STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

IN RE: APPLICATION OF MERCHANTS & ) SOUTHERN BANK OF CLAY COUNTY, )

FLORIDA, TO ORGANIZE A NEW ) CASE NO. 85-1830

BANK (Hearing on protest filed ) by Keystone State Bank )

)

HEARING OFFICER'S REPORT

Notice was provided, and on December 10 and 11, 1985, a hearing was held before Charles C. Adams, Hearing Officer with the Division of Administrative Hearings. The hearing was conducted in Green Cove Springs, Florida. The parties, with the exception of the State of Florida, Office of the Comptroller, Department of Banking and Finance have filed post-hearing submissions. The last of those proposals was filed on February 14, 1986. An appendix is attached to this report setting forth an analysis of the proposed facts submitted by the parties.

APPEARANCES

For Applicant Merchants Ronald A. Carpenter, Esquire and Southern Bank of Post Office Box 1433

Clay County, Florida: Gainesville, Florida 32602

For Protestant Keystone William C. Andrews, Esquire State Bank: Post Office Drawer C

One SE First Avenue Gainesville, Florida 32602

For Office of the Carl B. Morstadt, Esquire Comptroller, Department Assistant General Counsel Of Banking and Finance: Office of the Comptroller

The Capitol, Suite 1302 Tallahassee, Florida 32301

ISSUES

Consideration of the entitlement of Merchants & Southern Bank of Clay County to be granted permission to organize a corporation for the purpose of conducting general banking business in Clay County, Florida. See Section 658.19, Florida Statutes. ,

FINDINGS OF FACT

1. On April 12, 1985, Applicant submitted to the Department of Banking and Finance (Department) an application, pursuant to Section 658.19, Florida Statutes, for authority to organize a corporation for the purpose of conducting a general banking business in Clay County, Florida. See Department's Exhibit No.

   1-A.

   
   

2. Notice of receipt of the application was published in the Florida Administrative Weekly on April 26, 1985, under the name "Merchants & Southern Bank of Clay County."

   
   

3. A Notice of Intention to Appear and Petition for Public Hearing was filed by the Protestant, Keystone State Bank, on or about May 15, 1985. Said Petition contained a request for public hearing and objected to the granting of such application on three

   1. grounds:

      
      

      1. There being no need for additional bank facilities in the primary service area where the proposed bank is to be located.

         
         

      2. The primary service area would not support the proposed bank and all other existing bank facilities in said service area.

         
         

      3. Public convenience and advantage would not be promoted by the establishment of the proposed bank.

   
   

4. The application was deemed substantially complete on June 13, 1985, following submission of specific information and publication of the second and third choice names in the Florida Administrative Weekly on June 14, 1986.

   
   

5. A Notice of Hearing was sent on July 11, 1985, for a hearing to be held October 30, 1985, and October 31, 1985. On August 16, 1985, Protestant filed a motion for continuance. On August 27, 1985, an order was entered granting the motion for continuance and rescheduling the hearing for December 10 and 11, 1985, in the jury room of the Clay County Courthouse. On October 31, 1985, a further Amended Notice of Hearing was prepared amending the location of the hearing to the meeting room in the Green Cove Springs public library.

   
   

6. On November 7, 1985, an amendment was filed by the Applicant changing the corresponding director from Hugh E. Shiver to Ronald A. Carpenter. On November 8, 1985, an amendment was

   filed by Applicant adding Tim W. Kaskey as a proposed director. On November 18, 1985, the Office of the Comptroller acknowledged said amendments and determined they did not constitute material changes as that term is used in Rule 3C-9.02(6), Florida Administrative Code. Mr. Shiver, subsequent to said amendments and prior to hearing, resigned as a director.

   
   

7. A hearing on the Petition was held on December 10 and 11, 1985, in the meeting room of the public library in Green Cove Springs, Clay County, Florida. Notice of the hearing was published on November 25 and 26, 1985, in the Florida Times Union and on November 21, 1985, in the Clay County Crescent. See Applicant's Exhibit No. 1.

   
   

8. The Applicant's designated PSA (proposed service area) exists entirely within Clay County, Florida. PSA boundaries are as follows:

   
   

   DISTANCE FROM

   BOUNDARY DESCRIPTION SITE IN MILES

   
   

   north Bull Creek 12 miles

   
   

   south Junction Putnam Co., 6 miles Bradford Co., Alachua

   Co. & Clay County

   
   

   east Putnam County line 4 miles

   
   

   west Bradford County line 1 mile

   
   

9. The PSA is serviced by State Road 21 in a general north- south direction, by State Road 100 in a general east-west direction and by various feeder roads throughout the PSA. See Department's Exhibit 1-A, map filed in response to question $2 of Exhibit A.

