:  Noncontrolling
      interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (0.7
                )
                
                
                (0.7
                )Segment
      income
                
                $
                (326.3
                )
                
                $
                12.3
                
                
                $
                33.8
                
                
                $
                38.3
                
                
                $
                94.3
                
                
                $
                (16.8
                )
                
                $
                -
                
                
                $
                (164.4
                )Identifiable
      assets
                
                $
                25,948.9
                
                
                $
                18,826.5
                
                
                $
                1,544.2
                
                
                $
                8,476.2
                
                
                $
                8,892.4
                
                
                $
                1,418.7
                
                
                $
                (1,606.0
                )
                
                $
                63,500.9






37
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  17.
                Guarantees
 
 Standby
      Letters of Credit
 
 Standby
      letters of credit are contingent commitments issued by the Corporation to
      support the obligations of a customer to a third party and to support
      public and private financing, and other financial or performance
      obligations of customers.  Standby letters of credit have
      maturities that generally reflect the maturities of the underlying
      obligations.  The credit risk involved in issuing standby
      letters of credit is the same as that involved in extending loans to
      customers.  If deemed necessary, the Corporation holds various
      forms of collateral to support the standby letters of
      credit.  The gross amount of standby letters of credit issued at
      September 30, 2009 was $2.6 billion.  Of the amount outstanding
      at September 30, 2009, standby letters of credit conveyed to others in the
      form of participations amounted to $101.9 million.  Since many
      of the standby letters of credit are expected to expire without being
      drawn upon, the amounts outstanding do not necessarily represent future
      cash requirements.  At September 30, 2009, the estimated fair
      value associated with letters of credit amounted to $9.5
      million.
 
 Securities
      Lending
 
 As
      described in Note 24 – Guarantees, in Notes to Consolidated Financial
      Statements in Item 8 of the 2008 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. 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 $7.5 billion at September 30, 2009, $8.2 billion at
      December 31, 2008 and $7.8 billion at September 30,
      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 September 30, 2009, December 31, 2008 and
      September 30, 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, the Corporation
      entered into a capital support agreement with SPF that replaced all prior
      agreements.  Under the terms of the current agreement, the
      Corporation would be required to contribute capital, under certain
      specific and defined circumstances and not to exceed $50.0 million in the
      aggregate and for no consideration, should certain asset loss events
      occur.  The agreement expires December 31, 2009 and contains
      terms that provide for three month renewals with all of the significant
      terms, including maximum contribution limits, remaining
      unchanged.  At September 30, 2009, the estimated fair value of
      the contingent liability under the agreement that is recorded within other
      liabilities in the Consolidated Balance Sheet amounted to $3.2
      million.  As of November 9, 2009, no contributions have been
      made under the agreement.
 
 Visa
      Litigation Update
 
 As
      permitted under the by-laws of Visa, during the second quarter of 2009 the
      Corporation sold its 998,826 shares of Visa Class B common
      stock.  In conjunction with the sale, the Corporation
      re-affirmed its responsibilities to Visa under Visa’s retrospective
      responsibility plan (the “plan”) which was discussed in Note 24 -
      Guarantees, in Notes to Consolidated Financial Statements in Item 8 of the
      2008 10-K.
 
 On
      June 30, 2009, Visa announced that it had decided to deposit $700 million
      into the litigation escrow account previously established under the plan.
      Despite the funding, Visa did not disclose any updates about the
      litigation matters that would change the Corporation’s estimate of the
      fair value of the litigation settlement amount.  As a result of
      the deposit, the conversion ratio of Visa Class B common stock to Visa
      Class A common stock was revised to
0.5824.






38
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 Notes to
Financial Statements - Continued
 September
30, 2009 & 2008 (Unaudited)
  The
      Corporation continues to expect that the ultimate value of the shares of
      Visa Class B common stock will exceed the amount of the Corporation’s
      indemnification obligations.
 
 
 18.
                  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.
 
 
 19.
                  Subsequent
      Events
 
 On
October 15, 2009, the Corporation announced that its Board of Directors declared
the fourth quarter cash dividend of $0.01 per share on its common
stock.
 
 In
addition, the Board of Directors declared a regular quarterly cash dividend of
$21.4 million in the aggregate on its Senior Preferred Stock, Series
B.  The Senior Preferred Stock, Series B was purchased from the
Corporation by the U.S. Treasury as part of the U.S. Treasury’s Capital Purchase
Program.  The Preferred Stock dividend is payable on November 16,
2009, to the shareholder of record at the close of business on November 1,
2009.
 
 On
October 27, 2009, the Corporation announced the closing of its public offering
of 156.4 million shares of its $1.00 par value common stock at $5.75 per
share.  The 156.4 million shares included 20.4 million shares issued
pursuant to an option granted to the underwriters by the Corporation, which was
exercised in full.  The proceeds, net of underwriting discounts and
commissions and offering expenses, from the offering amounted to $863.3
million.
 
 
 39
 Table of Contents




ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  MARSHALL
      & ILSLEY CORPORATION
 CONSOLIDATED
      AVERAGE BALANCE SHEETS
 ($000’s)




Three
      Months Ended September 30,2009
              
              
              2008AssetsCash
      and due from banks
              
              $
              738,614
              
              
              $
              892,191Trading
      assets
              
              
              250,721
              
              
              
              144,359Short-term
      investments
              
              
              1,791,184
              
              
              
              386,349Investment
      securities:Taxable
              
              
              5,267,613
              
              
              
              6,386,679Tax-exempt
              
              
              987,665
              
              
              
              1,122,791Total
      investment securities
              
              
              6,255,278
              
              
              
              7,509,470Loans
      and leases:Loans
      and leases, net of unearned income
              
              
              47,137,444
              
              
              
              50,032,072Allowance
      for loan and lease losses
              
              
              (1,358,629
              )
              
              
              (1,083,283
              )Net
      loans and leases
              
              
              45,778,815
              
              
              
              48,948,789Premises
      and equipment, net
              
              
              573,302
              
              
              
              532,728Accrued
      interest and other assets
              
              
              3,856,743
              
              
              
              4,650,044Total
      Assets
              
              $
              59,244,657
              
              
              $
              63,063,930Liabilities
      and EquityDeposits:Noninterest
      bearing
              
              $
              7,861,948
              
              
              $
              5,908,790Interest
      bearing
              
              
              33,474,035
              
              
              
              33,779,664Total
      deposits
              
              
              41,335,983
              
              
              
              39,688,454Federal
      funds purchased and security repurchase agreements
              
              
              1,038,750
              
              
              
              3,156,595Other
      short-term borrowings
              
              
              835,738
              
              
              
              3,257,868Long-term
      borrowings
              
              
              8,387,033
              
              
              
              9,653,290Accrued
      expenses and other liabilties
              
              
              993,907
              
              
              
              773,337Total
      Liabilities
              
              
              52,591,411
              
              
              
              56,529,544EquityMarshall
      & Ilsley Corporation shareholders' equity
              
              
              6,642,447
              
              
              
              6,524,471Noncontrolling
      interest in subsidiaries
              
              
              10,799
              
              
              
              9,915Total
      Equity
              
              
              6,653,246
              
              
              
              6,534,386Total
      Liabilities and Equity
              
              $
              59,244,657
              
              
              $
              63,063,930






40
 Table of Contents




MARSHALL
& ILSLEY CORPORATION
 CONSOLIDATED
      AVERAGE BALANCE SHEETS
 ($000’s)




Nine
      Months Ended September 30,2009
              
              
              2008AssetsCash
      and due from banks
              
              $
              762,948
              
              
              $
              908,065Trading
      assets
              
              
              471,053
              
              
              
              161,509Short-term
      investments
              
              
              944,544
              
              
              
              363,150Investment
      securities:Taxable
              
              
              6,038,210
              
              
              
              6,534,247Tax-exempt
              
              
              1,042,590
              
              
              
              1,183,490Total
      investment securities
              
              
              7,080,800
              
              
              
              7,717,737Loans
      and leases:Loans
      and leases, net of unearned income
              
              
              48,599,744
              
              
              
              49,526,053Allowance
      for loan and lease losses
              
              
              (1,322,163
              )
              
              
              (775,375
              )Net
      loans and leases
              
              
              47,277,581
              
              
              
              48,750,678Premises
      and equipment, net
              
              
              571,603
              
              
              
              521,133Accrued
      interest and other assets
              
              
              3,755,068
              
              
              
              4,546,792Total
      Assets
              
              $
              60,863,597
              
              
              $
              62,969,064Liabilities
      and EquityDeposits:Noninterest
      bearing
              
              $
              7,237,883
              
              
              $
              5,788,737Interest
      bearing
              
              
              33,055,263
              
              
              
              33,037,533Total
      deposits
              
              
              40,293,146
              
              
              
              38,826,270Federal
      funds purchased and security repurchase agreements
              
              
              1,571,369
              
              
              
              3,238,550Other
      short-term borrowings
              
              
              2,349,554
              
              
              
              3,303,824Long-term
      borrowings
              
              
              9,128,171
              
              
              
              9,770,371Accrued
      expenses and other liabilties
              
              
              1,051,938
              
              
              
              981,861Total
      Liabilities
              
              
              54,394,178
              
              
              
              56,120,876EquityMarshall
      & Ilsley Corporation shareholders' equity
              
              
              6,458,849
              
              
              
              6,838,276Noncontrolling
      interest in subsidiaries
              
              
              10,570
              
              
              
              9,912Total
      Equity
              
              
              6,469,419
              
              
              
              6,848,188Total
      Liabilities and Equity
              
              $
              60,863,597
              
              
              $
              62,969,064






41
 Table of Contents




OVERVIEW
 
 For the
three months ended September 30, 2009, the net loss attributable to the
Corporation’s common shareholders amounted to $248.4 million or $0.68 per
diluted common share compared to net income attributable to the Corporation’s
common shareholders of $83.1 million or $0.32 per diluted common share for the
three months ended September 30, 2008.  For the nine months ended
September 30, 2009, the net loss attributable to common shareholders amounted to
$599.3 million or $1.97 per diluted common share compared to the net loss
attributable to common shareholders of $164.4 million or $0.63 per diluted
common share for the nine months ended September 30, 2008.
 
 The net
loss attributable to the Corporation’s common shareholders for the three and
nine months ended September 30, 2009 includes $25 million and $75 million, or
$0.07 and $0.25 per diluted common share, respectively, for dividends on the
Senior Preferred Stock, Series B (the “Senior Preferred Stock”) issued to the
United States Department of the Treasury (the “UST”) in the fourth quarter of
2008 under the UST’s Capital Purchase Program (the “CPP”).
 
 Consistent
with recent quarters, credit quality-related charges were the primary driver of
the Corporation’s financial performance.  For the three months ended
September 30, 2009, the provision for loan and lease losses amounted to $578.7
million, which on an after-tax basis was approximately $370.1 million or $1.01
per diluted common share.  For the nine months ended September 30,
2009, the provision for loan and lease losses amounted to $1,675.6 million,
which on an after-tax basis was approximately $1,061.2 million or $3.49 per
diluted common share.  For the three months ended September 30, 2008,
the provision for loan and lease losses amounted to $155.0 million, which on an
after-tax basis was approximately $99.1 million or $0.38 per diluted common
share.  For the nine months ended September 30, 2008, the provision
for loan and lease losses amounted to $1,187.3 million, which on an after-tax
basis was approximately $759.4 million or $2.93 per diluted common share.
Post-transfer write-downs associated with loans available for sale (other than
mortgage loans originated for sale) are reported as a reduction of other income
in the Consolidated Statements of Income and amounted to $18.1 million which on
an after-tax basis was approximately $11.4 million or $0.03 per diluted common
share for the three months ended September 30, 2009.  For the nine
months ended September 30, 2009, post-transfer write-downs associated with loans
available for sale amounted to $29.7 million which on an after-tax basis was
approximately $18.7 million or $0.06 per diluted common share.
 
 The
provision for loan and lease losses for the three and nine months ended
September 30, 2009 included approximately $185.0 million for loans to certain
bank holding companies. Charge-offs related to those loans to bank holding
companies amounted to $157.8 million for the three and nine months ended
September 30, 2009. Approximately 75% of these loans were current as of
September 30, 2009.
 
 Nonaccrual
loans and leases at September 30, 2009, which the Corporation refers to as
nonperforming loans, increased $723.1 million since December 31, 2008 and
amounted to $2,250.1 million at September 30, 2009. However, nonperforming loans
at September 30, 2009 decreased by $166.0 million or 6.9% from June 30,
2009.  This is the first linked-quarter decline in nonperforming loans
in four years. The elevated levels of nonperforming loans reflects the
recessionary economy, which includes higher levels of unemployment, and the weak
national real estate markets. In addition, the amount of impairment, which
affects charge-offs and the level of the allowance for loans and leases,
remained elevated due to the depressed state of underlying real estate
collateral values. The decrease in nonperforming loans at September 30, 2009
reflects the effects of the Corporation’s actions taken to reduce the levels of
nonperforming loans and the decline in new nonperforming loans during the third
quarter of 2009. Compared to the second quarter of 2009, the amount of new loans
and leases that went into nonperforming status in the third quarter of 2009
decreased by approximately $463 million or 35.5%.  As a result, the
ratio of nonperforming loans and leases to total loans and leases declined to
4.88% at September 30, 2009.  In addition, early stage loan
delinquencies (those loans delinquent 30-89 days) decreased by $217.7 million or
20.5%, from June 30, 2009 to September 30, 2009. While the direction of these
credit quality metrics this quarter may be an indication of stabilization in
some geographies and markets, management recognizes the economy remains fragile
and that it may be too early to expect that this quarter’s experience is
indicative of the start of a longer-term trend.
 
 The
Corporation continued to employ a variety of strategies to mitigate and reduce
its loan loss exposures such as loan sales and restructuring loan terms to
lessen the financial stress and the probability of foreclosure for qualifying
customers that have demonstrated the capacity and ability to repay their debt
obligations in a manner that serves the best interests of both the customer and
the Corporation.  Troubled debt restructurings, which the Corporation
refers to as renegotiated loans, increased $116.7 million since June 30, 2009
and amounted to $935.3 million at September 30, 2009. At September 30, 2009,
renegotiated residential real estate, residential construction by individuals,
residential land and other consumer-related renegotiated loans amounted to
$619.3 million or 66.2% of total  renegotiated
loans.






42
 Table of Contents




The
allowance for loans and leases amounted to $1,413.7 million or 3.07% of total
loans and leases outstanding at September 30, 2009 compared to $1,367.8 million
or 2.84% at June 30, 2009 and $1,031.5 million or 2.05% at September 30,
2008.  Net charge-offs amounted to $532.7 million or 4.48% of average
loans and leases for the three months ended September 30, 2009 compared to
$152.3 million or 1.21% of average loans and leases for the three months ended
September 30, 2008.  For the nine months ended September 30, 2009, net
charge-offs amounted to $1,464.0 million or 4.03% of average loans and leases
compared to $684.1 million or 1.85% of average loans and leases for the nine
months ended September 30, 2008. As previously discussed, net charge-offs for
the three and nine months ended September 30, 2009 include the charge-offs
related to loans to certain bank holding companies.
 
 The
Corporation continued to experience elevated levels of expenses due to the
increase in operating costs associated with collection efforts and carrying
nonperforming assets.  The estimated expense associated with
collection efforts and carrying nonperforming assets, net of related revenue,
amounted to $66.0 million for the third quarter of 2009 compared to $16.6
million for the third quarter of 2008, an increase of $49.4 million. On an
after-tax basis that net expense increase was approximately $31.1 million or
$0.08 per diluted common share. For the nine months ended September 30, 2009,
the estimated expense associated with collection efforts and carrying
nonperforming assets, net of related revenue, amounted to $149.4 million
compared to $60.2 million for the nine months ended September 30, 2008, an
increase of $89.2 million. On an after-tax basis that net expense increase over
the comparative nine months was approximately $56.2 million or $0.18 per diluted
common share.
 
 Slowing
loan growth, declining asset yields, competitive deposit pricing in the low
interest rate environment, elevated levels of nonperforming loans and the
decision to maintain higher levels of liquid assets, resulted in lower net
interest income in the third quarter and nine months ended September 30, 2009
compared to the third quarter and nine months ended September 30, 2008. Equity
market volatility along with downward pressure in the equity markets resulted in
lower wealth management revenue in the three and nine months ended September 30,
2009 compared to the three and nine months ended September 30,
2008.  Mortgage loan closings, primarily due to re-financings, and
increased sales of those loans to the secondary market resulted in mortgage
banking revenue growth in the three and nine months ended September 30, 2009
compared to the three and nine months ended September 30, 2008. During the third
quarter of 2009, the Corporation continued to re-acquire and extinguish both
bank holding company and banking affiliate long-term borrowings. Gain on
termination of debt contributed $0.10 per diluted common share in the third
quarter of 2009 and contributed $0.14 per diluted common share for the nine
months ended September 30, 2009.
 
 Net
investment securities gains and losses were not significant in the three months
ended September 30, 2009 and 2008. During the second quarter of 2009, the
Corporation sold United States government agency investment securities and sold
its Visa, Inc. (“Visa”) Series B common stock.  During the first
quarter of 2008, the Corporation also recognized gains related to Visa Series B
common stock.
 
 As
previously discussed, operating expense growth for the three and nine months
ended September 30, 2009 compared to the three and nine months ended September
30, 2008 was predominantly driven by the increases in the costs associated with
collection efforts and carrying nonperforming assets as well as other
credit-related expenses. Operating expenses for the nine months ended September
30, 2009 include the Federal Deposit Insurance Corporation (“FDIC”) special
assessment related to insurance on deposits that was levied in the second
quarter of 2009 in addition to the increase related to regular insurance
premiums for insurance on deposits experienced throughout 2009. Operating
expenses for the three and nine months ended September 30, 2008 included
approximately $15.0 million of expenses and losses associated with securities
lending. Operating expenses for the nine months ended September 30, 2008
included approximately $12.2 million of expense reversal associated with the
Corporation’s indemnification obligations in connection with the Visa
litigation. Operating expenses, excluding the expenses associated with
collection efforts and carrying nonperforming assets and other credit-related
costs, expenses and losses associated with securities lending, FDIC insurance
expense, and the reversal of the Visa litigation accrual in the first quarter of
2008, declined approximately 3.5% in the nine months ended September 30, 2009
compared to the same period in 2008.  That decline reflects lower
incentive compensation and the impact of the expense reduction initiatives
announced in the Corporation’s fourth quarter 2008 earnings
release.






43
 Table of Contents




For the
nine months ended September 30, 2009, tax benefits that reduced the
Corporation’s reported loss amounted to $69.0 million, or $0.23 per diluted
common share. For the nine months ended September 30, 2008, tax benefits that
reduced the Corporation’s reported loss amounted to $20.0 million, or $0.08 per
diluted common share.
 
 At
September 30, 2009, the Corporation’s Tier 1 regulatory capital ratio was 9.61%
or $1,847.0 million in excess of well capitalized under the Federal Reserve
Board’s regulatory framework.  To be well capitalized under the
regulatory framework, the Tier 1 capital ratio must meet or exceed
6%.
 
 On
October 27, 2009, the Corporation announced the closing of its public offering
of 156.4 million shares of its $1.00 par value common stock at $5.75 per
share.  The 156.4 million shares included 20.4 million shares issued
pursuant to an option granted to the underwriters by the Corporation, which was
exercised in full.  The proceeds, net of underwriting discounts and
commissions and offering expenses, from the offering amounted to $863.3
million.
 
