STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
FLORIDA ASSOCIATION OF REGISTERED ) BANK HOLDING COMPANIES, INC. )
)
Petitioner, )
)
vs. ) CASE NO. 79-1228
) DBT TRUST COMPANY OF FLORIDA, ) AND OFFICE OF THE COMPTROLLER, ) STATE OF FLORIDA, )
)
Respondent. )
) FLORIDA BANKERS ASSOCIATION, )
)
Petitioner, )
)
vs. ) CASE NO. 79-1234
) DBT TRUST COMPANY OF FLORIDA, ) AND OFFICE OF THE COMPTROLLER, ) STATE OF FLORIDA, )
)
Respondent. )
and )
) FIRST NATIONAL BANK IN PALM ) BEACH, BESSEMER TRUST COMPANY ) OF FLORIDA, THE BANK OF PALM ) BEACH AND TRUST COMPANY, FIRST ) BANK AND TRUST COMPANY OF BOCA ) RATON, FIRST NATIONAL BANK AND ) TRUST COMPANY OF RIVIERA BEACH, ) BOCA RATON NATIONAL BANK, ) ATLANTIC NATIONAL BANK OF PALM ) BEACH COUNTY, )
)
Intervenors. )
)
REPORT
A hearing was held in the above captioned matters, after due notice, at West Palm Beach, Florida, on November 1-2, and 5-8, 1979, before Thomas C. Oldham, Hearing Officer.
APPEARANCES
For Petitioners: J. Thomas Cardwell and Michael McMahon, Esquires 17th Floor, CNA Building Post Office Box 231 Orlando, Florida 32802
For Respondent John Radey, Esquire
DBT Trust Company Holland and Knight
of Florida: Post Office Drawer 810 Tallahassee, Florida 32302
For Respondent Eugene Cella and
Comptroller Franklyn J. Wollett, Esquires
of Florida: Office of the Comptroller The Capitol, Room 1302 Tallahassee, Florida 32301
For Intervenors First Bank and Trust Company
of Boca Raton, First J. Thomas Cardwell and National Bank and Trust Michael McMahon, Esquires Company of Riviera Beach 17th Floor, CNA Building and Atlantic National Post Office Box 231
Bank of West Palm Beach: Orlando, Florida 32802
For Intervenors First James G. Pressly, Jr., Esquire National Bank in Palm Gunster, Yoakley, Criser, Beach and Bessemer Stewart and Hirsey, P.A. Trust Company of First National Bank Building Florida: Palm Beach, Florida 33480
For Intervenor The Bank H. David Faust, Esquire
of Palm Beach and Trust Burns, Middleton, Farrell and Company: Faust
205 Worth Avenue
Palm Beach, Florida 33480
For Intervenor Boca Robert I. MacLaren, II, Esquire Raton National Bank: Osborne and Hankins
Post Office Drawer 40
855 South Federal Highway Suite 200
Boca Raton, Florida 33432
The purpose of the hearing was to receive evidence concerning the application of proposed DBT Trust Company of Florida for authorization to organize a trust company pursuant to Chapter 659, Florida Statutes.
The public hearing in this proceeding was preceded by prehearing conferences held on August 3 and September 17, 1979. As a result of those conferences, Petitions to intervene in this proceeding were granted to the above captioned Intervenors. Petitions for intervention filed by seventeen state financial institutions were denied because their locations were outside the primary service area of the proposed trust company.
Motions of the Petitioners and several Intervenors to consolidate these cases with four pending cases involving three similar applications in Palm Beach County were granted pursuant to Rule 28-5.07, Florida Administrative Code.
Those cases consolidated with these for the purpose of hearing were Florida Association of Registered Bank Holding Companies, Inc., vs. U.S. Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-1229; Florida Bankers Association vs. U.S. Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-1235; First National Bank in Palm Beach and Florida Bankers Association vs. Harris Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-1471; and Florida Association of Registered Bank Holding Companies, Inc. and Florida Bankers Association vs. Bankers Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-917. Motions to consolidate these cases with that involving a similar application in Miami, Florida, Florida Bankers Association vs. Manufacturers Hanover Trust Company of Florida and Office of the Comptroller, State of Florida, DOAH Case No. 79-1190, were denied for failure to meet the criteria of similarity of facts and identity of parties, as required under Rule 28-5.07, Florida Administrative Code.
Bankers Trust Company of Florida, Case No. 79-917 did not participate at the hearing pursuant to Order of the Comptroller of Florida, dated October 24, 1979, which granted the Applicant's motion to hold its application in abeyance.
A Prehearing Order was issued on October 5, 1979, which denied discovery concerning the profitability of operations of the Applicant's parent corporation or affiliates in states other than Florida for the reason that such information would not reasonably lead to the discovery of relevant and admissible evidence in this proceeding. Various other discovery motions pending at the commencement of the hearing were rendered moot either by intervening compliance by the parties or failure to pursue the motions at that time.
A motion of Petitioner and certain Intervenors for continuance of the hearing, dated October 10, 1979, predicated on the pendency of judicial proceedings in the Supreme Court of the United States concerning the constitutionality of Section 659.141, Florida Statutes, was denied by Order dated October 23, 1979.
A Motion for Continuance of the hearing filed by the Bank of Palm Beach and Trust Company on the general ground that insufficient time or information had been developed from prior discovery requests, and that the hearing was premature in view of current judicial and legislative events was denied as not constituting sufficient cause for continuance.
It is considered that the possibility of legislative or judicial developments in the area under consideration are speculative and contingent, and that adequate time was allowed he parties to permit discovery sufficient for preparation for hearing.
The Applicant properly published Notice of Hearing in the Boca Raton News, Boca Raton, Florida, on October 17, 1979, within the time period specified in Rule 3C-9.05, Florida Administrative Code (Exhibit 7).
Thirty-five exhibits were offered in evidence during the consolidated hearing. All were received in evidence except for Exhibits 23, 24, 33 and 34. Exhibit 23 was the text of testimony by various representatives of Petitioner Florida Banking Association before a Congressional1 Subcommittee on October 16, 1979. Exhibit 24 purported to be excerpts of testimony received by the same Congressional Subcommittee on that date. Exhibit 33 was a map of Boca Raton,
Florida and vicinity, and Exhibit 34 was a purported application of Proposed Security Trust Company of Palm Beach to the Comptroller of Florida. All these documents were hearsay in nature and the subject of objections by opposing parties. Exhibits 23 and 24 were rejected by the Hearing Officer as irrelevant to matters in issue in this state proceeding. Exhibit 33 purported to delineate affluent areas thereon, but was insufficiently supported by testimonial evidence. Exhibit 34 was rejected as irrelevant to this proceeding. Those exhibits used as a basis for a finding of fact herein are noted at the end of each numbered finding.
No member of the general public requested an opportunity to present oral or written communications at the hearing.
The Applicant filed a posthearing Proposed Hearing Officer's Report, and posthearing submissions were also filed by the Florida Bankers Association, and First National Bank in Palm Beach and Bessemer Trust Company of Florida. The latter submissions are predominantly conclusory in nature and therefore portions of the same should be considered by the Comptroller in any Final Order rendered in this proceeding. The proposed Findings of Fact contained in the foregoing submissions have been fully considered by the Hearing Officer and those portions thereof which have not been incorporated into the Findings of Fact herein are considered to be either irrelevant, unnecessary, or unwarranted by the evidence presented at the hearing.
Respondent Comptroller submitted a statement of current policy of the Division of Banking, Department of Banking and Finance, as to state trust companies, together with copies of final orders issued by the Comptroller in cases involving applications of First Family Trust Company, Security Trust Company of Palm Beach, Florida, Security Trust Company of Naples, and American Savings Trust, Inc., for authority to organize proposed new trust companies.
These documents were received in evidence without objection. The Comptroller's incipient policy was not controverted during the course of the hearing. (Exhibit 5) The Comptroller filed a posthearing copy of the Comptroller's Final Order in the case of Security Trust Company of Palm Beach, dated November 19, 1979, and requested that it be incorporated as a supplemental submission to Exhibit 5. It is considered inappropriate to include the requested document in the record of this proceeding, absent stipulation of all parties, since it was entered after the conclusion of the hearing. (Hearing Officer's Composite Exhibit 1)
FINDINGS OF FACT
On May 14, 1979, the Division of Banking, Department of Banking and Finance, received an application submitted by Erwin Springman, B. James Theodoroff, Henry S. Toland, Wilma H. Wackerle, and John B. Whitledge (hereinafter Applicant), pursuant to Section 650.02, Florida Statutes, for authority to organize a corporation for the purpose of conducting a trust business to be located at 5550 Glades Road, Boca Raton, Florida. The proposed trust company will be named "DBT Trust Company of Florida." It will he a wholly owned subsidiary of Detroitbank Corporation, Detroit, Michigan. Detroitbank Corporation is also the parent of Detroit Bank and Trust Company, Detroit, Michigan. (Testimony of Whitledge, Exhibit 9)
Each organizer of the proposed trust company will be director and three of the five individuals will serve as trust committee. All of the proposed directors have had extensive experience in the trust business. All of the proposed directors are United States citizens and there is no evidence that any
has been convicted of a criminal offense. Three of the five proposed directors have resided in Florida for at least one year and the proposed president and chief executive officer intends to become a Florida resident in the event application is approved. (Testimony of Whitledge, Exhibit 9)
The proposed capital structure of the trust company will be two million dollars, allocated $1,600,000 to surplus, $300,000 paid-up capital, and $100,000 undivided profits. (Testimony of Lewis, Exhibit 9)
The proposed site for the trust company is in the Arvida Financial Plaza at 5550 Glades Road, Boca Raton, Florida. Applicant intends to lease approximately 2700 square feet of office space in a building which is presently under construction, at an annual rental of $29,221.50 plus a perportionate share of utilities and janitorial service. The proposed lease includes an option to rent for a term of eight years. Glades Road is a major east/west road in the southern portion of Palm Beach County and connects to north/south arteries such as the Florida Turnpike, Interstate Highway 95 and U.S. Highway 441. (Testimony of Whitledge, Exhibit 9, 32)
The Applicant's purpose in seeking to establish a trust company in Florida is to provide better service to a substantial portion of some 260 present customers of Detroit Bank and Trust Company who permanently reside in the State of Florida, and to prevent the loss of these customers to competing individuals or institutions. The Applicant also intends to seek new trust business in its designated Palm Beach County primary service area which, in its view, constitutes an area that has great potential for significant growth as a trust market.
