<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 0-6136
CORUS BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA
(State of incorporation of organization)
3959 N. LINCOLN AVE., CHICAGO, ILLINOIS
(Address of principal executive offices)
41-0823592
(I.R.S. Employer Identification No.)
60613-2431
(Zip Code)
(773) 832-3088
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS
Common stock, par value $0.05 per share
NAME OF EXCHANGE ON WHICH REGISTERED
NASDAQ
Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of this Form 10-K incorporate by reference certain
information from the Registrant's 1999 Annual Report to Shareholders. Part III
of this Form 10-K incorporates by reference certain information from the
Registrant's definitive Proxy Statement dated March 17, 2000, for its Annual
Meeting of Shareholders to be held on April 26, 2000.
On February 28, 2000, the Registrant had 14,369,290 common shares
outstanding. Of these, 6,848,535 common shares having an aggregate market value
(based on the closing price for these shares as reported in a summary of
national market issues in The Wall Street Journal for stocks listed on NASDAQ on
February 28, 2000) of approximately $167.8 million, were owned by shareholders
other than directors and executive officers of the Registrant and any other
person known by the Registrant as of the date hereof to beneficially own five
percent or more of Registrant's common shares.
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<PAGE> 2
PART I.
ITEM 1. BUSINESS
Corus Bankshares, Inc. ("Corus"), incorporated in Minnesota in 1958, is a
bank holding company registered under the Bank Holding Company Act of 1956.
Corus provides consumer and corporate banking products and services through its
wholly-owned banking subsidiary, Corus Bank, N.A.
The bank has eleven branches in the Chicago metropolitan area and offers
general banking services such as checking, savings, money market and time
deposit accounts; commercial, mortgage, home equity, student and personal loans;
trust and investment management services; safe deposit boxes and a variety of
additional services. The bank also provides clearing, depository and credit
services to more than 525 currency exchanges in the Chicago area and an
additional 20 in Milwaukee, Wisconsin.
Corus owns an operations subsidiary, Bancorp Operations Company, that
comprises an insignificant portion of Corus' total assets and net income.
Bancorp Operations Company provides item processing, bookkeeping and other
ancillary bank support services to Corus' bank subsidiary. At the close of
business on December 31, 1999, Bancorp Operations Company merged with Corus
Bank, N.A.
COMPETITION
All of Corus' principal business activities are highly competitive. Corus
competes actively with other financial services providers offering a wide array
of financial products and services. The competitors include other banks, savings
and loan associations, credit unions, brokerage firms, finance companies,
insurance companies, mutual funds and mortgage bankers. Competition is generally
in the form of interest rates and points charged on loans, interest rates paid
on deposits, service charges, banking hours, fiduciary services and other
service-related products.
EMPLOYEES
At December 31, 1999, Corus employed a total of 630 full-time equivalent
persons, consisting of 146 executives, management and supervisory personnel and
484 clerical and secretarial employees.
SUPERVISION AND REGULATION
General
Corus is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the Act), and is registered as such with the
Board of Governors of the Federal Reserve System (the Federal Reserve Board).
The Act requires every bank holding company to obtain the prior approval of the
Federal Reserve Board before acquiring, merging with or consolidating into
another bank holding company, acquiring substantially all the assets of any
bank, or acquiring direct or indirect ownership or control of 5% or more of the
voting shares of any bank or bank holding company.
1
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The Act also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of 5% or more of the
voting shares of any company which is not a bank and from engaging in any
business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries. However, Corus may engage
in and own shares of companies engaged in certain businesses determined by the
Federal Reserve Board to be closely related to banking or managing or
controlling banks.
The Illinois Bank Holding Company Act of 1957 (the Illinois Act), as
amended, permits Corus to acquire banks located anywhere in Illinois. Other
amendments of the Illinois Act authorize combinations between banks and bank
holding companies located in Illinois and banks and bank holding companies
located in another state if that other state has passed legislation granting
similar privileges to Illinois banks and bank holding companies. Effective
December 1, 1990, holding companies from any state were permitted to acquire
Illinois banks and bank holding companies if the other state allows Illinois
bank holding companies the same privilege. In June 1993, the Illinois Act was
amended to eliminate all branch restrictions. Accordingly, banks located in
Illinois are permitted to establish branches anywhere in the state.
Corus' subsidiary bank is a national bank and, as such, is supervised,
examined and regulated by the Office of the Comptroller of the Currency under
the National Bank Act. Since a national bank is also a member of the Federal
Reserve System and its deposits are insured by the Federal Deposit Insurance
Corporation (FDIC), the subsidiary bank is also subject to the applicable
provisions of the Federal Reserve Act, the Federal Deposit Insurance Act, and,
in certain respects, to state laws applicable to financial institutions.
The subsidiary bank is subject to FDIC deposit insurance assessments. Under
the FDIC's risk-based assessment system, the assessment rate is based on
classification of a depository institution in one of nine risk assessment
categories. Such classification is based upon the institution's capital level
and upon certain supervisory evaluations of the institution by its primary
regulator. The subsidiary bank's FDIC deposit insurance cost for 2000 will be
approximately .02% of deposits.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
initiated new intense regulation for the financial services industry. FDICIA
made significant changes in the legal environment for insured banks, including
reductions in insurance coverage for certain types of deposits, increases in
consumer-oriented requirements, and substantial revisions in the supervision,
examination and audit processes. FDICIA also required new reporting by banks and
mandated adoption of new regulations concerning capital, liquidity, internal
controls, safety and soundness and prompt corrective action.
Capital Adequacy
The Federal Reserve Board established risk-based capital guidelines that
require bank holding companies to maintain minimum ratios. The main objective of
the risk-based capital requirements is to provide a fair and consistent
framework for comparing capital positions of all banking institutions. Under
these guidelines, capital consists of two components, core capital elements
(Tier 1 capital) and supplementary capital elements
2
<PAGE> 4
(Tier 2 capital). Assets and off-balance-sheet items are assigned broad risk
categories. The aggregate dollar value of each category is multiplied by a risk
weight associated with this category.
In 1992, the FDIC adopted new regulations that defined five capital
categories for purposes of implementing the requirements under FDICIA. The five
capital categories, which range from "well-capitalized" to "critically
under-capitalized", are based on the level of risk-based capital measures. The
minimum risk-based capital ratios for Tier 1 capital to risk-weighted assets and
total risk-based capital to risk-weighted assets to be classified as
well-capitalized are 6.0% and 10.0%, respectively. At December 31, 1999, Corus'
Tier 1 capital and total risk-based capital ratios were 15.3% and 17.8%,
respectively.
In addition, bank regulatory agencies established a leverage ratio to
supplement the risk-based capital guidelines. The leverage ratio is intended to
ensure that adequate capital is maintained against risks other than credit risk.
A minimum required ratio of Tier 1 capital to total assets of 3.0% is required
for the highest quality bank holding companies that are not anticipating or
experiencing significant growth. All other banking institutions must maintain a
leverage ratio of 4.0% to 5.0% depending upon an institution's particular risk
profile. At December 31, 1999, Corus' leverage ratio was 11.9%.
Interstate Banking
The Riegle-Neal Interstate Bank and Branching Efficiency Act of 1994 (IBBA)
permits bank holding companies that are adequately capitalized and managed to
acquire banks located in any other state after September 29, 1995, subject to
certain statewide and nationwide deposit concentration limits. States may also
prohibit acquisition of banks that have not been in existence for at least five
years.
The interstate branching by merger provisions were effective on June 1,
1997, unless a state takes legislative action prior to that date. The long-term
effects on Corus of such changes in interstate banking and branching laws cannot
be predicted. However, it is likely that there will be increased competition
from national and regional banking firms headquartered outside of Illinois.
Graham-Leach-Bliley Act of 1999
The enactment of the Graham-Leach-Bliley Act of 1999 ("the GLB act")
repeals sections 20 and 32 of the Banking Act of 1933 ("the Act"), allowing new
opportunities to be available for banks, other depository institutions,
insurance companies and securities firms to enter into combinations that permit
a single financial services organization to offer customers a more complete
array of financial products and services. To further this goal, the GLB Act
amends section 4 of the Act providing a new regulatory framework for regulation
through the financial holding company ("FHC"), which will have as its umbrella
regulator the Federal Reserve Board. Functional regulation of the FHC's
separately regulated subsidiaries will be conducted by their primary functional
regulator. Pursuant to the GLB Act, bank holding companies, subsidiary
depository institutions thereof and foreign banks electing to qualify as a FHC
must be "well managed", "well capitalized" and at least rated satisfactory under
the Community Reinvestment Act in order for them to engage in new
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<PAGE> 5
financial activities. The GLB Act also provides a federal right to privacy of
non-public personal information of individual customers.
STATISTICAL DATA
Pages 4 through 11 contain supplemental statistical data. This data should
be read in conjunction with Corus' Management's Discussion and Analysis of
Financial Statements and the Consolidated Financial Statements and notes thereto
of the 1999 Annual Report to Shareholders (1999 Annual Report), incorporated
herein by reference in response to Items 7 and 8 hereof.
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the changes in fully tax equivalent interest
income and expense by major categories of assets and liabilities attributable to
changes in volume or rate or both, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------
VOLUME RATE TOTAL
------ ---- -----
(THOUSANDS)
<S> <C> <C> <C>
Interest Income:
Interest-earning deposits with banks......... $(1,764) $ 384 $ (1,380)
Federal funds sold........................... (1,528) (340) (1,868)
Taxable securities other than common
stocks.................................... 2,451 (992) 1,459
Common stocks................................ 609 577 1,186
Tax-advantaged securities.................... (85) (11) (96)
Trading account securities................... (711) (218) (929)
Loans, net of discount....................... 11,291 (459) 10,832
------- ------- --------
Net Increase (Decrease)................... 10,263 (1,059) 9,204
------- ------- --------
Interest Expense:
NOW and money market deposits................ (466) (1,538) (2,004)
Savings deposits............................. (178) -- (178)
Time deposits................................ 4,601 (1,062) 3,539
Short-term borrowings........................ (26) (87) (113)
Federal Home Loan Bank advances.............. -- (100) (100)
------- ------- --------
Net Increase (Decrease)................... 3,931 (2,787) 1,144
------- ------- --------
Increase in Net Interest Income................. $ 6,332 $ 1,728 $ 8,060
======= ======= ========
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------
VOLUME RATE TOTAL
------ ---- -----
(THOUSANDS)
<S> <C> <C> <C>
Interest Income:
Interest-earning deposits with banks......... $ 972 $ (2) $ 970
Federal funds sold........................... (839) (49) (888)
Taxable securities other than common
stocks.................................... 9,311 (325) 8,986
Common stocks................................ 1,614 (311) 1,303
Tax-advantaged securities.................... (105) (12) (117)
Trading account securities................... 334 (42) 292
Loans, net of discount....................... (4,410) (2,449) (6,859)
------- ------- --------
Net Increase (Decrease)................... 6,877 (3,190) 3,687
------- ------- --------
Interest Expense:
NOW and money market deposits................ (1,133) (1,761) (2,894)
Savings deposits............................. (365) 38 (327)
Time deposits................................ 9,807 341 10,148
Short-term borrowings........................ (190) (49) (239)
Federal Home Loan Bank advances.............. - (44) (44)
------- ------- --------
Net Increase (Decrease)................... 8,119 (1,475) 6,644
------- ------- --------
Decrease in Net Interest Income................. $(1,242) $(1,714) $ (2,957)
======= ======= ========
</TABLE>
The tax-equivalent adjustment for interest income on tax-advantaged loans
and securities is reflected through the rate column based on a marginal
corporate income tax rate of 35%. Volume variances are computed using the change
in volume multiplied by the previous year's rate. Rate variances are computed
using the changes in rate multiplied by the previous year's volume. The change
in interest due to both rate and volume has been allocated between the factors
in proportion to the relationship of the absolute dollar amounts of the change
in each.
5
<PAGE> 7
SECURITIES PORTFOLIO
Carrying Value of Securities by Category
The carrying value of securities held by Corus were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1999 1998 1997
---- ---- ----
(THOUSANDS)
<S> <C> <C> <C>
Available-for-sale
U.S. Government and agencies............. $124,141 $529,374 $191,236
Corporate debt securities................ 57,851 30,173 161,454
Common stocks............................ 169,927 185,698 158,660
Other.................................... 135,324 152,423 20,513
-------- -------- --------
Total................................. $487,243 $897,668 $531,863
======== ======== ========
Held-to-maturity
State and municipal...................... $ 1,573 $ 2,168 $ 4,150
Other.................................... 3,814 4,442 5,129
-------- -------- --------
Total................................. $ 5,387 $ 6,610 $ 9,279
======== ======== ========
</TABLE>
Maturities of Securities
The scheduled maturities by security type as of December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
FROM FROM
ONE FIVE NOT DUE AT
ONE YEAR THROUGH THROUGH AFTER A SINGLE
OR LESS FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
-------- ---------- --------- --------- ---------- -----
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and
agencies.............. $ 99,938 $24,203 $ -- $ -- $ -- $124,141
Corporate debt
securities............ 14,432 43,419 -- -- -- 57,851
State and municipal...... 75 400 598 500 -- 1,573
Common stocks............ -- -- -- -- 169,927 169,927
Other.................... -- 12,716 11,662 104,812 9,948 139,138
-------- ------- ------- -------- -------- --------
Total........... $114,445 $80,738 $12,260 $105,312 $179,875 $492,630
======== ======= ======= ======== ======== ========
</TABLE>
6
<PAGE> 8
The weighted-average yields for each range of maturities of securities at
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
FROM FROM
ONE FIVE NOT DUE AT
ONE YEAR THROUGH THROUGH AFTER A SINGLE
OR LESS FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
-------- ---------- --------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Government and agencies... 5.14% 5.29% --% --% --% 5.17%
Corporate debt securities...... 6.13 5.97 -- -- -- 6.01
State and municipal............ 9.90 9.77 8.11 10.41 -- 9.35
Common stocks.................. -- -- -- -- 3.30 3.30
Other.......................... -- 5.48 6.03 5.51 7.50 5.63
</TABLE>
Actual maturities may differ from those scheduled due to prepayments from
issuers. Common stock yields are not considered meaningful for purposes of this
analysis. Yields on tax-advantaged securities reflect a tax equivalent
adjustment based on a marginal corporate tax rate of 35%.
LOAN PORTFOLIO
Classification of Loans
Corus' loans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial real
estate............... $ 916,512 $ 761,564 $ 711,495 $ 655,793 $ 582,331
Student................. 443,074 431,304 412,926 402,859 379,129
Residential first
mortgage............. 92,683 137,683 209,669 286,042 317,787
Home equity............. 135,603 85,408 131,868 188,755 170,793
Commercial.............. 117,021 108,759 55,062 61,852 78,469
Consumer................ 22,464 26,869 24,955 27,844 30,273
---------- ---------- ---------- ---------- ----------
Total.......... $1,727,357 $1,551,587 $1,545,975 $1,623,145 $1,558,782
========== ========== ========== ========== ==========
</TABLE>
Maturities of Loans and Sensitivity to Changes in Interest
The following table classifies the scheduled maturities for the following
loan portfolio categories at December 31, 1999:
<TABLE>
<CAPTION>
FROM
ONE YEAR ONE TO AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
(THOUSANDS)
<S> <C> <C> <C> <C>
Commercial real estate................. $236,552 $528,629 $151,331 $916,512
Commercial............................. 69,100 33,978 13,943 117,021
</TABLE>
Of the loans maturing after one year, $244.1 million have fixed rates. To
manage the interest rate exposure of specific, fixed-rate commercial real estate
loans and other loans, Corus has entered into interest rate swap agreements. For
additional information on such financial instruments, see Note 10 to the
Consolidated Financial Statements on pages 29
7
<PAGE> 9
through 31 of the 1999 Annual Report, incorporated herein by reference in
response to Item 8 hereof.
RISK ELEMENTS IN THE LOAN PORTFOLIO
Nonaccrual and Past Due Loans
Nonaccrual loans were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans...................... $2,529 $5,307 $8,641 $7,427 $8,536
Nonaccrual loans to total loans....... 0.15% 0.34% 0.56% 0.46% 0.55%
</TABLE>
Interest income that should have been recorded under the original terms of
these loans totaled $195,000 for the year ended December 31, 1999. Total
interest income recorded for these loans in 1999 was $148,000.
Loans past due 90 days or more, including nonaccrual loans, were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more... $34,485 $34,877 $41,248 $50,368 $32,714
Less guaranteed student loans.... 21,937 17,543 14,077 15,163 13,913
------- ------- ------- ------- -------
Net loans past due 90 days or
more.......................... $12,548 $17,334 $27,171 $35,205 $18,801
======= ======= ======= ======= =======
Net loans past due 90 days or
more as a percentage of total
loans......................... 0.73% 1.12% 1.76% 2.17% 1.21%
======= ======= ======= ======= =======
</TABLE>
Guaranteed student loans that are greater than 90 days past due are
classified as performing due to the principal and accrued interest on such loans
being guaranteed by individual state or private non-profit agencies.
Potential Problem Loans
In addition to those loans disclosed under the preceding "Nonaccrual and
Past Due Loans" section, management identified, through their problem loan
identification system, certain other loans in the portfolio that exhibit a
higher than normal credit risk. However, these loans were not classified as
nonperforming loans. These other loans include loans that are past maturity more
than 45 days, have recent adverse operating cash flow or balance sheet trends,
or have general risk characteristics that the loan officer feels might
jeopardize the future timely collection of principal and interest payments. At
December 31, 1999, the principal amount of these loans was $7.6 million. This
amount generally includes loans that were classified for regulatory purposes.