   
   

10. Although the Applicant has the expectation of success in serving the area described above, testimony reveals that the northwest corner of the PSA, in the Kingsley Lake location, will not provide much business. Moreover, Applicant could be expected to realize as much as 75% of its deposits in an area which is five miles in radius from Keystone Heights, Florida, the location of the proposed bank. This would be consistent with the experience of the Protestant, Keystone State Bank, which obtains 73% of its deposits from that area. The area designated by the Applicant as its PSA, that is, the geographical area from which the proposed bank expects to draw 75% of its deposits, is a less likely eventuality than an area which more or less conforms to the five mile radius where experience of the existing Keystone

    State Bank has shown deposits approximating 75%. In addition to the difficulty of gaining success in the northwest corner of the designated PSA, due to the distance from the proposed bank location and the preference of those particular customers to bank in Starke, Florida, the balance of the northern one-half of the PSA is sparsely populated. Obviously, this lack of population limits the number of depositors. Likewise, the artificial boundaries at the county lines as set forth in the designated PSA are not realistic. The Applicant can be expected to serve portions of Bradford and Putnam counties as part of the PSA.

    
    

11. The Applicant has recognized this overlap into other counties in its designation of a so-called "secondary service area." Protestant's Exhibit 2, a map, delineates the designated PSA in a pink outline and the five mile radius in a yellow circle. Applicant's Exhibit 2 is another map showing this secondary area in cross hatching. The secondary service area described by the Applicant is as follows:

    
    

    DISTANCE FROM

    BOUNDARY DESCRIPTION SITE IN MILES

    
    

    north same as PSA same as PSA

    
    

    South same as PSA same as PSA

    
    

    east population district 6 miles 444T and northern 1/5

    of 442T

    west enumeration district 5 miles 76, 78T 78U and 78B

    
    

12. After considering the Protestant's argument that the PSA for the Applicant is the five mile radius area and the Applicant's designated PSA and secondary service area, the expected PSA is found to be an area basically resembling the five mile radius with the secondary designation by the Applicant and the approximate lower half of the Applicant's designated PSA.

    
    

13. The PSA consists primarily of small, commercial, service and professional organizations. See Department's Exhibit No. 1-A. Some of the businesses shown in the application have since gone out of business, while other new businesses have opened. The evidence is inconclusive as to whether there has been a net gain or loss in businesses. Clay Electric is the largest employer in the PSA, and there are no large manufacturing concerns within the contemplated service area.

    
    

14. The Applicant proposes to name the bank "Merchants & Southern Bank of Clay County."

15. The proposed charter site is a parcel of land approximately 210 feet x 251 feet located on Highway 21 in the City of Keystone. See Department's Exhibit 1-A, Option to Purchase (Exhibit "A") to Exhibit F "Banking House Quarters."

    
    

16. The proposed bank will occupy a single story building to be constructed and will be in excess of 2,500 square feet.

    The Applicant intends to lease both land and building from Dennis

    R. O'Neil, a proposed director. The lease arrangement represents an insider transaction. Mr. O'Neil has agreed to enter into a ten year lease with the proposed bank that would call for interest only payments during the bank's first three years of operation, with the rate being two points above prime based on the costs incurred in acquisition of land and construction of the building. "Prime" is defined as the prime rate charged by Citibank, N.A., on the 25th day of each month. The annual rental for year four shall be determined by multiplying thirteen per cent times the value of the premises. Annual rental for years five through ten and the three five-year renewal periods will be determined by multiplying the annual rental for year four by the respective annual adjustment in the Consumer Price Index.

    
    

17. There are two financial institutions located within Keystone Heights. One of those is a bank, the Protestant Keystone State Bank. Its main office is located approximately one-half mile from the proposed site of the Applicant bank. The Protestant also has a branch bank which is 7 1/2 miles south of the Applicant bank. That branch bank is nearby Merchants & Southern Bank of Hawthorne which operates a branch bank in Melrose, Florida, some seven miles to the south of Keystone Heights. This operation by Merchants & Southern Bank of Hawthorne is through a corporation with some relationship to the Applicant. That relationship was not shown to be one presenting any inappropriate arrangement by having a Merchants & Southern Bank with a location in Melrose and one in Keystone Heights. Florida Federal Savings and Loan Association also serves customers in Keystone Heights through an office in that location. That office is approximately 5/8 of a mile from the proposed site of the Applicant. Florida Federal Savings and Loan Association has not objected to the creation of a new banking institution in Keystone Heights. In examining the proposed location, there is no indication that the Applicant, in view of the PSA that is found in this report, has made an unrealistic delineation or designation of the service area in an attempt to exclude existing financial institutions.

18. Both existing financial institutions within Keystone Heights have the potential to offer a full array of banking services. In fact, Keystone Heights Bank does offer those

    services, to include a wide variety of deposit products, loan products and ancillary services. On the other hand, Florida Federal Savings and Loan Association does not have the same variety in installment loans that is typically seen in a commercial bank or the composition of clients or deposits.

