Sunday, February 28, 2010

Hear Ye! Hear Ye!

On February 23, 2010, I had an opportunity to testify before the Los Angeles CIty Council's Jobs and Business Development Committee.  Councilmember Richard Alarcon is proposing a city law that will divest public funds from banks that do not have a strong record of social responsibility.  As a community bank that is extremely active in the low- and moderate-income communities of East L.A. and Santa Ana, we are 100% in favor of this piece of legislation.  The proposal requires banks to jumps through additional hoops, which we are not keen on.  However, the spirit of the legislation is something I support.

I have included below the written testimony given to the Committee.  Bottom line, city councils should reward with deposits those banks that are doing all the right things.  Have a read.

Written Statement

Jobs and Business Development Committee
Hearing on Council File Number CF 09-0234

Jesse Torres
President and Chief Executive Officer
Pan American Bank
February 23, 2010

Chairman Alarcon and members of the Committee, I am pleased to submit testimony to the Los Angeles Committee on Jobs and Business Development on the topic of community re-investment and the potential divestiture of City funds from banks that have not demonstrated a positive track record of community responsibility.

My name is Jesse Torres and I am the President and Chief Executive Officer of Pan American Bank. We are a 45 year-old Latino-owned community bank headquartered in East Los Angeles. We are California’s oldest Latino-owned bank and the second oldest Latino-owned bank in the United States. Pan American Bank was established in 1964 by Romana Acosta Banuelos, the first Latina Treasurer of the United States. Pan American Bank was founded for the express purpose of serving the unbanked and underbanked Latino communities of Los Angeles and Orange counties.

As of December 31, 2009, $27 million of Pan American Bank’s $32 million loan portfolio was comprised of residential mortgages. Nearly every residential loan was made to low- or moderate-income borrowers. Pan American Bank’s mission is to transform and empower Latino communities through banking relationships built on trust, service, respect, communication, and guidance. Consistent with that mission, in 2009 Pan American Bank did not foreclose on a single borrower and modified 100% of borrower modification requests.

My testimony today is going to focus on the role community banks play in stabilizing communities during difficult times - a role that is largely ignored by larger regional and national organizations that do not have a close tie to specific communities and as such, do not feel compelled or are unable to assist communities that need help the most.

During the mid part of the last decade, money was cheap. Large regional and national banking organizations utilized cadres of local loan brokers and the Internet to make use of the vast amount of cheap dollars and to grow their organizations to unseen levels. As the supply of traditional borrowers dried up, alternative borrowers were cultivated - many of whom were ill-prepared for the challenges of homeownership but were intoxicated by the dream of owning their own home. Unfortunately, when the party was over, many of these financial institutions and their armies of brokers were nowhere to be found and borrowers were left to deal with the hangover effect all on their own.

As a seasoned banker I understand the economic and financial rationale for seeking economies of scale and market share. As a community banker, however, I also know the long-term damage that is inflicted on a community when financial institutions focus solely on short-term profit and ignore the long-term financial and economic health of the community. 
For the past two years our communities in Los Angeles – particularly the low- and moderate-income communities, have been decimated by foreclosures. Initially lured by the dream of homeownership, many in our communities have been living a nightmare that began when they were offered financial products that made no sense for the borrower or the banks. Fortunately for the too-big-to-fail banks, relief came in the form of federal bailouts. Unfortunately for the borrowers, the too-big-to-fail banks were unable or unwilling to do the same.

I understand that too-large-to-fail organizations maintain highly complex financial arrangements with mortgage investors and other parties that may make modifications difficult. However, based upon these organizations’ influence, their history of financial innovation and inventory of immensely talented human capital as well as the modest cost of mortgage modifications relative to the high cost of foreclosures, I do not understand the hesitation to provide relief – particularly in light of the billions of dollars of public bailout funds that these large, too-big-to-fail firms received.

Pan American Bank is only a $40 million community bank and has very limited human and financial resources when compared to the too-big-to-fail banks. However, Pan American Bank has a perfect record when it comes to mortgage modification requests. Most of us can agree that the economic downturn is temporary and that jobs will return and income will increase in the future. Pan American Bank believes strongly that its 45 year existence is directly tied to the community’s support of the Bank. As such, now is the time for bankers to return the favor by treating customers with dignity and respect and by finding ways to assist customers in need.