8
<PAGE> 10
Analysis of the Allowance for Loan Losses
The activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year...... $35,773 $30,660 $32,668 $25,640 $20,157
Provision for loan losses......... -- 10,000 16,000 16,000 5,779
Less charge-offs:
Commercial real estate loans... 61 18 350 206 284
Student loans.................. 1,365 1,240 9,707 4,605 81
Residential first mortgage
loans....................... 109 414 431 1 4
Home equity loans.............. 4,193 5,171 8,454 6,421 28
Commercial loans............... 84 2 22 92 269
Consumer loans................. 96 7 131 16 153
------- ------- ------- ------- -------
Total charge-offs........... 5,908 6,852 19,095 11,341 819
------- ------- ------- ------- -------
Add recoveries:
Commercial real estate loans... 124 166 195 1,026 44
Student loans.................. 174 143 24 80 105
Residential first mortgage
loans....................... 1 -- 3 -- 5
Home equity loans.............. 1,778 1,553 745 375 --
Commercial loans............... 65 9 19 770 69
Consumer loans................. 83 94 101 118 300
------- ------- ------- ------- -------
Total recoveries............ 2,225 1,965 1,087 2,369 523
------- ------- ------- ------- -------
Net (charge-offs)/recoveries...... (3,683) (4,887) (18,008) (8,972) (296)
------- ------- ------- ------- -------
Balance at end of year............ $32,090 $35,773 $30,660 $32,668 $25,640
Net (charge-offs)/recoveries to
average loans outstanding...... (0.22%) (0.32%) (1.15%) (0.56%) (0.02%)
======= ======= ======= ======= =======
</TABLE>
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial real estate........ $16,417 $12,971 $ 2,814 $ 2,575 $ 2,934
Student....................... 1,374 2,782 2,658 3,608 11,489
Residential first mortgage.... 358 459 784 1,034 1,327
Home equity................... 11,777 10,070 16,180 21,460 1,000
Commercial.................... 273 269 29 45 445
Consumer...................... 120 169 306 643 476
Unallocated................... 1,771 9,053 7,889 3,303 7,969
------- ------- ------- ------- -------
Total......................... $32,090 $35,773 $30,660 $32,668 $25,640
======= ======= ======= ======= =======
</TABLE>
9
<PAGE> 11
Overall, the allowance at December 31, 1999 declined by $3.7 million versus
the prior year. As the provision was $0 for the year, the decline was driven
entirely by net charge-offs. On an allocation basis, there were two significant
changes during the year. First, the balance allocated to commercial real estate
increased by $3.4 million reflecting the continued growth in the commercial real
estate portfolio, particularly construction loans (see page 25 in the 1999
Annual Report). Second, the unallocated balance declined by $7.3 million. This
unallocated balance is based on management's review of overall factors affecting
the determination of probable losses inherent in the portfolio, which may not be
captured, or captured completely, by the mechanical application of historical
loss ratios and other factors used in determining the allocated inherent
reserve. This portion of the reserve analysis involves the exercise of judgment
and reflects all appropriate considerations, including management's view that
the reserve should have a margin that recognizes the imprecision inherent in the
process of estimating expected credit losses.
Loan Portfolio Composition
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial real estate........................ 53% 49% 46% 40% 38%
Student....................................... 26 28 27 25 24
Residential first mortgage.................... 5 9 14 18 20
Home equity................................... 8 7 8 11 11
Commercial.................................... 7 5 3 4 5
Consumer...................................... 1 2 2 2 2
--- --- --- --- ---
Total......................................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
For further review of the loan loss provision and the allowance for loan
losses, reference is made to pages 51 through 52 of Management's Discussion and
Analysis of Financial Statements of the 1999 Annual Report, incorporated herein
by reference in response to Item 7 hereof.
DEPOSITS
The scheduled maturities of time deposits in denominations of $100,000 and
greater was as follows at December 31, 1999:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
Maturing within 3 months.............................. $ 51,734
After 3 but within 6 months........................... 78,686
After 6 but within 12 months.......................... 71,069
After 12 months....................................... 183,081
--------
Total.............................................. $384,570
========
</TABLE>
10
<PAGE> 12
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to Corus' equity and
assets:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Return on average total assets........................ 1.6% 1.7% 1.8%
Return on average common shareholders' equity......... 12.5 13.7 14.9
Dividend payout ratio................................. 20.2 19.8 19.5
Average equity to average total assets................ 12.9 12.2 11.8
</TABLE>
ITEM 2. PROPERTIES
Corus utilizes the building facilities of its Irving Park branch, which is
located at 3959 N. Lincoln Avenue, Chicago, Illinois, for its executive offices.
Corus owns the property and buildings on which nine of the eleven bank branch
locations are located. The other two branch locations are leased from unrelated
parties.
ITEM 3. LEGAL PROCEEDINGS
Corus is involved in various legal and regulatory proceedings, many
involving matters that arose in the ordinary course of business. The
consequences of these proceedings are not presently determinable but, in the
opinion of management, these proceedings will not have a material effect on the
results of operations, financial position, liquidity or capital resources,
except possibly for the matter discussed below.
Since late 1999, Corus has been actively negotiating a settlement of the
civil lawsuit filed by the Department of Justice, on April 8, 1999, ("Lawsuit")
against Corus Bankshares, Inc. and Corus Bank, N.A. The Lawsuit alleges, among
other things, violations of the federal False Claims Act and liability under
other common law theories. The negotiations with the Department of Justice and
the Department of Education have led to a substantial agreement with the Chicago
office of the Department of Justice and the Department of Education on the basic
principles of a settlement. The Department of Justice's Washington, D.C.
headquarters has raised objections to certain details of the proposed settlement
and Corus is presently attempting to negotiate mutually acceptable resolutions
to these objections.
In general terms, the proposed settlement: (1) calls for Corus to pay
restitution of $8.4 million, (2) provides Corus the right to submit and receive
guarantee payments on the majority of the $15.7 million in student loans it
voluntarily withheld from submission for claim payment and that had been charged
off in prior years, and (3) provides that the United States will not civilly or
criminally prosecute, Corus or any of its officers, directors or employees,
except for an Assistant Vice-President in Corus' student loan department who has
pled guilty to a one-count criminal misdemeanor.
While Corus' Agreement with the Department of Justice and Department of
Education has not yet been finalized, Corus believes that a settlement of the
Lawsuit on terms generally similar to those described above is probable. Corus
therefore recorded, in the
11
<PAGE> 13
fourth quarter of 1999, a loss contingency of $8.4 million related to the
probable settlement of the Lawsuit.
In regard to Corus' rights under the proposed settlement to submit
previously charged off loans for claim payment, the proposed settlement would
set forth various criteria for determining whether a loan is eligible for
guarantee payments. Corus estimates that it would be able to submit and receive
guarantee payments on between $9 million and $13 million of the $15.7 million of
loans previously charged off. Due to various requirements of the student loan
program, it is anticipated that recoveries would not be realized until two to
three quarters after the proposed settlement has been finalized.
IT MUST BE STRONGLY CAUTIONED THAT, WHILE CORUS BELIEVES A SETTLEMENT OF
THE LAWSUIT ON TERMS GENERALLY SIMILAR TO THOSE DESCRIBED ABOVE IS PROBABLE, A
WRITTEN SETTLEMENT HAS NOT YET BEEN EXECUTED BY ALL PARTIES AND, AS SUCH, THERE
IS A POSSIBILITY THAT A SETTLEMENT MAY NOT BE REACHED. DUE TO THE ONGOING
NEGOTIATIONS, CHANGES IN THE TERMS OF THE SETTLEMENT AGREEMENT MAY OCCUR IN THE
FINAL SETTLEMENT AGREEMENT - IF AN AGREEMENT IS IN FACT REACHED. TO THE EXTENT A
SETTLEMENT OF THE LAWSUIT CANNOT BE ACHIEVED, THE MATTER WOULD HAVE TO BE
RESOLVED THROUGH LITIGATION AND THE COMPANY, ITS EMPLOYEES, OR EX-EMPLOYEES
COULD ALSO BE SUED CRIMINALLY.
By way of background, 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 ("DOE") commenced an
investigation into Corus' student loan servicing practices. In the course of
this investigation, DOE found another problem, in addition to the telephone call
problem discovered by Corus. The government found: (1) that certain of Corus'
supporting records were not retained, and (2) that certain Corus supporting
records, which were retained, do not exactly match the insurance claims
submitted.
As cited above, the Department of Justice filed the 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
due to Corus' submission of fraudulent insurance claims as a result of the
deficiencies noted above. The Department of Justice thinks that there were
approximately 2,200 claims with some sort of deficiency. Corus is contesting the
Lawsuit and has substantial defenses.
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, $15.7
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
$15.7 million in student loans it voluntarily withheld from submission for claim
payment and has filed a counterclaim to that effect.
12
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Corus' common stock trades on the NASDAQ National Market tier of The NASDAQ
Stock Market under the symbol: CORS. The high and low prices for the common
stock for the calendar quarters indicated, as reported by NASDAQ, are listed on
page 39 of the 1999 Annual Report, incorporated herein by reference in response
to Item 8 hereof.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The Company had approximately 3,350 shareholders of record as of February
28, 2000.
DIVIDENDS ON COMMON STOCK
Quarterly cash dividends per common share for the last two years are
included on page 39 of the 1999 Annual Report, incorporated herein by reference
in response to Item 8 hereof. Dividends were declared and paid on a quarterly
basis. The declaration of dividends is at the discretion of Corus' Board of
Directors and depends upon, among other factors, earnings, capital requirements
and the operating and financial condition of Corus.
13
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
Refer to page 39 of the 1999 Annual Report, incorporated herein by
reference for additional selected financial data.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income............ $ 196,580 $ 187,525 $ 183,932 $ 190,950 $ 171,114
Interest expense........... 90,449 89,305 82,661 79,611 72,597
---------- ---------- ---------- ---------- ----------
Net interest income........ 106,131 98,220 101,271 111,339 98,517
Provision for loan
losses.................. -- 10,000 16,000 16,000 5,779
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses.................. 106,131 88,220 85,271 95,339 92,738
Noninterest income,
excluding securities
gains (losses).......... 20,483 20,747 22,032 19,436 15,443
Securities (losses) gains,
net..................... (1,535) 4,919 4,881 3,316 (1,332)
Noninterest expense........ 63,096 51,889 51,677 50,181 51,650
Income tax expense......... 21,257 21,369 21,136 24,005 19,429
---------- ---------- ---------- ---------- ----------
Net income available to
common shareholders..... 40,726 40,628 39,371 43,905 35,770
========== ========== ========== ========== ==========
Net income per share:
Basic................... $ 2.82 $ 2.79 $ 2.66 $ 2.96 $ 2.36
Diluted................. 2.82 2.75 2.63 2.93 2.35
========== ========== ========== ========== ==========
Cash dividends declared per
Common share............ $ 0.575 $ 0.555 $ 0.530 $ 0.480 $ 0.360
========== ========== ========== ========== ==========
Assets..................... $2,388,198 $2,589,415 $2,251,927 $2,218,528 $2,125,092
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information contained under the caption "Management's Discussion and
Analysis of Financial Statements" on pages 41 through 53 of the 1999 Annual
Report is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The information contained under the caption "Market Risk Management" on
pages 52 through 53 of the 1999 Annual Report is incorporated herein by
reference.
14
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Corus, including the notes
thereto, and other information on pages 18 through 39 of the 1999 Annual Report
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
15
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of Corus is
incorporated herein by reference to the descriptions under "Election of
Directors" on pages 2 through 5 of the 2000 Proxy Statement. For both those
executive officers listed in the Proxy as well as the other executive officers
of the Company (Senior Vice President title and greater) not listed in the
Proxy, the following is a table providing the executive officer's name, age,
position(s) held with the Company and Subsidiaries and the date the officer
assumed their present office(s).
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) HELD WITH ASSUMED
NAME AGE THE COMPANY AND SUBSIDIARIES PRESENT OFFICE(S)
---- --- ----------------------------------- -----------------
<S> <C> <C> <C>
J.C. Glickman......... 84 Chairman of the Board of the
Company June 1, 1984
Robert J. Glickman.... 53 President and Chief Executive of
the Company and Corus Bank, N.A. June 1, 1984
David H. Johnson,
III................ 45 Executive Vice President of the
Company and Corus Bank N.A. June 10, 1996
Michael G. Stein...... 39 Executive Vice President of Corus
Bank, N.A. February 19, 1996
Tim H. Taylor......... 35 Executive Vice-President and Chief
Financial Officer of the Company
and Corus Bank, N.A. December 1, 1998
Randy P. Curtis....... 41 Senior Vice President of Corus Bank
N.A. April 30, 1997
Christopher Glancy.... 46 Senior Vice President of Corus
Bank, N.A. November 15, 1995
Michael W. Jump....... 55 Senior Vice President of Corus
Bank, N.A. January 1, 1996
Terence W. Keenan..... 54 Senior Vice President of Corus
Bank, N.A. September 16, 1996
Richard J. Koretz..... 36 Senior Vice President of Corus
Bank, N.A. November 15, 1995
Phil Mevawala......... 43 Senior Vice President of Corus
Bank, N.A. May 18, 1998
Joel C. Solomon....... 45 Senior Vice President of Corus
Bank, N.A. August 29, 1997
</TABLE>
16
<PAGE> 18
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference
to the material under the caption "Executive Compensation" on pages 6 through 15
of the 2000 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the material under the headings
"Outstanding Voting Securities and Principal Shareholders" and "Election of
Directors" on pages 1 through 5, respectively, of the 2000 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the material under the heading "Transactions
with Management and Others" on page 16 of the 2000 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits to Consolidated Financial Statements:
<TABLE>
<CAPTION>
INDEX PAGES
----- -----
<S> <C>
Consolidated Balance Sheets............................... 18
Consolidated Statements of Income......................... 19
Consolidated Statements of Changes in Shareholders'
Equity................................................. 20
Consolidated Statements of Cash Flows..................... 21
Notes to Consolidated Financial Statements................ 22-39
Report of Independent Public Accountants.................. 40
Average Balance Sheet and Net Interest Margin............. 56
</TABLE>
(b) Reports on Form 8-K:
None.
(c) Exhibit: See exhibit filed herewith
17
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<S> <C>
(3a) Amended and Restated Articles of Incorporation is
incorporated herein by reference to Exhibit 4.1 to the form
S-8 filing May 22, 1998;
(3b) By-Laws are incorporated herein by reference to Exhibit 4.2
to the Form S-8 filing dated May 22, 1998;
(10) Commercial Loan Officers Bonus Program is incorporated
herein by reference to Form S-8 filing dated May 22, 1998;
(13) The portions of Registrant's 1999 Annual Report incorporated
by reference into Part I or Part II of Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1999.
(22) The 1999 Stock Option Plan is incorporated herein by
reference to Exhibit A to the Schedule 14A filing dated
March 17, 1999.
