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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Common stock, par value $0.05 per share 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. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No | |
On June 28, 2002, the Registrant had 14,119,244 common shares outstanding.
Of these, 7,759,646 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 June 28, 2002)
of approximately $356.3 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.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and III of this Form 10-K incorporate by reference certain
information from the Registrant's 2002 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 11, 2003 for its Annual
Meeting of Shareholders to be held on April 10, 2003.
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CORUS BANKSHARES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2002
TABLE OF CONTENTS
PART I
Item 1. Business ................................................................... 1
Item 2. Properties ................................................................. 4
Item 3. Legal Proceedings .......................................................... 4
Item 4. Submission of Matters to a Vote of Security Holders ........................ 4
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ...... 5
Item 6. Selected Financial Data .................................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...................................................... 6
Item 7a. Quantitative and Qualitative Disclosures About Market Risk ................. 6
Item 8. Financial Statements and Supplementary Data ................................ 7
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ....................................................... 15
PART III
Item 10. Directors and Executive Officers of the Registrant ......................... 16
Item 11. Executive Compensation ..................................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and Management ............. 17
Item 13. Certain Relationships and Related Transactions ............................. 17
Item 14. Controls and Procedures .................................................... 17
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ........... 18
Signatures .......................................................................... 19
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ............ 20
Exhibit 23 - Consent Of Independent Auditors ........................................ 22
Exhibit 99 - Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 23
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"). Corus' other activities
include investments in the common stocks of financial industry companies as well
as participations in certain of the Bank's larger commercial real estate loans.
During 2000 and 2001, the Bank restructured its business, focusing on two main
businesses and one smaller business. The two main business activities for Corus
are commercial real estate lending and deposit gathering. The third, and
smaller, business is servicing the check cashing industry.
Commercial real estate lending is focused primarily on loans secured by office,
condominium, hotel, and residential apartment projects. Loan amounts often
approach the Bank's legal lending limit and are secured by properties throughout
the United States. As of December 31, 2002, 82% of outstanding loan balances
plus unfunded commitments were secured by property outside of Illinois providing
the geographic diversification that management believes is very important in the
commercial real estate business.
With respect to retail banking, the Bank has 11 branches in the Chicago
metropolitan area. Through these branches, Corus offers general banking services
such as checking, savings, money market, and time deposit accounts as well as
safe deposit boxes and a variety of additional services.
Finally, Corus provides clearing, depository, and credit services to more than
525 check cashing industry locations in the Chicago area and an additional 20 in
Milwaukee, Wisconsin.
The restructuring referred to above included the sale in October 2000 of Corus'
trust and investment management services business. In addition, Corus sold the
majority of its student loans, over $460 million in loans, in a two-part
transaction completed in April 2001. Corus also decided to cease originating any
new residential first mortgage or home equity loans. The existing portfolio will
continue to be serviced by Corus. Finally, Corus sold essentially all of its
medical finance portfolio.
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 commercial
banks, savings banks, credit unions, brokerage firms, finance companies,
insurance companies, and mutual funds. Competition is generally in the form of
interest rates and points charged on loans, interest rates paid on deposits,
service charges, banking hours and locations including ATM access, and other
service-related products.
EMPLOYEES
At December 31, 2002, Corus employed a total of 475 full-time equivalent
persons, consisting of 108 executives, management and supervisory personnel and
367 clerical and secretarial employees.
1
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 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.
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 2003 will be
approximately 0.02% 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.
2
Capital Adequacy
The Federal Reserve Board established risk-based capital guidelines that require
bank holding companies to maintain minimum capital 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 (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 that
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, 2002, Corus'
Tier 1 capital and total risk-based capital ratios were 16.8% and 18.9%,
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, 2002, Corus' leverage ratio was 17.3%.
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
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 took 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 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 amended section 4 of
the Act providing a new regulatory framework for regulation through the
financial holding company ("FHC"), which has 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
3
Reinvestment Act in order for them to engage in new financial activities. The
GLB Act also provides a federal right to privacy of non-public personal
information of individual customers.
