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From the outskirts, banks are drawn to the city by real estate lending, changing demographics


Jeff Schweitzer, president and CEO, Univest Corporation, was featured in the Philadelphia Business Journal

January 26, 2017
By: Jeff Blumenthal, Philadelphia Business Journal

Suburban banks are flocking to the city in response to the rising millennial population and the sizzling real estate scene.

In their combined 297 years of existence, Univest Corp. and DNB Financial Corp. have been the quintessential suburban community banks — leaving other institutions to battle for Philadelphia business opportunities.

But in the past two years, Univest acquired Mount Airy-based Valley Green Bank and DNB gobbled up East Falls-based East River Bank. Both sellers were high-performing startups with retail locations in fast-growing urban neighborhoods and attractive commercial loan portfolios fueled by the city’s real estate boom.

“We are 140 years old this year and we’d like to stay independent,” Univest CEO Jeff Schweitzer said. “And to do that, you need to be where the growth is. And that’s in Philadelphia. Hospitality and restaurants have had a resurgence. More millennials are choosing to stay and live and work in the city after graduating from Penn, Drexel, Temple and St. Joe’s. So to stay independent, we couldn’t just stay in Montgomery and Bucks counties. We felt it was important to be in Philadelphia.”

Souderton-based Univest and Downingtown-based DNB are among the banks that have sought to expand in the city of Philadelphia after years of focusing their priorities elsewhere. It is a direct response to the massive growth in commercial and residential real estate activity, the influx of millennials and empty-nesters, ambitious growth plans by major universities and Comcast Corp. and enhanced job opportunities in the technology, financial services, life sciences and health care sectors.

Bob Marino, who worked for more than 30 years as an executive at National Penn Bank, Univest and Valley Green and now consults with financial institutions with Broad Street Consulting Advisors, said a number of banks are looking to lend in the city that have never done so before. Some have retail branches or loan production offices here and some don’t.

Marino said the upscale millennials coming into the city are not necessarily bank customers, but they need somewhere to live. So empty lots in places like Fishtown have become apartment complexes.

About 25,000 people live in the Fairmount neighborhood, 92 percent have graduated high school, 63 percent have a college diploma and the mean income is above $60,000.

“If businesses want to attract those people, they need to be closer to the city,” Marino said. “So it’s a snowball effect. They are actually feeding each other. And it makes it a great place for a bank.”

Mark Biedermann, chief lending officer at Narberth’s Royal Bancshares of Pennsylvania, which has greatly increased its Philadelphia lending activities in recent years, said all of the residential real estate development has spurred more commercial and industrial loan demand, as businesses want to expand where the aforementioned millennials and empty-nesters want to live.

“We’ve seen a transformation in the city since 2009 or 2010,” Biedermann said. “The demand for residential real estate has led to more businesses popping up.”

Royal has seven branches in the Pennsylvania suburbs, two in Northeast Philadelphia, one in South Jersey and loan production offices in Princeton and Bala Cynwyd. But it has seen major growth in Philadelphia, where it relocated its Northern Liberties location to 2nd and Girard streets and spruced up its Midtown Village site at 13th and Walnut.

CEO Kevin Tylus said Center City is comprised of more than 40 micro-markets that are each unique.

“You don’t want everything to be in the same place and you don’t want to be doing the same type of projects,” Tylus said. “That’s the type of thing that comes up during stress tests [from regulators].”

Royal has greatly increased its loan portfolio in Philadelphia since the recession thawed. It previously did little lending in the city, but Tylus said it now comprises a third of the portfolio, with a third each also coming from New Jersey and the Philadelphia suburbs.

“Five years ago, you might have seen one or two cranes if you drove from South Philadelphia to Northern Liberties,” Tylus said. “Now, you see several of them.”

Competition for those loans is intense because more banks are paying attention to the city. But banks have benefited from all the industry consolidation, which has led to talent and client defections. Tylus said three of the bank’s eight commercial lenders joined the bank through mergers and all of them focus to a significant degree on Philadelphia activities.

