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1
PART I.
ITEM 1. BUSINESS
Corus Bankshares, Inc. (formerly known as River Forest Bancorp, Inc.),
incorporated in Minnesota in 1958, is a bank holding company registered under
the Bank Holding Company Act of 1956. Bankshares provides consumer and
corporate banking products and services through its wholly-owned banking
subsidiary, Corus Bank, N.A.
The bank has twelve branches in the Chicago metropolitan area and offers
general banking services such as checking, savings, money market and time
deposit accounts; commercial, mortgage, home equity, student and personal
loans; trust services; safe deposit boxes and a variety of additional services.
The bank also provides clearing, depository and credit services to more than
400 currency exchanges in the Chicago area.
Bankshares owns an operations subsidiary, Bancorp Operations Company, that
comprises an insignificant portion of Bankshares' total assets and net income.
Bancorp Operations Company provides item processing, bookkeeping and other
ancillary bank support services to Bankshares' bank subsidiary.
COMPETITION
All of Bankshares' principal business activities are highly competitive.
Bankshares competes actively with other financial services providers offering a
wide array of financial products and services. The competitors include other
banks, savings and loan associations, credit unions, brokerage firms, finance
companies, insurance companies, mutual funds and mortgage bankers. Competition
is generally in the form of interest rates and points charged on loans,
interest rates paid on deposits, service charges, banking hours, fiduciary
services and other service-related products.
EMPLOYEES
At Dec. 31, 1996, Bankshares employed a total of 704 full-time equivalent
persons, consisting of 125 executives, management and supervisory personnel and
579 clerical and secretarial employees.
SUPERVISION AND REGULATION
General
Bankshares is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the Act), and is registered as such with the
Board of Governors of the Federal Reserve System (the Federal Reserve Board).
The Act requires every bank holding company to obtain the prior approval of the
Federal Reserve Board before acquiring, merging with or consolidating into
another bank holding company, acquiring substantially all the assets of any
bank, or acquiring direct or indirect ownership or control of 5% or more of the
voting shares of any bank or bank holding company.
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, Bankshares 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 Bankshares to acquire banks located anywhere in Illinois. Other
amendments of the Illinois Act authorize combinations between banks
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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.
Bankshares' 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.
Effective January 1, 1997, the assessment rate schedule creates a spread in
assessment rates ranging from 0.27% per annum on the amount of deposits for
banks classified as weakest by the FDIC down to no assessment for banks
classified as strongest by the FDIC. In 1997, an additional billing of 1.296
basis points per annum on the amount of deposits will occur for all depository
institutions regardless of assessment classification as a result of the Deposit
Insurance Act of 1996.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
initiated new intense regulation for the financial services industry. FDICIA
made significant changes in the legal environment for insured banks, including
reductions in insurance coverage for certain types of deposits, increases in
consumer-oriented requirements, and substantial revisions in the supervision,
examination and audit processes. FDICIA also required new reporting by banks
and mandated adoption of new regulations concerning capital, liquidity,
internal controls, safety and soundness and prompt corrective action.
Capital Adequacy
The Federal Reserve Board established risk-based capital guidelines that
require bank holding companies to maintain minimum ratios. The main objective
of the risk-based capital requirements is to provide a fair and consistent
framework for comparing capital positions of all banking institutions. Under
these guidelines, capital consists of two components, core capital elements
(Tier 1 capital) and supplementary capital elements (Tier 2 capital). Assets
and off-balance-sheet items are assigned broad risk categories. The aggregate
dollar value of each category is multiplied by a risk weight associated with
this category.
In 1992, the FDIC adopted new regulations which 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 are 4.0% and 8.0%,
respectively. The minimum risk-based capital ratios for Tier 1 and total
risk-based capital to be classified as well-capitalized are 6.0% and 10.0%,
respectively. At Dec. 31, 1996, Bankshares' Tier 1 capital and total
risk-based capital ratios were 13.5% and 14.8%, respectively.
In addition, bank regulatory agencies established a leverage ratio to
supplement the risk-based capital guidelines. The leverage ratio is intended
to ensure that adequate capital is maintained against risks other than credit
risk. A
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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 Dec. 31, 1996, Bankshares' leverage
ratio was 9.7%.
