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Corus Bank: First To Fail Without Delinquencies?

bmoreland's picture




 

As you have all read by now, Corus Bancshares went belly up on Friday adding yet another failed institution to the growing hall of shame. What makes Corus unique, however, is that they may have been the first failure with little to no delinquencies in their major loan portfolios.

Construction & Development loans made up 88% of their outsanding loan portfolios at the end of Q2 and according to the FDIC Reg data had $0 in 30+ days delinquent:

Wow, they must have done a bang up job collecting that $142 million that was delinquent just 4 quarters ago.

www.wlmlab.com/bkMet.asp?inst=HC1200393&loan=lnrecons&met=delq

They also have impressive improvement on their Multi-Family Residential Re as well:

www.wlmlab.com/bkMet.asp?inst=HC1200393&loan=lnremult&met=delq

Remarkable performance, eh? On the surface Corus doesn't look too bad - they have done an "exceptional job" of getting their delinquencies down. The next step would be to look at Restructured Debt (a convenient and popular place to currently hide problems):

www.wlmlab.com/bkLUR.asp?inst=HC1200393&pg=rs

Once again, no issue since there are... wait for it... none. Yep, no Restructured Debt. So the next thing to look at is Loan Loss Allowance (this is what management is prepared for):

The detail: www.wlmlab.com/bkLUR.asp?inst=HC1200393&pg=lla

Clearly, management was expecting problems as they are running 7.02% of their entire loan base as set aside for Losses.

And finally, and the dead give away that their was an impending problem, is to look at their Non-Accrual rates on the two portfolios making up 96% of their loans. They are running a 71% on their Construction Loans:

www.wlmlab.com/bkMet.asp?inst=HC1200393&loan=lnrecons&met=na

They are running a 93% on their Multifamily Loans. These numbers are practically unheard of and should have been a dead giveaway to anyone working through the progression just laid out that they were about to kick the bucket.

Basically, they stopped being a bank - which lives on Interest Income - and became a work out shop focusing strictly on lower balances because they knew they had impending charge offs.

Just because there are no delinquencies now, doesn't mean that they are not having problems. You have to look at Restructured Loans, Loss Allowance and Non-Accrual rates in addition to delinquencies.

 

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Mon, 09/14/2009 - 14:04 | 68890 polizeros
polizeros's picture

Delinquency, at least as I understand it, means that the repayment date has passed but no payment has been made. Impairment means management has determined that the loan, in whole or in part, is not collectible. The impairment amount will be the amount management expects to not collect. Thus, a loan can be not delinquent (because the time for repayment is in the future), yet impaired (because management has determined the loan is uncollectible). Sincerely, Mrs. Polizeros.

P.s.: Here's an interesting link to a story about the impending meltdown in commercial real estate in Sacramento: http://www.sacbee.com/topstories/story/2180413.html

Mon, 09/14/2009 - 12:59 | 68772 Anonymous
Anonymous's picture

The FDIC call report also shows their "Other real estate owned - multifamily (RCON5511)" to be $494,356,000 (Q1 2009). The next highest was BofA at $97,902,000.

Mon, 09/14/2009 - 08:48 | 68583 Anonymous
Anonymous's picture

Corus' "Texas Ratio" was beyond unhead-of, it was just flat astronomical!!! In the thousands!!! There are only a hand-ful of banks with such a ratio over 80. These guys were livin' on borrowed time.

Mon, 09/14/2009 - 07:58 | 68563 MinnesotaNice
MinnesotaNice's picture

Nice read...

Mon, 09/14/2009 - 02:38 | 68519 Anonymous
Anonymous's picture

any other banks come to mind that are going bust?

Mon, 09/14/2009 - 02:16 | 68511 Anonymous
Anonymous's picture

chicago area malls amaze me - packed like its 1999!! hard to find a parking spot. have people bought the so-called recovery ??

Mon, 09/14/2009 - 01:36 | 68501 Big Al
Big Al's picture

You also need to look at a bank's "impared" loans.   Depending on the banks's definition of this term (apparently there is no uniform definition for "impaired"), the bank can hide shaky loans without (1) declaring them as non performing and (2) establishing a loan loss reserve to cover expected losses. 