The Sarbanes-Oxley Act of 2002
On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") was
passed into law. The Sarbanes-Oxley Act applies to all companies required to
file periodic reports with the United States Securities and Exchange Commission
(the "SEC") and contains a number of significant changes relating to the
responsibilities of directors, officers and auditors as well as reporting and
governance obligations. While some provisions became effective immediately, most
require the SEC to issue official guidance, generally no later than April 26,
2003.
ACCESS TO REPORTS
The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports are made
available free of charge through the Company's website at www.corusbank.com as
soon as reasonably practicable after such material is electronically filed with,
or furnished to, the Securities and Exchange Commission. Copies will be
available upon written request to the Chief Financial Officer of the Company. A
charge will be made for exhibits requested.
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 branches
are located. The other two branch facilities are leased from unrelated parties.
ITEM 3. LEGAL PROCEEDINGS
Corus is involved in various legal and regulatory proceedings 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
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 38 of the 2002 Annual Report to Shareholders ("2002 Annual Report"),
incorporated herein by reference in response to Item 8 hereof.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The Company had approximately 2,500 shareholders as of February 21, 2003.
DIVIDENDS ON COMMON STOCK
Quarterly cash dividends per common share for the last two years are included on
page 38 of the 2002 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.
5
ITEM 6. SELECTED FINANCIAL DATA
Refer to pages 66 and 67 of the 2002 Annual Report, incorporated herein by
reference for additional selected financial data.
DECEMBER 31
----------------------------------------------------------------
(THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001 2000 1999 1998
---------- ---------- ---------- ----------- ----------
Interest income ..................... $ 152,878 $ 188,630 $ 223,676 $ 196,580 $ 187,525
Interest expense .................... 54,591 80,921 102,625 90,449 89,305
---------- ---------- ---------- ----------- ----------
Net interest income ................. 98,287 107,709 121,051 106,131 98,220
Provision for loan losses ........... -- -- -- -- 10,000
---------- ---------- ---------- ----------- ----------
Net interest income after provision
for loan losses ................. 98,287 107,709 121,051 106,131 88,220
Noninterest income, excluding
securities and other financial
instrument gains/(losses) ....... 15,821 17,881 36,729 20,483 20,747
Securities and other financial
instrument gains/(losses), net .. 7,258 7,835 10,531 (1,535) 4,919
Noninterest expense ................. 47,472 51,100 54,654 63,096 51,889
Income tax expense .................. 24,580 28,142 38,903 21,257 21,369
---------- ---------- ---------- ----------- ----------
Net income available to common
shareholders .................... $ 49,314 $ 54,183 $ 74,754 $ 40,726 $ 40,628
========== ========== ========== =========== ==========
Net income per share:
Basic ........................... $ 3.49 $ 3.83 $ 5.24 $ 2.82 $ 2.79
Diluted ......................... 3.45 3.79 5.23 2.82 2.75
Cash dividends declared per
common share .................... $ 0.635 $ 0.615 $ 0.595 $ 0.575 $ 0.555
Assets .............................. $2,617,050 $2,659,322 $2,598,467 $ 2,378,544 $2,577,460
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 65 of the 2002 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 page 64
of the 2002 Annual Report is incorporated herein by reference.
6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference to the
Consolidated Financial Statements, Notes to Consolidated Financial Statements,
and Reports of Independent Public Accountants on pages 10 through 40 of the
Company's 2002 Annual Report.
SUPPLEMENTARY STATISTICAL DATA
Pages 7 through 14 contain supplementary 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 2002 Annual Report, incorporated herein by reference in response to Items
7 and 8 hereof.
