Corus Bankshares in Chicago plans to use the proceeds from the sale of its student loan assets to pad its already substantial commercial real estate portfolio.

The $2.5 billion-asset company sold the bulk of its $450 million student loan business Tuesday, eight months after settling a lawsuit in which the Justice Department claimed Corus improperly filed insurance claims on thousands of defaulted student loans without first seeking payment from the borrowers. The company paid $7.8 million to settle the suit. Corus said it would use the $20 million it received from the sale to expand its commercial real estate portfolio, which stood at nearly $1.2 billion at the end of the third quarter and accounted for more than 61% of its lending activity.

Chief financial officer Tim Taylor said Corus’ commercial real estate lending, which supports the construction of hotels, apartments, condominiums, office buildings, nursing homes, warehouse and light industrial complexes, and retail installations, “is the main thrust of our business.”

The company’s plan to expand in this business — which is considered riskier than mortgage and small-business lending — is a testament to the strength of its portfolio.

Between 1989 and 1999 Corus charged off $263,000 of commercial real estate credits, but it recovered much of that loss. In fact, recoveries exceeded chargeoffs in 1998, 1999, and in the first nine months of 2000.

Still, the course Corus is charting may raise the eyebrows of some bank regulators.

In September officials at the Federal Deposit Insurance Corp. warned community banks about overreliance on commercial real estate lending. The agency published a list of nine cities where commercial real estate lending exceeded the national average.

Chicago was not on the list, and the FDIC declined to discuss Corus specifically. However, spokeswoman Rosemary George said the agency worries that community banks with heavy commercial real estate exposure could see their nonperforming assets balloon if the economy sours.

Mr. Taylor said that Corus foresees no significant deterioration in its commercial real estate portfolio, but that it would be “naive” to expect its performance to stay at the level of the past decade.

“We recognize this sort of situation cannot continue forever,” he said.

Corus sold $400 million of student loans Tuesday, half to Chela Financial USA in San Francisco and half to the Illinois Designated Account Purchase Program. It plans to sell its remaining $50 million to the same two buyers during the second quarter for $3 million, which also is earmarked for commercial real estate lending, Mr. Taylor said.

Robert Glickman, president and chief executive officer, said that exiting the student loan business after more than 20 years was a “watershed moment” for Corus, but that the company had little choice.

In addition to the lawsuit, Corus said, new federal regulations have made it virtually impossible to cure nonperforming student loans. Corus made millions of dollars over the years by returning these loans to performing status.

Mr. Taylor declined to say which factor — the lawsuit or the dwindling pool of curable loans — played a larger role in the company’s decision to get out of the student loan market.

It seems clear, though, that putting its student loan troubles behind it has helped Corus. Since hitting a 52-week low of $20.25 late in January, the company’s stock has nearly doubled. It closed Friday at $40.50.

Earnings have been strong as well. Corus’ profits for the first nine months were $45.9 million, up 42%.

Related Content Online:

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.