<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
-- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 September 30, 1999, the Registrant had 14,319,290 common shares, $0.05 par
value, outstanding.
<PAGE> 2
CORUS BANKSHARES, Inc.
Index to Quarterly Report on Form 10-Q
September 30, 1999
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
ITEM 1. Financial Statements............................................. 1-7
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 8-21
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
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30 December 31 September 30
(thousands) 1999 1998 1998
------------ ------------ ------------
<S> <C> <C> <C>
Assets
Cash and due from banks - noninterest bearing $ 86,548 $ 72,050 $ 57,006
Federal funds sold overnight 8,850 2,000 59,000
Interest-bearing deposits with banks - 13,000 26,999
Securities:
Available for sale, at fair value 634,973 897,668 810,501
(amortized costs of $590,362, $799,225 & 774,845)
Held to maturity, at amortized cost 6,020 6,610 7,208
(fair value of $6,137, $6,802 & $7,415) ------------ ------------ ------------
Total Securities 640,993 904,278 817,709
Loans, net of unearned discount 1,698,946 1,551,587 1,503,072
Less: Allowance for loan losses 35,634 35,773 36,220
------------ ------------ ------------
Net Loans 1,663,311 1,515,814 1,466,852
Premises and equipment, net 34,240 34,105 33,844
Accrued interest receivable and other assets 42,829 37,804 46,699
Goodwill, net of accumulated amortization 9,292 10,364 11,015
------------ ------------ ------------
Total Assets $2,486,063 $2,589,415 $2,519,124
============ ============ ============
Liabilities & Shareholders' Equity
Deposits:
Noninterest-bearing $ 207,715 $ 212,616 $ 194,445
Interest-bearing 1,865,806 1,942,060 1,948,993
------------ ----------- ------------
Total Deposits 2,073,522 2,154,676 2,143,438
Federal funds purchased - 22,700 -
Other short-term borrowings 4,701 2,233 4,423
Federal Home Loan Bank advances 40,000 40,000 40,000
Accrued interest payable and other liabilities 48,838 51,676 42,819
------------ ----------- ------------
Total Liabilities 2,167,060 2,271,285 2,230,680
Shareholders' Equity
Common Stock, Surplus & Retained Earnings 290,006 273,569 265,268
Accumulated other comprehensive income 28,996 44,561 23,176
------------ ----------- ------------
Total Shareholders' Equity 319,003 318,130 288,444
------------ ----------- ------------
Total Liabilities and Shareholders' Equity $2,486,063 $2,589,415 $2,519,124
============ ============ ============
</TABLE>
See accompanying notes
1
<PAGE> 4
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- ----------------------------
(thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans:
Taxable 40,731 37,011 118,130 112,414
Tax-advantaged 177 204 530 781
Deposits with banks 0 494 81 1,297
Federal funds sold 788 1,309 1,800 3,647
Securities:
Taxable 6,941 9,073 22,683 17,713
Tax-advantaged 24 37 72 128
Dividends 1,136 896 3,320 2,584
Trading account 0 102 123 1,052
----------- ----------- ----------- -----------
Total Interest Income 49,797 49,126 146,739 139,616
Interest Expense
Deposits 22,227 24,075 66,240 64,414
Federal funds purchased 1 21 171 48
Short-term borrowing 30 81 77 262
Federal home loan bank advances 539 581 1,553 1,723
----------- ----------- ----------- -----------
Total Interest Expense 22,797 24,758 68,041 66,447
Net Interest Income 27,000 24,368 78,698 73,169
Provision for Loan Losses 1,000 3,000 3,000 9,000
----------- ----------- ----------- -----------
Net Interest Income after Provision for Loan Losses 26,000 21,368 75,698 64,169
Noninterest Income:
Service charges on deposit accounts 2,494 2,199 7,544 6,418
Trust services 545 621 1,569 1,157
Gain on dispositions of student loans 1,285 3,107 4,340 6,405
Other income 515 618 1,801 1,603
Trading account losses, net (10) (8) (243) (194)
Securities and other financial
instruments gains, net (1,305) 608 (1,293) 4,515
----------- ----------- ----------- -----------
Total noninterest income 3,524 7,145 13,718 19,904
Noninterest Expense:
Salaries and employee benefits 7,952 7,262 23,857 21,760
Net occupancy 970 953 3,023 2,902
Data processing 713 575 2,065 1,734
Goodwill amortization 287 441 1,066 1,265
Depreciation - Furniture & equipment 612 696 1,827 1,856
Other expenses 2,549 3,071 8,866 8,610
----------- ----------- ----------- -----------
Total noninterest expense 13,083 12,998 40,703 38,127
----------- ----------- ----------- -----------
Income before income taxes 16,441 15,515 48,714 45,946
----------- ----------- ----------- -----------
Income tax expense 5,521 5,290 16,528 15,657
----------- ----------- ----------- -----------
Net Income $ 10,920 $ 10,225 $ 32,186 $ 30,289
Net Income per Share:
Basic $ 0.76 $ 0.70 $ 2.23 $ 2.08
Diluted 0.76 0.69 2.22 2.05
Cash Dividends Declared Per Common Share $ 0.145 $ 0.140 $ 0.430 $ 0.415
Average Common Shares Outstanding
Basic 14,389,290 14,551,142 14,456,721 14,567,489
Diluted 14,437,076 14,749,103 14,516,250 14,784,094
</TABLE>
See accompanying notes.
