<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 MARCH 31, 1998
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 March 31, 1998, the Registrant had 14,551,142 common shares, $0.05 par
value, outstanding.
<PAGE> 2
CORUS BANKSHARES, Inc.
Index to Quarterly Report on Form 10-Q
March 31, 1998
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION. PAGE
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) -
March 31, 1998, December 31, 1997 and March 31, 1997. 1
Condensed Consolidated Statements of Income
and Comprehensive Income (unaudited) -
Three Months Ended March 31, 1998 and 1997. 2
Condensed Consolidated Statements of Cash
Flows (unaudited) - Three Months Ended
March 31, 1998 and 1997. 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. 14
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31 December 31 March 31
(thousands) 1998 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks - noninterest bearing $ 52,810 $ 62,217 $ 55,591
Federal funds sold overnight 11,600 1,500 170,500
Federal funds sold term 20,000 20,000 -
Interest-bearing deposits with banks 26,999 26,999 -
Securities:
Trading, at fair value 153,479 - -
Available for sale, at fair value 407,100 531,863 318,159
Held to maturity, at amortized cost 8,455 9,279 10,808
---------- ---------- ----------
Total Securities 569,034 541,142 328,967
Loans, net of unearned discount 1,573,451 1,545,975 1,615,275
Less: Allowance for loan losses 32,056 30,660 30,329
---------- ---------- ----------
Net Loans 1,541,395 1,515,315 1,584,946
Premises and equipment, net 32,085 30,950 29,213
Accrued interest receivable and other assets 59,018 44,767 42,472
Goodwill, net of accumulated amortization 11,406 9,037 11,423
---------- ---------- ----------
Total Assets $2,324,347 $2,251,927 $2,223,112
========== ========== ==========
Liabilities & Shareholders' Equity
Deposits:
Noninterest-bearing $ 184,987 $ 190,739 $ 179,055
Interest-bearing 1,727,254 1,672,327 1,709,171
---------- ---------- ----------
Total Deposits 1,912,241 1,863,066 1,888,226
Short-term borrowings 1,803 9,264 4,681
Federal Home Loan Bank advances 40,000 40,000 40,000
Accrued interest payable and other liabilities 71,937 47,964 43,840
---------- ---------- ----------
Total Liabilities 2,025,981 1,960,294 1,976,747
Shareholders' Equity
Common Stock, Surplus & Retained Earnings 248,955 246,357 227,273
Accumulated other comprehensive income 49,411 45,276 19,092
---------- ---------- ----------
Total Shareholders' Equity 298,366 291,633 246,365
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $2,324,347 $2,251,927 $2,223,112
========== ========== ==========
</TABLE>
See accompanying notes.
1
<PAGE> 4
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
(thousands, except per share data) 1998 1997
--------- ---------
<S> <C> <C>
Interest and Dividend Income $ 44,734 $ 45,709
Interest Expense 20,498 20,284
--------- ---------
Net Interest Income 24,236 25,425
Provision for Loan Losses 3,000 4,000
--------- ---------
Net Interest Income after Provision
for Loan Losses 21,236 21,425
Noninterest Income:
Service charges on deposit accounts 2,072 2,296
Trust services 137 167
Gain on dispositions of student loans 1,776 3,004
Other income 433 304
Trading account losses, net (52) (89)
Securities and other financial
instruments gains, net 1,857 116
--------- ---------
Total noninterest income 6,223 5,798
Noninterest Expense:
Salaries and employee benefits 7,161 6,781
Net occupancy 1,004 1,019
Data processing 619 515
Goodwill amortization 389 768
Other expenses 3,240 3,859
--------- ---------
Total noninterest expense 12,413 12,942
--------- ---------
Income before income taxes 15,046 14,281
Income tax expense 5,144 4,978
--------- ---------
Net Income 9,902 9,303
Other comprehensive income, net of income taxes
Unrealized securities gains 4,135 3,324
--------- ---------
Comprehensive Income $ 14,037 $ 12,627
========= =========
Net Income per Share:
Basic $ 0.68 $ 0.63
Diluted 0.67 0.62
Cash Dividends Declared Per Common Share 0.135 0.125
</TABLE>
See accompanying notes.
