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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, 2003
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 30, 2003, the Registrant had 28,068,288 common shares outstanding.
Of these, 15,855,654 common shares, having an aggregate market value (based on
the closing price for these shares as reported by NASDAQ on June 30, 2003) of
approximately $381.6 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. Common shares outstanding at February 23, 2004
totaled 28,011,928.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and III of this Form 10-K incorporate by reference certain
information from the Registrant's 2003 Annual Report to Shareholders. Parts II
and III of this Form 10-K incorporate by reference certain information from the
Registrant's definitive Proxy Statement dated March 10, 2004 for its Annual
Meeting of Shareholders to be held on April 21, 2004.
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Corus Bankshares, Inc.
Index to Annual report on form 10-K
December 31, 2003
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................................................. 7
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.............. 7
Item 8. Financial Statements and Supplementary Data............................. 8
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................. 17
Item 9a. Controls and Procedures................................................. 17
PART III
Item 10. Directors and Executive Officers of the Registrant...................... 18
Item 11. Executive Compensation.................................................. 19
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters............................................ 19
Item 13. Certain Relationships and Related Transactions.......................... 19
Item 14. Principal Accountant Fees and Services.................................. 19
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........ 20
Signatures........................................................................ 22
PART I
ITEM 1. BUSINESS
Corus Bankshares, Inc. ("Corus" or the "Company"), 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. The two main business activities for the Bank 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
condominium, office, 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, 2003, 87% 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.
Refer to pages 37 and 38 of the 2003 Annual Report to Shareholders ("2003 Annual
Report"), incorporated herein by reference, for revenues, net income, and total
assets by segment.
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, 2003, Corus employed a total of 468 full-time equivalent
persons, consisting of 107 executives, management and supervisory personnel and
361 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 2004 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, 2003, Corus'
Tier 1 capital and total risk-based capital ratios were 17.9% and 20.5%,
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, 2003, Corus' leverage ratio was 18.7%.
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, Corus is currently experiencing 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 "Banking 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 Banking 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
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.
3
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 amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 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.
EXECUTIVE OFFICERS
The information regarding the Company's executive officers in Item 10 of this
report is incorporated herein by reference.
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 42 of the 2003 Annual Report, which is incorporated herein by reference.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
The Company had approximately 2,500 shareholders as of February 23, 2004.
DIVIDENDS ON COMMON STOCK
Quarterly cash dividends per common share for the last two years are included on
page 42 of the 2003 Annual Report, which is incorporated herein by reference.
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 72 and 73 of the 2003 Annual Report, incorporated herein by
reference, for additional selected financial data.
DECEMBER 31
---------------------------------------------------------------------------
(THOUSANDS, EXCEPT PER SHARE DATA) 2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
Interest income ...................... $ 170,239 $ 152,878 $ 188,630 $ 223,676 $ 196,580
Interest expense ..................... 46,812 54,591 80,921 102,625 90,449
----------- ----------- ----------- ----------- -----------
Net interest income .................. 123,427 98,287 107,709 121,051 106,131
Provision for loan losses - - - - -
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses .................. 123,427 98,287 107,709 121,051 106,131
Noninterest income, excluding
securities and other financial
instrument gains/(losses) ........ 14,554 15,821 17,881 36,729 20,483
Securities and other financial
instrument gains/(losses), net ... 2,366 7,258 7,835 10,531 (1,535)
Noninterest expense .................. 52,533 47,472 51,100 54,654 63,096
Income tax expense ................... 29,404 24,580 28,142 38,903 21,257
----------- ----------- ----------- ----------- -----------
Net income available to common
shareholders ..................... $ 58,410 $ 49,314 $ 54,183 $ 74,754 $ 40,726
=========== =========== =========== =========== ===========
Net income per share: (1)
Basic ............................ $ 2.08 $ 1.74 $ 1.92 $ 2.62 $ 1.41
Diluted .......................... 2.04 1.72 1.89 2.62 1.41
Cash dividends declared per
common share (1) ................. $ 0.830 $ 0.318 $ 0.308 $ 0.298 $ 0.288
Assets ............................... $ 3,643,830 $ 2,617,050 $ 2,659,322 $ 2,598,467 $ 2,378,544
(1) Reflects a 100% stock dividend on 12/15/03.
