by Calculated Risk on 7/16/2008 01:44:00 PM

M&I reported this morning. From MarketWatch: Marshall & Ilsley posts second-quarter loss of $394 million

Here are some comments from the conference call:

As we discussed earlier this month, M&I, like other banks, has experienced continued deterioration in the national residential real-estate markets during the second quarter. In addition, we have noted some stress among our consumers with conventional non accruals picking up but with home equity remaining stronger. Our commercial lending portfolio has maintained its strong credit profile

We have already realized partial charge-offs of $386 million against our nonperforming loans, representing a 27% haircut, which is up from 18% last quarter. Within our loan portfolios, we continue to focus on our residential related construction and development categories. These loans are in both our commercial real estate and residential real estate portfolios depending on the underlying collateral. 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.

We have seen further deterioration in the residential land portfolio during the second quarter. ... 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. ...

With regard to conventional mortgages, we have noted deterioration as individuals are feeling increased economic stress. As we've noted before, 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. We continue to aggressively monitor and manage this portfolio. To provide further granularity on our Arizona residential portfolio, the average loan is around $300,000, and the average nonperforming loan is slightly higher. The average refreshed FICO score on this portfolio is 716. The average updated LTV is approximately 90%.
emphasis added

Note the large concentration of land loans in Arizona with LTV of 115%. Ouch. During housing busts, land prices usually fall a great percentage than existing home prices. So many of these 115% LTV loans will probably be much higher soon.

Also note that M&I is fairly conservative, and the nonperforming residential loans are NOT subprime.

From the Q&A:

Analyst: Can you give us [the loss severity] number on Construction & Development (C&D)?

M&I: You know, I would rather not put that out there. I would tell you that the C & D haircut is going to be higher than the 27%.