Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The applicant's proposed banking facility is to be located at the intersection of Southeast First Street and Federal Highway in Boca Raton, Palm Beach County, Florida. The designated primary service area (hereinafter referred to as PSA) encompasses the southern portion of Palm Beach County, including all of the City of Boca Raton, a portion of the town of Highland Beach and unincorporated areas west of Boca Raton. The applicant's PSA was determined and identified by considering traffic patterns, shopping, retail, professional services, business industries, geographical barriers and competitive financial institutions. The PSA is bounded on the north by the C-15 Canal, on the south by the Palm Beach/Broward County line, on the east by the Atlantic Ocean and on the west by the Florida Turnpike. The east/west boundaries are located 6.2 air miles apart, and the north/south boundaries are 7.1 air miles apart. The proposed site is located 5.2 air miles from the northern boundary of the designated PSA, 1.9 air miles from the southern boundary, 1.1 air miles from the eastern boundary and 5.1 air miles from the western boundary. According to one source, the entire PSA is within an average twelve minute driving time distance. One witness conducted a survey travelling on main traffic arteries from different points within the PSA to the proposed site. This experiment was conducted on February 4, 1980, during the winter tourist season, and involved some lunch time traffic. The driving times from nine different sites ranged from four minutes to nineteen minutes. The center of the downtown Boca Raton area is located approximately two blocks from the applicant's proposed site. The PSA contains six north/south traffic arteries and six east/west traffic arteries. Interstate 95 (I-95) separates the PSA approximately in half. The area east of I-95 is densely populated with limited vacant land available for development. The area west of I-95 is significantly less populated than the area east of I-95, with substantial vacant land available for future growth. Most new construction is taking place in the area west of I-95. This includes several large residential developments, a regional mall and office plazas. According to the applicant, there are 334 commercial establishments within one- half mile of the proposed site. The largest of the 86 light industries in Boca Raton is IBM, with approximately 3,600 employees. The IBM plant is located approximately 4 1/2 miles from the applicant's proposed site. According to data obtained from the Area Planning Board of Palm Beach County, the applicant estimates the 1979 population of the PSA to be 56,178. It is projected that this figure will be increased by 77.9 percent over the next seven-year period and that the population of the PSA will reach almost 94,000 by the year 1985. In mid-1978, there were 18 residential projects underway within the PSA with plans to add 30,662 new dwelling units to the area. As of September, 1979, according to the applicant, 4,967 single-family dwellings and condominium units had been completed and another 2,187 were presently under construction. The majority of the units are located west of I-95. Gulfstream's economic expert was of the opinion that I-95 would be a barrier beyond which persons residing or working west of I-95 would not cross to do their banking business. Two of the protesting banks located very close to the proposed site of the applicant have the same southern and eastern PSA boundaries, but smaller northern and western boundaries. These PSAs were designated in 1959 and 1971, at a time when there was little activity west of I- 95. According to data compiled by the Bureau of Economics and Business Research, Division of Population Studies at the University of Florida, the population of Palm Beach County as of April 1, 1979, was 564,447. This represents an annual average growth rate of 6.6 percent between 1970 and 1976, 3.6 percent between 1976 and 1977, 5.7 percent between 1977 and 1978, and 5.6 percent between 1978 and 1979. The same source shows Boca Raton's population of 49,744 to represent average annual growth rates of 8.5 percent between 1970 and 1976, 4.7 percent between 1976 and 1977, 4.2 percent between 1977 and 1978, and 2.4 percent between 1978 and 1979. The population of the unincorporated areas of the county showed similar patterns of growth rates -- a high growth rate between 1970 and 1976, a drop to almost half between 1976 and 1977, an upward trend between 1977 and 1978 and another drop between 1978 and 1979. The average annual growth rates in the population of Highland Beach for the same four periods of time were 34.2, 26.4, 9.8 and 2.2 percent. The growth in the County's population results almost exclusively from net migration, which is favorable to a new banking institution. Net migration accounted for 99.08 percent of the population growth in 1978, and for 99.21 percent in 1979, leaving only .79 percent due to natural increase. The labor group (ages 15 through 64) constitutes some 59 percent of the County's population, and retirees (older than 65) comprise some 20 percent of the population. The average annual unemployment rate declined from 9.1 to 7.1 percent between 1977 and 1978. These figures are somewhat higher than the State averages. Since 1969, the per capita personal income figures for West Palm Beach and Boca Raton have been consistently higher than the state averages. The median family incomes for the PSA have, since 1969, exceeded both the county and the state median family income figures. Approximately ten commercial banking facilities presently exist within the applicant's designated PSA with about six more having been approved, but unopened. Three of the existing facilities are main offices and they are the petitioners herein. The main office of Gulfstream is located 0.2 miles northeast of the proposed site. The main office of the Boca Raton National Bank is located 0.5 miles south of the proposed site and the main office of Citizens National Bank is located 1.0 mile northeast of the proposed site. The branch office of the intervenor is located 1.7 miles northeast of the proposed site. There are also over twenty existing and/or approved but unopened savings and loan offices within the applicant's PSA. There are presently no state chartered independent banks within the PSA. The petitioners Citizens National and Boca Raton National Banks are independent national banks affiliated through common ownership of stock. As of June, 1979, the total deposits of all existing commercial banking facilities located within the PSA increased from the previous year. The total deposits of the individual savings and loan institutions within the PSA ranged from $3.5 million to $118.5 million in March of 1978, to $4.7 million to $127 million in March of 1979. Of the 36 reporting banks in Palm Beach County, between June of 1978 and June of 1979, the following increases were noted: a 20.7 percent increase in loans, a 12.7 percent increase in time deposits, a 3.2 percent increase in demand deposits and an 8.5 percent increase in total deposits, which total deposits amounted to $2,253,491,000. The most recently opened full service bank located nearest to the applicant, though outside the applicant's PSA, experienced large increases in loans and total deposits. This bank, the Florida Coast Bank of Palm Beach County, opened in May of 1978 and grew by 286 percent in loans over a year's period and had total deposits in the amount of $11.8 million by November 30, 1979. It is proposed that the new bank will be capitalized with a total of $1.5 million, composed of $750,000.00 common capital, $450,000.00 surplus and $300,000.00 in undivided profits. There will be 150,000 shares of stock sold. As of the date of the application, 117,500 shares had been sold to 45 individual purchasers. Some 83 percent of the subscribers are residents of Palm Beach County. Of this figure, approximately 78 percent are residents of Boca Raton and reside within the PSA. Saul Slossberg, an organizer and proposed director, has subscribed to ten percent of the stock. In addition, he holds the remaining unsubscribed stock as trustee. It is intended that these shares held in trust will be distributed to the public. The proposed board of directors is composed of six members. Only one of the six, Charles A. Heeg, has been a bank officer, and that was in the trust department of another local bank. The applicant does not intend to offer trust services. Two other proposed directors have served as directors of other financial institutions. Norman I. Stone, who is presently in the brokerage business, served as a member of the board of directors of a New York bank for seven or eight years in the 1950's. Sy Reece, a real estate broker and warehouse developer, presently serves as a director of a savings and loan institution in Miami and is on the advisory board of the First American Bank of North Palm Beach. The principal organizer, Saul A. Slossberg, is a developer and general contractor with no prior direct banking experience. The other two proposed directors are Karl Enselberg, a medical doctor, and Melvin Schwartz, an attorney who has been involved in corporate banking matters. The organizers have not yet made a determination as to the identity of any of the key officers of the proposed bank. The chief executive officer will not be anyone from the organizing group. The proposed banking quarters will consist of a 4,000 square foot single-story building with twenty-three parking spaces and drive-in teller facilities. Both the land and the building are owned by Saul Slossberg, a proposed director. Initially, the bank will be housed in 3,000 square feet at an annual rental of $36,000.00. After the first year, the bank will have an option to lease the additional 1,000 square feet for an added annual fee of $12,000.00. Utility costs will be paid by the lessor. The bank will have a ten year lease, with an option to purchase. An appraisal from an MAI appraiser indicates that the market value of the land and the building will be $400,000.00. All of the proposed directors have been informed that Mr. Slossberg is the lessor for the proposed banking quarters, and Mr. Slossberg intends to make a full disclosure of the transaction terms to all subscribers of stock. If the lease or rental terms are unacceptable to the Department, Mr. Slossberg is willing to change it or to sell the property to a third party. While the interior layout has not been determined yet, it is anticipated that there will be four teller stations, with room to expand to eight. Citizens National Bank is presently operating in a 4,000 square foot building and services some $14 million in accounts. Citizens does utilize some off-site services, such as electronic data processing. Mr. Slossberg has also purchased a strip of land containing 6,800 square feet adjacent to the proposed site for the express purpose of making expansion possible, should it be needed. This space could be used to provide 15 to 18 additional parking spaces. The applicant intends to offer the prevailing banking services, prices, interest rates and hours of business as other banks in the area. It intends to be competitive in basic and ancillary services. It will not have a trust department. It is intended that the proposed new bank will offer more personalized services and will cater primarily to individuals and small and medium-sized businesses. The applicant expects to make primarily smaller loans under $50,000.00, for which it feels there is a demand. The loan portfolio of the Boca Raton National Bank indicates that as of September 28, 1979, 1,102 out of its 1,108 loans were loans under $50,000.00. Other banks in the downtown area do not have on-site drive-in teller facilities. The applicant projects total deposits of $4 million, $7 million and $10 million for the first, second and third years of operation. It also projects a loss of $69,834.00 during the first year of operation, a loss of $11,289.00 during the second year and a profit of $78,170.00 during the third year of operation. Due to higher income and expense figures occurring since the date of its application, these loss and profit estimates may need to be adjusted. The name of the proposed new bank is Royal Palm Bank. This name was selected because the words "Royal Palm" appear in a nearby street, a shopping center, a yacht club, and a dinner theatre and it was felt by the organizers that people could easily relate to the proposed name and it tends to express an affiliation with the City of Boca Raton. The applicant did not consult with any expert or studies regarding bank names. No expenses have been incurred with respect to the proposed name, and there would be no economic hardship to the organizers if they are required to select a different name for the bank. The intervenor Royal Trust Bank of Palm Beach, N.A. is a branch office and member of the Royal Trust Bank Corporation. It is located 1.7 miles northeast of the proposed site. The Royal Trust Bank Corporation has a registered service mark which has been in use since 1976, and the intervenor utilizes this trade mark. The service mark contains a palm tree. The Royal Trust Bank Corporation also publishes a periodical entitled the "Royal Palm News." For the years 1977, 1978, and 1979, the statewide advertising campaign of the Royal Trust Banks resulted in an expenditure of $1,080,000.00. Of this figure, $803,005.00 was expended in Dade, Broward and Palm Beach Counties. In Palm Beach County, the intervenor has engaged in television, radio, magazine and newspaper advertising activities. Other advertising materials utilized by the intervenor such as matches, service literature and things of that nature, also include the logo containing the palm tree. The intervenor intends to continue the use of the name Royal Trust Bank and the logo containing a palm tree. It is felt that the palm tree in connection with the registered service mark plays an important part in the identification of the intervenor and Royal Trust Banks. In accordance with the provisions of Florida Statutes, 120.57(1)(a)(12), conclusions of law and a recommendation are not included in this Report. Respectfully submitted and entered this 13th day of March, 1980, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 Robert I. MacLaren, II, Esquire Osborne and Hankins Suite 200, Weir Plaza Bldg. 855 South Federal Highway Post Office Drawer 40 Boca Raton, Florida 33432 David B. Van Kleeck, Esquire Buchanan, Ingersoll and Van Kleeck Suite C, Plaza II Bldg. 301 West Camino Gardens Blvd. Boca Raton, Florida 33432 Walter A. Engdahl, Esquire 140 East Palmetto Park Road Boca Raton, Florida 33432 Karlyn Ann Loucks Assistant General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32301 Robert Paul Paul, Landy and Beiley Penthouse, Peninsula Federal Bldg. 200 South East 1st Street Miami, Florida 33131 Mark E. Pollack and Edward A. Stern Pollot, Stern and Pollock, P.A. 627 South West 27th Avenue - Suite 300 Miami, Florida 33135 =================================================================
Conclusions 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 warranting the grant of authority are met. The Department of Banking and Finance (hereinafter referred to as the Department) shall conduct an investigation pursuant to Subsection 659.03(1), Florida Statutes, which was done in this case, and then approve or deny the application in its discretion. This discretion is neither absolute nor unqualified, but is instead conditioned by a consideration of the criteria listed in Subsection 659.03(2), Florida Statutes, and 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 mane 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 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 659.03(2)(c), (d), (e), or (f), 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 change the name, 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 659.03(2)(a) and (b), Florida Statutes, since 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. For purposes of applications for authority to organize and operate a new bank, Rule 3C-10.051(1), Florida Administrative Code, defines the primary service area (PSA), as "the smallest area from which the proposed bank expects to draw approximately 75 percent of its deposits. It should be drawn around a natural customer base and should not be unrealistically delineated to exclude competing banks or to include areas of concentrated population." Based upon man-made traffic barriers, population concentrations, commercial activity, traffic patterns and the location of existing offices of financial institutions in the area, the Department concludes that the Applicant's designated PSA is unrealistically delineated. The Applicant extended the western boundary of its designated PSA to the Florida Turnpike to include an area of high growth potential west of Interstate 95 (I-95), a limited-access highway. In conjunction with the residential and commercial development of this area, numerous offices of financial institutions have located or have been approved to be located nearby. It is unrealistic to expect the population living west of I-95 to drive past these financial institutions, cross I-95 (at the limited number of available crossings) and drive to the other side of Boca Raton to bank at the downtown location of the Applicant's proposed site, especially when no new services are being offered by the bank. Likewise, residents north of 40th Street, N.W. (Spanish River Boulevard) generally would not drive past the numerous financial institutions located there, cross two heavily traveled east-west arteries, and travel through Boca Raton to the downtown location of the proposed bank. By including these areas, Applicant's designated PSA is not drawn around a natural customer base which can reasonably be expected to bank at a financial institution located at the Applicant's proposed site. The Department concludes that based on traffic patterns, man-made barriers and location of other financial institutions, the northern and western boundaries of a realistic PSA of the Applicant's proposed site are 40th Street, N.EW. (Spanish River Boulevard), and I-95, respectively. It is the opinion and conclusion of the Department that public convenience and advantage will not be promoted by the establishment of the proposed bank in this case. Therefore, the criterion in Subsection 659.03(2)(a), Florida Statutes, is NOT met. As set forth in Rule 3C-10.51(2)(a), Florida Administrative Code, the location and services offered by existing banking and financial institutions in the service area are considered as 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 are also considered in evaluating this statutory criterion. Because it is recognized that the establishment of a new bank 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. The record indicates that access to the proposed site is inconvenient due to difficult ingress and egress caused by a heavy and continuous flow of traffic on South Federal Highway and the lack of a traffic light to regulate the traffic for the benefit of users of the proposed site; that the proposed site is located in downtown Boca Raton east of I-95, a mature area housing mainly offices and relatively small retail trade establishments; that there is only limited room for growth in its vicinity without major reconstruction and rehabilitation projects; that the Applicant's designated PSA already has ten commercial banking offices and thirteen savings and loan offices serving it; that the more realistic PSA, as delineated by the Department, still has nine banking offices serving it, of which three are main offices, two are branches which were formerly full-service banks, and fourteen savings and loan offices; that five of these banking offices and eight of the savings and loan offices are located in proximity to the proposed site and are more conveniently accessible from the main centers of commercial activity within the realistic PSA; that of the three bank main offices within the realistic PSA two are located within 0.5 of a mile from the proposed site and the third is within one mile from it, and, that in addition, there are three branch offices of three other banks located within a 1.7 mile radius of the proposed site; and that the proposed new bank would not offer any new services or improve on existing services. Due to the number of existing banking and savings and loan offices in or near the realistic PSA, their locational distribution, and the fact that the record does not reflect inadequate or an insufficient variety of financial services, it appears that the banking needs of the PSA's resident and working populations are being conveniently and adequately served at this time and that competition in the realistic PSA would not be significantly enhanced by the establishment of the proposed new bank, which will not offer any new services. Located within the central portion of the realistic PSA, the proposed site could offer some convenience for businesses and residents situated nearby, but the existing banking and savings and loan offices, which are presently serving most of them, are more easily accessible and more conveniently located for most of the PSA residents and businesses. Furthermore, because of the population density within the realistic PSA and the fact that it is a mature area with little room for expansion, rapid population growth is unlikely. In view of the above, the Department concludes that the criterion in Subsection 659.03(2)(a), Florida Statutes, is not met. It is the opinion and conclusion of the Department that local conditions do not assure reasonable promise of successful operation for the proposed bank and those banks already established in the community. Therefore, the criterion in Subsection 659.03(2)(b), Florida Statutes, IS NOT met. As set forth in Rule 3C-10.051(2)(b), Florida Administrative Code, current economic conditions and, to a lesser extent, the growth potential of the area in which the new bank proposes to locate are important considerations in determining the bank's probable success. Essential to the concept of banking opportunity is that there does and will exist a significant volume of business for which the new bank can realistically compete. The growth rate, size, financial strength, and operating characteristics of banks and other financial institutions in the PSA are also import indicators of economic conditions and potential business for a new bank. It is noted that the statutory standard requires that ". . .local conditions ASSURE reasonable PROMISE of successful operation for the proposed bank and those already established in the community. . ." (E.S.), NOT merely that local conditions INDICATE a POSSIBILITY of such success. Banking involves a public trust. Unlike private enterprise establishments generally, banks operate on the public's capital and therefore, the Legislature has vested in the Comptroller the responsibility of protecting that public interest. Furthermore, the failure of a bank, as opposed to private enterprise establishments generally, 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. This Department is responsible for enforcing this legislative standard. 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 in the community are stable and safe. That was the intent of the Legislature in regulating entry into the banking industry. The record indicates that between June 30, 1978 and June 30, 1979 the rates of growth of the total deposits of the existing offices of commercial banks located within the PSA were uneven, ranging between poor to good, although all of them showed increases. These increases ranged between $1.9 million and $23.4 million. There is no evidence in the record that the performance of these banks can be duplicated by the Applicant. As was already pointed out in the discussion of the criterion of convenience and advantage, both the resident and business populations of the realistic PSA are conveniently and adequately served by this PSA's existing offices of financial institutions. Since the Applicant does not plan to offer any new services, no significant transfer of customers, if any, from existing institutions to the proposed new bank can be expected. This is especially true of those customers with loan or other commitments to one or more of the existing institutions. As to new and uncommitted customers, the realistic PSA is a densely populated mature area in downtown Boca Raton and the Applicant is not likely to benefit to any significant degree in the near future from the population growth in other parts of the City or in Palm Beach County. Although the record also shows that the total deposits and loans of Florida Coast Bank of Palm Beach County, N.A., the most recent bank to open in Palm Beach County (May, 1978) but which is located outside of the Applicant's designated PSA, grew significantly during its first 18 months of operation, this bank serves a different PSA. There was no evidence in the record that the rate of growth of that PSA's population and its demographic and economic characteristics, as well as the number, nature, and competitive climate of the offices of financial institutions serving it are analogous to the Applicant's realistic PSA. It cannot, therefore, be reasonably assumed that the Applicant will be able to duplicate its performance. It should also be noted that this bank is more conveniently located to and accessible from that section of the Florida Turnpike which serves the southern portions of Palm Beach County. Based on the above considerations, the Department is of the opinion that the feasibility of materialization of the Applicant's deposit projections remains inconclusive. In view of the fact that the statutory standard requires that ". . .local conditions ASSURE reasonable PROMISE of successful operation for the proposed new bank. . .", the Department concludes that the criterion in Subsection 659.03(2)(b), Florida Statutes, is not met. It is the opinion and conclusion of the Department that the proposed capital structure of the proposed new bank is adequate. Therefore, the criterion in Subsection 659.03(2)(c), Florida Statutes, IS met. Capital should be adequate to enable the new bank to provide the necessary banking services, including loans of sufficient size, to meet the needs of prospective customers. It should be sufficient to purchase, build or lease a suitable permanent banking 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. However, greater capital may be required of a new bank which is a member of the Federal Reserve System because of the more restrictive uses of capital imposed by that body. The capital referred to be allocated among capital stock, paid in surplus, and undivided profits in the ratios set forth in Section 659.04(3), Florida Statutes. The Applicant's proposed capital accounts total $1.5 million and are allocated according to the statutory ratios. Therefore, the criterion in Subsection 659.03(2)(c), Florida statutes, is met. It is the opinion and conclusion of the Department that although the proposed directors have good character, have reputations of financial responsibility, ability and good standing in their community, they do not have sufficient direct commercial banking experience to assure reasonable promise of successful operation for the proposed new bank. Therefore, the criteria in Subsection 659.03(2)(d), Florida Statutes, ARE NOT met. As set forth in Rule 3C-10.051(2)(d), Florida Administrative Code, the organizers, proposed directors, and officers as a group shall have reputations evidencing honesty and integrity. They shall all have employment and business histories demonstrating their responsibility in financial affairs. At least one member of a proposed board of directors, other than the Chief Executive Officer, shall have direct banking experience. In addition, the organizers, proposed directors, and officers shall meet the requirements of Sections 659.11 and 659.54, Florida Statutes. Officers shall have demonstrated abilities and experience commensurate with the position for which proposed. Members of the initial management group, which includes directors and officers, shall require prior approval of the Department. Changes of directors or Chief Executive Officer during the first year of operation shall also require prior approval of the Department. While it is not necessary that the names of proposed officers be submitted with an application to organize a new state bank, the Chief Executive Officer and operations officer must be named and approved at least sixty (60) days prior to the bank's opening. The Department concludes that the proposed directors have, as a group, good character, sufficient financial standing, business experience and responsibility, but the board lacks in-depth experience in commercial banking to assure reasonable promise of successful operation. Were this the only requirement not met, the Department would generally allow the Applicant to correct this deficiency by adding at least one director other than the Chief Executive Officer, with direct commercial banking experience. 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. In this instance, one of the proposed directors is presently a director of a savings and loan association in Miami which, because of its service area, is not considered a directly competitive financial institution. The Department concludes, therefore, that the interlocking directorship in this instance will not restrict competition or create fiduciary problems. It is the opinion and conclusion of the Department that the name of the proposed new bank, Royal Palm Bank, is so similar as to cause confusion with the name of existing banks. Therefore, the criterion of Subsection 659.03(2)(e), Florida Statutes, IS NOT met. As set forth in Rule 3C-10.051(2)(e), Florida Administrative Code, in determining whether an applicant meets the requirements of this statutory criterion, the Department will consider the names of all existing banks in the state. This provision shall not apply to affiliates of bank holding companies. In addition to the foregoing criterion an applicant shall meet the requirements set forth in Section 607.024, Florida Statutes. The Applicant's proposed name, Royal Palm Bank, begins with the same word as the Royal Trust Bank, which has a branch located 1.7 miles northeast of the proposed site. In addition to the similarity of name, the Royal Trust Bank uses a registered trade mark containing a palm tree in all of its advertising and service literature, which plays an important part in the identification of the Royal Trust Bank. In view of the similarity of the names, the identification of the Royal Trust Bank with a palm tree and the monies expended by the Royal Trust Bank in advertising over the last three years, the Department concludes that the Applicant's proposed name, Royal Palm Bank, is so similar as to cause confusion with the name Royal Trust Bank. It should also be noted that the Applicant did not incur any expenses in the identification and promotion of the proposed name or consult with any expert or perform studies regarding the bank's name. It is the opinion and conclusion of the Department that provision has not been made for suitable banking house quarters in the area specified in the application. Therefore, the criterion of Subsection 659.03(2)(f), Florida Statutes, IS NOT met. As set forth in Rule 3C-l0.051(2)(f), Florida Administrative Code, permission to open in temporary quarters may be granted, generally not to exceed one (1) year. An extension, generally not to exceed six (6) months, may be granted for good cause shown. The permanent structure of a new bank should contain a minimum of 5,000 square feet, unless the applicant satisfactorily shows that smaller quarters are justified due to the performance of certain auxiliary services off the premises. In addition, it shall meet Federal Bank Protection Act requirements and be of a sufficient size to handle the projected business for a reasonable period of time. The facility shall be of a nature to warrant customer confidence in the bank's security, stability, and permanence. Other pertinent factors include availability of adequate parking, an adequate drive-in facility if such is contemplated, and possibilities for expansion. Temporary quarters are not contemplated by the Applicant. The proposed banking quarters consist of a 4,000 square foot single-story building, of which the Applicant intends to initially occupy 3,000 square feet. The record does not indicate that any auxiliary services will be performed off- premises. Therefore, the provisions of Rule 3C-10.051(2)(f), Florida Administrative Code, and the criterion of Subsection 659.03(2)(f), Florida Statutes, are not met. Were this the only requirement that had not been met, the Department would generally allow the Applicant to correct the deficiency. Rule 3C-10.051(3), Florida Administrative Code, relating to stock distribution and financing, provides that To encourage community support, wide distribution of stock ownership is desirable. The majority of the stock should be issued, whenever possible, to local residents of the community, persons with substantial business interests in the community, or others who may reasonably be expected to utilize the services of the bank. Subscribers to 5 percent or more of the stock may not finance more than 50 percent of the purchase price if the extension of credit is predicated in any manner the stock of the new bank, whether or not such stock is pledged. The Department concludes that the initial stock distribution among 45 subscribers, most of whom reside or have businesses in the PSA, is acceptable, although generally a wider distribution is desirable to encourage community support. Rule 3C-10.051(4), Florida Administrative Code, relating to insider transactions requires that Any financial arrangement or transaction involving the proposed bank and its organizers, directors, officers, and shareholders owning 5.0 percent or more of the stock, or their relatives, their associates or interests should ordinarily be avoided. Should there be transactions of this nature they must be fair and reasonable, fully disclosed, and comparable to similar arrangements which could have been made with unrelated parties. The Department concludes that there is an insider transaction involved in the lease of the proposed bank building from Saul Slossberg, a proposed director and subscriber of more than five percent of the stock. The transaction has been disclosed to all of the proposed directors, however, it is not apparent from the record that the transaction has been disclosed to all the subscribers. Information has been submitted to indicate that the terms of the transaction are comparable to similar arrangements which could have been made with unrelated parties. 12. Rule 3C-10.051(5), Florida, Administrative Code, sets forth that In all cases appraisals of land and improvements thereon shall be made by an independent qualified MAI appraiser, and be dated no more than six (6) months prior to the filing date of the application. Based upon comparable information submitted to the Department, the Department concludes that the proposed leasing arrangements are reasonable and competitive.
The Issue In Case No. 00-0262, the issue is whether Respondent Wells is guilty of various acts and omissions that would justify the imposition of an order removing him as a director of Respondent First Bank or imposing upon him an administrative fine of $10,000. In Case No. 00-0262, an additional issue is whether Respondent Alters waived his right to request a hearing; if not, an additional issue is whether Respondent Alters is guilty of various acts and omissions that would justify the imposition of an order removing him as a director of Respondent First Bank or imposing upon him an administrative fine of $5000. In Case No. 00-0434, the issue is whether Respondent First Bank must pay Petitioner the costs of the examination conducted by Petitioner from September 13 through October 15, 1999, and, if so, the amount of such costs for which Respondent First Bank is liable.