2
<PAGE> 5
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
(thousands) 1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,902 $ 9,303
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,000 4,000
Depreciation and amortization 737 702
Accretion of investment and loan discounts (1,875) (3,207)
Goodwill amortization 389 768
Gain on dispositions of student loans (1,776) (3,004)
Securities and other financial instruments gains, net (1,550) (116)
Increase in trading account securities (153,479) -
Increase in accrued interest receivable and
other assets (11,465) (3,343)
Increase in accrued interest payable and
other liabilities, net 12,826 7,898
--------- ---------
Net cash provided by (used in)
operating activities (143,291) 13,001
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity 823 454
Proceeds from maturities of available for sale securities 113,246 149,100
Proceeds from sales of available for sale securities 91,119 539
Purchases of available for sale securities (64,026) (81,837)
Purchases of loans (73) (272)
Net (increase) decrease in loans (28,624) 6,304
Purchases of premises and equipment, net (1,872) (1,265)
Purchases of businesses (1,000) -
--------- ---------
Net cash provided by investing activities 109,593 73,023
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposit accounts 49,175 (12,453)
Decrease in short-term borrowings (7,461) (1,636)
Retirements of common shares (5,339) -
Cash dividends paid on common shares (1,984) (1,852)
--------- ---------
Net cash provided by (used in) financing activities 34,391 (15,941)
--------- ---------
Net increase in cash and cash equivalents 693 70,083
Cash and cash equivalents at January 1 63,717 156,008
--------- ---------
Cash and cash equivalents at March 31 $ 64,410 $ 226,091
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 6
CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheets and Statements of Income,
Comprehensive 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, 1997 included in CORUS' Annual Report and Form 10-K for
the year ended December 31, 1997. The results of operations for the interim
period should not be considered indicative of results to be expected for the
full year.
Certain reclassifications have been made in the 1997 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 1995 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. A
total of $13.5 million of loans subject to the interim agreement have been
charged off against the allowance for loan losses in prior years. 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. As such, management is unable to quantify either the student loans
that may lose their government guarantee or the amount of loans that may be
required to repurchase.
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 MONTHS ENDED MARCH 31, 1998 AND 1997
OPERATING RESULTS
For the three months ended March 31, 1998, net income was $9.9 million, or
$0.67 per share on a diluted basis, an increase of 6.4% from net income of $9.3
million, or $0.62 per share on a diluted basis, for the same period in 1997.
For the three months ended March 31, 1998, comprehensive income was $14.0
million, an increase of 11.2% from $12.6 million in 1997.
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 table on the following page sets forth
certain information relating to CORUS' consolidated average balance sheets and
reflects the average yield on assets and cost of liabilities for the last three
years. The yields and costs are adjusted for the accretion and amortization of
deferred fees. Interest income on nonaccrual loans is reflected in the period
that it is collected. Such amounts are not material to net interest income or
the net change in net interest income. Nonaccrual loans are included in the
average balances and do not have a material effect on the average yield.
The following table represents a reconciliation of fully tax equivalent net
interest income:
<TABLE>
<CAPTION>
(thousands)
<S> <C>
Fully tax equivalent net interest income for the three months
ended March 31, 1997 $ 25,656
Change due to average earning assets fluctuations 412
Change due to interest rate fluctuations other than student
loan discount accretion (1,242)
Change due to student loan discount accretion (396)
Change due to rate/volume fluctuations (3)
Fully tax equivalent net interest income for the three months ----------
ended March 31, 1998 $ 24,427
==========
</TABLE>
The decline in the net interest margin in 1998 was partially due to lower
student loan discount accretion and an increase in the average balance of
common stock investments. During the three months ended March 31, 1998, CORUS
had $1.1 of interest income from the accretion of acquisition discount related
to several groups of purchased, previously nonperforming student loan pools,
compared with $1.5 million in the first quarter of 1997. In addition, the net
interest margin was adversely affected in the first quarter of 1998 by the
$65.3 million increase in the average balance of CORUS' bank stock portfolio.
