CORUS BANKSHARES INC - 10-Q Quarterly Report

Back to GetFilings.com

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

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 or organization) (I.R.S. Employer Identification No.)

3959 N. LINCOLN AVE., CHICAGO, ILLINOIS 60613-2431
(Address of principal executive offices) (Zip Code)

(773) 832-3088
(Registrant's telephone number)

Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

As of July 31, 2002, the Registrant had 14,159,644 common shares, $0.05
par value, outstanding.

================================================================================

CORUS BANKSHARES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 2002

TABLE OF CONTENTS

PART I. -- FINANCIAL INFORMATION

ITEM 1. Financial Statements ......................................................... 1-9

ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 10-22

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ................... 23

PART II. -- OTHER INFORMATION

ITEM 1. Legal Proceedings ............................................................ 24

ITEM 2. Changes in Securities and Use of Proceeds .................................... 24

ITEM 3. Defaults Upon Senior Securities .............................................. 24

ITEM 4. Submission of Matters to a Vote of Security Holders .......................... 24

ITEM 5. Other Information ............................................................ 24

ITEM 6. Exhibits and Reports on Form 8-K ............................................. 25

Signatures ................................................................... 26

Exhibit 11 - Computation of Net Income per Share ............................. 27

Exhibit 99.1 - Independent Accountants' Review Report ........................ 28

Exhibit 99.2 - Certification.................................................. 29

PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

See accompanying notes.

1

CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

See accompanying notes.

2

CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)

See accompanying notes.

CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)

See accompanying notes.

3

CORUS BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See accompanying notes.

4

CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Condensed Consolidated Financial Statements

The Condensed Consolidated Balance Sheets and Statements of Income,
Cash Flows and Changes in Shareholders' Equity are unaudited. The
interim financial statements reflect all adjustments (consisting only
of normal recurring accruals) that 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, 2001
included in Corus' Annual Report on Form 10-K for the year ended
December 31, 2001. The results of operations for the interim period
should not be considered indicative of results to be expected for the
full year.

Certain prior year amounts have been reclassified to conform to the
current presentation.

2. New Accounting Standards

In June 2001, Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations" was issued establishing accounting and
reporting standards requiring all business combinations initiated after
June 30, 2001, to be accounted for using the purchase method. SFAS No.
141 was effective for Corus for the fiscal quarter beginning July 1,
2001.

Also in June 2001, SFAS No. 142 "Goodwill and Other Intangible Assets"
was issued effective for the first period of all fiscal years beginning
after December, 15, 2001, with early adoption permitted for entities
with fiscal years beginning after March 15, 2001. SFAS No. 142
addresses how acquired intangible assets should be accounted for in
financial statements upon their acquisition, and also how goodwill and
other intangible assets should be accounted for after they have been
initially recognized in the financial statements. In general,
non-goodwill intangible assets are to be amortized in accordance with
their estimated useful lives. In addition, amortization of goodwill has
been eliminated, with capitalized goodwill now being subjected to at
least an annual assessment for impairment. A two-step process is to be
used to determine, first whether an impairment exists, and then whether
an adjustment is required.

SFAS No. 142 was effective for Corus for the fiscal quarter beginning
January 1, 2002. The adoption of this statement did not result in any
transition goodwill impairment adjustments.

In September 2000, SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" was
issued effective for all related transactions occurring after March 31,
2001. The statement replaces SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
The new statement, while largely including the provisions of SFAS No.
125, revises the standards for accounting for securitizations and other
transfers of financial assets and collateral and requires certain
additional disclosure. The statement, which was effective for Corus for
the fiscal quarter beginning April 1, 2001, had an immaterial impact on
the Company.

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued effective for all fiscal periods
beginning after June 15, 1999. In June 1999, SFAS No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of SFAS No. 133" was issued to amend SFAS No. 133 to be
effective for all fiscal years beginning after June 15, 2000. In June
2000, SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" was issued further amending SFAS No. 133.
The statements were effective for Corus for the fiscal quarter
beginning January 1, 2001.

5

CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The statements establish 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. Furthermore,
the statements require that changes in the derivative's fair value be
recognized currently in earnings. Special accounting for qualifying
hedges ("hedge accounting") allows a derivative's gains and losses to
be either offset by the results of the hedged item or deferred through
recognition in a component of other comprehensive income in the
Consolidated Statement of Changes in Shareholders' Equity. To qualify
for hedge accounting the Company must also formally document,
designate, and assess the effectiveness of all such hedges. See Note 4
in Notes to Condensed Consolidated Financial Statements for impact on
Company earnings.

