<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- SECURITIES EXCHANGE ACT OF 1934
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 60613-2431
(Address of principal executive offices) (Zip Code)
(773) 832-3088
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
Common stock, par value $0.05 per share NASDAQ
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Documents Incorporated By Reference
Parts I and II of this Form 10-K incorporate by reference certain information
from the Registrant's 1998 Annual Report to Shareholders. Part III of this Form
10-K incorporates by reference certain information from the Registrant's
definitive Proxy Statement dated March 17, 1999, for its Annual Meeting of
Shareholders to be held on April 28, 1999.
On February 28, 1999, the Registrant had 14,519,890 common shares outstanding.
Of these, 7,284,555 common shares having an aggregate market value (based on the
closing price for these shares as reported in a summary of national market
issues in The Wall Street Journal for stocks listed on NASDAQ on February 28,
1999) of approximately $239.5 million, were owned by shareholders other than
directors and executive officers of the Registrant and any other person known by
the Registrant as of the date hereof to beneficially own five percent or more of
Registrant's common shares.
<PAGE> 2
PART I.
ITEM 1. BUSINESS
Corus Bankshares, Inc., incorporated in Minnesota in 1958, is a bank holding
company registered under the Bank Holding Company Act of 1956. Corus provides
consumer and corporate banking products and services through its wholly-owned
banking subsidiary, Corus Bank, N.A.
The bank has eleven branches in the Chicago metropolitan area and offers general
banking services such as checking, savings, money market and time deposit
accounts; commercial, mortgage, home equity, student and personal loans; trust
and investment management services; safe deposit boxes and a variety of
additional services. The bank also provides clearing, depository and credit
services to more than 550 currency exchanges in the Chicago area and an
additional 20 in Milwaukee, Wisconsin.
Corus owns an operations subsidiary, Bancorp Operations Company, that comprises
an insignificant portion of Corus' total assets and net income. Bancorp
Operations Company provides item processing, bookkeeping and other ancillary
bank support services to Corus' bank subsidiary.
COMPETITION
All of Corus' principal business activities are highly competitive. Corus
competes actively with other financial services providers offering a wide array
of financial products and services. The competitors include other banks, savings
and loan associations, credit unions, brokerage firms, finance companies,
insurance companies, mutual funds and mortgage bankers. Competition is generally
in the form of interest rates and points charged on loans, interest rates paid
on deposits, service charges, banking hours, fiduciary services and other
service-related products.
EMPLOYEES
At December 31, 1998, Corus employed a total of 674 full-time equivalent
persons, consisting of 138 executives, management and supervisory personnel and
536 clerical and secretarial employees.
SUPERVISION AND REGULATION
General
Corus is a bank holding company within the meaning of the Bank Holding Company
Act of 1956, as amended (the Act), and is registered as such with the Board of
Governors of the Federal Reserve System (the Federal Reserve Board). The Act
requires every bank holding company to obtain the prior approval of the Federal
Reserve Board before acquiring, merging with or consolidating into another bank
holding company, acquiring substantially all the assets of any bank, or
acquiring direct or indirect ownership or control of 5% or more of the voting
shares of any bank or bank holding company.
The Act also prohibits a bank holding company, with certain exceptions, from
acquiring direct or indirect ownership or control of 5% or more of the voting
shares of any company which is not a bank and from engaging in any business
other than that of banking, managing and controlling banks or furnishing
services to banks and their subsidiaries. However, Corus may engage in and own
shares of companies engaged in
1
<PAGE> 3
certain businesses determined by the Federal Reserve Board to be closely related
to banking or managing or controlling banks.
The Illinois Bank Holding Company Act of 1957 (the Illinois Act), as amended,
permits Corus to acquire banks located anywhere in Illinois. Other amendments of
the Illinois Act authorize combinations between banks and bank holding companies
located in Illinois and banks and bank holding companies located in another
state if that other state has passed legislation granting similar privileges to
Illinois banks and bank holding companies. Effective December 1, 1990, holding
companies from any state were permitted to acquire Illinois banks and bank
holding companies if the other state allows Illinois bank holding companies the
same privilege. In June 1993, the Illinois Act was amended to eliminate all
branch restrictions. Accordingly, banks located in Illinois are permitted to
establish branches anywhere in the state.
