The Issue The ultimate issue to be determined in this matter is whether the application filed by Boulevard Bank to establish a branch at Islamorada, Florida, should be approved or denied. The Applicant contends that all of the requirements set out at Section 658.26, Florida Statutes, and Rule 3C-13, Florida Administrative Code, have been met, and that the application should be approved. The Protestant contends that the Applicant has failed to demonstrate that the public convenience and necessity would be served by the proposed branch.
Findings Of Fact The Applicant, Boulevard Bank, is a full-service, commercial banking institution licensed by the Florida Department of Banking and Finance. Its principal offices are located in Key West, Monroe County, Florida. Boulevard Bank has filed an application with the Department of Banking and Finance to establish a branch banking facility at Islamorada, Monroe County, Florida. Boulevard Bank has acquired property for the facility. The property is located on "Old State Road" and is bounded on the north by Matecumbie Street and on the south by Jerome Street. Boulevard Bank has obtained zoning variances that would allow it to construct a branch banking facility on the property. The primary service area of the proposed branch banking facility would be from Mile Marker 87, northeast of the proposed facility, to Channel 5, southwest of the facility. This area is approximately 15 miles long. In keeping with the geography of the Florida Keys, the service area is quite narrow, approximately 0.3 miles at the widest. The service area is characterized by mixed residential and commercial uses. There are approximately 3,000 full-time residents within the service area. There are many people who live in the area on a part-time basis. During the winter months, the population increases dramatically. There are more than 90 stable businesses located within the service area. There are currently two banking institutions located within the service area of the proposed Boulevard Bank branch. The main office of The Islamorada Bank and a branch of the First Federal Savings and Loan Association of the Florida Keys are located within close proximity to the location of the proposed branch. The Islamorada Bank is the only full-service, commercial banking institution in the service area. The public convenience and necessity would be served by the opening of an additional full-service banking facility within the service area in that the public would be the beneficiary of the favorable impacts of competition. The Applicant proposes to provide a full range of banking services at the proposed branch. Applicant proposes to stay open at hours and on days that The Islamorada Bank remains closed. Competition can have a favorable impact upon interest that is paid to the bank's depositors and interest rates that are charged by the bank on loans. There is no evidence from which it could be concluded that the opening of the proposed branch would in any way damage the fiscal integrity of banking facilities already located within the service area. While the public convenience and necessity would be served by the increased number of facilities and by competition, it does not appear that there has been a dramatic increase in the need for banking services within the service area in recent years. The main office of The Islamorada Bank has not experienced an increase in deposits since 1979. It does not appear that existing banking facilities within the service area are providing inadequate service to residential and business customers. The Applicant is proposing to invest $470,000 in fixed assets, including the cost of land, building, and furniture and equipment to support the proposed branch. The building, which has not yet been constructed, would have dimensions of approximately 30 by 50 feet. The facility would include drive-in banking windows and an automatic teller machine. The Applicant has sufficient capital accounts to support the proposed branch. The Applicant's percentage of capital to total assets exceeds 7.5 percent. The ratio was 7.8 percent on December 31, 1981, and 8.6 percent on June 30, 1982. The operation of the proposed branch would pose no threat to depositors, creditors, or shareholders of the Applicant. Even if the branch operated without a single depositor, the losses to Applicant would not be such as to pose a risk to the integrity of the Applicant, nor to substantially reduce the stockholders' dividends. It is extremely unlikely that the branch would operate without any depositors, and it appears that there is a favorable prospect that the branch would be profitable. The Applicant has sufficient earnings and prospects for earnings to support the expenses of the proposed branch. The Applicant's net profits to assets ratio exceeded 0.5 percent during the past calendar year. For 1981, the Applicant's net profit to total assets ratio was 2.5 percent prior to the payment of federal income taxes, and 1.5 percent after taxes were paid. The Applicant's loans to deposits ratio was 63 percent on December 31, 1981. The Applicant appears to have sufficient management depth to operate the proposed branch without affecting its present services. Applicant proposes to assign Rudy D. Aud as chief operations officer. Mr. Aud is a vice president of the Applicant. He assisted in the establishment of the Applicant's Big Pine Key branch and has operated that facility. The name of the proposed branch would be "Islamorada Branch of Boulevard Bank, Islamorada, Florida." The name would reasonably identify the facility as a branch of the Applicant. The proposed name would not confuse the public either as to the nature of the facility or in relation to other banking facilities. The files of the Department of Banking and Finance, including the Department's confidential file, establish that the Applicant has operated in substantial compliance with applicable laws governing its operations. ENTERED this 17th day of December, 1982, in Tallahassee, Florida. G. STEVEN PFEIFFER Assistant Director 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 17th day of December, 1982. COPIES FURNISHED: Robert T. Feldman, Esquire 417 Eaton Street Key West, Florida 33040 Gustave W. Larson, Esquire 9999 Northeast Second Avenue Suite 307, Shoreview Bldg. Miami Shores, Florida 33138 Elsa Lopez Whitehurst, Esquire Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301 The Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE DIVISION OF BANKING IN RE: BOULEVARD BANK--Application for authority to establish a branch CASE NO. 82-2623 at Mile Marker 81.4, U.S. Highway 1, Islamorada, Monroe County, Florida. / FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL ORDER Pursuant to notice, a formal administrative hearing was conducted in this matter on November 5, 1982, before G. Steven Pfeiffer, with the Division of Administrative Hearings, in Islamorada, Monroe County, Florida. The purpose of the hearing was to receive evidence concerning the application of Boulevard Bank for authority to open a branch at mile marker 81.4, U.S. Highway 1, Islamorada, Florida. At the hearing, the following appearances were entered: Robert T. Felman, Key West, appeared on behalf of the Applicant, Boulevard Bank; Gustave Larson, Miami Shores, Florida, appeared on behalf of the Protestant, the Islamorada Bank; Elsa Lopez Whitehurst, Tallahassee, Florida, appeared on behalf of the Florida Department of Banking and Finance. No exceptions were filed in this case. Having fully considered the facts and information contained in the record relating to the application of Boulevard Bank for authority to open a branch office at mile marker 81.4, U.S. Highway 1, Islamorada, Monroe County, Florida, The Comptroller of the State of Florida, as Head of the Department of Banking and Finance, hereby renders the following FINDINGS OF FACT, CONCLUSIONS OF LAW, AND FINAL ORDER in the above-styled cause.
The Issue Whether the Respondent violated Section 475.25(1)(a) and (i), Florida Statutes.
Findings Of Fact The admissions by the Respondent, together with the records introduced at the hearing by the Florida Real Estate Commission show that Respondent was a licensed real estate broker holding license no. 0122293. The Respondent admitted his participation in all the transactions referenced in the administrative complaint. The bank records and other evidence introduced at the hearing show that the Respondent's escrow account maintained at Liberty Bank of Cantonment lacked sufficient funds to pay the bills which Respondent admitted were owed Lawyers Title Insurance Co. in the amount of $44.00. The Respondent testified that he had paid these bills only two days before the instant hearing with a check on his personal bank account. From the Respondent's testimony, it is clear that he failed to maintain sufficiently detailed records to permit him to account for monies in his escrow account in the Liberty Bank of Cantonment and in the bank account which he maintained with the First State Bank in Pensacola, Florida. The closing statements relating to the Netzer/Hayes transaction showed that the Respondent received $1,225.00. His records for this transaction showed checks on his escrow account relating to this transaction in the amount of $1,481.60. Respondent testified that the error in this transaction occurred when he erroneously stubbed one check as relating to the Netzer/Hayes transaction, when in actuality it related to a separate transaction. However, under cross examination the Respondent could not identify the transaction to which this check related. The Respondent admitted depositing the money involved in the Netzer/Hayes transaction to his Cantonment Liberty Bank escrow account. He also admitted that he had made no transfer of funds from the Cantonment bank account to his First State Bank account. The Respondent admitted and the evidence indicates that payments were made at closing from the First State Bank account. The Liberty Bank account records show a balance of less thank $731.00 at all times after 9-30-76. Therefore, insufficient funds were maintained by the Respondent in the Liberty Bank escrow account to satisfy the obligations on the account arising from the Nitzer/Hayes transaction. Furthermore, the Respondent's handling of escrow account at the Liberty Bank in Cantonment was as it related to this transaction was improper The admissions of Respondent and the evidence introduced showed that he was the broker involved in the Suttles/ Kamplain transaction. No evidence was introduced that the Respondent failed to advise Suttles that he initially had accepted a $250.00 note in lieu of cash as an earnest money deposit. The evidence is clear that upon receipt of the money, the Respondent deposited this money to his account in the First State Bank of Pensacola. Although this account was not designated an escrow account, it did bear the designation of a management account. It was not established by substantial and competent evidence that a management account was not an escrow account. The Suttles/Kamplain transaction closed without problem; however, there is no explanation of the disbursement of the $250.00 received as an earnest money deposit in the records of this transaction. Regarding the Suttles/Gordon transaction, it was established that the Respondent was the broker who handled this transaction. No substantial and competent evidence was produced that the Respondent failed to disclose to the Gordons that he did not obtain an initial $100.00 deposit on the transaction. The record is clear that the Respondent did receive a check in the amount of $1,500.00 from Mr. Suttles which the Respondent deposited to his account in the First State Bank. The Gordons did testify that the Respondent was authorized to allow the Suttles to occupy the premises prior to closing. After occupying the property, the Suttles were to make rental payments to be credited to the payment of the mortgage. After moving into the house, Mr. Suttles and his wife began to have domestic problems, and he immediately ceased to make all rental payments upon the property. Mr. Suttles did not advise the Respondent that he was not making payments and did not intend to make further payments on the house. Mr. Suttles did avoid all of Respondents efforts to contact him. The Suttles and the Gordons did execute the closing papers but by the time the papers were executed, Mr. Suttles failure to make the rental payments had caused a deficiency in payment of the mortgage. Because the mortgage was in arrears, the transaction could not close. When the Respondent became aware of the Suttles' separation, he began to make arrangements to have them vacate the Gordon house. However, Respondent failed to keep the Gordons fully advised as to the statuts of this transaction. Further, the check given to the Gordons by Respondent was not honored by the First State Bank of Pensacola because of insufficient funds in the Respondent's account to meet this obligation. The Respondent retained and disbursed portions of the $1,500.00 deposited to the account, although the transaction did not close. Money was disbursed to the Gordons and Respondent took out his commission. Whether Respondent was not entitled to disburse the monies under the contract between Respondent and the Gordons cannot be determined upon the evidence presented. However, it is clear that Suttles was a bona fide purchaser, who after he entered into occupancy, determined that he would not complete the transaction; and under the terms of the contract between the Respondent and the Gordons, the Respondent earned his commission when a purchaser was obtained. It is clear that the Respondent did not keep the Gordons properly advised of the situation regarding the sale of their house to the Suttles; and that the Respondent's check to the Gordons on the First State Bank was not honored because the account was impaired. The evidence and testimony taken as a whole at the hearing shows that Respondent did not keep a running balance of the accounts which he maintained at the Liberty Bank of Cantonment or the First State Bank of Pensacola. The evidence further shows that the Respondent failed to withdraw commissions earned in their total amount subsequent to closings on property, did not pay bills which closing statements indicate he was obligated to pay, permitted inter-bank transfers of funds owed him by banking institutions to his escrow or management account, did not take steps to ensure that the First State account was properly and clearly titled as an escrow account, did not properly annotate withdrawals from his escrow accounts, and failed to maintain money in his escrow account until it was disbursed.
Recommendation The record taken as a whole indicates that the violations for which the Respondent is responsible are the result of his culpable negligence as opposed to any dishonest or fraudulent act. However, the Respondent is so devoid of any knowledge of his responsibilities with regard to monies entrusted to him that he may not safely be permitted to function as a real estate broker. Based upon the foregoing-findings of fact and conclusions of law, the Hearing Officer recommends that the Florida Real Estate Commission revoke the license of Respondent as a registered real estate broker. DONE and ORDERED this 9th day of March, 1978, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 COPIES FURNISHED: Robert Pierce, Esquire Florida Real Estate Commission 400 West Robinson Avenue Orlando, Florida 32801 O. E. Adams, Esquire Post Office Box 12217 Pensacola, Florida 32002 ================================================================= AGENCY MEMORANDUM ================================================================= Orlando, Florida November 27, 1978 MEMORANDUM TO: Renata Hendrick, Registration Supervisor FROM: Manuel E. Oliver, Staff Attorney RE: PD 3267 (PD 15776) FREC vs. Ralph D. Villeneuve t/a Don's Realty 122293-1 DOAH Case No. 78-091 Please find enclosed copies of the Final Order filed on April 13, 1978, in the reference case together with the opinion filed on November 2, 1978 by the District Court of Appeal, First District of Florida, affirming the Commission's Order, as well as a copy of the mandate issued by said Court on November 20, 1978. By virtue of the foregoing, the order of the Commission revoking defendant's registration has become firm and effective in all respects. Please make the necessary annotations in the records for all effects. Manuel E. Oliver Staff Attorney MEO/km Enclosures:* * NOTE: Enclosures noted in this memorandum are not available at the division and therefore not a part of this ACCESS document.
