Corus Bankshares Inc. achieved record earnings in 2006, but nonperforming loans are up, loan originations are down, and investors are getting nervous.
The $10.1 billion-asset Chicago company, which lends almost exclusively to condominium developers, said Thursday that fourth-quarter earnings were up 24%, to $47.2 million, and full-year earnings rose 38%, to $189.4 million.
But it also reported that nonaccrual loans and loans 90 days or more past due jumped from $617,000 at the end of 2005 to $107 million, and that spooked investors. In heavy trading Thursday, Corus' stock fell 8.49%, to $21.87.
It is no secret that the condo market has softened, and Corus has been warning for months that problem loans might increase. For example, in its third-quarter release it said a $61 million condo conversion loan in Florida could become a problem.
Corus also said early last year that it would scale back its lending, and it is doing so. Though originations for new construction rose substantially in 2006, total originations were down 28%, because "conversion of apartments to condominiums has all but ceased," Corus president and chief executive Robert H. Glickman said in the earnings release.
It was the collapse of the condo conversion market that prompted KBW Inc.'s Keefe, Bruyette & Woods Inc. to tell investors at its Best Ideas of 2007 conference this month to sell their Corus shares.
Peyton Green, an analyst with First Horizon National Corp.'s FTN Midwest Securities Corp., said that given Corus' detailed warnings, investors should not have been surprised by Thursday's report.
"In terms of the disclosure they gave in the quarter versus last quarter, I don't think there was anything that was that dramatically new," Mr. Green said.
Ronald J. Peterson, an analyst with Sterne, Agee & Leach in Chicago, said investors may have also been scared off by a decline in Corus' net interest margin, which fell 43 basis points in the fourth quarter compared with the year-earlier period, to 3.33%.
Corus officials did not return calls by press time Thursday. In the earnings report the company said its margin fell because deposits have been growing faster than loans and because it has had to invest in securities, which have a lower yield than loans. Over the past year its deposits have increased by 20%, to $8.7 billion, while total assets have grown 19%.
Though demand for condo conversion loans has slowed markedly, Mr. Glickman said Corus remains bullish on condo construction. It had $2.6 billion of new construction loans outstanding at Dec. 31, up 36% from a year earlier.
"We continue to believe that many profitable opportunities, for both the bank and its customers, exist in many cities across the country to build and develop high-quality condominiums," he said in the earnings release. "While others may be looking for an exit strategy, we see opportunity."
Mr. Peterson said he was not so sure Corus would be able to keep up that pace.
"It is hard to see them maintaining the type of loan originations they had a year ago," he said.
Loan commitments for new construction are also up significantly, though Mr. Green noted that they are only commitments. With the market the way it is, some of those projects could be put on hold or might not get built at all, he said.
Nonetheless, Mr. Green said, Corus has a geographically diverse portfolio in growth markets, and its borrowers are repaying. Total payoffs were up 36%, to $3.4 billion, for the year.
"The good news for them is they are getting paid back for loans they have made," Mr. Green said. "They also have a portfolio that is pretty geared towards economies that are fast-growing, where condo activity is probably the greatest."