Corus' subsidiary bank is a national bank and, as such, is supervised, examined
and regulated by the Office of the Comptroller of the Currency under the
National Bank Act. Since a national bank is also a member of the Federal Reserve
System and its deposits are insured by the Federal Deposit Insurance Corporation
(FDIC), the subsidiary bank is also subject to the applicable provisions of the
Federal Reserve Act, the Federal Deposit Insurance Act, and, in certain
respects, to state laws applicable to financial institutions.
The subsidiary bank is subject to FDIC deposit insurance assessments. Under the
FDIC's risk-based assessment system, the assessment rate is based on
classification of a depository institution in one of nine risk assessment
categories. Such classification is based upon the institution's capital level
and upon certain supervisory evaluations of the institution by its primary
regulator. The subsidiary bank's FDIC deposit insurance cost for 1999 will be
approximately .01% of deposits.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
initiated new intense regulation for the financial services industry. FDICIA
made significant changes in the legal environment for insured banks, including
reductions in insurance coverage for certain types of deposits, increases in
consumer-oriented requirements, and substantial revisions in the supervision,
examination and audit processes. FDICIA also required new reporting by banks and
mandated adoption of new regulations concerning capital, liquidity, internal
controls, safety and soundness and prompt corrective action.
Capital Adequacy
The Federal Reserve Board established risk-based capital guidelines that require
bank holding companies to maintain minimum ratios. The main objective of the
risk-based capital requirements is to provide a fair and consistent framework
for comparing capital positions of all banking institutions. Under these
guidelines, capital consists of two components, core capital elements (Tier 1
capital) and supplementary capital elements (Tier 2 capital). Assets and
off-balance-sheet items are assigned broad risk categories. The aggregate dollar
value of each category is multiplied by a risk weight associated with this
category.
In 1992, the FDIC adopted new regulations that defined five capital categories
for purposes of implementing the requirements under FDICIA. The five capital
categories, which range from "well-capitalized" to "critically
under-capitalized", are based on the level of risk-based capital measures. The
minimum risk-based capital ratios for Tier 1 capital to risk-weighted assets and
total risk-based capital to risk-weighted assets to be classified as
well-capitalized are 6.0% and 10.0%, respectively. At December 31, 1998, Corus'
Tier 1 capital and total risk-based capital ratios were 15.0% and 18.1%,
respectively.
2
<PAGE> 4
In addition, bank regulatory agencies established a leverage ratio to supplement
the risk-based capital guidelines. The leverage ratio is intended to ensure that
adequate capital is maintained against risks other than credit risk. A minimum
required ratio of Tier 1 capital to total assets of 3.0% is required for the
highest quality bank holding companies that are not anticipating or experiencing
significant growth. All other banking institutions must maintain a leverage
ratio of 4.0% to 5.0% depending upon an institution's particular risk profile.
At December 31, 1998, Corus' leverage ratio was 10.3%.
Interstate Banking
The Riegle-Neal Interstate Bank and Branching Efficiency Act of 1994 (IBBA)
permits bank holding companies that are adequately capitalized and managed to
acquire banks located in any other state after September 29, 1995, subject to
certain statewide and nationwide deposit concentration limits. States may also
prohibit acquisition of banks that have not been in existence for at least five
years.
The interstate branching by merger provisions were effective on June 1, 1997,
unless a state takes legislative action prior to that date. The long-term
effects on Corus of such changes in interstate banking and branching laws cannot
be predicted. However, it is likely that there will be increased competition
from national and regional banking firms headquartered outside of Illinois.
STATISTICAL DATA
Pages 4 through 10 contain supplemental statistical data. This data should be
read in conjunction with Corus' Management's Discussion and Analysis of
Financial Statements and the Consolidated Financial Statements and notes thereto
of the 1998 Annual Report to Shareholders (1998 Annual Report), incorporated
herein by reference in response to Items 7 and 8 hereof.
