Corus Bankshares, Inc.

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Corus Bankshares, Inc.

3959 N. Lincoln Avenue
Chicago, Illinois 60613-2431
U.S.A.
Telephone: (773) 832-3088
Toll Free: (800) 555-5710
Fax: (773) 832-3267
Web site: http://www.corusbank.com

Public Company
Incorporated: 1958 as River Forest Bancorp, Inc.
Employees: 471
Sales: $273.5 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: CORS
NAIC: 522110 State Commercial Banks

Based in Chicago, Corus Bankshares, Inc. is a holding company for Corus Bank, N.A., which maintains 11 branches in the Chicago metropolitan 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 States, concentrating on loans that range from $20 million to $135 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 public company listed on the NASDAQ, it is controlled by Chairman Joseph Glickman and his family, who together own about half of the holding company. Glickman's son, Robert J. Glickman, is the longtime president and chief executive officer. He is known for running a lean operation and taking a hands-on approach to business. Crain's Chicago Business once described him as "brilliant and tyrannical, reflective and blunt."

Company Heritage Dating to the 1950s

Corus was incorporated in Minnesota in 1958 as River Forest Bancorp by Minneapolis financier Carl R. Pohlad, who was to become better known 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 into 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 the rounds by himself and taking on other chores at the bank. He put that experience to use in the early 1930s during his college career at Gonzaga University in Spokane, Washington. A high school football star, he attended Gonzaga on an athletic scholarship, but, in need of spending money, he began selling used cars repossessed by banks. The profits from this venture then allowed him to buy a small finance company in Dubuque, Iowa. He quit school after football season during his senior year and ran the business until a stint in the Army during World 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 community banks, including River Forest State Bank, located in a Chicago suburb. In October 1958 he formed another holding company in Minnesota called River Forest Bancorp.

Younger Generation Taking Charge in the Early 1980s

A Minnesota businessman named Joseph C. Glickman led a group of investors who in 1966 bought the $18-million-asset River Forest bank from Pohlad. Three years later, in 1969, Glickman was joined by his son, Robert J. Glickman, who had just graduated with an undergraduate degree from Cornell University. He became a director of the company in 1972 and took on an increasing amount of responsibility at River Forest. In the mid-1970s he recruited longtime friend and high school classmate Robert Heskett to join him. In the early 1980s the two men took 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." Glickman was the chief executive and Heskett served as vice-president and the bank's chief lending officer. Crain's also reported, "Observers 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 organization,' says a banker who knows them both. 'No one could go to the bathroom without asking Glickman. The only other person who could give permission was Heskett.'"

In 1982 Illinois changed its banking laws to allow for multi-bank holding companies and the two-man team at River Forest soon took advantage of the new conditions to grow through acquisitions, pursuing a strategy of targeting modestly priced banks that were either in trouble or not performing particularly well, then turning them around quickly. First they borrowed $16 million in 1984 to acquire Chicago's Lincoln National Bank. In just two years they were able to repay the money 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 National Business and Financial Weekly, which profiled the company as the favorite stock of Kurt L. Linder, a well respected mutual fund manager. Barron's noted that since 1982 River Forest had grown its total assets from $190 million to around $750 million. During that time earnings also had increased from 57 cents a share to $2.05, adjusted for a pair of stock splits. The article also reported that River Forest was again in the market for further bank acquisitions: "Of course, they have to meet pretty high standards to mesh with River Forest. 'One thing that's impressive,' Linder finds, 'is its rather high percentage of passbook savings,' which in '86 accounted for 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 by keeping down overhead. Glickman's hard-charging style was a key factor in this regard. He was known, according to Crain's in a 1995 article, "for churning through employees. He hires young executives 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 and expecting more than 100% from each hire. The strategy works: River Forest is recognized as one of the most efficient banking companies 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 First State Bank of Calumet City. This was followed a year later by the purchase of Madison Financial Corp., Illinois's first multi-bank holding company, now boasting assets of $185 million. In the $14.6 million cash deal, River Forest picked up three Chicago-area banks: 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 followed 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 of U.S. government-guaranteed loans, when a student defaulted on a loan, the lending bank was required to contact the student by phone to seek payment, and only then could a claim for insurance compensation be filed. River Forest learned that since 1988 some of its employees had been cutting corners, falsely documenting calls to students that were not actually made, resulting in 2,200 invalid insurance claims. River Forest reported the misconduct to the Department of Education, which resulted in a lengthy investigation. Finally, in 1999 the U.S. Justice Department filed a civil lawsuit against the company, and another 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 1994 compared with another development that took place. In early March 1994, the "Bob and Bob Show," according to Crain's, ended abruptly "in a rift that sparked Mr. Heskett's sudden and unexplained resignation, 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 River Forest's Northwest Side headquarters by a security guard." Crain's further reported, "According to the accounts of several bankers, Mr. Heskett resisted Mr. Glickman's proposal to change a golden parachute agreement that provides Mr. Heskett 299.9 percent of his base $280,000 salary in the event of a takeover. However, a takeover is highly unlikely because of the Glickman family's controlling interest." 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 five years.