See page 17 of the 2003 Annual Report, incorporated herein by reference, for
information relating to the adoption of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
6
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 45 through 71 of the 2003 Annual
Report is incorporated herein by reference.
OFF-BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS, AND COMMITMENTS
As of the date of this report, Corus has no off-balance sheet arrangements, as
defined by Securities and Exchange Commission Regulation S-K Item 303(a)(4).
The following table presents Corus' contractual obligations as of December 31,
2003:
(THOUSANDS) PAYMENTS DUE BY PERIOD
-------------------------------------------------------------
LESS THAN MORE THAN
Contractual Obligations 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS TOTAL
--------- --------- --------- --------- --------
Long-term debt - trust preferred securities .. $ - $ - $ - $172,500 $172,500
Other borrowings ............................. 5,403 31,000 - - 36,403
Minimum fixed lease obligations .............. 401 830 871 2,037 4,139
Purchase obligations ......................... 2,058 1,592 2,752 2,251 8,653
-------- -------- -------- -------- --------
Total ................................... $ 7,862 $ 33,422 $ 3,623 $176,788 $221,695
======== ======== ======== ======== ========
Corus had the following commitments as of December 31, 2003:
(THOUSANDS)
Standby letters of credit ........................ $ 12,661
Commitments letters outstanding .................. 375,865
Unused commitments under lines of credit ......... 1,207,985
----------
Total commitments outstanding .................... $1,596,511
==========
Refer to Note 12 of Notes to Consolidated Financial Statements of the 2003
Annual Report for additional detail.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the caption "Market Risk Management" on pages 69
and 70 of the 2003 Annual Report is incorporated herein by reference.
7
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 44 of the
Company's 2003 Annual Report.
SUPPLEMENTARY STATISTICAL DATA
Pages 8 through 16 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 2003 Annual Report, which is incorporated herein by reference.
SECURITIES PORTFOLIO
Carrying Value of Securities by Category
The carrying value of securities held by Corus were as follows:
DECEMBER 31
----------------------------------
(thousands) 2003 2002 2001
-------- -------- --------
Available-for-sale
U.S. Government and agencies .... $206,739 $214,800 $ 35,429
Corporate debt securities ....... 28,191 44,369 59,410
Common stocks ................... 188,844 147,845 163,024
Mortgage backed securities ...... 5,046 9,845 38,677
Other ........................... 4,086 3,785 3,595
-------- -------- --------
Total ........................ $432,906 $420,644 $300,135
======== ======== ========
Held-to-maturity
State and municipal ............. $ 1,100 $ 1,099 $ 1,244
Mortgage backed securities ...... 182 302 478
Other ........................... 10,462 5,286 5,301
-------- -------- --------
Total ........................ $ 11,744 $ 6,687 $ 7,023
======== ======== ========
8
Maturities of Securities
The scheduled maturities by security type as of December 31, 2003 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 ................ $ 80,790 $125,949 $ - $ - $ - $206,739
Corporate debt securities ..... 28,191 - - - - 28,191
State and municipal ........... - 600 500 - - 1,100
Common stocks ................. - - - - 188,844 188,844
Mortgage backed securities .... - 118 35 5,075 - 5,228
Other ......................... - - - - 14,548 14,548
-------- -------- -------- -------- -------- --------
Total .................... $108,981 $126,667 $ 535 $ 5,075 $203,392 $444,650
======== ======== ======== ======== ======== ========
The weighted-average yields for each range of maturities of securities at
December 31, 2003 were as follows:
FROM ONE FROM FIVE NOT DUE AT
ONE YEAR THROUGH THROUGH AFTER A SINGLE
OR LESS FIVE YEARS TEN YEARS TEN YEARS MATURITY TOTAL
-------- ---------- --------- ----------- ---------- ------
U.S. Government