The Applicant proposes to offer all services normally associated with a non-deposit trust company at fees comparable to those being charged by existing trust institutions in the primary service area. These services include custodial, agency, trustee under agreement, probate, trustee under will, guardian, employee benefit, and corporate trust.
The proposed trust company will employ four officers and two staff personnel for the initial three years of operation. Support services utilizing the staff and systems of the Detroit Bank and Trust Company will be obtained by the Applicant under contractual arrangements at basically the same fees as those charged to correspondent banks for similar services. These services will include investment research and advisory services, and accounting and record keeping services. Personnel employed by the proposed trust company will solicit new accounts, maintain various account records, and provide independent investment and estate planning advice and services. (Testimony of Whitledge, Lewis, Exhibit 9)
The Applicant's designated primary service area of Palm Beach County, Florida, is the smallest area from which the Applicant anticipates obtaining 75 percent or more of its prospective business, including the transfer of existing accounts of customers of Detroit Bank and Trust Company who reside in the primary service area. (Testimony of Whitledge, Ford, Exhibit 9)
The population of Palm Beach County was 348,993 in 1970 and it is estimated that the population will have increased to over 573,000 in 1980. During the period 1970-1977, the population of Palm Beach County increased almost 45 percent while the population of Florida as a whole increased only 28.4 percent. During the 1970-1980 period, Palm Beach County is expected to show a
63 percent increase in population as compared to a 40 percent projected increase
for the State during that period. A large percentage of the county's increased population is due to migration of individuals moving into the area rather than a natural increase of the population. A substantial number of immigrants are from the State of Michigan.
In 1970, those persons 65 years of age and older in the primary service area constituted approximately 17 percent of the population and are expected to increase to 22 percent of of the population by 1981. Those 45 years of age and older in 1970 constituted approximately 40 percent of the total population and are expected to account for about 44 percent by 1981.
In 1969, the median family income in the PSA was $9,112 and is expected to increase to $20,642 by 1981. (Testimony of Ford, Exhibits 9, 17)
The application reflects that trust assets administered by financial institutions in Palm Beach County increased from 359 million dollars in 1969 to almost 1.4 billion dollars by the end of 1978. At that time, there were sixteen trust operations located in the county, including fifteen bank trust departments and one non-deposit trust company. About 40 percent of these assets were administered by the First National Bank in Palm Beach in 1979. Most of the banks providing trust services in Palm Beach County are affiliated with holding companies. In 1979, five of eight pending applicants for trust companies in Palm Beach County showed an existing volume of trust assets under management in the county of almost $400,000,000.
Although Palm Beach County has been experiencing substantial population growth which is expected to continue into the future, not all of the affluent areas of the county are susceptible to continuing growth. The Town of Palm Beach is limited in growth possibilities and has increased by only 2,539 in the last ten years. However, the Boca Raton, Delray Beach, Palm Beach Gardens, and Jupiter-Tequesta areas are expected to have significant population growth in the future. (Testimony of Ford, Beck, Exhibits 9, 17, 26)
The factors determining the extent of demand for trust services in particular areas include considerations of population and age distribution, personal wealth and income levels, and income growth. There is a higher potential for increased trust business in a rapidly growing area. The presence of a substantial segment of older population is significant because wealth is normally concentrated in that portion of the population and they constitute the primary customer source for fiduciary services. The primary service area of Palm Beach County shows that it constitutes a substantial market for trust services due to rapid population growth, together with age and wealth characteristics of its population. However, there exist other competitors in the field, such as attorneys, accountants, insurance companies, financial advisors, and relatives or friends of potential customers. The amount and extent of this portion of the market is large, but unknown as to amount. (Testimony of Ford, Beck Exhibits 9, 15-17, 26)
The national trust business is highly concentrated in a relatively small number of large banks, primarily in the eastern part of the nation. The largest fifty banks control almost two-thirds of the nation's trust assets and the largest thirty banks administer about as many trust assets as all other banks and trust companies. The market value of trust and agency assets under supervision by Detroit Bank and Trust Company at the end of 1970 exceeded four billion dollars. The 1978 annual report of Detroitbank Corporation reflects that with equity capital of $285,000,000 and assets exceeding four and one-half billion dollars, the corporation was among the leading bank holding companies in
the nation. The Detroit Bank and Trust Company has 260 trust accounts of Florida residents totalling approximately $109,000,000 in assets. These accounts average $400,000 in amount. Accounts with customers permanently residing in Palm Beach County are in the approximate amount of $24,000,000. Of that amount, over $4,000,000 in accounts is located in the greater Boca Raton area. During the first three years of operations, the Applicant anticipates that 87 of the "Florida accounts will be "transferred" from Detroit Bank and Trust Company. About half of these accounts are located in Palm Beach County. It is estimated that during the first year 40 accounts will be transferred to the Applicant with an asset value of approximately $40,000,000. The 87 accounts proposed to be transferred include 70 inter vivos trusts, 5 agency accounts, and
12 testamentary trusts. Although most of the Florida customers have been contacted informally by the Applicant and have indicated a preference to have their accounts administered in Florida, consent agreements to such transfers have not been effected as yet. Some of the accounts would require judicial approval of any such transfer.
Assuming that it will be successful in achieving transfer of the accounts, together with a modest amount of new business, and interest on securities, the Applicant projects gross income of $222,040 during the first year of operations, and $400,531 and $546,510 during the second and third years, respectively. After deduction of estimated expenses and provision for income taxes, a loss of $72,755 is projected for the first year, and net income of
$22,994 and $85,862 for the second and third years. (Testimony of Whitledge, Lewis, Theodoroff, Exhibits 9-10, 14)
The Applicant anticipates that it will secure new business, other than the transferred accounts, from (a) current customers of Detroit Bank and Trust Company who migrate to Florida, (b) additional services sold to transferred customers, and (c) new customers obtained in the primary service area. Detroit Bank and Trust Company presently has 240 accounts totally 120 million dollars in assets of Michigan residents who live on a part-time seasonal basis in Florida. It is anticipated that some of these customers will eventually migrate to Florida and elect to maintain their trust relationship with the Applicant. The Applicant projects that during its first three years of operations it will generate about $12,000,000 in business from customers previously unassociated with Detroit Bank and Trust Company. The Applicant's major marketing efforts will be directed to existing will and trust appointment customers of Detroit Bank and Trust Company. It will solicit new business through publications, seminars, and advertising. The Applicant believes that its presence in Palm Beach County will stimulate the trust market and increase awareness of the availability of services which can he rendered by trust institutions. The Applicant intends to solicit and administer small accounts under $100,000 and not restrict its operations to the larger, more profitable accounts. It does not expect to generate a significant amount of new business from present customers of existing trust institutions in the primary service area. Trust customers usually remain with the institution which carries its account if acceptable services are being rendered. (Testimony of Whitledge, Beck, LeMaistre, Exhibits 9-10, 14, 21)
Although trust departments of banks do not usually generate large profits through trust activities, three of four trust representatives of banks which intervened in this proceeding have experienced substantial growth in trust business over the past few years. The fourth representative testified that the trust department had been "marginally" profitable in recent years. All of these individuals are concerned that if a number of new competing trust companies are permitted to operate in Palm Beach County, such entry would result in the loss
of larger, more profitable accounts which tend to subsidize the smaller ones because the services rendered in each instance are virtually the same. One representative testified that an account has to be at least $250,000 to be profitable and another testified that any account less than $100,000 would not usually be profitable, dependent upon the services required to administer the account. All agreed that there is aggressive competition among trust institutions in Palm Beach County and that the influx of numerous new trust companies would affect their ability to secure large accounts and consequently affect profits. Smaller accounts of trust departments normally are with customers of the commercial banking department whom the banks feel obliged to accommodate with trust services. Profits, of course, are generated from these customers from their use of other services of the bank. If the large accounts of the banks are not replenished as the current ones expire, it will be difficult to provide the same services for the smaller accounts or to maintain them at all. Large accounts have been "leveling out" in recent years and most of the high wealth individuals migrating to Palm Beach County already have existing trust relationships. Additionally, some of the affluent communities in the county lack room for expansion and many of the wealthy individuals tend to locate in areas to the north of Palm Beach County. There is little fear by these banks that their present customers will affiliate with new institutions, but they believe that their ability to secure new customers from those with either no current customer relationship or those with current accounts with out- of-state institutions will be impaired. (Testimony of LeMaistre (Deposition- Exhibit 21), Kline, Northcraft, Myers, Southall, Beck)
The impact of the Applicant and other new trust companies entering the Palm Beach County trust market is conjectural and speculative at this time. Although exact figures cannot be obtained as to the extent of the existing trust market in the county or as to the extent of "penetration" of such a market, various studies show that there is a market of approximately three billion dollars in trust assets and that it has been penetrated by both local and out- of-state institutions at least to the extent of 30 to 50 percent. Entry of new institutions into the market can benefit the public by providing new services and making the public more aware of the availability and extent of such services. The Applicant plans to generate most of its new business from the southern half of Palm Beach County, primarily in the City of Boca Raton. Representatives of the Applicant's two principal competitors in that area, First Bank and Trust Company of Boca Raton and Boca Raton National Bank, both anticipate that although the entry of the Applicant in that area will produce a higher level of competition, their banks nevertheless would be able to compete and obtain large accounts in a growing trust market. (Testimony of Ford, Beck, LeMaistre, Northcraft, Kline, Exhibits 15-17, 21)
A telephone survey was made by a market research firm in October, 1979, that sought to determine the extent of the market for fiduciary services in the primary service area. The questions in the survey included such matters as length of residence in the area, age of the person called, current utilization of trust or other financial services, types and amounts of potential trust accounts, and whether those called would establish new trust accounts or change existing ones to either a "major out-of-state institution" which opened a trust office in the area, or a "Florida based institution." The survey included responses of 219 individuals in Palm Beach County. The results of the survey are not found to be a reliable or representative assessment of the potential trust market in the primary service area. Limitations on the geographical areas covered by the survey, elimination of certain individuals as potential users of trust services, and the misleading use of certain terms in the questions are the
primary reasons for the above finding. (Testimony of McAleer, Legg, Ford, Exhibit 27)
This Report is submitted pursuant to Section 120.57(1)(b)(12), Florida Statutes, and Rule 3C-9.11, Florida Administrative Code.