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 also
prohibit acquisition of banks that have not been in existence for at least five
years.
The interstate branching by merger provisions are effective on June 1, 1997,
unless a state takes legislative action prior to that date. States may pass
laws to either "opt-in" before June 1, 1997, or to "opt-out" by expressly
prohibiting merger transactions involving out-of-state banks, provided
legislative action is taken before June 1, 1997. The effects on Bankshares of
such changes in interstate banking and branching laws cannot be predicted.
However, it is likely that there will be increased competition from national
and regional banking firms headquartered outside of Illinois.
STATISTICAL DATA
Pages 3 through 10 contain supplemental statistical data. This data should be
read in conjunction with Bankshares' Management's Discussion and Analysis of
Financial Statements and the Consolidated Financial Statements and notes
thereto of the 1996 Annual Report to Shareholders (1996 Annual Report),
incorporated herein by reference in response to Items 7 and 8 hereof.
CHANGES IN INTEREST INCOME AND EXPENSE
The following table shows the changes in interest income and expense by major
categories of assets and liabilities attributable to changes in volume or rate
or both, for the periods indicated:
Year Ended December 31, 1996
----------------------------------
(thousands) Volume Rate Total
----------- ---------- -----------
Interest Income:
Interest-earning deposits with banks $ (845) $ 8 $ (837)
Federal funds sold (254) (253) (507)
Taxable securities (2,480) (2,618) (5,098)
Tax-advantaged securities (145) (9) (154)
Trading account securities (151) (151) (302)
Loans, net of discount 30,056 (3,623) 26,433
------- --------- ------
Net Increase (Decrease) 26,181 (6,646) 19,535
------- --------- ------
Interest Expense:
NOW and money market deposits 1,208 (3,309) (2,101)
Savings deposits (615) (47) (662)
Time deposits 7,476 432 7,908
Short-term borrowings 564 (334) 230
Federal Home Loan Bank advances 820 819 1,639
------- --------- -------
Net Increase (Decrease) 9,453 (2,439) 7,014
------- --------- -------
Increase (Decrease) in Net Interest Income $16,728 $(4,207) $12,521
======= ========= =======
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Year Ended December 31, 1995
------------------------------------------
Volume Rate Total
------ ---- -----
Interest Income:
Interest-earning deposits with banks $ 748 $ (34) $ 714
Federal funds sold (219) 663 444
Taxable securities 3,363 3,790 7,153
Tax-advantaged securities (172) (422) (594)
Trading account securities (769) 50 (719)
Loans, net of discount 29,980 19,386 49,366
------ ------- -------
Net Increase 32,931 23,433 56,364
------ ------- -------
Interest Expense:
NOW and money market deposits 17,421 6,166 23,587
Savings deposits (976) (53) (1,029)
Time deposits (467) 4,490 4,023
Short-term borrowings (128) 434 306
Subordinated debentures (19) (19) (38)
------ ------- -------
Net Increase 15,831 11,018 26,849
------ ------- -------
Increase in Net Interest Income $17,100 $12,415 $29,515
======= ======= =======
The tax-equivalent adjustment for interest income on tax-advantaged loans and
securities is reflected through the rate column based on a marginal corporate
income tax rate of 35%. Volume variances are computed using the change in
volume multiplied by the previous year's rate. Rate variances are computed
using the changes in rate multiplied by the previous year's volume. The change
in interest due to both rate and volume has been allocated between the factors
in proportion to the relationship of the absolute dollar amounts of the change
in each.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is the fluctuation in earnings resulting from changes
in market interest rates. Management's primary objective regarding
asset/liability management is to position Bankshares such that changes in
interest rates do not have a material adverse impact on net income. Bankshares
utilizes off-balance-sheet financial instruments, such as interest rate swaps
and floors, as a tool for preventing adverse swings in net interest income.
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Management uses a variety of techniques to measure interest rate sensitivity.
