Corus Dividend May Disappear

Hard times ahead in the condo market eventually could cost Corus its dividend.

Condominium financing is another part of the banking business that is suffering with the real estate downturn, as reported recently by TheStreet.com.

While it may not seem fair to pile on Corus Bank NA (the main subsidiary of Chicago-based Corus Bankshares Inc. CORS), the institution is an example of how overconcentration in one area can pay off in a bubble market, but lead to major risk during a cooling off.

The holding company's stock price has plummeted along with condominium loan quality. And while Corus' management would certainly disagree, its attractive stock dividend could be threatened if loan quality weakens further.

Corus Bankshares common stock currently yields 7.1%, based on quarterly dividends of 25 cents a share. The company also paid out a special dividend of $1 a share on Aug. 1 to return excess capital to shareholders.

In its announcement of the special dividend, the holding company stated that it could afford the $56 million payout, as it had $308 million in cash and marketable securities. The holding company also stated that Corus Bank had total capital of just over $1 billion and only needed $700 million to be considered well capitalized under regulatory requirements.

While the current numbers make it appear unlikely that the holding company's dividend payments will be threatened in the near future, the possibility exists. Further weakness in condominium-loan asset quality will continue to hurt earnings.

Another thing to consider is that Corus Bank's ratio of loan loss reserves to adjusted nonperforming loans was a low 23.7% as of June 30. If worsening loan quality or regulatory concerns force the institution to sharply increase its loan loss reserves, earnings could effectively be wiped out for one or more quarters, threatening the dividend.

As of June 30, 2007, Corus Bank reported nonperforming multifamily mortgages of $200.9 million. The institution's adjusted ratio of nonperforming assets to total assets was 2.14%. Its adjusted ratio of nonperforming loans total loans was 5.06%. In comparison, Corus reported zero nonperforming multifamily loans in June of 2006, and its ratio of nonperforming loans of all types to total loans was negligible, at 0.01%.

As of March 31, 2007 (the last date for which aggregate industry figures are available), Corus Bank had 17% of the total nonperforming multifamily mortgages for all U.S. banks and thrifts. This was quite an achievement for an institution with less than 1% of the industry's total assets.

Only four other U.S. banks and thrifts with more than $5 billion in assets had higher nonperforming asset ratios:

During the real-estate boom, rampant speculation in condominiums caused two forms of excess: overdevelopment of new condo projects, and a host of conversions of rental apartments to condominium units. Now that the irrational run-up has ended, many condominium projects are in danger of failing because the developers can't sell the units fast enough. Several areas are facing a serious oversupply of condominium units.