Improved credit quality, a better contribution from its data processing unit, and higher fee income helped Marshall & Ilsley Corp. overcome lower mortgage banking revenues to report a 12.7% increase in fourth-quarter profits.
The $34.4 billion-asset Milwaukee regional banking company said net income was $141 million, or 62 cents a share, in line with the average estimate of analysts as tracked by Thomson First Call. In the year-earlier period M&I had a 1-cent-per-share charge for an acquisition by the data processing subsidiary, Metavante.
Marshall & Ilsley chief financial officer Mark Furlong said in a conference call Wednesday that it achieved the 6%-8% revenue growth and 10% profit growth it had told analysts last year to look for. He said to expect the same growth this year and a strong second half from Metavante.
Mortgage banking revenue fell 72.2%, to $6.7 million. But lower premium amortization expenses and third-quarter debt refinancing resulted in an 11-basis-point increase in net interest margin, the profit a bank makes on its loans. Net interest income rose 2.5%, to $278.1 million.
John Arfstrom, an analyst with Royal Bank of Canada's RBC Capital Markets, said, "It looked like a typical M&I quarter - asset quality was clean and loan growth was good."
Jason Goldberg of Lehman Brothers said the results were pretty solid but that he expected per-share earnings to be 1 cent higher. "Net margin was up nicely and it was one of one of the bigger increases we have seen so far," he said.
Analysts were hoping that SunTrust Banks Inc. had set a trend for the earnings season when it reported Monday that its net margins improved by 11 basis points.
Arielle Whitman of Sandler O'Neill & Partners LP said M&I's results were a penny above her estimate, because of better-than-expected growth in net interest income. Ms. Whitman, who has a "hold" on the stock, said her 2004 EPS estimate is $2.54.
There were some unusual items, including a lower effective tax rate that resulted in a $9.5 million reduction in income taxes. M&I also wrote off some capitalized software costs and took charges related to staff cutbacks at Metavante. Offsetting some of these charges were $5.9 million of securities gains.
About 30% of M&I's revenues came from Metavante, whose revenues rose 12.9%, to $176.5 million. Trust revenues rose 14.3%, to $33.5 million, and loans and leases rose 5.3%, to $25.19 billion.
Commercial loans rose 6.8%, helped more by improved sales efforts than stronger demand. Mr. Furlong said in an interview that he expects growth in the high single digits for commercial lending this year. The growth will probably "be bumpy for a while," he said.
Loan growth was substantially driven by increased market share, especially in newer markets such as Arizona, rather than an increase in demand for commercial loans, Mr. Furlong said.
Credit quality is also improving; Marshall & Ilsley's loan-loss provision fell 58.1%. Mr. Furlong said commercial customers have been paying down lines of credit and keeping their excess cash in demand deposit accounts. As demand picks up, he said, customers will use the excess cash before drawing down lines of credit.
Shares of Marshall & Ilsley rose 1% to close at $36.55.