One technique is interest rate gap analysis. The following table represents
the interest rate gap analysis for Bankshares at Dec. 31, 1996:
Maturing or Repricing
-----------------------------------------------------------------
1-90 91-180 181-270 271 Days
(thousands) Days Days Days to 1 Year
-----------------------------------------------------------------
Earning Assets:
Federal funds sold $ 98,500 $ - $ - $ -
Securities available for sale 148,158 61,778 15,011 14,998
Securities held to maturity - 452 400 100
Loans, net of unearned discount 866,238 12,059 9,681 312,903
Noninterest-earning assets - - - -
-----------------------------------------------------------------
Total assets 1,112,896 74,289 25,092 328,001
Interest-bearing deposits:
Savings and NOW (293,444) - - -
Money market (925,365) - - -
Certificates of deposit (174,105) (114,448) (31,763) (73,539)
-----------------------------------------------------------------
Total interest-bearing deposits (1,392,914) (114,448) (31,763) (73,539)
Short-term borrowings (6,317) - - -
Federal Home Loan Bank
advances (40,000)
Noninterest-bearing deposits - - - -
Noninterest-bearing liabilities
and shareholders' equity - - - -
-----------------------------------------------------------------
Total liabilities and
shareholders' equity (1,439,231) (114,448) (31,763) (73,539)
Interest rate swaps 195,355 11,100 - -
-----------------------------------------------------------------
Interest sensitivity gap $ (130,980) $ (29,059) $ (6,671) $ 254,462
=================================================================
Cumulative interest sensitivity gap $ (130,980) $ (160,039) $ (166,710) $ 87,752
=================================================================
Cumulative gap as a percentage
of total assets (5.90)% (7.21)% (7.51)% 3.96%
=================================================================
Maturing or Repricing
------------------------------------------------------
Over 1 Year Nonsensitive and
(thousands) to 5 Years Over 5 Years Total
------------------------------------------------------
Earning Assets:
Federal funds sold $ - $ - $ 98,500
Securities available for sale 37,710 101,374 379,029
Securities held to maturity 2,497 7,805 11,254
Loans, net of unearned discount 111,794 310,470 1,623,145
Noninterest-earning assets - 106,600 106,600
------------------------------------------------------
Total assets 152,001 526,249 2,218,528
Interest-bearing deposits:
Savings and NOW - - (293,444)
Money market - - (925,365)
Certificates of deposit (92,638) (53) (486,546)
------------------------------------------------------
Total interest-bearing deposits (92,638) (53) (1,705,355)
Short-term borrowings - - (6,317)
Federal Home Loan Bank
advances (40,000)
Noninterest-bearing deposits - (195,324) (195,324)
Noninterest-bearing liabilities
and shareholders' equity - (271,532) (271,532)
------------------------------------------------------
Total liabilities and
shareholders' equity (92,638) (466,909) (2,218,528)
Interest rate swaps - (206,455) -
-------------------------------------------------------
Interest sensitivity gap $ 59,363 $ (147,115) $ -
======================================================
Cumulative interest sensitivity gap $147,115 $ - $ -
======================================================
Cumulative gap as a percentage
of total assets 6.63% - -
======================================================
This table is not necessarily indicative of the impact on Bankshares from
changes in interest rates. The repricing of certain assets and liabilities may
not reprice at the same time or in the same magnitude due to different bases.
The repricing of assets and liabilities are also subject to competition and
other pressures.
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SECURITIES PORTFOLIO
Carrying Value of Securities by Category
The carrying value of securities held by Bankshares were as follows:
December 31
-----------------------------------
(thousands) 1996 1995 1994
-------- ------- ----------
Trading Account
U.S. Government and agencies $ --- $ --- $ 74,432
======== ========== ==========
Available for sale
U.S. Government and agencies $183,404 $ 226,200 $ 309,360
Common stocks 92,611 34,761 19,107
Other 103,014 103,443 77,212
-------- ---------- ----------
Total $379,029 $ 364,404 $ 405,679
======== ========== ==========
Held to maturity
U.S. Government and agencies $ --- $ --- $ 1,044
State and municipal 5,201 8,199 11,096
Other 6,053 6,368 7,113
-------- ---------- ----------
Total $ 11,254 $ 14,567 $ 19,253
======== ========== ==========
Maturities of Securities
The scheduled maturities by security type as of Dec. 31, 1996 were as follows:
From one From five Not due at
(thousands) One year through five through ten After a single
or less years years ten years maturity Total
-------- ----------- ----------- --------- ---------- -------
U.S. Government
and agencies $165,683 $17,721 $ --- $ --- $ --- $183,404
State and municipal 952 2,497 1,252 500 --- 5,201
Common stocks --- --- --- --- 92,611 92,611
Other 74,263 19,989 814 --- 14,001 109,067
-------- ------- ------ ----- -------- --------
Total $240,898 $40,207 $2,066 $ 500 $106,612 $390,283
======== ======= ====== ===== ======== ========
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The weighted average yield for each range of maturities of securities at Dec.