Company Perspectives:

Corus has established a strong track record of profitability, made possible by a number of factors, including efficiency and entrepreneurship.

Heskett's departure came at a difficult time for $1.4 billion River Forest, which found earnings squeezed on a number of fronts and the kind of bank acquisitions that had fueled the company's growth for the past decade more difficult to find and too expensive. Glickman installed himself as chief lending officer and River Forest began assuming more risk in its lending practice in hopes of a higher reward. According to Crain's, "The bank began dealing with mortgage-broker generated prospects for home-equity loans, a process that effectively 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 company was soon saddled with a large amount of nonperforming residential loans. River Forest also had to contend with a loss of key personnel in the 18 months after Heskett resigned, including his senior lender and chief financial officer. Glickman continued to hire young talent, paying high wages, and also invested money to upgrade River Forest's account system, introduce telephone banking, and provide customers with home banking software. Moreover, he took steps to rein in costs in 1995 by consolidating four bank subsidiaries into one and closing one of the company's 12 branches. The consolidation was completed in June 1996, resulting in a name change, as River Forest Bancorp became Corus Bankshares, Inc.

By March 1997, three years after Heskett's abrupt exit, Glickman publicly 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 tripled to $22.7 million and total delinquencies nearly doubled to $35.2 million—while the company's overall net-interest margin remained stuck at 5.4%." As a result, Corus took a major writeoff in the fourth quarter of 1996. The company still retained its low cost structure, giving it a competitive edge, but it also meant that the executive ranks were thin and bereft of experience. Corus simply lacked the personnel to consider new acquisitions or the kind of fee income opportunities rival banks were now avidly pursuing.

Corus in 1998 acquired Lawton/Russell Inc. and Moss Lawton Co., two Chicago investment advisory firms owned by Gregory M. Lawton. The assets were combined into a new unit headed by Lawton called Corus Asset Management, providing Corus with a significant revenue driver in trust and asset management. Also in 1998 Corus reentered the residential loan market; Glickman believed that the company had learned its lessons 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 firms and other lenders had pulled out of the field because of fast-growing Real Estate Investment Trusts (REITs) that were able to offer lower rates, but when REITs experienced a serious drop in stock prices in the summer of 1998, forcing them to regroup, Corus and other suburban banking groups filled the void and began backing high-profile projects, such as apartment buildings and downtown Chicago office buildings.

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 September 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 approaching 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 hotels and apartments, Corus by the summer of 2005 had not suffered any credit losses for several years. The main reason for the company's success was that by focusing on commercial real estate it had become quite good at evaluating projects in this area. In addition, Glickman proved to be a good stock picker, at least when it came to gauging the potential of other banks. Corus invested in more than two dozen bank 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 having 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 along for the ride."

Principal Subsidiaries

Corus Bank, N.A.

Principal Competitors

Bank of America Corporation; Harris Bankcorp, Inc.; LaSalle Bank Corporation.

Key Dates:

1958:: River Forest Bancorp, Inc. is incorporated.
1966:: Joseph C. Glickman investor group acquires the company.
1984:: Lincoln National Bank is acquired.
1986:: Commercial National Bank is acquired.
1990:: Madison Financial Corp. is acquired.
1996:: The subsidiaries are consolidated, resulting in Corus Bankshares, Inc.
2000:: Corus Asset Management is sold.