<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 JUNE 30, 1999
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) 832-3088
(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 June 30, 1999, the Registrant had 14,439,290 common shares, $0.05 par
value, outstanding.
<PAGE> 2
CORUS BANKSHARES, Inc.
Index to Quarterly Report on Form 10-Q
June 30, 1999
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
ITEM 1. Financial Statements............................................ 1-8
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 9-21
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...... 22
PART II. -- OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 23
ITEM 2. Changes in Securities........................................... 23
ITEM 3. Defaults Upon Senior Securities................................. 23
ITEM 4. Submission of Matters to a Vote of Security Holders............. 24
ITEM 5. Other Information............................................... 24
ITEM 6. Exhibits and Reports on Form 8-K................................ 25
Signatures...................................................... 26
Exhibit 11 - Computation of Net Income per Share................ 27
Exhibit 27 - Summary Financial Data Schedule.................... 28
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30 December 31 June 30
(thousands) 1999 1998 1998
---------- ----------- ----------
<S> <C> <C> <C>
Assets
Cash and due from banks - noninterest bearing $ 65,209 $ 72,050 $ 56,034
Federal funds sold overnight 36,750 2,000 144,900
Federal funds sold term - - 20,000
Interest-bearing deposits with banks - 13,000 27,000
Securities:
Available for sale, at fair value 793,891 897,668 652,783
Held to maturity, at amortized cost 6,157 6,610 8,089
---------- ---------- ----------
Total Securities 800,048 904,278 660,872
Loans, net of unearned discount 1,587,745 1,551,587 1,483,709
Less: Allowance for loan losses 35,464 35,773 34,214
---------- ---------- ----------
Net Loans 1,552,281 1,515,814 1,449,495
Premises and equipment, net 34,345 34,105 32,972
Accrued interest receivable and other assets 36,822 37,804 68,801
Goodwill, net of accumulated amortization 9,606 10,364 10,990
---------- ---------- ----------
Total Assets $2,535,061 $2,589,415 $2,471,064
========== ========== ==========
Liabilities & Shareholders' Equity
Deposits:
Noninterest-bearing $ 208,089 $ 212,616 $ 191,787
Interest-bearing 1,896,970 1,942,060 1,856,197
---------- ---------- ----------
Total Deposits 2,105,059 2,154,676 2,047,984
Short-term borrowings 5,635 24,933 9,710
Federal Home Loan Bank advances 40,000 40,000 40,000
Accrued interest payable and other liabilities 49,920 51,676 71,227
---------- ---------- ----------
Total Liabilities 2,200,614 2,271,285 2,168,921
Shareholders' Equity
Common Stock, Surplus & Retained Earnings 287,144 273,569 257,080
Accumulated other comprehensive income 47,303 44,561 45,063
---------- ---------- ----------
Total Shareholders' Equity 334,447 318,130 302,143
---------- ---------- ----------
Total Liabilities and Shareholders' Equity $2,535,061 $2,589,415 $2,471,064
========== ========== ==========
</TABLE>
See accompanying notes.
1
<PAGE> 4
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -------------------
(thousands, except per share data) 1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest and Dividend Income $49,047 $45,756 $96,942 $90,490
Interest Expense 22,916 21,191 45,244 41,689
------- ------- ------- -------
Net Interest Income 26,131 24,565 51,698 48,801
Provision for Loan Losses 1,000 3,000 2,000 6,000
------- ------- ------- -------
Net Interest Income after Provision
for Loan Losses 25,131 21,565 49,698 42,801
Noninterest Income:
Service charges on deposit accounts 2,511 2,147 5,050 4,219
Trust services 486 399 1,025 536
Gain on dispositions of student loans 1,476 1,522 3,055 3,298
Other income 581 552 1,286 985
Trading account losses, net (166) (134) (233) (186)
Securities and other financial
instruments gains, net 37 2,050 12 3,907
------- ------- ------- -------
Total noninterest income 4,925 6,536 10,194 12,759
Noninterest Expense:
Salaries and employee benefits 7,702 7,337 15,904 14,498
Net occupancy 1,015 945 2,053 1,949
Data processing 701 540 1,352 1,159
Goodwill amortization 338 435 779 824
Furniture and equipment depreciation 626 593 1,215 1,160
Other expenses 3,243 2,866 6,317 5,539
------- ------- ------- -------
Total noninterest expense 13,625 12,716 27,620 25,129
------- ------- ------- -------
Income before income taxes 16,431 15,385 32,272 30,431
Income tax expense 5,543 5,223 11,006 10,367
------- ------- ------- -------
Net Income 10,888 10,162 21,266 20,064
======= ======= ======= =======
Net Income per Share:
Basic $ 0.75 $ 0.70 $ 1.47 $ 1.38
Diluted 0.74 0.69 1.45 1.36
Cash Dividends Declared Per Common Share $ 0.145 $ 0.140 $ 0.285 $ 0.275
======= ======= ======= =======
</TABLE>
See accompanying notes.