2
<PAGE> 5
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------
(thousands) 1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 32,186 $ 30,289
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,000 9,000
Depreciation and amortization 2,490 2,394
Accretion of investment and loan discounts (17,949) (10,479)
Goodwill amortization 1,066 1,265
Gain on dispositions of student loans (4,340) (6,405)
Securities and other financial instruments gains, net (459) (12,913)
(Increase) decrease in accrued interest receivable and other assets (1,671) 4,441
Increase in accrued interest payable and other liabilities, net 5,889 5,234
-------- --------
Net cash provided by operating activities 20,212 22,826
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity 593 2,017
Proceeds from maturities of available for sale securities 735,662 427,362
Proceeds from sales of available for sale securities 16,231 113,112
Proceeds from maturities of federal funds sold with greater than 90 day maturities - 20,000
Purchases of available for sale securities (498,891) (832,596)
Maturities of interest-bearing deposits with banks 13,000 -
Purchases of loans (87,442) (827)
Net (increase) decrease in loans (57,917) 43,252
Purchases of premises and equipment, net (2,625) (5,288)
Purchases of businesses (379) (1,775)
-------- --------
Net cash provided by (used in) investing activities 118,232 (234,743)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in deposit accounts (81,155) 280,372
Decrease in short-term borrowings (20,232) (4,841)
Retirements of common shares (13,519) (5,339)
Issuance of common shares under the stock option plan 3,971 -
Cash dividends paid on common shares (6,162) (5,986)
-------- --------
Net cash (used in) provided by financing activities (117,097) 264,206
-------- --------
Net increase in cash and cash equivalents 21,347 52,289
Cash and cash equivalents at January 1 74,051 63,717
-------- --------
Cash and cash equivalents at September 30 $ 95,398 $116,006
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 6
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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 32,186 32,186
Other comprehensive income (net of income taxes):
Net change in unrealized gains on available
for sale securities (15,564) (15,564)
--------
Comprehensive income 16,622
--------
Retirement of common shares (22) (121) (13,377) (13,520)
Issuance of common shares 10 3,961 3,971
Cash dividends declared on common stock,
$0.430 per common share (6,201) (6,201)
---- ------ -------- ------- --------
Balance at September 30, 1999 $715 $7,906 $281,385 $28,997 $319,003
==== ====== ======== ======= ========
</TABLE>
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 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 30,289 30,289
Other comprehensive income (net of income taxes):
Net change in unrealized gains on available
for sale securities (22,100) (22,100)
--------
Comprehensive income 8,189
--------
Retirement of common shares (6) (36) (5,297) (5,339)
Issuance of common shares
Cash dividends declared on common stock,
$0.415 per common share (6,039) (6,039)
---- ------ -------- ------- --------
Balance at September 30, 1998 $728 $4,065 $260,475 $23,176 $288,444
==== ====== ======== ======= ========
</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 Corus' 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,
violations of the federal False Claims Act and liability under other common
law theories 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. Corus
has received information from the Department of Justice to indicate that
the Department of Justice thinks that there were at least 2,200 false
claims. Corus is contesting the lawsuit and has substantial defenses.
