<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-6136
CORUS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0823592
(State of incorporation of organization) (I.R.S. Employer Identification No.)
3959 N. Lincoln Ave., Chicago, Illinois 60613
(Address of principal executive offices) (Zip Code)
(773) 388-3088
(Registrant's telephone number)
Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 1997, the Registrant had 14,750,742 common shares, $0.05
par value, outstanding.
<PAGE> 2
CORUS BANKSHARES, Inc.
Index to Quarterly Report on Form 10-Q
September 30, 1997
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION. PAGE
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Statements of Condition
(unaudited) - September 30, 1997, December 31, 1996 and
September 30, 1996. 1
Condensed Consolidated Statements of Income (unaudited)
- Three and Nine Months Ended September 30, 1997 and 1996. 2
Condensed Consolidated Statements of Cash Flows
(unaudited) - Nine Months Ended September 30, 1997 and 1996. 3
Notes to Condensed Consolidated Financial Statements (unaudited). 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 5
PART II - OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K. 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31 September 30
(thousands) 1997 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
Assets
Cash and due from banks - noninterest bearing $ 64,039 $ 57,508 $ 61,798
Federal funds sold 42,800 98,500 17,000
Interest-bearing deposits with banks 13,000 - -
Securities:
Available for sale, at fair value 525,182 379,029 408,158
Held to maturity, at amortized cost 9,642 11,254 12,948
---------- ---------- ----------
Total Securities 534,824 390,283 421,106
Loans, net of unearned discount 1,543,278 1,623,145 1,606,759
Less: Allowance for possible loan losses 28,969 32,668 35,195
---------- ---------- ----------
Net Loans 1,514,309 1,590,477 1,571,564
Premises and equipment, net 29,671 28,650 27,743
Accrued interest receivable and other assets 45,592 40,919 42,357
Goodwill, net of accumulated amortization 9,758 12,191 12,952
---------- ---------- ----------
Total Assets $2,253,993 $2,218,528 $2,154,520
========== ========== ==========
Liabilities & Shareholders' Equity
Deposits:
Noninterest-bearing $ 183,670 $ 195,324 $ 188,751
Interest-bearing 1,692,004 1,705,355 1,656,549
---------- ---------- ----------
Total Deposits 1,875,674 1,900,679 1,845,300
Short-term borrowings 4,616 6,317 10,085
Federal Home Loan Bank advances 40,000 40,000 40,000
Accrued interest payable and other liabilities 56,563 35,942 38,213
---------- ---------- ----------
Total Liabilities 1,976,853 1,982,938 1,933,598
Shareholders' Equity
Common stock, Surplus & Retained Earnings 241,847 219,822 211,059
Net unrealized gains on available for sale securities 35,293 15,768 9,863
---------- ---------- ----------
Total Shareholders' Equity 277,140 235,590 220,922
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $2,253,993 $2,218,528 $2,154,520
========== ========== ==========
</TABLE>
See accompanying notes.
1
<PAGE> 4
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
(thousands, except per share data) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income $45,829 $47,568 $138,556 $144,863
Interest Expense 20,639 20,211 61,454 60,106
------- ------- -------- --------
Net Interest Income 25,190 27,357 77,102 84,757
Provision for Possible Loan Losses 4,000 4,000 12,000 12,000
------- ------- -------- --------
Net Interest Income after Provision
for Possible Loan Losses 21,190 23,357 65,102 72,757
Noninterest Income:
Service charges on deposit accounts 2,034 2,330 6,521 7,233
Trust services 114 112 465 326
Gain on dispositions of loans 2,579 2,388 8,862 5,137
Other income 277 274 1,047 909
Trading account losses, net (27) - (221) -
Securities and other financial
instruments gains, net 1,961 1,244 2,881 2,863
------- ------- -------- --------
Total noninterest income 6,938 6,348 19,555 16,468
Noninterest Expense:
Salaries and employee benefits 6,919 6,200 20,561 19,714
Net occupancy 1,026 1,044 3,078 3,009
Data processing 471 707 1,509 1,913
Goodwill amortization 764 767 2,296 2,128
Other expenses 3,318 3,899 10,664 11,176
------- ------- -------- --------
Total noninterest expense 12,498 12,617 38,108 37,940
------- ------- -------- --------
Income before income taxes 15,630 17,088 46,549 51,285
Income tax expense 5,466 6,086 16,292 18,156
------- ------- -------- --------
Net Income $10,164 $11,002 $ 30,257 $ 33,129
======= ======= ======== ========
Net Income per Common Share $ 0.68 $ 0.73 $ 2.02 $ 2.21
======= ======= ======== ========
Cash Dividends Declared Per Common Share $ 0.135 $ 0.125 $ 0.395 $ 0.350
======= ======= ======== ========
Weighted Average Common and Common
Equivalent Shares Outstanding 14,967 14,989 14,980 14,994
======= ======= ======== ========
</TABLE>
See accompanying notes.