(23) Consent of experts and counsel
(27) Financial Data Schedule
</TABLE>
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
/s/ TIM H. TAYLOR
--------------------------------------
Tim H. Taylor
Executive Vice President &
Chief Financial Officer
March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<C> <S> <C>
/s/ JOSEPH C. GLICKMAN Chairman of the Board of March 29, 2000
- ------------------------------------------------ Directors
Joseph C. Glickman
/s/ ROBERT J. GLICKMAN President, Chief Executive March 29, 2000
- ------------------------------------------------ Officer & Director
Robert J. Glickman
/s/ TIM H. TAYLOR Executive Vice President & March 29, 2000
- ------------------------------------------------ Chief Financial Officer
Tim H. Taylor
/s/ STEVEN D. FIFIELD Director March 29, 2000
- ------------------------------------------------
Steven D. Fifield
/s/ KARL H. HORN Director March 29, 2000
- ------------------------------------------------
Karl H. Horn
/s/ MICHAEL LEVITT Director March 29, 2000
- ------------------------------------------------
Michael Levitt
/s/ RODNEY D. LUBEZNIK Director March 29, 2000
- ------------------------------------------------
Rodney D. Lubeznik
/s/ MICHAEL TANG Director March 29, 2000
- ------------------------------------------------
Michael Tang
/s/ WILLIAM H. WENDT, III Director March 29, 2000
- ------------------------------------------------
William H. Wendt, III
</TABLE>
19
<PAGE> 1
EXHIBIT 13
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
18 Consolidated Balance Sheets
19 Consolidated Statements of Income
20 Consolidated Statements of Changes in Shareholders' Equity
21 Consolidated Statements of Cash Flows
22 Notes to Consolidated Financial Statements
40 Report of Independent Public Accountants
41 Management's Discussion and Analysis of Financial Statements
54 Supplemental Financial Data
57 Directors and Executive Officers
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================================================
December 31 Dollars in Thousands 1999 1998
==========================================================================================================
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------
Cash and due from banks - noninterest-bearing $ 72,316 $ 72,050
Federal funds sold 45,700 2,000
Interest-bearing deposits with banks - 13,000
Securities:
Available-for-sale, at fair value (amortized cost $443,541 and $829,113) 487,243 897,668
Held-to-maturity, at amortized cost (fair value $5,466 and $6,802) 5,387 6,610
- ----------------------------------------------------------------------------------------------------------
Total Securities 492,630 904,278
Loans, net of unearned discount 1,727,357 1,551,587
Less: Allowance for loan losses 32,090 35,773
- ----------------------------------------------------------------------------------------------------------
Net Loans 1,695,267 1,515,814
Premises and equipment, net 33,880 34,105
Accrued interest receivable and other assets 39,393 37,804
Goodwill, net of accumulated amortization of $28,509 and $26,581 9,012 10,364
- ----------------------------------------------------------------------------------------------------------
Total Assets $2,388,198 $2,589,415
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------
Liabilities:
Deposits:
Noninterest-bearing $ 198,163 $ 212,616
Interest-bearing 1,766,257 1,942,060
- ----------------------------------------------------------------------------------------------------------
Total Deposits 1,964,420 2,154,676
Short-term borrowings 6,866 24,933
Federal Home Loan Bank advances 40,000 40,000
Accrued interest payable and other liabilities 49,087 51,676
- ----------------------------------------------------------------------------------------------------------
Total Liabilities 2,060,373 2,271,285
Commitments and contingent liabilities - -
Shareholders' equity
Preference stock - -
Common stock, $0.05 par value, 50,000,000 shares authorized;
14,369,290 and 14,551,142 shares issued, respectively 718 727
Surplus 10,859 4,065
Retained earnings 287,842 268,777
Accumulated other comprehensive income 28,406 44,561
- ----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 327,825 318,130
- ----------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,388,198 $2,589,415
==========================================================================================================
</TABLE>
See accompanying notes.
page 18 | Corus Bankshares
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31 Dollars in Thousands, Except Per Share Data 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
- ---------------------------------------------------------------------------------
Interest and fees on loans:
Taxable $ 160,192 $ 148,953 $ 155,178
Tax-advantaged 706 971 1,383
Deposits with banks 81 1,461 491
Federal funds sold 2,758 4,626 5,514
Securities:
Taxable 28,186 26,727 17,741
Tax-advantaged 94 156 232
Dividends 4,440 3,579 2,633
Trading account 123 1,052 760
- ------------------------------------------------------------------------------------------------------------
Total Interest Income 196,580 187,525 183,932
- ------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
- ---------------------------------------------------------------------------------
Deposits 87,998 86,641 79,714
Short-term borrowings 278 391 630
Federal Home Loan Bank advances 2,173 2,273 2,317
- ------------------------------------------------------------------------------------------------------------
Total Interest Expense 90,449 89,305 82,661
- ------------------------------------------------------------------------------------------------------------
Net Interest Income 106,131 98,220 101,271
Provision for loan losses -- 10,000 16,000
- ------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 106,131 88,220 85,271
- ------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
- ---------------------------------------------------------------------------------
Service charges on deposit accounts 10,051 8,836 8,616
Gain on dispositions of loans 5,731 8,036 11,115
Trust and investment management services 2,243 1,626 588
Trading account losses, net (242) (208) (221)
Securities and other financial instruments (losses)/gains, net (1,293) 5,127 5,102
Other income 2,458 2,249 1,713
- ------------------------------------------------------------------------------------------------------------
Total Noninterest Income 18,948 25,666 26,913
- ------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES
- ---------------------------------------------------------------------------------
Salaries and employee benefits 31,208 29,314 27,833
Student loan lawsuit contingency 8,375 -- --
Net occupancy 4,081 4,073 4,123
Data processing 2,729 2,306 1,977
Depreciation-furniture and equipment 2,511 2,679 2,502
Goodwill amortization 1,928 1,707 3,018
Other expenses 12,264 11,810 12,224
- ------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 63,096 51,889 51,677
- ------------------------------------------------------------------------------------------------------------
Income before income taxes 61,983 61,997 60,507
Income tax expense 21,257 21,369 21,136
NET INCOME $ 40,726 $ 40,628 $ 39,371
============================================================================================================
Net Income per Share:
Basic $ 2.82 $ 2.79 $ 2.66
Diluted 2.82 2.75 2.63
============================================================================================================
Weighted Average Common Shares & Common Share Equivalents Outstanding 14,464 14,773 14,966
============================================================================================================
</TABLE>
See accompanying notes.
Corus Bankshares | page 19
<PAGE> 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Dollars in Thousands, except per share data Stock Surplus Earnings Income Total
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 741 $ 4,140 $ 214,941 $ 15,768 $ 235,590
Net income -- -- 39,371 -- 39,371
Retirement of 138,800 common shares (7) (39) (4,961) -- (5,007)
Cash dividends declared on common stock,
$0.530 per common share -- -- (7,829) -- (7,829)
Change in other comprehensive income,
net of tax -- -- -- 29,508 29,508
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 734 4,101 241,522 45,276 291,633
Net income -- -- 40,628 -- 40,628
Retirement of 130,300 common shares (7) (36) (5,297) -- (5,340)
Cash dividends declared on common stock,
$0.555 per common share -- -- (8,076) -- (8,076)
Change in other comprehensive income,
net of tax -- -- -- (715) (715)
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 727 4,065 268,777 44,561 318,130
Net income -- -- 40,726 -- 40,726
Shares issued under the stock option plan,
250,000 common shares 13 3,775 -- -- 3,788
Tax benefit relating to stock option plan -- 1,262 -- -- 1,262
Retirement of 431,852 common shares (22) (121) (13,377) -- (13,520)
Cash dividends declared on common stock,
$0.575 per common share -- -- (8,284) -- (8,284)
Deferred compensation -- 1,878 -- -- 1,878
Change in other comprehensive income,
net of tax -- -- -- (16,155) (16,155)
- ------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 718 $ 10,859 $ 287,842 $ 28,406 $ 327,825
============================================================================================================
</TABLE>
See accompanying notes.
page 20 | Corus Bankshares
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 Dollars in Thousands 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------------------------------------------------------------------
Net Income $ 40,726 $ 40,628 $ 39,371
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses -- 10,000 16,000
Depreciation and amortization 3,392 3,441 3,198
Accretion of investment and loan discounts (21,043) (16,670) (13,980)
Goodwill amortization 1,928 1,707 3,018
Deferred income tax expense (benefit) 452 (424) 343
Net securities gains (458) (13,637) (4,239)
Gain on dispositions of loans (5,731) (8,036) (11,115)
Decrease (increase) in accrued interest receivable and other assets 2,161 15,008 (3,848)
Increase (decrease) in accrued interest payable and other liabilities 6,081 5,954 (2,522)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 27,508 37,971 26,226
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------------------------------------------------------------------
Proceeds from maturities of held-to-maturity securities 1,226 2,601 1,975
Proceeds from maturities of available-for-sale securities 916,887 825,126 526,270
Proceeds from sales of available-for-sale securities 16,231 271,459 42,285
Purchases of available-for-sale securities (531,476) (1,436,991) (662,275)
Maturities (purchases) of term federal funds sold -- 20,000 (20,000)
Maturities (purchases) of interest-bearing deposits with banks 13,000 13,999 (26,999)
Purchases of loans (87,617) (15,064) (1,000)
Net (increase) decrease in loans (84,427) 8,433 75,779
Purchases of premises and equipment, net (3,167) (6,596) (5,498)
Purchases of minority interest and additional consideration for bank subsidiaries (1,046) (4,521) (1,690)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities 239,611 (321,554) (71,153)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------------------------------------------------------------------
(Decrease) increase in deposit accounts (190,256) 291,610 (37,613)
(Decrease) increase in short-term borrowings (18,067) 15,669 2,947
Deferred compensation 1,878 -- --
Issuance of common shares under stock option plan 5,050 -- --
Retirements of common shares (13,520) (5,340) (5,007)
Cash dividends paid on common shares (8,238) (8,023) (7,691)
- ------------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (223,153) 293,916 (47,364)
- ------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 43,966 10,333 (92,291)
Cash and Cash Equivalents at Beginning of Year 74,050 63,717 156,008
- ------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 118,016 $ 74,050 $ 63,717
==============================================================================================================================
Supplemental disclosures:
Interest paid $ 93,393 $ 87,251 $ 82,156
Income taxes paid 16,560 21,890 19,799
==============================================================================================================================
</TABLE>
See accompanying notes.
Corus Bankshares | page 21
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Corus Bankshares,
Inc. ("Corus") and its wholly-owned subsidiaries, Corus Bank, N.A. and Bancorp
Operations Company. Corus, through its subsidiary bank, provides banking
services primarily in the Chicago metropolitan area. In the preparation of the
consolidated financial statements, management is required to make certain
estimates and assumptions that affect the reported amounts contained in the
consolidated financial statements. Management believes that the estimates made
are reasonable; however, changes in estimates may be required if economic or
other conditions change significantly beyond management's expectations.
PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements
include the accounts of Corus and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash, due from banks
and federal funds sold which have an original maturity of 90 days or less.
SECURITIES Securities are classified based on management's intention at time of
purchase. Trading securities, which are generally held in anticipation of
short-term gains, are carried at their fair value. Realized and unrealized gains
and losses on trading account securities are included in trading account income.
Available-for-sale securities are those securities to be held for indefinite
periods of time. These securities include those that management intends to use
as part of its asset/liability management strategy and may be sold in response
to changes in interest rates, market conditions or other reasons. These
securities are carried at fair value. The difference between amortized cost and
fair value, less deferred income taxes, is reflected as a component of other
comprehensive income in the Consolidated Statements of Changes in Shareholders'
Equity.
Securities held-to-maturity represent securities that Corus has the ability and
positive intent to hold to maturity. These securities are carried at amortized
cost. Interest and dividend income, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses are determined on a specific identification basis. Provisions are made to
write down the value of securities for declines in value that are other than
temporary.
LOANS Loans are reported at the principal amount outstanding, net of any
unearned discount. Interest income is generally recognized using the level-yield
method. Loan origination fees, net of direct costs related to the origination,
are deferred and amortized as a yield adjustment over the lives of the related
loans.
The accrual of interest income is discontinued on any loan when there is
reasonable doubt as to the ultimate collectibility of interest or principal.
Loans past due over 90 days continue to accrue interest income only if there are
adequate sources of repayment. These sources include sufficient collateral to
cover repayment of the loan or if other designated sources of repayment exist.
Nonaccrual loans are returned to accrual status when the financial position of
the borrower indicates there is no longer any reasonable doubt as to the payment
of principal or interest.
Nonaccrual commercial and commercial real estate loans are considered to be
impaired loans. Impairment is measured by determining the fair value of the loan
based on the present value of expected cash flows, the market price of the loan,
or the fair value of the underlying collateral. If the fair value of the loans
is less than the book value, a valuation allowance is established as a component
of the allowance for loan losses.
Nonperforming student loans purchased at a substantial discount from their face
value are accounted for using the cost-recovery method. The excess of loans
converted to performing status over the cost of the portfolio is accreted into
interest income over the estimated lives of the loans using the level-yield
method. For loans that default after being converted to performing status and as
payments from guarantee agencies are received, the remaining discount is
recognized in gain on dispositions of loans.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is available to absorb
losses inherent in the loan portfolio. Loan losses are charged against the
allowance for loan losses
page 22 | Corus Bankshares
<PAGE> 7
when they are deemed to be uncollectible. Ultimate Home Equity loans, which are
originated to 100% of the underlying residential real estate's collateral value,
are charged off when they become 120 days past due. Additionally, purchased
second mortgage high-loan-to-value loans are charged off when they become 120
days past due. Recoveries of previously charged off amounts are credited to the
allowance for loan losses.
The allowance for loan losses is based upon quarterly comprehensive reviews.
These reviews include consideration of the risk rating of individual credits,
the valuation allowances for specific impaired loans, prior loss experience,
delinquency levels, economic conditions and the growth and composition of the
loan portfolio. Additions are made to the allowance through a charge against
earnings to the provision for loan losses.
PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation on premises is computed primarily using
the straight-line method over the estimated useful life. Depreciation on
furniture and equipment is computed using accelerated methods. Expenditures for
normal repairs and maintenance are charged to expense as incurred.
OTHER REAL ESTATE OWNED Other real estate owned includes properties acquired
through foreclosure. These properties are recorded at the lower of cost or
estimated fair value, less estimated selling costs. Gains and losses on the
sale or periodic revaluation of other real estate owned are included in other
income. The net costs of maintaining these properties are included in operating
expenses.
GOODWILL Goodwill, which is the cost of investments in subsidiaries in excess of
the fair value of the net assets acquired, is being amortized over periods of 12
to 15 years. An impairment assessment is performed periodically for these
assets.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Corus utilizes various
off-balance-sheet financial instruments to reduce the interest rate and market
risk exposure associated with its financial assets and liabilities. The
counterparties to these instruments are major financial institutions with
credit ratings of A or better.
Amounts receivable or payable under interest rate swap and floor agreements that
qualify for hedge accounting treatment are accrued and reported in net interest
income. The related accrued interest receivable or payable for the interest rate
swaps is included in other assets or liabilities. The cost of interest rate
floor agreements is amortized as an offset to interest income on loans over the
life of the agreements. In the event that hedged items are terminated, the
related hedges are terminated as well.
Interest rate swap agreements that do not qualify for hedge accounting treatment
are carried at fair value. Changes in fair value are included in securities and
other financial instrument gains and losses.
Corus utilizes individual options and option combinations to reduce the market
risk associated with the common stock portfolio. Certain options not qualifying
for hedge accounting are carried at market value. Changes in the market value of
such options are included in securities and other financial instruments gains
and losses. Any realized gains or losses from the exercise or settlement of
these options are also included in securities and other financial instrument
gains and losses.
RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform
with the 1999 presentation.
2. ACCOUNTING CHANGES
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued. The statement 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, securities and deposit portfolios. The statement is
effective for Corus for the fiscal quarter beginning January 1, 2000. However,
in June 1999, SFAS No. 137 "Accounting for Derivative Instruments and
Corus Bankshares | page 23
<PAGE> 8
Hedging Activities - Deferral of the Effective Date of SFAS No. 133" was issued.
This statement deferred the effective date for Corus to 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.
In February 1998, SFAS No. 132, "Employer's Disclosures about Pensions and Other
Postretirement Benefits" was issued. This statement standardizes the disclosure
requirements for pensions and other postretirement benefits. It does not change
measurement or recognition of amounts related to those plans. Corus has adopted
the disclosure requirements of this statement in Note 9.
In December 1997, Corus adopted SFAS No. 128, "Earnings per Share." This
statement requires the presentation of both basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing net income
by the weighted-average number of common shares outstanding. Diluted earnings
per share is computed by dividing net income by the weighted-average number of
common shares and dilutive stock options outstanding. Corus has adopted the
disclosure requirements of this statement in Note 13.
In December 1997, Corus also adopted SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires that all items that are components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The statement of
comprehensive income is included in Note 12 to the consolidated financial
statements. The adoption of SFAS No. 130 had no impact on any amounts reported
as net income.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This statement establishes standards for
the way companies report information about operating segments in annual
financial statements and requires that those companies report selected
information about operating segments in annual and interim financial reports
issued to shareholders. The segment reporting requirements are in Note 14. The
adoption of SFAS No. 131 had no impact on Corus' results of operations,
financial position or cash flows.
3. SECURITIES
The amortized cost, gross unrealized gains and losses, and fair value of
securities were as follows (in thousands):
Gross Unrealized
Amortized -------------------- Fair
December 31, 1999 Cost Gains Losses Value
- ----------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
U.S. Government and agencies $125,045 $ 5 $ (909) $124,141
Corporate debt securities 59,712 -- (1,861) 57,851
Common stocks 120,096 58,943 (9,112) 169,927
Other 138,688 -- (3,364) 135,324
- ----------------------------------------------------------------------------
Total $443,541 $ 58,948 $(15,246) $487,243
- ----------------------------------------------------------------------------
HELD-TO-MATURITY:
State and municipal $ 1,573 $ 53 $ -- $ 1,626
Other 3,814 26 -- 3,840
- ----------------------------------------------------------------------------
Total $ 5,387 $ 79 $ -- $ 5,466
============================================================================
Gross Unrealized
Amortized -------------------- Fair
December 31, 1998 Cost Gains Losses Value
- ----------------------------------------------------------------------------
AVAILABLE-FOR-SALE:
U.S. Government and agencies $529,421 $ 100 $ (147) $529,374
Corporate debt securities 30,031 151 (9) 30,173
Common stocks 116,524 69,174 -- 185,698
Other 153,137 67 (781) 152,423
- ----------------------------------------------------------------------------
Total $829,113 $ 69,492 $ (937) $897,668
- ----------------------------------------------------------------------------
HELD-TO-MATURITY:
State and municipal $ 2,168 $ 120 $ -- $ 2,288
Other 4,442 72 -- 4,514
- ----------------------------------------------------------------------------
Total $ 6,610 $ 192 $ -- $ 6,802
============================================================================
page 24 | Corus Bankshares
<PAGE> 9
The scheduled maturities for securities were as follows at December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
-------------------------------------------
Amortized Fair Amortized Fair
Due In Cost Value Cost Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One year or less $114,555 $114,369 $ 122 $ 123
After one year through five years 82,755 80,111 627 640
After five years through ten years 11,520 11,065 1,196 1,220
After ten years 107,408 104,564 748 789
- -------------------------------------------------------------------------------------
316,238 310,109 2,693 2,772
Securities not due at a single maturity 127,303 177,134 2,694 2,694
- -------------------------------------------------------------------------------------
Total $443,541 $487,243 $ 5,387 $ 5,466
=====================================================================================
</TABLE>
Actual maturities may differ from those scheduled due to prepayments by the
issuers.