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. As a result of
that agreement, a total of more than $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 has filed a counterclaim to that effect.
5
<PAGE> 8
CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued effective for all fiscal periods beginning
after June 15, 1999. In June 1999, SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of SFAS
No. 133" was issued to amend SFAS No. 133 to be effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific accounting
criteria are met and the hedge is considered to be highly effective.
Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
Corus uses derivative instruments to manage interest rate risk and market
risk in its loan and common stock portfolios, respectively. The statement
is effective for Corus for the fiscal quarter beginning January 1, 2001.
Corus has not yet quantified the impact of adopting this statement on its
financial position or results of its operations.
4. Segment Reporting
-----------------
In 1998, Corus adopted SFAS 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.
On the following page is a summary of significant segment information as
required by SFAS No. 131:
6
<PAGE> 9
SIGNIFICANT SEGMENT INFORMATION
FOR THE THREE MONTHS ENDED 9/30/99
<TABLE>
<CAPTION>
===================================================================================================
Corus Bankshares Corus Bank BOC Inter-segment Consolidated
Eliminations
===================================================================================================
(in thousands) 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------------------
Total Revenues (55) 1,656 30,575 29,853 1,919 1,705 (1,915) (1,701) 30,524 31,513
Net Income (17) 1,039 10,813 9,096 124 90 - - 10,920 10,225
AVERAGE BALANCE SHEET DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 356,508 321,732 2,355,502 2,404,621 2,148 1,551 (172,363) (157,820) 2,541,795 2,570,084
Shareholders' equity 327,958 294,641 164,454 154,010 1,918 1,337 (166,372) (155,347) 327,958 294,641
FINANCIAL HIGHLIGHTS
- ---------------------------------
Return on Equity (ROE) 26.3% 23.6% 13.3% 13.9%
Return on Assets (ROA) 1.8% 1.5% 1.7% 1.6%
Efficiency Ratio 41.2% 41.2% 38.0% 40.0%
---------------------------------------------------------------------------------------------------
</TABLE>
SIGNIFICANT SEGMENT INFORMATION
FOR THE NINE MONTHS ENDED 9/30/99
<TABLE>
<CAPTION>
===================================================================================================
Corus Bankshares Corus Bank BOC Inter-segment Consolidated
Eliminations
===================================================================================================
(in thousands) 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
- ---------------------------------
Total Revenues 2,338 7,569 90,067 85,493 5,791 4,987 (5,780) (4,976) 92,417 93,073
Net Income 1,377 4,787 30,411 25,256 398 246 - - 32,186 30,289
AVERAGE BALANCE SHEET DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 354,606 326,176 2,383,604 2,217,857 1,902 1,380 (168,776) (158,888) 2,571,336 2,386,525
Shareholders' equity 325,171 294,410 161,500 153,249 1,700 1,209 (163,199) (154,458) 325,171 294,410
FINANCIAL HIGHLIGHTS
- ---------------------------------
Return on Equity (ROE) 25.1% 22.0% 13.2% 13.7%
Return on Assets (ROA) 1.7% 1.5% 1.7% 1.7%
Efficiency Ratio 43.0% 42.2% 40.9% 40.9%
---------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
OPERATING RESULTS
For the three months ended September 30, 1999, net income was $10.9 million, or
$0.76 per share on a diluted basis, an increase of 7% from net income of $10.2
million, or $0.69 per share on a diluted basis, in 1998. For the nine months
ended September 30, 1999, net income was $32.2 million, or $2.22 per share on a
diluted basis, an increase of 6% from net income of $30.3 million, or $2.05 per
share on a diluted basis for the same period in 1998.
Earnings for the third quarter of 1999 represented annualized returns of 13.3%
on equity (ROE) and 1.7% on assets (ROA) compared to 13.9% and 1.6% for the same
period in 1998.
Net Interest Income
- -------------------
The major source of earnings for Corus is net interest income. Net interest
income is the difference between interest income and fees on earning assets and
interest expense on deposits and borrowings. The related net interest margin
represents the net interest income as a percentage of the average earning assets
during the period.
