Marshall & Ilsley Corporation’s (MI) first-quarter loss of 27 cents per share was substantially lower than the Zacks Consensus Estimate of a loss of 40 cents per share. This also compares favorably with the loss of 44 cents in the prior-year quarter.

Results for the reported quarter primarily benefited from higher non-interest revenues, nearly stable net interest income and lower provision for loan and lease losses. However, increased non-interest expense and lower average loans and leases were the downside.

Marshall & Ilsley first quarter net loss came in at $140.5 million, compared with a net loss of $116.9 million in the prior-year quarter.

Behind the Headlines

Tax equivalent net interest income for the reported quarter increased 1% sequentially but remained relatively flat compared to the year-ago quarter at $409.1 million. Net interest margin (NIM) improved 18 basis points (bps) sequentially and 31 bps year-over-year to 3.13%. Improvement in net interest margin for the reported quarter was aided by lower funding costs and partial exploitation of excess liquidity.

Non-interest income for the reported quarter was $227.6 million, up 29% from $176.7 million in the prior-year quarter. Non-interest income for the reported quarter included a nonrecurring gain on sale of M&I’s merchant processing portfolio of $48.3 million. Wealth Management revenue increased 9% year-over-year to $68.1 million.

Assets Under Management and Assets Under Administration were $32.7 billion and $124.6 billion, respectively, at quarter-end, compared to last year’s $29.7 billion and $101.5 billion.

Non-interest expense decreased 9% sequentially but increased 8% year-over-year to $371.9 million. Credit-related expenses were $46.5 million, compared to $69.1 million in the prior quarter and $42.0 million in the prior-year quarter. Efficiency ratio for the reported quarter came in at 58.4%, down from 59.0% in the year-ago quarter.

At the end of the quarter, the allowance for loan and lease losses increased 20 bps sequentially to 3.55% of total loans and leases.

Evaluation of Credit Quality

Credit quality significantly deteriorated during the quarter, with rising net charge-offs and nonperforming assets. Net charge-offs increased 127 bps year-over-year to 3.94% of average loans and leases and nonperforming assets increased 71 bps year-over-year to 5.59% of period-end loans & leases and other real estate owned.

As on Mar 31, 2010, Marshall & Ilsley’s tangible common equity ratio was 8.1%. Book value per share declined significantly to $9.95 from $17.45 at the end of the prior-year quarter.

The ongoing financial turmoil has marred core growth across sectors, and financial services did not go unscathed. Non-performing loans, declining credit quality in a lean job market and constant fluctuations in the financial markets have led to a substantial loss of earnings for M&I as well, compared to historical levels.

However, the company has been able to meet most of the challenges by drastic cost-cutting, bonus-freezing and dividend reduction. We believe that as the economy advances into a more favorable environment, M&I with a satisfactory net interest margin, a strong capital base and ample liquidity will be able to meet the fund requirements of its customers.
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