3. Segment Reporting

The following reflects the disclosure requirements set forth by
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information". For purposes of
this statement, Management has determined that Commercial Lending,
Consumer Lending, Retail Banking and Corporate Support are the primary
operating segments of the Company.

Commercial Lending derives its revenues from interest and fees on loans
made to businesses. The loan products include, among others, commercial
real estate mortgage term loans, construction loans, and funding of the
check cashing businesses.

Consumer Lending is composed of home equity, residential mortgage,
student, and other loans to individual borrowers. Revenues of this
segment are from interest and fees on the loans.

The Retail Banking segment provides general banking services such as
checking, savings, money market and time deposit accounts as well as a
variety of other services. Revenues for Retail Banking are derived from
credit for funds provided to the other segments, as well as fees
related to banking services.

Corporate Support includes the net effect of support units after
revenue and expense allocations, treasury management, and other
corporate activities. Revenues primarily relate to dividends from the
Company's investment in the common stocks of financial industry
companies and the net effect of transfer pricing related to loan and
deposit balances. In addition, revenues include realized gain/(losses)
on the sale of equity securities. Corporate Support also incorporates
the difference between the Company's reported provision for credit
losses, which is determined in accordance with generally accepted
accounting principles, and the credit provisions allocated to the
reportable business units.

Business line results are derived from the Company's business unit
profitability reporting system by specifically attributing managed
balance sheet assets, deposits, and other liabilities and their related
income or expense. Funds transfer pricing methodologies are utilized to
allocate a cost for funds used or credit for funds provided to all
business line assets and liabilities. The provision for credit losses
recorded by each operating segment is based on the net charge- offs
incurred by each line of business. Income and expenses directly related
to each business line, including fees, service charges, salaries and
benefits, and other direct expenses are accounted for within each
segment's financial results in a manner similar to the consolidated
financial statements. Expenses incurred by centrally managed operations
units that directly support business lines' operations are charged to
the business lines based on standard unit costs and volume
measurements. Capital is allocated to each line of business, including
both on and off-balance sheet items, based on its inherent risks,
including credit, operational, and other business risks. Designations,
assignments, and allocations may change from time to time as management
accounting systems are enhanced or product lines change.

6

CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Following is a summary of significant segment information, as required by SFAS
No. 131:

FOR THE THREE MONTHS ENDED JUNE 30, 2002

FOR THE THREE MONTHS ENDED JUNE 30, 2001

FOR THE SIX MONTHS ENDED JUNE 30, 2002

FOR THE SIX MONTHS ENDED JUNE 30, 2001

(1) Net interest income before provision for loan losses plus noninterest
income.

The profitability of each of Corus' business segments may be affected by changes
in, and the level of, interest rates. The direction and degree of this impact
will vary based on the asset/liability mix of each segment.

7

CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Statement of Financial Accounting Standards No. 133/138 ("SFAS
133/138")

The statements establish 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. Special
accounting for qualifying hedges ("hedge accounting") allows a
derivative's gains and losses to be either offset by the results of the
hedged item or deferred through recognition in a component of other
comprehensive income. Those derivatives that do not qualify for hedge
accounting are required to be marked to market with the impact of the
market adjustment recorded directly to income. The Statements were
effective for Corus beginning January 1, 2001.

Corus utilizes interest rate fixed-to-floating swaps (pay fixed/receive
floating) and basis swaps to reduce interest rate risk by improving the
balance between rate sensitive assets and liabilities. While these
derivatives provide the desired economic hedge to interest rate
fluctuations, they do not all meet the strict criteria required to
qualify for hedge accounting. In the first half of 2002, all but one of
the fixed-to-floating swaps qualified as fair value hedges and received
hedge accounting treatment. In addition, the basis swaps are not being
accounted for under hedge accounting.

For the six months ended June 30, 2002, Corus recorded net SFAS 133/138
income of $2.7 million, which consisted of a $58,000 expense included
in net interest income and $2.8 million of income included in
securities gains.

