-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vzzmb2B9KVdqL4wKETqYibeEOnOxZ8ZORTU3nLLnM7wg9mirxjfSs0cg+3TIIITy D7bdSR/f7fYATyw4JCoyPQ== 0000950137-98-001663.txt : 19980422 0000950137-98-001663.hdr.sgml : 19980422 ACCESSION NUMBER: 0000950137-98-001663 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980421 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORUS BANKSHARES INC CENTRAL INDEX KEY: 0000051939 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 410823592 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06136 FILM NUMBER: 98597610 BUSINESS ADDRESS: STREET 1: 3959 N LINCOLN AVE STREET 2: LINCOLN NATIONAL BANK BLDG CITY: CHICAGO STATE: IL ZIP: 60613 BUSINESS PHONE: 3125497100 MAIL ADDRESS: STREET 1: 3959 N LINCOLN AVE CITY: CHICAGO STATE: IL ZIP: 60613 FORMER COMPANY: FORMER CONFORMED NAME: RIVER FOREST BANCORP INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: INVESTMENT CORP OF AMERICA INC DATE OF NAME CHANGE: 19820422 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________ FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF --- THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF --- THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-6136 CORUS BANKSHARES, INC. (Exact name of registrant as specified in its charter) Minnesota 41-0823592 (State of incorporation of organization) (I.R.S. Employer Identification No.) 3959 N. Lincoln Ave., Chicago, Illinois 60613 (Address of principal executive offices) (Zip Code) (773) 388-3088 (Registrant's telephone number) Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of March 31, 1998, the Registrant had 14,551,142 common shares, $0.05 par value, outstanding. 2 CORUS BANKSHARES, Inc. Index to Quarterly Report on Form 10-Q March 31, 1998
PART I - FINANCIAL INFORMATION. PAGE Item 1. Financial Statements Condensed Consolidated Balance Sheets (unaudited) - March 31, 1998, December 31, 1997 and March 31, 1997. 1 Condensed Consolidated Statements of Income and Comprehensive Income (unaudited) - Three Months Ended March 31, 1998 and 1997. 2 Condensed Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 1998 and 1997. 3 Notes to Condensed Consolidated Financial Statements (unaudited). 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II - OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K. 14
3 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS CORUS BANKSHARES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31 December 31 March 31 (thousands) 1998 1997 1997 ---------- ---------- ---------- Assets Cash and due from banks - noninterest bearing $ 52,810 $ 62,217 $ 55,591 Federal funds sold overnight 11,600 1,500 170,500 Federal funds sold term 20,000 20,000 - Interest-bearing deposits with banks 26,999 26,999 - Securities: Trading, at fair value 153,479 - - Available for sale, at fair value 407,100 531,863 318,159 Held to maturity, at amortized cost 8,455 9,279 10,808 ---------- ---------- ---------- Total Securities 569,034 541,142 328,967 Loans, net of unearned discount 1,573,451 1,545,975 1,615,275 Less: Allowance for loan losses 32,056 30,660 30,329 ---------- ---------- ---------- Net Loans 1,541,395 1,515,315 1,584,946 Premises and equipment, net 32,085 30,950 29,213 Accrued interest receivable and other assets 59,018 44,767 42,472 Goodwill, net of accumulated amortization 11,406 9,037 11,423 ---------- ---------- ---------- Total Assets $2,324,347 $2,251,927 $2,223,112 ========== ========== ========== Liabilities & Shareholders' Equity Deposits: Noninterest-bearing $ 184,987 $ 190,739 $ 179,055 Interest-bearing 1,727,254 1,672,327 1,709,171 ---------- ---------- ---------- Total Deposits 1,912,241 1,863,066 1,888,226 Short-term borrowings 1,803 9,264 4,681 Federal Home Loan Bank advances 40,000 40,000 40,000 Accrued interest payable and other liabilities 71,937 47,964 43,840 ---------- ---------- ---------- Total Liabilities 2,025,981 1,960,294 1,976,747 Shareholders' Equity Common Stock, Surplus & Retained Earnings 248,955 246,357 227,273 Accumulated other comprehensive income 49,411 45,276 19,092 ---------- ---------- ---------- Total Shareholders' Equity 298,366 291,633 246,365 ---------- ---------- ---------- Total Liabilities and Shareholders' Equity $2,324,347 $2,251,927 $2,223,112 ========== ========== ==========
See accompanying notes. 1 4 CORUS BANKSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