    
    

19. Population trends for the PSA and other areas are as follows:

    
    

    				AVG ANN % CNG	TOT CNG
    AREA	1970	1980	1983	1970-80	FOR PER.
    Florida	6,791,418	9,746,418	10,591,701	3.67	43.5
    County	32,059	67,052	74,524	7.7	109.2

    County 21,825		52,446	59,503	9.2	104.3
    SA 2,996 6,145 6,965 7.4 105.0
    Key. Hts. 800		1,056	1,104	2.8	3.2
    G. Cove S.	3,857	4,154	4,099	-	7.7
    Org. Pk.	5,019	8,766	9,166	5.7	74.7
    Pen. Fms.	561	630	652	1.2	12.3

    Unicorp.

    
    

    P

    Municip:

    
    

20. Protestant's demographic evidence shows an overall increase in the projected population within the five mile radius, from 6,930 to 9,783, or a total increase of 2,853 persons for the period 1980 to 1990, or a total increase of 41.2% for the period. This compares to a 105% increase between 1970 and 1980, from 3,024 to 6,930 persons. While the percentage of growth is approximately one-half for the period 1980 to 1990 as compared to 1970-1980, it should be noted that the 1970-1980 population increase was 3,149 persons compared to a "projected" increase of 2,853 persons for the period 1980 to 1990. The 41.2% total increase exceeds the median projection of 29.5% for the state as a whole during the same period. Thus, for all periods considered since 1970 the growth within that area was or is projected to be significantly larger than the population growth of the state.

    
    

21. Most of the Clay County and Florida growth during 1970 to 1980 resulted from net migration:

    NET MIGRATION AS A PER CENT OF TOTAL GROWTH AREA 1970-1980

    county 88.32%

    state 43.5 %

    
    

22. The state, county and PSA are comparable in age grouping.

1980 AGE GROUPINGS

AREA 15-64 YRS. 45 YRS OR OLDER 65 YRS. OR OLDER

1. The number of households in Clay County has increased at a significantly greater rate than for the state.

   
   

   HOUSEHOLD DATA

   
   

   PERCENTAGE INCREASE

   AREA 1970 1980 1970-1980

   
   

   County 9,396 21,646 130.0%

   State 234,187 382,209 63.2%

   
   

2. Per capita personal income (PPI) trends for Clay County and the state of Florida are listed below:

   
   

   		PER CAPITA	PERSONAL INCOME
   AREA	1978	1979	1980	1981	1982
   county $	6,345	6,864	7,680	8,520	9,094
   state	7,330	8,202	9,202	10,362	10,907

   
   

3. Data provided by the Florida Department of Labor and Employment Security indicates that Clay County has significantly lower unemployment rates than the state.

   
   

   UNEMPLOYMENT RATES

   
   

   AREA	1979	1980	1981	1982	1983
   County	3.8%	3.4%	4.8%	5.5%	6.7%
   State	6.0%	5.9%	6.8%	8.2%	8.6%
   23.	A comparison	of total	deposit growth	in the	PSA with

   that of Clay County and Florida yielded the following results:

   
   

   TOTAL BANKING DEPOSITS

   (June 30 in each year reported)

   
   

   AREA	1983	1984	CHANGE Absolute	1983-1984 Per cent
   State	55,569,572	60,187,042	4,617,480	8.3
   County	158,230	183,806	25,576	16.2
   PSA	27,018	35,524	8,306	30.7

   
   

4. The deposits of Protestant have over the past five years had an average annual growth rate of approximately 22% compounded annually, compared to an 8% compounded growth rate in deposits for the state of Florida for the same period.

5. As stated, the banking institutions in the PSA can be described as full service in nature. However, the applicant proposes increased lobby and drive-in hours consistent with financial institutions in neighboring Alachua and Bradford counties and to provide Automatic Teller Machines. (Keystone State Bank does intend to offer Automatic Teller Machines in the future.) The failure to presently provide these additional services constitutes a deficiency in services and these additional services will provide a substantial convenience and advantage for a significant number of people. This deficiency in service is not monumental, but it is significant. Protestant had determined that being open on Saturday until 12:00 did not warrant the extra overhead costs but has not attempted to remain open on Saturday for a period of ten years, a period during which Protestant acknowledged that services provided by banks have expanded.

6. The capital structure of the proposed bank would total

$1, 500,OOO as follows: S1,125,OOO to common capital, $300,000 to surplus and 575,000 to undivided profits. The Applicant intends to issue 75,000 shares of common stock with a par value of S25.00 per share and a selling price of S20.00 per share.

1. The Board of Directors are as follows:

   
   

   NAME OCCUPATION # OF SHARES

   
   

   Dennis R.	O'Neil	president	75,000
   Ronald A.	Carpenter	attorney	-0-
   Tim W. Kaskey		CPA		-0-
   Herbert Treweek		insurance		-0-
   Charles Blount		owner-auto	agencies	-0-
   Total:				75,000

   
   

2. One of the proposed directors, Dennis R. O'Neil, owned the High Springs Bank, Leach County, from 1977 to 1984. Mr. O'Neil acquired the Merchants & Southern Bank of Alachua County in November, 1984. He is the sole stockholder of Merchants & Southern Bank of Ocala, a denovo bank granted in mid-1985. In each of said banks, he has served as Chairman of the Board of Directors. Proposed director Ronald A. Carpenter, served on the Board of Directors of High Springs Bank from 1978 through 1983. He presently serves on the Board of Directors of Merchants & Southern Bank of Alachua County and Merchants and Southern Bank of Ocala.

