The prospects for Unity National Bank at the beginning of 2020 were not auspicious.
As banks go, it’s a tiny minnow in a vast ocean. With three branches — two in Houston, one in Atlanta — and only $106 million in assets, there was little hope that the 57-year-old institution could compete against the multitrillion-dollar giants that dominate the industry.
Banking is intensely competitive. The more than 5,000 banks across the country all sell the same thing: money. On top of this, the nation’s biggest banks spend tens of billions of dollars each year on mobile applications and other sophisticated technology to give customers a similar experience to that of Apple and Amazon.com. Even banks that are 1,000 times Unity’s size can barely afford to keep up.
On HoustonChronicle.com: Texas' last black-owned bank hasn't made a profit in 3 years. But there's hope.
Unity’s profits in recent years — or lack thereof — bear this out. It has lost money in 12 of the past 15 years. And in the three years it earned money — 2013, 2015 and 2016 — it barely eked out a profit, earning $22,000, $108,000 and $615,000, respectively, according to the Federal Deposit Insurance Corp. In each case, Unity’s earnings as a percent of equity, the industry’s chief profitability metric, was well below the bank’s cost of capital, implying that the economic value of the bank has declined every year for a decade and a half.
This was the situation confronting Laurie Vignaud when she became CEO of Unity last January. Saving the bank would be a herculean task, especially given that, while Vignaud had spent nearly two decades at Capital One, she had never served in a senior operational role.
But given the circumstances of the past year, there’s reason to believe that she just may pull it off.
Turnaround
Unity, the only Black-owned bank in Texas and one of just 21 across the country, faced a steep set of challenges even before the pandemic hit last year. Minority-owned banks, and African American-owned banks in particular, experience dramatically higher loan defaults than other financial institutions, according to research from the Chicago Federal Reserve published after the financial crisis of 2008-09.
This holds true even after accounting for the fact that minority depository institutions, a designation by the FDIC applying to banks with majority minority ownership by or representation on the board, disproportionately service low- to moderate-income areas. In the years immediately following the last crisis, more than 7 percent of loans on average were classified as nonperforming at MDIs, compared with closer to 2 percent for non-MDIs in the same communities.
But what was once a liability is now an asset.
The social upheaval of the past year, fueled by the deaths at the hands of authorities of George Floyd, Breonna Taylor and others, has accelerated changes that were already underway in the banking industry.
“What’s interesting about the environment we’re in now, with the Black Lives Matters movement and the incident with George Floyd, is that people are beginning to see that there’s so many disparities in black and brown communities,” Vignaud said. “And banking is one of them.”
Over the past 14 months, multiple financial institutions have reached out to Unity to offer support.
Vignaud, then a consultant, met representatives at Citibank in the fall of 2019 to explore a relationship with Citi as part of the Treasury Department’s Financial Agent Mentor-Protégé program. The initiative pairs large banks that process financial transactions for the government with smaller, minority-owned institutions, enabling the latter to gain experience and fee income by assuming a portion of the work.
The relationship with Citi expanded with the rollout of the Paycheck Protection Program in April, through which banks made loans to small businesses to help those businesses weather the coronavirus crisis.
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Citi bought $2 million of Unity’s PPP loans, Vignaud said, freeing up space on its balance sheet to make more loans. More recently, this relationship has reversed. Citi has begun inviting Unity to buy portions of large loans originated by the New York-based bank, announcing a $1 million loan participation last month.
Around the same time, Bank of America, the country’s second-biggest bank when measured by assets, made a $5 million deposit in Unity at 20 basis points, or 0.2 percent, an ultra-low interest rate, Vignaud said. Deposits are the raw material of banking, used to make loans and generate earnings.
The Charlotte, N.C.-based institution followed that up later in the year with a $500,000 investment in Unity’s common stock, equating to just under 5 percent of Unity’s ownership. The move is part of a larger thrust at Bank of America, spearheaded by its CEO, Brian Moynihan, to make capitalism more inclusive. On June 2, 2020, it announced a $1 billion, four-year commitment to advance racial equality and economic opportunity by, among other things, making investments like the one in Unity to support MDIs.
“Bank of America’s model is always that we want to do very good for our shareholders, obviously, but also we want to do good for the communities where we live and work,” says Hong Ogle, Bank of America’s Houston market leader.
Comerica, the second-biggest bank based in Texas, followed Bank of America’s lead, depositing $2.5 million into the bank in August, at the same rate paid to Bank of America, Vignaud said.
“Entrepreneurs and small business owners are the anchor of local communities,” Comerica Chief Community Officer Ivan Ashford Jr. said in a press release at the time. “Working with these MDIs will go a long way to ensuring that they continue to not only survive but thrive in the current economic climate and beyond.”
The commercial significance of Bank of America and Comerica’s gestures can’t be overstated. It’s the equivalent of Nike giving free shoes to a shoe store.
Hometown ally
Among all of Unity’s allies, however, few have gone as far as Amegy Bank of Texas, a Houston-based subsidiary of Zions Bancorp.
Amegy was formed in 1990 after the energy crisis laid waste to the Texas banking industry. Nine of the state’s biggest banks failed the preceding decade and were sold for pennies on the dollar to out-of-state suitors.
Banks like Amegy rose from the ashes, pitching themselves as banks built for Texans, by Texans. Since then, it has grown into the fifth-largest bank in Houston, measured by deposits, with $11.5 billion in local deposits as of June 30, 2020.
Amegy’s relationship with Unity started in 2005, when Unity became a correspondent client of Amegy’s — using Amegy’s deposit and lending services in the same way that any other business would.
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But the events of the past year, combined with the change in leadership at Unity, led Amegy to deepen the relationship.
“All of the issues after the George Floyd news left everyone trying to figure out what to do differently with diversity and inclusion,” said Steve Stephens, Amegy’s CEO. “We know Unity, so we had a few meetings to figure out how we can take it to the next level.”
Out of those meetings came three things.
Amegy bought $1 million of Unity’s preferred stock. Amegy also committed to providing training and support to Unity’s employees by, among other things, reserving a spot in its banker development program for a Unity banker.
Finally, though arguably of greatest significance, Ed Schreiber, the recently retired chief risk officer of Amegy’s parent company, Utah-based Zions, has offered to serve in effect as a pro bono consultant at Unity.
“Ed calls me up and said he’d like to help us with Unity,” Stephens said. “So we set up a meeting with Laurie at Unity, and Ed is saying, ‘Hey, I can train your board, I can help you find the right compliance officer,’ things like that. So, I’m thinking, ‘Man, this is serendipity.’”
The expanded relationship is still in its early stages, Schreiber explained, but the vision is that he’ll be able to use his decades of experience in the banking industry, as both a regulator and an executive at one of the largest regional banks in the Western United States, to help Unity develop risk management processes and emerge as a profitable bank.
It’s a vision that resonated with Vignaud.
“I believe strongly that even as a minority bank we can be successful, because there’s a lot of people who need access to capital and that are being missed and marginalized,” she said. “We’re leaving money on the table, we’re leaving access to capital on the table, in communities that could probably revitalize themselves if we allow the investment to take place.”
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January 11, 2021 at 01:00PM
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Can Unity National Bank turn its immense opportunity into lasting success? - Houston Chronicle
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