The following table represents the impact these items had on net interest
margin for the three-month periods ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
March 31
1998 1997
-------- -------
<S> <C> <C>
Net interest margin 4.55% 4.86%
Impact of student loan discount accretion 0.20 0.28
----- -----
Net interest margin without student loan discount accretion 4.35 4.58
Impact of bank stock portfolio (0.19) (0.09)
----- -----
Net interest margin without student loan discount
accretion and bank stock portfolio 4.54% 4.67%
===== =====
</TABLE>
5
<PAGE> 8
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------------------------------------------------
1998 1997
---------------------------------- --------------------------------
Average Average
(Dollars in thousands) Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Assets
Earning Assets:
Interest-bearing deposits with banks $ 26,999 $ 400 5.93% $ - $ - N/A
Federal funds sold 57,305 797 5.56% 110,083 1,463 5.32%
Taxable securities other than common stocks 291,975 4,236 5.80% 259,488 3,490 5.38%
Common stocks 159,892 794 1.99% 94,619 651 2.75%
Tax-advantaged securities (1) 3,839 74 7.71% 5,130 96 7.49%
Trading account securities 46,624 613 5.26% 21,641 293 5.42%
Loans, net of unearned discount (1) (2) (3) 1,560,628 38,011 9.74% 1,622,379 39,947 9.85%
---------------------------------- --------------------------------
Total earning assets 2,147,262 44,925 8.37% 2,113,340 45,940 8.70%
Noninterest-earning assets:
Cash and due from banks--noninterest bearing 58,728 66,860
Allowance for loan losses (31,339) (33,566)
Premises and equipment, net 31,418 27,843
Other assets, including goodwill 54,981 53,822
----------- ----------
Total assets $ 2,261,050 $2,228,299
=========== ==========
Average Liabilities and Shareholders' Equity
Deposits -- interest-bearing:
NOW and money market deposits $ 1,000,147 $ 11,542 4.62% $1,038,269 $11,845 4.56%
Savings deposits 178,016 1,165 2.62% 194,984 1,257 2.58%
Time deposits 507,029 7,128 5.62% 479,770 6,453 5.38%
---------------------------------- --------------------------------
Total interest-bearing deposits 1,685,192 19,835 4.71% 1,713,023 19,555 4.57%
Short-term borrowings 4,616 93 8.06% 11,522 173 6.01%
Federal Home Loan Bank advances 40,000 570 5.70% 40,000 556 5.56%
---------------------------------- --------------------------------
Total interest-bearing liabilities 1,729,808 20,498 4.74% 1,764,545 20,284 4.60%
Noninterest-bearing liabilities and shareholders' equity:
Noninterest-bearing deposits 191,656 189,863
Other liabilities 48,602 32,913
Shareholders' equity 290,984 240,978
----------- ----------
Total liabilities and shareholders' equity $ 2,261,050 $2,228,299
=========== ==========
Interest income/average earning assets $ 2,147,262 $ 44,925 8.37% $2,113,340 $45,940 8.70%
Interest expense/average interest-bearing liabilities 1,729,808 20,498 4.74% 1,764,545 20,284 4.60%
----------------- ----------------
Net interest spread $ 24,427 3.63% 25,656 4.10%
================= ================
Net interest margin 4.55% 4.86%
==== ====
</TABLE>
(1) Interest income on tax-advantaged loans and securities reflects a tax
equivalent adjustment based on a 35% income tax rate.
(2) Unremitted interest on nonaccrual loans is not included in the amounts.
(3) Includes net interest income derived from interest rate swap contracts.
6
<PAGE> 9
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Noninterest Income
For the first quarter of 1998, noninterest income increased $425,000 to $6.2
million, compared with $5.8 million in 1997. Service charge fee income
declined $224,000 to $2.1 million primarily due to lower return and overdraft
fee income. Gains on the dispositions of student loans declined $1.2 million
to $1.8 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 $1.7 million to $1.9 million. These
gains included a $8.4 million net gain from the sales of certain bank stocks in
CORUS' portfolio, which was partially offset by $6.5 million of losses
associated with the S&P 500 option contracts entered into by CORUS to hedge the
market risk associated with the bank stock portfolio.
On March 31, 1998, CORUS purchased the assets of two investment management
companies. As a result of the purchases, CORUS' assets under management more
than tripled, which will result in a signficant increase in trust services
income. The purchases resulted in additional goodwill of $2.8 million being
recorded, which will be amortized over 15 years.
Noninterest Expense
In the first quarter of 1998, noninterest expense declined $529,000 to $12.4
million, compared with $12.9 million in 1997. Salaries and employee benefits
expense increased $380,000 to $7.2 million. Other expenses declined $619,000
to $3.2 million primarily due to a reduction in lending-related expenses and
decreased advertising costs for the Ultimate Money Market product.
The effective tax rate for the first quarter of 1998 was 34.2% versus 34.9% in
1997. The decline in the effective tax rate was primarily due to a reduction
in goodwill amortization in the first quarter of 1998.
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
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;
- - The impact of the changes in student loan pricing planned to take effect
on July 1, 1998;
- - CORUS' ability to adapt successfully to technological changes to meet
customers' needs and developments in the marketplace;
- - The impact of the Year 2000 on CORUS' data processing vendors, customers
and other vendors;
- - CORUS' ability to access cost-effective funding; and
- - Economic conditions.