2
<PAGE> 5
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
---------------------------
(thousands) 1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,266 $ 20,064
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,000 6,000
Depreciation and amortization 1,661 1,502
Accretion of investment and loan discounts (12,739) (3,856)
Goodwill amortization 779 824
Gain on dispositions of student loans (3,055) (3,298)
Securities and other financial instruments gains, net (2,962) (12,305)
Decrease (increase) in accrued interest receivable and other assets 3,417 (18,902)
(Decrease) increase in accrued interest payable and other liabilities, net (2,925) 21,566
---------- ----------
Net cash provided by (used in) operating activities 7,442 11,595
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity 455 1,154
Proceeds from maturities of available for sale securities 546,290 145,070
Proceeds from sales of available for sale securities 13,115 111,815
Purchases of available for sale securities (439,006) (363,933)
Maturities of interest-bearing deposits with banks 13,000 -
Purchases of loans (87,174) (489)
Net decrease in loans 52,622 60,472
Purchases of premises and equipment, net (1,901) (3,524)
Purchases of businesses (385) (1,019)
---------- ----------
Net cash provided by (used in) investing activities 97,016 (50,454)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in deposit accounts (49,617) 184,918
(Decrease) increase in short-term borrowings (19,298) 446
Retirements of common shares (3,567) (5,339)
Cash dividends paid on common shares (4,068) (3,949)
---------- ----------
Net cash provided by (used in) financing activities (76,550) 176,076
---------- ----------
Net increase in cash and cash equivalents 27,908 137,217
Cash and cash equivalents at January 1 74,051 63,717
---------- ----------
Cash and cash equivalents at June 30 $ 101,959 $ 200,934
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE> 6
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
(thousands, except per share data) Stock Surplus Earnings Income Total
------ ------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $727 $4,065 $268,777 $44,561 $318,130
Net income 21,266 21,266
Other comprehensive income (net of income taxes):
Net change in unrealized gains on available
for sale securities 2,743 2,743
--------
Comprehensive income 24,009
--------
Retirement of common shares (6) (31) (3,530) (3,567)
Cash dividends declared on common stock,
$0.285 per common share (4,125) (4,125)
------ ------- -------- ------------- --------
Balance at June 30, 1999 $721 $4,034 $282,388 $47,304 $334,447
====== ======= ======== ============= ========
</TABLE>
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
(thousands, except per share data) Stock Surplus Earnings Income Total
------ ------- -------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $734 $4,101 $241,522 $45,276 $291,633
Net income 20,064 20,064
Other comprehensive income (net of income taxes):
Net change in unrealized gains on available
for sale securities (213) (213)
--------
Comprehensive income 19,851
--------
Retirement of common shares (7) (36) (5,297) (5,340)
Cash dividends declared on common stock,
$0.275 per common share (4,001) (4,001)
------ ------- -------- ------------- --------
Balance at June 30, 1998 $727 $4,065 $252,288 $45,063 $302,143
====== ======= ======== ============= ========
</TABLE>
4
<PAGE> 7
CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheets and Statements of Income,
Statements of Cash Flows and Changes in Shareholders' Equity 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, 1998 included in Corus' Annual Report
and Form 10-K for the year ended December 31, 1998. 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 1998 financial statements
to conform to current accounting classifications.
2. Student Loan Lawsuit
In 1994, Corus discovered that certain former employees in the student loan
servicing area had recorded in Corus'records the making of telephone calls
to borrowers whose student loans were delinquent when in fact some of those
calls had not been made. Immediately upon discovery of the issue, Corus
self-reported its findings to the Department of Education. Shortly
thereafter, the Department of Education commenced an investigation into
Corus'student loan servicing practices.
On April 8, 1999, the Department of Justice filed a civil lawsuit against
Corus Bankshares, Inc. and Corus Bank, N.A. alleging, among other things,
that Corus violated the federal False Claims Act by submitting fraudulent
insurance claims for defaulted student loans. The government alleges that
some insurance claims filed were false because certain of Corus'supporting
records were not retained or because certain Corus records do not exactly
match the insurance claims submitted or because certain claimed due
diligence was not performed. The lawsuit seeks triple damages and a civil
penalty of $10,000 for each false claim submitted by Corus. The lawsuit
does not specify the amount of the damages, although the Department of
Justice alleges that the aggregate amount of the false claims was more than
$11.8 million. Corus will contest the lawsuit and has substantial defenses
to the lawsuit.
While the lawsuit filed was a civil action, it is possible that individual
employees, ex-employees or the company may also be sued criminally.
Shortly after notifying the Department of Education in 1994 of the student
loan servicing issue, Corus entered into an interim agreement with the
Department of Education 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 $15
million of loans subject to the interim agreement were charged off against
the allowance for loan losses between 1996 and 1999. The ultimate
collectibility of these loans is uncertain. Corus may have a right to
recover some or all of the $15 million in student loans it voluntarily
withheld from submission for claim payment and intends to seek such a
determination.
5
<PAGE> 8
CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Segment Reporting
The following reflects the disclosure requirements set forth by Statement
of Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information". For purposes of this statement,
Management has determined that Corus, Corus Bank and Bancorp Operations
Company (BOC) are primary operating segments within Corus. Corus Bank
derives a significant portion of its total revenues from interest income
offering commercial, mortgage, home equity, student and personal loans. It
also provides general banking services such as checking, savings, money
market and time deposit accounts; trust and investment management and a
variety of other services. BOC provides item processing, bookkeeping and
other ancillary bank support services to Corus Bank. Substantially all
revenues of BOC are intersegment and eliminated from consolidated total
revenues. Both Corus Bank and BOC are wholly owned subsidiaries of Corus.
Transactions between the reportable segments are recorded on the reportable
segments' financial statements and significant inter-segment accounts and
transactions have been eliminated in the preparation of the consolidated
financial statements. The inter-segment eliminations include revenues and
dividends from Corus' subsidiaries and certain interest income for bank
accounts of the parent company held at the bank subsidiary. In addition,
inter-segment elimations include other income and expense for transactions
between BOC and Corus Bank.