During the three and nine months ended September 30, 1999, Corus recognized $2.0
million and $5.3 million of interest income from the accretion of acquisition
discount related to several groups of purchased, previously nonperforming
student loan pools, compared to $0.9 million and $2.9 million for the same
periods in 1998.
The following table represents the impact of the student loan discount accretion
on the net interest margin for the three and nine month periods ended September
30, 1999 and September 30, 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net interest margin 4.55% 4.05% 4.37% 4.39%
Impact of student loan discount accretion (0.33) (0.15) (0.29) (0.18)
-------------- ------------- ------------ ------------
Net interest margin without student loan discount accretion 4.22% 3.90% 4.08% 4.21%
</TABLE>
The net interest margin (net of student loan discount accretion) improved
markedly in the third quarter of this year, climbing from approximately 4.0% in
the each of the first two quarters of this year to 4.2% for the three month
period ended September 30, 1999. This increase was due to the strong increase in
high-yielding loans during the quarter that was funded by shifting out of
low-margin temporary investments, and secondarily related to a rise in interest
rates. As Corus is asset sensitive, that is, the Bank has more variable rate
assets than variable rate liabilities, the increasing rate environment of 1999
has benefited the Bank's margin.
8
<PAGE> 11
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
THREE MONTHS ENDED SEPTEMBER 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 $ - $ - - $ 27,000 $ 494 7.32%
Federal funds sold 62,108 788 5.07% 93,331 1,309 5.61%
Taxable securities other than common stocks 516,077 6,941 5.38% 674,531 9,072 5.38%
Common stocks (1) 184,187 1,564 3.40% 162,496 1,234 3.04%
Tax-advantaged securities (2) 2,043 37 7.20% 3,030 58 7.60%
Trading account securities - - - 8,010 102 5.08%
Loans, net of unearned discount (2) (3) (4) 1,655,825 41,004 9.91% 1,485,330 37,324 10.05%
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,420,241 50,333 8.32% 2,453,728 49,594 8.08%
Noninterest-earning assets:
Cash and due from banks--noninterest bearing 75,391 59,577
Allowance for loan losses (35,760) (35,246)
Premises and equipment, net 34,224 33,384
Other assets, including goodwill 47,699 58,641
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,541,795 $ 2,570,084
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -- interest-bearing:
NOW and money market deposits $ 988,687 $ 10,800 4.37% $ 1,007,407 $ 11,556 4.59%
Savings deposits 166,643 1,114 2.67% 171,918 1,138 2.65%
Time deposits 738,450 10,312 5.59% 782,337 11,381 5.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,893,779 22,226 4.69% 1,961,662 24,075 4.91%
Short-term borrowings 2,349 30 5.13% 5,134 102 7.96%
Federal Home Loan Bank advances 40,000 539 5.39% 40,000 581 5.81%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,936,128 22,796 4.71% 2,006,796 24,758 4.93%
Noninterest-bearing liabilities and shareholders' equity:
Noninterest-bearing deposits 226,701 202,752
Other liabilities 51,008 65,895
Shareholders' equity 327,958 294,641
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,541,795 $ 2,570,084
====================================================================================================================================
Interest income/average earning assets $ 2,420,241 $ 50,333 8.32% $ 2,453,728 $ 49,594 8.08%
Interest expense/average interest-bearing liabilities 1,936,128 22,796 4.71% 2,006,796 24,758 4.93%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread $ 27,536 3.61% $ 24,835 3.15%
====================================================================================================================================
Net interest margin 4.55% 4.05%
====================================================================================================================================
</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.