7
<PAGE> 10
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
FINANCIAL CONDITION
Earning Assets
The following table details the composition of CORUS' earning assets:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial real estate:
Mortgage $ 567,116 26% $ 554,545 26% $ 611,989 29%
Construction 192,866 9 156,950 7 64,327 3
Student 427,930 20 412,926 19 412,218 19
Residential first mortgage 189,593 9 209,669 10 269,505 13
Home equity 119,594 5 131,868 6 177,106 8
Commercial 50,883 2 55,062 3 53,473 3
Medical Finance 22,424 1 21,440 1 20,654 1
Consumer 3,045 - 3,515 - 6,003 -
---------------- ----------------- ----------------
Total loans 1,573,451 72 1,545,975 72 1,615,275 76
Securities other than common stocks 394,619 18 382,482 18 218,299 11
Common stocks 174,415 8 158,660 7 110,668 5
Federal funds sold 31,600 1 21,500 1 170,500 8
Interest-bearing deposits with banks 26,999 1 26,999 1 - -
---------------- ----------------- ----------------
Total $2,201,084 100% $2,135,616 100% $2,114,742 100%
================ ================= ================
</TABLE>
Loans
Total loans at March 31, 1998 were $1.57 billion, an increase of $27.5 million,
or 1.8%, from December 31, 1997. Commercial real estate mortgage loans
increased $12.6 million, or 2.3%, from December 31, 1997. Commercial real
estate construction loans increased $35.9 million, or 22.9%, from December 31,
1997. At March 31, 1998, unfunded construction loan commitments totaled $124.5
million.
8
<PAGE> 11
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The composition of the commercial real estate loan portfolio by type of
collateral securing the loan was as follows at March 31, 1998 (in thousands):
<TABLE>
<S> <C>
Rental apartments $186,433
Nursing homes 134,628
Hotel/Motel 123,626
Retail 87,375
Industrial 79,778
Condo/Loft conversion and other residential for sale 44,745
Office 44,629
Other 58,768
--------
Total $759,982
========
</TABLE>
Student loans increased $15.0 million, or 3.6%, from December 31, 1997. For
all new student loan originations after July 1, 1998, the index that the loans
are tied to is scheduled to change from the 3-month U.S. Treasury bill to the
10-year U.S. Treasury bond. This change could make student lending
unprofitable, substantially increase the interest rate risk associated with
student loans and lead to a reduced level of loan originations. It is
uncertain whether there will be legislative relief from the new provision prior
to July 1, 1998.
In the past few years, nonperforming student loans were purchsed at a
substantial discount to the face value of the loans. CORUS attempts to convert
these loans to performing status and reinstate their government guarantees.
The excess of performing loans converted over the cost of the portfolio 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 $11.7 million at March 31, 1998.
At March 31, 1998, residential first mortgage and home equity loans declined
$20.1 and $12.3 million, or 9.6% and 9.3%, respectively, compared with December
31, 1997. During 1996, the origination of residential first mortgage and home
equity loans was terminated. Since that time, the amount of residential first
mortgage and home equity loan originations has been immaterial.
Securities Other Than Common Stocks
At March 31, 1998, total securities other than common stocks were $394.6
million, an increase of $12.1 million, or 3.2%, compared with $382.5 million at
December 31, 1997.
Common Stocks
At March 31, 1998, common stocks were $174.4 million, an increase of $15.8
million, or 9.9%, compared with $158.7 million at December 31, 1997. This
increase was partially due to the increase in the unrealized gains for these
stocks. During the first quarter of 1998, the pretax unrealized gains on this
portfolio increased by $6.3 million.
9
<PAGE> 12
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
At March 31, 1998, CORUS held investments in 46 equity securities of
publicly-traded bank holding companies with total unrealized gains of $76.0
million, which were included in the available for sale securities
classification. At March 31, 1998, the holdings by market capitalization were
as follows:
<TABLE>
Percentage
Market Capitalization (dollars in thousands): Amount of Holdings of Portfolio
--------------------------------
<S> <C> <C>
Over $10 billion $ 80,296 46%
Between $5 and $10 billion 22,579 13
Between $1 and $5 billion 40,456 23
Between $500 million and $1 billion 16,530 10
Under $500 million 14,555 8
--------------------------------
Total $174,416 100%
================================
</TABLE>
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.