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the changes in interest income and expense by major
categories of assets and liabilities attributable to changes in volume or rate
or both, for the periods indicated:
<TABLE>
<CAPTION>
(thousands) Year Ended December 31, 1998
--------------------------------
Volume Rate Total
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Interest-earning deposits with banks $ 972 $ (2) $ 970
Federal funds sold (839) (49) (888)
Taxable securities other than common stocks 9,311 (325) 8,986
Common stocks 1,614 (311) 1,303
Tax-advantaged securities (105) (12) (117)
Trading account securities 334 (42) 292
Loans, net of discount (4,410) (2,449) (6,859)
-------- -------- --------
Net Increase (Decrease) 6,877 (3,190) 3,687
-------- -------- --------
Interest Expense:
NOW and money market deposits (1,133) (1,761) (2,894)
Savings deposits (365) 38 (327)
Time deposits 9,807 341 10,148
Short-term borrowings (190) (49) (239)
Federal Home Loan Bank advances -- (44) 44
-------- -------- --------
Net Increase (Decrease) 8,119 (1,475) 6,644
-------- -------- --------
</TABLE>
3
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
Decrease in Net Interest Income $ (1,242) $ (1,714) $ (2,957)
======== ======== ========
<CAPTION>
Year Ended December 31, 1997
--------------------------------
Volume Rate Total
-------- -------- --------
<S> <C> <C> <C>
Interest Income:
Interest-earning deposits with banks $ (206) $ (26) $ (232)
Federal funds sold 2,865 141 3,006
Taxable securities other than common stocks (1,602) (307) (1,909)
Common stocks 1,481 (73) 1,408
Tax-advantaged securities (193) 40 (153)
Trading account securities 380 380 760
Loans, net of discount (3,211) (6,880) (10,091)
-------- -------- --------
Net Decrease (486) (6,725) (7,211)
-------- -------- --------
Interest Expense:
NOW and money market deposits (187) 1,596 1,409
Savings deposits (567) -- (567)
Time deposits 1,201 594 1,795
Short-term borrowings (494) 229 (265)
Federal Home Loan Bank advances 652 26 678
-------- -------- --------
Net Increase 605 2,445 3,050
-------- -------- --------
Decrease in Net Interest Income $ (1,091) $ (9,170) $(10,261)
======== ======== ========
</TABLE>
The tax-equivalent adjustment for interest income on tax-advantaged loans and
securities is reflected through the rate column based on a marginal corporate
income tax rate of 35%. Volume variances are computed using the change in volume
multiplied by the previous year's rate. Rate variances are computed using the
changes in rate multiplied by the previous year's volume. The change in interest
due to both rate and volume has been allocated between the factors in proportion
to the relationship of the absolute dollar amounts of the change in each.
SECURITIES PORTFOLIO
Carrying Value of Securities by Category
The carrying value of securities held by Corus were as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------
(thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Available for sale
U.S. Government and agencies $529,374 $191,236 $183,404
Corporate debt securities 30,173 161,454 95,001
Common stocks 185,698 158,660 92,611
Other 152,423 20,513 8,013
-------- -------- --------
Total 897,668 $531,863 $379,029
======== ======== ========
Held to maturity
State and municipal $ 2,168 $ 4,150 $ 5,201
Other 4,442 5,129 6,053
-------- -------- --------
Total $ 6,610 $ 9,279 $ 11,254
======== ======== ========
</TABLE>
4
<PAGE> 6
Maturities of Securities
The scheduled maturities by security type as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
One year From one From five Not due at
(thousands) or through five through ten After A single
less years years ten years Maturity Total
-------- ------------ ----------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
and agencies $529,374 $ -- $ -- $ -- $ -- $529,374
Corporate debt securities
15,302 14,871 -- -- -- 30,173
State and municipal 350 646 672 500 -- 2,168
Common stocks -- -- -- -- 185,698 185,698
Other -- 15 12,740 124,047 20,063 156,865
-------- -------- -------- -------- -------- --------
Total $545,026 $ 15,532 $ 13,412 $124,547 $205,761 $904,278
======== ======== ======== ======== ======== ========
</TABLE>
The weighted-average yield for each range of maturities of securities at
December 31, 1998 was as follows:
<TABLE>
<CAPTION>
One year From one From five Not due at
or through five through ten After A single
less years years ten years Maturity Total
-------- ------------ ----------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
and agencies 5.03% -- % -- % -- % -- % 5.03%
Corporate debt securities
6.14 6.09 -- -- -- 6.12
State and municipal 10.55 9.29 7.46 9.37 -- 8.94
Common stocks -- -- -- -- 2.97 2.97
Other -- 5.50 6.00 5.63 6.81 5.81
</TABLE>
Actual maturities may differ from those scheduled due to prepayments from
issuers. Common stock yields are not considered meaningful for purposes of this
analysis. Yields on tax-advantaged securities reflect a tax equivalent
adjustment based on a marginal corporate tax rate of 35%.
