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Mid-Year Economic Forecast

by Stuart Michaelson

Paula Fryland paints a concise, vivid picture of Philadelphia’s business-boom transition.

“After working from 1984 to 1996 in Philadelphia,” she says, “I was gone for 18 years (including six years running her current employer’s health care business) and since returning, so many things have changed. Dilworth Park, near City Hall, when I left, it was an eyesore, and now, where I can see it from my window, it is such a wonderful place.”

The PNC Financial Services Group’s Philadelphia, Delaware and Southern New Jersey regional president since 2014, Fryland, like most area financial leaders interviewed for this article, views the local banking and finance environment with a mixture of caution and optimism.

“The last several years have seen an economic recovery in the nation and the region,” she says. “The recovery has been moderately paced, and [PNC] has been active and engaged in loans, though the pace is not what it has been in other periods.”

She mentions an April PNC survey of small and middle-market Pennsylvania business owners indicating that 84 percent won’t seek new loans or lines of credit in the next six months and says, “We are still in a cautious phase in terms of investments. It is not as robust as it has been at other times. PNC’s growth is reflective of the environment: This has not been a record year for loans.”

Loans grew $.8 billion to $207.5 billion at March 31, 2016, compared with Dec. 31, 2015, and total commercial lending grew $1.6 billion, about one percent, primarily in corporate banking and real estate.

Fryland says 2016 business has been steady, with PNC looking for ways to find new solutions and be more efficient. “We are investing more in mobile-banking applications,” she explains. “But our clients still want to interact in a branch environment for retirement planning and investing. You see the same number of workers, though not necessarily involved behind the counter; instead, inviting customers to discuss other aspects.”

For the rest of 2016, she anticipates continuation of the current environment in the second half, no big departures, a modest growth environment.

At the banking and financial services practice Dinsmore & Shohl LLP, which added a Center City office in 2015, Frank A. Mayer III is a partner and chair of the financial services regulatory and enforcement group.

Mayer, who worked with Mayor Edward G. Rendell and was corporate chair of the city’s Law Department, says his first 12 months at Dinsmore have been particularly busy with mergeracquisition work picking up and the possibility that 100 Dinsmore attorneys might eventually work in the Philadelphia area.

The number, currently between 15 and 18, may increase with additions in public financing, commercial finance and IT.

Mayer says his Rendell administration work taught him about moving projects through approvals (“herding kittens, some say”) and that the city’s stature was driven home when he was in London and heard people saying they wanted to visit Philadelphia.

Richard A. O’Halloran, Dinsmore’s Philadelphia office managing partner, says total fees generated from the city from December 2014 to May 2015—pre-Center City Office—increased 62 percent compared with the period from December 2015 to May 2016.

O’Halloran hails Dinsmore’s attitude toward staff, noting that during the 2008 recession, partnership took pay cuts to avoid layoffs. “While we don’t lose sight of the bottom line, we are attractive to people who might feel stifled at other places,” he says.

O’Halloran, who works frequently on commercial mortgage- backed securities, or CMBS, says uncertainty related to the presidential election and a possible September federal rate hike may affect growth.

Community matters
“Impact is location-driven,” he says, noting that the King of Prussia Mall is an outlier in retail success, with the suburban office market soft while dynamics in Center City are good.

O’Halloran likes face-to-face business (one client meets with him at an all-night diner to avoid stopping with work undone) and believes in making clients and staff happy.

“My 25-year-old daughter lives on her iPhone,” says Rhonda S. Costello, executive vice president/chief retail officer, Republic Bank, “but when it comes to opening an account, she wants to see a person.”

Costello adds that while “we offer state-of-the-art mobile service, people like to see a physical presence.”

Republic provides that, with plans to open three-to-five branches annually. New ones opened this spring in Wynnewood, Pa., and Washington Township, N.J.; a Moorestown branch opens in September.

Saying Republic wants to be a large presence in communities, Costello, winner of the 2015 SmartCEO Philadelphia Brava Award for women whose success includes giving back, notes Republic’s assistance to food banks and at-risk teen programs.

Daniel K. Fitzpatrick, Citizens Bank president in Pennsylvania, New Jersey and Delaware, also hails community involvement like a recent $50,000 company donation to the West Philadelphia Skills Initiative.

“Our secret sauce,” adds Fitzpatrick, “is the people: high-quality and welltrained. Customers are the center of what we do, and we have happy employees who want to help customers.”

Customers do seem to be responding as the company’s first quarter net income was $223 million, a 7 percent increase from first quarter 2015.

“[Philadelphia] has done extremely well in attracting desirable businesses, a diverse population of people who want to live here and start families,” Fitzpatrick says. “We have a knowledge economy, we attract talent, and that attracts businesses.”

Changing dynamics
Garrett Miller, managing principal and founder, Washington Square Regional Capital, says 2016 has been busier than ever.

“It has become more of an institutional developer’s market in Philadelphia, rather than an entrepreneur’s one,” he explains, noting that Washington Square doubled revenue company-wide, year-over-year, for the last three years.

By early June, the company topped all of 2015, partly through deals in New York City, Florida and Ohio.

In the Philadelphia area, five or six years ago, 80 percent of work came from outside the city; the breakdown is currently about 50/50, and Miller anticipates that come 2017, about a third of business will be in the area.

Looking to city government, Miller says the soda tax isn’t sending the right message and that he’d like incremental cuts in wage, gross receipts and net-profits taxes. (For more on the soda tax, see this month’s Capitol Report on page 17.)

Miller says area business is dynamic and vibrant, “We don’t see anything on the immediate horizon to change that.”

Change is on tap for BB&T (Branch Banking and Trust Company), which recently closed its $1.8 billion acquisition of National Penn Bancshares Inc., with imminent sign changes and rebranding.

In areas where BB&T and National Penn branches are adjacent, 28 are shutting down without job losses; for consolidation of back-room operations in Allentown and Boyertown, BB&T is notifying about 241 associates (87 Allentown) about eliminating their positions.

Jeffrey Culp, market president for Greater Philadelphia Banking, says while Philadelphia-area loan demand is weak, he is heartened by the sight of cranes and construction. “This continues to be a competitive market.”

Univest Corporation of Pennsylvania, in Souderton, Pa., expects an eventful year, its 140th, with the anticipated July closing on its acquisition of Fox Chase Bancorp., which has about $1.1 billion in total assets.

Univest—which in 2014 acquired Valley Green Bank and this year opened a fourth location in Fairmount, with University City expansion planned—looks to integrate acquisitions and people.

President and CEO Jeffrey Schweitzer says growth through acquisition isn’t enough. “Now,” he says, “it is time to focus internally again on getting stronger, maintaining our culture and delivering exceptional service and comprehensive financial solutions locally.”

Wells Fargo made a splash in May with FastFlexSM Small Business Loan, an online, fast-decisions process that can be funded as soon as the next business day, offering competitive rates to small businesses with short-term credit needs.

FastFlex, says Marcus Cobbe, who heads small-business strategy for Pennsylvania, Connecticut, New Jersey, Delaware and New York, has been well-received; it provides one-year terms from $10,000 to $35,000.

Cobbe touts Wells Fargo’s small-business website’s business-plans assistance, as well as the company’s April-through-June small-business appreciation celebration.

“Philadelphia,” says Cobbe, “is a vibrant community. It is good to be a part of it.”

Published (and copyrighted) in Philly Biz, Volume 1, Issue 7 (June, 2016).
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