<TABLE>
<CAPTION>
(thousands) March 31 December 31 March 31
1998 1997 1997
-------- ----------- --------
<S> <C> <C> <C>
Nonperforming loans:
Residential first mortgage $15,136 $17,451 $23,006
Commercial real estate 4,444 4,678 7,421
Commercial 21 80 2
Home equity 2,605 3,706 3,834
Student 326 453 3,988
Consumer 754 803 1,020
------- ------- -------
Total nonperforming loans 23,286 27,171 39,271
Other real estate owned 5,740 5,673 2,099
------- ------- -------
Total nonperforming assets $29,026 $32,844 $41,370
======= ======= =======
Nonaccrual loans included in
nonperforming loans above $ 9,074 $ 8,641 $10,133
======= ======= =======
Nonperforming loans/Total loans 1.48% 1.76% 2.43%
Nonperforming assets/Total assets 1.25% 1.46% 1.86%
Allowance for loan losses/
nonperforming loans 137.66% 112.84% 77.23%
</TABLE>
10
<PAGE> 13
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Nonperforming residential first mortgage loans are secured by first mortgages
on primarily owner-occupied, residential property. At March 31, 1998, other
real estate owned was comprised of two commercial real estate properties with a
carrying value of $106,000 and forty-one residential properties with a carrying
value of $5.6 million. During the first three months of 1998, twelve
residential properties with a carrying value of $2.2 million were sold for a
net gain of $166,000. These gains were partially offset by writedowns of
properties not sold. For the first three months of 1998, writedowns of
residential real estate properties not yet sold totaled $158,000.
Excluded from the preceding 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 $14.7, $14.1 and $12.7 million
at March 31, 1998, December 31, 1997 and March 31, 1997, respectively.
Allowance for Loan Losses
The allowance for loan losses is based on management's analysis of individual
loans, prior loss experience, overall growth in the portfolio, delinquency
levels, current economic conditions and other factors. A reconciliation of the
activity in CORUS' allowance for loan losses is as follows:
<TABLE>
Three Months Ended
March 31
------------------------
(thousands) 1998 1997
---------- ----------
<S> <C> <C>
Balance at beginning of period $ 30,660 $ 32,668
Provision for loan losses 3,000 4,000
Less charge-offs:
Commercial real estate loans - 142
Student loans 107 4,039
Residential first mortgage loans 103 134
Home equity loans 1,864 2,208
Commercial loans - 15
Consumer loans - -
---------- ----------
Total charge-offs 2,074 6,538
---------- ----------
Add recoveries:
Commercial real estate loans 96 26
Student loans 13 -
Residential first mortgage loans - -
Home equity loans 338 162
Commercial loans - 1
Consumer loans 23 10
---------- ----------
Total recoveries 470 199
---------- ----------
Net charge-offs (1,604) (6,339)
---------- ----------
Balance at March 31 $ 32,056 $ 30,329
========== ==========
Loans at March 31 $1,573,451 $1,615,275
========== ==========
Allowance as a percentage of loans 2.04% 1.88%
========== ==========
</TABLE>
11
<PAGE> 14
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Home equity loans that were originated at up to 100% of the underlying
property's value, Ultimate Home Equity loans, are charged off when they become
delinquent 120 days past due. For the first three months of 1998, these loans
represented $1.5 million of the home equity charge-offs. Management
anticipates that there will continue to be significant charge-offs of Ultimate
Home Equity loans in 1998. At March 31, 1998, Ultimate Home Equity loans
totaled $76.3 million. Of this total, $663,000 was classified as nonperforming
loans. The following represents an aging schedule of Ultimate Home Equity
loans at March 31, 1998 (in thousands):
<TABLE>
<S> <C>
Current $71,503
31 to 60 days past due 2,887
61 to 90 days past due 1,281
91 to 120 days past due 663
-------
Total $76,334
=======
</TABLE>
During 1996, the origination of residential first mortgage and home equity
loans was terminated. Since that time, the amount of residential first
mortgage and home equity loan originations has been immaterial.
At March 31, 1998, the allowance for loan losses as a percentage of total loans
increased to 2.04% of total loans from 1.98% of total loans at December 31,
1997. In addition, the allowance as a percentage of nonperforming loans
increased to 137.66%, compared with 112.84% at December 31, 1997. Management
believes that the level of the allowance for loan losses was adequate at March
31, 1998.
Student Loan Investigation
Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements on
page 4 for further information.