2
<PAGE> 5
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------
(thousands) 1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,257 $ 33,129
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 12,000 12,000
Depreciation and amortization 2,237 1,622
Accretion of investment and loan discounts (10,919) (14,673)
Goodwill amortization 2,296 2,128
Gain on dispositions of student loans (8,862) (5,137)
Securities and other financial instruments gains, net (4,224) (2,863)
Increase in accrued interest receivable and other assets (4,673) (1,450)
Increase in accrued interest payable and other liabilities, net 9,970 8,680
--------- -----------
Net cash provided by operating activities 28,082 33,436
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity 1,620 1,619
Proceeds from maturities of available for sale securities 336,270 138,855
Proceeds from sales of available for sale securities 42,270 3,376,954
Purchases of available for sale securities (482,998) (3,548,837)
Purchases of federal funds sold with greater than 90 day maturities (20,000) -
Proceeds from maturities of interest-bearing deposits with banks - 25,000
Purchases of interest-bearing deposits with banks (13,000) -
Purchases of loans (426) (3,329)
Net (increase) decrease in loans 76,934 (31,126)
Purchases of premises and equipment, net (3,258) (2,571)
(Purchases of) reduction in minority interest of and additional
consideration for bank subsidiaries 137 (4,132)
--------- -----------
Net cash used in investing activities (62,451) (47,567)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposit accounts (25,005) (53,240)
Increase (decrease) in short-term borrowings (1,701) 8,257
Proceeds from Federal Home Loan Bank advances - 40,000
Issuance of common shares under the stock option plan - 9
Retirements of common shares (2,387) (5,233)
Cash dividends paid on common shares (5,707) (4,839)
--------- -----------
Net cash used in financing activities (34,800) (15,046)
--------- -----------
Net decrease in cash and cash equivalents (69,169) (29,177)
Cash and cash equivalents at December 31, 1996 and 1995 156,008 107,975
--------- -----------
Cash and cash equivalents at September 30, 1997 and 1996 $ 86,839 $ 78,798
========= ===========
</TABLE>
See accompanying notes.
3
<PAGE> 6
CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Statements of Condition, Income and Cash Flows
are unaudited. The interim financial statements reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. The condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in CORUS BANKSHARES, Inc.'s consolidated financial
statements for the three years ended December 31, 1996 included in CORUS'
Annual Report and Form 10-K for the year ended December 31, 1996. The
results of operations for the interim period should not be considered
indicative of results to be expected for the full year.
Net income per common share is computed by dividing net income by the
weighted average number of common shares and common share equivalents
(dilutive stock options) outstanding during the respective periods.
Certain reclassifications have been made in the 1996 financial
statements to conform to current accounting classifications.
2. Student Loan Investigation
As disclosed previously, CORUS discovered that certain former employees
in the student loan servicing area had falsified some records of telephone
calls, from late 1993 to April 1994, to students whose loans were
delinquent. The telephone calls are a required action to maintain the
enforceability of a student loan's government guarantee. CORUS terminated
the employees involved and informed the U.S. Department of Education
immediately upon discovery of the problem and the Department commenced an
investigation.
CORUS believes that the Department's investigation expanded in 1996 to
include a review of whether CORUS' student loan division engaged in improper
practices from 1988 to April 1994, including whether information contained
on guarantee claim forms may have been falsified. If it is ultimately
determined that CORUS acted illegally or violated Department policy or
regulations, CORUS could (i) lose its government guarantees with respect to
certain student loans and (ii) be required to repurchase a substantial
amount of delinquent student loans for which CORUS previously received
guarantee payments. In addition, CORUS or individual employees could be
subject to substantial penalties.
