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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
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)
Indicate by check mark whether the 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of April 30, 2003, the Registrant had 14,029,244 common shares, $0.05 par
value, outstanding.
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CORUS BANKSHARES, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 31, 2003
TABLE OF CONTENTS
PART I. -- FINANCIAL INFORMATION
ITEM 1. Financial Statements ................................................................. 1
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................................ 9
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk ........................... 28
ITEM 4. Controls and Procedures .............................................................. 28
PART II. -- OTHER INFORMATION
ITEM 1. Legal Proceedings .................................................................... 29
ITEM 2. Changes in Securities and Use of Proceeds ............................................ 29
ITEM 3. Defaults Upon Senior Securities ...................................................... 29
ITEM 4. Submission of Matters to a Vote of Security Holders .................................. 29
ITEM 5. Other Information .................................................................... 29
ITEM 6. Exhibits and Reports on Form 8-K ..................................................... 29
Signatures ........................................................................... 30
Certifications Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 .......... 31
Exhibit 3(i) - Amended and Restated Articles of Incorporation ........................ 33
Exhibit 15 - Letter re unaudited financial information ............................... 36
Exhibit 99.1 - Independent Accountants' Review Report ................................ 37
Exhibit 99.2 - Certifications Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 ............................................ 38
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORUS BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (Unaudited)
MARCH 31 December 31 March 31
(Dollars in thousands) 2003 2002 2002
----------- ----------- -----------
Assets
Cash and due from banks - non-interest bearing $ 68,032 $ 61,560 $ 99,679
Federal funds sold 333,870 370,100 458,850
Securities:
Available-for-sale, at fair value
Common stocks at the Bank Holding Company 134,886 147,845 173,126
(amortized cost $92,902, $101,478 and $101,478)
Other securities 239,350 272,799 308,444
(amortized cost $235,089, $267,658 and $308,091)
Held-to-maturity, at amortized cost 6,659 6,687 6,973
(fair value $6,735, $6,767 and $7,036)
----------- ----------- -----------
Total Securities 380,895 427,331 488,543
Loans, net of unearned income 1,794,481 1,741,969 1,592,768
Less: Allowance for loan losses 35,517 36,629 40,244
----------- ----------- -----------
Net Loans 1,758,964 1,705,340 1,552,524
Premises and equipment, net 27,902 28,320 28,913
Accrued interest receivable and other assets 27,142 19,876 21,058
Goodwill, net of accumulated amortization of $30,009 4,523 4,523 4,523
----------- ----------- -----------
Total Assets $ 2,601,328 $ 2,617,050 $ 2,654,090
=========== =========== ===========
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 218,989 $ 216,551 $ 217,886
Interest-bearing 1,822,686 1,843,222 1,880,744
----------- ----------- -----------
Total Deposits 2,041,675 2,059,773 2,098,630
Other borrowings 43,477 48,110 51,025
Accrued interest payable and other liabilities 31,681 27,126 40,641
----------- ----------- -----------
Total Liabilities 2,116,833 2,135,009 2,190,296
Shareholders' Equity
Common stock (par value $0.05 per share, 50,000,000
shares authorized; 14,029,244, 14,119,244 and
14,159,644 shares outstanding, respectively) 701 706 708
Surplus 16,700 17,374 16,215
Retained earnings 437,035 430,482 400,071
Accumulated other comprehensive income 30,059 33,479 46,800
----------- ----------- -----------
Total Shareholders' Equity 484,495 482,041 463,794
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 2,601,328 $ 2,617,050 $ 2,654,090
=========== =========== ===========
See accompanying notes.
1
CORUS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31
----------------------
(In thousands, except per share data) 2003 2002
-------- --------
Interest, Loan Fees, and Dividend Income
Interest and fees on loans:
Taxable $ 33,386 $ 30,445
Tax-advantaged 44 61
Federal funds sold 966 2,509
Securities:
Taxable 2,385 2,354
Tax-advantaged 16 18
Dividends 1,250 1,124
Trading account 200 275
-------- --------
Total Interest, Loan Fees, and Dividend Income 38,247 36,786
Interest Expense
Deposits 11,133 13,666
Federal funds purchased -- 3
Other borrowings 342 444
-------- --------
Total Interest Expense 11,475 14,113
Net Interest Income 26,772 22,673
Provision for Loan Losses -- --
-------- --------
Net Interest Income After Provision for Loan Losses 26,772 22,673
Noninterest Income
Service charges on deposit accounts 2,995 3,004
Securities gains/(losses), net (101) 1,564
Other income 727 652
-------- --------
Total Noninterest Income 3,621 5,220
Noninterest Expense
Salaries and employee benefits 7,212 7,842
Net occupancy 963 930
Data processing 639 590
Depreciation - furniture & equipment 377 412
Other expenses 2,474 2,481
-------- --------
Total Noninterest Expense 11,665 12,255
-------- --------
Income Before Income Taxes 18,728 15,638
Income Tax Expense 6,261 5,170
-------- --------
Net Income $ 12,467 $ 10,468
======== ========
Net income per share:
Basic $ 0.88 $ 0.74
Diluted 0.88 0.73
Cash dividends declared per common share $ 0.160 $ 0.155
Average common shares outstanding:
Basic 14,108 14,160
Diluted 14,227 14,304
See accompanying notes.
2
CORUS BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Accumulated
Other
Common Retained Comprehensive
(Dollars in thousands, except per share data) Stock Surplus Earnings Income Total
------- ------- -------- ------------- --------
Balance at December 31, 2002 $706 $17,374 $430,482 $ 33,479 $482,041
Net income 12,467 12,467
Other comprehensive income (net of income taxes):
Net change in unrealized gains on available-
for-sale securities (3,420) (3,420)
--------
Comprehensive income 9,047
--------
Retirement of common shares (5) (65) (3,668) (3,738)
Deferred compensation (609) (609)
Cash dividends declared on common stock,
$0.160 per common share (2,246) (2,246)
---- ------- -------- -------- --------
Balance at March 31, 2003 $701 $16,700 $437,035 $ 30,059 $484,495
==== ======= ======== ======== ========
See accompanying notes.
CORUS BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
Accumulated
Other
Common Retained Comprehensive
(Dollars in thousands, except per share data) Stock Surplus Earnings Income Total
------- --------- -------- --------------- -----------
Balance at December 31, 2001 $708 $15,951 $391,798 $ 42,429 $450,886
Net income 10,468 10,468
Other comprehensive income (net of income taxes):
Net change in unrealized gains on available-
for-sale securities 4,371 4,371
--------
Comprehensive income 14,839
--------
Deferred compensation 264 264
Cash dividends declared on common stock,
$0.155 per common share (2,195) (2,195)
---- ------- -------- -------- --------
Balance at March 31, 2002 $708 $16,215 $400,071 $ 46,800 $463,794
==== ======= ======== ======== ========
See accompanying notes.