5. Other Borrowings

On June 26, 2001, Corus entered into an agreement with a third party to
borrow $70 million, consisting of a term note in the amount of $50
million and a revolving note in the amount of $20 million, both at an
effective interest rate equal to LIBOR plus 150 basis points, adjusted
quarterly. Both loans mature on June 25, 2004, and either loan may be
prepaid at any time without premium or penalty, except for certain
yield maintenance charges not to exceed 3 months interest. Minimum
principal repayment of the term loan is $1.0 million quarterly
beginning September 30, 2001 and the revolving loan is payable upon
maturity. Interest is payable quarterly. In addition, a fee at an
annual rate of 1/4% of the average unused revolving note commitment is
due quarterly.

Among other restrictions, loan covenants require Corus to maintain
prescribed levels of capital, limit the level of nonperforming loans
relative to capital, and maintain a minimum ratio of the Allowance for
Loan Losses to total loans. The debt is secured by 100% of the common
stock of the subsidiary bank. As of June 30, 2002, management believes
that Corus was in compliance with all loan covenants.

Interest and fees for both notes for the first half of 2002 totaled
$912,000. At June 30, 2002, the term note and revolving credit line had
outstanding balances of $46 million and $6.4 million, respectively.

8

CORUS BANKSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Statement of Financial Accounting Standards No. 142

The following table presents net income and earnings per share. Prior
year amounts have been restated to exclude amortization expense related
to goodwill, as required by SFAS No. 142.

Note: The goodwill amortization was not tax deductible and as a result pre-tax
and after-tax amounts are equivalent.

9

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

BUSINESS SUMMARY

Corus Bankshares, Inc. is a one-bank holding company headquartered in Chicago,
Illinois. In addition to deposit gathering and servicing the check cashing
industry, Corus specializes in making commercial real estate and construction
loans with a concentration, by property type, in residential condominiums,
office buildings, hotels and apartments. With regard to the remainder of its
loan portfolio, Corus is allowing its first mortgage and home equity loan
balances to "run-off." In addition, Corus recently exited the medical finance
business with minimal balances remaining.

OPERATING RESULTS

For the three months ended June 30, 2002, net income was $13.8 million, or $0.96
per share on a diluted basis, a decrease of 6.1% from net income of $14.7
million, or $1.02 per share on a diluted basis, in 2001. For the six months
ended June 30, 2002, net income was $24.3 million, or $1.70 per share on a
diluted basis, a decrease of 16.1% from net income of $28.9 million, or $2.02
per share on a diluted basis, in 2001.

Earnings for the second quarter of 2002 represented annualized returns of 11.8%
on equity (ROE) and 2.1% on assets (ROA) compared to 14.1% and 2.2% for the same
period in 2001. Earnings for the six months ended June 30, 2002 represented
annualized returns of 10.6% on equity (ROE) and 1.8% on assets (ROA) compared to
14.0% and 2.2% for the same period in 2001.

Net Interest Income

The major source of earnings for Corus is net interest income, which is the
difference between interest income and fees on earning assets and interest
expense on deposits and borrowings. The related net interest margin (see pages
12-13) represents net interest income as a percentage of the average earning
assets during the period.

For the three and six months ended June 30, 2002, Corus' net interest margin
declined by 3 and 64 basis points, respectively, compared to the prior year.
These relatively small decreases occurred in spite of the continuing impact of
the Federal Reserve's dramatic interest rate cuts throughout 2001 due, in large
part, to the unusually high fee income recognized in the second quarter of 2002.

Specifically, fee income in the second quarter of this year was $7.1 million
versus $3.2 million during the second quarter of 2001. Year-to-date, fee income
for this year was $10.6 million versus $6.7 million during the same period in
2001. It is important to note that while fee income during the second quarter of
this year was substantially greater than in past quarters, our pace of
commercial real estate originations, and therefore fees being earned, has also
gained tremendous force in the past several quarters. Therefore, while the Bank
is not necessarily forecasting that near term future quarters will show fee
income as strong as in the second quarter, we nonetheless do expect that fee
income will be increasing at a solid pace as long as commercial real estate
originations continue to be as strong as we have seen so far this year.

