Marshall & Ilsley Corp.'s (MI)'s second-quarter loss narrowed on sharply lower loss provisions, but loan quality continued to worsen during the quarter.

Wisconsin's largest bank has cut costs and jobs and slashed its dividend to preserve cash. It has struggled with heavy exposure to some of the most troubled housing markets, as well as commercial construction loans.

In recent premarket trading, shares rose 2 cents to $5.30 as the loss was narrower than expected. The stock is down 61% this year.

Last month, Marshall & Ilsley joined other banks in boosting capital, netting proceeds of about $552 million from selling 100 million shares, roughly 38% of its shares outstanding.

Chief Executive Mark Furlong said Friday the second quarter "continued to be challenging" but the company was working on resolving problem credits. "We remain committed to ensuring M&I emerges from this cycle in a position of strength and believe we are continuing to make progress toward our goal of returning to profitability," the CEO said.

Marshall & Ilsley's loss narrowed to $114.3 million, or 50 cents a share, from $393.8 million, or $1.52 a share, a year earlier. The latest results included a net 8 cents in gains. Analysts polled by Thomson Reuters expected a loss, excluding items, of 69 cents.

Loan-loss provisions rose 2% from the prior quarter to $477.9 million but slumped 47% from a year earlier. Charge-offs, or loans thought not to be collectible, rose to 3.71% of average loans and leases from 3.23% a year ago and 2.67% in the prior quarter. Non-performing loans, or those near default, rose to 5.18% of total loans and leases from 2% a year ago and from 5.15% in the prior quarter.

The company's tangible common equity ratio, which measures how much of a bank's hard assets its common shareholders actually own, was 7.3%, compared with 6.4% in the prior quarter.

Deposits rose 2.1% from a year earlier and 0.5% during the quarter. Marshall & Ilsley also continued to see its lending book shrink, with loans and leases down 2% from a year ago and 0.8% from the prior quarter.

-By Mike Barris, Dow Jones Newswires; 212-416-2330; mike.barris@dowjones.com