Corus Bankshares, Inc. - Company Profile, Information, Business Description, History, Background Information on Corus Bankshares, Inc.



3959 N. Lincoln Avenue
Chicago, Illinois 60613-2431
U.S.A.

Company Perspectives:

Corus has established a strong track record of profitability, made po ssible by a number of factors, including efficiency and entrepreneurs hip.

History of Corus Bankshares, Inc.

Based in Chicago, Corus Bankshares, Inc. is a holding company for Cor us Bank, N.A., which maintains 11 branches in the Chicago metropolita n area. With more than $6.5 billion in assets, Corus is involved in two main banking activities: deposit gathering (checking, savings, money market, and time deposit accounts) and commercial real estate lending. The bank finances real estate projects across the United Sta tes, concentrating on loans that range from $20 million to $1 35 million. In addition, Corus is the largest provider of services to Chicago's check cashing industry, offering clearing, depository, and credit services to some 525 area check cashing locations, as well as another 20 locations in Milwaukee, Wisconsin. Although Corus is a pu blic company listed on the NASDAQ, it is controlled by Chairman Josep h Glickman and his family, who together own about half of the holding company. Glickman's son, Robert J. Glickman, is the longtime preside nt and chief executive officer. He is known for running a lean operat ion and taking a hands-on approach to business. Crain's Chicago Bu siness once described him as "brilliant and tyrannical, reflectiv e and blunt."

Company Heritage Dating to the 1950s

Corus was incorporated in Minnesota in 1958 as River Forest Bancorp b y Minneapolis financier Carl R. Pohlad, who was to become better know n as the owner of the Minnesota Twins Major League Baseball team than as a banker. He was born in 1915, the son of a railroad brakeman who struggled to support his family of eight. To help bring some money i nto the house Pohlad during high school began milking cows on a farm owned by a banker, who took him under his wing and made the young man his driver as he collected loan payments. Pohlad was soon handling t he rounds by himself and taking on other chores at the bank. He put t hat experience to use in the early 1930s during his college career at Gonzaga University in Spokane, Washington. A high school football st ar, he attended Gonzaga on an athletic scholarship, but, in need of s pending money, he began selling used cars repossessed by banks. The p rofits from this venture then allowed him to buy a small finance comp any in Dubuque, Iowa. He quit school after football season during his senior year and ran the business until a stint in the Army during Wo rld War II. When he returned he found that his partner had purchased Minnesota-based Bank Shares Inc., owners of three banks. Pohlad moved to Minneapolis to help run Bank Shares and when his partner died in 1955 he became CEO and expanded the operation by buying more communit y banks, including River Forest State Bank, located in a Chicago subu rb. In October 1958 he formed another holding company in Minnesota ca lled River Forest Bancorp.

Younger Generation Taking Charge in the Early 1980s

A Minnesota businessman named Joseph C. Glickman led a group of inves tors who in 1966 bought the $18-million-asset River Forest bank f rom Pohlad. Three years later, in 1969, Glickman was joined by his so n, Robert J. Glickman, who had just graduated with an undergraduate d egree from Cornell University. He became a director of the company in 1972 and took on an increasing amount of responsibility at River For est. In the mid-1970s he recruited longtime friend and high school cl assmate Robert Heskett to join him. In the early 1980s the two men to ok the reins of the company, as Joseph Glickman, now in his late 60s, stepped back from the day-to-day running of River Forest, content to serve as its chairman.

According to Crain's Chicago Business, the young Glickman and Heskett were referred to by analysts as the "Bob and Bob Show." Glick man was the chief executive and Heskett served as vice-president and the bank's chief lending officer. Crain's also reported, "Obse rvers say Mr. Heskett's more outgoing personality and his ability to cut quickly to the heart of a complex deal complemented Mr. Glickman' s more reserved and reflective characters. ... Bankers described Mr. Heskett as Mr. Glickman's alter ego and the only executive to whom he delegated authority. 'Bob (Glickman) runs a very autocratic organiza tion,' says a banker who knows them both. 'No one could go to the bat hroom without asking Glickman. The only other person who could give p ermission was Heskett.'"