   
   

3. Mr. Treweek presently serves on the Board of Directors of Merchants & Southern Bank of Alachua County.

4. Mr. Blount has served on the Board of Directors of Atlantic Bank of Gainesville for seven years, the High Springs Bank for six years, the Barnett Bank of Alachua County for one year, and is presently on the Board of Directors of Merchants & Southern Bank of Alachua County.

   
   

5. Mr. Kaskey is presently serving on the Board of Directors of Merchants & Southern Bank of Ocala.

   
   

6. Four of the members of the proposed Board of Directors are also members of the Board of Directors of Merchants & Southern Bank of Alachua County. Merchants & Southern Bank of Alachua County has fourteen board members, therefore less than 25% of the board members of Merchants & Southern Bank of Alachua County also serve on the proposed board of directors.

   
   

7. The organizers, proposed directors and officers of the Applicant bank have reputations evidencing honesty and integrity. They have sufficient employment experience in businesses to demonstrate responsibility and understanding of financial affairs. At least one member of the proposed board of directors other than the chief executive officer has direct banking experience.

   
   

8. All of the organizers and directors of the proposed bank are residents of Alachua County, Florida.

   
   

9. Applicant presented Dr. William McCollough, an expert in economics and finance. In that capacity he testified to the following as it relates to projections of deposits, income, expenses and viability of a denovo bank in Keystone Heights:

   
   

   1. The projection of total deposits at the end of the first year as set forth in the application was reasonable.

      
      

   2. The applicant's statement of earnings in terms of the result over the three-year period are a reasonable estimation of possible outcome. This perception is

      based on the witness' understanding that the application shows average loans outstanding with zero loans to start.

      
      

   3. The estimate of deposit base in years two and three is reasonable.

      
      

   4. The proposed bank should sustain a positive return by the third year and sustain an adequate capital structure.

   5. Keystone State Bank and the denovo bank will be able to sustain themselves at a profitable return on equity.

      
      

10. The conclusions set forth in the application indicate that there will be a loss in the first year of $30,569 and a profit in the second and third years in the amount of $16,470 and

    $35,085, respectively.

11. William Wood was presented by Protestant as an expert in preparing and analyzing bank applications as to format, and in that capacity presented the following testimony as to deposits, income and expenses:

    
    

    1. In years one and two of operation, the proposed bank would suffer a loss of $589,000 plus, and in year three a profit of $56,000.

       
       

    2. That the above figures were based upon an assumption that average deposits are shown in the exhibits and not year-end totals for deposits

       
       

    3. The assumption by Mr. Wood that more than a half million dollar loss assumes no income from Federal funds. Nevertheless, he found the investment income portion of the application attributable to this source should be reduced from $345,600 to $99,000 due to the opinion that the yield on government obligations was overstated. The higher return would be at 17.45%. Keystone State Bank presently receives 9.35%, which is roughly the figure used by Wood in making the estimate.

       
       

    4. That the capital to deposits ratio at the end of year three, by Mr. Wood's calculations, would be 8.75%, and that generally for a denovo bank, a ratio of 8 to

       12 per cent would be reasonable.

       
       

    5. The criteria used in Mr. Wood's analysis of the application concerning rates of interest and rates for payment on deposits were limited solely to the existing rates shown by Keystone State Bank and not to rates at the time of the application or other banks' historical experience. However, the Keystone experience is valuable in understanding the possible success of the Applicant in competing in this market. Keystone State Bank has commercial loans at a rate of 13.06% and its installment loans are at 11.6%. Interest charges proposed by the Applicant on installment loans are 14%. The Applicant projects that interest to be paid on time deposits is 8%, whereas Keystone State Bank is paying a slightly higher yield

       on deposits. These differences, according to Wood, point out the difficulty of the Applicant in trying to penetrate the market. Wood does not believe that it is reasonable to expect the Applicant to have success in the market when the loan rates of the existing bank are lower than those proposed by the Applicant, and the Applicant projects an interest payment of less than what the experience has been for the existing bank.

       This analysis by Wood is realistic.

       
       

    6. Wood points out that the interest expense of 8% on time deposits is calculated on the assumption that the deposits constitute 60% of the total deposits. The experience of the Protestant bank has been that the time deposits constitute 85% of total deposits. Consequently, the Applicant may have understated its interest expenses.

       
       

    7. Wood has a concern that the depreciation schedule related to the equipment shows a ten year depreciation for all equipment, which in some instances is inappropriate. This references the Automatic Teller Machines, typewriters, furniture, fixtures and CRTs.