ISSUED this 8th day of January, 1980, in Tallahassee, Florida.
THOMAS C. OLDHAM
Hearing Officer
Division of Administrative Hearings The Collins Building
Tallahassee, Florida 32301
(904) 488-9675
COPIES FURNISHED:
Stephen E. Day Julie H. Kuntz
Attorneys for Respondent Bankers Trust Company of Florida
Mathews, Osborne, Ehrlich, McNatt, Gobelman and Cobb
1500 American Heritage Life Building Jacksonville, Florida 32202
(904)354-0624
John A. Jones Bruce Roberson
Attorneys for DBT Trust Company of Florida
Case No. 79-1228; 79-1234
Holland and Knight
610 North Florida Avenue Tampa, Florida 33601
(813)223-1621
John Radey
Holland and Knight Post Office Drawer 810
Tallahassee, Florida 32302
J. Thomas Cardwell
Attorney for Petitioner Florida Bankers Association and Intervenor Atlantic National Bank of Palm Beach County
Akerman, Senterfit and Eidson Post Office Box 231
Orlando, Florida 32802
305)843-7860
Bruce Culpepper
Attorney for Petitioner Florida Association of Registered Bank Holding Companies, Inc.
350 East College Avenue Tallahassee, Florida 32301 (904)222-6071
James G. Pressly, Jr.
Attorney for Intervenor First National Bank in Palm Beach
Attorney for Intervenor Bessemer Trust Company of Florida
Gunster, Yoakley, Criser, Stewart and Hirsey, P.A. First National Bank Building
Palm Beach, Florida 33480 (305)655-1980
H. David Faust
Attorney for Intervenor Bank of Palm Beach and Trust Company
Attorney for Intervenor First Bank and Trust Company of Boca Raton
Burns, Middleton, Farrell and Faust
205 Worth Avenue
Palm Beach, Florida 33480 (305) 655-5311
Robert I. MacLaren, II
Attorney for Intervenor Boca Raton National Bank Osborne and Hankins
Post Office Drawer 40
855 South Federal Highway, Suite 200 Boca Raton, Florida 33432
(305) 395-1000
Ralph J. Blank, Jr.
Attorney for Intervenor First National Bank and Trust Company of Riviera Beach
Blank, Will and Benn Post Office Pox 2100
West Palm Beach, Florida 33402 (305) 832-2889
John C. H. Miller, Jr, Attorney for All Intervenors Post Office Box 46
Mobile, Alabama 36601
(205) 432-1414
Eugene Cella and Franklyn J. Wollett Attorneys for Respondent Office of the
Comptroller
The Capitol, Room 1302 Tallahassee, Florida 32301
(904) 488-9896
Phillip G. Newcomm, Bowman Brown, and Arnold L. Berman
Attorneys for Respondent, U.S. Trust Company of Florida
1000 Southeast First National Bank Building Miami, Florida 33131
(305) 358-6300
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE
DIVISION OF BANKING
FLORIDA ASSOCIATION OF REGISTERED BANK HOLDING COMPANIES, INC.
Petitioner,
vs. CASE NO. 79-1228
DBT TRUST COMPANY OF FLORIDA, and OFFICE OF THE COMPTROLLER, STATE OF FLORIDA,
Respondents.
/ FLORIDA BANKERS ASSOCIATION,
Petitioner,
vs. CASE NO. 79-1234
DBT TRUST COMPANY OF FLORIDA, and OFFICE OF THE COMPTROLLER, STATE OF FLORIDA,
Respondents,
and
FIRST NATIONAL BANK IN PALM BEACH, BESSEMER TRUST COMPANY OF FLORIDA, THE BANK OF PALM BEACH AND TRUST COMPANY, FIRST BANK TRUST
COMPANY OF BOCA RATON, FIRST NATIONAL BANK AND TRUST OF RIVIERA BEACH, BOCA RATON NATIONAL BANK, ATLANTIC NATIONAL BANK OF PALM BEACH COUNTY,
Intervenors.
/
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL ORDER
On May 14, 1979, the Division of Banking, Department of Banking and Finance (hereinafter Department) received an application submitted by five individuals, pursuant to Section 659.02, Florida Statutes (1979), for authority to organize a corporation for the purpose of conducting a trust business in Boca Raton, Florida. Petitioner, Florida Bankers Association, (hereinafter FBA), and Florida Association of Registered Bank Holding Companies, Inc., timely requested a public hearing on the application after receipt of the application was properly noticed in the Florida Administrative Weekly on May 18, 1979.
The public hearing in this proceeding was preceded by prehearing conferences held on August 3 and September 17, 1979. As a result of those conferences, petitions to intervene in this proceeding were granted to the above-captioned Intervenors. Petitions for intervention filed by seventeen state financial institutions were denied because their locations were outside the primary service area of tide proposed trust company.
Motions of the Petitioner and several Intervenors to consolidate these cases with four pending cases involving three similar applications in Palm Beach County were granted pursuant to Rule 28-5.07, Florida Administrative Code. Those cases consolidated with these for the purpose of hearing were Florida Association of Registered Bank Holding Companies, Inc., vs. DBT Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-1228; Florida Bankers Association vs. DBT Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-1234; First National Bank in Palm Beach and Florida Bankers Association vs. Harris Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-1471; and Florida Association of Registered Bank Holding Companies, Inc. and Florida Bankers Association vs. Bankers Trust Company of Florida and Office of the Comptroller, DOAH Case No. 79-917. Motions to consolidate these cases with that involving a similar application in Miami, Florida, Florida Bankers Association vs. Manufacturers Hanover Trust Company of Florida and Office of the Comptroller, State of Florida, DOAH Case No. 79-1190, was denied for failure to meet the criteria of similarity of facts and identity of parties, as required under Rule 28-5.07, Florida Administrative Code.
After publication of notice of hearing in the Boca Raton News, Boca Raton, Florida, on October 17, 1979, within the time period specified in Rule 3C-9.05, Florida Administrative Code, (Exhibit 1), this matter came on for hearing in West Palm Beach, Florida, before the Division of Administrative Hearings, by its
duly designated Hearing Officer, Thomas C. Oldham, on November 1-2 and 5-8, 1979. At the hearing, the parties were represented by counsel as follows:
APPEARANCES
For Petitioners: J. Thomas Cardwell, Esquire
Michael McMahon, Esquire 17th Floor, CNA Building Post Office Box 231 Orlando, Florida 32302
For Respondent John Radey, Esquire
DBT Trust Company Holland and Knight
of Florida: Post Office Drawer 810 Tallahassee, Florida 32302
For Respondent Eugene Cella, Esquire Comptroller of Florida: Franklyn J. Wollett, Esquire
Office of the Comptroller The Capitol
Tallahassee, Florida 32301
For Intervenors First Bank and Trust Company
of Boca Raton, First J. Thomas Cardwell, Esquire National Bank and Trust Michael McMahon, Esquire Company of Riviera Beach 17th Floor, CNA Building and Atlantic National Post Office Box 231
Bank of West Palm Beach: Orlando, Florida 32002
For Intervenors First James G. Pressly, Jr., Esquire National Bank in Palm Gunster, Yoakley, Criser, Beach and Bessemer Stewart and Hirsey, P. A. Trust Company of First National Bank Building Florida: Palm Beach, Florida 33480
For Intervenor The Bank H. David Faust, Esquire
of Palm Beach and Burns, Middleton, Farrell & Faust Trust Company: 205 Worth Avenue
Palm Beach, Florida 33480
For Intervenor Boca Robert I. MacLaren, II, Esquire Raton National Bank: Osborne and Hankins
Post Office Drawer 40
855 South Federal Highway Suite 200
Boca Raton, Florida 33432
Bankers Trust Company of Florida, Case No. 79-917, did not participate at the hearing pursuant to Order of the Comptroller of Florida, dated October 24, 1979, which granted the Bankers Trust motion to hold its application in abeyance.