Tylus said projects in which Royal participates, in the $1 million to $8 million range, are relationship driven between the borrowers and lenders — unlike larger real estate projects in which the developer will seek to raise capital.

Biedermann said most of the funding for these projects traditionally came from local community banks. Now he sees more banks from outside the area with little or no retail presence in the city lending in Philadelphia.

He said most of those banks are from New Jersey, such as Unity Bank, Provident Bank, OceanFirst Bank and Parke Bank. Massachusetts-based Berkshire Hills Bank and North Jersey’s Investors Bancorp, which bought New Jersey-based First Choice Bank and Bank of Princeton respectively, are also now involved. He also said that Delaware’s WSFS Bank is doing more Philadelphia lending as has traditionally suburban-focused Fulton Bank.

Lancaster-based Fulton recently hired its first-ever Philadelphia regional president, Susan Lonergan. Spokeswoman Laura Wakeley said the bank is in the process of hiring commercial lenders to focus specifically on Philadelphia.

DNB CEO William Hieb said the bank was lucky to enter Philadelphia with a team from East River that was familiar with the city’s various neighborhoods.

“Competition in Philadelphia is hot,” Hieb said. “We have seen some larger institutions [with no Philadelphia retail presence] with excess capital that they cannot deploy in their own markets, so they find a growing market like Philadelphia where they can deploy it. But you can do a lot of damage if you head into a market without knowledge of it.”

In addition to the Valley Green deal in 2015, Univest acquired Hatboro’s Fox Chase Bancorp last year, giving it two Northeast Philadelphia locations and an additional team of commercial lenders. Most of the Philadelphia growth, though, comes from Valley Green, which also had retail locations in Chestnut Hill and South Philadelphia and loan production offices in Center City and Villanova. Univest has since opened two more branches in Fairmount and West Philadelphia and hopes to add another in Northern Liberties.

“When you look at the city, it’s really an amalgamation of neighborhoods,” Schweitzer said. “It’s a big city but with a small town feel and that fits well with the way we do business. We cannot out branch Wells Fargo or Citizens, but we can find our niche in specific neighborhoods.”

Schweitzer said while the bank does not have branches throughout the city like larger banks do, it meets Community Reinvestment Act requirements by offering mortgage lending throughout Philadelphia. He said regulators would have eventually made the bank enter Philadelphia because it had surrounded the city with its legacy retail footprint.

Before the Valley Green deal, Schweitzer said, Univest had a token number of loans in its portfolio from Philadelphia. Since that time, he estimated it has grown fivefold to more than $500 million of its $3.3 billion portfolio.

Philadelphia has not been Univest’s sole growth spot. It added a 20-person lending team from BB&T Bancorp in Lancaster last year and opened retail operations in that county for the first time. It has also expanded in the Lehigh Valley. Both of those regions are in play now due to the talent and customer dislocation created by BB&T’s acquisitions of National Penn Bancshares and Susquehanna Bancshares.

Because the bank plans to continue growing in those new markets and its traditional suburban footprint, Schweitzer expects Philadelphia’s portion of the bank’s loan portfolio to remain at about 20 percent. But he made it clear that Univest will lend where the best opportunities exist, and right now that’s Philadelphia.

Schweitzer said that while most of the lending emanates from midmarket — $5 million to $20 million — real estate development projects, he said Fox Chase has brought more commercial and industrial, called C&I, lending into the portfolio. While real estate lending is hot right now, he said banks must be careful in Philadelphia not to get ahead of themselves.

“You need to keep an eye on it because you can only put up so many 500-unit apartment complexes,” Schweitzer said. “You have to be careful because these times don’t last forever. Things can get overheated in Philadelphia. Not as bad as New York or Washington but it does get to a point where it doesn’t make sense.”

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Investments offered by Girard Partners, a Univest Wealth Management Firm, are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including loss of principal amount invested.

Univest Bank and Trust Co. is Member FDIC.

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