CORS: Corus Bankshares
Very happy to see the new board!
CORS is one I bought back at the end of March for $17. It's around $18.50 today, but volatile enough that it will probably drop back down.
The short story is that it is a Chicago bank with a small Chicago branch network (really small -- I think a dozen branches). Most of its lending money is coming from out of state CD and money market deposits. They are then turning around and lending to condo developers. Many of the condo developers are in the bubble areas (FL and CA, 38% and 16%, respectively). Previously they were lending heavily to converters as well, but that part of the market has evidently completely eroded and now the loans are almost exclusively for development.
There are about 56MM shares (about 40% owned by the Glickman family) and has a book value of $854 as of 3/31, so a reported book value of about $15.
Corus earned $3.28 per share in 2006, $2.38 in 2005. In the 1Q 2007 they earned .46 down from .75, but about 25 cents of that difference is from recognition of an impaired investment in Freemont (FMT) -- which has subsequently recovered a decent chunk of that lost value (it was written down to $6.93, now trading at $11.94 on about 2.5MM shares that comes to about 22 cents per share). The current average analyst estimate for 2007 is $2.43 and $2.33 for 2008.
Corus holds about $200MM in a portfolio of bank stocks. That's about 25% of their book value (if you want to look at it that way). Most of those holdings are larger U.S. banks (BAC, C, JPM, WB, etc.) If, like me, you think these stocks are cheap you'll get an extra boost from this.
The net interest margin dropped from 3.89% to 3.11% from 1Q 06 to 1Q 07. Wrong direction, but still a good number.
Some downside protection is provided by the $1 per share dividend (5.5% current yield roughly). That's about a 40% payout ratio of current 07 earning estimates.
The current loan loss allowance is about $50MM and the current NPLs are about $200MM. (Obviously, you'd hope they recover a lot of that value, the real question is how many more NPLs are in the wings.)
Their Tier I risk based capital ratio is about 14% and total risk based capital is about 16%.
The risks are pretty obviously and real -- they are currently concentrated in condo lending and much of that is in few geographic regions. Even the bank is warning that things could get worse before they get better.
My thinking for liking CORS is:
(1) The stock is already priced as though more significant losses are going to occur. A typical cheap bank trades for 10x earnings and 1.5x (or so) book value. CORS is currently 7.5x earnings and 1x book value. Unless losses (not just NPLs) explode, the stock is cheap by just about every metric.
(2) The dividend should provide some real support. It can be covered unless all hell breaks loose since it's less than a 40% payout of current estimates. 5.5% is enough to provide some real support.
(3) 20MM or so of the 56MM shares are short. I'd like to think that any good news at all would cause some significant short covering.