Decision Relative to the Petition of Boston Private Financial Holdings, inc. Boston, Massachusetts to Acquire Encino State Bank, Encino, California
By the Division of Banks
Boston Private Financial Holdings, Inc. ("Boston Private Financial" or the "Petitioner"), Boston, Massachusetts has petitioned the Board of Bank Incorporation (the "Board"), pursuant to General Laws chapter 167A, sections 2 and 4, to acquire Encino State Bank ("Encino"), Encino, California. If the acquisition is approved by the Board, Encino will be merged with and into First State Bank of California ("First State Bank"), Granada Hills, California, a California-chartered banking subsidiary of Boston Private Financial. The merger transaction is subject to the jurisdiction of the California Commissioner of Financial Institutions. In the Commonwealth, Boston Private Financial is the holding company for Boston Private Bank & Trust Company ("Boston Private Bank"), Boston, Massachusetts.
As set forth in an Agreement and Plan of Merger dated June 15, 2004, the proposed acquisition would be accomplished in a series of related transactions. In the first step, a shell subsidiary of First State Bank, organized to facilitate the merger ("Acquisition Corp."), will be merged with and into Encino. Thereafter, Encino will be merged with and into First State Bank, with First State Bank as the surviving institution.
Notice of the application was published and posted as directed by the Board, thereby affording an opportunity for interested parties to submit comments. Other standard procedures for informing the public of this matter before the Board were implemented. The Board held a public hearing on the petition of Boston Private Financial on August 25, 2004. The comment period on the proposed transaction ended September 3, 2004.
Boston Private Financial is a bank holding company with three banking subsidiaries, Boston Private Bank & Trust Company ("Boston Private Bank"), Boston, Massachusetts, Borel Private Bank & Trust Company ("Borel"), San Mateo, California, and First State Bank. It also holds a number of non-bank subsidiaries. As of March 31, 2004, Boston Private Financial had approximately $2.65 billion in consolidated assets. Boston Private Bank is a Massachusetts trust company offering private banking products and services to customers located primarily in Massachusetts and New England. Borel, a California-chartered bank acquired by Boston Private Financial in 2001, provides a range of banking and trust services to customers in the San Francisco area. In addition to the main office in San Mateo, it maintains branch offices in San Francisco and Palo Alto. First State Bank, formerly the Bank of Granada Hills, which was acquired by Boston Private Financial in 2003, serves the Los Angeles area through its Granada Hills main office and a Burbank branch office. As of March 31, 2004, First State Bank had approximately $215 million in consolidated assets. With leverage, Tier 1 risk-based, and total risk-based capital ratios of 9.71%, 10.61%, and 11.86%, respectively, First State Bank is considered "well-capitalized" under the guidelines established by federal regulations.
Encino is a California-chartered bank headquartered in Encino, California. Established in 1997, it provides financial products and services to consumers and small to medium sized businesses through three banking offices located in Encino, Santa Monica, and Westlake Village. Encino's market focus is on businesses with average sales of $1 million to $10 million, on professionals such as doctors and lawyers, and on high net worth individuals. As of March 31, 2004, Encino had $181 million in consolidated assets. With leverage, Tier 1 risk-based, and total risk-based capital ratios of 6.4%, 10.1% and 10.9%, respectively, Encino is considered "well-capitalized" under the federal guidelines.
The Board's review of this transaction focuses on the applicable statutory and administrative criteria which include, among other things, whether competition among banking institutions will be unreasonably affected and whether public convenience and advantage will be promoted. In determining whether the public convenience and advantage are promoted by the proposed transaction, the Board considers, among other things, whether there has been a showing of "net new benefits." Net new benefits are defined as initial capital investments, job creation plans, consumer and business services, commitment to maintain and open branch offices within a bank's delineated local community, and such other matters as the Board may deem necessary or advisable. The Board also considers the record of performance under the Community Reinvestment Act ("CRA") of subsidiary banks involved in the transaction and any relevant public testimony or commentary submitted into the record.