As background, Corus appropriately records loan fees as part of interest income.
These fees consist primarily of points and fees collected at closing
("origination fees") but may also include prepayment fees, extension fees, exit
fees and other miscellaneous fees. In general, origination and extension fees
are deferred and recognized in income ratably over the remaining term of the
loan as an effective adjustment to yield. However, in the event that a loan is
repaid prior to maturity, any remaining unrecognized deferred income would be
recorded as income at that time. Furthermore, depending on the loan terms, a
prepayment fee may be recorded as well. This situation can result in unusually
high yields in any given period.

10

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

In addition, certain loans include fees that are contingent on some future
event. These fees are not recognized as income until the contingency is
satisfied. These types of fees, which can sometimes exceed $1 million, may also
result in unusually high yields in a given period.

Noninterest Income

For the three and six months ended June 30, 2002, noninterest income decreased
by $3.2 and $3.0 million, respectively compared to the prior year. The $2.2
million gain on sale of student loans recorded in the second quarter of 2001 was
the largest single factor contributing to this decrease.

Also contributing to the decline were decreases in other noninterest income
totaling $1.8 and $2.7 million respectively, for the three and six months ended
June 30, 2002. Several items resulted in this decline. First was the absence in
2002 of temporary servicing fees associated with the sale of the student loan
portfolio. Fees in the amount of $612,000 and $1.5 million were earned during
the three and six months ended June 30, 2001. Second, over one million dollars
of gains were recorded in the second quarter of 2001 from the sales of certain
fixed assets and OREO properties compared to $127,000 in 2002. Finally, other
income related to the sold student loans totaled $285,000 in 2001 while minimal
amounts were recorded in 2002.

The increases in security gains resulted from the impact of favorable
mark-to-market adjustments generally related to Corus' basis swaps. For the
three and six-month periods ended June 30, 2002, mark-to-market adjustments
totaled $2.0 million and $2.8 million, respectively, compared to the 2001
adjustments of $1.3 million and $1.0 million, respectively. These swaps do not
qualify for hedge accounting and, as such, the impact of changes in market
values is fully reflected in earnings. Statement of Financial Accounting
Standards No.133/138 provides the authoritative guidance for derivative
accounting and was implemented by Corus in the first quarter of 2001 (see Notes
to Condensed Consolidated Financial Statements). The remaining variances relate
to the sale of certain available-for-sale and trading securities.

Service charge income grew by $297,000 and $620,000, respectively, for the three
and six months ended June 30, 2002 compared to the prior year. The increase
resulted from the impact of lower customer earnings credits. Each month,
commercial checking customers receive a noncash earnings credit based on their
account balance and short-term interest rates. The earnings credit reduces the
impact of activity fees charged to the account. Lower short-term interest rates
result in a lower earnings credit and higher net service charges.

Noninterest Expense

For the three and six months ended June 30, 2002, noninterest expense decreased
by $2.0 and $2.8 million, respectively, compared to 2001. Salaries and employee
benefits, as well as occupancy, data processing, and depreciation expenses
declined due in part to the absence of operations related to the sold student
loan and medical finance portfolios. Other contributing factors included the
impact of the lower staffing levels as the residential loan portfolio "runs
off." Finally, the amortization of goodwill was discontinued in 2002 upon the
adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets."

Salaries and employee benefits are also impacted by quarterly mark-to-market
adjustments associated with the Commercial Loan Officer Commission Program ("the
Program"). The Program provides for deferred payment of a portion of annual
commercial loan officer commissions. Participants are offered three investment
options for the deferral, two of which include shares of Corus Common Stock.
While the initial commission is expensed when earned, accounting rules require
continuous adjustments based on changes in the market value of Corus' Common
Stock. For the three months ended June 30, 2002, the adjustment was a decrease
to salaries and benefits of $200,000. For the year-to-date 2002, the net impact
of these adjustments is an increase to expense of $64,000.

11

AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN (Unaudited)

(1) Dividends on the bank stock portfolio reflects a tax equivalent adjustment
for the 70% dividend received deduction.

(2) Interest income on tax-advantaged loans and securities reflects a tax
equivalent adjustment based on an income tax rate of 35%.

(3) Unremitted interest on nonaccrual loans is not included in the amounts.
Includes net interest income derived from interest rate swap contracts.