3
CORUS BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three months ended March 31 2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,467 $ 10,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 694 725
Amortization of investment and loan premiums, net 235 8
Deferred income tax (benefit) expense (2,158) 76
Securities losses (gains), net 101 (1,564)
Deferred compensation 124 909
(Increase) decrease in accrued interest receivable and other assets (675) 3,221
Increase in accrued interest payable and other liabilities 7,838 6,373
--------- ---------
Net cash provided by operating activities 18,626 20,216
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held-to-maturity -- 50
Proceeds from maturities of available-for-sale securities 32,419 27,952
Proceeds from sales of available-for-sale securities 6,053 80,051
Purchases of available-for-sale securities (4,129) (204,255)
Net increase in loans (54,548) (119,352)
Bad debt recoveries 825 422
Purchases of premises and equipment, net (276) (256)
--------- ---------
Net cash used in investing activities (19,656) (215,388)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deposit accounts (18,098) (22,826)
Repayment of debt (1,000) (1,000)
Decrease in other borrowings, net (3,633) (3,791)
Retirements of common shares (3,738) --
Cash dividends paid on common shares (2,259) (2,196)
--------- ---------
Net cash used in financing activities (28,728) (29,813)
--------- ---------
Net decrease in cash and cash equivalents (29,758) (224,985)
Cash and cash equivalents at January 1 431,660 783,514
--------- ---------
Cash and cash equivalents at March 31 $ 401,902 $ 558,529
========= =========
See accompanying notes.
4
CORUS BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Consolidated Financial Statements
The 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
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, 2002 included in Corus' Annual Report on Form 10-K for
the year ended December 31, 2002. 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. Recent Accounting Pronouncements
In December 2002, Statement of Financial Standards ("SFAS") No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure" was
issued and provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. In addition, the statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on
reported results. This statement was effective for Corus beginning with the
fiscal period ending December 31, 2002. Because the Company plans to
continue its accounting for stock-based compensation under APB No.25, the
adoption of SFAS No. 148 is not expected to have a material impact on
results of operations or financial position. See Note 7 of Notes to
Consolidated Financial Statements for required disclosure.
3. Segment Reporting
The following reflects the disclosure requirements set forth by SFAS 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, mezzanine loans, and
loans to customers in the check cashing industry.
Consumer Lending is composed of home equity, residential mortgage, 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 gains/(losses) on 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.
5
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.
Following is a summary of significant segment information, as required by
SFAS No. 131:
FOR THE THREE MONTHS ENDED MARCH 31, 2003
(Dollars in thousands) Commercial Consumer Retail Corporate Inter-segment
Lending Lending Banking Support Eliminations Consolidated
----------- ----------- ----------- ----------- -------------- -------------
Total Revenues (1) $ 17,610 $ 1,389 $ 8,507 $ 2,887 $ -- $ 30,393
Net Income 6,984 434 2,188 2,861 -- 12,467
Total Average Assets 1,907,044 93,829 2,181,313 175,890 (1,725,345) 2,632,731
End of Period Goodwill -- -- 4,523 -- -- 4,523
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Dollars in thousands) Commercial Consumer Retail Corporate Inter-segment
Lending Lending Banking Support Eliminations Consolidated
----------- ----------- ----------- ----------- ------------- -------------
Total Revenues (1) $ 13,376 $ 2,007 $ 9,785 $ 2,725 $ -- $ 27,893
Net Income 5,384 525 2,907 1,652 -- 10,468
Total Average Assets 1,534,104 156,499 2,196,309 493,878 (1,725,120) 2,655,670
End of Period Goodwill -- -- 4,523 -- -- 4,523
(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.
4. Derivatives
As of January 1, 2001, Corus implemented SFAS No. 133, as amended. This
statement establishes accounting and reporting standards requiring that
every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. Special accounting for
qualifying hedges ("hedge accounting") allows a derivative's gains and
losses to be either offset by the change in fair value of the hedged risk
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.
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. All but one of the fixed-to-floating swaps qualified
as fair value hedges and received hedge accounting
6
treatment. In addition, the Company's basis swaps also do not meet the
strict criteria required to qualify for hedge accounting.
For the three months ended March 31, 2003 and 2002, Corus recorded net
gains of $1.6 million and $721,000, respectively, related to SFAS No. 133.
The income related to both hedge and non-hedge derivatives is as follows:
THREE MONTHS ENDED
MARCH 31
Income Statement ---------------------
(Dollars in thousands) Classification 2003 2002
- --------------------------------------------------------------------------------------
INCOME/(LOSS)
---------------------
Fair value hedge:
Fixed-to-floating swaps Interest Income $ 24 $ (44)
Non-hedge:
Fixed-to-floating swaps Noninterest Income 5 14
Basis swaps Noninterest Income 1,611 751
------- -----
Total Non-hedge 1,616 765
------- -----
Total Derivative Gain/(Loss) $ 1,640 $ 721
======= =====
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 March 31, 2003, management believes that Corus
was in compliance with all loan covenants.
Interest and fees for both notes for the first quarter of 2003 totaled
$341,000. At March 31, 2003, the term note and revolving credit line had
outstanding balances of $43 million and $180,000, respectively.
7
6. Net Income Per Share
Net income per share was calculated as follows:
THREE MONTHS ENDED
MARCH 31
-------------------
(In thousands, except per share data) 2003 2002
------- -------
Denominator for basic earnings per share:
average common shares outstanding 14,108 14,160
Dilutive common stock options 119 144
------- -------
Denominator for diluted earnings per share 14,227 14,304
======= =======
Numerator: Net income attributable to common shares $12,467 $10,468
Net income per share:
Basic $ 0.88 $ 0.74
Diluted 0.88 0.73
7. Stock-Based Employee Compensation
Corus utilizes stock options to compensate employees under the, shareholder
approved, 1999 Stock Option Plan ("the Plan"). Under the Plan, options to
purchase Corus' common stock have been granted to employees at prices equal
to the fair market value of the underlying stock on the dates the options
were granted. The options vest 20% per year, over a five-year period, and
expire in 10 years. The Company accounts for the Plan under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees, and related Interpretations"
("APB No. 25"). Since all options granted under the Plan had an exercise
price equal to the market value of the underlying common stock on the date
of grant, the granting of the options had no impact on net income. The
following table illustrates the effect on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," to stock-based employee
compensation.
THREE MONTHS ENDED
MARCH 31
--------------------------
(In thousands, except per share data) 2003 2002
---------- ----------
Net income, as reported $ 12,467 $ 10,468
Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects -- --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (261) (196)
---------- ----------
Pro forma net income $ 12,206 $ 10,272
========== ==========
EARNINGS PER SHARE:
Basic - as reported $ 0.88 $ 0.74
Basic - pro forma 0.87 0.73
Diluted - as reported $ 0.88 $ 0.73
Diluted - pro forma 0.86 0.72
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 residential first mortgage and home equity
loan balances to run off.
SIGNIGICANT ACCOUNTING POLICIES
Management has determined that one particular accounting policy requires a high
level of judgment: the assessment of the allowance for loan losses.
The allowance for loan losses is based upon quarterly reviews. These reviews
include an assessment of the loan portfolio and include reviews of both specific
credits and an overall assessment. Specific reviews are performed in accordance
with SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," and can
result in a specific reserve for certain impaired loans. For those loans not
specifically reviewed, an assessment is performed, by loan type (i.e.,
commercial, commercial real estate, construction, home equity, residential first
mortgage, etc.) to determine an inherent loss rate. The inherent loss rate is
based primarily on a combination of prior loss experience and delinquency levels
(current vs. historical). In those cases where, due to insufficient historical
data, Corus' loss and delinquency experience may not accurately reflect the
inherent losses in a segment of the portfolio, Corus will utilize the respective
historical rates as published by the Federal Deposit Insurance Corporation
("FDIC") in its Quarterly Banking Profile publication. For commercial real
estate loans, Corus utilizes the historical FDIC loss and delinquency rates.
