Findings Of Fact The Applicant and the Department submitted Proposed Findings of Fact pursuant to Rule 3C-9.11, Florida Administrative Code. The Applicant's Proposed Findings are accepted except where they might specifically conflict with the Findings of the Hearing Officer's Report or where they may constitute conclusions of law.
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.
The Issue Whether Respondent properly denied Petitioner's application for licensure as a Life and Variable Annuity and Health Insurance Agent.
Findings Of Fact Petitioner applied for licensure as a Life and Variable Annuity and Health Insurance Agent. Petitioner's application was signed and mailed to the Department of Insurance on or about January 27, 1998. Petitioner's application for licensure was denied by the Department on or about May 5, 1998. Two months later, on July 6, 1998, the Department issued an Amended Denial Letter that set forth the basis for the denial. According to the Amended Denial Letter, Petitioner's license was denied because she failed to meet the licensure requirements set forth in Sections 626.611(1) and (7) and 626.785(1), Florida Statutes. As a basis for the alleged violations, the Department stated: The Office of the Attorney General filed a civil action against you as vice-president and a director of the H.O.M.E. Program, and the H.O.M.E. Program along with other directors, alleging that the Program was formed as a not-for-profit corporation. . . to help people buy a house for themselves to live in. The complaint alleges that the Program offered a variety of services for a "Service Fee," has not provided any services, and that those fees were deposited into an account with NationsBank and the money was then misappropriated by one Jerome Ellington. The Attorney General still has a case pending against the H.O.M.E. Program and has stipulated to dismiss the cause of action against you with prejudice only at the conclusion of the lawsuit against the remaining defendants. You Charita Strode, were terminated from employment with NationsBank for wiring funds out of the H.O.M.E. Program's account in November 1997, after specifically being told by the Regional Service Support Manager that the funds needed to remain in the account until all items had cleared. The bank was placed in a loss situation of over $6,000 and due to your behavior you were terminated because you abused your authority in order to achieve the funds transfer, and did not follow supervisory instructions. That is evidence of lack fitness and trustworthiness. Further, it was determined by the Unemployment Compensation Appeals Bureau that you were discharged for misconduct and the Appeals referee resolved the conflicts in favor of your former employer. Petitioner was employed by NationsBank in January 1994, and, except for a six-month voluntary leave of absence, worked there continuously until she was terminated in January 1998. Prior to going on voluntary leave, Petitioner was manager of the NationsBank Gunn Highway Banking Center. During her first year with NationsBank, Petitioner was a management trainee associate. Thereafter, Petitioner became a manager, a position in which she served for the remainder of her tenure with NationsBank. As a manager, Petitioner was assigned to several NationsBank banking centers and was responsible for the operations, sales, and service of the centers to which she was assigned. Additionally, Petitioner's responsibilities included training and supervising more than fifty associates. In the spring of 1997, Petitioner was promoted from bank officer to an assistant or associate vice-president. While employed at NationsBank, Petitioner received at least two awards for her job performance. In 1997, Petitioner was recognized by NationsBank as a member of Florida Team One, a commendation that recognizes excellence in sales. One of the banking centers managed by Petitioner also received an award for service quality, an award received by only 20 to 30 percent of NationsBank banking centers. In May 1997, Petitioner first met and became acquainted with Jerome Ellington, the owner and founder of the H.O.M.E. Program. According to its literature, the H.O.M.E. Program was a "Christian Home Building Program" designed to assist individuals in building or remodeling their homes. Petitioner was particularly interested in the program because of her desire to become a homeowner. Based on her interest, Petitioner asked Mr. Ellington questions about the H.O.M.E. Program, how to become a member, and how to help other people who might be interested in the program. Petitioner became a client of the H.O.M.E. Program. As a client, Petitioner was required to pay to the program an initial fee of $1700 and a monthly maintenance fee of approximately $170 for three months. Based on her belief that the H.O.M.E. Program was a legitimate organization whose purpose was to assist individuals in purchasing homes, Petitioner told several family members and friends about the program. She told these individuals that the program would allow them to purchase homes for themselves and encouraged them to "look into it." Eventually, like Petitioner, between six and eight of these individuals paid the required fees and became clients of the H.O.M.E. Program. In late June or early July 1997, Petitioner became involved with the H.O.M.E. Program, serving on the program's Financial Advisory Board. The purpose of the Financial Advisory Board was to act as an agent to control the finances of the H.O.M.E. Program. During the time Petitioner was a named member of the advisory board, it met in July or August 1997, to organize that board. Other than this initial organizational meeting, the advisory board never met nor did it ever function in any official manner. In late July 1997, at about the time the H.O.M.E. Program was incorporated, Petitioner was selected by Mr. Ellington to serve as a member and elected as vice-president of the H.O.M.E. Program's Board of Directors (Board or Board of Directors). While Petitioner was on the Board, it seldom met. In July or August 1997, the H.O.M.E. Program set up three bank accounts at NationsBank. Each of the accounts had three signators, all of whom were officers of the H.O.M.E. Program: Bernadette Orsley, treasurer; Jerome Ellington, president; and Petitioner, vice-president. The address of record listed on the H.O.M.E. Program account was 7819 North Dale Mabry Highway, Suite 208, Tampa, Florida. From August 1997 through January 1998, Petitioner took a voluntary leave of absence from NationsBank to do work for the H.O.M.E. Program and to explore the possibility of going into business for herself. Petitioner's work with the H.O.M.E. Program involved setting up "outside services to clients once they got into their homes." Jerome Ellington was the chief executive officer and president of the H.O.M.E. Program. During the time that Petitioner was on the H.O.M.E. Program's Board and the Financial Advisory Board, Petitioner found that Mr. Ellington was not open about the expenditures he claimed to be making on behalf of the H.O.M.E. Program. Attempts were made by Petitioner and one other Board member to develop, initiate, and implement better accounting practices, operational procedures, and financial controls for the H.O.M.E. Program. For example, one recommendation was that two signatures be required on all checks written on the H.O.M.E. Program accounts. However, these efforts proved futile because Mr. Ellington was unwilling to implement any changes and relinquish financial control of the program's finances. By letter dated October 28, 1997, NationsBank advised the H.O.M.E. Program that due to the chargeback activity involving its three accounts, the bank was closing the accounts, effective ten days from the date of the letter. The letter acknowledged that the relationship between NationsBank and the H.O.M.E. Program was "a contractual one and under the terms of our Deposit Agreement either party can terminate the relationship