LOAN PORTFOLIO
Classification of Loans
Corus' loans were as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------
(thousands) 1998 1997 1996 1995 1994
----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Commercial real estate $ 761,564 $ 711,495 $ 655,793 $ 582,331 $ 354,893
Student 431,304 412,926 402,859 379,129 354,073
Residential first mortgage 137,683 209,669 286,042 317,787 233,437
Commercial 108,759 131,868 188,755 170,793 57,093
</TABLE>
5
<PAGE> 7
<TABLE>
<S> <C> <C> <C> <C> <C>
Home equity 85,408 131,868 188,755 170,793 57,093
Consumer 26,869 24,955 27,844 30,273 32,393
----------- ---------- ----------- ----------- -----------
Total $ 1,551,587 $1,545,975 $ 1,623,145 $ 1,558,782 $ 1,100,509
=========== ========== =========== =========== ===========
</TABLE>
Maturities of Loans and Sensitivity to Changes in Interest
The following table classifies the scheduled maturities for the following loan
portfolio categories at December 31, 1998:
<TABLE>
<CAPTION>
One year From one After
(thousands) or less to five years five years Total
------------ --------------- ------------- ----------
<S> <C> <C> <C> <C>
Commercial real estate $241,721 $ 385,171 $ 134,672 $ 761,564
Commercial 70,646 35,622 2,491 108,759
</TABLE>
Of the loans maturing after one year, $269.8 million have fixed rates. To manage
the interest rate exposure of specific, fixed-rate commercial real estate loans
and other loans, Corus has entered into interest rate swap agreements. For
additional information on such financial instruments, see Note 10 to the
Consolidated Financial Statements on pages 41 through 43 of the 1998 Annual
Report, incorporated herein by reference in response to Item 8 hereof.
RISK ELEMENTS IN THE LOAN PORTFOLIO
Nonaccrual and Past Due Loans
Nonaccrual loans were as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------
(thousands) 1998 1997 1996 1995 1994
------------ ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 5,307 $ 8,641 $ 7,427 $ 8,536 $ 2,389
Nonaccrual loans to total loans 0.34% 0.56% 0.46% 0.55% 0.22%
</TABLE>
Interest income that should have been recorded under the original terms of these
loans totaled $405,000 for the year ended December 31, 1998. Total interest
income recorded for these loans in 1998 was $229,000.
Loans past due 90 days or more, including nonaccrual loans, were as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------
(thousands) 1998 1997 1996 1995 1994
------------ ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more $ 34,877 $ 41,248 $ 50,368 $ 32,714 $20,620
Less guaranteed student loans 17,543 14,077 15,163 13,913 13,252
------------ ---------- ----------- --------- ----------
Net loans past due 90 days or more $ 17,334 $ 27,171 $ 35,205 $ 18,801 $ 7,368
============ ========== =========== ========= ==========
Net loans past due 90 days or more
as a percentage of total loans 1.12% 1.76% 2.17% 1.21% 0.67%
============ ========== =========== ========= ==========
</TABLE>
6
<PAGE> 8
Guaranteed student loans that are greater than 90 days past due are classified
as performing due to the principal and accrued interest on such loans being
guaranteed by individual state or private non-profit agencies.
Potential Problem Loans
In addition to those loans disclosed under the preceding "Nonaccrual and Past
Due Loans" section, management identified, through their problem loan
identification system, certain other loans in the portfolio that exhibit a
higher than normal credit risk. However, these loans were not classified as
nonperforming loans. These other loans include loans that are past maturity more
than 45 days, have recent adverse operating cash flow or balance sheet trends,
or have general risk characteristics that the loan officer feels might
jeopardize the future timely collection of principal and interest payments. At
December 31, 1998, the principal amount of these loans was $8.5 million. This
amount generally includes loans that were classified for regulatory purposes.