 With
regard to the outlook for the remainder of 2009, the low interest rate
environment together with the numerous other factors that impact net interest
income and the net interest margin have made it very difficult to project the
net interest margin with a reasonable degree of certainty.  Management
believes that the net interest margin will be relatively stable and comparable
with the net interest margin reported for the third quarter of 2009 in the near
term with potential opportunities for longer-term net interest margin
growth.
 
 Commercial
and industrial loans continued to contract in the third quarter of 2009 compared
to the second quarter of 2009.  Commercial and industrial loan
balances are expected to decrease in 2009 compared to
2008.  Construction and development loans are expected to continue to
contract as the Corporation reduces its concentration in these types of loans to
its corporate goal of 10% of total loans and leases.  At September 30,
2009, construction and development loans were 13.7% of total loans and leases
outstanding, which is down from the peak at September 30, 2007, when
construction and development loans were 22.6% of total loans and leases
outstanding.  Commercial real estate loan balances in 2009 compared to
2008 is expected to be unchanged.  Wealth management revenue will
continue to be affected by market volatility and direction.
 
 Management
expects the prevailing economic and difficult real estate market conditions will
last well into 2010 in many of the Corporation’s markets.  The
Corporation expects that the bulk of the credit quality issues related to
Florida have been realized and that the level of new larger construction loans
placed on nonaccrual are likely to have peaked in Arizona. A weak and unstable
economy and elevated levels of unemployment have resulted in increased stress in
consumer loans, particularly residential real estate loans and home equity loans
and lines of credit. Based on these factors, nonaccrual consumer loans are
expected to increase. As a result of these offsetting trends, total
nonperforming loans and leases may continue to stabilize or decrease. Management
expects the provision for loan and lease losses will continue to be at elevated
levels due to the recessionary economy and weak national real estate
markets.  The credit environment and underlying collateral values
continue to be rapidly changing and as a result, there are numerous unknown
factors at this time that will ultimately affect the timing and amount of
nonperforming loans and leases, net charge-offs and the provision for loan and
lease losses that will be recognized in the remainder of 2009. The timing and
amount of charge-offs will continue to be influenced by the Corporation’s
strategies for managing its nonperforming loans and leases.
 
 The
Corporation’s actual results for the remainder of 2009 could differ materially
from those expected by management.  See “Forward-Looking Statements”
in the Corporation’s Annual Report on Form 10-K for the year ended December 31,
2008 and Item 1A in Part II of this Report for a discussion of the various risk
factors that could cause actual results to differ materially from expected
results.






44
 Table of Contents




OTHER
NOTEWORTHY TRANSACTIONS AND EVENTS
 
 
 Subsequent
Event
 
 On
October 27, 2009, the Corporation announced the closing of its public offering
of 156.4 million shares of its $1.00 par value common stock at $5.75 per
share.  The 156.4 million shares included 20.4 million shares issued
pursuant to an option granted to the underwriters by the Corporation, which was
exercised in full.  The proceeds, net of underwriting discounts and
commissions and offering expenses, from the offering amounted to $863.3 million.
The Corporation intends to use the net proceeds of this offering for general
corporate purposes and may contribute some portion of the net proceeds to the
capital of its subsidiaries, which will use these contributions for their
general corporate purposes.  The Corporation may also use a portion of
the net proceeds of this offering to repurchase portions of its outstanding
indebtedness from time to time in the future, to the extent the Corporation
determines that market conditions are favorable for doing so.  In
addition, to the extent that the Corporation’s Board of Directors determines at
a future date that it is in the best interests of the Corporation and its
shareholders, the Corporation may elect to repurchase a portion of the Senior
Preferred Stock which repurchase may be funded in whole or in part by the
remaining net proceeds of the offering.  Any repurchase of the Senior
Preferred Stock would be subject to consultation with and approval by the
Corporation’s banking regulators.
 
 Some of
the other more noteworthy transactions and events that occurred in the nine
months ended September 30, 2009 and 2008, by quarter, consisted of the
following:
 
 Third
Quarter 2009
 
 The
Corporation continued to re-acquire and extinguish both bank holding company and
banking affiliate long-term borrowings. During the third quarter of 2009, the
Corporation re-acquired and extinguished long-term borrowings with a par value
of $548.4 million. The gain on termination of debt amounted to $56.1
million.  On an after-tax basis, the gain on termination of debt
amounted to $35.4 million or $0.10 per diluted common share.
 
 Second
Quarter 2009
 
 During
the second quarter of 2009, the Corporation recognized a gain of $35.4 million
in conjunction with the sale of its Visa Class B common stock.  Also
during the second quarter, the Corporation realized a gain of $43.6 million from
the sale of approximately $1.1 billion in aggregate principal amount of United
States government agency investment securities.  These gains are
included in Net investment securities gains in the Consolidated Statements of
Income.  On an after-tax basis, these gains amounted to $49.8 million
or $0.18 per diluted common share.
 
 In the
second quarter of 2009, the Corporation recognized a tax benefit of $18.0
million or $0.06 per diluted common share from a favorable resolution of a tax
matter associated with a 2002 stock issuance.
 
 During
the second quarter of 2009, the Corporation recorded a special FDIC insurance
assessment charge of $29.3 million. On an after-tax basis, the assessment
amounted to $18.5 million or $0.07 per diluted common share.
 
 On June
17, 2009, the Corporation announced the closing of its public offering of 100.0
million shares of its $1.00 par value common stock at $5.75 per
share.  The 100.0 million shares include 13.0 million shares issued
pursuant to an option granted to the underwriters by the Corporation, which was
exercised in full.  The proceeds, net of underwriting discounts and
commissions and offering expenses, from the offering amounted to $551.8
million.  In addition, under the initial shelf registration, the
Corporation issued 670,300 shares of its common stock valued at $4.5 million,
net of underwriting discounts and commissions and offering expenses, during the
quarter.
 
 On May
27, 2009, the Corporation acquired the investment team and managed accounts of
Delta Asset Management (“Delta”), an institutional large-cap core equity money
manager based in Los Angeles, California.  Delta, an operating
division of Berkeley Capital Management LLC, had approximately $1.2 billion in
assets under management as of April 30, 2009.


45
 Table of Contents




First
Quarter 2009
 
 The State
of Wisconsin enacted legislation that requires combined reporting for state
income tax purposes. As a result, the Corporation recorded an additional income
tax benefit of $51.0 million, or $0.19 per diluted common share to recognize
certain state deferred tax assets, which included the reduction of a valuation
allowance for Wisconsin net operating losses. The Corporation expects that
income tax expense will increase in future periods due to the enacted
legislation.
 
 Third
Quarter 2008
 
 During
the third quarter of 2008, the Corporation’s wealth management segment
recognized a loss associated with its securities lending activities. During the
third quarter of 2008, Lehman Brothers declared bankruptcy and failed to return
loaned securities when due. Due to volatile market conditions, the cost of the
replacement securities exceeded the amount of collateral available to purchase
the replacement securities.  The loss amounted to $8.4 million and is
reported in the line Other within Other Expense in the Consolidated Statements
of Income.
 
 Certain
entities within the wealth management segment are the investment advisor and
trustee of the M&I Employee Benefit Stable Principal Fund
(“SPF”).  The SPF periodically participates in securities lending
activities.  Although not obligated to do so, during the third quarter
of 2008, M&I Trust entered into a capital support agreement with SPF due to
volatile market conditions. At September 30, 2008, the estimated fair value of
the contingent liability under the agreement that was recorded within other
liabilities in the consolidated balance sheet and corresponding expense which
was reported in the line Other within Other Expense in the Consolidated
Statements of Income amounted to $6.6 million.
 
 On an
after-tax basis, these losses and charges in the aggregate amounted to $9.1
million or $0.04 per diluted common share.
 
 First
Quarter 2008
 
 On
January 2, 2008, the Corporation completed its acquisition of First Indiana
Corporation.
 
 During
the first quarter of 2008, the Corporation recognized income of $39.1 million
due to the completion of the initial public offering (“IPO”) by
Visa.  As a result of the IPO, Visa redeemed 38.7% of the Class B Visa
common stock owned by the Corporation. The gain from the redemption amounted to
$26.9 million and is reported in Net investment securities gains in the
Consolidated Statements of Income.  In addition, Visa established an
escrow for certain litigation matters from the proceeds of the
IPO.  As a result of the funded escrow, the Corporation reversed $12.2
million of the litigation accruals that were originally recorded due to the
Corporation’s membership interests in Visa which is reported in Other expense in
the Consolidated Statements of Income.  On an after-tax basis, these
two Visa-related items increased net income by approximately $25.4 million or
$0.10 per diluted common share.
 
 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.


46
 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 third quarter of 2009 amounted to $388.7 million
compared to $440.6 million reported for the third quarter of 2008, a decrease of
$51.9 million or 11.8%.  For the nine months ended September 30, 2009,
net interest income amounted to $1,182.3 million compared to $1,318.7 million
for the nine months ended September 30, 2008, a decrease of $136.4 million or
10.3%.  During the past year, net interest income has been under
pressure as interest rates on earning assets have declined 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 has contributed to lower net
interest income.  In addition, net interest income has been compressed
as a result of higher levels of nonperforming loans and leases, interest rate
concessions associated with renegotiated loans and management’s decision to
maintain higher levels of liquid assets.
 
 Average
earning assets decreased $2.6 billion or 4.5% in the third quarter of 2009
compared to the third quarter of 2008.  Average loans and leases
decreased $2.9 billion or 5.8% and average investment securities decreased $1.3
billion or 16.7% in the third quarter of 2009 compared to the third quarter of
2008.  Average short-term investments increased $1.4 billion in the
third quarter of 2009 compared to the third quarter of 2008 which reflects
management’s decision to maintain higher levels of liquid assets.
 
 Average
interest bearing liabilities amounted to $43.7 billion for the third quarter of
2009, a decrease of $6.1 billion or 12.3% compared to the third quarter of
2008.  Average interest bearing deposits decreased $0.3 billion or
0.9% in the third quarter of 2009 compared to the third quarter of
2008.  Average short-term borrowings decreased $4.5 billion or 70.8%
in the third quarter of 2009 compared to the same period in
2008.  Average long-term borrowings decreased $1.3 billion or 13.1% in
the third quarter of 2009 compared to the third quarter of
2008.  During the third quarter of 2009, the Corporation re-acquired
and extinguished $548.4 million (par value) of long-term
borrowings.
 
 Average
noninterest bearing deposits increased approximately $2.0 billion or 33.1% in
the three months ended September 30, 2009 compared to the three months ended
September 30, 2008.
 
 For the
nine months ended September 30, 2009, average earning assets amounted to $57.1
billion compared to $57.8 billion for the nine months ended September 30, 2008,
a decrease of $0.7 billion or 1.2%. Average loans and leases decreased $0.9
billion or 1.9% and average investment securities decreased $0.7 billion or 8.3%
in the nine months ended September 30, 2009 over the nine months ended September
30, 2008. Average trading assets and other short-term investments increased $0.9
billion.
 
 Average
interest bearing liabilities decreased $3.2 billion or 6.6% in the nine months
ended September 30, 2009 compared to the nine months ended September 30,
2008.  Average short-term borrowings declined $2.6 billion or 40.1% in
the nine months ended September 30, 2009 compared to the same period in
2008.  Average long-term borrowings decreased $0.6 billion or 6.6% in
the nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008.  During the nine months ended September 30, 2009,
the Corporation re-acquired and extinguished approximately $809.2 million (par
value) of long-term borrowings.
 
 For the
nine months ended September 30, 2009 compared to the nine months ended September
30, 2008, average noninterest bearing deposits increased $1.4 billion or
25.0%.


47
 Table of Contents




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
      PercentThird
      Quarter
                
                
                Second
      Quarter
                
                
                First
      Quarter
                
                
                Fourth
      Quarter
                
                
                Third
      Quarter
                
                
                Annual
                
                
                Prior
      QuarterCommercial:Commercial
                
                $
                13,667
                
                
                $
                14,404
                
                
                $
                14,745
                
                
                $
                14,888
                
                
                $
                15,002
                
                
                
                (8.9
                )
      %
                
                
                (5.1
                )
      %Commercial
      lease financing
                
                
                497
                
                
                
                522
                
                
                
                547
                
                
                
                534
                
                
                
                511
                
                
                
                (2.6
                )
                
                
                (4.6
                )Total
      commercial loans and leases
                
                
                14,164
                
                
                
                14,926
                
                
                
                15,292
                
                
                
                15,422
                
                
                
                15,513
                
                
                
                (8.7
                )
                
                
                (5.1
                )Commercial
      real estate
                
                
                13,844
                
                
                
                13,549
                
                
                
                12,872
                
                
                
                12,203
                
                
                
                11,942
                
                
                
                15.9
                
                
                
                2.2Residential
      real estate
                
                
                5,263
                
                
                
                5,695
                
                
                
                5,768
                
                
                
                5,675
                
                
                
                5,631
                
                
                
                (6.5
                )
                
                
                (7.6
                )Construction
      and development:CommercialConstruction
                
                
                2,860
                
                
                
                3,290
                
                
                
                3,966
                
                
                
                4,577
                
                
                
                4,433
                
                
                
                (35.5
                )
                
                
                (13.1
                )Land
                
                
                922
                
                
                
                898
                
                
                
                854
                
                
                
                913
                
                
                
                986
                
                
                
                (6.5
                )
                
                
                2.7Commercial
      construction and development
                
                
                3,782
                
                
                
                4,188
                
                
                
                4,820
                
                
                
                5,490
                
                
                
                5,419
                
                
                
                (30.2
                )
                
                
                (9.7
                )ResidentialConstruction
      by individuals
                
                
                500
                
                
                
                690
                
                
                
                834
                
                
                
                938
                
                
                
                1,009
                
                
                
                (50.4
                )
                
                
                (27.6
                )Land
                
                
                1,851
                
                
                
                2,016
                
                
                
                2,094
                
                
                
                2,200
                
                
                
                2,254
                
                
                
                (17.9
                )
                
                
                (8.2
                )Construction
      by developers
                
                
                520
                
                
                
                693
                
                
                
                923
                
                
                
                1,158
                
                
                
                1,275
                
                
                
                (59.3
                )
                
                
                (25.0
                )Residential
      construction and development
                
                
                2,871
                
                
                
                3,399
                
                
                
                3,851
                
                
                
                4,296
                
                
                
                4,538
                
                
                
                (36.7
                )
                
                
                (15.5
                )Total
      construction and development
                
                
                6,653
                
                
                
                7,587
                
                
                
                8,671
                
                
                
                9,786
                
                
                
                9,957
                
                
                
                (33.2
                )
                
                
                (12.3
                )Personal:Home
      equity loans and lines of credit
                
                
                4,844
                
                
                
                4,969
                
                
                
                5,064
                
                
                
                5,071
                
                
                
                5,027
                
                
                
                (3.6
                )
                
                
                (2.5
                )Other
      personal loans
                
                
                2,200
                
                
                
                1,959
                
                
                
                1,942
                
                
                
                1,878
                
                
                
                1,766
                
                
                
                24.6
                
                
                
                12.3Personal
      lease financing
                
                
                169
                
                
                
                190
                
                
                
                207
                
                
                
                211
                
                
                
                196
                
                
                
                (13.9
                )
                
                
                (10.8
                )Total
      personal loans and leases
                
                
                7,213
                
                
                
                7,118
                
                
                
                7,213
                
                
                
                7,160
                
                
                
                6,989
                
                
                
                3.2
                
                
                
                1.3Total
      consolidated average loans and leases
                
                $
                47,137
                
                
                $
                48,875
                
                
                $
                49,816
                
                
                $
                50,246
                
                
                $
                50,032
                
                
                
                (5.8
                )
      %
                
                
                (3.6
                )
      %Total
      consolidated average loans and leases excluding total construction and
      development
                
                $
                40,484
                
                
                $
                41,288
                
                
                $
                41,145
                
                
                $
                40,460
                
                
                $
                40,075
                
                
                
                1.0
                %
                
                
                (1.9
                )
      %




Total
consolidated average loans and leases decreased approximately $2.9 billion or
5.8% in the third quarter of 2009 compared to the third quarter of
2008.  For the nine months ended September 30, 2009, total
consolidated average loans and leases declined $0.9 billion or 1.9% compared to
total consolidated average loans and leases for the nine months ended September
30, 2008.
 
 Total
average commercial loans and leases declined $1.3 billion or 8.7% in the third
quarter of 2009 compared to the third quarter of 2008.  Compared to
the second quarter of 2009, total average commercial loans and leases decreased
$0.8 billion or 5.1%.  For the nine months ended September 30, 2009,
total average commercial loans and leases amounted to $14.8 billion compared to
$15.3 billion for the nine months ended September 30, 2008, a decrease of $0.5
billion or 3.6%.  The weak economy has resulted in commercial
customers reducing expenses and paying down their debt, delaying capital
expenditures and reducing working capital demand.  Management expects
year-over-year commercial loans and leases will decrease in 2009 compared to
2008.
 
 Total
average commercial real estate loan growth was $1.9 billion or 15.9% in the
third quarter of 2009 compared to the third quarter of 2008.  Compared
to the second quarter of 2009, total average commercial real estate loans
increased $0.3 billion or 2.2%.  For the nine months ended September
30, 2009, total average commercial real estate loans amounted to $13.4 billion
compared to $11.7 billion for the nine months ended September 30, 2008, an
increase of $1.7 billion or 14.6%.  A portion of this growth
represents the migration of construction loans to commercial real estate loans
once construction is completed.  As a result of the commercial real
estate lending environment, the Corporation has provided more interim financing
for post-construction loans than it has historically and expects this trend to
continue until such time as the liquidity in the commercial real estate lending
environment normalizes.  The Corporation continues to experience
slowing in new construction and development activity and to some extent
throughout its commercial real estate business in response to the weak
economy.


48
 Table of Contents




Total
average residential real estate loans declined $0.4 billion or 6.5% in the third
quarter of 2009 compared to the third quarter of 2008.  Compared to
the second quarter of 2009, total average residential real estate loans
decreased $0.4 billion or 7.6%.  For the nine months ended September
30, 2009, total average residential real estate loans amounted to $5.6 billion
compared to approximately $5.4 billion for the nine months ended September 30,
2008, an increase of $0.2 billion or 2.3%.  From a production
standpoint, residential real estate loan closings in the third quarter of 2009
were $0.5 billion compared to $1.1 billion in the second quarter of 2009 and
$0.5 billion in the third quarter of 2008.  For the nine months ended
September 30, 2009, residential real estate loan closings were $2.3 billion
compared to $2.8 billion for the same period in 2008. Approximately 73% of new
mortgage volumes in the nine months ended September 30, 2009 were associated
with re-financings due to low interest rates. In 2009, the Corporation sold
substantially all of its residential real estate production in the secondary
market. For the three months ended September 30, 2009 and 2008, real estate
loans sold to investors amounted to $0.8 billion and $0.3 billion,
respectively.  For the nine months ended September 30, 2009 and 2008,
real estate loans sold to investors amounted to $2.6 billion and $1.2 billion,
respectively. At September 30, 2009 and 2008, the Corporation had approximately
$59.0 million and $19.0 million, respectively, of residential mortgage loans and
home equity loans which were originated for sale and are held for
sale.  Gains from the sale of mortgage loans amounted to $11.8 million
in the third quarter of 2009 compared to $4.5 million in the third quarter of
2008.  For the nine months ended September 30, 2009, gains from the
sale of mortgage loans amounted to $38.3 million compared to $18.6 million for
the nine months ended September 30, 2008.
 