On the following pages is a summary of significant segment information as
required by SFAS No. 131:
6
<PAGE> 9
SIGNIFICANT SEGMENT INFORMATION
- ----------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the Three Months ended June 30, 1999 CORUS Inter-segment
(in thousands) Corus BANK BOC Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income(1) $ 9,193 $ 47,920 $ 4 ($8,070) $ 49,047
Interest expense - 22,986 - (70) 22,916
Provision for loan loss - 1,000 - - 1,000
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 9,193 23,934 4 (8,000) 25,131
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Other income (2) 2,134 4,888 1,938 (4,072) 4,888
Net securities and other financial instruments
gains, net 37 - - - 37
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 2,171 4,888 1,938 (4,072) 4,925
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Goodwill amortization - 338 - - 338
Depreciation 9 688 113 - 810
Other expense 477 12,243 1,695 (1,938) 12,477
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 486 13,269 1,808 (1,938) 13,625
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,879 15,553 134 (10,134) 16,431
Income tax expense (9) 5,506 46 - 5,543
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 10,888 $ 10,046 $ 88 ($10,134) $ 10,888
=================================================================================================================================
Segment Assets $367,941 $2,339,641 $1,907 ($174,429) $2,535,061
Expenditures to acquire long-lived assets 9 873 601 - 1,483
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the Three Months ended June 30, 1998 CORUS Inter-segment
(in thousands) Corus BANK BOC Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income (1) $ 8,088 $ 44,768 $ 4 ($7,103) $ 45,756
Interest expense 53 21,241 - (103) 21,191
Provision for loan loss - 3,000 - - 3,000
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 8,035 20,527 4 (7,000) 21,565
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Other income (2) 1,233 4,487 1,628 (2,861) 4,486
Net securities and other financial instruments
gains, net 2,048 3 - - 2,050
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 3,281 4,490 1,628 (2,861) 6,536
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Goodwill amortization - 435 - - 435
Depreciation 11 628 127 - 766
Other expense 437 11,359 1,346 (1,628) 11,513
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 447 12,422 1,473 (1,628) 12,716
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 10,868 12,594 159 (8,233) 15,385
Income tax expense 703 4,465 55 - 5,223
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 10,165 $ 8,129 $ 104 ($8,233) $ 10,162
=================================================================================================================================
Segment Assets $352,456 $2,277,251 $1,456 ($160,098) $2,471,064
Expenditures to acquire long-lived assets 2 1,595 56 - 1,653
=================================================================================================================================
</TABLE>
(1) Interest income for Corus includes dividends received from Corus Bank of
$8.0 and $6.0 million in 1999 and 1998 respectively.
(2) Other income for Corus includes equity in undistributed (distributed) net
income of subsidiaries totaling $2.2 and $1.2 million in 1999 and 1998
respectively.
7
<PAGE> 10
SIGNIFICANT SEGMENT INFORMATION
- -------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the Six Months ended June 30, 1999 CORUS Inter-segment
(in thousands) Corus BANK BOC Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income (1) $ 10,354 $ 94,729 $ 8 ($8,148) $ 96,942
Interest expense 1 45,392 - (148) 45,244
Provision for loan loss - 2,000 - - 2,000
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 10,353 47,337 8 (8,000) 49,698
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Other income (2) 11,871 10,183 3,865 (15,736) 10,182
Net securities and other financial instruments
gains, net 40 (28) - - 12
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 11,911 10,155 3,865 (15,736) 10,194
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Goodwill amortization - 779 - - 779
Depreciation 17 1,402 241 - 1,661
Other expense 1,053 24,780 3,212 (3,865) 25,181
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,070 26,961 3,454 (3,865) 27,620
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 21,195 30,531 419 (19,871) 32,272
Income tax expense (72) 10,933 145 - 11,006
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 21,266 $ 19,598 $ 274 ($19,871) $ 21,266
=================================================================================================================================
Segment Assets $367,941 $2,339,641 $1,907 ($174,429) $2,535,061
Expenditures to acquire long-lived assets 10 1,212 679 - 1,901
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the Six Months ended June 30, 1998 CORUS Inter-segment
(in thousands) Corus BANK BOC Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest and dividend income (1) $ 15,088 $ 88,612 $ 8 ($13,217) $ 90,490
Interest expense 108 41,798 - (217) 41,689
Provision for loan loss - 6,000 - - 6,000
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income 14,979 40,814 8 (13,000) 42,801
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Other income (2) 3,315 8,852 3,274 (6,589) 8,852
Net securities and other financial instruments
gains, net 3,934 (26) - - 3,907
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 7,249 8,826 3,274 (6,589) 12,759
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Goodwill amortization - 824 - - 824
Depreciation 21 1,402 245 - 1,668
Other expense 760 22,352 2,799 (3,274) 22,637
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 781 24,578 3,044 (3,274) 25,129
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 21,447 25,061 238 (16,315) 30,431
Income tax expense 1,383 8,902 82 - 10,367
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $ 20,064 $ 16,159 $ 156 ($16,315) $ 20,064
=================================================================================================================================
Segment Assets $352,456 $2,277,251 $1,456 ($160,098) $2,471,064
Expenditures to acquire long-lived assets 5 3,180 339 - 3,524
=================================================================================================================================
</TABLE>
(1) Interest income for Corus includes dividends received from Corus Bank of
$8.0 and $12.0 million in 1999 and 1998 respectively.
(2) Other income for Corus includes equity in undistributed (distributed) net
income of susbsidiaries totaling $11.9 and $3.3 million in 1999 and 1998
respectively.
8
<PAGE> 11
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
OPERATING RESULTS
For the three months ended June 30, 1999, net income was $10.9 million, or $0.74
per share on a diluted basis, an increase of 7.1% from net income of $10.2
million, or $0.69 per share on a diluted basis, for the same period in 1998. For
the six months ended June 30, 1999, net income was $21.3 million, or $1.45 per
share on a diluted basis, an increase of 6% from net income of $20.1 million, or
$1.36 per share on a diluted basis for the same period in 1998.
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 tables on the following pages sets forth
certain information relating to Corus' consolidated average balance sheets and
reflects the average yield on assets and cost of liabilities for the six month
period ended June 30, 1999. 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 taxable equivalent net
interest income:
(thousands)
<TABLE>
<S> <C>
Fully taxable equivalent net interest income for the six months ended June 30, 1998 $49,797
Change in interest and dividend income due to common stocks 697
Change due to average earning assets fluctuations (excluding common stocks) 6,360
Change due to interest rate fluctuations other than student loan discount accretion - earning
assets excluding common stocks (6,681)
Change due to student loan discount accretion 1,259
Change due to interest rate fluctuations - funding sources 1,792
Change due to rate/volume fluctuations (excluding common stocks) (487)
--------
Fully taxable equivalent net interest income for the six months ended June 30, 1999 $52,737
========
</TABLE>
The decline in the net interest margin was primarily due to the lower average
level of interest rates that prevailed during the first six months of 1999 as
compared to the same period during 1998. As Corus is asset sensitive, that is,
the Bank has more variable rate assets than variable rate liabilities, the lower
average level of rates during 1999 reduced the Bank's margin. The changing mix
of the Bank's loan portfolio also contributed to the decreased margin. While the
Bank had more loans outstanding during both the first three and six months of
1999 than during the same periods of 1998, the increase was not evenly spread
among of the Bank's various loan categories. Some of the Bank's higher yielding
Residential loan products showed lower average balances during 1999 as compared
to the 1998 levels, while the Bank's Commercial Real Estate and Currency
Exchange loan balances, which have slightly lower average yields, showed
impressive growth.
