Corus Loan Portfolio Deteriorating

• ByPhilip van Doorn, TheStreet.com Ratings Bank Analyst
• On 3:12 pm EDT, Tuesday April 7, 2009

Corus Bankshares expressed substantial doubt about its viability in a regulatory filing Tuesday, saying more than 50% of its loan portfolio was now considered nonperforming.

Chicago-based Corus reported nonperforming loans of $2.0 billion in its delayed 2008 10-K report, filed with the Securities Exchange Commission after the market close Monday, up from the $1.5 billion reported in its Jan. 30 earnings release.

TheStreet.com noted the company's dim prospects as far back as August 2007, when the company paid a special dividend to shareholders. We noted the threat to the company's dividend on common shares in light of its high exposure to nonperforming condominium loans in some of the areas hit the hardest in the boom-and-bust real estate cycle.

The following shows the holding company's nonperforming assets ratios for the past five quarters:

Corus Bankshares ($Mil) 2008 10-K report, SNL Financial

Based on the revised figures, nonperforming loans reached 50.25% and nonperforming assets rose to 29.28%. Loan loss reserves covered 13% of nonperforming loans. The company's tier-1 leverage ratio was 4.4%, its tier-1 risk-based capital ratio was 6.2% and its total risk-based capital ratio was 12.3%.

While ordinary regulatory guidelines for capital ratios apply to banks themselves and not to holding companies, that 4.4% tier-1 leverage ratio was lower than the 5% required for a bank to be considered well-capitalized.

According to a regulatory order the company entered into with the Office of the Comptroller of the Currency on Feb. 18, Corus was required to achieve and maintain a tier-1 leverage of at least 9% and a tier-1 risk-based capital ratio of at least 12% within 120 days. The company said there could be no assurance it would meet these and other requirements of regulatory agreements with the OCC and the Federal Reserve Bank of Chicago, in which case the company and Corus Bank NA would be subject to other enforcement actions, and "even the placing of the bank into conservatorship or receivership."

With its net interest margin (the difference between the company's cost of funds and what it earns on interest from loans and securities) being compressed to just 1.09% for 2008 and net interest income for the fourth quarter actually a negative $6.9 million, the company had no prospect for earnings in the near term from its core business.

Corus said its Strategic Planning Committee had "hired an investment banking firm to seek all strategic alternatives to enhance the stability of the company including a capital investment, sale, strategic merger or some form of restructuring."

Construction Loan Exposure

Corus Bankshares reports most of its nonperforming loans in the commercial construction and multifamily residential mortgage categories. While it had, by far, the largest relative exposure of any U.S. bank holding company to loans of this type, there were several other publicly traded holding companies with high levels of exposure:

Other Publicly-traded Holding Companies with High Exposure SNL Financial

Security Bank Corp of Macon, Ga. had a nonperforming assets ratio of 7.03% as of Dec. 31. Its largest subsidiary, Security Bank of Bibb County, was listed in TheStreet.com's recent article on troubled Georgia banks. The holding company on March 17 announced that its auditor had expressed doubt about its ability to continue operating as a "going concern."

Vineyard National Bancorp of Corona, Calif. reported negative capital ratios as of Dec. 31, although its main subsidiary, Vineyard Bank was still considered adequately capitalized under ordinary regulatory guidelines. However, Vineyard Bank had a nonperforming assets ratio of 19.05% as of Dec. 31, putting it on top of the list of California Banks with the worst asset quality, included in TheStreet.com's recent look at California's strongest and weakest banks.

The holding company has not yet filed its 10-K for 2008, saying on April 1 it was unable to do so "due to VNBC's liquidity position and lack of available resources." The numbers on the table above come from the Consolidated Financial Statement for Holding companies Vineyard filed with the Federal Reserve.

Community Bancorp of Las Vegas has also not been able to file its 10-K report for 2008, and said on April 1 that it is had "not concluded the goodwill impairment study, and the assessment of the appropriate level of the allowance for loan losses has not been completed." No doubt, the numbers we have taken from the Consolidated Financial Statement for Holding Companies will be revised at some point.

Columbia Bancorp of The Dalles, Ore., is another holding company with high exposure to nonperforming construction loans that has been unable to file its 10-K. Columbia said in a filing on April 1 that it was still "in the process of completing its study of goodwill impairment and assessing the appropriate level of the allowance for loan losses in light of challenging market conditions."

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