The Issue The general issue to be resolved in this proceeding concerns the entitlement of the organizers of the C&L Bank of Blountstown and the Calhoun State Bank for authorization to organize their respective corporations for the purpose of conducting general banking business in Calhoun County, Florida. See Section 658.19, Florida Statutes. The standards by which the applicants' entitlement to the authority sought is to be measured are set forth in Section 658.21, Florida Statutes, and Chapter 3C-10, Florida Administrative Code.
Findings Of Fact Procedural Background On February 18, 1986, the organizers of the applicant C&L Bank of Blountstown (C&L) submitted to the Department of Banking and Finance (Department) an application, pursuant to Section 658.19, Florida Statutes, for authority to organize a corporation for the purpose of conducting a general banking business in Calhoun County, Florida. On April 11, 1986, the organizers of the Calhoun State Bank (Calhoun State) submitted an application for authority to organize a corporation for the same purpose in Calhoun County, Florida. Notice of receipt of the application of the C&L Bank of Blountstown (C&L) was published in the Florida Administrative Weekly on February 28, 1986, under the name "C&L Bank of Blountstown." Notice of receipt of the application of the Calhoun State Bank (Calhoun) was published in the Florida Administrative Weekly on April 25, 1986, under the name "Calhoun State Bank." A Petition for Leave to Become a Party to the Proceedings was filed by the applicant Calhoun State Bank, on or about May 8, 1986, and an Amended Petition for Leave to Become Party was filed by Calhoun on or about May 14, 1986. The Amended Petition for Calhoun contained a request that the applications of both the Calhoun State Bank and the C&L Bank of Blountstown be considered concurrently by the Department and the Hearing Officer. The Amended Petition contained objections to the granting of the application of the C&L Bank of Blountstown on the following grounds: "The proposed C&L Bank of Blountstown would be viewed in Blountstown as a branch of the existing C&L Bank of Bristol, which is located in Bristol, Florida, and the similarity of manage- ment and directorship of the proposed C&L Bank of Blountstown and the C&L Bank of Bristol, would have an extremely adverse effect on the proposed Calhoun State Bank. The proposed C&L Bank of Blountstown would be in possible violation of laws and regulations, both State and federal, which prohibit and/or discourage inter- locking directorships and officers in certain banks, given the proximity of the C&L Bank of Bristol and the proposed C&L Bank of Blountstown and the similarity of identity of management and directorship of the existing bank and the proposed bank." The proposed directors of the C&L Bank of Blountstown then filed a Petition for Public Hearing and Notice of Intention to Appear on or about May 15, 1986. That petition contained the following objections to the granting of Calhoun State Bank's application: "The current economic conditions and growth potential of the proposed primary service area for the C&L Bank of Blountstown was insufficient to support both the C&L Bank of Blountstown and the proposed Calhoun State Bank. The proposed directors of the Calhoun State Bank were lacking the direct banking experience required by law to ensure successful operation of the Calhoun State Bank." The application of the C&L Bank of Blountstown was deemed substantially complete on or about March 12, 1986, and the application of the Calhoun State Bank was deemed substantially complete on May 27, 1986. It was supplemented by additional information requested by the Department on or about July 1, 1986. On or about March 21, 1986, Ben and Faye Eubanks, shareholders of the C&L Bank of Bristol, filed a Petition for Public Hearing with the Department in opposition to the C&L application and on March 24 filed a "Petition for Leave to Become Party to Proceedings..." directed to the C&L application objecting to it on grounds that a grant of it would adversely affect the financial posture of the C&L Bank of Bristol. A Petition for Public Hearing directed to the Calhoun State Bank application was also filed by the Eubanks on or about May 16, 1986. That petition contained an objection to the granting of the application of Calhoun State Bank on similar grounds. On June 4, 1986, the Hearing Officer granted Calhoun State Bank leave to intervene in the C&L proceeding. On June 18, 1986, the Eubanks filed their Notice of Withdrawal of the application for public hearing in the C&L proceeding. On August 15, 1986, the Hearing Officer consolidated the C&L and Calhoun proceedings for final hearing inasmuch as the applications had been filed within 60 days of each other as envisioned by Rule 3C- 9.02(8), Florida Administrative Code. On or about August 26, 1986, the Eubanks withdrew their Petition for Public Hearing in the Calhoun State Bank proceeding. The C&L proceeding had originally been noticed for hearing to be held on July 14, 1986. On or about July 11, 1986, the parties consented to a Motion for Continuance which was granted. The consolidated proceedings were rescheduled for hearing for September 8 through September 11, 1986, in Tallahassee, Florida. The cause came on for hearing as noticed and the trial proceeded for four days. Notice of the hearing was published by the C&L Bank of Blountstown within the time period prescribed by rule in the Calhoun County Record, a newspaper of general circulation. The applicant Calhoun State Bank failed to effect publication of Notice of Hearing in the Calhoun County Record, so that a supplemental hearing became necessary. The parties agreed to a continued proceeding to give them an opportunity to renotice the hearing so as to obviate Calhoun's failure to publish notice and C&L's technically deficient notice. C&L and Calhoun accordingly republished a combined Notice of Continued Public Hearing in compliance with the rules of the Department in the Calhoun County Record on October 2, 1986, and filed the evidence thereof in these proceedings. On October 20, 1986, the final hearing was reconvened, at which time the complete trial transcript of the previous public hearing was made available for review, comment and testimony by members of the general public. No members of the public appeared at this properly noticed hearing and the hearing was concluded. Demographic, Economic and Financial Service Data Applicable to Both Applications Both applicants have proposed primary service areas for their respective proposed banking institutions encompassing Calhoun County. Population trends for that proposed service area (PSA) and, comparatively, for the State of Florida, are as follows: Area 1970 1980 1984 Average Annual Percent Change 1970-1980/1970-1984 Florida 6,791,418 9,739,992 10,930,389 3.67 3.45 County (Calhoun) 7,624 9,294 9,325 2.00 1.45 Unincorporated County 4,817 6,184 6,186 2.53 1.78 PSA 7,624 9,294 9,325 2.00 1.45 Municipalities Altha 423 478 479 1.23 0.89 Blountstown 2,384 2,632 2,678 0.99 0.83 10. Both the State of Florida at large and Calhoun County are comparable in age grouping, while there is a significant difference at the beginning and end of the age grouping scale between Liberty County and the State, as shown by the following table: Age Grouping Area 0-14 15-24 25-44 45-64 65 and over State of Fla. 2,090,624 1,675,790 3,091,078 2,339,183 2,091,257 Percent of Total: 18. 5 14.8 27.4 20.7 18.5 Calhoun County 2,115 1,566 2,297 1,992 1,536 Percent of Total: 22.2 16.5 24.2 21.0 16.2 Liberty County 1,180 764 1,132 897 557 Percent of Total: 26.0 16.9 25.0 19.8 12.3 The number of households in Calhoun County has increased at a rate comparable to that of the State of Florida at large and per capita personal income trends for Calhoun and Liberty Counties and the State of Florida are listed below: PER CAPITA PERSONAL INCOME Compound Annual 1979 1980 1981 1982 1984 Change County Calhoun $4,768 $5,066 $6,082 $6,362 $ 6,374 8.05 percent State $8,257 $9,245 $10,368 $10,927 $11,593 9.12 percent Liberty County $4,759 $5,339 $6,274 $6,794 $7,289 8.90 percent Calhoun County was demonstrated to have a higher unemployment rate than that of the State of Florida at large while Liberty County has a lower unemployment rate than Calhoun but higher than that of the State as a whole as depicted in the following table: ANNUAL UNEMPLOYMENT RATES 1980 1981 1982 1983 1984 County (Calhoun): 9.4 percent 12.1 percent 17.5 percent 17.6 percent 12.9 percent State: 5.9 percent 6.8 percent 8.2 percent 8.6 percent 6.3 percent Liberty County: 6.3 percent 8.1 percent 9.6 percent 9.9 percent 8.3 percent Thus, the population of Calhoun County stood at 9,294 at the time of the 1980 census and was estimated by the University of Florida, in its data in evidence, to be approximately 9,506 persons in 1985. This represents a 0.45 percent average annual growth rate, in comparison to the average annual growth rate for the State of Florida of 2.98 percent over that same time period. The mid-range projection for Calhoun County population derived from this data for 1990 is 9,800, which represents a 0.63 percent average annual growth rate in comparison to the projected State of Florida average annual growth rate of 2.22 percent. Thus, while the Florida growth rate has declined somewhat as projected for 1990, the Calhoun County growth rate, while small, has increased somewhat in the 1990 projection in evidence. This trend belies the prediction made by Dr. Gaines, Calhoun State Bank's expert witness, to the effect that the Calhoun County population will remain static between the years 1990 and the year 2000. It seems highly unlikely that Calhoun County will experience no population growth in that entire decade and to that extent Dr. Gaines' testimony is not credited. In a similar vein, it is noted that Dr. Gaines found that Calhoun County's population growth from 1970-1980 largely resulted from net migration of persons into the County, to the extent of 73.53 percent of the County's growth during that decade, and that no net migration had occurred during the years 1980-1986. His figures show that 91.97 percent of the State of Florida's population growth in the decade 1970-1980 resulted from migration which rate declined to 88.89 percent for the years 1980-1986. If that be the case, it is difficult to conclude that, although the migration rate may have declined in the last six years into Calhoun County, that, as Dr. Gaines opined, no migration into the County resulted. Thus, to this extent also, Dr. Gaines' findings are not credited and are contrary to the preponderant competent, substantial evidence of record. It can thus be seen that the population of Calhoun County currently is approximately twice that of Liberty County or 9,506 residents, as opposed to 4,530 residents for Liberty County. Per capita personal income in Calhoun County was shown to be $7,023 as opposed to $12,773 for the State of Florida at large. The unemployment rate for Calhoun County at the end of 1985 was 11.4 percent compared to the Statewide average rate of 6 percent. As can be seen from the above data, Liberty County's unemployment rate is somewhat lower than Calhoun's, while higher than the State of Florida average. Calhoun County has not shown a pattern of rapid growth in the past or present, but it has demonstrated a stable, steady and somewhat increasing growth pattern. No projected downturn in growth is expected. These economic indicators, considered in conjunction with the rather large number of deposits enjoyed by the sole commercial bank presently operating in Calhoun County, as compared to other commercial banks in Florida operating in similar market areas, reveal that there is room in Calhoun County for a new financial institution based upon these indicators alone. Calhoun County is presently served by three financial institutions, as well as the Calhoun-Liberty County Credit Union, whose membership is made up of County employees. There are two branch offices of North Carolina National Bank of Florida (NCNB), a wholly-owned subsidiary of North Carolina National Bank, which operates hundreds of branch offices in Florida and the southeastern United States. Those two branch offices are located in Blountstown and Altha, which lies approximately 10 miles to the north of Blountstown in Calhoun County. The other institution is a branch office of First Federal Savings and Loan Association of Marianna. Calhoun County had a population per financial institution office of 3,188 during 1985-86, ranking it 29th among the 67 Florida counties. If one additional financial institution was added in the County, its ranking would drop to 44th out of 67 counties. If two additional banking institutions were added to Calhoun County, its ranking would drop to 56. The NCNB branch office in Blountstown is the only full service banking institution in Calhoun County. This office had $34.4 million in deposits from individuals, partnerships and corporations as of September 30, 1985. This figure represents a decline in deposits of $1.5 million in the one year since September 30, 1984. It is unique for a commercial bank with a deposit base on the order of $34 million to have no direct competitor in its primary service area. NCNB acquired its present office in Blountstown when it acquired the Ellis Bank Corporation in 1984 and with it the former Ellis Bank of Blountstown. After that acquisition, the level of service continued to fall as it had during the last several years of the Ellis Bank's tenure in Blountstown. Despite testimony that the level of service of NCNB has improved somewhat since the initial merger period, it is clear that private and commercial customers of NCNB feel a high level of dissatisfaction with that institution, as evidenced by the survey conducted by Dr. Gaines. Twenty percent of the NCNB residential (noncommercial) customers surveyed in the Blountstown and Bristol areas were unable to name any strengths of that institution in contrast to an eleven percent average of customers for other institutions surveyed in and around the proposed PSA. Seventy percent of NCNB customers surveyed were able to cite specific, unaided examples of weaknesses in the institution, the major one being out-of-town ownership and control. Concerning overall quality of service at NCNB, 50 percent of the residential customers indicated that quality of service had declined since NCNB's acquisition of the Ellis Bank. Only 4 percent felt that quality of service had improved in that time period. Commercial customers of NCNB surveyed were also critical of that institution. Seventeen percent of them were unable to name any strengths. Eighty-four percent were able to name specific examples of weaknesses in NCNB. Sixty-five percent of the commercial customers surveyed felt that quality of service had decreased since the purchase of Ellis Bank by NCNB. Although the financial soundness of the NCNB office in Blountstown (as opposed to profitability) would not be severely affected if deposits were reduced by $20 million with the advent of one or more competing new banks, such a dramatic decrease is not initially projected. Both of the applicants project that they would be profitable at deposit levels substantially less that an aggregate of $20 million. The organizers of the applicant Calhoun State Bank project that they will have deposits of $3,082,000 by the end of their first year of operation, with a before-tax profit of $87,000 during the first year. The C&L Bank of Blountstown applicant projects deposits of approximately $4,250,000 and a before-tax profit of $14,024 by the end of its first year of operation. The C&L Bank of Bristol has a significant customer base in Calhoun County, with approximately $1.5 million in deposits coming from former customers of NCNB. Approximately $2,000,000 of Bristol's time deposits are held by Calhoun County depositors and approximately $3.5 million of its loans are to Calhoun County residential and commercial borrowers. In view of the likely