The Tampa institution formerly known as Bay Financial Savings Bank is undergoing an extreme makeover, changing everything from its name to its charter to the makeup of its balance sheet.
Now the challenge for the once-struggling institution — rechristened Progress Bank of Florida — "is to live up to our name," said Tom Rummel, its president and chief executive officer. "And Progress is a pretty hefty name to live up to."
Progress officially changed its name May 1, the same day it converted from a federally chartered thrift to a state-chartered commercial bank.
The changes are part of the new ownership group's strategy of establishing the $76 million-asset Progress as a more traditional community bank and, in turn, improve its profitability.
The Richmond, Va., private-equity group Community Bank Investors of America LP bought a 35% share of Bay Financial in April of last year. Since then the new management team, led by Mr. Rummel, has been busy upgrading technology and adding such banking standards as debit cards, an automated teller machine, and, starting next month, online banking. It also has modernized the lone branch and started making plans to build several others.
Most importantly, Progress is starting to lend again after not making a loan for four years. This time around it is focusing on commercial customers, not subprime ones.
"Under the new ownership, we've changed the business model completely. The new owners have never made a subprime loan. We're about being a commercial bank. That's why we changed the name … and that's why we changed the charter," said Tim Anonick, Progress' vice chairman and a general partner at Community Bank Investors of America. "We're going to be a full-service community bank."
Bay Financial's profits had been plunging since it exited the once-lucrative subprime market. From 1994 to 2004 it earned an average of $1.4 million and posted returns on assets and equity that were considerably better than those of comparably sized thrifts, according to Federal Deposit Insurance Corp. data. Last year it earned just $80,000.
Progress has not entirely rid itself of its subprime portfolio, but it has cut that portfolio in half after selling off loans to its former owner, Richard Nernberg. Mr. Rummel said he hopes to dump the remaining $5.6 million of subprime loans eventually.
Along with beefing up commercial lending, one important factor in Progress' transformation is attracting core deposits and decreasing its reliance on brokered certificates of deposit, which a year ago made up roughly 50% of its deposits. Today they account for 30% — a figure still well above average, but one Mr. Rummel expects to decline even more as online banking gets up and running and Progress builds its branch network.
Until now it has not pressed to gain more local deposit holders, because "we had nothing to offer," he said. "If you can't check your account balance online on a daily basis, then it's a lot easier to go to the bank next to me than having to worry about reconciling your account every month."
Progress will spend the next couple of months marketing to its client base on the asset side "and transition them over to the liability side, because now we've got the systems in place," Mr. Rummel said.
A branch set to open next month will be in a more accessible location, he said, and the plan is to open another branch by yearend. He hopes to add about two or three branches a year for the foreseeable future.
Teller windows are out at the new branch, replaced by four customer representatives who will help customers entering the branch with any financial needs. Deposits will be sent through pneumatic tubes to the back office, freeing the representatives to cross-sell products and services.
Banks have been trying for years to convert the branch from a place that generally takes in deposits to one that primarily generates product sales, Mr. Rummel said, but they have often used tellers for cross-selling.
The problem is the teller "is given mixed signals by management," he said. "The goals are that we want high- volume, low-error rate returns, and we also want you to cross-sell this many credit cards and debit cards. But a teller can't do both. We let the teller in our branches do what they do" and leave the cross-selling to others.
Ken Thomas, a branching consultant in Miami who operates Branchlocation.com, said this branch strategy has had mixed results in the past. It does not work well in a market with lots of retirees, because they are not familiar with the new style and are not interested in new products, he said; it can work if the branch is in a market with plenty of up-and-coming, wealthier clients, and if the bank can offer a wide product selection.
Mr. Thomas also said the employees need far more training than traditional tellers.
