A bank grows in Philly.

FOR FIVE YEARS, EMMA C. CHAPPELL CANVASSED the streets of Philadelphia. She went from boardrooms to schoolyards, pleaded her cause at City Hall and went to three, sometimes even five, churches a day, doing her financial missionary work. People prayed, held candlelight vigils and passed around the collection plate.

Because of her tireless evangelism, the United Bank of Philadelphia, an African-American-owned, full-service commercial institution opened for business in 1992. At the time, there was no black-owned commercial bank north of the Mason Dixon line. The last black bank in Philadelphia, Citizens & Southern Bank & Trust, had closed its doors 36 years earlier.

Deemed "the bank the people built," United Bank was structured on a grass-roots foundation: Some 3,000 individuals collectively invested $3.3 million. This figure represents 55% of the capitalization amount required by the State Department of Banking; the rest of the money came from institutional investors.

Appropriately, this venture in economic self-reliance stands just a few blocks from a familiar symbol of colonial history and freedom, Independence Hall, where the Declaration of Independence was signed.

Sitting in her modest office, surrounded by books and photos of her grandchildren, Emma Chappell, who is in her early 50s, is a "self-described praying woman"--comfortable traveling between the worlds of church and commerce. She brought 35 years of banking experience to United, including a stint as vice president at Continental Bank, one of the city's top 10 banks. As she notes with a laugh, she always wanted to be the CEO of a bank but never thought that she would actually build one.

In the five years since the groundwork was laid, she has seen this community "building" grow nearly five times in terms of its original assets and customers. She has seen its success confound those skeptics who were critical that the bank would ever open its doors, much less survive its infancy. Because of its pioneering efforts in neighborhood expansion, United Bank of Philadelphia is BLACK ENTERPRISE's 1994 Financial Company of the Year.

Central to this expansion was United's acquisition of six branches in the last two years from the Resolution Trust Corp. (RTC), the federal agency charged with clearing up hundreds of failed thrifts. By seizing this opportunity, the bank grew from one office with $18 million in deposits to seven offices with $87.2 million in deposits. Since 1993, United's assets have tripled to nearly $100 million.

No minority-owned institution has achieved so much in so little time. Among the nation's giant banks, United may seem small. But in reality, roughly 3,400 of the nation's banks have $100 million or more in assets and 7,600 have less. This puts United right at the cusp of being bigger than the average bank.

"We realized we could fulfill our mission of growing the bank through acquisition and serving traditionally unserved and underserved neighborhoods," says Chappell. Specifically, the bank was created to serve the needs of a community with a heavy minority population, including African-Americans, Hispanics and Asians. "The City of Brotherly Love is very polarized, which made it harder for me to build the bank with the help of the community," Chappell says. "Even various segments of the African-American community were not united."

Chappell has received a great deal of community support for her daring undertaking. "The survival of this bank is important to the city," says Philadelphia Mayor Ed Rendell. "The plan Emma is following is a sound one." The city has over $100,000 in deposits and $4.5 million invested in United.

IN GOD WE TRUST

Chappell became a banker somewhat by divine intervention. She was 16 years old and about to graduate from West Philadelphia High School, when her pastor, the noted civil rights activist, the Rev. Leon H. Sullivan of Zion Baptist Church, asked her what she planned to do with her life. Chappell, who was 14 when her mother died, had thought about becoming a doctor so that she could heal people. But she was open to suggestions.

She was given an aptitude test and excelled in the math section. Impressed with her ability, Rev. Sullivan assigned the young Chappell a mission: to become a premier black banker. He set her on this path by helping her land an entry-level job at Continental Bank. It was a modest start, but she had found her calling. Chappell earned $45 a week as a clerk photographer, which meant that she photostatted checks. That was in 1959.

"Before I could move up the ladder, the bank said I had to get a college degree. So, I went to school at night for five years," recalls Chappell, who held various positions during that time, including credit specialist in the loan review department. Shortly after leaving Temple University in 1967, Chappell was asked to enter an executive training program, allowing her to work in every department at the bank. Upon completion in 1971, she was promoted to assistant treasurer.

