CHICAGO -- The dilapidated storefronts of 63rd Street in this city's gritty South Side are a different world from the leafy boulevards of suburban Wheeling, Ill.

Yet the two are now connected -- by a bank.

It's unusual enough for a bank to open an office in the inner city. But when a community bank based in the suburbs became the first bank in 20 years to open a branch in the Woodlawn neighborhood of Chicago, it was downright strange.

An Emotional Occasion

At the grand opening of Cole Taylor Bank's Woodlawn branch last month, some community leaders actually began to cry as the mayor of Chicago and the treasurer of Illinois addressed the crowd.

"It was heartfelt. The emotions just came pouring out," said Regina Curry, associate director of Woodlawn East Community and Neighbors and a 30-year resident of the South Side community. Since the branch's opening last month, the economic health of this low-income neighborhood has become a subject of great concern to the executives some 30 miles away in affluent Wheeling.

"Our banks will be as profitable as the communities we serve," said Bruce Taylor, the bank's chief operating officer. "To the extent that we can play a role in the development of the South Side, it is going to benefit our bank and our business prospects."

Driven by an equal mix of social responsibility, regulatory pressure, and recognition of an emerging market, $1.2 billion-asset Cole Taylor hopes to prove there is money to be made by traditional community banks in the under-banked neighborhood of American cities.

The banking industry is watching closely to determine whether Cole Taylor can succeed in a market long regarded as the domain of community development banks, minority-owned institutions, and a handful of large banks' branches.

"This is significant in the realm of community development." said Kathryn Tholin, vice president at the Woodstock Institute, a Chicago firm that documents lending activities. "Cole Taylor sees a market there and thinks this can be a viable enterprise."

230 Accounts in 3 Weeks

In just three weeks after the branch opened, it had more than 230 accounts totaling $1,176,036, including a $1 million deposit from the office of the Illinois treasurer, according to branch manager Carolyn Blackwell.

So far the bank has approved one home equity loan and rejected applications for three unsecured personal loans.

"There is a lot of legitimate money to be made around here, trust me," said the ebullient Ms. Blackwell, who is the main link between Cole Taylor and the Woodlawn community.

Indeed, First Chicago Corp., also sensing the area's potential, announced plans earlier this year to open a branch in Woodlawn.

The average U.S. bank branch has $50 million in deposits, according to BEI Golembe, Washington. But Cole Taylor officers say their Woodlawn branch would break even with only $3 million of deposits, because the bank spent less than $500,000 to buy the land and renovate the building.

First Chicago said it will spend more than 10 times as much to open its branch early next year.

However, the Cole Taylor venture is not without risk. Crime-ridden housing projects loom a few short blocks from the branch.

The 1990 census found 35% of Woodlawn's 27,473 residents living below the poverty line, and average household income hovering at $13,680 -- just 44% of the national average.

"It's not a sure thing," concedes Mr. Taylor, who recently had to close three supermarket branches -- each of which cost about the same as the Woodlawn branch -- after just a couple of years of operation.

But much as an investor judges the fundamentals of an emerging market, Cole Taylor saw signs that the community was poised for rejuvenation.

Wedged between Hyde Park and South Shore -- communities well known for successful economic development efforts -- Woodlawn has won attention from politicians as well as bankers.

The City of Chicago plans to build 300 housing units in the neighborhood, which has good public transportation links to the city and abuts Lake Michigan. The area is also near the University of Chicago, which has shown some interest in purchasing land in the community.

But the people who were working for development in the community proved its most valuable asset, Mr. Taylor said.

Leaders of church and neighborhood groups initially piqued the bank's interest in the community, approaching an advisory board of one of Cole Taylor's branches in a more prosperous South Side neighborhood where the city's famous stockyards used to be.

"The people working to revitalize Woodlawn took the biggest risk by working for years in the neighborhood and not leaving when things looked bad," Mr. Taylor said. Community and church leaders have pledged to do business with the bank.

"For a long time, we just took it for granted that we would never have a bank here," said Barbara Kimbrew, director of the United Business Association of Woodlawn.

"So many banks are really giving up on a potential market in the inner cities."

Before South East National Bank abandoned the area two decades ago, Woodlawn was a thriving retail district.

More than 400 shops lined 63rd Street in 1972, Ms. Kimbrew said. Today there are fewer than 290.

Bank officials are confident the branch will boost their Community Reinvestment Act grade.

The Woodlawn leaders approached Cole Taylor after it received a "needs to improve" grade -- the second-worst rating -- but regulators never suggested the bank open a branch there, Mr. Taylor said. (The rating was raised last year to "satisfactory.")

The decision to open the branch was influenced by social responsibility instilled in him by his Jewish upbringing and his education, said Mr. Taylor, 38.

"I don't think our industry can expect to see any significant reduction in regulatory oversight as long as we are leaving vast expanses of inner city areas unbanked," he said.

"Because we are making money off of the community, I think it is incumbent upon every businessman to give something back.

"A country that has a greatly disadvantaged class ... is not a stable foundation for a country," Taylor said.

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