9
<PAGE> 12
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN (Unaudited)
<TABLE>
<CAPTION>
====================================================================================================================================
NINE MONTHS ENDED SEPTEMBER 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 $ 1,333 $ 60 6.02% $ 26,999 $ 1,297 6.41%
Federal funds sold 48,973 1,800 4.90% 87,219 3,647 5.58%
Taxable securities other than common stocks 583,824 22,683 5.18% 426,986 17,713 5.53%
Common stocks (1) 186,230 4,571 3.27% 165,250 3,557 2.87%
Tax-advantaged securities (2) 2,051 110 7.18% 3,441 197 7.63%
Trading account securities 4,305 123 3.82% 27,232 1,052 5.15%
Loans, net of unearned discount (2) (3) (4) 1,623,247 118,944 9.77% 1,531,978 113,615 9.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,449,965 148,293 8.07% 2,269,105 141,079 8.29%
Noninterest-earning assets:
Cash and due from banks--noninterest bearing 73,478 59,411
Allowance for loan losses (35,894) (33,212)
Premises and equipment, net 34,167 32,434
Other assets, including goodwill 49,621 58,787
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,571,336 $ 2,386,525
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -- interest-bearing:
NOW and money market deposits $ 996,150 $ 31,243 4.18% $ 1,002,371 $ 34,645 4.61%
Savings deposits 168,424 3,332 2.64% 175,384 3,463 2.63%
Time deposits 760,197 31,666 5.55% 614,010 26,306 5.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,924,772 66,241 4.59% 1,791,765 64,414 4.79%
Short-term borrowings 6,491 247 5.08% 5,882 310 7.03%
Federal Home Loan Bank advances 40,000 1,553 5.18% 40,000 1,723 5.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 1,971,263 68,041 4.60% 1,837,647 66,447 4.82%
Noninterest-bearing liabilities and shareholders' equity:
Noninterest-bearing deposits 219,979 196,158
Other liabilities 54,923 58,310
Shareholders' equity 325,171 294,410
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,571,336 $ 2,386,525
====================================================================================================================================
Interest income/average earning assets $ 2,449,965 $ 148,293 8.07% $ 2,269,105 $ 141,079 8.29%
Interest expense/average interest-bearing liabilities 1,971,263 68,041 4.60% 1,837,647 66,447 4.82%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread $ 80,252 3.47% $ 74,632 3.47%
====================================================================================================================================
Net interest margin 4.37% 4.39%
====================================================================================================================================
</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
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Noninterest Income
- ------------------
For the three months ended September 30, 1999, noninterest income, excluding
security gains/(losses) and gains on disposition of student loans, was up
slightly to $3.5 million from $3.4 million for the same three month period in
1998. For the nine months ended September 30, 1999, noninterest income,
excluding security gains/(losses) and gains on disposition of student loans,
increased by over 18% to $11 million from $9 million for same nine month period
in 1998.
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
regulation, virtually all remaining curable loans lost their eligibility to
become cured on June 30, 1999.
For the three and nine months ended September 30, 1999, Corus recognized $3.3
million and $9.6 million, respectively, of curing income, compared to $4.1
million and $9.3 million, respectively, for the same periods for 1998.
At September 30, 1999, Corus had cured approximately $4 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 $3 million
during the last three months of 1999, yielding total curing income in 1999 of
approximately $12 million. The income from these curing operations will drop to
approximately $1 million in the year 2000 and be immaterial thereafter.
Income Taxes
- ------------
The effective income tax rate for the third quarter of 1999 was 33.5% versus
34.1% in 1998. For the nine months ended September 30, 1999 and 1998, the
effective income tax rates for both periods were 33.9% and 34.1% respectively.
The decline in the effective income tax rates was primarily due to lower
goodwill amortization in the 1999 periods.