Gross gains realized on sales of available-for-sale securities, totaled $1.8,
$13.6 and $5.9 million during 1999, 1998 and 1997, respectively. Gross losses
realized on sales of available-for-sale securities totaled $3.1 million, $9,000
and $1.7 million, respectively.
At December 31, 1999 and 1998, Federal Home Loan Bank stock with a book value of
$7.2 million and $6.8 million, respectively, was pledged as collateral to secure
Federal Home Loan Bank advances.
In addition, securities having an aggregate carrying value of $149.2 and $57.9
million at December 31, 1999 and 1998, respectively, were pledged as collateral
to secure public deposits and for other purposes required or permitted by law.
The 1999 amount included $110.7 million pledged to the Federal Reserve Discount
Window as part of the company's Year 2000 Readiness Plan.
4. LOANS
Total loans, net of unearned discount of $3.6 and $8.3 million at December 31,
1999 and 1998, respectively, were as follows (in thousands):
Year ended December 31 1999 1998
- ------------------------------------------------------
Commercial real estate:
First mortgage $ 537,603 $ 533,253
Construction 378,909 228,311
Student 443,074 431,304
Residential first mortgage 92,683 137,683
Commercial 117,021 108,759
Home equity 135,603 85,408
Medical finance 21,201 24,821
Consumer 1,263 2,048
- ------------------------------------------------------
Total $1,727,357 $1,551,587
======================================================
Changes in the allowance for loan losses were as follows (in thousands):
Year ended December 31 1999 1998 1997
- -----------------------------------------------------------------
Balance at January 1 $ 35,773 $ 30,660 $ 32,668
Provision for loan losses -- 10,000 16,000
Charge-offs (5,908) (6,852) (19,095)
Recoveries 2,225 1,965 1,087
- -----------------------------------------------------------------
Balance at December 31 $ 32,090 $ 35,773 $ 30,660
=================================================================
At December 31, 1999 and 1998, loans that were considered to be impaired totaled
$991,000 and $1.4 million, respectively. Management does not individually
evaluate certain smaller-balance loans for impairment. These loans are evaluated
on an aggregate basis using a formula-based approach in accordance with Corus'
policy. The majority of the loans deemed impaired were evaluated using the fair
value of the collateral as the measurement method. At December 31, 1999 and
1998, the related allowance allocated to impaired loans was $50,000 and
$135,000, respectively. The contractual interest due on impaired loans for the
years ended December 31, 1999 and 1998, was $86,000 and $84,000, respectively.
Interest income of $21,000 and $34,000 was recognized on impaired loans for the
years ended December 31, 1999 and 1998.
Corus Bankshares | page 25
<PAGE> 10
At December 31, 1999 and 1998, nonaccrual loans totaled $2.5 and $5.3 million,
respectively. The interest income foregone on these loans during 1999 and 1998
was $195,000 and $405,000, respectively.
All of Corus' performing residential first mortgage loans are pledged as
collateral for its Federal Home Loan Bank advances.
Changes in the balance of loans to directors and principal officers of Corus and
its subsidiaries, were as follows (in thousands):
- -----------------------------------------------------
Balance at December 31, 1998 $ 18,335
New loans 15,688
Repayments (21,950)
- -----------------------------------------------------
Balance at December 31, 1999 $ 12,073
=====================================================
These loans were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other customers. In the opinion of management, these loans do not involve more
than the normal risk of collection or possess other favorable features.
5. PREMISES AND EQUIPMENT, NET
Premises and equipment were as follows (in thousands):
December 31 1999 1998
- -------------------------------------------------------
Land $ 8,332 $ 7,735
Buildings and improvements 29,406 29,198
Furniture and equipment 14,672 14,277
- -------------------------------------------------------
52,410 51,210
Less accumulated depreciation 18,530 17,105
- -------------------------------------------------------
Total premises and equipment, net $33,880 $34,105
=======================================================
Two banking locations occupy offices under long-term operating lease
agreements. Rent expense under these lease agreements totaled $337,000, $324,000
and $322,000 for the years ended December 31, 1999, 1998, and 1997,
respectively.
Minimum fixed lease obligations, excluding taxes, insurance and other expenses
payable directly by Corus, for leases in effect at December 31, 1999 were as
follows (in thousands):
Year Ending December 31
- -------------------------------------------------
2000 $ 331
2001 337
2002 344
2003 350
2004 74
2005 and thereafter 394
- -------------------------------------------------
Minimum payments $ 1,830
=================================================
6. TIME DEPOSITS
Interest-bearing deposits included certificates of deposit in amounts of
$100,000 or more totaling $384.6 and $510.4 million at December 31, 1999 and
1998, respectively. Interest expense on these deposits was $28.0 and $25.4
million in 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposit were
as follows (in thousands):
Year Ending December 31
- -----------------------------------------------------
2000 $ 397,441
2001 109,993
2002 53,767
2003 45,259
2004 and thereafter 23,378
- -----------------------------------------------------
Total $ 629,838
=====================================================
page 26 | Corus Bankshares
<PAGE> 11
7. FEDERAL HOME LOAN BANK ADVANCES
During 1996, Corus borrowed $40.0 million of Federal Home Loan Bank advances.
The interest rate on the advances is the 3 month LIBOR and they reprice
quarterly. The advances will mature in April 2001.
Corus maintains as qualifying collateral its Federal Home Loan Bank stock and
all performing residential first mortgages.
8. INCOME TAXES
The components of income tax expense were as follows (in thousands):
Year Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------
Current:
Federal income tax $ 20,378 $ 21,281 $ 20,746
State income tax 427 512 47
- ----------------------------------------------------------------------
Total current expense 20,805 21,793 20,793
Deferred federal expense (benefit) 452 (424) 343
- ----------------------------------------------------------------------
Income tax provision $ 21,257 $ 21,369 $ 21,136
======================================================================
A reconciliation of the statutory federal income tax rate to the effective rate
is as follows:
Year Ended December 31 1999 1998 1997
- -------------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Goodwill amortization 0.9 0.9 1.7
Dividends received deduction (1.8) (1.5) (1.1)
Tax-exempt income (0.5) (0.6) (0.9)
Other, net 0.7 0.7 0.2
- -------------------------------------------------------------------
Effective rate 34.3% 34.5% 34.9%
===================================================================
Deferred taxes were recorded based upon differences between the financial
statement and tax bases of assets and liabilities. The following deferred taxes
were recorded (in thousands):
December 31 1999 1998
- -----------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 10,042 $ 11,528
Student loan lawsuit contingency 2,931 --
Deferred compensation 1,116 332
Other deferred tax assets 249 985
- -----------------------------------------------------------
Gross deferred tax assets 14,338 12,845
- -----------------------------------------------------------
Deferred tax liabilities:
Unrealized securities gains (15,295) (23,995)
Purchase accounting adjustments (1,573) (1,739)
Deferred loan fees and discounts (2,248) (355)
Pension (374) (164)
Other deferred tax liabilities (487) (479)
- -----------------------------------------------------------
Gross deferred tax liabilities (19,977) (26,732)
- -----------------------------------------------------------
Net deferred tax liability $ (5,639) $(13,887)
===========================================================
9. EMPLOYEE BENEFIT PLANS
The following reflects the disclosure requirements set forth by Statement of
Accounting Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits."
Corus maintains a noncontributory defined benefit
pension plan (Retirement Income Plan and Trust) and a defined contribution plan
(Employees' Savings Plan and Trust). Expense (income) for each of the plans were
as follows (in thousands):
Year Ended December 31 1999 1998 1997
- -------------------------------------------------------------
Retirement Income Plan and Trust $(617) $(463) $ (97)
Employees' Savings Plan and Trust 156 166 94
- -------------------------------------------------------------
Total $(461) $(297) $ (3)
=============================================================
PENSION PLAN Substantially all employees are eligible to participate in a
noncontributory defined benefit plan after meeting age and service requirements.
Pension benefits are based on length of service and compensation. Funding for
the plan is based on actuarial cost methods. No contributions were made during
the three years ended December 31, 1999.
Corus Bankshares | page 27
<PAGE> 12
Pension plan assets are primarily invested in common stocks.
Net periodic benefit income was comprised of the following (in thousands):
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------
Service cost $ 617 $ 556 $ 423
Interest cost 983 920 874
Actual return on plan assets (4,503) (3,296) (5,255)
Amortization of transition asset (202) (202) (202)
Net amortization and deferral 2,488 1,559 4,063
- -----------------------------------------------------------------------
Net periodic benefit income $ (617) $ (463) $ (97)
=======================================================================
A reconciliation of the plan's benefit obligations, fair value of plan assets,
funded status and amounts recognized in Corus' statement of financial position
follows (in thousands):
CHANGE IN BENEFIT OBLIGATIONS
1999 1998
- -----------------------------------------------------------------
Benefit obligation at January 1 $ 14,445 $ 13,521
Service cost 617 556
Interest cost 983 920
Actuarial gain 236 170
Benefit paid (749) (722)
- -----------------------------------------------------------------
Benefit obligation at December 31 $ 15,532 $ 14,445
=================================================================
CHANGE IN FAIR VALUE OF PLAN ASSETS
1999 1998
- -----------------------------------------------------------------
Fair value of plan assets at January 1 $ 22,403 $ 19,829
Actual return on plan assets 4,503 3,296
Benefits paid (749) (722)
- -----------------------------------------------------------------
Fair value of plan assets at December 31 $ 26,157 $ 22,403
=================================================================
FUNDED STATUS
1999 1998
- -------------------------------------------------------------
Funded status at December 31 $ 10,625 $ 7,958
Unrecognized transition asset (404) (606)
Unrecognized actuarial gain (8,360) (6,108)
- -------------------------------------------------------------
Prepaid benefit cost at December 31 $ 1,861 $ 1,244
=============================================================
The following weighted-average assumptions were used in accounting for the
pension plan:
December 31 1999 1998
- ---------------------------------------------------------
Discount rate 7.00% 7.00%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 5.00%
=========================================================
SAVINGS PLAN Most employees are eligible to become participants of Corus'
Employees' Savings Plan and Trust. Corus' matching contributions to this plan
are discretionary. For the year ended December 31, 1999 and 1998, Corus matched
20% of participants' contributions, up to a maximum of $1,500. For the year
ended December 31, 1997, Corus matched 20% of participants' contributions, up to
$750.
page 28 | Corus Bankshares
<PAGE> 13
10. FINANCIAL INSTRUMENTS
In the normal course of business, Corus invests in various financial assets,
incurs various financial liabilities and enters into agreements involving
off-balance-sheet financial instruments. The fair value estimates of financial
instruments presented below are not necessarily indicative of the amounts Corus
might receive or pay in actual market transactions. Potential taxes and other
transaction costs have also not been considered in estimating fair value. As
some of Corus' assets and liabilities are not considered financial instruments,
the disclosures below do not reflect the fair value of Corus as a whole.
FINANCIAL ASSETS Corus had the following financial assets (in thousands):
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
December 31 Value Value Value Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 118,016 $ 118,016 $ 74,050 $ 74,050
Interest-bearing deposits with banks -- -- 13,000 13,009
Securities 492,630 492,709 904,278 904,470
Loans 1,695,267 1,701,843 1,515,814 1,529,121
Accrued interest receivable 21,832 21,832 20,963 20,963
=========================================================================================
</TABLE>
Cash and cash equivalents and accrued interest receivable are short-term in
nature and, as such, their fair value approximates carrying value.
Fair values of interest-bearing deposits with banks, federal funds sold with
original maturities greater than 90 days and securities are based on quoted
market prices, when available. Non-quoted instruments are valued based on
discounted cash flows using current interest rates for similar securities.
Loans are valued based on type of loan. The fair value of variable-rate loans
that reprice frequently is assumed to approximate carrying value. The fair value
of fixed-rate loans is based on the discounted amount of scheduled cash flows or
the estimated fair value of the underlying collateral. The discount rate used is
equal to the current rate of the appropriate index plus the average spread on
the existing portfolio.
FINANCIAL LIABILITIES Corus had the following financial liabilities (in
thousands):
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
December 31 Value Value Value Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits without a stated maturity $1,334,582 $1,334,582 $1,392,269 $1,392,269
Certificates of deposit 629,838 624,566 762,407 766,836
Short-term borrowings 6,866 6,866 24,933 24,933
Federal Home Loan Bank advances 40,000 40,000 40,000 40,000
Accrued interest payable 7,794 7,794 10,739 10,739
========================================================================================
</TABLE>
The fair value of deposits without a stated maturity is assumed to approximate
carrying value. The fair value of certificates of deposit is based on discounted
contractual cash flows. Discount rates are selected using the rates that were
offered at year-end.
Short-term borrowings and accrued interest payable are short-term in nature and
as such, their carrying value approximates fair value. The fair value of Federal
Home Loan Bank advances is assumed to approximate carrying value as these
reprice quarterly.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS Corus is a party to off-balance-sheet
financial instruments used in the normal course of business to meet the
financing needs of its customers and manage its interest rate risk. These
financial instruments involve, in varying degrees, elements of credit, interest
rate, and liquidity risk.
Corus Bankshares | page 29
<PAGE> 14
The following lending-related financial instruments had contract amounts that
represented credit exposure (in thousands):
December 31 1999 1998
- ----------------------------------------------------------------
STANDBY LETTERS OF CREDIT
- ----------------------------------------------------
Commercial real estate:
First mortgage $ 707 $ --
Construction -- 2,048
Commercial 2,935 5,996
Home equity -- --
Consumer -- --
- ----------------------------------------------------------------
Total standby letters of credit $ 3,642 $ 8,044
- ----------------------------------------------------------------
COMMITMENT LETTERS OUTSTANDING
- ----------------------------------------------------
Commercial real estate:
First mortgage $ -- $ 7,005
Construction 90,850 121,867
Commercial -- 1,605
Home equity -- --
Consumer -- --
- ----------------------------------------------------------------
Total commitment letters $ 90,850 $130,477
- ----------------------------------------------------------------
UNUSED COMMITMENTS UNDER LINES OF CREDIT
- ----------------------------------------------------
Commercial real estate:
First mortgage $ 6,432 $ 8,679
Construction 353,194 234,152
Commercial 24,430 21,008
Home equity 21,427 26,352
Consumer 800 807
- ----------------------------------------------------------------
Total unused lines of credit $406,283 $290,998
- ----------------------------------------------------------------
TOTAL COMMITMENTS
- ----------------------------------------------------
Commercial real estate:
First mortgage $ 7,139 $ 15,684
Construction 444,044 358,067
Commercial 27,365 28,609
Home equity 21,427 26,352
Consumer 800 807
- ----------------------------------------------------------------
Total commitments outstanding $500,775 $429,519
================================================================
The following financial instruments were used by Corus to hedge its interest
rate risk (in thousands):
<TABLE>
<CAPTION>
Notional Fair Carrying
December 31, 1999 Amount Value Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements:
Amortizing pay fixed rate, receive floating rate $141,463 $ 1,251 $ (13)
Non-amortizing pay fixed rate, receive floating rate 5,305 (263) (12)
Non-amortizing pay floating rate, receive fixed rate 10,000 (34) (1)
Basis swap agreements:
Non-amortizing pay floating rate, receive floating rate 350,000 363 (60)
Purchased interest rate floors:
Non-amortizing floors 500,000 -- 227
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Notional Fair Carrying
December 31, 1998 Amount Value Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swap agreements:
Amortizing pay fixed rate, receive floating rate $265,011 $(10,348) $ 270
Non-amortizing pay fixed rate, receive floating rate 11,480 (912) 42
Non-amortizing pay floating rate, receive fixed rate 20,000 253 (14)
Basis swap agreements:
Non-amortizing pay floating rate, receive floating rate 100,000 (804) --
==============================================================================================
</TABLE>
The fair values of interest rate and basis swaps are based on either quoted
market or dealer prices. The carrying value for interest rate and basis swaps
represents the net accrued interest receivable or payable. At December 31, 1999,
the fair value of all interest rate swaps included in the table above represent
the gross amounts of unrealized gains or losses.
Corus enters into interest rate swap agreements to hedge its exposure to
interest rate risk on specific fixed-rate loans, securities, and deposits. The
terms of the swaps match the terms of the hedged loans, securities, and
deposits. At December 31, 1999, interest rate swaps with notional amounts of
$26.5, $99.7 and $30.5 million had maturity dates within one year, from one to
five years and greater than five years, respectively.
page 30 | Corus Bankshares
<PAGE> 15
Corus enters into basis swaps which entails the payment of 3 month LIBOR and
the receipt of 3 month Treasury plus a spread. At December 31, 1999, the basis
swaps with notional amount of $350 million had a maturity date from one to five
years.
As of December 31, 1999, there were no financial instrument hedges outstanding
associated with the common stock portfolio. However, at December 31, 1998, the
following financial instruments were used to hedge the risk associated with the
common stock portfolio (in thousands):
Contractual Fair Carrying
December 31, 1998 Amount Value Value
- ------------------------------------------------------------------
Over the counter options:
Purchased put options $12,500 $ 126 $ 126
Written put options 12,500 (20) (20)
Written call options 25,000 (2,475) (2,475)
==================================================================
The fair values of the option contracts are based on dealer prices. The carrying
value represents the fair value at December 31, 1998. Corus entered into the
transactions to hedge its market risk with respect to the common stock
portfolio.
