United Bank Regroups

When Top of the Clock, a small business in Philadelphia, needed a loan five years ago to fund operations, United Bank was the lone financial institution to offer assistance.

"The truth is that we weren't in the best financial position at the time," says Nakia Stith, the CEO of Top of the Clock, a privately held firm that provides guards and security services for corporations and special events.

Now she is returning the favor as United Bank, Philadelphia's only black-owned bank, works to extricate itself from a regulatory order that requires it to improve capital ratios and address lending issues. The bank is also trying to return to profitability after four straight money-losing years.

Stith says the negative publicity surrounding United won't stop her from rallying around the bank and its mission and continuing to do business there. "They were there when no one else was interested," she says. "I owe a lot of our successes to United Bank."

Gaining the loyalty of small business owners is an integral part of Evelyn Smalls' plan to turn around United. Smalls, United's CEO, says that the bank has been cooperating with the regulatory order and "the negative trends are starting to diminish."

But there are lingering questions about the practices and procedures that allowed the bank to make questionable loans to insiders and to the son of a U.S. Congressman.

As detailed in a lengthy expose this spring in The Philadelphia Inquirer, United lent $56,000 to Chaka Fattah Jr., the son of Rep. Chaka Fattah, a Pennsylvania Democrat whose Congressional district includes parts of Philadelphia and the surrounding suburbs. The credit was extended even though four other banks had sued the younger Fattah for failing to repay loans.

United also lent to companies controlled by its chairman, L. Armstead Edwards, and a board member, Ernest L. Wright. Both are investors in the bank. The loans were granted despite reportedly dodgy credit histories including a personal bankruptcy filing by Edwards and state tax liens against another company controlled by the two men. Smalls says Edwards and Wright are current on their loans. She declined to discuss Fattah.

With about $75 million in assets, United is a tiny player in the world of financial services firms. But along with other minority-owned institutions focused on low-income communities, it can be a vital source of capital in traditionally underserved markets.

"The big banks don't find this business to be profitable enough," says Michael Grant, the head of the National Bankers Association, a trade group that represents minority-owned banks.

And the smaller institutions that have focused on minority communities? "Some of these banks are doing well," Grant says. "Some are catching hell. They run the gamut."

United had a Tier 1 leverage ratio of 6.27 percent as of Dec. 31. Under the consent order that the bank agreed to in January and disclosed in March, that ratio must rise to 8.5 percent. United also was ordered to submit to its regulators a detailed plan for improving its management and lending practices.

United has formed a board committee (led by Smalls) that meets monthly to address the need for additional capital and better performance.

"We are moving in the right direction," Smalls says.

So is Top of the Clock, the security services firm that got a lifeline from United five years ago. The business, which has 150 employees, has been profitable now for three years.

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