Marshall & Ilsley Corporation’s (MI) second-quarter loss of 33 cents per share was higher than the Zacks Consensus Estimate of a loss of 26 cents per share. However, the loss significantly narrowed from 83 cents reported in the year-ago quarter.
Results for the reported quarter primarily benefited from a lower provision for loan and lease losses, decreased non-interest expenses and slightly improved interest income. However, a substantial decrease in non-interest revenues and lower average loans and leases were the downside.
M&I’s first quarter net loss came in at $173.8 million, compared with a net loss of $234.0 million in the prior-year quarter.
Behind the Headlines
Tax equivalent net interest income for the reported quarter increased 2% year over year to $407.3 million. Net interest margin (NIM) improved 4 basis points (bps) sequentially and 38 bps year-over-year to 3.17%. Improvement in net interest margin for the reported quarter was aided by lower funding costs and deployment of excess liquidity.
Non-interest revenues for the reported quarter were $174.0 million, down 34% from $264.8 million in the prior-year quarter. Non-interest income for the reported quarter included a nonrecurring gain of $4.6 million compared with $91.9 million in the year-ago quarter. Wealth Management revenue increased 6% year-over-year to $69.9 million.
Provision for loan and lease losses was $439.9 million, down 29% from $619.0 million in the year-ago quarter.
Assets Under Management and Assets Under Administration were $31.7 billion and $121.4 billion, respectively, at quarter-end, compared to the year-ago quarter’s $31.7 billion and $109.3 billion.
Non-interest expenses decreased 6% year-over-year to $388.0 million. Credit-related expenses were $37.5 million, down 16% from $44.5 million in the prior-year quarter. Efficiency ratio for the reported quarter came in at 67.2%, down from 71.1% in the year-ago quarter.
At the end of the quarter, the allowance for loan and lease losses increased 83 bps year over year to 3.67% of total loans and leases.
Evaluation of Credit Quality
Credit quality significantly improved during the quarter, with lower net charge-offs and nonperforming assets. Net charge-offs decreased 78 bps year-over-year to 4.17% of average loans and leases and nonperforming assets decreased 33 bps year-over-year to 5.38% of period-end loans & leases and other real estate owned.
As on June 30, 2010, M&I’s tangible common equity ratio was 8.3%, compared to 7.2% at June 30, 2009. Book value per share declined significantly to $9.72 from $13.58 at the end of the prior-year quarter.
M&I continues to suffer from its exposure to construction and residential development loans in some of its newer markets such as Arizona and Florida. Though management has been able to meet most of the challenges by drastic cost-cutting, bonus-freezing and dividend reduction, lack of core deposit growth will be a drag on upcoming results.
M&I currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, in the absence of any significant positive or negative catalysts, we maintain a long-term Neutral recommendation on the stock.
Read the full analyst report on “MI”
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