A federal investigation dimmed an otherwise bright third quarter at Corus Bankshares.
After more than a year, the $2.2 billion-asset banking company is still awaiting word on whether it will lose federal guarantees on $9.7 million of delinquent student loans.
"Management is unable to predict the amount or range of Bankshares' ultimate loss," the company said in an earnings release.
Corus acknowledges that it failed to telephone the delinquent borrowers from late 1993 through April 1994 to remind them of the situation. The calls were required to maintain the loans' federal guarantee.
Employees falsely reported that they had made the phone calls, the company says. Those employees have since been fired, it says.
Corus says it alerted the Department of Education early last year after an internal audit discovered the falsified reports. Tim Taylor, the company's chief financial officer, said the department may be probing for improper practices going back to 1988. Corus' earnings release said the government could revoke guarantees on other loans, depending on what it finds.
Meanwhile, the bank has introduced new methods of tracking student loan servicing phone calls, Mr. Taylor said.
Education Department officials could not be reached by press time to discuss the matter.
Corus added $4 million in the third quarter to reserves for potential loan losses, up from $1.5 million in the year-earlier quarter. On Sept. 30 its loss reserve stood at $35.2 million, or 2.2% of total loans, up from $22.8 million on that date last year.
The company generated $11 million of net income in this year's third quarter, up 14.8% from a year earlier. Annualized return on assets clocked in at 2.02%, and annualized return on equity at 20.47%.
Joel Gomberg, a banking analyst for Howe Barnes Investments Inc. in Chicago, gave the bank high marks but noted the lingering questions over the student loans.
"Their operating fundamentals are strong," Mr. Gomberg said. "Fraud is a tough thing to deal with and monitor, and they got stung there."