A Prehearing Order was issued on October 5, 1979, which denied discovery concerning the profitability of operations of the Applicant's parent corporation or affiliates in states other than Florida for the reason that such information
would not reasonably lead to the discovery of relevant and admissible evidence in this proceeding. Various other discovery motions pending at the commencement of the hearing were rendered moot either by intervening compliance by the parties or failure to pursue the motions at that time.
A motion of Petitioner and certain Intervenors for continuance of the hearing, dated October 10, 1979, predicated on the pendency of judicial proceedings in the Supreme Court of the United States concerning the constitutionality of Section 659.141, Florida Statutes, Was denied by Order dated October 23, 1979.
A Motion for Continuance of the hearing filed by the Bank of Palm Beach and Trust Company on the general ground that insufficient time or information had been developed from prior discovery requests, and that the hearing was premature in view of current judicial and legislative events was denied as not constituting sufficient cause for continuance.
The Hearing Officer considered that the possibility of legislative or judicial developments in the area under consideration is speculative and contingent, and that adequate time was allowed the parties to permit discovery sufficient for preparation for hearing.
The purpose of the hearing was to receive evidence concerning the application of proposed DBT Trust Company of Florida for authorization to organize a trust company pursuant to Chapter 659, Florida Statutes.
Thirty-five exhibits were offered in evidence during the consolidated hearing. All were received in evidence except for Exhibits 23, 24, 33, and 34. Exhibit 23 was the text of testimony by various representatives of Petitioner Florida Bankers Association before a Congressional Subcommittee on October 16, 1979. Exhibit 24 purported to be excerpts of testimony received by the same Congressional Subcommittee on that date. Exhibit 33 was a map of Boca Raton, Florida and vicinity, and Exhibit 34 was a purported application of proposed Security Trust Company of Palm Beach to the Comptroller of Florida. All these documents were hearsay in nature and the subject of the objections by opposing parties. Exhibits 23 and 24 were rejected by the Hearing Officer as irrelevant to matters in issue in this state proceeding. Exhibit 33 purported to delineate affluent areas thereon, but was insufficiently supported by testimonial evidence. Exhibit 34 was rejected as irrelevant to this proceeding. Those exhibits used as a basis for a finding of fact herein are noted at the end of each numbered finding.
No member of the general public requested an opportunity to present oral or written communications at the hearing.
The Applicant filed a post-hearing Proposed Hearing Officer's Report, and post-hearing submissions were also filed by the Florida Bankers Association and First National Bank in Palm Beach and Bessemer Trust Company of Florida. The latter submissions are predominantly conclusory in nature and therefore portions of the same shall be considered by the Comptroller at the conclusion of this Final Order. The proposed Findings of Fact contained in the foregoing submissions have been fully considered by the Hearing Officer and those Portions thereof which have not been incorporated into the Findings of Fact herein were considered to be either irrelevant, unnecessary, or unwarranted by the evidence presented at the hearing.
Respondent Comptroller submitted a statement of current policy of the Division of Banking, Department of Banking and Finance, as to state trust companies, together with copies of final orders issued by the Comptroller in cases involving applications of First Family Trust Company, Security Trust Company of Palm Beach, Florida, Security Trust Company of Naples, and American Savings Trust, Inc., for authority to organize proposed new trust companies.
These documents were received in evidence without objection. The Comptroller's incipient policy was not controverted during the course of the hearing. (Exhibit
5) The Comptroller filed a post-hearing copy of the Comptroller's Final Order in the case of Security Trust Company of Palm Beach, dated November 19, 1979, and requested that it be incorporated as a supplemental submission to Exhibit 5. The Hearing Officer considered it inappropriate to include the requested document in the record of this proceeding, absent stipulation of all parties, since it was entered after the conclusion of the hearing. (Hearing Officer's Composite Exhibit 1)
The Report of the Hearing Officer was submitted to the Comptroller on January 8, 1980.
Preliminary to a discussion of the specific Findings of Fact concerning the particulars of the instant application, a brief summary of the history and circumstances surrounding this application by an out-of-state bank holding company may prove beneficial to under standing the time delay in rendering a final order in this matter before the Department. Numerous state and federal laws necessarily impact on, and therefore must be considered in reaching the ultimate conclusions in this case.
HISTORICAL AND LEGAL PERSPECTIVE
The proposed trust company will be a wholly-owned subsidiary of Detroitbank Corporation, Detroit, Michigan, a bank holding company whose principal subsidiary is Detroit Bank and Trust Company of Detroit, Michigan, which is primarily engaged in commercial banking and trust business in Michigan. As a subsidiary of a bank holding company the proposed trust company is subject to both federal and state legislation.
Bank holding companies that control one or more banks have been regulated under the Bank Holding Company Act of 1956, as amended, 12 U.S.C. 1841 et seq., which places fairly narrow limits on the scope of activities in which affiliated companies can engage.
Generally, 12 U.S.C. Section 1843(a)(1) prohibits a bank holding company from acquiring, directly or indirectly, ownership or control of any voting shares of any company which is not a bank. However, Section 1843(c)(8) provides that the above prohibition shall not apply to the acquisition or control of shares of any company the activities of which the Board of Governors of the Federal Reserve has determined by order or regulation to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto." The Board has determined that performing or carrying on any one or more of the functions or activities that may be performed or carried on by a trust company and acting as investment or financial advisor are such activities deemed "so closely related to banking. . . as to be a proper incident thereto." 12 C.F.R. Section 225.4(a)(4) and (5).
Of equal significance was the 1956 enactment of Section 3(d) of the Act, 12
U.S.C. Section 1842(d), which respects the intention of the McFadden Act of 1927 to maintain state law as the prevailing authority over bank expansion. As
originally enacted, Section 3(d) stated in part that no application shall be approved that would permit a bank holding company to acquire a bank located outside the company's state of primary activity, . . . unless the acquisition .
. . of a state bank by an out-of-state bank holding company is specifically authorized by statute laws of the state in which such bank is located
In 1972, the Florida Legislature enacted Section 659.141, Florida Statutes, prohibiting a bank, trust company or holding company, the operations of which were principally conducted outside of the state, from owning or controlling, directly or indirectly, a Florida trust company or an investment advisory business furnishing services to trust companies or banks in Florida. This statute was enacted by the Florida Legislature and became law March 29, 1972, and was amended by a statute that became effective December 21, 1972. Therefore, the Florida Legislature clearly expressed its intention to prohibit the acquisition or ownership of a trust company in the State of Florida by a bank, trust company or holding company operating primarily outside the state.
In October, 1973, Bankers Trust New York Corporation, a holding company, and B.T. Investment Managers, Inc., its subsidiary, filed suit against the Comptroller of the State of Florida as head of the Department of Banking and Finance, challenging the constitutionality of Section 659.141, Florida Statutes. Ultimately, on December 15, 1978, the United States District Court, Northern District of Florida held that a portion of Section 659.141, Florida Statutes, was unconstitutional as being violative of the Commerce Clause of the United States Constitution. The Comptroller was specifically enjoined from enforcing certain provisions of Section 659.141, Florida Statutes (1977)
On May 11, 1979, the Comptroller of Florida filed a direct appeal from the Final Order of the United States District Court to the United States Supreme Court. The District Court declined to stay its Order during the pending of the appeal. As a result, the Applicant filed an application to establish a trust company subsidiary.
After the conclusion of a public hearing, and the submission of the recommended Findings of Fact by the Hearing Officer, the Applicant and Department agreed to withhold the rendering of the Final Order. At that time, the Supreme Court had not rendered its decision in the B.T. Investment Managers, Inc. case. Subsequently, in March, 1980, Congress enacted Section 12 of the 1980 Financial Institutions Deregulation and Monetary Control Act, Public Law 96-221,
94 Stat. 132, imposing a moratorium on bank holding company establishment of trust company subsidiaries across state lines. The moratorium expired on October 1, 1981.
FINDINGS OF FACT
Upon consideration of the evidence adduced at the hearing, the Report of the Hearing Officer submitted January 8, 1980, is hereby adopted and incorporated herein.