13

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

FINANCIAL CONDITION

Earning Assets

The following table details the composition of Corus' earning assets:

Loans

Corus is focused on commercial real estate lending, which makes up 87% of total
loans outstanding at June 30, 2002, and has increased by $206 million, or 16.7%
December 31,2001 and 0.9% compared to one year ago. Corus compared to closed on
$550 million of new CRE loans in the first half of 2002. The following table
provides additional detail with respect to Corus' loan portfolio:

The table above includes only actual balances outstanding. When commitments are
factored in, commercial real estate loan growth is even more significant.
Commitments include unfunded loan amounts, commitment letters and letters of
credit.

The table on the following page shows a reconciliation of commercial real estate
loans outstanding to the total including commitments.

14

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

Commercial Real Estate Loans Outstanding Including Commitments

Including commitments, year-to-date growth is over $690 million or 39%. Corus'
commitments are primarily comprised of unfunded commitments under commercial
real estate construction loans and commitment letters the Bank has issued on
loans that have not yet closed. While most of this growth is from outstanding
commitment letters, it is Corus' experience that once the loan process has
reached the stage of commitment letter issuance, the loans generally close.

While committed amounts are useful for period-to-period comparisons, caution
should be used in attempting to use commitments as a basis for predicting future
outstanding balances.

15

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

The following tables break out commercial real estate loans by property type,
location, and size:

* Includes both funded and unfunded commitments, letters of credit and
outstanding commitment letters

16

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

Loan Participations

While Corus generally prefers to initiate and fund its own loans without
participations either bought or sold, there are limited instances where Corus
has either purchased or sold interests in certain loans. The following table
details purchased loan participations in which Corus has an interest:

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 $195,000 from 1989 through June
30, 2002. While Corus' commercial real estate portfolio continues to show
minimal delinquencies and virtually no losses, we recognize this sort of
performance cannot persist indefinitely.

With regard to the remaining portfolio, residential first mortgage and home
equity loan balances continue to decline as the Bank implements plans to allow
these portfolios to Minimal new originations are expected. In addition, Corus'
"run-off." decision to exit the medical finance business has been successfully
executed with minimal balances remaining.

17

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

Common Stocks

At June 30, 2002, Corus had investments in the common stocks of 31 financial
industry companies totaling $168.7 million, including net unrealized gains of
$67.3 million. These investments are included in the available-for-sale
classification. The following is a list of Corus' top 25 holdings, by market
value, as of June 30, 2002:

During the three and six months ended June 30, 2002, Corus received dividends on
the stock portfolio of $1.2 and $2.3 million, respectively, compared to $1.1 and
$2.2 million during the same period in 2001. In addition, Corus realized net
gains from the bank stock portfolio of $951,000 during the first half of 2002
compared to net gains of $594,000 during the same period in 2001.

18

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

Securities Other Than Common Stocks

At June 30, 2002 total securities other than common stocks were $420 million, an
increase of $276 million, or 191%, compared with $144 million at December 31,
2001. This was due to the purchase of fixed-rate securities in the first half of
2002.

Nonperforming Assets

Nonperforming loans are nonaccrual loans, restructured loans and 90 days or more
past due loans still accruing interest. The breakdown by loan category is shown
below:

NONPERFORMING ASSETS

Nonperforming loans have increased recently driven primarily by commercial real
loans,attributable to two estate construction loans and one term loan. The
construction loans, totaling $7.9 million were placed on nonaccrual in April due
to the Bank's concerns about the borrowers' ability to fund contractual interest
payments. Importantly, the Bank believes that the risk of principal loss is
minimal.

The term loan, totaling approximately $2 million, while not delinquent, is over
90 days past maturity. The borrower is attempting to sell the related property,
the proceeds of which should provide adequate funds to pay down the loan. Corus
does not anticipate any losses from this loan.

19

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

Nonperforming residential first mortgage loans are secured by first mortgages on
primarily owner-occupied, residential property. During the six months ended June
30, 2002, nonperforming residential first mortgages declined by $1,257,000. The
decrease resulted primarily from the completion of foreclosure on properties,
effectively transferring them to Other Real Estate Owned. Nonperforming home
equity loans also decreased as a result of the charge-off of certain
nonperforming loans. See allowance for loan losses section below.

At June 30, 2002, other real estate owned was comprised of six residential
properties with aggregate book values of $2.1 million. During the second quarter
of 2002, Corus sold one commercial property and two residential properties with
aggregate book values of $214,000 for a net gain of $127,000.

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 above nonperforming asset table totaled
$939,000, $1.7 million, and $5.2 million at June 30, 2002, December 31, 2001,
and June 30, 2001, respectively.