9
<PAGE> 12
Average Balance Sheets and Net Interest Margin (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
THREE MONTHS ENDED JUNE 30
--------------------------------------------------------------------------
1999 1998
====================================================================================================================================
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
(Dollars in Thousands) BALANCE INTEREST COST BALANCE INTEREST COST
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Interest-bearing deposits with banks $ - $ - - $ 26,999 $ 404 5.98%
Federal funds sold 49,224 579 4.70% 110,626 1,541 5.57%
Taxable securities other than common stocks 643,750 8,189 5.09% 310,248 4,405 5.68%
Common stocks (1) 189,520 1,538 3.25% 173,331 1,230 2.84%
Tax-advantaged securities (2) 2,048 37 7.21% 3,463 65 7.51%
Trading account securities 7,521 86 4.60% 27,485 337 4.91%
Loans, net of unearned discount (2) (3) (4) 1,597,824 39,139 9.80% 1,550,806 38,280 9.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,489,887 49,568 7.96% 2,202,958 46,261 8.40%
Noninterest-earning assets:
Cash and due from banks--noninterest bearing 68,711 59,919
Allowance for loan losses (35,679) (33,008)
Premises and equipment, net 34,156 32,483
Other assets, including goodwill 50,544 61,262
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,607,619 $2,323,614
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -- interest-bearing:
NOW and money market deposits $ 990,449 $ 10,190 4.12% $ 999,479 $11,547 4.62%
Savings deposits 169,273 1,115 2.64% 176,284 1,160 2.63%
Time deposits 793,114 10,987 5.54% 549,640 7,797 5.67%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,952,836 22,292 4.57% 1,725,403 20,504 4.75%
Short-term borrowings 9,210 118 5.12% 6,531 114 7.01%
Federal Home Loan Bank advances 40,000 506 5.06% 40,000 572 5.72%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,002,046 22,916 4.58% 1,771,934 21,191 4.78%
Noninterest-bearing liabilities and shareholders' equity:
Noninterest-bearing deposits 218,684 193,945
Other liabilities 58,657 60,196
Shareholders' equity 328,232 297,539
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,607,619 $2,323,614
====================================================================================================================================
Interest income/average earning assets $ 2,489,887 $ 49,568 7.96% $2,202,958 $46,261 8.40%
Interest expense/average interest-bearing liabilities 2,002,046 22,916 4.58% 1,771,934 21,191 4.78%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread $ 26,652 3.38% $25,071 3.62%
====================================================================================================================================
Net interest margin 4.28% 4.55%
====================================================================================================================================
</TABLE>
(1) Dividends on the bank stock portfolio reflects a tax equivalent adjustment
for the 70% dividend received deduction.
(2) Interest income on tax-advantaged loans and securities reflects a tax
equivalent adjustment based on an income tax rate of 35%.
(3) Unremitted interest on nonaccrual loans is not included in the amounts.
(4) Includes net interest income derived from interest rate swap contracts.
10
<PAGE> 13
Average Balance Sheets and Net Interest Margin (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
SIX MONTHS ENDED JUNE 30
--------------------------------------------------------------------------
1999 1998
====================================================================================================================================
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
(Dollars in Thousands) BALANCE INTEREST COST BALANCE INTEREST COST
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Interest-bearing deposits with banks $ 2,011 $ 60 5.99% $ 26,999 $ 803 5.95%
Federal funds sold 43,387 1,013 4.67% 84,113 2,338 5.56%
Taxable securities other than common stocks 618,259 15,742 5.09% 301,162 8,633 5.73%
Common stocks (1) 187,269 3,028 3.23% 166,649 2,331 2.80%
Tax-advantaged securities (2) 2,055 74 7.17% 3,650 139 7.63%
Trading account securities 5,402 123 4.57% 37,002 950 5.14%
Loans, net of unearned discount (2) (3) (4) 1,606,689 77,940 9.70% 1,555,689 76,291 9.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,465,072 97,981 7.95% 2,175,264 91,485 8.41%
Noninterest-earning assets:
Cash and due from banks--noninterest bearing 72,506 59,327
Allowance for loan losses (35,962) (32,178)
Premises and equipment, net 34,138 31,953
Other assets, including goodwill 50,598 58,875
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,586,352 $2,293,241
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -- interest-bearing:
NOW and money market deposits $ 999,944 $ 20,443 4.09% $ 999,811 $ 23,089 4.62%
Savings deposits 169,330 2,218 2.62% 177,145 2,325 2.62%
Time deposits 771,252 21,354 5.54% 528,453 14,925 5.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,940,526 44,015 4.54% 1,705,409 40,339 4.73%
Short-term borrowings 8,597 216 5.03% 5,579 208 7.46%
Federal Home Loan Bank advances 40,000 1,014 5.07% 40,000 1,142 5.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,989,123 45,244 4.55% 1,750,988 41,689 4.76%
Noninterest-bearing liabilities and shareholders' equity:
Noninterest-bearing deposits 216,562 192,807
Other liabilities 56,918 55,166
Shareholders' equity 323,749 294,280
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,586,352 $2,293,241
====================================================================================================================================
Interest income/average earning assets $ 2,465,072 $ 97,981 7.95% $2,175,264 $ 91,485 8.41%
Interest expense/average interest-bearing liabilities 1,989,123 45,244 4.55% 1,750,988 41,689 4.76%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread $ 52,737 3.40% $ 49,797 3.65%
====================================================================================================================================
Net interest margin 4.28% 4.58%
====================================================================================================================================
</TABLE>
(1) Dividends on the bank stock portfolio reflects a tax equivalent adjustment
for the 70% dividend received deduction.