at any time without cause." Chargeback activity occurs when items that are deposited or credited to the account are returned to the bank dishonored for a variety of reasons. NationsBank's concern with the H.O.M.E. Program accounts was that the excessive chargeback activity might possibly place the bank at risk of loss. In October 1997, Patricia McSweeney, then Regional Service Manager for NationsBank, spoke to Petitioner about the H.O.M.E. Program accounts and reiterated the contents of the October 28, 1997, letter from NationsBank. Upon learning from Ms. McSweeney that NationsBank was closing the H.O.M.E. Program's three accounts, Petitioner requested that the bank allow the three accounts to remain open to receive two electronic deposits that were scheduled to be made in November 1997. The electronic deposits were to be made on or about November 5 and 20, 1997. Ms. McSweeney agreed to leave the H.O.M.E. Program accounts open to receive the November electronic deposits and told Petitioner that there could be no check activity on the accounts. This agreement between Petitioner and Ms. McSweeney modified the terms of the October 28, 1997, letter and the accounts remained open beyond the time designated in that letter. However, the modification was not memorialized in writing and no date was established for closing the H.O.M.E. Program accounts once the November electronic deposits were made. With regard to the agreement between Petitioner and Ms. McSweeney, there was a material misunderstanding of how the H.O.M.E. Program accounts were to be handled during this extension. Ms. McSweeney's intent and understanding was that the account would remain open on a "credits-only" basis so that the credits could be received and posted to the account, and then allowed to age. Moreover, Ms. McSweeney believed there would be no check activity in the H.O.M.E. Program account, thereby eliminating or reducing the likelihood that the bank would be placed in a loss situation. On the other hand, Petitioner understood the agreement to mean that no checks could be written on the account or deposited into the H.O.M.E. Program account. However, Petitioner also believed that once the electronic deposits were made to the account, funds could be withdrawn from the account to cover the H.O.M.E. Program's expenses. The anticipated electronic deposits were made to the H.O.M.E. Program account as scheduled on or about November 5 and 20, 1997. After the November 5, 1997, electronic deposit of between $8,000 and $10,000, on November 10, 1997, Petitioner went to the NationsBank Carrollwood Banking Center and withdrew approximately $9,000 from one of the H.O.M.E. Program accounts to make a payment to the H.O.M.E. Program's line of credit. Petitioner believed that this withdrawal was permissible and not inconsistent with or in violation of the agreement with Ms. McSweeney. Furthermore, when Petitioner made the withdrawal, she was unaware of any flag on the account and no bank representative informed her that the account was so designated. At no time, either on November 10, 1997, or later, did any NationsBank representative notify Petitioner that the account was flagged and that the $9,000 withdrawal was improper and should not have been allowed. On or about November 20, 1998, the second electronic deposit was received and posted to the H.O.M.E. Program account. On the morning of November 20, 1997, Petitioner telephoned the NationsBank's Gunn Highway Banking Center and spoke with Michelle Shumate. Petitioner and Ms. Shumate knew each other because prior to Petitioner's going on leave, she was a bank officer and/or manager of the Gunn Highway Banking Center. During her telephone conversation with Ms. Shumate, Petitioner requested that two cashier's checks be drawn from the H.O.M.E. Program account and that the checks be made payable to the H.O.M.E. Program. The funds were to be used for operating expenses of the H.O.M.E. Program. When Petitioner requested the two cashier's checks, she did not perceive the requested transaction as being inconsistent with or in violation of the agreement she and Ms. McSweeney had made. Petitioner's interpretation of the agreement was that the H.O.M.E. Program was only precluded from writing checks to third parties on checks issued on the program's accounts. Because the cashier's checks were certified funds, Petitioner knew that there was no potential, at that time, for a loss situation. After Ms. Shumate's telephone conversation with Petitioner, Ms. Shumate immediately called Ms. McSweeney, her supervisor, and advised her of Petitioner's request for two cashier's checks. At hearing, in explaining her reason for calling Ms. McSweeney, Ms. Shumate made no mention of the account being flagged. Rather, Ms. Shumate stated, "I had knowledge of chargeback activity of the account, and I made it a policy for myself that before doing anything for any H.O.M.E. Program accounts, I would call a supervisor." Based on Ms. Shumate's testimony and written statement concerning Petitioner's request for two cashier's checks, it appears that Ms. Shumate's decision to call Ms. McSweeney was not because the accounts were flagged, but rather because of her personal knowledge of the problems with the H.O.M.E. Program accounts. In response to Ms. Shumate's call, Ms. McSweeney told her that the H.O.M.E. Program accounts were "credit only" accounts and withdrawals or debits were not to be made on the account. Thirty minutes after Petitioner requested the cashier's checks, she came to the drive-through window of the NationsBank Gunn Highway Banking Center to pick up the checks. Ms. Shumate then told Petitioner that Ms. McSweeney had advised her that the H.O.M.E. Program account was a "credit only" account and that there could be no check activity on the account. Pursuant to Ms. McSweeney's directive, Ms. Shumate told Petitioner that if she had any questions, she should call Ms. McSweeney. Petitioner then immediately called Ms. McSweeney from her cellular telephone. However, when Petitioner was unable to reach Ms. McSweeney, she left a voice mail message for her. After leaving the Gunn Highway Banking Center, Petitioner then went to pick up a Ms. Barnes for a 9:00 a.m. meeting. When the meeting concluded, Petitioner took Ms. Barnes back to the H.O.M.E. Program Office located at 7819 North Dale Mabry Highway. Petitioner then went to the NationsBank Carrollwood Banking Center, the banking center closest to the H.O.M.E. Program Office. Petitioner signed in as a representative of the H.O.M.E. Program to request customer service. Petitioner then met with a consumer banker regarding having a wire transfer made from one of the NationsBank H.O.M.E. Program accounts to the program's new account at First Union. Petitioner gave the consumer banker the H.O.M.E. Program account number and the Petitioner and the consumer banker filled out the required forms necessary to effectuate the wire transfer. When the form was completed, the consumer banker initiated the wire transfer in the system and Petitioner left the Carrollwood Banking Center. Immediately prior to the wire transfer, the H.O.M.E. Program account from which the funds were taken had a balance of approximately $23,000. The amount that Petitioner had wire transferred from the NationsBank's H.O.M.E. Program account was $19,800. The purpose of the transfer was to put funds into the H.O.M.E. Program's account at First Union to meet the program's expenses. Petitioner was aware there had been a history of minimal chargebacks on the account, in the form of drafts. Based on this knowledge, when Petitioner initiated the wire transfer, she left a balance in the account that she believed would be sufficient to cover any potential chargebacks from the electronic drafts. Petitioner based the estimate on the past experience of the chargebacks from electronic drafts. When Petitioner requested that funds be removed from the H.O.M.E. Program account, she never anticipated that it would result in or contribute to a