and agencies ............... 3.74% 1.75% -% -% -% 2.53%
Corporate debt securities .... 6.54 - - - - 6.54
State and municipal .......... - 8.11 10.41 - - 9.16
Common stocks ................ - - - - 4.60 4.60
Mortgage backed securities ... - 8.14 9.51 6.28 - 6.35
Other ........................ - - - - 6.24 6.24
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) 2003 2002 2001 2000 1999
---------- ---------- ---------- ---------- ----------
Commercial real estate:
Non-Construction ............... $1,207,015 $ 989,146 $ 675,526 $ 655,148 $ 537,603
Construction ................... 1,005,206 531,612 515,002 513,955 378,909
Mezzanine ...................... 53,790 32,092 39,223 20,877 -
Commercial ..................... 98,621 87,631 94,015 91,093 117,021
Residential first mortgage ..... 30,656 38,828 50,779 71,197 92,683
Home equity .................... 29,738 51,078 84,214 117,858 135,603
Student ....................... 8,105 10,950 14,591 63,096 443,074
Medical finance and consumer... 640 632 1,895 18,656 22,464
---------- ---------- ---------- ---------- ----------
Total ......................... $2,433,771 $1,741,969 $1,475,245 $1,551,880 $1,727,357
========== ========== ========== ========== ==========
Maturities of Loans and Sensitivity to Changes in Interest Rates
The following table classifies the scheduled maturities for the following loan
portfolio categories at December 31, 2003:
ONE YEAR FROM ONE TO AFTER
(THOUSANDS) OR LESS FIVE YEARS FIVE YEARS TOTAL
---------- ---------- ---------- ----------
Commercial real estate:
Non-Construction .............. $ 471,503 $ 691,821 $ 43,691 $1,207,015
Construction .................. 412,136 593,070 - 1,005,206
Mezzanine ..................... 32,050 21,740 - 53,790
Commercial .................... 61,343 35,863 1,415 98,621
Of the loans maturing after one year, $107.3 million have fixed rates and
$1,280.3 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 11 to the Consolidated Financial
Statements on pages 14 through 18 and 31 of the 2003 Annual Report, which is
incorporated herein by reference.
10
Risk Elements in the Loan Portfolio
Past Due, Nonaccrual, and Restructured Loans were as follows:
DECEMBER 31
-----------------------------------------------------------
(THOUSANDS) 2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Loans past due 90 days or more
still accruing interest .............. $ 1,809 $ 2,454 $ 5,939 $ 20,510 $ 31,636
Less guaranteed student loans ...... (573) (806) (1,721) (16,729) (21,937)
-------- -------- -------- -------- --------
Net loans past due 90 days or more .... 1,236 1,648 4,218 3,781 9,699
Nonaccrual loans ...................... 7,896 4,808 1,520 1,300 2,529
Restructured loans .................... 6,436 62 62 63 320
-------- -------- -------- -------- --------
Total ................................. $ 15,568 $ 6,518 $ 5,800 $ 5,144 $ 12,548
AS A PERCENTAGE OF TOTAL LOANS:
Net loans past due 90 days or more .... 0.05% 0.09% 0.29% 0.24% 0.56%
Nonaccrual loans ...................... 0.32% 0.28% 0.10% 0.08% 0.15%
Restructured loans .................... 0.26% 0.00% 0.00% 0.00% 0.02%
Guaranteed student loans that are greater than 90 days past due are classified
as performing due to the principal and accrued interest on such loans being
guaranteed by individual state or private non-profit agencies.
Potential Problem Loans
In addition to those loans disclosed under the preceding "Past Due, Nonaccrual,
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 troubled debt restructurings. As of December
31, 2003, the principal amount of these loans was $4.4 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.
Commercial Real Estate Risk and Capital
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
11
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 other than what might be characterized as serious. While
Corus has attempted to be conservative in its assessment of potential defaults
and losses, it is conceivable that actual defaults and/or losses may be greater,
perhaps materially, than estimated.
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.
