United Bank - the city's only black-owned bank - was founded in 1992 with modest capital and big dreams, as a path to economic success for the city's African American community.
Two decades later, the bank is still standing - one of only 28 African American banks remaining in the country. But United's vision of success has proved elusive, even though the bank is propped up by government deposits. Fully a quarter of its deposits come from public entities.
In January, state and federal bank regulators clamped down, placing the bank under supervision and criticizing it for "unsafe or unsound" banking practices.
United, with $77 million in assets, has lost money in 14 of its 20 years of operation, including the last four years. Its accumulated losses have grown to $8.2 million, an enormous sum for such a small bank.
One recent loan that put the bank in an unwelcome spotlight was $56,000 extended to U.S. Rep. Chaka Fattah's 29-year-old son, Chaka Jr. - even though the younger Fattah previously had been sued by four other banks for unpaid loans. United's loan to Fattah Jr. has now gone bad, and he has dropped out of sight after the FBI raided his luxury apartment and office in February.
Fattah is not the only well-connected individual to get a loan from the bank, and his loan is only a small part of the picture.
Last year, United reported a level of insider loans on its books three times the national average for small banks, federal bank data show. Its rate was more than twice the average for the other black banks in the nation.
Some of the biggest recipients have been companies controlled by United board chairman L. Armstead Edwards and fellow board member Ernest L. Wright.
Edwards and Wright, both investors in the bank when it was founded, have checkered credit histories. Wright has had liens for unpaid New Jersey and Pennsylvania tax bills. Edwards, former husband and manager of singer Patti LaBelle, was sued by the city for back taxes and, in 2008, faced three foreclosures filed by other banks. In November 2008, he filed for personal bankruptcy.
Yet one company controlled by Edwards and Wright - 900 North Broad Street Corp. - received a $778,394 United loan as recently as 2010, despite state tax liens totaling nearly $15,000 against a sister company controlled by the pair.
The two board members have a stake in yet another company being sued by the IRS for federal taxes, court records show. United also provided funding for that company during the period when taxes were not paid.
Industry experts say banks typically try to avoid making loans to their top executives.
"You're not supposed to start a bank and run it like your own piggy bank," said Anthony Catanach, a business professor at Villanova University and the Cary M. Maguire Fellow at the American College Center for Ethics in Financial Services.
Edwards said in an interview that the loans United made to his companies were at market rate and fully collateralized, with payments made on time. He said he thought all liens were paid.
Wright declined to talk.
The $15,000 in state tax liens still outstanding are against their personal partnership Wright Edwards Ltd.
The tax delinquencies assessed against their companies are especially notable because of the millions of dollars in deposits by public agencies at United - a far higher percentage of government deposits than any other Pennsylvania bank of its size.
The city still has about $10 million parked at the bank, including city CDs and deposits from the city-run airport and the sheriff's department, city records show. Mayor Nutter's spokesman, Mark McDonald, said that earlier this year, the city pulled $2.5 million from the bank. He said the city regularly analyzes its fiscal position and reallocates funds.
The state has $1 million on deposit with the bank.
In addition, the Philadelphia Parking Authority has $3 million on deposit.
Edwards said he and some other board members decided it was good business practice for them to get loans.
"As founding members we were charged to bring our business to the bank . . . to show goodwill to the community to have our bank business at United," said Edwards. "We can say to people, Come do business with the bank."
One former bank director, developer Ahsan Nasratullah, said he pushed to overhaul United's culture during his stay on the board from 2004 to 2008. But he said his suggestions were blocked by what he called the old guard and "very antiquated" procedures.
"I would characterize it as the bank didn't have what it takes to function as a bank," Nasratullah said. "To grow to underwrite business, it didn't have that culture."
William Michael Cunningham, who leads Creative Investment Research Inc., a Washington consulting group focusing on minority banking, said United needs to make big changes if it is to recover.
"United Bank needs new energy, new leadership, new investors, new community involvement," he said.
When state and federal regulators intervened in January - for the third time in United's history - they told the bank to improve its management and find more capital.
United president Evelyn Smalls said the bank was "working feverishly" to find capital and already has made progress in correcting the problems cited by regulators.
"We are still in business, still making loans," she said. "Deposits are still insured, and are safe. . . . We feel confident we can move forward."
United's woes are similar to those of other black-owned banks. Since 1994, nearly half the black banks in America have closed. Last year, more than half the remaining 28 banks lost money - far worse than the national average for small banks.
Cunningham said black banks like United "have been decimated" by the economy. That is troubling to some of United's customers, who view the bank as indispensable.
"United is a staple in the black community," said Yvonne S. Jones, chief executive of the South Philadelphia health-care nonprofit Urban Solutions Inc. "Our bank has been the only stable supporter that we have."
Jones went to United after her old bank cut off Urban Solutions' line of credit in 2008 without explanation.
"When you're down-and-out, then you run to the family," she said, referring to United. "They know us. They have been like a mentor."