Three Months Ended March 31 -------------------- (thousands, except per share data) 1998 1997 --------- --------- Interest and Dividend Income $ 44,734 $ 45,709 Interest Expense 20,498 20,284 --------- --------- Net Interest Income 24,236 25,425 Provision for Loan Losses 3,000 4,000 --------- --------- Net Interest Income after Provision for Loan Losses 21,236 21,425 Noninterest Income: Service charges on deposit accounts 2,072 2,296 Trust services 137 167 Gain on dispositions of student loans 1,776 3,004 Other income 433 304 Trading account losses, net (52) (89) Securities and other financial instruments gains, net 1,857 116 --------- --------- Total noninterest income 6,223 5,798 Noninterest Expense: Salaries and employee benefits 7,161 6,781 Net occupancy 1,004 1,019 Data processing 619 515 Goodwill amortization 389 768 Other expenses 3,240 3,859 --------- --------- Total noninterest expense 12,413 12,942 --------- --------- Income before income taxes 15,046 14,281 Income tax expense 5,144 4,978 --------- --------- Net Income 9,902 9,303 Other comprehensive income, net of income taxes Unrealized securities gains 4,135 3,324 --------- --------- Comprehensive Income $ 14,037 $ 12,627 ========= ========= Net Income per Share: Basic $ 0.68 $ 0.63 Diluted 0.67 0.62 Cash Dividends Declared Per Common Share 0.135 0.125
See accompanying notes. 2 5 CORUS BANKSHARES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 -------------------- (thousands) 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 9,902 $ 9,303 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,000 4,000 Depreciation and amortization 737 702 Accretion of investment and loan discounts (1,875) (3,207) Goodwill amortization 389 768 Gain on dispositions of student loans (1,776) (3,004) Securities and other financial instruments gains, net (1,550) (116) Increase in trading account securities (153,479) - Increase in accrued interest receivable and other assets (11,465) (3,343) Increase in accrued interest payable and other liabilities, net 12,826 7,898 --------- --------- Net cash provided by (used in) operating activities (143,291) 13,001 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities held to maturity 823 454 Proceeds from maturities of available for sale securities 113,246 149,100 Proceeds from sales of available for sale securities 91,119 539 Purchases of available for sale securities (64,026) (81,837) Purchases of loans (73) (272) Net (increase) decrease in loans (28,624) 6,304 Purchases of premises and equipment, net (1,872) (1,265) Purchases of businesses (1,000) - --------- --------- Net cash provided by investing activities 109,593 73,023 CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in deposit accounts 49,175 (12,453) Decrease in short-term borrowings (7,461) (1,636) Retirements of common shares (5,339) - Cash dividends paid on common shares (1,984) (1,852) --------- --------- Net cash provided by (used in) financing activities 34,391 (15,941) --------- --------- Net increase in cash and cash equivalents 693 70,083 Cash and cash equivalents at January 1 63,717 156,008 --------- --------- Cash and cash equivalents at March 31 $ 64,410 $ 226,091 ========= =========
See accompanying notes. 3 6 CORUS BANKSHARES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Condensed Consolidated Financial Statements The Condensed Consolidated Balance Sheets and Statements of Income, Comprehensive Income and Cash Flows are unaudited. The interim financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in CORUS BANKSHARES, Inc.'s consolidated financial statements for the three years ended December 31, 1997 included in CORUS' Annual Report and Form 10-K for the year ended December 31, 1997. The results of operations for the interim period should not be considered indicative of results to be expected for the full year. Certain reclassifications have been made in the 1997 financial statements to conform to current accounting classifications. 2. Student Loan Investigation As disclosed previously, CORUS discovered that certain former employees in the student loan servicing area had falsified some records of telephone calls, from late 1993 to April 1994, to students whose loans were delinquent. The telephone calls are a required action to maintain the enforceability of a student loan's government guarantee. CORUS terminated the employees involved and informed the U.S. Department of Education immediately upon discovery of the problem and the Department commenced an investigation. CORUS believes that the Department's investigation expanded in 1995 to include a review of whether CORUS' student loan division engaged in improper practices from 1988 to April 1994, including whether information contained on guarantee claim forms may have been falsified. If it is ultimately determined that CORUS acted illegally or violated Department policy or regulations, CORUS could (i) lose its government guarantees with respect to certain student loans and (ii) be required to repurchase a substantial amount of delinquent student loans for which CORUS previously received guarantee payments. In addition, CORUS or individual employees could be subject to substantial penalties. Shortly after notifying the Department of the problem, CORUS entered into an interim agreement with the Department pursuant to which it agreed, pending the conclusion of the investigation, not to request payment from any guarantor or the Department on any loans that CORUS is unable to state with certainty were not affected