In 1982 Illinois changed its banking laws to allow for multibank hold ing companies and the two-man team at River Forest soon took advantag e of the new conditions to grow through acquisitions, pursuing a stra tegy of targeting modestly priced banks that were either in trouble o r not performing particularly well, then turning them around quickly. First they borrowed $16 million in 1984 to acquire Chicago's Lin coln National Bank. In just two years they were able to repay the mon ey and set their sites on an even larger target, Commercial National Bank of Chicago. This time they borrowed $35 million of the $ 43.7 million they paid in cash for the bank.

In March 1988 River Forest caught the attention of Barron's Nation al Business and Financial Weekly, which profiled the company as t he favorite stock of Kurt L. Linder, a well respected mutual fund man ager. Barron's noted that since 1982 River Forest had grown it s total assets from $190 million to around $750 million. Duri ng that time earnings also had increased from 57 cents a share to &#3 6;2.05, adjusted for a pair of stock splits. The article also reporte d that River Forest was again in the market for further bank acquisit ions: "Of course, they have to meet pretty high standards to mesh wit h River Forest. 'One thing that's impressive,' Linder finds, 'is its rather high percentage of passbook savings,' which in '86 accounted f or almost 15% of deposits."

Another key factor in the success at River Forest, not mentioned by Barron's, was the bank's lean staff, which increased earnings b y keeping down overhead. Glickman's hard-charging style was a key fac tor in this regard. He was known, according to Crain's in a 19 95 article, "for churning through employees. He hires young executive s and pays them well. But they burn out fast. The cost-conscious Mr. Glickman keeps an eye on the bottom line by keeping head count low an d expecting more than 100% from each hire. The strategy works: Ri ver Forest is recognized as one of the most efficient banking compani es in the country, spending 47 cents for every dollar of revenues it brings in, vs. 63 cents for the average Midwest bank."



River Forest's next acquisition was completed at the end of 1989 when it paid nearly $9 million for Calumet City Bancorp, picking up F irst State Bank of Calumet City. This was followed a year later by th e purchase of Madison Financial Corp., Illinois's first multi-bank ho lding company, now boasting assets of $185 million. In the $1 4.6 million cash deal, River Forest picked up three Chicago-area bank s: Madison Bank & Trust Co. of Chicago, Madison National Bank of Niles, and First National Bank of Wheeling. As a result River Forest became a $1 billion banking company. Two more acquisitions follow ed in the early 1990s. Aetna Bancorp, Inc., holding company for Aetna Bank, was acquired for about $22 million in 1991. Then, in July 1993 River Forest bought Belmont National Bank, located on Chicago's north side, from Water Tower Bancorp for $12.5 million in cash.

A major business for River Forest was student loans, but the company ran afoul of the government program in 1994. According to the rules o f U.S. government-guaranteed loans, when a student defaulted on a loa n, the lending bank was required to contact the student by phone to s eek payment, and only then could a claim for insurance compensation b e filed. River Forest learned that since 1988 some of its employees h ad been cutting corners, falsely documenting calls to students that w ere not actually made, resulting in 2,200 invalid insurance claims. R iver Forest reported the misconduct to the Department of Education, w hich resulted in a lengthy investigation. Finally, in 1999 the U.S. J ustice Department filed a civil lawsuit against the company, and anot her year would pass before a $7.8 million settlement payment was agreed to by both parties.

Heskett's Departure in the Mid-1990s

The student loan flap was little more than a minor distraction in 199 4 compared with another development that took place. In early March 1 994, the "Bob and Bob Show," according to Crain's, ended abrup tly "in a rift that sparked Mr. Heskett's sudden and unexplained resi gnation, rattling investors and sending River Forest's stock tumbling by 9% to around $33.50 late last week. Neither will comment on the matter, nor on reports that Mr. Heskett was escorted out of Ri ver Forest's Northwest Side headquarters by a security guard." Cra in's further reported, "According to the accounts of several bank ers, Mr. Heskett resisted Mr. Glickman's proposal to change a golden parachute agreement that provides Mr. Heskett 299.9 percent of his ba se $280,000 salary in the event of a takeover. However, a takeove r is highly unlikely because of the Glickman family's controlling int erest." The two boyhood friends now battled each other in court over the terms of Heskett's payout, with the matter not settled for three more years, at which point Heskett was paid $1.5 million over fiv e years.