On May 14, 1979, the Division of Banking, Department of Banking and Finance, received an application submitted by Erwin Springman, B. James Theodoroff, Henry S. Toland, Wilma H. Wackerle, and John B. Whitledge (hereinafter Applicant), pursuant to Section 659.02, Florida Statutes, for authority to organize a corporation for the purpose of conducting a trust business to be located at 5550 Glades Road, Boca Raton, Florida. The proposed trust company will be named "DBT Trust Company of Florida." It will be a wholly owned subsidiary of Detroitbank Corporation, Detroit, Michigan. Detroitbank
Corporation is also the parent of Detroit Bank and Trust Company, Detroit, Michigan. (Testimony of Whitledge, Exhibit 9)
Each organizer of the proposed trust company will be a director and three of the five individuals will serve as trust committee. All of the proposed directors have had extensive experience in the trust business. All of the proposed directors are United States citizens and there is no evidence that any has been convicted of a criminal offense. Three of the five proposed directors have resided in Florida for at least one year and the proposed president and chief executive officer intends to become a Florida resident in the event application is approved. (Testimony of Whitledge, Exhibit 9)
The proposed capital structure of the trust company will be two million dollars, allocated $1,600,000 to surplus, $300,000 paid-up capital, and $100,000 undivided profits. (Testimony of Lewis, Exhibit 9)
The proposed site for the trust company is in the Arvida Financial Plaza at 5550 Glades Road, Boca Raton, Florida. Applicant intends to lease approximately 2,700 square feet of office space in a building which is presently under construction, at an annual rental of $29,221.50 plus a proportionate share of utilities and janitorial service. The proposed lease includes an option to rent for a term of eight years. Glades Road is a major east/west road in the southern portion of Palm Beach County and connects to north/south arteries such as the Florida Turnpike, Interstate Highway 95 and U.S. Highway 441. (Testimony of Whitledge, Exhibit 9, 32)
The Applicant's purpose in seeking to establish a trust company in Florida is to provide better service to a substantial portion of some 260 present customers of Detroit Bank and Trust Company who permanently reside in the State of Florida, and to prevent the loss of these customers to competing individuals or institutions. The Applicant also intends to seek new trust business in its designated Palm Beach County primary service area which, in its view, constitutes an area that has great potential for significant growth as a trust market.
The Applicant proposes to offer all services normally associated with a non-deposit trust company at fees comparable to those being charged by existing trust institutions in the primary service area. These services include custodial, agency, trustee under agreement, probate, trustee under will, guardian, employee benefit, and corporate trust.
The proposed trust company will employ four officers and two staff personnel for the initial three years of operation. Support services utilizing the staff and systems of the Detroit Bank and Trust Company will be obtained by the Applicant under contractual arrangements at basically the same fees as those charged to correspondent banks for similar services. These services will include investment research and advisory services, and accounting and record keeping services. Personnel employed by the proposed trust company will solicit new accounts, maintain various account records, and provide independent investment and estate planning advice and ;services. (Testimony of Whitledge, Lewis, Exhibit 9)
The Applicant's designated primary service area of Palm Beach County, Florida, is the smallest area from which the Applicant anticipates obtaining 75 percent or more of its prospective business, including the transfer of existing accounts of customers of Detroit Bank and Trust Company who reside in the primary service area. (Testimony of Whitledge, Ford, Exhibit 9)
The population of Palm Beach County was 348,993 in 1970 and it is estimated that the population will have increased to over 573,000 in 1980. During the period 1970-1977, the population of Palm Beach County increased almost 45 percent while the population of Florida as a whole increased only 28.4 percent. During the 1970-1980 period, Palm Beach County is expected to show a 63 percent increase in population as compared to a 40 percent projected increase for the State during that period. A large percentage of the county's increased population is due to migration of individuals moving into the area rather than a natural increase of the population. A substantial number of in-migrants are from the State of Michigan.
In 1970, those persons 65 years of age and older in the primary service area constituted approximately 17 percent of the population and are expected to increase to 22 percent of the population by 1981. Those 45 years of age and older in 1970 constituted approximately 40 percent of the total population and are expected to account for about 44 percent by 1981.
In 1969, the median family income in the PSA was $9,112 and is expected to increase to $20,642 by 1981. (Testimony of Ford, Exhibits 9, 17)
The application reflects that trust assets administered by financial institutions in Palm Beach County increased from 359 million dollars in 1969 to almost 1.4 billion dollars by the end of 1978. At that time, there were sixteen trust operations located in the county, including fifteen bank trust departments and one non-deposit trust company. About 40 percent of these assets were administered by the First National Bank in Palm Beach in 1979. Most of the banks providing trust services in Palm Beach County are affiliated with holding companies. In 1979, five of eight pending applicants for trust companies in Palm Beach County showed an existing volume of trust assets under management in the county of almost $400,000,000.
Although Palm Beach County has been experiencing substantial population growth which is expected to continue into the future, not all of the affluent areas of the county are susceptible to continuing growth. The Town of Palm Beach is limited in growth possibilities and has increased by only 2,539 in the last ten years. However, the Boca Raton, Delray Beach, Palm Beach Gardens, and Jupiter-Tequesta areas are expected to have significant population growth in the future. (Testimony of Ford, Beck, Exhibits 9, 17, 26)
The factors determining the extent of demand for trust services in particular areas include considerations of population and age distribution, personal wealth and income levels, and income growth. There is a higher potential for increased trust business in a rapidly growing area. The presence of a substantial segment of older population is significant because wealth is normally concentrated in that portion of the population and they constitute the primary customer source for fiduciary services. The primary service area of Palm Beach County shows that it constitutes a substantial market for trust services due to rapid population growth, together with age and wealth characteristics of its population. However, there exist other competitors in the field, such as attorneys, accountants, insurance companies, financial advisors, and relatives or friends of potential customers. The amount and extent of this portion of the market is large, but unknown as to amount. (Testimony of Ford, Beck, Exhibits 9, 15-17, 26)
The national trust business is highly concentrated in a relatively small number of large banks, primarily in the eastern part of the nation. The
largest fifty banks control almost two-thirds of the nation's trust assets and the largest thirty banks administer about as many trust assets as all other banks and trust companies. The market value of trust and agency assets under supervision by Detroit Bank and Trust Company at the end of 1978 exceeded four billion dollars. The 1978 annual report of Detroitbank Corporation reflects that with equity capital of $285,000,000 and assets exceeding four and one-half billion dollars, the corporation was among the leading bank holding companies in the nation. The Detroit Bank and Trust Company has 260 trust accounts of Florida residents totalling approximately $109,000,000 in assets. These accounts average
$400,000 in amount. Accounts with customers permanently residing in Palm Beach County are in the approximate amount of $24,000,000. Of that amount, over
$4,000,000 in accounts is located in the greater Boca Raton area. During the first three years of operation, the Applicant anticipates that 87 of the "Florida" accounts will be "transferred" from Detroit Bank and Trust Company. About half of these accounts are located in Palm Beach County. It is estimated that during the first year 40 accounts will be transferred to the Applicant with an asset value of approximately $40,000,000. The 87 accounts proposed to be transferred include 70 inter vios trusts, 5 agency accounts, and 12 testamentary trusts. Although most of the Florida customers have been contacted informally by the Applicant and have indicated a preference to have their accounts administered in Florida, consent agreements to such transfers have not been effected as yet. Some of the accounts would require judicial approval of any such transfer.