(2) Interest income on tax-advantaged loans and securities reflects a tax
equivalent adjustment based on an income tax rate of 35%.
(3) Unremitted interest on nonaccrual loans is not included in the amounts.
(4) Includes net interest income derived from interest rate swap contracts.
11
<PAGE> 14
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The following table represents the impact student loan discount accretion had on
net interest margin for the three and six month periods ended June 30, 1999 and
1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net interest margin 4.28% 4.55% 4.28% 4.58%
Impact of student loan discount accretion (0.31) (0.17) (0.26) (0.18)
-----------------------------------------------------
Net interest margin without student loan discount accretion 3.97% 4.38% 4.02% 4.40%
</TABLE>
Noninterest Income
Noninterest income for the second quarter of 1999 was $4.9 million, a decrease
of $1.6 million from the 1998 period. Gains on dispositions of student loans
declined $46,000 to $1.5 million. Securities and other financial instrument
gains declined $2.0 million from the same three month period a year earlier with
a corresponding net gain for the quarter of $37,000. Service charges on deposit
accounts climbed $364,000 to $2.5 million. Trust and investment management
services income increased $87,000. Other income increased $29,000.
Income from "Curing" of Student Loans
In past years, nonperforming student loans were purchased at a substantial
discount to the face value of the loans. Corus converts a substantial amount of
these loans to performing status and reinstates their government guarantees.
Corus refers to this process as "curing," and it has represented a significant
source of income to Corus over the past several years. As a result of federal
legislation, virtually all curable loans have lost their eligibility to become
cured on June 30, 1999.
During the three months ending June 30, 1999, Corus recognized $3.4 million of
"curing" income. Of this, $1.5 million was reported in other income, in the line
labeled "Gain on disposition of loans," and $1.9 million was reported in
interest income (as described further under the Net Interest Income section).
During the six months ending June 30, 1999, Corus recognized $6.3 million of
"curing" income. Of this, $3.0 million was reported in other income, in the line
labeled "Gain on disposition of loans," and $3.3 million was reported in
interest income (as described further under the Net Interest Income section).
At June 30, 1999, Corus had cured approximately $7.5 million of student loans
for which the income from these cures has not yet been recognized in its income
statement. Corus anticipates that it will recognize approximately $6 million
during the last half of 1999, yielding total curing income in 1999 of
approximately $12.3 million. The income from these curing operations will drop
to approximately $1 million in the year 2000 and be immaterial thereafter.
12
<PAGE> 15
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Noninterest Expense
Noninterest expense for the second quarter of 1999 was $13.6 million, an
increase of $909,000 from the 1998 period. Salaries and employee benefits
expense increased $365,000 to $7.7 million. Other expenses increased by $377,000
to $3.2 million. Net occupancy, data processing and equipment and furniture
depreciation expense increased, in aggregate, by $264,000 over 1998 levels.
Noninterest expense for the six months ending June 30, 1999 was $27.6 million,
an increase of $2.5 million from the 1998 period. Salaries and employee benefits
expense increased $1.4 million to $15.9 million. Other expenses increased by
$778,000 to $6.3 million. Net occupancy, data processing and equipment and
furniture depreciation expense increased, in aggregate, by $352,000 over 1998
levels.
The effective income tax rate for the second quarter of 1999 was 33.7% versus
33.9% in 1998. For the six months ended June 30, 1999 and 1998, the effective
income tax rates for both periods were 34.1%. The decline in the effective
income tax rates was primarily due to lower goodwill amortization in the 1999
periods.
FINANCIAL CONDITION
Earning Assets
The following table details the composition of Corus' earning assets:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998 June 30, 1998
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
---------------------------- --------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial real estate:
Mortgage $ 541,181 22% $ 533,253 22% $ 539,760 23%
Construction 233,051 10 228,311 9 166,285 7
Student 431,144 18 431,304 17 422,704 18
Residential first mortgage 110,328 5 137,683 6 171,651 7
Home equity 154,953 6 85,408 3 105,931 5
Commercial 90,838 4 108,759 4 51,138 2
Medical finance 24,689 1 24,821 1 23,543 1
Consumer 1,562 - 2,048 - 2,697 -
----------------------- ----------------------- -----------------------
Total loans 1,587,746 66 1,551,587 62 1,483,709 63
Securities other than common stocks 606,707 25 718,580 29 489,353 21
Common stocks 193,341 8 185,698 8 171,519 8
Federal funds sold 36,750 1 2,000 - 164,900 7
Interest-bearing deposits with banks - - 13,000 1 27,000 1
----------------------- ---------------------- ----------------------
Total $2,424,544 100% $2,470,865 100% $2,336,481 100%
======================= ====================== ======================
</TABLE>
13
<PAGE> 16
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Loans
Total loans at June 30, 1999 were $1.59 billion, an increase of $36.2 million,
or 2.3%, from December 31, 1998. Commercial real estate mortgage loans increased
$7.9 million, or 1.5%, from December 31, 1998. Commercial real estate
construction loans increased $4.7 million, or 2.1%, from December 31, 1998. At
June 30, 1999, unfunded construction loan commitments totaled $258.7 million.
At June 30, 1999 residential first mortgage loans declined $27.4 million, or 20%
compared with December 31, 1998. Home equity loans increased $69.5 million, or
81.4%, from December 31, 1998. This increase is due to the purchase of a
portfolio of $86.5 million second mortgage high-loan-to-value home loans.
Student loans decreased $160,000 or .04%, from December 31, 1998.
