Stock Grant Question

[Community Development Banking List]

Original message from: mrjessetorres@gmail.com

Dear Listserv Members,

I am President and CEO of the only bank headquartered in East Los Angeles.
We've been around for 46 years. We were founded in 1964 by the first Latina
U.S. Treasurer, Romana Acosta
Banuelos<http://en.wikipedia.org/wiki/Romana_Acosta_Banuelos>, ('http://en.wikipedia.org/wiki/Romana_Acosta_Banuelos>,')
and our focus is serving the underserved and underbanked communities in L.A.
and Orange County. While many know about Mrs. Banuelos, few know that our
little bank in "East Los" produced a second U.S. Treasurer, Katherine
Davalos Ortega <http://en.wikipedia.org/wiki/Katherine_Davalos_Ortega>. ('http://en.wikipedia.org/wiki/Katherine_Davalos_Ortega>.')
Quite a feat for L.A. County's third smallest bank!

We are in the process of planning an equity raise for sometime in 2011.
Those of you familiar with bank stock valuations know that this is not a
great time to raise capital - particularly for community banks. But with
Basel III, Dodd-Frank and the ramp up of regulatory scrutiny of capital,
plus based on our small earning asset base, we need to finally grow up. Sad
but true.

This email is by no means a pitch (STATED OUT LOUD FOR SEC AND OTHERS!!!).
What I am trying to get is preliminary guidance on an idea we had before
engaging legal counsel (which we will do if we decide to move forward).
Here's the thought: the communities we serve are not seen as attractive due
to the lack of perceived asset building. In many cases assets are built but
in cash. These monies do not make it into the financial mainstream. In
other cases, members of our community do lack asset building skills. This
results in lack of investment by developers, etc.

In the past year we've aggressively targeted youth by providing free savings
accounts (no monthly fee, no minimum balance) and we've deposited the first
$5 in the account to get the kids started and excited about saving. In a
related deal, we partnered with Avanti Hospitals to provide each newborn
with an account - we deposit $5 and Avanti deposits $5.

The idea that we had was taking the financial empowerment concept to the
next level. When we provide financial literacy classes for our local youth
at the elementary, middle and high schools, we provide certificates for the
free accounts. In many cases we open accounts on-site. Some of our staff
thought about fundraising through our foundation and using the funds to
"grant" shares in the bank to the community youth just as we do with the
savings accounts. The idea was to empower the youth with tools that allow
them to participate in not only asset building through savings but also to
begin learning about other investments as a result of a nominal stock grant.

When we founded the Bank 46 years ago much of the capital that was raised
outside of Mrs. Banuelos was "onesy, twosy" stock purchases by the community
similar to a credit union. For this element, we are thinking of raising
funds through Pan American Bank's foundation and then using that money
raised to provide the stock grants.

Questions I have are many. For example, if you were a funder such as a
corporation or foundation, would you find this as something to contribute
towards? Legal issues you can think of (of course legal counsel will be
consulted but if the response here followed by research indicates the issues
are too onerous, why even engage expensive securities counsel). Other
challenges?

I'd like to assign the initial research to one of our interns. Your
feedback would be tremendous in helping shape the direction of exploratory
work.

I'd love to know if others have done this that you are aware of or if you
have other ideas.

Our mission is to transform and empower the communities we serve. I think
this can be a powerful way to do that. This will go a long way in creating
the next generation as financially literate asset builders while
strengthening a local institution unlike any other in Los Angeles.

Let me know your ideas.

Thanks so much.

Jesse

--
Jesse Torres
President and CEO
Pan American Bank
3626 East First Street
Los Angeles, CA 90063
JTorres@PanAmericanBank.us
(323) 264-3310
(323) 264-8057 fax
"California's Oldest Latino-Owned Bank"


"Small opportunities are often the beginning of great enterprises."
Demosthenes

Let's connect!
http://www.linkedin.com/in/jessetorres ('http://www.linkedin.com/in/jessetorres')

Pan American Bank Blog
http://PanAmericanBank.blogspot.com/ ('http://PanAmericanBank.blogspot.com/') <http://panamericanbank.blogspot.com/> ('http://panamericanbank.blogspot.com/>')

Tweet Me
http://www.twitter.com/PanAmericanBank ('http://www.twitter.com/PanAmericanBank')

[Community Development Banking List]

Original message from: raulahinojosa@gmail.com

Hi Jesse,

This is Raul Hinojosa at UCLA - good to hear from you. I asked
some colleagues of mine about your question and got the following response.
Let's get together and talk about other options and strategies. -- Raul

I’ll try to pass along some thoughts on his questions, albeit limited only
to what I have seen from the bank IPO world. If I’m understanding Mr.
Torres correctly, he’d like to raise funds through the bank’s foundation to
purchase shares in the bank, and then grant them to the community youth.
I’m assuming he means that the foundation would participate in the equity
raise for the bank in 2011 using the fund’s raised.



First off, I don’t have any incite to his first question on whether or not a
funder would find this “worthy” to contribute towards. It does, however,
sound like an interesting educational tool to me (I still remember when I
was around 8 and my Dad offered my brother and I for Christmas to either buy
us a new TV or stock in Wang. Being kids, we opted for the TV!). Related
to that, I have no insight into the legal ramifications and tax law
implications of doing this.



