After boldly going where few thrift companies its size had gone before namely, investing in tech start-ups and pre-profit companies Progress Financial Corp. of Blue Bell, Pa., has been quietly exiting higher-risk businesses and getting back to basics.
In the past 18 months the $914 million-asset company has sold its telemarketing division, its Maryland leasing company, and its investments in assisted-living communities. It has also shrunk its leasing portfolio and exited the realty development business.
And now, on orders from regulators, the company will quit lending to early-stage companies and liquidate its technology-based portfolio by yearend.
For a billion-dollar bank, being in five or six businesses didnt make sense for us, said W. Kirk Wycoff, Progress chairman, president, and chief executive officer.
Though Progress was ordered to stop lending to pre-profit companies, it has other reasons for paring back its nontraditional businesses.
Mr. Wycoff said the company has simplified its strategy in order to focus on commercial banking and asset management. To that end, it has formed Progress Financial Resources, which offers financial planning services and investments, and it has more than doubled its branch network, to 18, as it looks to snatch Philadelphia-area customers turned off by recent mergers.
Were in one of the best markets for gathering deposits, Mr. Wycoff said. There is plenty of demand in more basic businesses, such as middle-market lending. We cant spend our time on niche strategies.
This is a quite a turnabout from three years ago, when Mr. Wycoff was transforming Progress from a plain-vanilla thrift into a specialty lending and leasing company that emphasized high-yield, high-risk loans. To do this, Mr. Wycoff, who joined Progress in 1991 when the ailing company had just $260 million of assets, entered some nonthrift businesses, such as high-tech, venture capital funding, and telemarketing.
Its assets have more than tripled under Mr. Wycoffs stewardship, but the company is returning to more traditional lines of business.
Last month the Office of Thrift Supervision ordered Progress to reduce its lending to early-stage technology companies, raise its capital, and improve its credit review programs. The capital increase is necessary because of Progress business lending volume, particularly in the technology sector, the OTS said.
Progress has been an active lender in the technology, health-care, and insurance sectors, building a portfolio of $62 million of loans and warrant positions in 39 companies in these areas. About $30 million of loans, or 5% of its $566 million portfolio, are to technology firms.
But the continued slump in capital markets and the inability of these companies to turn a profit have forced Progress to lessen its exposure to technology, Mr. Wycoff said.
Roberta Probber, an analyst at Ryan, Beck & Co. in Livingston, N.J., said obviously the technology and early-stage business investing and lending contained a lot more perils than they expected.
There is still a lot of risk on the companys balance sheet, and it will take some time to wind down the technology portfolio, she said. They have made a lot of high-risk loans, and in this economy especially, its going to be tough going. I think that they really need to scrub their portfolio and need to understand each and every one of their high-risk loans and be on top of them.
Progress lost $1.4 million in the second quarter, and it raised its loan- and lease-loss reserves by $3.6 million, triple its reserve boost in the year-earlier period.
The companys stock price hit a 52-week low of $6.6875 a share in April, when it announced it would write down a $1.9 million technology investment. The stock, which has languished since then, was trading at $6.75 midday Thursday.
Investors and analysts want a community bank stock to have steady results, and that is hard to do when the company is involved in such volatile niches as real estate development and technology investments, Mr. Wycoff said. The focus now is to be in businesses that year in and year out will generate consistent earnings.
Ms. Probber criticized Progress moves in and out of various businesses. The company should now stick with a core strategy to return to profitability, she said.
She has a hold rate on the companys stock, but said, I think that if they can come out from a lot of the riskier lending and investments, the franchise can make money or be of value to someone else.