31, 1996 was as follows:
From one From five Not due at
One year through five ten through After a single
or less years years ten years maturity Total
--------- ----------- ----------- ---------- -------- ------
U.S. Government
and agencies 5.23% 5.60% -- % -- % -- % 5.26%
State and municipal 9.55 9.17 9.30 10.58 -- 9.41
Common stocks -- -- -- -- N/M N/M
Other 5.53 5.65 6.53 -- 7.19 5.77
N/M - Not meaningful.
Actual maturities may differ from those scheduled due to prepayments from
issuers. Common stock yields are not considered meaningful for purposes of
this analysis. Yields on tax-advantaged securities reflect a tax equivalent
adjustment based on a marginal corporate tax rate of 35%.
LOAN PORTFOLIO
Classification of Loans
Bankshares' loans were as follows:
December 31
---------------------------------------------------------------
(thousands) 1996 1995 1994 1993 1992
-------- ------- -------- -------- -------
Commercial real estate $655,793 $582,331 $354,893 $296,075 $232,493
Student 402,859 379,129 354,073 290,635 286,391
Residential first mortgage 286,042 317,787 233,437 251,159 255,919
Home equity 188,755 170,793 57,093 37,578 30,489
Commercial 61,852 78,469 68,620 75,504 91,525
Consumer 27,844 30,273 32,393 27,880 34,353
---------- ---------- ---------- --------- --------
Total $1,623,145 $1,558,782 $1,100,509 $978,831 $931,170
========== ========== ========== ======== =========
Maturities of Loans and Sensitivity to Changes in Interest
The following table classifies the scheduled maturities for the following loan
portfolio categories at Dec. 31, 1996:
One year From one After
(thousands) or less to five years five years Total
--------- ------------- ---------- --------
Commercial real estate $80,501 $305,169 $270,123 $655,793
Commercial 35,919 19,115 6,818 61,852
Of the loans maturing after one year, $273.2 million have fixed rates. To
manage the interest rate exposure of specific, fixed-rate commercial real
estate loans and other loans, Bankshares has entered into interest rate swap
and floor agreements. For additional information on such financial
instruments, see Note 11 to the Consolidated Financial Statements on pages 29
through 30 of the 1996 Annual Report, incorporated herein by reference in
response to Item 8 hereof.
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RISK ELEMENTS IN THE LOAN PORTFOLIO
Nonaccrual and Past Due Loans
Nonaccrual loans were as follows:
December 31
---------------------------------------
(thousands) 1996 1995 1994 1993 1992
----- ------- ----- ----- ------
Nonaccrual loans $7,427 $8,536 $2,389 $3,098 $4,525
Nonaccrual loans to total loans 0.46% 0.55% 0.22% 0.32% 0.49%
Interest income that should have been recorded under the original terms of
these loans totaled $588,000 for the year ended Dec. 31, 1996. There was no
interest income recorded for these loans in 1996.
Loans past due 90 days or more, including nonaccrual loans, were as follows:
December 31
-----------------------------------------------------------------------
(thousands) 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Loans past due 90 days or more $50,368 $32,714 $20,620 $14,281 $18,432
Less guaranteed student loans 15,163 13,913 13,252 8,231 10,260
------- ------- ------- ------- -------
Net loans past due 90 days or more $35,205 $18,801 $7,368 $6,050 $8,172
Net loans past due 90 days or more ======= ======= ======= ======= =======
as a percentage of total loans 2.17% 1.21% 0.67% 0.62% 0.88%
======= ======= ======= ======= =======
Guaranteed student loans that are greater than 90 days past due are classified
as performing due to the principal and accrued interest on such loans being
guaranteed by individual state or private non-profit agencies.