Shortly after notifying the Department of the problem, CORUS entered into an
interim agreement with the Department pursuant to which it agreed, pending
the conclusion of the investigation, not to request payment from any
guarantor or the Department on any loans that CORUS is unable to state with
certainty were not affected by incorrect servicing history documentation.
Management charged off against the allowance for possible loan losses $1.5
million of student loans during the third quarter of 1997 and $4.0 million
of student loans during each of the first two quarters of 1997 and the
fourth quarter of 1996 that were subject to the interim agreement. A total
of $13.5 million of loans subject to the interim agreement have been charged
off against the allowance for possible loan losses. The ultimate
collectibility of the loans is uncertain.
Management is unable to predict what actions, if any, the Department will
take following the completion of its investigation, and therefore cannot
estimate the amount or range of any liability that CORUS will ultimately
incur.
CORUS does not condone or permit such improper practices and is cooperating
fully with the Department's investigation.
4
<PAGE> 7
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
OPERATING RESULTS
For the three months ended September 30, 1997, net income was $10.2 million, or
$0.68 per share, a decline of 7.6% from net income of $11.0 million, or $0.73
per share, for the same period in 1996. For the first nine months of 1997, net
income was $30.3 million, or $2.02 per share, a decline of 8.7% from net income
of $33.1 million, or $2.21 per share, for the same period in 1996.
Net Interest Income
The major source of earnings for CORUS is net interest income. The related net
interest margin represents the net interest income as a percentage of average
earning assets during the period. The following table represents a summary of
CORUS' net interest income and related net interest margin, as calculated on a
fully taxable equivalent basis.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ -------------------------
(thousands) 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net interest income $ 25,190 $ 27,357 $77,102 $ 84,757
Taxable equivalent adjustment 211 261 665 813
---------- ---------- ---------- ----------
Taxable equivalent net
interest income $ 25,401 $ 27,618 $77,767 $ 85,570
========== ========== ========== ==========
Average earning assets $2,127,957 $2,069,878 $2,119,987 $2,069,645
========== ========== ========== ==========
Net interest margin (annualized) 4.77% 5.34% 4.89% 5.51%
========== ========== ========== ==========
</TABLE>
The following represents the impact certain significant and/or nonrecurring
items had on net interest income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- --------------------------
(thousands) 1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Taxable equivalent net interest income $25,401 $27,618 $77,767 $85,570
Significant and/or nonrecurring items:
Discount accretion in interest income
from purchased student loan pools 949 3,035 3,478 10,830
Loan fees from prepayments of
commercial real estate loans - - 1,145 538
------- ------- ------- -------
Taxable equivalent net interest income
excluding significant and/or
nonrecurring items $24,452 $24,583 $73,144 $74,202
======= ======= ======= =======
Net interest margin excluding
significant and/or nonrecurring items 4.60% 4.75% 4.60% 4.78%
======= ======= ======= =======
</TABLE>
5
<PAGE> 8
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The declines in annualized net interest margin after excluding significant
and/or nonrecurring items for the third quarter and first nine months of 1997,
compared with the comparable periods of 1996, were primarily due to lower rates
charged and earned on loans and investments.
The following table represents a reconciliation of fully tax equivalent net
interest income:
<TABLE>
<S> <C>
(thousands)
Fully tax equivalent net interest income for the nine months ended September 30, 1996 $85,570
Change due to average earning assets fluctuations 2,080
Change due to interest rate fluctuations other than student loan discount accretion (2,271)
Change due to student loan discount accretion (7,352)
Change due to rate/volume fluctuations (260)
-------
Fully tax equivalent net interest income for the nine months ended September 30, 1997 $77,767
=======
</TABLE>
Noninterest Income
For the third quarter of 1997, noninterest income increased $590,000 to $6.9
million, compared with $6.3 million in 1996. Service charge fee income
declined $296,000 to $2.0 million primarily due to lower return and overdraft
fee income. Gains on the dispositions of loans increased $191,000 to $2.6
million. These gains are the result of payments made by guarantee agencies for
student loan borrowers that defaulted. Securities and other financial
instruments gains increased $717,000 to $2.0 million. These gains included a
$3.6 million net gain from the sales of certain bank stocks in CORUS'
portfolio, which was partially offset by $1.6 million of expense associated
with the net premium amortization of option contracts entered into by CORUS to
hedge the market risk associated with the bank stock portfolio.