SECURITIES PORTFOLIO
Carrying Value of Securities by Category
The carrying value of securities held by Corus were as follows:
DECEMBER 31
------------------------------------
(THOUSANDS) 2002 2001 2000
-------- -------- --------
Available-for-sale
U.S. Government and agencies ....... $214,800 $ 35,429 $ 25,851
Corporate debt securities .......... 44,369 59,410 107,136
Common stocks ...................... 147,845 163,024 160,943
Mortgage backed securities ......... 9,845 38,677 144,452
Other .............................. 3,785 3,595 3,595
-------- -------- --------
Total ........................... $420,644 $300,135 $441,977
======== ======== ========
Held-to-maturity
State and municipal ................ $ 1,099 $ 1,244 $ 1,418
Corporate debt securities .......... -- 15 15
Mortgage backed securities ......... 302 478 761
Other .............................. 5,286 5,286 3,998
-------- -------- --------
Total ........................... $ 6,687 $ 7,023 $ 6,192
======== ======== ========
7
Common Stock Portfolio
At December 31, 2002, Corus had investments in the common stocks of 33 financial
industry companies totaling $147.8 million, including net unrealized gains of
$46.4 million. These investments are included in the available-for-sale
classification. Following is a list of Corus' top 25 holdings, by market value,
as of December 31, 2002:
MARKET PERCENTAGE OF
CORPORATION SHARES HELD VALUE PORTFOLIO
- --------------------------------------- ----------- -------- -------------
(DOLLARS IN THOUSANDS)
Comerica Inc. .......................... 241,300 $ 10,434 7.1%
FleetBoston Financial Corp. ............ 423,960 10,302 7.0
Old Second Bancorp Inc. ................ 275,000 10,175 6.9
Charter One Financial Inc. ............. 338,538 9,726 6.6
Amsouth Bancorporation ................. 466,015 8,948 6.0
Wachovia Corp. ......................... 223,840 8,157 5.5
Citigroup Inc. ......................... 225,000 7,918 5.4
JP Morgan Chase & Co. .................. 319,100 7,658 5.2
MAF Bancorp Inc. ....................... 208,125 7,076 4.8
Bank of America Corp. .................. 99,873 6,948 4.7
US Bancorp ............................. 268,871 5,705 3.9
Bank One Corp. ......................... 137,700 5,033 3.4
Merrill Lynch & Co. Inc. ............... 132,000 5,009 3.4
South Trust Corp. ...................... 195,900 4,868 3.3
Union Planters Corp. ................... 143,555 4,040 2.7
Compass Bancshares Inc. ................ 108,750 3,401 2.3
Morgan Stanley Dean Witter & Co. ....... 82,000 3,274 2.2
Amcore Financial Inc. .................. 142,500 3,092 2.1
Hibernia Corp. ......................... 154,200 2,970 2.0
Associated Banc Corp. .................. 80,786 2,742 1.8
Suntrust Banks Inc. .................... 48,000 2,732 1.8
Mellon Financial Corp. ................. 100,000 2,611 1.8
Fidelity Bancorp Inc. .................. 82,500 2,475 1.7
Bank of New York Co. Inc. .............. 100,000 2,396 1.6
Mercantile Bankshares Corp. ............ 58,500 2,258 1.5
-------- --------
Total for 25 highest market values ... $139,948 94.7%
All Others (8 stocks) .................. 7,897 5.3
-------- --------
Total ................................ $147,845 100.0%
======== ========
8
Maturities of Securities
The scheduled maturities by security type as of December 31, 2002 were as
follows:
FROM ONE FROM FIVE NOT DUE AT
ONE YEAR THROUGH THROUGH AFTER A SINGLE
(THOUSANDS) OR LESS FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
----------- ----------- ----------- ----------- ----------- -----------
U.S. Government
and agencies ........... $ 131,317 $ 83,483 $ -- $ -- $ -- $ 214,800
Corporate debt securities 15,179 29,190 -- -- -- 44,369
State and municipal ...... -- 599 500 -- -- 1,099
Common stocks ............ -- -- -- -- 147,845 147,845
Mortgage backed securities 15 179 50 9,902 -- 10,146
Other .................... -- -- -- -- 9,072 9,072
----------- ----------- ----------- ----------- ----------- -----------
Total ............... $ 146,511 $ 113,451 $ 550 $ 9,902 $ 156,917 $ 427,331
=========== =========== =========== =========== =========== ===========
The weighted-average yields for each range of maturities of securities at
December 31, 2002 were as follows:
FROM ONE FROM FIVE NOT DUE AT
ONE YEAR THROUGH THROUGH AFTER A SINGLE
(THOUSANDS) OR LESS FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
----------- ----------- ----------- ----------- ----------- -----------
U.S. Government
and agencies ........... 2.58% 3.74% --% --% --% 3.03%
Corporate debt securities 5.68 6.54 -- -- -- 6.25
State and municipal ...... -- 8.11 10.41 -- -- 9.16
Common stocks ............ -- -- -- -- 4.10 4.10
Mortgage backed securities 7.52 8.15 9.44 6.27 -- 6.32
Other .................... -- -- -- -- 6.38 6.38
Actual maturities may differ from those scheduled due to prepayments from
issuers. Common stock yields, which reflect a tax equivalent adjustment for the
70% dividend received deduction, include the impact of dividend payments only.