Additional factors are also considered including the level of problem and
potential problem loans, trends in volume and terms of loans, changes in risk
selection and underwriting standards, experience, ability and depth of lending
management, and economic and industry conditions.
The assessment as to the adequacy of the allowance for loan losses is grounded
by the assumption that historical experience is a good predictor of future
performance. This assumption, while supported by guidance provided by the
Financial Accounting Standards Board, the Office of the Comptroller of the
Currency, and the Securities & Exchange Commission, may not ultimately be
correct. In that event, estimates of inherent losses may differ from actual
results.
OPERATING RESULTS
For the three months ended March 31, 2003, net income was $12.5 million, or
$0.88 per share on a diluted basis, an increase of 19.1% from net income of
$10.5 million, or $0.73 per share on a diluted basis, in 2002.
Earnings for the first quarter of 2003 represented annualized returns of 10.3%
on equity (ROE) and 1.9% on assets (ROA) compared to 9.2% and 1.6% for the same
period in 2002.
9
Net Interest Income
Net interest income, which is the difference between interest income and fees on
earning assets and interest expense on deposits and borrowings, is the major
source of earnings for Corus. The related net interest margin represents net
interest income as a percentage of the average earning assets during the period.
For the three months ending March 31, 2003, Corus' net interest margin increased
by 68 basis points to 4.30% compared to the prior year. This dramatic increase
was the result of a combination of two factors. First, loan fees increased,
year-over-year, by $3.6 million to $7.1 million for the quarter ended March 31,
2003. Loan fee income is a normal part of our business. The fees typically
relate to points paid at closing where the recognition of income is deferred and
amortized ratably over the term of the loan. Income recognition associated with
these fees is relatively predictable and tends to increase as the overall level
of loans increase. Other types of fees, on the other hand, such as those
associated with the prepayment of loans or a contingent fee arrangement are less
predictable and can result in earnings spikes since recognition of the income is
not recorded over the life of the related loan, but rather recorded when
received. Importantly, these fees are as much a part of Corus' business as
points; they are simply accounted for differently due to their unpredictable
nature.
The other factor, which had a less significant overall impact on the current
quarter's net interest margin, but is arguably a stronger indicator of future
earnings, is the increased level of loans relative to Corus' other earning
assets. As shown in the net interest margin table, average net loans for the
first quarter of 2003 grew to $1.74 billion, or 68% of total earning assets,
compared to $1.54 billion in 2002, or 60% of total earning assets. This increase
is a direct result of strong loan originations.
10
AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN (Unaudited)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31
-------------------------------------------------------------------
2003 2002
-------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/
(Dollars in thousands) BALANCE AND FEES COST BALANCE AND FEES COST
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Earning Assets:
Liquidity management assets (1) (2) $ 651,907 $ 3,576 2.19% $ 857,871 $ 5,165 2.41%
Common stocks at the Bank Holding Company (3) 146,642 1,722 4.70% 162,646 1,548 3.81%
Loans, net of unearned income (2) (4) 1,738,076 33,453 7.70% 1,538,849 30,539 7.94%
- ------------------------------------------------------------------------------------- -----------------------
Total earning assets 2,536,625 38,751 6.11% 2,559,366 37,252 5.82%
Noninterest-earning assets:
Cash and due from banks--noninterest bearing 78,946 83,389
Allowance for loan losses (36,709) (40,438)
Premises and equipment, net 28,180 29,227
Other assets, including goodwill 25,689 24,126
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,632,731 $2,655,670
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits--interest-bearing:
Money market deposits $ 921,760 $ 4,014 1.74% $ 894,242 $ 4,087 1.83%
NOW deposits 130,656 114 0.35% 116,069 147 0.50%
Savings deposits 163,250 401 0.98% 151,776 559 1.47%
Brokered certificates of deposit 244,498 3,714 6.08% 314,627 4,730 6.01%
Retail certificates of deposit 392,041 2,890 2.95% 414,320 4,143 4.00%
------------------- -----------------------
Total interest-bearing deposits 1,852,205 11,133 2.40% 1,891,034 13,666 2.89%
Borrowings 45,762 342 2.99% 52,516 447 3.40%
- ------------------------------------------------------------------------------------ -----------------------
Total interest-bearing liabilities 1,897,967 11,475 2.42% 1,943,550 14,113 2.90%
Noninterest-bearing liabilities and shareholders' equity:
Noninterest-bearing deposits 220,724 220,481
Other liabilities 30,854 38,700
Shareholders' equity 483,186 452,939
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,632,731 $2,655,670
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income and loan fees/average earning assets $ 2,536,625 $38,751 6.11% $2,559,366 $37,252 5.82%
Interest expense/average interest-bearing liabilities $ 1,897,967 11,475 2.42% $1,943,550 14,113 2.90%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest spread $27,276 3.69% $23,139 2.92%
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.30% 3.62%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Liquidity management assets include federal funds sold and securities held
at the subsidiary bank.
(2) Interest income on tax-advantaged loans and securities reflects a tax
equivalent adjustment based on an income tax rate of 35%.
(3) Dividends on the bank stock portfolio reflects a tax equivalent adjustment
for the 70% dividend received deduction.
(4) Unremitted interest on nonaccrual loans is not included in the amounts.
Includes net interest income derived from interest rate swap contracts.
11
Noninterest Income
For the three months ended March 31, 2003, noninterest income decreased by $1.6
million compared to the prior year. The decrease resulted from lower securities
gains/(losses), as described below. Service charges on deposit accounts and
other income had no significant fluctuations between the two periods.
Securities Gains/(Losses), net
For the three months ended March 31, 2003, Corus recorded net security losses of
$101,000, compared to $1.6 million of net gains in the first quarter of 2002.
The following details the net securities gains/(losses) by source:
THREE MONTHS ENDED
MARCH 31
--------------------
(Dollars in thousands) 2003 2002
--------------------
Sales of common stocks at Bank Holding Company $ 7,315 $ 951
Charge for "other than temporary" impairment (8,962) -
Sales of securities at subsidiary bank (70) (152)
Mark-to-market adjustments on non-hedge derivatives 1,616 765
--------------------
Total securities gains/(losses), net $ (101) $ 1,564
====================
Sales of common stocks at Bank Holding Company
Sales of common stocks at the Bank Holding Company relate to the common stock
portfolio of various financial industry companies held at the Holding Company.
During the first quarter of 2003, Corus recognized a $7.3 million gain on
security sales from the portfolio. Corus will periodically sell all or part of
certain positions in order to take advantage of market opportunities as they
arise.
Charge for "other than temporary" impairment
More than offsetting the $7.3 million gain on the sale of securities was a
charge of $9.0 million related to "other than temporary" declines in value of
certain common stocks held at the Holding Company. It is important to point out
that this charge was not as a result of the bank selling the associated stocks,
but rather an accounting entry with no cash flow or tax implications. This
charge was recorded in accordance with SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" and as further defined by the
Securities and Exchange Commission Staff Accounting Bulletin No. 59 ("SAB 59").
As background, accounting rules require that investments be categorized as
trading, held-to-maturity ("HTM"), or available-for-sale ("AFS"). Trading
securities are those securities that are bought and held principally for the
purpose of selling them in the near term. HTM securities are those investments
which the company has the "positive intent and ability to hold" to maturity.
Finally, AFS securities are those investments not classified as either trading
or HTM. The common stocks held at the Holding Company are classified and
accounted for as AFS securities.
