Corus Dividend May Disappear

In its second-quarter 2007 earnings release, Corus Bankshares provided a detailed analysis of its asset quality problems. Four condominium projects represented the majority of Corus Bank's problem loans. Two of them were on the Gulf Coast of Florida.

Corus stated that because of additional contributions from other lenders subordinate to Corus, interest and principal payments were actually still "current" for all of its nonaccruing condominium loans. This means that while the institution couldn't book all of these payments as interest income, the money was still coming in. There was no assurance that these payments would continue.

Condo Financing During the Boom

During the real estate bubble, Corus' condominium loans were a fairly safe bet. In its filing, Corus describes the Florida presale market, where condominium sales contracts generally require a 20% nonrefundable deposit.

Large deposits worked well during the real estate boom to ensure that buyers would fulfill their contracts. These days, however, condominium unit prices have fallen so much that many buyers simply walk away and forfeit their deposits.

Until 2007, Corus's condominium focus worked like a charm. The institution was not forced to charge a net loss against any condominium loans for nine years, through 2006. The focus on condominium loans also protected the institution from interest rate risk -- the majority of these loans have adjustable rates, resetting each quarter.

Corus' earnings performance has stacked up quite well vs. the industry aggregate for banks and thrifts:

Corus long-term shareholders were sitting pretty at the end of 2006, with a five-year total return of 133%. This compared favorably with returns over the same period for the S&P 600 Small Cap Index (80%) and the S&P 600 Financial Index (103%).

Since then, Corus shares have been hit hard by the real estate downturn, dropping from $24.16 at year-end to around $13.88. The stock's split-adjusted high was $33.74, back on April 28, 2006.

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