11
<PAGE> 14
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
FINANCIAL CONDITION
Earning Assets
- --------------
The following table details the composition of Corus' earning assets:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 September 30, 1998
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial real estate:
Mortgage $ 550,527 23% $ 533,253 22% $ 523,990 22%
Construction 344,974 15 228,311 9 202,504 8
Student 438,165 19 431,304 17 423,438 18
Residential first mortgage 101,487 4 137,683 6 156,459 6
Home equity 145,023 6 85,408 3 96,194 4
Commercial 95,254 4 108,759 4 73,996 3
Medical finance 22,112 1 24,821 1 24,128 1
Consumer 1,404 - 2,048 - 2,363 -
----------------------- ----------------------- -----------------------
Total loans 1,698,946 72 1,551,587 62 1,503,072 62
Securities other than common stocks 472,043 20 718,580 29 665,960 28
Common stocks 168,950 7 185,698 8 151,749 6
Federal funds sold 8,850 1 2,000 - 59,000 3
Interest-bearing deposits with banks - - 13,000 1 26,999 1
---------------------------- --------------------------- --------------------------
Total $2,348,789 100% $2,470,865 100% $2,406,780 100%
</TABLE>
12
<PAGE> 15
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Loans
The following table details the composition of Corus' loan portfolio:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998 September 30, 1998
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
------------------------------ ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans:
Commercial real estate:
Mortgage $ 550,527 32% $ 533,253 34% $ 523,990 35%
Construction 344,974 20 228,311 15 202,504 14
Student 438,165 26 431,304 28 423,438 28
Residential first mortgage 101,487 6 137,683 9 156,459 10
Commercial 95,254 6 108,759 7 73,996 5
Home Equity 145,023 9 85,408 5 96,194 6
Medical finance & consumer 23,516 1 26,869 2 26,491 2
============================== ============================= =============================
Total loans $1,698,946 100% $1,551,587 100% $1,503,072 100%
============================== ============================= =============================
</TABLE>
Commercial Real Estate Loans
The composition of the commercial real estate loan portfolio by type of
collateral securing the loan was as follows at September 30, 1999 (in
thousands):
Rental apartments $163,042
Nursing homes 146,204
Hotel/Motel 192,110
Retail 66,394
Industrial 80,415
Condo/Loft conversion and other residential for sale 84,489
Office 69,796
Other 93,051
================
Total $895,501
================
At September 30, 1999, approximately 60% of the outstanding balances of
commercial real estate loans were secured by collateral located in the six
county Chicago metropolitan area. The largest single concentration of
outstanding balances outside this area, 6%, is secured by collateral in Arizona.
13
<PAGE> 16
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Large Commercial Real Estate Loans
The following table details the composition of the "large" loans in Corus'
commercial real estate portfolio. For purposes of this analysis, large loan
means any loan with a current balance outstanding combined with any unfunded
portion totaling $10 million or greater.
All of the below tables are as of September 30, 1999:
<TABLE>
<CAPTION>
Total TOTAL As % of Total Average
Commercial "LARGE" Commercial Amount Per
(Dollars in thousands) RE Loans LOANS RE Loans "Large" Loan
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Balance $ 895,600 $ 365,100 41% $ 10,738
Unfunded Commitments 428,328 204,770 48% 6,022
---------------------------------------------------------------------
Total $1,323,928 $ 569,870 43% $ 16,760
=====================================================================
</TABLE>
We had 34 separate large loans as of September 30, 1999. Of the large loans
$365 million of current balances, $159 million, or 44%, are construction loans.
Virtually all of the unfunded commitments are related to construction loans.
Over the past several decades, the banking industry has shown higher delinquency
and loss rates for construction loans than for commercial real estate mortgage
loans.
The commercial real estate markets have been good for many years and Corus has
had particularly impressive results. Net chargeoffs on Corus' commercial real
estate loans have totaled just $326,000 for the last 10 full years (1989 through
1998) and with net recoveries for 1999 year-to-date. This performance translates
into an average annual loss rate of only 3/100ths of one percent (0.03%). While
our commercial real estate portfolio continues to show minimal delinquencies and
virtually no losses, we recognize this sort of performance can not persist
forever. The economy has been unusually good for an unusually long period of
time. As we have previously indicated, we are not lulled by our relative absence
of loan losses over the past ten years.
14
<PAGE> 17
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Securities Other Than Common Stocks
At September 30, 1999 total securities other than common stocks were $472
million, a decrease of $247 million, or 34%, compared with $719 million at
December 31, 1998.
Common Stocks
At September 30, 1999, Corus had investments in the common stocks of forty-three
financial industry companies totaling $169 million, including unrealized gains
of $49 million. These investments are included in the available for sale
classification. At September 30, 1999, the holdings by market capitalization
were as follows:
<TABLE>
<CAPTION>
AMOUNT OF HOLDINGS PERCENTAGE
MARKET CAPITALIZATION (dollars in thousands) OF PORTFOLIO
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Over $10 billion $ 102,813 61%
Between $5 and $10 billion 10,495 6
Between $1 and $5 billion 33,609 20
Between $500 million and $1 billion 10,268 6
Under $500 million 11,765 7
---------------------------------------
Total $ 168,950 100%
=======================================
</TABLE>
During the three and nine months ended September 30, 1999, Corus received
dividends on the stock portfolio of $1.1 million and $3.3 million, respectively,
compared to $0.9 million and $2.6 million for the same periods in 1998.