 Total
average construction and development loans declined $3.3 billion or 33.2% in the
third quarter of 2009 compared to the third quarter of 2008 and declined $0.9
billion or 12.3% since the second quarter of 2009.  For the nine
months ended September 30, 2009, total average construction and development
loans amounted to $7.6 billion compared to $10.3 billion for the nine months
ended September 30, 2008, a decrease of $2.7 billion or 25.9%.  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 $92.7 million at September 30,
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. Construction and
development loans amounted to $6.3 billion, at September 30, 2009 which was
13.7% of total loans and leases outstanding at that date and was $0.3 billion
less than average construction and development loans for the three months ended
September 30, 2009.
 
 Total
average personal loan growth was $0.2 billion or 3.2% in the third quarter of
2009 compared to the third quarter of 2008.  Approximately $0.5
billion of the growth was attributable to consumer auto loans, partially offset
by a decrease in home equity loans and lines of credit of $0.2 billion and a
decrease in other personal loans of $0.1 billion.  Compared to the
second quarter of 2009, total average personal loans increased $0.1 billion or
1.3%.  For the nine months ended September 30, 2009, total average
personal loans amounted to $7.2 billion compared to $6.7 billion for the same
period in 2008, an increase of $0.5 billion or 6.8%.  Approximately
$0.4 billion of the growth in the nine months ended September 30, 2009 was
attributable to consumer auto loans and $0.1 billion was attributable to home
equity loans and lines of credit.  Credit card loans averaged $0.3
billion in each of the third quarter and first nine months of
2009.  Credit card loans represented 0.6% of the Corporation’s total
average loan and lease portfolio for the three and nine months ended September
30, 2009, respectively.






49
 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
      PercentThird
      Quarter
              
              
              Second
      Quarter
              
              
              First
      Quarter
              
              
              Fourth
      Quarter
              
              
              Third
      Quarter
              
              
              Annual
              
              
              Prior
      QuarterNoninterest
      bearing depositsCommercial
              
              $
              5,973
              
              
              $
              5,505
              
              
              $
              4,849
              
              
              $
              4,470
              
              
              $
              4,305
              
              
              
              38.8
              %
              
              
              8.5
              %Personal
              
              
              963
              
              
              
              1,003
              
              
              
              979
              
              
              
              985
              
              
              
              1,005
              
              
              
              (4.2
              )
              
              
              (4.0
              )Other
              
              
              926
              
              
              
              847
              
              
              
              654
              
              
              
              608
              
              
              
              599
              
              
              
              54.6
              
              
              
              9.4Total
      noninterest bearing deposits
              
              
              7,862
              
              
              
              7,355
              
              
              
              6,482
              
              
              
              6,063
              
              
              
              5,909
              
              
              
              33.1
              
              
              
              6.9Interest
      bearing depositsSavings
      and NOWSavings
              
              
              2,253
              
              
              
              1,386
              
              
              
              887
              
              
              
              883
              
              
              
              902
              
              
              
              149.8
              
              
              
              62.5NOW
              
              
              3,246
              
              
              
              2,746
              
              
              
              2,624
              
              
              
              2,340
              
              
              
              2,391
              
              
              
              35.7
              
              
              
              18.2Brokered
      NOW
              
              
              76
              
              
              
              43
              
              
              
              19
              
              
              
              5
              
              
              
              -
              
              
              n.m.
              
              
              
              79.0Total
      savings and NOW
              
              
              5,575
              
              
              
              4,175
              
              
              
              3,530
              
              
              
              3,228
              
              
              
              3,293
              
              
              
              69.3
              
              
              
              33.5Money
      marketMoney
      market index
              
              
              6,125
              
              
              
              6,185
              
              
              
              6,541
              
              
              
              7,085
              
              
              
              7,848
              
              
              
              (22.0
              )
              
              
              (1.0
              )Money
      market savings
              
              
              918
              
              
              
              916
              
              
              
              1,069
              
              
              
              1,143
              
              
              
              1,224
              
              
              
              (25.0
              )
              
              
              0.2Brokered
      money market
              
              
              3,250
              
              
              
              3,106
              
              
              
              3,021
              
              
              
              2,413
              
              
              
              1,473
              
              
              
              120.7
              
              
              
              4.6Total
      money market
              
              
              10,293
              
              
              
              10,207
              
              
              
              10,631
              
              
              
              10,641
              
              
              
              10,545
              
              
              
              (2.4
              )
              
              
              0.8TimeCDs
      $100,000 and overLarge
      CDs
              
              
              3,563
              
              
              
              4,461
              
              
              
              4,152
              
              
              
              3,714
              
              
              
              3,881
              
              
              
              (8.2
              )
              
              
              (20.1
              )Brokered
      CDs
              
              
              7,878
              
              
              
              7,485
              
              
              
              7,888
              
              
              
              9,059
              
              
              
              8,295
              
              
              
              (5.0
              )
              
              
              5.3Total
      CDs $100,000 and over
              
              
              11,441
              
              
              
              11,946
              
              
              
              12,040
              
              
              
              12,773
              
              
              
              12,176
              
              
              
              (6.0
              )
              
              
              (4.2
              )Other
      CDs and time
              
              
              5,793
              
              
              
              5,706
              
              
              
              5,861
              
              
              
              5,499
              
              
              
              5,152
              
              
              
              12.5
              
              
              
              1.5Total
      time
              
              
              17,234
              
              
              
              17,652
              
              
              
              17,901
              
              
              
              18,272
              
              
              
              17,328
              
              
              
              (0.5
              )
              
              
              (2.4
              )ForeignForeign
      activity
              
              
              372
              
              
              
              469
              
              
              
              866
              
              
              
              1,583
              
              
              
              1,813
              
              
              
              (79.5
              )
              
              
              (20.7
              )Foreign
      time
              
              
              -
              
              
              
              -
              
              
              
              257
              
              
              
              823
              
              
              
              800
              
              
              
              (100.0
              )
              
              n.m.Total
      foreign
              
              
              372
              
              
              
              469
              
              
              
              1,123
              
              
              
              2,406
              
              
              
              2,613
              
              
              
              (85.8
              )
              
              
              (20.7
              )Total
      interest bearing deposits
              
              
              33,474
              
              
              
              32,503
              
              
              
              33,185
              
              
              
              34,547
              
              
              
              33,779
              
              
              
              (0.9
              )
              
              
              3.0Total
      consolidated average deposits
              
              $
              41,336
              
              
              $
              39,858
              
              
              $
              39,667
              
              
              $
              40,610
              
              
              $
              39,688
              
              
              
              4.2
              %
              
              
              3.7
              %




Total
consolidated average deposits increased $1.6 billion or 4.2% in the third
quarter of 2009 compared to the third quarter of 2008.  Average
noninterest bearing deposits increased $2.0 billion or 33.1% in the third
quarter of 2009 compared to the third quarter of 2008 and increased $0.5 billion
or 6.9% compared to the second quarter of 2009.  Average interest
bearing deposits decreased approximately $0.4 billion or 0.9% in the third
quarter of 2009 compared to the third quarter of 2008 and increased $1.0 billion
or 3.0% compared to the second quarter of 2009. Of the $0.4 billion decrease in
average interest bearing deposits over the prior year, average money market
deposits decreased $0.3 billion and foreign deposits decreased approximately
$2.3 billion in the third quarter of 2009 compared to the third quarter of
2008.  The decline in average money market and foreign deposits
reflects the competitive pricing environment.  Average total time
deposits decreased $0.1 billion in the third quarter of 2009 compared to the
third quarter of 2008.  The declines in average money market deposits,
foreign deposits and time deposits were offset by growth in average savings and
NOW deposits.  Average savings and NOW increased $2.3 billion in the
third quarter of 2009 compared to the same period in the prior year. The growth
in average savings and NOW balances reflect the Corporation’s use of competitive
pricing in the low rate environment to retain customers by migrating their
existing balances from other deposit types as those deposit instruments matured
and attract new deposits.
 
 For the
nine months ended September 30, 2009 compared to the nine months ended September
30, 2008, total consolidated average deposits increased $1.5 billion or
3.8%.  Average noninterest bearing deposits accounted for the majority
of the increase in average deposits in the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008.  Average
interest bearing deposits were relatively unchanged in the nine months ended
September 30, 2009 compared to the same period in 2008. While total average
interest bearing deposits were relatively unchanged over the comparative
reporting periods, there were shifts from average foreign and money market
deposits to average saving and NOW and time deposits in response to the
competitive pricing environment.  Average savings and NOW increased
$1.2 billion and average time deposits increased $1.8 billion.  The
growth in savings and NOW and time deposits was offset by declines in average
money market deposits of approximately $0.8 billion and foreign deposits of $2.2
billion in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008.






50
 Table of Contents




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.
 
 Total
borrowings amounted to $9.1 billion at September 30, 2009 compared to $13.7
billion at December 31, 2008. During the first nine months of 2009, the
Corporation re-acquired and extinguished $809.2 million of long-term borrowings
at a gain of $68.4 million, which is reported as gain on termination of debt in
the Consolidated Statements of Income.  In addition, during the third
quarter of 2009 approximately $1.2 billion of higher cost long-term borrowings
matured.






51
 Table of Contents




The
Corporation’s consolidated average interest earning assets and interest bearing
liabilities, interest earned and interest paid for the three months ended
September 30, 2009 and 2008 are presented in the following table ($ in
millions):
 
 Consolidated
Yield and Cost Analysis
 
 Three
      Months Ended
              
              
              Three
      Months EndedSeptember
      30, 2009
              
              
              September
      30, 2008Average
      Balance
              
              
              Interest
              
              
              Average
      Yield or Cost (b)
              
              
              Average
      Balance
              
              
              Interest
              
              
              Average
      Yield or Cost (b)Loans
      and leases (a):Commercial
      loans and leases
              
              $
              14,164.2
              
              
              $
              149.6
              
              
              
              4.19
              %
              
              $
              15,513.1
              
              
              $
              206.1
              
              
              
              5.29
              %Commercial
      real estate loans
              
              
              17,625.7
              
              
              
              205.0
              
              
              
              4.61
              
              
              
              17,360.7
              
              
              
              254.1
              
              
              
              5.82Residential
      real estate loans
              
              
              8,133.8
              
              
              
              100.0
              
              
              
              4.88
              
              
              
              10,168.6
              
              
              
              146.3
              
              
              
              5.72Home
      equity loans and lines
              
              
              4,844.4
              
              
              
              61.0
              
              
              
              5.00
              
              
              
              5,027.0
              
              
              
              77.8
              
              
              
              6.16Personal
      loans and leases
              
              
              2,369.3
              
              
              
              32.5
              
              
              
              5.44
              
              
              
              1,962.7
              
              
              
              30.4
              
              
              
              6.16Total
      loans and leases
              
              
              47,137.4
              
              
              
              548.1
              
              
              
              4.61
              
              
              
              50,032.1
              
              
              
              714.7
              
              
              
              5.68Investment
      securities (b):Taxable
              
              
              5,267.6
              
              
              
              43.5
              
              
              
              3.28
              
              
              
              6,386.7
              
              
              
              68.9
              
              
              
              4.25Tax
      exempt (a)
              
              
              987.7
              
              
              
              15.9
              
              
              
              6.48
              
              
              
              1,122.8
              
              
              
              19.1
              
              
              
              6.78Total
      investment securities
              
              
              6,255.3
              
              
              
              59.4
              
              
              
              3.77
              
              
              
              7,509.5
              
              
              
              88.0
              
              
              
              4.62Trading
      assets (a)
              
              
              250.7
              
              
              
              0.2
              
              
              
              0.27
              
              
              
              144.4
              
              
              
              0.5
              
              
              
              1.27Other
      short-term investments
              
              
              1,791.2
              
              
              
              1.2
              
              
              
              0.27
              
              
              
              386.3
              
              
              
              2.2
              
              
              
              2.26Total
      interest earning assets
              
              $
              55,434.6
              
              
              $
              608.9
              
              
              
              4.36
              %
              
              $
              58,072.3
              
              
              $
              805.4
              
              
              
              5.51
              %Interest
      bearing deposits:Savings
      and NOW
              
              $
              5,574.8
              
              
              $
              7.5
              
              
              
              0.53
              %
              
              $
              3,293.2
              
              
              $
              3.9
              
              
              
              0.47
              %Money
      market
              
              
              10,292.7
              
              
              
              21.0
              
              
              
              0.81
              
              
              
              10,544.5
              
              
              
              45.0
              
              
              
              1.70Time
              
              
              17,234.2
              
              
              
              104.7
              
              
              
              2.41
              
              
              
              17,328.4
              
              
              
              154.5
              
              
              
              3.55Foreign
              
              
              372.4
              
              
              
              0.4
              
              
              
              0.40
              
              
              
              2,613.6
              
              
              
              10.5
              
              
              
              1.59Total
      interest bearing deposits
              
              
              33,474.1
              
              
              
              133.6
              
              
              
              1.58
              
              
              
              33,779.7
              
              
              
              213.9
              
              
              
              2.52Short-term
      borrowings
              
              
              1,874.5
              
              
              
              1.6
              
              
              
              0.33
              
              
              
              6,414.4
              
              
              
              34.6
              
              
              
              2.15Long-term
      borrowings
              
              
              8,387.0
              
              
              
              79.2
              
              
              
              3.75
              
              
              
              9,653.3
              
              
              
              109.5
              
              
              
              4.51Total
      interest bearing liabilities
              
              $
              43,735.6
              
              
              $
              214.4
              
              
              
              1.94
              %
              
              $
              49,847.4
              
              
              $
              358.0
              
              
              
              2.86
              %Net
      interest margin (FTE)
              
              
              
              
              
              $
              394.5
              
              
              
              2.82
              %
              
              
              
              
              
              $
              447.4
              
              
              
              3.06
              %Net
      interest spread (FTE)
              
              
              
              
              
              
              
              
              
              
              2.42
              %
              
              
              
              
              
              
              
              
              
              
              2.65
              %




(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.
   52
 Table of Contents




The
Corporation’s consolidated average interest earning assets and interest bearing
liabilities, interest earned and interest paid for the nine months ended
September 30, 2009 and 2008, are presented in the following table ($ in
millions):
 
 Consolidated
Yield and Cost Analysis
  Nine
      Months Ended
                
                
                Nine
      Months EndedSeptember
      30, 2009
                
                
                September
      30, 2008Average
      Balance
                
                
                Interest
                
                
                Average
      Yield or Cost (b)
                
                
                Average
      Balance
                
                
                Interest
                
                
                Average
      Yield or Cost (b)Loans
      and leases (a):Commercial
      loans and leases
                
                $
                14,790.0
                
                
                $
                446.0
                
                
                
                4.03
                %
                
                $
                15,342.5
                
                
                $
                646.2
                
                
                
                5.63
                %Commercial
      real estate loans
                
                
                17,684.6
                
                
                
                616.5
                
                
                
                4.66
                
                
                
                17,144.3
                
                
                
                787.4
                
                
                
                6.13Residential
      real estate loans
                
                
                8,943.7
                
                
                
                329.8
                
                
                
                4.93
                
                
                
                10,313.1
                
                
                
                467.7
                
                
                
                6.06Home
      equity loans and lines
                
                
                4,958.5
                
                
                
                188.4
                
                
                
                5.08
                
                
                
                4,844.7
                
                
                
                233.2
                
                
                
                6.43Personal
      loans and leases
                
                
                2,222.9
                
                
                
                92.0
                
                
                
                5.54
                
                
                
                1,881.5
                
                
                
                91.4
                
                
                
                6.49Total
      loans and leases
                
                
                48,599.7
                
                
                
                1,672.7
                
                
                
                4.60
                
                
                
                49,526.1
                
                
                
                2,225.9
                
                
                
                6.00Investment
      securities (b):Taxable
                
                
                6,038.2
                
                
                
                164.1
                
                
                
                3.62
                
                
                
                6,534.2
                
                
                
                218.2
                
                
                
                4.45Tax
      exempt (a)
                
                
                1,042.6
                
                
                
                51.3
                
                
                
                6.68
                
                
                
                1,183.5
                
                
                
                60.2
                
                
                
                6.85Total
      investment securities
                
                
                7,080.8
                
                
                
                215.4
                
                
                
                4.07
                
                
                
                7,717.7
                
                
                
                278.4
                
                
                
                4.81Trading
      assets (a)
                
                
                471.1
                
                
                
                4.6
                
                
                
                1.31
                
                
                
                161.5
                
                
                
                1.6
                
                
                
                1.29Other
      short-term investments
                
                
                944.5
                
                
                
                2.3
                
                
                
                0.32
                
                
                
                363.1
                
                
                
                7.3
                
                
                
                2.68Total
      interest earning assets
                
                $
                57,096.1
                
                
                $
                1,895.0
                
                
                
                4.44
                %
                
                $
                57,768.4
                
                
                $
                2,513.2
                
                
                
                5.81
                %Interest
      bearing deposits:Savings
      and NOW
                
                $
                4,434.1
                
                
                $
                11.7
                
                
                
                0.35
                %
                
                $
                3,256.1
                
                
                $
                15.9
                
                
                
                0.65
                %Money
      market
                
                
                10,375.7
                
                
                
                55.8
                
                
                
                0.72
                
                
                
                11,141.6
                
                
                
                180.9
                
                
                
                2.17Time
                
                
                17,593.4
                
                
                
                340.8
                
                
                
                2.59
                
                
                
                15,761.0
                
                
                
                462.5
                
                
                
                3.92Foreign
                
                
                652.1
                
                
                
                1.7
                
                
                
                0.35
                
                
                
                2,878.8
                
                
                
                46.5
                
                
                
                2.16Total
      interest bearing deposits
                
                
                33,055.3
                
                
                
                410.0
                
                
                
                1.66
                
                
                
                33,037.5
                
                
                
                705.8
                
                
                
                2.85Short-term
      borrowings
                
                
                3,920.9
                
                
                
                8.4
                
                
                
                0.29
                
                
                
                6,542.4
                
                
                
                126.2
                
                
                
                2.58Long-term
      borrowings
                
                
                9,128.2
                
                
                
                274.7
                
                
                
                4.02
                
                
                
                9,770.4
                
                
                
                341.6
                
                
                
                4.67Total
      interest bearing liabilities
                
                $
                46,104.4
                
                
                $
                693.1
                
                
                
                2.01
                %
                
                $
                49,350.3
                
                
                $
                1,173.6
                
                
                
                3.18
                %Net
      interest margin (FTE)
                
                
                
                
                
                $
                1,201.9
                
                
                
                2.81
                %
                
                
                
                
                
                $
                1,339.6
                
                
                
                3.10
                %Net
      interest spread (FTE)
                
                
                
                
                
                
                
                
                
                
                2.43
                %
                
                
                
                
                
                
                
                
                
                
                2.63
                %




(a)
              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 24 basis points from 3.06% in the third quarter of
2008 to 2.82% in the third quarter of 2009.  For the nine months ended
September 30, 2009, the net interest margin FTE was 2.81% compared to 3.10% for
the nine months ended September 30, 2008.  Net interest income has
been under pressure as the decline in interest rates has caused the yield on
earning assets to decline by 137 basis points compared to the decline in the
cost for interest bearing liabilities of 117 basis points for the nine months
ended September 30, 2009 compared to the nine months ended September 30,
2008.  The Corporation’s inability to continue to lower deposit
pricing in the low interest rate environment due to competition for deposits
contributed to lower net interest income and reduced net interest margin. In
addition, net interest income has been compressed as a result of higher levels
of nonperforming loans and leases, interest rate concessions associated with
renegotiated loans and management’s decision to maintain higher levels of liquid
assets.
 