Allowance for Loan Losses

Management believes that the level of the allowance for loan losses was adequate
at June 30, 2002. A reconciliation of the activity in the allowance for loan
losses is as follows:

20

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

The student loan recoveries of $2.9 million in the first half of 2001 consist
almost entirely of recoveries related to the settlement of a lawsuit in 2000.
Collection of these recoveries was essentially completed as of December 31, 2001
with minimal future recoveries expected.

Accrued Interest Receivable and Other Assets

At December 31, 2001, Accrued Interest Receivable and Other Assets included a
receivable balance related to the sale of a security. The transaction, in the
amount of $77.7 million, cleared on January 2, 2002.

Liabilities

The following table details the composition of deposit products by type:

At June 30, 2002, December 31, 2001 and June 30, 2001, Corus had retail
certificates of deposit obtained from brokers of $268, $317 and $352 million,
respectively.

Capital

The minimum ratios to be categorized as well capitalized and Corus' and its
subsidiary bank's regulatory capital and ratios were as follows at June 30,
2002:

(1) Tier 1 capital, which is shareholders' equity less goodwill, disallowed
portion of deferred income taxes and unrealized gains on
available-for-sale securities; computed as a ratio to quarterly average
assets less goodwill, disallowed portion of deferred income taxes and
unrealized gains on available-for-sale securities.

(2) Tier 1 capital; computed as a ratio to risk-adjusted assets.

(3) Tier 1 capital plus qualifying loan loss allowance and SFAS No. 115
gain; computed as a ratio to risk-adjusted assets.

21

ITEM 2. - CORUS BANKSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

FORWARD-LOOKING STATEMENTS

This filing 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," "targets," "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 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:

- the general state of the economy and, together with all
aspects of Corus' business that are affected by changes in the
economy, the impact that changing rates have on Corus' net
interest margin;

- Corus' ability to increase the commercial real estate loan
portfolio;

- 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;

- 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; and

- 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.

Corus undertakes no obligation to revise or update these forward-looking
statements to reflect events or circumstances after the date of this filing.

22

ITEM 3. - CORUS BANKSHARES, INC.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SIX MONTHS ENDED JUNE 30, 2002 AND 2001

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, which may
include 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.

Interest rate sensitivity as of June 30, 2002 is as follows:

(1) These "shocks" represent hypothetical instantaneous and sustained
changes from current rates.

Corus' projected one-year sensitivity to interest rates has decreased since
December 31, 2001. This decrease is mostly due to Corus shifting approximately
$330 million of Overnight Federal Funds into fixed-rate securities maturing
between June 2003 and March 2005.

Corus is also exposed to price risk with its common stock portfolio in financial
industry companies valued at $169 million as of June 30, 2002, including net
unrealized gains of $67 million. This price risk does not have a direct effect
on the net income of Corus, although would reduce any gains which may be taken
on the sale of certain equity securities in the future.

23

CORUS BANKSHARES, INC.
PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS.

This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS.

This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES.

This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

(a) The Annual Meeting of Shareholders was held on April 22, 2002.

(c) At the Annual Meeting of Shareholders the following matter was
submitted to a vote of the shareholders:

(1) The election of seven directors to the Board of Directors to serve
until the next annual meeting of shareholders or until their successors
are elected and take office:

ITEM 5: OTHER INFORMATION.

None.

24

CORUS BANKSHARES, INC.
PART II. OTHER INFORMATION

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

3a Amended and Restated Articles of Incorporation is incorporated herein
by reference to Exhibit 4.1 to the Form S-8 filing dated May 22, 1998.

3b By-Laws are incorporated herein by reference to Exhibit 4.2 to the Form
S-8 filing dated May 22, 1998.

11 Computation of Net Income per Common Share.

99.1 Independent Accountants' Review Report.

99.2 Certification

(b) Reports on Form 8-K.

A Form 8-K was filed on June 6, 2002 regarding changes in Corus'
certifying accountant.

25

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CORUS BANKSHARES, INC.
(Registrant)

August 8, 2002 By: /s/ Michael E. Dulberg
-------------------------------------------------
Michael E. Dulberg
First Vice President and Chief Accounting Officer

(Principal Accounting Officer and duly authorized
Officer of Registrant)

26