by incorrect servicing history documentation. A total of $13.5 million of loans subject to the interim agreement have been charged off against the allowance for loan losses in prior years. The ultimate collectibility of the loans is uncertain. Management is unable to predict what actions, if any, the Department will take following the completion of its investigation, and therefore cannot estimate the amount or range of any liability that CORUS will ultimately incur. As such, management is unable to quantify either the student loans that may lose their government guarantee or the amount of loans that may be required to repurchase. CORUS does not condone or permit such improper practices and is cooperating fully with the Department's investigation. 4 7 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 OPERATING RESULTS For the three months ended March 31, 1998, net income was $9.9 million, or $0.67 per share on a diluted basis, an increase of 6.4% from net income of $9.3 million, or $0.62 per share on a diluted basis, for the same period in 1997. For the three months ended March 31, 1998, comprehensive income was $14.0 million, an increase of 11.2% from $12.6 million in 1997. Net Interest Income The major source of earnings for CORUS is net interest income. The related net interest margin represents the net interest income as a percentage of average earning assets during the period. The table on the following page sets forth certain information relating to CORUS' consolidated average balance sheets and reflects the average yield on assets and cost of liabilities for the last three years. The yields and costs are adjusted for the accretion and amortization of deferred fees. Interest income on nonaccrual loans is reflected in the period that it is collected. Such amounts are not material to net interest income or the net change in net interest income. Nonaccrual loans are included in the average balances and do not have a material effect on the average yield. The following table represents a reconciliation of fully tax equivalent net interest income:
(thousands) Fully tax equivalent net interest income for the three months ended March 31, 1997 $ 25,656 Change due to average earning assets fluctuations 412 Change due to interest rate fluctuations other than student loan discount accretion (1,242) Change due to student loan discount accretion (396) Change due to rate/volume fluctuations (3) Fully tax equivalent net interest income for the three months ---------- ended March 31, 1998 $ 24,427 ==========
The decline in the net interest margin in 1998 was partially due to lower student loan discount accretion and an increase in the average balance of common stock investments. During the three months ended March 31, 1998, CORUS had $1.1 of interest income from the accretion of acquisition discount related to several groups of purchased, previously nonperforming student loan pools, compared with $1.5 million in the first quarter of 1997. In addition, the net interest margin was adversely affected in the first quarter of 1998 by the $65.3 million increase in the average balance of CORUS' bank stock portfolio. The following table represents the impact these items had on net interest margin for the three-month periods ended March 31, 1998 and 1997:
Three Months Ended March 31 1998 1997 -------- ------- Net interest margin 4.55% 4.86% Impact of student loan discount accretion 0.20 0.28 ----- ----- Net interest margin without student loan discount accretion 4.35 4.58 Impact of bank stock portfolio (0.19) (0.09) ----- ----- Net interest margin without student loan discount accretion and bank stock portfolio 4.54% 4.67% ===== =====
5 8 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Three Months Ended March 31 ---------------------------------------------------------------------- 1998 1997 ---------------------------------- -------------------------------- Average Average (Dollars in thousands) Average Yield/ Average Yield/ Balance Interest Cost Balance Interest Cost ---------------------------------- -------------------------------- Average Assets Earning Assets: Interest-bearing deposits with banks $ 26,999 $ 400 5.93% $ - $ - N/A Federal funds sold 57,305 797 5.56% 110,083 1,463 5.32% Taxable securities other than common stocks 291,975 4,236 5.80% 259,488 3,490 5.38% Common stocks 159,892 794 1.99% 94,619 651 2.75% Tax-advantaged securities (1) 3,839 74 7.71% 5,130 96 7.49% Trading account securities 46,624 613 5.26% 21,641 293 5.42% Loans, net of unearned discount (1) (2) (3) 1,560,628 38,011 9.74% 1,622,379 39,947 9.85% ---------------------------------- -------------------------------- Total earning assets 2,147,262 44,925 8.37% 2,113,340 45,940 8.70% Noninterest-earning assets: Cash and due from banks--noninterest bearing 58,728 66,860 Allowance for loan losses (31,339) (33,566) Premises and equipment, net 31,418 27,843 Other assets, including goodwill 54,981 53,822 ----------- ---------- Total