loss by NationsBank. When Petitioner requested the wire transfer, neither the consumer banker nor anyone else at the bank told her that the account was flagged and that funds could not be wired from the H.O.M.E. Program account. The transfer went smoothly and in accordance with NationsBank's routine business practices. On the afternoon of November 20, 1997, after the wire transfer was made, Petitioner spoke to Ms. McSweeney, who asked her why she had made the wire transfer. During that conversation, it became clear that there was a misunderstanding between Petitioner and Ms. McSweeney regarding how the H.O.M.E. Program's NationsBank accounts were to be handled in November 1997. Ms. McSweeney told Petitioner that she had told Petitioner "not to do that," apparently referring to their October agreement regarding Petitioner's request to allow the H.O.M.E. Program accounts to remain open in November. Petitioner then told Ms. McSweeney that she had never said that to her. Petitioner indicated to Ms. McSweeney that the H.O.M.E. Program needed funds from the account for its operating expenses and that she never would have asked that the accounts be allowed to remain open to receive the electronic deposits if the organization were absolutely prohibited from accessing the funds. In the days or weeks after the funds were wired from one of H.O.M.E. Program accounts at NationsBank, the chargebacks on the accounts were in excess of any amount that they had ever been. Between November 20, 1998, the date the wire transfer was made, and January 30, 1998, the date Petitioner's termination, NationsBank sustained a loss of approximately $6,000. This loss has not yet been recovered by the bank. Had the wire transfer not been made, NationsBank may not have sustained this loss. However, the approximate $6,000 loss by NationsBank may not be attributable to the November 20, 1997, wire transfer. Two other individuals on the H.O.M.E. Program accounts, including Jerome Ellington, were authorized signators on the H.O.M.E. Program accounts and could have made withdrawals. At the hearing, personnel of NationsBank did not state unequivocally that the other authorized persons on the H.O.M.E. Program accounts had not made withdrawals from the accounts between November 1997 and January 1998. NationsBank personnel did not rule out that such withdrawals had been made, but stated only that to confirm whether such withdrawals had been made, the bank records, which were unavailable, would have to be reviewed. If, in fact, such withdrawals were made, those withdrawals could have contributed to or been responsible for the bank's financial loss. In November 1997, the previously existing problems and disputes within the H.O.M.E. Program organization exacerbated. Mr. Ellington, president and founder of the H.O.M.E. Program, who had previously encouraged Petitioner's involvement in the program, both as a client and officer, now would no longer allow Petitioner to transact business on the H.O.M.E. Program accounts. Consequently, once the excessive chargebanks in the H.O.M.E. Programs account surfaced, Petitioner was unable to move funds back to NationsBank. Her requests to Mr. Ellington that he move funds to NationsBank were disregarded. When Petitioner was on the H.O.M.E. Program's Board of Directors, the Board not only failed to meet on a regular basis, but was also prohibited by Mr. Ellington from functioning as a governing body. Mr. Ellington controlled the H.O.M.E. Program, including the "purse strings" of the organization. Petitioner lost approximately $2,000, the total amount of the funds she invested as a client in the H.O.M.E. Program. Moreover, Petitioner also lost a substantial part of approximately $3,000 to $4,000 of her personal funds that she had used for the H.O.M.E. Program to cover some of its operating expenses. In one instance, during her early involvement with the H.O.M.E. Program, Petitioner co-signed a loan agreement for the organization to have a phone telephone system installed in the program's office. After the H.O.M.E. Program failed to make the payments, Petitioner paid off the loan and received no reimbursements. In the first week of December 1997, Petitioner received a copy of minutes from Special Meeting of the Board held on November 18, 1997. Petitioner received no notice of that meeting and, consequently, was not in attendance. The minutes of the meeting reflect that the only three Board members and/or officers present at the meeting were: Jerome Ellington, president; Jacqueline Garcia Ellington, secretary; and Bernadette Orsley, treasurer. Pursuant to the minutes of the November 18, 1997, Special Meeting of the Board, under the category of "New and Urgent Agenda Items," Mr. Ellington initiated a discussion regarding his dissatisfaction with Petitioner, one other Board member, and two staff members. The minutes reported that Mr. Ellington stated that the organization was facing "certain and immanent (sic) insurrection" by Petitioner and the other three individuals. Moreover, the minutes indicated that the labor force was "being manipulated into a confused state of loyalty and that this along with a confrontation of gross insubordination" by Petitioner and the other three individuals was "usurpatous (sic) to the general operations of the Firm and extremely deleterious to Client confidence." According to the minutes, following the discussion, Mr. Ellington moved to vote on the removal or termination of Petitioner and the other three individuals "in view of their attempted take over of the business and a number of other possible infractions of the law." Following Mr. Ellington's motion, by a unanimous vote of the three Board members/officers attending the Special Meeting, Petitioner and the other absent Board member were removed from the Board and the two staff members were terminated, effective immediately. Prior to Petitioner's receiving the minutes of the Special Meeting, she was unaware of her removal from the Board. On January 30, 1998, near the end of her voluntary leave, Petitioner met with officials of NationsBank. Petitioner was advised that her employment with NationsBank was being terminated, effective immediately, because she had failed to follow and had directly violated instructions of the service support manager, Ms. McSweeney. These charges stemmed from the incident involving the transfer of funds on November 20, 1997. Petitioner explained to NationsBank officials that she did not understand that the agreement with Ms. McSweeney prevented the removal of funds from the H.O.M.E. Program accounts. Petitioner also told the NationsBank officials that her behavior with regard to the accounts was consistent with her understanding of the agreement. In this regard, Petitioner informed NationsBank staff that prior to the wire transfer, in November 1997, she had made a withdrawal from the account to pay on the program's line of credit with no problem. Petitioner also told the bank officials that when that withdrawal was made, no one at the bank advised her that the withdrawal was improper or that the account was flagged. Notwithstanding Petitioner's explanation, NationsBank terminated Petitioner's employment, effective immediately. After Petitioner was terminated from NationsBank, she applied for unemployment benefits. The application was denied and Petitioner appealed. In the Notice of Decision issued on the matter, the appeals referee concluded that the Petitioner, claimant in that proceeding, "intentionally violated direct orders from her supervisor." Petitioner had fiduciary duties with regard to her position as vice-president and member of the Board and member of the Financial Advisory Board of the H.O.M.E. Program. However, for the reasons stated above, Petitioner's efforts to perform these duties were thwarted by tactics employed by Mr. Ellington. On January 10, 1998, Petitioner first learned that the Florida Attorney General's Office had been investigating the H.O.M.E. Program, when she was served with a civil