 The
growth in noninterest bearing deposits and reduction in higher cost long-term
borrowings through re-acquisition and maturities was beneficial to net interest
income and the net interest margin in the third quarter and first nine months 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, lower interest on higher-cost long-term
borrowings, the benefits of improved pricing on newly originated and renewed
loans and the cash received from the October 27, 2009 equity offering should, to
some extent, help offset the near term net interest margin challenges facing the
Corporation.




53
 Table of Contents




Management
believes that the net interest margin will be relatively stable and comparable
with the net interest margin reported for the third quarter of 2009 in the near
term with potential opportunities for longer-term net interest margin growth.
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 nonperforming loans and various other
factors.
 
  CREDIT QUALITY
AND ALLOWANCE FOR LOAN AND LEASE LOSSES
 
 The
following tables present comparative consolidated credit quality information as
of September 30, 2009 and the prior four quarters:
 
 Credit
Quality
 ($000’s)
 2009
                
                
                2008Third
      Quarter
                
                
                Second
      Quarter
                
                
                First
      Quarter
                
                
                Fourth
      Quarter
                
                
                Third
      QuarterNonperforming
      assets (a):Nonaccrual
      loans and leases
                
                $
                2,121,994
                
                
                $
                2,221,659
                
                
                $
                1,960,816
                
                
                $
                1,457,811
                
                
                $
                1,226,387Nonaccrual
      loans held for sale
                
                
                128,067
                
                
                
                194,489
                
                
                
                113,737
                
                
                
                69,139
                
                
                
                34,255Total
      nonperforming loans and leases
                
                
                2,250,061
                
                
                $
                2,416,148
                
                
                $
                2,074,553
                
                
                $
                1,526,950
                
                
                $
                1,260,642Other
      real estate owned (OREO)
                
                
                351,216
                
                
                
                356,790
                
                
                
                344,271
                
                
                
                320,908
                
                
                
                267,224Total
      nonperforming assets
                
                $
                2,601,277
                
                
                $
                2,772,938
                
                
                $
                2,418,824
                
                
                $
                1,847,858
                
                
                $
                1,527,866Performing
      impaired loans:Renegotiated
                
                $
                935,260
                
                
                $
                818,538
                
                
                $
                445,995
                
                
                $
                270,357
                
                
                $
                89,486Contractually
      past due credits:Loans
      past due 90 days or more and still accruing
                
                $
                13,084
                
                
                $
                15,060
                
                
                $
                16,099
                
                
                $
                14,528
                
                
                $
                12,070




(a)
              Beginning
      with the second quarter of 2009, the Corporation modified its definition
      of nonperforming assets to exclude renegotiated loans and loans past due
      90 days or more and still accruing because these loans were performing in
      accordance with their current or modified terms.  Prior periods
      presented have been adjusted for this
  reclassification.
 
 
 Consolidated
Statistics
 
 2009
              
              
              2008Third
      Quarter
              
              
              Second
      Quarter
              
              
              First
      Quarter
              
              
              Fourth
      Quarter
              
              
              Third
      QuarterNet
      charge-offs (annualized) to average loans and leases
              
              
              4.48
              %
              
              
              4.95
              %
              
              
              2.67
              %
              
              
              5.38
              %
              
              
              1.21
              %Total
      nonperforming loans and leases to total loans and leases
              
              
              4.88
              
              
              
              5.01
              
              
              
              4.21
              
              
              
              3.05
              
              
              
              2.50Total
      nonperforming assets to total loans and leases and OREO
              
              
              5.60
              
              
              
              5.71
              
              
              
              4.88
              
              
              
              3.67
              
              
              
              3.01Allowance
      for loan and lease losses to total loans and leases
              
              
              3.07
              
              
              
              2.84
              
              
              
              2.75
              
              
              
              2.41
              
              
              
              2.05Allowance
      for loan and lease losses to nonaccrual loans and leases (excluding
      nonaccrual loans held for sale)
              
              
              67
              
              
              
              62
              
              
              
              69
              
              
              
              82
              
              
              
              84




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 from carrying nonperforming loans and leases, nonperforming
assets also increase operating costs due to the expense associated with
collection efforts and the expenses of holding OREO.  At September 30,
2009, nonperforming assets amounted to $2,601.3 million and increased
approximately $753.4 million or 40.8% compared to December 31,
2008.  Nonperforming assets increased approximately $1,073.4 million
or 70.3% at September 30, 2009 compared to September 30, 2008.  On a
linked-quarter basis, total nonperforming assets decreased approximately $171.7
million or 6.2% at September 30, 2009 compared to June 30,
2009.






54
 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 third quarter of 2009, the Corporation sold $178
million of nonperforming loans and $1 million of potential problem loans that
included a pool of nonperforming residential loans that had been charged down to
their net realizable value at June 30, 2009.  During the first nine
months of 2009, the Corporation sold $413 million of nonperforming loans and $78
million of potential problem loans including the pool of nonperforming
residential loans. At September 30, 2009, the Corporation held $128.1 million of
nonperforming loans and $14.1 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
$1,690.2 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 September 30, 2009, approximately $367.9 million or 16.3%
of the Corporation’s total nonperforming loans and leases were less than 30 days
past due.  In addition, approximately $175.7 million or 7.8% of the
Corporation’s total nonperforming loans and leases were greater than 30 days
past due but less than 90 days past due at September 30, 2009.  In
total, approximately $543.6 million or 24.1% of the Corporation’s total
nonperforming loans and leases were less than 90 days past due at September 30,
2009.
 
 Nonperforming
loans, which the Corporation considers to be those loans with the greatest risk
of loss due to nonperformance, amounted to $2,250.1 million or 4.88% of total
loans and leases outstanding at September 30, 2009, compared to $2,416.1 million
or 5.01% of total loans and leases outstanding at June 30, 2009, a decrease of
$166.0 million or 6.9%. This is the first linked-quarter decline in
nonperforming loans in four years. The decrease in nonperforming loans at
September 30, 2009 reflects actions taken to reduce the levels of nonperforming
loans and the decline in new nonperforming loans during the third quarter of
2009. Compared to the second quarter of 2009, the amount of new loans and leases
that went into nonperforming status in the third quarter of 2009 decreased by
approximately $463 million or 35.5%. The amount of cumulative net charge-offs
recorded on the Corporation’s nonperforming loans outstanding at September 30,
2009 was approximately $765.9 million or 49.9% of the unpaid principal balance
of the affected nonperforming loans and 25.5% of the unpaid principal balance of
its total nonperforming loans outstanding at September 30,
2009.  These charge-offs have reduced the carrying value of these
nonperforming loans and leases which reduced the allowance for loan and lease
losses required at the measurement date.
 
 Early
stage loan delinquencies (those loans delinquent 30-89 days) decreased by $217.7
million or 20.5%, from June 30, 2009 to September 30, 2009. This is the second
quarter that the Corporation experienced a decline in early stage loan
delinquencies after experiencing increases throughout 2008 and the first quarter
of 2009.  Compared to December 31, 2008, early stage loan
delinquencies declined by $156.8 million or 15.7%.
 
 OREO is
principally comprised of commercial and residential properties acquired in
partial or total satisfaction of problem loans.  OREO amounted to
$351.2 million at September 30, 2009, compared to $356.8 million at June 30,
2009.  At September 30, 2009, properties acquired in partial or total
satisfaction of problem loans consisted of construction and development
properties of $267.7 million, 1-4 family residential real estate of $49.0
million and commercial real estate of $34.5 million.  Since June 30,
2009, OREO construction and development properties net decreased $1.3 million,
1-4 family residential real estate properties net decreased $17.0 million and
commercial real estate properties net increased $12.7 million.  For
the first nine months of 2009, OREO additions amounted to $425.3
million.  Sales, valuation adjustments and capitalized costs resulted
in a net decrease in OREO of $395.0 million in the nine months ended September
30, 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.






55
 Table of Contents




Performing
impaired loans consist of troubled-debt restructured loans, which the
Corporation refers to as renegotiated loans, amounted to $935.3 million at
September 30, 2009, compared to $818.5 million at June 30, 2009 and $270.4
million at December 31, 2008.  Approximately $444.0 million or 47.5%
of total renegotiated loans at September 30, 2009 were related to renegotiated
loans in Arizona. At September 30, 2009, renegotiated residential real estate,
residential construction by individuals, residential land and other
consumer-related renegotiated loans represented 98.8%
of  Arizona’s  renegotiated loans.
 
 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 nonperforming.  At September
30, 2009, consumer-related renegotiated loans represented 66.2% of total
renegotiated loans.  The Corporation’s instances of default and
re-default on consumer-related renegotiated loans have been relatively
low.  However, the Corporation’s experience with renegotiated loan
performance is relatively new and does not encompass an extended period of
time.  At September 30, 2009, approximately $53.0 million or 5.7% of
total renegotiated loans were past due 30-89 days.  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 December 31,
2009.
 
 Contractually
past due credits are comprised of loans that are delinquent 90 days or more and
still accruing interest.  At September 30, 2009, December 31, 2008 and
September 30, 2008, these loans amounted to $13.1 million, $14.5 million and
$12.1 million, respectively.
 
 The
following table shows the Corporation’s nonperforming loans and leases by type
of loan or lease at September 30, 2009 and June 30, 2009.
 
 Major
Categories of Nonperforming Loans & Leases
 ($
in millions)
 September
      30, 2009
                
                
                June
      30, 2009Total
      Loans & Leases
                
                
                Percent
      of Total Loans & Leases
                
                
                Nonperform-ing
      Loans & Leases
                
                
                %
      Nonperform-ing to Loan & Lease Type
                
                
                Total
      Loans & Leases
                
                
                Percent
      of Total Loans & Leases
                
                
                Nonperform-ing
      Loans & Leases
                
                
                %
      Nonperform-ing to Loan & Lease TypeCommercial
      loans & leases
                
                $
                13,533
                
                
                
                29.4
                %
                
                $
                411.1
                
                
                
                3.04
                %
                
                $
                14,792
                
                
                
                30.7
                %
                
                $
                431.7
                
                
                
                2.92
                %Real
      estate:Commercial
      real estate
                
                
                13,884
                
                
                
                30.1
                
                
                
                509.6
                
                
                
                3.67
                
                
                
                13,938
                
                
                
                28.9
                
                
                
                559.2
                
                
                
                4.01Residential
      real estate
                
                
                5,135
                
                
                
                11.1
                
                
                
                236.8
                
                
                
                4.61
                
                
                
                5,465
                
                
                
                11.3
                
                
                
                285.7
                
                
                
                5.23Construction
      and development:Commercial
      land and construction
                
                
                3,604
                
                
                
                7.8
                
                
                
                408.1
                
                
                
                11.32
                
                
                
                3,790
                
                
                
                7.9
                
                
                
                410.1
                
                
                
                10.82Residential
      construction by individuals
                
                
                418
                
                
                
                0.9
                
                
                
                93.1
                
                
                
                22.28
                
                
                
                599
                
                
                
                1.2
                
                
                
                84.4
                
                
                
                14.09Residential
      land
                
                
                1,767
                
                
                
                3.8
                
                
                
                337.1
                
                
                
                19.07
                
                
                
                1,897
                
                
                
                4.0
                
                
                
                378.4
                
                
                
                19.95Residential
      construction by developers
                
                
                525
                
                
                
                1.2
                
                
                
                146.2
                
                
                
                27.85
                
                
                
                543
                
                
                
                1.1
                
                
                
                170.5
                
                
                
                31.38Total
      construction and development
                
                
                6,314
                
                
                
                13.7
                
                
                
                984.5
                
                
                
                15.59
                
                
                
                6,829
                
                
                
                14.2
                
                
                
                1,043.4
                
                
                
                15.28Total
      real estate
                
                
                25,333
                
                
                
                54.9
                
                
                
                1,730.9
                
                
                
                6.83
                
                
                
                26,232
                
                
                
                54.4
                
                
                
                1,888.3
                
                
                
                7.20Consumer
      loans & leases:Home
      equity loans and lines of credit
                
                
                4,813
                
                
                
                10.4
                
                
                
                94.5
                
                
                
                1.96
                
                
                
                4,912
                
                
                
                10.2
                
                
                
                86.4
                
                
                
                1.76Other
      consumer loans and leases
                
                
                2,427
                
                
                
                5.3
                
                
                
                13.6
                
                
                
                0.56
                
                
                
                2,247
                
                
                
                4.7
                
                
                
                9.7
                
                
                
                0.43Total
      consumer loans & leases
                
                
                7,240
                
                
                
                15.7
                
                
                
                108.1
                
                
                
                1.49
                
                
                
                7,159
                
                
                
                14.9
                
                
                
                96.1
                
                
                
                1.34Total
      loans & leases
                
                $
                46,106
                
                
                
                100.0
                %
                
                $
                2,250.1
                
                
                
                4.88
                %
                
                $
                48,183
                
                
                
                100.0
                %
                
                $
                2,416.1
                
                
                
                5.01
                %




Nonperforming
commercial loans and leases amounted to $411.1 million at September 30, 2009
compared to $431.7 million at June 30, 2009, a net decrease of $20.6
million.


56
 Table of Contents




Consistent
with recent quarters, nonperforming real estate loans were the primary source of
the Corporation’s nonperforming loans and leases and represented approximately
76.9% of total nonperforming loans and leases at September 30,
2009.  Nonperforming real estate loans amounted to $1,730.9 million at
September 30, 2009 compared to $1,888.3 million at June 30, 2009, a decrease of
$157.4 million or 8.3%.  Nonperforming real estate loans include the
following categories:
 
 Nonperforming
commercial real estate loans amounted to $509.6 million at September 30, 2009
compared to $559.2 million at June 30, 2009, a decrease of $49.6 million or
8.9%.  Included in this category of nonperforming commercial real
estate loans are nonperforming business real estate and multifamily
loans.  Nonperforming business real estate loans decreased $14.5
million or 4.6% and nonperforming multifamily loans decreased $35.1 million or
14.5% at September 30, 2009 compared to June 30, 2009.  These
portfolios have generally shown elevated levels of stress in all of the
Corporation’s markets.
 
 Nonperforming
residential real estate (1-4 family) loans decreased $48.9 million or 17.1%
compared to June 30, 2009 and amounted to $236.8 million or 4.61% of total
residential real estate loans at September 30, 2009.  The decline in
nonperforming residential real estate loans reflects the impact of the loan sale
completed in the third quarter of 2009.  Increased economic stress on
consumers has resulted in further deterioration in these loans, most notably in
Arizona.
 
 Nonperforming
construction and development loans amounted to $984.5 million at September 30,
2009 compared to $1,043.4 million at June 30, 2009, a decrease of $58.9 million
or 5.6%.  Nonperforming construction and development loans represented
56.9% of the Corporation’s nonperforming real estate loans and 43.8% of the
Corporation’s total nonperforming loans and leases at September 30,
2009.  By comparison, nonperforming construction and development loans
represented 55.3% of the Corporation’s nonperforming real estate loans and 43.2%
of the Corporation’s total nonperforming loans and leases at June 30,
2009.  Nonperforming construction and development loans in Arizona
accounted for $395.2 million or 40.1% of total nonperforming construction and
development loans at September 30, 2009.
 
 Nonperforming
consumer loans and leases amounted to $108.1 million at September 30, 2009
compared to $96.1 million at June 30, 2009, an increase of $12.0 million or
12.5%. Nonperforming home equity loans and lines of credit accounted for $8.1
million of the increase in nonperforming consumer loans and leases at September
30, 2009 compared to June 30, 2009.
 
 The
following table presents a geographical summary of nonperforming loans and
leases at September 30, 2009 and June 30, 2009.
 
 Geographical
Summary of Nonperforming Loans & Leases
 ($
in millions)
 
 September
      30, 2009
              
              
              June
      30, 2009Total
      Loans & Leases
              
              
              Percent
      of Total Loans & Leases
              
              
              Nonperform-ing
      Loans & Leases
              
              
              %
      Nonperform-ing to Loan & Lease Type
              
              
              Total
      Loans & Leases
              
              
              Percent
      of Total Loans & Leases
              
              
              Nonperform-ing
      Loans & Leases
              
              
              %
      Nonperform-ing to Loan & Lease TypeWisconsin
              
              $
              16,979
              
              
              
              36.8
              %
              
              $
              458.2
              
              
              
              2.70
              %
              
              $
              17,668
              
              
              
              36.7
              %
              
              $
              421.9
              
              
              
              2.39
              %Arizona
              
              
              5,931
              
              
              
              12.9
              
              
              
              663.5
              
              
              
              11.19
              
              
              
              6,427
              
              
              
              13.3
              
              
              
              756.7
              
              
              
              11.77Minnesota
              
              
              4,953
              
              
              
              10.7
              
              
              
              179.1
              
              
              
              3.62
              
              
              
              5,123
              
              
              
              10.6
              
              
              
              188.0
              
              
              
              3.67Missouri
              
              
              3,451
              
              
              
              7.5
              
              
              
              126.9
              
              
              
              3.68
              
              
              
              3,520
              
              
              
              7.3
              
              
              
              125.0
              
              
              
              3.55Florida
              
              
              2,886
              
              
              
              6.3
              
              
              
              265.2
              
              
              
              9.19
              
              
              
              2,973
              
              
              
              6.2
              
              
              
              241.8
              
              
              
              8.14Indiana
              
              
              1,628
              
              
              
              3.5
              
              
              
              64.1
              
              
              
              3.94
              
              
              
              1,618
              
              
              
              3.4
              
              
              
              72.2
              
              
              
              4.46Kansas
              
              
              1,116
              
              
              
              2.4
              
              
              
              59.3
              
              
              
              5.32
              
              
              
              1,124
              
              
              
              2.3
              
              
              
              41.7
              
              
              
              3.71Others
              
              
              9,162
              
              
              
              19.9
              
              
              
              433.8
              
              
              
              4.73
              
              
              
              9,730
              
              
              
              20.2
              
              
              
              568.8
              
              
              
              5.85Total
              
              $
              46,106
              
              
              
              100.0
              %
              
              $
              2,250.1
              
              
              
              4.88
              %
              
              $
              48,183
              
              
              
              100.0
              %
              
              $
              2,416.1
              
              
              
              5.01
              %




At
September 30, 2009, nonperforming loans in Arizona amounted to $663.5 million
compared to $756.7 million at June 30, 2009, a decrease of $93.2 million or
12.3%. That decline largely reflects the effect of loans sales during the
quarter. Nonperforming loans in Arizona represented 29.5% of total consolidated
nonperforming loans and leases at September 30, 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 $395.2 million or 59.6% and nonperforming residential real estate
loans made up approximately $145.3 million or 21.9% of nonperforming loans in
Arizona at September 30, 2009. The Corporation expects that the level of new
larger construction loans transferring to nonperforming status are likely to
have peaked in Arizona.






57
 Table of Contents




At
September 30, 2009, nonperforming loans in Wisconsin amounted to $458.2 million
compared to $421.9 million at June 30, 2009, an increase of $36.3 million or
8.6%.  Nonperforming commercial and industrial loans increased $41.0
million or 48.9% at September 30, 2009 compared to June 30,
2009.  That increase was largely based on the results of the annual
Shared National Credit Review. At September 30, 2009, those loans transferred to
nonperforming status as a result of the Shared National Credit Review continued
to be performing in accordance with their contractual terms. The ratio of
nonperforming loans to total loans for the Wisconsin portfolio of 2.70%
continues to be the lowest of any of the Corporation’s geographic regions at
September 30, 2009.
 