assets $ 2,261,050 $2,228,299 =========== ========== Average Liabilities and Shareholders' Equity Deposits -- interest-bearing: NOW and money market deposits $ 1,000,147 $ 11,542 4.62% $1,038,269 $11,845 4.56% Savings deposits 178,016 1,165 2.62% 194,984 1,257 2.58% Time deposits 507,029 7,128 5.62% 479,770 6,453 5.38% ---------------------------------- -------------------------------- Total interest-bearing deposits 1,685,192 19,835 4.71% 1,713,023 19,555 4.57% Short-term borrowings 4,616 93 8.06% 11,522 173 6.01% Federal Home Loan Bank advances 40,000 570 5.70% 40,000 556 5.56% ---------------------------------- -------------------------------- Total interest-bearing liabilities 1,729,808 20,498 4.74% 1,764,545 20,284 4.60% Noninterest-bearing liabilities and shareholders' equity: Noninterest-bearing deposits 191,656 189,863 Other liabilities 48,602 32,913 Shareholders' equity 290,984 240,978 ----------- ---------- Total liabilities and shareholders' equity $ 2,261,050 $2,228,299 =========== ========== Interest income/average earning assets $ 2,147,262 $ 44,925 8.37% $2,113,340 $45,940 8.70% Interest expense/average interest-bearing liabilities 1,729,808 20,498 4.74% 1,764,545 20,284 4.60% ----------------- ---------------- Net interest spread $ 24,427 3.63% 25,656 4.10% ================= ================ Net interest margin 4.55% 4.86% ==== ====
(1) Interest income on tax-advantaged loans and securities reflects a tax equivalent adjustment based on a 35% income tax rate. (2) Unremitted interest on nonaccrual loans is not included in the amounts. (3) Includes net interest income derived from interest rate swap contracts. 6 9 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Noninterest Income For the first quarter of 1998, noninterest income increased $425,000 to $6.2 million, compared with $5.8 million in 1997. Service charge fee income declined $224,000 to $2.1 million primarily due to lower return and overdraft fee income. Gains on the dispositions of student loans declined $1.2 million to $1.8 million. These gains are the result of payments made by guarantee agencies for student loan borrowers that defaulted. Securities and other financial instruments gains increased $1.7 million to $1.9 million. These gains included a $8.4 million net gain from the sales of certain bank stocks in CORUS' portfolio, which was partially offset by $6.5 million of losses associated with the S&P 500 option contracts entered into by CORUS to hedge the market risk associated with the bank stock portfolio. On March 31, 1998, CORUS purchased the assets of two investment management companies. As a result of the purchases, CORUS' assets under management more than tripled, which will result in a signficant increase in trust services income. The purchases resulted in additional goodwill of $2.8 million being recorded, which will be amortized over 15 years. Noninterest Expense In the first quarter of 1998, noninterest expense declined $529,000 to $12.4 million, compared with $12.9 million in 1997. Salaries and employee benefits expense increased $380,000 to $7.2 million. Other expenses declined $619,000 to $3.2 million primarily due to a reduction in lending-related expenses and decreased advertising costs for the Ultimate Money Market product. The effective tax rate for the first quarter of 1998 was 34.2% versus 34.9% in 1997. The decline in the effective tax rate was primarily due to a reduction in goodwill amortization in the first quarter of 1998. FORWARD-LOOKING STATEMENTS Statements made about CORUS' future economic performance, strategic plans or objectives, revenue or earnings projections, or other financial items and similar statements are not guarantees of future performance, but are forward-looking statements. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those in the statements. Important factors that might cause CORUS' actual results to differ materially include, but are not limited to, the following: - - Federal and state legislative and regulatory developments, including the ultimate resolution of the student loan investigation by the U.S. Department of Education; - - Changes in management's estimate of the adequacy of the allowance for loan losses; - - Changes in the level and direction of loan delinquencies and write-offs; - - Interest rate movements and their impact on customer behavior and CORUS' net interest margin; - - Changes in the overall mix of CORUS' loan and deposit products; - - The impact of repricing and competitors' pricing initiatives on loan and deposit products; - - The impact of the changes in student loan pricing planned to take effect on July 1, 1998; - - CORUS' ability to adapt successfully to technological changes to meet customers' needs and developments in the marketplace; - - The impact of the Year 2000 on CORUS' data processing vendors, customers and other vendors; - - CORUS' ability to access cost-effective funding; and - - Economic conditions. 7 10 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 FINANCIAL CONDITION Earning Assets The following table details the composition of CORUS' earning assets:
March 31, 1998 December 31, 1997 March 31, 1997 (Dollars in thousands) Amount Percent Amount Percent Amount Percent ------------------- ------------------- ------------------- Loans: Commercial real estate: Mortgage $ 567,116 26% $ 554,545 26% $ 611,989 29% Construction 192,866 9 156,950 7 64,327 3 Student 427,930 20 412,926 19 412,218 19 Residential first mortgage 189,593 9 209,669 10 269,505 13 Home equity 119,594 5 131,868 6 177,106 8 Commercial 50,883 2 55,062 3 53,473 3 Medical Finance 22,424 1 21,440 1 20,654 1 Consumer 3,045 - 3,515 - 6,003 - ---------------- ----------------- ---------------- Total loans 1,573,451 72 1,545,975 72 1,615,275 76 Securities other than common stocks 394,619 18 382,482 18 218,299 11 Common stocks 174,415 8 158,660 7 110,668 5 Federal funds sold 31,600 1 21,500 1 170,500 8 Interest-bearing deposits with banks 26,999 1 26,999 1 - - ---------------- ----------------- ---------------- Total $2,201,084 100% $2,135,616 100% $2,114,742 100% ================ ================= ================
Loans Total loans at March 31, 1998 were $1.57 billion, an increase of $27.5 million, or 1.8%, from December 31, 1997. Commercial real estate mortgage loans increased $12.6 million, or 2.3%, from December 31, 1997. Commercial real estate construction loans increased $35.9 million, or 22.9%, from December 31, 1997. At March 31, 1998, unfunded construction loan commitments totaled $124.5 million. 8 11 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 The composition of the commercial real estate loan portfolio by type of collateral securing the loan was as follows at March 31, 1998 (in thousands): Rental apartments $186,433 Nursing homes 134,628 Hotel/Motel 123,626 Retail 87,375 Industrial 79,778 Condo/Loft conversion and other residential for sale 44,745 Office 44,629 Other 58,768 -------- Total $759,982 ========
Student loans increased $15.0 million, or 3.6%, from December 31, 1997. For all new student loan originations after July 1, 1998, the index that the loans are tied to is scheduled to change from the 3-month U.S. Treasury bill to the 10-year U.S. Treasury bond. This change could make student lending unprofitable, substantially increase the interest rate risk associated with student loans and lead to a reduced level of loan originations. It is uncertain whether there will be legislative relief from the new provision prior to July 1, 1998. In the past few years, nonperforming student loans were purchsed at a substantial discount to the face value of the loans. CORUS attempts to convert these loans to performing status and reinstate their government guarantees. The excess of performing loans converted over the cost of the portfolio is accreted into income over the estimated lives of the loans using the level-yield method. The total discount to be accreted into income in future periods totaled $11.7 million at March 31, 1998. At March 31, 1998, residential first mortgage and home equity loans declined $20.1 and $12.3 million, or 9.6% and 9.3%, respectively, compared with December 31, 1997. During 1996, the origination of residential first mortgage and home equity loans was terminated. Since that time, the amount of residential first mortgage and home equity loan originations has been immaterial. Securities Other Than Common Stocks At March 31, 1998, total securities other than common stocks were $394.6 million, an increase of $12.1 million, or 3.2%, compared with $382.5 million at December 31, 1997. Common Stocks At March 31, 1998, common stocks were $174.4 million, an increase of $15.8 million, or 9.9%, compared with $158.7 million at December 31, 1997. This increase was partially due to the increase in the unrealized gains for these stocks. During the first quarter of 1998, the pretax unrealized gains on this portfolio increased by $6.3 million. 9 12 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 At March 31, 1998, CORUS held investments in 46 equity securities of publicly-traded bank holding companies with total unrealized gains of $76.0 million, which were included in the available for sale securities classification. At March 31, 1998, the holdings by market capitalization were as follows: Percentage Market Capitalization (dollars in thousands): Amount of Holdings of Portfolio -------------------------------- Over $10 billion $ 80,296 46% Between $5 and $10 billion 22,579 13 Between $1 and $5 billion 40,456 23 Between $500 million and $1 billion 16,530 10 Under $500 million 14,555 8 -------------------------------- Total $174,416 100% ================================
Nonperforming Assets The following table presents a summary of nonperforming assets' book value. Nonperforming loans are nonaccrual loans, restructured loans and 90 days or more past due loans still accruing interest.