       
       

12. When the issues of financial feasibility are considered in view of the remarks of the experts as reported, and in consideration of the documents presented in the application, it is unclear what basis the Applicant had in mind in depicting its financial position within the first three years. The information does not make it clear that either a system of year-end figures or average figures within the year was contemplated. It is evident that the Applicant's projections as to profit and loss within those first three years are not accurate. Such matters as interest expense on time deposits; the ability to be successful in the market place, charging higher rates on installment loans and paying less interest on time deposits than the direct competition; miscalculating the amount of yield on government obligations; misstating the depreciation expenses; and the ambiguity in the formula utilized to establish the estimate of income lead to this factual conclusion. Nonetheless, given the operating margin of $500,000 above the one million dollar requirement for institution of bank operation, there is the necessary flexibility in this proposal to overcome these problems in estimation.

13. The Keystone State Bank has a 55% loan to deposit ratio. It has shown a return on equity in 1984 at 21.3% and a return on assets of 1.38%, ranking it as number one in the twenty-three similar size banks in Florida. Its growth rate in

the past five years as compounded annually has been 27%. In that five year period it has earned on the average 18.31% on equity and 1.31% on equity and 1.33% on return on assets, ranking at 14th in 237 banks in the deposit range of 25 million to 49 million dollars within the state of Florida. In summary, as indicated by its president, Jo Reed, who testified in the course of the final hearing, if the proposed bank were granted a charter, Keystone State Bank would still be a stable depository for the residents of the area and would continue as a strong and profitable financial institution.

DONE AND ENTERED this 19th day of March, 1986, at Tallahassee, Florida.

CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 1986.

ENDNOTE

1/ Counsel for the Department had requested the entry of a protective order which would prohibit the revelation of the materials set forth in the confidential file of the Department of Banking and Finance, other than as necessitated by the final hearing in this cause. That confidential exhibit is Department Exhibit 1-B. Counsel for the parties were instructed in the course of the hearing to designate those occasions in which reference was being made to this confidential information. That reference was never made. Therefore, it was unnecessary to segregate any testimony of a confidential nature from other findings set forth in this report. Department's Exhibit 1-B to this record is being transmitted under seal.

APPENDIX

The proposed fact finding of the Applicant and Protestant has been substantially incorporated into the report of the Hearing Officer, with the following exceptions:

APPLICANT

At page 11 of the proposed report of the Applicant, in depicting the remarks of Mr. Wood under subparagraph 3: These facts are rejected in that they are only significant in the full context of the remarks offered by Mr. Wood, which are described in the relevant portions of the Hearing Officer's report.

PROTESTANT

1. Paragraph 7 to the proposed facts is rejected as being subordinate to the facts found in the report of the Hearing Officer.

   
   

2. The second sentence to paragraph 10 is rejected as being subordinate to facts found in the report of the Hearing Officer.

COPIES FURNISHED:

Honorable Gerald Lewis Comptroller, State of Florida The Capitol

Tallahassee, Florida 32301

Carl B. Morstadt, Esquire Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301

William C. Andrews, Esquire

P. O. Drawer C

One SE First Avenue Gainesville, Florida 32602

Ronald A. Carpenter, Esquire

1. O. Box 1433

   Gainesville, Florida 32602

   ================================================================= AGENCY FINAL ORDER

   =================================================================

   
   

   STATE OF FLORIDA DIVISION OF BANKING AND FINANCE

   
   

   IN RE: APPLICATION OF MERCHANTS & SOUTHERN BANK OF CLAY COUNTY,

   FLORIDA, TO ORGANIZE A NEW CASE NO. 85-1830

   BANK (Hearing on protest filed ADMINISTRATIVE PROCEEDING by Keystone State Bank) NUMBER: 86-60-DOB

   /

   
   

   FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL ORDER

   
   

   Pursuant to notice, an administrative hearing was held before Charles C. Adams, Hearing Officer with the Division of Administrative Hearings, on December 10 and 11, 1985. The purpose of the hearing was to receive evidence concerning the application of Merchants & Southern Bank of Clay County for authority to organize a corporation for the purpose of conducting a general banking business.

   
   

   Having fully considered the facts and information contained in the record relating to the subject application, the Comptroller of the State of Florida, as head of the Department of Banking and Finance (the Department), hereby renders the following Findings of Fact, Conclusions of Law and Final Order in the above-style cause.

   
   

   FINDINGS OF FACT

   
   

   Upon consideration of the oral and documentary evidence addressed at the hearing, the factual findings contained in the Hearing Officer's Report are adopted in toto. A copy of the report is attached as Exhibit A reference.