Findings Of Fact Background of First Bank and Wells The incorporators filed Articles of Incorporation for Respondent First Bank of Jacksonville (First Bank) on August 8, 1988. Requiring at least five directors, the articles identify the following persons as the initial directors: Irby S. Exley, Sr., Edward L. Green, Nicholas W. Kish, William C. Mick, Jr., and Respondent Clyde N. Wells, Jr. (Wells). Wells, as “President/Cashier” of First Bank, filed amended articles of incorporation on July 25, 1990, naming the same initial directors. Elaborating upon the method of electing directors, the amended articles provide that the shareholders shall elect directors, except when the board of directors elects a director to fill a vacancy. Article V, Paragraph 4, of the amended articles authorize the election of a director by the vote of a “majority of the remaining or sitting directors, although less than a quorum of the Board is sitting at such vote.” Wells was a scholarship student at the University of Georgia, from which he graduated in 1958. He attended law school at the University of Georgia and earned his law degree in 1962. After a year or two practicing with a large corporate law firm in Philadelphia, Wells moved to Jacksonville, where he joined a local law firm and began to specialize in corporate, tax, and real estate law. He later obtained Florida Bar certification in tax law. Wells first became professionally involved with banks when he represented several banks owned by Florida National Bank. Leaving the regulatory work to larger firms, Wells and his firm provided legal services in loans, transactions, and litigation. In the late 1960s, Wells became a director of, and general counsel to, Marine National Bank. Although he continued to provide services for Florida National Bank, Wells served Marine National Bank until its sale in 1982. Wells’ involvement with Marine National Bank introduced him to the operational side of banking, such as receiving and disbursing funds, and the regulatory environment in which banks function. At this time, Wells acquired some knowledge about banking hardware and software. Wells’ involvement with Marine National Bank also introduced him to the regulatory side of retail banking. For instance, the Office of the Controller of the Currency criticized the extent to which buildings and land represented the bank’s capital. Wells communicated with the federal regulatory agency about a possible sale of a building, but the situation eventually resolved itself by the growth of the bank’s other assets. While associated with Marine National Bank, Wells was closely involved with the establishment of other banks owned by the holding company that owned Marine National Bank. Following the sale of Marine National Bank in 1982, Wells served as special counsel to First Commercial Bank of Live Oak. He also served as special counsel to General Financial Systems, a 29-bank holding company that controlled the banks with the largest deposits in Palm Beach County. After General Financial Systems sold its banks, Wells returned to a general law practice in Jacksonville. In 1985, after Wells had been out of banking for at least three years, Wells and some Jacksonville residents discussed the possibility of forming a new bank, which became First Bank. From 1986-89, Wells was involved in organizing First Bank. He and the others hired Scott Bain as a consultant and president. Mr. Bain, who had been a vice president of Barnett Banks for several years, served the group for a couple of years. However, at about the time of the opening of First Bank, Mr. Bain suffered a personal tragedy in the death of a young child, and he and his wife moved to North Carolina. Wells tried to persuade Mr. Bain to return to Jacksonville and manage First Bank when it opened. Wells had not intended to serve as the president of First Bank, although he had likely intended to provide legal services to the bank. Of the 310,000 outstanding shares in First Bank, Wells personally owns 75,000 shares and Welco Investment Trust, of which Wells owns beneficially, 90,000 shares. The value of Wells’ overall investment in First Bank was originally valued at $1.7 to $2.0 million. Background of Federal and State Regulation of First Bank Annual Examinations and Reports of Examination First Bank began operations on August 28, 1989, as a federally insured State bank that is not a member of the Federal Reserve System. As such, First Bank is under the concurrent jurisdiction of the Federal Deposit Insurance Corporation (FDIC) and Petitioner. In practice, the federal and state banking agencies alternate responsibility for conducting annual bank examinations, which must take place at intervals no greater than 36 months. Following annual examinations, Petitioner has prepared reports of examinations (ROE) dated July 5, 1995; September 2, 1997; and September 13, 1999. The FDIC has prepared ROEs dated May 22, 1996; December 7, 1998; and March 20, 2000. Petitioner commenced the proceeding to remove the directors approximately three months after the ROE dated September 13, 1999. The 1999 ROE followed the 1998 ROE by only nine months, and the 2000 ROE followed the 1999 ROE by only six months. Counsel devoted a significant amount of hearing time to issues involving the admissibility of these six ROEs. The Administrative Law Judge declined to admit any of the ROEs as hearsay exceptions in the form of official records or business records. After considerable discussion, the Administrative Law Judge admitted the ROE dated September 13, 1999, for all purposes (subject to a relatively minor exception set forth above) and admitted the 1998 and 2000 ROEs, but not for the truth of their contents. A particularly difficult evidentiary issue arose as to the admissibility of the 2000 ROE. Although the FDIC was prepared to allow Petitioner to call as a witness the FDIC examiner who had prepared this ROE, the FDIC was unwilling, until several days after the hearing had started, to allow opposing counsel to examine the work papers supporting this ROE. As authorized by federal law, the FDIC had withheld these work papers when the FDIC examiner had been deposed. After the FDIC belatedly agreed to produce these work papers, opposing counsel argued that the tardiness of the production had prejudiced their clients. Most persuasively, counsel argued that this tardy production of work papers would impose upon their clients considerable additional costs that would have been saved if the FDIC had produced the work papers by the time of the deposition of the federal examiner. Finding merit to this claim, the Administrative Law Judge excluded the 2000 ROE for the truth of its contents. Federal and State Enforcement Decisions Using the findings of the various ROEs, Petitioner and the FDIC have issued three orders concerning First Bank. These are the FDIC’s May 26, 1998, Decision and Order to Cease and Desist, which is based on a Recommended Decision dated January 22, 1998 (collectively, Cease and Desist Order); Petitioner’s October 13, 1998, consent Final Order approving a September 29, 1998, Settlement Stipulation (collectively, Consent Order); and the FDIC’s September 8, 1999, Safety and Soundness Order (Safety and Soundness Order). FDIC’s 1998 Cease and Desist Order Based on Petitioner’s ROE dated July 5, 1995, and the FDIC’s ROE dated May 22, 1996, the Cease and Desist Order notes that Petitioner had assigned First Bank a composite CAMEL rating of 2, with a 5 for the management component, and that the FDIC also had assigned a 5 for the management component. The evaluation scheme, now known as CAMELS ratings, assigns a rating ranging from the best of 1 to the worst of 6 for composite performance and for each of six criteria crucial to a bank’s operation: capital, assets, management, earnings, liquidity, and sensitivity. “Capital” is the adequacy of the capital. As defined in the FDIC Division of Supervision Manual of Examination Policies (FDIC Examination Manual), “capital” is a measure of the maintenance of “capital commensurate with the nature and extent of risks to the institution and the ability of management to identify, measure, monitor, and control these risks.” For capital, a rating of 1 means “a strong capital level relative to the institution’s risk profile”; a rating of 2 means “a satisfactory capital level relative to the financial institution’s risk profile”; a rating of 3 means “a less than satisfactory level of capital that does not fully support the institution’s risk profile,” even “if the institution’s capital level exceeds minimum regulatory and statutory requirements”; a rating of 4 means “a deficient level of capital” in which “viability of the institution may be threatened”; and a rating of 5 means “a critically deficient level of capital such that the institution’s viability is threatened.” “Assets” is the quality of assets, including the loan and investment portfolios, real estate, and other assets. As defined in the FDIC Examination Manual, a rating of 1 means “strong asset quality and credit administration practices”; a rating of 2 means “satisfactory asset quality and credit administration practices”; a rating of 3 means “asset quality or credit administration practices are less than satisfactory”; a rating of 4 means “deficient asset quality or credit administration practices”; and a rating of 5 means “critically deficient asset quality or credit management practices.” “Management” is, according to the FDIC Examination Manual, the “capability of the board of directors and management, in their respective roles, to identify, measure, monitor, and control the risks of an institution’s activities and to ensure a financial institution’s safe, sound, and efficient operation in compliance with applicable laws and regulations.” As defined in the FDIC Examination Manual, the following ratings apply to management: A rating of 1 indicates strong performance by management and the board of directors and strong risk management practices relative to the institution’s size, complexity, and risk profile. All significant risks are consistently and effectively identified, measured, monitored, and controlled. Management and the board have demonstrated the ability to promptly and successfully address existing and potential problems and risks. A rating of 2 indicates satisfactory management and board performance and risk management practices relative to the institution’s size, complexity, and risk profile. Minor weaknesses may exist, but are not material to the safety and soundness of the institution and are being addressed. In general, significant risks and problems are effectively identified, measured, monitored, and controlled. A rating of 3 indicates management and board performance that need improvement or risk management practices that are less than satisfactory given the nature of the institution’s activities. The capabilities of management or the board of directors may be insufficient for the type, size, or condition of the institution. Problems and significant risks may be inadequately identified, measured, monitored, or controlled. A rating of 4 indicates deficient management and board performance or risk management practices that are inadequate considering the nature of the institution’s activities. The level of problems and risk exposure is [sic] excessive. Problems and significant risks are inadequately identified, measured, monitored, or controlled and require immediate action by the board and management to preserve the soundness of the institution. Replacing or strengthening management or the board may be necessary. A rating of 5 indicates critically deficient management and board performance or risk management practices. Management and the board of directors have not demonstrated the ability to correct problems and implement appropriate risk management practices. Problems and significant risks are inadequately identified, measured, monitored, or controlled and now threaten the continued viability of the institution. Replacing or strengthening management or the board of directors is necessary. Section 4.1.V of the FDIC Examination Manual links a bank’s performance under the other CAMELS components to its management component: “Consequently, examiners’ findings and conclusions in regard to the other four elements of the CAMELS rating system are often major determinants of the management rating.” “Earnings” means “not only the quantity and trend of earnings, but also factors that may affect the sustainability or quality of earnings,” such as likely loan losses or undue exposure to interest-rate volatility. As defined in the FDIC Examination Manual, a rating of 1 indicates “earnings that are strong”; a rating of 2 indicates “earnings that are satisfactory”; a rating of 3 indicates “earnings that need to be improved”; a rating of 4 indicates “earnings that are deficient” because they are “insufficient to support operations and maintain appropriate capital and allowance levels” and may leave the institution with “erratic fluctuations in net income or net interest margin, the development of significant negative trends, nominal or unsustainable earnings, intermittent losses, or a substantive drop in earnings from the previous years”; and a rating of 5 indicates “earnings that are critically deficient.” “Liquidity” is the ability of the financial institution to meet its anticipated funding needs with cash, assets readily convertible to cash, deposits, and loans. As defined in the FDIC Examination Manual, a rating of 1 means “strong liquidity levels and well-developed funds management practices”; a rating of 2 means “satisfactory liquidity levels and funds management practices” so that the institution “has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs,” even though “[m]odest weaknesses may be evident in funds management practices:; a rating of 3 means “liquidity levels of funds management practices in need of improvement” because the institution “may lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds management practices”; a rating of 4 means “deficient liquidity levels or inadequate funds management practices”; and a rating of 5 means “liquidity levels or funds management practices so critically deficient that the continued viability of the institution is threatened.” “Sensitivity” is sensitivity to market risk, which reflects the “degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or economic capital.” As defined in the FDIC Examination Manual, a rating of 1 means that “market risk sensitivity is well controlled and that there is minimal potential that the earnings performance or capital positions will be adversely affected”; a rating of 2 means that “market risk sensitivity is adequately controlled and that there is only moderate potential that the earnings performance or capital position will be adversely affected”; a rating of 3 means that “control of market risk sensitivity needs improvement or that there is significant potential that the earnings performance or capital position will be adversely affected”; a rating of 4 means that “control of market risk sensitivity is unacceptable or that there is high potential that the earnings performance or capital position will be adversely affected”; and a rating of 5 means that “control of market risk sensitivity is unacceptable or that the level or market risk taken by the institution is an imminent threat to its viability.” According to the FDIC examination manual, the composite rating is based on a “careful evaluation of an institution’s managerial, operational, financial, and compliance performance.” A composite rating of 1 means that the financial institution is “sound in every respect and generally [has] components rated 1 or 2.” A composite rating of 2 means that the financial institution is “fundamentally sound” and generally has “no component rating more severe than 3.” A composite rating of 3 means that the financial institution exhibits: some degree of supervisory concern in one or more of the component areas. These financial institutions exhibit a combination of weaknesses that may range from moderate to severe; however, the magnitude of the deficiencies generally will not cause a component to be rated more severely than a 4. Management may lack the ability or willingness to effectively address weaknesses within appropriate time frames. Financial institutions in this group generally are less capable of withstanding business fluctuations and are more vulnerable to outside influences . . .. Additionally, these financial institutions may be in significant noncompliance with laws and regulations. Risk management practices may be less than satisfactory relative to the institution’s size, complexity, and risk profile. These financial institutions require more than normal supervision, which may include formal or informal enforcement actions. Failure appears unlikely, however, given the overall strength and financial capacity of these institutions. A composite rating of 4 means that the financial institution exhibits: unsafe and unsound practices or conditions. There are serious financial or managerial deficiencies that result in unsatisfactory performance. The problems range from severe to critically deficient. The weaknesses and problems are not being satisfactorily addressed or resolved by the board of directors and management. Financial institutions in this group are generally not capable of withstanding business fluctuations. There may be significant noncompliance with laws and regulations. Risk management practices are generally unacceptable relative to the institution’s size, complexity, and risk profile. Close supervisory attention is required, which means, in most cases, formal enforcement action is necessary to address the problems. Institutions in this group pose a risk to the deposit insurance fund. Failure is a distinct possibility if the problems and weaknesses are not satisfactorily addressed and resolved. A composite rating of 5 means that the financial institution exhibits: extremely unsafe and unsound practices or conditions; exhibit[s] a critically deficient performance; often contain[s] inadequate risk management practices relative to the institution’s size, complexity, and risk profile; and [is] of the greatest supervisory concern. . . . The Cease and Desist Order states that Petitioner’s ROE dated July 5, 1995, found the management of First Bank unsatisfactory because: [First Bank’s] staffing was found to be inadequate, in part because of excessive employee turnover. [First Bank’s] board of directors was failing to provide [First Bank] sound management, adequate guidance in the form of appropriate written policies, or adequate supervision of management. Wells dominates [First Bank’s] board of directors, and the board of directors did not adequately supervise management’s operation of [First Bank]. [First Bank’s] board of directors had not responded to regulatory recommendations with respect to deficiencies in [First Bank’s] operating policies. [First Bank] did not have a Strategic Plan. [First Bank] employed an annual budget that had no written assumptions to support its projections and unrealistically continued to project net losses. Wells could not attest to the accuracy of the general ledger, [First Bank] lacked an effective internal audit program, and [First Bank] needed to hire a full-time president, a cashier, and a loan officer. [First Bank’s] board of directors inappropriately delegated its authority by permitting Wells to set his own salary and bonus and by permitting Wells to authorize and approve payments of legal bills by [First Bank] to Wells’ law firm without review by [First Bank’s] board of directors. [Petitioner] cited these practices as an apparent conflict of interest.] [First Bank’s] Consolidated Reports of Condition and Income as of December 31, 1994 and March 31, 1995 contained errors and needed to be amended and re-filed. During the period covered by the Report, [First Bank] had violated six laws and regulations, including violations of the Financial Record Keeping and Reporting of Currency and Foreign Transactions regulation, 31 C.F.R. Part 103. [First Bank] did not adequately segregate the duties of its employees. The door to the Bank’s computer room was frequently left open, providing unrestricted access to the computer facility. The Cease and Desist Order states that the FDIC’s ROE dated May 22, 1996, found that Wells, who was the controlling shareholder of First Bank, had been the only officer of First Bank since its formation and had served as the bank’s president, chief executive officer, chairman of the board of directors, and general counsel--all despite the fact that, prior to September 1989, Wells’ banking experience had been limited to that of bank counsel and director. The Cease and Desist Order states that the ROE dated May 22, 1996, found that First Bank had failed to respond as required to Petitioner’s July 5, 1995, ROE because: [First Bank’s] board had not adopted the following policies in conformity with the Board resolution [adopted after Petitioner’s examination]: Loan Policy, Appraisal Policy, Regulation O Policy, Amendment and Restatement of Asset/Liability Management Policy, and Strategic Plan. [First Bank’s] general ledger had not been reconciled and appropriate internal routine and controls had not been implemented. The Board had neither adopted the First Amended Internal Controls and Audit Program, nor implemented it as required. [First Bank] still employed a budget that had not been revised since 1994, which incorporated outdated assumptions. [First Bank] had engaged in twenty-five violations of fifteen statutes and regulations. [First Bank] had failed to submit any reports with respect to its continuing violation of section 655.60(2) of the Florida Statutes. Concerning internal routine and controls, the Cease and Desist Order states that the ROE dated May 22, 1996, found that First Bank had failed to respond as required to Petitioner’s ROE dated July 5, 1995, because: [First Bank] had not reconciled its general ledger suspense account since February, 1995. During the period covered by the FDIC’s May 22, 1996 examination, [First Bank] did not routinely reconcile its subsidiary ledgers. [First Bank] failed to segregate the duties of its employees. From October, 1995 until March 31, 1996, [First Bank’s] general ledger suspense account had an unreconciled gross credit balance that ranged from $96,000 to $186,000. As of March 31, 1996, which was the date as of which the FDIC examined its financial records during the May 22, 1996 examination, [First Bank’s] general ledger suspense account had an unreconciled gross credit balance of $137,000. From February, 1995 through May 22, 1996, [First Bank] did not reconcile the demand deposit suspense account. As of March 29, 1996, [First Bank’s] demand deposit accounts as reflected in the general ledger exceeded the demand deposit accounts as reflected in subsidiary ledgers by $8,949. As of March 29, 1996, [First Bank’s] time deposit accounts as reflected in the general ledger exceeded the time deposit accounts as reflected in subsidiary ledgers by $740,367. As of June 12, 1996, [First Bank’s] time deposit accounts as reflected in the general ledger were short by $74,474 of the time deposit accounts as reflected in subsidiary ledgers. As of May 27, 1996, [First Bank’s] total loan accounts as reflected in the general ledger were short by $12,000 of the total loan accounts as reflected in the subsidiary ledgers, and examiners were unable to reconcile these accounts during the FDIC’s May 22, 1996 examination. From January 1996 to April, 1996, [First Bank] did not reconcile its correspondent account with Independent Banker’s Bank of Florida. As a result of [First Bank’s] failure to reconcile its correspondent account with the Independent Banker’s Bank of Florida from January, 1996 to April, 1996, [First Bank] filed a Report of Condition and Income (“Call Report”) as of March 31, 1996, that incorrectly stated [First Bank’s] federal funds sold position by $51,000. As of the FDIC’s May 22, 1996 examination, three of [First Bank’s] prepaid expense accounts had not been accurately reconciled since March, 1996, and an accurate reconciliation of these accounts during the examination led to a correction in [First Bank’s] March 31, 1996 Call Report and to two items being classified as Loss. [First Bank’s] vault cash account was not reconciled between March, 1995 and April, 1q996, and during the FDIC’s examination, [First Bank’s] vault cash was found to be short by $831. [First Bank’s] teller cash accounts were not reconciled from September, 1995 until the FDIC’s May 22, 1996 examination, when one teller cash account was found to be short by $97 and another teller cash account was found to be short by $498. [First Bank] failed to make appropriate entries reflecting depreciation in four depreciation accounts from January, 1996 until the FDIC’s May 22, 1996 examination and in two other depreciation accounts from February, 1996 until the FDIC’s May 22, 1996 examination. As a result of the failure to keep the depreciation accounts current, [First Bank’s] March 31, 1996 Call Report failed to reflect $5,000 in depreciation for February and March, 1996, and the May 22, 1996 classified [sic] as Loss $6,000 in unrecognized depreciation for April and May, 1996. During the period covered by the FDIC’s May 22, 1996 [ROE, First Bank’s] wire transfer logs were incomplete, no review of daily wire transfer transaction logs was performed, and neither internal nor external audit procedures extended to review of [First Bank’s] wire transfers. Legal expenses of $4,284 for services performed by Wells’ law firm on behalf of [First Bank] between September and December, 1995, did not reflect the dates the expenses were incurred. [First Bank] operated without a security officer from March, 1996, until the FDIC’s May 22, 1996 examination. Concerning administration, supervision, and control, the Cease and Desist Order states that the ROE dated May 22, 1996, found the following conditions: Forty seven percent of the loan files reviewed by FDIC examiners, as measured by dollar volume, reflected documentation exceptions regarding credit data or collateral documentation. [First Bank] had not incorporated the requirements of Rule 3C-100.600 into its Appraisal Policy despite the fact that this discrepancy was pointed out to [First Bank] in [Petitioner’s] July 5, 1995 [ROE] and in subsequent correspondence between the Bank and [Petitioner]. Several of [First Bank’s] commercial loan files did not contain current financial statements from the borrowers. Some of [First Bank’s] loan files contained no evidence that financial statements that had been obtained from borrowers had ever been analyzed by [First Bank’s] personnel. Although [First Bank’s] Loan Policy includes a loan grading system, [First Bank’s] management had not implemented a loan grading program and did not maintain a watch list of loans that merit special attention. [First Bank] had not corrected deficiencies in its Investment Policy that had been identified by [Petitioner] in its July 5, 1995 [ROE]. These deficiencies included a failure to address potential investments in mortgage derivatives and structured note securities. [First Bank] had neither implemented a consistent system of accounting procedures nor employed a full-time accounting person or a qualified cashier or a qualified loan officer in response to the recommendations received from its external auditor and from [Petitioner] during 1995. In the absence of a qualified cashier and in the absence of a qualified loan officer, [First Bank] required lower level employees to perform functions for which they were not qualified. As for electronic data processing systems, the Cease and Desist Order notes that the FDIC, which, on June 11, 1996, had conducted an examination of First Bank’s information systems, had assigned them an unsatisfactory rating of a 4, signifying “unacceptable conditions and a high potential for operational or financial failure.” Noting that the FDIC examiner had recommended that the FDIC pursue action against First Bank to correct the deficiencies in its information systems, the Cease and Desist Order states that the FDIC’s ROE dated June 11, 1996, found the following deficiencies: [First Bank] operated its data center without internal audit coverage of the data center’s operations. [First Bank] had not tested a backup site for its data processing operations for three years. [First Bank] failed to maintain backup data files in a fireproof area. [First Bank] operated its data center without a disaster recovery program. [First Bank’s] electronic information system was not compatible with the system in use at the backup site, because [First Bank’s] operating system and applications software had not been updated with the vendor’s new software releases for the previous two years. [First Bank’s] software was not updated because [First Bank’s] hardware system was outdated and lacked the capacity to operate the updated software. [First Bank] was operating its data center in contravention of its EDP Policy with respect to the following: failure to store daily backup tapes in a fireproof location; failure to review on line log reports daily; failure to perform reconciliations on records regarding demand deposit accounts, savings accounts, certificates of deposit, or loan accounts; and failure to perform periodic internal audits of [First Bank’s] data processing functions. [First Bank’s] disaster recovery program was such that [First Bank’s] ability to continue operations without interruption after a disaster was questionable. [First Bank] operated its data center without appropriate internal controls with respect to the following: failure to reflect access to the data center by non- data center personnel; failure to review the daily on-line activity report; [and] failure to reconcile the daily totals generated by [First Bank’s] application programs to the general ledger. [First Bank] operated without a policy regarding the use of microcomputers, although [First Bank] was using microcomputers in its operations. Concerning annual financial disclosures, the Cease and Desist Order states that the ROE dated May 22, 1996, found the following failures: As of the FDIC’s May 22, 1996 examination, [First Bank] had failed to prepare an annual financial disclosure statement by March 31 of any year since [First Bank] opened for business in 1989. By letter dated April 24, 1996, in response to a request for [First Bank’s] annual financial disclosure, [First Bank] transmitted to William L. Durden, an attorney for minority shareholders of [First Bank], a financial disclosure that consisted only of a balance sheet and a net income figure and did not include the legend required by section 350.4(d) In April of each year from 1990 through 1996 inclusive, [First Bank] transmitted to its shareholders a notice of the annual shareholder’s [sic] meeting but failed to include in each such notice an announcement regarding the availability of annual financial disclosures. By letter[s] dated July 17, 1995, August 1, 1995, September 25, 1995, and October 10, 1995, Donald A. Robinson, an attorney for the estate of a deceased shareholder of [First Bank] requested [First Bank’s] annual financial disclosure statement for the year 1994. [First Bank] had not, as of the FDIC's May 22, 1996 examination, provided the annual financial disclosure statement required by Robinson. By letter dated May 8, 1996, William L. Durden, an attorney representing minority shareholders of [First Bank], requested [First Bank’s] annual financial statement. On May 24, 1996, [First Bank] transmitted to Durden financial information that included a balance sheet but did not include the remainder of the information required by section 350.4(a). The Cease and Desist Order discusses the failure of Wells, who was representing First Bank in the FDIC proceeding, to participate effectively. In early 1997, Wells failed to comply timely with an order compelling discovery, and he belatedly produced documents that were not fully responsive to the discovery requests, although he later supplemented his response. During oral argument on May 1, 1997, in response to a motion for sanctions, Wells claimed that arm and back conditions had prevented him from moving boxes of documents and fulfilling his discovery obligations. Unpersuaded by Wells’ “incredible” claims, the federal Administrative Law Judge determined, at the hearing and by written order dated May 12, 1997, that Wells had tried to delay the hearing. For sanctions, the federal Administrative Law Judge excluded all evidence related to documents not timely produced, except for certain documents prepared by the FDIC and documents generated by First Bank and delivered to the FDIC before the commencement of the proceeding. Following the administrative hearing, which took place from June 2-9, 1997, the Administrative Law Judge assessed total costs for discovery abuses of $3245.44. The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had engaged in unsafe or unsound banking practices, as defined by 12 U.S.C. section 1818(b), “by operating with a board of directors that had failed to require Bank management to implement necessary practices and procedures that reflect operational guidelines established by the board of directors.” The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had violated 12 C.F.R. 364.101, Standards for Safety and Soundness, by failing to maintain adequate internal controls and information systems; 12 C.F.R. 326.8 by failing to develop and maintain administration of a program reasonably designed to monitor compliance with the Bank Secrecy Act; 12 C.F.R. 350.3(a) by failing to prepare and make available on request an annual disclosure statement; 12 C.F.R. 350.3(b) by failing to timely provide its annual financial disclosures statement to persons requesting this document; 12 C.F.R. 350.4(a)(1) by failing to include in its annual financial disclosures information that is comparable to the information contained in specified Call Report schedules; and 12 C.F.R. 350.8 by failing to promptly provide an annual financial disclosure statement to persons requesting this document. The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had violated Section 658.48(1), Florida Statutes, by extending credit to any one borrower exceeding 25 percent of the bank’s capital accounts when the loan was fully secured; Section 655.044(2), Florida Statutes, by carrying as an asset in any published report or any report submitted to Petitioner a note or obligations that is past due or upon which no interest has been received for at least one year; Section 658.48(5)(d), Florida Statutes, by failing to document as a first lien real estate mortgages securing loans; and Section 655.60(2), Florida Statutes, by making loans based on the security of the real estate without adequate written appraisal standards and without policies previously established by the board of directors. Based on these