Yields on tax-advantaged securities reflect a tax equivalent adjustment based on
a marginal corporate tax rate of 35%.
9
LOAN PORTFOLIO
Classification of Loans
Corus' loans were as follows:
DECEMBER 31
--------------------------------------------------------------
(THOUSANDS) 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Commercial real estate:
Term ..................... $ 989,146 $ 675,526 $ 655,148 $ 537,603 $ 533,253
Construction ............. 531,612 515,002 513,955 378,909 228,311
Mezzanine ................ 32,092 39,223 20,877 -- --
Commercial ................. 87,631 94,015 91,093 117,021 108,759
Home equity ................ 51,078 84,214 117,858 135,603 85,408
Residential first mortgage . 38,828 50,779 71,197 92,683 137,683
Student .................... 10,950 14,591 63,096 443,074 431,304
Medical finance and consumer 632 1,895 18,656 22,464 26,869
---------- ---------- ---------- ---------- ----------
Total .................... $1,741,969 $1,475,245 $1,551,880 $1,727,357 $1,551,587
========== ========== ========== ========== ==========
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, 2002:
ONE YEAR FROM ONE AFTER
(THOUSANDS) OR LESS TO FIVE YEARS FIVE YEARS TOTAL
------------- ------------- ------------- -------------
Commercial real estate:
Term .................. $ 284,862 $ 639,464 $ 64,820 $ 989,146
Construction .......... 228,740 302,872 -- 531,612
Mezzanine ............. 27,417 4,675 -- 32,092
Commercial .............. 49,698 34,277 3,656 87,631
Of the loans maturing after one year, $128.9 million have fixed rates and $920.8
million have floating or adjustable rates. To manage interest rate exposure,
Corus has entered into interest rate swap agreements on certain fixed-rate
commercial real estate loans. For additional information on such financial
instruments, see Notes 1 and 10 to the Consolidated Financial Statements on
pages 14 through 18 and 27 of the 2002 Annual Report, incorporated herein by
reference in response to Item 8 hereof.
10
Risk Elements in the Loan Portfolio
Past Due, Nonaccrual, and Restructured Loans were as follows:
DECEMBER 31
----------------------------------------------------------------
(THOUSANDS) 2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Loans past due 90 days or more
still accruing interest .......... $ 2,454 $ 5,939 $ 20,510 $ 31,636 $ 29,116
Less guaranteed student loans .. (806) (1,721) (16,729) (21,937) (17,543)
-------- -------- -------- -------- --------
Net loans past due 90 days or more . 1,648 4,218 3,781 9,699 11,573
Nonaccrual loans ................... 4,808 1,520 1,300 2,529 5,307
Restructured loans ................. 62 62 63 320 454
-------- -------- -------- -------- --------
Total ............................ $ 6,518 $ 5,800 $ 5,144 $ 12,548 $ 17,334
AS A PERCENTAGE OF TOTAL LOANS:
Net loans past due 90 days or more . 0.09% 0.29% 0.24% 0.56% 0.75%
Nonaccrual loans ................... 0.28% 0.10% 0.08% 0.15% 0.34%
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.
The interest income forgone on nonaccrual loans totaled $1.1 million for the
year ended December 31, 2002.
Potential Problem Loans
In addition to those loans disclosed under the preceding "Nonaccrual, Past Due,
and Restructured Loans" section, management identified, through their problem
loan identification system, certain other loans in the portfolio where known
information about possible credit problems of borrowers causes management to
have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms and which may result in future disclosure of such
loans as nonaccrual, past due, or restructured. As of December 31, 2002, the
principal amount of these loans was $98.4 million. This amount generally
includes commercial real estate loans that were classified as either Special
Mention or Substandard for regulatory purposes and residential real estate loans
that are either in bankruptcy or in process of foreclosure.
