Structural, regulatory change leads
Progress Bank to commercial lending focus

May 9, 2008
Tampa Bay Business Journal - by Margie Manning Senior staff writer

TAMPA -- With a new name and new lending focus, Progress Bank is ready to move past its former identity as Bay Financial Savings Bank.

The Florida Office of Financial Regulation approved Bay Financial's switch from a federal savings bank to a state-chartered commercial bank on April 15, along with a name change to Progress Bank.
The change, effective May 1, allows the bank to expand commercial lending and divest some of its residential real estate portfolio, said Thomas Rummel Jr., president. The bank no longer is regulated by the federal Office of Thrift Supervision, which requires maintaining a significant portion of the assets in home loans.

"That was not the focus of the bank going forward. It's commercial," Rummel said. "We're a commercial bank and we're run by commercial bankers."

The shift follows last year's acquisition of the bank by private equity fund Community Bank Investors of America LP. The bank had $70.2 million in assets on Dec. 31 and $80,000 in net income in 2007, according to the most recent information available from the Federal Deposit Insurance Corp.

"This past year has been about re-establishing the bank, getting back on a normalized footing. We succeeded and we made money while we did it," Rummel said. "This year will be about growing relationships and implementing the plan."

Changing the portfolio
The bank had $53.4 million in loans as of Dec. 31 with 60 percent of that, or $32.1 million, in residential real estate loans. It currently is looking to sell $7 million in residential loans, many of them loans that Bay Financial purchased from other institutions. Asset quality isn't the issue. About
1.2 percent of Progress Bank's loans are noncurrent, compared to 2.14 percent of the loans that are noncurrent at 36 thrifts statewide. But holding loans for residents in other communities doesn't help the bank because it can't expand relationships with those customers, Rummel said.

Since last year, the bank has added about $40 million in commercial loans, and it will build on those existing commercial relationships. It plans to reach out to new business with a marketing campaign tied to the June 9 opening of its new office, a larger and more visible location in the strip shopping center at Hillsborough Avenue and Sheldon Road where it currently has its only office.

Online banking and courier service should be in place by May 19, expanding the bank's ability to serve commercial customers, Rummel said.

Regulatory shifts
The Office of the Comptroller of the Currency, which regulates national banks, said seven thrifts converted to national bank charters between Jan. 1, 2007 and March 31, 2008.

Institutions regulated by the Office of Thrift Supervision are restricted in the business lines they can enter, said Sebastian Hindman, an analyst at research firm SNL Financial. "I wouldn't be surprised if we see this trend picking up, with institutions moving to where there are fewer restrictions," Hindman said.

The U.S. Treasury Department has proposed an overhaul of the nation's financial regulatory system, including merging the OTS with the OCC, a move that would impact the largest bank based in the Tampa Bay area -- Raymond James Bank, a federally chartered savings bank with a thrift charter and $8.3 billion in assets on March 31.

Tom James, chairman and chief executive of Raymond James Financial Inc. (NYSE: RJF), endorsed the concept during an April 23 conference call with analysts.

"We really do need to centralize overall financial stability and soundness regulation in the United States," James said. "We will probably see at least a major change where a central regulator has that responsibility. I think that it's important that you are ready for that."

Definition
Thrift institution = an organization formed primarily as a depository for consumer savings, the most common varieties of which are the savings and loan association and the savings bank. Traditionally, savings institutions have loaned most of their deposit funds in the residential mortgage market and continued to do so after legislation in the early 1980s expanded their range of depository services and allowed them to make commercial and consumer loans.

Source: Barron's Dictionary of Finance and Investment Terms

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