Liabilities
The following table details the composition of deposit products by type:
<TABLE>
<CAPTION>
March 31 December 31 March 31
1998 1997 1997
-------- ----------- --------
<S> <C> <C> <C>
Demand 10% 10% 9%
Savings 9 10 10
NOW 5 5 5
Money Market 49 48 50
Certificates of Deposit 27 27 26
------- ------- -------
Total 100% 100% 100%
======= ======= =======
</TABLE>
At March 31, 1998, December 31, 1997 and March 31, 1997, CORUS had retail
certificates of deposit obtained from brokers of $260.4, $260.4 and $231.8
million, respectively.
12
<PAGE> 15
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Capital
CORUS' consolidated leverage ratio (Tier 1 capital/total average quarterly
assets) was 10.6% at March 31, 1998, well in excess of the minimum regulatory
level of 5%. The consolidated Tier 1 and total risk-based capital ratios were
14.8% and 16.1%, respectively, exceeding the minimum well-capitalized Tier 1
and total risk-based capital ratios of 6.00% and 10.00%, respectively.
During the first three months of 1998, CORUS repurchased and retired 130,300
shares at an average price of $40.98 per share. A total of 269,100 shares have
been repurchased under the 750,000 common share repurchase program approved by
the Board of Directors in 1997. This program provides a means to return some
of CORUS' excess capital to all shareholders.
Operating, Investing and Financing Activities
Net cash used in operating activities totaled $143.3 million for the first
three months of 1998, compared with $13.0 million of net cash provided by
operating activities for the same period in 1997. The change was primarily due
to the $153.5 million trading securities portfolio at March 31, 1998.
Net cash provided by investing activities totaled $109.6 million for the first
three months of 1998, compared with $73.0 million in 1997. The increase was
due to the reduction in available for sale securities. These proceeds were
utilized to establish the trading securities portfolio. The increase in net
cash provided was partially offset by an increase in loans.
Net cash provided by financing activities totaled $34.3 million for the first
three months of 1998, compared with $15.9 million of net cash used in financing
activities in 1997. This change was primarily due to an increase in deposit
accounts and was partially offset by a decrease in short-term borrowings and
the retirements of common shares.
13
<PAGE> 16
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 15.
(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)
April 17, 1998 By: /s/ Michael J. McClure
------------------------------
Michael J. McClure
First Vice President and
Chief Accounting Officer
(Principal Accounting
Officer and duly authorized
Officer of Registrant)
14
<PAGE> 1
Exhibit 11
EXHIBIT 11 - CORUS BANKSHARES, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
March 31
(thousands, except per share amounts) 1998 1997
------- -------
<S> <C> <C>
Denominator for basic earnings per share - average
common shares outstanding 14,595 14,820
Dilutive common stock options 225 180
------- -------
Denominator for diluted earnings per share 14,820 15,000
======= =======
Numerator: Net income attributable to common shares $ 9,902 $ 9,303
======= =======
Net income per share:
Basic $ 0.68 $ 0.63
Diluted 0.67 0.62
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 52810
<INT-BEARING-DEPOSITS> 26999
<FED-FUNDS-SOLD> 31600
<TRADING-ASSETS> 153479
<INVESTMENTS-HELD-FOR-SALE> 407100
<INVESTMENTS-CARRYING> 8455
<INVESTMENTS-MARKET> 8659
<LOANS> 1573451
<ALLOWANCE> 32056
<TOTAL-ASSETS> 2324347
<DEPOSITS> 1912241
<SHORT-TERM> 1803
<LIABILITIES-OTHER> 71937
<LONG-TERM> 40000
0
0
<COMMON> 728
<OTHER-SE> 297638
<TOTAL-LIABILITIES-AND-EQUITY> 2324347
<INTEREST-LOAN> 37846
<INTEREST-INVEST> 5691
<INTEREST-OTHER> 1197
<INTEREST-TOTAL> 44734
<INTEREST-DEPOSIT> 19835
<INTEREST-EXPENSE> 20498
<INTEREST-INCOME-NET> 24236
<LOAN-LOSSES> 3000
<SECURITIES-GAINS> 1857
<EXPENSE-OTHER> 12413
<INCOME-PRETAX> 15046
<INCOME-PRE-EXTRAORDINARY> 15046
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9902
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.67
<YIELD-ACTUAL> 4.55
<LOANS-NON> 9074
<LOANS-PAST> 14126
<LOANS-TROUBLED> 86
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 30660
<CHARGE-OFFS> 2074
<RECOVERIES> 470
<ALLOWANCE-CLOSE> 32056
<ALLOWANCE-DOMESTIC> 32056
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