action brought by the Attorney General. The Complaint, filed on December 13, 1997, named the H.O.M.E. Program, Inc., Jerome Ellington, and Board members, including Petitioner, as defendants. Among the allegations contained in the Complaint were that the funds collected by the H.O.M.E. Program had not been placed in an escrow account as had been represented to members and that the program had not initiated construction on any residence for any of its 140 clients. The Complaint also alleged that Mr. Ellington withdrew or transferred approximately $31,000 from a H.O.M.E. Program account and of that amount, $23,000 was transferred by Mr. Ellington from a H.O.M.E. Program's account at NationsBank to First Union on November 27, 1997. Moreover, the Complaint alleged that a substantial amount of those funds were used by Mr. Ellington for his personal expenses and approximately $17,000 of the program funds, at one time in Mr. Ellington's possession, remained unaccounted for. The Complaint contained no allegations that Petitioner or any other Board member had misappropriated H.O.M.E Program funds or, at any time, had organization funds in their possession which could not be accounted for. Pursuant to a Stipulated Settlement Agreement (Agreement) entered into on May 18, 1998, the Complaint was dismissed without prejudice against Petitioner "until the conclusion of the lawsuit against each of the remaining Defendants at which time the cause of action against [Petitioner] shall be dismissed with prejudice, provided that [Petitioner] has complied with the terms of the Agreement." In this regard, the Agreement requires the Petitioner to cooperate and assist the Attorney General's Office in the investigation and litigation relating to the Complaint. The Agreement acknowledged and expressly stated that Petitioner's acceptance of the Agreement did not constitute an admission that she violated the laws of Florida as alleged in the Complaint. To determine fitness and trustworthiness of applicants for insurance licenses, the Department looks at the applicant's history and activities in which the applicant participated. Also, the Department considers other issues, such as whether there were victims of the applicant's activities; whether someone was financially harmed; whether money and/or fiduciary duties were involved; and whether the actions were willful. In evaluating Petitioner's application, the Department had several concerns. First, the Department determined that Petitioner had willfully violated or refused to obey a supervisor's direct orders by moving funds out of the H.O.M.E. Program account and that as a consequence thereof, the bank lost several thousand dollars. In the Amended Denial Letter, the Department alleged that Petitioner accomplished this by "abusing" her position with the bank. From this uncorroborated information the Department received from NationsBank, the Department concluded that Petitioner's conduct demonstrated a lack of fitness and trustworthiness. Second, in making the final decision to deny Petitioner's application, the Department considered the fact that Petitioner had been a named defendant in the aforementioned Complaint filed by the Attorney General. Prior to the Department's issuing the Amended Denial Letter, it was aware that the Complaint had been dismissed as to Petitioner. Nonetheless, the Department found it significant that the Complaint had been dismissed without prejudice and that the Agreement had been reached in exchange for Petitioner's cooperation and testimony. The Department believed that the Agreement did not suggest that the underlying events that gave rise to the allegation in the Complaint did not occur. Finally, as a basis for its decision with regard to Petitioner's application, the Department relied on an Unemployment Appeals Bureau decision denying Petitioner unemployment benefits. The Department apparently found it significant that the referee in that proceeding found Petitioner's account of the events less credible than that of NationsBank and concluded that Petitioner "intentionally violated direct orders from her superior." Based on these considerations, the Department then concluded that the allegations raised in the Complaint demonstrated that Petitioner lacked the fitness to fulfill the fiduciary responsibilities required of an insurance agent. When the Department issued the Amended Denial Letter, it was unaware that Petitioner had been removed from the H.O.M.E Program Board in November 1997, because of her efforts to have the program implement financial controls for the funds it was collecting and expending. The Department was also unaware or failed to consider the short period of time Petitioner was associated with the Board, that Petitioner was a client of the H.O.M.E. Program, and that she lost money as a result of her involvement with the program.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department issue to Petitioner, Charita Michelle Strode, a license as a Life and Variable Annuity and Health Issuance Agreement. DONE AND ENTERED this 16th day of February, 1999, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD 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 16th day of February, 1999. COPIES FURNISHED: Bill Nelson State Treasurer and Insurance Commissioner Department of Insurance The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Daniel Y. Sumner, General Counsel Department of Insurance The Capitol, Plaza Level 26 Tallahassee, Florida 32399-0300 Steve E. Baker, Esquire Delano Stewart, Esquire Stewart, Joyner, Jordan-Holmes, P.A. 1112 East Kennedy Boulevard Tampa, Florida 33672 Elenita Gomez, Esquire Mechelle R. McBride, Esquire Department of Insurance 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333
Findings Of Fact At all times relevant thereto, respondent, Cheryl A. Cooper, was licensed as a real estate broker having been issued license number 0409775 by petitioner, Department of Professional Regulation, Division of Real Estate (Division). Respondent presently resides at 3828 Gatewood Drive, Sarasota, Florida. Also, Cooper has been issued permit number ZH33902 authorizing her to operate Professional School of Business, Inc. (school), a real estate licensing school in Sarasota. Respondent and her husband, Ron, began operating the school in 1985. Each owned 50% of the business. Although both Ron and Cheryl have real estate licenses, only Cheryl had the necessary broker's license to obtain a permit for the school. The school's principal office was in Sarasota while smaller branch offices were located in Fort Myers and Port Charlotte. According to Ron, he promoted the business, gave examinations, answered the telephone, did the bookkeeping, and performed other assorted tasks. This description of duties was not contradicted, and it is found that Ron performed these duties as an agent for his principal. On the other hand, Ron described Cheryl's role as merely giving out handouts and occasionally teaching a few classes. The school also employed part-time instructors for the purpose of teaching most of the courses. When the school was established, a bank account was opened at the Sarasota branch of the NCNB National Bank of Florida. Both Ron and Cheryl were signatories on the account. Around May 27, 1988 Ron moved out of the marital home. The couple is now involved in an acrimonious dissolution proceeding. As of the date of final hearing, the court had not yet adjudicated the property rights of each party, including the assets of the school. On June 21, 1988 Cheryl withdrew $3500 from the school's bank account. She pointed out that Ron had not provided any support for her and the two children since he had moved out a month earlier, and she needed the funds to live on. After learning the following day of the withdrawal of funds by his estranged wife, Ron, without authority from Cheryl, closed the school's bank account and moved the remaining funds to a new account on which he was the sole signatory. He did not disclose this action