violations, the Cease and Desist Order concludes that First Bank “repeatedly engaged in imprudent acts that resulted in an abnormal risk of loss or damage to the Bank” and “defiantly refused to implement needed remedial actions.” The Cease and Desist Order thus suggests an “enforceable functioning program that will facilitate operation of the Bank in a safe and sound manner.” In conclusion, the Cease and Desist Order warns that the “fact that the institution may not be operating at a loss in the current economic climate is no guarantee that unsafe and unsound practices will not eventually bear a bitter fruit.” The Cease and Desist Order discusses at length one substantive exception of First Bank and two substantive exceptions of the FDIC to the Recommended Decision, from which the preceding citations have been drawn. As for First Bank’s exception, the Cease and Desist Order recognizes that “smaller institutions cannot be expected to maintain the same level of segregation of responsibilities as their larger counterparts,” but the order rejects the exception. As for the FDIC’s exceptions, the Cease and Desist Order concludes that First Bank also violated 12 U.S.C. Section 1817(a)(1) by submitting erroneous, uncorrected Call Reports dated December 31, 1994; June 30, 1995; September 30, 1995; December 31, 1995; and March 31, 1996; and 12 C.F.R. 309.6(a) by disclosing its (favorable) supervisory subgroup assignment without FDIC authorization. The Cease and Desist Order orders First Bank to cease and desist from the following unsafe or unsound banking practices or legal violations: Failing to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank to prevent unsafe or unsound practices and violations of laws and regulations; Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits. Failure by the Bank’s board of directors to require Bank management to implement practices and procedures that reflect operational guidelines established by the Bank’s board of directors; Failing to provide the Bank with operational personnel who have experience that is adequate to ensure safe and sound operation of the Bank and to ensure compliance with applicable laws and regulations; Failing to provide adequate training to operational personnel; Operating the Bank with policies and practices that result in excessive employee turnover; Failing to implement generally accepted internal accounting procedures and effective internal audit controls; Failing to adopt and implement fully an appropriate loan policy, an . . . appropriate appraisal policy, and an appropriate asset/liability management policy; Failing to maintain financial records sufficiently accurate to enable the Bank to comply with applicable reporting requirements established by federal laws and regulations; Failing to prepare accurate annual financial statements; Failing to make accurate annual financial disclosure statements available to shareholders in a timely manner; Omitting pertinent or required financial information from the Bank’s annual disclosure statements; Failing to maintain adequate documentation in loan files; Failing to correct operational problems identified by the Bank’s external auditors; Operating the Bank with inadequate information systems and management reporting systems, as described in the FDIC’s EDP [ROE dated] June 11, 1996; and Engaging in violations of applicable federal and state laws and regulations, as more fully described [in the FDIC’s ROE dated] May 22, 1996. The Cease and Desist Order directs First Bank and its institution-affiliated parties to take the following affirmative action: Not later than thirty (30) days from the effective date of the ORDER, the Bank’s board of directors shall develop, or shall retain an independent banking consultant with experience in the evaluation of bank management to develop, a written analysis of the Bank’s management and staffing needs (“Management and Staffing Plan”), which shall include, at a minimum: identification of both the type and number of officer and operational staff positions that are needed to manage and supervise the affairs of the Bank in a safe and sound manner; evaluation of each current Bank officer and staff member to determine whether these individuals possess the ability, knowledge, experience,training, and other qualifications that are required to perform present and anticipated duties, including adherence to the requirements of this ORDER, adherence to the Bank’s policies, and operation of the Bank in a safe and sound manner; a review of the rate of turnover of Bank employees during the past five years and a plan to recruit, hire, and retain any additional or replacement personnel with the requisite ability, knowledge, experience, and other qualifications to fill Bank officer or staff positions consistent with the analysis and assessment heretofore described in Paragraph 1(a)(i) and (ii) of this ORDER; and a review of the training deficiencies that were identified in the FDIC’s [ROE dated] May 22, 1996. Not later than thirty (30) days from the effective date of this ORDER, the written Management and Staffing Plan shall be submitted to the Regional Director and to the Comptroller for review and comment. Not later than sixty (60) days from the date of such submission, the Bank’s board of directors shall approve the Management and Staffing Plan, taking into consideration any comments received from the Regional Director and/or the Comptroller within that period, and such approval shall be recorded in the minutes of the Bank’s board of directors. Thereafter, the Bank shall implement the Management and Staffing Plan. Subsequent modifications of the Management and Staffing Plan may be made only if, at least [30] days prior to the effective date of any proposed modification, the Bank submits such proposed modification to the Regional Director and to the Comptroller for review and if the Bank’s board of directors shall have approved such modification after considering any responsive comments submitted by the Regional Director and/or the Comptroller. Not later than ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management consistent with the Management and Staffing Plan that is required by Paragraph 1 of this ORDER. At a minimum, such management shall include officers with proven ability in managing a bank of comparable size. Such officers shall have proven ability in managing a loan portfolio of at least comparable size and shall have an appropriate level of lending, collection, and loan supervision experience necessary to supervise any anticipated growth in the Bank’s loan portfolio, and shall have proven ability in managing the assets and operations of a financial institution of at least comparable size and with banking operations experience sufficient to supervise the upgrading of the Bank’s operational deficiencies. Such officers shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on its ability to: comply with the requirements of this Order; operate the Bank in a safe and sound manner; comply with applicable laws and regulations; and restore all aspects of the Bank to a safe and sound condition. As long as this ORDER remains in effect, the Bank shall notify the Regional Director and the Comptroller in writing of any changes in management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the FDI Act, 12 U.S.C. §1831i, and implementing regulations; must include the names and qualifications of any replacement personnel; and must be provided at least [30] days prior to any individual’s assuming a management position. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall adopt and implement an internal audit program. Thereafter, the Bank shall operate with an effective, ongoing system of internal audits. Not later than thirty (30) days from the effective date of this ORDER, the Bank’s board of directors shall adopt, and the Bank shall implement, a plan to correct the Bank’s internal routine and control deficiencies, including specific provisions to assure that: suspense accounts are reconciled in a timely fashion; subsidiary accounts are reconciled to the general ledger in a timely fashion; accounting errors, once discovered, are resolved in a timely fashion; general ledger entries are initiated consistently, correctly, and in a timely fashion; and the duties of Bank employees are segregated in a manner that minimizes the potential for misapplication of funds, defalcation, or sabotage. Effective immediately, and until such time as the Bank’s accounts are successfully reconciled, the Bank shall retain the full-time services of a qualified, independent accountant, who shall be responsible for reconciling the Bank’s accounts as expeditiously as possible, but in no event later than thirty [30] days from the effective date of this ORDER. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall amend its [Call Reports] as of December 31, 1996; December 31, 1997; and March 30, 1998, to the extent deemed necessary by the Regional Director, and shall file amended [Call Reports] that accurately reflect the Bank’s financial condition as of the date of each such report. Not later than thirty (30) days from the effective date of this ORDER, complete and accurate annual financial disclosure statements that conform in all respects to the requirements of Part 350 of the FDIC Rules and Regulations, 12 C.F.R. Part 350, shall be provided without charge to all persons who have requested copies of the Bank’s annual disclosure statements as of December 31, 1996, and December 31, 1997. Thereafter, the Bank shall prepare such disclosure statements, and make such disclosure statements available, in conformity with Part 350 of the FDIC Rules and Regulations. Not later than January 31, 1999, the Bank shall engage a qualified, independent accounting firm to conduct an opinion audit of the Bank’s books as of December 31, 1998. Upon completion of such audit, the independent accounting firm shall present its final report directly to the Bank’s board of directors. The Bank’s board of directors shall cause the Bank to correct promptly all deficiencies that may be identified in such audit report. The minutes of the Bank’s board of directors shall record any action that is taken by the Bank’s board of directors in response to such audit report. Effective immediately, and until such time as the Bank has been able to reconcile its accounts, as required by Paragraph 5 of this ORDER, and to correct its [Call Reports], as required by Paragraph 6 of the ORDER, the Bank’s board of directors shall, not less frequently than monthly, review all actions taken by the Bank to correct the deficiencies in the Bank’s accounting practices and internal routines and controls identified [in the FDIC’s May 22, 1996, ROE]. Such review shall be recorded in the minutes of the Bank’s board of directors. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall develop, and the Bank’s board of directors shall review, an appropriate plan (the “EDP Plan”) for the safe and sound operation of the Bank’s electronic data processing equipment, software, operating procedures, and facilities, which shall include any modifications, consistent with guidance issued by the Federal Financial Institutions Examination Council, that may be necessary for the Bank to achieve Year 2000 readiness. Within [60] days from the effective date of this ORDER, the Bank shall submit such EDP Plan to the Regional Director and to the Comptroller for review and comment. Within 30 days from the receipt by the Bank of the FDIC’s written response to the EDP Plan, and after consideration by the Bank’s board of directors of comments from the Regional Director, if any, the Bank’s board of directors shall approve, and the Bank shall implement, such EDP Plan. Thereafter, for as long as this ORDER shall remain in effect, the Bank’s board of directors shall ascertain that the Bank’s electronic data processing is conducted in accordance with such EDP Plan. At a minimum, such EDP Plan shall provide for: the acquisition and operation by the Bank of hardware and software systems that are appropriate for the safe and sound conduct of the Bank’s business; development and implementation of an appropriate, ongoing internal audit of the operations of the Bank’s information systems; immediate acquisition and permanent retention of access to an EDP backup facility that is operationally compatible with the Bank’s hardware, software, and data files; appropriate segregation of duties among the Bank employees (and contractor personnel, if any) who perform functions related to electronic data processing; storage of backup copies of operating systems, application programs, and data files in a secure, fire- resistant environment at a remote site; reconciliation of all major applications to the general ledger on a daily basis; development and implementation of an appropriate policy . . . regarding the Bank’s use of microcomputers; prompt review by the Bank’s board of directors of all audit reports and regulatory reports regarding the Bank’s electronic data processing, and written recordation of the responses by the Bank’s board of directors to such reports; i[x]. prompt correction of all information systems deficiencies identified in audit reports and regulatory reports; and x. periodic review of the Bank’s EDP Policy by the Bank’s board of directors and of Bank management’s implementation of the Bank’s EDP Policy and EDP Plan. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off or other proper entries, all assets or portions of assets classified “Loss” by the FDIC as a result of its examination of the Bank as of May 22, 1996, which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Comptroller. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall review and revise its written loan policy to include the following elements: a requirement that before advancing any loan the Bank must obtain, analyze, and verify credit information which will be sufficient to identify a source of repayment and support for the scheduled repayment plan; a requirement that all collateral documentation or evidence of collateral documentation be obtained and reviewed before loan proceeds are disbursed; a requirement for the maintenance and review of complete and current credit files on each borrower with extensions of credit outstanding; [a] requirement for the establishment of criteria and guidelines for the acceptance and review of financial statements; and [a] requirement for appraisal procedures which, at a minimum, satisfy the requirements of Part 323 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 323, and applicable Florida banking laws and regulations. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall implement procedures to ensure that the Bank’s loan policy and all subsequent modifications to the Bank’s loan policy are strictly enforced. 13. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the assets listed for “Credit Data or Collateral Documentation Exceptions” [in the FDIC ROE dated] May 22, 1996. Thereafter, the Bank shall service these loans in accordance with its written loan policy as amended to comply with this ORDER and in accordance with safe and sound banking practices. Not later than January 31, 1999, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1999 and shall submit this budget and earnings forecast to the Regional Director and Comptroller for review and comment. As long as this ORDER remains in effect, the Bank shall prepare annually realistic and comprehensive calendar year budget and earnings forecasts for each year subsequent to 1998 and shall submit these budget and earnings forecasts to the Regional Director and the Comptroller for review and comment no later than January 31 of each year. In preparing the budget and earnings forecasts required by paragraph 14 of this ORDER, the Bank shall, at a minimum: identify the major areas in, and means by which the board of directors will seek to improve, the Bank’s operating performance; and describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components. Quarterly progress reports comparing the Bank’s actual income and expense performance with budgetary projections shall be submitted to the Regional Director and Comptroller concurrently with the other reporting requirements set forth in paragraph 23 of this ORDER. The Bank’s board of directors shall meet and review such progress reports, which review shall be recorded in the minutes of the board of directors. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate or correct all violations of law and regulations committed by the Bank, as described [in the FDIC ROE dated] May 22, 1996. In addition, the Bank’s board of directors shall take appropriate steps to ensure that the Bank is operated in compliance with all applicable laws and regulations. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall adopt and implement an internal loan review and grading system to provide for the periodic review of the Bank’s loan portfolio in order to identify and categorize the Bank’s loans, and other extensions of credit which are carried on the Bank’s books as loans, on the basis of credit quality. Within ninety (90) days from the effective date of this ORDER, the Bank shall have and thereafter retain a qualified Bank Secrecy Act officer (“Officer”). The Officer must be a senior bank official who shall be responsible for the Bank’s compliance with [the] Bank Secrecy Act, 31 U.S.C. §§5211-5326, its implementing regulation, 31 C.F.R. Part 103, and Part 326 of the FDIC Rules and Regulations, 12 C.F.R. Part 326. The Officer shall be given written authority by the Bank’s board of directors to implement and supervise the Bank’s Bank Secrecy Act program, including but not limited to, providing appropriate training for the Bank’s employees in the bank secrecy laws and regulations (the “Bank Secrecy Laws”) enumerated in section 326.8(b) of the FDIC Rules and Regulations, 12 C.F.R. §326.8(b); establishing internal controls and procedures reasonably designed to prevent violations of the Bank Secrecy Laws; and performing or supervising periodic internal audits to ascertain compliance with the Bank Secrecy Laws and/or the Bank’s Bank Secrecy program. The Officer shall report directly to the Bank’s board of directors. The Bank shall provide the Officer with appropriate training in the Bank Secrecy Laws, and each instance of said training shall be reported to, and recorded in, the minutes of the board of directors. The Bank shall promptly notify the Regional Director and the Comptroller of the identity of the Officer. If the Officer is to be added as a director of the Bank or employed as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. §1831i, and section 303.14 of the FDIC Rules and Regulations, 12 C.F.R. §303.14, prior to the addition of the Officer to such position. The assessment of whether the Bank has a qualified Officer shall be based upon the Officer’s record of achieving compliance with the requirements of this ORDER and with the Bank Secrecy Laws. Within ninety (90) days from the effective date of this ORDER, the Bank shall adopt and implement a written program to ensure the Bank’s compliance with the Bank Secrecy Act, 31 U.S.C. §§5311-5326, as required by 12 C.F.R. §326, Subpart B. At a minimum, a system of internal controls shall be designed to: identify reportable transactions in a timely manner in order to obtain all the information necessary to properly complete the required reporting forms; ensure that all required reports are accurately completed and properly filed; ensure that customer exemptions are properly granted and recorded, including the maintenance of documentation sufficient in detail so as to substantiate exemptions granted; provide for adequate supervision of employees who accept currency transactions, complete reports, grant exemptions, or engage in any other activity covered by 31 C.F.R. Part 103; and v. establish dual controls and provide for separation of duties. The Bank shall adopt and implement a system of testing, internal or external, for compliance with the Bank Secrecy Act and the Department of the Treasury’s Regulation for Financial Record Keeping and Reporting of Currency and Foreign Transactions (“Financial Record Keeping Regulations”), 31 C.F.R. Part 103, which include, at a minimum: a test of the Bank’s internal procedures for monitoring compliance with the Bank Secrecy Act, including interviews of employees and their supervisors who handle cash transactions; a sampling of large currency transactions followed by a review of currency transaction report filings; a test of the validity and reasonableness of the customer exemptions granted by the Bank; a test of the Bank’s record keeping system for compliance with the Bank Secrecy Act; and documentation of the scope of the testing procedures performed and findings of the testing. Any apparent violations, exception or other problems noted during the testing procedures should be promptly reported to the board of directors. Each calendar quarter following the effective date of this ORDER, the Bank or a consultant shall perform an internal audit of the Bank’s Bank Secrecy Act program. Any audit of the Bank Secrecy Act program performed by the Bank shall be performed or supervised by the Officer. The results of the audit and any recommendation by the Officer, the consultant and/or the board of directors shall be recorded in the minutes of a meeting of the board of directors. Effective immediately, and for as long as the ORDER shall remain in effect, the Bank’s board of directors, not less frequently than monthly, shall review all actions taken by the Bank to comply with the requirements of this ORDER. Such review by the board of directors shall be recorded in the minutes of the Bank’s board of directors. Not later than sixty (60) days from the effective date of this ORDER, the Bank’s board of directors shall develop a three-year strategic plan for the Bank (“Strategic Plan”), which shall address, at a minimum: (i) economic conditions and economic forecasts regarding the Bank’s market area; (ii) potential methods for achieving growth in the Bank’s total assets; (iii) potential methods for improving the Bank’s operations in the context of any projected growth in the size of the Bank’s total assets; (iv) carrying on the functions of the Bank’s management in the event of a loss of the services of current personnel; and (v) integration of an assessment of the Bank’s staffing needs with the Bank’s business plan. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER: (i) in conjunction with the Bank’s next shareholder communication and also (ii) in conjunction with its notice or proxy statement preceding the Bank’s next shareholder meeting. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC . . . and to the Comptroller, for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the Comptroller shall be made prior to dissemination of the description, communication, notice or statement. Not later than ninety (90) days from the effective date of this ORDER, and not later than thirty (30) days following the end of each calendar quarter while this ORDER is in effect, the Bank shall furnish written progress reports to the Regional Director and to the Comptroller detailing the form and manner of all actions taken to secure compliance with this ORDER and the results of such actions. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Comptroller have released the Bank in writing from making further reports. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the appropriate board meeting. As a result of the sanctions imposed upon [First Bank] for failure to produce discovery and violations of Orders issued by the Administrative Law Judge, not later than thirty (30) days from the receipt of this ORDER, the Bank’s board of directors shall pay costs in the amount of $3,235.44 to the FDIC. Pursuant to delegated authority, the Regional Director may, upon a showing of good cause, amend the compliance deadlines for any of the undertakings required by this ORDER. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank, its institution-affiliated parties, and its successors and assigns. Further, the provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC. Petitioner’s 1998 Consent Order Based on Petitioner’s ROE dated September 2, 1997, the Consent Order settled administrative litigation that Petitioner had instituted against First Bank, Wells, and the other directors who are respondents in this case, plus one director no longer serving as a director of First Bank. In that litigation, Petitioner sought, among other things, an order removing Wells from the board of directors of First Bank and prohibiting Wells from serving on the board of directors of any other state-chartered financial institution. Paragraph 4 of the Settlement Stipulation incorporated into the Consent Order requires the respondents to cease and desist from violations of Section 655.033(1), Florida Statutes, and to take the following “affirmative remedial action”: As soon as practicable, but in no event later than sixty days after the execution of this Settlement Stipulation by the Respondents, and subject to prior approval by [Petitioner], Respondents shall hire new and appropriately qualified management personnel to assume responsibility for daily operations and core banking functions of [First Bank] for the duration of the Consent Order. Management personnel acceptable to [Petitioner] shall be selected and employed to perform the positions of president/chief executive officer, cashier, and senior lending officer. Any person selected by the Board of Directors to serve as president/chief executive officer shall have a demonstrated capability to manage a bank comparable in size to [First Bank]. Any person selected by the Board of Directors to serve as cashier shall have a demonstrated ability to manage and balance the accounts of a bank comparable in size to [First Bank]. Any person selected by the Board of Directors to serve as senior lending officer must have a demonstrated level of lending, collection, and loan supervision experience necessary to supervise and enhance the safety and soundness of the loan portfolio of the Bank. In determining whether to approve the selection of any person under this paragraph, [Petitioner] shall make its determination based on the ability of the candidate to: operate the bank in a safe and sound manner; comply with all applicable laws and regulations; assist in restoring the Bank to a safe and sound condition; and comply with the requirements of the [Cease and Desist Order] applicable to their area(s) of responsibility. The president, as chief lending officer of the Bank, may also discharge the duties of senior lending officer until the Bank has employed an individual to fill the position on a permanent basis. Upon written request submitted to [Petitioner] by the president employed by the Bank pursuant to Paragraph 4.A.1 of this Stipulation, the selection of a permanent senior lending officer may be delayed for no more than 90 days beyond the deadline specified in Paragraph 4.A in order to facilitate the hiring of a qualified person. For the duration of [the] Consent Order . . ., the Respondents shall provide [Petitioner] and the FDIC with written notice of any change in the complement of executive officers employed by the Bank. Any replacement executive officer as defined in §655.005(1)(f), Florida Statutes, shall be subject to the approval procedures of §655.0385, Florida Statutes. An application for approval must be submitted to [Petitioner] and to the FDIC at least 30 days before the candidate’s assumption of management duties on behalf of the Bank. Effective on the date that his successor as president and chief executive officer is approved by [Petitioner] and FDIC, [Wells] shall resign as President and Chief Executive Officer of [First Bank]. All named Respondents agree on behalf of the Bank, and [Wells] agrees individually as well, that, subsequent to this resignation, Wells will take no further action on behalf of [First Bank] in the capacity of “executive officer” within the meaning of §655.005(1)(f), Florida Statutes, for the duration of the Consent Order . . .. Nothing in this paragraph shall be construed to prohibit Wells from serving as legal counsel, inclusive of general counsel, or as consultant to [First Bank], or from receiving appropriate, reasonable compensation from [First Bank] for services provided by Wells in the capacity of counsel or consultant to the Bank. [Petitioner] agrees that Wells may serve as a director of [First Bank] and may serve on any duly constituted committee of the Board of Directors. Wells may continue to serve as Chairman of the Board of Directors if, and only if, by appropriate resolution of the Board of Directors of the Bank in accordance with §655.005(1)(f), Florida Statutes, he is excluded from participating, other than in the capacity of a director, in any major policymaking functions of [First Bank], and receives no additional compensation attributable to service as Chairman of the Board of Directors of the Bank. This paragraph shall not be deemed to disallow [Wells] from participation in reasonable Bank-paid group insurance. Respondents agree to adopt a resolution of the Board of Directors of [First Bank], pursuant to §655.006(1)(f), Florida Statutes, excluding [Wells] from participating, other than in the capacity of a director, in any major policymaking functions of [First Bank]. This resolution shall be maintained in force by the Board of Directors for the duration of [the] Consent Order . . .. Respondents agree that the primary tasks of the new management employed pursuant to this Stipulation will be to eliminate all unsafe and unsound practices detailed in [Petitioner’s] September 1997 [ROE] and to assure compliance by [First Bank] with the [Cease and Desist Order]. Respondents agree to provide new management with written authority by resolution to take such actions as may be appropriate and necessary to implement remedial action and compliance assurance activity. Respondents, individually and collectively, agree to take all actions appropriate and necessary to remedy any and all deficiencies in policies and procedures applicable to [First Bank] as noted in periodic examination reports prepared by [Petitioner] and the FDIC. [Wells] agrees that he shall not willfully or intentionally interfere with the proper execution or discharge of delegated or assigned duties performed by the new management personnel employed by the Bank under the provisions of this Stipulation. Actions taken by [Wells] that fall within the scope of authority of a director of the Bank shall not be deemed to violate this paragraph. [Wells] acknowledges that [Petitioner] considers this paragraph to be a material term of this Stipulation and that any violation of this paragraph will be deemed a material breach of the Consent Order. Paragraph 10 of the Settlement Stipulation states that the respondents acknowledge that, although they do not waive their right to litigate such issues, the “failure to comply with any of the terms, obligations, and conditions of this Stipulation or [Consent Order] will constitute grounds for disciplinary or other adverse action.” 