Corus is subject to credit risk as a purchaser of an option contract and is
subject to market risk to the extent of the purchase price of the option. Corus
is subject to market risk on its written option contracts, but not credit risk
since the counterparty already performed by paying an up-front cash premium.
11. LEGAL AND REGULATORY PROCEEDINGS
Corus is involved in various legal and regulatory proceedings, many involving
matters that arose in the ordinary course of business. The consequences of these
proceedings are not presently determinable but, in the opinion of management,
these proceedings will not have a material effect on the results of operations,
financial position, liquidity or capital resources, except possibly for the
matter discussed below.
Over the past several months Corus has been actively negotiating a settlement of
the civil lawsuit filed by the Department of Justice, on April 8, 1999,
("Lawsuit") against Corus Bankshares, Inc. and Corus Bank, N.A. The Lawsuit
alleges, among other things, violations of the federal False Claims Act and
liability under other common law theories. The negotiations with the Department
of Justice and the Department of Education have led to a substantial agreement
with the Chicago office of the Department of Justice and the Department of
Education on the basic principles of a settlement. The Department of Justice's
Washington, D.C. headquarters has raised objections to certain details of the
proposed settlement and Corus is presently attempting to negotiate mutually
acceptable resolutions to these objections.
In general terms, the proposed settlement: 1) calls for Corus to pay restitution
of $8.4 million, 2) provides Corus the right to submit and receive guarantee
payments on the majority of the $15.7 million in student loans it voluntarily
withheld from submission for claim payment and that had been charged off in
prior years, and 3) provides that the United States will not civilly or
criminally prosecute, Corus or any of its officers, directors or employees,
except for an Assistant Vice-President in Corus' student loan department who has
pled guilty to a one-count criminal misdemeanor.
While Corus' agreement with the Department of Justice and Department of
Education has not yet been finalized, Corus believes that a settlement of the
Lawsuit on terms generally similar to those described above is probable. Corus
therefore recorded, in the fourth quarter of 1999, a loss contingency of $8.4
million related to the probable settlement of the Lawsuit.
In regard to Corus' rights under the proposed settlement to submit previously
charged off loans for claim payment, the proposed settlement would set forth
various criteria for determining whether a loan is eligible for guarantee
payments. Corus estimates that it would be able to submit and receive guarantee
payments on between $9 million and $13 million of the $15.7 million of loans
previously charged off. Due to various requirements of the student loan program,
it is anticipated that recoveries would not be realized until two to three
quarters after the proposed settlement has been finalized.
Corus Bankshares | page 31
<PAGE> 16
IT MUST BE STRONGLY CAUTIONED THAT, WHILE CORUS BELIEVES A SETTLEMENT OF THE
LAWSUIT ON TERMS GENERALLY SIMILAR TO THOSE DESCRIBED ABOVE IS PROBABLE, A
WRITTEN SETTLEMENT HAS NOT YET BEEN EXECUTED BY ALL PARTIES AND, AS SUCH, THERE
IS A POSSIBILITY THAT A SETTLEMENT MAY NOT BE REACHED. DUE TO THE ONGOING
NEGOTIATIONS, CHANGES IN THE TERMS OF THE SETTLEMENT AGREEMENT MAY OCCUR IN THE
FINAL SETTLEMENT AGREEMENT - IF AN AGREEMENT IS IN FACT REACHED. TO THE EXTENT A
SETTLEMENT OF THE LAWSUIT CANNOT BE ACHIEVED, THE MATTER WOULD HAVE TO BE
RESOLVED THROUGH LITIGATION AND THE COMPANY, ITS EMPLOYEES, OR EX-EMPLOYEES
COULD ALSO BE SUED CRIMINALLY.
By way of background, 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 ("DOE") commenced an investigation into
Corus' student loan servicing practices. In the course of this investigation,
DOE found another problem, in addition to the telephone call problem discovered
by Corus. The government found: (1) that certain of Corus' supporting records
were not retained, and (2) that certain Corus supporting records, which were
retained, do not exactly match the insurance claims submitted.
As cited above, the Department of Justice filed the 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
due to Corus' submission of fraudulent insurance claims as a result of the
deficiencies noted above. The Department of Justice thinks that there were
approximately 2,200 claims with some sort of deficiency. Corus is contesting the
Lawsuit and has substantial defenses.
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, $15.7
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
$15.7 million in student loans it voluntarily withheld from submission for claim
payment and has filed a counterclaim to that effect.
12. SHAREHOLDERS' EQUITY
PREFERENCE SHARES Corus has 1.0 million authorized shares of $50-stated-value
preference stock and 3.0 million of authorized shares of $1-stated-value
preferred stock available to be issued for acquisition and capital maintenance
programs. At December 31, 1999 and 1998, no preference stock was issued.
DIVIDEND RESTRICTIONS The payment of dividends to Corus by its subsidiary bank
is subject to federal regulatory limitations. National banks are generally
allowed to pay dividends to the extent of net income for the current and prior
two years less dividends paid without regulatory approval. The payment of
dividends by any bank may also be affected by other factors, such as the
maintenance of adequate capital. Corus' subsidiary bank was considered
well-capitalized as of December 31, 1999. At December 31, 1999, the total amount
of the subsidiary bank's retained earnings available for dividends without prior
regulatory approval and maintaining well-capitalized status was $16.0 million.
STOCK OPTION PLAN Options to purchase Corus' common stock have been granted to
employees under the 1999 Stock Option Plan at prices equal to the fair market
value of the underlying stock on the dates the options were granted. The options
vest 20% per year over a five year period and expire in 10 years. At December
31, 1999, there were 744,750 shares available for grant.
page 32 | Corus Bankshares
<PAGE> 17
Changes in stock options were as follows:
STOCK OPTIONS Number of Shares in Thousands
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Number Weighted Avg. Number Weighted Avg. Number Weighted Avg.
of Shares Exercise Price of Shares Exercise Price of Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 432 $19.98 398 $18.16 359 $16.53
Granted 255 30.59 45 37.88 44 31.96
Exercised (250) 15.15 -- -- -- --
Canceled (20) 22.90 (11) 27.74 (5) 21.88
- --------------------------------------------------------------------------------------------------------------
Ending balance 417 $29.23 432 $19.98 398 $18.16
- --------------------------------------------------------------------------------------------------------------
Exercisable at December 31 96 $19.04 313 $15.86 289 $15.09
==============================================================================================================
</TABLE>
At December 31, 1999, the range of exercise prices for outstanding options and
weighted-average term remaining was $10.50 to $37.88 and 8.2 years,
respectively. If Corus expensed the fair value of options granted in 1999, 1998
and 1997, the pro forma net income and earnings per share would have been as
follows (in thousands, except per share data):
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------
Reported net income $ 40,726 $40,628 $39,371
After-tax fair value of options granted 341 139 97
- --------------------------------------------------------------------------
Pro forma net income $ 40,385 $40,489 $39,274
- --------------------------------------------------------------------------
Pro forma diluted earnings
per share
Basic $ 2.80 $ 2.78 $ 2.66
Diluted 2.79 2.74 2.62
==========================================================================
The fair value of options granted was computed using the Black-Scholes model
using the following assumptions: a risk-free rate between 6.05% and 6.36% in
1999, 4.9% in 1998, and between 5.8% and 6.6% in 1997; expected life of 10 years
in 1999, 1998 and 1997; expected volatility between 21.9% and 22.6% in 1999,
22.5% in 1998, and 21.0% in 1997; and, expected dividend yields between 1.9% and
2.3% in 1999 and 1.5% in 1998 and 1997. For the pro forma disclosure, the
estimated fair value of the options is amortized to expense over the options'
five year vesting period.
Corus Bankshares | page 33
<PAGE> 18
REGULATORY CAPITAL Corus and its subsidiary bank are required to maintain
certain capital ratios. Failure to maintain these ratios would severely limit
their ability to pay dividends, support growth and repurchase shares and would
increase the amount of FDIC insurance premiums. At December 31, 1999 and 1998,
Corus and its subsidiary bank were classified as well-capitalized. There have
been no events since December 31, 1999, that management believes would have
changed that classification. The minimum ratios to be well-capitalized and
Corus' and its subsidiary bank's regulatory capital and ratios were as follows:
REGULATORY CAPITAL AND RATIOS Dollars in Thousands, Except Ratio Data
<TABLE>
<CAPTION>
Leverage Tier I Capital Total Risk-Based Capital
------------------- ------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Minimum ratios for well-capitalized 5.0% 6.0% 10.0%
December 31,1999:
Corus Bankshares $290,346 11.9% $290,346 15.3% $336,532 17.8%
Subsidiary bank 166,074 7.4% 166,074 9.7% 187,663 10.9%
December 31,1998:
Corus Bankshares $262,999 10.3% $262,999 15.0% $316,337 18.1%
Subsidiary bank 142,115 6.0% 142,115 9.1% 161,987 10.4%
===============================================================================================================
</TABLE>
OTHER COMPREHENSIVE INCOME Changes in other comprehensive income were as
follows (in thousands):
Year Ended December 31 1999 1998 1997
- ---------------------------------------------------------------------
Net Income $ 40,726 $ 40,628 $ 39,371
Other comprehensive
income, net of tax
Unrealized (losses)/gains
on securities: (24,396) 112,529 49,635
Less: reclassification
adjustment for gains
included in net income (458) (13,629) (4,238)
- ---------------------------------------------------------------------
Net unrealized (losses)/gains
on securities (24,854) (1,100) 45,397
Income tax (benefit)/expense
related to items of other
comprehensive income (8,699) (385) 15,889
- ---------------------------------------------------------------------
Change in other comprehensive
income, net of tax (16,155) (715) 29,508
- ---------------------------------------------------------------------
Comprehensive income $ 24,571 $ 39,913 $ 68,879
=====================================================================
page 34 | Corus Bankshares
<PAGE> 19
13. NET INCOME PER SHARE
Net income per share was calculated as follows (in thousands,
except per share data):
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------
Denominator for basic
earnings per share -
average common shares
outstanding 14,434 14,562 14,788
Dilutive common stock options 30 211 178
- --------------------------------------------------------------
Denominator for diluted
earnings per share 14,464 14,773 14,966
- --------------------------------------------------------------
Numerator: Net income
attributable to common
shares $40,726 $40,628 $39,371
- --------------------------------------------------------------
Net income per share:
Basic $ 2.82 $ 2.79 $ 2.66
Diluted 2.82 2.75 2.63
==============================================================
14. 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
the 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. As of January 1, 2000, BOC merged with Corus Bank, and
will no longer be an operating segment 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
eliminations include other income and expense for transactions between BOC and
Corus Bank.
Corus Bankshares | page 35
<PAGE> 20
The following is a summary of significant segment information as required by
SFAS No. 131 (in thousands):
<TABLE>
<CAPTION>
Inter-Segment
Year Ended December 31, 1999 Corus Corus Bank BOC Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues(1) $ 42,311 $ 121,513 $ 8,357 $ (47,102) $ 125,079
Net income 40,726 37,835 925 (38,760) 40,726
AVERAGE BALANCE SHEET DATA
Total assets 355,895 2,354,692 2,001 (170,955) 2,541,633
Shareholders equity 326,776 164,044 1,780 (165,824) 326,776
FINANCIAL HIGHLIGHTS
Return on equity (ROE) 23.1% 12.5%
Return on assets (ROA) 1.6% 1.6%
Efficiency ratio(2) 42.6% 41.0%
==========================================================================================================
Inter-Segment
Year Ended December 31, 1998 Corus Corus Bank BOC Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total revenues(1) $ 43,828 $ 115,050 $ 6,838 $ (41,829) $ 123,887
Net income 40,628 34,706 300 (35,006) 40,628
AVERAGE BALANCE SHEET DATA
Total assets 325,566 2,260,814 1,500 (158,526) 2,429,354
Shareholders equity 295,854 153,100 1,309 (154,409) 295,854
FINANCIAL HIGHLIGHTS
Return on equity (ROE) 22.7% 13.7%
Return on assets (ROA) 1.5% 1.7%
Efficiency ratio 42.5% 41.5%
===========================================================================================================
Inter-Segment
Year Ended December 31, 1997 Corus Corus Bank BOC Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Total revenues(1) $ 42,479 $ 119,553 $ 5,689 $ (40,022) $ 127,699
Net income 39,371 34,032 291 (34,323) 39,371
AVERAGE BALANCE SHEET DATA
Total assets 279,672 2,122,975 1,300 (166,528) 2,237,419
Shareholders equity 258,120 150,631 863 (146,002) 263,612
FINANCIAL HIGHLIGHTS
Return on equity (ROE) 22.6% 14.9%
Return on assets (ROA) 1.6% 1.8%
Efficiency ratio 39.3% 38.9%
===========================================================================================================
</TABLE>
(1) Total revenues for Corus include dividends received from Corus Bank totaling
$16.0, $33.0 and $37.0 million in 1999, 1998 and 1997, respectively and
equity in undistributed/(distributed) net income of subsidiaries totaling
$22.7, $2.0 and $(2.7) million in 1999, 1998 and 1997, respectively.
(2) Excludes impact of $8.4 million loss contingency accrual for possible
settlement of the student loan lawsuit.
page 36 | Corus Bankshares
<PAGE> 21
15. PARENT COMPANY FINANCIAL STATEMENTS
Corus condensed parent company financial statements were as follows (in
thousands, except per share data):
CONDENSED BALANCE SHEETS
December 31 1999 1998
- ------------------------------------------------------------------------
Assets:
Cash $ 9,271 $ 9,249
Available-for-sale securities, at fair value 169,927 185,698
Investment in subsidiaries 173,524 153,718
Other assets 2,344 (9)
- ------------------------------------------------------------------------
Total Assets $ 355,066 $ 348,656
========================================================================
Liabilities and shareholders' equity:
Liabilities $ 27,241 $ 30,526
Shareholders' equity 327,825 318,130
- ------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 355,066 $ 348,656
========================================================================
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiary $ 16,000 $ 33,000 $ 37,000
Other income 3,551 8,959 8,483
- --------------------------------------------------------------------------------------------
Total Income 19,551 41,959 45,483
- --------------------------------------------------------------------------------------------
Expenses:
Interest expense 1 137 327
Other expenses 2,197 1,521 1,381
- --------------------------------------------------------------------------------------------
Total Expenses 2,198 1,658 1,708
- --------------------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 17,353 40,301 43,775
Income tax (benefit)/expense (613) 1,679 1,727
- --------------------------------------------------------------------------------------------
Income before equity in undistributed (distributed)
net income of subsidiaries 17,966 38,622 42,048
Equity in undistributed (distributed)
net income of bank subsidiary 21,835 1,706 (2,968)
Equity in undistributed net income of non-bank subsidiary 925 300 291
- --------------------------------------------------------------------------------------------
Net Income $ 40,726 $ 40,628 $ 39,371
============================================================================================
Net Income per Share:
Basic $ 2.82 $ 2.79 $ 2.66
Diluted 2.82 2.75 2.63
============================================================================================
</TABLE>
Corus Bankshares | page 37
<PAGE> 22
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS Dollars in Thousands
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 40,726 $ 40,628 $ 39,371
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 33 43 51
Net securities and other financial instrument losses (486) (11,764) (4,220)
(Increase)/decrease in other assets (1,692) 2,324 (1,688)
Increase in other liabilities 3,523 345 1,372
Equity in (undistributed) distributed net income of subsidiaries (22,760) (2,006) 2,677
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 19,344 29,570 37,563
- -----------------------------------------------------------------------------------------------------------------------
Investing activities:
Proceeds from sales of available-for-sale securities 6,240 31,516 42,023
Purchases of available-for-sale securities (8,127) (47,349) (58,300)
Purchases of premises and equipment, net (16) (7) (27)
Purchases of minority interest and additional consideration for bank subsidiaries (711) (2,345) (1,690)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,614) (18,185) (17,994)
- -----------------------------------------------------------------------------------------------------------------------
Financing activities:
Issuance of common shares under stock option plan 5,050 -- --
Retirement of common shares (13,520) (5,340) (5,007)
Cash dividends paid on common stock (8,238) (8,023) (7,691)
- -----------------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (16,708) (13,363) (12,698)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 22 (1,978) 6,871
Cash and Cash Equivalents at January 1 9,249 11,227 4,356
- -----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at December 31 $ 9,271 $ 9,249 $ 11,227
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
page 38 | Corus Bankshares
<PAGE> 23
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly financial information for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Dollars in Thousands, Except per Share Data 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
December 31 Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 49,841 $ 49,797 $ 49,047 $ 47,895 $ 47,909 $ 49,126 $ 45,756 $ 44,734
Interest expense 22,408 22,797 22,916 22,328 22,858 24,758 21,191 20,498
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 27,433 27,000 26,131 25,567 25,051 24,368 24,565 24,236
Provision for loan losses (3,000) 1,000 1,000 1,000 1,000 3,000 3,000 3,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 30,433 26,000 25,131 24,567 24,051 21,368 21,565 21,236
Noninterest income 5,229 3,524 4,925 5,269 5,762 7,145 6,536 6,223
Noninterest expense 22,393 13,083 13,625 13,995 13,762 12,998 12,716 12,413
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 13,269 16,441 16,431 15,841 16,051 15,515 15,385 15,046
Income tax expense 4,729 5,521 5,543 5,463 5,712 5,290 5,223 5,144
- ------------------------------------------------------------------------------------------------------------------------------------
Net income available to
common shareholders $ 8,540 $ 10,920 $ 10,888 $ 10,378 $ 10,339 $ 10,225 $ 10,162 $ 9,902
====================================================================================================================================
Earnings per share:
Basic $ 0.59 $ 0.76 $ 0.75 $ 0.71 $ 0.71 $ 0.70 $ 0.70 $ 0.68
Diluted 0.59 0.76 0.74 0.71 0.70 0.69 0.69 0.67
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK MARKET INFORMATION AND DIVIDEND HIGHLIGHTS (UNAUDITED)
1999 1998
- ---------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
December 31 Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock price range
High $ 30.38 $ 32.00 $ 32.88 $ 35.88 $ 39.50 $ 40.63 $ 45.00 $ 46.88
Low 23.00 25.50 30.13 31.50 30.50 28.63 39.63 37.50
Close 24.00 25.63 31.81 32.13 32.25 34.00 40.25 43.88
Cash dividends declared 0.145 0.145 0.145 0.140 0.140 0.140 0.140 0.135
=========================================================================================================
</TABLE>
Corus' common stock is a NASDAQ National Market Issue trading under the ticker
symbol CORS.