For the first nine months of 1997, noninterest income increased $3.1 million to
$19.6 million, compared with $16.5 million in 1996. Service charge fee income
declined $712,000 to $6.5 million primarily due to lower return and overdraft
fee income. Gains on the dispositions of loans increased $3.7 million. The
net gain from the sales of certain bank stocks in CORUS' portfolio was $4.2
million in 1997, compared with $2.1 million for the same period in 1996. In
1996, securities and other financial instruments gains also included a gain of
$1.3 million from interest rate swaps that did not qualify for hedge accounting
treatment. These swap agreements were terminated in the first quarter of 1996.
Noninterest Expense
In the third quarter of 1997, noninterest expense declined $119,000 to $12.5
million, compared with $12.6 million in 1996. Salaries and employee benefits
expense increased $719,000 to $6.9 million primarily due to a reduction in
performance-based compensation expense for lending operations in the second
half of 1996 due to lower loan growth. Data processing expense declined
$236,000 to $471,000 primarily due to onetime expenses in 1996 related to the
mergers of CORUS' subsidiary banks. Other expenses declined $581,000 to $3.3
million primarily due to $385,000 of onetime merger expenses and a onetime
charge of $210,000 for the write-down and demolition costs of a building at
CORUS' headquarters location in 1996.
In the first nine months of 1997, noninterest expense increased $168,000, to
$38.1 million. CORUS' efficiency ratio for the third quarter and first nine
months of 1997 was 38.6% and 37.8%, respectively.
The effective tax rate for the third quarter of 1997 was 35.0% versus 35.6% in
1996. For the nine months ended September 30, 1997 and 1996, the effective tax
rate was 35.0% and 35.4%, respectively.
6
<PAGE> 9
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
FINANCIAL CONDITION
Earning Assets
The following table details the composition of CORUS' earning assets:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 September 30, 1996
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial real estate $ 687,935 32% $ 655,793 31% $ 621,489 30%
Student 409,510 19 402,859 19 395,317 19
Residential first mortgage 228,023 11 286,042 14 306,973 15
Home equity 147,393 7 188,755 9 199,357 9
Commercial 45,500 2 61,852 3 52,842 3
Consumer 24,917 1 27,844 1 30,781 2
---------- --- ---------- --- ---------- ---
Total loans 1,543,278 72 1,623,145 77 1,606,759 78
Securities other than common stocks 401,891 19 297,672 14 365,797 18
Common stocks 132,933 6 92,611 4 55,309 3
Federal funds sold 42,800 2 98,500 5 17,000 1
Interest-bearing deposits with banks 13,000 1 - - - -
---------- --- ---------- --- ---------- ---
Total $2,133,902 100% $2,111,928 100% $2,044,865 100%
========== === ========== === ========== ===
</TABLE>
Loans
Total loans at September 30, 1997 were $1.54 billion, a decline of $79.9
million, or 4.9%, from December 31, 1996. Commercial real estate loans
increased $32.1 million, or 4.9%, from December 31, 1996. At September 30,
1997, December 31, 1996 and September 30, 1996, the commercial real estate loan
portfolio was comprised of the following:
<TABLE>
<CAPTION>
September 30 December 31 September 30
(thousands) 1997 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
Commercial real estate mortgage loans $562,835 $614,506 $571,091
Construction loans 125,100 41,287 50,398
-------- -------- --------
Total commercial real estate loans $687,935 $655,793 $621,489
======== ======== ========
</TABLE>
At September 30, 1997, unfunded construction loan commitments totaled $106.5
million.
