Chris Carey is hoping that Provident Financial Group Inc.'s plans to invest in more predictable revenue-generating businesses will help the Cincinnati banking company regain Wall Street's favor.

Chris Carey, executive vice president and chief financial officer of Provident Financial Group Inc. stands Wednesday morning in front of a poster for the bank's new free checking promotion. (Gary Landers photo) | ZOOM |

        The parent of Provident Bank is making moves to lower its riskier business model, which has hurt the company's profits, forcing it to charge off about $222 million in problem loans the past two years. In turn, its stock has gone from a six-year low of $21.41 in late October to $30.10 Thursday.

        Like many other U.S. banks, Provident's credit costs for business loans got clobbered last year as the recession and the Sept. 11 terrorist attacks hurt companies' ability to repay loans.

        “Our No. 1 priority will be stabilizing and getting these credit quality issues behind us,” said Mr. Carey, chief financial officer of the $15 billion-asset banking company. “Once we do that, we'll have a more steady earnings stream and get a higher stock valuation.”

        Provident, whose main goal is to shift its business mix to look more like a traditional bank and limit future problems in commercial lending, is now “going back to the basics,” Mr. Carey says.

        Among the areas Provident will be focusing on — and investing millions of dollars in — by late this year and in the next few years:

        • Business lending primarily to regional companies with annual sales up to $250 million, commercial real estate lending and equipment leasing.

PROVIDENT

• Business: Parent of Provident Bank. Mainly offers consumer, business and corporate lending as well as investment services through a network of 77 branches in Ohio, Kentucky and Florida, including 51 in Cincinnati and Northern Kentucky.    • Headquarters: Cincinnati.    • Chief executive: Robert L. Hoverson.    • Employees: 3,200.    • Ticker/market: PFGI/Nasdaq.    • Thursday's close: $30.10.    • 52-week high/low: $35.10 (July 13)/$20.74 (Oct. 30).    • Revenues (2001): $700 million.    • Profits (2001): $23.3 million.

        • Commercial and home mortgage sales and service.

        • Continue to expand prime home-equity lending, which has grown more than 20 percent annually the past several years.

        • Boosting the size of its $2 billion-asset management unit, including possibly acquiring other asset management firms to do so.

        • Expanding its branch banking unit — particularly in Greater Cincinnati and Sarasota, Fla., adding four to eight branches a year. That could mean an investment of $750,000 to $1 million a branch by the bank.

        • More aggressively market free-checking and money market accounts to change its mix of deposits. Provident's deposit portfolio now is made up of about 65 percent certificates of deposit.

        • Consider “fill-in” market acquisitions of banks with assets up to $1 billion where it operates, mainly in core markets such as Cincinnati, Northern Kentucky, Dayton and Sarasota, Fla.

        Mr. Carey said such moves would reduce Provident's risks and allow it to invest in more stable businesses. That's also a big reason why Provident is slowly shedding auto leasing, subprime lending and structured finance areas.

        “We have been viewed over the years as a little more higher-risk bank,” Mr. Carey said. “We're changing our strategy to be more predictable during the good times and bad times. Though we've had steady earnings, they have not been as predictable as some of our peers'.”

        And even though Provident has ambitious plans, it won't be easy.

        Fred Cummings of McDonald Investments said the bank needs to remain focused on lowering its credit costs quarterly. He also said Provident will need the help of a resurging economy to help boost loan demand. He said the bank must hit those targets in order to meet his $2.70-a-share earnings estimate for 2003. He predicts share earnings of $2.40 this year.

        “If they can accomplish those things, it should help their earnings and stock value over time,” Mr. Cummings said.

        Although Jim Schutz, a banking analyst at Stephens Inc. in Chicago, has an “outperform” rating on Provident's stock, he would be more bullish if the bank's credit quality issues were over. He said that's the biggest thing blocking the stock from a higher valuation.

        He also said Provident's major challenges will be expanding its branch network and diversifying its deposits by adding more checking and money market accounts. His share earnings estimate is $2.90 for next year and $2.50 this year. He also has boosted his 12-month price target on the stock to $34 from $30.

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