3. FDIC’s 1999 Safety and Soundness Order Paragraph 2 of the Safety and Soundness Order states that the FDIC has determined that First Bank is deficient in meeting the safety and soundness standards set forth in Part 364 of the FDIC Rules and Regulations, 12. C.F.R. Chapter III, and the laws of the State of Florida. In particular, Paragraph 2 states: The board of directors has failed to provide sufficient resources for the Bank to meet Year 2000 timetables established by the FFIEC; The Bank’s Year 2000 project plan does not adequately address critical aspects of the Year 2000 program; The Bank’s Business Resumption Contingency Plan is inadequate; The Bank has not fully implemented its formal Year 2000 liquidity guidelines; The Bank has not completed an effective external review of its Year 2000 program. The Safety and Soundness Order asserts that the FDIC notified First Bank of these deficiencies on May 21, 1999, and “requested” that First Bank submit a compliance plan. First Bank submitted a compliance plan, but the FDIC found it unacceptable and issued, on July 21, 1999, a Notice of Intent to Issue a Safety and Soundness Order. In a response filed on August 4, 1999, First Bank submitted a revised Year 2000 Plan. However, Paragraph 6 of the Safety and Soundness Order states that the FDIC found the revised plan “unacceptable” for the following reasons: The board of directors has failed to allocate the necessary resources in order to comply with FFIEC guidelines. The bank is currently operating without a President and Chief Executive Officer and the Year 2000 project manager has not been given the requisite authority to fulfill his responsibilities regarding Year 2000 readiness. The plan does not establish acceptable guidelines for the renovation of all mission-critical systems within an acceptable time frame. The plan fails to address implementation of internal mission-critical systems that are Year 2000 ready. The plan does not provide a strategy to test the business resumption contingency plan. The plan does not specifically require that monthly management reports to the board of directors contain the information outlined in the “Interagency Statement on Year 2000 Business Risk.” The plan does not provide for the submission of monthly written progress reports to the Regional Director of the FDIC and the Comptroller of the State of Florida. Concluding that First Bank is deficient in meeting the safety and soundness standards established under Part 364 of the FDIC Rules and Regulations, 12 C.F.R. Part 364, the Safety and Soundness Order directs First Bank to: Allocate all necessary resources to achievement compliance with FFIEC Year 2000 guidelines. Within 15 days of the effective date of this Order, the board of directors shall: hire and retain a qualified Year 2000 consultant, or qualified personnel, to oversee implementation of an acceptable Year 2000 Plan, whereby the Bank achieves compliance with all FFIEC Year 2000 guidelines within 20 days of the effective date of this Order. The board of directors shall provide the consultant or hired personnel with sufficient resources to achieve Year 2000 compliance within that time frame. The qualifications of the Year 2000 consultant or personnel shall be assessed on the ability of the Year 2000 consultant or personnel to comply with the provisions of this Order. appoint and retain a qualified senior bank officer as the Year 2000 project manager. The board of directors shall provide the Year 2000 project manager with sufficient resources and authority to achieve Year 2000 compliance. The Year 2000 project manager shall submit monthly reports regarding the status of the Bank’s Year 2000 readiness to the board of directors. The monthly reports shall address the items specified for quarterly board reports in the Guidelines, the FFIEC Guidelines and, specifically, the FFIEC’s December 17, 1997 issuance entitled “Interagency Statement on Year 2000 Business Risk.” The qualifications of the Year 2000 project manager shall be assessed on his/her ability to comply with the provisions of this Order. Within 15 days of the effective date of this Order, renovate, as necessary, all mission-critical systems used by the Bank to make them Year 2000 ready and, within 20 days from the effective date of this Order, implement those Year 2000 ready systems. Develop a Business Resumption Contingency Plan within 20 days of the effective date of the Order that provides workable plain language guidance to employees and can be implemented immediately. At a minimum, the Business Resumption Contingency Plan shall: set forth the Bank’s plans to recover lost or damaged data and to mitigate risks associated with the failure of its systems at critical dates; include identification of the Bank’s core business processes and a specific recovery plan for the possible failure of each core business process; establish a manual bookkeeping system to operate parallel with the computer system beginning November 1, 1999, unless the FDIC and State Regulatory authorities have reviewed and verified that the bank is operating in compliance with all FFIEC Year 2000 guidelines; and develop a method to validate and test the Business Resumption Contingency Plan within 20 days of the effective date of the Order. Provide for the external review of Year 2000 readiness by a qualified, independent third party within 30 days from the effective date of the Order. Establish a line of credit with the appropriate Federal Reserve Bank within 20 days of the effective date of this Order. Following the effective date of this Order[,] the Bank shall send to its shareholders or otherwise furnish a description of this Order (i) in conjunction with the Bank’s next shareholder communication and also (ii) in conjunction with its notice or proxy statement preceding the Bank’s next shareholder meeting. The description shall fully describe this Order in all material respects. . . . Provide for the submission of a progress report on the requirements of this Order within 30 days of the effective date of the Order, and monthly thereafter, until the Order is terminated. The progress report shall be sent to the Regional Director of the FDIC and the Comptroller of the State of Florida. The Safety and Soundness Order concludes: This ORDER will become effective ten (10) days after its issuance. The provisions of this ORDER will be binding upon the Bank, its institution-affiliated parties, successors and assigns. Each provision of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision shall be modified, terminated, suspended, or set aside by the FDIC. By Order Terminating Safety and Soundness Order issued on April 2, 2000, the FDIC cancelled the Safety and Soundness Order. First Bank’s Response to Regulatory Interventions These cases are about the adequacy of First Bank’s efforts to solve its operational problems as addressed by the directives from Petitioner and the FDIC. The Cease and Desist Order and Consent Order arise from the three reports of examination issued in 1995, 1996, and 1997. The period during which First Bank responded to these directives is largely 1998 and 1999. Petitioner’s ROE dated September 13, 1999, is the contemporaneous, comprehensive assessment of the adequacy of First Bank’s efforts and responses. These cases also require consideration of the role of Wells in creating and eliminating the operational problems experienced by First Bank. Petitioner’s representatives have frequently stated that the problems of First Bank would be amenable to quick solution if Wells were to sever his policymaking, consulting, and legal counseling ties to the bank. Although the determinative facts in this case are largely confined to 1998 and 1999, the preceding nine years’ operation of First Bank is relevant to the analysis of the events of 1998 and 1999. During the first nine years of the bank’s existence, Wells served as the president, until he was forced to resign, pursuant to the Consent Order, in the fall of 1998. After his resignation, though, Wells remained intimately involved with the bank’s operations as a director, consultant, and general counsel. Under Wells’ supervision as president, the bank’s internal accounting was so poorly maintained that nearly all of the internal accounts of First Bank were out of balance for extended periods of time and demanded many months of effort to balance these accounts and reconcile the subsidiary ledger accounts with the general ledger account. Under Wells’ supervision as president, an unreasonably large opportunity for employee theft existed because the bank's employees did not perform financially sensitive tasks under dual control, even to the extent practicable for a small bank. Under Wells’ supervision as president, the bank’s information technology and data processing systems were poorly integrated into operations and insufficiently secured to prevent the loss of data in the event of catastrophe. Under Wells’ supervision as president, the bank’s personnel turned over at excessive rates. However, under Wells’ supervision as president, First Bank initially earned composite CAMELS ratings of 2 during four ROEs conducted by Petitioner and the FDIC in 1992, 1994, and 1995. During this time, First Bank earned four ratings of 1 for capital and assets, three ratings of 2 and one rating of 1 for liquidity, and three ratings of 2 and one rating of 3 for earnings. However, even during this period, First Bank earned three ratings of 3 and, in 1995, one rating of 5 for management. The 1996 and 1997 ROEs, on which the Cease and Desist Order are based, assigned First Bank composite ratings of 3, and the 1998, 1999, and 2000 ROEs assigned First Bank composite ratings of 4. The record does not explain why these management problems intensified in the mid 1990s. However, under Wells’ supervision as president, these problems undermined the operations of First Bank and ultimately necessitated the regulatory interventions of the Cease and Desist Order and Consent Order. The record amply demonstrates that, without these interventions, First Bank, under Wells’ supervision as president, would have been unable or unwilling to resolve the numerous issues undermining its operations. The Cease and Desist Order and Consent Order issued at a point when the federal and state regulators reasonably expected that First Bank, although a small bank, would have matured operationally after nine years’ existence. However, even the minutes of the meetings of the board of directors of First Bank for 1997 reveal a disturbing level of disorganization and lack of focus among the directors, especially Wells. The minutes of the March 11, 1997, meeting of the board of directors illustrate one aspect of the organizational problems confronting First Bank and Wells’ inability to identify a plan for resolving the matter. According to the minutes of this meeting, Wells complained that: Organization of the Bank was proving to be one of the most difficult challenges possible. Personnel have failed or refused to follow policy guidelines and administrative requirements. The Bank generated several hundred forms prior to the organization of the Bank to expedite the handling of administrative, operational, loan and compliance matters. Most of these forms are basically disregarded by staff personnel. Employee turnover has been an ongoing problem at First Bank. However, the March 11 minutes reveal that Wells ignored the opportunity to analyze the challenge of attracting and retaining qualified personnel and identify specific solutions. Instead, Wells indulged himself in a personal diatribe whose evident purpose seems to have been to assign the blame for First Bank’s personnel problems on the undisciplined youth of Jacksonville and, to a lesser extent, their parents and school administrators. Displacing an informed examination of First Bank’s pay structure and working conditions, Wells’ denunciation of the pool of potential bank employees stated: Virtually all of the businesses and trades are publicly complaining over the quality of personnel and the ability of employees to to [sic] discharge assigned duties. This results from either lack of or poor training and the failure of the student or institution to educate the graduate in the various disciplines of which he or she were engaged in the educational process. Unfortunately, high school graduates exhibit a “warehousing” mentality. These young people oftimes describe and exhibit the attitude that they have been warehoused for their last few years of high school as opposed to receiving serious educational training and support. Conversations with educators at the high school level indicate that the students are undisciplined and virtually out of control. Responsible teachers from both Wolfson and Mandarin High Schools have advised the Bank that discipline is missing from the children’s home life. These educators say that School policy and procedures, as well as parent objections, prevent adequate discipline being applied during the school day. We are continuing to search for qualified personnel or graduates of various institutions who may be able to assist the Bank within the available employment funds of the Bank. Evidently having satisfied himself that he had adequately addressed the bank’s considerable personnel issues, Wells, according to the minutes, then turned to apparent maintenance deficiencies concerning the exterior of First Bank and, again, found Jacksonville youth to blame. Noting that three juveniles had recently been arrested for throwing golf balls and shooting guns into merchants’ signs along San Jose Boulevard, Wells stated that vandals had broken off all outside water spigots and removed floodlights at the bank. “Consequently, we are cautious about the implementation of further sign work and about repair to existing exterior facilities because of a continuing destructive environment. Merchants advise the Bank that these are, in large part, ‘latchkey’ young people who are frustrated and bored, but because of circumstances engage in destructive conduct against both public and private property.” Three months later, though, the minutes were not so richly detailed as to Wells’ description of the pending FDIC administrative litigation, in which he represented First Bank without fee. As already noted, Wells’ inability or refusal to comply timely with discovery and his “incredible” explanation not only resulted in the imposition of over three thousand dollars in discovery costs, but also in the exclusion of much of the bank’s evidence from the hearing. The first meeting of the board of directors after the Administrative Law Judge imposed these sanctions was May 20, 1997. The minutes state only that Wells advised the other directors that all pleadings would be kept in the wall unit at the bank, and he “encouraged the Directors to become very aware of the various allegations and defenses being filed in this regard.” The minutes of the meeting of the board of directors on June 26, 1998, report confirmation from Wells that “the payment of costs on sanctions had been paid to the FDIC,” although the statement does not reveal whether Wells or First Bank paid this amount. The record does not permit detailed findings of the substance of Wells’ legal representation of First Bank, apart from his obvious mishandling of the FDIC litigation and his prudence in deferring to outside counsel for the present litigation. Much of Wells’ work has involved the preparation of documentation, as to which he is experienced, and nothing in the record suggests any incompetence in this area. Some of his work has involved regulatory matters, as to which he is now experienced, but the record does not support a finding of any special competence in this area, even now. However, the record reveals a considerable level of disorganization in at least one aspect of Wells’ legal work: invoicing. According to the minutes of the meeting of the board of directors on October 31, 1997, Wells presented the board in October 1997 several invoices for legal work that he had done in 1996. The minutes of the meeting of the board of directors on April 16, 1998, note that bank staff had found an unpaid legal statement from Wells dating back three years. The minutes of the meeting of the board of directors on October 15, 1998, acknowledge the receipt of previously unpresented legal invoices for work done by Wells 12-21 months earlier. Under Wells’ supervision as president, First Bank adhered to conservative financial practices, protecting the quality of the bank’s loan portfolio, but at the expense of growth. In its initial business plan, First Bank had projected total assets of $15 million within three years. As of June 30, 1999, First Bank had total assets of only $8.3 million, down from a high of $9.3 million on December 31, 1993. Although its capital remains sufficient for its level of operations, First Bank had, until the quarter ending March 31, 2000, less capital than when it was organized. First Bank has never paid a dividend to Wells or its minority shareholders, who are dissatisfied with the performance of their investment and have commenced litigation against Wells and First Bank. First Bank’s earnings have declined in recent years. Net income in 1995 and 1996 was about $100,000 annually. Net after-tax earnings were $71,000 and $31,000 for 1997 and 1998, respectively. In 1999, First Bank suffered a net after-tax loss of $33,000. From 1997-99, First Bank’s interest income was $675,000, $624,000, and $290,000, respectively. However, year-to-date figures, through June 30, 2000, reveal that First Bank’s total income was $313,298--107 percent of budget--and its total expenses were $278,851--85 percent of budget. The bank’s performance through June 30, 2000, may reflect a reversal of the negative trends in earnings and revenues, which, at least for revenues, may have been partly attributable to the end of adverse local publicity concerning Y2K compliance. During the latter half of 1999 and early 2000, First Bank was the subject of numerous unflattering newspaper stories in The Florida Times-Union reporting, among other things, that the FDIC had issued the Cease and Desist Order, Petitioner had required Wells to resign as president in the Consent Order, the person hired to replace Wells as president had resigned only nine months after taking the job, First Bank was the last of over 10,000 banks under the FDIC to have demonstrated Y2K compliance, minority shareholders had sued for $3.5 million for the mismanagement of the bank, and First Bank, although financially sound, had been unable to balance its books and maintained poor internal controls. The directors are unpaid and, except for Wells, do not appear to own shares of First Bank. When he served as president, Wells earned $20,000 in 1989, $40,000 annually from 1990-93, and $62,000 annually from 1994 through his resignation as president in 1998. Following Wells’ resignation as president, a consulting agreement between First Bank and Welco, Inc., a corporation controlled by Wells, has required Wells personally to provide consulting services at the hourly rate $40 with a guaranteed annual minimum of $38,000. From all sources, as president, general counsel, and consultant, Wells has received compensation of over $500,000 from First Bank in its 11 years of existence. Three major additions to personnel marked 1998. The first such addition was the replacement of Wells by A. Richardson Tosh (Tosh), as reflected by the minutes of the meeting of the board of directors on September 9, 1998. The minutes state that First Bank hired Tosh, as president and chief executive officer, for $50,000 annually. Following regulatory approval, Tosh began working in these capacities in mid October 1998. The next two personnel events were the addition of James Giddens (Giddens) and Kim Jufer (Jufer). The minutes of the meeting of the board of directors on November 13, 1998, confirm and ratify the employment of Giddens in an unspecified capacity and Jufer as the manager of the operations department and staff accountant. Tosh’s banking career began in March 1964. Prior to his arrival at First Bank, Tosh had been the president of three financial institutions for a total of over 16 years. In his conversations with Wells, Tosh learned that his duties would be twofold: eliminating operational problems and marketing. The two main operational problems confronting Tosh were out-of-balance accounts and Y2K compliance. Tosh found the books and records in extremely poor condition. As Giddens testified, almost every account was out of balance. These erroneous books and records generated unreliable financial information for the board of directors and the FDIC in quarterly financial reports known as call reports submitted by the bank. The directors were aware of the problem, although probably not its severity; the 1997 and 1998 minutes reflect unsuccessful attempts by the directors to have a bank employee balance the internal accounts. Jufer and Giddens proved indispensable to the task of balancing the bank’s accounts. However, consistent with the relatively limited authority extended Tosh, he had to obtain the approval of the board of directors to hire these two employees. Jufer worked fulltime on the books and records, and Tosh worked parttime to help her until Giddens, who is a certified public accountant with considerable bank audit experience, joined First Bank a few weeks after Jufer’s arrival. Tosh’s second operational concern was Y2K compliance. By October 1998, First Bank had already missed one FDIC deadline. Shortly after Giddens’ arrival, Tosh turned his attention to the Y2K problem. If ever good, the relationship between Tosh and Wells did not take long to start to deteriorate. Other directors assured Tosh that they wanted him to report any incidents of interference by Wells in the performance of Tosh’s duties as president. An early example of the extensiveness of the involvement of the board of directors, although not necessarily Wells alone, in the management of First Bank is reflected in the minutes of the meeting of the board of directors on November 13, 1998, in which the directors approved directives detailing specific job responsibilities of all bank employees. The board issued numerous directives, whose effects were to limit Tosh’s managerial authority. At the next meeting of the board of directors, which took place on December 10, 1998, the minutes state that Tosh informed the board that he was outsourcing payroll functions, and the board directed Tosh not to outsource the payroll due to the limited number of employees. At the first board meeting of 1999, which took place on January 14, Tosh reported that he had found a bank in Perry whose hardware and software systems were sufficiently compatible with those of First Bank that it might serve as a backup source for disaster recovery. The directors requested that Tosh find a second site, but Tosh justly responded that their first priority should be testing the Perry bank to see if the backup plan could be implemented there. By this time, Tosh was handling Y2K issues, as well as other operational matters, such as compliance with the requirements of the Bank Secrecy Act, collection matters, and some internal control issues. As to these matters, Respondent Gunti was also intimately involved. By letter to Wells and the other directors dated February 7, 1999, Tosh complained about their use of directives without obtaining management input to solve the problems of the bank. In particular, Tosh criticized directives that could delay time-sensitive projects, such as Y2K testing. Tosh also noted a tendency for the directors to provide employees with binders full of policies and procedures, rather than hire experienced, competent employees capable of implementing bank policies. Addressing Wells, Tosh suggested that “it is time for him to limit his duties to those that we agreed on at the time of my interviews.” He added: “it is clear that nearly everyone that works here at the bank has a difficult time working with Mr. Wells. This level of frequent tension is not conducive to a productive workplace. Furthermore, tension produces turnover.” Turning to recent accomplishments, Tosh commended Jufer and Giddens for their work. Referring to the recent FDIC examination, which resulted in the ROE dated December 7, 1998, Tosh observed that as many as seven FDIC examiners had been at the bank for four weeks. Conceding that they were only doing their job, Tosh wrote that the timing of the examination “could not have been much worse for us.” Exacerbating the disruption to staff, such as Jufer and Giddens, was that the examiners were having the same problem that staff has in finding necessary records. Turning to work to be undertaken, Tosh noted that First Bank was having trouble finding a senior loan officer, but had obtained an extension to mid March from Petitioner to fill this position. Referring to marketing, Tosh conceded that he had not been active and that the bank needs to grow, but, when he had agreed to take on substantial marketing duties, he had had no idea of the “chaos” present at First Bank. As for Y2K mainframe testing, Tosh expressed his concern that the bank has no one with the expertise to evaluate their testing. Tosh concluded this portion of the letter with his concern, shared by the board, of the “lack of income in the near term for the bank.” He repeated his expectation, first stated during his interviews, that he hoped that the bank would spend the money to prepare to make profitable loans. On this point, he reemphasized the importance of a good senior loan officer who, although costly, would bring a book of business to First Bank. Tosh described the building as “exceptional,” but “filthy dirty” inside and lacking bright lighting and signs at night. Tosh concluded his letter by returning to the issue of Wells. Asserting that “Wells has steadfastly held onto the CEO functions,” Tosh warned that he would not remain with First Bank only to serve as a branch manager and ensure apparent compliance with the Consent Order. Tosh asked the board to “reassign and limit [Wells’] continued management function.” At the meeting of the board of directors on March 30, 1999, Tosh reported that the testing at the Perry bank had been successful, and the board reminded him that they wanted a second backup site. The minutes of the March 30 meeting reveal another aspect of the disorganization of First Bank. Hampering the bank’s efforts to timely find documents and present an attractive place to bank for customers, the minutes note that several directors “had complained of the organization and clean-up of internal Bank facilities because of the unsightly stacking of binders, file boxes standing in the teller areas visible to customers, records stacked in the lounge area, discarded equipment being stacked in a pile in the lounge area, waste materials needing shredding or other destruction, [and] unsightly organization of the storage areas (including material storage).” However, the minutes of the special meeting of the board of directors on August 18, 1999, disclose that, five months later, the unattractive disarray and obvious disorganization of the bank’s premises continued to be a problem. At a special meeting of the board of directors on April 12, 1999, the directors emphasized the need for prompt action on marketing and business development. The [Acting] Chairman [Respondent Gunti] restated the continuing operating loss must be addressed by management promptly. He again reaffirmed repeated requests for a marketing plan from Mr. Tosh and recommendations for business development activity. The Chairman stated that the Bank staff is being underutilized for customer service because of the poor attendance of customers. . . . At a special meeting of the board of directors on April 20, 1999, the directors asked Tosh to review available services for prospective customers and to survey competitors for the services that they provide customers. At the meeting of the board of directors on April 22, 1999, Tosh reported that he had made little progress in finding a senior loan officer. However, he reiterated that Wells had not interfered with his performance of his duties. By internal memorandum to the directors dated April 28, 1999, Tosh asked the board to consider Jufer’s compensation. The memorandum states that Tosh had promised her a salary review in six months, if she would initially accept $30,000 annually. Praising her work to this point, Tosh recommended that the board promote her to vice president, raise her salary to $34,000 annually, and pay her a bonus of $2000. At the meeting of the board of directors on May 13, 1999, Tosh reported that the findings of the Y2K examination team were unsatisfactory, and he recommended that the board engage a consultant to review the status of the bank’s Y2K compliance. The minutes are not clear as to the action that the board took, but it did not accept Tosh’s recommendation. Wells opposed this recommendation because he had not yet finished preparing the bank’s Y2K plan. According to the minutes of the May 13 meeting, Tosh again reported that Wells had not interfered with Tosh’s performance of his duties and that efforts to find a senior loan officer had not been successful. On questioning by directors as to possible interference by Wells, Tosh noted one incident in which a signature on a bank check had been lined out, but Respondent Gunti stated that he had done it because he was not aware of the nature of the payment. Illustrative, though, of the extent to which the directors involved themselves in management, Tosh had written the check to purchase some much-needed office furniture. Again, the directors inquired about the marketing efforts. The minutes note that Tosh was to have implemented a call program, but he had been unable to do so. The May 13 minutes also disclose that the directors had appointed Giddens as vice president and comptroller. Two days later, Tosh announced his resignation, effective June 15, 1999. Jufer also resigned at this time. By memorandum dated May 25, 1999, to the board of directors, Tosh warned that First Bank needed immediately to engage a consultant to assure timely Y2K compliance. The memorandum states: “We are lay people trying to do a specialty project. . . . Since the overall Y2K plan should have been done last summer, we are risking too much by doing it at this late date by ourselves.” Petitioner called Tosh as a witness, and his testimony was somewhat adverse to Respondents. However, Tosh testified that Respondents Gunti and Minor participated actively in directors' meetings and were concerned about compliance with the Cease and Desist Order and Consent Order. Tosh also testified that, by the summer of 1999, the mainframe and software were Y2K compliant. This testimony is credited. Tosh’s experiences at First Bank reveal the detailed level to which directors involved themselves in management issues, although, for a bank as small as First Bank, this is not unusual. However, Tosh’s experiences also reveal some of the shortcomings of the directors in handling management issues. The directors repeatedly misprioritized important tasks. From the start of their relationship with Tosh, for example, the directors were preoccupied with Tosh's spending valuable time finding a second backup site. As Tosh recognized, this would have been a misallocation of limited resources given the numerous operational challenges lying ahead of First Bank, especially as to Y2K compliance. Later, the directors became preoccupied with Tosh's spending time marketing First Bank. Although Tosh could have improved revenues by focusing more effort in marketing, his insignificant shortcomings in marketing had considerably less effect on revenues than did the directors’ misguided refusal to take Tosh’s recommendations to pay a sufficient sum of money to attract a senior loan officer with a book of business and to hire a Y2K consultant in May of 1999. The failure of the directors to timely obtain expert Y2K assistance proved especially costly to bank revenue later in 1999 after a deposit runoff due to adverse publicity surrounding First Bank. Although First Bank’s hardware and software were in fact Y2K compliant when Tosh departed, the directors failed to appreciate the magnitude of the remaining tasks of demonstration testing and preparation of a Y2K compliance plan, which Wells, despite his unfamiliarity with hardware and software systems, had been trying without success to prepare. However, Tosh also serves as a useful reference point concerning the overall condition of First Bank, despite the managerial shortcomings revealed during his tenure. Two weeks after his departure, Tosh introduced investors who, with Tosh, were interested in purchasing the stock of First Bank. At a special meeting of the board of directors on June 8, 1999, the directors approved the hiring of T. Dale Ferguson (Ferguson) as loan officer, effective June 15, 1999. At a regular meeting of the board of directors on June 10, 1999, the directors approved the hiring of Ferguson as senior loan officer, subject to regulatory approval. At a special meeting of the board of directors on June 24, 1999, the directors approved the appointment of Giddens to the position of interim president, pending the conclusion of an advertisement campaign for a permanent president. As Wells and Respondent Gunti noted, though, the adverse publicity received by First Bank had also hampered its search for a president. By letter dated July 14, 1999, to the board of directors, Petitioner notified each director that he was in violation of the Consent Order and Settlement Stipulation and, absent corrective action within 90 days, Petitioner would seek administrative fines in the amounts of $10,000 against Wells, $5000 against Respondents Alters, Drummond, and Gunti, and $2500 against Respondent Minor. At a special meeting of the board of directors on July 16, 1999, the directors approved the hiring of outside counsel to defend the bank in the legal action brought by the minority shareholders. Also, noting deficiencies cited by the FDIC in First Bank’s Y2K compliance, the directors approved an enlargement of the duties of a consultant, Reed Dearing (Dearing), to various Y2K duties. At a special meeting of the board of directors on August 10, 1999, the directors reviewed with Ferguson the marketing plan to increase bank revenues. The directors approved an executive directive specifying officer marketing activity and asked Ferguson to survey the activity of competitors to assist the directors in strategic planning. At a meeting of the board of directors on August 26, 1999, Ferguson, who was serving as Y2K project manager for First Bank, reported that the bank’s Y2K plan had failed to win approval for a second time, and the bank had assigned to Dearing the task of rewriting the plan. A letter dated August 23, 1999, from Dearing to Wells states that the May 13, 1999, business resumption contingency plan, which First Bank adopted as part of its Y2K plan, lacked necessary content, made vague assumptions, and was extremely wordy and unreadable. The letter notes that Y2K work by Ferguson has been hampered by the failure of the board to delegate him any authority, so that he must continually seek board approval for all decisions. Dearing noted that the deficiencies in the business resumption contingency plan were the focus of the FDIC’s pending Safety and Soundness Order. After Tosh’s departure, Giddens continued to work on the books and records. Although he had already completed the majority of the work, considerable, detailed effort remained. Having already restored the books and accounts so that they were accurate on a going-forward basis, Giddens analyzed information, often years old, to achieve a comprehensive balancing and reconciliation. Eventually, the main adjustment was an addition, to the bank’s favor, of $21,214.36 to the cash items account, as accepted by the board of directors on October 29, 1999. At the request of Petitioner’s examiners, Giddens issued corrected call reports to reflect this adjustment. The best indicator of the point of completion of Giddens’ work on the books and records is found in the minutes of a special meeting of the board of directors on August 31, 1999. The outside auditor appeared at the meeting and informed the directors that he was again working on his audit for the years 1996 and 1997, which he had been forced to suspend due to the condition of the books and records. On August 18, 1999, outside auditors issued an independent auditors report concerning First Bank’s financial position through 1998. As interim president of First Bank, Giddens was only employed at the rate of $14 hourly for an average of 15 hours of week. Freely expressing his dissatisfaction with his rate of pay, although not the hours, Giddens nevertheless testified that Wells had not interfered with Giddens’ performance of his duties. In reality, those duties are more in the nature of a chief financial officer, not chief executive officer. Giddens has over 30 years’ experience in bank auditing and accounting, including internal controls. His limited experience in operations derives from an assignment to Jamaica on which he was to hire and train a bank auditor, but, due to an unexpected strike, Giddens had to run operations for a relatively short period of time. Working on the books and records, Giddens gained a unique insight into the problems of First Bank. For example, where Wells might complain generally about employees misusing forms, Giddens encountered specific instances, such as the practice of some employees to use loan checks when they ran out of cashier checks, thus leaving both accounts out of balance. As his work on the books and records began to reach completion in the summer of 1999, Giddens devoted more time to internal controls. Dual control of sensitive assets, such as travelers’ checks or the night deposit box, poses unique problems for a bank with only a half of a dozen employees. However, Giddens implemented numerous internal controls to reduce the risk of employee theft. For example, under Giddens, First Bank imposed dual control upon travelers’ checks, even though Giddens had never seen another bank have to do this; Fedline wire transfers (where one person had to load and another person had to transmit), even though First Bank’s wire transfer procedures left it no more exposed to risk than had the procedures of Barnett Bank, where Giddens had worked for many years immediately prior to coming to First Bank; tellers’ cash drawers, for which different persons do unannounced money counts; and official checks, where, due to employee attrition, different persons perform the necessary reconciliations. As for internal auditing, Giddens admitted that First Bank lacks a program, but, befitting a bank of its size, has