The significance of how an investment is classified is reflected in how
unrealized gains/(losses) are treated in the accounting records and thus in the
company's financial statements. For trading securities, unrealized
gains/(losses) are recorded directly in the income statement each period. This
reflects the assumed short-term nature of these investments and the idea that
these securities are generally purchased with the objective of generating
profits on short-term differences in price. On the other hand, for HTM
securities unrealized gains/(losses) are generally not recorded at all under the
assumption that any short-term fluctuations in value will ultimately reverse by
maturity. The accounting for AFS securities is somewhat of a middle ground
between trading and HTM. For AFS securities, changes in market value are
recorded each period on the balance sheet, on an after-tax basis directly in
equity as an item referred to as Other Comprehensive Income, but these changes
in market value are not reflected in the income statement.
An exception to the above guidelines arises when unrealized losses are
determined to be "other than temporary" ("OTT"). If an investment is determined
to have experienced an OTT decline in value, the loss must then be recognized in
the income statement regardless of how the investment is categorized.
Indications of OTT declines in value include prolonged periods of consistent
unrealized losses or deterioration in the financial condition or near-term
prospects of the issuer. Corus' policy for marketable equity securities is to
recognize impairment losses on individual securities when the security has been
in a loss position at the close of each trading day during six (6) consecutive
months as of any quarter end. Lastly,
12
Corus evaluates its investments for OTT declines in value on a lot-by-lot basis,
meaning that if there are multiple purchases of a certain security, each
purchase is evaluated individually.
Based on an analysis of the equities owned at March 31, 2003, Corus determined
that certain lots of three different equity investments had OTT declines in
value. This resulted in a $9.0 million charge ($5.85 million after tax) to
earnings. At March 31, 2003, Corus had additional unrealized losses in the
Holding Company portfolio of approximately $1.0 million, before taxes. Future
OTT adjustments are dependent on future equity market values, which are
inherently difficult to predict.
With all the preceding being said, it is important to note that while the
accounting rules require that we report short-term stock price declines as
"other than temporary" losses in the income statement, the reality is stock
prices - for even the finest and best-managed companies - rise and fall,
sometimes over very extended periods of time (such "extended" periods of times
can easily be multiples of a six month timeframe). The fact that a company's
shares fall in value for a period as short as six months is neither overly
concerning to us nor any reasonable indicator of how the stock may fare in the
future. This is profoundly true if the overall stock market has been declining.
Conversely, if a stock has been falling in the face of a generally rising
market, especially if this has been occurring over a protracted period of time,
this poor relative performance may well indicate a genuine problem with the
company and its prospects. Regardless, such a fundamental/economic approach is
not the way the accounting rules work and we are thus left reporting security
losses which bear no relationship to what we perceive to be the future potential
of the companies and their shares. Lastly, while we are required to report
security losses from these "other than temporary" declines in value, we are not
(as alluded to above) allowed to report security gains when the securities
recover in value (those book gains are essentially deferred until we sell the
stock somewhere down the road). Unfortunately, this is just yet another
accounting `disconnect' that companies, and their investors, must learn to live
with.
Mark-to-market adjustments on non-hedge derivatives
Finally, for the three months ended March 31, 2003, the Bank recorded a gain of
$1.6 million from what we refer to as mark-to-market adjustments on non-hedge
derivatives. Due to their unusual nature, the basis for these gains requires
additional explanation.
Like many banks, Corus utilizes derivatives to hedge its interest rate risk.
This is accomplished primarily via interest rate swaps (to effectively convert
fixed-rate loans to floating rate or vice versa) and interest rate basis swaps
(to effectively convert LIBOR-based floating rate loans to Treasury-based
floating-rate loans).
As of January 1, 2001, virtually all companies were required to adopt new
derivative accounting rules (known as SFAS No. 133). These rules require that
all derivative instruments be included on the balance sheet at market value. In
addition, the rules provide that if a derivative is "paired-off" against
specific assets and/or liabilities and also passes an additional succession of
tests, then the income statement impact of any periodic changes in the value of
the derivative effectively do not need to be reflected on the Company's income
statement. Such derivatives are afforded what is termed "hedge accounting"
treatment. The rules are enormously complex, but suffice it to say that even
though the basis swaps we have entered into are designed to hedge our interest
rate risk - that is, regardless of the accounting treatment the basis swaps are
economic hedges - they do not qualify for hedge accounting treatment and thus
changes in the market value of these instruments must be reflected on our income
statement as security gains/(losses). Our interest rate swaps, on the other
hand, generally do qualify for hedge accounting.
Since Corus' basis swaps do not qualify for hedge accounting treatment, periodic
changes in their market value will appear as security gains/(losses) on the
Company's income statement. Since this income does not stem from having actually
sold the instruments, it is subject to reversal based on future changes in the
market values. In fact, if Corus holds basis swaps to maturity, which we
generally do, the value of the instruments will ultimately return to $0. What
this means is that the cumulative gains or losses recognized at any point in
time are temporary as they will ultimately reverse, such that the cumulative
gains and losses over the life of a basis swap will sum to zero.
As of March 31, 2003, Corus has recorded cumulative gains of $6.7 million
related to mark-to-market adjustments on non-hedge derivatives. While the
portfolio of basis swaps vary both in notional amounts and maturities, they will
all have matured by 2008. This means that, absent Corus entering into any
additional basis swaps between now and 2008 (although it is likely the Company
will put on new basis swaps before then), the previously recognized $6.7 million
of security gains will have to "reverse" in the form of $6.7 million of security
losses between now and 2008. While
13
management can predict the eventual reversal of these gains, we cannot predict
in what periods or in what periodic amounts those reversals will occur.
Noninterest Expense
For the first quarter of 2003, noninterest expense decreased by $590,000,
compared to the prior year. This decrease is mainly due to the impact of the
mark-to-market adjustments associated with the Commercial Loan Officer
Commission Program ("the CLO Program"). The CLO Program is a deferred
compensation plan and allows for compensation to be deferred in 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. The first quarter adjustment was a decrease to salaries and
benefits expense of $609,000 compared to an increase of $264,000 in the first
quarter of 2002, a variance of $873,000. Therefore, absent the CLO Program
mark-to-market adjustments, salary and benefits expense increased slightly for
the quarter, driven by higher bonus accruals related to growth in commercial
real estate loan originations.
FINANCIAL CONDITION
Earning Assets
The following table details the composition of Corus' earning assets:
(Dollars in thousands) MARCH 31, 2003 December 31, 2002 March 31, 2002
AMOUNT PERCENT Amount Percent Amount Percent
-------------------- --------------------- ---------------------
Loans, net of unearned income $1,794,481 72% $1,741,969 69% $1,592,768 63%
Federal funds sold 333,870 13 370,100 14 458,850 18
Securities other than common stocks 246,009 10 279,486 11 315,417 12
Common stocks at the Bank Holding Company 134,886 5 147,845 6 173,126 7
----------------- ------------------ -------------------
Total $2,509,246 100% $2,539,400 100% $2,540,161 100%
================= ================== ===================
14
Loans
The following table details the composition of Corus' loan portfolio:
(Dollars in thousands) MARCH 31, 2003 December 31, 2002 March 31, 2002
AMOUNT PERCENT Amount Percent Amount Percent
--------------------- ---------------------- ------------------
Loans:
Commercial real estate:
Non-construction $ 995,925 56% $ 989,146 57% $ 779,292 49%
Construction 597,375 33 531,612 30 539,462 34
Mezzanine 32,585 2 32,092 2 48,201 3
------------------ --------------------- ------------------
Total commercial real estate 1,625,885 91% 1,552,850 89% 1,366,955 86%
Commercial 75,619 4 87,631 5 88,941 5
Residential real estate and other 92,977 5 101,488 6 136,872 9
------------------ --------------------- ------------------
Total Loans $1,794,481 100% $1,741,969 100% $1,592,768 100%
================== ===================== ==================
Commercial Real Estate Lending
Commercial real estate loans are comprised of non-construction, construction,
and mezzanine loans. The non-construction loans are of relatively short
duration, rarely more than five years in length, and usually shorter. Some would
call these "bridge" loans or "mini-perms", but the meaning of these labels is
not standardized in the lending industry. These loans are fully funded, or
nearly so, when the loan closes. Construction loans typically have maturities of
24 to 36 months and are funded throughout the term as construction progresses.
