Progress Back to Basics after Spreading Too Thin

By Reosti, John | American Banker, February 22, 2002 | Go to article overview

Progress Back to Basics after Spreading Too Thin


Reosti, John, American Banker


Good old-fashioned community banking is back in vogue at Progress Financial Corp.

After months of restructuring, the Blue Bell, Pa., parent of Progress Bank has jettisoned its riskiest business lines and is refocusing on community-based, middle-market lending. It will concentrate on augmenting its consumer franchise -- particularly core deposits -- and making loans of $2 million to $4 million to local businesses, "the type of everyday loans you see in a big community bank," chief executive officer W. Kirk Wycoff said.

"I love our new strategy," he said. "It makes a lot of sense. It takes the best of what we have to offer and gives us a framework."

Left unsaid was that this represents an about-face from the business plan Progress followed in the five years leading up to 2001. Indeed, as late as last March, in its annual report, it was still touting the virtues of complementing its banking operation with fee income derived from a menu of side businesses that included telemarketing, venture capital investing, equipment leasing, and a separate bank group that made loans to high-tech start-ups.

This diversification was "right for the time," Mr. Wycoff said, but had clearly stopped working by last spring. Progress lost $1.4 million in the second quarter, as a rising tide of problem loans forced it to add $3.6 million to its loan-loss reserves -- triple the amount it added during the second quarter of 2000. In July the Office of Thrift Supervision added to Progress' woes by ordering it to stop lending to high-tech start-ups, tighten its underwriting standards, boost its capital levels, and suspend dividend payouts, among other measures.

Mr. Wycoff said that Progress "wrote the last chapter" in its reorganization effort last week, when it announced it had raised $8.3 million in a private-placement stock offering and won approval from the OTS for its capital plan. The aim is to reduce the level of high-risk loans on its books to 25% of the bank's capital, a goal chief financial officer Michael B. High said he expected to meet by June 30. Mr. High said loans classified as "special mention" by the OTS make up about 37% of Progress' portfolio.

Claire M. Percarpio, an analyst at Janney Montgomery Scott Inc. in Philadelphia, said she was "encouraged and impressed" by how speedily Progress complied with the OTS directive.

"This gives management more time to concentrate on day-to-day operations," Ms. Percarpio said, adding that Progress' "strain came from nontraditional lending and from leasing," not from traditional banking activities.

Joseph Longino, a principal at Sandler O'Neill & Partners LP in New York, said Progress "had aggressively moved to reposition itself in light of the fact that several of the opportunities it pursued in the past aren't there anymore. …

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