(thousands) March 31 December 31 March 31 1998 1997 1997 -------- ----------- -------- Nonperforming loans: Residential first mortgage $15,136 $17,451 $23,006 Commercial real estate 4,444 4,678 7,421 Commercial 21 80 2 Home equity 2,605 3,706 3,834 Student 326 453 3,988 Consumer 754 803 1,020 ------- ------- ------- Total nonperforming loans 23,286 27,171 39,271 Other real estate owned 5,740 5,673 2,099 ------- ------- ------- Total nonperforming assets $29,026 $32,844 $41,370 ======= ======= ======= Nonaccrual loans included in nonperforming loans above $ 9,074 $ 8,641 $10,133 ======= ======= ======= Nonperforming loans/Total loans 1.48% 1.76% 2.43% Nonperforming assets/Total assets 1.25% 1.46% 1.86% Allowance for loan losses/ nonperforming loans 137.66% 112.84% 77.23%
10 13 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Nonperforming residential first mortgage loans are secured by first mortgages on primarily owner-occupied, residential property. At March 31, 1998, other real estate owned was comprised of two commercial real estate properties with a carrying value of $106,000 and forty-one residential properties with a carrying value of $5.6 million. During the first three months of 1998, twelve residential properties with a carrying value of $2.2 million were sold for a net gain of $166,000. These gains were partially offset by writedowns of properties not sold. For the first three months of 1998, writedowns of residential real estate properties not yet sold totaled $158,000. Excluded from the preceding table are student loans that CORUS has no reason to believe have lost their guarantee. Guaranteed student loans more than 90 days past due and not included in the table totaled $14.7, $14.1 and $12.7 million at March 31, 1998, December 31, 1997 and March 31, 1997, respectively. Allowance for Loan Losses The allowance for loan losses is based on management's analysis of individual loans, prior loss experience, overall growth in the portfolio, delinquency levels, current economic conditions and other factors. A reconciliation of the activity in CORUS' allowance for loan losses is as follows: Three Months Ended March 31 ------------------------ (thousands) 1998 1997 ---------- ---------- Balance at beginning of period $ 30,660 $ 32,668 Provision for loan losses 3,000 4,000 Less charge-offs: Commercial real estate loans - 142 Student loans 107 4,039 Residential first mortgage loans 103 134 Home equity loans 1,864 2,208 Commercial loans - 15 Consumer loans - - ---------- ---------- Total charge-offs 2,074 6,538 ---------- ---------- Add recoveries: Commercial real estate loans 96 26 Student loans 13 - Residential first mortgage loans - - Home equity loans 338 162 Commercial loans - 1 Consumer loans 23 10 ---------- ---------- Total recoveries 470 199 ---------- ---------- Net charge-offs (1,604) (6,339) ---------- ---------- Balance at March 31 $ 32,056 $ 30,329 ========== ========== Loans at March 31 $1,573,451 $1,615,275 ========== ========== Allowance as a percentage of loans 2.04% 1.88% ========== ==========
11 14 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Home equity loans that were originated at up to 100% of the underlying property's value, Ultimate Home Equity loans, are charged off when they become delinquent 120 days past due. For the first three months of 1998, these loans represented $1.5 million of the home equity charge-offs. Management anticipates that there will continue to be significant charge-offs of Ultimate Home Equity loans in 1998. At March 31, 1998, Ultimate Home Equity loans totaled $76.3 million. Of this total, $663,000 was classified as nonperforming loans. The following represents an aging schedule of Ultimate Home Equity loans at March 31, 1998 (in thousands): Current $71,503 31 to 60 days past due 2,887 61 to 90 days past due 1,281 91 to 120 days past due 663 ------- Total $76,334 =======