Mezzanine loans are essentially second mortgage loans on commercial real estate
projects, almost always subordinate to a Corus construction or non-construction
loan (as opposed to a third party's). Interest rates charged for mezzanine loans
are considerably higher than those charged for typical commercial real estate
loans, but they also carry additional risk.
The table above shows commercial real estate loan growth of $73 million or 4.7%
for the first quarter of 2003. However this table only includes actual balances
outstanding. When commitments are factored in, the growth is even more
significant. Commitments include unfunded loan amounts, commitment letters and
letters of credit.
The table below shows a reconciliation of commercial real estate loans
outstanding to the total including commitments.
COMMERCIAL REAL ESTATE LOANS OUTSTANDING INCLUDING COMMITMENTS
- --------------------------------------------------------------------------------
MARCH 31, 2003 December 31, 2002 March 31, 2002
(Dollars in thousands) AMOUNT PERCENT Amount Percent Amount Percent
---------------------- --------------------- ----------------------
Funded loans, net $ 1,625,885 56% 1,552,850 56% 1,366,955 64%
Commitments:
Loans 1,104,848 38 1,050,808 38 484,124 23
Commitment Letters 166,610 5 152,164 5 256,537 12
Letters of Credit 20,682 1 20,682 1 20,710 1
---------------------- ------------------ ------------------
Total $ 2,918,025 100% 2,776,504 100% 2,128,326 100%
===================== ================== ==================
Including commitments, growth for the first quarter of 2003 is $141.5 million,
or 5.1%. 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. As highlighted in the table on the
following page, the majority of the commitments relate to condominiums, rental
apartments, and office building loans.
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
The following tables break out commercial real estate loans by 1) property type,
2) location, 3) size and 4) a cross-section of location and property type.
COMMERCIAL REAL ESTATE LOANS - BY PROPERTY TYPE
- --------------------------------------------------------------------------------
(Dollars in millions) AS OF MARCH 31, 2003
---------------------------------------------------
LOANS OUTSTANDING TOTAL COMMITMENT(1)
# OF ----------------- --------------------
LOANS AMOUNT % AMOUNT %
----- ----------------- -----------------
Condo/loft conversion 28 $ 269 17% $ 844 29%
Office 28 468 29 745 26
Hotel 43 556 34 655 22
Rental apartments 17 148 9 407 14
Warehouse / Light industrial 10 27 2 101 4
Nursing homes 9 70 4 70 2
Vacant land 4 32 2 33 1
Retail 3 5 - 5 -
Other 4 21 1 26 1
Loans less than $1 million 234 52 3 54 2
Deferred fees/other discounts N/A (22) (1) (22) (1)
----- ---------------- ----------------
Total 380 $ 1,626 100% $ 2,918 100%
===== ================ ================
(1) Includes both funded and unfunded commitments, letters of credit, and
outstanding commitment letters.
COMMERCIAL REAL ESTATE LOANS - BY MAJOR METROPOLITAN AREA
- --------------------------------------------------------------------------------
(Dollars in millions) AS OF MARCH 31, 2003
--------------------------------------------------------
LOANS OUTSTANDING TOTAL COMMITMENT(1)
# OF ------------------- -------------------
LOANS AMOUNT % AMOUNT %
--------- ------------------- -------------------
California:
Los Angeles 19 $ 236 14% $ 486 17%
San Francisco 4 41 3 130 4
San Diego 6 80 5 99 3
Sacramento 2 28 2 76 3
------ ------- --- ------ ---
California Total 31 385 24 791 27
Washington, D.C.(2) 17 275 17 545 19
Chicago 42 236 15 383 13
Chicago-Loans less than $1 million 230 49 3 52 2
Miami 6 115 7 276 10
New York City 10 137 8 242 8
Texas:
Houston 13 175 11 210 7
Dallas 1 15 1 16 1
San Antonio 1 6 - 6 -
------ ------ --- ------ ---
Texas Total 15 196 12 232 8
Other (3) 29 255 15 419 14
Deferred fees/other discounts N/A (22) (1) (22) (1)
------ ---------------- ----------------
Total 380 $1,626 100% $2,918 100%
====== ================ ================
(1) Includes both funded and unfunded commitments, letters of credit, and
outstanding commitment letters.
(2) Includes northern Virginia and Maryland loans.
(3) No other metropolitan area exceeds three percent of the total.
16
COMMERCIAL REAL ESTATE LOANS - BY TOTAL COMMITMENT
- --------------------------------------------------------------------------------
(Dollars in millions) AS OF MARCH 31, 2003
------------------------------------------------------
LOANS OUTSTANDING TOTAL COMMITMENT(1)
# OF ----------------- --------------------
LOANS AMOUNT % AMOUNT %
------ ----------------- --------------------
$60 million and above 12 $ 218 13% $ 795 27%
$40 million to $60 million 12 344 21 586 20
$20 million to $40 million 27 446 28 756 26
$1 million to $20 million 95 588 36 749 26
Less than $1 million 234 52 3 54 2
Deferred fees/other discounts N/A (22) (1) (22) (1)
----- ----------------- -----------------
Total 380 $ 1,626 100% $ 2,918 100%
===== ================= =================
(1) Includes both funded and unfunded commitments, letters of credit, and
outstanding commitment letters.
COMMERCIAL REAL ESTATE LOAN COMMITMENTS -
BY MAJOR METROPOLITAN AREA AND PROPERTY TYPE(1)
- --------------------------------------------------------------------------------
(Dollars in millions) AS OF MARCH 31, 2003
----------------------------------------------------------------------------------
Condo / Loft Rental All
Conversion Office Hotel Apartments Others(2) Total
------------ ------ ----- ---------- --------- ---------
California:
Los Angeles $ 69 $ 88 $ 162 $ 74 $ 93 $ 486
San Francisco 87 25 18 -- -- 130
San Diego -- 49 32 17 1 99
Sacramento -- 43 -- 33 -- 76
------ ------ ------ ------ ------ ------
California Total 156 205 212 124 94 791
Washington, D.C.(3) 101 307 86 51 -- 545
Chicago-greater than $1 million 113 30 102 30 108 383
Miami 166 -- 60 50 -- 276
New York City 127 14 38 41 22 242
Texas:
Houston 76 79 14 41 -- 210
Dallas 16 -- -- -- -- 16
San Antonio -- 6 -- -- -- 6
------ ------ ------ ------ ------ ------
Texas Total 92 85 14 41 -- 232
Other(4) 89 104 143 70 11 417
Loans less than $1 million 54
Deferred fees/other discounts (22)
------ ------ ------ ------ ------ ------
Total $ 844 $ 745 $ 655 $ 407 $ 235 $2,918
====== ====== ====== ====== ====== ======
(1) Includes both funded and unfunded commitments, letters of credit, and
outstanding commitment letters.