CRE loans outstanding ........................... $ 2,266 $ 1,553
Unfunded commitments ............................ 1,554 1,224
------- -------
CRE loans plus unfunded commitments ........... $ 3,820 $ 2,777
======= =======
POTENTIAL DEFAULTS & LOSSES
CRE loans plus unfunded commitments ............. $ 3,820 $ 2,777
Weighted average Probability of Default (POD) (1) 14.4% 14.9%
------- -------
Potential CRE loans that could default ........ $ 550 $ 414
Weighted average Loss Given Default (LGD) (1) ... 16.4% 17.4%
------- -------
Potential losses that could occur ............. $ 90 $ 72
======= =======
NONPERFORMING & NONACCRUAL LOANS
Potential CRE loans that could default .......... $ 550 $ 414
Potential losses that could occur ............... (90) (72)
------- -------
Potential remaining CRE NPL balances .......... $ 460 $ 342
Percentage that could be nonaccrual (2) ......... 100% 100%
------- -------
Potential nonaccrual CRE NPL balances ......... $ 460 $ 342
======= =======
(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) Not necessarily all nonperforming loans would be nonaccrual; however, in
order to be conservative we will assume 100% of the above nonperforming
loans are nonaccrual.
Management believes that the declines in the POD and LGD factors from 2002 to
2003 reflect, in aggregate, a safer portfolio.
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, $304 million of capital
must be kept against our $2.3 billion of CRE loans on the balance sheet and the
$1.5 billion of CRE related commitments (comprised of unfunded construction
loans and outstanding
12
commitment letters) as of December 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 Bank Holding Company.
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 December 31,
2003 balances, are calculated at $90 million. Assuming certain IRS guidelines
are followed, charge-offs are fully tax-deductible. Therefore, the potential $90
million of charge-offs would translate into an after-tax decrease in equity of
$59 million.
The third, and last, component is a "cushion" over and above the regulatory
well-capitalized minimums - this cushion was approximately $60 million as of
December 31, 2003.
These three components of capital allocated to CRE loans totaled $423 million as
of December 31, 2003. Lastly, the Bank has various non-CRE loans, commitments,
and other items that require additional capital of $40 million, thus yielding a
grand total capital goal of $463 million. The Bank had actual regulatory capital
(Bank equity less goodwill plus a portion of the allowance for loan losses) of
$610 million at December 31, 2003, or $147 million in excess of our capital
goal.
TOTAL CAPITAL CALCULATION - BANK ONLY DECEMBER 31
----------------
(millions) ........................................................... 2003 2002
----- -----
Total Bank Equity .................................................... $ 580 $ 391
- - Goodwill and unrealized securities gains ........................... (6) (9)
----- -----
Total Bank Tier 1 Capital ............................................ $ 574 $ 382
+ Total Bank Tier 2 Capital .......................................... 36 32
----- -----
Total Bank Regulatory Capital ...................................... $ 610 $ 414
===== =====
Regulatory capital required to achieve well-capitalized designation... $ 304 $ 215
POD/LGD component for CRE Loans ...................................... 59 47
Cushion for CRE Loans ................................................ 60 42
----- -----
Total Capital on CRE Loans ......................................... $ 423 $ 304
Non-CRE related capital .............................................. 40 37
----- -----
Total Capital Goal ................................................. $ 463 $ 341
===== =====
Actual regulatory capital in excess of goal .......................... $ 147 $ 73
===== =====
13
Analysis of the Allowance for Loan Losses
The activity in the allowance for loan losses was as follows:
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
(thousands) 2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
Balance at beginning of year .................. $ 36,629 $ 40,457 $ 39,601 $ 32,090 $ 35,773
Less charge-offs:
Home equity loans ........................... 1,527 2,650 3,254 3,945 4,193
Overdraft ................................... 1,189 2,660 - - -
Commercial loans ............................ 443 567 4 116 84
Residential first mortgage loans ............ 103 45 9 62 109
Student loans ............................... 32 128 316 294 1,365
Medical finance and consumer loans .......... 1 7 49 56 96
Commercial real estate loans ................ - - - - 61
-------- -------- -------- -------- --------
Total charge-offs ......................... 3,295 6,057 3,632 4,473 5,908
-------- -------- -------- -------- --------
Add recoveries:
Home equity loans ........................... 2,015 1,999 1,386 1,544 1,778
Overdraft ................................... 682 - - - -
Commercial loans ............................ 191 8 3 13 65
Student loans ............................... 123 176 3,028 10,339 174
Residential first mortgage loans ............ 85 7 12 1 1
Medical finance and consumer loans .......... 18 22 49 45 83
Commercial real estate loans ................ - 17 10 42 124
-------- -------- -------- -------- --------
Total recoveries .......................... 3,114 2,229 4,488 11,984 2,225
-------- -------- -------- -------- --------
Net (charge-offs)/recoveries .................. (181) (3,828) 856 7,511 (3,683)
Additions charged to operations ............ - - - - -
-------- -------- -------- -------- --------
Balance at end of year ........................ $ 36,448 $ 36,629 $ 40,457 $ 39,601 $ 32,090
======== ======== ======== ======== ========
Net (charge-offs)/recoveries as a percentage
of average loans outstanding .................. (0.01%) (0.24%) 0.05% 0.42% (0.22%)
======== ======== ======== ======== ========
14
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses was as follows:
DECEMBER 31
-------------------------------------------------------
(thousands) 2003 2002 2001 2000 1999
------- ------- ------- ------- -------
Commercial real estate .......... $29,464 $26,043 $25,711 $25,837 $16,417
Home equity ..................... 3,543 5,960 8,815 12,010 11,777
Commercial ...................... 353 343 44 141 273
Student ......................... 332 566 728 747 1,374
Residential first mortgage ...... 329 433 247 438 358
Overdrafts ...................... 90 1,523 - - -
Medical finance and consumer .... 1 1 9 104 120
Unallocated ..................... 2,336 1,760 4,903 324 1,771
------- ------- ------- ------- -------
Total ...................... $36,448 $36,629 $40,457 $39,601 $32,090
======= ======= ======= ======= =======
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
-----------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Commercial real estate ................... 93% 89% 84% 76% 53%
Commercial ............................... 4 5 6 6 7
Home equity .............................. 1 3 6 8 8
Residential first mortgage ............... 1 2 3 5 5
Student .................................. 1 1 1 4 26
Medical finance and consumer ............. - - - 1 1
--- --- --- --- ---
Total ............................... 100% 100% 100% 100% 100%
=== === === === ===
For further review of the loan loss provision and the allowance for loan losses,
reference is made to pages 15 and 16 of Notes to Consolidated Financial
Statements and pages 65 through 67 of Management's Discussion and Analysis of
Financial Statements of the 2003 Annual Report, which is incorporated herein by
reference.
15
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, 2003
-----------------------------------------------
CURRENT COMMITMENT BALANCE OUTSTANDING
% -------------------- -----------------------
Loan # PROPERTY TYPE LOCATION PURCH TOTAL CORUS TOTAL CORUS
- ------ ------------- -------- ----- -------- --------- ---------- ----------
1 Hotel CA 15% $ 94,100 $ 14,115 $ 94,100 $ 14,115
2 Office CA 12% 184,802 22,176 178,711 21,445
-------- ----------
Total purchased interest.................................. $ 36,291 $ 35,560
Corus' total CRE portfolio................................ 3,820,493 2,266,011
Purchased interests as a percentage of Corus' total....... 0.9% 1.6%
DEPOSITS
The following table presents the scheduled maturities of time deposits in
denominations of $100,000 or greater at December 31, 2003. The schedule also
provides a breakout of retail certificates of deposit and brokered certificates
of deposit, along with the rates paid on brokered certificates of deposit.
(THOUSANDS) TOTAL RETAIL BROKERED
----------------------------------
Maturing within 3 months ........ $ 61,678 $ 51,683 $ 9,995
After 3 but within 6 months ..... 90,588 42,597 47,991
After 6 but within 12 months .... 65,019 36,087 28,932
After 12 months ................. 526,602 16,689 509,913
-------- -------- --------
Total ...................... $743,887 $147,056 $596,831
======== ======== ========
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to Corus' equity and
assets:
DECEMBER 31
--------------------------
2003 2002 2001
------ ------ ------
Return on average total assets .................... 2.0% 1.9% 2.0%
Return on average common shareholders' equity ..... 11.6 10.6 12.8
Dividend payout ratio ............................. 39.9 18.2 16.1
Average equity to average total assets ............ 16.9 17.7 15.9
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The information contained under the caption "Appointment of Independent Public
Accountants" on page 6 of the 2004 Proxy Statement is incorporated herein by
reference.
