The only black-owned bank in Texas has ambitions of becoming the nation's largest, but it will not be easy for the $51 million-asset Unity National Bank of Houston.
Despite being in the type of fast-growth market that other banks covet, Unity's asset size has been shrinking for years. It has made so many bad loans that it lost $3 million in 2006, and it is struggling to overcome a checkered reputation.
But members of an experienced executive team that came on board a little over a year ago said they aim to turn the two-branch bank around.
Using a cash infusion from a group of investors that includes well-known African-Americans, Unity plans to add branches in its hometown and expand to other cities, most likely through acquisitions, said Charles "Chuck" Cowell, its president and chief executive officer.
It also plans to target a diverse customer base, not just minorities, Mr. Cowell said. "We are a bank, a nationally chartered bank and no different than any other bank," he said. "I'd just as soon have the minority tag be dropped. That shouldn't be an issue."
The goal is to increase assets to $1 billion over the next five to seven years, he said.
Unity plans at first to look for traditional community banks to acquire in Texas cities, particularly Dallas, Mr. Cowell said. But it would consider buying out of state too, he said.
To help fund its growth, the bank is working on a multimillion-dollar stock offering to current investors, set for April.
It will be Unity's second capital infusion in recent years. The same investors helped it raise $5.7 million in 2005.
The group includes Kase Lawal, the chairman and CEO of the nation's largest minority-owned oil company, Camac International Corp., and Lee Brown, Houston's first African-American mayor.
Mr. Lawal, who is also Unity's vice chairman, said he got involved with the bank because he wanted to see it succeed.
He said that Unity, one of the nation's less than two dozen African-American-owned banks, is important to the black community.
"As a minority business owner, I remember the difficulties that I encountered in accessing capital for operations and business expansion, and I wanted to make sure that other business owners would not go through those problems," Mr. Lawal said.
Minority banks struggle more than their mainstream counterparts. An October report from the Government Accountability Office said that is especially true of those with less than $100 million of assets and those that are black-owned.
The report said that in 2005 the average return on assets for black-owned banks with assets below $100 million was 0.16%, compared with 1% for nonminority banks in that asset category.
Higher loan-loss reserves and operating expenses hurt black-owned banks' profitability, the report said. So did their operating environments; black-owned banks are usually in low-income urban areas or areas with large immigrant populations, the report said.
William Michael Cunningham, the president and CEO of Creative Investment Research, a Washington consulting firm that focuses on minority banking, said expanding beyond ethnic-specific marketing is a good way for minority banks to build their customer base. He said many banks that focus on a single segment hit a growth ceiling.
"Minority banks are facing increasing cost and profit pressures," Mr. Cunningham said. "They have to move outside of comfort zones and comfort markets to grow."
Another bank pushing to serve a broader customer base is the $23 million-asset Urban Trust Bank in Washington, he said. "Unity and Urban Trust Bank have hit upon a way to move forward. They can be in the community, but also reach outside and try to shore up asset gathering and loan portfolios. I think it's an excellent idea."
Dan Bass, managing director of Carson Medlin Co. Investment Bankers in Houston, said the new approach might save Unity, which has been hurt by steep chargeoffs.
"There has been a lot of these niche banks that realize if they want to get better, then they can't stay in that niche," he said.
Mr. Cowell said Unity has no plans to abandon the minority market; it just wants to be more inclusive. "That is our niche and we intend to embrace that and do embrace it as we move forward."
He said minority support could help it gain a foothold in new markets. "As the only African-American bank in the state, we've had numerous inquiries to bring our bank to other parts of the state with an urban feel and African-American concentration."
Mr. Cowell, who has 33 years of banking experience, was the president of the $926 million-asset First Financial Bank in Abilene, a subsidiary of First Financial Bancshares Inc., before he left for Unity in 2005.
He said one of his challenges early on was Unity's loan portfolio. At Dec. 31, the ratio of noncurrent loans to loans was over 5%, and the bank wrote off $2 million of loans last year. It reported a $3 million loss for the year, according to the Federal Deposit Insurance Corp.
The reputation problem was another test, Mr. Cowell said.
Though some observers said a new name might be a good idea, Mr. Cowell said the bank has decided to stay with Unity. He said it was important to the investors to preserve the bank's history.
"It's a universal name, and speaks to what we see as who we are and where we are trying to go," he said. "We want to unify and be inclusive of all races and genders. One of the quotes we use is, 'The only color we see is green, the color of money.'"