The one thing I will add is that 1) Foundations of course can hold stock and
2) there are many banks that do something similar (but different). When a
savings and loan (thrift) goes public (which is where I do have some
expertise), often times stock is directly granted to a charitable foundation
at the bank. This is a common practice in fact. These are straight out
stock grants, generally around 4% of the total offering, that are given free
and clear to the bank’s Foundation. There is no cost to the Foundation. In
other words, if a bank were issuing 100,000 shares in their IPO, the public
would purchase 96,000 shares (and the bank would receive proceeds from those
shares purchased of course), and 4,000 shares would be issued (at no cost)
to the Foundation. Note, though, that this does dilute the initial
investors. As far as I know, the Foundation would then from time to time
liquidate their position to raise cash to fund community initiatives and/or
use any dividends received. I’m not an expert on what they do with the
shares, so I’m not sure if they ever “grant” them out to others in any way,
as is Mr. Torres’ thought.



Here is an example (one of many) of a recent IPO of a bank with a
Foundation: Standard Financial Corporation of Pennsylvania (ticker : STND).
This is from the IPO document:



“In addition, Standard Financial Corp. intends to establish a charitable
foundation in connection with the conversion and contribute to it $200,000
in cash and a number of shares of common stock with a value equal to 3.5% of
the shares sold in the offering.”



Hope this helps.

On Tue, Nov 30, 2010 at 8:23 PM, Jesse Torres <mrjessetorres@gmail.com>wrote:

Dear Listserv Members,

I am President and CEO of the only bank headquartered in East Los Angeles.
We've been around for 46 years. We were founded in 1964 by the first Latina
U.S. Treasurer, Romana Acosta Banuelos<http://en.wikipedia.org/wiki/Romana_Acosta_Banuelos>, ('http://en.wikipedia.org/wiki/Romana_Acosta_Banuelos>,')
and our focus is serving the underserved and underbanked communities in L.A.
and Orange County. While many know about Mrs. Banuelos, few know that our
little bank in "East Los" produced a second U.S. Treasurer, Katherine
Davalos Ortega <http://en.wikipedia.org/wiki/Katherine_Davalos_Ortega>. ('http://en.wikipedia.org/wiki/Katherine_Davalos_Ortega>.')
Quite a feat for L.A. County's third smallest bank!

We are in the process of planning an equity raise for sometime in 2011.
Those of you familiar with bank stock valuations know that this is not a
great time to raise capital - particularly for community banks. But with
Basel III, Dodd-Frank and the ramp up of regulatory scrutiny of capital,
plus based on our small earning asset base, we need to finally grow up. Sad
but true.

This email is by no means a pitch (STATED OUT LOUD FOR SEC AND OTHERS!!!).
What I am trying to get is preliminary guidance on an idea we had before
engaging legal counsel (which we will do if we decide to move forward).
Here's the thought: the communities we serve are not seen as attractive due
to the lack of perceived asset building. In many cases assets are built but
in cash. These monies do not make it into the financial mainstream. In
other cases, members of our community do lack asset building skills. This
results in lack of investment by developers, etc.

In the past year we've aggressively targeted youth by providing free
savings accounts (no monthly fee, no minimum balance) and we've deposited
the first $5 in the account to get the kids started and excited about
saving. In a related deal, we partnered with Avanti Hospitals to provide
each newborn with an account - we deposit $5 and Avanti deposits $5.

The idea that we had was taking the financial empowerment concept to the
next level. When we provide financial literacy classes for our local youth
at the elementary, middle and high schools, we provide certificates for the
free accounts. In many cases we open accounts on-site. Some of our staff
thought about fundraising through our foundation and using the funds to
"grant" shares in the bank to the community youth just as we do with the
savings accounts. The idea was to empower the youth with tools that allow
them to participate in not only asset building through savings but also to
begin learning about other investments as a result of a nominal stock grant.

When we founded the Bank 46 years ago much of the capital that was raised
outside of Mrs. Banuelos was "onesy, twosy" stock purchases by the community
similar to a credit union. For this element, we are thinking of raising
funds through Pan American Bank's foundation and then using that money
raised to provide the stock grants.

Questions I have are many. For example, if you were a funder such as a
corporation or foundation, would you find this as something to contribute
towards? Legal issues you can think of (of course legal counsel will be
consulted but if the response here followed by research indicates the issues
are too onerous, why even engage expensive securities counsel). Other
challenges?

I'd like to assign the initial research to one of our interns. Your
feedback would be tremendous in helping shape the direction of exploratory
work.

I'd love to know if others have done this that you are aware of or if you
have other ideas.

Our mission is to transform and empower the communities we serve. I think
this can be a powerful way to do that. This will go a long way in creating
the next generation as financially literate asset builders while
strengthening a local institution unlike any other in Los Angeles.

Let me know your ideas.

Thanks so much.

Jesse

--
Jesse Torres
President and CEO
Pan American Bank
3626 East First Street
Los Angeles, CA 90063
JTorres@PanAmericanBank.us
(323) 264-3310
(323) 264-8057 fax
"California's Oldest Latino-Owned Bank"


"Small opportunities are often the beginning of great enterprises."
Demosthenes

Let's connect!
http://www.linkedin.com/in/jessetorres ('http://www.linkedin.com/in/jessetorres')

Pan American Bank Blog
http://PanAmericanBank.blogspot.com/<http://panamericanbank.blogspot.com/> ('http://PanAmericanBank.blogspot.com/<http://panamericanbank.blogspot.com/>')

Tweet Me
http://www.twitter.com/PanAmericanBank ('http://www.twitter.com/PanAmericanBank')

CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')




--
Dr. Raul Hinojosa
Founding Director
UCLA NAID Center
hinojosa@ucla.edu
Chairman and CEO SF Global
rhinojosa@sf-global.com
mobile: +310 415 8236