   
   

   CONCLUSIONS OF LAW

   
   

   1. The statutory criteria set forth in Chapter 658, Florida Statutes are the standards which govern this application.

      Chapter 3C-10, Florida Administrative Code, contains the rules under which this application was considered. As set forth in Rule 3C-10.051, Florida Administrative Code, when an application for authority to organize and operate a new state bank is filed, it is the applicant's responsibility to prove that the statutory

      criteria that warrant the granting of authority are met. The Department shall conduct an investigation pursuant to Section 658.20, Florida Statutes, and then approve or deny the application at its discretion. This discretion is neither absolute nor unqualified, but is instead conditioned by a consideration of the criteria listed in Section 658.21, Florida Statutes, wherein it is provided that:

      
      

      The Department shall approve the application if it finds that:

      
      

      (l) Public convenience and advantage will be promoted by the establishment of the proposed state bank or trust company. In determining whether an applicant meets the requirements of this subsection, the department shall consider all materially relevant factors, including:

      
      

      1. The location and services offered by existing banks, trust companies, trust departments, and trust service offices in the community.

         
         

      2. The general economic and demographic characteristics of the area.

      
      

      1. Local conditions indicate reasonable promise of successful operation for the proposed state bank or trust company and those financial institutions already established in the primary service area. In determining whether an applicant meets the requirements of this subsection, the department shall consider all materially relevant factors, including: (a) Economic and demographic conditions and the growth potential of the community and county in which the proposed state bank or trust company intends to locate. (b) The growth rate, size, financial strength, and operating characteristics of financial institutions in the primary service area of the proposed bank or trust company. (3) The proposed capital structure is in such amount as the department shall deem adequate, but in no case shall the paid-in capital stock be less than $800,000. In addition to the capital required, every state bank or trust company hereafter organized shall establish:

         1. A paid-in surplus equal in amount to not less than 20 percent of its paid-in capital and

            
            

         2. A fund to be designated as undivided profits equal in amount to not less than 5 percent of its paid-in capital.

      
      

      1. The proposed officers have sufficient financial institution experience, ability, standing, and reputation and the proposed directors have sufficient business experience, ability, standing, and reputation to indicate reasonable promise of successful operation. At least one of the proposed directors who is not also a proposed officer shall have had direct experience as an officer or director of a financial institution within 3 years of the date of the application.

         
         

      2. The corporate name of the proposed state bank or trust company is reserved with the Department of State.

         
         

      3. Provision has made for suitable quarters at the location in the application.

      
      

   2. If, in the opinion of the Department, any one of the six foregoing criteria has not been met, and cannot be remedied by the Applicant, it cannot approve the application. An Applicant can, however, take corrective action in most circumstances, to meet the criteria set forth in Subsections 658.21(3)(4)(5) or(6), Florida Statutes, if any one of these is found to be lacking.

      For example, if all other statutory criteria are met, the Applicant may increase capital, or make certain changes in the board of directors, or extend the name reservation or alter the provisions for suitable banking house quarters, because these factors are, at least to some degree, within its control. It is the Department's policy to allow applicants to make certain changes to meet these criteria 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 its ability to meet the criteria set forth in Subsections 658.21(1) and (2) Florida Statutes, since the applicants cannot easily change the economic and demographic characteristics of an area. Therefore, if either one or both of these criteria are not met, the Department cannot approve the application.

   3. For purposes of applications for authority to organize and operate a bank, Subsection 658.12(20), Florida Statutes, defines the primary service area (PSA) as:

      
      

      ". . . the smallest geographical area from which a bank draws, or a proposed bank expects to draw, approximately 75 percent of its deposits; the term also means the smallest geographic area from which a trust company or the trust department of a bank or association draws, or a proposed trust company or a proposed trust department of a bank or association expects to draw, approximately 75 percent of the assets value of its fiduciary accounts."

      
      

   4. The Department concludes that the designated boundaries of the PSA do not unrealistically exclude competing financial institutions or include areas of concentrated population. The Department also concludes that a market exists for the Applicant in the PSA and that the Applicant may reasonably expect approximately 75 percent of its business to arise from the PSA. Consequently, the Department deems that the PSA has been realistically delineated and that the criterion set forth in Subsection 658.12(20), Florida Statutes, has been met.

      
      

   5. It is the opinion and conclusion of the Department that public convenience and advantage will be promoted by the proposed bank's establishment. Therefore the criterion in Subsection 658.21(1), Florida Statutes is met.

      
      

   6. As set forth in Rule 3C-10.051(3) (a) (1), Florida Administrative Code, the location and services offered by existing financial institutions in the service area are indicative of the competitive climate of the market. The traffic patterns in the area, as well as the area's general economic and demographic characteristics shall also be considered. Because it is recognized that the establishment of a new bank or 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; otherwise, a new bank could be justified for every street corner in the state. Clearly such a result was not the legislative intent in regulating entry into the banking industry, nor is it in the public interest.

      
      

   7. Based upon the facts in the record, the Department has determined that the establishment of the proposed new bank will substantially increase convenience for a significant number of residents of the PSA and to persons employed therein.

   8. It is the opinion and conclusion of the Department that local conditions indicate reasonable promise of successful operation for the proposed bank and those already established in the area. Therefore, the criterion in Subsection 658.21(2), Florida Statutes; is met.