internal control systems that are verified periodically by independent persons. As Respondents Gunti and Minor testified, the directors do not do internal audits, but Giddens does. In fact, on December 20, 1998, Giddens and Tosh found a $1700 shortage in one teller’s cash box, and they referred the matter to the state attorney’s office. As for accounting practices, Giddens detailed all of the objections of Petitioner’s examiners and rebutted each of them or showed that they did not present a material risk of loss or damage. As for security practices, Giddens acknowledged that the combinations and locks had not been changed since the departure of Tosh, and the bank needs to deal with these issues. However, the bank had already dealt with minor deficiencies with the bait money that it supplies tellers in the event of a robbery. In general, Giddens testified credibly that First Bank is adequately staffed to handle the volume of business that it experiences. As described by Respondent Gunti, First Bank handles only about 40 transactions daily. At a special meeting of the board of directors on September 17, 1999, the directors gave Ferguson the authority to do whatever was necessary to implement the Y2K plan, including the business resumption contingency plan, and authorized him to purchase, on a competitive basis, needed items, as outlined in a Y2K budget. At a meeting of the board of directors on September 29, 1999, the directors for the first time in this record cast opposing votes as to a matter. Respondent Alters noted that the directors had received a letter of intent to purchase the assets or stock from the Bank by Evergreen Bancshares, Inc., evidently a different group from that in which Tosh had been involved. Wells moved that the board require the prospective purchaser first to provide background information, but Respondent Alters moved that the directors waive this requirement and consider the prospective offer directly. Joining Wells were Respondent Drummond and Wells’ son, who had been recently appointed to the board, so that Respondent Alters’ attempt to waive the requirements was defeated. However, Respondent Drummond later switched his vote, so that the directors waived the requirements that the prospective purchaser first provide background information. At Wells’ request, the directors deferred consideration of the matter until October 1, 1999. At the same meeting, Ferguson reported to the directors that the FDIC had rejected the first two Y2K plans submitted by First Bank. Dearing had given management a rough draft of his rewrite on September 15, 1999, but management had made some changes with which Dearing had disagreed. The Y2K committee had adopted a revised plan on September 27, 1999, but the FDIC had recently informed the bank that it had to rewrite the entire Y2K plan. Ferguson reported to the directors that he had deferred implementing his business development responsibilities until he had completed his Y2K tasks. At a special meeting of the board of directors on October 4, 1999, the directors agreed to respond to the Evergreen letter of intent, but to require certain conditions precedent to further discussion, including disclosure to the directors of the amount of the purchase offer to the minority shareholders. At a special meeting of the board of directors on October 25, 1999, the board of directors discussed the Safety and Soundness Order and the Y2K deficiencies cited in that order. At a meeting of the board of directors on October 29, 1999, the directors addressed earnings, noting that expenses were over budget and income was under budget. They discussed the continuation of an operating loss and addressed Ferguson’s marketing activity, which remained on hold until resolution of the Y2K issues. Directors advised Ferguson that customer service and attention to detail would increase revenues, not, as he had tried, reduced banking costs. By letter dated November 12, 1999, to the board of directors, Ferguson noted that the FDIC had still not determined that First Bank was Y2K compliant. However, according to his letter, the FDIC Y2K examiner had said that the plan looked “fine,” but that the FDIC had not issued a written determination. Ferguson detailed recent Y2K activity, documenting his considerable efforts at securing regulatory approval. At a meeting of the board of directors on November 12, 1999, the directors discussed five loan delinquencies. The largest of the loans was for about $101,000 and was secured by a first mortgage on a residence valued at $400,000 several years ago. The smallest loan was for $649. A third loan was due to an internal error by First Bank in which it credited an account with $22,000 and did not discover the error for five months. After obtaining a note from the account holder, First Bank received a couple of payments, but had received nothing more, and collections prospects were dim. The last two loans were to Respondent Alters. One was a $20,000 unsecured note for leasehold improvements that became due on August 1, 1999. Respondent Alters had requested a renewal of the loan. The other loan was for a balance of $2800, which had been renewed in January 1999 for an additional 18 months; however, Respondent Alters had already fallen behind by three monthly payments of $153 each. Respondent Alters assured Ferguson that he would pay the past- due payments on these loans. Also at this meeting, Ferguson assured the directors that First Bank had complied with all Y2K requirements and should be certified as having done so. Ferguson stated that the bank had discharged all of its responsibilities under the Safety and Soundness Order, except for mailing notices to shareholders at the next regular communication with shareholders. At a special meeting of the board of directors on November 19, 1999, the directors told the chair of the loan committee to obtain from Respondent Alters adequate security for the $20,000 unsecured loan, as well as to require that Respondent Alters bring current a first mortgage loan and home equity loan secured by his residence. Ferguson advised the directors that Petitioner’s examiners, as part of their examination resulting in the September 13, 1999, ROE, would require that First Bank add $16,000 to its loan loss reserves due to the loans to Respondent Alters and the account holder wrongly credited with $22,000. Giddens also informed the board that one of Petitioner’s examiners had told him to amend the bank’s call reports to reflect the $21,214.36 credit to the cash items account. At a special meeting of the board of directors on November 23, 1999, Petitioner’s Bureau Chief and counsel presented the September 13, 1999, ROE. The Bureau Chief noted that the condition of First Bank was “very poor” with continuing violations of laws and regulations, deficiencies in internal controls, and other problems. The Bureau Chief stated that the “basic reason” for these problems was Wells, and he restated an earlier demand, which he had presented to the directors in the summer, that they remove Wells from the board and as general counsel. The Bureau Chief stated that Petitioner would bring an enforcement action, if the directors failed to act. Respondent Minor noted that the other directors could not legally remove Wells, and the Bureau Chief acknowledged the obvious problem posed by directors trying to remove another director who was the majority shareholder. Petitioner’s counsel added that Petitioner would prove by clear and convincing evidence that Wells is “in complete control of the bank and its operation.” An FDIC representative attending the meeting noted that First Bank would be upgraded from unsatisfactory, presumably concerning Y2K compliance. Petitioner’s examination of First Bank ran from September 13 to October 15, 1999. The ROE dated September 13, 1999, contains an composite CAMELS rating of 4 and component ratings of 2 for capital, 2 for assets, 5 for management, 4 for earnings, 3 for liquidity, and 3 for sensitivity. There can be no dispute concerning the ratings for capital, assets, and earnings. As for earnings, First Bank was experiencing an operating loss in 1999 and a downward trend in earnings. A rating of 4 for earnings indicates “intermittent losses” and “significant negative trends.” The record likewise permits no challenge to the rating of 3 for sensitivity, as the bank did not maintain an active system for identifying, measuring, and monitoring interest rate risk. A rating of 3 for sensitivity indicates either that the “control of market risk sensitivity needs improvement or that there is significant potential that the hearings performance or capital position will be adversely affected.” First Bank needed to improve its control of market risk and therefore did not merit a rating of 2 for sensitivity. The liquidity rating of 3 is clearly erroneous, however. The examiner assigned to this component correctly rated First Bank a 2, but the examiner in charge changed the rating to a 3. In doing so, the examiner in charge weighed the loss of nearly three quarters of a million dollars in deposits. The ROE states that public knowledge of First Bank’s Y2K difficulties had resulted in a decline in liquid assets. Although the ROEs dated December 7, 1998, and March 20, 2000, were not admitted for the truth of their contents, their contents are available to impeach other evidence. Both the 1998 and 2000 CAMELS ratings for liquidity were 2. The liquidity ratio in 1998 was substantially the same as the liquidity ratio in 1999; both years, the ratio of cash and short-term, marketable securities to deposits and short-term liabilities was around 30 percent. Likewise, the 1999 ratio of net loans and leases to total assets--63.69 percent--had not changed significantly from the prior year. The reliability of First Bank on potentially volatile liabilities had actually halved from 1998 to 1999. Another improvement as to liquidity from 1998 to 1999 was that First Bank had increased its credit line with the Independent Bankers’ Bank of Florida by $1 million to $1.713 million. The 2000 liquidity analysis also undermines the 1999 liquidity rating of 2. The 2000 ROE found that First Bank, misinterpreting a state statute, had reserved an additional 15 percent of a specified amount, resulting in the maintenance of more generous levels of liquidity than required. It is a likely inference that First Bank similarly misinterpreted the statutory requirement in 1999. The 2000 analysis also notes that the deposit base stabilized through the end of 1999, after an earlier runoff. The 2000 analysis states that the bank’s largest depositor is the Welco Investment Trust, which maintains 22 percent of the total deposits and is controlled by Wells. One adverse development arising after the 1999 ROE is that First Bank appears no longer to have its line of credit with Independent Bankers’ Bank of Florida. But the 2000 analysis notes that the loan portfolio, reflecting the bank’s “extremely conservative collateral-based lending philosophy,” does not leave it particularly vulnerable to economic risk, especially given the strength of the local economy, including real estate, which accounts for 70 percent of the bank’s loans. Referring to the FDIC Examination Manual definitions of ratings for liquidity, the 3 assigned in the 1999 ROE is clearly erroneous, probably reflecting undue weight assigned to a few months during which the Y2K runoff was at its height and apprehension that the deposit runoff might continue. A rating of 3 means that the bank’s liquidity levels or funds management practices are in need of improvement--facts not present in this record. A rating of 2 indicates satisfactory liquidity levels and funds management practices, even though “[m]odest weaknesses” may accompany funds management practices--facts clearly supported by this record. Of course, the key component is management, for which the 1999 ROE assigns First Bank a 5. As defined in the FDIC examination manual, this rating is reserved for management and directors that have not “demonstrated the ability to correct problems and implement appropriate risk management practices.” These uncorrected problems “now threaten the continued viability of the institution.” The rating of 4 accommodates “deficient management or board performance” in which the “level of problems and risk exposure is excessive.” Under a rating of 4, uncorrected problems “require immediate action by the board and management to preserve the soundness of the institution.” As distinguished from a rating of 5, for which replacing or strengthening management or the board is “necessary,” a rating of 4 means that replacing or strengthening management or the board “may be necessary.” A rating of 4 for management, thus, hardly represents a regulatory endorsement. To the contrary, a rating of 4 accommodates significant management deficiencies. Although not as severe as the irredeemable and comprehensive incompetence reflected by a rating of 5, these management deficiencies may nonetheless eventually impact the soundness of the institution and may only be correctable by the replacement of the incompetent parties. The present record supports a management rating of 4, not 5, in the 1999 ROE. The most difficult rating to examine is the composite rating. Under the FDIC Examination Manual, a bank with a 5 for any component generally cannot qualify for a composite rating of 3. Therefore, with a 5 in management, First Bank properly should have received no better than a composite rating of 4, which First Bank received in the 1999 ROE. However, raising the management component to a 4 and the liquidity component to a 2 increases the likelihood that the correct component rating would be 3. The distinction between the composite rating of 3 and 4 is the distinction between an institution that requires only “some degree of supervisory concern” and one that is engaging in “unsafe and unsound practices.” This is the basic question posed by these cases. In 1998 and 1999, First Bank accomplished much, including the two main tasks confronting Tosh: cleaning up the books and records and attaining Y2K compliance. Later in 1999, First Bank implemented greater internal controls, obtained an independent audit of its financial position, and implemented improved accounting, data processing, and security procedures. Even in management, First Bank showed some improvement in late 1998 and 1999, as reflected in part by the gains in the areas identified in the preceding paragraph. Capable persons filled key managerial roles during this time. From the time of Wells’ resignation as president to the present, Giddens has ably served as cashier, although not, as nominally titled, as president. For nearly the same period, Ferguson has served well as senior loan officer; for the reason noted in the Conclusions of Law, his post-hearing departure--probably not a positive development--is not properly included in this record. For the first part of this period, Tosh served ably as president. Petitioner claims that Wells effectively served as president during Tosh’s tenure. However, despite Tosh’s letter somewhat to the contrary, Tosh’s assurances to the board were consistent. Frankly, the best inferential proof that Wells was not serving, in effect, as president during Tosh’s tenure was the success enjoyed by Tosh, Giddens, and Jufer and, thus, First Bank. When Wells was in charge, the operations of First Bank suffered; after Wells resigned as president, the operations of First Bank improved substantially. The other board members made an honest effort to ensure compliance with the Consent Order, and they were successful. Petitioner claims that Wells effectively served as president after Tosh’s departure. As already found, Giddens was not really the president. However, he performed some tasks that might be associated with a chief executive officer, and the directors and Ferguson performed the remainder. Wells did not rise above the rest of the directors and seize executive control of First Bank after Tosh left. Gradually, the other directors, especially Respondents Gunti and Minor, acquired more experience with banking operations and were better able to discharge these tasks. The directors held numerous meetings, sometimes only days apart, from 1997 through 1999. Some of the directors visited the bank almost daily. Although they did not oppose Wells often, they did on at least two occasions. In addition to the handling of the already-discussed Evergreen offer, Respondents Gunti and Minor, evidently as part of a majority of the board, wisely prevailed upon Wells to sign the Settlement Stipulation. Undoubtedly, the directors have been influenced by Wells, at times strongly. However, this influence does not, as Petitioner contends, mean that Wells has reasserted his previous duties as president. It is more likely that this influence is due to Wells’ status as the majority shareholder, largest depositor, and, despite his shortcomings, only board member with legal and banking experience. By permitting Wells to serve as a director, consultant, and general counsel, the Consent Order necessarily permitted Wells to occupy a significant role in guiding the affairs of First Bank, especially when, as here, the directors have assumed greater management responsibilities. Undoubtedly, the directors, other than Wells, still offer more in enthusiasm and dedication than they do in experience in banking operations. But they, perhaps including Wells, have demonstrated the capacity to learn from past mistakes. At present, there is a reasonable chance that the other directors will continue to develop and exercise independent judgment, so as not to follow Wells’ occasional invitation to preoccupy themselves with unimportant details rather than larger issues. At the same time, the other directors will have the benefit of the example of Wells’ conservative banking philosophy, tight-fisted control of costs, and overall commitment to the bank. At times, Wells’ leadership has been wrongheaded, as evidenced by his preoccupation with trying to complete the Y2K business resumption contingency plan despite his clear lack of qualifications. At times, Wells’ leadership has been indiscriminate, as evidenced by his preoccupation with controlling costs at the expense of missed opportunities for innovation and growth. At times, Wells’ leadership has been absent, as evidenced by his bizarre denunciation of the job market when he and the other directors badly needed to make some tough decisions to stop excessive employee turnover and retain qualified management. It is unclear whether Wells will respond to this regulatory intervention by maturing as a director and allowing the other directors and bank management also to develop, perhaps in different directions. If Wells is unable to do so, this regulatory intervention notifies him that future material deficiencies in his performance will become increasingly costly for him personally and also, eventually, for the bank to which he has devoted himself. As discussed in the Conclusions of Law, for the extraordinary relief of removal or restriction of a director, Petitioner must first prove a willful violation of the Consent Order or Settlement Stipulation. These documents incorporate the Cease and Desist Order, but not, for the reasons explained in the Conclusions of Law, the Safety and Soundness Order. The considerable and reasonably successful efforts, during late 1998 and 1999, of all of the directors, including Wells, to overcome the considerable problems facing First Bank preclude a finding, by clear and convincing evidence, of a willful violation of the Consent Order or Settlement Stipulation. Even if Petitioner had proved a willful violation of the Consent Order or Settlement Stipulation, it would have to prove, by clear and convincing evidence, that, as a result of the violation, First Bank will likely suffer loss or other damage, that the interests of the depositors or shareholders could be seriously prejudiced, or that Wells has received financial gain and, as to the financial-gain criterion, the violation involves personal dishonesty or a continuing disregard for the safety and soundness of First Bank. Petitioner has failed to prove that any violation will likely cause First Bank to suffer loss or damage or could cause serious prejudice to depositors or shareholders. It is unnecessary to consider at length the financial-gain criterion because, even if Petitioner had proved financial gain to Wells, Petitioner has not proved any dishonesty or disregard for the bank’s safety and soundness in Wells’ compensation. For these reasons, Petitioner is not entitled to an order removing or restricting Wells. This finding would be unchanged by the application of the preponderance standard of proof. However, as noted in the Conclusions of Law, for the more modest relief of an administrative fine, Petitioner is required to prove, again by clear and convincing evidence, a mere violation of the Settlement Stipulation. As noted in the Conclusions of Law, the fine is up to $2500 daily for any such violation, up to $10,000 daily for a reckless violation, and at least up to $50,000 daily for a knowing violation. Petitioner has proved that Wells violated the Settlement Stipulation by failing to cause First Bank to employ a president after the departure of Tosh and a senior loan officer before the arrival of Ferguson. The record does not suggest that various committees of directors can take the place of qualified persons in these key managerial positions. Although insufficient to establish a reassertion of presidential duties, Wells' position of leadership on the board, as well as the focus of the Consent Order in removing Wells as president, fairly impose upon Wells personally the monetary responsibility for these failures. The record amply supports the inference that, if Wells had wanted to fill these two key managerial positions at all times, the board would have done so. It did not because Wells did not. As Petitioner must live by the deal that it struck, so must Wells. It is unnecessary to determine Wells’ state of mind in connection with these violations of the Settlement Stipulation. The periods of noncompliance as to the positions of president and senior loan officier lasted far longer than four days, so the $2500 daily fine, which does not require a reckless or knowing violation, justifies considerably more than the $10,000 fine that Petitioner seeks to impose at this time. This is a personal fine for which Wells shall neither seek nor accept reimbursement, directly or indirectly, from First Bank. As discussed in the Conclusions of Law, Petitioner is entitled to the costs of examination and supervision only if it proves, by a preponderance of the evidence, that First Bank has engaged in an unsafe or unsound practice. Petitioner has failed to prove such a practice. In particular, Petitioner has failed to prove that any violation of an order from Petitioner or the FDIC creates the likelihood of loss, insolvency, or dissipation of assets or otherwise prejudices the interest of the specific financial institution or its depositors. Even if Petitioner had proved such a practice, it would be precluded from recovering any costs, at this time, due to the recent pressure upon First Bank's earnings and the extraordinary expenditures that it made during 1999 in improving its operations and responding to regulatory interventions. Obviously, though, this finding is not an exemption from the responsibility to pay such costs in the future, under appropriate circumstances. The final issue is whether Respondent Alters waived his right to demand a hearing. The Administrative Law Judge gave Respondent Alters the time between the two sets of hearing dates to obtain from an old computer a print-out of a letter in which he claimed to have requested a hearing. Petitioner’s representatives disclaimed any knowledge of such a letter. Producing a dated letter at the latter portion of the hearing, Respondent Alters was required to admit that, although he had not earlier disclosed this substantial addition, he had typed in the date shown on the letter between the dates of the two hearings. Respondent Alters did not timely request a hearing, and he waived his right to request a hearing. Petitioner is thus entitled to any and all relief that it seeks against him.
Recommendation It is RECOMMENDED that the Department of Banking and Finance enter a final order: Dismissing Respondent Alters’ request for a hearing as untimely filed under circumstances showing that he waived his right to request a hearing and imposing such penalties as the department deems fit, consistent with law. Dismissing the department’s claim for reimbursement of examination and supervision costs from First Bank for the 1999 examination. Imposing a $10,000 fine against Respondent Wells, with a condition that he pay the fine personally and neither seek nor accept reimbursement, directly or indirectly, from First Bank. Dismissing all other claims for relief against Respondent Wells and all claims for relief against the remaining respondents, other than Respondent Alters. DONE AND ENTERED this 8th day of March, 2001, in Tallahassee, Leon County, Florida. ___________________________________ ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of March, 2001. COPIES FURNISHED: Honorable Robert F. Milligan Department of Banking and Finance Office of the Comptroller The Capitol, Plaza Level 09 Tallahassee, Florida 32399-0350 Robert Beitler, Acting General Counsel Department of banking and finance Fletcher Building, Suite 526 101 East Gaines Street Tallahassee, Florida 32399-0350 Richard T. Donelan, Jr. Chief Banking Counsel Robert Alan Fox Assistant General Counsel Department of Banking and Finance Suite 526, The Fletcher Building 101 East Gaines Street Tallahassee, Florida 32399 William G. Cooper Cooper, Ridge & Beale, P.A. 200 West Forsythe Street, Suite 1200 Jacksonville, Florida 32202 Jeffrey C. Regan Hendrick, Dewberry & Regan, P.A. 50 North Laura Street, Suite 2225 Jacksonville, Florida 32202 Timothy D. Alters, pro se 2020 Vela Norte Circle Atlantic Beach, Florida 32233 Arthur G. Sartorius, III 1919 Atlantic Boulevard Jacksonville, Florida 32207
Findings Of Fact Petitioner Tarpon Financial Corporation is a federal banking corporation engaged in general banking services in the State of Florida, with its principal place of business in Tarpon Springs, Florida. Petitioners are not subsidiaries of, or associated with, either First National Bank of Florida, Inc., or First Florida Banks, Inc. On or about June 16, 1987, Petitioners submitted to and requested approval from Respondent of the name "First National Bank" as a service mark. Respondent denied registration of this service mark on June 29, 1987 by letter stating, "(W)e have a mark registered under the same or similar name and class." On August 6, 1987, Petitioners requested reconsideration citing the Rand McNally Banker's Directory, a nationally issued banking directory, to support its position that the same or similar service mark it seeks to register is not already in use in the State of Florida. The Respondent again denied the request on August 14, 1987 by letter stating, "Our records indicate 'First National Bank of Florida' is an active Florida corporation. We have no record of any name change." Petitioners sought reconsideration again on August 27, 1987, and requested that the matter be reviewed by Respondent's trademark committee. After review by that committee, Petitioners' application was denied for a third time on September 8, 1987. The service mark, "First National Bank of Florida," was registered with Respondent on June 16, 1982, and given mark number 927091. The owner of this mark is First National Bank of Florida, Inc., Tampa, Florida, and annual reports have been filed with Respondent in June of each year, including June 8, 1988, thereby indicating the mark has not been abandoned. The Respondent's records indicate that "First National Bank of Florida" is an actively registered service mark. The fact that it does not appear in the Rand McNally Banker's Directory does not establish that it is not an active mark registered with Respondent. The period of registration for service marks is ten years, and therefore the registration of "First National Bank of Florida" expires June 16, 1992, subject to renewal. The Respondent cannot register marks unless they are distinguishable from service marks already registered. Competent substantial evidence was not presented to support Petitioner's claim that "First National Bank," the mark it seeks to register, is distinguishable from "First National Bank of Florida," which is already registered. The absence of the phrase "of Florida" from the mark Petitioner seeks to register does not distinguish it from the mark already registered
Recommendation Based on the foregoing, it is recommended that Respondent enter a Final Order denying Petitioners' application to register the service mark, "First National Bank." DONE and ENTERED this 1st day of August, 1988, in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of August, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1250 Rulings on Petitioners' Proposed Findings of Fact: Adopted in Finding of Fact 3, but otherwise Rejected in Finding of Fact 5 and as irrelevant. Rejected as irrelevant and unnecessary. 3-4. Rejected in Finding of Fact 7 and Rejected as unsupported in the record. Rejected as irrelevant. Rejected in Finding of Fact 7. Rejected as irrelevant and unsupported in the record. Rejected as unsupported in the record. Rulings on Respondent's Proposed Findings of Fact: 1-2. Adopted in Finding of Fact 5. Adopted in Finding of Fact 2. Adopted in Finding of Fact 1. Adopted in Finding of Fact 2. 6-7. Adopted in Finding of Fact 3. 8-9. Adopted in Finding of Fact 4. 10. Rejected as unnecessary. COPIES FURNISHED: Donald R. Hall, Esquire Suite 402, Corporate Square 2900 U.S. Highway 19, North Clearwater, Florida 34621 Henri C. Cawthon, Esquire Department of State The Capitol, Room LL-10 Tallahassee, Florida 32399-0250 Honorable Jim Smith Secretary of State The Capitol Tallahassee, Florida 32399-0250
Findings Of Fact First Bank of Hollywood Beach is a state-chartered bank duly authorized and empowered under the laws of the State of Florida and of the United States to conduct a general banking business in and from offices in the State of Florida. First Bank's main office is located in Broward County, and it has three authorized branch offices in Broward County. (Hearing Officer's Exhibit 1) American Bank of Hollywood is a state-chartered bank duly authorized and empowered under the laws of the State of Florida and of the United States to conduct a general banking business in and from offices in the State of Florida. (Hearing Officer's Exhibit 1) It conducts business in its main office in Broward County, has a branch office in Broward County, and has applied for a second branch office in Broward County. Gerald A. Lewis is the Comptroller of the State of Florida and, as such, is the head of the Department of Banking and Finance. On August 1, 1980, the Department received request from the First Bank of Hollywood Beach for approval of an amendment to its charter changing its name to First American Bank of Broward County. On August 22, 1980, the department received an objection to the requested name change from American Bank of Hollywood. (Hearing Officer's Exhibit 1) Both banks have engaged in the banking business in Broward County, Florida, for more than eight years using their current corporate names. (Hearing Officer's Exhibit 1) Some of the principals of First Bank of Hollywood Beach, either as directors, officers, or shareholders, are and have been directors, officers, or shareholders of the First American Bank of Palm Beach County, which bank conducts a business through a main office and ten branch offices in Palm Beach County, Florida. Said principals desire to change the name of First Bank of Hollywood Beach to reflect its affiliation with the First American Bank of Palm Beach County. Additionally, substantially the same group of individuals has pending with the Department an application to organize a new bank to be named First American Bank of Broward County, which bank will also conduct its business through its main office in Broward County, Florida. If the de novo charter is approved, the new bank would also function as part of the "group" comprised of the First American Bank of Palm Beach County and the First Bank of Hollywood Beach. (Hearing Officer's Exhibit 1) As of the date of hearing in this cause, banks with the word "American" in their names were located in thirteen different counties within the State of Florida. At that time, within Broward County, the following commercial banks and savings and loan associations used the word "American" in their titles: American Bank of Hollywood + 1 branch (+ 1 branch applied for) Transamerica Bank of Florida + 1 branch Pan American Bank of Broward + 3 branches Great American Bank of Davie Great American Bank of Broward County Gulfstream American Bank & Trust Company + 5 branches AmeriFirst Federal Savings & Loan Associa- tion + 5 branches American Savings & Loon Association + 14 branches The proposed First American Bank of Broward County, together with First Bank's group if its requested name change is approved, would produce five additional locations of banks with "American" in their titles in Broward County. The sole basis for American Bank's objection to First Bank's requested name change is confusion based upon name similarity. No confusion exists between the First American Bank of Palm Beach County and the Pan American Bank of Palm Beach County or between the First American Bank of Palm Beach County and any bank in Broward County with "American" in its name, although the First American Bank of Palm Beach County has a branch within one mile of the Palm Beach/Broward County line. David Starke, an economist who specializes in consulting work with financial institutions, was not tendered as an expert witness and, accordingly, was not accepted as one. However, the surveys of banks with similar names in the State of Florida prepared by him reveal that all banks using the word "American" in their names also use either a first-word adjective and/or a geographic designation to distinguish one from the other. According to those surveys, both the banks and the savings and loam associations in Broward County with "American" in their titles use these two methods of distinguishing themselves. Both methods of distinction would be utilized by the requested one change in this cause. Other than uncorroborated hearsay evidence, American Bank introduced four items of correspondence which David L. Cory personally obtained from mail erroneously received by American Bank on one Saturday. All of the items of correspondence originated from persons outside of Broward County, with two of them originating from outside of the State of Florida. None of the items was addressed to the American Bank of Hollywood; however, three of the four items specifically carried American Bank's mailing address. The 1980 Hollywood (Broward County, Florida) telephone directory contains a listing for a First American Bank of Broward County, a bank formerly known as Executive Bank of Fort Lauderdale and now known as Great American Bank of Broward County. 10 . In March, 1979 the American Bank of Hollywood reserved with the Secretary of State's office the corporate name of American Bank of Broward. Other than reserving the name, American Bank has taken no steps toward using that name. The Department takes no position on the requested name change herein and recommends neither approval nor disapproval.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is, therefore, RECOMMENDED: That a final order be entered approving the request of First Bank of Hollywood Beach to change its name to First American Bank of Broward County. RECOMMENDED this 13th day of May, 1981, in Tallahassee, Florida. LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 13th day of May, 1981. COPIES FURNISHED: Leonard L. Levenstein, Esquire 1500 South Dixie Highway Coral Gables, Florida 33146 Walter W. Wood, Esquire Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32301 Robert B. Butler, Esquire Ellis, Spencer, Butler & Kisslan 1909 Tyler Street Post Office Box 6 Hollywood, Florida 33022 The Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 =================================================================
