United Bank of Philadelphia must strengthen its management, board oversight, and loan policies under a cease-and-desist order that the Federal Deposit Insurance Corp. disclosed Tuesday.
The $75 million-asset African-American-owned bank has been operating with insufficient earnings and capital, according to the Jan. 23 order.
United posted a $1,000 fourth-quarter profit and reported a core capital leverage ratio of 9.99%, according to FDIC data.
The order also says the bank has been violating regulations on loans made to officers, directors, and shareholders, and engaging in unsafe banking practices.
It requires United to establish an adequate allowance for loan losses, enhance loan documentation, reduce delinquent loans, have an active audit committee made up solely of outside directors, cut expenses, and write a strategic plan for improving its earnings.
United, which had a ratio of noncurrent loans to loans of 4% at yearend, also must review its loan policies and procedures, particularly related to underwriting standards, the monitoring and reporting of problem loans, and controlling credit concentrations. The order specifically prohibits United from capitalizing loan interest to bring delinquent loans current.
Ken Thomas, a lecturer in finance at the University of Pennsylvania's Wharton School, said the order is unusually strong. "It is about a 7 out of 10 on the cease-and-desist-order Richter scale," Mr. Thomas said.
William Michael Cunningham, the president of Creative Investment Research Inc. in Washington, said United's troubles are likely related to its focus on small businesses, which have been hit hard by the economic downturn.
Evelyn F. Smalls, the bank's president and chief executive officer, did not return a phone call Tuesday.
