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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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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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.
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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
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(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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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:
YEAR ENDED DECEMBER 31, 1999
----------------------------------
VOLUME RATE TOTAL
------ ---- -----
(THOUSANDS)
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
======= ======= ========
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YEAR ENDED DECEMBER 31, 1998
----------------------------------
VOLUME RATE TOTAL
------ ---- -----
(THOUSANDS)
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)
======= ======= ========
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.
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SECURITIES PORTFOLIO
Carrying Value of Securities by Category
The carrying value of securities held by Corus were as follows:
DECEMBER 31
--------------------------------
1999 1998 1997
---- ---- ----
(THOUSANDS)
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
======== ======== ========
Maturities of Securities
The scheduled maturities by security type as of December 31, 1999 were as
follows:
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)
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
======== ======= ======= ======== ======== ========
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The weighted-average yields for each range of maturities of securities at
December 31, 1999 were as follows:
FROM FROM
ONE FIVE NOT DUE AT
ONE YEAR THROUGH THROUGH AFTER A SINGLE
OR LESS FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
-------- ---------- --------- --------- ---------- -----
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
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:
DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
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
========== ========== ========== ========== ==========
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:
FROM
ONE YEAR ONE TO AFTER
OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
(THOUSANDS)
Commercial real estate................. $236,552 $528,629 $151,331 $916,512
Commercial............................. 69,100 33,978 13,943 117,021
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
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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:
DECEMBER 31
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1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
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%
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:
DECEMBER 31
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1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
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%
======= ======= ======= ======= =======
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.
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Analysis of the Allowance for Loan Losses
The activity in the allowance for loan losses was as follows:
YEAR ENDED DECEMBER 31
---------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
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%)
======= ======= ======= ======= =======
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses was as follows:
DECEMBER 31
-----------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
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
======= ======= ======= ======= =======
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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:
DECEMBER 31
--------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS)
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%
=== === === === ===
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:
(THOUSANDS)
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
========
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RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to Corus' equity and
assets:
DECEMBER 31
--------------------------
1999 1998 1997
---- ---- ----
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
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
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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
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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.
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ITEM 6. SELECTED FINANCIAL DATA
Refer to page 39 of the 1999 Annual Report, incorporated herein by
reference for additional selected financial data.
DECEMBER 31
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(THOUSANDS, EXCEPT PER SHARE DATA)
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
========== ========== ========== ========== ==========
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.
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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
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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
POSITION(S) AND OFFICE(S) HELD WITH ASSUMED
NAME AGE THE COMPANY AND SUBSIDIARIES PRESENT OFFICE(S)
---- --- ----------------------------------- -----------------
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
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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:
INDEX PAGES
----- -----
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
(b) Reports on Form 8-K:
None.
(c) Exhibit: See exhibit filed herewith
17
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EXHIBIT INDEX
(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
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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.
/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
19