Corus Bankshares | page 39
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Corus Bankshares, Inc.:
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of Corus
Bankshares, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Corus
Bankshares, Inc. and subsidiaries at December 31, 1999 and 1998, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois
January 19, 2000
page 40 | Corus Bankshares
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
Earnings Summary
- --------------------------------------------------------------------------------
Net income in 1999 totaled $40.7 million, compared with $40.6 and $39.4 million
in 1998 and 1997, respectively. Return on average common equity was 12.5% for
1999, 13.7% for 1998 and 14.9% for 1997. The return on average assets was 1.6%
in 1999, compared with 1.7% and 1.8% in 1998 and 1997, respectively.
NET INTEREST INCOME
The major source of earnings for Corus Bankshares, Inc. ("Corus") is net
interest income. Net interest income provided 84.9%, 79.3% and 79.0% of net
revenues during 1999, 1998 and 1997, respectively. The related net interest
margin represents the net interest income as a percentage of average earning
assets during the period. The table on page 56 sets forth certain information
relating to Corus' consolidated average balance sheets and income and reflects
the average yield on assets and cost of liabilities for the last three years.
The yields and costs are adjusted for the accretion or amortization of deferred
fees. Interest income on nonaccrual loans is reflected in the year that it is
collected. Such amounts are not material to net interest income or net change in
net interest income in any year. Nonaccrual loans are included in the average
balances and do not have a material effect on the average yield.
A source of interest income for Corus is the accretion of acquisition discount
related to several pools of student loans. The amount of acquisition discount
recognized in interest income for the years ended December 31, 1999, 1998 and
1997, totaled $6.5, $3.9 and $4.5 million, respectively.
The following table represents the impact this had on net interest margin:
Year ended December 31 1999 1998 1997
- ---------------------------------------------------------
Net interest margin 4.47% 4.33% 4.85%
Impact of student loan
discount accretion (0.27) (0.16) (0.21)
- ---------------------------------------------------------
Net interest margin
without student loan
discount accretion 4.20% 4.17% 4.64%
=========================================================
While the market rates rose throughout 1999, average rates were still below
1998's level. In spite of these lower average rates, Corus was able to maintain
adjusted net interest margins at levels slightly exceeding 1998. This was
accomplished through changes in the loan portfolio, as assets were shifted to
higher yielding construction loans. In addition, Corus purchased, early in the
year, an $85 million portfolio of high-loan-to-value second mortgage loans on
residential properties. These loans provided superior returns and contributed to
the margin growth.
The decline in net interest margin in 1998 resulted from taking on substantial
brokered retail certificates of deposit in the middle of the year. These funds
were partially used to offset maturing brokered retail deposits, however the
majority of these deposits represented additional net funding and were
temporarily invested, in large part, in Corus' taxable investment portfolio
other than common stocks. As the spread between the rate on the brokered retail
deposits and the investment portfolio was relatively narrow, Corus' overall
margin was negatively impacted. Taking on these additional deposits positioned
Corus for the loan growth experienced in 1999.
Corus Bankshares | page 41
<PAGE> 26
The following table represents a reconciliation of fully tax-equivalent net
interest income from 1998 to 1999 and 1997 to 1998 (in thousands):
Year ended December 31 1999 1998
- ------------------------------------------------------------------
Fully tax-equivalent net interest
income for prior year $ 100,176 $ 103,133
Change in common stock
dividend income 1,186 1,303
Change due to student loan
discount accretion 2,612 (625)
Change due to average earning assets
fluctuations other than common stocks 3,935 6,461
Change due to interest rate
fluctuations other than student loan
discount accretion and common stock
dividend income 327 (10,096)
- ------------------------------------------------------------------
Fully tax-equivalent net interest income $ 108,236 $ 100,176
==================================================================
Since the repricing and maturity characteristics of interest-earning assets and
interest-bearing liabilities differ, changes in interest rates may result in a
change in net interest income. Corus actively monitors and manages its overall
interest rate exposure utilizing off-balance-sheet financial instruments as a
tool for managing this exposure. Refer to Notes 1 and 10 to the consolidated
financial statements for further information.
EARNING ASSET COMPOSITION
At December 31, 1999, earning assets as a percentage of total assets was 94.9%,
compared with 95.4% and 94.8% at December 31, 1998 and 1997, respectively.
Corus' level of net interest margin is dependent upon its composition of
earning assets. Generally, loans have higher yields than other investments.
COMPOSITION OF EARNING ASSETS
December 31 1999 1998 1997
- -------------------------------------------------------------------
Loans:
Commercial real estate:
First mortgage 23.7% 21.6% 26.0%
Construction 16.7 9.2 7.3
Student 19.6 17.5 19.3
Residential first mortgage 4.1 5.6 9.8
Commercial 5.2 4.4 2.6
Home equity 6.0 3.4 6.2
Medical finance 0.9 1.0 1.0
Consumer 0.1 0.1 0.2
- -------------------------------------------------------------------
Total loans 76.3 62.8 72.4
Securities other than common stocks 14.2 29.1 17.9
Common stocks 7.5 7.5 7.4
Interest-bearing deposits with banks -- 0.5 1.3
Federal funds sold 2.0 0.1 1.0
- -------------------------------------------------------------------
Total earning assets 100.0% 100.0% 100.0%
===================================================================
page 42 | Corus Bankshares
<PAGE> 27
NONINTEREST INCOME Dollars in Thousands
<TABLE>
<CAPTION>
1999/1998 1998/1997
Year ended December 31 1999 1998 1997 Change Change
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $ 10,051 $ 8,836 $ 8,616 13.8% 2.6%
Gain on dispositions of loans 5,731 8,036 11,115 (28.7) (27.7)
Trust and investment management services 2,243 1,626 588 37.9 176.5
Trading account losses, net (242) (208) (221) (16.7) 5.9
Securities and other financial instruments (losses)/gains, net (1,293) 5,127 5,102 NM 0.5
Other 2,458 2,249 1,713 9.3 31.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income $ 18,948 $ 25,666 $ 26,913 (26.2)% (4.6)%
Noninterest income, excluding gain on dispositions of loans,
trading, securities and other financial instruments (losses)/gains, net $ 14,752 $ 12,711 $ 10,917 16.1% 16.4%
==================================================================================================================================
</TABLE>
NONINTEREST INCOME In 1999, noninterest income, excluding gain on dispositions
of loans, trading and security gains and losses, increased $2.0 million or
16.1%. The increase was driven by service charges on deposit accounts and trust
and investment management services. The service charge income, which is derived
primarily from services provided to the currency exchanges, increased as a full
year of income was earned on the currency exchange business purchased from
LaSalle National Bank in the fourth quarter of 1998. Trust and investment
management services increased principally due to the acquisition of the assets
of an investment management business on March 31, 1998.
In 1998, noninterest income, excluding gain on dispositions of loans, trading
and security gains and losses, increased $1.8 million or 16.4%. The increase
resulted from additional investment management services income of $1.0 million,
an increase of 176%. In addition, other income increased $536,000 primarily due
to greater OREO gains in 1998.
Gains on the disposition of loans are the result of payments from guarantee
agencies for student loan borrowers that defaulted and represent the discount on
loans that were acquired at a substantial discount. Income from these activities
is split between interest income and noninterest income.
Corus may acquire securities with the objective of enhancing earnings by taking
advantage of interest rate spread opportunities and inefficiencies and
aberrations that may occur in the capital markets. These securities are
classified as trading account securities with realized and unrealized gains and
losses recorded in noninterest income. Trading activities resulted in a net loss
of $242,000, $208,000 and $221,000 in 1999, 1998 and 1997, respectively.
The 1999 securities and other financial instrument losses are primarily due to
losses from Corus' common stock portfolio. In 1999, the gross losses relating to
Corus' common stock portfolio were $1.3 million from sales of stock and $1.8
million from options used for hedging the common stock portfolio. Partially
offsetting 1999 losses were gains of $1.8 million from other sales of stock in
the common stock portfolio.
In 1998 and 1997, gross gains relating to Corus' common stock portfolio were
$13.0, and $4.2 million, respectively. Corus also had gains of $655,000 in 1998
from the sale of securities other than common stocks. Offsetting 1998 gains were
losses of $8.2 million related to options used for hedging the common stock
portfolio and $328,000 of losses related to the termination of interest rate
swaps on loans that were prepaid. The interest rate swap losses were offset by
gains of an approximately equal amount received in the form of prepayment
charges. In 1997, there was a gain of $565,000 related to the termination of an
option collar agreement.
Corus Bankshares | page 43
<PAGE> 28
NONINTEREST EXPENSE Dollars in Thousands
<TABLE>
<CAPTION>
1999/1998 1998/1997
Year ended December 31 1999 1998 1997 Change Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 31,208 $ 29,314 $ 27,833 6.5% 5.3%
Student loan lawsuit contingency 8,375 -- -- NM NM
Net occupancy expense 4,081 4,073 4,123 0.2 (1.2)
Data processing 2,729 2,306 1,977 18.3 16.6
Depreciation-furniture and equipment 2,511 2,679 2,502 (6.3) 7.1
Goodwill amortization 1,928 1,707 3,018 13.0 (43.4)
Other 12,264 11,810 12,224 3.8 (3.4)
- -----------------------------------------------------------------------------------------------------------------------
Total noninterest expense $ 63,096 $ 51,889 $ 51,677 21.6% 0.4%
Noninterest expense, excluding student loan
lawsuit contingency and goodwill amortization $ 52,793 $ 50,182 $ 48,659 5.2% 3.1%
Efficiency ratio(1) 41.0% 41.5% 38.9%
Net overhead(2) $ 32,309 $ 29,435 $ 26,627
Average total assets 2,541,633 2,429,354 2,237,419
Net overhead ratio(3) 1.3% 1.2% 1.2%
=======================================================================================================================
</TABLE>
(1) Excludes impact of $8.4 million student loan lawsuit contingency
(2) Net overhead represents "Noninterest expense, excluding student loan lawsuit
contingency and goodwill amortization" less "Noninterest income, excluding
trading, securities and other financial instrument gains/(losses), net".
(3) Net overhead ratio is net overhead as a percentage of average total assets.
NM -- Not Meaningful
NONINTEREST EXPENSE In 1999, noninterest expense, excluding the student loan
lawsuit contingency and goodwill amortization increased $2.6 million, or 5.2%.
This increase was attributable to increases in salaries and employee benefits,
data processing, and other expenses.
In 1998, noninterest expense, excluding goodwill amortization increased $1.5
million or 3.1%. The increase was attributable to increases in salaries and
employee benefits, data processing, and furniture and equipment depreciation.
These increases were partially offset by declines in net occupancy and other
expenses.
SALARIES AND EMPLOYEE BENEFITS In 1999, salaries and employee benefits increased
$1.9 million, or 6.5%. The change was primarily due to an increase in the
performance-based compensation of commercial loan officers and increased
staffing related to network operations. In addition, there was an increase in
medical insurance claims.
In 1998, salaries and employee benefits increased $1.5 million, or 5.3%. Total
compensation, excluding employee benefits, increased $1.2 million, of which
$423,000 was attributable to Corus' acquisition of an investment management
business on March 31, 1998. Excluding investment management business related
compensation, Corus' salary expense increased $795,000 or 3.2% in 1998.
Management continues to effectively control compensation expense by paying a
limited number of talented people a premium over market salaries rather than
staffing at higher peer group levels. This policy results in higher employee
productivity and an increased willingness to accept more responsibility in
carrying out Corus' goals and objectives.
page 44 | Corus Bankshares
<PAGE> 29
STUDENT LOAN LAWSUIT CONTINGENCY In 1999, Corus accrued $8.4 million related to
a lawsuit filed by the Department of Justice with respect to certain student
loan servicing irregularities. While a written settlement has not yet been
executed by all parties, a proposed settlement has been reached which calls for
Corus to pay restitution in the amount of $8.4 million. As such, the accrual was
recorded in December 1999. Refer to Note 11 to the consolidated financial
statements for additional disclosure.
NET OCCUPANCY EXPENSE In 1999, net occupancy expense was essentially unchanged
compared to 1998. However, in 1998, net occupancy expense decreased $50,000, or
1.2%. The decline was primarily due to a decrease of $213,000 in building
repairs and maintenance. Offsetting this decline was an increase of $190,000 in
depreciation and other expenses related to the remodeling of Corus'
headquarters.
DATA PROCESSING In 1999, data processing expense increased $423,000, or 18.3%,
to $2.7 million. This increase was primarily due to expenses related to Corus'
new Internet Banking and Household Relationship Profitability systems. In
addition, there were incremental data processing expenses incurred related to
the purchase of the high-loan-to-value second mortgages in January 1999.
In 1998, data processing expense increased $329,000, or 16.6%, to $2.3 million.
This increase was primarily due to conversion expenses as Corus changed its data
processor for the deposit, loan and accounting systems.
FURNITURE AND EQUIPMENT DEPRECIATION In 1999, furniture and equipment
depreciation expense decreased $168,000, or 6.3%, to $2.5 million. This decrease
was due to assets becoming fully depreciated during the year.
In 1998, furniture and equipment depreciation expense increased $177,000, or
7.1%, to $2.7 million. The increase was primarily attributable to higher
depreciation expense related to new workstations for the newly remodeled
headquarters. The remainder of the increase was attributable to higher
depreciation expense related to other 1998 acquisitions.
Depreciation on furniture and equipment is computed using accelerated methods.
GOODWILL AMORTIZATION In 1999, goodwill amortization increased $221,000, or 13%,
to $1.9 million. The results included $576,000 of goodwill related to additional
consideration paid to former minority shareholders as a result of a class action
lawsuit. This payment was completely amortized in 1999. Goodwill, excluding the
$576,000, decreased $355,000, or 20.7% as previously capitalized amounts became
fully amortized during the year.
In 1998, goodwill amortization decreased $1.3 million, or 43%, to $1.7 million.
The 1997 results included $1.5 million of goodwill related to a previous bank
acquisition, which was completely amortized by December 1997. Offsetting this
decline was an increase of $148,000 in goodwill amortization related to the
March 1998 acquisition of an investment management business.
OTHER EXPENSES In 1999, other expenses increased $454,000, or 3.8% to 12.3
million. The increase was primarily driven by period costs associated with the
remodeling of Corus' headquarters. These increases were partially offset by a
reduction in expenses associated with other real estate owned properties.
In 1998, other expenses declined $414,000, or 3.4%, to $11.8 million. This
decline was primarily due to lower advertising expenditures as Corus continues
to evaluate the efficiencies of certain advertising mediums. In addition there
were onetime expenses included in the 1997 results, which included write-down
and other costs totaling $161,000 related to the remodeling of Corus'
headquarters. The 1998 declines were partially offset by an increase in expenses
associated with other real estate owned properties.
Corus Bankshares | page 45
<PAGE> 30
NET OVERHEAD AND EFFICIENCY RATIOS Corus has successfully maintained a net
overhead ratio of 1.3% or below for each of the last three years. This compares
favorably to Corus' bank holding company peer group, based on asset size, which
has averaged a net overhead ratio of 2.1%. The difference in the net overhead
ratio between Corus and the peer group underscores the importance of
management's emphasis on cost management.
The banking industry also uses a standard known as the "efficiency ratio" to
measure a bank's operational efficiency. The ratio is derived by dividing gross
operating expenses, less goodwill amortization, by fully taxable equivalent net
interest and other income less securities activities. In 1999, the student loan
lawsuit contingency amount of $8.4 million was excluded as well due to its
highly unusual nature. Corus' efficiency ratio was 41.0%, 41.5%, and 38.9% in
1999, 1998 and 1997, respectively. By comparison, the peer group average was 59%
or higher each of the last three years.
COST MANAGEMENT Cost management is a fundamental element of Corus' culture.
Management constantly reviews operating expenses to ensure that they are
minimized while maintaining a high level of quality customer service. Corus
remains committed to identifying additional reductions in net overhead costs
while maintaining superior customer service and stringent internal controls.
INCOME TAXES Income tax expense was $21.3 million in 1999, compared with $21.4
and $21.1 million in 1998 and 1997, respectively. The effective tax rate for
1999 was 34.3%, compared with 34.5% and 34.9% in 1998 and 1997, respectively.
The decline in the 1999 rate was primarily attributable to an increase in the
partially tax sheltered dividends from Corus' common stock portfolio.
Corus' net deferred tax liability was $5.6 million at December 31, 1999,
compared with a net deferred tax liability of $13.9 million at December 31,
1998. The net deferred tax liability for 1999 and 1998 was primarily due to the
unrealized gains from Corus' common stock portfolio.