Heskett's departure came at a difficult time for $1.4 billion Riv er Forest, which found earnings squeezed on a number of fronts and th e kind of bank acquisitions that had fueled the company's growth for the past decade more difficult to find and too expensive. Glickman in stalled himself as chief lending officer and River Forest began assum ing more risk in its lending practice in hopes of a higher reward. Ac cording to Crain's, "The bank began dealing with mortgage-brok er generated prospects for home-equity loans, a process that effectiv ely raised many loan-to-value ratios to 100% instead of the more prudent 80%." The company enjoyed success in the first year--"It lulled us into a sense of complacency," Glickman admitted--but the co mpany was soon saddled with a large amount of nonperforming residenti al loans. River Forest also had to contend with a loss of key personn el in the 18 months after Heskett resigned, including his senior lend er and chief financial officer. Glickman continued to hire young tale nt, paying high wages, and also invested money to upgrade River Fores t's account system, introduce telephone banking, and provide customer s with home banking software. Moreover, he took steps to rein in cost s in 1995 by consolidating four bank subsidiaries into one and closin g one of the company's 12 branches. The consolidation was completed i n June 1996, resulting in a name change, as River Forest Bancorp beca me Corus Bankshares, Inc.

By March 1997, three years after Heskett's abrupt exit, Glickman publ icly admitted that the less restrictive lending policy he had pursued had not worked. The "minefield that tripped Corus," according to Crain's, was "surging delinquencies by borrowers it had never met ." After a successful first year, "non-performing residential loans t ripled to $22.7 million and total delinquencies nearly doubled to $35.2 million--while the company's overall net-interest margin r emained stuck at 5.4%." As a result, Corus took a major writeoff in the fourth quarter of 1996. The company still retained its low cos t structure, giving it a competitive edge, but it also meant that the executive ranks were thin and bereft of experience. Corus simply lac ked the personnel to consider new acquisitions or the kind of fee inc ome opportunities rival banks were now avidly pursuing.

Corus in 1998 acquired Lawton/Russell Inc. and Moss Lawton Co., two C hicago investment advisory firms owned by Gregory M. Lawton. The asse ts were combined into a new unit headed by Lawton called Corus Asset Management, providing Corus with a significant revenue driver in trus t and asset management. Also in 1998 Corus reentered the residential loan market; Glickman believed that the company had learned its lesso ns of the mid-1990s. But the most important business for the company remained commercial real estate loans, which totaled $761 million in 1998, or about half of the total loan portfolio. Wall Street firm s and other lenders had pulled out of the field because of fast-growi ng Real Estate Investment Trusts (REITs) that were able to offer lowe r rates, but when REITs experienced a serious drop in stock prices in the summer of 1998, forcing them to regroup, Corus and other suburba n banking groups filled the void and began backing high-profile proje cts, such as apartment buildings and downtown Chicago office building s.

At the start of the new century Corus sold Corus Asset Management and became even more committed to commercial real estate lending, and as the economy slipped into recession, and the terrorist attacks of Sep tember 11, 2001 hurt the travel industry and the hotel sector, there was some concern that the company might be vulnerable. "Given Corus' practice of making large loans on big projects--many of them approach ing the bank's $65-million lending limit to a single borrower," Crain's speculated in 2003, "just a few bad loans can wipe out a year's worth of earnings." Glickman stuck to his strategy, however, and it paid off. Despite being involved in such tricky sectors as ho tels and apartments, Corus by the summer of 2005 had not suffered any credit losses for several years. The main reason for the company's s uccess was that by focusing on commercial real estate it had become q uite good at evaluating projects in this area. In addition, Glickman proved to be a good stock picker, at least when it came to gauging th e potential of other banks. Corus invested in more than two dozen ban k stocks across the country and was paid off handsomely when several of the banks were acquired during a consolidation spree.

In was likely that Corus was due for a rough patch in the commercial real estate field. "People who invest with us should anticipate havin g some large losses over one or two years," Glickman told Crain's. "If they don't have the stomach for that, they shouldn't come al ong for the ride."

Principal Subsidiaries: Corus Bank, N.A.

Principal Competitors: Bank of America Corporation; Harris Ban kcorp, Inc.; LaSalle Bank Corporation.

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