ITEM 9A CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
the Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of December 31, 2003. Based on and as of the time of such
evaluation, 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 reports that
it files with or submits to the Securities and Exchange Commission under the
Securities Exchange Act of 1934. There have been no changes in the Company's
internal control over financial reporting that occurred during the Company's
quarter ended December 31, 2003, that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of Corus is incorporated
herein by reference from pages 3 through 5 of the 2004 Proxy Statement. The
following table provides each executive officer's name, number of years with the
Company, 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 (years with Company) Age the Company and Subsidiary Present Office(s)
- --------------------------------------- ------- ----------------------------------------------------- -----------------------
Robert J. Glickman (34)(a)............. 57 President and Chief Executive Officer June 1, 1984
of the Company and Corus Bank, N.A.
Michael G. Stein (12)................... 43 Executive Vice President, Corus Bank, N.A. February 19, 1996
Tim H. Taylor (15)...................... 39 Executive Vice President and Chief December 1, 1998
Financial Officer of the Company
and Corus Bank, N.A.
Randy P. Curtis (6)..................... 45 Senior Vice President, Corus Bank, N.A. April 30, 1997
Michael E. Dulberg (4)(b)............... 38 Senior Vice President, and Chief January 1, 2004
Accounting Officer of the Company
and Corus Bank, N.A.
Terence W. Keenan (13).................. 58 Senior Vice President, Corus Bank, N.A. September 16, 1996
Richard J. Koretz (12).................. 40 Senior Vice President, Corus Bank, N.A. November 15, 1995
(a) Mr. Glickman is the son of Joseph C. Glickman, the Chairman of the Board of
Corus.
(b) Prior to assuming his present office, Mr. Dulberg had been the Chief
Accounting Officer for Corus since his hire in December 1999. Prior to
joining Corus, Mr. Dulberg was employed by Kraft Foods as an Operations
Finance Manager.
Information regarding compliance with Section 16(a) of the Exchange Act is
incorporated herein by reference from page 14 of the 2004 Proxy Statement.
CODE OF ETHICS FOR PRINCIPAL OFFICERS
Corus has adopted a code of business conduct and ethics that applies to its
Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer.
The text of the code of business conduct and ethics is posted on Corus' Internet
website at www.corusbank.com. Information regarding the Company's code of
business conduct and ethics is incorporated herein by reference from page 18 of
the 2004 Proxy Statement.
18
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein by reference
from the material under the caption "Executive Compensation" on pages 7 through
11 of the 2004 Proxy Statement. Information regarding the compensation of
directors on page 4 of the 2004 Proxy Statement is incorporated herein by
reference. The information in "Compensation Committee Report on Executive
Compensation" and "Performance Graph" is not incorporated herein by reference.
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 from the material under the
headings "Principal Shareholders" and "Security Ownership of Directors and
Management" on pages 2 and 3 of the 2004 Proxy Statement.
Following is information regarding Corus' equity compensation plan as of
December 31, 2003. Additional information regarding Corus' equity compensation
plan is incorporated herein by reference from material under the heading "Stock
Option Plan" on pages 35 and 36 of Notes to Consolidated Financial Statements of
the 2003 Annual Report.
- ------------------------------------------------------------------------------------------------------------------------------------
Plan Category (a) (b) (c)
Number of securities remaining
Number of securities to available for future issuance
be issued upon exercise Weighted-average exercise under equity compensation
of outstanding options, price of outstanding options, plans (excluding securities
warrants and rights warrants and rights reflected in column (a))
- -----------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 1,495,412(1) $ 18.88(2) 606,000
- ------------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Total 1,495,412 $ 18.88 606,000
- ------------------------------------------------------------------------------------------------------------------------------------
(1) This amount includes 1,358,540 shares that may be issued in satisfaction of
awards under the company's Commission Program for Commercial Loan Officers
("CLO Commission Program"). Participants in the CLO Commission Program may
be entitled to up to 300,927 additional shares, the issuance of which, may
require shareholder approval.