 

Mon, 09/14/2009 - 01:30 | 68500 Anonymous
Anonymous's picture

Great article. But I'd caution anyone from depending on wlmlab's data when looking for a safe bank.

If you've been following the recent bank closures, you'll see that there's nothing too concerning from the info from wlmlab's site, for many of these banks which got shut down.

A bank which is about to be closed should show up as red, not green.

A case in point is Platinum Community Bank of Rolling Meadows, which was closed on September 6, 2009. If you look at wlmlab's data, everything is green (exceptional) except for a tiny portion of their portfolio. This would lead one to think that they are a safe bank, right up to the day that they closed.

What I've found to be a better indicator is the Troubled Asset Ratio found on banktracker.investigativereportingworkshop.org.

Based upon past Bank closures, all banks that have been closed over the past couple of months have had a TAR of 50 or more (the national median is about 11).

It's also interesting to see how quickly this ratio balloons over the course of a year.

For me, this has been a better guide than any of the other websites out there. But I'd recommend looking at the Call Reports directly over any information from any general site.

Mon, 09/14/2009 - 01:08 | 68496 Careless Whisper
Careless Whisper's picture

The non-accrual loans ARE DELIQUENT. Very deliquent. Considering they add up to $2.3 billion and they have only $259 million set aside for losses, they are just a little light on their loss reserves.

Here is a defintion of non-accrual loans:

Asset, usually a loan, that is not earning the contractual rate of interest in the loan agreement, due to financial difficulties of the borrower. Nonaccrual assets are loans in which interest accruals have been suspended because full collection of principal is in doubt, or interest payments have not been made for a sustained period of time. A reserve for possible loan losses is set aside for these loans, and any payments received from the borrower are applied first to principal, and then to loan interest due. According to the guidelines of banking regulators, a loan with principal and interest unpaid for at least 90 days is considered a nonaccrual loan, unless the lender has adequate collateral. Consumer loans and residential mortgage loans are generally exempted from these guidelines. For bank bookkeeping purposes, a nonaccrual loan is recorded as a Cash Basis Loan, that is, a loan in which interest is credited as earned income only when payments are collected from the borrower.

 

Mon, 09/14/2009 - 01:07 | 68495 polizeros
polizeros's picture

Possibly, delinquencies are minimal because the portfolio consists primarily of construction loans, for which the bank pays interest to itself out of the borrower's interest reserve, adding that amount to principal. As long as the interest reserve has not been used up, the bank can "receive" the monthly interest payments and the loan will not be delinquent. However, this does *not* mean the principal (including the capitalized interest) will be repaid. Borrowers are generally subject to loan covenants, such as minimum net worth, loan-to-value, liquidity, etcetera -- once these are blown, the bank may determine that the loan principal is uncollectible in whole or in part. At that point, interest is no longer accrued -- and the bank shows the total principal amount (including interest to date) as "non-accruing". Hope this helps. Sincerely, Mrs. Polizeros.

Mon, 09/14/2009 - 02:00 | 68508 Anonymous
Anonymous's picture

mrs p -
that was a beautiful explanation....thanks
for posting it...

Mon, 09/14/2009 - 00:17 | 68466 joebren
joebren's picture

If you're not charging interest how can the loan be in arrears?

Sun, 09/13/2009 - 23:36 | 68441 Anonymous
Anonymous's picture

just wanted to do the math captcha

when it rains
bad equity
it pours

Sun, 09/13/2009 - 22:47 | 68420 Anonymous
Anonymous's picture

wow, very helpful website! Have been looking for a way to keep up on the relative health of banks in my area. Nice work indeed!

Sun, 09/13/2009 - 21:41 | 68397 Ned Zeppelin
Ned Zeppelin's picture

Great insights - analysis much appreciated!

Sun, 09/13/2009 - 20:40 | 68369 Hephasteus
Hephasteus's picture

Takes planning to get this much fail.

Sun, 09/13/2009 - 20:27 | 68363 Howard_Beale
Howard_Beale's picture

Nice detective work. Well done!

Sun, 09/13/2009 - 20:19 | 68359 Anonymous
Anonymous's picture

Thanks man learned a lot.

Mon, 09/14/2009 - 01:58 | 68507 Anonymous
Anonymous's picture

ditto +10

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