Chan Patel and Nitin Shah believe strongly in a tried-and-true banking maxim: lend to those you know and trust.
While the adage amounts to simple common sense for community bankers, it has special meaning for Patel, chief executive of the $715 million-asset State Bank of Texas in Dallas, and Shah, chief executive of the $77 million-asset Embassy National Bank in Lawrenceville, Ga. For those bankers, their communities are defined by hotels rather than geography.
Only a handful of U.S. banks are owned by Indian-Americans, though they are believed to own close to half of the nation's hotels and motels - more than 20,000 properties valued at $130 billion last year, according to the Association of Asian American Hotel Owners.
So it comes as little surprise that Indian-American banks choose to focus on the hospitality industry.
"We're known now as a hotel bank," Patel said, noting that his bank originates hotel loans in 26 states.
Regulators once criticized State Bank's hotel heavy business model, putting limits on how much of the portfolio it could dedicate to such loans. But they changed their minds after realizing that the bank's hotel book significantly outperformed its non-hotel loans.
"Now they respect our bank," Patel said.
State Bank is a survivor in an area that suffered during the financial crisis. At least three Indian-American banks, which tend to have high concentrations in commercial real estate failed. State Bank bought two of the failed institutions: National Republic Bank of Chicago and Millennium State Bank of Texas in Dallas.
About 60% of State Bank's $509 million in loans involve hotels. At Embassy, hotel loans make up about a 205 of its $59 million in total loans. Both companies lend to hoteliers beyond just the Indian-American community.
Conditions have improved considerably in the hospitality industry. State Bank earned $20 million through the first half of this year, while Embassy reported $426,000 in profit.
The future, however, is a bit cloudy as valuations rise, creating concerns of a bubble in the long term.
"The hotels in the portfolio were financed during the crisis and they are doing well," Shah said. "The long-term trend is not so good. Valuations are going through the roof. We're watching deal prices carefully; looking at the long-term picture to ensure valuations are not out of line."
Patel echoed Shah's concerns.
"Values are high," Patel said. "Hotel loans are long-term loans. You have to worry because valuations will go down in a recession and push the deals underwater."
The Indian community's presence in the hospitality industry goes back to the late 1940s, according to the Association of Asian American Hotel Owners. Many immigrants got jobs at small, mom-and-pop hotels and motels. In many instances, they hired family members when they joined them in the United States.
Patel's path to the hospitality industry and, eventually, to State Bank, was more circuitous. After coming to the United States in 1965, he earned Master's degrees from Stanford and Johns Hopkins. He took an engineering job with Braniff Airlines but, after and several promotions, he was only making $30,000 - far less than many less-educated relatives who were running hotels.
"I got to fly free, but they were earning more than $100,000 a year," Patel said. "I thought I was being left out."
Patel bought his first hotel in 1976; he now owns 10.
Shah followed a similar path. A nuclear engineer by training, he lost his job in 1979 after the meltdown at Three Mile Island sent the nuclear industry into a tailspin.
Patel and Shah each decided to expand into banking, in no small part, because of what they perceived as unequal treatment meted out to Indian-American entrepreneurs.
"We saw a chance to lend our own money to our own people," said Shah, who opened Embassy in March 2007 after raising $18 million in six weeks.
Patel, who got into banking in the late 1980s, encountered more difficulty than Shah. Patel struggled to raise the $2 million required, even though he was willing to invest $1 million of his own money. He succeeded after resorting to a novel stratagem by approaching several friends and family members for $100,000 investments. In exchange, he promised each investor that he or she would receive an education in banking and become a lifetime director.
State Bank had the misfortune of opening its doors on Oct. 19, 1987, better known as Wall Street's "Black Friday," when the Dow Jones Industrial Average fell a then-record 508 points. Since then, it has thrived.
"We ended 1988 profitably and since then, I cannot recall any quarter when we did not record a profit," Patel said.
The Indian-American community is hitting a key threshold, as the first generation of hoteliers near retirement age.
"I'm not sure the second generation is as aggressive as we have been, but these families have everything invested in their hotels," Shah said. "They'll give you their blood before they give up their hotels."