But the other side of the coin is that some people in the community feel victimized by United's performance.
Take Southwest Philadelphia resident David Ralls Jr. and his father, David Sr.
Ralls, 40, recalled in an interview that a broker for United Bank pitched the bank's stock to them as a way to invest in themselves and in the black community.
"My father believed it. He went in to try for a loan, and they turned him down," according to Ralls, who said he invested $1,000 and his father $500.
They were among 1,900 small investors and 200 churches who bought the bank's stock in a remarkable outpouring of grassroots pride. But the stock is not publicly traded and the bank's biggest shareholder, the city pension fund, long ago wrote off its holdings as having no marketable value.
Nichelle Sharper put up $500.
"Who in the world gets an opportunity to invest in something like that?" said Sharper, now 45, of Northeast Philadelphia.
When she bought her United stock, Sharper was pregnant and thought the stock would help pay her child's college costs or maybe a trip to Disney World.
Her daughter is now in college, and the stock has never paid a dividend. Sharper works as a secretary at a roofing company and moonlights as a Wal-Mart cashier.
"The opportunity has gained me nothing," she said. "Truly, it's gained me nothing."
Most of Edwards' and Wright's United loans were connected to a Philadelphia commercial building at 900 N. Broad St., which they own jointly with two tenants. Their 900 North Broad Street Corp. bought the building in July 1996 for $360,000.
United provided $500,000 in purchase money mortgages for the property that year, with the loans split between the 900 North Broad Street Corp. and Wright Edwards Ltd.
Edwards said in the interview that because 16 years had passed since his firm bought the building, he did not know why the mortgages were given in the names of the two business entities.
United president Smalls said the value of United loans cannot exceed 80 percent of the appraised value of property, but she also could not explain why the two loans were given.
After the purchase, United gave loans to Beacon Center Inc., another company in which Wright and Edwards are participants. Beacon got a state Corrections Department contract to house up to 120 prisoners at 900 N. Broad for several years, and United's funding was for Beacon to upgrade the Broad Street building to hold prisoners.
The IRS has an active suit against Beacon Center for $16,248 for unpaid taxes between 2000 and 2004, court records show. United was providing lines of credit to Beacon during those years, according to interviews and records.
"Did I receive any kind of favorable rate? The answer is unequivocally no," Edwards said about the loans made to his companies. "Nothing in it is out of the ordinary."
"We brought business to the bank," he said. "If I thought I was going to have to sit and answer questions, I wouldn't do it again."
In an initial interview, Edwards and Smalls said all United's insider loans were paid on schedule.
But court records show the bank sued former board member Kemel Dawkins in 2005 for $103,000, which it said was unpaid from one of his United loans.
Dawkins, 88, said that he paid $15,000 as a settlement and that all debts had been forgiven.
In court papers, Dawkins said that regulators had been concerned about United's limited capital in 1997 and that he wanted to buy $100,000 worth of United stock to help collateralize the bank. He said United knew that he was using the United loan money to buy United stock then.
Such a transaction could violate federal banking regulations, experts say.
Edwards and Smalls said they were unaware that Dawkins was using the loan for stock.
Edward C. Lawrence, a finance professor at the University of Missouri's College of Business, said that when top executives get loans from their own banks year after year, it can be dangerous for an institution.
"It's probably even more prevalent in smaller banks," said Lawrence, who has studied insider lending extensively. "I think there's less control."
Edwards said federal regulators had scrutinized United's insider loans and never questioned any of those given to his companies.
The latest headache for the bank has been the December loan to Chaka Fattah Jr.
There were clear signs of trouble long before United gave him the $56,000. Records show that three banks in 2005 lent him a total of $66,000 for his consulting business. All three banks - Citizens, PNC, and Sun National - ended up suing him after he quit making payments, records show.
He was also sued for outstanding payments on a $108,000 Range Rover that was repossessed.
The banks received judgments in all four cases, in 2007 and 2008.
Fattah Jr. settled them all in 2010 - three of the four after his consulting company, 259 Strategies, received a $450,000 subcontract from a firm that runs alternative education programs for the Philadelphia School District.
Edwards and Smalls said they would not discuss the Fattah Jr. case, which is still in litigation.
United Bank dramatically reduced its operations following the 2000 ouster of chief executive Emma Chappell, according to bank officials.
A former vice president of Continental Bank, she was recruited by community leaders interested in opening a black-owned bank. She recruited investors in the African American community that provided $2.6 million of the bank's $5.6 million in start-up capital. The rest came from 14 bigger banks, corporations, and other entities.
But the bank struggled from the start. By 2000, its losses had reached $5 million and the board dumped Chappell, filing a lawsuit accusing her of poor management and exorbitant spending.
The suit was eventually settled. Chappell insisted she was scapegoated and did nothing wrong.
As the bank marks its 20th year in 2012, she contemplated its often bumpy course.
"I was so passionate about it, and it broke my heart," she said in a recent interview. "It's Philadelphia for you."