close name identification of the applicant C&L Bank of Blountstown with the present C&L Bank of Bristol, a substantial number of the Blountstown and Calhoun residents who presently bank with C&L of Bristol would likely change their deposits and other banking business to the C&L Bank of Blountstown if it were authorized. Thus, a significant amount of the deposits to be attracted by C&L Bank of Blountstown would come from present Calhoun County customers of the C&L Bank of Bristol. This factor, coupled with the C&L Bank of Blountstown being able to attract a reasonable share of the normal growth of the deposit base in Calhoun County and Blountstown, as would Calhoun State Bank, coupled with the large size of the NCNB branch in Blountstown, indicates that although substantial deposits would be garnered by either of the proposed banks, from NCNB, the safety and soundness of that institution would not be placed at risk by the authorization of a new bank in Calhoun County. Nevertheless the testimony and evidence establish that a significant number of depositors in Calhoun County will switch their deposits from the NCNB branches to any new bank or banks authorized in Calhoun County. The publicly perceived deficiencies in service by NCNB involving its out-of-town management and lack of local control and decision-making are significant. A significant diversion of both future potential depositors and present NCNB depositors will occur with the advent of any new bank. First Federal Savings and Loan Association's branch in Blountstown offers only limited services allowed a savings and loan institution. It does not offer checking accounts or commercial loans. Some of its deposits will transfer to either proposed bank, if authorized, because of customer preference for an institution offering a full range of banking services. The Calhoun- Liberty County Employees' Credit Union is a fairly large institution, but is limited in usage to County employees. Some of these potential bank customers will move their accounts from the Credit Union to either C&L or Calhoun State because of the preference for the full services offered by a bank. This is less likely to occur with the customers of both First Federal Savings & Loan Association and the Credit Union if NCNB remains the only full service commercial banking alternative for the above- mentioned reasons concerning community perception of deficient service at NCNB. Primary Service Areas Both applicants allege that their primary service areas will be Calhoun County. The evidence clearly establishes that any new bank chartered to serve Blountstown and Calhoun County would draw 75 percent of its deposits from that County. Calhoun County is twice as large as Liberty County in population, with 9,506 residents as opposed to 4,530 residents in Liberty County. NCNB, which represents 73 percent of all bank deposits derived from Calhoun County obtains 85 percent of its total deposits from that County. Dr. Gaines, Calhoun State Bank's expert witness, performed a survey of bank customers in Blountstown and Bristol and determined that only 8 percent of the Blountstown population sampled cross over the State Route 20 two-lane road and bridge over the Apalachicola River to bank at the C&L Bank of Bristol. Only 24 percent of NCNB customers actually sampled were residents of Bristol. Although the C&L Bank of Bristol derives approximately 26 percent of its total deposit base from Calhoun County deposits, the vast majority of these deposits were represented by public funds and certificates of deposit or other time deposits greater than $100,000. The C&L Bank of Bristol currently enjoys only about 6 percent of Calhoun County's total deposits and 3-4 percent of that County's core deposits, which in turn represent only 3.5 percent of C&L Bank of Bristol's total core deposits; core deposits being deposits by residential and commercial customers. These factors reveal that, although the more densely populated area of Liberty County of Bristol and its immediate environs might be termed a "secondary service area" that, especially in view of the deposit source experience of NCNB, the primary service area of any bank locating in Blountstown and its vicinity will be Calhoun County, particularly Blountstown and the immediate surrounding area since that is the only significant population center in Calhoun County, which area would include Altha, some ten miles distant. C&L BANK OF BLOUNTSTOWN APPLICATION Reasonable Promise of Successful Operation Calhoun County is a sparsely populated area with residents and businesses engaged primarily in timber and other agricultural operations and the operation of small retail businesses. The County is not growing rapidly, as demonstrated by the above-found indicia of growth, but is expected to enjoy a consistent, steady growth in the reasonably foreseeable future. C&L's deposit base in Calhoun County will primarily consist of household and small business depositors and borrowers. C&L established that it will likely attract some $3,250,000 in deposits captured from existing financial institutions, chiefly NCNB, over a one to three year period after initiation of operations. Additionally, bank deposits in Calhoun County have recently been increasing at a rate of approximately $2.5 million per year and C&L expects to garner approximately $1,000,000 of this deposit growth each year. The deposit projections placed in evidence by C&L were shown to be conservative and reasonable, especially in view of the widespread customer dissatisfaction with NCNB for the reasons found above and which will, for at least the first one to three years of C&L's operation, result in a substantial capture of those present NCNB deposits. The projections of expected expenses and earnings contained in the schedules filed with C&L's application, and in evidence, were shown to be conservative and reasonable and are accepted insofar as they reveal the likely operational experience of C&L in competing with those institutions already operating in the service area. The location of the proposed C&L Bank will offer a greater convenience to potential bank customers in Calhoun County who seek an alternative to the NCNB full service bank, the only other feasible alternative at the present time being the C&L Bank of Bristol. The C&L Bank of Blountstown will likely capture a substantial portion of the small amount of core deposit business of C&L of Bristol originating in Calhoun County because of the convenience to customers of having an additional bank in the primary service area, obviating the necessity of a six mile trip to Bristol for such customers. Dr. Heggestad established moreover, that C&L Bank of Bristol would only lose approximately $250,000 of its deposit base over a three year period to C&L of Blountstown. This diversion of deposits to C&L of Blountstown would in no way jeopardize C&L Bank of Bristol since such a loss of deposits would only reduce potential net profits by approximately $3,750, not a significant amount. Correspondingly, C&L of Bristol's loan volume derived from Calhoun County is approximately the same as its base of "core deposits" and is approximately 3 percent of the Calhoun County loan market. The loan volume of C&L of Bristol would also probably decrease in a rather insignificant amount with the granting of an application to either new bank proposed for Blountstown, based primarily on the convenience factor offered by C&L's being placed in the Blountstown-Calhoun primary service area, as an alternative to the NCNB full service bank and more easily accessible than C&L of Bristol. Capital Structure The capital structure of the C&L Bank of Blountstown is $1,000,000. $800,000 of this amount is stated, paid-in capital. $260,000 is represented by paid-in surplus and $40,000 will be represented by undivided profits. The C&L Bank of Blountstown will issue 100,000 shares of common stock at a par value of $8 per share. Stock ownership will not be widespread, rather approximately 90 percent of the stock will be owned or controlled by members of the Board of Directors and their immediate families in approximately the same ownership pattern prevailing with the C&L Bank of Bristol. The remaining 10 percent of the C&L Bank of Blountstown stock will be initially offered to the shareholders of the bank of Bristol who are not the organizers and/or directors of the C&L Bank of Blountstown. Any stock not so conveyed to the other shareholders of C&L Bank of Bristol will then be offered to the public at large. The proposed capital structure of the C&L Bank of Blountstown satisfies the requirements of Section 658.21(3), Florida Statutes, and Rule 3C-10.051(3)(c), Florida Administrative Code. Banking Site and Quarters The proposed C&L Bank of Blountstown has made arrangements to purchase a parcel of land approximately 191' x 381' located on the corner of Warren and Gaskin Streets in Blountstown, Florida. This location lies at the intersection of Highway 20 and Highway 71, which are the two major transportation arteries into the City of Blountstown. The site fronts on Warren Street, which will give street access on three sides of the property. C&L intends to purchase the land from John Morgan McClellan and has a current option to purchase the site. Mr. McClellan, who is one of the proposed directors, has agreed to sell the site to C&L for $150,000. An independent appraisal attached as Exhibit F to C&L's application establishes the fair market value of the site. The proposed building will contain 2,800 square feet of heated space, consisting of a lobby, two offices and a bookkeeping area. Adequate provision has been made for suitable quarters for the proposed bank which satisfies the requirements of Section 658.21(6), Florida Statutes, and Rule 3C- 10.051(3)(f), Florida Administrative Code, and the site has been specifically designated by street address in satisfaction of the requirement in Rule 3C-10.051(6)(A), Florida Administrative Code. Officers and Directors The proposed directors and officers of C&L Bank of Blountstown all reside or have businesses in or near the PSA except for Jerry M. Smith, who is a native of the Blountstown area. The proposed directors and officers have extensive general business and banking experience in the PSA. The proposed directors have managed the C&L Bank of Bristol since its inception and during their tenure in that capacity that bank has enjoyed a consistent growth in deposits, generally favorable loan to deposit ratios and a steady increase in profitability. Under their management, the C&L Bank of Bristol has enjoyed an increased stock valuation at an average rate of 17 percent per year. The proposed officers and directors of C&L Bank of Blountstown are as follows: A. Gerald Cayson is a lifelong resident of Blountstown and has successfully operated a timber and cattle farming business owned with his father and brother in Calhoun County. He served for twenty years as United States Postmaster for the City of Blountstown. He was an original organizer and a current director and vice-chairman of the C&L Bank of Bristol. He has also served on the Board of Directors of the First National Bank of Alachua since 1971. Douglas R. Davis, Jr. is a lifelong resident of Calhoun County and president and co-owner of a pharmacy and a jewelry store in Blountstown. He was an original organizer of C&L Bank of Bristol and currently serves on its executive and loan committees. Michael R. James, an organizer and proposed director of the C&L Bank of Blountstown is also its proposed Chief Executive Officer. He is a resident of Bristol and currently is the Chief Executive Officer of the C&L Bank of Bristol and has served in that position for a number of years. He is chairman of its loan committee and a member of its executive committee. Previously he was employed as a State banking examiner and as a vice-president and branch manager of another commercial bank. John Morgan McClellan co-owned and operated a building supply business in Blountstown for approximately 21 years and currently is a real estate broker in Calhoun County. He was an original organizer of the C&L Bank of Bristol and currently serves on its Board of Directors. Additionally, he has served on the Board of Directors of the First Federal Savings and Loan Association, Marianna, Florida, for the past ten years. Jerry M. Smith is currently president and chairman of the Board of Directors of the First National Bank of Alachua. He is also chairman of the board of the First Alachua Banking Corporation as well as C&L Bank of Bristol. He was an original organizer of the C&L Bank of Bristol and also serves as chairman of its executive committee. R. Malone Peddie formerly owned and operated a swimming pool construction business in north Florida. He is currently president and chairman of the board of 0PM, Inc. and LBJ, Inc. which are companies engaged in real estate investment. He, too, was an original organizer of the C&L Bank of Bristol and serves as chairman of its audit committee. Gordon P. Revell is a lifelong resident of Bristol and is currently principal of the Bristol Elementary School. He is chairman of the board of directors of Revel and Revell Corporation which owns and operates a 110 bed long-term care facility in Liberty County. He was also an original organizer of the C&L Bank of Bristol and serves on its loan committee. James W. Weaver, Jr. is a lifelong resident of Liberty County and is currently president of Weaver Oil Company in Blountstown. He and his father co-own a convenience food store chain in northern Florida. He was an original organizer of C&L Bank of Bristol and serves on its loan committee. James W. Weaver, Sr. is co-owner of Weaver Oil Company, Inc. and is the former chairman of the board of C&L Bank of Bristol. He served in that capacity from 1975-1979 and currently serves on its audit committee. Mr. Michael James, who is currently president of the C&L Bank of Bristol, is proposed to be the president of the C&L Bank of Blountstown. Sufficient substantial evidence has been presented to establish the qualifications and capabilities of Mr. James to successfully serve the applicant bank in that position. The organizers, proposed directors and officers of the applicant C&L Bank of Blountstown have been established to have reputations in their communities for honesty and integrity. All have significant active business experience so as to establish their capabilities for responsible dealing in financial matters and their abilities to make sound investment and business decisions. They have been demonstrated to have a sufficient understanding of financial affairs. A number of members of the proposed Board of Directors including the Chief Executive Officer have direct banking experience related to establishment of a new bank in the same type of market. Thus, it has been established that the organizers, proposed directors and officers of the proposed C&L Bank of Blountstown meet the requirements of Section 658.21(3), Florida Statutes, and Rule 3C-10.051(3)(c), Florida Administrative Code. Additionally, three of the ten organizers and directors of the proposed C&L Bank of Blountstown are Calhoun County residents and all represent diverse occupational and business interests, in satisfaction of Rule 3C-10.051(3)(D)(4), Florida Administrative Code. Proposed Name The organizers of C&L Bank of Blountstown have proposed two potential names for the new bank, one being "C&L Bank of Blountstown" and the other being "Bank of Blountstown." C&L prefers to use the name "C&L Bank of Blountstown" and no objection to the use of that name is of record. The use of the name C&L Bank of Blountstown will likely cause greater public acceptance of the new bank and enhance to some extent its ability to attract depositors because of the widespread customer satisfaction and name recognition attributable to the C&L Bank of Bristol. Expert Testimony C&L offered Dr. Arnold A. Heggestad as an expert in general banking, bank finance and economics, as well as banking regulation. It was thus established that there are