Assuming that it will be successful in achieving transfer of the accounts, together with a modest amount of new business, and interest on securities, the Applicant projects gross income of $222,040 during the first year of operation, and $400,531 and $546,510 during the second and third years, respectively. After deduction of estimated expenses and provision for income taxes, a loss of $72,755 is projected for the first year, and net income of
$22,994 and $85,862 for thee second and third years. (Testimony of Whitledge, Lewis, Theodoroff, Exhibits 9-10, 14)
The Applicant anticipates that it will secure new business, other than the transferred accounts, from (a) current customers of Detroit Bank and Trust Company who migrate to Florida, (b) additional services sold to transferred customers, and (c) new customers obtained in the primary service area. Detroit Bank and Trust Company presently has 240 accounts totalling 120 million dollars in assets of Michigan residents who live on a part-time seasonal basis in Florida. It is anticipated that some of these customers will eventually migrate to Florida and elect to maintain their trust relationship with the Applicant. The Applicant projects that during its first three years of operation it will generate about $12,000,000 in business from customers previously unassociated with Detroit Bank and Trust Company. The Applicant.'s major marketing efforts will be directed to existing will and trust appointment customers of Detroit Bank and Trust Company. It will solicit new business through publications, seminars, and advertising. The Applicant believes that its presence in Palm Beach County will stimulate the trust market and increase awareness of the availability of services which can be rendered by trust institutions. The Applicant intends to solicit and administer small accounts under $100,000 and not restrict its operations to the larger, more profitable accounts. It does not expect to generate a significant amount of new business from present customers of existing trust institutions in the primary service area. Trust customers usually remain with the institution which carries its account if acceptable services are being rendered. (Testimony of Whitledge, Beck, LeMaistre, Exhibits 9-10, 14, 21)
Although trust departments of banks do not usually generate large profits through trust activities, three of four trust representatives of banks which intervened in this proceeding have experienced substantial growth in trust business over the past few years. The fourth representative testified that the trust department had been "marginally" profitable in recent years. All of these individuals are concerned that if a number of new competing trust companies are permitted to operate in Palm Beach County, such entry would result in the loss of larger, more profitable accounts which tend to subsidize the smaller ones because the services rendered in each instance are virtually the same. One representative testified that an account has to be at least $250,000 to be profitable and another testified that any account less than $100,000 would not usually be profitable, dependent upon the services required to administer the account. All agreed that there is aggressive competition among trust institutions in Palm Beach County and that the influx of numerous new trust companies would affect their ability to secure large accounts and consequently affect profits. Smaller accounts of trust departments normally are with customers of the commercial banking department whom the banks feel obliged to accommodate with trust services. Profits, of course, are generated from these customers from their use of other services of the bank. If the large accounts of the banks are not replenished as the current ones expire, it will be difficult to provide the same services for the smaller accounts or to maintain them at all. Large accounts have been "leveling out" in recent years and most of the high wealth individuals migrating to Palm Beach County already have existing trust relationships. Additionally, some of the affluent communities in the county lack room for expansion and many of the wealthy individuals tend to locate in areas to the north of Palm Beach County. There is little fear by these banks that their present customers will affiliate with new institutions, but they believe that their ability to secure new customers from those with either no current customer relationship or those with current accounts with out-of- state institutions will be impaired. (Testimony of LeMaistre (Deposition-Exhibit
21) Kline, Northcraft, Myers, Southall, Beck)
The impact of the Applicant and other new trust companies entering the Palm Beach County trust market is conjectural and speculative at this time. Although exact figures cannot be obtained as to the extent of the existing trust market in the county or as to the extent of "penetration" of such a market, various studies show that there is a market of approximately three billion dollars in trust assets and that it has been penetrated by both local and out- of-state institutions at least to the extent of 30 to 50 percent. Entry of new institutions into the market can benefit the public by providing new services and making the public more aware of the availability and extent of such services. The Applicant plans to generate most of its new business from the southern half of Palm Beach County, primarily in the City of Boca Raton. Representatives of the Applicant's two principal competitors in that area, First Bank and Trust Company of Boca Raton and Boca Raton National Bank, both anticipate that although the entry of the Applicant in that IL area will produce a higher level of competition, their banks nevertheless would be able to compete and obtain large accounts in a growing trust market. (Testimony of Ford, Beck, LeMaistre, Northcraft, Kline, Exhibits 15-17, 21)
A telephone survey was made by a market research firm in October, 1979, that sought to determine the extent of the market for fiduciary services in the primary service area. The questions in the survey included such matters as length of residence in the area, age of the person called, current utilization of trust or other financial services, types and amounts of potential trust accounts, and whether those called would establish new trust accounts or change existing ones to either a "major out-of-state institution" which opened a
trust office in the area, or a "Florida based institution." The survey included responses of 219 individuals in Palm Beach County. The results of the survey are not found to be a reliable or representative assessment of the potential trust market in the primary service area. Limitations on the geographical areas covered by the survey, elimination of certain individuals as potential users of trust services, and the misleading use of certain terms in the questions are the primary reasons for the above finding. (Testimony of McAleer, Legg, Ford, Exhibit 27)
CONCLUSIONS OF LAW
When an application for authority to organize and operate a new trust company is filed, it is the applicant's responsibility to prove that the statutory factors warranting the grant of authority are met. It is the Department's duty to make an investigation of the five matters listed in subsection 659.03(1), Florida Statutes, which was done in this case, and then approve or disapprove the application in its discretion. This discretion is neither absolute nor unqualified, but is instead conditioned by a consideration of the factors listed in Section 659.03(2), Florida Statutes, wherein it is provided that:
The department shall approve or disapprove the application, in its discretion, but it shall not approve such application until, in its opinion:
Public convenience and advantage will be promoted by the establishment of the proposed bank or trust company.
Local conditions assure reasonable promise of successful operation for the proposed bank or the principal office of the proposed trust company and those banks or trust companies already established in the community.
The proposed capital structure is adequate.
The proposed officers and directors have sufficient banking and trust experience, ability and standing to assure reasonable promise of successful operation.
The name of the proposed bank or trust company is not so similar as to cause confusion with the name of an existing bank.
Provision has been made for suitable banking house quarters in the area specified in the application.
If, in the opinion of the Department, any of the six foregoing requirements has not been met, and cannot be remedied by an applicant, it cannot approve the application. The Department believes that the applicant can, at least under certain circumstances, remedy the factors set forth in Section 659.03(2)(c), (d), (e) or (f), Florida Statutes, if they are found to be partially inadequate. For example, if all other statutory criteria are met, an applicant may increase capital, or make certain changes in the board of directors, or change the name, or alter their provisions for suitable trust company quarters, because these factors are within the control, at least to some degree, of the applicant. Furthermore, it is the Department's policy to allow
applicants to make certain changes to these factors if all other criteria are met; to do otherwise, would be to subject applicants to unnecessary red tape. However, it is the Department's position that there is little, if anything, that an applicant can do to alter the factors set forth in Section 659.03(2)(a) and (b), Florida Statutes, since the applicant cannot easily change the economic and demographic characteristics of an area. Therefore, if either one or both of these criteria are not met, the Comptroller cannot approve the application.
It is the opinion and conclusion of the Department that public convenience and advantage will be promoted by the establishment of the proposed trust company in this case. Therefore, the criterion in Section 659.03(2)(a), Florida Statutes, is met.
The location and services offered by existing trust company facilities in the service area are considered indicative of the competitive climate of the market. The area's general economic and demographic characteristics are also considered in evaluating this statutory criterion. Because it is recognized that the establishment of a new trust company ANYWHERE would promote convenience and advantage for at least a few people, SUBSTANTIAL convenience and advantage for a SIGNIFICANT number of people must be shown, relative to the trust market potential.
The PSA, for purposes of applications for authorization to organize and operate a trust company pursuant to Chapter 659, Florida Statutes, is the smallest area from which the proposed trust company expects to draw approximately 75 percent of its accounts. It should be drawn around a natural customer base and should not be unrealistically delineated to exclude competing trust offices or to include areas of concentrated population.
It is the nature of the trust business that a neighborhood location is not a necessity. Unlike retail banking, frequent transactions in an account do not occur, and the trust account, once established, can usually continue without modification for a period of years.
The PSA designated by the Applicant has been realistically drawn to include Palm Beach County. The proposed location in Boca Raton is easily accessible, and would conveniently serve the Applicant's existing customers in the PSA, as well as any new customers. The age and income characteristics of the PSA's population would indicate the potential for high levels of trust consciousness. These levels are determined by the socio-economic characteristics of the population and the most recent trends of utilization of fiduciary services. As noted by the Hearing Officer, the PSA shows that it constitutes a substantial market for trust services due to rapid population growth, notwithstanding the fact that not all of the affluent areas of the county are susceptible to continuing growth. Boca Raton is expected to experience significant population growth in the future. A high percentage of professional and managerial occupations in the labor force, with their high incomes would indicate a potential demand for trust services, as wealth accumulates. The Applicant's purpose in seeking to establish a trust company in Florida is to provide better service to a substantial Portion of some 260 present Detroit Bank and Trust Company customers, who permanently reside in Florida. The Detroit Bank and Trust Company has 260 trust accounts of Florida residents totalling approximately $109 million in assets. Existing customers residing in Palm Beach County represent accounts totalling approximately $24.0 million in assets, $4.0 million of which is derived from Boca Raton residents. The Applicant anticipates that 87 of the "Florida" accounts will be "transferred" to the proposed trust company during the first three years of operation.
The Applicant also seeks entrance into the market to prevent loss of existing customers to competing individuals or institutions, and to seek new trust business.
The Applicant proposes to offer all services normally associated with a non-deposit trust company at fees comparable to those presently being charged by existing trust institutions in the PSA, as noted by the Hearing Officer in Finding of Fact number 5. Furthermore, among the advantages that would accrue to the Applicant's customers are the availability of quality portfolio and investment management tools through dissemination of information from Detroit Bank and Trust Company, and the availability of top quality personnel.
Therefore, given the above facts and conclusions, the Department is of the opinion that the "public convenience and advantage" criterion is met.
It is the opinion and conclusion of the Department that local conditions do assure reasonable promise of successful operation for the proposed trust company and those trust companies already established in the community. Therefore, the criterion in Section 659.03(2)(b), Florida Statutes, IS met.
Current economic conditions and, to a lesser extent, the growth potential of the area in which the new trust company proposes to locate are important considerations in determining its probable success. Essential to the concept of trust company opportunity is that there does and will exist a significant volume of business for which the new trust company may realistically compete. The growth rate, size, financial strength and operating characteristics of other fiduciary institutions in the PSA are also important indicators of economic conditions and potential business for a new trust company. It is noted that the statutory standard requires that local conditions ASSURE reasonable PROMISE of successful operation for the proposed trust company and those already established in the community, NOT merely that local conditions INDICATE a POSSIBILITY of such success.
Fiduciary management involves a public trust. Unlike private enterprise establishments generally, trust companies manage and control large sums of the public's assets and, therefore, the Department has a responsibility to protect the public's interest. Only persons with the highest standards of integrity and demonstrated expertise should be authorized to accept responsible positions in trust institutions.
Public interest is best served by having a trust service system whereby new competition is encouraged where appropriate, yet at the same time ensuring that the financial resources of the residents in the community are stable and safe. That was the obvious intent of the legislature in regulating corporate entry into the trust service industry.