During 1996, the origination of residential first mortgage and home equity loans was terminated. Since that time, the amount of residential first mortgage and home equity loan originations has been immaterial. At March 31, 1998, the allowance for loan losses as a percentage of total loans increased to 2.04% of total loans from 1.98% of total loans at December 31, 1997. In addition, the allowance as a percentage of nonperforming loans increased to 137.66%, compared with 112.84% at December 31, 1997. Management believes that the level of the allowance for loan losses was adequate at March 31, 1998. Student Loan Investigation Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements on page 4 for further information. Liabilities The following table details the composition of deposit products by type:
March 31 December 31 March 31 1998 1997 1997 -------- ----------- -------- Demand 10% 10% 9% Savings 9 10 10 NOW 5 5 5 Money Market 49 48 50 Certificates of Deposit 27 27 26 ------- ------- ------- Total 100% 100% 100% ======= ======= =======
At March 31, 1998, December 31, 1997 and March 31, 1997, CORUS had retail certificates of deposit obtained from brokers of $260.4, $260.4 and $231.8 million, respectively. 12 15 ITEM 2. - CORUS BANKSHARES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 Capital CORUS' consolidated leverage ratio (Tier 1 capital/total average quarterly assets) was 10.6% at March 31, 1998, well in excess of the minimum regulatory level of 5%. The consolidated Tier 1 and total risk-based capital ratios were 14.8% and 16.1%, respectively, exceeding the minimum well-capitalized Tier 1 and total risk-based capital ratios of 6.00% and 10.00%, respectively. During the first three months of 1998, CORUS repurchased and retired 130,300 shares at an average price of $40.98 per share. A total of 269,100 shares have been repurchased under the 750,000 common share repurchase program approved by the Board of Directors in 1997. This program provides a means to return some of CORUS' excess capital to all shareholders. Operating, Investing and Financing Activities Net cash used in operating activities totaled $143.3 million for the first three months of 1998, compared with $13.0 million of net cash provided by operating activities for the same period in 1997. The change was primarily due to the $153.5 million trading securities portfolio at March 31, 1998. Net cash provided by investing activities totaled $109.6 million for the first three months of 1998, compared with $73.0 million in 1997. The increase was due to the reduction in available for sale securities. These proceeds were utilized to establish the trading securities portfolio. The increase in net cash provided was partially offset by an increase in loans. Net cash provided by financing activities totaled $34.3 million for the first three months of 1998, compared with $15.9 million of net cash used in financing activities in 1997. This change was primarily due to an increase in deposit accounts and was partially offset by a decrease in short-term borrowings and the retirements of common shares. 13 16 CORUS BANKSHARES, INC. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit 11 - Computation of Net Income per Common Share is on page 15. (b) Reports on Form 8-K. None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CORUS BANKSHARES, INC. (Registrant) April 17, 1998 By: /s/ Michael J. McClure ------------------------------ Michael J. McClure First Vice President and Chief Accounting Officer (Principal Accounting Officer and duly authorized Officer of Registrant) 14 EX-11 2 COMPUTATION OF NET INCOME PER SHARE 1 Exhibit 11 EXHIBIT 11 - CORUS BANKSHARES, INC. COMPUTATION OF NET INCOME PER SHARE
Three Months Ended March 31 (thousands, except per share amounts) 1998 1997 ------- ------- Denominator for basic earnings per share - average common shares outstanding 14,595 14,820 Dilutive common stock options 225 180 ------- ------- Denominator for diluted earnings per share 14,820 15,000 ======= ======= Numerator: Net income attributable to common shares $ 9,902 $ 9,303 ======= ======= Net income per share: Basic $ 0.68 $ 0.63 Diluted 0.67 0.62
15 EX-27 3 FINANCIAL DATA SCHEDULE
9 3-MOS JAN-01-1998 DEC-31-1998 52810 26999 31600 153479 407100 8455 8659 1573451 32056 2324347 1912241 1803 71937 40000 0 0 728 297638 2324347 37846 5691 1197 44734 19835 20498 24236 3000 1857 12413 15046 15046 0 0 9902 0.68 0.67 4.55 9074 14126 86 0 30660 2074 470 32056 32056 0 0
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