BBoC and FSB to merge: more deals within banking community are possible. (B.E. 100s).

Boston Bank of Commerce (BBoC; No. 6 on the BE BANKS list with $262 million in assets) signed a definitive agreement to acquire Los Angeles-based Family Savings Bank (FSB; No. 9 on the BE BANKS list with $197 million in assets) in a cash transaction. Further terms of the agreement were not disclosed. Upon completion of the deal, BBoC will have combined assets of $460 million, potentially surpassing the nation's largest black-owned bank, Carver Federal Savings Bank, with assets of $449.5 million.

This announcement comes hot on the heels of another deal within the African American banking community. Atlanta's Citizens Trust Bank recently inked an agreement to acquire Birmingham's CFS Bancshares Inc. (See Newspoints, September 2002.) Though Kevin Cohee, chairman and CEO of BBoC, says the Citizens Trust merger did not influence him to seek a deal of his own, both pending transactions are propelled by a consolidation trend that is belatedly engaging African American-owned banks. Merger mania within the publicly traded thrifts occurred in the late 1990s.

Basketball legend Earvin "Magic" Johnson, a BBoC shareholder, had long advocated combining Los Angeles-based FSB, Founders National Bank, and Broadway Federal. Johnson, music industry executive Jheryl Busby, and entertainer Janet Jackson own over 80% of BBoC's voting stock.

The merger opportunity arose in August 2001 when FSB's controlling shareholder, Watts Health Foundation, ran into financial trouble. The HMO, behind in paying claims, was seized by state regulators and ordered to divest FSB. To preserve minority ownership of the thrift institution, Congresswoman Maxine Waters (D-CA) and the community's other political, religious, and business leaders "encouraged BBoC to participate in a process that ultimately concluded in the merging with Family," says Cohee.

Additional mergers within the black banking community are possible. Rumors are aloft about a commercial bank acquiring Dryades Savings Bank a New Orleans thrift institution. According to Dr. Bernard Anderson, professor of management and economics at The Wharton School of the University of Pennsylvania and a member of the BLACK ENTERPRISE Board of Economists, another bank ripe for a merger is South Shore Bank, a Chicago community development bank.

The main driver for these mergers is boosting the bottom line. "These kinds of financial institutions are just not going to be profitable if they remain as small as they are," says Anderson. Industry watchers expect to see more deals announced. "I think you're probably going to have people thinking about what other combinations make sense," says Dr. Marcus Alexis, professor of economics and management at Northwestern University, and also a member of the BLACK ENTERPRISE Board of Economists.

The deal makes sense for BBoC experts say. FSB is a strong originator of loans and real estate lending that totaled some $60 million to $70 million in the past year. The merger will also help BBoC with its community lending agenda by enabling the institution to extend its reach nationwide. It should open a broader field for accumulating deposits, and a larger capital base will enable BBoC to absorb larger risks, thus increasing lending, and meeting regulatory requirements for offering an expanded range of financial services.

Additionally, operating in a broader territory will spread risk over a wider geographic region. Loans will be able to be made in several different cities that have varying economic prospects and that will bring different rates of return on investments. "You have a larger marketplace, you spread the risk across these areas, and you increase the value of the shares. That is what has happened in every case in which a bank merger has happened. Over time the value of the shares goes up," says Anderson.