Potential Problem Loans
In addition to those loans disclosed under the preceding "Nonaccrual and Past
Due Loans" section, management identified, through their problem loan
identification system, certain other loans in the portfolio that exhibit a
higher than normal credit risk. However, these loans were not classified as
nonperforming loans. These other loans include loans that are past maturity
more than 45 days, have recent adverse operating cash flow or balance sheet
trends, or have general risk characteristics that the loan officer feels might
jeopardize the future timely collection of principal and interest payments. At
Dec. 31, 1996, the principal amount of these loans was $12.6 million. This
amount generally includes loans that were classified for regulatory purposes.
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Analysis of the Allowance for Possible Loan Losses
The activity in the allowance for possible loan losses was as follows:
Year Ended December 31
-----------------------------------------------------
(thousands) 1996 1995 1994 1993 1992
----- ---- ---- ---- ----
Balance at beginning of year $25,640 $20,157 $19,552 $17,490 $14,697
Allowance of acquired subsidiaries --- --- --- 1,000 ---
Provision for possible loan losses 16,000 5,779 --- 1,176 4,432
Less charge-offs:
Commercial real estate loans 206 284 65 804 269
Student loans 4,605 81 45 107 983
Residential first mortgage loans 1 4 20 96 630
Home equity loans 6,421 28 --- --- ---
Commercial loans 92 269 35 515 735
Consumer loans 16 153 148 330 562
------- ------- ------- ------- -------
Total charge-offs 11,341 819 313 1,852 3,179
------- ------- ------- ------- -------
Add recoveries:
Commercial real estate loans 1,026 44 210 296 61
Student loans 80 105 100 596 1,071
Residential first mortgage loans --- 5 5 7 128
Home equity loans 375 --- --- --- ---
Commercial loans 770 69 303 537 51
Consumer loans 118 300 300 302 229
------- ------- ------- ------- -------
Total recoveries 2,369 523 918 1,738 1,540
------- ------- ------- ------- -------
Net (charge-offs) recoveries (8,972) (296) 605 (114) (1,639)
------- ------- ------- ------- -------
Balance at end of year $32,668 $25,640 $20,157 $19,552 $17,490
======= ======= ======= ======= =======
Net (charge-offs)/recoveries to average loans
outstanding (0.56%) (0.02%) 0.06% (0.01%) (0.18%)
======= ======= ======= ======= =======
Allocation of the Allowance for Loan Losses
The allocation of the allowance for loan losses was as follows:
December 31
------------------------------------------------------------
(thousands) 1996 1995 1994 1993 1992
------- -------------------------------------------------
Commercial real estate $2,575 $ 2,934 $5,801 $5,596 $4,540
Student 3,608 11,489 1,202 1,424 1,430
Residential first mortgage 1,034 1,327 2,451 2,233 2,560
Home equity 21,460 1,000 827 483 425
Commercial 45 445 1,368 1,168 1,600
Consumer 643 476 291 378 860
Unallocated 3,303 7,969 8,217 8,270 6,075
------- -------- -------- ------ -------
Total $32,668 $25,640 $20,157 $19,552 $17,490
======= ======== ======== ======= ========
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Loan Portfolio Composition
The composition of the loan portfolio was as follows:
December 31
------------------------------
(thousands) 1996 1995 1994 1993 1992
----- ----- ------ ---- ----
Commercial real estate 40% 38% 33% 30% 25%
Student 25 24 32 30 31
Residential first mortgage 18 20 21 26 27
Home equity 11 11 5 3 3
Commercial 4 5 6 8 10
Consumer 2 2 3 3 4
--- --- --- --- ---
Total 100% 100% 100% 100% 100%
=== === === === ===
For further review of the loan loss provision and the allowance for possible
loan losses, reference is made to pages 18 through 19 of Management's
Discussion and Analysis of Financial Statements of the 1996 Annual Report,
incorporated herein by reference in response to Item 7 hereof.
