State and federal regulators are cracking down on a Philadelphia bank for inadequate credit and operating policies that bank officials say could have contributed to losses in 1994.

Under a written supervisory agreement with the Federal Reserve Bank of Philadelphia and the state Department of Banking, $115 million-asset Execufirst Bancorp must develop strategic and capital plans and clarify its operating procedures.

The agreement did not specify a particular capital goal for the bank, which is considered well capitalized under regulatory guidelines. Instead, it required a plan for capital maintenance, said George S. Rapp, chief operating officer of Execufirst.

Execufirst reported a loss of $834,000 for 1994, compared with net income of $416,000 the prior year. The loss stemmed primarily from a $1.3 million loan-loss provision due to financial problems with two corporate borrowers, as well as other bad business loans.

Mr. Rapp acknowledged that the inadequate loan policies could have led to the problems within the commercial loan portfolio.

"There were incomplete policies, or they weren't as complete as they should have been," he said.

An analyst familiar with the company, who did not wish to be identified, blamed some of Execufirst's problems on management efforts to quickly leverage the bank's excess capital after it opened for business in 1988.

"Their business plan was to go after the doctors and the professionals, the private banking approach," the analyst said. "They really did try to grow too fast. It's difficult starting a bank from scratch."

The regulatory action stems from an examination last summer, in which regulators criticized bank officials for the deficiencies in operating policies and problems with corporate governance and executive oversight of operations.

But the agreement is more lenient than the bank expected it to be, Mr. Rapp said. Regulators had indicated in November that some action was likely, including fines for violations of banking rules, but didn't specify what would happen or how much the bank might have to pay.

In response to the regulatory criticism and credit problems, Execufirst had formed an oversight committee of the board of directors and appointed several new senior officials, including Mr. Rapp and a chief lending officer who was responsible for strengthening credit policies.

The bank also hired an in-house counsel to work out the nonperforming loans, and bank executives are examining the institution's operations to cut costs.

Execufirst, which has traditionally focused on medical and legal professionals and executives, said it is launching a business development campaign targeting small and middle-market businesses.

The supervisory agreement is the first regulatory action since last summer's examination, which turned up problems. The interval between the examination and the agreement gave "the bank an opportunity to respond to the criticism and make significant improvements," Mr. Rapp said. "Given the progress that (regulators had) seen accomplished, they felt that (the agreement) was sufficient."

For the first quarter Execufirst reported net income of $90,000 and nonperforming assets of $2.1 million, or about 1.9% of all assets. The bank's leverage capital ratio was 6.70%.

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