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Financial Analysis of Marshall Pottery

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Netra Shetty
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Financial Analysis of Marshall Pottery - February 12th, 2011

Marshall Pottery Inc. is the largest manufacturer of red clay pots in the United States. Marshall Pottery operates a 100,000 ft (9,000 m) retail store adjacent to its headquarters in Marshall, Texas, which attracts over 500,000 tourists each year.
Marshall Pottery was founded by W. F. Rocker in Marshall in 1895. Rocker located the business in East Texas because of its abundant water and white clay deposits. In 1905 Marshall Pottery was acquired by Sam Ellis. With the invention of the glass canning jar and other new competing products in the 1920s, the business almost folded. Prohibition led to a thriving moonshine industry and a need for inexpensive jugs to store the liquor. If not for the sale of jugs during Prohibition, Marshall Pottery would likely have gone bankrupt.
In the 1940s, with the discovery of a clay that required a lower firing temperature, the pottery began producing flower pots. For many years the company continued to employ potters as its primary means of manufacturing. One of these employees, Pete Payne, became a master potter and displayed his technique at the Smithsonian Institution. Since the construction of a new facility in 1998 most of the pottery's production has been automated. However, hand made pottery can still be purchased, and tourists can watch potters create it.

Marshall & Ilsley (MI) is the country’s 19th largest bank in terms of assets, with over $56 billion in assets, and 20th in terms of market capitalization. M&I still operates primarily as a regional bank, with over more than half of its 300+ branches operating in Wisconsin (giving it the largest presence in the state of any bank). The bank has recently been expanding into other areas with high growth rates, like St. Louis, Minneapolis, and Phoenix. As a smaller bank, M&I has traditionally relied on its customer service and small-town-bank feel in cases where it cannot compete with the Interest Rates of larger banks. To this end, the company’s management has suggested it will attempt to broaden its exposure in the high-growth areas instead of trying to expand beyond the nine states in which it currently operates branches. While some banks were hard hit during the July '07 credit crunch, Marshall & Ilsley emerged relatively unscathed. Although the increased their provisions for loan and lease foreclosures to just over 1 % of total loans (about double from the previous year), M&I's net interest income was still up 2 % in the third quarter of '07 compared to the same quarter of the year before. Additionally, more than 60% of M&I's outstanding loans are commercial, meaning that the plight of individuals with overstretched credit forced to foreclose would not affect M&I as drastically as other regional banks that cater more towards individuals. A final factor affecting the performance of M%I in the near future is the result of spinning off Metavante, the segment of the bank (comprising approximately 20% of total revenue) in charge of data processing services. Despite the previous success of the Metavante segment, M&I could use the cash from the transaction to increase its other acquisitions and offset the lost revenue. [1]

Contents
1 Business Financials
2 Key Trends and Forces
3 Competition
4 Notes

Business Financials

M&I's net annual income has continued to rise at a fairly steady rate over the past five years (14.4% in 2006) as the company expands its branch operations to other states.






Key Trends and Forces

M&I's performance is sensitive to a small economy:
Although M&I is taking further steps to expand beyond its Wisconsin roots, the bank still operates approximately 60% of its branch offices in its home state. As a big supplier of small business loans, any event or long-term trend that would adversely affect the economy of Wisconsin would have an overly large effect on M&I compared to its competitors.


Credit Market risk is inherent with any bank stock:
The stock market as a whole has suffered some drastic shocks due to an overdrawn credit market and increased rate of mortgage foreclosures. While M&I has traditionally been known for a relatively risk-averse credit team and balanced credit portfolio, another stretch of market uncertainty like the one seen at the end of summer 2007 would hurt their earnings, along with those of the industry as a whole.


Interest Rate fluctuations can drastically affect a bank's revenue:
The federal funds rate is the interest rate at which banks lend money to each other. It is set by the Federal Reserve Bank in response to various economic factors. A higher federal funds rate would correspond to a higher saving/lending rate for a bank, meaning that more people would be willing to save but fewer willing to borrow, whereas a lower rate would lead to more borrowing but less money being deposited for savings. The Fed has not changed the federal funds rate as often lately, but changes have big effects on banks.





Online banking may supplant the small-town banks:
As online-only banks like Capital One gain greater prominence in an increasingly-digital world, banks that rely on customer service and friendly bank tellers at local branches will have a harder time competing with the larger banks because of higher capital costs.
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