DEPOSITS
The scheduled maturities of time deposits in denominations of $100,000 and
greater was as follows at Dec. 31, 1996:
(thousands)
Maturing within 3 months $ 77,375
After 3 but within 6 months 50,377
After 6 but within 12 months 43,931
After 12 months 118,227
--------
Total $289,910
========
RETURN ON EQUITY AND ASSETS
The following table presents certain ratios relating to Bankshares' equity
and assets:
December 31
------- ---------- ----
1996 1995 1994
---- ---- ----
Return on average total assets 2.0% 1.8% 1.5%
Return on average common shareholders' equity 20.4 20.4 15.9
Dividend payout ratio 15.4 14.3 18.5
Average equity to average total assets 9.9 8.4 9.4
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ITEM 2. PROPERTIES
Bankshares utilizes the building facilities of its Irving Park branch, which is
located at 3959 N. Lincoln Avenue, Chicago, Illinois, for its executive
offices. Bankshares owns the property and buildings on which ten of the twelve
bank branch locations are located. The other two branch locations are leased
from unrelated parties.
ITEM 3. LEGAL PROCEEDINGS
Bankshares is involved in various legal and regulatory proceedings, many
involving matters that arose in the ordinary course of business. The
consequences of these proceedings are not presently determinable but, in the
opinion of management, the ultimate liability in excess of reserves recorded
will not have a material effect on the results of operations, financial
position, liquidity or capital resources of Bankshares, except for possibly the
matter discussed below.
As disclosed previously, Bankshares discovered that certain former employees in
the student loan servicing area had falsified some records of telephone calls,
from late 1993 to April 1994, to students whose loans were delinquent. The
telephone calls are a required action to maintain the enforceability of a
student loan's government guarantee. Bankshares terminated the employees
involved and informed the U.S. Department of Education immediately upon
discovery of the problem and the Department commenced an investigation.
Bankshares believes that the Department's investigation has been expanded to
include a review of whether Bankshares' student loan division has engaged in
improper practices from 1988 to April 1994, including whether information
contained on guarantee claim forms may have been falsified. If it is
ultimately determined that Bankshares acted illegally or violated Department
policy or regulations, Bankshares could (i) lose its government guarantees with
respect to certain student loans and (ii) be required to repurchase a
substantial amount of delinquent student loans for which Bankshares previously
received guarantee payments. In addition, Bankshares or individual employees
could be subject to substantial penalties.
Shortly after reporting the problem, Bankshares entered into an interim
agreement with the Department pursuant to which it agreed, pending the
conclusion of the investigation, not to request payment from any guarantor or
the Department on any loans that Bankshares is unable to state with certainty
were not affected by incorrect servicing history documentation. As a result of
this agreement, at December 31, 1996, there were $6.7 million of nonaccrual
student loans for which Bankshares has agreed not to seek guarantee payments.
In addition, management charged off $4.0 million of student loans during 1996
that were subject to the interim agreement. The ultimate collectibility of the
loans is uncertain.
Management is unable to predict what actions, if any, the Department will take
following the completion of its investigation, and therefore cannot estimate
the amount or range of any liability that Bankshares will ultimately incur.
Bankshares does not condone or permit such improper practices and is
cooperating fully with the Department's investigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
Bankshares' 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 35 of the 1996 Annual Report, incorporated herein by reference
in response to Item 7 hereof.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of February 28, 1997, there were 516 shareholders owning Bankshares'
common stock which has a par value of $0.05 per share. Shareholders that own
stock in nominee (i.e., street) name are excluded from the number of security
holders of record.
DIVIDENDS ON COMMON STOCK
Quarterly cash dividends per common share for the last two years are included
on page 35 of the 1996 Annual Report, incorporated herein by reference in
response to Item 7 hereof. Dividends were declared and paid on a quarterly
basis. The declaration of dividends is at the discretion of Bankshares' Board
of Directors and depends upon, among other factors, earnings, capital
requirements and the operating and financial condition of Bankshares.
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ITEM 6. SELECTED FINANCIAL DATA
Refer to page 35 of the 1996 Annual Report, incorporated herein by reference
for additional selected financial data.