Commerical Real Estate Loans
The composition of the commercial real estate loan portfolio by type of
collateral securing the loan was as follows at June 30, 1999 (in thousands):
Rental apartments $162,581
Nursing homes 144,894
Hotel/Motel 174,905
Retail 65,418
Industrial 67,125
Condo/Loft conversion and other residential for sale 45,808
Office 60,928
Other 52,573
--------
Total $774,232
========
At June 30, 1999, approximately 59% of the outstanding balances of commerical
real estate loans were secured by collateral located in the five county Chicago
metropolitan area. The largest single concentration of outstanding balances
outside this area, 7%, is secured by collateral in Arizona.
In addition to the outstanding comercial real estate loans of $774 million,
Corus also had commitments on commercial real estate loans outstanding at June
30th of $445 million. Commitments are primarily comprised of partially funded
construction loans and commitment letters outstanding. At June 30, 1999, Corus
thus had total outstanding loans and commitments of $1.2 billion. Of the $1.2
billion total, $481 million, or 39%, is attributable to 27 loans. Those same 27
loans have current loan balances outstanding of $290 million.
14
<PAGE> 17
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Securities Other Than Common Stocks
At June 30, 1999 total securities other than common stocks were $606.7 million,
a decrease of $111.9 million, or 15.6%, compared with $718.6 million at December
31, 1998.
Common Stocks
At June 30, 1999 investments in common stocks were $193.3 million, an increase
of $7.6 million, or 4.1%, compared with $185.7 million at December 31, 1998.
At June 30, 1999, Corus held investments in 44 equity securities of
publicly-traded bank holding companies with total unrealized gains of $77.0
million, which were included in the available for sale securities
classification. At June 30, 1999, the holdings by market capitalization were as
follows:
Percentage of
Market Capitalization (dollars in thousands): Amount of Holdings Portfolio
------------------ --------------
Over $10 billion $ 117,961 61%
Between $5 and $10 billion 17,080 9
Between $1 and $5 billion 40,734 21
Between $500 million and $1 billion 9,807 5
Under $500 million 7,759 4
--------------------------------
Total $193,341 100%
================================
15
<PAGE> 18
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
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) June 30 December 31 June 30
1999 1998 1998
--------- ------------ ---------
<S> <C> <C> <C>
Nonperforming loans:
Residential first mortgage $ 9,515 $11,769 $16,842
Commercial real estate 3,139 2,436 4,991
Commercial 600 9 31
Home equity 1,176 1,415 2,249
Student 213 476 329
Medical finance 738 1,102 956
Consumer 64 127 149
--------- ------------ ---------
Total nonperforming loans 15,445 17,334 25,547
Other real estate owned 2,957 4,971 5,663
--------- ------------ ---------
Total nonperforming assets $18,402 $22,305 $31,210
Nonaccrual loans included in non-performing
loans above $ 4,741 $ 5,307 $7,854
90 day or more past due loans included in
Nonperforming loans above $ 10,197 $11,528 $17,648
Nonperforming loans/Total loans 0.97% 1.12% 1.72%
Nonperforming assets/Total assets 0.73% 0.86% 1.26%
Allowance for loan losses/
nonperforming loans 229.62% 206.37% 133.93%
</TABLE>
Nonperforming residential first mortgage loans are secured by first mortgages on
primarily owner-occupied, residential property. At June 30, 1999, other real
estate owned was comprised of two commercial real estate properties with
aggregate book values of $132,000 and twenty-six residential properties with
aggregate book values of $2.8 million. During the second quarter of 1999,
twenty-five residential properties with a carrying value of $2.5 million were
sold for a net gain of $250,000.
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 $15.3, $17.5 and $15.4 million at
June 30, 1999, December 31, 1998 and June 30, 1998, respectively.
16
<PAGE> 19
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
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>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-----------------------------------------------------------------------
(thousands) 1999 1998 1999 1998
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $35,258 $32,056 $35,773 $30,660
Provision for loan losses 1,000 3,000 2,000 6,000
Less charge-offs:
Commercial real estate loans - - 38 -
Student loans 438 10 1,141 117
Residential first mortgage loans 4 60 86 163
Home equity loans 814 1,353 1,807 3,218
Commercial loans 22 2 72 1
Consumer loans 2 - 64 -
-----------------------------------------------------------------------
Total charge-offs 1,280 1,425 3,208 3,499
-----------------------------------------------------------------------
Add recoveries:
Commercial real estate loans 23 10 36 105
Student loans 91 86 137 99
Residential first mortgage loans - - 1 -
Home equity loans 337 470 676 808
Commercial loans 1 - 3 1
Consumer loans 34 17 46 40
-----------------------------------------------------------------------
Total recoveries 486 583 899 1,053
-----------------------------------------------------------------------
Net charge-offs (794) (842) (2,309) (2,446)
-----------------------------------------------------------------------
Balance at June 30 $35,464 $34,214 $35,464 $34,214
=======================================================================
Loans at June 30 $1,587,746 $1,483,709 $1,587,746 $1,483,709
=======================================================================
Allowance as a percentage of loans 2.23% 2.31% 2.23% 2.31%
=======================================================================
</TABLE>
17
<PAGE> 20
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The vast majority of the home equity chargeoffs are from Corus' Ultimate Home
Equity product ("Ultimate HE") and the recently acquired pool of approximately
$85 million of high rate high-loan-to-value second mortgages.
The Ultimate HE loans were originated at up to 100% of the underlying property's
value and are charged off when they become 120 days past due. The acquired
second mortgages are also charged off when they become 120 days past due. At
June 30, 1999, high-loan-to-value home equity loans totaled $129.2 million. Of
this total $531,000 was classified as nonperforming loans. The following
representsan aging schedule of all high-loan-to-value home equity loans at
June 30, 1999 (in thousands):
Current $125,884
30 to 59 days past due 1,963
60 to 89 days past due 806
90 to 119 days past due 531
--------
Total $129,184
========
The majority of the student loan chargeoffs were the result of the interim
agreement the Bank entered into with the Department of Education, as described
further in Note 2 of the Notes to Condensed Consolidated Financial Statements on
page 5.