Analysis of the Allowance for Loan Losses
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------
(thousands) 1998 1997 1996 1995 1994
------------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $30,660 $32,668 $25,640 $20,157 $19,552
Provision for loan losses 10,000 16,000 16,000 5,779 ---
Less charge-offs:
Commercial real estate loans 18 350 206 284 65
Student loans 1,240 9,707 4,605 81 45
Residential first mortgage loans 414 431 1 4 20
Home equity loans 5,171 8,454 6,421 28 ---
Commercial loans 2 22 92 269 35
Consumer loans 7 131 16 153 148
------------- ----------- -------------- ------------- -------------
Total charge-offs 6,852 19,095 11,341 819 313
------------- ----------- -------------- ------------- -------------
Add recoveries:
Commercial real estate loans 166 195 1,026 44 210
Student loans 143 24 80 105 100
Residential first mortgage loans --- 3 --- 5 5
Home equity loans 1,553 745 375 --- ---
Commercial loans 9 19 770 69 303
Consumer loans 94 101 118 300 300
------------- ----------- -------------- ------------- -------------
Total recoveries 1,965 1,087 2,369 523 918
------------- ----------- -------------- ------------- -------------
Net (charge-offs) recoveries (4,887) (18,008) (8,972) (296) 605
------------- ----------- -------------- ------------- -------------
Balance at end of year $35,773 $30,660 $32,668 $25,640 $20,157
Net (charge-offs)/recoveries to average loans
Outstanding (0.32%) (1.15%) (0.56%) (0.02%) 0.06%
======================================================================================================================
</TABLE>
7
<PAGE> 9
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------
(thousands) 1998 1997 1996 1995 1994
-------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Commercial real estate $ 12,971 $ 2,814 $ 2,575 $ 2,934 $ 5,801
Student 2,782 2,658 3,608 11,489 1,202
Residential first mortgage 459 784 1,034 1,327 2,451
Home equity 10,070 16,180 21,460 1,000 827
Commercial 269 29 45 445 1,368
Consumer 169 306 643 476 291
Unallocated 9,053 7,889 3,303 7,969 8,217
-------------- --------------- --------------- --------------- ------------
Total $35,773 $30,660 $32,668 $25,640 $20,157
============== =============== =============== =============== ============
</TABLE>
The increase in the allocation of the allowance for loan losses from 1997 to
1998 for commercial real estate loans reflects various factors, among them: (i)
commercial real estate construction loans increased to $228 million at December
31, 1998 from $157 million at December 31, 1997 (refer to page 24 of the 1998
Annual Report); (ii) unused commitments under existing commercial real estate
lines of credit increased to $243 million at December 31, 1998 from $154 million
at December 31, 1997 (refer to page 42 of the 1998 Annual Report); and (iii)
commitment letters outstanding on commercial real estate loans increased to $373
million at December 31, 1998 from $228 million at December 31, 1997 (refer to
page 42 of the 1998 Annual Report).
Loan Portfolio Composition
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------
(thousands) 1998 1997 1996 1995 1994
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Commercial real estate 49% 46% 40% 38% 33%
Student 27 25 24 32
28
Residential first mortgage 14 18 20 21
9
Home equity 8 11 11 5
7
Commercial 3 4 5 6
5
Consumer 2 2 2 2 3
----------- ----------- ----------- --------- ---------
Total 100% 100% 100% 100% 100%
=========== =========== =========== ========= =========
</TABLE>
For further review of the loan loss provision and the allowance for loan losses,
reference is made to pages 26 through 27 of Management's Discussion and Analysis
of Financial Statements of the 1998 Annual Report, incorporated herein by
reference in response to Item 7 hereof.