to his wife, and she did not learn what had happened until later. After June 21, all moneys given to the school by customers were deposited into the school's new bank account over which Cheryl had no control. Around the same time, Ron changed the locks on the school's offices so that Cheryl could not gain access. All school records were located in the Sarasota office. After the new bank account was opened and the locks on the doors changed, Ron continued to promote the school and to accept new customers. He did so since he intended to continue the school's operations after the impending divorce. The administrative complaint charges that during this same time period, Cheryl solicited a number of customers for the school and accepted deposits from these customers. However, the evidence shows clearly that all solicitation was performed by Ron and, with one exception, was done after he changed the door locks and opened the new bank account on June 21. Further, all funds were deposited into the bank account over which he had exclusive control. Therefore, even though Cheryl was the permit holder, she did not have access to the business, its records or the firm's bank account. Thus, she did not know who, if anyone, had been solicited to take courses, the disposition of their deposits, or the course schedule. As to the single instance cited in the complaint where a customer was solicited prior to June 21, this involved a broker in Fort Myers who wished to send an employee to the school's branch office in Fort Myers. The broker dealt directly with the husband or an instructor, and not Cheryl, and sent a check through the mail to the school for the coursework. Whether the check was received and deposited before the old bank account was closed is not of record since the check was not offered in evidence, and the partial bank records received in evidence do not disclose this fact. In any event, after he was advised by letter from Ron that the course had been cancelled, the broker was told by Ron to seek a refund from his wife and to file a complaint against Cheryl with the Division. The broker eventually received a refund from Cheryl on January 9, 1989. On June 27, 1988 respondent contacted the Division and explained her predicament. She advised the Division that her husband had a signature stamp that was being used without her authorization, and that she was unable to get access to her business records. She added that she hoped to gain access after a court hearing then scheduled on July 8, 1988. As it turned out, the hearing was postponed. On July 12, 1988 Cheryl sent a written memorandum to all school instructors advising them not to teach any class that was scheduled to end after August 1, 1988. That date was chosen since it was the date of the final examination of the then pending evening class that had the longest time until completion. It is noted that after Ron saw a copy of this letter, he accepted a deposit from one new customer (Janice Hamann) on July 19 but no others. The school eventually shut down permanently in August or September. As noted in finding of fact 9, Cheryl attempted to get legal access to the Sarasota office by an order of the circuit court. For whatever reason, however, she was unable to get a prompt hearing. When no hearing had been held by early August 1988, upon advice of her attorney, she paid a locksmith to open the Sarasota office one evening and, after gaining access, she removed what she believed to be one-half of the office equipment and furniture. Also, she found some of the school's records and learned that, since the change of bank accounts, Ron had continued to promote the school's business, had accepted deposits from customers and then cancelled classes. In addition, she found letters written to her at the school address demanding refunds of customer deposits previously sent to her husband. Cheryl immediately responded by letter advising those customers of the problems caused by the marital split and that their money would be refunded. The complaint identifies six individuals who paid moneys to the school but were allegedly not given a timely refund. In addition, the complaint cites one individual who was guaranteed a free repeat course if she failed the examination, and who, after failing the examination, was unable to do so since the school had by then closed down. As noted above, with the exception of the broker in Fort Myers who sent a check to the school sometime in mid or late June 1988, all customers were solicited after Ron had opened a new bank account and changed the door locks to the office. Therefore, and in light of the uncertainty surrounding when the broker's deposit was received, it is found the moneys withdrawn by Cheryl on June 21 did not pertain to any customer deposits which are the subject of this complaint. Of the six customers who were solicited by Ron, one, Mary Bellemare, paid her deposit by Visa credit card and obtained a credit on her bank card statement before any money was actually paid by Visa to the school. Therefore, there was no obligation on the part of the school to make a refund to Bellemare since no funds had been exchanged. The remaining five customers received refunds from Cheryl in January 1989. One of these, who was owed $20, never made demand for a refund from Cheryl, but was paid after respondent learned of her situation through the allegations in the administrative complaint. Finally, the customer who desired to receive a free repeat course likewise did not notify respondent of her predicament. Respondent has fully cooperated with the Division during the pendency of this proceeding. Indeed, as explained above, she contacted the Division before the complaint was filed seeking advice on how to properly handle this confusing situation. In addition, at least three memoranda have been sent by Cheryl to the Division. She attributed the delay in refunding the customers' money to a lack of financial resources caused by the still unresolved marital split.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that respondent be found guilty of breach of trust in a business transaction and that she be given a reprimand. All other charges should be dismissed. DONE AND ORDERED this 18th day of April, 1989, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 89-0139 Petitioner: 1-2. Covered in finding of fact l. 3. Covered in finding of fact 2. 4. Covered in findings of fact 5 and 6. 5. Covered in findings of fact 6 and 11. 6. Covered in finding of fact 10. 7. Covered in finding of fact 7. 8-12. Covered in finding of fact 12. 13. Covered in finding of fact 6. 14. COPIES Covered in FURNISHED: finding of fact 12. Stephen W. Johnson, Esquire Post Office Box 1900 Orlando, Florida 32802 Ms. Cheryl A. Cooper 3828 Gatewood Drive Sarasota, Florida 34232 Darlene Keller, Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802 Kenneth E. Easley, Esquire 130 North Monroe Street Tallahassee, Florida 32399-0750