At June 30, 1999 the allowance for loan losses as a percentage of total loans
decreased to 2.23% of total loans from 2.31% of total loans at December 31,
1998. As a percentage of nonperforming loans though, the allowance increased to
229.62%, compared with 206.37% at December 31, 1998. Management believes that
the level of the allowance for loan losses was adequate at June 30, 1999.
Student Loan Lawsuit
Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements on
page 5 for further information.
Liabilities
The following table details the composition of deposit products by type:
June 30 December 31 June 30
1999 1998 1998
-------- ----------- --------
Demand 10% 10% 9%
Savings 8 8 9
NOW 4 5 4
Money Market 42 42 44
Certificates of Deposit 36 35 34
-------- ----------- ---------
Total 100% 100% 100%
======== =========== =========
At June 30, 1999, December 31, 1998 and June 30, 1998, CORUS had retail
certificates of deposit obtained from brokers of $387.4, $402.8 and $379.9
million, respectively.
18
<PAGE> 21
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Capital
Corus' consolidated leverage ratio (Tier 1 capital/total average quarterly
assets) was 10.9% at June 30, 1999, well in excess of the minimum regulatory
level of 5%. The consolidated Tier 1 and total risk-based capital ratios were
15.2% and 18.3%, respectively, exceeding the minimum well-capitalized Tier 1 and
total risk-based capital ratios of 6.00% and 10.00%, respectively.
During the first six months of 1999, Corus repurchased and retired 111,852
shares at an average price of $31.89 per share. A total of 380,952 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.
Operating, Investing and Financing Activities
Net cash provided by operating activities totaled $7.4 million for the first six
months of 1999, compared with $11.6 million of net cash provided by operating
activities for the same period in 1998.
Net cash provided by investing activities totaled $97.0 million for the first
six months of 1999, compared with $50.5 million of net cash used in investing
activities in 1998. The increase was due primarily to maturities of available
for sale securities.
Net cash used in financing activities totaled $76.6 million for the first six
months of 1999, compared with $176.1 million of net cash provided by financing
activities in 1998. This change was primarily attributable to a decrease in
deposit accounts.
YEAR 2000 READINESS DISCLOSURE
State of Readiness
In June of 1997, responsibility for Corus' Year 2000-readiness project was
assigned to the Project Management Group that reports directly to an Executive
Vice President who is also a member of the Corus Bank Board of Directors.
Corus' Year 2000 project plan is designed after the Federal Financial
Institutions Examination Council (FFIEC) model. Corus' Board of Directors
receives formal status reports quarterly updating them on the progress of the
project. The project is approximately 94% complete. Corus continues to work with
a small number of third-party providers to achieve the completion of the
project.
The assessment phase took the form of a mass inventory performed to identify
information technology systems including information systems, software and
equipment. The inventory also identifies non-technology relationships such as
environmental systems, business partners and major borrowers. During the
assessment phase of Corus' readiness project, approximately 32% of Corus'
internal systems were identified as being mission critical. Of these mission
critical systems, 86% have been upgraded to a Year 2000 ready status or are not
date sensitive. Corus continues to work closely with the vendors and third-party
servicers of the remaining 14% (this represents 12 elements) of the mission
critical systems to acquire the necessary products and coordinate the necessary
actions to make these items Year 2000 capable.
19
<PAGE> 22
Assessment of Year 2000 risk for commercial lending customers is an ongoing
process that relies heavily on an interview between commercial lending officers
and the customers. This interview assesses the customers' awareness of the
potential financial impact of Year 2000 issues on their business and any
relevant risk to Corus. This potential Year 2000 risk to the bank, through its
lending relationship with each customer, is eventually identified as "high",
"medium" or "low". This methodology of risk assessment allows Corus to take
appropriate measures to monitor Year 2000 risk for its commercial lending
customers.
Internal validation efforts were aided through the use of an outside consulting
firm. The consulting firm formulated the test methodology and provided guidance
on the testing of individual applications.
Corus relies on third-party providers for the majority of data processing needs.
The core data processing systems for both customer information and student
lending have been upgraded and are running a version the third parties have
certified as Year 2000 ready. Testing of these two systems is complete. The core
data processing system that maintains account and customer information for
Corus' Trust area has also been upgraded to a Year 2000 ready version. Proxy
testing of this system is complete. In proxy testing, the service provider tests
with a representative sample of financial institutions that use a particular
service on the same platform. Test results then are shared with all similarly
situated clients of the service provider. Testing of the three main data
processing systems represents the largest portion of required testing.
Validation of the Year 2000 readiness status of mission critical systems is
approximately 95% complete. We are awaiting a final upgrade to a non-critical
component of the overall phone system scheduled for late July, 1999, which will
allow us to perform an integrated test on the entire phone system by mid-August,
1999.
Costs to Address Year 2000 Issues
Although Corus does not currently expect the costs of Year 2000 readiness to be
material, some expenses have been incurred. Corus estimates total costs (which
include expenses and investments) associated with the project to be
approximately $1.3 million.
The Risks of Year 2000 Issues and Contingency Planning
Information technology and non-information technology elements that expose Corus
to Year 2000 risk have been internally classified into three levels of
importance. Critical A items are those that would, upon failure, severely limit
Corus' ability to participate in the business of banking. Ten items have been
deemed to be Critical A. The ten items include various data processing and
information systems, the interface between Corus' information systems and the
ATM network, the telecommunications system, and the wire transfer system. A
specific example of a Critical A item is Corus' core data processing system
whose failure would inhibit Corus' ability to process, record, and access
customer and account information. The second tier of items which would impact
Corus, but not as severely as Critical A items, are Critical B items. Some
examples of Critical B items are an ATM terminal and a security system. All
other elements, such as photocopy machines, are considered non-critical.
The most reasonably likely worst case scenario relating to the Year 2000 issue
would involve the failure of the Critical A items. At this stage of the overall
readiness project, Corus does not believe that any failure is reasonably likely
to occur. Nonetheless, Corus' goal is to be prepared for a worst case scenario.