8
<PAGE> 10
DEPOSITS
The scheduled maturities of time deposits in denominations of $100,000 and
greater was as follows at December 31, 1998:
(thousands)
Maturing within 3 months $ 69,508
After 3 but within 6 months 82,572
After 6 but within 12 months 142,296
After 12 months 215,918
----------
Total $ 510,294
==========
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to Corus' equity and
assets:
<TABLE>
<CAPTION>
December 31
---------- ----------- --------
1998 1997 1996
---------- ----------- --------
<S> <C> <C> <C>
Return on average total assets 1.7% 1.8% 2.0%
Return on average common shareholders' equity 13.7 14.9 20.4
Dividend payout ratio 19.8 19.5 15.4
Average equity to average total assets 12.2 11.8 9.9
</TABLE>
ITEM 2. PROPERTIES
Corus utilizes the building facilities of its Irving Park branch, which is
located at 3959 N. Lincoln Avenue, Chicago, Illinois, for its executive offices.
Corus owns the property and buildings on which nine of the eleven bank branch
locations are located. The other two branch locations are leased from unrelated
parties.
ITEM 3. LEGAL PROCEEDINGS
Corus is involved in various legal and regulatory proceedings, many involving
matters that arose in the ordinary course of business. The consequences of these
proceedings are not presently determinable but, in the opinion of management,
these proceedings will not have a material effect on the results of operations,
financial position, liquidity or capital resources of Corus, except possibly for
the matter discussed below.
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. 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.
9
<PAGE> 11
Shortly after notifying the Department of the problems in the student loan
servicing area, 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 $14.5 million of loans subject to the interim
agreement were charged-off against the allowance for loan losses since 1996. The
ultimate collectibility of these loans is uncertain.
Although certain employees of Corus may have acted illegally or violated
Department policy or regulations, management is unable to predict what actions,
if any, the Department will take following completion of its investigation, and
cannot estimate the magnitude of the violations or the amount or range of any
liability that Corus will ultimately incur. As such, management is unable to
quantify either the amount of student loans that may lose their government
guarantee or the amount of loans that it may be required to repurchase and,
therefore, the effect such amounts and any related penalties will have on Corus'
financial condition or results of operations. No legal proceedings have been
commenced against Corus as a result of the investigation.
If it is ultimately determined that Corus acted illegally or violated Department
policy or regulations with respect to certain loans in a significant number of
instances or if a settlement is reached, 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. If the Department were to
bring an action, and be successful in proving violations of law related to the
student loan program, potential sanctions could include significant fines,
recovery of treble amounts of guarantee payments incorrectly received by Corus
and the suspension of Corus' continued participation in the student loan
program.
Corus does not condone or permit such improper practices and is cooperating
fully with the Department's investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
Corus' common stock trades on the NASDAQ National Market tier of The NASDAQ
Stock Market under the symbol: CORS. The high and low prices for the common
stock for the calendar quarters indicated, as reported by NASDAQ, are listed on
page 50 of the 1998 Annual Report, incorporated herein by reference in response
to Item 5 hereof.
10
<PAGE> 12
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of February 28, 1999, there were 443 shareholders owning Corus' common stock,
which has a par value of $0.05 per share. Shareholders that own stock in nominee
(i.e., street) name are excluded from the number of security holders of record.
DIVIDENDS ON COMMON STOCK
Quarterly cash dividends per common share for the last two years are included on
page 50 of the 1998 Annual Report, incorporated herein by reference in response
to Item 5 hereof. Dividends were declared and paid on a quarterly basis. The
declaration of dividends is at the discretion of Corus' Board of Directors and
depends upon, among other factors, earnings, capital requirements and the
operating and financial condition of Corus.
ITEM 6. SELECTED FINANCIAL DATA
Refer to page 50 of the 1998 Annual Report, incorporated herein by reference for
additional selected financial data.