(2) Awards made under the CLO Commission Program are excluded when determining
the weighted average exercise price of outstanding options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference from the material under the heading
"Transactions with Management and Others" on page 14 of the 2004 Proxy
Statement.
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information regarding Principal Accountant Fees and Services is incorporated
herein by reference from the material under the heading "Appointment of
Independent Public Accountants" on page 6 of the 2004 Proxy Statement.
19
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 from the following pages of the
registrant's 2003 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 ...................... 14-42
Reports of Independent Public Accountants ....................... 43-44
(b) Reports on Form 8-K:
(1) A Form 8-K was furnished on October 20, 2003 regarding publicly
released information on the Company's financial condition and results
of operations for the quarter ended September 30, 2003. *
(2) A Form 8-K was filed on November 19, 2003 regarding an issuance of a
press release announcing a 2-for-1 stock split.
* This report on Form 8-K has been furnished to the Securities and
Exchange Commission and shall not be deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, nor shall it be
deemed incorporated by reference in any filing under the Securities Act
of 1933, except as shall be expressly set forth by specific reference.
20
(c) Exhibits:
3(i) Amended and Restated Articles of Incorporation are incorporated
herein by reference from Exhibit 3(i) to the Form 10-Q filing
dated May 8, 2003
3(ii)* Amended and Restated By-Laws
The Company undertakes and agrees to furnish the Commission with
a copy of any agreement with respect to its long-term debt upon
request.
10.1 Commission Program for the Commercial Loan Officers is
incorporated herein by reference from Form S-8 filing dated May
22, 1998+
10.2 The 1999 Stock Option Plan is incorporated herein by reference
from Form S-8 filing dated April 30, 1999 +
11 Computation of Net Income Per Share is incorporated herein by
reference from page 37 of the registrant's 2003 Annual Report
13* Registrant's 2003 Annual Report (excluding the portions that are
not specifically incorporated by reference in this Annual Report
on Form 10-K appearing on pages 1 through 8 and 74 through 75 of
the 2003 Annual Report)
16 Letter re Change in Certifying Accountant is incorporated herein
by reference from the Form 8-K filing dated June 6, 2002
21 List of subsidiaries - see Part 1 of this Report
23* Consent of Independent Auditors
31.1* Rule 13a-14(a)/15d-14(a) Certification
31.2* Rule 13a-14(a)/15d-14(a) Certification
32* Section 1350 Certifications
*Filed herewith
+Management contract or compensatory plan or arrangement
21
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.
Corus Bankshares, Inc.
By: /s/ TIM H. TAYLOR
----------------------------
Tim H. Taylor
Executive Vice President &
Chief Financial Officer
March 12, 2004
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 12, 2004
- ---------------------------------
Joseph C. Glickman
/s/ ROBERT J. GLICKMAN President, Chief Executive Officer, & March 12, 2004
- --------------------------------- Director
Robert J. Glickman
/s/ TIM H. TAYLOR Executive Vice President & Chief Financial March 12, 2004
- --------------------------------- Officer
Tim H. Taylor
/s/ MICHAEL E. DULBERG Senior Vice President & Chief Accounting March 12, 2004
- ---------------------------------
Michael E. Dulberg Officer
/s/ ROBERT J. BUFORD Director March 12, 2004
- ---------------------------------
Robert J. Buford
/s/ STEVEN D. FIFIELD Director March 12, 2004
- ---------------------------------
Steven D. Fifield
/s/ RODNEY D. LUBEZNIK Director March 12, 2004
- ---------------------------------
Rodney D. Lubeznik
/s/ MICHAEL J. MCCLURE Director March 12, 2004
- ---------------------------------
Michael J. McClure
/s/ PETER C. ROBERTS Director March 12, 2004
- ---------------------------------
Peter C. Roberts
22