) --

Marshall & Ilsley


on Wednesday reported a fourth-quarter loss of $259.5 million or 54 cents a share, wider than Wall Street expectations, but shares were higher as net interest margins improved and the company said credit costs were showing signs of stabilization.

The average estimate of analysts polled by

Thomson Reuters

was for a loss of 48 cents a share in the December period.

The performance compared to losses of $223 million or 68 cents a share, in the third quarter and $1.9 billion, or $7.25 a share, in the fourth quarter of 2008. The year-ago quarterly results include non-cash goodwill impairment charges of $1.5 billion.

The net loss for all of 2009 was $859 million or $2.46 a share, compared to a net loss of $2.1 billion of $7.92 per share for 2008.

The fourth-quarter loss reflects another large provision for loan losses as Marshall & Ilsley continues to work through its nonperforming loans. The provision for the latest quarter was $639 million, up from $579 million in the third quarter but down from $850 million in the same period a year earlier.

After net loan charge-offs of $572 million during the fourth quarter, nonperforming loans and repossessed real estate totaled $2.48 billion, or 4.33% of total assets, down from 4.43% in September, but up from 2.96% at the end of 2008.

Marshall & Ilsley also reported a third straight sequential decline in early-stage delinquencies -- loans that are past due 30 or more days but still considered performing -- which were reduced by $134 million, or 16%, in the latest quarter from third-quarter levels. The company also said that nonperforming loans decreased by $205 million, or 9%, in the latest quarter on a sequential basis.

Net loans charge-offs (actual loan losses) increased to $572 million during the fourth quarter from $533 million during the third quarter, but were down from $680 million in the fourth quarter of 2008.

The annualized ratio of net charge-offs to average loans for the fourth quarter was 5.01%, and with reserves covering just 3.35% of loans at the end of 2009, it appears likely that Marshall & Ilsely will need to continue making large quarterly provisions for loan loss reserves, leading to more quarterly net losses.

In the release CEO Mark Furlong said that during the fourth quarter there were "encouraging signs that credit quality has stabilized and core earnings trends have improved. M&I remains committed to returning the Company to profitability as soon as possible."

Bright spots in the latest quarter included an improved net interest margin -- the difference between the average rate earned on loans and investments and the average cost of funds -- which increased to 2.95% during the fourth quarter from 2.82% the previous quarter, although it was down from 3.19% in the fourth quarter of 2008, reflecting continued growth in non-interest-bearing deposits.

While the company didn't provide estimated regulatory capital ratios in its press release, its ratio of total equity to assets was 12.2% as of Dec. 31, up from 10.9% at the end of the third quarter and 10.1% at the end of 2008. The tangible common equity ratio was 8.2%, up from 7.0% in September and 6.4% at the end of 2008, reflecting a second-quarter stock offering that raised $552 million in new capital.

The company continues to participate in the Troubled Assets Relief Program, having issued $1.7 billion in preferred shares to the government in November 2008.

The stock rose 4.3% to $7.27 in recent action. Volume of 7.2 million compared to the issue's trailing three-month daily average of 12.5 million.


Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.