Corus Bankshares Inc. appears to be taking a breather from lending to condominium developers.
The $9.2 billion-asset Chicago company has been one of the nation's most active lenders on condo projects in recent years, but it originated just $50 million of commercial real estate loans last month, after booking an average of $414 million in each of the previous 12 months.
Moreover, Corus has not announced any loan deals this month - unusual for a company that routinely puts out press releases to announce its commercial real estate transactions.
Corus officials did not return calls, but with demand for condos softening, it is easy to see why it would scale back its lending.
Still, the decision likely will end Corus' run of record quarterly profits. The company itself hinted at that outcome in its first-quarter earnings report.
Investors, who had grown accustomed to double-digit gains, are taking cover. Corus' stock has dropped about 22% since May 1, when adjusted for a 2-for-1 split in mid-May. After rallying somewhat Wednesday, it fell slightly Thursday, to $25.82 a share at midday.
Peyton Green, an analyst with First Horizon National Corp.'s FTN Midwest Research Securities Corp. in Cleveland, said investors fear that "there is going to be a nasty collapse in condo pricing, and Corus is going to get left holding the bag on some projects that they have to charge down."
Corus, almost exclusively a commercial real estate lender, focuses primarily on condo projects in growing markets across the country. As of March 31, 91% of its $9 billion of loan commitments were for condo developments.
Until recently the company has had little to be worried about. Despite its heavy volume, it has not charged off any commercial real estate loans since 2000, and it charged off just $635,000 in the five years before that.
But now there is concern of a condo oversupply, and with interest rates rising, condo demand is cooling.
Mike Fratantoni, a senior economist for the Mortgage Bankers Association, said that according to April sales statistics, it would take 7.1 months to sell all the condos available on the market. A year and a half ago it would have taken 3.4 months, he said.
One area that economists have called especially vulnerable is south Florida, where Corus had about 17% of its commercial real estate commitments as of March 31.
Ronald J. Peterson, an analyst with Sterne, Agee, & Leach Group Inc. in Chicago, said that even though condo demand is healthy in some markets, Corus investors are jittery about a potential oversupply in the Miami area.
"There are a lot of developments in Miami that have been started and are coming online. It is questionable whether the demand is there to absorb all these units," Mr. Peterson said.
The fact that 40% of the outstanding float of Corus' stock has been shorted indicated that investors expect the price to continue to fall, he said.
In its first-quarter earnings report, Corus seemed to be bracing investors for a change in its fortunes. Though its earnings rose 54% from a year earlier, to a record $43.4 million, it warned that up to $1.5 billion of its commercial real estate loans could default, and that up to $282 million could be charged off.
"While the bank has yet to experience a large amount of nonperforming loans or chargeoffs, our planning anticipates that it will occur, and we have already factored this potential 'cost' into the profitability of our loans," Corus said.
That kind of disclosure gives Mr. Green a level of comfort.
"I feel like the Corus guys are pretty good underwriters and have a keen sense of the markets they operate in," he said. Ultimately, the company's "problems could be less than what the short interest would indicate right now."
Daniel E. Cardenas, the director of research at Howe Barnes Investments Inc. in Chicago, agreed that investors may be overreacting. He cited Corus' stellar earnings and its "rock solid" credit quality.
Corus has ranked among the nation's top-performing banking companies in recent years, consistently reporting returns on assets above 2% and an efficiency ratio among the very best in the industry - 18.32% at the end of the first quarter.
The company has reported record earnings in each of the last four quarters. In the first quarter its diluted earnings per share rose 55% from a year earlier, to $1.50.
"It is hard to find a company that has a better long-term track record than this one," Mr. Cardenas said.