7
<PAGE> 10
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The composition of the commercial real estate loan portfolio by type of
collateral securing the loan was as follows at September 30, 1997 (in
thousands):
<TABLE>
<S> <C>
Investor-owned residential real estate $212,404
Healthcare/Nursing 112,796
Retail 94,136
Hotel/Motel 71,286
Industrial 71,200
Office 42,980
Condo/Loft conversion 33,551
Other 49,582
--------
Total $687,935
========
</TABLE>
From time to time, CORUS has purchased nonperforming student loans at
substantial discounts to the face value of the loans. CORUS attempts to
convert these loans to performing status and have their guarantees reinstated.
The excess of the amount of performing loans converted over the cost of the
loans is accreted into income over the estimated lives of the loans using the
level-yield method. The total discount to be accreted into income in future
periods totaled $15.0 million at September 30, 1997.
At September 30, 1997, residential first mortgage and home equity loans
declined $58.0 and $41.4 million, or 20.3% and 21.9%, respectively, compared
with December 31, 1996. During 1996, management strengthened the underwriting
guidelines for both residential first mortgage and home equity loans, which led
to a significant reduction in loan originations.
Securities Other Than Common Stocks
At September 30, 1997, total securities other than common stocks were $401.9
million, an increase of $104.2 million, or 35.0%, compared with $297.7 million
at December 31, 1996. This increase is primarily attributable to the decrease
in loans.
Common Stocks
At September 30, 1997, common stocks were $132.9 million, an increase of $40.3
million, or 43.5%, compared with $92.6 million at December 31, 1996. This
increase was primarily due to the increase in the unrealized gains for these
stocks. Changes in the market value of the stocks are included in shareholders'
equity on an after-tax basis, but are not included in income until the stocks
are sold. During the third quarter and first nine months of 1997, the pretax
unrealized gains on this portfolio increased by $15.7 and $30.2 million,
respectively.
At September 30, 1997, CORUS held investments in 45 equity securities of
publicly-traded bank holding companies with total unrealized gains of $54.4
million, which were included in the available for sale securities
classification.
On July 3, 1997, CORUS entered into two six-month option collar agreements to
minimize the market risk associated with the bank stock portfolio. The collar
agreements consist of a purchased put option and a written call option on the
S&P 500 index. Both the put and call options have a combined notional value
of $113.0 million with the put option strike price at 915 and the call option
strike price at 1,036. The $3.4 million net cost of the agreements is being
amortized on a straight-line basis and included in securities and other
financial instruments gains and losses.
8
<PAGE> 11
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The purchased put options are carried at market value with any unrealized gains
included, net of tax, in net gains on available for sale securities in
shareholders' equity. Any realized gains from the exercise or settlement of
the put options will be deferred as a basis adjustment to the related
securities. The written call options are also carried at market value with any
losses included in securities and other financial instruments gains and losses.
At September 30, 1997, there were no unrealized gains or losses associated
with these options.
Allowance for Possible Loan Losses
A reconciliation of the activity in CORUS' allowance for possible loan losses
is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
(thousands) 1997 1996 1997 1996
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 27,750 $ 32,035 $ 32,668 $ 25,640
Provision for possible loan losses 4,000 4,000 12,000 12,000
Charge-offs (3,153) (1,924) (16,488) (4,413)
Recoveries 372 1,084 789 1,968
---------- ---------- ---------- ----------
Balance at September 30 $ 28,969 $ 35,195 $ 28,969 $ 35,195
========== ========== ========== ==========
Loans at September 30 $1,543,278 $1,606,759 $1,543,278 $1,606,759
========== ========== ========== ==========
Allowance as a percentage of loans 1.88% 2.19% 1.88% 2.19%
========== ========== ========== ==========
</TABLE>
The net charge-offs in the third quarter of 1997 were primarily due to a $1.5
million charge-off of delinquent student loans and $1.2 million of home equity
net charge-offs. For the first nine months of 1997, there were net charge-offs
of $9.6 million for student loans and $5.4 million for home equity loans. The
student loan charge-offs were for a portion of the loans that CORUS has agreed
not to seek guarantee payments under an interim agreement with the U.S.
Department of Education until the conclusion of the Department's investigation.
Refer to the Note 2 on page 4 for further information. Home equity loans that
were originated at up to 100% of the underlying property's value are charged
off when they become delinquent 120 days past the due date. The underwriting
guidelines for home equity loans were strengthened in 1996 resulting in a
significant decrease in loan originations.
