Thursday, July 17, 2008

M&I in Tombstone...

Arizona is not healthy for M&I Bank. Taken from the conference call notes:

...As of quarter end we had had $661 million in construction and development loans on nonperforming status representing 63% of our total nonperforming loans. ... [O]f these nonperforming construction and development loans, two-thirds are in the Arizona , west coast of Florida , and correspondent businesses.

...M&I has $2.3 billion in residential land loans to individuals and developers. $1.5 billion, or 66%, are located in Arizona . The bulk of the Arizona loans, nearly 70%, are in Maricopa County . ... LTVs are approximately 115%. Residential land accounts for $219 million of nonperforming loans of which 55% are based in our Arizona business unit.

On the individual mortgages, it is NOT "sub-prime" problems:

...we maintained our underwriting discipline through the cycle, have never originated subprime loans, and have avoided many of the more risky loan products. Nonetheless, during the quarter, our nonperforming residential loans have increased to $21 million, or 2.1% of the portfolio. Within the residential portfolio, we have seen some deterioration in many of our markets with the Arizona market being most notable.

What the hell. Arizona doesn't have much water, either. Close up the bank, operate the trust company only down there.

HT: Calculated Risk

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