During the three months ended September 30, 1999, Corus realized losses from the
sale of certain of its common stocks of $1.3 million. The net loss for the nine
months ended September 30, 1999, was also $1.3 million. In comparison, during
the three and nine months ended September 30, 1998, Corus realized gains from
the sale of certain of its common stocks of $608,000 and $4.5 million,
respectively.
15
<PAGE> 18
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 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) September 30 December 31 September 30
1999 1998 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Nonperforming loans:
Residential first mortgage $8,152 $11,769 $13,394
Commercial real estate 1,618 2,436 5,393
Commercial 5,042 9 8
Home equity 1,268 1,415 2,275
Student 197 476 356
Medical finance 645 1,102 1,075
Consumer 25 127 135
------------------ ------------------ ------------------
Total nonperforming loans 16,947 17,334 22,636
Other real estate owned 3,807 4,971 5,370
------------------ ------------------ ------------------
Total nonperforming assets $20,754 $22,305 $28,006
Nonaccrual loans included in non-performing
loans above $2,528 $5,307 $6,899
90 day or more past due loans included in
Nonperforming loans above $14,050 $11,528 $14,084
Nonperforming loans/Total loans 1.00% 1.12% 1.51%
Nonperforming assets/Total assets 0.83% 0.86% 1.11%
Allowance for loan losses/
Nonperforming loans 210.27% 206.37% 160.01%
</TABLE>
Nonperforming residential first mortgage loans are secured by first mortgages on
primarily owner-occupied, residential property. At September 30, 1999, other
real estate owned was comprised of two commercial real estate properties with
aggregate book values of $132,000 and twenty-four residential properties with
aggregate book values of $3.7 million. During the third quarter of 1999, Corus
sold one commercial real estate property with an aggregate book value of
$174,000 for a net gain of $104,000 and fourteen residential properties with an
aggregate book values of $1.2 million for a net gain of $27,000.
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 $18.6, $17.5 and $17.3 million at
September 30, 1999, December 31, 1998 and September 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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Allowance for Loan Losses
- -------------------------
Management believes that the level of the allowance for loan losses was adequate
at September 30, 1999. A reconciliation of the activity in the allowance for
loan losses is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------
(thousands) 1999 1998 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $35,464 $34,214 $35,773 $30,660
Provision for loan losses 1,000 3,000 3,000 9,000
Less charge-offs:
Commercial real estate loans - 18 38 18
Student loans 139 436 1,280 553
Residential first mortgage loans 23 121 109 284
Home equity loans 1,281 930 3,089 4,148
Commercial loans - 1 72 2
Consumer loans 3 2 67 2
----------------------------------------------------------------------
Total charge-offs 1,446 1,508 4,655 5,007
----------------------------------------------------------------------
Add recoveries:
Commercial real estate loans 72 19 109 125
Student loans 15 8 153 107
Residential first mortgage loans - - 1 -
Home equity loans 451 457 1,127 1,265
Commercial 57 9 60 9
Consumer loans 21 21 66 61
----------------------------------------------------------------------
Total recoveries 616 514 1,516 1,567
----------------------------------------------------------------------
Net charge-offs (830) (994) (3,139) (3,440)
----------------------------------------------------------------------
Balance at September 30 $35,634 $36,220 $35,634 $36,220
======================================================================
Loans at September 30 $1,698,946 $1,503,072 $1,698,946 $1,503,072
======================================================================
Allowance as a percentage of loans 2.10% 2.41% 2.10% 2.41%
======================================================================
</TABLE>
The majority of the student loan chargeoffs were a result of the student loan
matter, as described in Note 2 of the Notes to Condensed Consolidated Financial
Statements on page 5.
17
<PAGE> 20
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
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:
September 30 December 31 September 30
1999 1998 1998
--------------- -------------- ---------------
Demand 10% 10% 9%
Savings 8 8 8
NOW 4 5 4
Money Market 44 42 43
Certificates of Deposit 34 35 36
--------------- -------------- ---------------
Total 100% 100% 100%
=============== ============== ===============
At September 30, 1999, December 31, 1998 and September 30, 1998, CORUS had
retail certificates of deposit obtained from brokers of $344, $403 and $427
million, respectively.