11
Analysis of the Allowance for Loan Losses
The activity in the allowance for loan losses was as follows:
YEAR ENDED DECEMBER 31
--------------------------------------------------------------
(THOUSANDS) 2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Balance at beginning of year ................. $ 40,457 $ 39,601 $ 32,090 $ 35,773 $ 30,660
Provision for loan losses .................... -- -- -- -- 10,000
Less charge-offs:
Overdraft .................................. 2,660 -- -- -- --
Home equity loans .......................... 2,650 3,254 3,945 4,193 5,171
Commercial loans ........................... 567 4 116 84 2
Student loans .............................. 128 316 294 1,365 1,240
Residential first mortgage loans ........... 45 9 62 109 414
Medical finance and consumer loans ......... 7 49 56 96 7
Commercial real estate loans ............... -- -- -- 61 18
-------- -------- -------- -------- --------
Total charge-offs ........................ 6,057 3,632 4,473 5,908 6,852
-------- -------- -------- -------- --------
Add recoveries:
Home equity loans .......................... 1,999 1,386 1,544 1,778 1,553
Student loans .............................. 176 3,028 10,339 174 143
Medical finance and consumer loans ......... 22 49 45 83 94
Commercial real estate loans ............... 17 10 42 124 166
Commercial loans ........................... 8 3 13 65 9
Residential first mortgage loans ........... 7 12 1 1 --
Overdraft .................................. -- -- -- -- --
-------- -------- -------- -------- --------
Total recoveries ......................... 2,229 4,488 11,984 2,225 1,965
-------- -------- -------- -------- --------
Net (charge-offs)/recoveries ................. (3,828) 856 7,511 (3,683) (4,887)
-------- -------- -------- -------- --------
Balance at end of year ....................... $ 36,629 $ 40,457 $ 39,601 $ 32,090 $ 35,773
======== ======== ======== ======== ========
Net (charge-offs)/recoveries as a percentage
of average loans outstanding ............... (0.24%) 0.05% 0.42% (0.22%) (0.32%)
======== ======== ======== ======== ========
12
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses was as follows:
DECEMBER 31
------------------------------------------------------------
(THOUSANDS) 2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Commercial real estate ....... $ 26,043 $ 25,711 $ 25,837 $ 16,417 $ 12,971
Home equity .................. 5,960 8,815 12,010 11,777 10,070
Overdrafts ................... 1,523 -- -- -- --
Student ...................... 566 728 747 1,374 2,782
Residential first mortgage ... 433 247 438 358 459
Commercial ................... 343 44 141 273 269
Medical finance and consumer . 1 9 104 120 169
Unallocated .................. 1,760 4,903 324 1,771 9,053
-------- -------- -------- -------- --------
Total ................... $ 36,629 $ 40,457 $ 39,601 $ 32,090 $ 35,773
======== ======== ======== ======== ========
The 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
------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Commercial real estate ....... 89% 84% 76% 53% 49%
Commercial ................... 5 6 6 7 5
Home equity .................. 3 6 8 8 7
Residential first mortgage ... 2 3 5 5 9
Student ...................... 1 1 4 26 28
Medical finance and consumer . -- -- 1 1 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 page 15 of Notes to Consolidated Financial Statements and
pages 59 through 60 of Management's Discussion and Analysis of Financial
Statements of the 2002 Annual Report, incorporated herein by reference in
response to Items 7 and 8 hereof.