By 1977, Chappell had paved her way to become both Continental's first black and first female vice president. She even headed the bank's newly formed Community Business Loan and Development Department, which was responsible for dispersing commercial loans, especially to minority- and women-owned small businesses. During her tenure, Chappell granted more than $30 million in loans to black enterprises.

During these years, she was gaining visibility and respect in the community. In 1974, she helped organize the Philadelphia Commercial Development Corp., an organization created to rebuild the inner-city community via commercial lending. She was one of the founders of the Delaware Valley Mortgage Plan, designed to help low- and moderate-income residents buy homes, often for small down payments and lower-than-market interest rates.

Politics was an inevitable outlet for this woman who possesses a strong sense of identity with her African-American roots and her community. Chairperson of the Operation PUSH board, she was a founding vice president of the National Rainbow Coalition. In 1984, she took a leave of absence to serve as national treasurer for Jesse Jackson's presidential campaign. She handled financing, record-keeping and fund-raising, riding shotgun over $11 million in campaign funds.

Chappell also managed to raise two children: Tracey, a registered nurse, and Verdaynea, a Wharton graduate with an M.B.A. in international economic development, who helped found the bank. Chappell, now divorced, found time to go back to school, earning a master's from the Stonier Graduate School of Banking at Rutgers University. Her thesis, "A Banking Strategy for Minority Business Development," was incorporated into United Bank's business plan.

A BANK FOR THE PEOPLE BY THE PEOPLE

It was Chappell's credentials as a banker and community leader that led a group of black business owners and investment bankers in 1987 to make her an offer she couldn't refuse--to create her own bank. "There was a need and an opportunity for a black commercial bank in Philadelphia," says Malcolmn D. Pryor, CEO of Pryor, McClendon, Counts & Co. Inc. "We were willing to put up the seed money, but we needed someone to manage the bank who had experience as well as credibility in the African-American community. Emma fit that bill."

Chappell along with 12 other cofounders--United's board of directors--contributed about $600,000 in start-up money to cover the cost of a business plan and feasibility study. They saw a real need waiting to be fulfilled: to provide personalized banking services to businesses and individuals throughout the Delaware Valley.

The group set out to raise $3 million in capital, the amount needed to become a state-chartered commercial bank. Chappell approached the big banks for money since they had helped other small banks get started. She used the Community Reinvestment Act (CRA) and Home Mortgage Disclosure Act (HMDA) as leverage. At that time, Philadelphia's 17 other banks had, at best, adequate CRA performance rankings. Meanwhile, 1987 HMDA data showed that six major banks in the city had made $287 million in mortgages, but less than $8 million went to minorities.

In her quest for capital, Chappell was able to net over $1 million from some big fish--Mellon Bank, Corestates Financial Corp., Meridian Bancorp., First Fidelity Bancorp., PNC Bank (formerly Provident National Bank) and Continental Bank. Other moneys came from insurance companies and corporations.

Then came the 1987 stock market crash. "Our strategy of raising the capital entirely from institutional investors fell through," says Pryor, who sits on the bank's advisory board. "That elevated Emma's role in securing the money from people in the community." On top of that, the bank now had to raise $5 million to be fully capitalized. The state granted a conditional charter allowing United to sell stock: $10 a share in blocks of 50 and multiples of $500.

For the next three years, Chappell did unstinting legwork, literally walking the soles of her shoes off. She raised money and the communities' financial consciousness. Perhaps most importantly, she spread the word throughout the black religious community. She even held Black Bank Sunday where some 200 pastors across the city announced from the pulpit that the bank was just $1 million short of meeting its goal. A citywide congregation raised $400,000 that day. (The stock was registered in the church's name.)