 Nonperforming
loans in Florida amounted to $265.2 million at September 30, 2009 compared to
$241.8 million at June 30, 2009, an increase of $23.4 million or
9.6%.  That increase was largely attributable to two loans consisting
of a single business purpose residential real estate loan and a construction and
land development loan that was transferred to nonperforming status based on the
results of the annual Shared National Credit Review. Approximately $123.3
million or 46.5% of nonperforming loans in Florida at September 30, 2009 were
construction and development loans. The Corporation continues to believe that
the bulk of the credit quality issues related to Florida have been
realized.
 
 The
following table shows the Corporation’s renegotiated loans by type of loan at
September 30, 2009 and June 30, 2009.
 
 Major
Categories of Renegotiated Loans
 ($
in millions)
 
 September
      30, 2009
              
              
              June
      30, 2009Renegotiated
      Loans
              
              
              Percent
      of Total Renegotiated Loans
              
              
              Renegotiated
      Loans
              
              
              Percent
      of Total Renegotiated LoansCommercial
              
              $
              51.1
              
              
              
              5.5
              %
              
              $
              54.7
              
              
              
              6.7
              %Real
      estate:Commercial
      real estate
              
              
              259.7
              
              
              
              27.7
              
              
              
              210.8
              
              
              
              25.7Residential
      real estate
              
              
              367.5
              
              
              
              39.3
              
              
              
              274.9
              
              
              
              33.6Construction
      and development:Commercial
      land and construction
              
              
              0.9
              
              
              
              0.1
              
              
              
              50.2
              
              
              
              6.1Residential
      construction by individuals
              
              
              20.7
              
              
              
              2.2
              
              
              
              22.9
              
              
              
              2.8Residential
      land
              
              
              131.9
              
              
              
              14.1
              
              
              
              128.2
              
              
              
              15.7Residential
      construction by developers
              
              
              4.3
              
              
              
              0.5
              
              
              
              4.0
              
              
              
              0.5Total
      construction and development
              
              
              157.8
              
              
              
              16.9
              
              
              
              205.3
              
              
              
              25.1Total
      real estate
              
              
              785.0
              
              
              
              83.9
              
              
              
              691.0
              
              
              
              84.4ConsumerHome
      equity loans and lines of credit
              
              
              95.0
              
              
              
              10.2
              
              
              
              69.0
              
              
              
              8.4Other
      consumer
              
              
              4.2
              
              
              
              0.4
              
              
              
              3.8
              
              
              
              0.5Total
      consumer
              
              
              99.2
              
              
              
              10.6
              
              
              
              72.8
              
              
              
              8.9Total
      renegotiated loans
              
              $
              935.3
              
              
              
              100.0
              %
              
              $
              818.5
              
              
              
              100.0
              %




Renegotiated
commercial loans amounted to $51.1 million at September 30, 2009 compared to
$54.7 million at June 30, 2009, a decrease of $3.6 million or 6.7%. As discussed
in previous filings, approximately $42.1 million or 82.5% of renegotiated
commercial loans at September 30, 2009 was attributable to Franklin Credit
Management Corporation and no further losses are expected with respect to this
credit.
   58
 Table of Contents




Renegotiated
real estate loans were the primary source of the Corporation’s renegotiated
loans and represented 83.9% of total renegotiated loans at September 30,
2009.  Renegotiated real estate loans amounted to $785.0 million at
September 30, 2009 compared to $691.0 million at June 30, 2009, an increase of
$94.0 million or 13.6%.  Renegotiated real estate loans include the
following categories:
 
 Renegotiated
commercial real estate loans amounted to $259.7 million at September 30, 2009
compared to $210.8 million at June 30, 2009, an increase of $48.9 million or
23.2%.  Included in this category of renegotiated commercial real
estate loans are renegotiated business real estate and multifamily
loans.  Renegotiated business real estate loans increased
approximately $52.1 million and renegotiated multifamily loans decreased $3.2
million at September 30, 2009 compared to June 30, 2009. Included in
renegotiated business real estate loans at September 30, 2009 is a large lending
relationship consisting of approximately $252.8 million in loan balances spread
over a number of geographically dispersed commercial real estate
projects.  These loans continue to perform as expected.
 
 Renegotiated
residential real estate (1-4 family) loans increased $92.6 million or 33.7%
compared to June 30, 2009 and amounted to $367.5 million or 39.3% of total
renegotiated loans at September 30, 2009.  Increased economic stress
on consumers has resulted in the increase in these loans, most notably in
Arizona, which contributed $54.8 million or 59.3% of the increase in
renegotiated residential real estate loans at September 30, 2009 compared to
June 30, 2009.
 
 Renegotiated
construction and development loans amounted to $157.8 million at September 30,
2009 compared to $205.3 million at June 30, 2009, a decrease of $47.5 million or
23.1%.  Renegotiated construction and development loans represented
16.9% of total renegotiated loans at September 30, 2009.  By
comparison, renegotiated construction and development loans represented 25.1% of
total renegotiated loans at June 30, 2009.  Renegotiated construction
and development loans in Arizona accounted for $145.8 million or 92.4% of total
renegotiated construction and development loans at September 30,
2009.
 
 Renegotiated
consumer loans amounted to $99.2 million at September 30, 2009 compared to $72.8
million at June 30, 2009, an increase of $26.4 million or 36.2%.  Home
equity loans and lines of credit accounted for $26.0 million or 98.7% of the
total increase in renegotiated consumer loans at September 30, 2009 compared to
June 30, 2009.
 
 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
                
                
                2008Third
      Quarter
                
                
                Second
      Quarter
                
                
                First
      Quarter
                
                
                Fourth
      Quarter
                
                
                Third
      QuarterBeginning
      balance
                
                $
                1,367,782
                
                
                $
                1,352,117
                
                
                $
                1,202,167
                
                
                $
                1,031,494
                
                
                $
                1,028,809Provision
      for loan and lease losses
                
                
                578,701
                
                
                
                618,992
                
                
                
                477,924
                
                
                
                850,443
                
                
                
                154,962Loans
      and leases charged-off:Commercial
                
                
                (206,764
                )
                
                
                (68,990
                )
                
                
                (65,481
                )
                
                
                (101,223
                )
                
                
                (32,850
                )Real
      estate
                
                
                (323,243
                )
                
                
                (534,264
                )
                
                
                (264,989
                )
                
                
                (576,017
                )
                
                
                (123,990
                )Personal
                
                
                (10,752
                )
                
                
                (8,807
                )
                
                
                (7,433
                )
                
                
                (8,591
                )
                
                
                (6,263
                )Leases
                
                
                (834
                )
                
                
                (1,054
                )
                
                
                (2,320
                )
                
                
                (655
                )
                
                
                (192
                )Total
      charge-offs
                
                
                (541,593
                )
                
                
                (613,115
                )
                
                
                (340,223
                )
                
                
                (686,486
                )
                
                
                (163,295
                )Recoveries
      on loans and leases:Commercial
                
                
                1,449
                
                
                
                2,599
                
                
                
                2,003
                
                
                
                2,059
                
                
                
                2,277Real
      estate
                
                
                5,800
                
                
                
                5,724
                
                
                
                7,412
                
                
                
                2,953
                
                
                
                6,938Personal
                
                
                1,502
                
                
                
                1,168
                
                
                
                1,185
                
                
                
                1,078
                
                
                
                1,439Leases
                
                
                102
                
                
                
                297
                
                
                
                1,649
                
                
                
                626
                
                
                
                364Total
      recoveries
                
                
                8,853
                
                
                
                9,788
                
                
                
                12,249
                
                
                
                6,716
                
                
                
                11,018Net
      loans and leases charged-off
                
                
                (532,740
                )
                
                
                (603,327
                )
                
                
                (327,974
                )
                
                
                (679,770
                )
                
                
                (152,277
                )Ending
      balance
                
                $
                1,413,743
                
                
                $
                1,367,782
                
                
                $
                1,352,117
                
                
                $
                1,202,167
                
                
                $
                1,031,494




Net
charge-offs amounted to $532.7 million or 4.48% of average loans and leases in
the third quarter of 2009, compared to $603.3 million or 4.95% of average loans
and leases in the second quarter of 2009 and $152.3 million or 1.21% of average
loans and leases in the third quarter of 2008.  For the nine months
ended September 30, 2009, net charge-offs amounted to $1,464.0 million or 4.03%
of average loans and leases compared to $684.1 million or 1.85% of average loans
and leases for the nine months ended September 30, 2008.  Included in
net charge-offs for the three and nine months ended September 30, 2009 and 2008,
were the net charge-offs related to the loans that were sold during 2009 and
2008.






59
 Table of Contents




Included
in Commercial charge-offs were charge-offs related to loans to certain bank
holding companies that amounted to $157.8 million for the three and nine months
ended September 30, 2009. Approximately 75% of these loans were current as of
September 30, 2009.
 
 Approximately
$175.6 million or 33.0% of net charge-offs in the third quarter of 2009 were
related to Arizona. Excluding the charge-offs related to loans to certain bank
holding companies, net charge-offs related to Arizona represented 46.8% of the
net charge-offs reported in the third quarter of 2009. For the nine months ended
September 30, 2009, net charge-offs related to Arizona amounted to $673.1
million, or 46.0% of total reported net charge-offs. Excluding the charge-offs
related to loans to certain bank holding companies, net charge-offs related to
Arizona represented 51.5% of the net charge-offs reported for the nine months
ended September 30, 2009.
 
 Despite
an increase in nonperforming loans, net charge-offs related to Florida have
declined $27.9 million or 17.6% in the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008.  For the nine
months ended September 30, 2009, net charge-offs related to Florida were 8.9% of
total net charge-offs.  For the nine months ended September 30, 2008,
net charge-offs related to Florida were 23.2% of total net
charge-offs.  Management believes the lower loss levels are an
indication that the high level of credit losses in this geographical market are
stabilizing.
 
 Net
charge-offs of real estate loans amounted to $317.4 million or 59.6% and
$1,103.6 million or 75.4% of total net charge-offs for the three and nine months
ended September 30, 2009, respectively.  For the three months ended
September 30, 2009, approximately $171.5 million of the real estate loan net
charge-offs were construction and development loan net
charge-offs.  For the nine months ended September 30, 2009, $583.2
million of the real estate loan net charge-offs were construction and
development loan net charge-offs.
 
 As
previously discussed, real estate related loans were the primary contributors to
the elevated levels in nonperforming loans and leases and net charge-offs in the
third quarter and first nine months of 2009.  Real estate related
loans made up the majority of the Corporation’s nonperforming loans and leases
at September 30, 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.
 
 The
amount of cumulative net charge-offs recorded on the Corporation’s nonperforming
loans outstanding at September 30, 2009 was approximately $765.9 million or
49.9% of the unpaid principal balance of the affected nonperforming loans and
25.5% of the unpaid principal balance of its total nonperforming loans
outstanding at September 30, 2009.  These charge-offs have reduced the
carrying value of these nonperforming loans and leases which reduced the
allowance for loan and lease losses required at the measurement
date.






60
 Table of Contents




Consolidated
Loan and Lease Risk Profile
 
 In
determining the adequacy of the allowance for loan and lease losses, management
considers a number of factors to assess the risk and determine the amount of
inherent loss in the portfolio at the measurement date. The tables below
presents certain statistics that are indicators of credit risk by loan type and
provides some supplemental information that, together with the previous
discussion, is intended to assist in obtaining some understanding of the current
credit risks that are in each loan type.
 
 Commercial
              
              September
      30, 2009
              
              
              %
      of Consolidated Total
              
              
              June
      30, 2009
              
              
              %
      of Consolidated Total($
      in millions)
              
              
              
              
              
              ($
      in millions)Loans
      and leases
              
              $
              13,532.9
              
              
              
              29.4
              %
              
              $
              14,792.4
              
              
              
              30.7
              %Nonaccrual
              
              
              411.1
              
              
              
              18.3
              
              
              
              431.7
              
              
              
              17.9Renegotiated
              
              
              51.1
              
              
              
              5.4
              
              
              
              54.7
              
              
              
              6.7Early
      stage deliquencies
              
              
              78.4
              
              
              
              9.3
              
              
              
              150.8
              
              
              
              14.2Quarter-to-date
      net charge-offs
              
              
              205.4
              
              
              
              38.6
              
              
              
              66.8
              
              
              
              11.1




Commercial
loans and leases are extended across many industry types that at September 30,
2009 included: manufacturing (23%), wholesale trade (14%), finance and insurance
(10%), retail trade (8%), real estate (8%), construction (6%), professional
(5%), management companies (4%), health care (4%), agriculture (4%) and
transportation and warehousing (4%).
 
 Commercial
loans and leases are evaluated for the adequacy of repayment sources at the time
of approval and are regularly reviewed for any possible deterioration in the
ability of the borrower to repay the loan. Collateral varies by individual
customer and may include accounts receivable, inventory, equipment, deposits,
securities, personal guarantees, general security agreements and real
estate.
 
 Commercial
loans and leases are associated with customers located in Wisconsin (42%),
Minnesota (14%), Missouri (11%), Arizona (4%), Indiana (4%), Florida (3%),
Kansas (3%), and Illinois (6%).
 
 Generally,
the weak economy has resulted in commercial customers reducing expenses and
paying down their debt, delaying capital expenditures and reducing working
capital demand.  As a result, commercial loan and lease balances have
contracted in recent quarters.
 
 During
the third quarter of 2009, the Corporation transferred $53.2 million of
commercial loan participations to nonperforming status based on the annual
Shared National Credit Review. At September 30, 2009, those loans transferred
continued to be performing in accordance with their contractual terms. Those
loans were individually assessed for impairment as of September 30,
2009.
 
 Included
in net charge-offs for the three and nine months ended September 30, 2009 were
charge-offs related to loans to certain bank holding companies that amounted to
$157.8 million.  Approximately 75% of the loans charged-off were
current as of September 30, 2009. At September 30, 2009, the remaining loans
outstanding to bank holding companies was approximately $545.2
million.  In addition to one other large bank holding company loan
that had been previously fully reserved, additional reserves were established
during the third quarter of 2009 for the remaining loans.
 
 The ratio
of nonaccrual commercial loans and leases to total commercial loans and leases
at September 30, 2009 was 3.04%.  The average annualized net
charge-offs for commercial loans and leases over the past seven quarters based
on end of period loans was 1.9%.


61
 Table of Contents




Commercial
      Real Estate
              
              September
      30, 2009
              
              
              %
      of Consolidated Total
              
              
              June
      30, 2009
              
              
              %
      of Consolidated Total($
      in millions)
              
              
              
              
              
              ($
      in millions)Loans
              
              $
              13,884.3
              
              
              
              30.1
              %
              
              $
              13,938.3
              
              
              
              28.9
              %Nonaccrual
              
              
              509.6
              
              
              
              22.6
              
              
              
              559.2
              
              
              
              23.1Renegotiated
              
              
              259.7
              
              
              
              27.8
              
              
              
              210.8
              
              
              
              25.7Early
      stage deliquencies
              
              
              138.9
              
              
              
              16.5
              
              
              
              277.1
              
              
              
              26.1Quarter-to-date
      net charge-offs
              
              
              69.6
              
              
              
              13.0
              
              
              
              55.3
              
              
              
              9.2




Commercial
real estate loans include multi-family properties and business purpose loans
secured by 1-4 family residences (27%), industrial (17%), office (13%), retail
(13%), farmland (6%), lodging (7%) and medical facilities (4%). Commercial real
estate loans as presented do not include commercial construction and land
development loans.
 
 Approximately
38% of the business real estate loans are
owner-occupied.  Owner-occupied real estate loans are generally
expected to have lower levels of risk of default.
 
 The
Corporation has established policies that set standards for maximum commercial
mortgage amounts by type of property, loan terms, pricing structures,
loan-to-value limits by property type, minimum requirements for initial
investment and maintenance of equity by the borrower, borrower net worth,
property cash flow and debt service coverage as well as policies and procedures
for granting exceptions to established underwriting
standards.  Commercial mortgages are evaluated for adequacy of
repayment sources at the time of approval and regularly reviewed for any
possible deterioration in the ability of the borrower to repay the
loan.
 
 Commercial
real estate loans are located primarily in the midwest: Wisconsin (45%),
Minnesota (11%), Missouri (8%), Illinois (4%), Kansas (3%), and Indiana (3%).
Commercial real estate loans in higher risk markets include Arizona (8%) and
Florida (8%).
 
 As a
result of the weak economy, the Corporation has experienced slowing in new
development activity.  A portion of the reported growth over the prior
year represents the migration of construction loans to commercial real estate
loans once construction is completed.  As a result of the commercial
real estate lending environment, the Corporation has provided more interim
financing for post-construction loans than it has historically and expects this
trend to continue until such time as the liquidity in the commercial real estate
lending normalizes.  Interim financing is structured to ensure a
significant amount of the income generated from the commercial real estate
project is used to pay interest and reduce outstanding principal.
 
 The ratio
of nonaccrual commercial real estate loans to total commercial real estate loans
at September 30, 2009 was 3.67%. The ratio of nonaccrual commercial real estate
loans to total commercial real estate loans in Arizona and Florida at September
30, 2009 was 5.04% and 8.39%, respectively. Nonaccrual commercial real estate
loans in Arizona and Florida amounted to $153.4 million or 30.1% of total
nonaccrual commercial real estate loans at September 30, 2009.
 
 Net
charge-offs have been relatively stable at 2% of total commercial real estate
loans.


62
 Table of Contents




Residential
      Real Estate
              
              September
      30, 2009
              
              
              %
      of Consolidated Total
              
              
              June
      30, 2009
              
              
              %
      of Consolidated Total($
      in millions)
              
              
              
              
              
              ($
      in millions)Loans
              
              $
              5,135.2
              
              
              
              11.1
              %
              
              $
              5,464.6
              
              
              
              11.3
              %Nonaccrual
              
              
              236.8
              
              
              
              10.5
              
              
              
              285.7
              
              
              
              11.8Renegotiated
              
              
              367.5
              
              
              
              39.3
              
              
              
              274.9
              
              
              
              33.6Early
      stage deliquencies
              
              
              186.3
              
              
              
              22.1
              
              
              
              207.9
              
              
              
              19.6Quarter-to-date
      net charge-offs
              
              
              47.2
              
              
              
              8.9
              
              
              
              204.5
              
              
              
              33.9




The
Corporation does not originate sub-prime mortgages, variable interest-only
payment plans, or mortgage loans that permit negative
amortization.  The Corporation does not originate loans with below
market or so-called teaser interest rates.
 
 Residential
real estate loans are concentrated in Wisconsin (33%) and Arizona
(39%).
 
 For the
nine months ended September 30, 2009 approximately 73% of new mortgage volumes
were associated with re-financings due to low interest rates. The Corporation
has sold substantially all of its 2009 residential real estate production in the
secondary market. At September 30, 2009, approximately 50% of residential real
estate loans were originated after 2006, 18% were originated in 2004 and 32%
were originated in 2005 and 2006.
 
 Residential
real estate loans in Arizona have elevated levels of risk. At September 30,
2009, Arizona residential real estate loans amounted to $2,005.2 million.
Nonperforming residential real estate loans in Arizona amounted to $145.3
million or 7.25% of total Arizona residential real estate loans. Nonperforming
residential real estate loans in Arizona represented 61.4% of total
nonperforming residential real estate loans.
 