Nonperforming Assets
The following table presents a summary of nonperforming assets' book value.
Nonperforming loans are nonaccrual loans, restructured loans and 90 days or
more past due loans still accruing interest. Excluded from the table are
student loans that CORUS has no reason to believe have lost their guarantee.
Guaranteed student loans more than 90 days past due and not included in the
table totaled $13.3, $15.2 and $14.7 million at September 30, 1997, December
31, 1996 and September 30, 1996, respectively.
9
<PAGE> 12
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
(thousands) September 30 December 31 September 30
1997 1996 1996
-------------- ------------ ------------
<S> <C> <C> <C>
Nonperforming loans:
Residential first mortgage $21,482 $22,687 $18,189
Commercial real estate 4,741 1,139 7,157
Commercial 134 12 435
Home equity 3,694 2,844 1,944
Student 469 7,114 10,095
Consumer 708 1,409 1,046
------- ------- -------
Total nonperforming loans 31,228 35,205 38,866
Other real estate owned 5,828 2,691 1,776
------- ------- -------
Total nonperforming assets $37,056 $37,896 $40,642
======= ======= =======
Nonaccrual loans included in
non-performing loans above $ 7,984 $ 7,427 $14,670
======= ======= =======
Nonperforming loans/Total loans 2.02% 2.17% 2.42%
Nonperforming assets/Total assets 1.64% 1.71% 1.89%
Allowance for loan losses/
nonperforming loans 92.77% 92.79% 90.55%
</TABLE>
Nonperforming residential first mortgage loans are secured by first mortgages
on primarily owner-occupied, residential property. At September 30, 1997,
other real estate owned was comprised of three commercial real estate
properties with a carrying value of $236,000 and thirty-six single-family,
residential properties with a carrying value of $5.6 million. During the first
nine months of 1997, seven commercial real estate properties that had a
carrying value of $1.1 million were sold for a net gain of $238,000 and
seventeen single-family, residential properties that had a carrying value of
$2.2 million were sold for a net gain of $33,000. These gains were partially
offset by writedowns of properties not sold during the first nine months of
1997. The writedowns of commercial and residential real estate properties
totaled $65,000 and $45,000, respectively.
Student Loan Investigation
Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements on
page 4 for further information.
10
<PAGE> 13
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Liabilities
The following table details the composition of deposit products by type:
<TABLE>
<CAPTION>
September 30 December 31 September 30
1997 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
Demand 10% 10% 10%
NOW 4 5 5
Money Market 50 49 51
Savings 10 10 11
Certificates of Deposit 26 26 23
--- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
At September 30, 1997, December 31, 1996 and September 30, 1996, CORUS had
retail certificates of deposit obtained from brokers of $235.7, $227.3 and
$159.9 million, respectively.
Capital
CORUS' consolidated leverage ratio (Tier 1 capital/total average quarterly
assets) was 10.4% at September 30, 1997, well in excess of the minimum
regulatory level of 5%. The consolidated Tier 1 and total risk-based capital
ratios were 15.7% and 16.9%, respectively, exceeding the minimum
well-capitalized Tier 1 and total risk-based capital ratios of 6.00% and
10.00%, respectively.
Operating, Investing and Financing Activities
Net cash provided by operating activities totaled $28.0 million for the first
nine months of 1997, compared with $33.4 million for the same period in 1996.
The decrease was primarily due to a decline in net income and a larger increase
in accrued interest receivable and other assets.
Net cash used in investing activities totaled $62.5 million for the first nine
months of 1997, compared with $47.6 million in 1996. The increase was due to
an increase in security purchases as compared to sales and maturities, which
more than offset a decrease in loans.
Net cash used in financing activities totaled $34.8 million for the first nine
months of 1997, compared with $15.0 million in 1996. This increase in 1997 was
primarily due to the borrowing of Federal Home Loan Bank advances in 1996,
which more than offset a lower decrease in deposits in 1997.
11
<PAGE> 14
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
ACCOUNTING DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS No.