13
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 various loan participations in which Corus has purchased an interest:
(THOUSANDS) DECEMBER 31, 2002
-----------------------------------------------------------------
CURRENT COMMITMENT BALANCE OUTSTANDING
% ------------------------------- --------------------------------
LOAN # PROPERTY TYPE LOCATION PURCH TOTAL CORUS TOTAL CORUS
- ---------- ------------------------- -------- ------- --------------- -------------- -------------- ---------------
1 Office CA 12% $212,099 $ 25,452 $194,035 $ 23,284
2 Condo/loft conversion FL 22% 146,957 32,657 146,957 32,657
3 Hotel CA 15% 95,900 14,385 95,900 14,385
4 Hotel IL 50% 40,900 20,450 40,900 20,450
5 Retail IL 48% 28,931 13,902 28,931 13,902
6 Condo/loft conversion TX 50% 8,701 4,351 6,389 3,194
---------- -----------
Total purchased interest....................................................... $ 111,197 $ 107,872
Corus' total CRE portfolio..................................................... 2,776,504 1,552,850
Purchased interests as a percentage of Corus' total............................ 4.0% 6.9%
DEPOSITS
The scheduled maturities of time deposits in denominations of $100,000 or
greater were as follows at December 31, 2002:
(THOUSANDS)
Maturing within 3 months ................................. $ 80,467
After 3 but within 6 months .............................. 86,011
After 6 but within 12 months ............................. 79,133
After 12 months .......................................... 160,458
--------
Total ............................................... $406,069
========
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to Corus' equity and
assets:
DECEMBER 31
----------------------------
2002 2001 2000
------ ------ ------
Return on average total assets ................ 1.9% 2.0% 3.0%
Return on average common shareholders' equity . 10.6 12.8 21.6
Dividend payout ratio ......................... 18.2 16.1 11.4
Average equity to average total assets ........ 17.7 15.9 13.8
14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
As previously disclosed, on June 4, 2002, the Audit Committee of Corus
Bankshares, Inc. ("Corus") recommended and Corus' Board of Directors approved
the appointment of Ernst & Young LLP as independent accountants of Corus for
fiscal 2002. This action caused the dismissal of Arthur Andersen LLP
("Andersen") as the independent accountants of Corus.
For the two years ended December 31, 2001, Andersen's reports on the financial
statements did not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles.
For the two years ended December 31, 2001 and from December 31, 2001 through the
effective date of the dismissal, there were no disagreements between Andersen
and Corus on any matters of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure.
Corus requested that Andersen furnish a letter addressed to the United States
Securities and Exchange Commission stating whether Andersen agrees with the
preceding statements. Andersen's letter dated June 4, 2002, is attached as
Exhibit 16 to the Form 8-K filing dated June 6, 2002.
15
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 2003 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 Subsidiary 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 SUBSIDIARY PRESENT OFFICE(S)
- ---------------------- --- ------------------------------------------ ----------------------
Robert J. Glickman ... 56 President and Chief Executive June 1, 1984
of the Company and Corus Bank, N.A.
Michael G. Stein ..... 42 Executive Vice President, Corus Bank, N.A. February 19, 1996
Tim H. Taylor ........ 38 Executive Vice President and Chief December 1, 1998
Financial Officer of the Company
and Corus Bank, N.A.
John M. Barkidjija ... 39 Senior Vice President, Corus Bank, N.A. January 1, 2003
Brian J. Brodeur ..... 45 Senior Vice President, Corus Bank, N.A. April 15, 2002
Randy P. Curtis ...... 44 Senior Vice President, Corus Bank, N.A. April 30, 1997
Michael W. Jump ...... 58 Senior Vice President, Corus Bank, N.A. January 1, 1996
Terence W. Keenan .... 57 Senior Vice President, Corus Bank, N.A. September 16, 1996
Richard J. Koretz .... 39 Senior Vice President, Corus Bank, N.A. November 15, 1995
John R. Markowicz .... 39 Senior Vice President, Corus Bank, N.A. January 1, 2003
Joel C. Solomon ...... 48 Senior Vice President, Corus Bank, N.A. August 29, 1997
Information regarding compliance with Section 16(a) of the Exchange Act is
incorporated herein by reference to page 18 of the 2003 Proxy Statement.
16
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference
to the material under the caption "Executive Compensation" on pages 8 through 16
of the 2003 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference to the material under the
headings "Outstanding Voting Securities and Principal Shareholders" and
"Proposal One: Election of Directors" on pages 1 through 5 of the 2003 Proxy
Statement.