prospects for moderate but steady growth in the economy of the PSA as that relates to population, average income, sales of goods and Services and concomitantly, bank deposits. This moderate growth, coupled with the likely capture of some deposits from NCNB as well as the small percentage of Calhoun County deposits presently enjoyed by the C&L Bank of Bristol, shows that Calhoun County is sufficiently strong economically to support an additional bank. There will be a significant convenience and advantage for the general public in the Calhoun County community served by the entry of C&L into that market. This is especially true in view of the widespread dissatisfaction with NCNB which occupies an essentially monopolistic position in that market and for the further reason that those depositors in Calhoun County now banking at C&L of Bristol will likely show a propensity to move their banking business to C&L of Blountstown for reasons of convenience and its close name identification with the Bristol Bank, which enjoys a high customer satisfaction rating. It was also established through Dr. Heggestad's testimony that the C&L Bank of Blountstown and the C&L Bank of Bristol will not substantially compete with each other since their service areas only overlap in an insignificant way as that is measured by the low percentage of the Bristol bank's core deposits derived from Calhoun County and the fact that Blountstown and Calhoun County residents would be less likely to journey to Bristol to do their banking with the advent of any new bank in Blountstown, to the extent that those customers choose not to bank at NCNB. The overlapping directorships of the C&L Bank of Bristol and the proposed C&L Bank of Blountstown will not serve to significantly restrict competition since, as found above, the two PSAs do not significantly overlap and the Bristol bank is a relatively minor participant in the Calhoun County banking market, especially for core deposits from residential and private commercial customers. The overlapping directorships of these two banks will not create a fiduciary conflict for the directors as to the interests of the respective bodies of shareholders since both institutions will be owned and controlled by the same people in fairly equal amounts. Because of the substantial identity of ownership there would be no incentive for one Board of Directors, in its policies, to do competitive harm to the other bank. The organizers and directors of the C&L Bank of Blountstown do not propose to inaugurate banking policies which would serve to undercut the operations and to d& competitive harm to the C&L Bank of Bristol and in fulfilling their fiduciary duties to shareholders they are unlikely to encounter conflicts of interest in this regard since the two banks will not be competing in any significant way in the same PSA. Dr. Heggestad additionally established that C&L would attract approximately $1,000,000 a year from new deposit growth in the area and over a three year period would attract approximately $3.25 million from existing financial institutions in the market, primarily from NCNB, due to its high level of customer dissatisfaction. C&L can reasonably expect to attract about $8,000,000 in assets based upon the projected deposit growth in the area, together with its capture of a substantial amount of the NCNB deposits, by the end of its third year. In its first year of operation, C&L will show a relatively small after-tax loss. In the second year it should earn a very modest profit and by the third year will earn a profit of approximately $47,000, according to Dr. Heggestad's calculations and projections, which are accepted. In the context of the C&L Bank of Blountstown competing with the NCNB, and the other existing institutions, it has been established that the projection of total deposits at the end of each of the first three years is reasonable and the projected statement of earnings over the three year period, as well as the deposit base, is reasonable. The capital structure of C&L outlined in its application is ample and sufficient to engage successfully in the banking business at the outset of operations and the proposed bank should earn a positive rate of return by its second year of operation and sustain an adequate capital structure. There is a reasonable promise that C&L will be a successful competitor in the Calhoun County market with NCNB and those two banks should be able to sustain themselves at a profitable return on equity. C&L Bank of Blountstown will have success in penetrating the Calhoun County market given the peculiar circumstance of its being occupied to the extent of 73 percent of total deposits by NCNB, the widespread dissatisfaction with NCNB, and the convenience and name recognition factors which will attract present Calhoun customers of C&L of Bristol. Thus, the C&L Bank of Blountstown would be a viable institution if granted a charter. NCNB would remain a stable Calhoun County bank, even though its deposit base will shrink somewhat as the result of the advent of C&L. The deposits and earnings projections of C&L are reasonably based on current economic and demographic conditions and projected growth potential in the PSA. Because it is important to evaluate the ability and experience of a bank's organizers in order to predict its likelihood of success, Dr. Heggestad made an analysis of the past performance of the C&L Bank of Bristol. C&L of Bristol has been in operation approximately eleven years and under the same management which proposes to open and manage the C&L Bank of Blountstown. Dr. Heggestad determined, based upon a comparative analysis of other banking institutions of comparable size in Florida, that the C&L Bank of Bristol has performed quite well in light of the market in which it operates, which is characterized by rather modest growth in the various economic indicators alluded to above. Its costs of doing business, including the amount spent on director's fees, were shown to be well below the average bank in its class. In evaluating the likelihood of successful operation of C&L, Dr. Heggestad also considered the performance of C&L of Bristol as compared to the performance of NCNB, its closest and largest competitor. During the period of time in question, 1978-1984, the performance of NCNB has declined and the performance of C&L of Bristol has improved. The performance of C&L of Bristol surpassed NCNB through the year 1984, thereafter reports for NCNB as an independent bank are no longer available because it became a branch of NCNB of Florida in October of 1985. Dr. George Gaines, testifying as an expert witness for Calhoun State Bank, acknowledged that in his market analysis of all financial institutions located in Blountstown and Bristol he found that the C&L Bank of Bristol had the best rating in the group and that the general satisfaction of residential and commercial customers regarding C&L of Bristol was very high. It is, therefore, reasonable to conclude that the same management group which has operated C&L of Bristol successfully for more than ten years would be successfully able to compete in the Calhoun County banking market by opening the proposed new C&L Bank of Blountstown. This is especially true since it has been established that any new bank opening in Calhoun County would likely attract as much as $1,000,000 of deposits from NCNB the first year of operation due to the customer preference factors mentioned above and this, coupled with the above-referenced name recognition and convenience factors, which will allow it to capture C&L of Bristol deposits from Calhoun County and the successful record of its management group, renders it likely that C&L of Blountstown would be best able to successfully compete in the Calhoun County market. In this connection, it has not been shown that C&L would capture all of the Bristol bank's deposit and loan volume from Calhoun County. In fact, C&L Bank of Bristol would lose only approximately $250,000 of its deposit base over the first three years of operation of C&L of Blountstown, which would result in an insignificant decline in its profitability. Thus, in actuality the C&L Bank of Bristol will not be a substantial competitor with any new bank, or with NCNB, in the PSA. The bulk of the deposits enjoyed by the Bristol bank from the PSA consist of public funds and time deposits of $100,000 or more which are less likely to be shifted to a new bank entering the Calhoun County market because such depositors are less likely to be influenced by the convenience and name recognition factors and loan policy factors discussed above. In summary, it has been demonstrated without question that the C&L Bank of Blountstown would be able to successfully compete with existing institutions in the Calhoun County market. In fact there is a high probability that it would be best able to compete against the existing Calhoun County banking institutions because of the advantages found above. CALHOUN STATE BANK APPLICATION Calhoun has represented in its application and in its evidence at hearing that its primary service area would consist of Calhoun County, Florida. Calhoun's witnesses established that they reasonably expect that any new financial institution in that County could expect to draw 75 percent of its deposit base from Calhoun County residents and businesses. In light of this and the findings made above, it is determined that the Primary Service Area of Calhoun State Bank would be Calhoun County and particularly the immediate vicinity of Blountstown and Altha. See Rule 3C-10.051(12), Florida Administrative Code. Proposed Directors and Officers The proposed directors of Calhoun State Bank are D. Finlay Corbin, Roy H. Golden, M. Brooks Hayes, B. Hayes Leonard, T. Michael Tucker, Jr., J. Max Waldorf and Glenn Terrell Warren. These proposed directors, with the exception of Roy H. Golden and M. Brooks Hayes, have had some direct banking experience. Concerning the business experience of the proposed directors and the diversity of that experience, it has been shown that M. Brooks Hayes has owned and managed timber lands in Calhoun County in excess of 30 years. Glenn T. Warren is engaged in the business of contracting and farming and as a director of the Ellis Bank and NCNB from 1978-1986. B. Hayes Leonard also served as a member of the advisory board of NCNB and as a director of its predecessor, Ellis Bank of Blountstown, from 1978-1986. He is active in the timber production business. D. Finlay Corbin also served as a member of the advisory board of NCNB and a director of the Ellis Bank of Blountstown for the same period of time. Mr. Corbin is a practicing dentist in Blountstown. J. Maxwell Waldorf has served in the same capacity on the board of the Ellis Bank and NCNB. Mr. Waldorf is from Altha, Florida, and owns and operates a hardware store as well as engaging in farming operations. Mr. Roy H. Golden is a pharmacist in Blountstown and has been an active business man in Calhoun County for over 40 years. Mr. T. Michael Tucker also served as a member of the Board of Directors of Ellis Bank and the advisory board of NCNB from 1983 until April 7, 1986. The organizers of Calhoun State Bank expect either Mr. Bowers Sandusky, the current president of the NCNB of Blountstown, or Mr. W. Steven Thames, currently a vice president of the Citizen State Bank of Marianna, to be Calhoun State's president. Both men have significant banking experience. The organizers and proposed directors, as well as the proposed officers of the applicant Calhoun State Bank, have reputations for honesty and integrity. All the organizers and directors have significant experience in business and financial affairs and represent diverse occupational and business interests. At least one member of the proposed Board of Directors, as well as each of the proposed Chief Executive Officers, has direct banking experience. Thus, the proposed directors and officers of Calhoun State Bank meet the minimum requirements of Sections 658.21(4) and 658.33, Florida Statutes, and Rule 3C- 10.051(3)(d), Florida Administrative Code. Corporate Name and Bank Site The corporate name of the proposed "Calhoun State Bank" is reserved with the Department of State, which satisfies the requirements of Subsection 658.21(5), Florida Statutes, and Subsection 3C-10.051(3)(E), Florida Administrative Code. The proposed charter site for the Calhoun State Bank is a parcel of land of approximately 3 acres located at 611 West Central Avenue, Blountstown, Florida. The proposed bank will occupy a building, to be constructed, which will be in excess of 2,500 square feet. The Calhoun State Bank organizers have purchased the lot for $100,000.00. Provision has been made for suitable quarters for the proposed Calhoun State Bank, which satisfies the requirements of Subsection 658.21(6), Florida Statutes, and Subsection 3C- 10.051(3)(F), Florida Administrative Code. The proposed site has been specifically designated by street address, which satisfies Subsection 3C- 10.051(6)(A), Florida Administrative Code. Capital Structure The capital structure of the proposed Calhoun State Bank would total one million dollars as follow: $800,000.00 to stated capital, $160,000.00 to paid up surplus, and $40,000.00 to undivided profits. The Calhoun State Bank intends to issue 100,000 shares of common stock with par value of $8.00 per share and a selling price of $10.00 per share plus a .25 cent per share organizational expense fee. The proposed capital for the Calhoun State Bank will be adequate to enable it to provide necessary services to meet the needs of prospective customers. The proposed capital structure of the Calhoun State Bank satisfies the requirements of Subsection 658.21(3), Florida Statutes, and Subsection 3C-10.051(3)(c), Florida Administrative Code. There will be a wide distribution of stock ownership, all of which will be within the PSA. The organizers have disclosed the anticipated amount of stock each will retain. The Calhoun State Bank has satisfied the requirements of Subsection 3C-10.051(4), Florida Administrative Code, as well. Projected Operating Experience The applicant Calhoun State Bank presented Dr. George Gaines and Mr. Bowers Sandusky, who testified concerning the projected deposits, income, expenses and the likely operational viability of the proposed bank as a competitor to NCNB. It is thus established that Calhoun State Bank is likely to sustain a loss of $26,000 its first year of operation and a profit in the second and third years of operation of $52,000 and $91,000, respectively. The projection of total deposits for the first three years of operation, as well as the earning statement and the projection that Calhoun State Bank would earn a positive rate of return by the end of the third year and could sustain an adequate capital structure, were shown to be reasonable insofar as it postulates Calhoun State Bank's likely operating experience with only NCNB, the Savings and Loan Institution and the Credit Union as its competitors. Calhoun State Bank's three year projections, like C&L Bank of Blountstown's, relate only to the projected advent of one new bank for the Blountstown area as a competitor, primarily with NCNB. The projected operating experience in the above particulars for either applicant bank with the other applicant bank as a likewise chartered competitor, together with NCNB, has not been established in this record, although Dr. Gaines generally opined that he felt that NCNB as well as both applicant banks could survive in the Calhoun County market and could be profitable, although all three banks would be significantly smaller than the present size of NCNB. That opinion is not credited in light of the evidence in support of the findings made below on this subject. Probability of Success Both Dr. Heggestad and Dr. Gaines opined that a new bank in Blountstown, Florida, with prudent, sound banking practices and good management, would have a reasonable probability of being successful in competing with NCNB and could garner a significant share of the Calhoun