34A. As noted in the Hearing Officer's seventh Finding of Fact, Palm Beach County (alternately the PSA) proved to be an area of strong 1970-1977 population expansion. The PSA's 1970-1977 population growth of 45 percent exceeded Florida's 28.4 percent growth. The Hearing Officer further found that a large percentage of the PSA's recent population growth resulted from net migration. A large proportion of such in-migrants were Michigan residents.
34B. The 45-64 and 65-and-above (hereinafter 65+) age groups (collectively the 45+ age group) are population components most conscious and/or receptive to trust services. According to page 71 of the Applicant's application, the PSA
trust-receptive population, by Florida standards, comprises a large proportion of total population. In 1977, the 45+ age group constituted 43.0 1/ percent of the PSA's population and a lesser 38.9 1/ percent of Florida population.
34C. Compared with Florida, the county experienced a higher 1970-1977 population growth rate and a faster expansion of its trust-conscious population components.
34D. According to the Hearing Officer's seventh Finding of Fact and page
73 of the Applicant's application, Palm Beach County was shown to be, by Florida standards, an area of significantly higher median family income levels. During the 1969-1979 period, Palm Beach County's median family income rose an average
10.5 percent annually, a rate of increase slightly above the state's 10.4 percent. In 1979, the county's $18,720 median family income exceeded Florida's
$16,850 by 11.10 percent. The Hearing Officer and Applicant projected that the county's 1981 median family income of $20,642 would exceed Florida's $18,785 by
9.89 percent.
Finding of Fact number eight indicates a substantial 289.97 percent increase in the value of trust assets administered by Palm Beach County's financial institutions between 1969 and 1978. The county has been experiencing significant growth in its trust market.
According to the Hearing Officer's Finding of Fact number 12, a widespread account transfer from the PSA's existing trust institutions to the Applicant would not be expected. However, local trust institutions fear that the PSA entry of a number of new trust companies such as the Applicant would result in the local trust institutions' loss of new, large, and profitable accounts needed to subsidize the service of smaller accounts. The Hearing Officer also indicated that trust accounts with assets valued less than $100,000 are not generally profitable; that trust accounts with asset valuations of at least
$250,000, tend to be profitable; and that in recent years, the number of large new trust accounts flowing into the PSA have been "leveling out." An impairment in the ability to secure these large new in-flowing accounts may therefore hinder the PSA trust institutions' ability to adequately serve all PSA trust clients. However, although Finding of Fact number 12 indicates that the Applicant and other new trust companies would competitively impact the PSA trust market, the Department agrees with Finding of Fact number 13 which states the exact magnitude of such impact to be presently unknown. Nonetheless, based upon the Hearing Officer's Findings, the Department concludes that the PSA trust market has been experiencing sufficient growth, encompasses adequate wealth, and has enough unsolicited trust market potential to assure reasonable promise of success for the Applicant and PSA trust operations. Five basic reasons are cited. First, Palm Beach County has rapidly expanding total and trust-receptive populations of substantial wealth. Second, the county's trust market has significantly expanded since 1969. Third, the PSA trust market is only partially penetrated by corporate fiduciaries, and harbors large volumes of potentially marketable trust business. Fourth, most of the Applicant's projected business would flow into the PSA from Michigan, and would expand, rather than competitively strain, the trust market. Only a minor proportion of the Applicant's projected business would be PSA-generated. And fifth, even without considering the PSA's unsolicited trust market potential, the PSA market was shown to be rather profitable and concentrated.
Based upon the Hearing Officer's Findings of Fact and the Applicant's application, the Department concludes that the PSA has a large, expanding, trust-receptive, and wealthy population which would support the proposed trust
company without hindering the successful operation of existing PSA trust institutions. Palm Beach County's 1970-1977 population growth rate exceeded that of Florida. In 1977, the county's trust-receptive population proportion exceeded the comparable state proportion. Finally, the county's 1969-1979 median family income levels exceeded, and expanded more rapidly than, Florida levels.
The Hearing Officer's eighth Finding of Fact indicates that Palm Beach County's trust market significantly expanded between 1969 and 1978. The Department concludes that the expansion's magnitude is sufficient to assure a reasonable promise of successful operation for the Applicant and existing PSA trust operations.
Finding of Fact numbers nine, 12 and 13 indicate that despite the PSA trust market's high competitive levels for presently managed trust assets, there are large volumes of PSA trust business which have yet to be marketed. The Hearing Officer estimates that the PSA encompasses approximately 3.0 billion in marketable trust business, which has been penetrated to a degree of 30 percent to 50 percent. Such implies $1.5 billion to $2.1 billion in potentially marketable trust business, which alone could support the proposed trust institution without impairing the ability of the PSA's existing trust operations to secure the county's large inflowing (profitable) trust accounts.
The Hearing Officer's Findings indicate that the Applicant's projected business, primarily arising from non-Florida sources, would not interfere with the present PSA trust institutions' successful operation. According to Finding of Fact number 10, the Detroit Bank and Trust Company presently administers 260 accounts totaling approximately $109 million in assets, for Florida residents. Eighty-seven of these accounts are expected to be transferred to the proposed trust company during its first three operating years. During its first operating year, the Applicant expects to receive 40 of such account transfers totaling $40 million in assets. Only $12 million in trust business from PSA trust clients without a prior Detroit Bank and Trust Company trust relationship is anticipated by the Applicant during its first three years of operation. Such $12 million in PSA-generated business would constitute a very minor proportion of the PSA's market - reflected by the $1.4 billion in 1978 assets managed by the 16 PSA trust operations - especially when the significant market growth and the PSA's unpenetrated trust market potential are considered. Thus, the proposed trust company would add to, rather than competitively strain, the PSA market. Given that the Applicant's business would arise primarily from Michigan trust business being transferred to the PSA, and that the envisioned PSA-generated business volumes would by minor relative to the entire PSA market, the Department concludes that the Applicant's projected business would expand, rather than strain, the PSA trust market.
Despite the keen trust market competition, a number of intervening trust institutions were experiencing substantial growth in what was shown to be a highly concentrated market. In Finding of Fact number 12, the Hearing Officer states that " . . . three of four trust representatives of banks which intervened in this proceeding experienced substantial growth in trust business over the past few years." The Hearing Officer elsewhere states that approximately 40 percent of the 1979 trust assets managed by the PSA's 16 trust institutions were administered by one bank trust department. High PSA trust business growth and the market's high degree of concentration are not attributes indicative of a market approaching competitive saturation. The Department is of the opinion that the Applicant, with most of its business expected to be transferred from Michigan, would not competitively strain the PSA trust market, especially when the market's growth and concentration are considered.
Therefore, based on the Hearing Officer's Findings and the Record, the Department concludes that the Applicant would not place excessive competitive pressure upon the PSA trust market or impair the existing trust institutions' ability to secure the large and profitable accounts which are flowing into the PSA and subsidize the service of small, less profitable accounts. By state standards, Palm Beach County is clearly an area with an expanding trust- receptive population of substantial wealth. The PSA's trust market has experienced significant expansion recently which could sustain the small volume of trust business expected to be generated by the Applicant from PSA individuals without a prior Detroit Bank and Trust Company trust relationship. Furthermore, the PSA contains large volumes of potentially marketable business, as yet unsolicited by the PSA's existing trust operations. Such unpenetrated market potential is well able to support the Applicant, especially when the Applicant expects most of its projected business to arise from outside Florida. Finally, the PSA's trust market does not resemble one approaching competitive saturation, given the healthy performances of a number of its large trust institutions, as well as its high degree of concentration. The PSA has ample and expanding trust business volumes capable of successfully supporting the Applicant without hindering the successful operation of existing PSA trust institutions or impairing their ability to secure the large, profitable accounts flowing into the PSA. The Department concludes that such conditions assure the Applicant and existing PSA trust institutions a reasonable promise of successful operation.
It is the opinion and conclusion of the Department that the proposed capital structure of the proposed new trust company is adequate. Therefore, the criterion in 659.03(2)(c), Florida Statutes, IS met.
Capital should be adequate to enable the new trust company to provide the necessary trust services, including hiring and training qualified personnel and developing investment and management systems to meet the needs of prospective customers. It should be sufficient to purchase, build or lease a suitable permanent trust company facility and acquire equipment. The Department believes that the initial capital for a new trust company generally should not be less than $2.0 million, the Applicant's proposed level. Therefore, this criterion is met.
It is the opinion and conclusion of the Department that the proposed officers and directors have sufficient trust experience, ability and standing to assure reasonable promise of successful operation. Therefore, the criteria in 659.03(2)(d), Florida Statutes, ARE met.
The organizers, proposed directors and officers should have reputations evidencing honesty and integrity. They should have employment and business histories demonstrating success, and should be responsible in financial affairs. Generally, at least one member of a proposed board of directors, other than the chief executive officer, should have direct trust experience. In addition, the organizers, proposed directors and officers shall meet the requirements of Section 659.11, Florida Statutes, and shall not have been convicted of an offense constituting a violation of the banking or trust laws involving moral turpitude, or a breach of trust. Officers shall have demonstrated abilities and experience commensurate with the position for which proposed:
The Department concludes that the proposed officers and directors have sufficient trust experience, ability and standing to assure reasonable promise
of successful operation and therefore the criteria in 659.03(2)(d), Florida Statutes, are met.