Management believes that the gross deferred tax asset of $14.3 million at
December 31, 1999 could be realized through the carryback of taxable income
against prior years. Therefore, no valuation allowance was necessary.
INFLATION The impact of inflation on a financial institution differs
significantly from that of an industrial company, as virtually all assets and
liabilities of a financial institution are monetary in nature. Monetary items,
such as cash, loans and deposits, are those assets and liabilities which are or
will be converted into a fixed number of dollars regardless of changes in
prices. Management believes the impact of inflation on financial results depends
upon Corus' ability to react to changes in interest rates. Interest rates do not
necessarily move in the same direction, or at the same magnitude, as the prices
of other goods and services. Management seeks to manage the relationship between
interest-sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
page 46 | Corus Bankshares
<PAGE> 31
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
ASSETS
Total assets and earning assets were $2.4 and $2.3 billion, respectively, at
December 31, 1999, compared with $2.6 and $2.5 billion, respectively, at
December 31, 1998. The percentage of earning assets to total assets was 94.9%
and 95.4% at December 31, 1999 and 1998, respectively. Refer to page 42 for the
composition of the earning asset portfolio.
LOANS
In 1999, total loans increased $176 million, or 11.3%, to $1.7 billion.
LOAN PORTFOLIO Dollars in Thousands
December 31 1999 1998
- --------------------------------------------------------------
Commercial real estate:
First mortgage $ 537,603 $ 533,253
Construction 378,909 228,311
- --------------------------------------------------------------
Total commercial real estate 916,512 761,564
Student 443,074 431,304
Residential first mortgage loans 92,683 137,683
Commercial 117,021 108,759
Home equity 135,603 85,408
Medical finance 21,201 24,821
Consumer 1,263 2,048
- --------------------------------------------------------------
Total loans $1,727,357 $1,551,587
==============================================================
In 1999, commercial real estate loans increased $155 million or 20.4% to $917
million.
COMMERCIAL REAL ESTATE PORTFOLIO BY COLLATERAL SECURING THE LOAN
December 31 Dollars in Thousands 1999 1998
- --------------------------------------------------------------
Rental apartments $159,789 $160,324
Hotel 212,872 141,851
Nursing homes 145,048 137,870
Warehouse/Light industrial 61,740 74,284
Retail 66,822 69,930
Condo/Loft conversion and
other residential for sale 86,954 66,436
Office 89,065 56,461
Other 94,222 54,408
- --------------------------------------------------------------
Total $916,512 $761,564
==============================================================
At December 31, 1999, approximately 61% of Corus' commercial real estate
portfolio was secured by property located in the five county Chicago
metropolitan area. The concentrations in the five largest states were as
follows:
State 1999 1998
- -------------------------------------
Illinois 61.0% 66.6%
California 6.6 3.1
Texas 5.3 6.0
Arizona 5.1 5.7
Indiana 4.4 5.6
======================================
Corus Bankshares | page 47
<PAGE> 32
"Large" loans are defined as any loan with a total balance, which includes
unfunded commitments, in excess of $ 10 million. The following tables detail the
amount of "Large" loans in Corus' commercial real estate portfolio (in
thousands):
<TABLE>
<CAPTION>
December 31, 1999
Total "Large" Real Estate Loans
-----------------------------------------------------------
Total Commercial As a % of Total Commercial
Real Estate Loans Amount Real Estate Loans Average Balance
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Balance $ 916,512 $ 428,535 47% $ 10,988
Unfunded Commitments 451,183 307,752 68% 7,891
- ------------------------------------------------------ -------------
Total $1,367,695 $ 736,287 54% $ 18,879
======================================================================================================
Total "Large" Construction Loans
-------------------------------------
Total "Large" As a % of Total Large"
Real Estate Loans Amount Real Estate Loans
- ------------------------------------------------------------------------------------------------------
Current Balance $ 428,535 $ 213,801 50%
Unfunded Commitments 307,752 300,546 98%
- ---------------------------------------------------------------------
Total $ 736,287 $ 514,347 70%
======================================================================================================
December 31, 1998
Total "Large" Real Estate Loans
-------------------------------------------------------------
Total Commercial As a % of Total Commercial
Real Estate Loans Amount Real Estate Loans Average Balance
- ------------------------------------------------------------------------------------------------------
Current Balance $ 761,564 $ 251,765 33% $ 10,946
Unfunded Commitments 373,752 151,217 40% 6,575
- ------------------------------------------------------------------------------------------------------
Total $1,135,316 $ 402,982 35% $ 17,521
======================================================================================================
Total "Large" Construction Loans
-------------------------------------
Total "Large" As a % of Total Large"
Real Estate Loans Amount Real Estate Loans
- ------------------------------------------------------------------------------------------------------
Current Balance $ 251,765 $ 109,287 43%
Unfunded Commitments 151,217 148,551 98%
- ---------------------------------------------------------------------
Total $ 402,982 $ 257,838 64%
======================================================================================================
</TABLE>
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 charge-offs on Corus'
commercial real estate loans have totaled just $263,000 for the last 11 full
years (1989 through 1999) and with net recoveries for 1999 of $63,000. This
performance translates into an average annual loss rate of only 4/100ths of one
percent (0.04%). While our commercial real estate portfolio continues to show
minimal delinquencies and virtually no losses, we recognize this sort of
performance cannot persist forever.
page 48 | Corns Bankshares
<PAGE> 33
In 1999, the student loan portfolio increased $11.8 million, or 2.7%. This
growth was due to $71.8 million of loan originations and $800,000 of purchases.
Although Corus' student loan originations continue to increase, the growth rate
has declined due to two factors. First, the competition for student loan
originations has increased substantially over the past several years, including
competition from the Federal Direct Student Loan Program, which accounts for
approximately one-third of all student loan originations. Second, in late 1998,
Corus eliminated its "Cash Back to Borrowers" borrower benefits program in
response to a 30 basis point reduction in the lender's yield that was
legislated earlier that year. The majority of other major student loan lenders
chose to continue their borrower benefits programs.
In previous years, nonperforming student loans were purchased at a substantial
discount to face value. Corus attempts to convert the loans to performing status
and reinstate their government guarantees. The excess of performing loans
converted over the cost of the portfolio is accreted into income over the
estimated lives of the loans using the level-yield method. At December 31, 1999,
the total discount to be accreted into income in future years totaled $1.1
million.
In 1999, residential first mortgage loans decreased $45.0 million, or 32.7%
while home equity loans increased $50.2 million, or 58.8%. In past years, the
level of both types of loans declined as management strengthened the
underwriting guidelines and substantially ceased all new loan originations.
In the first quarter of 1999, Corus significantly increased the level of home
equity loans through the purchase of an $85 million portfolio of second mortgage
high-loan-to-value home loans ("HLTV"). This portfolio was purchased at a
favorable price and consists of loans made to borrowers with strong credit
profiles at attractive interest rates. To date, this portfolio has performed
better than expected in terms of lower delinquencies and charge-off rates. As a
result of the success with this portfolio, Corus began originating its own HLTV
loan in the fourth quarter of 1999. While origination volume to date has been
disappointing, Corus is hopeful that the groundwork laid during 1999 will lead
to more meaningful loan originations in the year 2000.
During 1999, commercial loans increased $8.3 million, or 7.6%. This increase was
due primarily to currency exchange loans, which increased $11.1 million, or
14.8%, to $86.3 million at December 31, 1999. Of this increase, $6.4 million is
related to overnight funding requirements of the currency exchanges.
SECURITIES OTHER THAN COMMON STOCKS Corus' current asset/liability management
philosophy is that all security purchases are classified as available-for-sale
or trading. This is due to management's belief that virtually all securities
should be available to be sold in conjunction with prudent asset/liability
management strategies or other reasons.
Corus' objectives in managing the securities portfolio are driven by the
dynamics of the balance sheet and the interest rate environment. At December 31,
1999, securities other than common stocks decreased $395.9 million, or 55% as
funds were successfully shifted out of investments and into loans.
At December 31, 1999, 36.9% of the carrying value of the available-for-sale
portfolio with stated maturities was scheduled to mature within one year and
62.7% within five years.
COMMON STOCKS At December 31, 1999, Corus held investments in equity securities
of 41 financial industry companies valued at $169.9 million. This represents a
decrease of $15.8 million from the prior year. The decrease was representative
of the overall decline in the market value of financial industry investments
during 1999. Changes in the market value of the stocks are included in other
comprehensive income in shareholders' equity on an after-tax basis, but are not
included in net income until the stocks are sold.
In addition, Corus has in the past utilized options to hedge the market risk
associated with the common stock portfolio. Corus had no such options
outstanding at December 31, 1999. Refer to the Risk Management section and Notes
1, 3 and 10 to the consolidated financial statements for further information.
Corus Bankshares | page 49
<PAGE> 34
LIABILITIES
DEPOSITS In 1999, total deposits decreased $190.3 million, or 8.8%, to $1.96
billion. The decrease was driven primarily by a planned decrease in higher cost
brokered certificates of deposit totaling $131 million. At December 31, 1999 and
1998, retail certificates of deposit from brokers totaled $272.3 and $402.8
million, respectively. All other retail certificates of deposits totaled $357.5
and $359.6 million at December 31, 1999 and 1998, respectively. In addition,
money market deposits decreased $26.8 million due to normal business
fluctuations. Finally, savings and demand deposits declined $10.2 million and
$14.5 million, respectively, during 1999.
COMPOSITION OF DEPOSITS
December 31 1999 1998 1997
- --------------------------------------------------------
Demand 10% 10% 10%
Savings 8 8 10
NOW 5 5 5
Money Market 45 42 48
Certificates of Deposit 32 35 27
- --------------------------------------------------------
Total 100% 100% 100%
========================================================
FEDERAL HOME LOAN BANK ADVANCES In 1996, Corus borrowed $40.0 million of Federal
Home Loan Bank advances. The advances have a term of 5 years with an interest
rate equal to 3-month LIBOR, and reprice quarterly. Management will utilize, as
necessary, outside funding sources to support loan growth.
SHAREHOLDERS' EQUITY
At December 31, 1999, Corus' common shareholders' equity increased $9.7 million,
or 3.0%, to $327.8 million, compared with $318.1 million at December 31, 1998.
At December 31, 1999 and 1998, the unrealized holding gain net of income taxes
on available-for-sale securities was $28.4 and $44.6 million, respectively.
During 1999 and 1998, Corus repurchased and retired 431,852 and 130,300 shares
at an average price of $31.31 and $40.98 per share, respectively. The
repurchases were made under a 750,000 common share repurchase program approved
by the Board of Directors in February, 1997 which has now been completed. The
Board of Directors authorized additional share repurchases of up to 1,000,000
common shares in November, 1999.
Various measures of capital were as follows:
Dollars in Thousands 1999 1998
- ---------------------------------------------------------------------
December 31 Amount Ratio Amount Ratio
- ---------------------------------------------------------------------
Common equity(1) $327,825 13.7% $318,130 12.3%
Tangible common equity(2) 318,813 13.4 307,766 11.9
Tier 1 risk-based capital(3) 290,346 15.3 262,999 15.0
Total risk-based capital(4) 336,532 17.8 316,337 18.1
Leverage(5) 290,346 11.9 262,999 10.3
=====================================================================
(1) Common equity is computed in accordance with generally accepted accounting
principles, which includes unrealized gains/(losses) on securities
available-for-sale. The ratio is common equity to total year-end assets.
(2) Common equity less goodwill; computed as a ratio to total year-end assets
less goodwill.
(3) Shareholders' equity less goodwill, disallowed portion of deferred income
taxes and unrealized gains on securities available-for-sale; computed as a
ratio to risk-adjusted assets.
(4) Tier 1 capital plus qualifying loan loss allowance and SFAS #115 gain;
computed as a ratio to risk-adjusted assets.
(5) Tier 1 capital; computed as a ratio to average fourth-quarter assets less
goodwill.
Corus' risk-based capital ratios far exceed the minimum required leverage, tier
1 and the total risk-based capital ratios in order to be considered
well-capitalized of 5.0%, 6.0% and 10.0%, respectively. Management is not aware
of any uncertainties that could have a material adverse effect on Corus' results
of operations, financial position, liquidity or capital resources, except for
possibly the lawsuit by the U.S. Department of Justice that is discussed in Note
11 to the consolidated financial statements.
page 50 | Corus Bankshares
<PAGE> 35
CREDIT RISK AND ASSET QUALITY
NONPERFORMING ASSETS Nonperforming loans are nonaccrual loans, restructured
loans and 90 days or more past due loans still accruing interest.
NONPERFORMING ASSETS Dollars in Thousands
December 31 1999 1998
- -----------------------------------------------------------------
Nonperforming loans:
Residential first mortgage $ 6,790 $ 11,769
Commercial real estate 1,852 2,436
Commercial 2,443 9
Home equity 766 1,415
Student 222 476
Medical finance 421 1,102
Consumer 54 127
- -----------------------------------------------------------------
Total nonperforming loans 12,548 17,334
Other real estate owned 2,071 4,971
- -----------------------------------------------------------------
Total nonperforming assets $ 14,619 $ 22,305
- -----------------------------------------------------------------
Nonaccrual loans included in
nonperforming loans above $ 2,529 $ 5,307
Nonperforming loans/Total loans 0.73% 1.12%
Nonperforming assets/Total assets 0.61% 0.86%
Allowance for loan losses/
Nonperforming loans 255.74% 206.37%
=================================================================
In 1999, nonperforming assets declined $7.7 million. This decline was due to
lower nonperforming residential first mortgage, home equity and commercial real
estate loans. The decline in residential first mortgage loans was due to the
transfer of loans to other real estate owned via foreclosure proceedings and
loan payoffs. The collateral securing the residential first mortgage loans is
primarily owner-occupied, residential property. The decline in home equity loans
was primarily due to charge-offs during 1999 and loan payoffs. The decline in
commercial real estate loans was primarily due to loan payoffs. These declines
were partially offset by a $2.4 million increase in commercial nonperforming
loans, which was driven almost entirely by one customer. Loans to this customer
are well collateralized with minimal risk of loss.
At December 31, 1999, other real estate owned was comprised of two commercial
real estate properties with a carrying value of $132,000 and thirteen
single-family, residential properties with a carrying value of $1.9 million.
During 1999, two commercial real estate properties with a carrying value of
$106,406 were sold for a net gain of $171,000 and sixty-five single-family,
residential properties with a carrying value of $7.6 million were sold for a net
gain of $565,000. These gains were partially offset by writedowns of $189,000 on
properties not sold during 1999.
Excluded from the preceding table are student loans that Corus has no reason to
believe have lost their guarantees. The book value of guaranteed student loans
more than 90 days past due and not included in the table was $21.9 and $17.5
million at December 31, 1999 and 1998, respectively.
ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is based on management's
analysis of individual loans, prior and current loss experience, overall growth
in the portfolio, delinquency levels, current economic conditions, and other
factors.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES Dollars in Thousands
December 31 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1 $ 35,773 $ 30,660 $ 32,668 $ 25,640 $ 20,157
Provision for loan losses -- 10,000 16,000 16,000 5,779
Charge-offs (5,908) (6,852) (19,095) (11,341) (819)
Recoveries 2,225 1,965 1,087 2,369 523
- -----------------------------------------------------------------------------------------------------------------------------
Net (charge-offs) recoveries (3,683) (4,887) (18,008) (8,972) (296)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31 $ 32,090 $ 35,773 $ 30,660 $ 32,668 $ 25,640
- -----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses as a percentage of total loans 1.86% 2.31% 1.98% 2.01% 1.64%
=============================================================================================================================
</TABLE>
Corus Bankshares | page 51
<PAGE> 36
In 1999, there was no provision for loan losses. Management believes this was
appropriate given the dramatic decline in nonperforming assets.
In 1999, net charge-offs of home equity and student loans were $2.4 and $1.2
million, respectively. The student loan charge-offs included $950,000 for loans
that Corus has temporarily agreed not to seek guarantee payments under an
interim agreement with the U.S. Department of Education until the resolution of
the Department of Justice's lawsuit. Refer to Note 11 to the consolidated
financial statements for further information.
Home equity loans that were originated at up to 100% of a property's value,
Ultimate Home Equity loans, are charged off when they become delinquent at 120
days past due. These loans represented $1.3 million and $3.5 million of the home
equity net charge-offs in 1999 and 1998, respectively. The second mortgage
high-loan-to-value loans, purchased in 1999, are also charged off when they
become 120 days past due. In 1999, these loans had net charge-offs of $927,000.
At December 31, 1999, Ultimate Home Equity loans and the purchased second
mortgage high-loan-to-value loans totaled $34.7 million and $77.2 million,
respectively.
The allowance as a percentage of nonperforming loans was 255.74% as compared to
206.37% at December 31, 1998. Management believes the level of allowance for
loan losses was adequate at December 31, 1999.
INDEPENDENT LOAN REVIEW Management contracts for an independent loan review of
its commercial and commercial real estate loan portfolio. This review examines
Corus' loan grading and problem loan identification systems. The loan review
function is performed by Arthur Andersen LLP and provides verification that risk
assessments and problem loan identification systems are functioning adequately.
Since 1993, annual reviews have been completed on over 50% of Corus' commercial
and commercial real estate loans. In 1999, there were no significant loan
grading differences or losses recommended by the independent firm.