County market for bank deposits and loans, given the peculiar circumstances of Calhoun County in having only one full service commercial bank in the PSA. The operating experience in terms of expected deposits, deposit growth, profitability and maintenance and growth of capital for either of the applicant banks, under the scenario envisioned by Dr. Gaines of two new banks competing with NCNB, has not been proven, however. Given the small size of the PSA from a demographic standpoint (9,506 population) together with the low growth rate of the PSA banking market, as measured by the above-referenced economic and demographic factors, it has not been proven that all three banks could remain sound depositories and lenders for Calhoun County area customers and remain profitable and otherwise financially viable competing in such a small market over a significant period of time. Accordingly, it must be determined which of the two applicant banks can more successfully penetrate the Calhoun County market in a successfully competitive way and serve the public convenience and advantage by becoming a strong and profitable financial institution alternative to NCNB as a stable depository for residents of the area, while attaining a sufficiently favorable loan to deposit ratio so as to adequately address the financial needs of potential customers in the PSA who may seek an alternative to the NCNB lending services. The above-named expert witnesses for both applicant banks acknowledge that a new bank in Calhoun County can successfully penetrate the market in the PSA involved, provided it possesses a prudent local Board of Directors familiar with sound banking practices and capable of competent day to day management. Thus, it is appropriate to examine the Boards of Directors and organizers of the two applicant banks to determine which is more likely to most successfully manage a new bank in the Blountstown market, so as to offer a safe, sound depository and lending institution which will grow in profitability and asset base so as to be able to accommodate the financing needs of the banking public in the PSA. In this connection, as found above, the proposed Board of Directors of Calhoun State Bank each served on the Board of Directors of the Ellis Bank of Blountstown from 1978 until it was acquired by NCNB in March 1984, with the exception of T. Michael Tucker. Mr. Tucker served as a member of the Ellis Board of Directors from 1983 until 1984 and each of the proposed directors served on the advisory board of NCNB, albeit with little decision-making autonomy, from the acquisition of the Ellis Bank in 1984 by NCNB until they all resigned on April 7, 1986. The Ellis Bank of Blountstown was a member of a bank holding company and not locally owned. During the time the Calhoun State organizers served on its board, there were two other board members from outside Calhoun County. One of these members was a representative of the Ellis Holding Company which owned the bank. This member traveled to Calhoun County to attend Board of Directors' meetings and, in conjunction with the Chief Executive Officer of Ellis Bank of Blountstown, made the investment decisions and decisions regarding pricing of loans for the Ellis Bank of Blountstown as a representative of the holding company. The Calhoun organizers who served on the Ellis Bank Board thereby acquired little expertise in the independent pricing of loans. The pricing of loans is a key element of the experience of a bank officer or director, as loan pricing is one of the most important tools used by a bank in competing with other banks. The Ellis Bank of Blountstown, during the time the Calhoun organizers served on its board, also received its instructions concerning potential investments for the bank directly from the principal shareholder in the Ellis Holding Company. Such decisions were not arrived at by the local Board of Directors. The Ellis Board of Directors did have significant autonomy, however, in making actual lending decisions to customers. This factor is of significance in evaluating the Ellis Bank's performance in Blountstown during the period when all but two of the Calhoun State Bank organizers served on its Board of Directors, because the Board of Directors of a banking institution by and large sets the institution's lending policy and other aspects of its operational philosophy. In evaluating the performance of the Ellis Bank, later the NCNB branch, with a view toward determining whether its former Board of Directors can most successfully manage a new bank in the Calhoun County market, such factors as return on assets, the ratio of net income to total capital, and the loan to deposit ratio should be considered. The return on assets reflects the ability of the bank's management to manage assets of the bank in order to maximize return on equity invested by shareholders and to allow the bank to adequately meet the financial needs of its customers. It was established that a one percent return on assets is considered a favorable operating ratio for a commercial bank. In this context the performance of the Ellis Bank of Blountstown during the period that the Calhoun directors or organizers served on its board exhibited a marked decline. In 1978, when the Calhoun organizers joined the Board of Directors, the Ellis Bank of Blountstown exhibited a quite favorable return on assets in excess of 2.3 percent. By 1984, when the Ellis Bank was acquired by NCNB, that performance had deteriorated to a level of 0.77 percent. From 1980 to 1984, the Ellis Bank's performance steadily declined from the aforementioned 2.3 percent to 1.52 percent in 1981; 1.41 percent in 1982; 0.98 percent in 1983; until the above mentioned level of 0.77 percent was reached in 1984. An additional performance factor which should be considered is the ratio of net income to total capital, which is a reflection of a bank's profitability and the measure of return realized on share holder equity. When the Calhoun organizers became members of the Ellis Bank's Board of Directors in 1978, the Bank exhibited a 30 percent profit after tax on its equity, which is a very favorable return. That performance level dropped sharply, however, so that by 1981 the bank showed a return of 22.3 percent. The ratio of net income to total capital dropped steadily until it stood at the level of approximately 13 percent in 1984. Perhaps the most significant performance factor to employ in evaluating the success of a bank's operations is its loan to deposit ratio. This factor demonstrates how well a bank services the needs of the community in which it operates since the primary business of a bank is to receive deposits and to make loans. The loan to deposit ratio reflects how well a bank is marketing its product in the community in terms of how much money it lends to enable consumers to meet their personal financial needs and to enable businesses to obtain debt capital for operation, expansion and other legitimate purposes, which, in turn, serves to expand the business base of a community upon which a bank depends for its deposit growth. The former Chief Executive Officer of Ellis Bank of Blountstown acknowledged that in a community such as Blountstown it would be normal to expect a loan to deposit ratio for a commercial bank operating in such a circumstance to be in the neighborhood of 70-75 percent. This witness also acknowledged that, as the Chief Executive Officer of the former Ellis Bank, he and the members of the Board of Directors, which included all but two of the present organizers of Calhoun State Bank, established local bank lending policies. Calhoun State Bank demonstrated that expected loan to deposit ratios for the years 1986-1989 will be 50 percent, 62 percent and 63 percent, respectively. These projected loan to deposit ratios, however, do not reflect the actual historical performance of the Ellis Bank of Blountstown experienced under the stewardship of the Calhoun State Bank organizers while they were in charge of its lending policies and decisions. In fact, from 1978- 1984, the Ellis Bank's loan to deposit ratio declined from a quite favorable level of 78.94 percent to a low level of 44.84 percent. The loan to deposit ratios for those years were as follows: 1978 - 78.94 percent; 1979 - 64.54 percent; 1980 - 63.16 percent; 1981 - 51.01 percent; 1982 - 52.70 percent; 1983 - 51.39 percent; and for 1984 a low of 44.84 percent. Thus, the Ellis Bank of Blountstown experienced, with the exception of a slight increase for 1982, a steady decline in this key determinative indicator of how well the bank used its assets in terms of lending out its deposits so as to earn interest income, as that reflects on profitability. The performance record of the Ellis Bank and its successor, NCNB, is reflected in the results of the customer satisfaction survey mentioned herein conducted by the Calhoun organizers. It was thus shown that 20 percent of the current NCNB customers were unable to name any strengths in that bank, and seventy percent of those surveyed named specific weaknesses in the institution, which was the worst performance rating in the survey. This high level of customer dissatisfaction may be reflected in the declining loan to deposit ratio experienced by Ellis and NCNB and to some extent the declining loan to deposit ratio may be a cause of much customer dissatisfaction. In this connection, Dr. Heggestad established that one of the primary reasons for customer dissatisfaction with the performance of NCNB was the low availability of loans. In any event, the banking institutions for which all but two of the Calhoun organizers served as Directors or advisory board members from 1978-1986, and from whence would likely come Calhoun's Chief Executive Officer, received the highest level of public criticism of the financial institutions surveyed in the area, including the Bank of Bristol, from which the organizers of the C&L, the competing applicant, obtained their banking experience and performance record. Mr. Steven Thames, one of the proposed Chief Executive Officers for the Calhoun State Bank, did not testify in this proceeding, however, the evidence of record establishes his qualifications as adequate to serve as Chief Executive Officer of a banking institution. Mr. Thames, however, has not served as the Chief Executive Officer of any financial institution in the past and the evidence did not reflect that he has served in any official capacity with a de novo bank. Mr. Michael James, the proposed Chief Executive Officer for C&L Bank of Blountstown, on the other hand, has served as a Chief Executive Officer for approximately ten years with the C&L Bank of Bristol and further that experience involved the organization and operation of a newly chartered bank from its initial capitalization and opening through approximately ten years of generally consistent improvement in terms of growth of deposits, loan to deposit ratio, return on equity and profitability. Mr. Bowers Sandusky has served as the Chief Executive Officer of Ellis Bank of Blountstown from 1972-1984. In 1984, when that bank was acquired by NCNB, Mr. Sandusky continued to serve as City Executive for NCNB in Blountstown. Up until the 1984 acquisition, Mr. Sandusky and the members of the Board of the Ellis Bank of Blountstown established the investment and lending policies at the Ellis facility. Mr. Sandusky acknowledged that he and the Ellis Board of Directors had a large amount of local autonomy in terms of investment and lending decisions. In conjunction with that circumstance from 1978, at which point the Calhoun organizers joined the management of the Ellis Bank, through 1984, that facility did not perform well in terms of the above found factors regarding banking performance. Additionally, Mr. Sandusky on two occasions has assisted proposed bank charter applicants who sought to establish competing institutions during the time he was serving as Chief Executive Officer of Ellis Bank and the NCNB Branch. Mr. Sandusky acknowledged that NCNB would lose as much as $1,000,000 in deposits by the end of the first year if a new bank is approved for Blountstown, which would affect his profitability significantly. Despite that fact Mr. Sandusky has made no change in his bank's officer call program or other efforts in the face of the potential advent of a new bank in Blountstown in an effort to forestall a continued decline in his bank's financial strength and profitability. This is especially significant in light of the fact that NCNB enjoys as much as 85 percent of the total deposits from Calhoun County which indicates a substantial likelihood that any new bank entering the presently substantially monopolistic market in that County will attract a very substantial percentage of those deposits. The C&L Bank of Bristol, on the other hand, has performed quite well for a bank of its size in the type of banking market involved herein characterized by very modest growth. It has fairly consistently improved its financial strength and profitability in terms of the various indicia of banking performance discussed above with regard to the Ellis Bank and its successor NCNB. Because Dr. Heggestad found that the probable success of a new bank in Calhoun County depended so much upon the skill and banking ability of the proposed management, he did an analysis of the performance of C&L Bank of Bristol as to profitability and overalls financial performance since the inception of C&L Bank of Bristol because its management team would be the same as that of the proposed C&L Bank of Blountstown. This analysis was performed by comparing that bank with all institutions of the same approximate size in the State of Florida, that is, from $10-15,000,000 in assets. It was thus established that the C&L Bank of Bristol's return on assets, which reflects the ability of management, has been consistently favorable. A standard rule of thumb in the banking industry is that a one percent return on assets is a good return. The C&L Bank of Bristol experienced a 1.78 percent return in 1981, 3.55 percent in 1982, declined to 1.06 percent in 1983, and rose again to 1.42 percent in 1985. In terms of comparison with its peers in 1981, it was in the top 20 percent in this indicia of performance, was ranked at 68 percent of all banks in the comparison for 1982, 53 percent for 1983, 75 percent for 1984, and in 1985 ranked in the 84th percentile, performing better than all but 16 percent of the banks in Florida of its approximate size. In terms of return on equity, there has been some fluctuation. The C&L of Bristol has had as high as a 20 percent return and experienced a 15 percent return in 1985, which still puts that bank in the top 20 percent of banks of its size, or better than four out of five banks in its size class. The capital to assets ratio is a reflection of the safety or financial soundness of a banking institution. A 7 percent capital to asset ratio is the safe minimum for banks of this type, according to Dr. Heggestad. In 1985, the Bristol Bank experienced a 10.37 percent capital to assets ratio. The interest spread reflects the difference between the cost of a bank's funds and the amount it charges as interest on those funds when they are lent to customers. The Bristol Bank has averaged about a 5 percent interest spread over the period of its existence which places it in about the 40th percentile of banks in its class, which means it is about average in terms of how much it pays for and "marks up" its lendable funds which, in turn, has a significant effect on profitability. Shareholders, of course, tend to desire a larger interest spread in order to enhance profitability. From the consumer standpoint, however, an interest spread of this magnitude tends to indicate favorable loan prices as that reflects on the ability of the bank to compete in the lending market in its operating area which, in turn, can enhance its loan portfolio and deposit base over time. In terms of non-interest income, the Bristol Bank experienced a very good performance by increasing its ranking with