      
      

   9. As set forth in Subsections 658.21(2)(a) and (b), Florida Statutes, and Rule 3C-10.051(3)(b), Florida Administrative Code, current economic conditions and, to a lesser extent, the growth potential of the area in which the new bank or trust company proposes to locate are important considerations in determining its probable success. Essential to the concept of banking opportunity is that there does and will exist a significant volume of business for which the bank or trust company can realistically compete. The growth rate, size, financial strength, and operating characteristics of financial institutions in the primary service area are also important indicators of economic conditions and potential business. It is noted that the statutory standard requires that:

      
      

      " . . . local conditions indicate reasonable promise of successful operation for the proposed state bank or trust company and those financial institutions ... already established in the primary service

      area. "

      
      

   10. Banking involves a public trust. Unlike private enterprise establishments, banks operate on the public's capital and therefore, the Legislature has vested in the Comptroller the responsibility of protecting the public interest. Furthermore, the failure of a bank, as opposed to private establishments, may have an unsettling effect on the overall economic welfare of the community, and that is why the Florida Legislature and the United States Congress have imposed stringent requirements for the industry. The Department is responsible for enforcing this legislative standard.

       
       

   11. Public interest is best served by having a banking system whereby competition is encouraged, where appropriate, yet at the same time, ensuring that the financial resources of the residents of the community -are stable and safe. That was the obvious intent of the Legislature in regulating entry into the banking industry.

       
       

   12. The Department has concluded that there does and will exist a significant volume of business for which the proposed bank can realistically compete, indicating a reasonable promise

       of successful operation for the proposed bank and those already established in the area.

       
       

   13. It is the opinion and conclusion of the Department that the proposed capital structure of the proposed bank is adequate. Therefore, the criteria of Subsection 658.21(3), Florida Statutes, are met.

       
       

   14. Capital should be adequate to enable the new bank or trust company to provide necessary services ..., including loans of sufficient size, to meet the needs of prospective customers. Capital should be sufficient to purchase, build, or lease a suitable permanent facility complete with equipment. Generally, the initial capital for a new nonmember bank should not be less than $1.0 million in nonmetropolitan areas and $1.5 million in metropolitan areas. The capital referred to above shall be allocated among capital stock, paid-in surplus, and undivided profits in the ratios set forth in Subsection (3) of Section 658.21, Florida Statutes. The proposed capital accounts of

       $1,500,000 are allocated according to the statutory ratios. Therefore, the criteria set forth in Subsection 658.21(3), Florida Statutes, are met.

       
       

   15. It is the opinion and conclusion of the Department that the criteria of Subsection 658.21(4), Florida Statutes, are met.

       
       

   16. The Department concludes that the proposed directors have, as a group, good character, sufficient financial standing and business histories demonstrating ability and experience commensurate with the positions for which they are proposed. All of the proposed directors are successful business persons and/or professionals, and have backgrounds evidencing honesty, integrity, and employment experiences coincidental with financial responsibility and at least one proposed director who is not also a proposed officer has had direct experience as an officer or director of a financial institution within 3 years of the date of the application. The President (Chief Executive Officer) will be named at a latter date. Therefore, the criteria of Subsection L658.21(4), Florida Statutes, are met.

       
       

   17. It should be noted that interlocking directorships involving existing financial institutions competitively near the proposed site of a new institution are discouraged. Such interlocking directorships could possibly restrict competition and create fiduciary problems. The Department concludes that there is no interlock problem in this instance.

       
       

   18. It is the opinion and conclusion of the Department that the corporate name of the proposed new bank, "Merchants & Southern Bank of Clay County", is reserved for use by Applicant as set forth in Section 607.027, Florida Statutes. Therefore, the criterion of Subsection 658.21(5), Florida Statutes, is met.

       
       

   19. It is the opinion and conclusion of the Department that provision has been made for suitable banking house quarters within the primary service area. Therefore, the criterion of Subsection 658.21(6), Florida Statutes, is met.

       
       

   20. As set forth in Rule 3C-10.051(3)(f), Florida Administrative Code, permission to open in temporary quarters may be granted, generally not to exceed one year. An extension, generally not to exceed six months, may be granted for good cause shown. Under the rules of the Department, the permanent structure of a new bank should contain a minimum of 2,500 square feet, unless the Applicant satisfactorily shows that smaller quarters are justified due to the performance of certain auxiliary services off-premises. In addition, it shall meet the Federal Bank Protection Act requirements and be of sufficient size to handle the projected business for a reasonable period of

       time. The banking house . . . facility shall be of a nature to warrant customer confidence in the institution's security, stability and permanence. Other pertinent factors include availability to adequate parking, adequate drive-in facility if such is contemplated, and possibilities for expansion.

       
       

   21. Temporary quarters are not contemplated by the Applicant. The bank will occupy permanent quarters of a nature warranting customer confidence.

