A Central Valley firm that started out 90 years ago making loans to farm and ranch workers agreed to buy financially troubled Pan American Bank in Los Angeles in an all-stock deal, rescuing California's oldest Latino bank.
Finance and Thrift Co. in Porterville will adopt the Pan American name and move its headquarters to the one-branch office in East Los Angeles. As a first step, the merged bank will open a branch to serve working-class Latinos in the northern San Fernando Valley, said Robert Hughes, the thrift's chief executive.
The deal completes last summer's effort by 17 community banks that invested a total of $6.3 million in Pan American to ward off regulators ready to seize it. The banks and other shareholders will trade their stock for an 11% stake in the new institution.
Finance and Thrift still needs regulatory approval of the transaction, which it expects to get, and hopes to close the transaction in three to four months. It did not disclose the value of the deal.
A group of ranchers and farmers established Finance and Thrift in 1925 to make small loans to their workers.
"The first loan was for a pen of chickens," said Hughes, who will run the merged bank.
Farm hands remain the core customers, with a sprinkling of prison guards, discount-store employees and other blue-collar workers. The bank hires only bilingual customer service workers, he said, because 60% of its borrowers prefer to speak Spanish.
Hughes said he plans to offer his bank's two main types of loan — for used cars and furniture — to Latinos and lower-income consumers living in East L.A. and near Van Nuys Boulevard in the San Fernando Valley.
Since the bank's borrowers typically pay cash for all expenses, they have few or no credit accounts that typical credit reports track. Finance and Thrift, instead, has devised a computerized system to crunch alternate data, such as payments on utilities, cellphones and cable TV, to determine borrowers' creditworthiness.
Delinquencies and defaults on loans can be forgiven if the borrower has later paid off the debt. "The [lending] model regards you as pretty much golden if you have caught up," Hughes said, "because you're serious about satisfying your obligations."
In an expansion of its lending, the merged bank also plans to market commercial loans to mom-and-pop businesses unable to qualify for the Small Business Administration loans that Pan American had offered.
The data-driven lending allows the bank to profit on loans too small for conventional banks, said Robb Evans, a banking consultant who has run Pan American on a temporary basis since July.
Conventional banks "cannot profitably underwrite and book a small-business loan for $25,000," Evans said. "But it's viable to do that kind of micro-lending using this data-driven system."
Pan-American National Bank was founded in 1964 as an early experiment in multicultural banking. Its first board chairman and president was a Latino, Dr. Francisco Bravo, but the directors also included members of the historical Jewish community in Boyle Heights and the Japanese Americans who were newer arrivals to the neighborhood.
After a series of board reshufflings and a change in East L.A.'s demographics to mostly Mexican Americans, Pan American began to focus almost entirely on Latino customers in the 1970s.
It spent decades under the control of the family of Romana Acosta Bañuelos, a co-founder who was appointed by President Richard Nixon in 1971 as the first Latino treasurer of the United States.
"As a result of this merger, we will continue to foster our mission of serving low-to-moderate income families and the Hispanic community in California with an even greater array of services," said Mona A. Bañuelos, a Pan American board member and daughter of the co-founder.
By the time the Great Recession struck, Pan American already had fallen on hard times. It became so troubled that it was near seizure by regulators in July when the group of local banks stepped in with their investment.
As of the end of last year, Pan American had $38 million in loans and other assets — the same as it had 20 years ago — and $32 million in deposits. Finance and Thrift reported $124 million in assets and a total of $90 million in deposits at its five branches in Porterville, Visalia, Modesto, Fresno and Bakersfield.
Both Pan American and Finance and Thrift are community development financial institutions, set up specifically to serve lower-income customers.
Finance and Thrift also is an industrial loan company, an unusual charter that requires banks to maintain a higher capital cushion against losses. Already flush with capital, Finance and Thrift will take over Pan American's commercial-bank charter, which will free up reserves for growth.