Unlike too-big-to-fail banks, community banks are vested in the local communities they serve. Community banks survive and thrive only if the local community thrives. Community banks such as Pan American Bank owe their success to the community. Without local community support, community banks would cease to exist. As such, community banks are the first to assist the community and the last to say “no.” Community banks cannot ignore the needs of its local community, as opposed to large regional and national banks that can shift focus from one region to another. Community banks are woven into the fabric of the local community. Through good times and bad, community banks serve the needs and are the first to do what can be done to stabilize and improve the local communities.

City councils are also vested in the communities they govern. Cities thrive only if their communities thrive. As such, city councils and community banks share common goals and serve common constituents. Large regional, national and multinational banks with headquarters outside the community have no vested interest in the local community other than to generate income and export deposits to the most financially attractive region.

Given the mission of city councils, consideration must be given to how to best deploy deposits to enhance the standard of living of the residents served. Based on the similarities between city councils and community banks, city councils must include local community banks when determining how to allocate public funds. City council and community bank survival is dependent upon successfully meeting the needs of the community served. This is not the case for large regional and national banks that are able to change geographic focus based upon factors such as return on investment. As such, social responsibility is an inherent characteristic of community banks. A characteristic that may or may not exist within large regional and national too-big-to-fail banks.

If there is one lesson that should be taken away from this troubled economic period it is the effect that banks can have on stabilizing communities during severe economic downturns. Over the course of the past two years entire neighborhoods have been evicted by banks unwilling to make the effort to provide relief. The result is the further collapse of neighborhoods and the financial and psychological ruin of families whose dreams were quickly turned into nightmares.

City councils must consider the record of all financial institutions holding public funds. City councils must divest such funds from institutions with poor or superficial community reinvestment performance. City councils should use the power of their deposits to reward those institutions that act in a manner consistent with the council’s social responsibility objectives and that address the most urgent community needs.

Cities will benefit by rewarding banks that take social responsibility seriously. While certain large regional and national banks may provide benefit to certain areas within their footprint, the community bank model is specifically tailored to meeting the needs of the local community served and to provide financial and economic stability to the community. As such, community banks must be rewarded for their effort and noncompliant banks must be penalized for their lack of support. Within the banking industry, deposits provide a powerful incentive for compliance. A policy that rewards socially responsible banks will create substantive benefit for the city and its constituents. Thank you.

Sunday, February 14, 2010

The Latino Middle Class

Back in December I read an article on about the Latino middle class.  In the article entitled "L.A. Needs a Healthy Latino Middle Class," Hector Tobar highlights three recent reseach studies from USC, UCLA and the Pew Research Center.  All three focused on Latinos and all three were released in either November or December 2009 (odd, no?).

 The three studies are contained below:
According to Mr. Tobar, Latinos make up a plurality of both Los Angeles County and Greater Los Angeles.  "With this year's census likely to show a Latino majority in both the city and county of Los Angeles, it's obvious that our collective future is linked to the social health of that group of people."

Mr. Tobar highlights the December 2009 report of Dr. Jody Agius Vallejo.  The USC researcher looked at the "pathways to success" that allow even people of humble immigrant origins to reach middle-class status. Her work rebuts the widespread perception that Mexican immigrants and their offspring are following a trajectory of downward mobility into a permanent underclass.

Dr. Vallejo's study focused on individuals that possessed at least three of these four characteristics:
  1. College educations,
  2. Higher than average income,
  3. White-collar jobs, and
  4. Home ownership.
According to Dr. Vallejo, each person who achieves social mobility improves the overall well-being of the community. Social climbers show others behind them the way forward.  It is these individuals upon which the future of Los Angeles hinges.

According to Dr. Dowell Myers, a healthy middle class with Latin American roots is critical to the entire country's future too. This is the thesis of Dr. Myers book, "Immigrants and Boomers: Forging a New Social Contract for the Future of America."

As I read Mr. Tobar's article it reminded me that Pan American Bank is not just a community bank.  It is also a tool for the families of the communities we serve to use to bootstrap themselves into the middle class.  Apart from viewing our business as a collection of assets, liabilities and equity, we need to view it as a platform from which transformation can occur. 

When I was in school one of the first lessons I was taught was the importance of the mission statement.  Pan American Bank's mission is to transform and empower Latino communities through banking relationships built on trust, service, respect, communication, and guidance. This means we have a direct responsibility to operate our business in a manner that is consistent with that mission.  There is much that we as a community bank and community leader can do to contribute to the improvement of our communities.  I am happy to say that every day we are closer to fulfilling our mission.