Marshall & Ilsley Misses Street Loss View

Milwaukee-based M&I posted a wider than expected loss for the second quarter as loan losses remained a concern for the bank holding company.
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MILWAUKEE (TheStreet) -- Marshall & Ilsley (MI) posted a wider than expected loss for the second quarter on Tuesday as loan losses remained a concern for the bank holding company.

The stock tumbled in early trades on Tuesday, losing more than 7% to $7.13 on volume of nearly 5 million. Through Monday's close, the shares were up more than 40% year-to-date, but they had pulled back 28% from a 52-week high of $10.66 set on April 21.

The bank reported a net loss to common shareholders of $173.8 million, or 33 cents a share, for the three months ended June 30, missing the average estimate of analysts polled by

Thomson Reuters

for a loss of 26 cents a share in the period.

The net loss in the latest quarter reflects the payment of $25.2 million, or 5 cents a share, in dividends on preferred shares, including $1.72 billion held by the Treasury for bailout money received in November 2008 through the Troubled Assets Relief Program, or TARP.

The latest results compare to net losses of $140.5 million, or 27 cents a share, in the first quarter, and $234 million, or 83 cents a share, in the year-ago equivalent period.

Net charge-offs - loan losses less recoveries - were $438 million for the second quarter, increasing from $423 million in the first quarter. However, the latest total was down sharply from $603 million during the second quarter of 2009.

M&I also continued to increase its reserves, as its $440 million provision for loan loss reserves exceeded charge-offs slightly. Loan quality did show some improvement, however, as nonperforming assets - including nonaccrual portfolio loans and repossessed real estate -- comprised 4.17% of total assets as of June 30, down from 4.26% the previous quarter and 4.65% a year earlier.

M&I's decision to increase its loan loss reserves ran counter to some regional players, including

Zions Bancorporation

(ZION) - Get Report

, which reported a loan loss provision lower than its charge-offs, thus "releasing" reserves and improving the bottom line.

The earnings results of several of the largest U.S. banks that reported last week were boosted by reductions in loan loss reserves second quarter, including


(C) - Get Report

, which set aside $3.6 billion for loan loss reserves while net loan charge-offs totaled $6.5 billion, thus "releasing" $2.6 billion in reserves and boosting operating earnings by that amount.

Bank of America

(BAC) - Get Report

released 1.45 billion in loan loss reserves during the second quarter, and

JPMorgan Chase

(JPM) - Get Report

released $2.8 billion in loan loss reserves.

M&I's CEO Mark Furlong said the company's second-quarter results "were in line with the prior quarter after adjusting for last quarter's gain on the sale of our merchant processing business." He also said that Marshall & Ilsley's management would "increasingly shift toward a return to profitability and growth opportunities."

The bank's net interest margin -- essentially the average yield on loans and investments less the average cost of funds -- was 3.17% for the second quarter, increasing from 3.14% the previous quarter and 2.79% a year earlier, as the company continued to enjoy low funding costs and benefited from the "deployment of excess liquidity."


Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., 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.