When the votes were in and the money was counted that April of 1991, some 14 institutions had given $2.7 million and about 3,000 individuals had raised $3.3 million. Finally, after a tough, uphill five-year campaign, Chappell saw United's doors officially open on March 23, 1992.

LIFE, LIBERTY AND THE PURSUIT OF HAPPINESS 

Minority banks bear a heavy responsibility. They are weighted with the extra burden of improving the quality of life, ensuring economic freedom and building the spirits of the communities they serve. United has tried not to buckle in order to do just that.

It started off very conservatively in its first year. While deposits were more than $18 million, the bank made less than $6 million in loans. The remainder was invested in government bonds and other safe but low-yielding securities that could not offset United's expenses for salaries, rent and equipment. The result was an operating loss that reduced its initial $6 million capital to a little over $4 million.

That put United in a financial vise: In order to grow, the bank would have to make profitable yet safe loans to individuals and businesses. But to make loans, United needed to branch out to other neighborhoods.

The most cost-effective way for United to grow was to acquire branches through the RTC's minority preference program, especially given that a vast majority of the floundering thrifts had offices in minority neighborhoods. United enlisted M. Scott Lawyer, who along with David C. Lensing owns Memphis-based Financial consultants Inc. The two men helped write the legislation that lets the RTC turn over to minority banks branches that do not receive acceptable bids. Minority institutions are also given the right to buy profitable, safe mortgage loans taken from failed thrifts other than those they have acquired.

In July of 1993, United acquired its first two branches, formerly Chase Federal Savings & Loan, with $12 million in deposits for $7,777. Then in August, United set its sights on three former branches of Home Unity Savings & Loan. "Regulators weren't going to let United jump from $35 million to $150 million in assets overnight," says Lawyer. "So, we found a partner who could go in and bid with us."

PNC Bank agreed to buy one of the branches. The majority bank already owned $100,000 shares worth of stock, and was willing to invest $750,000 more to help United meet its capital requirement in order to assume an additional $115 million in assets as well as loans.

Immediately after acquiring the Home Unity branches for $7,007, United sold one branch, with $34.5 million in deposits, to PNC for $2,450. United also sold to the majority bank an equivalent amount in loans as deposits, booking a $3 million profit.

The "people's" bank achieved profitability in its second year. The bank's net income rose to $862,000. Earnings per share were $1.26. Assets totaled $77 million, a 237% increase. Capital climbed from $4.3 million to $6.3 million, with a capital-asset-ratio of 7.75%.

United tried to duplicate this success in 1994 when it acquired a branch of Ukrainian Federal Savings & Loan from the RTC for $7,000. To pacify a hostile Ukrainian community, United did a joint venture with Ukrainian-owned First Security Bank in Chicago. Ironically, United created competition for its own deposits, experiencing a huge amount of runoff from $22 million to $3 million in deposits within six months. United was equally entitled to $22 million in loans. However, the RTC changed its pricing from 94 cents on the dollar to 99.25 cents.

"We couldn't buy the loans at that price," says Lawyer, "because we needed a hefty reserve to cover them (cash used to write off bad loans). At 94 cents, we could put the extra six points toward the reserve." Lawyer notes the Government Accounting Office is investigating if the model used by the RTC was fair. "The RTC sold billions of dollars of assets at fire-sale prices to majority banks. When it comes to delivering assets at fair market value to minority institutions as required by federal mandate, they have not delivered."

By year-end, the bank managed to buy yet another branch, the Central Pennsylvania Savings & Loan, with $7.5 million in deposits from Fulton Bank, the parent company.

NOT A STAR-SPANGLED YEAR

After significant gains its second year, United suffered stunning losses in 1994--roughly $590,000--as a result of nonrecurring costs related to the acquisitions of the Ukrainian and Central Pennsylvania branches. Because of last year's performance, United received a "Yellow, Two-Star" rating from Veribanc Inc., a Wakefield, Mass.-based research firm that rates the condition of the nation's financial institutions. Although most banks have equity-to-capital ratios in the 7% range, United's 6.2% ratio is well over the safety margin and there's no real problem loan threat, says Veribanc Research Director Warren Heller.