Prior to approving an application under chapter 167A, the Board must have received notice from the Massachusetts Housing Partnership Fund (the "MHPF") that satisfactory arrangements have been made by the Petitioner consistent with the statute and MHPF's various affordable housing loan programs. On August 6, 2004, the Board received notice from the MHPF that arrangements satisfactory to it had been made for this transaction.
On the issue of whether banking competition will be unreasonably affected by the proposed transaction, the Board considers, but does not rely exclusively on, the guidelines used by federal authorities to review bank mergers. Essentially, these guidelines define relevant markets and measure concentration, which is considered an important indicator of competitiveness. The starting point in the federal analysis is the Herfindahl-Hirschman Index ("HHI"), an arithmetic measure of market concentration that synthesizes the distribution of market shares and the number of banks in an affected market into a single value. However, the Board's analysis of a transaction is not confined to the consideration of concentration ratios to evaluate competitive conditions; it also considers the competitive impact on a community by community basis, as well as on the overall banking structure of the Commonwealth. As the proposed transaction involves the acquisition of a bank located in another state, it will have no direct competitive impact on banking competition within the Commonwealth. With regard to the competitive impact the proposed transaction will have in the affected market, the Board has reviewed the material submitted by the Petitioner and notes that the impact will be negligible.
On the issue of whether the public convenience and advantage will be promoted by the proposed transaction, the Petitioner submits that the proposed transaction will further diversify its capital base and make it less dependent on the economic conditions of New England, thus enhancing the financial strength of Boston Private Financial and its banking subsidiaries. The Petitioner also notes that the additional capacity demands resulting from the proposed transaction, as well as an additional revenue stream, is expected to create additional jobs in Boston and California. In this regard, hearing testimony specifically referenced the fact that certain financial products and services offered by the resulting bank will be processed in Boston. Additional materials and testimony submitted by the Petitioner addressed the public convenience and advantage expected to accrue to the customers of the resulting bank. Based on the entire record in this matter, the Board's review weighs in favor of the finding that the public convenience and advantage will be promoted. The Board further concludes that the criteria for net new benefits has been established.
The Board's review of this transaction includes an assessment of the subsidiary banks' performance under the CRA. Such assessment for a state-chartered bank involves examination by Division of Bank personnel, as well as an analysis of the legitimate concerns raised by the community and the bank's response to those concerns. For other institutions, the Board reviews the descriptive rating and evaluation by the applicable federal or state bank regulatory agency. In this regard, the Board notes that in its last examination, performed by the Federal Deposit Insurance Corporation ("FDIC"), Encino received a "Satisfactory" rating. The most recent examinations of First State Bank and Borel, both performed by the FDIC, resulted in both institutions receiving a ("Satisfactory") rating. At the time of its examination, First State Bank was still operating under the name Bank of Granada Hills. In the most recent examination of Boston Private Bank, also performed by the FDIC, it received an "Outstanding" rating.
As part of its inquiry, the Board reviews the financial structure, tax consequences, and the operational aspects of the transaction. The Board has reviewed the consolidated financial statements of the parties and the details of the proposed transaction, and is satisfied with the Petitioner's capital ratios and projections. Information regarding the tax consequences of the proposed transaction was provided by Petitioner and considered by the Board. Finally, operational issues were considered, and the Board is satisfied with Petitioner's efforts to ensure the smooth transition of its systems.
The application, supporting documents, and the testimony received at the public hearing have established an extensive record on this petition, which has been reviewed pursuant to the statutory requirements and the policies of the Board. Based on this review, the Board finds that competition among banking institutions will not be unreasonably affected by the proposed transaction and that the public convenience and advantage will be promoted. The Board is satisfied with the involved banks' record of performance under the CRA, and further concludes that all other applicable statutory and administrative criteria have been met.
In accordance with the findings expressed herein and pursuant to statute, the Board hereby approves the petition and authorizes Boston Private Financial to acquire Encino State Bank, provided that the transaction is completed within one year of the date of this Decision.
| Steven L. Antonakes ___________________________ Commissioner of Banks | |
| Alan L. LeBovidge ___________________________ Commissioner of Revenue | Board |
| Timothy P. Cahill ___________________________ Treasurer and Receiver General | |
| September 29, 2004 _____________________ Date |