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Why does Philadelphia keep giving money to this small but well-connected bank? (Update)

One of the last ethnic-based banks gets $5 million from the city and the PIDC development agency, but faces a struggle to return to profitability.

E. Philip Wenger, charman and CEO of Fulton Financial Corp,, and Evelyn F. Smalls, president and CEO of United Bank, mark Fulton's $675,000 investment in United in 2017.
E. Philip Wenger, charman and CEO of Fulton Financial Corp,, and Evelyn F. Smalls, president and CEO of United Bank, mark Fulton's $675,000 investment in United in 2017.Read moreFulton Bank

The City of Philadelphia and the Philadelphia Industrial Development Corp. have committed a total of $5 million in public funds they say will boost lending to minority, immigrant and female small-business owners.

The total includes a $2.5 million grant from PIDC’s Economic Stimulus Program to United Bank of Philadelphia, a small, Center City-based lender that has lost money in nine of the last 10 years, and is operating under a state Banking Department order to improve its “unsafe and unsound” financial condition.

No other bank besides United was considered for the $2.5 milllion grant, said Commerce Department spokesman Kevin Lessard.

(Added May 20:) United’s chief executive, Evelyn F. Smalls, is a member of the PIDC Board of Directors, and the only banker on the board, which also includes real estate and non-bank financial executives, corporate and university representatives. She also chairs the board of the Philadelphia Authority for Industrial Development, which issues bonds to fund PIDC projects. PIDC spokesman Jessica Calter said the United grant didn’t need the board’s approval, so Smalls didn’t vote on it.

Another $1 million from PIDC, plus $1 million in city funds, will "support investments in existing businesses owned by people of color, women, and immigrants” through a new loan fund, and an additional $500,000 from PIDC will pay for “expanded services to support the growth of these businesses including workshops, peer mentoring, and one-on-one support,” the city and PIDC said Wednesday.

PIDC’s Calter said Thursday that her agency had not yet decided who will manage the additional $2 million in business investment funds, but will put out a Request for Proposals later this year.

It was PIDC staff members’ idea to grant the $2.5 million to United, Lessard said. City commerce director Harold Epps, finance director Rob DuBow and Mayor Kenney’s chief of staff Jim Engler reviewed and approved PIDC’s decision.

Epps’ agency is “supportive of PIDC’s choice to provide this grant opportunity to United Bank because it’s Philadelphia’s only African-American commercial bank,” and the money will help the bank “provide a full range of financial services to its customers who are often prevented from receiving these services elsewhere," Lessard said.

It’s not the first time that Philadelphia has invested public funds in United Bank. City officials invested $800,000 from the city’s underfunded pension system with United in 1991. The pension board later wrote off the investment as worthless.

The bank can apply the PIDC grants to its depleted capital base, but it is still trying to raise $1 million to $2.5 million more to meet bank regulatory requirements and reverse its declining loan volume, said chief executive Smalls “There is still work to do,” she said. If the bank can start making money it can build its own capital, she added.

Smalls said her bank got the money because city officials “were aware we were in the market looking for capital.”

United lost about $600,000 last year and $300,000 in 2017, according to Federal Deposit Insurance Corp. data.

The bank had less than $2.6 million in total capital backing $36 million in loans at Dec. 31, after posting losses in nine of the last 10 years and breaking even in 2016.

The state banking department’s order, in April 2018, gave United 60 to 90 days to improve its management and lending practices and improve its financial situation. Since then, the state has neither extended nor cancelled the order, and state spokesman Trevor J. Monk said the banking department had no further comment beyond the order, posted on its website.

United, which makes business loans through the taxpayer-guaranteed federal Small Business Administration, among other programs, was ordered to raise more capital in April 2018, despite recent capital infusions totaling nearly $1 million by Fulton Bank and Bryn Mawr Trust Co. State regulators told the bank to cut costs and improve its lending practices.

United is one of the last ethnically based banks organized in the city, which was home to clusters of black, Irish, Jewish, Italian and Polish lenders in the early and mid-1900s, when the dominant Pennsylvania banks “redlined” poor neighborhoods and declined to write mortgages there. Most such banks were sold to mainstream institutions, after federal laws began requiring mainstream lenders to extend credit in poor and minority neighborhoods, and the growth of government bank regulation made it more expensive to operate small banks.

Citizens & Southern, the city’s leading black-owned bank from the 1920s to the 1950s, was sold in 1957. Berean Federal Savings of West Philadelphia sold its lone office to Baltimore-based Advance Bank, which closed it in 2011, citing low traffic. (Corrected, thanks to L. Griffin)

United founder Emma Chappell was removed from the bank by her board in the early 2000s after federal examiners warned that United was spending too much on executive offices and other non-banking expenses, and wasn’t attracting enough loans or deposits. Gov. Tom Wolf, a Democrat, later appointed Chappelle to his transition team as a financial expert with “diverse experience.”

United has a headquarters and branch office in the Graham Building near City Hall, and a single remaining branch at Progress Plaza near Temple University since closing its Germantown branch last year and other neighborhood offices in previous years. Smalls said both offices are busy and no further closings are planned.

Big banks including Wells Fargo, Citizens and PNC have also closed Philadelphia branches as customers moved online, though their typical neighborhood branch deposits are more than double United’s total deposits of $48 million. JPMorgan Chase & Co. and Republic Bank have bucked the trend by opening new branches in the city in recent years.

Smalls concluded that the PIDC money “moves us in the right direction. In this market there is great opportunity for small businesses, which increase jobs.”

She said United sought to “participate” in loans negotiated by larger banks through lender-service agreements. Smalls and senior lender Coston Cobbs also approve loans, she added.