Corus currently has a written Business Recovery Plan in place. Corus has drafted
a Year 2000 Corporate Contingency Plan based on the existing Business Recovery
Plan to address how to deal with Critical A and Critical B failures caused by
Year 2000 events. This includes running the processing operations on an
alternate power source if necessary. Department managers are creating
remediation and business resumption contingency plans for their respective
functions that will be used in the modification of Corus' plan. This plan has
been reviewed internally, with a third-party review scheduled for July 1999.
Corus intends to schedule further reviews during the remainder of 1999.
20
<PAGE> 23
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 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 lawsuit by the U.S. Department of
Justice;
- - 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;
- - 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;
- - The purchase of the second mortgage high-loan-to-value portfolio and the
capability of Corus to minimize loan delinquencies and charge-offs of the
acquired loans;
- - The ability of Corus to generate additional fee income from its acquisitions
of an investment management business; and economic conditions.
21
<PAGE> 24
ITEM 3. - CORUS BANKSHARES, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
There has been no material change from Corus' disclosure in item 7a of its 1998
10-K.
22
<PAGE> 25
CORUS BANKSHARES, INC.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
On April 8, 1999, the Department of Justice filed a civil lawsuit against Corus
Bankshares, Inc. and Corus Bank, N.A. in the United States District Court
Northern District of Illinois Eastern Division alleging, among other things,
that Corus violated the federal False Claims Act by submitting fraudulent
insurance claims for defaulted student loans. The government alleges that some
insurance claims filed were false because certain of Corus' supporting records
were not retained or because certain Corus records do not exactly match the
insurance claims submitted or because certain claimed due diligence was not
performed. The lawsuit seeks triple damages and a civil penalty of $10,000 for
each false claim submitted by Corus. The lawsuit does not specify the amount of
the damages, although the Department of Justice alleges that the aggregate
amount of the false claims was more than $11.8 million. Refer to Note 2 of the
Notes to Condensed Consolidated Financial Statements on page 5 for further
information.
ITEM 2: CHANGES IN SECURITIES.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
23
<PAGE> 26
CORUS BANKSHARES, INC.
PART II. OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Shareholders was held on April 28, 1999.
(c) At the Annual Meeting of Shareholders the following matters were
submitted to a vote of the shareholders:
(1) The election of eight directors to the Board of Directors to serve
until the next annual meeting of shareholders or until their
successors are elected and take office:
Director Votes For Votes Withheld
-------- --------- --------------
Joseph C. Glickman 12,616,308 589,450
Robert J. Glickman 12,613,908 591,850
Steven D. Fifield 12,602,146 603,612
Karl H. Horn 12,599,046 606,712
Michael Levitt 12,602,446 603,312
Rodney D. Lubeznik 12,601,546 604,212
Michael Tang 12,605,608 600,150
William H. Wendt, III 12,603,046 602,712
(2) The ratification of the Corus Bankshares, Inc. 1999 Stock Option
Plan
Votes For Votes Against Abstentions
--------- ------------- -----------
10,447,900 898,111 14,113
(3) The ratification of the appointment of Arthur Andersen LLP as CORUS'
independent accountants for the 1999 fiscal year:
Votes For Votes Against Abstentions
--------- ------------- -----------
13,181,408 10,971 13,379
ITEM 5: OTHER INFORMATION.
None.
24
<PAGE> 27
CORUS BANKSHARES, INC.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
- ------------
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;
4 Corus Bankshares 1999 Stock Option Plan dated April 28, 1999
(incorporated by reference to Exhibit 4.3 of the Company's Form S-8
Registration Statement (No. 333-77481) filed with the Securities and
Exchange Commission on April 30, 1999).
11 Computation of Net Income per Common Share is on Page 27.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
- ------------------------
None
25
<PAGE> 28
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)
August 10, 1999 By: /s/ Timothy H. Taylor
----------------------
Timothy H. Taylor
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer and duly authorized
Officer of Registrant)
26
<PAGE> 29
EXHIBIT 11 - CORUS BANKSHARES, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Six Months Ended
June 30
(thousands, except per share amounts) 1999 1998
-------- --------
<S> <C> <C>
Denominator for basic earnings per share - average common shares
outstanding 14,491 14,573
Dilutive common stock options 166 225
-------- --------
Denominator for diluted earnings per share 14,657 14,798
======== ========
Numerator: Net income attributable to common shares $21,266 $20,064
======== ========
Net income per share:
Basic $ 1.47 $ 1.38
Diluted 1.45 1.36
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 65,209
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 36,750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 793,891
<INVESTMENTS-CARRYING> 6,157
<INVESTMENTS-MARKET> 6,290
<LOANS> 1,587,746
<ALLOWANCE> 35,464
<TOTAL-ASSETS> 2,535,061
<DEPOSITS> 2,105,059
<SHORT-TERM> 5,635
<LIABILITIES-OTHER> 49,920
<LONG-TERM> 40,000
0
0
<COMMON> 721
<OTHER-SE> 333,726
<TOTAL-LIABILITIES-AND-EQUITY> 2,535,061
<INTEREST-LOAN> 77,751
<INTEREST-INVEST> 18,098
<INTEREST-OTHER> 1,094
<INTEREST-TOTAL> 96,942
<INTEREST-DEPOSIT> 44,015
<INTEREST-EXPENSE> 45,244
<INTEREST-INCOME-NET> 51,698
<LOAN-LOSSES> 2,000
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 27,620
<INCOME-PRETAX> 32,272
<INCOME-PRE-EXTRAORDINARY> 32,272
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,266
<EPS-BASIC> 1.47
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 4.28
<LOANS-NON> 4,741
<LOANS-PAST> 10,197
<LOANS-TROUBLED> 507
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 35,773
<CHARGE-OFFS> 3,208
<RECOVERIES> 899
<ALLOWANCE-CLOSE> 35,464
<ALLOWANCE-DOMESTIC> 35,464
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