128 requires the presentation of both basic earnings per share and diluted
earnings per share. Basic earnings per share will be computed by dividing net
income by the weighted-average number of common shares outstanding. Diluted
earnings per share will be computed in the same manner as currently used by
CORUS in computing earnings per share. SFAS No. 128 will be effective for
CORUS' 1997 annual report. If SFAS No. 128 had been in effect during 1997,
basic earnings per share would have been $0.69 and $2.04 per share and diluted
earnings per share would have been $0.68 and $2.02 per share for the three and
nine months ended September 30, 1997, respectively.
FORWARD-LOOKING STATEMENTS
Statements made about CORUS' future economic performance, strategic plans or
objectives, revenue or earnings projections, or other financial items and
similar statements are not guarantees of future performance, but are
forward-looking statements. By their nature, these statements are subject to
numerous uncertainties that could cause actual results to differ materially
from those in the statements. Important factors that might cause CORUS' actual
results to differ materially include, but are not limited to, the following:
- - Federal and state legislative and regulatory developments, including the
ultimate resolution of the student loan investigation by the U.S.
Department of Education;
- - Changes in management's estimate of the adequacy of the allowance for
possible loan losses;
- - Changes in the level and direction of loan delinquencies and write-offs;
- - Interest rate movements and their impact on customer behavior and CORUS'
net interest margin;
- - Changes in the overall mix of CORUS' loan and deposit products;
- - The impact of repricing and competitors' pricing initiatives on loan and
deposit products;
- - CORUS' ability to adapt successfully to technological changes to meet
customers' needs and developments in the marketplace;
- - CORUS' ability to access cost-effective funding; and
- - Economic conditions.
12
<PAGE> 15
CORUS BANKSHARES, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of Net Income per Common Share is on page
14.
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORUS BANKSHARES, INC.
(Registrant)
October 23, 1997 By: /s/ Michael J. McClure
-----------------------
Michael J. McClure
First Vice President and
Chief Accounting Officer
(Principal Accounting
Officer and duly authorized
Officer of Registrant)
13
<PAGE> 1
EXHIBIT 11 - CORUS BANKSHARES, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended
September 30
(thousands, except per share amounts) 1997 1996
--------------- ---------------
<S> <C> <C>
Net Income (A) $30,257 $33,129
======= =======
Weighted Average Common Shares Outstanding 14,807 14,837
Weighted Average Common Share Equivalents (1) 173 157
------- -------
Weighted Average Common Shares and
Common Stock Equivalents (B) 14,980 14,994
======= =======
Net Income per Common Share (A/B) $ 2.02 $ 2.21
======= =======
</TABLE>
(1) Common share equivalents result from stock options being treated as if they
had been exercised and are computed by application of the treasury stock method.
14
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 64,039
<INT-BEARING-DEPOSITS> 13,000
<FED-FUNDS-SOLD> 42,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 525,182
<INVESTMENTS-CARRYING> 9,642
<INVESTMENTS-MARKET> 9,914
<LOANS> 1,543,278
<ALLOWANCE> 28,969
<TOTAL-ASSETS> 2,253,993
<DEPOSITS> 1,875,674
<SHORT-TERM> 4,616
<LIABILITIES-OTHER> 56,563
<LONG-TERM> 40,000
0
0
<COMMON> 738
<OTHER-SE> 276,402
<TOTAL-LIABILITIES-AND-EQUITY> 2,253,993
<INTEREST-LOAN> 118,732
<INTEREST-INVEST> 15,172
<INTEREST-OTHER> 4,652
<INTEREST-TOTAL> 138,556
<INTEREST-DEPOSIT> 59,219
<INTEREST-EXPENSE> 61,454
<INTEREST-INCOME-NET> 77,102
<LOAN-LOSSES> 12,000
<SECURITIES-GAINS> 2,881
<EXPENSE-OTHER> 38,108
<INCOME-PRETAX> 46,549
<INCOME-PRE-EXTRAORDINARY> 46,549
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,257
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
<YIELD-ACTUAL> 4.85
<LOANS-NON> 7,984
<LOANS-PAST> 23,244
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 32,668
<CHARGE-OFFS> 16,488
<RECOVERIES> 789
<ALLOWANCE-CLOSE> 28,969
<ALLOWANCE-DOMESTIC> 28,969
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