LIQUIDITY
PARENT COMPANY The parent company had $179.2 million of cash and marketable
equity securities available for possible liquidity needs at December 31, 1999.
Furthermore, the subsidiary bank had $16.0 million available to pay in
dividends to the parent company without prior regulatory approval while
maintaining well-capitalized status.
SUBSIDIARY BANK Corus' liquidity policy is to ensure the availability of
sufficient funds to accommodate the needs of borrowers and depositors at all
times. This objective is achieved primarily through the maintenance of liquid
assets. Liquid assets are defined as cash and marketable securities that can be
sold quickly without a material loss of principal. Liquid assets represent
available funding to meet new credit demands and depositor withdrawals. At
December 31, 1999, cash and marketable securities that were available for
liquidity needs totaled $435.3 million, or 19.7%, of the subsidiary bank's total
assets.
MARKET RISK MANAGEMENT
CORUS' operations are subject to risk resulting from interest rate fluctuations
to the extent that there is a difference between the amount of interest-earning
assets and the amount of interest-bearing liabilities that are
prepaid/withdrawn, mature or reprice in specified periods. The principal
objective of Corus' asset/liability management activities is to provide maximum
levels of net interest income while maintaining acceptable levels of interest
rate and liquidity risk and facilitating funding requirements. Corus utilizes an
interest rate sensitivity model as the primary quantitative tool in measuring
the amount of interest rate risk that is present at the end of each quarter. The
model uses income simulation to quantify the effects of various interest rate
scenarios on the projected net interest income over a five-year period. Factored
into the modeling is the use of derivative financial instruments, including
interest rate swaps, floors and options. The indices of these derivatives
correlate to on-balance sheet instruments and modify net interest sensitivity to
levels deemed to be appropriate based on the current economic outlook.
Page 52 | Corus Bankshares
<PAGE> 37
Interest rate sensitivity as of December 31, 1999 is as follows:
- ----------------------------------------------------------------------------
Rate Shock Amount (2.0)% (1.0)% 0.0% 1.0% 2.0%
- ----------------------------------------------------------------------------
Percent change in net
interest income vs.
constant rates -- (1.4)% -- 2.3% 4.4%
============================================================================
Overall, Corus reduced interest rate sensitivity in 1999. This reduction
resulted primarily from the termination of certain interest rate swap contracts
during the year.
In addition to interest rate risk, Corus is also exposed to price risk with its
common stock portfolio. In the past, this risk had been reduced through the use
of option contracts. Corus had no such options outstanding at December 31, 1999.
The following is a summary of historical price movements of Corus' common stock
portfolio during the past two years. There were no price movements in excess of
twenty five percent in any of the quarters. The amounts for Corus' portfolio
were based on the historical prices for the holdings at December 31, 1999.
- -----------------------------------------------------------------------------
Price Movement in Quarter 1999 1998 1999 1998
- -----------------------------------------------------------------------------
Percent of Quarters Percent of Quarters
for Corus Portfolio in for S&P 500 in
Past Two Years Past Two Years
=============================================================================
At least five percent 56% 50% 56% 75%
At least ten percent 38 33 25 50
At least fifteen percent 19 17 13 25
At least twenty percent 13 8 6 17
=============================================================================
YEAR 2000 DISCLOSURE
CORUS has not experienced any significant Year 2000 related disruptions from
either third party or internally developed systems. Corus believes that the
preparation efforts put forth locally and globally prevented critical failures
in the industry as a whole. Corus continues to closely monitor systems and
vendors throughout the first quarter of 2000 for Year 2000 related occurrences.
Several benefits have been realized due to Year 2000 preparations including
documented and tested business recovery plans, thorough system inventories and a
detailed understanding of system interfaces. Corus does not consider the overall
financial impact of the Year 2000 project, at the latest estimated cost of $1.3
million, to be material.
FORWARD-LOOKING STATEMENTS
This disclosure contains forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by, among other things, the use of
forward-looking terms such as "may," "intends," "expects," "anticipates,"
"estimates," "projects," "target," "forecasts" or "seeks" or the negative of
such terms or other variations on such terms or comparable terminology. By their
nature, these statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Important factors that
might cause Corus' actual results to differ materially include, but are not
limited to, the following:
- - The ultimate resolution of the student loan lawsuit filed by the U.S.
Department of Justice;
- - Federal and state legislative and regulatory developments;
- - Changes in management's estimate of the adequacy of the allowance for loan
losses;
- - Changes in the level and direction of loans and write-offs;
- - Interest rate movements and their impact on customer behavior and Corus' net
interest margin;
- - Changes in the overall mix of Corus' loan and deposit products;
- - The impact of repricing and competitors' pricing initiatives on loan and
deposit products;
- - Corus' ability to adapt successfully to technological changes to meet
customers' needs and developments in the marketplace;
- - Corus' ability to access cost-effective funding;
- - 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; and
- - The ability of Corus to generate additional fee income from its acquisition
of an investment management business.
Corus Bankshares | page 53
<PAGE> 38
SELECTED FINANCIAL DATA: 10 YEAR HISTORY
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
December 31 (Dollars in Thousands, Except per Share Data) 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONDENSED INCOME STATEMENTS:
--------------------------------------------------------------------
Net interest income $ 106,131 $ 98,220 $ 101,271 $ 111,339
Provision for loan losses - 10,000 16,000 16,000
Noninterest income 18,948 25,666 26,913 23,067
Noninterest expense 63,096 51,889 51,677 50,496
---------------------------------------------------------------------------------------------------------------------------
Income before income taxes 61,983 61,997 60,507 67,910
Income tax expense 21,257 21,369 21,136 24,005
---------------------------------------------------------------------------------------------------------------------------
Net income $ 40,726 $ 40,628 $ 39,371 $ 43,905
---------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA: (1)
--------------------------------------------------------------------
Diluted earnings per share $ 2.82 $ 2.75 $ 2.63 $ 2.93
Cash dividends declared on common stock 0.575 0.555 0.530 0.475
Book value at year-end 22.81 21.86 19.86 15.90
Market price at year-end 24.00 32.25 39.56 32.25
---------------------------------------------------------------------------------------------------------------------------
AVERAGES:
--------------------------------------------------------------------
Assets $2,541,633 $ 2,429,354 $2,237,419 $2,174,088
Loans, net of unearned discount 1,640,101 1,525,349 1,570,521 1,601,269
Total earning assets 2,419,667 2,311,562 2,127,140 2,063,608
Total deposits 2,115,575 2,031,198 1,888,966 1,890,688
Shareholders' equity 326,776 295,854 263,612 215,158
---------------------------------------------------------------------------------------------------------------------------
AT YEAR-END:
--------------------------------------------------------------------
Assets $2,388,198 $ 2,589,415 $2,251,927 $2,218,528
Loans, net of unearned discount 1,727,357 1,551,587 1,545,975 1,623,145
Earning assets 2,265,687 2,470,865 2,135,616 2,111,928
Total deposits 1,964,420 2,154,676 1,863,066 1,900,679
Shareholders' equity 327,825 318,130 291,633 235,590
---------------------------------------------------------------------------------------------------------------------------
SIGNIFICANT RATIOS:
--------------------------------------------------------------------
Return on average assets 1.60% 1.70% 1.80% 2.00%
Return on average equity 12.46% 13.70% 14.90% 20.40%
Efficiency ratio 41.01% 41.50% 38.90% 35.90%
Net interest margin 4.47% 4.33% 4.85% 5.47%
Nonperforming loans/Total loans 0.73% 1.12% 1.76% 2.17%
Allowance for loan losses/Nonperforming loans 255.74% 206.37% 112.84% 92.79%
Allowance for loan losses/Total loans 1.86% 2.31% 1.98% 2.01%
Net charge-off ratio 0.21% 0.32% 1.17% 0.55%
---------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS:
--------------------------------------------------------------------
Leverage Ratio 11.88% 10.30% 10.50% 9.70%
Tier 1 capital ratio 15.34% 15.00% 15.10% 13.50%
Total risk-based capital ratio 17.78% 18.10% 16.40% 14.80%
---------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS: (1)
--------------------------------------------------------------------
Weighted average fully diluted shares 14,464 14,773 14,966 14,994
Common shares outstanding at year-end 14,369 14,551 14,681 14,820
===========================================================================================================================
(1) Reflects a 2:1 stock split on 9/25/95.
</TABLE>
page 54 | Corus Bankshares
<PAGE> 39
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31 (Dollars in Thousands, Except per Share Data) 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONDENSED INCOME STATEMENTS:
- -----------------------------------------------------------
Net interest income $ 98,517 $ 68,793 $ 65,752 $ 68,667 $ 50,350 $ 39,836
Provision for loan losses 5,779 - 1,176 4,432 1,226 652
Noninterest income 14,111 13,235 12,539 9,629 9,093 7,142
Noninterest expense 51,650 45,222 38,626 37,911 30,202 21,333
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 55,199 36,806 38,489 35,953 28,015 24,993
Income tax expense 19,429 12,790 13,167 12,675 8,479 6,806
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 35,770 $ 24,016 $ 25,322 $ 23,278 $ 19,536 $ 18,187
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED PER SHARE DATA: (1)
- -----------------------------------------------------------
Diluted earnings per share $ 2.35 $ 1.57 $ 1.66 $ 1.53 $ 1.29 $ 1.20
Cash dividends declared on common stock 0.363 0.295 0.273 0.238 0.170 0.125
Book value at year-end 12.96 10.29 9.46 8.00 6.68 5.58
Market price at year-end 25.50 16.38 18.81 20.25 17.00 12.25
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGES:
- -----------------------------------------------------------
Assets $1,957,979 $1,607,208 $1,381,127 $1,326,883 $1,233,901 $1,341,231
Loans, net of unearned discount 1,315,105 1,016,696 937,608 932,065 862,825 659,309
Total earning assets 1,846,185 1,490,839 1,284,108 1,222,942 1,125,604 1,253,309
Total deposits 1,762,275 1,423,775 1,209,390 1,161,720 1,070,258 902,297
Shareholders' equity 165,425 150,486 128,729 112,121 93,458 76,909
- ------------------------------------------------------------------------------------------------------------------------------------
AT YEAR-END:
- -----------------------------------------------------------
Assets $2,125,092 $1,889,455 $1,441,762 $1,333,318 $1,331,982 $1,179,534
Loans, net of unearned discount 1,558,782 1,100,509 978,831 931,170 955,045 844,239
Earning assets 1,965,923 1,721,658 1,313,298 1,225,439 1,224,499 1,089,833
Total deposits 1,898,540 1,698,498 1,267,781 1,155,527 1,173,465 1,045,707
Shareholders' equity 194,726 156,859 143,388 121,204 101,525 84,565
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNIFICANT RATIOS:
- -----------------------------------------------------------
Return on average assets 1.80% 1.50% 1.80% 1.80% 1.60% 1.80%
Return on average equity 20.40% 15.90% 19.20% 20.90% 21.00% 23.80%
Efficiency ratio 42.90% 51.70% 45.50% 41.90% 45.59% 39.85%
Net interest margin 5.41% 4.72% 5.27% 5.80% 4.77% 4.68%
Nonperforming loans/Total loans 1.21% 0.67% 0.62% 0.88% 1.77% 1.04%
Allowance for loan losses/Nonperforming loans 136.38% 273.57% 323.17% 214.02% 86.88% 124.77%
Allowance for loan losses/Total loans 1.64% 1.83% 2.00% 1.88% 1.54% 1.29%
Net charge-off ratio 0.02% 0.05% 0.01% 0.18% 0.03% 0.02%
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS:
- -----------------------------------------------------------
Leverage Ratio 9.20% 8.60% 9.30% 8.30% 6.50% 5.60%
Tier 1 capital ratio 12.60% 14.72% 16.59% 14.07% 10.06% 9.61%
Total risk-based capital ratio 13.90% 16.00% 17.80% 15.30% 11.70% 11.20%
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS: (1)
- -----------------------------------------------------------
Weighted average fully diluted shares 15,241 15,292 15,277 15,243 15,201 15,156
Common shares outstanding at year-end 15,027 15,242 15,152 15,152 15,152 15,152
====================================================================================================================================
</TABLE>
Corus Bankshares | page 55
<PAGE> 40
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN
<TABLE>
<CAPTION>
Dollars in Thousands 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Aveage Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- --------------------------------------------------------------------
Earning Assets
Interest-bearing deposits with
banks $ 997 $ 81 8.14% $ 24,315 1,461 6.01% $ 8,123 $ 491 6.04%
Federal funds sold 54,698 2,758 5.04% 84,588 4,626 5.47% 99,952 5,514 5.52%
Taxable securities other
than common stocks 533,543 28,186 5.28% 488,093 26,727 5.48% 317,923 17,741 5.58%
Common stocks(1) 185,095 6,114 3.30% 165,659 4,928 2.97% 112,077 3,625 3.23%
Tax-advantaged securities(2) 2,O12 144 7.18% 3,190 240 7.52% 4,591 357 7.78%
Trading account securities 3,220 123 3.83% 20,368 1,052 5.16% 13,953 760 5.45%
Loans, net of unearned
discount(2)(3)(4) 1,640,101 161,278 9.83% 1,525,349 150,447 9.86% 1,570,521 157,306 10.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 2,419,667 198,685 8.21% 2,311,562 189,481 8.20% 2,127,140 185,794 8.73%
Noninterest-earning assets
Cash and due from banks-
noninterest-bearing 74,952 61,780 59,600
Allowance for loan losses (35,878) (34,081) (31,180)
Premises and equipment, net 34,167 32,839 29,607
Other assets, including goodwill 48,725 57,254 52,252
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets 121,966 117,792 110,279
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $2,541,633 $2,429,354 $2,237,419
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------
Deposits-interest-bearing
NOW and money market deposits $ 993,528 $ 42,764 4.30% $1,004,448 44,768 4.46% $1,028,746 47,662 4.63%
Savings deposits 166,747 4,408 2.64% 173,799 4,586 2.64% 187,573 4,913 2.62%
Time deposits(4) 733,968 40,826 5.56% 652,086 37,287 5.72% 480,743 27,139 5.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
deposits 1,894,242 87,998 4.65% 1,830,333 86,641 4.73% 1,697,062 79,714 4.70%
Short-term borrowings 5,380 278 5.16% 5,799 391 6.74% 8,562 630 7.36%
Federal Home Loan Bank advances 40,000 2,173 5.43% 40,000 2,273 5.68% 40,000 2,317 5.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 1,939,622 90,449 4.66% 1,876,132 89,305 4.76% 1,745,624 82,661 4.74%
Noninterest-bearing liabilities
and shareholders' equity
Noninterest~bearing deposits 221,333 200,865 191,904
Other liabilities 53,902 56,503 36,279
Shareholders' equity 326,776 295,854 263,612
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest-bearing
liabilities and shareholders'
equity 602,011 553,222 491,795
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $2,541,633 $2,429,354 $2,237,419
====================================================================================================================================
Interest income/Average earning
assets $2,419,667 $ 198,685 8.21% $2,311,562 189,481 8.20% $2,127,140 $185,794 8.73%
Interest expense/average
interest-bearing liabilities 1,939,622 90,449 4.66% 1,876,132 89,305 4.76% 1,745,624 82,661 4.74%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread $ 108,236 3.55% $100,176 3.44% $103,133 3.99%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.74% 4.33% 4.85%
====================================================================================================================================
</TABLE>
(1) Dividends on the common stock portfolio reflect a tax equivalent adjustment
for the 70% dividend received deduction.
(2) Interest income on loans and tax-advantaged securities reflect a
tax equivalent adjustment based on a marginal 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
floor and swap contracts.
page 56 | Corus Bankshares
<PAGE> 1
Exhibit (23)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Corus Bankshares, Inc.:
As independent public accountants, we hereby consent to the incorporation of our
report dated January 19, 2000 incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statement File No. 333-77481
/s/ Arthur Andersen, LLP
Chicago, Illinois
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 72,316
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 45,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 487,243
<INVESTMENTS-CARRYING> 5,387
<INVESTMENTS-MARKET> 5,466
<LOANS> 1,727,357
<ALLOWANCE> 32,090
<TOTAL-ASSETS> 2,388,198
<DEPOSITS> 1,964,420
<SHORT-TERM> 6,866
<LIABILITIES-OTHER> 49,087
<LONG-TERM> 40,000
0
0
<COMMON> 718
<OTHER-SE> 327,107
<TOTAL-LIABILITIES-AND-EQUITY> 2,388,198
<INTEREST-LOAN> 160,898
<INTEREST-INVEST> 32,843
<INTEREST-OTHER> 2,839
<INTEREST-TOTAL> 196,580
<INTEREST-DEPOSIT> 87,998
<INTEREST-EXPENSE> 90,449
<INTEREST-INCOME-NET> 106,131
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (1,535)
<EXPENSE-OTHER> 63,096
<INCOME-PRETAX> 61,983
<INCOME-PRE-EXTRAORDINARY> 61,983
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,726
<EPS-BASIC> 2.82
<EPS-DILUTED> 2.82
<YIELD-ACTUAL> 4.47
<LOANS-NON> 2,529
<LOANS-PAST> 31,592
<LOANS-TROUBLED> 364
<LOANS-PROBLEM> 7,634
<ALLOWANCE-OPEN> 35,773
<CHARGE-OFFS> 5,908
<RECOVERIES> 2,225
<ALLOWANCE-CLOSE> 32,090
<ALLOWANCE-DOMESTIC> 32,090
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