(2) Includes warehouse/light industrial, nursing homes, vacant land, retail,
and other.
(3) Includes northern Virginia and Maryland loans.
(4) No other metropolitan area exceeds three percent of the total.
17
The following table shows the locations of new loans originated during the first
quarters of 2003 and 2002:
COMMERCIAL REAL ESTATE LOAN ORIGINATIONS - BY LOCATION
- --------------------------------------------------------------------------------
(Dollars in millions) THREE MONTHS ENDED MARCH 31
2003 2002
---------------------------------------- ----------------------------------------
# OF # OF
LOANS AMOUNT % LOANS AMOUNT %
---------- -------------------------- --------- --------------------------
Washington, D.C.(1) 3 $118 33% -- $-- -- %
California 4 99 28 2 95 45
Florida(2) 1 86 24 -- -- --
New York 1 10 3 1 -- --
Texas 1 6 2 2 41 20
Illinois 3 2 1 12 66 32
Other 2 31 9 3 6 3
---- ---- ---- ---- ---- ----
Total 15 $352 100% 20 $208 100%
==== ==== ==== ==== ==== ====
(1) Includes northern Virginia and Maryland loans.
(2) $70 million maximum outstanding - $7.1 million at the Holding Company and
$62.9 million at the Bank.
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:
AS OF MARCH 31, 2003
----------------------------------------------------------------
CURRENT COMMITMENT BALANCE OUTSTANDING
% ---------------------------- ---------------------------------
LOAN # PROPERTY TYPE LOCATION PURCH TOTAL CORUS TOTAL CORUS
- ---------- -------------------------- -------- ----- ---------- ------------- --------------- ------------
(Dollars in thousands)
1 Office CA 12% $ 211,358 $ 25,363 $ 193,200 $ 23,184
2 Hotel CA 15% 95,527 14,329 95,527 14,329
3 Hotel IL 50% 33,746 16,873 33,746 16,873
----------- -----------
Total purchased interest $ 56,565 $ 54,386
Corus' total CRE portfolio 2,918,025 1,625,885
Purchased interests as a percentage of Corus' total 1.9% 3.3%
=================================================================================================================================
The commercial real estate markets have been good for many years and Corus has
had particularly impressive results. We have actually had, in total, net
recoveries on this portfolio over the past 10 years. While our commercial real
estate portfolio continues to show minimal delinquencies and virtually no
losses, we recognize this sort of performance cannot persist indefinitely.
Other Lending
Commercial loans are primarily loans to Corus' customers in the check cashing
industry. Balances fluctuate based on seasonal cash requirements and are
generally secured by the equity of the check cashing operation.
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 run off. Minimal new originations are expected.
18
Common Stocks
At March 31, 2003, Corus had investments in the common stocks of 30 financial
industry companies totaling $134.9 million, including net unrealized gains of
$42.0 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 March 31, 2003:
MARKET PERCENTAGE OF
CORPORATION SHARES HELD VALUE PORTFOLIO
- -----------------------------------------------------------------------------------
(Dollars in thousands)
Comerica Inc. 339,300 $ 12,853 9.5%
FleetBoston Financial Corp. 423,960 10,124 7.5
Charter One Financial Inc. 338,538 9,364 6.9
Amsouth Bancorporation 466,015 9,264 6.9
Citigroup Inc. 225,000 7,751 5.8
Wachovia Corp. 223,840 7,626 5.7
JP Morgan Chase & Co. 319,100 7,566 5.6
MAF Bancorp Inc. 208,125 7,003 5.2
Bank of America Corp. 99,873 6,676 5.0
US Bancorp 268,871 5,103 3.8
South Trust Corp. 195,900 5,001 3.7
Bank One Corp. 137,700 4,767 3.5
Merrill Lynch & Co. Inc. 132,000 4,673 3.5
Union Planters Corp. 143,555 3,774 2.8
Compass Bancshares Inc. 108,750 3,401 2.5
Morgan Stanley Dean Witter & Co. 82,000 3,145 2.3
Amcore Financial Inc. 142,500 3,102 2.3
Hibernia Corp. 154,200 2,615 1.9
Associated Banc Corp. 80,786 2,612 1.9
Suntrust Banks Inc. 48,000 2,527 1.9
Fidelity Bancorp Inc. 82,500 2,444 1.8
Mellon Financial Corp. 100,000 2,126 1.6
National City Corp. 74,520 2,075 1.5
Bank of New York Co. Inc. 100,000 2,050 1.5
Mercantile Bankshares Corp. 58,500 1,986 1.5
-----------------------
Total for 25 highest market values $ 129,628 96.1%
All others (5 stocks) 5,258 3.9
-----------------------
Total $ 134,886 100.0%
=======================
During the first quarter of 2003, Corus received dividends on the stock
portfolio of $1.3 million, compared to $1.1 million during the first quarter of
2002. See noninterest income section for discussion of treatment of realized and
unrealized gains and losses.
19
Nonperforming Assets
Nonperforming loans are nonaccrual loans, troubled debt restructurings, and 90
days or more past due loans still accruing interest. The breakdown by loan
category is shown below:
MARCH 31 December 31 March 31
(Dollars in thousands) 2003 2002 2002
------- ----------- --------
Nonaccrual loans:
CRE Non-construction $ -- $ -- --
CRE Construction -- -- --
CRE Mezzanine 1,780 4,504 --
Commercial 7 -- --
Residential real estate and other 193 304 752
------- ------- -------
Total nonaccrual 1,980 4,808 752
Troubled debt restructurings:
CRE Non-construction -- -- --
CRE Construction 12,108 -- --
CRE Mezzanine -- -- --
Commercial -- -- --
Residential real estate and other 62 62 63
------- ------- -------
Total troubled debt restructurings 12,170 62 63
Loans 90 days or more past due:
CRE Non-construction -- -- 794
CRE Construction -- -- --
CRE Mezzanine -- -- --
Commercial -- -- --
Residential real estate and other 1,694 1,648 2,497
------- ------- -------
Total 90 days or more past due 1,694 1,648 3,291
Total of items listed above 15,844 6,518 4,106
Other real estate owned 228 800 1,348
------- ------- -------
Total nonperforming assets $16,072 $ 7,318 $ 5,454
======= ======= =======
Nonperforming loans/Total loans 0.88% 0.37% 0.26%
Nonperforming assets/Total assets 0.62% 0.28% 0.21%
Total nonperforming assets increased compared to December 2002 by $8.8 million
to $16.1 million due to the increase in commercial real estate Troubled Debt
Restructurings ("TDR's"). A TDR is a loan that was restructured in such a way as
to provide the borrower with some form of concession relative to market absent a
concession from the borrower that is deemed to be approximately proportionate to
the lender's concession. Typically, the lender's concession is in the form of a
lower interest rate, an extended term or forgiven principal or interest. A
borrower's concession often comes in the form of additional loan paydowns and/or
additional collateral.
A TDR oftentimes results from situations where the borrower is experiencing
financial problems and expects to have difficulty complying with the original
terms of the loan. However, once the loan is restructured in a TDR, the
prospects of collecting all principal and interest on that loan generally
improve (as the borrower's loan rate and, thus, loan payments are reduced),
albeit at somewhat less favorable terms to the lender. However, the point to
remember is that once a loan becomes a TDR, it generally becomes a safer loan.