Findings Of Fact Caribank, N.A. ("Caribank"), was acquired by J. J. Gonzalez Gorrondona, Jr. ("Gorrondona Jr.") and George Childs, Jr. ("Childs") in May, 1977, and Dania Bank was acquired by these individuals through a tender offer in April, 1978. Caribank Corporation, the Applicant herein, is a bank holding company that now owns more than 99 percent of the stock of Caribank. Gorrondona Jr. owns 90 percent of Caribank Corporation and Childs owns 10 percent. Caribank Corporation was originally named Banconac Shares, Inc. when it was established in November, 1977. Its name was changed to Caribank Corporation on June 5, 1979. Banconac is a name used by many subsidiaries of the Banco National de Descuento ("BND"), a Venezuelan private commercial bank, a majority of the stock of which was formerly owned by Gorrondona Jr. and his father, J. J. Gonzalez Gorrondona, Sr. ("Gorrondona Sr."). It is derived from the name Banco National de Descuento and is used in Venezuela to signify business owned by the BND directly or indirectly. The use of the name Banconac in the Applicant's former name was not explained by the Applicant although Gorrondona Jr.'s testimony established that BND funds were not used to purchase Caribank. Gorrondona Jr. owns approximately 90 percent of Dania Bank and Childs owns approximately 10 percent of the Dania Bank, a state chartered bank. Approximately .3 percent is owned by shareholders who did not surrender their shares. Martin L. Wyneken ("Wyneken") is President and chief executive officer of both the Dania Bank in Broward County and of the Caribank in Coral Gables, Dade County. Childs is Chairman of the Board of the Dania Bank and Caribank, and President, Treasurer and a Director of Caribank Corporation. Policies of Caribank and Dania Bank are established through frequent conferences between Childs and Wyneken. Wyneken has a very close working relationship with Childs. Gorrondona, Jr. has the power to remove Wyneken and Childs. Childs comes to Florida about three times per month to confer with Wyneken. In these above-mentioned discussions, Childs is the spokesman for the "capital." Owning 90 percent of the stock of the Dania Bank provides Gorrondona, Jr. with authority concerning the management and policies of the bank. Directors of the Dania Bank are selected by the shareholders. Gorrondona, Jr. and Childs have not taken any dividends as shareholders of Dania Bank or Caribank, despite the substantial earnings of these banks. Dania Bank and Caribank centralize their operations as much as possible with two separate corporations. Dania Bank and Caribank trade employees back and forth and bill each other through an elaborate accounting system. Thad R. Chamberlain, a director of Caribank Corporation, is executive director of the Banco Suramericano de Desarollo, a Panamanian bank in which Gorrondona, Jr. owns a controlling interest. This is an application pursuant to the Florida Banking Code, Section 658.28, Florida Statutes, for permission to acquire control of Dania Bank by Caribank Corporation. This change in control is sought in order to facilitate a merger of Caribank and Dania Bank. The merger is desired to facilitate the expansion of branch banking, the development of an international department and the development of subsidiaries in such areas as leasing, mortgage financing, and small business investment (S.B.I.C.). The combined capital of Caribank, of approximately $4 million, and the Dania Bank, of $16 million, is expected to facilitate the establishment of subsidiaries. Dania and Caribank are, according to their Chief Executive Officer, Wyneken, "aggressive" banks and there exists a policy of increasing total assets from $265 million at the end of June, 1982, to $500 million by the end of 1985; there is also an aggressive program for subsidiaries. The merged bank plans to spend more on advertising in Dade County. Caribank at its present size cannot justify an increase in advertising expenditures. If this application is approved and a merger subsequently occurs, management expects that there will be benefit on the deposit side since assertedly better use will be able to be made of the money deposited. The Caribank/Dania Bank management has an ambitious program of branch banking. Gorrondona, Jr. and Childs have asked that Dania and Caribank branch into the counties as quickly as possible. Management would like to concentrate branching efforts in Dade County, but their capital at Caribank is so much smaller that it must rely on the Dania Bank for all kinds of assistance. Denial of this application and the failure to merge would restrict expansion in Dade County. The Caribank/Dania Bank management hope that the merged bank will become a large chain bank. The Chief Executive Officer of the two banks testified that to become a large chain bank "[W]e need every bit of help we can get, and that is why we need this consolidation." According to Childs, merger is expected to allow a "substantial increase in the capital base of all the subsidiaries which we have established or intend in the future to establish." A merger is expected to follow immediately upon the granting of the application. If the application were approved and for some reason the merger did not occur, Applicant would seek to change the name of the Dania Bank to Caribank to get the maximum effect out of their advertising dollars. It is further expected that if the application for change in control is granted, the two banks could file a consolidated tax return with an annual tax saving of approximately $64,000. From the above findings, it can reasonably be inferred that this application is made to facilitate a program of rapid expansion and establishment of subsidiaries, and if the application is granted, it can be expected that rapid expansion and development of subsidiaries will be more likely to occur. George Childs, Jr., started Banac Management, Inc. ("Banac") for Gorrondona, Jr. seven and a half years ago and was president of the corporation at the time of the intervention of the BND (discussed below). Banca is a BND subsidiary located in New York City. At the time of the intervention it was acting as a representative of the BND and its subsidiaries to obtain credit lines. Prior to the intervention, Gorrondona, Jr. was involved in the affairs of Banac. He visited Banac in New York six to seven times per year. He was a member of the Banac Board of Directors from 1975 to 1979. The BND was founded in 1954 by Dr. Jose Joaquin Gonzalez Gorrondona, Sr., who is the father of Gonzalez Gorrondona, Jr., the ninety percent (90 percent) owner of the Petitioner, Caribank Corporation, and the subject bank, The Dania Bank. Dr. Gonzalez Gorrondona, Sr. does not now, nor has he ever had any interest in, nor involvement with, Caribank Corporation, The Dania Bank or Caribank, N.A. Since its beginning, the BND had a steady growth until, at the time of the intervention of the bank by the government on December 7, 1978, it was the largest privately owned (nongovernmental) bank in Venezuela with the largest amount of private deposits, 6.3 billion Bolivars (1 Bolivar equals about 0.25 in U.S currency). Gorrondona, Jr. began working at the bank in 1958, worked throughout his early years, and continued to work full-time for the bank after receiving his doctoral degree in economics from the Catholic University in Venezuela with a doctoral thesis in economic planning. During his education, Gorrondona, Jr. studied such subjects as Monetary Theory, History of Financial Institutions, Operation of Financial Institutions, and Public Finance. His interest in economics began early in his life because Dr. Gonzalez Gorrondona, Sr. was the founder of the School of Economics in Venezuela, having been the founder of the Venezuelan Economic Council and the representative of Venezuela at the Bretton Woods meeting in 1943 at which the International Monetary Fund was founded. After graduation, Gorrondona, Jr. continued to study, taking courses in management such as Management by Objective, Computer Science, Systems Analysis, and other courses which would enable him to perform as a manager of a financial institution. Gorrondona, Jr. worked in many phases of the management of the bank, until in 1974, he became president in charge, which means that he was the chief executive officer in the absence of his father. He never drew a salary. By the time of the BND intervention, the stock interest of Gorrondona, Jr. was worth between $350 and $700 million dollars. As an outcome of the intervention, Gorrondona, Jr. lost between $150 and $200 million dollars in the worth of the BND stock which was owned by him. By the time of the intervention, the BND had grown to a bank which included approximately 60 branches, primarily in urban areas of Venezuela. The BND also owned several profitable subsidiaries, including Crenca, a financial society which was able to engage in financial transactions forbidden for commercial banks; Credimatico, which was the owner of a Master Charge franchise in Venezuela which had a market share of twenty-five percent of the credit card sales in the country; Arrendarca, a leasing and factoring company; and Almacendadora Caracas, a bonded warehouse company owning bonded warehouses in several cities in Venezuela. The BND also owned Servimatico, which dealt mainly with consumer credit and financed appliance and other small consumer purchases. Each of these subsidiaries was profitable to the bank and assisted the bank in paying dividends which had been declared each year, since 1973. Beginning prior to 1977, the BND was required to send its minutes of Board meetings to the Superintendent of Banks because there had been detected, as a result of special inspection, a tendency toward concentration of credit. In 1978, BND was the only bank required to send minutes of Board meetings to the Superintendent. At a majority of the meetings of the Board of the Central Bank of Venezuela ("CBV") during the last six months of 1978, there was an agenda item entitled "BND." During this time, employees of the Superintendent and the CBV were at the BND carrying out studies to see in what way or ways the BND's financial soundness could be improved. In August of 1978, the Superintendent of Banks wrote to the Minister of Finance about the situation of the BND. The letter notes that credits of Bs. 2,553.8 million were concentrated in 130 companies, that directors of these companies were in turn, directors of the bank, that there was a disproportion between the amount of these credits and the net worth of the borrower, that renewals were made even after delay in payment and that the credits were extended without analysis of the balance sheet. In September, 1973, the BND was prohibited from distributing dividends by the Superintendent of Banks because it would have adversely affected the liquidity of the BND. In November of 1978, the BND asked the Venezuelan Government for special financial aid in the amount of Bs. 600 million. The BND proposed that it be made the subject of a "private intervention" during the period of time such advance was outstanding. On December 6, 1978, the CBV excluded the BND from the Clearing House effective December 7, 1978, by vote of its Board. The CBV, the equivalent of the U.S. Federal Reserve, is a public institution of the Republic of Venezuela, but is considered independent. Eight members of its Board of Directors and its President are appointed by the government. Six members are appointed on recommendation of the private sector. The CBV, through its credit functions, provides credit assistance to banks and credit institutions in Venezuela. Through its operations, it seeks to safeguard the solvency and liquidity of Venezuela's banking system. A Clearing House to settle accounts between banks is operated by the CBV. When bank customers draw and deposit checks, credits and debits between banks are created that have to be reconciled on a daily basis. Venezuelan banks are required by law to maintain a deposit account at the CBV in order to settle such accounts. If after reconciliation, a bank owes money to other banks, its CBV account is debited to cover the debt. If after reconciliation, a bank is owed money, its account is credited. If a bank does not have enough on deposit to cover its debts, it can present to the CBV cash or checks or payment orders against other banks in sufficient amount. It can also present funds obtained outside the country. Finally, it can obtain funds by rediscounting commercial paper at the CBV. Rediscount consists of endorsing eligible commercial paper to the CBV in return for payment. Eligible paper, for example, must mature within 360 days and be adequately secured so that there is assurance as to its liquidity or self-liquidating nature. Thus, medium or long-term loans do not normally give rise to eligible paper. The decision to exclude the BND from the Clearing House was reached on December 5 and 6, 1978. Prior to this time, BND had had repeated difficulties converting its debts at the Clearing House. On December 5, the CBV Board authorized the exclusion of the BND in principle subject to discussion with the Venezuelan Government. At the time, the BND did not have commercial paper considered eligible by the CBV to receive credit assistance from the CBV. The situation was examined again on December 6 by the CBV to see if there were new elements or new alternatives. On December 6, 1978, the BND was overdrawn at the Clearing House to the extent of being unable to make good in its negative balance of approximately Bs. 100 million. It was decided there were no new elements or alternatives, and accordingly, the President of the CBV wrote to the Venezuelan Minister of Finance to let him know (1) that the BND had a deficit in its legal reserve requirement (see below); and (2) that the CBV Board had decided to exclude the BND from the Clearing House effective December 7, 1978. Prior to the exclusion of the BND from the Clearing House, the CBV Board considered the possibility of extending extraordinary credit assistance to the BND. The Board concluded that such assistance would be in violation of Article 45 of the law governing the CBV. That article provides: "Article 45. - In exceptional cases and with the favorable vote of the six members of its Board of Directors, the Banco Central de Venezuela may, in order to insure the due liquidity of a bank or credit institution in transitory difficulties, provide it with funds for a period not to exceed ninety days, which may be extended for an equal term at the Bank's discretion, secured by other assets of said bank or credit institution, different from those listed in the previous article. "Loans may in no event be made to a bank or credit institution if the trans- itory difficulties it faces are due, in the Board's opinion, after having consulted with the Bank Regulatory Commission, to the poor management or inadequate investment of its resources." In the case of the BND, the CBV Board concluded extraordinary credit assistance would be illegal because BND's liquidity problems were not "transitory" but rather structural, permanent and progressive, because the liquidity problems of the BND were due to improper investment of its resources, and because its funds were invested in operations that were insecure or lacking in guarantees, which reflected bad banking management. Under the rules and regulations of the Clearing House, the exclusion of the BND was mandatory. On the evening of December 6, 1978, a meeting was held at the Presidential Palace attended by the President of Venezuela, the Minister of Finance, other ministers involved in the financial sector, some of the board members of the CBV and the Superintendent of Banks. The stated purpose of the meeting was to inform the President of the Republic about the BND situation. The meeting lasted three hours. There was a discussion as to whether there was any alternative to the one proposed by the CBV. It was concluded that there was no alternative. The President of the Republic instructed the Minister of Finance and the President of CBV to hold a meeting the following morning to inform the banking community that the BND had been excluded from the Clearing House and that the government had decided to intervene the BND. The decision to intervene was unanimous. Two major events which contributed to the liquidity crisis which allowed the government to intervene the BND, were the result of actions by the government itself. The first of these actions was the substantial withdrawal of public funds from the BND. Between November 30 and December 6, over 100 million dollars was withdrawn by the government agencies from the BND. Withdrawals averaged 20 million dollars per day with a high of 30 million dollars on December 6. These daily balances were reported by the Comptroller of the bank to Gorrondona, Jr. on a twice daily basis during these days. No testimony, either from a witness or in the form of an exhibit, was ever introduced to contradict Gorrondona, Jr.'s testimony concerning these substantial withdrawals during the week prior to the intervention. The second action which was taken by the government injurious to the BND was the refusal to accept commercial paper for rediscount. Gorrondona, Jr.'s unrebutted testimony established that the same paper which was denied rediscount by the Central Bank on December 6 was granted rediscount on December 30 and during the period of time after the intervention. Gorrondona, Jr.'s testimony established that it would have been impossible to change the loan portfolio within such a short period of time and therefore of necessity it was the same loan portfolio which was granted rediscount after the intervention which had been denied rediscount during the week prior to the intervention. Gorrondona, Jr. further testified that the December 7, 1978, hand- written balance sheet, contained in Petitioner's Exhibit 70, the Intervenor's January 12, 1979, report, was a consolidated balance sheet including all 60 of the BND's branches. Therefore, the balance sheet was prepared by employees of the intervenor during the period between December 7, 1978 and January 12, 1979. On the issue of loans eligible for rediscount on December 7, Mr. Gabledone, Respondent's witness, using Respondent's Exhibit 70, stated that if the figures in Exhibit 70 were correct, the BND had 3.663 billion Bolivars eligible for rediscount on December 7, and that "the BND would have been able to obtain a large amount of rediscounts, or large amounts that would be eligible for rediscounts." In part, a result of the withdrawal of government funds, the failure of the government to repay its loans and overdrafts, and the denial of rediscount by the Central Bank of BND commercial paper, the BND had a deficit at the Central Clearing House on December 6 of 100 million Bolivars. Article 166 of the General Banking Law of Venezuela provides: "Whenever a bank or credit institute, subject to the Provisions of this Act, faces a preca- rious situation which might entail an eventual detriment to its depositors or creditors, or endanger the banking system in general, or when infringing repeatedly (the provisions of) this Act, or those of the Central Bank of Venezuela Statute or the Regulations of either or both, or any Resolution adopted by the Executive Branch, the Superintendent of Banks or of the Central Bank of Venezuela, then the Executive Branch shall empower the Superintendent of Banks or any other individual it may deem com- petent to place the Bank or Credit Institute in Receivership. The Receiver may agree with the Central Bank of Venezuela on the course of action to be taken for the respective bank's or credit institute's redress, its eventual reorganization or liquidation, which shall become mandatory for the respective financial house. But he shall, without exception, pre- pare, within a period not exceeding thirty days as from the date or resolution decreeing the receivership, a complete and itemized report concerning the legitimacy of the respective intervention and submit it to the Executive Branch. By Resolution 2296 issued December 7, 1978, the Minister of Finance of Venezuela intervened the BND. Intervention is an uncommon occurrence and the law contemplates it will occur only when a financial institution is in danger. The decision to intervene the BND could have been appealed to the Supreme Court of Venezuela. No appeal was taken. Neither Gorrondona, Sr. or Jr. or any other shareholder filed suit to block or overturn the intervention, although they had lawyers in Venezuela and Gorrondona, Sr. was in Venezuela. The BND is still under intervention. On march 31, 1979, the Superintendent of Banks of Venezuela issued its Annual Report for the year 1978 ("Superintendent's Report"). The Report contains an extensive discussion of the BND and the reasons for its intervention. The Superintendent's Report states the following: In 1977 and 1978, a decrease in the rate of growth of the Venezuelan economy together with unbalanced financial management at the BND whose key feature was credit over- expansion, especially as regarded credits to companies connected to the bank, placed the BND in a non-liquidity crisis to be- come increasingly notorious. The BND was the object of special attention by the Bank Regulatory Commission because over the 5 years preceding the intervention several violations of the General Law on Banks and other Credit Institutions had been detected. The BND had repeated insufficiency of the reserve requirement, a problem from which the bank chronically suffered. The BND was twice fined the maximum amount for illegal credits extended (1) to the Banco Suramericano de Desarollo ("BSD"), a Panamanian bank in which Gorrondona Jr. owns 80 percent of the shares, and (2) Crenca, a BND subsidiary, in violation of Article 153 of the Banking Law. Certain credits regarded by the BND as agricultural were not properly classified as agricultural. As of March 31, 1978, Bs. 2,553.8 million of bank loans were concentrated in 130 customers (the "Specially Classified Companies"). Directors of these companies were also bank directors. Credits were granted to these companies easily, then were renewed frequently and even when over- due, balance sheets for some of these credits did not exist and most of the credits were unsecured. The minutes provided by the BND to the Superintendent of Banks were not identical to those recorded in the BND's minute book, including that innumerable credit operations with subsidiaries had been omitted from the provided minutes. BND employees failed to cooperate with the Superintendency in providing requested in- formation. An official memorandum was sent to the BND president about this matter, ordering him to rectify this situation. Irregularities in the BND's legal reserve led to numerous notices to the BND president as well as to the levying of several fines. Until December 12, 1978, the BND received 224 memoranda concerning shortages in the legal reserve requirement and was fined 32 times for such legal reserve requirement deficiencies. The average weekly shortage in the legal reserve requirement through- out 1978 was Bs. 124 million. An audit conducted as of September 30, 1978, showed that the estimated loss on the loans to the Specially Classified Companies was Bs. 632.9 million. The estimated loss on other credits in the bank Portfolio was 35.7 million. The reserve for Portfolio Contin- gencies was Bs. 12 million. On January 12, 1979, the BND Intervenor, Tinco, made a report 1/ to the Minister of Finance pursuant to Article 166 of the General Banking Law of Venezuela. The Report describes the reasons for intervention. The Intervenor's Report states the following: During the first eleven months of 1978 the BND increased its Invested Assets by Bs. 1.0789 billion while in that same period deposits increased only Bs. 183 million. The imbalance was partially covered by rediscounts. By November 30, 1978, the BND had rediscounts of Bs. 485.4 million, which is 32.7 percent of all commercial bank re- discounts for that period. Many of the documents submitted to the Central Bank for rediscounts were rejected by it since they did not comply with the requirements for eligible paper. Credit restrictions were imposed on the BND by other banks. The BND's failure to make timely remittance of funds to correspondents resulted in their not honoring checks and refusing to open let- ters of credit. In 1975-78 the BND had a chronic shortage in its legal reserve requirement. The BND had a shortage in the legal reserve in 38 of 48 weeks during the first 11 months of 1978. The BND's reserve shortage stabilized during the months of September 1978 through November 1978 at over Bs. 100 million and reached Bs. 169 million in the last week of November. Prior to the intervention the BND was twice fined Bs. 30,000 for having granted illegal credits to the BSD, the Panamanian bank owned by Gorrondona Jr., and to Crenca. Even after the fines, the illegality was not corrected. In the case of the BSD the credit at the time of the fine through a time deposit was Bs. 657 million. At the time the BND was inter- vened, this deposit had not been reduced at all. In late November and early December of 1978 the situation grew more serious as the BND's negative balances at the Clearing House in- creased, and the BND had difficulty sub- mitting documents eligible for rediscount by the CBV. Questions from abroad about the BND's situation became more insistent. When the BND was unable to make good on its negative balance at the Clearing House on December 6, the BND was expelled as of December 7 in compliance with Article 11 of the pertinent Rules and Regulations. Thereupon the BND was intervened pursuant to Article 166. There were large withdrawals after the intervention and instructions were given that teller windows would not close as long as there were clients present. As of December 7, 1978 loans placed with affiliates (companies owned totally or partially by the BND) totaled more than Bs. 1.302 billion. Loans placed in 93 companies with which important shareholders, directors or executive officers of either the BND or its affiliates were directly or indirectly associated totaled Bs. 1.739 billion. Other credits were as of the date of the Intervenor's Report are still under study. On October 14, 1976, five vice-presidents of the BND, including the vice-president of Credit, the First Vice- President-Treasurer, the Vice- President-Comptroller, the Vice- President of Branches and Agencies, and Jaime Benitez ("Benitez") Vice-President for Banking Services, wrote a confidential memorandum to Gorrondona, Sr. and Gorrondona, Jr. in order to emphasize deficiencies and problems within the BND and to present recommendations. As summarized by Benitez, who testified at the hearing in this matter on July 16, 1982, the principal problem was a high concentration of credits in a group of businesses. These credits were not paid as they matured. This created a deficiency in cash flow and caused liquidity problems. There were also deficits in the legal reserve requirement. Accounting procedures were not being correctly applied and there was a problem of overdrafts. The memorandum recommended: (1) a change in credit policy even though this would limit the expansion program; (2) affiliated and related companies should start paying their debts; (3) concentration of credit should be eliminated; and (4) internal controls aid internal procedures should be improved. Benitez' testimony established that as a whole, recommedations were not carried out and deficiencies were not eliminated. The Memorandum of October 14, 1976, stated that: "The Office of the First Vice-President for the Treasury has repeatedly voiced to the highest authorities in the institution its opinion regarding the excessive placements with Group Companies and has gone as far as to file a written report with the President and the Acting President. In spite of the fact that, on account of its position, it must authorize almost all of the overdrafts and/or charges to the accounts of Group companies, it acknowledges the need to put an end to this practice. This question has been the subject of repeated discussions with the President and the Acting President, who are the only authorities empowered to put an end to this situation. The Memorandum of October 14, 1976, identified a number of problems then existing at the BND. It stated that there existed problems of: "1. High credit concentration (approximately 60 percent of the entire credit portfolio is placed with 1.4 percent of the total number of clients) in Group companies or companies directly or in- directly tied and/or related to it. We mean by this those companies or natural persons in the organization created by the highest ex- ecutive level or under instructions from it, who are organized with high Group officials, Bank officers or trusted persons, both as regards the holding and representation of their shares and their administrative or Director offices. These companies were expedited by said high levels or under orders from them, given through high Bank officers." "2. Non-payment by said companies due to con- stant renewals, without partial [the translation of "abonos parciales" should be "partial pay- ment" in the sense of "amortization"] or in- terest payments." "3. Credits to Group companies, above the legal limits, which are authorized or ordered by the highest officials." "4. Interest documented as promissory notes that accumulates above and beyond the credits originally granted." "5. Excessive number of permanent overdrafts with the National Government, governmental de- pendencies and especially and in an increasing fashion, with Group companies or companies directly tied or related thereto." "6. Overdrafts and collateral obligations in overseas banks due to the financing com- mitment and ever increasing requirements of Group companies or companies directly or indirectly tied or related thereto, which render the institution vulnerable to possible changes in the financial market." "7. Constant use of the Bank's own credit resources for the financing of Group companies directly or indirectly tied or associated there- to, whether they be already in existence or some of the ones that are constantly being created for expanionist purposes and whose activities represent a medium or long-term investment, at loggerheads with the soundness of commercial banking (Treasury Commission: see the material submitted at the meetings and on the minutes)" "8. Exclusion from the List ratified by the Board of Directors of certain operations of Group's companies and of companies directly or indirectly tied or related thereto, following longstanding instructions from high officers, who, in turn, received them from the highest levels." "9. Credits to companies whose balance sheets do not justify the amounts of said loans, mainly Group companies, and which credits are authorized or ordered by the highest levels." "10. Accounting omission of operations-especially guarantees and bonds-conducted from the Group com- panies under order from the highest levels." "11. Excessive financial burden due to the payment of surtaxes and commissions on deposits." "12. Increase in expenses through outlays that are not compatible with the normal management of the Bank." "13. Insufficient income generation, In relation to portfolio volume, which causes the interest account to be affected by amounts equal to the yield said portfolio should generate. Therefore, an insufficient amount in the account Interest Collected in Advance due to the drain it has been withstanding." "14. Inconsistency in the Reserve Requirements position due to a weak treasury and the continuous negative balances at the Clearing House." "15. Unbridled personnel growth at all levels, which has brought about an evident bueaucratization of Bank functions." "16. Ignorance of normal communication channels and of approved bonus norms and procedures." One of the signers of the memorandum of October 14, 1976, Santiago Rodriquez Marcano, was made an Assistant to the President of BND after the memorandum was sent, but he left after a few months saying that he did not receive the necessary cooperation in his new position. Gorrondona, Jr. testified that in 1978, BND was facing a "serious . . . liquidity crisis" and "had very little liquidity." Gorrondona, Jr.'s testimony established that he made his fortune in real estate. Gonzalez' testimony indicated that in 1978 the BND faced liquidity problems, a "liquidity crisis" which even with government assistance would have continued until the end of 1979. Benitez' testimony indicated that the BND was in serious trouble at the time of intervention and that the primary cause was credit concentration and the lack of payment upon maturity. Romero's testimony indicated that at the time of intervention the BND had the following problems in the area of credits or loans: A substantial part was concentrated in real estate activities. A lot of the business that had received credits from the bank was related indirectly with directors and executives of the bank. Some businesses received credits for amounts that went over what the law allows. The credits were not sufficiently col- lateralized or guaranteed. Some of these credits had a maturity of more than one year which is illegal for a commercial bank. Gabaldon's testimony established that while he has been President of the BND many adjustments had to be made to correct the accounts of the BND as they existed at the time of intervention; that the BND Board had decided to make an