Why Urban Partnership Bank is downscaling

Three years after taking over the assets, deposits and mission of failed low-income neighborhood lender ShoreBank, Urban Partnership Bank is casting a far smaller shadow than its predecessor as it struggles to achieve the elusive goal of profitability.

In a jarring and starkly symbolic move, UPB is selling the old converted movie theater in Chicago's South Shore neighborhood that served for decades as home to South Shore Bank, later renamed ShoreBank. Beginning March 22, UPB won't have a physical presence in South Shore, where ShoreBank co-founders Ronald Grzywinski and Mary Houghton won renown as the only bankers willing to lend to housing rehabbers during the era of white flight that decimated once-thriving South Shore.

“Buildings have useful lives,” UPB CEO William Farrow says. “We determined that building is past its useful life.”

Mr. Farrow says he hopes to re-establish a retail presence in South Shore as part of the redevelopment of UPB-owned lots on 71st Street. That project will be led by Chicago-based Monroe Investment Partners, which is buying the former theater and two other sites. Monroe was responsible for the development that brought Wal-Mart to the Chatham neighborhood on the South Side.

But Mr. Farrow acknowledges that UPB may not have a location in South Shore—where retail development has suffered as unemployment and crime have increased—for some time. In the meantime, customers of the South Shore branch will be offered tutorials on using UPB's new mobile banking app.

There are risks tied to planning a retail redevelopment in such a hard-hit area, but retaining UPB's nearly empty office building wasn't going to help South Shore recover, Mr. Farrow argues.

“Either you are going to take some shots and try to build those communities (like South Shore), or they're going to die,” he says.


The South Shore exit is the latest in a series of moves that effectively rejects Mr. Grzywinski and Ms. Houghton's vision of exporting the early success they had in South Shore to low-income neighborhoods in other cities and even Third World countries.

At its largest, ShoreBank Corp. had about $2.7 billion in assets and banking operations in Chicago and its suburbs, Detroit, Cleveland and Washington state, as well as a unit that advised micro-lenders in Asia, Africa and the Middle East. The company's Chicago bank unit failed in 2010 after a high-profile bid to rescue it with tens of millions in new equity from Wall Street's largest banks fell short. That money then capitalized the fledgling UPB.

UPB has $1 billion in assets and has kept only ShoreBank's Detroit operation in addition to the Chicago-area footprint. The Pacific Northwest bank was sold, and UPB shut down Cleveland. Mr. Farrow says he foresees a bank with about $800 million in assets after UPB finishes working through $500 million in troubled loans made by ShoreBank.

More branch closings or sales in Chicago are possible, he says. After the South Shore building closes, UPB will have 10 branches.

“It's not ShoreBank 2.0 but Urban Partnership Bank 1.0,” says Paul O'Connor, whose Chicago-based Angkor Strategic Advisors provides investment banking advice to small banks. “Ron and Mary's dream is ended. . . . These guys are professional bankers; they're not dreamers. This is a logical, profit-driven decision.”

UPB has $1 billion in assets and has kept only ShoreBank's Detroit operation in addition to the Chicago-area footprint.

Mr. Farrow's ambitions are more geographically focused than his predecessors', but UPB still may emerge as a big fish in its small pond. The bank is on track to make between $70 million and $75 million in new business and commercial real estate loans this year, up from $35 million the year before and well above its $42 million goal at the start of the year, according to Levoi Brown, chief banking officer at UPB.

“A little bit of pent-up demand,” Mr. Farrow says with characteristic understatement. He forecasts about $60 million in new lending in 2014.

Other plans for 2014 include home loans—a product that helped sink ShoreBank after it embarked in 2007 on a mortgage rescue mission as foreclosures began to pile up in the neighborhoods it served. Mr. Farrow says UPB is “going to walk before we run.” It has three or four mortgage lenders, versus nearly 40 at ShoreBank during the rescue initiative.

UPB also will offer a check cashing service to noncustomers that will undercut the prices typically charged by currency exchanges—a potentially significant initiative that could give the many South Siders without a bank a reasonably priced alternative. That will be rolled out first in UPB's branch within the new Wal-Mart superstore in the Pullman neighborhood on the far South Side. That branch, open just two months, already has attracted more than 200 deposit customers who weren't using a bank before.

Despite the positive signs, managing ShoreBank's legacy of bad loans surprisingly is growing more expensive with the passage of time. The net ShoreBank-related cost to UPB was at least $12.5 million through Sept. 30, compared with about $12 million in the same period the year before, the bank says. UPB posted an overall loss of $11 million in the first three quarters of 2013. A year ago, Mr. Farrow had hoped to become profitable by the fourth quarter of 2013. Now he won't promise UPB will be back in the black in 2014.