other banks in its class, from the 41st to the 66th percentile over the life of the institution. In terms of the overhead costs to asset ratio, it ranks in the 81st percentile, which means it is considerably below the average bank in its class in terms of overhead costs as related to total assets. The Bristol Bank's loan to deposit ratio has been declining, but still remains at the average for all banks in its class. It experienced a very unfavorable loan to deposit ratio in 1981 and in 1985 it was in the bottom 15 percent of banks in its class, which suggests problems the bank is experiencing in the low per capita income, low growth market it chiefly operates in Liberty, and, to some extent, Calhoun Counties. In the category of net "charge-off" of loans, the Bristol Bank experienced a negative net charge-off in 1981, which means it collected more money on loans previously charged off than had been initially charged off as uncollectable. The bank ranked in the top 10 percent for banks in its class in that category. In 1982 it experienced a significant decline in collecting charged-off loans and was near the bottom of its class. It rose to about an average position in this category in 1983, and in 1984 was again in the top 10 percent, experiencing another significant decline in 1985. It was established, however, that, as compared to all other banks in its class, the Bristol bank and its management team was performing quite well in consideration of the weak economic market in which it operates. Because of the very small demographic size of the Bristol Bank's market, the slow growth of that market, and the low per capita income of the population, the Bristol Bank has operated at a substantial disadvantage compared to other banks in that analysis group, and yet has still performed quite well, as established by Dr. Heggestad. Dr. Heggestad also compared the C&L Bank of Bristol's performance directly with the Ellis/NCNB Bank. Since 1979, shortly after the present Board of Directors/Advisors of Ellis/NCNB began managing that bank, it has consistently deteriorated in its loan activity as measured by its loan to deposit ratio, going from approximately 77 percent down to approximately 45 percent over that time period, while the C&L Bank of Bristol has consistently increased its loan activity relative to deposits each of those years until 1985 when it registered a slight decline. Thus in terms of the basic function of a bank creating loans from its deposits, the C&L Bank of Bristol and its management team have consistently outperformed the Calhoun State Bank organizers at NCNB. Likewise, since 1978, profitability has declined sharply at Ellis/NCNB. It also declined at C&L of Bristol, but the management of C&L of Bristol has reversed that situation since 1983 and is now showing more profitability percentage-wise than the NCNB Bank. In terms of profitability as measured by net income after taxes against total capital, (in the study period) the Ellis Bank initially experienced a very high return on equity which has consistently declined. The C&L of Bristol profit also declined, but this measure of profitability also registered an increase since 1983, surpassing the rate of return to shareholders experienced by NCNB. Thus, in comparing the management of the Bristol Bank to all other financial institutions in its size class as well as directly to Ellis/NCNB, which operates in the same general geographical and economic circumstance, it has been shown that the C&L Bank of Bristol's management performed quite well and significantly better than that of Ellis/NCNB. Finally, over the life of the Bristol bank, although it has experienced both increasing and declining loan to deposit ratios and profitability, the fact remains that it has averaged a 17 percent annual return on share holder investment, which places the Bristol bank near the top of all banks in its class in terms of return to shareholders. Finally, Dr. Heggestad analyzed the possibility of two new banks entering the Calhoun County market. He established that it would be very difficult for two new banks to successfully begin operations at the same time in that County, given the moderate economic and demographic growth indicators which characterize that banking market. The growth simply is not enough to sustain two new banks. If two new bank charters were issued for Calhoun County, both banks would struggle to obtain an adequate market share in competing with NCNB. To some extent this would be in the consumer's best interest because loan rates would likely drop and deposit rates would increase as each bank attempted to obtain sufficient depositors and loan interest income to be successful. Each of the banks would have to purchase deposits, meaning that in order to sustain any growth, they would have to purchase money outside of the Calhoun County market by buying Certificates of Deposit and other funds in other areas. This is an expensive way to increase lendable funds and it would drive the costs of both banks up significantly. Dr. Heggestad established that if that situation occurred, both banks would have to struggle to survive and neither would thrive, which would mean that neither of them would be viable competitors for the large NCNB institution, which in the long run would not serve the interests of the consumer in Calhoun County very well because it would tend to retard ready loan availability which is necessary in order to finance expansion of the economic base of the County which circumstance would come full circle and tend to retard growth of the banks themselves. In short, Dr. Heggestad established that there is not a reasonable promise of successful operations for two new banks in Calhoun County. In summary, it has been established that the public convenience and advantage would best be served by the approval of one new State bank for the Calhoun County PSA delineated herein. It is determined in light of the factors enumerated above that the approval of a single new State bank will best ensure a strong competitor and healthy competition in that banking market, which presently is somewhat monopolistic. It has been established that the advent of two new banking institutions in Calhoun County at this time will result in all three banking institutions having to struggle to survive, and obtain a modicum of growth in deposits, loan to deposit ratio, adequate return on assets and share holder equity and the other indicia of successful banking performance. Such an eventuality would, in effect, restrict healthy competition and likely result in at least two of the three resulting banks failing to thrive and failing to become successful, truly financially sound public depositories and lending and investment institutions. In consideration of all the criteria enumerated in Section 658.21(1-6) Florida Statutes, it is found that the C&L Bank of Blountstown applicant, in light of its organizers', officers' and directors' proven bank management ability and record of success with a de novo bank, and in consideration of the economic and demographic conditions and growth potential of the PSA, will have the most likelihood of success as a new banking institution. It will represent the strongest potential competitor for the primary existing financial institution, NCNB. Its advent in that banking market will result in stronger competition for NCNB chiefly because of the proven superior management ability of its organizers and Chief Executive Officer and the advent of the C&L Bank of Blountstown in the Calhoun County PSA has been demonstrated to not likely result in destructive competitive effects on NCNB and the C&L Bank of Bristol. Both those institutions are likely to remain sound depositories for public and private funds and to remain effective providers of lending and other services for residential and commercial customers. 1/ DONE and ENTERED this 27th day of January, 1987 in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 27th day of January, 1987.
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 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.
Findings Of Fact On January 18, 1991, the Department of Banking and Finance (Department) received an application to acquire control of Grovegate Bank of Miami by Interbank Holding Corporation, a Florida corporation, whose principals are, for purposes of these proceedings, Jorge Ortega Trujillo, Jaime Ortega Trujillo, Fabian Ortega Trujillo, Gustavo Ortega Trujillo, Leonidas Ortega Trujillo, and Luis Alberto Ortega Trujillo, each of whom is a citizen of Ecuador. By notice published February 1, 1991, and correction published February 8, 1991, in the Florida Administrative Weekly, the Department complied with the provisions of Section 120.60)(5)(a), Florida Statutes, by giving notice of the filing of the subject application and according any person the right to request a hearing by filing a petition with the Department within 21 days of publication of the notice. No request for such a hearing was filed with the Department; however, since the subject application involved the acquisition of control of a bank by foreign nationals, the Department did, on March 12, 1991, forward the matter to the Division of Administrative Hearings to conduct a public hearing as mandated by Section 120.60(5)(d), Florida Statutes. On April 4, 1991, the applicant duly published notice in The Miami Herald, a newspaper of general circulation in Dade County, Florida (the community in which the applicant purposes to engage in business), that a public hearing would be held on the subject application on April 18, 1991. The hearing was held as scheduled, but no member of the public appeared or otherwise indicated any desire to present evidence or to otherwise comment on the pending application. The Public Hearing Each of the principals in `the proposed acquisition, Jorge Ortega Trujillo, Jaime Ortega Trujillo, Fabian Ortega Trujillo, Gustavo Ortega Trujillo, Leonidas Ortega Trujillo, and Luis Alberto Ortega Trujillo, appeared at the public hearing. The principals are brothers and members of the Ortega Trujillo family of Guayaquil, Ecuador, and each is an attorney. Through their family holding company, the brothers and their mother, with each holding an equal interest, own Banco Continental, S.A., one of the largest banks in Ecuador. Banco Continental was founded by the family in 1975, and initially licensed as a savings and loan bank. Approximately two years later, desiring to expand the activities of the bank, the family was successful in securing licensure of Banco Continental as a commercial bank. Initial start-up capital for Banco Continental was derived from family resources, and its current capitalization is a product of retained earnings through years of successful operations. Currently, Banco Continental is ones of the two largest banks in Ecuador when measured in terms of capital or net worth, and sixth in size when measured in terms of assets. Its current assets total approximately 100 million dollars, and its current capital approximately 11 million dollars. The bank maintains its main office in Guayaquil, with 39 branches in nine other cities, and serves the commercial and private needs of the community. Overall, through the family's successful operation of the bank, it has come to enjoy an excellent reputation as a sound and well-managed institution, both locally and within the international banking community. Leonidas Ortega Trujillo (Leonidas) is presently the chief executive officer of Banco Continental and previously served, until attaining such position last year, as its general manager. Leonidas enjoys an excellent reputation as an ethical and knowledgeable banker, and has, through the operation of his own bank, as well as his past service as president of the Ecuadorian Association of Banks and the Federation of Latin American Banks, been active in national and regional banking affairs. Luis Alberto Ortega Trujillo (Luis) is presently the manager/director of Banco Continental's overseas operations, and will assume a position as one of the directors of Grovegate Bank of Miami if the subject application is approved. Luis has demonstrated, through his education and experience, that he is a responsible businessman, who can be reasonably expected to provide a positive influence on Grovegate Bank's operations. But for the addition of Luis as a director of Grovegate Bank, no immediate changes in the management of that bank are contemplated. In addition to their legal, business, and banking activities, the Ortega Trujillo family has, for generations, been active in their community. In this regard, the proof demonstrates that their father founded the Catholic University of Guayaquil, that Gustavo Ortega Trujillo is currently a director of the University of Guayaquil Law School, that Luis is currently the vice- president of the Red Cross of Guayaquil, and that through their family foundation the Ortega Trujillo family supports five public libraries, four public schools, and one night technological school for the less privileged residents of Guayaquil. In all, the proof demonstrates that all of the applicants enjoy a reputation, among those who know of them, as being impeccably honest, and to possess the requisite experience and financial responsibility to control and manage the affairs of Grovegate Bank in a legal and proper manner. The proof further demonstrates that the interests of other stockholders, as well as the interests of the depositors and creditors of the bank and the interests of the public generally will not be jeopardized by the proposed change in ownership, controlling interest, or management. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 7th day of May 1991. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The DeSoto 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of May 1991. COPIES FURNISHED: Albert T. Gimbel, Esquire Chief Banking Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 Rene V. Murai, Esquire 900 Ingraham Building 25 S.E. 2nd Avenue Miami, Florida 33131 The Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 William C. Reeves, Esquire General Counsel Office of the Comptroller The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399-0350 =================================================================