20
With that said, Corus is required to report the balance of any TDR's under the
nonperforming asset category which would seem to imply, in some way, that these
loans are not performing. However the two loans - one is an office loan and the
other a residential development loan - that constitute the $12.1 million TDR
balance are not only both current in terms of required payments, but also are
considered to be well collateralized. Management will continue to monitor these
loans closely.
Potential Problem Loans
In addition to those loans disclosed under the preceding Nonperforming Assets
section, Corus identified, through its 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
troubled debt restructurings. As of March 31, 2003, the principal amount of
these loans was $32.8 million, driven primarily by two hotel loans totaling
$24.9 million. The overall level of potential problem loans compares favorably
to the amount reported as of December 31, 2002. The decrease reflects the
improved outlook management has with regard to certain loans as well as the
impact of both payoffs and paydowns of loans previously listed as potential
problems. In addition, loans totaling approximately $12 million which were
previously listed as potential problem loans are now classified as TDR's and as
such are included in the nonperforming asset section above.
21
Allowance for Loan Losses
The allowance for loan losses is based on management's analysis of individual
loans, prior and current loss experience, delinquency levels, overall growth in
the portfolio, current economic conditions, and other factors. Management
believes that the level of the allowance for loan losses was adequate at March
31, 2003. A reconciliation of the activity in the allowance for loan losses is
as follows:
THREE MONTHS ENDED
(Dollars in thousands) MARCH 31
-----------------------------
2003 2002
-----------------------------
Balance at beginning of period $ 36,629 $ 40,457
Provision for loan losses -- --
Less charge-offs:
Overdraft-Check Cashing 1,105 --
Commercial-Check Cashing 436 --
Residential real estate and other 396 635
Commercial real estate -- --
-----------------------------
Total charge-offs 1,937 635
-----------------------------
Add recoveries:
Residential real estate and other 485 421
Overdraft-Check Cashing 338 --
Commercial 2 1
Commercial real estate -- --
-----------------------------
Total recoveries 825 422
-----------------------------
Net charge-offs (1,112) (213)
-----------------------------
Balance at March 31 $ 35,517 $ 40,244
=============================
Loans at March 31 $ 1,794,481 $ 1,592,768
=============================
Allowance as a percentage of loans 1.98% 2.53%
=============================
During 2002 Corus experienced its first losses in nearly twenty years related to
our business of servicing the check cashing industry with charge-offs of $3.2
million. Furthermore, in our 2002 Annual Report we estimated potential
additional charge-offs of $1.5 million. During the first quarter of 2003, Corus
charged off the previously estimated $1.5 million, but recovered approximately
$340,000 of previously charged off amounts, resulting in a net charge-off of
$1.2 million. We are continuing to work with these customers and are hopeful
that additional recoveries can be made. Excluding the aforementioned amounts,
the Company had net recoveries of $89,000.
22
Liabilities
The following table details the composition of deposit products by type:
MARCH 31 December 31 March 31
(Dollars in thousands) 2003 2002 2002
------------------- ----------------- -----------------
Money Market $ 901,357 44% $ 895,038 43% $ 885,766 42%
Retail certificates of deposit 384,630 19 396,821 19 411,352 20
Brokered certificates of deposit 228,555 11 258,409 13 312,492 15
Demand 218,989 11 216,551 11 217,886 10
Savings 165,290 8 161,766 8 154,450 7
NOW 142,854 7 131,188 6 116,684 6
----------------- ---------------- ----------------
Total $2,041,675 100% $2,059,773 100% $2,098,630 100%
================= ================ ================
Funding/Liquidity
Corus' policy is to ensure the availability of sufficient funds to accommodate
the needs of borrowers and depositors at all times. This objective is achieved
primarily through the maintenance of liquid assets. Liquid assets are defined as
federal funds sold and marketable securities that can be sold quickly without a
material loss of principal.
The liquidity to fund loan commitments will first come from a combination of
available liquidity and normal paydowns /payoffs of the existing loan portfolio
and then, to the extent necessary, from additional issuance of brokered
certificates of deposit ("BRCD"). A portion of Corus' current loan funding comes
from BRCD and to the extent that total loans outstanding grow in the future,
management expects to fund much, if not all, of that growth with BRCD. In order
to avoid the liquidity risk of an overly significant portion maturing during any
given year, Corus works to have the BRCD maturities staggered, ranging from 1 to
5 years. To further mitigate liquidity risk, Corus' liquidity policy requires
that the Bank hold more liquid assets as the level of BRCD increases. As of
March 31, 2003, BRCD totaled $229 million. The Bank has established a BRCD limit
such that BRCD will not exceed 33% of total deposits (i.e., retail deposits and
BRCD). Based on current deposit levels, this implies a maximum amount of BRCD of
$850 million.
23
Capital
Regulatory capital and the associated ratios for Corus and its subsidiary bank
as of March 31, 2003 are presented below:
Tier 1 Risk-Based Total Risk-Based
Tier 1 Leverage (1) Capital (2) Capital (3)
-------------------------------------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
Minimum ratios for well-capitalized 5.00% 6.00% 10.00%
Corus Bankshares, Inc. $449,913 17.45% $449,913 16.59% $502,731 18.53%
Subsidiary Bank $390,730 15.74% $390,730 15.06% $423,194 16.31%
(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.
Commercial Real Estate "Risk" & Capital Disclosure
The following disclosure is not computed in accordance with Generally Accepted
Accounting Principles ("GAAP") and is considered a non-GAAP disclosure.
Management believes that this presentation, while not in accordance with GAAP,
provides useful insight into how management analyzes and quantifies risk and
determines the appropriate level of capital.
Management has made a concerted effort to distill the numerous objective, as
well as subjective, risks inherent in the commercial real estate ("CRE") loans
we originate into a rigorous system to analyze and quantify risk. At its core,
this system takes the form of management and loan officers estimating a loan's
Probability of Default ("POD") and its Loss Given Default ("LGD") if a serious
recession should occur. This point bears repeating - the POD and LGD estimates
are not based on today's market conditions, instead they are arrived at by
"stressing" all major assumptions regarding the cash flow and/or values of the
underlying real estate down to levels that could manifest themselves during a
"serious" recession. As a proxy, we use, among other things, the extreme
declines in CRE property values witnessed during the late 1980's and early
1990's. Typically, we assume that office and hotel projects will be worth only
50% to 60% of their cost (not appraised value) and we typically assume that
rental and for-sale housing will be worth 60% to 80% of cost. Keep in mind that
while these are the typical discounts, each loan is analyzed individually and
may have discounts larger or smaller than mentioned above. Lastly, it is
important to realize that we could well have nonperforming loans and/or charge
offs in economic conditions outside of a "serious" recession.
Following is a table that summarizes the total size of our CRE loan portfolio,
the weighted average POD and LGD percentages and the resulting implied CRE loans
that could default and losses that could occur.