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The applicant Metropolitan Bank and Trust Company is located at 4600 West Cypress Street, Tampa, Florida, and was established on May 31, 1974. Excluding its Chief Executive Officer and Executive Vice-President, the applicant has 25 officers with a combined total of 352 years of banking experience. The average age of the officers is 41, with an average of 15 years of banking experience. Six of the management team are past bank presidents. The applicant presently has two existing branch banking facilities. One is located 0.9 miles Southeast from the main office and one is located 8.6 miles Northwest of the main office. A third facility, acquired by merger, located 19.4 miles Southeast of the main facility, has been approved and was expected to open in April, 1979. As a result of the merger between Metropolitan and the American Guarantee Bank, the applicant now has 160 employees, The applicant has paid regular cash dividends to its stockholders since opening. As of December 31, 1978, the applicant had total assets of over $187,000,000.00. Its loans to loanable funds ratio has been maintained at about 80 percent. That ratio was 76.7 percent as of February 14, 1979. The protestant stipulated at the hearing that the applicant had no problem meeting its liquidity needs. As of December 31, 1978, the applicant had an adjusted capital to assets ratio of 8.2 percent. Its net profit to asset ratio was .836 percent as of December 31, 1978. The establishment of the proposed branch is expected to have no significant effect upon future earnings of the applicant. It is anticipated that the slight loss after the first year of operation will not exceed two cents per share and that the branch will contribute significantly to earnings of the applicant after the first year. The applicant presently has approximately $1.4 million in deposits and $2.8 million invested in loans from residents and business people in the primary service area of the proposed branch bank. The name of the proposed facility is to be Metropolitan Bank and Trust Company, Carrollwood Branch Office. It is to be located on the southwest corner of Dale Mabry Highway and Ehrlich Road, an unincorporated area of Hillsborough County, approximately 8.8 air miles from the main office. The property is presently owned by the applicant. No officer or employee of the applicant has an interest in the land purchased. The total cost of the land, building, furniture and fixtures and other fees is expected to amount to approximately $409,500.00. As of December 31, 1978, the applicant had an amount in excess of $1,391,500.00 to invest in bank premises. The proposed facility will offer full services, including checking and savings services, certificates of deposits, installment and commercial loans, VISA cards, safe deposit boxes, a 24-hour teller machine and Saturday banking. Additionally, the applicant intends to extend its main office services of international banking and trust services to the proposed branch. The building is to contain some 4,300 square feet and the drive-in area will contain some 1,050 square feet. Forty-three parking spaces will be provided. There will be five interior teller windows and four drive-in teller stations. The facility will also have a community room available for local citizens. The lending authority of the proposed branch manager will be $25,000.00 on an unsecured basis and $50,000.00 on a secured basis. Larger loans can be made available through consultation and approval of the parent bank. Long-term mortgage loans and acquisition and development loans will be available through the proposed branch. The proposed facility will have a branch manager and six staff (non- officer) members. The designated proposed branch manager is A. H. Vermeulen who has 22 years of experience in the banking industry and is currently a vice- president of the applicant. Mr. Vermuelen suffered a heart attack several weeks before the administrative hearing in this cause. It is expected that he will be able to resume his duties with the applicant. However, if he is unable to do so, the applicant has designated Charles Overholt as the proposed branch manager. Mr. Overholt has had 12 years of banking experience, has been an assistant branch manager of the Flagship Bank in St. Petersburg and is currently the applicant's vice-president in charge of the bookkeeping department. The applicant projects that total deposits at the proposed branch bank will be $5,000,00.00 at the end of the first year of operation, and $11,000,000.00 and $17,000,000.00 respectively at the end of the second and third years of operation. At the end of the first year of operation, the applicant anticipates a net loss of $22,100.00. Net profits of $211,300.00 and $459,500.00 are estimated for the end of the second and third years of operation. The site for the proposed branch banking facility is located on a main north/south traffic artery (North Dale Mabry Highway) and fronts on a major east/west traffic artery (Ehrlich Road). In selecting this site and designating the primary service area, the factors of residential development, population growth, traffic activity and flow, and existing financial institutions and services in the area were considered. Within the applicant's primary service area, there are presently two existing banks. The protestant Carrollwood is located 2.8 miles south of the applicant's site and the Exchange Bank of Temple Terrace branch is located 2.9 miles south of the proposed site. By an Order dated February 20, 1979, the Office of the Comptroller granted authority to the Sun Bank of Tampa Bay to open a branch bank to be located approximately 1.5 miles south of the site. Other applications for branch banks in the area are pending and there are several savings and loan institutions in the area. While the population of Tampa has declined in recent years, there have been considerable increases in population in the unincorporated areas of Hillsborough County, including the applicant's primary service area. The largest part (76.63 percent) of the increase in the unincorporated areas have resulted from net migration, as opposed to natural increase. There has been a good balance of growth in both the working or labor age group and the group aged 65 and above. The per capita personal income figures for Hillsborough County are below the State average and are increasing somewhat slower that the State average. The comparative figures report for June 30, 1977, through June 30, 1978, show that the protestant increased its total deposits by a little over 30 percent, the Exchange Bank of Temple Terrace increased its total deposits by almost 25 percent, and the Sun Bank of Tampa Bay likewise increased deposits by a little over 21 percent. The average for increases in deposits for the County was 16.6 percent. Official state estimates of population for the primary service area are not available. The applicant estimates the 1978 population of the primary service area to be 20,800. A population of 25,000 is projected for 1980 and a population of 33,000 is projected for 1985. The population of this area has grown approximately 105 percent since the year 1970. The two existing banks in the area result in a population per bank of 10,400 persons. The Sun Bank's branch brings this down to 6,933 persons per banking facility. The national average population per banking office is 4,715 and the Florida average is 8,086. The figures above for the primary service area do not take into account savings and loan institutions in the area nor customers served by banks outside the primary service area. The primary service area is mainly a "bedroom," residential community at the present time, with little commercial or industrial development. There is no significant concentration of employment in the area. The makeup of the populace is primarily upper middle class. Most of the residential development has occurred West of North Dale Mabry Highway. There are between 8,600 and 10,500 new residential units planned in the subdivisions located within the primary service area and, as of the date of the subject application, some 1,900 had been completed. Developers and landowners feel that commercial development in the area will naturally follow the residents development. At least two land developers in the primary service area have had difficulty obtaining financing in the form of large acquisition and development loans and construction loans from existing banks within the primary service area. The applicant is 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 29th 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: J. Riley Davis William S. Lyman Taylor, Brion, Buker and Green Assistant General Counsel P. O. Box 1796 Office of the Comptroller Tallahassee, Florida 32302 The Capitol Tallahassee, Florida 32304 Robert W. Perkins and Richard B. Collins Comptroller Gerald A. Lewis Michaels, Sheffield, Perkins, The Capitol Collins and Vickers Tallahassee, Florida 32304 Post Office Box 10069 Tallahassee, Florida 32302
