Corus Finally Takes Its Medicine

Cutting the dividend will save Corus roughly $13.8 million each quarter. The company noted at the end of its earnings release that under its current share repurchase plan, it could buy back up to $4.7 million additional shares. Corus didn't repurchase any during the first quarter, but stated in the release that it was "quite interested in additional share repurchases," and that buybacks would be "an excellent use of the company's capital." It's a bit of a surprise that the company would make this statement in the same document announcing the elimination of its dividend.

Here's a summary of earnings results:

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Corus Bankshares posted strong earnings results for many years, through September 2007. The company's returns on average assets exceeded 2% over the three years ended Dec. 31, 2006, while its return on equity usually exceeded 20% (a magic number for bankers). Even for the first three quarters of 2007, the company's return on average assets was 1.4% and its return on average equity was 16.6%.

Over the past two quarters, elevated provisions for loan losses have taken their toll, and reserves are still on the low-side. The company's net interest margin (essentially interest income less interest expense, divided by average assets) has suffered over the past two quarters, reflecting the increase in nonperforming loans, and what Corus describes as very high deposit yields in relation to U.S. Treasuries.

The net interest margin for the first quarter of 2008 was just 2.14%, down from 2.81% last quarter and 3.10% in March 2007.

More Trouble Ahead

In its earnings announcement, Corus also listed potential problem loans that were still considered performing, but which, according to SEC reporting requirements, "may result in disclosure of such loans as nonperforming." These loans totaled $589 million as of March 31, with another $167 million in lending commitments to the identified condominium construction and conversion projects.

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