24
(Dollars in millions) 03/31/03 12/31/02 03/31/02
-----------------------------------
CRE LOANS & Unfunded Commitments
CRE loans outstanding $ 1,626 $ 1,553 $ 1,367
Unfunded Commitments 1,292 1,224 761
-----------------------------------
CRE Loans + Unfunded Commitments $ 2,918 $ 2,777 $ 2,128
===================================
POTENTIAL DEFAULTS & LOSSES
CRE Loans + Unfunded Commitments $ 2,918 $ 2,777 $ 2,128
Weighted average Probability of Default (POD) (1) 14.1% 14.9% 16.9%
-----------------------------------
Potential CRE Loans that could default 411 414 359
Weighted average Loss Given Default (LGD) (1) 16.9% 17.4% 21.8%
-----------------------------------
Potential losses that could occur $ 69 $ 72 $ 78
===================================
NONPERFORMING & NONACCRUAL LOANS
Potential CRE loans that could default $ 411 $ 414 $ 359
Potential losses that could occur (69) (72) (78)
-----------------------------------
Potential remaining CRE NPL balances 342 342 281
Percentage that could be nonaccrual 100% 100% 100%
-----------------------------------
Potential nonaccrual CRE NPL balances $ 342 $ 342 $ 281
===================================
POTENTIAL "LOST" INTEREST INCOME
Potential losses that could occur $ 69 $ 72 $ 78
Potential remaining CRE NPL balances 342 342 281
-----------------------------------
Total CRE loans no longer accruing interest 411 414 359
Assumed average CRE loan interest rate (2) 5.8% 6.3% 6.7%
-----------------------------------
Potential total "lost" interest income (per annum) $ 24 $ 26 $ 24
===================================
(1) The POD and LGD estimates are not based on today's market conditions,
instead they are arrived at by "stressing" all major assumptions regarding
the cash flow and/or values of the underlying real estate down to levels
that could manifest themselves during a "serious" recession.
(2) The assumed average CRE loan interest rate was the rate at the time of the
analysis period and does not attempt to project future interest rates.
Management believes that the declines in the POD and LGD factors from March 31,
2002 to March 31, 2003 reflect, in aggregate, a safer portfolio. While there are
a multitude of factors that go into management's determination of what makes a
loan "safer," one of the most important variables is the size of the loan as
compared to the cost of the project
The above figures are a critical piece of the output from the Bank's internal
"risk" identification system, however, the system would be incomplete if these
risks did not assist in calculating an appropriate level of risk-adjusted
capital for the Bank to maintain, but they do. Broadly speaking, the capital the
Bank allocates to CRE loans can be split into three interrelated, but distinct,
categories.
The first, and largest component, is that for the Bank to receive the highest
regulatory capital rating, known as well-capitalized, $226 million of capital
must be kept against our $1.6 billion of CRE loans on the balance sheet and the
$1.3 billion of CRE related commitments (comprised of unfunded construction
loans and outstanding commitment letters) as of March 31, 2003. The
well-capitalized designation is very important in numerous respects; among other
things, being below well-capitalized could potentially increase the Bank's FDIC
premiums and adversely affect its ability to issue brokered certificates of
deposit or pay dividends to the holding company.
25
The second component is driven off of the POD and LGD factors. As shown above,
total potential charge-offs under a serious recession, based on March 31, 2003
balances, are calculated at $69 million. Assuming certain IRS guidelines are
followed, charge-offs are fully tax-deductible. Therefore, the potential $69
million of charge-offs would translate into an after-tax decrease in equity of
$45 million.
The third, and last, component is a "cushion" over and above the regulatory
well-capitalized minimums - this cushion was approximately $44 million as of
March 31, 2003.
These three components of capital allocated to CRE loans totaled $315 million as
of March 31, 2003. Lastly, the Bank has various non-CRE loans, commitments, and
other items that require additional capital of $34 million, thus yielding a
grand total capital goal of $349 million. The Bank had actual regulatory capital
(Bank equity less goodwill plus a portion of the allowance for loan losses) of
$423 million at March 31, 2003, or $74 million in excess of our capital goal.
TOTAL CAPITAL CALCULATION - BANK ONLY 03/31/03 12/31/02 03/31/02
- -------------------------------------------------------------------------------------
(Dollars in millions)
Total Bank Capital $ 398 $ 391 $ 363
+ Allowance for loan losses (less disallowed portion) 32 32 27
- - Goodwill and Other (7) (9) (5)
---------------------------
Total Bank Regulatory Capital $ 423 $ 414 $ 385
===========================
Regulatory capital required to achieve
well-capitalized designation $ 226 $ 215 $ 174
POD/LGD component for CRE Loans 45 47 52
Cushion for CRE Loans 44 42 34
---------------------------
Total Capital on CRE Loans $ 315 $ 304 $ 260
Non-CRE related capital 34 37 43
---------------------------
Total Capital Goal $ 349 $ 341 $ 303
===========================
Actual regulatory capital in excess of goal $ 74 $ 73 $ 82
===========================
26
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" "seeks," or "attempts" 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 and in particular, loans to the hotel industry;
- Corus' ability to access cost-effective funding to fund marginal
loan growth;
- changes in management's estimate of the adequacy of the allowance
for loan losses;
- changes in the overall mix of Corus' loan and deposit products;
- the impact of repricing and competitors' pricing initiatives on
loan and deposit products; and
- the extent of defaults, the extent of losses given default, and the
amount of lost interest income that may result in the event of a
severe recession.
Corus undertakes no obligation to revise or update these forward-looking
statements to reflect events or circumstances after the date of this filing.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 basis swaps, 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 was as follows:
Rate Shock Amount (1) -100 bp -50 bp 0 bp +50 bp +100 bp +200 bp
------- ------ ---- ------ ------- -------
Percent change in the next 12 month's
net interest income vs. constant rates
March 31, 2003 (7.7)% (3.4)% - 2.5% 5.3% 10.5%
December 31, 2002 (9.4)% (4.2)% - 2.8% 5.8% 11.8%
(1) These "shocks" represent hypothetical instantaneous and sustained changes
from current rates.
Corus' projected one-year sensitivity to interest rates has not changed
significantly since December 31, 2002. Note that given the extraordinarily low
absolute level of market interest rates, caution should be used in attempting to
extrapolate these results beyond the range shown above.
Corus is also exposed to price risk with its common stock portfolio in financial
industry companies valued at $134.9 million as of March 31, 2003, including net
unrealized gains of $42.0 million. This price risk would impact the net income
of Corus, in the form of securities losses, should unrealized losses on
individual securities be determined to be "other than temporary." This price
risk would also affect any gains or losses that may be realized on the sale of
certain equity securities in the future.
ITEM 4. 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.
28
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.
This item has been omitted from this Form 10-Q since it is inapplicable or would
contain a negative response.
ITEM 5: OTHER INFORMATION.
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
---------
3(i) Amended and Restated Articles of Incorporation
3(ii) By-Laws are incorporated herein by reference to Exhibit 4.2 to the
Form S-8 filing dated May 22, 1998
15 Letter re unaudited interim financial information
99.1 Independent Accountants' Review Report
99.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
-------------------
None
29
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)
May 8, 2003 By: /s/ Michael E. Dulberg
-----------------------------
Michael E. Dulberg
First Vice President and
Chief Accounting Officer
(Principal Accounting Officer
and duly authorized Officer
of Registrant)
30
CERTIFICATIONS
I, Robert J. Glickman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corus Bankshares,
Inc;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 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
quarterly 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: May 8, 2003 /s/ Robert J. Glickman
-------------------------------
Robert J. Glickman
Chief Executive Officer
31
CERTIFICATIONS
I, Tim H. Taylor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Corus Bankshares,
Inc;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 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
quarterly 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: May 8, 2003 /s/ Tim H. Taylor
-------------------------------
Tim H. Taylor
Chief Financial Officer
32