It is the opinion and conclusion of the Department that the name of the proposed new trust company, DBT Trust Company of Florida, is not so similar as to cause confusion with the name of an existing non-affiliated trust company. Therefore, the criterion of 659.03(2)(e), Florida Statutes, IS met.
It is the opinion and conclusion of the Department that provision has been made for suitable quarters in the area specified in the application. Therefore, the criterion of 659.03(2)(f), Florida Statutes, IS met.
Temporary quarters are not contemplated by the Applicant. The proposed trust company's permanent quarters will comprise approximately 2,700 square feet, and appears to be sufficient. The permanent quarters should be of a sufficient size to handle the projected business for a reasonable period of time. The facility should be of a nature to warrant customer confidence in the trust company's security, stability and permanence. Other pertinent considerations include adequate parking and expansion possibilities. Based on the record, and the nature of the financial institution involved, the criterion of 659.03(2)(f), Florida Statutes, IS met.
FINAL ORDER
Based on the record, Findings of Fact and Conclusions of Law and policy considerations recited above, it is established that the statutory criteria set forth in 659.03(2)(a), (b), (c), (d), (e) and (f), Florida Statutes, have been met. It is thereupon
ORDERED that authority to organize and operate a trust company at the Arvida Financial Plaza, 5550 Glades Road, Boca Raton, Palm Beach County, Florida is hereby granted to the Applicant upon the following conditions:
The trust company shall bear the name DBT Trust Company of Florida;
The Federal Reserve Board shall give approval of the proposed trust company in accordance with the federal Bank Holding Company Act;
The Applicant shall meet the pledge requirements of Section 660.27, Florida Statutes;
The new trust company's initial capital shall not be less than $2.0 million;
The chief executive officer of the trust company remains as indicated in the application;
The original board of directors of the new trust company be composed of the following individuals:
Erwin Springman, B. James Theodoroff, Henry S. Toland, Wilma H. Wackerle, and
John B. Whitledge. Any changes in the composition of the Board prior to opening, shall be submitted to the Department for approval.
Investment in fixed assets shall meet the statutory requirements and other reasonable requirements of the Department of
Banking and Finance. All leases and leasehold improvements shall be submitted to and approved by the Department of Banking and Finance prior to their execution or
purchase.
The Articles of Incorporation shall be filed with the Secretary of State within six month after approval by the Federal Reserve Board;
The trust company shall open within six months after filing of the Articles of Incorporation with the Secretary of State. This requirement may be subject to an extension upon written request to the Department.
Until the conditions herein specified and other reasonable requirements of the Department of Banking and Finance are met, or if any interim development is deemed by the Comptroller to warrant such action, the Comptroller shall have the right to alter, suspend or withdraw this ORDER.
Subsequent to the Applicant's compliance with all of the above conditions, the Department shall be given prior notice of the opening date. Upon receipt of such notice, the Department shall take the necessary steps to authorize opening of the trust company.
DONE AND ORDERED this day of 1981, in Tallahassee, Florida. (document filed with DOAH undated)
GERALD LEWIS
Comptroller of Florida
ENDNOTE
1/ The Hearing Officer's Findings of Fact, in some instances, included only PSA economic data, thereby precluding a PSA-state trend comparison. In other instances, more reliable data was available from the Hearing evidence. In order to facilitate comparisons and/or more accurately describe certain trends, the Department used data from the Applicant's application or economic Update Data" which were both accepted by the Hearing Officer into the Hearing Record as evidence. Such data are hereinafter highlighted with an asterisk.
cc: See Schedule "A" attached.
RULINGS ON PROPOSED FINDINGS OF FACTS AND EXCEPTIONS
The Department rules on the Proposed Findings of Fact and Exceptions, submitted by the parties as follows:
APPLICANT'S PROPOSED FINDINGS AND CONCLUSIONS
Applicant's Proposed Finding numbers 1 and 2 are accepted to the extent that factual matters are discussed, consistent with the Final Order.
Proposed Finding numbers 3-6 are accepted as consistent with the Final Order.
PROTESTANT'S (FLORIDA BANKERS ASSOCIATION) PROPOSED FINDINGS ON BEHALF OF
PROTESTANTS AND INTERVENORS
Proposed Findings 1-32 concern proposed facts relevant to all applications, and Proposed Findings 45-55 concern proposed facts concerning the specific application of DBT Trust Company of Florida.
Proposed Finding numbers 1-5, 10-17, 26-30 are accepted to the extent that they are generally consistent with the Hearing Officer's Finding or with the Final Order.
Proposed Finding numbers 6-9, 18-25, 31 are rejected to the extent that they are inconsistent with the Hearing Officer's Findings of Fact or with this Final Order, or are otherwise irrelevant or immaterial.
Proposed Finding numbers 45, 46, 51-55 are rejected to the extent that they are inconsistent with the Hearing Officer's Findings of Fact or with this Final Order, or are otherwise irrelevant or immaterial.
Proposed Finding numbers 47-48 are accepted to the extent that they are generally consistent with the Hearing Officer's Findings of Fact or with the Final Order.
PROTESTANT'S AND INTERVENOR'S EXCEPTIONS
Exception numbers 1, 3-7 are rejected and the Hearing Officer's ruling is affirmed.
Exception number 2 is rejected.
Exception number 8 is misplaced. Many Findings of Fact submitted by the parties were not specifically incorporated into the Findings, but were consistent with the Findings, and have been accepted in this Final Order. Those that have not, are deemed inconsistent with the Hearing Officer's Findings, or are irrelevant or immaterial.
Exception number 9 is rejected. All parties had an opportunity to challenge the incipient policy of the Department, pursuant to McDonald vs. Department of Banking and Finance, 346 So.2d 569 (1st DCA Fla. 1977)
Exception number 10 was not considered a significant factor, and the Department followed its incipient policy and other trust company order regarding capital adequacy.
Exception numbers 11-16 are rejected as inconsistent with the Hearing Officer's Findings of Fact, and the Final Order.
Exception numbers 17-26 concern Proposed Findings which have been discussed above, and considered in paragraphs 6-9.
SUPPLEMENTAL POST HEARING SUBMISSION OF FIRST NATIONAL BANK IN PALM BEACH AND
BESSEMER TRUST COMPANY OF FLORIDA
This submission is primarily limited to the issue of transfer accounts. Points 1-3 are rejected to the extent that they are inconsistent with the
Hearing Officer's Findings of Fact, and the Final Order. The Hearing Officer made specific findings as the trier of fact, regarding the transfer of accounts, and those Findings have been adopted by the Comptroller.
SCHEDULE "A"
Thomas C. Oldham, Esquire Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
Stephen E. Day
Attorney for Respondent Bankers Trust Company of Florida
Taylor, Day, Rio & Mercier 701 Fisk Street, Suite 320
Jacksonville, Florida 32204
(904) 356-0700
John A. Jones Bruce Roberson
Attorneys for DBT Trust Company of Florida Case No. 79-1228; 79-1234
Holland and Knight
610 North Florida Avenue Tampa, Florida 33601
(813) 223-1621
John Radey
Holland and Knight Post Office Drawer 810
Tallahassee, Florida 32302
(904) 224-7000
J. Thomas Cardwell
Attorney for Petitioner Florida Bankers Association and Intervenor Atlantic National Bank of Palm Beach County Akerman, Senterfitt and Eidson
Post Office Box 231 Orlando, Florida 32802
(305) 843-7860
Bruce Culpepper
Attorney for Petitioner Florida Association of Registered Bank Holding Companies, Inc.
350 East College Avenue Tallahassee, Florida 32301 (904) 222-6071
James G. Pressly, Jr.
Attorney for Intervenor First National Bank in Palm Beach
Attorney for Intervenor Bessemer Trust Company of Florida
Gunster, Yoakley, Criser, Stewart and Hirsey, P.A. First National Bank Building
Palm Beach, Florida 33480 (305) 655-1980
H. David Faust
Attorney for Intervenor Bank of Palm Beach and Trust Company
Attorney for Intervenor First Bank and Trust Company of Boca Raton
Burns, Middleton, Farrell and Faust
205 Worth Avenue
Palm Beach, Florida 33480 (305) 655-5311
Robert I. MacLaren, II
Attorney for Intervenor Boca Raton National Bank Osborne and Hankins
Post Office Drawer 40
855 South Federal Highway, Suite 200 Boca Raton, Florida 33432
(305) 395-1000
Ralph J. Blank, Jr.
Attorney for Intervenor First National Bank and Trust Company of Riviera Beach
Blank, Will and Benn Post Office Box 2100
West Palm Beach, Florida 33402 (305) 832-2889
John C. Miller, Jr. Attorney for All Intervenors Post Office Box 46
Mobile, Alabama 36601
(205) 432-1414
Phillip G. Newcomm Bowman Brown Arnold L. Berman
Attorneys for Respondent U.S. Trust Company of Florida
1000 Southeast First National Bank Building Miami, Florida 33131
(305) 358-6300
| Issue Date | Proceedings |
|---|---|
| Nov. 17, 1981 | Final Order filed. |
| Jan. 08, 1980 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Nov. 17, 1981 | Agency Final Order | |
| Jan. 08, 1980 | Recommended Order | Report to Department of Banking and Finance concdrning application to establish trust company. |