 The ratio
of nonaccrual residential real estate loans to total residential real estate
loans at September 30, 2009 was 4.61%. The ratio of nonaccrual residential real
estate loans to total residential real estate loans in Wisconsin at September
30, 2009 was 1.69%.
 
 At
September 30, 2009, approximately 78.7% of renegotiated residential real estate
loans were in Arizona.
 
 During
the third quarter of 2009, the Corporation sold a pool of predominantly
nonaccrual residential real estate loans. The unpaid principal balance of the
loans sold was $296.7 million. The loans had been written down to their net
realizable value and charge-offs of $150.8 million were recognized at June 30,
2009. Approximately two-thirds of the loans sold were Arizona residential real
estate loans.
 
 The
average annualized net charge-offs for residential real estate loans over the
past seven quarters based on end of period loans was 1.6% excluding the
charge-offs associated with the loan sale. The average annualized net
charge-offs for residential real estate loans for the third quarter of 2009
based on end of period loans was 3.7%.


63
 Table of Contents




Construction
      and Development
              
              September
      30, 2009
              
              
              %
      of Consolidated Total
              
              
              June
      30, 2009
              
              
              %
      of Consolidated Total($
      in millions)
              
              
              
              
              
              ($
      in millions)Loans
              
              $
              6,314.2
              
              
              
              13.7
              %
              
              $
              6,829.3
              
              
              
              14.2
              %Nonaccrual
              
              
              984.5
              
              
              
              43.8
              
              
              
              1,043.4
              
              
              
              43.2Renegotiated
              
              
              157.8
              
              
              
              16.9
              
              
              
              205.3
              
              
              
              25.1Early
      stage deliquencies
              
              
              330.8
              
              
              
              39.2
              
              
              
              322.9
              
              
              
              30.5Quarter-to-date
      net charge-offs
              
              
              171.5
              
              
              
              32.2
              
              
              
              235.3
              
              
              
              39.0




The
cumulative net charge-offs for construction and development loans was $1,570.1
million or 55.5% of total loan and lease cumulative net charge-offs for the
seven quarters ended September 30, 2009. The average annualized net charge-offs
for construction and development loans over the past seven quarters based on end
of period loans was 10.7%. Those losses were predominantly associated with
construction and development loans located in Florida and Arizona. The
Corporation expects that the bulk of the credit quality issues related to
Florida have been realized and the level of new larger Arizona construction and
development loans transferred to nonperforming status are likely to have
peaked.
 
 Construction
and development loans related to housing present a higher level of risk.
Housing-related construction and development loans represented 73.7% of total
construction and development loans at September 30, 2009. At September 30, 2009,
nonperforming housing-related construction and development loans amounted to
$871.9 million or 18.7% of total housing-related construction and development
loans and 88.6% of total nonperforming construction and development
loans.
 
 Construction
and development loans in Arizona amounted to $1,709.3 million or 27.1% of total
construction and development loans at September 30, 2009. Nonperforming
construction and development loans in Arizona amounted to $395.2 million or
23.1% of total construction and development loans in Arizona and 40.1% of total
nonperforming construction and development loans. Nonperforming residential land
loans in Arizona represent 38.7% of total nonperforming construction and
development loans in Arizona.
 
 The
Corporation has significantly reduced the construction and development loan
portfolio which, at its peak in 2007, was approximately 23% of total loans and
leases outstanding. The Corporation continues to aggressively reduce the
construction and development loan portfolio, particularly in Arizona. The
Corporation intends to reduce its concentration in these types of loans to its
corporate goal of 10% of total loans and leases.
 
 Consumer
                
                September
      30, 2009
                
                
                %
      of Consolidated Total
                
                
                June
      30, 2009
                
                
                %
      of Consolidated Total($
      in millions)
                
                
                
                
                
                ($
      in millions)Loans
      and leases
                
                $
                7,239.7
                
                
                
                15.7
                %
                
                $
                7,158.5
                
                
                
                14.9
                %Nonaccrual
                
                
                108.1
                
                
                
                4.8
                
                
                
                96.1
                
                
                
                4.0Renegotiated
                
                
                99.2
                
                
                
                10.6
                
                
                
                72.8
                
                
                
                8.9Early
      stage deliquencies
                
                
                108.5
                
                
                
                12.9
                
                
                
                101.8
                
                
                
                9.6Quarter-to-date
      net charge-offs
                
                
                39.0
                
                
                
                7.3
                
                
                
                41.4
                
                
                
                6.8




The
majority of consumer loans and leases are home equity loans and lines of credit
which amounted to $4.8 billion at September 30, 2009.  Home equity
lines of credit represent 57% and home equity loans represent 43% of total home
equity loans and lines of credit. Approximately 45% of home equity loans and
lines of credit are secured by first mortgages. At September 30, 2009 home
equity lines of credit outstanding (amount drawn) represented approximately 59%
of the total lines of credit outstanding compared to a three year average of
55.2%. The majority of the 2005 and 2006 originations were sold.
 
 The
largest geographic concentration of home equity loans and lines of credit is in
Wisconsin (35%) with the remainder geographically dispersed.






64
 Table of Contents




The
average annualized net charge-offs for home equity loans and lines of credit
over the past seven quarters based on end of period loans was 1.5%. The average
annualized net charge-offs for home equity loans and lines of credit for the
third quarter of 2009 based on end of period loans was 2.4%.
 
 Credit
card loans amounted to $277.9 million or 0.60% of total loans and leases at
September 30, 2009. Credit cards are not a significant component of the
Corporation’s loan and lease portfolio.
 
 Consistent
with the credit quality trends noted above, the provision for loan and lease
losses amounted to $578.7 million for the third quarter ended September 30,
2009. By comparison, the provision for loan and lease losses amounted to $619.0
million in the second quarter of 2009 and $155.0 million for the third quarter
of 2008.  For the nine months ended September 30, 2009 and 2008, the
provision for loan and lease losses amounted to $1,675.6 million and $1,187.3
million, respectively. The provision for loan and lease losses for the three and
nine months ended September 30, 2009 included approximately $185.0 million for
loans to certain bank holding companies. 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
3.07% at September 30, 2009, compared to 2.84% at June 30, 2009 and 2.05% at
September 30, 2008.
 
 While the
direction of the credit quality metrics in the third quarter of 2009 may be an
indication of stabilization in some geographies and markets, management
recognizes the economy remains fragile and that it may be too early to expect
that this quarter’s experience is indicative of the start of a longer-term
trend.  Management expects the prevailing economic and difficult real
estate market conditions will last well into 2010 in many of the Corporation’s
markets.  The Corporation expects that the bulk of the credit quality
issues related to Florida have been realized and that the level of new larger
construction loans placed on nonaccrual are likely to have peaked in Arizona. A
weak and unstable economy and elevated levels of unemployment has resulted in
increased stress in consumer loans, particularly residential real estate loans
and home equity loans and lines of credit. Based on these factors, nonaccrual
consumer loans are expected to increase. As a result of these offsetting trends,
total nonperforming loans and leases may continue to improve or stabilize but
remain at elevated levels in future quarters.  Management expects the
provision for loan and lease losses will continue to be at elevated levels due
to the recessionary economy and weak national real estate
markets.  The credit environment and underlying collateral values
continue to be rapidly changing and as a result, there are numerous unknown
factors at this time that will ultimately affect the timing and amount of
nonperforming loans and leases, net charge-offs and the provision for loan and
lease losses that will be recognized in the remainder of 2009. The timing and
amount of charge-offs will continue to be influenced by the Corporation’s
strategies for managing its nonperforming loans and leases.
 
 The
Corporation will continue to proactively manage its potential problem loans and
nonperforming loans and leases 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.






65
 Table of Contents




OTHER
INCOME
 
 Total
other income in the third quarter of 2009 amounted to $227.9 million compared to
$183.8 million in the same period last year, an increase of $44.1 million or
24.0%.  For the nine months ended September 30, 2009, total other
income amounted to $671.8 million compared to $582.1 million in the same period
last year, an increase of $89.7 million or 15.4%.
 
 Total
other income in the third quarter of 2009 included gains of $56.1 million from
the termination of debt, offset by losses of $18.1 million from post-transfer
write-downs associated with loans available for sale (other than mortgage loans
originated for sale). Excluding these items, total other income increased $6.1
million or 3.3% compared to the third quarter of 2008.
 
 For the
nine months ended September 30, 2009, total other income included gains of $68.4
million from the termination of debt, offset by losses of $29.7 million from
post-transfer write-downs associated with loans available for sale (other than
mortgage loans originated for sale).  In addition, total other income
in the nine months ended September 30, 2009 included net investment securities
gains of $81.2 million.  Total other income in the nine months ended
September 30, 2008 included net investment securities gains of $27.2
million.  Excluding these items as described above, total other income
for the nine months ended September 30, 2009 was relatively unchanged compared
to the nine months ended September 30, 2008.
 
 Equity
market volatility persisted during 2009.  That volatility along with
downward pressure in the equity markets resulted in lower wealth management
revenue in the three and nine months ended September 30, 2009 compared to the
three and nine months ended September 30, 2008. Wealth management revenue
amounted to $66.7 million in the third quarter of 2009 compared to $71.3 million
in the third quarter of 2008, a decrease of $4.6 million or 6.5%. For the nine
months ended September 30, 2009, wealth management revenue amounted to $195.2
million compared to $218.0 million for the nine months ended September 30, 2008,
a decrease of $22.8 million or 10.5%.  Assets under management were
$32.8 billion at September 30, 2009 compared to $30.4 billion at December 31,
2008 and $24.4 billion at September 30, 2008.  Assets under
administration were $118.5 billion at September 30, 2009 compared to $104.4
billion at December 31, 2008 and $101.3 billion at September 30,
2008.  Sales pipelines are beginning to expand and customer
conversions have expanded as decision-making processes regarding service
providers, asset allocation and portfolio structure have
shortened.  Revenue from operations outsourcing services continued to
grow during the three and nine months ended September 30,
2009.  Wealth management revenue will continue to be affected by
market volatility and direction through the remainder of 2009.
 
 Total
mortgage banking revenue was $12.7 million in the third quarter of 2009 compared
to $5.5 million in the third quarter of 2008, an increase of $7.2
million.  For the nine months ended September 30, 2009, total mortgage
banking revenue amounted to $41.6 million compared to $21.5 million for the nine
months ended September 30, 2008, an increase of $20.1 million.  The
Corporation has been utilizing the secondary market for the increase in demand
for fixed rate mortgages primarily associated with refinancing
activities.  Residential mortgage and home equity loans sold in the
secondary market amounted to $0.8 billion and $2.6 billion in the three and nine
months ended September 30, 2009, respectively.  For the three and nine
months ended September 30, 2008, the Corporation sold $0.3 billion and $1.2
billion, respectively, of residential mortgage and home equity loans in the
secondary market.
 
 Net
investment securities losses amounted to $1.5 million in the third quarter of
2009 compared to net investment securities gains of $1.0 million in the third
quarter of 2008.  For the nine months ended September 30, 2009, net
investment securities gains amounted to $81.2 million compared to $27.2 million
for the nine months ended September 30, 2008.  During the second
quarter of 2009, the Corporation recorded a gain of $35.4 million from the sale
of Visa Class B common stock.  Also during the second quarter of 2009,
the Corporation sold U.S. government agency securities with a principal amount
of approximately $1.1 billion, resulting in a gain of $43.6
million.  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.
 
 Bank-owned
life insurance revenue amounted to $10.3 million for the three months ended
September 30, 2009 compared to $12.8 million for the three months ended
September 30, 2008, a decrease of $2.5 million or 18.9%.  For the nine
months ended September 30, 2009, bank-owned life insurance revenue amounted to
$27.6 million compared to $37.1 million for the nine months ended September 30,
2008, a decrease of $9.5 million or 25.6%.  The decline in revenue
reflects the lower crediting rates due to the interest rate environment and
lower death benefit gains in the three and nine months ended September 30, 2009
compared to the three and nine months ended September 30,
2008.






66
 Table of Contents




Gain on
the termination of debt amounted to $56.1 million and $68.4 million for the
three and nine months ended September 30, 2009, respectively. During the third
quarter of 2009, the Corporation re-acquired and extinguished approximately
$548.4 million of debt and has re-acquired and extinguished approximately $809.2
million of debt in the nine months ended September 30, 2009. For the nine months
ended September 30, 2009, the debt consisted of various bank notes issued by the
Corporation and its wholly-owned subsidiary, M&I Marshall & Ilsley Bank
(“M&I Bank”).  The size of the blocks ranged from $70 thousand to
$110.0 million with a weighted average buyback price of approximately 91.5% of
par.
 
 OREO
income primarily consists of gains from the sale of OREO and amounted to $4.3
million in the third quarter of 2009 compared to $4.0 million in the third
quarter of 2008.  For the nine months ended September 30, 2009, OREO
income amounted to $9.8 million compared to $6.8 million for the nine months
ended September 30, 2008.  The carrying value of OREO properties sold
amounted to $93.4 million in the third quarter of 2009, compared to $20.1
million in the third quarter of 2008.  During the first nine months of
2009, the carrying value of OREO properties sold amounted to $218.6 million,
compared to $62.6 million during the first nine months of 2008.
 
 Other
income in the third quarter of 2009 amounted to $45.6 million compared to $52.6
million in the third quarter of 2008, a decrease of $7.0 million or
13.3%.  For the nine months ended September 30, 2009, other income
amounted to $144.9 million compared to $161.3 million for the nine months ended
September 30, 2008, a decrease of $16.4 million or 10.1%. Post-transfer
write-downs associated with loans available for sale (other than mortgage loans
originated for sale) are reported as a reduction of other income in the
Consolidated Statements of Income and amounted to $18.1 million and $29.7
million for the three and nine months ended September 30, 2009, respectively.
Other income for the three and nine months ended September 30, 2009 included
gains of $5.2 million associated with the termination of the remaining auto
securitization activities during the third quarter of 2009.
 
 
 OTHER
EXPENSE
 
 Total
other expense for the three months ended September 30, 2009 amounted to $409.0
million compared to $359.8 million for the three months ended September 30,
2008, an increase of $49.2 million or 13.7%.  For the nine months
ended September 30, 2009, total other expense amounted to $1,168.8 million
compared to $1,055.5 million for the nine months ended September 30, 2008, an
increase of $113.3 million or 10.7%.
 
 Total
other expense for the three and nine months ended September 30, 2009 compared to
the three and nine months ended September 30, 2008 included increased credit and
collection-related expenses and increased expenses associated with the
acquisition, valuation and holding of OREO properties.  Approximately
$49.8 million of the operating expense growth in the third quarter of 2009
compared to the third quarter of 2008 was attributable to these
items.  For the nine months ended September 30, 2009, approximately
$92.3 million of the operating expense growth compared to the same period in
2008 was attributable to these items.
 
 Approximately
$11.8 million of the operating expense growth in the third quarter of 2009
compared to the third quarter of 2008 was attributable to the increased expense
related to regular insurance premiums for insurance on
deposits.  Approximately $77.9 million of the operating expense growth
in the nine months ended September 30, 2009 compared to the nine months ended
September 30, 2008 was attributable to the FDIC special assessment related to
insurance on deposits in addition to increased expense related to regular
insurance premiums for insurance on deposits and severance.
 
 Total
other expense for the three and nine months ended September 30, 2009 included
provisions for loss exposures associated with unfunded loan commitments that
amounted to $6.6 million. Total other expense for the nine months ended
September 30, 2008 included provisions for loss exposures associated with
unfunded loan commitments and other credit related liabilities and residual
write-downs associated with direct financing leases.  These expenses
totaled $27.1 million.






67
 Table of Contents




Total
other expense for the three and nine months ended September 30, 2008 included
the impact of the financial market disruption in September 2008.  The
market disruption resulted in unexpected losses and charges in the Corporation’s
wealth management segment that amounted to $15.0 million.
 
 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 nine months ended September 30, 2008 is the reversal of $12.2 million
related to the Visa litigation matters.
 
 The
Corporation’s expense in the three months ended September 30, 2009 compared to
the three months ended September 30, 2008, excluding the items discussed above,
declined $4.0 million or 1.2%.  For the nine months ended September
30, 2009, the Corporation’s expense excluding the items discussed above
decreased $33.6 million or 3.5%.  This expense decline reflects in
part lower incentive compensation, the impact of the expense reduction
initiatives announced in the fourth quarter of 2008, and the Corporation’s
ongoing commitment to prudent expense management.
 
 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
September 30, 2009 and 2008 were:
 
 Three
      Months Ended September 30,2009
              
              
              2008Efficiency
      Ratio
              
              
              66.1
              %
              
              
              57.0
              %


The
efficiency ratio for the third 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 September 30, 2009
from these items was approximately 11.7%.
 
 The
efficiency ratio for the third quarter of 2009 was also adversely affected by
the increase in provisions for loss exposures associated with unfunded loan
commitments and post-transfer write-downs associated with loans available for
sale other than mortgage loans originated for sale. Those adverse affects were
more than offset by the gains from termination of debt. The estimated net impact
to the Corporation’s efficiency ratio for the three months ended September 30,
2009 from these items was a benefit of approximately 3.2%.
 
 The
efficiency ratio for the third quarter of 2008 was adversely affected by the
increase in credit and collection-related expenses, net expenses associated with
OREO properties and the unexpected losses and charges associated with the
financial market disruption in September 2008.  The estimated net
adverse impact to the Corporation’s efficiency ratio for the three months ended
September 30, 2008 from these items was approximately 5.3%.
 
 Salaries
and employee benefits expense amounted to $179.2 million in the third quarter of
2009 compared to $184.0 million in the third quarter of 2008, a decrease of $4.8
million or 2.6%.  Salaries and employee benefits related to credit and
collection increased approximately $0.9 million in the three months ended
September 30, 2009 compared to the three months ended September 30,
2008.  For the nine months ended September 30, 2009, salaries and
employee benefits expense amounted to $521.6 million compared to $545.3 million
in the nine months ended September 30, 2008, a decrease of $23.7 million or
4.3%.  Salaries and employee benefits related to credit and collection
increased approximately $4.1 million in the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008.  Included in
salaries and employee benefits expense in the nine months ended September 30,
2009, was severance expense of $5.8 million.  The number of full-time
equivalent employees decreased approximately 5.7% at September 30, 2009 compared
to September 30, 2008.






68
 Table of Contents




Net
occupancy and equipment expense for the three months ended September 30, 2009
amounted to $33.3 million compared to $31.7 million for the three months ended
September 30, 2008, an increase of $1.6 million or 5.2%.  For the nine
months ended September 30, 2009, net occupancy and equipment expense amounted to
$99.5 million compared to $94.1 million for the nine months ended September 30,
2008, an increase of $5.4 million or 5.8%.  The increase in the three
and nine months ended September 30, 2009 compared to the same periods in 2008
reflects the effect of de novo branch expansion activities.
 
 Software,
processing, supplies, printing, postage and delivery expenses amounted to $49.7
million for the three months ended September 30, 2009 compared to $49.0 million
for the three months ended September 30, 2008, an increase of $0.7 million or
1.4%.  For the nine months ended September 30, 2009, software,
processing, supplies, printing, postage and delivery expenses amounted to $148.9
million compared to $150.7 million for the nine months ended September 30, 2008,
a decrease of $1.8 million or 1.2%.
 
