Founded in Birmingham in 1890, the Alabama Penny Savings Bank was the first financial institution in the state owned-and-operated by African Americans. It served as a vital component in the development of the city’s expanding business district and contributed to the rise of the state’s largest Black middle class. The vision of a Baptist minister, the steadfast Penny Bank weathered an environment of increasing segregation and a global financial crisis during its 25-year history.
The idea for the bank came from William Reuben Pettiford, a North Carolina native who moved to Alabama in 1869. While employed in various vocations, he studied for a degree at the Lincoln Normal School in Marion. Thereafter, he attended and worked for Selma University, serving as its fiscal agent and able fundraiser. He performed a similar role for the state convention of African American Baptist churches. In 1883, Pettiford assumed the pastorate of what is today known as Birmingham’s 16th Street Baptist Church. During a decade in the pulpit, he presided over the creation of a number of mission churches and left a firm financial foundation for construction of 16th Street’s iconic edifice.
As he ministered to African Americans working in and around Birmingham, Pettiford became convinced of the need for a savings bank as a means of promoting thrift, homeownership and economic independence. In an era of segregation, men and women of color had virtually no access to white-owned banks. What Pettiford proposed was novel, indeed. At the time there were only two Black-owned financial institutions in the nation. Still, Pettiford forged ahead with a plan to create a private bank. He undertook a three-month campaign recruiting investors and encouraging depositors.
A simple folding table in the doorway of a rented building served as the teller window on opening day, Oct. 15, 1890. Still, investors came, buoyed by their confidence in the new bank’s president. First-day deposits totaled more than $500. The following morning, the bank issued its first loan: an advance of $10 to a female client. The terms were 30 days and an interest payment of 50 cents.
With evangelistic timbre, Pettiford urged Birmingham’s African American residents to save a portion of their earnings, meager though they were, as a way of building a better future for themselves and their community. Tuskegee Institute’s Booker T. Washington, who was an associate and kindred spirit, praised the “missionary work” required to create the Penny Bank. “I am convinced that Mr. Pettiford has performed no greater service…for humanity as a minister of the gospel than he has as president of this bank,” Washington wrote in 1907.
Viewing Pettiford as a man in Washington’s mold no doubt helped foster the Penny Bank’s working relationship with white creditors, many of whom saw benefit to messages of self-help and uplift. Armed with the occasional support of such men, Pettiford built a solid banking operation in the Magic City. Investors were rewarded with reliable dividends and, through a series of benevolent acts, Pettiford in turn endeared the institution with the community. The Penny Bank was among only a handful of Alabama banks to survive the Panic of 1893. Recounting the crisis years later, Pettiford noted with pride: “Our little bank stood like an oak in the storm.”
While larger financial institutions might have balked at the Penny Bank’s array of savings and loan options — which included small monthly payments and interest rates typically well below 10% — Pettiford knew that building up a clientele heretofore unfamiliar with banking required an unconventional approach. He understood the transformative power of financial freedom but also grasped the importance of respecting his clientele and supporting their endeavors. In 1906, when a downtown fire destroyed the Penny Bank’s building, Pettiford secured a temporary location and resumed business within eight hours. The steel vault emerged from the conflagration unharmed and “as firm as the rocks of Gibraltar,” an occurrence which no doubt helped instill confidence. On New Year’s Day 1913, the bank opened an impressive new headquarters in the 300 block of 18th Street. The six-floor building housed other businesses as well, including African American physicians and insurance agents.
Through its savings accounts and a robust loan program for homes and businesses the Penny Bank helped foster the growth of Birmingham’s Black middle class. Branch institutions in Selma, Montgomery and Anniston helped to extend the Penny Bank’s reach. Published financial reports show steady growth. Between 1902 and 1907, deposits rose from approximately $78,000 to $215,000, an increase of 175%. By 1913, the bank had more than 10,000 individual accounts and deposits of $2 million, equivalent to more than $53 million today.
Despite its robust stature, much of the confidence the bank enjoyed was a direct reflection of its president. In 1914, amidst rumors of Pettiford’s declining health, the bank’s finances were strained by anxious depositors withdrawing funds. The board of directors attempted to allay these concerns by approving Pettiford’s request for an “indefinite vacation” and installing an original board member in his place. When Pettiford died in September 1914 at the age of 67, African American businessmen throughout Birmingham closed their shops on the day of his funeral out of respect.
In the months after Pettiford’s death, stockholders and clients of the Penny Bank were assured with news of increasing deposits of more than 12,000 accounts and a planned merger with Prudential Savings, another Black-owned institution. Yet these appearances masked a growing financial uncertainty that persisted in the wake of Pettiford’s death. In the end, the Penny Bank could not long survive its founder and greatest champion. Unable to meet its obligations, the Alabama Penny-Prudential Savings Bank entered receivership in 1915. Although the stockholders were eventually repaid, a great many depositors lost their savings. The bank’s greatest asset, its 18th Street building, was sold to the Knights of Pythias, a fraternal service organization. The demise of the Penny Bank after an existence of 25 years was a blow, indeed. Not until 1957 would Birmingham see another successful bank owned by African Americans.
Historian Scotty E. Kirkland is a freelance contributor to Business Alabama. He lives in Wetumpka.