Marshall & Ilsley Corp.’s (MI) third-quarter loss of 68 cents per share was in line with the company’s forecast earlier this month as well as the Zacks Consensus Estimate. Also, this compares unfavorably with the earnings of 32 cents per share in the prior-year quarter.
 
The company expected to report a loss of 68 cents to 70 cents for the quarter. The loss was due primarily to a higher loan loss provision for bank holding company loans. At the end of the quarter, the allowance for loan and lease losses increased 23 basis points (bps) sequentially to 3.07% of total loans and leases.
 
Credit quality significantly deteriorated during the quarter with rising net charge-offs and nonperforming assets. Net charge-offs increased 327 bps year over year to 4.48% of average loans and leases and Nonperforming assets increased 259 bps year over year to 5.60% of period-end loans & leases and other real estate owned.
 
The results for the quarter included debt termination gains of $56 million or 10 cents per share, credit-related expenses of $70 million or 12 cents per share, and dividends paid to U.S. Treasury under the Troubled Asset Relief Program (TARP) of $25 million or 7 cents per share.
 
Tax Equivalent net interest income decreased 11.8% year over year to $394.5 million. The net interest margin (NIM) deteriorated 24 bps year over year to 2.82%. However, NIM improved 3 bps sequentially. During the third quarter, M&I’s net interest margin benefited from a lower level of nonperforming loans and the maturity of certain debt instruments. These improvements were partially offset by the company’s decision to maintain excess liquidity.
 
Non-interest income increased 24% year over year to $227.9 million. Non-interest income for the quarter included debt termination gains of $56.1 million and losses on loans held for sale of $18.1 million.
 
Assets under Management and Assets under Administration were $32.8 billion and $118.5 billion, respectively at quarter end, compared to last year’s $24.4 billion and $101.3 billion.
 
Non-interest expense for the quarter increased 13.7% year over year to $409.4 million. Credit-related expenses were $70.3 million for the reported quarter, versus $20.5 million in the prior-year quarter. After adjusting for certain net credit-related expenses and other one-time items, M&I’s efficiency ratio was 57.6% in the current quarter.
 
At Sep 30, 2009, M&I’s tangible common equity ratio was 7.0%. Book value per share declined significantly to $12.98 from $25.12 at the end of the prior-year quarter.
 
The company yesterday announced that it will raise at least $750 million in a stock offering to boost the capital of its subsidiaries. M&I also intends to use some of the funds to repay part of the $1.7 billion it received earlier this year under the TARP.
 
M&I is a diversified financial services company, providing its clients with trust and investment management, equipment leasing, mortgage banking, financial planning, insurance, and other bank related services. In addition to its financial services, the company’s wholly owned technology subsidiary, Metavante Corp., provides technology support services to financial services companies.
 
The bank continues to suffer from its exposure to construction and residential development loans in Arizona, Florida’s west coast and certain correspondent channels. The management has taken aggressive steps in identifying credit issues and building capital, which we believe will help the company to take advantage of opportunities going through the cycle than most of its peers. However, worse credit quality, lack of core deposit growth and continuous pricing pressures on both sides of the balance sheet will be a drag on upcoming results.
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