December 31
------------------------------------------------------------------------------
(thousands, except per share data) 1996 1995 1994 1993 1992
--------- ----------- --------- ---------- -----------
Interest income $ 190,950 $ 171,114 $ 114,541 $ 101,325 $ 110,481
Interest expense 79,611 72,597 45,748 35,573 41,814
---------- ---------- ---------- ---------- -----------
Net interest income 111,339 98,517 68,793 65,752 68,667
Provision for possible loan losses 16,000 5,779 -- 1,176 4,432
---------- ----------- ----------- ---------- -----------
Net interest income after provision
for possible loan losses 95,339 92,738 68,793 64,576 64,235
Noninterest income, excluding
securities gains (losses) 19,436 15,443 12,572 12,869 9,698
Securities gains (losses), net 3,316 (1,332) 663 (330) (69)
Noninterest expense 50,181 51,650 45,222 38,626 37,911
Income tax expense 24,005 19,429 12,790 13,167 12,675
---------- ---------- ---------- ---------- ----------
Net income available to common
shareholders $ 43,905 $ 35,770 $ 24,016 $ 25,322 $ 23,278
========== ========== ========== ========== ==========
Earnings per share $ 2.93 $ 2.35 $ 1.57 $ 1.66 $ 1.53
========== ========== ========== ========== ==========
Cash dividends declared per
common share $ 0.48 $ 0.36 $ 0.30 $ 0.27 $ 0.24
========== ========== ========== ========== ==========
Assets $2,218,528 $2,125,092 $1,889,445 $1,441,762 $1,333,318
========== ========== ========== ========== ==========
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 8 through 19 of the 1996 Annual
Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Bankshares, including the notes
thereto, and other information on pages 20 through 35 of the 1996 Annual Report
are incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On February 12, 1997, the Audit Committee and Board of Directors of Bankshares
recommended that the shareholders ratify Arthur Andersen LLP at the annual
meeting as independent accountants of Bankshares for fiscal 1997. This
recommendation caused the dismissal of KPMG Peat Marwick LLP (KPMG) as the
independent accountants of Bankshares upon the completion of the audit of
Bankshares' financial statements as of and for the year ended December 31, 1996
and the issuance of their report thereon.
For the two years ended December 31, 1996, KPMG's reports on the financial
statements did not contain an adverse or a disclaimer of opinion nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
For the two years ended December 31, 1996 and from December 31, 1996 through
the effective date of the dismissal, there were no disagreements between KPMG
and Bankshares on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure or any reportable events.
Bankshares has requested that KPMG furnish a letter addressed to the United
States Securities and Exchange Commission stating whether KPMG agrees with the
preceding statements. A copy of KMPG's letter dated March 25, 1997 is filed as
Exhibit 16 hereto.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of Bankshares is
incorporated herein by reference to the descriptions under "Elections of
Directors and Ownership of Shares" on pages 2 through 3 of the 1997 Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference to
the material under the caption "Executive Compensation" on pages 4 through 14
of the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated by reference to the material under the headings
"Outstanding Voting Securities and Principal Shareholders" and "Election of
Directors and Ownership of Shares" on pages 1 through 2 and 3, respectively, of
the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the material in Note 4 on pages 26 through
27 of the 1996 Annual Report and to the material under the heading
"Transactions with Management and Others" on page 14 of the 1997 Proxy
Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statement Schedules:
(13) The portions of Registrant's 1996 Annual Report incorporated by reference
into Part I or Part II of Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
Index
-----
Pages
-----
Consolidated Statements of Condition 20
Consolidated Statements of Income 21
Consolidated Statements of Changes of Shareholders' Equity 22
Consolidated Statements of Cash Flows 23
Notes to Consolidated Financial Statements 24-35
Independent Auditors' Report 36
(16) Letter regarding change in certifying accountant.
(b) Reports on Form 8-K:
Registrant filed Current Report dated February 12, 1997 (Items 4 and 5).
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Michael J. McClure /s/ First Vice President & Chief
Accounting Officer March 25, 1997
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.
Joseph C. Glickman /s/ Chairman of the Board of Directors March 25, 1997
Robert J. Glickman /s/ President, Chief Executive Officer
& Director March 25, 1997
Timothy H. Taylor /s/ Senior Vice President & Chief
Financial Officer March 25, 1997
Michael J. McClure /s/ First Vice President & Chief
Accounting Officer March 25, 1997
Karl H. Horn /s/ Director March 25, 1997
Michael Levitt /s/ Director March 25, 1997
Rodney D. Lubeznik /s/ Director March 25, 1997
Michael Tang /s/ Director March 25, 1997
William H. Wendt, III /s/ Director March 25, 1997
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