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following pertinent facts are found: In the latter part of 1973, petitioner submitted to respondent its application for authority to organize a corporation for the purpose of conducting a general banking business to be located on the west side of U.S. Highway 19 at the intersection of Ridge Road in the City of Port Richie. An investigation of the application was conducted by State Supervising Examiner Bruce L. Hieronymus in April of 1974. The application received conditional approval from the former Comptroller of the State of Florida in December of 1974. In January of 1975, such conditional approval was revoked by the present Comptroller. Mr. Hieronymus conducted an update investigation of petitioner's application in mid-March, 1975, noting in his report that additional field examination time should have been allowed and that his recommendation and report was made without audit or verification of some points that could have a definite bearing on the Comptroller's decision. On April 16, 1975, a Comptroller's Conference was held. On October 15, 1975, Comptroller Gerald A. Lewis notified petitioner that he had denied the application for authority to organize the First Bank of Port Richie. The reasons for denial were set forth in a Statement attached to the Order of denial. While the Comptroller found that petitioner's establishment would promote, to some degree, the public convenience in the area, it was further found that: "Growth in the area has been significant. However, there is nothing in the record to indicate that past growth trends will continue. While four of the seven banks in the western area of Pasco County have recorded impressive gains in deposits from June 1974 through June 1975, the increases have been reflected overwhelmingly in time deposits and the savings and loan offices in the area compete heavily for these deposits. The three banks closest to the proposed bank site have not enjoyed significant deposit growth. While Ellis Security Bank reported a total deposit increase of $3.1 million during the period June 1974 through June 1975, Ellis First National Bank of New Port Richey and Peoples State Bank reported decreases in total deposits for the same period of $1.4 million and $7.5 million, respectively. 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 is met in this case, the second criterion is not met. Therefore, the application is denied. Since this conclusion renders the other four criteria moot, the Comptroller has not reached any conclusions with respect to those other four criteria." Subsequent to the denial, petitioner requested a hearing in accordance with Chapter 120 of the Florida Statutes. Receiving no response from the Comptroller, petitioner filed for a writ of mandamus in the Leon County Circuit Court. That Court found that the parties had agreed to proceed in accordance with the new Administrative Procedure Act and ordered respondent to grant petitioner a formal hearing. The office of the Comptroller forwarded the petition to the Division of Administrative Hearings and the undersigned Hearing Officer was designated to conduct the proceedings. This being a fact-finding adversary hearing under F.S. Sec. 120.57(1) to determine the issue of whether petitioner should be granted authority to organize and operate a general banking business at the proposed location; and considering the long delay between the Comptroller's conference, the Comptroller's order of denial and the date of the present hearing, as well as the fact that the Comptroller declined to reach any conclusion as to four of the six criteria required to be met for a charter, the parties were permitted to present all relevant evidence to date concerning the issues in dispute. As noted above, the proposed bank is to be located on a corner of the Port Richie Shopping Village, a large shopping center at the intersection of Ridge Road and U.S Highway 19, the latter of which is often described as "murderer's row due to its extremely heavy traffic congestion. This is a signal-controlled intersection with turn lanes and turn arrows, and is the only intersection with a traffic control light for several miles along Highway 19. Large residential areas surround the proposed site and a junior college is being built two miles east of the site. The site provides easy ingress and egress and adequate parking space. While the owners of the shopping center are experiencing financial difficulties in connection therewith, the center enjoys an occupancy rate of approximately 93 percent. County, state and federal offices are also located in or near the shopping center. There are two or three savings and loan institutions located in the immediate area of the proposed site. However, the nearest bank to the south of the proposed site is about 2.3 miles and the nearest bank to the north is 3.5 miles. The seven existing banks in the area are closer together than petitioner would be to any other bank, with the possible exception of the second and third banks to the south of petitioner in New Port Richie. The name of the proposed bank is First Bank of Port Richie. While numerous state and national banks and clearing houses utilize the word "first" in their nomenclature, petitioner's name should cause no conflict or confusion with the name of an existing bank. For its housing quarters, petitioner proposes to construct a permanent two-story building containing some 14,000 square feet, the second floor to be only partially finished. The size and layout of the building allow for growth, flexibility and convenience, and necessary security equipment is planned. Estimated construction costs are reasonable. Petitioner intends to temporarily operate in a modular unit located adjacent to the site of the permanent building so as to allow for construction of the building without interference. The temporary unit will be leased and will comply with federal security and bonding requirements. There is nothing in the record to indicate that petitioner's proposed capital structure is less than adequate. State examiner Hieronymus found this factor to be favorable in both his original and updated reports and no witness testified to the contrary. The examiner's original and updated investigations report as unfavorable the general character of management of petitioner. This conclusion appears to be based primarily upon the examiner's opinion at the time he prepared his reports that the petitioner's proposed president and chief executive officer, Mr. Raymond O. MacDonald, Jr., lacked both directorate experience and experience as the head of a bank. However, the evidence Illustrates, and Mr. Hieronymus admits, that at the time he prepared those reports he was unfamiliar with MacDonald's extensive banking experience, both as an executive vice president of a Tampa bank and as a director of a Lakeland bank. Testimony on this point from other witnesses indicates that the proposed officers and directors represent a cross-section of the community, each with prior business experience and three with prior operative banking experience with both new and established banks. The trade area of the proposed bank consists of approximately fourteen square miles. Since the early 1970's, the Pasco County area has been one of the fastest growing areas in the State of Florida. In mid-1973, the estimated population of the trade area was 9,200 residents. Present estimated population of the trade area is over 16,000, using figures obtained from statistics of the U.S. Post Office. The state average is 12,000 people per bank. In the past five years, the area has experienced an increase in deposits of 123 percent. As in most other areas across the nation, the area in question suffered in 1973/74 from the deleterious effects of inflation and recession, with attendant declines in construction and increases in the percentage of unemployed persons. While one opponent of petitioner's new bank charter testified that the banks in Pasco County had had a "rough go of it" in the past few years, this is not borne out by the evidence relating to the deposit growth and net income experienced by the seven existing banks. This same witness further stated that economic conditions in the area were now beginnings to pick up. Also, the two opponents to petitioner's application, both affiliated with banks in Pasco County, are each considering placing a remote facility or a branch office within the petitioner's proposed trade area. All but one of the seven banks in the area experienced a growth in deposits from the 1974 to the 1975 year end. The one bank which reported a decrease in deposits made a profit of some $77,000.00 in 1975, in spite of a loan write-off of about $700,000.00 in 1974 and problems with poor management. The two newest banks in the community, one of which is the closest bank to the north of petitioner, show excellent growth in deposits from 1974 to 1975. The two opponents who appeared at the hearing each testified that, other than normal competition factors, the proposed bank will have no adverse effect upon the successful operation of their existing banks. When Mr. Hieronymus conducted his investigations concerning the petitioner's proposed bank, he did not get the impression that other bankers in the area were concerned & that petitioner's operation would adversely affect their existing operations. The February, 1976, Comparative Figures Report published by the Florida Bankers Association, which is relied upon in part by respondent in determining whether to grant banking charters, shows Pasco County to have an 8.1 percent increase in deposits from 1974 to 1975 year ends. Since January of 1975, respondent has granted bank charters to banks located in Duval County with a deposit growth of minus .1 percent; in Polk County with a deposit growth of 1.5 percent; and in Hillsborough County with a deposit growth of minus 1.5 percent. Newly chartered banks frequently lose money in their first year of operation. Although the petitioner projected earnings indicating a substantial profit in each of the first three years of operation; Mr. Hieronymus concluded in his report that the opportunity for an acceptable return on investment was less than probable and reported the factor of "future earings prospects," to be "unfavorable." Using the approach of a percentage of average total assets rather than percentage of total capital (as used by petitioner in its projections) and taking into account the petitioner's purchase of the land and changes in the sources and costs of money, Mr. Hieronymus projected a net operating income of minus $14,091.00 the first year, plus $28,976.00 the second year and plus $37,023.00the third year. Deposit growth would increase from $2.5 million to $6.5 million to $9.0 million over the first three years, according to the projections of Mr. Hieronymus. These figures would be higher were petitioner located in its permanent facility during its first year. On cross- examination at the hearing, Mr. Hieronymus stated that these projected figures illustrate that local conditions assure reasonable promise of a profit.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that respondent grant to petitioner authority to organize and operate a general banking business at 800 U.S. Highway 19 North, Port Richie, Florida. Respectfully submitted and entered this 8th day of June, 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 The Capitol Tallahassee, Florida 32304 Mr. James M. Barclay Assistant General Counsel Office of the Comptroller The Capitol Tallahassee, Florida Mr. Wilbur E. Brewton and Mr. Clyde M. Taylor Taylor, Brion, Buker and Greene, P.A. P.O. Box 1796 Tallahassee, Florida 32302 Mr. John D. Kiernan 307 West Coast Title Building Sixth Street and First Avenue North St. Petersburg, Florida 33701 ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE DIVISION OF BANKING THE FIRST BANK OF PORT RICHEY (proposed new bank) Petitioner, vs. CASE NO. 76-086 STATE OF FLORIDA, DIVISION OF BANKING Respondent. /
The Issue The purpose of the mandatory public hearing was to afford public comment on the application for authority to acquire Intercontinental Bank, West Miami, Florida (Intercontinental Bank). The hearing also allowed the Applicants, Eligio Cedeño and Alvaro Gorrin Ramos, to present evidence that they meet the criteria of Subsection 658.28(1), Florida Statutes, relating to reputation, character, experience, and financial responsibility such that they are qualified to acquire and own Intercontinental Bank in a legal and proper manner without detriment to the interests of the bank's stockholders, depositors, and creditors, or to the general public.
Findings Of Fact On January 12, 2005, OFR received the Application. OFR published notice of receipt of the Application on January 28, 2005, in the Florida Administrative Weekly. OFR has satisfied the notice requirements of Subsection 120.80(3)(a)1.a., Florida Statutes, and Florida Administrative Code Rule 69U-105.103. On February 3, 2005, OFR made a timely request for additional information regarding the Application. The Applicants answered this request in a letter dated May 5, 2005. The Applicants, as required by federal law, have filed a separate application with the Federal Deposit Insurance Corporation. The Applicants are foreign nationals. Mr. Eligio Cedño is proposed to own more than 25 percent of Intercontinental Bank's common stock, and Mr. Alvaro Gorrin Ramos is proposed to own more than 25 percent of Intercontinental Bank's common stock. On September 19, Don Saxon, Commissioner of OFR, issued an Order Granting Office's Petition for Public Hearing on the Application. The public hearing was scheduled for November 18, 2005, and the Applicants published a notice in the November 3, 2005, edition of The Miami Herald, which indicated the date, time, and location of the scheduled public hearing, and which otherwise complied with the requirements of Florida Administrative Code Rule 69U-105.105(1) and satisfied the notice requirement of Subsection 120.80(3)(a)4., Florida Statutes. A public hearing was held as scheduled on November 18, 2005. No member of the public appeared at the hearing, and no person expressed opposition to the Application. Mr. Eligio Cedño, a proposed major shareholder of Intercontinental Bank, has more than 26 years of banking and financial experience. He has experience as a senior officer, director, and major shareholder with various financial institutions, including Bolivar, Banco, C.A. Mr. Cedño appears to be sufficiently qualified by reputation, character, experience, and financial responsibility to control Intercontinental Bank in a legal and proper manner, and the interests of the other stockholders and the depositors and creditors of the bank, and the interests of the public generally will not be jeopardized by the proposed change in ownership. Mr. Gorrin Ramos, a proposed major shareholder of Intercontinental Bank, is a businessman with a variety of business interests throughout the United States and Venezuela. He has prior financial institution experience with Banco Canarias. Mr. Ramos appears to be sufficiently qualified by reputation, character, experience, and financial responsibility to control Intercontinental Bank in a legal and proper manner, and the interests of the other stockholder and the depositors and creditors of the bank, and the interests of the public generally will not be jeopardized by the proposed changes in ownership. Neither of the Applicants has been convicted of, or pled guilty or nolo contendre to any violation of Section 655.50, Florida Statutes, relating to the Florida Control of Money Laundering in Financial Institutions; Chapter 896, Florida Statutes, relating to offenses related to financial institutions; or any similar state or federal law. OFR conducted a background investigation on the Applicants and discovered no information to preclude the Applicants from acquiring the aforementioned shares of common stock in Intercontinental Bank. The current management and directors of Intercontinental Bank, including its president, Mr. Amadeo Lopez-Castro, Jr., will maintain their positions in the bank and will continue to manage the institution. In addition, Messrs. Carlos J. Fernandez, Alvaro J. Gorrin, and Marcel Rotker will be added to the existing board of directors of the bank. Intercontinental Bank's business plan reflects that the bank will offer full-service banking to individuals and businesses located primarily in the Miami-Dade County community. DONE AND ENTERED this 10th day of January, 2006, in Tallahassee, Leon County, Florida. S SUSAN B. HARRELL 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 10th day of January, 2006.