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------------------------
(thousands, except per share data) 1998 1997 1996 1995 1994
---------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Interest income $ 187,525 $ 183,932 $ 190,950 $ 171,114 $ 114,541
Interest expense 89,305 82,661 79,611 72,597 45,748
---------------- ---------------- --------------- ---------------- ---------------
Net interest income 98,220 101,271 111,339 98,517 68,793
Provision for loan losses 10,000 16,000 16,000 5,779 --
---------------- ---------------- --------------- ---------------- ---------------
Net interest income after provision
for loan losses 88,220 85,271 95,339 92,738 68,793
Noninterest income, excluding
securities gains (losses) 20,747 22,032 19,436 15,443 12,572
Securities gains (losses), net 4,919 4,881 3,316 (1,332) 663
Noninterest expense 51,889 51,677 50,181 51,650 45,222
Income tax expense 21,369 21,136 24,005 19,429 12,790
---------------- ---------------- --------------- ---------------- ---------------
Net income available to common
shareholders 40,628 39,371 43,905 35,770 24,016
================ ================ =============== ================ ===============
Net income per share:
Basic $ 2.79 $ 2.66 $ 2.96 $ 2.36 $ 1.58
Diluted 2.75 2.63 2.93 2.35 1.57
================ ================ =============== ================ ===============
Cash dividends declared per
common share $ 0.555 $ 0.530 $ 0.480 $ 0.360 $ 0.300
================ ================ =============== ================ ===============
Assets $2,589,415 $ 2,251,927 $2,218,528 $2,125,092 $1,889,445
================ ================ =============== ================ ===============
</TABLE>
11
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained under the caption "Management's Discussion and
Analysis of Financial Statements" on pages 18 through 31 of the 1998 Annual
Report is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the caption "Risk Management" on pages 27
through 29 of the 1998 Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Corus, including the notes thereto, and
other information on pages 32 through 50 of the 1998 Annual Report are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On February 12, 1997, the Audit Committee and Board of Directors of Corus
recommended that the shareholders ratify Arthur Andersen LLP at the annual
meeting as independent accountants of Corus for fiscal 1997. This recommendation
caused the dismissal of KPMG LLP (KPMG) as the independent accountants of Corus
upon the completion of the audit of Corus' financial statements as of and for
the year ended December 31, 1996 and the issuance of their report thereon.
For the year ended December 31, 1996, KPMG's reports on the financial statements
did not contain an adverse or a disclaimer of opinion nor were they qualified or
modified as to uncertainty, audit scope or accounting principles.
For the year ended December 31, 1996 and from December 31, 1996 through the
effective date of the dismissal, there were no disagreements between KPMG and
Corus on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure or any reportable events.
Corus requested that KPMG furnish a letter addressed to the United States
Securities and Exchange Commission stating whether KPMG agrees with the
preceding statements. KPMG's letter dated March 25, 1997 is incorporated by
reference to Corus' Annual Report on Form 10-K for the year ended December 31,
1996.
12
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of Corus is incorporated
herein by reference to the descriptions under "Elections of Directors and
Ownership of Shares" on pages 2 through 4 of the 1999 Proxy Statement. For both
those executive officers listed in the Proxy as well as the other executive
officers of the Company (Senior Vice President title and greater) not listed in
the Proxy, the following is a table providing the executive officer's name, age,
position(s) held with the Company and Subsidiaries and the date the officer
assumed their present office(s).
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Position(s) and Office(s) Held with Assumed
Name Age the Company and Subsidiaries Present Office(s)
- ----------------------- --- ----------------------------------- -----------------
<S> <C> <C>
J.C. Glickman 83 Chairman of the Board of June 1, 1984
the Company
Robert J. Glickman 52 President and Chief Executive June 1, 1984
of the Company and Corus Bank, N.A.
David H. Johnson, III 44 Executive Vice President of the June 10, 1996
Company and Chief Operating Officer
of Corus Bank, N.A.
Michael G. Stein 38 Executive Vice President of Corus February 19, 1996
Bank, N.A.
Timothy H. Taylor 34 Executive Vice President and Chief December 1, 1998
Financial Officer of the Company
and Corus Bank, N.A.
Randy P. Curtis 40 Senior Vice President of Corus April 30, 1997
Bank N.A.
Christopher Glancy 45 Senior Vice President of Corus November 15, 1995
Bank, N.A.
Terrence W. Keenan 53 Senior Vice President of Corus September 16, 1996
Bank, N.A.
Richard J. Koretz 35 Senior Vice President of Corus November 15, 1995
Bank, N.A.
Joel C. Solomon 44 Senior Vice President of Corus August 29, 1997
Bank, N.A.