       
       

   22. Rule 3C-10.051(5), Florida Administrative Code, relating to insider transactions, requires that:

       
       

       Any financial arrangement or transaction involving, directly or indirectly, the organizers, directors, officers, and shareholders owning five percent or more of the stock, or their relatives, their associates or interests must be fair and reasonable, fully disclosed, and comparable to similar arrangements which could have been made with unrelated parties. Whenever any transaction between the proposed bank or trust company and an insider involves the purchase of real property, appraisals of land and improvements thereon shall be made by an independent qualified appraiser, and be dated no earlier than six months from the filing date of the application.

       
       

   23. The Department has determined that the terms of the transaction with Dennis R. O'Neil are fair and equitable, fully disclosed and comparable to similar arrangements which could have been made with unrelated parties. Therefore, the criterion of Rule 3C-10.051(5), Florida Administrative Code, is met.

FINAL ORDER

Based upon the Record, Findings of Fact, and Conclusions of Law recited above, it is established that all six statutory criteria set forth in Section 658.21, Florida Statutes, are met, or can be met by complying with the conditions of this Order. It is thereupon

ORDERED that authority to organize and operate a bank at 100 Commercial Circle, Keystone Heights, Clay County, Florida is hereby granted to the Applicant subject to Applicant's compliance with the following conditions:

1. That Applicant files an application for membership or insurance of accounts, as applicable, within six months of the date of this Order, as provided in Section 658.22, Florida Statutes.

   
   

2. That the appropriate regulatory agency gives its approval for insurance of accounts or membership, as applicable.

   
   

3. That the Board of Governors of the Federal Reserve System gives its approval to the acquisition of stock by a registered bank holding company.

   
   

4. That the President and the Chief Executive Officer (if other than the President) shall be selected and their names, addresses, biographical and financial data shall be submitted to the Department for approval in compliance with Subsection 658.21(4), Florida Statutes, and the appropriate rules of the Florida Administrative Code.

   
   

5. That the name of the proposed bank shall be that cited in this Order.

   
   

6. That the initial total capital shall not be less than cited in this Order. If applicable, authorized but unissued shares shall be issued in compliance with Subsection 658.34(4), Florida Statutes.

   
   

7. Within six months after approval by the appropriate federal regulatory agency, Applicant shall submit to the Department the original executed Articles of Incorporation, in the form prescribed by the Department, together with the filing fee due to the Secretary of State under Sections 607.361 and 607.364, Florida Statutes.

   
   

8. The bank shall open within six months after filing of the Articles of Incorporation with the Secretary of State. This requirement may be subject to one six-month extension upon written request to the Department.

   
   

9. That no later than 6 months from the date of approval by the appropriate federal regulatory agency, Applicant shall file with the Department a list of subscribers to the stock, as provided in Subsection 658.235(1), Florida Statutes, together with a copy of the stock subscription agreement executed by each subscriber.

   
   

10. That any person, not already cited as an officer or director in this Order, who subscribes to 10 percent or more of the stock, shall submit biographical and financial data to the

    Department for approval, as provided by Subsection 658.235(2), Florida Statutes.

    
    

11. Subscriptions resulting in direct or indirect acquisition of control, shall be subject to compliance with Section 658.28, Florida Statutes.

    
    

12. At such time as subscriptions for stock have been fully paid and stock certificates issued, but no later than 30 days prior to its intended opening date, Applicant shall file with the Department a certification that the entire capital, surplus and undivided profits have been fully and unconditionally paid and that valid assets representing such capital, surplus and undivided profits are held by the bank.

    
    

13. That an accounting of the organization expenses be provided to the subscribers and to the Department, as provided in Subsection 658.235(3), Florida Statutes.

    
    

14. Until the conditions herein specified and other reasonable requirements of the Department 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.

In taking this action, the Department has relied on the representations and commitments made by Applicant in its application. Every effort should be made to meet these representations and commitments.

Subsequent to the Applicant's compliance with all of the above conditions and at least 30 days prior to the desired opening date, the Department shall be given notice of the opening date. Upon receipt of such notice, the Department shall take the necessary steps to authorize opening of the bank.

DONE AND ORDERED this 9th day of April, 1986, in Tallahassee, Florida.

GERALD LEWIS

Comptroller of Florida The Capitol

Tallahassee, Florida 32301

COPIES FURNISHED:

Ronald A. Carpenter, Esquire

P.O. Box 1433 Gainesville, F1 32602

William C. Andrews, Esquire Post Office Drawer C

One S.E. First Avenue Gainesville, F1 32602

Carl B. Morstadt, Esquire Assistant General Counsel Office of the Comptroller Suite 1301, The Capitol Tallahassee, F1 32301

Charles C. Adams, Esquire Hearing Officer

Department of Administration Division of Administrative Hearings Oakland Building

2009 Apalachee Parkway

Tallahassee, F1 32301

Federal Deposit Insurance Corporation Federal Reserve Bank of Atlanta

Regional Administrator of National Banks Orlando Area Financial Manager

Bureau of Bank Examinations Legal Division

Docket for Case No: 85-001830

Orders for Case No: 85-001830