The Issue Whether Respondents committed the offenses set forth in the six-count Administrative Complaint dated October 15, 2003; and, if so, what penalty should be imposed.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: The Department of Business and Professional Regulation, Division of Real Estate (the "Department"), is the state agency charged with enforcing the statutory provisions pertaining to persons holding real estate broker and sales associate's licenses in Florida, pursuant to Section 20.165 and Chapters 455 and 475, Florida Statutes (2003). At all times relevant to this proceeding, Respondent Richard R. Page, was a licensed Florida real estate broker/officer, having been issued broker license no. KB-0148248. He was the qualifying broker for Aztec Realty. At all times relevant to this proceeding, Respondent Aztec Realty, was a corporation registered as a Florida real estate broker, having been issued corporate registration no. CQ-0156640. Aztec Realty's business location was 4456 Tamiami Trail, Charlotte Harbor, Florida 33980. Barbara Kiphart was a 13-year employee of the Department who had performed thousands of audits of broker records. After conducting agent interviews on an unrelated matter in the office of Aztec Realty, she informed Mr. Page that she planned to perform an audit of the corporation's escrow accounts. Ms. Kiphart testified that it was routine for the Department to perform such audits when visiting brokers' offices for other reasons. Ms. Kiphart informed Mr. Page that she would need all documents necessary to complete an audit of Aztec Realty's escrow accounts, including bank statements, account reconciliations, and liability lists. Mr. Page referred Ms. Kiphart to Cheryl Bauer, Aztec Realty's financial manager. With Ms. Bauer's assistance, Ms. Kiphart completed the audit on June 12, 2003. Three accounts were examined: the sales escrow account; the security deposit account; and the property management account. The sales escrow account was found to be in balance, with liabilities equal to the bank balance of $382,300.52. The security deposit account was found to have liabilities of $45,533.29 but only $16,429.84 in its bank balance, a shortage of $29,103.45. The property management account was found to have liabilities of $22,545.54 but only $16,594.71 in its bank balance, a shortage of $5,950.83. Ms. Kiphart testified that the security deposit account had not been reconciled in the year 2003, and she had no way of saying when it was last reconciled. She determined the account's balance from Aztec Realty's bank statements, but had to extrapolate the liabilities from a computer printout of security deposits. Ms. Bauer testified that she handles the finances for all aspects of Aztec Realty's real estate sales business, including the sales escrow account, and that she was able to provide all the information Ms. Kiphart needed to audit that account. However, Ms. Bauer had no responsibility for the other two accounts, both of which related to the rental property management side of Aztec Realty's business. She had to obtain information about those accounts from Jill Strong, her newly- hired counterpart in property management. At the time she provided the computer printout on the property management accounts to Ms. Bauer and Ms. Kiphart, Ms. Strong told them that she knew the numbers were inaccurate. Aztec Realty had purchased Tenant Pro, a new rental management software package, in 2001. In the course of approximately 18 months, Aztec Realty had three different employees in Ms. Strong's position. One of these short-term property managers had misunderstood the software for the security deposit account. Opening balances were entered for accounts that had, in fact, already been closed out with the deposits returned. This had the effect of inflating the apparent liabilities in that account. The previous property manager was also unable to print checks on the printer attached to her computer terminal. Ms. Bauer would print the deposit refund checks on her own printer, with the understanding that the property manager was recording these entries against the security deposit account. Ms. Strong discovered that these entries had not been recorded. Thus, monies that had been paid out to owners, renters, and vendors were never recorded anywhere besides a sheet that Ms. Bauer kept for printing out checks, again inflating the account's apparent liabilities. Ms. Strong had been working for Aztec Realty for about one month at the time of the audit. She was still in the process of sorting out the problems in the security deposit account, hence her statement to Ms. Bauer and Ms. Kiphart that she knew the numbers were inaccurate. Subsequent to the Department's audit, Ms. Bauer and Ms. Strong commenced their own audit of the security deposit and property management accounts. Their efforts were complicated by a storm and tornado that struck the area on June 30, 2003. The offices of Aztec Realty suffered over $100,000 in damage, including water damage to the roof that caused the office to be flooded. Records were soaked and Ms. Strong's computer was destroyed. By mid-July 2003, Ms. Bauer and Ms. Strong had completed their corrected audit of the security deposit account. They concluded that the actual shortfall in the account was $13,764.43. That amount was immediately transferred from the real estate operating account to the security deposit account to bring the latter account into balance. The real estate operating account was essentially Mr. Page's personal funds. As to the property management account, also referred to as a "rental distribution" account, Ms. Bauer and Ms. Strong performed a subsequent audit indicating that the account was out of balance on the positive side. They discovered that there were items paid out of the property management account that should have been paid from escrow and vice versa. When the audit brought the accounts into balance, the property management account was approximately $200 over balance. In an audit response letter to Ms. Kiphart dated July 16, 2003, Mr. Page acknowledged that the property management account had been improperly used to pay occasional expenses, but also stated that the practice had been discontinued. At the hearing, Mr. Page conceded that no reconciliations had been performed on the security deposit account or the property management account from at least January 2003 through May 2003. Mr. Page and Ms. Bauer each testified that the corrective actions taken in response to the audit have been maintained and that there have been no accounting problems since June 2003. Aztec Realty has contracted to sell its property management department. The evidence established that no client of Aztec Realty or other member of the public lost money due to the accounting discrepancies described above. Neither Mr. Page nor Aztec Realty has been subject to prior discipline. Mr. Page has worked in the real estate business in the Port Charlotte area for nearly 30 years and is a past president of the local association of realtors. He credibly expressed remorse and testified that, given his position in the community, he was "mortified" at having allowed his company to be placed in this position. Aztec Realty has operated for nearly 30 years and currently has 20 employees and approximately 65 agents.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Real Estate Commission enter a final order: Dismissing Counts II and III of the Administrative Complaint against Mr. Page; Dismissing Counts V and VI of the Administrative Complaint against Aztec Realty; Imposing an administrative fine against Mr. Page in the amount of $1,000 for the violation established in Count I of the Administrative Complaint; and Imposing an administrative fine against Aztec Realty in the amount of $1,000 for the violation established in Count IV of the Administrative Complaint. DONE AND ENTERED this 27th day of July, 2004, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 27th day of July, 2004.