Following is information regarding Corus' equity compensation plan as of
December 31, 2002. Additional information regarding Corus' equity compensation
plan is incorporated herein by reference to material under the heading "Stock
Option Plan" on page 31 of Notes to Consolidated Financial Statements of the
2002 Annual Report.
Plan Category (a) (b) (c)
Number of securities to be Weighted-average exercise Number of securities remaining
issued upon exercise of price of outstanding options, available for future issuance
outstanding options, warrants warrants and rights under equity compensation
and rights plans (excluding securities
reflected in column (a))
- ---------------------- ----------------------------- ----------------------------- ----------------------------------
Equity compensation
plans approved by 590,920 $ 36.70 420,700
security holders
Equity compensation
plans not approved by None None None
security holders
Total 590,920 $ 36.70 420,700
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 18 of the 2003 Proxy Statement.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on and as of the time of such evaluation, the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the Company's disclosure controls and procedures were
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiary) required to be included in the
Company's periodic filing with the Securities and Exchange Commission. There
have been no significant changes in the Company's internal controls or in other
factors that could significantly affect internal controls subsequent to the time
of such evaluation.
17
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following Consolidated Financial Statements, Notes to Consolidated
Financial Statements, and the Reports of Independent Public Accountants
are incorporated herein by reference to the following pages of the
registrant's 2002 Annual Report:
INDEX PAGES
----- -----
Consolidated Balance Sheets .......................................................... 10
Consolidated Statements of Income .................................................... 11
Consolidated Statements of Changes in Shareholders' Equity ........................... 12
Consolidated Statements of Cash Flows ................................................ 13
Notes to Consolidated Financial Statements ........................................... 14-38
Reports of Independent Public Accountants ............................................ 39-40
Average Balance Sheet and Net Interest Margin ........................................ 42
(b) Reports on Form 8-K:
None
(c) Exhibits: See exhibits filed herewith
(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
(10.1) Commission Program for the Commercial Loan Officers is incorporated
herein by reference to Form S-8 filing dated May 22, 1998
(10.2) The 1999 Stock Option Plan is incorporated herein by reference to
Form S-8 filing dated April 30, 1999
(11) Computation of Net Income Per Share is incorporated herein by
reference to page 32 of the registrant's 2002 Annual Report
(13) The registrant's 2002 Annual Report is incorporated herein by
reference
(16) Letter re Change in Certifying Accountant is incorporated herein by
reference to the Form 8-K filing dated June 6, 2002
(23) Consent of Independent Auditors
(99) Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
18
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 21, 2003
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 Directors March 21, 2003
- ---------------------------------
Joseph C. Glickman
/s/ ROBERT J. GLICKMAN President, Chief Executive Officer, & March 21, 2003
- --------------------------------- Director
Robert J. Glickman
/s/ TIM H. TAYLOR Executive Vice President & Chief Financial March 21, 2003
- --------------------------------- Officer
Tim H. Taylor
/s/ MICHAEL E. DULBERG First Vice President & Chief Accounting March 21, 2003
- --------------------------------- Officer
Michael E. Dulberg
/s/ STEVEN D. FIFIELD Director March 21, 2003
- ---------------------------------
Steven D. Fifield
/s/ VANCE A. JOHNSON Director March 21, 2003
- ---------------------------------
Vance A. Johnson
/s/ RODNEY D. LUBEZNIK Director March 21, 2003
- ---------------------------------
Rodney D. Lubeznik
/s/ MICHAEL J. MCCLURE Director March 21, 2003
- ---------------------------------
Michael J. McClure
19
CERTIFICATIONS
I, Robert J. Glickman, certify that:
1. I have reviewed this annual report on Form 10-K of Corus Bankshares,
Inc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 21, 2003 /s/ ROBERT J. GLICKMAN
---------------------------
Robert J. Glickman
Chief Executive Officer
20
CERTIFICATIONS
I, Tim H. Taylor, certify that:
1. I have reviewed this annual report on Form 10-K of Corus Bankshares,
Inc;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 21, 2003 /s/ TIM H. TAYLOR
----------------------
Tim. H. Taylor
Chief Financial Officer
21