appropriate footnote reservation in the BND financial statements calling attention to the possibility of future adjustments which might result from investigations and analyses of the BND's accounts prior to the intervention. Gabaldon's testimony, based on his study of BND records, established that at the time of intervention is some cases the loans to subsidiary companies were paying interest but in a majority of the cases they were not doing so but rather the BND would increase the amount of the debt to cover the amount of the interest due. At the time of intervention, approximately 12 to 15 percent of the BND loan portfolio consisted of loans to these subsidiary companies. Alejandro Guevara Chacin's ("Guevara Chacin") testimony established that the minutes of the BND sent to the Superintendent compared with the minute books of the bank revealed that many operations were omitted. Guevara Chacin supervised the comparison. Juan Ramirez' ("Ramirez"), the present Superintendent of Banks of Venezuela, testimony indicated that there were many reasons for the intervention of the BND and any one of them, if put together with or alongside the others, was enough to support the decision. Benitez' testimony indicated that the basic principle of the banking business is diversification; in other words, to place loans with diverse or different customers. Childs' testimony indicated that renewal of loans without payment of interest is bad banking practice. Childs' testimony indicated that loans to corporations in which directors have an equity interest should be secured and at arms length. Wyneken's testimony indicated that there are reserve requirements in the United States and violation is not a trivial matter. The testimony of Guevara Chacin, Eenitez, Lopez-Romero and Ramirez established that one of the BND's major problems under Gorrondona, Jr. was repeated deficiencies in the BND's legal reserve. After the intervention, there was a run on the BND. Between June 30, 1978, and December 31, 1978, deposits from the public decreased by Bs. 2.1 billion and most of this decrease occurred between December 7, 1978, and December 31, 1978. In the six months following the intervention government deposits at the BND went from Bs. .6 to Bs. 2.7 billion. These deposits permitted the BND to cover withdrawals. Gorrondona, Jr. left Venezuela for a two week period on November 17, 1978, and a detention order was issued on November 24 which would have resulted in arrest had he had been in the country. In Venezuela, the subject of a detention order is immediately arrested and is held without any opportunity for posting bail until the detention order is resolved. The detention order was based upon an allegation that Gorrondona, Jr. had been involved in a company which had committed a security violation more than five years prior to the detention order. Petitioner contends that the charges against him, which resulted in the detention order, were politically motivated. This order kept Gorrondona, Jr. out of the country during the intervention, and was eventually dismissed. The Court, in dismissing the charges, stated: It then follows from the aforesaid, that it would -- clearly result in an injustice to assign any criminal liability to persons who are not even members of the Board when the presumed irregularities may have been committed. The period leading up to the intervention of the BND was also the period immediately prior to the national election which was held on December 3, 1978. In the elections in 1974, Gorrondona, Jr. had contributed 9 million dollars to the unsuccessful opponent of President Perez. In the election of 1978, Gorrondona, Jr. had contributed over 1 million dollars to the opponent of President Perez's party, the Accion Demicratico (AD) party. Venezuelan laws do not restrict the size of campaign contributions. Gorrondona, Jr. returned to Venezuela in June, 1979. At that time Gonzalez recommended to Gorrondona, Jr. that he go to court to prove his innocence. In June, 1979, Gorrondona, Jr. and Sr. initiated a noticia criminis proceeding in a Venezuelan Penal Court of First Instance. There are three ways to initiate a criminal proceeding in Venezuela: denunciation (a person makes a charge that a crime may have been committed), accusation (a person makes a charge that a particular person may have committed a crime), and noticia criminis (the court takes notice that a crime may have been committed). In Venezuela, the courts may call witnesses and thereby take investigative initiative. The noticia criminis proceeding is based on the obligation of a Venezuelan court to investigate a possible crime of which it has notice from whatever source. In the case of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr., the court was called on to determine if the BND administrators had participated in the commission of any crime while they were serving as such. In other words, the purpose of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr. was to determine if during the period of time in which they were administering the bank they committed an act that would or could be considered criminal in Venezuela. The word used by Gonzalez in describing the noticia criminis determination was "delito," which the interpreter testified means crime. The decision of the Court of First Instance in the noticia criminis proceeding was to terminate the summary investigation pursuant to Article 206 of the criminal code for criminal trials. The court found there was no evidence of crime. In other words, the determination of the judge in the noticia criminis proceeding was to end the criminal investigation because the facts presented were not of a criminal nature. With regard to the violation of banking laws described in the Superintendent's Report and the Intervenor's Report, the Court said "[a]s is clearly appreciated from these provisions, none establishes penal sanctions and although they constitute a violation of juridical regulations and comprise sanctions, same have no other character than an administrative one. The appellate court said, "this Superior Court considers that lack of maintenance of reserves in such proportion and manner as established in Articles 20, 21, and 163 of the General Act governing Banks and other Credit Institutes, is object of a sanction under Article 170 of the said law consisting of a fine to be applied by the Superintendent of Banks. Efforts to collect the loans made by the BND prior to intervention: On February 28, 1980, the BND entered into an agreement with Gorrondona, Sr. and Gonzalez regarding the loans to certain debtors of the BND ("February 28, 1980 Agreement"). All these loans were made prior to the intervention. The February 28, 1980 Agreement fixed the amount of the debt to the BND of the ap- proximately 180 companies specified therein at Bs. 4.038 billion. It specified that the BND would accept in payment of this debt the amount of Bs. 3.388 billion. It specified that payment would be made within one year. It specified that during that year no actions would be commenced to compel payment of this debt. Gorrondona, Sr. and Gonzalez signed the February 28, 1980 Agreement either as business brokers for the companies specified therein or as representatives of such companies. According to Gorrondona, Jr. all the debtor companies obligated themselves jointly, and any collateral posted by one could be used to satisfy the debts of the other. Paragraph 15 of the February 28, 1980 Agree- ment specifies certain responsibilities assumed by Gorrondona, Sr. and Gonzalez. "We, JOSE JOAQUIN GONZALES GORRONDONA, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 30.580; and DIOGENES Jr. GONZALES HURTADO, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 1.193.753, state that acting as business brokers for THE DEBTORS by virtue of the already noted common interests, personally and jointly and severally in behalf of all of THE DEBTORS undertake to accept and comply with the present agreement in all of its parts. Therefore, and to preserve the fullness of its effects, we undertake to have those debtor companies whose Articles of Incorporation or By-Laws forbid or limit the granting or posting of guarantees or securities, amend them as needed in order to allow for the profferred guarantees; we likewise undertake to have them grant their consent lawfully and execute the present in- strument within the term of thirty (30) days, and to execute any other documents, as re- quired, that may be necessary for the per- formance thereof. As of the present, the loans of the com- panies specified in the February 28, 1980 Agreement have not been paid in full. The amount remaining to be paid, exclusive of interest, is either approximately 2.8 bil- lion B's or 2.1 billion B's depending on whether the loans compromised in the February 28, 1980 Agreement (the difference between Bs. 4.038 billion and Bs. 3.388 billion) are treated as paid. Such unpaid loans as of this time are neither principal nor interest. At this time the BND's total loan portfolio is approximately Bs. 6.2 billion. Whether the figure of Bs. 2.1 or Bs. 2.8 billion is used for the amount of these unpaid loans, these frozen loans from prior to the intervention represent a substantial portion of the BND loan port- folio. These loans to related or Specially Classified Companies are in addition to the approximately Bs. 900 million in loans to subsidiary or affiliated companies that are not paying interest or amortizing principal. There is no evidence that Gorrondona, Sr. or Gonzalez were coerced into signing the February 28, 1980 Agreement. The Agreement was negotiated over an extended period of time. Gonzalez has testified that he signed the February 28, 1980 Agreement in order to assist the rehabilitation of BND and that Gorrondona, Sr. signed in the same spirit. Both men initialed each page when they signed it. Gorrondona, Jr. has testified that it is his position that the agreement is invalid in parts because he did not sign it. The BND has negotiated with Gorrondona, Jr. concerning the performance of the February 28, 1980 Agreement and the debts owed by the Specially Classified Companies. Such negotiations have not been successful. Under the February 28, 1980 Agreement, suits could not be filed for one year. When the agree- ment was not performed, the administration of Borjas pursued negotiations with Gorrondona, Jr. and, when Gabaldon became President of BND in August, 1981, he continued negotiations with Gorrondona, Jr. No suits have been filed against Gorrondona, Sr. or Gonzalez personally on account of the February 28, 1980 Agreement. The BND has very recently started to file suits against some of the debtors. Gorrondona, Sr.'s signing of the Agreement of February 28, 1980, Gorrondona, Jr.'s partici- pation in negotiations with respect to the performance thereof, together with the state- ments made in Memorandum of October 14, 1976 and described above concerning loans made prior to intervention to companies owned directly or indirectly by owners of the BND, corroborates the finding of the Intervenor that prior to intervention a substantial amount of loans were made to companies in which officers and directors of the BND had an interest. The inability to collect these loans corroborates the conclusion of the Superintendent and Intervenor that these loans were not adequately collateralized and were made in amounts in excess of what prudent credit practices would dictate based on the companies' balance sheets. Transfer of ownership of the BND: In the days following the intervention, members of the national government of Venezuela, including the Minister of Finance, met with Gorrondona, Sr. The possible liquidation of the BND and the possible transfer of ownership were discussed. On February 8, 1979, agreements were signed providing for the sale of 65 percent of the BND's shares to the Corporation Venezolana de Fomento ("CVF") . Sixteen shareholders, including Gorrondona, Sr., signed these agreements. They covered the shares owned by both Gorrondona, Sr. and Jr. The February 8, 1979 Agreement set a minimum price of Bs. 1 per share. The Agreement provided that the actual price would be set by the Superintendent of Banks prior to July 31, 1979. The price was to be fixed based on the book value of the BND and its subsidiaries as of December 31, 1978 less the uncollect- ible loans in its portfolio. At the time of intervention the losses on the BND loan portfolio exceeded the capital and reserve of the bank. Under Venezuelan law, when a bank has lost more than 25 per- cent of its capital, the stockholders are required to replace it. Accordingly, had they not sold their shares, the former owners of the BND would have had to make a capital contribution to the BND. As it is, the new owners of the shares have replaced the lost capital of the BND. Gorrondona, Jr., Borjas, the then President of the BND, and the Planning Minister of Venezuela met between June and November, 1979, to discuss the price for the BND shares and repayment of debts owed by the Specially Classified Companies. As a result of this meeting, an agreement was signed on December 21, 1979, regarding the fixing of the price of the stock and the negotiation of the re- payment of loans made to the Specially Clas- sified Companies. In February, 1980, two agreements were signed finalizing the sale of the BND shares to the CVF. One of these agreements (Respondent's Exhibit 82) was with the parties that had signed the February 8, 1979 Agreement. Re- spondent's Exhibit 82 was signed by Gorrondona Sr. and Gonzalez among others. In paragraph First it recites that: "In execution of the agreement reached in the Third clause of the sales contracts for Banco National de Descuento, C.A. shares, sub- scribed between C.V.F. and THE SELLERS and dated February 8, 1979, the Bank Examiner through Official Notices Nos. HSE-200- 3860 and HSE-200-3992, dated July 31 and August 7, 1979, respectively, ad- dressed to the Banco National de Descuento, C.A., determined losses in the Credit Portfolio of said Institution reaching an amount of ONE THOUSAND ONE HUNDRED AND EIGHTY SIX MILLION AND SEVEN [TOS (hundred) omitted in translation] THOUSAND BOLIVARS (Bs. 1,186,700,000.00) and therefore ordered the pertinent adjustments to the BANCO NACIONAL DE DESCUENTO C.A.'s Balance Sheet as of December 31, 1978." In paragraph Second it recites: "Due to the adjustments referred to in the previous Clause, and pursuant to the agree- ment between the parties listed in the con- tracts entered into on February 8, 1979, the Book value of the sold shares resulted in an amount less than One Bolivar (Bs. 1.00) per share, wherefore 'THE SELLERS' have, pursuant to the provisions of the Third Clause of the aforementioned contracts, agreed to accept the amount of One Bolivar (Bs. 1.00) per share, as the sale price for the shares sold." In paragraph Third it recites: "Lastly, 'THE SELLERS' state for the record that what they declare herein completely invalidates any statement or claim made by them, their agents, attorneys or represent- ative regarding any questions on the validity of the agreements executed on February 8, 1979, whose contents they are aware of, and which they execute in a final and definite manner through this document." There is no claim made in the record that the signers of Respondent's Exhibit 82 were coerced in their decision to execute that agreement. The other agreement of February 1980 regard- ing the transfer of shares of the BND (Respon- dent's Exhibit 81) was with shareholders who had not signed the February 8, 1979 Agreement. That agreement also fixed the sales price at 1 B per share. As recited therein, it used as the amount of the losses the Bs. 649 million figure established by the Minister of Finance pursuant to the appeal taken November 30, 1979, rather than the Bs. 1.186 billion figure established by the Superinten- dent of Banks prior to the appeal. This established that whether the Bs. 1.186 bil- lion or the Bs. 649 million figure is used for the amount of the losses, the shares of the BND had at most a nominal value of 1 B on December 31, 1978. Property in Venezuela cannot lawfully be taken by the Government without compensation. If it is taken for less than a fair price, the aggrieved person can go to court to seek a fair price. The judiciary in Venezuela is independent. No lawsuit has yet been filed to obtain ad- ditional compensation for the shares of the BND transferred to the new owners. Recently an "administrative letter" was sent regarding additional compensation for the shares. Nothing in Venezuelan law precluded its being sent earlier. The evidence in the record does not support a finding that the government of Venezuela coerced the owners of the BND to sell their shares or that such shares were sold at less than a fair price. As alleged by Petitioner. SUMMARY FINDINGS The decision to intervene the BND was, in part, politically motivated as evidenced by the timing of the intervention, the withdrawal of substantial government deposits immediately prior to intervention and the decision to refuse recognition of previously accepted commercial paper for rediscount. This is not to conclude, however, that the continuing liquidity problems of the BND were caused by the government. The reasons for the liquidity crisis experienced by the BND in 1978 had existed since at least 1976, and were identified in internal memoranda as well as Superintendent of Banks' and Intervenor's reports. The liquidity crisis experienced by the BND in 1978 and the intervention of the BND by the Venezuelan Government have at the present time a somewhat adverse effect on the reputation of Gorrondona, Jr. with respect to his qualifications as a banker. There is no evidence of any deficiency in his character or integrity. The education and business experience of Gorrondona, Jr. tend to establish his qualifications. However, his role as President-in-Charge of the BND during the liquidity crisis and intervention reflects adversely on those qualifications. No witness was called by the Banking Department or the Applicant on the question whether the practices that gave rise to the intervention constitute unsound banking practices. Those practices have been identified in the findings herein and include concentration of credit in the loans to the Specially Classified Companies, the renewal of loans to subsidiary companies though those loans were not paying interest, repeated violation of legal reserve requirements, failure to comply with the laws relating to agricultural loans, and failure to disclose to regulatory authorities that the minutes submitted for review by those authorities were not the same as the minutes in the books of the bank. LEGAL CONCLUSIONS AND RULINGS Subsection 120.57(1)(b) 12, Florida Statutes, provides: In applications for a license or mergers pursuant to title XXXVIII which are referred by the agency to the division for hearing pursuant to this section, the hearing officer shall complete and submit to the agency and to all parties a written report consisting of findings of fact and rulings on evidentiary matters. The agency shall allow each party at least 10 days in which to submit written exceptions to the report. Subsection 120.52(7), Florida Statutes, defines "license" as [a] franchise, permit, certificate, registration, charter, or similar form of authorization required by law, but it does not include a license required pri- marily for revenue purposes when issuance of the license is merely a ministerial act. Subsection 658.28(1), Florida Statutes, provides in part: (1) In any case in which a person or a group of persons, proposes to purchase or acquire a controlling interest in any state bank or state trust company and thereby to change the control of that bank or trust company, each person shall first make ap- plication to the department for a certificate of approval of such proposed change of control of the bank or trust company. . . The above provisions of Chapter 120 establish the Hearing Officer's report procedure for license applications under Florida banking laws. This is an application for a certificate of approval which is a form of license application within the meaning of that term as used and defined in Chapter 120. Therefore, no recommended order will be issued. Subsection 658.28(1), Florida Statutes, provides in part: [T]he department shall issue a certificate of approval only after it has made an investi- gation and determined that the proposed new owner or owners of the interest are qualified by character, experience, and financial responsibility to control and operate the bank and trust company in a legal and proper manner and that the interests of the other stockholders, if any, and the depositors and creditors of the bank or trust company and the interests of the public generally will not be jeopardized by the proposed change in ownership, controlling interest, or management. The above provision necessitates Respondent's investigation of Gorrondona, Jr.'s banking experience. Thus, the history of the BND and his role in the management of that institution are relevant to Respondent's investigation and to this proceeding. Petitioner's objection to such evidence is hereby overruled. FILED this 28th day of December, 1982, in Tallahassee, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 1982.
Findings Of Fact Petitioner is an agency of the State of Florida charged with the responsibility and duty to prosecute violations of the statutes and rules regulating the practice of real estate in the State of Florida. Respondent, Benjamin C. Rolfe, is now and was at all times material hereto a licensed real estate broker in the State of Florida, having been issued license number 0318091 in accordance with Chapter 475, Florida Statutes. The last license issued to Mr. Rolfe was as a broker with Squires Realty of the Palm Beaches, Inc., 721 U.S. 1, #217, North Palm Beach, Florida. Respondent, Duane C. Heiser, is now and was at all times material hereto a licensed real estate broker in the State of Florida having been issued license number 0038233 in accordance with Chapter 475, Florida Statutes. The last license issued to Mr. Heiser was as a broker effective February 8, 1991, at Duane C. Heiser Realty Co., 1312 Commerce Lane A1, Jupiter, Florida. On or about December 12, 1998, a Final Order was issued by the Florida Real Estate Commission and received by Mr. Heiser whereby his real estate broker's license was suspended for two (2) years from January 12, 1989, through January 10, 1991. During the month of October 1989, Mr. Heiser violated the lawful suspension order of the Commission by personally delivering rental checks to and ordering the disbursement of escrow funds from the Property Management-Operating Account, which is an escrow account, of Squire's Realty Company of the Palm Beaches, Inc. Between March 22 and March 26, 1990, the escrow account records of Mr. Rolfe, who was the qualifying broker for Squire's Realty of the Palm Beaches, Inc., were audited by Petitioner's authorized representatives. The Escrow/Trust Account Audit revealed that Respondent Rolfe failed to properly document and reconcile the Property Management-Operating Account, which is an escrow account. Mr. Rolfe was responsible for this account. Mr. Rolfe was negligent regarding the management of this escrow account by allowing a suspended licensee, Mr. Heiser, access to this account. Mr. Rolfe and Petitioner stipulated that the appropriate penalty for Mr. Rolfe's violation of Section 475.25(1)(b), Florida Statutes, would be the imposition of an administrative fine in the amount of $300.00 and the placement of his licensure on probation for a period of one year. They further stipulated that the administrative fine was to be paid within thirty days of the filing of the final order. They also stipulated that during his term of probation Mr. Rolfe would be required to complete sixty hours of continuing education with thirty of those sixty hours being the thirty hour management course for brokers. They further stipulated that Mr. Rolfe would be required to provide to Petitioner satisfactory evidence of his completion of those sixty hours of continuing education and that those sixty hours of continuing education are to be in addition to any other continuing education required of Mr. Rolfe to remain active and current as a real estate broker in the State of Florida. Mr. Heiser and Petitioner stipulated that the appropriate penalty for Mr. Heiser's violation of Section 475.25(1)(b), Florida Statutes, would be the imposition of an administrative fine in the amount of $300.00 and the placement of his licensure on probation for a period of one year. They further stipulated that the administrative fine was to be paid within thirty days of the filing of the final order. They also stipulated that during his term of probation, Mr. Heiser would be required to complete sixty hours of continuing education with thirty of those sixty hours being the thirty hour management course for brokers. They further stipulated that Mr. Heiser would be required to provide to Petitioner satisfactory evidence of his completion of those sixty hours of continuing education and that those sixty hours of continuing education are to be in addition to any other continuing education required of Mr. Heiser to remain active and current as a real estate broker in the State of Florida.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered which: Dismisses Counts I, III, and V of the Administrative Complaint; Finds Mr. Heiser guilty of having violated a lawful order of the Florida Real Estate Commission in violation of Section 475.25(1)(e), Florida Statutes, as alleged in Count II of the Administrative Complaint. It is further recommended that the Final Order impose an administrative fine in the amount of $300.00 upon Mr. Heiser and place his licensure on probation for a period of one year. It is also recommended that the conditions of probation require that Respondent Heiser pay the said administrative fine within thirty days of the filing of the final order and that he be required to complete sixty hours of continuing education during his term of probation. It is further recommended that as part of the sixty hours of continuing education, Mr. Heiser be required to successfully complete the thirty hour management course for brokers, that he be required to provide satisfactory evidence of completion of such continuing education to Petitioner, and that these sixty hours of continuing education be in addition to any other continuing education required of Respondent Heiser to remain active and current as a real estate broker in the State of Florida. Finds Mr. Rolfe guilty of culpable negligience in a business transaction in violation of Section 475.25(1)(b), Florida Statutes, as alleged in Count IV of the Administrative Complaint. It is further recommended that the Final Order impose an administrative fine in the amount of $300.00 upon Mr. Rolfe and place his licensure on probation for a period of one year. It is also recommended that the conditions of probation require that Respondent Rolfe pay the said administrative fine within thirty days of the filing of the final order and that he be required to complete sixty hours of continuing education during his term of probation. It is further recommended that as part of the sixty hours of continuing education, Mr. Rolfe be required to successfully complete the thirty hour management course for brokers, that he be required to provide satisfactory evidence of completion of such continuing education to Petitioner, and that these sixty hours of continuing education be in addition to any other continuing education required of Respondent Rolfe to remain active and current as a real estate broker in the State of Florida. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 30th day of December, 1991. CLAUDE B. ARRINGTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 1991. COPIES FURNISHED: James H. Gillis, Esquire Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801 Neil F. Garfield, Esquire Garfied & Associates, P.A. World Executive Building Suite 333 3500 North State Road 7 Fort Lauderdale, Florida 33319 Jack McRay General Counsel Department of Professional Regulation 1940 North Monroe Street Suite 60 Tallahassee, Florida 32399-0792 Darlene F. Keller Division Director Division of Real Estate Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801
Findings Of Fact The Petitioners have filed an application with the Respondent to organize a new bank in Ocala, Marion County, Florida. The name of the proposed bank would be the Citizens First Bank of Ocala. The Petitioners are the organizers and proposed directors of the bank. Each of the Petitioners is of good moral character, and each enjoys an outstanding reputation. None of the Petitioners have been convicted of any crimes involving breach of trust, and none have filed for bankruptcy, or have any history of being bad credit risks. Together the Petitioners constitute a diverse group with very broad and successful business experiences. The Petitioner William R. Kidd is a registered professional engineer and realtor who has lived and worked in Ocala since 1950. Mr. Kidd has broad experience in evaluating various aspects of real estate transactions, and he has extensive experience in arranging financing of construction projects. Mr. Kidd owns a pollution control company which has a net worth of approximately $25,000 and a real estate business with sales since 1975 in excess of $10,000,000. He also manages and operates a successful consulting engineering firm. Mr. Kidd plans to invest $40,000 in the new bank, and he has sufficient funds readily availably to make that investment. Mr. Kidd is willing to invest more money in the enterprise if additional capitalization is required. Mr. Kidd is interested in working with the bank, particularly in relation to financing of real estate transactions, and construction projects. The Petitioner Ralph Murphy was born in Marion County and has spent most of his life there. Mr. Murphy owns a linen service company which does approximately $18,500 to $19,000 in business weekly. The linen service, which Mr. Murphy has managed since it was a small entity doing less than $2,500 in business weekly, has a net worth of approximately $900,000. Mr. Murphy serves on the Boards of Directors of several other corporations. Mr. Murphy intends to purchase $40,000 of stock in the proposed new bank, and he has funds readily available with which he can do that. Mr. Murphy is willing to devote as much time as is necessary to organize the bank. The Petitioner Milton L. Copeland manages an insurance firm which writes commercial insurance policies for businesses in Florida and in Georgia. His company has offices in Ocala and Jacksonville. The Ocala office writes approximately $2,000,000 in insurance policies annually. The Jacksonville office writes approximately $15,000 in policies weekly. Mr. Copeland has a personal net worth of approximately $800,000. Mr. Copeland intends to buy $40,000 worth of stock in the proposed new bank, and he has funds readily available for that purpose. Mr. Copeland wishes to take an active part in soliciting new accounts for the bank, and he could devote as much as two full days per week to bank activities. If further capitalization of the proposed bank were considered necessary, Mr. Copeland is willing to increase his investment in the bank. The Petitioner James Cunningham owns and operates a funeral home business in Ocala. He has lived in Ocala most of his life. The dollar volume of Mr. Cunningham's business during 1976 was approximately $250,000. Mr. Cunningham is a City Councilman in Ocala. He is a black man. It has only been in recent years that blacks have even been employed at local banks, and no blacks presently serve on the Boards of Directors of any banks operating in Ocala or Marion County. Mr. Cunningham intends to purchase $40,000 worth of stock in the new bank. He will need to borrow no more than 25 percent of that amount in order to make the investment. Mr. Cunningham desires to take an active part in soliciting accounts and customers for the new bank, and he is willing to devote whatever time would be required for that purpose. The Petitioner Marjorie Renfroe owns and operates a boat, motor and trailer sales and service business in Marion County. Her business had gross sales during 1976 of approximately $350,000. Ms. Renfroe serves on the Board of Directors of the United Way in Marion County, and on the Board of Directors of the Central Florida Community College. Ms. Renfroe plans to buy $40,000 worth of stock in the new bank, and if further capitalization were found necessary, she is willing to increase her investment, and is able to do so. Ms. Renfroe is willing to devote as much time as necessary to managing the new bank, and she is particularly interested in providing services to employees and students of the local community college, especially instructional sorts of courses for students. No women presently serve on the Boards of Directors of any banks in Marion County. One woman serves on the Board of Directors of a savings and loan institution in Marion County. The Petitioner Van G. Staton manages a Belk-Lindsey Department Store in Ocala, Florida. He has lived in Ocala and managed the department store since 1956. The store employs 48 persons and had gross sales during 1976 of approximately $3,000,000. The annual payroll of the store is $400,000 to $500,000. The Petitioner serves on the Board of Directors of a local automobile sales and service corporation, and from 1970 through 1975 he served on the Marion County School Board. Mr. Staton plans to purchase $40,000 of stock in the new bank, and he would not need to borrow more than 50 percent of that amount. Mr. Staton would favor additional capitalization, and would be willing to increase his investment. Mr. Staton is particularly interested in having extended business hours in the new bank beyond the hours presently served by banks operating in Marion County, and Saturday openings. He is willing to spend as much time as is necessary with banking activities. The Petitioner Owen C. Shelton owns and manages two corporations which operate fifteen convenience stores. The total sales for the two corporations was approximately $17,000,000 during 1976. Mr. Shelton has lived in Ocala for 15 years. His personal net worth is in excess of $1,000,000. Mr. Shelton has been in the grocery business for twenty-five years. He started with one small store. His corporations employ approximately 185 persons. Mr. Shelton plans to purchase $40,000 worth of stock in the new bank, and he is willing to increase his investment if further capitalization is required. The Petitioner Terry Trexler is President and Chairman of the Board of Nobility Homes, a mobile home manufacturing business. The company does business in 29 states, and does from 5.1 to 5.2 million dollars worth of business on a quarterly basis. Mr. Trexler has lived in Ocala for 15 years. Mr. Trexler plans to