Corus Finally Takes Its Medicine

Way back on Aug. 29, I was thrashed by some readers for saying that Corus Bankshares, Inc. CORS might eventually have to eliminate its dividend.

This story followed Nicholas Yulico's detailed look at Corus' condominium lending activities. The best piece of hate mail included these gems:

"Your journalism is most irresponsible."

"Do you understand how smart the management of CORS is?"

And my favorite:

"You should be ashamed of yourself."

Well, shame was my middle name until last Wednesday, when Corus released its first-quarter earnings results and announced the elimination of its 25-cent dividend on common stock. Shares dropped 24% on the day, to $7.33. According to Bloomberg, Corus' shares returned a negative 36% in the period from Aug. 29 to the market close Friday, May 2. For the one-year period ending last Friday the return was a negative 45%. For two years it was negative 71%.

Corus announced the elimination of the dividend because of a 49% increase in nonperforming loans from the previous quarter.

The following summarizes the declining loan quality for Corus and its main subsidiary, Corus Bank NA:

Click here for larger image.

Loan loss reserves totaled $87.5 million, covering a relatively low 21% of nonperforming loans, as of March 31, 2008.

When we first looked at the company using June 2007 figures, Corus's risk-based capital ratio was 17.07%. This ratio takes loan quality and loan loss reserves into account, and needs to be at least 10% for the company to be considered well-capitalized under regulatory guidelines. Corus maintained what is normally considered a very strong risk-based capital ratio of 17.0%, as of March 31, 2008. Thus, from its action on the dividend, it's pretty clear that Corus expects loan quality to get much worse over the coming quarters.