18
<PAGE> 21
ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Capital
- -------
Corus' consolidated leverage ratio (Tier 1 capital/total average quarterly
assets) was 10.96% at September 30, 1999, well in excess of the minimum
regulatory level of 5.00%. The consolidated Tier 1 and total risk-based capital
ratios were 15.17% and 18.32%, respectively, exceeding the minimum
well-capitalized Tier 1 and total risk-based capital ratios of 6.00% and 10.00%,
respectively.
During the first nine months of 1999, Corus repurchased and retired 431,852
shares at an average price of $31.31 per share. A total of 700,952 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.
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 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 99% complete. And, with the exception of
an internally developed application that has been tested for year 2000
readiness, all of the mission critical systems have been tested where necessary
and placed into production.
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, 98% 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 2% (this represents 3 elements) of the mission
critical systems to acquire the necessary products and coordinate the necessary
actions to make these items Year 2000 capable.
Assessment of Year 2000 risk for commercial lending customers is an ongoing
process that relies heavily on interviews between commercial lending officers
and customers. These interviews assess 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
19
<PAGE> 22
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 98% complete. We await final test results for an
internally-developed system before placing this system into production.
Costs to Address Year 2000 Issues
Although Corus does not currently expect the costs of Year 2000 readiness to be
material, some expenses will be 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 that would impact
Corus 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. An alternate power source is in place to power the processing
operations if necessary. Department managers have created remediation and
business resumption contingency plans for their respective functions that have
been incorporated into overall business resumption plan. This plan has been
reviewed internally and by a third party consulting group. 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 NINE MONTHS ENDED SEPTEMBER 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 investigation and lawsuit by the
U.S. Department of Education;
- - Changes in management's estimate of the adequacy of the allowance for loan
losses;
- - Changes in the level and direction of loan 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 NINE MONTHS ENDED SEPTEMBER 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. Corus is contesting the lawsuit and has substantial defenses. 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.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response
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)
November 11, 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
Nine Months Ended
September 30
(thousands, except per share amounts) 1999 1998
---------- ------------
Denominator for basic earnings per share -
average common shares outstanding 14,457 14,567
Dilutive common stock options 59 217
---------- ------------
Denominator for diluted earnings per share 14,516 14,784
========== ============
Numerator: Net income attributable to common shares $32,186 $30,289
========== ============
Net income per share:
Basic $2.23 $2.08
Diluted 2.22 2.05
27
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 86,548
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,850
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 634,973
<INVESTMENTS-CARRYING> 6,020
<INVESTMENTS-MARKET> 6,137
<LOANS> 1,698,946
<ALLOWANCE> 35,634
<TOTAL-ASSETS> 2,486,063
<DEPOSITS> 2,073,522
<SHORT-TERM> 4,701
<LIABILITIES-OTHER> 48,838
<LONG-TERM> 40,000
0
0
<COMMON> 715
<OTHER-SE> 318,288
<TOTAL-LIABILITIES-AND-EQUITY> 2,486,063
<INTEREST-LOAN> 118,659
<INTEREST-INVEST> 26,198
<INTEREST-OTHER> 1,882
<INTEREST-TOTAL> 146,739
<INTEREST-DEPOSIT> 66,241
<INTEREST-EXPENSE> 68,041
<INTEREST-INCOME-NET> 78,698
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> (1,293)
<EXPENSE-OTHER> 40,703
<INCOME-PRETAX> 48,714
<INCOME-PRE-EXTRAORDINARY> 48,714
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,186
<EPS-BASIC> 2.33
<EPS-DILUTED> 2.22
<YIELD-ACTUAL> 4.37
<LOANS-NON> 2,528
<LOANS-PAST> 14,050
<LOANS-TROUBLED> 369
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 35,773
<CHARGE-OFFS> 4,655
<RECOVERIES> 1,516
<ALLOWANCE-CLOSE> 35,634
<ALLOWANCE-DOMESTIC> 36,634
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