United is relatively prepared for financial problems. The bank's loan-loss provision (money put aside to cover loans gone sour) grew from $191,000 to $726,000 between 1992 and 1994. There is really only one bad loan on the books--a $500,000 commercial loan. Out of a $63.76 million loan portfolio, a total of $337,000, or .5% are nonperforming and 2.2% are delinquent.

United's survival is tied to residential mortgage loans (1-4 units), which constitute $49.6 million or 78% of its portfolio. Commercial real estate, commercial industrial and consumer loans make up $1.6 million, $3.6 million and $9.5 million, respectively. Eventually, good numbers in a loan portfolio can turn into great numbers on the income statement.

"United has been growing so fast, that it is hard for them todigest the banks they have gobbled up. We would like to see them increase the percentage of their real estate loans," says William Michael Cunningham, president of Washingtonbased Creative Investment Research Inc., which monitors and rates minority financial institutions.

However, Cunningham is optimistic about United's future. "Philadelphia has a 42% minority population, so United should be able to take full advantage of their location to do some serious outreach." he believes United has at least two ways to service mortgage loans, through Fannie Mae and GE Mortgage Co., both of which have created programs targeted at minority financial institutions.

The bank's strategic plan for 1995 is to cut costs. United recently hired someone to mind the store, so to speak, and to spend more time looking at the nickels and dimes. Assuming that role is the bank's new chief operating officer and executive vice president, William Smith, formerly with Douglas State Bank in St. Louis.

But United's Vice Chairman of the Board of Directors Jim Bodine is not alarmed that the bank is losing money. "We are right on track. Our original plan called for the bank to lose money the first three years in order to meet its goals and to break even the fourth year." Bodine is United's second largest shareholder and former president of First Pennsylvania Bank, a majority bank.

Bodine believes the bank will be profitable again by year-end. "We are going to concentrate less on growth and more on conventional banking."

THE REVOLUTIONARY WAR IN BANKING

Though the path to acquisition may have been bumpy, United is not off course. The bank has already increased its fee and specialty service business. It also issues its own secured Visa card, allowing customers to build credit histories by depositing collateral (minimum $300 at 18%). Taking community banking to heart, United offers its customers convenience: Bank hours are from 8 a.m. to 4 p.m. weekdays and 9 a.m. to 12 p.m. on Saturdays (Sunday hours are in the works).

United Bank has done a great job at outreach and is genuinely interested in helping people in minority communities to buy homes and establish businesses, says Laverne Butts, vice president of the Philadelphia chapter of Acorn (Association of Community Groups for Reform Now). For over 20 years, the national nonprofit group has been putting pressure on majority banks to increase lending in minority communities.

"Not uncommon to small, start-up banks, United is in a difficult place," Butts adds, "because it doesn't have the capacity to do higher risk lending until it establishes a stronger capital base and becomes profitable." Given such a tightwire United's management team is going to have a tough balancing act this year.

That's one reason that United is looking to raise $5 million from a preferred stock offering (6% dividend rate). The nonvoting, nonconvertible and noncumulative stock is being sold in blocks of 750 shares for $15,000 (at $20 a share). Another $2 million is expected to come from a third common stock offering (the bank held its second offering of a maximum 500,000 shares of common stock at $12 per share in 1993).

While United is issuing capital rather frequently, it's not unusual, says Veribanc's Warren Heller. "Besides, there's nothing on their balance sheets to indicate to investors that there are any time bombs ticking off."

In today's financial environment United, as well as other minority banks, will continue to struggle to offer new products, expand territory and increase access to capital. Since its inception, the "people's bank" has won some major battles and suffered a few scars along the way. But Chappell says she has just begun to fight. "I'm hoping to take the bank to $150 million in assets over the next two years. I want to grow the bank to a level where it can really be a major player in the market."