 FDIC
insurance premiums on deposits increased $11.8 million in the third quarter of
2009 compared to the third quarter of 2008 and amounted to $17.8 million in the
third quarter of 2009.  For the nine month period ended September 30,
2009, FDIC insurance premiums on deposits amounted to $82.2 million compared to
$10.0 million for the same period in 2008, an increase of $72.2
million.  Included in the increase in the nine months ended September
30, 2009 was $29.3 million which represented the Corporation’s portion of the
FDIC special assessment related to insurance on deposits.
 
 Professional
services expense amounted to $23.5 million in the third quarter of 2009 compared
to $16.5 million in the third quarter of 2008, an increase of $7.0 million or
42.7%.  Increased legal fees and other professional fees associated
with problem loans contributed approximately $6.6 million to the increase in
professional services expense in the third quarter of 2009 compared to the third
quarter of 2008.  For the nine months ended September 30, 2009,
professional services expense amounted to $64.7 million compared to $48.1
million for the nine months ended September 30, 2008, an increase of $16.6
million or 34.4%.  Increased legal fees and other professional fees
associated with problem loans contributed approximately $12.7 million to the
increase in professional services expense in the nine month period ended
September 30, 2009 compared to the same period in 2008.  Consulting
fees associated with updating certain internal systems also contributed to the
increase in professional services expense for the nine months ended September
30, 2009 compared to the nine months ended September 30, 2008.
 
 Amortization
of intangibles amounted to $5.9 million for the quarter ended September 30, 2009
compared to $6.0 million for the quarter ended September 30, 2008. For the nine
months ended September 30, 2009, amortization of intangibles amounted to $17.5
million compared to $17.9 million for the nine months ended September 30, 2008.
See Note 11 in Notes to Financial Statements for the discussion regarding the
Corporation’s annual test for goodwill impairment.
 
 OREO
expenses amounted to $56.4 million in the third quarter of 2009 compared to
$14.1 million in the third quarter of 2008, an increase of $42.3
million.  Approximately $36.8 million of the increase for the three
months ended September 30, 2009 compared to the three months ended September 30,
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.  Approximately $5.5 million of the increase for the
three months ended September 30, 2009 compared to the three months ended
September 30, 2008 reflects the costs of acquiring and holding the increased
levels of foreclosed properties.  For the nine months ended September
30, 2009, OREO expenses amounted to $124.8 million compared to $49.3 million for
the nine months ended September 30, 2008, an increase of $75.5
million.  Approximately $60.5 million of the increase for the nine
months ended September 30, 2009 compared to the nine months ended September 30,
2008 was due to valuation write-downs and losses on disposition. Approximately
$15.0 million of the increase for the nine months ended September 30, 2009
compared to the nine months ended September 30, 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 $43.1 million in the third quarter of 2009 compared to $52.5
million in the third quarter of 2008, a decrease of $9.4 million or 17.9%. Other
expense in the third quarter of 2009 included increased provisions for loss
exposures associated with unfunded loan commitments that amounted to $6.6
million. Other expense in the third quarter of 2008 included $15.0 million in
unexpected losses and charges in the Corporation’s wealth management segment due
to the financial market disruption in September 2008.






69
 Table of Contents




For the
nine months ended September 30, 2009, other expense amounted to $109.6 million
compared to $140.1 million for the nine months ended September 30, 2008, a
decrease of $30.5 million or 21.8%.  Other expense for the nine months
ended September 30, 2008 included the reversal of $12.2 million related to the
Visa litigation.  The provisions for loss exposures associated with
unfunded loan commitments and other credit related liabilities decreased $15.6
million in the nine months ended September 30, 2009 compared to the nine months
ended September 30, 2008.  Total other expense for the nine months
ended September 30, 2008 included residual write-downs of $4.9 million
associated with direct financial leases. As previously discussed other expense
for the nine months ended September 30, 2008 included $15.0 million in
unexpected losses and charges due to the financial market disruption in
September 2008.
 
 
 INCOME
TAXES
 
 For the
three months ended September 30, 2009, the benefit for income taxes amounted to
$148.2 million or 39.9% of the pre-tax loss, compared to the provision for
income taxes for the three months ended September 30, 2008 of $26.4 million or
24.0% of the pre-tax income.
 
 For the
nine months ended September 30, 2009, the benefit for income taxes amounted to
$467.3 million or 47.2% 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 to
recognize certain state deferred tax assets, which included the reduction of a
valuation allowance for Wisconsin net operating losses. During the second
quarter of 2009, the Corporation recorded an additional tax benefit of $18.0
million due to the favorable resolution of a tax matter.  For the nine
months ended September 30, 2009, these tax benefits amounted to $69.0 million or
7.0% of the reported pre-tax loss.
 
 For the
nine months ended September 30, 2008, the benefit for income taxes amounted to
$178.3 million or 52.1% of the pre-tax loss.  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 $6.40 billion or 10.94% of total consolidated assets at September 30,
2009, compared to $6.27 billion or 10.06% of total consolidated assets at
December 31, 2008 and $6.50 billion or 10.24% of total consolidated assets at
September 30, 2008.
 
 On June
17, 2009, the Corporation announced the closing of its public offering of 100.0
million shares of its common stock at $5.75 per share.  The 100.0
million shares included 13.0 million shares issued pursuant to an option granted
to the underwriters by the Corporation, which was exercised in
full.  The proceeds, net of underwriting discounts and commissions and
offering expenses, from the issuance of shares in this public offering amounted
to $551.8 million.  In addition, under the initial shelf registration,
the Corporation issued 670,300 shares of its common stock valued at $4.5
million, net of underwriting discounts and commissions and offering expenses,
during the second quarter.
 
 On August
20, 2009, the Corporation announced that its Board of Directors declared the
third quarter cash dividend of $0.01 per share on its common stock.
 
 During
the third quarter of 2009, the Corporation issued 243,144 shares of its common
stock for $1.7 million to fund its obligation under its employee stock purchase
plan (the “ESPP”).  During the first nine months of 2009, the
Corporation issued 1,059,605 shares of its common stock for $5.3 million to fund
its obligation under its ESPP.  During the third quarter of 2008, the
Corporation issued 126,553 shares of its common stock for $2.2 million to fund
its obligation under the ESPP.  For the nine months ended September
30, 2008, the Corporation issued 397,483 shares of its common stock for $6.4
million to fund its obligation under the ESPP.






70
 Table of Contents




On
November 14, 2008, as part of the Corporation’s participation in the CPP, the
Corporation entered into a Letter Agreement with 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.
 
 Under the
terms of the Senior Preferred Stock set forth in the Corporation’s Restated
Articles of Incorporation, except as described below, the Corporation may not
redeem the Senior Preferred Stock during the first three years that it is
outstanding.  After the first 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.  The Corporation is
permitted, subject to regulatory approval, to redeem in whole or in part the
Senior Preferred Stock during the first three years only if (a) if it has
received aggregate gross proceeds of not less than $428.75 million from one or
more “Qualified Equity Offerings” (as defined in the Restated Articles of
Incorporation), and (b) the aggregate redemption price of the Senior Preferred
Stock redeemed does not exceed the aggregate net proceeds received by the
Corporation from any such Qualified Equity Offerings.  The Corporation
received $551.8 million in aggregate net proceeds from its June 17, 2009 common
stock offering, which met the requirements for a “Qualified Equity
Offering.”  As a result, at September 30, 2009, the Corporation could
redeem Senior Preferred Stock with an aggregate redemption price of up to $551.8
million if it obtains Board of Directors and regulatory approval.
 
 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, in 2009, the Corporation reduced its quarterly common stock cash
dividend to $0.01 per share.  The Senior Preferred Stock is 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
is not 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.  The Corporation’s public sales of its
common stock during the second quarter of 2009 did not trigger any adjustments
to the exercise price of the Warrant or the number of Warrant Shares because the
sales were at market prices or were deemed to be “permitted transactions” under
the terms of the Warrant.  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.






71
 Table of Contents




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 received from the UST were
allocated between the Senior 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.
 
 Preferred
dividends accrued on the Senior Preferred Stock amounted to $25 million and $75
million for the three and nine months ended September 30, 2009,
respectively.  On August 17, 2009, the Corporation paid the quarterly
preferred dividend covering the period from May 15, 2009 through August 15, 2009
in the amount of $21.4 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.  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.  The Corporation did not
acquire any shares of its common stock under the Stock Repurchase Program during
the second or third quarters of 2008.  During the first quarter of
2008, the Corporation acquired 4,782,400 shares of its common stock with a total
cash consideration of $124.9 million in open market share repurchase
transactions under the Stock Repurchase Program.
 
 At
September 30, 2009, the net loss in accumulated other comprehensive income
amounted to $22.3 million, which represented a positive change in accumulated
other comprehensive income of $135.7 million since December 31,
2008.  Net accumulated other comprehensive income associated with
available for sale investment securities was a net gain of approximately $40.9
million at September 30, 2009, compared to a net loss of $57.1 million at
December 31, 2008, resulting in a net gain of $98.0 million over the nine 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 $38.5 million since December 31, 2008, and amounted to
$64.2 million at September 30, 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 loss of
approximately $0.8 million as of September 30, 2009.


72
 Table of Contents




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)
 
 September
      30, 2009
              
              
              December
      31, 2008Amount
              
              
              Ratio
              
              
              Amount
              
              
              RatioTier
      1 Capital
              
              $
              4,915
              
              
              
              9.61
              %
              
              $
              5,357
              
              
              
              9.49
              %Tier
      1 Capital Minimum Requirement
              
              
              2,045
              
              
              
              4.00
              
              
              
              2,257
              
              
              
              4.00Excess
              
              $
              2,870
              
              
              
              5.61
              %
              
              $
              3,100
              
              
              
              5.49
              %Total
      Capital
              
              $
              6,735
              
              
              
              13.17
              %
              
              $
              7,445
              
              
              
              13.19
              %Total
      Capital Minimum Requirement
              
              
              4,090
              
              
              
              8.00
              
              
              
              4,514
              
              
              
              8.00Excess
              
              $
              2,645
              
              
              
              5.17
              %
              
              $
              2,931
              
              
              
              5.19
              %Risk-Adjusted
      Assets
              
              $
              51,128
              
              
              
              
              
              
              $
              56,428




Leverage
Ratios
 ($
in millions)
 September
      30, 2009
                
                
                December
      31, 2008Amount
                
                
                Ratio
                
                
                Amount
                
                
                RatioTier
      1 Capital
                
                $
                4,915
                
                
                
                8.52
                %
                
                $
                5,357
                
                
                
                8.56
                %Minimum
      Leverage Requirement
                
                
                1,731 - 2,884
                
                
                
                3.00
      - 5.00
                
                
                
                1,877 - 3,129
                
                
                
                3.00
      - 5.00Excess
                
                $
                3,184 -
      2,031
                
                
                
                5.52
      - 3.52
                %
                
                $
                3,480 -
      2,228
                
                
                
                5.56
      - 3.56
                %Adjusted
      Average Total Assets
                
                $
                57,680
                
                
                
                
                
                
                $
                62,587




On
October 27, 2009, the Corporation announced the closing of its public offering
of 156.4 million shares of its $1.00 par value common stock at $5.75 per
share.  The 156.4 million shares include 20.4 million shares issued
pursuant to an option granted to the underwriters by the Corporation, which was
exercised in full.  The proceeds, net of underwriting discounts and
commissions and offering expenses, from the offering amounted to $863.3 million.
The Corporation intends to use the net proceeds of this offering for general
corporate purposes and may contribute some portion of the net proceeds to the
capital of its subsidiaries, which will use these contributions for their
general corporate purposes.  The Corporation may also use a portion of
the net proceeds of this offering to repurchase portions of its outstanding
indebtedness from time to time in the future, to the extent M&I determines
that market conditions are favorable for doing so.  In addition, to
the extent that the Corporation’s Board of Directors determines at a future date
that it is in the best interests of the Corporation and its shareholders, the
Corporation may elect to repurchase a portion of  the Senior Preferred
Stock which repurchase may be funded in whole or in part by the remaining net
proceeds of this offering. The Corporation received a total of $1,415.1 million
in aggregate net proceeds from both this common stock offering and the June 17,
2009 common stock offering. Both offerings met the requirements for a “Qualified
Equity Offering.”  As a result, the Corporation could redeem Senior
Preferred Stock with an aggregate redemption price of up to $1,415.1 million.
Any repurchase of the Senior Preferred Stock would be subject to consultation
with and approval by the Corporation’s banking regulators.  To the
extent the Corporation seeks such approval, there can be no assurance that such
approval will be granted.
 
 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.
 
 Average
short-term investments amounted to $1.8 billion in the third quarter of 2009, an
increase of $1.4 billion compared to the third quarter of 2008.  At
the present time, short-term investments represents the Corporation’s most
readily available source of liquidity. This source of liquidity reflects
management’s decision to maintain higher levels of liquid assets.
   73
 Table of Contents




Another
readily available source of liquidity to the Corporation is its investment
portfolio.  Investment securities available for sale, which totaled
$6.3 billion at September 30, 2009, represent a highly accessible source of
liquidity.  The Corporation’s portfolio of held-to-maturity investment
securities, which totaled $0.1 billion at September 30, 2009, provides liquidity
from maturities.
 
 Depositors
within the Corporation’s defined markets are another source of
liquidity.  Core deposits (demand, savings, money market and consumer
time deposits) averaged $26.2 billion in the third 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 third 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 September 30, 2009 was 11.5
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
national capital markets represent a further source of liquidity to the
Corporation.
 
 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 2009, the Corporation re-acquired and extinguished
$809.2 million of debt. For the nine months ended September 30, 2009, the debt
consisted of various bank notes issued by the Corporation and its wholly-owned
subsidiary, M&I Bank.  The size of the blocks ranged from $70
thousand to $110.0 million with a weighted average buyback price of
approximately 91.5% 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, the common
stock issued in financing transactions through September 30, 2009 and
participation in the CPP in 2008 provided the Corporation with $2.3 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.
 
 On
October 27, 2009, the Corporation announced the closing of its public offering
of 156.4 million shares of its $1.00 par value common stock at $5.75 per
share.  The 156.4 million shares include 20.4 million shares issued
pursuant to an option granted to the underwriters by the Corporation, which was
exercised in full.  The proceeds, net of underwriting discounts and
commissions and offering expenses, from the offering amounted to $863.3
million.
 
 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 September 30,
2009, approximately $9.8 billion of new debt could be issued under M&I
Bank’s global bank note program.






74
 Table of Contents




Bank
notes outstanding at September 30, 2009 amounted to $3.2 billion of which $1.7
billion is subordinated.  A portion of the subordinated bank notes
qualifies as supplementary capital for regulatory capital purposes.
 
 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, from time to time in connection with
acquisitions by the Corporation and/or consolidated subsidiaries of the
Corporation.  At September 30, 2009, approximately 1.14 million shares
of the Corporation’s common stock could be issued under the shelf registration
statement for future acquisitions.
 
 During
the fourth quarter of 2007, the Corporation filed a shelf registration statement
pursuant to which the Corporation may issue corporate debt and/or equity
securities with a relatively short lead time, subject to market conditions, and
which may be used to register resales of securities acquired by shareholders in
transactions exempt from registration under federal securities
laws.
 
 
 OFF-BALANCE
SHEET ARRANGEMENTS
 
 Through
clean-up calls and other events, the Corporation fulfilled its present
obligations with respect to all of its auto securitization during the third
quarter of 2009. At September 30, 2009, there have been no other 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.
 
 In June
2009, the Financial Accounting Standards Board (“FASB”) issued the FASB
Accounting Standards CodificationTM (the
“Codification”) to become the single official source of authoritative,
nongovernmental U.S. Generally Accepted Accounting Principles (“GAAP”), except
for rules and interpretive releases of the SEC, which are also sources of
authoritative GAAP for SEC registrants.  The Codification is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009. The Codification did not change GAAP but reorganizes the
literature using a consistent structure organized by topic, subtopic, section
and paragraph, each of which is identified by a numerical
designation.  The Corporation ceased using prior GAAP references and
began using the new Codification when referring to GAAP in the discussion below
and in the Notes to Consolidated Financial Statements in its quarterly report on
Form 10-Q for the third quarter ending September 30, 2009.
 
 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:
   75
 Table of Contents




Specific
Reserve.  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.  The
Corporation’s nonaccrual loans subject to a minimum size and all renegotiated
loans form the basis to identify loans and leases that meet the criteria as
being “impaired.” 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.  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 less estimated selling costs.  The fair value of the
collateral, less estimated selling costs, is used  for collateral
dependent loans and loans for which foreclosure is deemed to be
probable.
 
 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.  At the
measurement date, the Corporation may identify loans within certain industry
segments that based on both internal and external environmental factors such as
financial, payment, collateral, performance risk profile, geographic or industry
segments, economic trends and portfolio composition unique to the measurement
period, warrant closer ongoing monitoring by management.  The specific
loans mentioned earlier are excluded from this analysis.  Based on
management’s judgment, reserve ranges may be allocated to these industry
segments.  Reserve ranges are then allocated using estimates of loss
exposure that management has identified based on these internal and external
environmental factors.
 
 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 September 30, 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.  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.  Elevated levels
of 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 loans and
leases.
 
 At
September 30, 2009, the Corporation determined that no sectors presented a
higher than normal risk due to their financial and external characteristics such
that the establishment of allowances for loan and lease losses was
required.
 
 The
Corporation’s primary lending areas are Wisconsin, Arizona, Minnesota, Missouri,
Florida and Indiana. Included in these 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.






76
 Table of Contents




Nonperforming
loans in Arizona represented 29.5% of total consolidated nonperforming loans and
leases at September 30, 2009 and continue to be the largest concentration of
nonperforming loans in the Corporation’s loan and lease portfolio.  In
addition, Arizona’s ratio of nonperforming loans to total loans of 11.19% was
the highest in the Corporation’s primary lending areas at September 30,
2009.  Nonperforming construction and development loans made up
approximately $395.2 million or 59.6% and nonperforming residential real estate
loans made up approximately $145.3 million or 21.9% of nonperforming loans in
Arizona at September 30, 2009.  Nonperforming loans in Florida
represented 11.8% of total consolidated nonperforming loans and leases at
September 30, 2009.  Florida’s ratio of nonperforming loans to total
loans of 9.19% was the second highest in the Corporation’s primary lending areas
at September 30, 2009. Approximately $123.3 million or 46.5% of nonperforming
loans in Florida at September 30, 2009 were construction and development
loans.
 
 Nonperforming
loans are considered to be those loans with the greatest risk of loss due to
nonperformance. At September 30, 2009, nonperforming loans amounted to $2,250.1
million or 4.88% of total loans and leases outstanding compared to $2,416.1
million or 5.01% of total loans and leases outstanding at June 30, 2009, a
decrease of $166.0 million or 6.9%. This is the first linked-quarter decline in
nonperforming loans in four years. The decrease in nonperforming loans at
September 30, 2009 reflects the effects of actions taken to reduce the levels of
nonperforming loans and the decline in new nonperforming loans during the third
quarter of 2009. Compared to the second quarter of 2009, the amount of new loans
and leases that went into nonperforming status in the third quarter of 2009
decreased by approximately $463 million or 35.5%.
 
 The
amount of cumulative net charge-offs recorded on the Corporation’s nonperforming
loans outstanding at September 30, 2009 was approximately $765.9 million or
49.9% of the unpaid principal balance of the affected nonperforming loans and
25.5% of the unpaid principal balance of its total nonperforming loans
outstanding at September 30, 2009.  These charge-offs have reduced the
carrying value of these nonperforming loans and leases which reduced the
allowance for loan and lease losses required at the measurement
date.
 