invest $40,000 in purchasing stock in the new bank, and he intends to be active in soliciting new accounts and customers for the bank. The Petitioner Sam Kinlaw is a resident of Orlando, Florida. He has a Bachelor's Degree in Business Administration from the University of Florida, and attended the Banking School of the South at Louisiana State University. Mr. Kinlaw has been active in the banking business, or in similar financial businesses since approximately 1958. He has served as the head of installment loan departments and commercial lending departments of banks in Florida. Beginning in 1972, he became the Chief Executive Officer of the Semoran Bank, which was a new Federally chartered bank. He was responsible for setting up the bank, hiring personnel, establishing policies, and carrying on the day-to-day operations of the bank. He served in that capacity from near the end of 1972 until September, 1975. He has not been involved in the banking business since then. Mr. Kinlaw intends to purchase a "qualifying share" of stock in the bank. He intends to serve on the Board of Directors during the time that the bank is being organized, until other persons with direct banking experience are named to the Board of Directors. The Petitioner Braxton Jones owns and operates several convenience stores and two supermarkets. He has lived in Ocala nearly all of his life. He is prepared to purchase between $20,000 and $30,000 of stock in the new bank, and he is willing to devote whatever time would be necessary to organize and operate the bank. The Petitioner Clarence Woodrow Hicks has lived in Marion County for approximately 30 years. He formerly owned and operated Hicks News Agency, which was involved in the wholesale distribution of magazines, books, postcards and sundry items. He also owned two retail book stores. Mr. Hicks has sold his business and is now semi-retired. He serves as a consultant to the new owners of his business. During the time that he operated the businesses, they did approximately three million dollars of business per year. Mr. Hicks' net worth is in excess of one million dollars. Mr. Hicks has time available to devote to the new bank. The proposed Citizens First Bank of Ocala would, if the instant application were granted, be located at the northwest corner of the intersection of State Road 200 and Southwest 16th Avenue in Ocala. The location is approximately one mile west of Pine Street (Federal Highways 441, 27, and 301), which is the primary north/south artery through Ocala. The proposed bank would be located just over three miles east of Interstate Highway 75. State Road 200 is presently a four lane highway which serves as one of the primary routes from the Interstate Highway into Ocala. Southwest 16th Avenue is presently two- laned, but all right of ways have been acquired and construction will shortly commence to four-lane the road. All of the banks and the savings and loans associations which presently operate in the Ocala area are located east of Pine Street. There are no banking facilities in the Ocala area which are located to the west of Pine Street. Location of a banking facility to the west of Pine Street would serve the convenience of persons in Ocala who live or work on the west side of Pine Street. Pine Street is a very busy highway, which has not been properly designed so that it can be easily crossed. Furthermore, a railroad track runs parallel to Pine Street to the West, and presents an additional barrier. While it is not impossible for persons who live or work on the west side of Pine Street to bank on the east side, the testimony is unrebutted that it is inconvenient to do so due to traffic congestion, and the railroad. There are many persons who reside on the west side, of Pine Street. The area to the north of the proposed bank site is a residential area. There are many low income residences, and trailer park type residential facilities in that area. There are also many moderate income residences to the south and the west of the proposed site all on the west side of Pine Street. The total population of the primary service area, which is designated to be west of Pine Street, is estimated to be 14,300, as of July, 1977. This represents more than a 35 percent increase from 1970 population figures. Many more residences are planned in the area. Over 1,200 new homes have recently been completed, and more than 500 are under construction. Larger residential developments are in the planning stages. There is considerable commercial activity in the areas surrounding the proposed site. The Ocala Industrial Park is located immediately across State Road 200 from the proposed site, and the South 40 Industrial Park is also nearby. Thirty-eight firms presently occupy space in the Ocala Industrial Park, employing more than 1,500 persons and occupying more than one million square feet of building space. Fourteen firms are presently located at the South 40 Industrial Park, employing nearly 350 persons and utilizing more than 300,000 square feet of building space. Both Industrial Parks have experienced steady growth. Many businesses, including several automobile sales and service businesses, have located on State Road 200. Construction is scheduled to begin on a major shopping mall in January, 1978, by the Edward J. DeBartolo Corporation. The mall will be located on State Road 200 just east of Interstate Highway 75. Construction will take approximately 12 months. More than 900 persons will be employed at the mall. In addition, most of the horse farms which surround the Ocala area are located west of Pine Street. There are six banking institutions located in Marion County. The two banks located out of the Ocala area have no particular relevance to this matter. Four banks are located in Ocala. Only one of these banks is an independent bank. The others are parts of larger bank holding companies which are not centered in Ocala. Total bank deposits in Marion County have increased steadily from a total of $176,586,000 in 1973 to $236,336,000 in June, 1977. Although estimates vary, it is evident that the population of Marion County has increased from a 1970 total of approximately 69,000 to a 1977 total of from 104,000 to 127,000. It appears that existing banks in Marion County are in a healthy financial position and are experiencing steady growth. There are many interlocking relationships on the Boards of Directors of the existing banks. None of the Petitioners presently serve on the Boards of any of the existing banks, and this can only promote more lively competition among the banks. Petitioners have proposed to keep their bank open for longer hours than existing banks, and for additional banking days. Petitioners propose to provide specialized counselling for new business people, and education courses for students who attend the nearby Central Florida Community College. It appears that local banks have frequently acted adversely on loan applications from local developers, who have been able to borrow money at favorable rates outside of Marion County. The presently existing banks have not adequately served the very large and active horse farming industry that is located in Ocala, and several horse farmers have needed to go to Gainesville to obtain adequate farm businesses. Banks in Marion County have shown a deposit gain of nearly sixteen percent during the year 1976, as compared to a State of Florida average of approximately 7.4 percent. Of the sixteen counties in which new bank charters were granted in the period from January, 1975, through March, 1977, only two counties had a total deposit growth greater than was experienced in Marion County. A savings and loan association was chartered and opened in Marion County in January, 1975. The association has achieved very good success, and has not proved harmful to other financial institutions, which have also shown steady growth during this same period. Petitioners have projected a net profit at the end of the third year of their operation of $163,300 based on deposits of $10,000,000. A more conservative estimate of a net profit of $61,350, based on $8,000,000 in deposits after three years was estimated by Examiner Howze, a bank examiner who conducted an investigation of the instant application for the Respondent. George Lewis, II, the former Director of the Division of Banking, prepared a proposed budget which showed that the bank would be operating at a loss after three years. George Lewis' estimates are not credible. He estimated that the return on commercial loans would be at a rate of from 7 and 1/4 to 8 percent during the first, second and third years. Nine percent is a more realistic figure, and is itself conservative. The Respondent approved the charter of the Shores Bank of Lake Wier in Marion County which indicated a nine percent return on loans. George Lewis furthermore showed a three percent cost on all demand deposits. This cost is not justified by any factors currently accepted in the banking business. George Lewis apparently based the additional cost on his feeling that the legislature may pass a law requiring banks to pay such a return on all demand deposits. Such speculation has not been shown to be justifiable, and cannot serve as a reasonable factor to be used in predicting a proposed bank's profits. Petitioners propose to issue capital stock in the amount of $1,000,000, and thus to capitalize the new bank in that amount. This is adequate capital to serve the needs of the proposed bank during the first three years of its operation. George Lewis, II, testified that additional, capitalization would be required, but he gave no reason for his opinion. To the extent that additional capital is required, the Petitioners are in a position to raise it, and are willing to do so. Only one of the Petitioners who would serve on the first Board of Directors of the proposed bank has any direct banking experience. All of the Petitioners have engaged in considerable banking activities, but only Sam Kinlaw has served in an active capacity with a bank. The Petitioners propose to hire experienced persons to serve as the bank's Chief Executive Officer and Chief Operations Officer. These persons would also serve on the Board of Directors. The Petitioners do represent a good cross-section of successful business people. Their varied business experiences within Marion County would be very helpful to the new bank. In order to properly operate the bank, however, they will require experienced officers. Consistent with the Respondent's policy, the Petitioners have not yet named their officers. To do so, the Petitioners would place the persons they propose to hire in an untenable position in their present capacities. The Respondent has, in the past, approved bank charter applications for further processing under similar circumstances, so as to allow applicants an opportunity to recruit acceptable, experienced individuals to serve as officers. The Board of the proposed bank, as presently constituted, does not have adequate banking experience so as to assure a reasonable prospect of success. If, however, experienced, competent officers, who will also serve on the Board, are hired, the Board would be such as to assure a reasonable promise of success. The parties have stipulated that the name of the proposed bank, the Citizens First Bank of Ocala, is not so similar to any existing bank as to cause confusion with the name of the existing bank. The property which the Petitioners have obtained for the proposed bank is an excellent location. Petitioners plan to utilize a structure which is already on the land to commence operations. The structure has approximately 3,000 square feet of floor space, is aesthetically appropriate, and can be fairly easily modified to serve as a banking facility. The structure, when modified to increase the size of the lobby and to provide appropriate security measures, should prove adequate during the first three years of the bank's operation. There is sufficient land for additions to be made, and the structure is physically sound so that a second floor could be added. The Petitioners are prepared to increase the size of the facility as required.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED: That the Petitioners' application for authority to organize and operate the Citizens First Bank of Ocala be approved for further processing, and that the application be finally approved when the Petitioners have satisfied the Respondent that they have retained appropriate individuals to serve as the bank's principal officers, and that these persons will also serve on the Board of Directors. RECOMMENDED this 30th day of December, 1977, in Tallahassee, Florida. G. STEVEN PFEIFFER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 1977. COPIES FURNISHED: C. Gary Williams, Esquire AUSLEY, McMULLEN, McGEHEE, CAROTHERS & PROCTOR Post Office Box 391 Tallahassee, Florida 32302 S. Craig Kiser, Esquire Assistant General Counsel Office of the Comptroller Legal Annex Tallahassee, Florida 32304 Joseph C. Jacobs, Esquire Post Office Box 1170 Tallahassee, Florida 32302 Willard Ayres, Esquire Post Office Box 1148 Ocala, Florida 32670 Appendix
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The First Bank of Treasure Island has its main office at 175 Treasure Island Causeway, Treasure Island, Pinellas County, Florida, and was established in 1971. The future growth potential of the main office is limited because Treasure Island has a population of 8,200 and the majority of the population is seasonal. The proposed branch site is situated approximately 25.6 road miles north of the main office. The applicant's liquidity ratio is being maintained at 25 percent or better. It has good established earnings and is presently retaining two-thirds of its dividends for the future expansion of the Bank and its branches. As of November 30, 1978, the applicant's adjusted capital to asset ratio was 11.94 percent. This figure was expected to decrease by a small degree over the following few months. The applicant's main office was staffed with the intention of establishing two branches. The applicant also has an application for another branch ban in mid-county, Pinellas County. This application has been approved by the State of Florida, but is currently awaiting approval by the Federal Deposit Insurance Corporation. The applicant has sixteen directors and non- director senior officers, and its main office is presently overstaffed. Five of its directors and officers have in excess of 14 years of banking experience. The applicant's president and chief executive officer has 23 years of banking experience. The manager of the proposed branch is currently on the applicant's staff, has 12 years of banking experience and has branch banking experience. The owner of the land to be used for the subject proposed branch bank is a member of the applicant's Board of Directors and a 5 percent shareholder. There was a full disclosure of this fact both to the board of Directors and to the State. Two appraisals of the property were obtained, and the applicant's purchase price of the property is less than both appraisals. The site for the proposed branch is located on the West side of U.S. Highway 19, approximately 200 feet north of its intersection with Cypress Drive. The building will be a two-story, 6,000 square foot structure. The branch will initially occupy the first floor and will lease the second floor to professional tenants on a short-term basis. Initially, the proposed branch will have six employees, with two inside teller stations and two drive-in stations. Some fifty parking spaces wilt be provided. The applicant plans to operate the proposed branch as a full service bank. Major decisions will be made on the premises and the branch will only receive bookkeeping support from the main office. In addition to normal banking services, the applicant intends to offer a club plan, a night depository and Saturday morning banking. The applicant projects that the proposed branch will be capable of supporting itself within eight months of operation. Prior to that time, the loss is estimated to be approximately $8,000.00 per month. The estimated volume of total deposits for the proposed branch bank are $2,000,000.00 at the end of the first year, $5,000,000.00 at the end of the second year, and $8,000,000.00 at the end of the third year of operation. The primary service area of the proposed branch, from which it expects to draw 75 percent of its deposit volume, is depicted on the map attached to the application. The primary service area extends 1.1 air miles to the North, 0.6 miles to the East, 2.7 miles to the South and 1.3 miles to the West. This area was chosen by taking into consideration traffic flow, shopping and commercial activity centers in the area and other general characteristics of the area. Within the general trade area of the proposed branch are eight approved or existing commercial banking offices, and six savings and loan association offices. (The map legend was amended at the hearing to delete the black circle with the number 1, as this facility does not exist and has not been approved.) The protestant Palm State Bank is located one-tenth of a mile from the applicant's southern boundary, and 2.6 miles from the proposed branch site. The nearest banking facility to the north is located nine-tenths of a mile from the applicant's northern boundary. The proposed branch will compete in an unincorporated area of Pinellas County. It was the prediction of the applicant's expert witness that the future growth of Pinellas County will occur in the Northern portion where land is available. The 1978 population of the primary service area was 7,200, representing a 300 percent increase from the 1970 population. This population is expected to increase to 10,000 by the year 1980. Nine active or planned housing projects are within the applicant's primary service area. The applicant revised the figures contained on page 20 of its "economic report" to show December, 1978, figures. These figures are 8,517 planned housing units, 1,336 completed units and 806 units under construction. The witness did not know the time frame contemplated for the 8,517 planned units. The name of the proposed branch is to be First Bank of Treasure Island - North County Office. In accordance with the provisions of Florida Statutes, 120.57(1)(a)(12), conclusions of law and a recommendation are not included in this Report. Respectfully submitted and entered this 29th day of January, 1979, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Frank Weaner, President Palm State Bank 1000 U.S. Highway 19 Post Office Box 840 Palm Harbor, Florida 33563 Kenneth E. Easley 1212 South Highland Avenue Clearwater, Florida 33516 William L. Lyman Assistant General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 A. L. Ellis Chairman of the Board Ellis First National Bank Tarpon Springs, Florida 33589 Comptroller Gerald Lewis State of Florida The Capitol Tallahassee, Florida 32304
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: On July 31, 1973, petitioner submitted to respondent its application to organize and operate a new banking facility in St. Cloud, Osceola County, Florida. A filing date of August 20, 1973, was assigned by respondent. Accompanying the application was a long and detailed Economic Survey dated June, 1973, containing economic information and statistics pertaining to the City of St. Cloud and its environs. By letter dated October 26, 1973, the management of the Sun Bank of St. Cloud, the only bank existing in St. Cloud, opposed the establishment of petitioner's proposed bank, citing as grounds therefore the present economic conditions and the limited economic growth prospects for the St. Cloud area. By letter dated February 20, 1974, The First National Bank of Kissimmee protested the granting of a charter for any new bank in Osceola County, contending that "additional banks could only dilute the deposits of the existing banks, and this would not be in the areas' interest." An investigation of petitioner's application was conducted by Frank C. Dobson, a state bank examiner for respondent, on February 19, 1974. By a report dated February 22, 1974, Mr. Dobson recommended disapproval of the application on the ground that three of the five factors were considered unfavorable. Mr. Dobson considered the factor of "financial history, condition of the bank, and fixed assets" to be favorable, as well as the factor of "adeqeacy of capital." Considered unfavorable were future earnings prospects," "general character of management" and "convenience and needs of the community." In contrast to the petitioner's original estimate of total deposits in the amount of $10,000,000.00 at the end of its third year of operation, Examiner Dobson projected deposits of only $6,000,000.00 at the end of the third year and therefore concluded that petitioner would not achieve a profitable position. Based upon his observation that the originally proposed chief executive officer, Mr. John J. Jenkins, might possibly he unable to await favorable action on petitioner's application and that the proposed Vice President and Cashier, Mr. Robert J. McTeer, would need supervision and guidance, Mr. Dobson considered the factor of "general character of management" unfavorable. After a brief resume of each of the proposed directors and officers, Dobson concluded that each was considered "satisfactory" with the exception of McTeer, who was considered only "fair." The unfavorable rating on the factor of "convenience and needs of the community" was based upon Dobson's opinion that the proposed site did not appear conducive to convenient service, the existing bank in St. Cloud was completing a new facility which would provide adequate service for its customers and a national bank application was pending. On October 16, 1974, Fred O. Dickinson, Jr., then State Commissioner of Banking, issued his conditional approval order on petitioner's application. This order indicates that a change in location of petitioner's proposed bank was made and that M. Raymond Daniel was designated as president. Mr. Daniel accepted the conditions on October 18, 1974. In January of 1975, present Comptroller Gerald A. Lewis revoked the conditional approval of Mr. Dickinson. An updated economic survey dated April of 1975 was submitted to respondent on behalf of petitioner. An update investigation was conducted by State Bank Examiner Fred H. Brannen, Jr. on May 21, 1975. Mr. Brannen reviewed the file and found as favorable the factors of "financial history, condition of the bank and fixed assets" and "adequacy of capital." Listed as "borderline-favorable" was the factor of "general character of management." Brannen agreed with the projected figures of the original examiner, Mr. Dobson, and thus reported the factor of "future earnings prospects" as unfavorable. Mr. Brannen found the factor of "convenience and needs of the community" to be unfavorable, noting that the proposed site appeared to be somewhat removed from the existing businesses, Sun Bank of St. Cloud had completed its new facility and planned to use its old building as a remote facility and that the proposed national bank was rejected by regulatory authorities. Based upon his examination, Mr. Brannen concurred with the original recommendation of disapproval. On April 1, 1975, the Sun Bank of St. Cloud filed with respondent its application for authority to open a remote facility at 1001 New York Avenue in St. Cloud. A Comptroller's Conference was held in regard to this application on August 8, 1975, and respondent granted approval for the remote facility on or about September 25, 1975. On June 10, 1975, a Comptroller's Conference was held for the purpose of updating and culminating the investigation of petitioner's application. By a supplement dated June, 1975, petitioner presented additional data concerning existing financial institutions in Osceola County and in six other counties with similar populations as Osceola County. No protestants of the application appeared at this conference. On June 20, 1975, respondent received from the Sun Bank of St. Cloud a 37-page booklet containing comments relating to petitioner's application. It was Sun Bank's conclusion that public convenience and advantage would not be promoted by the establishment of petitioner's bank and that local conditions did not assure reasonable promise of successful operation for petitioner and those banks already established in the community. It appears that petitioner has changed the proposed location of its bank several times since submitting its original application. At the Comptroller's Conference on June 10th, the proposed site was described to be at the intersection of New York Avenue with U.S. Highway 192/441 In its Comments regarding petitioner's application, Sun Bank describes the location formerly proposed the intersection of Neptune Road and U.S. Highway 192/441. This is also the site discussed in the reports of both examiners. 13.. In August of 1975, petitioner presented to respondent a Supplemental Summary relevant to petitioner's application versus the Sun Bank's application for authority to open a remote facility in St. Cloud. On November 17, 1975, Comptroller Lewis concluded that petitioner's proposal did not meet the requirements of F.S. s659. 03(2). As grounds therefore, the Comptroller cited the following: ... The primary service area had a 1970 population of 10,000; the applicants estimate that the service area has a current population of 16,000. The proposed bank's site is approximately .4 of a mile from the existing bank in St. Cloud. The proposed bank would not appear to be any more convenient for the residents of St. Cloud than the existing bank. The applicants have made some showing that the proposed bank would have some pro-competitive advantage for the residents of St. Cloud. However, the banks in Kissimmee are accessible by some of the St. Cloud residents. For this reason, the issue of a monopoly in the existing St. Cloud bank is not as compelling as it might otherwise be. On balance, it appears that the public convenience and advantage would be promoted to some extent by the establishment of the proposed bank, although the case is not an overwhelming one. As shown above, the population base of the service area is fairly small and future growth is not expected to be significant. The population of St. Cloud increased by less than 1,000 persons between 1960 and 1970. The existing bank in St. Cloud had total deposits, as of June 30, 1975, of less than $20 million and its total deposits during the last two calendar years increased by less than $4 million. It appears that local conditions do not assure reasonable promise of successful operation of the proposed bank and the existing banks. On the basis of the foregoing, the Comptroller has concluded that, while the first criterion may be met in this case, the second criterion is not met. Therefore, the application is denied. Since the conclusion renders the other four criteria moot, the Comptroller has not reached any conclusions with respect to those other four criteria." Four banks, all members of various statewide holding companies, presently exist in Osceola County. There is one bank, the intervenor herein, in St. Cloud, which bank also has a remote facility in St. Cloud, and there are three banks in Kissimmee, which is eight to ten miles west of St. Cloud. Petitioner's proposed primary service area is defined to be the City of St. Cloud and its environs. Its general service area is defined to be all of Osceola County. Population estimates by witnesses for petitioner and for the intervenor differed. Petitioner estimated the present population of the general service or trade area to be slightly in excess of 41,000, while figures contained in the booklet entitled "Florida Estimates of Population" show Osceola County to have an estimated population of 36,668 as of July 1, 1975. The petitioner estimates the primary service area population to be in excess of 16,000, and this figure was not disputed by the intervenor. In fact, in its application for a remote facility, the intervenor stated that the "Osceola Planning Commission is projecting that the population of the St. Cloud trade area will increase to approximately 45,000 by 1990." As of the 1975 year end, the intervenor Sun Bank, the existing bank In St. Cloud, had total deposits of $21,210,955.50. During the first quarter of 1976, total deposits increased by over $1,600,000.00 at Sun Bank. Over the past five years, deposits at Sun Bank have doubled. The three Kissimmee banks have a combined total of over $40,000,000.00 in deposits. Net profits at the end of 1975 for the existing four banks in the County were as follows: approximately $286,000.00 for the First National Bank of Kissimmee; $216,198.87 for Sun Bank of St. Cloud; $22,359.66 for the Exchange Bank of Osceola; and a figure of minus $56,231.32 for the Flagship Bank of Kissimmee. The Flagship Bank opened in 1974 in a modular unit and moved into a new facility in its second year Using twenty-four factors to measure the economic growth rating of Osceola County, Mr. William C. Payne, a bank marketing consultant, rated said County along with six other counties of similar size. Osceola was rated second, preceded only by Citrus County. The Comparative Figures Report for December 31 1975, as compared with December 31, 1974, shows the following percentages for Osceola County and statewide: OSCEOLA STATEWIDE TOTAL LOANS 12.8+ 4.7- TOTAL TIME DEPOSITS 20.1+ 7.5+ TOTAL DEMAND DEPOSITS 0.4- 2.0- TOTAL DEPOSITS 10.1+ 3.3+ The presidents of three of the four existing banks appeared and testified as protestants to petitioner's application. The presidents of Flagship and First National in Kissimmee felt that a new bank in St. Cloud would have an adverse effect upon them because they each have a number of customers who are residents of St. Cloud. First National estimates that it has 200 customers from St. Cloud representing approximately $500,000.00 in deposits. Sun Bank recognized than most of petitioner's customers would be derived from Sun's bank, and estimated that probably one million dollars in deposits would be lost to petitioner, thus reducing Sun's profit figures. Sun opened its remote facility in St. Cloud in December of 1975 and First National submitted its application for a remote or branch facility in St. Cloud in January of 1976. Due to financial backing and management expertise and assistance, all three presidents felt that a holding company bank, as opposed to an independent bank, would have a better chance of success in St. Cloud. Flagship pays over $14,000.00 per year as a member of a holding company, while Sun and First National each pay approximately $90,000.00 per year. Sun Bank felt that a certain bank could exist in St. Cloud and that it would, in fact, promote competition. All three presidents noted that 1974 and 1975 were lean years for banking, but that loan demands and total deposits were now increasing. As noted above, petitioner's proposed new bank is to be independently owned and operated at the corner of U.S. Highway 192/441 and New York Avenue in St. Cloud. This downtown intersection provides the only permanent stop light on the main thoroughfare through St. Cloud, and the site provides easy access from either the east/west direction of the main highway or the north/south direction of New York Avenue. It should be noted again that this proposed site is not the same site reviewed by the two state bank examiners in their reports nor by the Sun Bank in its Comments submitted to respondent in June 1975. There was no evidence that the proposed name of petitioner's new bank -- Public Bank of St. Cloud -- would create any conflict or confusion with the name of any other existing bank. There is no evidence in the record that petitioner's proposed capital structure is other than adequate. Its total capitalization is proposed to be $1,000,000.00 and its deposits are estimated to be $7,000,000.00 at the end of the third year of operation. Mr. Payne's updated June, 1976, survey (Exhibit 13) contains drawings and details of petitioner's proposed banking house quarters. The physical structure will promote convenience to customers and the proposed costs are sufficient and reasonable. Security and Federal Deposit Insurance Corporation requirements have been met. Petitioner's proposed Board of Directors consists of ten men. Included therein are attorneys, bankers, cattlemen, a physician, a pharmacist, a University of Florida athletic director and those engaged in real estate development and sales. While some directors do not reside in St. Cloud, others have lived there for years, with one director claiming to have some 1,200 blood relatives in the area. Two of the proposed directors, one of which is the proposed chief executive office, has previously been involved with newly chartered banks. At least three of the proposed directors presently serve as directors of other banks in Florida. The proposed president, Mr. Raymond Daniel, will move to St. Cloud and will devote all his time to his duties as president and director. Two of the proposed directors, one of which is the largest shareholder and the other of which is the proposed vice president and cashier, have suits pending against them for considerable amounts of money. One has a judgment against him in the amount of approximately $40,000.00, and the presidents of two banks in Osceola County testified that his reputation in the community as a businessman was not good.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that respondent disapprove petitioner's application to organize and operate a state banking facility in St. Cloud for the reason that petitioner, while showing that it satisfies all other criteria, has failed to illustrate that all its officers and directors possess sufficient ability and standing to assure a reasonable promise of successful operation. It is further recommended that such disapproval be without prejudice to petitioner to file with the respondent, if it so desires, within fifteen days of respondent's final order, an amended list of directors and/or officers and that respondent render a decision upon this criterion within twenty days from the filing thereof. Respectfully submitted and entered this 30th day of July, 1976, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Honorable Gerald A. Lewis Comptroller State of Florida The Capitol Tallahassee, Florida 32304 Mr. Clyde M. Taylor TAYLOR, BRION, BUKER & GREENE, P.A. P.O. Box 1796 Tallahassee, Florida 32302 Attorney for Petitioner Mr. Nicholas Yonclas AKERMAN, SENTERFITT & EIDSON Box 231 Orlando, Florida 32802 Attorney for Intervenor Mr. Earl Archer The Comptroller's Office State of Florida The Capitol Tallahassee, Florida 32304 Attorney for Respondent ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE DIVISION OF BANKING PUBLIC BANK OF ST. CLOUD (proposed new bank), Petitioner. vs. CASE NO. 76-088 STATE OF FLORIDA, DIVISION OF BANKING, Respondent, SUN BANK OF ST. CLOUD, Intervenor. /
