S. Fla. condo loans take toll on Corus Bank
South Florida Business Journal - by Brian Bandell
Half of Corus Bank’s condo loans in South Florida were either in arrears by at least 90 days or had unfavorable prospects for repayment in the third quarter, including one unspecified project that the bank intends to foreclose on.
According to its third-quarter earning release, the Chicago-based bank, which was one of the largest condo construction lenders in South Florida during the boom days, struggled with losses and problem loans during the third quarter, when it didn’t make a single loan nationwide.
In South Florida, Corus held loans on 18 condo, condo conversion and apartments projects totaling $1.38 billion as of Sept. 30. Seven of them with a balance of $405 million were nonaccrual, meaning that they were at least 90 days late.
Another two condo loans with a $281 million balance were classified potential problem loans, which means they were performing but the bank has “serious doubts” the borrowers can repay them.
The nonaccrual South Florida loans included a $90 million condo loan, where the bank was in the process of taking possession of the property. The earnings release didn’t name the property and an official with Corus didn’t return a call for comment.
South Florida court records don’t show any pending foreclosures by Corus and none of its mortgages were written for exactly $90 million. However, there are some projects that had loan balances that could have been paid down to $90 million.
Corus holds large notes on Jade Ocean Condominiums in Sunny Isles Beach, Paramount Bay in Miami, The Mint at Riverfront in Miami, Trump International Hotel and Tower in Fort Lauderdale, The Ivy in Miami, Artech Residences at Aventura, Tao in Sunrise, the Caribbean Miami Beach and Edge Condominium in West Palm Beach.
The Edge project plans to auction off 41 units on Nov. 15. On Tao, Corus bought out the mezzanine loan on Oct. 10.
During the third quarter, Corus showed one less condo loan in South Florida compared to the last quarter, and a total of $125 million in balances less than the previous quarter. Its amount of potential problem loans remained the same, but the balance of its nonaccrual South Florida condo loans grew by $60 million.
Corus also reported that a Miami condo loan it classified as troubled debt restructuring was paid down from $51 million to $33.6 million during the third quarter.
In many of the bank’s problem loan situations, either the borrower or the mezzanine lender subordinate to Corus has supported the condo project with additional cash, but the weakening residential real estate market is hurting chances that such support will continue, Corus stated in its earnings release.
“We have recently seen situations where mezzanine lenders are experiencing financial difficulties and have been unable to support projects,” the company stated. “For these problem loans where the borrower or mezzanine lender chooses not to, or is unable to, take the necessary steps to resolve issues, we will not hesitate to foreclose.
Corus recently foreclosed on a condo project in Panama City in northwest Florida.
All of the problem loans took a toll on Corus’ earnings in the third quarter, when it lost $128 million, or nearly eight times the $16.2 million it lost in the second quarter. In the third quarter of last year, the bank reported a $35.5 million profit.
The bank took a $182.2 million provision to reserve for future loan losses and charged off $128 million due to troubled loans. It also didn’t collect $20.6 million in interest income in the third quarter due to nonaccrual loans.
However, the bank’s earnings would have been worse if it had a higher reserve for its bad loans. Corus had $902.8 million in nonaccrual loans, representing a staggering 20.7 percent of its loan portfolio, as of Sept. 30, and a reserve allowance for loan losses of $191.3 million to cover them.
The coverage ratio of 21.2 percent is well below industry standards and could lead to future losses should those nonaccrual loans need to be written down by a larger amount.
Corus had $628.1 million booked as potential problem loans not included in that figure. But the bank had enough equity capital set aside to remain in well capitalized status and the parent company, which has been infusing the bank with cash to completely cover its losses, had another $113 million, with $51 million of that earmarked for the bank.
In its earnings release, Corus stated that it hasn’t decided whether it will participate in the U.S. Treasury Department’s Troubled Asset Relief Program to raise money.
Shares of Corus (Nasdaq: CORS) remained flat at $2.10 Thursday afternoon. The 52-week high was $13.16 on Jan. 31 and the 52-week low was $1.64 on Oct. 24.
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