 Early
stage loan delinquencies (those loans delinquent 30-89 days) decreased by $217.7
million or 20.5%, from June 30, 2009 to September 30, 2009. This is the second
quarter that the Corporation experienced a decline in early stage loan
delinquencies after experiencing increases in 2008 and the first quarter of
2009.  Compared to December 31, 2008, early stage loan delinquencies
declined by $156.8 million or 15.7%.
 
 Renegotiated
loans amounted to $935.3 million at September 30, 2009, compared to $818.5
million at June 30, 2009 and $89.5 million at September 30,
2008.  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.
 
 Renegotiated
commercial loans amounted to $51.1 million or 5.5% of total renegotiated loans
at September 30, 2009.  At September 30, 2009, renegotiated real
estate loans, which includes commercial real estate, residential real estate and
construction and development loans, amounted to $785.0 million and accounted for
83.9% of the Corporation’s total renegotiated loans.  Renegotiated
commercial real estate and residential real estate loans amounted to $627.2
million or 67.0% of total renegotiated loans at September 30,
2009.  Renegotiated construction and development loans amounted to
$157.8 million or 16.9% of total renegotiated loans.  Renegotiated
home equity and other consumer loans amounted to $99.2 million or 10.6% of total
renegotiated loans.  Approximately $444.0 million or 47.5% of total
renegotiated loans at September 30, 2009 were related to renegotiated loans in
Arizona. At September 30, 2009, renegotiated residential real estate,
residential construction by individuals, residential land and other
consumer-related renegotiated loans represented 98.8%
of  Arizona’s  renegotiated loans. 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 consumer-related renegotiated
loans at September 30, 2009.  Significant judgment is required to
estimate expected future cash flows.






77
 Table of Contents




Net
charge-offs amounted to $532.7 million or 4.48% of average loans and leases in
the third quarter of 2009, compared to $603.3 million or 4.95% of average loans
and leases in the second quarter of 2009 and $152.3 million or 1.21% of average
loans and leases in the third quarter of 2008.  For the nine months
ended September 30, 2009, net charge-offs amounted to $1,464.0 million or 4.03%
of average loans and leases compared to $684.1 million or 1.85% for the nine
months ended September 30, 2008.  Net charge-offs of real estate loans
amounted to $317.4 million or 59.6% of total net charge-offs in the third
quarter of 2009 and $1,103.6 million or 75.4% of total net charge-offs in the
first nine months of 2009.  For the three and nine months ended
September 30, 2009, approximately $171.5 million and $583.2 million,
respectively, 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 highest levels of
impairment.
 
 Included
in net charge-offs for the three and nine months ended September 30, 2009 were
charge-offs related to loans to certain bank holding companies that amounted to
$157.8 million.  Approximately 75% of the loans charged-off were
current as of September 30, 2009. At September 30, 2009, the remaining loans
outstanding to bank holding companies was approximately $545.2
million.  In addition to one other large bank holding company loan
that had been previously fully reserved, additional reserves were established
during the third quarter of 2009 for the remaining loans.
 
 Approximately
$175.6 million or 33.0% of net charge-offs in the third quarter of 2009 were
related to Arizona. Excluding the charge-offs related to loans to certain bank
holding companies, net charge-offs related to Arizona represented 46.8% of the
net charge-offs reported in the third quarter of 2009. For the nine months ended
September 30, 2009, net charge-offs related to Arizona amounted to $673.1
million, or 46.0% of total reported net charge-offs. Excluding the charge-offs
related to loans to certain bank holding companies, net charge-offs related to
Arizona represented 51.5% of the net charge-offs reported for the nine months
ended September 30, 2009.
 
 Despite
the increase in nonperforming loans, net charge-offs related to Florida have
declined $27.9 million or 17.6% in the nine months ended September 30, 2009
compared to the nine months ended September 30, 2008.  For the nine
months ended September 30, 2009, net charge-offs related to Florida were 8.9% of
total net charge-offs.  For the nine months ended September 30, 2008,
net charge-offs related to Florida were 23.2% of total net
charge-offs.  Management believes the lower loss levels are an
indication that the high level of credit losses in this geographical market are
stabilizing.
 
 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 $1,413.7 million or 3.07% of total loans and leases outstanding at
September 30, 2009.  The allowance for loan and lease losses was
$1,367.8 million or 2.84% of loans and leases outstanding at June 30, 2009 and
$1,031.5 million or 2.05% of total loans and leases outstanding at September 30,
2008.  Consistent with the credit quality trends noted above, the
provision for loan and lease losses amounted to $578.7 million in the third
quarter of 2009 and $1,675.6 million in the nine months ended September 30,
2009. The provision for loan and lease losses for the three and nine months
ended September 30, 2009 included approximately $185.0 million for loans to
certain bank holding companies as previously discussed. 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.






78
 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.
 
 Federal
and state taxing authorities periodically review the Corporation’s
interpretation of Federal and state income tax laws and make assessments based
on their determination of 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 establishes tax liabilities
or reduces tax assets for uncertain tax positions when, despite its belief that
its tax return positions are appropriate and supportable under local tax law,
the Corporation believes it may not succeed in realizing the tax benefit of
certain positions if challenged. In evaluating a tax position, the Corporation
determines whether it is more likely than not that the position will be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. The
Corporation’s estimate of the ultimate tax liability contains assumptions based
on past experiences, and judgments about potential actions by taxing
jurisdictions as well as judgments about the likely outcome of issues that have
been raised by taxing jurisdictions. The tax position is measured at the largest
amount of benefit that is greater than 50% likely of being realized upon
ultimate settlement. The Corporation evaluates these uncertain tax positions
each quarter and adjusts the related tax liabilities or assets in light of
changing facts and circumstances, such as the progress of a tax audit or the
expiration of a statute of limitations. The Corporation believes the estimates
and assumptions used to support its evaluation of uncertain tax positions are
reasonable.
 
 During
the second quarter of 2009, the Corporation recognized an income tax benefit of
$18.0 million or $0.06 per diluted common share that resulted from the favorable
resolution of a tax matter associated with a 2002 stock issuance.  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 in the first
quarter of 2009 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.
 
 On an
ongoing basis, management evaluates  the deferred tax assets to
determine if a valuation allowance is required.  Realization of the
deferred tax assets can be subjective, and are therefore not assured. The
recoverability of deferred tax assets is based on the ability to carry back
losses, tax planning strategies and current forecasts for periods through which
losses may be carried forward. Based on its analysis of the positive and
negative evidence, the Corporation has determined that no valuation allowance
was required for the recorded Federal deferred tax assets at September 30,
2009.
 
 The
Corporation currently does not have any positions for which it is reasonably
possible that the total amount of unrecognized tax benefits will significantly
increase or decrease within 12 months of September 30, 2009.


79
 Table of Contents




Fair
Value Measurements
 
 The
Corporation measures fair value in accordance with the Fair Value Measurements
and Disclosures Topic of the Codification, which provides a framework for
measuring fair value under accounting principles generally accepted in the
United States of America.  The topic 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.  The topic also 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 being
valued.  The income approach involves converting future amounts based
on current market expectations about those future amounts to a single present
amount.  The cost approach is based on the amount that currently would
be required to replace the service capacity of an asset.
 
 The Fair
Value Measurements and Disclosures Topic of the Codification 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.
 
 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 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. See Note 11 in Notes to Financial Statements for the
discussion regarding the Corporation’s annual test for goodwill
impairment.
 
 Measurements
other than Level 1 involve various valuation techniques and models, which seek
to maximize inputs that are observable, when available.  Selecting the
relevant inputs, appropriate valuation techniques and 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.






80
 Table of Contents




Goodwill
Impairment Tests
  Goodwill
is tested for impairment using a two-step process that begins with an estimation
of the fair value of a reporting unit.  A reporting unit is an
operating segment, or one level below an operating segment, as defined by the
Segment Reporting Topic of the Codification.  This first step is a
screen for potential impairment. The second step, if necessary, measures the
amount of impairment, if any.  Goodwill is reviewed for impairment
annually as of June 30thor
more frequently if indicators of impairment exist.  Goodwill has been
assigned to six Reporting Units for purposes of impairment testing.
 
 Significant
judgment is applied when goodwill is assessed for impairment.  This
judgment includes developing cash flow projections, selecting appropriate
discount rates, identifying relevant market comparables, incorporating general
economic and market conditions and selecting an appropriate control
premium.  The assumptions used in the goodwill impairment assessment
and the application of these estimates and assumptions are discussed
below.
 
 The
estimated fair value for the Commercial Banking segment, Community Banking
segment, Private Banking reporting unit and Trust reporting unit at June 30,
2009 was determined by equally weighting an income approach (50%) and market
approach (50%) to assess if potential goodwill impairment existed. For the
Capital Markets reporting unit, National Consumer Banking reporting unit and the
Brokerage reporting unit the estimated fair value at June 30, 2009 was
determined by weighting 100% to an income approach.  The Corporation
determined that there was not sufficient comparable metrics associated with
guideline companies and those reporting units to place any reliance on the
market approach.
 
 The
income approach is based on discounted cash flows which are derived from
internal forecasts and economic expectations for each respective reporting
unit.  The key assumptions used to determine fair value under the
income approach included the cash flow period, terminal values based on a
terminal growth rate and the discount rate.  The discount rate, which
represents the estimated cost of equity, was derived using a capital asset
pricing model that uses a risk-free rate (20-year Treasury Bonds) which was 4.3%
at June 30, 2009. The risk-free rate was adjusted for the risks associated with
the operations of the Reporting Units.  The discount rates used in the
income approach for the six Reporting Units evaluated at June 30, 2009 ranged
from 10% to 22%.  An increase to the discount rate of 1% would have
lowered the fair value determined under the income approach for the six
Reporting Units evaluated at June 30, 2009 by a range of $3.3 million to $83.5
million or 6.3% to 47.0%.
 
 The
market approach is a technique that provides indications of value based upon
comparisons of the reporting unit to market values and pricing evidence of
public companies in the same or similar lines of businesses.  Market
ratios (pricing multiples) and performance fundamentals relating to the public
companies’ stock prices (equity) as of June 30, 2009 were applied to selected
reporting units as previously discussed to determine indications of its fair
value.
 
 The
aggregate fair values were compared to the Corporation’s market capitalization
as an assessment of the appropriateness of the fair value
measurements.  When assessing the Corporation’s market capitalization,
the Corporation used the average stock price for the month of June
2009.  The comparison between the aggregate fair values and market
capitalization indicated an implied premium.  A control premium
analysis indicated that the implied premium was within a range of the overall
premiums observed in the market place.
 
 As a
result of applying the first step of goodwill impairment testing to determine if
potential goodwill impairment existed at  June 30, 2009, Trust,
Private Banking, and Brokerage, the three reporting units that comprise the
Wealth Management segment, and the Capital Markets reporting unit “passed” (fair
value exceeded the carrying amount) the first step of the goodwill impairment
test.  The Commercial segment and the National Consumer Banking
reporting unit “failed” (the carrying amount exceeded the fair value) the first
step of the goodwill impairment test at June 30, 2009 and were subjected to the
second step of the goodwill impairment test.
 
 For the
four Reporting Units that passed step one, fair value exceeded the carrying
amount by 7% to 166% of their respected estimated carrying
values.  For the two Reporting Units that failed, the carrying amount
exceeded fair value by between 37% and 90%.






81
 Table of Contents




The
second step of the goodwill impairment test compares the implied fair value of
the reporting unit goodwill with the carrying amount of that
goodwill.  The implied fair value of goodwill is determined in the
same manner as the amount of goodwill recognized in a business combination is
determined.  The fair value of a reporting unit is allocated to all of
the assets and liabilities of that unit (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the price paid to acquire the reporting
unit.  The fair value allocated to all of the assets and liabilities
of that unit (including any unrecognized intangible assets) also requires
significant judgment, especially for those assets and liabilities that are not
measured on a recurring basis such as certain types of loans.  The
excess of the fair value of the reporting unit over the amounts assigned to its
assets and liabilities is the implied fair value of goodwill.  The
Corporation believes the implied fair value of goodwill is significantly
affected by unobservable inputs and would be categorized as Level 3 within the
fair value hierarchy.
 
 The
Corporation completed the second step of the process in order to determine if
there is any goodwill impairment for the two Reporting Units that failed step
one of the goodwill impairment tests.  In addition, the Corporation
performed the second step of the process for one reporting unit that marginally
passed step one of the goodwill impairment test.
 
 The
implied fair value of a reporting unit’s goodwill will generally increase if the
fair value of its loans and leases are less than the carrying value of the
reporting unit’s loans and leases.  The fair value of loans and leases
was derived from discounted cash flow analysis as described in Note 14 – Fair
Value of Financial Instruments in Notes to Financial Statements (“Note
14”).
 
 The
stress and deterioration in the national real estate markets, liquidity stress
and current economic conditions have depressed prices buyers and sellers are
paying and receiving for bank-related assets, especially loans and leases. The
Corporation’s allocation of the fair values to the assets and liabilities
assigned to the individual reporting units was less than their reported carrying
values. As a result, the Corporation was not required to recognize any goodwill
impairment upon completion of the second step of the goodwill impairment
test.
 
 Due to
the current economic environment and the uncertainties regarding the impact on
the Corporation’s reporting units, there can be no assurances that the
Corporation’s estimates and assumptions regarding the duration of the economic
recession, or the period or strength of recovery, made for purposes of the
Corporation’s annual goodwill impairment test will prove to be accurate
predictions of the future.  If the Corporation’s assumptions regarding
forecasted revenues or margin growth rates of certain Reporting Units are not
achieved, the Corporation may be required to record additional goodwill
impairment losses in future periods. It is not possible at this time to
determine if any such future impairment loss would result or, if it does,
whether such charge would be material.
 
 
 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
 
 This
report contains 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, in Item 1A in Part II of this
Report and as may be described from time to time in the Corporation’s subsequent
SEC filings.






82
 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 13 – 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 September 30, 2009:
 
 Hypothetical Change in Interest
      Rates
              
              Annual Impact100
      basis point gradual rise in rates
              
              
              (0.4
              )
      %100
      basis point gradual decline in rates
              
              
              (1.7
              )
      %
 
 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.
   83
 Table of Contents




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.
 
 
 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 September
30, 2009, the carrying value of total private equity investments amounted to
approximately $68.9 million.
  At
September 30, 2009, Wealth Management administered $118.5 billion in assets and
directly managed $32.8 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.






84
 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 (the
“Exchange Act”), 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 concluded 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.
   85
 Table of Contents




PART
II - OTHER INFORMATION
 
 ITEM 1A.  RISK FACTORS
 
 The risk
factors set forth below represent material additions to the Risk Factors set
forth in Item 1A. to Part 1 of the 2008 10-K.
 
 Risk
Factors
 
 The
Corporation’s real estate loans expose the Corporation to increased credit
risks.
 
 A
substantial portion of the Corporation’s loan and lease portfolio consists of
real estate-related loans, including construction and development, commercial
and residential mortgage loans, as well as home equity loans and lines of credit
(“HELOCs”). At September 30, 2009, construction and development, commercial real
estate and residential mortgage loans and HELOC’s represented approximately
13.7%, 30.1%, 11.1% and 10.4%, respectively, of the Corporation’s total loan
portfolio of $46.1 billion. As a result, the deterioration in the U.S. real
estate markets, along with the deterioration in the U.S. economy as a whole, has
led to an increase in nonperforming loans and charge-offs, and the Corporation
has had to increase its allowance for loan and lease losses. In addition, lower
property values have resulted in lower values for collateral securing some of
these loans. Further deterioration in the commercial or residential real estate
markets and in the U.S. economy would increase the Corporation’s exposure to
real estate-related credit risk and cause the Corporation to further increase
its allowance for loan and lease losses, all of which would have a material
adverse effect on the Corporation’s financial condition and results of
operations.
 
 Various
factors may cause the Corporation’s allowance for loan and lease losses to
increase.
 
 The
Corporation’s 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 unique to each measurement date are also
considered, including economic conditions in certain geographic or industry
segments of the loan portfolio, economic trends, risk profile and portfolio
composition. The determination of the appropriate level of the allowance for
loan and lease losses is highly subjective and requires management to make
significant estimates of current credit risks and future trends, all of which
may undergo material changes. If actual losses exceed the estimate, the excess
losses could adversely affect the Corporation’s net income and capital. Such
excess losses may require an increase in the allowance for loan and lease
losses. Changes in economic conditions affecting borrowers, new information
regarding existing loans, identification of additional problem loans and other
factors, many of which are outside of the Corporation’s control, may also
require an increase in the allowance for loan and lease losses. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the adequacy of the Corporation’s allowance for loan and
lease losses. These agencies may require the Corporation to establish additional
allowances for loan and lease losses based on their judgment of the information
available at the time of their examinations. Any increase in the allowance for
loan and lease losses will result in a decrease in net income and capital, and
would have a material adverse effect on the Corporation’s financial condition
and results of operations. The Corporation cannot provide any assurances that it
will not sustain losses in excess of its allowance for loan and lease losses or
that the Corporation will not be required to increase such
allowance.






86
 Table of Contents




A
failure by the Corporation to maintain required levels of capital could have a
material adverse effect on the Corporation.
 
 Banking
regulations require the Corporation to maintain adequate levels of capital, in
order to support its operations and fund outstanding liabilities. Furthermore,
each of the Corporation’s subsidiary banks is required to maintain specific
capital levels. If any of the subsidiary banks fails to maintain the required
capital levels, the subsidiary banks could be subject to various sanctions by
federal regulators that could adversely impact the Corporation. Such sanctions
could potentially include, without limitation, the termination of deposit
insurance by the Federal Deposit Insurance Corporation, limitations on the
subsidiary banks’ ability to pay dividends to the Corporation and the issuance
of a capital directive by a federal regulatory authority requiring an increase
in capital.
 
 The
Corporation’s ability and the ability of its subsidiary banks to raise
additional capital, if needed, may be impaired by changes and trends in the
capital markets that are outside the Corporation’s control. Accordingly, there
can be no assurance that the Corporation or its subsidiary banks will be able to
raise additional capital, if needed on terms acceptable to the Corporation or
its subsidiary banks.
 
 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
      Numberof Shares Purchased (1)
              
              
              AveragePrice Paid per Share
              
              
              Total
      Numberof Shares Purchased as Part of Publicly Announced Plans or
      Programs
              
              
              Maximum
      Numberof Shares that May Yet Be Purchased Under the Plans or
      ProgramsJuly
      1 toJuly 31, 2009
              
              
              26,312
              
              
              $
              6.59
              
              
              
              N/A
              
              
              
              N/AAugust
      1 toAugust 31, 2009
              
              
              8,411
              
              
              
              4.72
              
              
              
              N/A
              
              
              
              N/ASeptember
      1 toSeptember 30, 2009
              
              
              34,897
              
              
              
              6.33
              
              
              
              N/A
              
              
              
              N/ATotal
              
              
              69,620
              
              
              $
              6.23
              
              
              
              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
(the “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 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources in
this Quarterly Report on Form 10-Q for additional information regarding the
CPP.
 
 The
Corporation’s Share Repurchase Program expired and was not reconfirmed in April
2009.
   87
 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(i)
                
                Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350.Exhibit
      32(ii)
                
                Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section
    1350.






88
 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
 
 
 
 
 November
9, 2009
   89
 Table of Contents




EXHIBIT INDEX
 
 Exhibit Number
              
              Description of Exhibit11
              
              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(i)
              
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section
    1350.32(ii)
              
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section
    1350.
   90