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The applicant Gulf State Bank of Franklin County is located in Carrabelle, Florida, and was established in 1971. There are no other banking facilities in Carrabelle and the applicant presently has no branch banking facilities. The applicant's total asset level is 8.1 million dollars, and it has maintained a capital to total assets ratio which has continuously exceeded seven percent. As of December 31, 1978, the capital to total asset ratio was 7.6 percent. With the exception of the first year of operation, the applicant's net earnings to total assets have exceeded the ratio of 0.5 percent. During the last two years, this ratio has exceeded one percent. As of the June 30, 1978, comparative figures report, the applicant had total deposits of $6,555,000.00, showing a decrease of about 5.4 percent from June of 1977. It has been the applicant's established policy to reinvest all earnings rather than paying dividends. The applicant proposes to open two branch banking facilities - one in Apalachicola and one in Eastpoint. Presently, the only banking facility in these areas is the protestant Apalachicola State Bank. This bank has its main office in downtown Apalachicola and it was established in 1906. It is a full service bank, and increased its total deposits by 18.6 percent between 1977 and 1978. On March 15, 1978, the Protestant opened a branch banking facility in Eastpoint, Florida. Although a $5,000.00 profit was projected for the first year of operation, the protestant's branch in Eastpoint is not presently operating at a profit. The protestant's Eastpoint branch has drive-in windows and offers all services with the exception of trust accounts and large loans. Both the main office and the Eastpoint branch of the protestant began offering Saturday morning banking hours approximately five weeks before the hearing in these proceedings. The only other financial institution in the area is a branch office of the Citizens Federal Savings and Loan Association of Port St. Joe, which was expected to begin operations in early March of 1979. As of July 1, 1977, Franklin County had an estimated population of 8,128, increasing only 1,063 above the 1970 population census. The majority of growth occurred in the unincorporated area of the County, which includes Eastpoint. The source of population growth is net migration. Between 1970 and 1977, net migration accounted for 85.32 percent of the County's growth, leaving about 14 percent attributable to natural increase. The percentage of the 15 to 44 year old age group has increased from 33.9 percent in 1960 to 38.9 percent in 1977. The age group of 65 and older has increased from 13 percent in 1960 to 17 percent in 1977. A medium projection for the county's population is 8,600 for the year 1980, 9,200 for 1985 and 10,200 for 1990. While the per capita income level of the County has grown at a higher percentage rate as compared to the state average, the per capita income level for Franklin County is the lowest in the State. In 1975-76, that figure was $3,061.00 as compared to a state average of $6,021.00. The unemployment rate in Franklin County was the highest in the State in September, 1978, sitting at 16.5 percent as compared to the state average of 7.6 percent. Franklin County's figure was down to 12 percent in October, 1978. Residents and business people in the area gave testimony to the effect that there is sufficient employment available in the area, but that it is difficult to find people willing to work. As indicated above, Eastpoint is among the fastest growing areas of Franklin County. Approximately one-third of the 75 businesses located in Eastpoint have come in or relocated to more modern facilities within the past three years. Another area of large growth is St. George Island. Leisure Properties, Inc. has eight approved subdivisions, three of which are presently completely sold. In 1978, that company realized $3,000,000.00 income from land sales on the Island. A 28-unit motel and a condominium is planned for St. George Island, as is a State park. It is estimated that when the State park becomes operational, 5,000 visitors will come to the Island on a daily basis during the 100-day season. It can be expected that such activity and traffic will promote and attract the existence of service facilities and service personnel. Approximately 80 percent of the construction work on St. George Island is performed by local contractors. The value of residential permits on the Island represented $1,021,360.00 in 1978. The proposed Apalachicola branch banking facility is to be located at 73 Avenue E, or on the northeast quadrant of the intersection of U.S. 98-319 (Avenue E) and Sixth Street. This site is presently owned by the applicant and is located 22.5 miles West of the main Carrabelle office and 6.2 miles West of the proposed Eastpoint branch. The applicant proposes to construct a concrete story and a half building with 1500 square feet on the first floor and 540 square feet on the second floor. The applicant plans to utilize three inside teller stations, one walk-up teller station and one drive-in teller window. In December of 1978, 29 percent (or $2,111,000.00) of the applicant's total deposits represented accounts from the proposed Apalachicola service area. A majority of this amount (22.1 percent of the applicant's total deposits) were deposits of public funds by various county departments located in the courthouse in Apalachicola. In addition, the applicant has $576,000.00 (representing 12.22 percent of its total loan portfolio) in loans to individuals and businesses in the Apalachicola service area. It is projected that the total estimated deposits for the proposed Apalachicola branch will be $1,800,000.00 at the end of the first year of operation, $2,700,000.00 at the end of the second year and $3,300,000.00 at the end of the third year of operation. The management for the proposed Apalachicola branch was hired two years in advance of tee anticipated opening date for training and familiarization with the proposed service area. He is a vice president of the applicant bank and a member of its board of directors. Prior to that, he had an auditing and accounting background. At its February, 1979, meeting, the applicant's stockholders voted to authorize the board of directors to name two additional directors during the year. The board intends to name these two new directors from the new Apalachicola service area after approval is obtained. The proposed Eastpoint branch is to be placed on Lot 8, Block 1, of the David Brown Estate Subdivision located on the Northeast quadrant of the intersection of Island Drive and Avenue C. This site is 16.4 miles West of the main Carrabelle office. This branch is considered to be a drive-in facility of the proposed Apalachicola branch, and only a 12 by 12 foot concrete block building with two teller stations is planned. During December of 1978, the applicant had $415,000.00 in deposit accounts (representing 5.7 percent of the applicant's total deposits) in the proposed Eastpoint service area. The applicant also has $788,500.00 in loans to individuals and businesses in the Eastpoint service area, representing 16.7 percent of its total loan portfolio. The applicant projects for the Eastpoint branch total estimated deposits in the amount of $300,000.00 by the end of the first year of operation, $450,000.00 by the end of the second year and $600,000.00 by the end of the third year. The primary service area of the proposed Eastpoint branch includes St. George Island which is connected to Eastpoint by a causeway. The proposed Eastpoint branch will be managed by a supervisor below officer level, but will be under the office management of the proposed Apalachicola branch manager. The Eastpoint branch will have all standard deposit, withdrawal and clearing services. The names of the proposed branches are Gulf State Bank of Franklin County - Apalachicola Branch and Gulf State Bank of Franklin County - Eastpoint Branch. There was no evidence to illustrate that the applicant was not in substantial compliance with all state and federal laws affecting its operations. In accordance with the provisions of Florida Statutes, Section 120.57(1)(a)(12), conclusions of law and a recommendation are not included in this Report. Respectfully submitted and entered this 26th day of March, 1979, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings 530 Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Alfred O. Shuler Post Office Box 850 Apalachicola, Florida 32320 J. Ben Watkins Watkins and Watkins 41 Commerce Street Apalachicola, Florida 32320 Michael A. Gross Comptroller Gerald A. Lewis Assistant General Counsel State of Florida Office of the Comptroller The Capitol The Capitol Tallahassee, Florida 32304 Tallahassee, Florida 32304
Findings Of Fact Based on the oral and documentary evidence presented at the hearing and on the entire record of this proceeding, the following findings of fact are made: On October 20, 1998, the Department received an application to acquire control of the First Bank of Miami by Rene de Picciotto, who is a citizen of Italy residing in Switzerland. Mr. de Picciotto currently owns approximately twenty-three percent of the outstanding common stock of the First Bank of Miami and proposes to increase his percentage of ownership to thirty-five percent of the bank's outstanding common stock. The First Bank of Miami is a state-chartered financial institution located in Miami, Dade County, Florida. The bank is insured by the Federal Deposit Insurance Corporation ("FDIC"), and Mr. de Picciotto filed a Notice of Change in Control with the FDIC. The FDIC conveyed its intent not to disapprove the acquisition in a letter dated April 8, 1999. In a notice published in the October 30, 1998, edition of the Florida Administrative Weekly, the Department complied with the requirements of Section 120.80(3)(a)1.a., Florida Statutes (Supp. 1998), by providing notice that Mr. de Picciotto's application had been filed, by advising the public that it could submit comments for inclusion in the record, and by advising that any person could request a public hearing by filing a request with the Clerk of the Department of Banking and Finance within twenty-one days of the date the notice was published. No request for a hearing was received from a member of the public. However, since the application at issue involves the acquisition of the First Bank of Miami by a foreign national, the Department requested a public hearing and forwarded the matter to the Division of Administrative Hearings as required by Section 120.80(3)(a)4. On May 27, 1999, Mr. de Picciotto complied with the requirements of Section 120.80(3)(a)4. by causing a notice to be published in The Miami Herald advising that a public hearing on his application to acquire control of the First Bank of Miami would be held on June 10, 1999, at the Division of Administrative Hearings in Tallahassee, Florida, and via telephone from the offices of the First Bank of Miami. The Miami Herald is a newspaper of general circulation in Dade County, Florida, which is the community served by the First Bank of Miami. The hearing was held as scheduled, but no member of the public appeared at either the Division of Administrative Hearings in Tallahassee or via the telephone conference connection with the First Bank of Miami. Mr. de Picciotto appeared in person at the public hearing in Tallahassee, Florida, as required by Section 120.80(3)(a)4. Mr. de Picciotto has extensive experience in banking. After receiving a baccalaureat degree from the French Ecole des Hautes Etudes Commerciales in 1964, Mr. de Picciotto worked from 1965 until 1973 for the Banque Indosuez, a leading European merchant bank. He has been involved in banking continuously since that time. From 1973 until 1978, Mr. de Picciotto managed the offices of the affiliates of the Trade Development Bank located in Switzerland, Paris, Luxembourg, and Belgium. From 1978 until 1981, Mr. de Picciotto was manager of the Financiere Indosuez, the Swiss unit of the Banque Indosuez, and was involved in portfolio management for individuals with a high net worth. In 1981, Mr. Picciotto purchased Progespar, an affiliate of the Banque Indosuez located in Switzerland, and he ultimately acquired thirty-three percent of the bank's stock. The bank was renamed Financiere Fransad in 1981, and it operated independently as a private bank until 1991, with its deposits growing during that time to 1.5 billion Swiss francs. Meanwhile, in 1986, Mr. de Picciotto obtained a license to open a bank in Lausanne, Switzerland, with initial equity of ten million Swiss francs. Mr. de Picciotto owned fifteen percent of the stock of this bank, which operated under the name of Cantrade Banque Lausanne and operated as a private bank involved in international finance. In 1987, Cantrade Banque Lausanne acquired a local Swiss bank named Banque Intercommerciale de Gestion, which had a representative located in Miami, Florida. In 1991, Financiere Fransad and Cantrade Banque Lausanne merged, and the resulting bank was named Cantrade Private Banque Lausanne. Mr. de Picciotto owned forty percent of the equity in this bank, and was vice chairman of the board. The bank managed deposits of 2.5 billion Swiss francs and employed 90 people. It continued to maintain a representative in Miami. In 1994, Mr. de Picciotto purchased one-hundred percent of the equity in Cantrade Private Banque Lausanne. In 1995, Banque Centonale de Geneve, which is a state bank organized under the Republic of Geneva, Switzerland, and owned by local governments in and around Geneva, purchased forty percent of the equity in Cantrade Private Banque Lausanne, which was renamed Compaginiv Bancarede Geneve. The bank currently employs 250 people and manages deposits of 10.5 billion Swiss francs, an increase from deposits of three billion Swiss francs in 1995. Mr. de Picciotto has been chairman of the bank since June 1995. During the approximately thirty years he has been in banking, Mr. de Picciotto has never been disciplined by any governmental authority in connection with any financial institution with which he has been affiliated or in connection with any financial transaction, and he has not been denied regulatory approval for the acquisition, merger, or creation of any financial institution. Except with respect to the application under consideration, Mr. de Picciotto is not aware of any pending or potential government investigation into his background, finances, or ownership of any financial institution, and he has never had a lawsuit filed against him. Mr. de Picciotto is well-regarded in the international banking community, and he enjoys a reputation of honesty and integrity in international banking circles. He has never been convicted of, or pled guilty or no contest to, any violation of Section 655.50, Florida Statutes; of Chapter 880, Florida Statutes; or of any similar federal or state law. Mr. de Picciotto has extensive experience in launching new banking operations and in developing and expanding small existing banks similar to the First Bank of Miami. He does not intend to implement any immediate significant changes in the management of the First Bank of Miami, and he intends to operate the bank in a manner that will benefit the interests of the general public, the depositors, the creditors, and the other shareholders of the bank. Mr. de Picciotto intends to use his personal funds to acquire the additional equity in the First Bank of Miami, and the purchase will cause no strain on his financial resources. Mr. de Picciotto's personal funds are sufficient to allow him to contribute to the bank any additional capital that may be required by state or federal regulatory agencies. The evidence presented is sufficient to establish that Mr. de Picciotto enjoys an impeccable reputation and possesses the experience and financial responsibility necessary to participate in controlling and managing the affairs of the First Bank of Miami in a legal and proper manner. The proof also is sufficient to establish that the interests of other shareholders, depositors, and creditors of the bank and of the public generally will not be jeopardized by the proposed acquisition by Mr. de Picciotto of thirty-five percent of the outstanding common stock of the First Bank of Miami. DONE AND ENTERED this 20th day of July, 1999, in Tallahassee, Leon County, Florida. PATRICIA HART MALONO 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 20th day of July, 1999. COPIES FURNISHED: Saturnino Lucio, Esquire Lucio, Mandler, Bronstein, Garbett Stiphany & Martinez, P.A. 701 Brickell Avenue, Suite 2000 Miami, Florida 33131 Robert Alan Fox Assistant General Counsel Department of Banking and Finance Suite 526, The Fletcher Building 101 East Gaines Street Tallahassee, Florida 32399 Harry Hooper, General Counsel Department of Banking and Finance Suite 526, The Fletcher Building 101 East Gaines Street Tallahassee, Florida 32399-0350 Honorable Robert F. Milligan Comptroller, State of Florida Department of Banking and Finance The Capitol, Plaza Level Tallahassee, Florida 32399-0350