</TABLE>
13
<PAGE> 15
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference to the
material under the caption "Executive Compensation" on pages 10 through 18 of
the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the material under the headings
"Outstanding Voting Securities and Principal Shareholders" and "Election of
Directors and Ownership of Shares" on pages 1 through 4, respectively, of the
1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the material under the heading "Transactions
with Management and Others" on page 20 of the 1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits to Consolidated Financial Statements:
Index Pages
----- -----
Consolidated Balance Sheets 32
Consolidated Statements of Income 33
Consolidated Statements of Changes of Shareholders' Equity 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements 36-50
Report of Independent Public Accountants 51
(b) Reports on Form 8-K:
None.
(c) Exhibit: See exhibit filed herewith
14
<PAGE> 16
EXHIBIT INDEX
(3a) Amended and Restated Articles of Incorporation is incorporated herein
by reference to Exhibit 4.1 to the Form S-8 filing dated May 22, 1998;
(3b) By-Laws are incorporated herein by reference to Exhibit 4.2 to the Form
S-8 filing dated May 22, 1998;
(10) Commercial Loan Officers Bonus Program is incorporated herein by
reference to Form S-8 filing dated May 22, 1998;
(13) The portions of Registrant's 1998 Annual Report incorporated by
reference into Part I or Part II of Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1998; and
(16) Letter regarding change in certifying accountant incorporated by
reference to the Registrant's Annual Report on Form10-K for the year
ended December 31, 1996.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
Timothy H. Taylor /s/ Executive Vice President & Chief Financial March 26, 1999
Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Joseph C. Glickman /s/ Chairman of the Board of Directors March 26, 1999
Robert J. Glickman /s/ President, Chief Executive Officer & Director March 26, 1999
Timothy H. Taylor /s/ Executive Vice President & Chief Financial March 26, 1999
Officer
Steven D. Fifield /s/ Director March 26, 1999
Karl H. Horn /s/ Director March 26, 1999
Michael Levitt /s/ Director March 26, 1999
Rodney D. Lubeznik /s/ Director March 26, 1999
Michael Tang /s/ Director March 26, 1999
William H. Wendt, III /s/ Director March 26, 1999
</TABLE>
16
<PAGE> 18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Corus Bankshares, Inc.:
We have audited the accompanying consolidated balance sheets of Corus
Bankshares, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit. The consolidated financial statements of Corus Bankshares, Inc. and
subsidiaries as of December 31, 1996 and for the year ended December 31, 1996,
were audited by other auditors whose report dated January 10, 1997, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Corus Bankshares,
Inc. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.
Chicago, Illinois
January 18, 1999
17
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Corus Bankshares, Inc.:
We have audited the accompanying consolidated balance sheet of Corus Bankshares,
Inc. and subsidiaries as of December 31, 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of Corus'
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Corus Bankshares,
Inc. and subsidiaries at December 31, 1996, and the results of their operations
and cash flows for the year then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 10, 1997
18
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 72,050
<INT-BEARING-DEPOSITS> 13,000
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 897,688
<INVESTMENTS-CARRYING> 6,610
<INVESTMENTS-MARKET> 6,802
<LOANS> 1,551,587
<ALLOWANCE> 35,773
<TOTAL-ASSETS> 2,589,415
<DEPOSITS> 2,154,676
<SHORT-TERM> 24,933
<LIABILITIES-OTHER> 51,676
<LONG-TERM> 40,000
0
0
<COMMON> 727
<OTHER-SE> 317,403
<TOTAL-LIABILITIES-AND-EQUITY> 2,589,415
<INTEREST-LOAN> 149,924
<INTEREST-INVEST> 31,514
<INTEREST-OTHER> 6,087
<INTEREST-TOTAL> 187,525
<INTEREST-DEPOSIT> 86,641
<INTEREST-EXPENSE> 89,305
<INTEREST-INCOME-NET> 98,220
<LOAN-LOSSES> 10,000
<SECURITIES-GAINS> 4,919
<EXPENSE-OTHER> 51,889
<INCOME-PRETAX> 61,997
<INCOME-PRE-EXTRAORDINARY> 61,997
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,628
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 2.75
<YIELD-ACTUAL> 4.33
<LOANS-NON> 5,307
<LOANS-PAST> 12,027
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,474
<ALLOWANCE-OPEN> 30,660
<CHARGE-OFFS> 6,852
<RECOVERIES> 1,965
<ALLOWANCE-CLOSE> 35,773
<ALLOWANCE-DOMESTIC> 35,773
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