The Issue The purpose of the public hearing was to review the application to consolidate New River Bank, Oakland Park, Florida, and 1st United Bank, Boca Raton, Florida, in accordance with Florida law.
Findings Of Fact 1st United Bancorp (Bancorp) is a Florida bank holding company which maintains its principal place of business at 980 North Federal Highway, Boca Raton, Florida. 1st United is a Florida chartered bank and is a wholly-owned subsidiary of Bancorp and operates full service banking facilities at seven locations in Palm Beach and Martin Counties. New River is a Florida chartered bank which maintains its executive offices at 2901 West Oakland Park Boulevard, Oakland Park, Florida, and operates two banking facilities in Broward County, Florida. The Department is the duly designated state agency vested with the responsibility of processing and approving or disapproving a plan of any financial entity to acquire the assets and assume the liabilities of another financial entity pursuant to Section 655.414, Florida Statutes. On July 13, 1993, Bancorp and New River entered into a Sale and Purchase Agreement which provides that Bancorp will cause 1st United to purchase substantially all of the assets and to assume substantially all of the liabilities of New River, after which New River will be liquidated and dissolved. The agreement noted above was duly adopted by majority vote of the respective Boards of Directors of Bancorp, 1st United and New River. In addition, the respective Boards of Directors of Bancorp, 1st United and New River duly adopted by majority vote a Plan of Acquisition of Assets and Assumption of Liabilities which summarized pertinent portions of the agreement and which includes all of the terms and conditions required by Section 655.414 (1), Florida Statutes. On September 7, 1993, 1st United and New River submitted an application to the Department seeking the Department's approval for the purchase of New River's assets and assumption of its liabilities as set forth in the agreement and as summarized by the plan. Submitted with the application were the requisite filing fee and all of the required documents including copies of the agreement, the plan and certified copies of the authorizing resolutions of the respective boards of directors. On September 17, 1993, the Department caused notice of the receipt of the application to be published in the Florida Administrative Weekly. This published notice met the requirements of Rule 3C-9.003(1), Florida Administrative Code. On September 7, 1993, Warren Orlando, in his capacity as president of 1st United, filed a petition for public hearing and notice of intention to appear on behalf of 1st United. On October 27, 1993, the Department referred the matter to the Division of Administrative Hearings for the purpose of conducting a public hearing pursuant to Section 120.60(5), Florida Statutes, and Rule 3C-9.004, Florida Administrative Code. Notice that a public hearing would be held on the application on December 13, 1993, was duly published in conformity with Rule 3C-9.005, Florida Administrative Code, in the Fort Lauderdale Sun-Sentinel, Palm Beach Post, and Stuart News, newspapers of general circulation in the communities in which 1st United and New River do business. The agreement provides that New River will receive a combination of cash and Bancorp common stock equal to the net asset value, as defined in the plan, of the assets and liabilities of New River being purchased or assumed. The agreement further provides that after the closing of the asset acquisition, New River shall cease operations and commence dissolution and liquidation proceedings. Substantially all of the Bancorp common stock and available cash received by New River from Bancorp will be distributed to New River shareholders, other than dissenting shareholders. New River stockholders will receive a pro rata portion of the Bancorp common stock and cash available for distribution. After the acquisition of the assets and assumption of liabilities as set forth in the agreement and as summarized in the plan, 1st United will have adequate capital structure in relation to its activities and its deposit liabilities. The acquisition of the assets and assumption of liabilities as set forth in the agreement and as summarized in the plan, if consummated, are not contrary to the public interest. The respective boards of directors of Bancorp and New River requested the opinion of Alex Sheshunoff & Co. Investment Banking with regard to the fairness to the respective shareholders of each corporation, from a financial point of view, of the terms and conditions of the agreement. Alex Sheshunoff & Co. Investment Banking is regularly engaged in and is an expert authority in the valuation of bank and bank holding company securities in connection with bank mergers and acquisitions. Thomas Mecredy is an expert in the valuation of bank and bank holding companies in connection with bank mergers and acquisitions. On December 8, 1993, Alex Sheshunoff & Co. Investment Banking through Thomas Mecredy issued its opinion to the respective Boards of Directors of Bancorp and New River that the terms and conditions of the agreement were fair and equitable to the shareholders of each corporation. Pursuant to the agreement, New River's Board of Directors duly adopted a plan of dissolution and complete liquidation for New River. The plan of dissolution provides that after the sale of assets and assumption of liabilities the Board of Directors will reserve a sufficient amount of Bancorp stock and cash for payment of liquidation expenses and payment of liabilities not assumed by 1st United, including contingent liabilities (general reserves). In addition to the general reserves, New River will create a special reserve (special reserve) in an amount which it considers sufficient to defend and satisfy certain potential claims which may be asserted against New River by shareholders of New River in conjunction with the organization and initial offering of common stock of New River. In determining the amounts necessary to establish the general reserves and special reserve, New River's board of directors consulted with the national law firm of Proskauer Rose Goetz and Mendelsohn with respect to both reserves and the Florida law firm of Shutts & Bowen with respect to the special reserve for advice concerning the potential liability on the part of New River in connection with both known claims and potential claims and the amounts, if any, for which New River could be held liable. Shareholder E.D. Hittson noted that the book value of the New River stock is approximately $11.00 per share versus the $4.50 per share value of the 1st United stock. In response, bank officials noted that 1st United has dividend and strong growth potential not available to New River. Shareholder James Weck questioned provisions being made to satisfy outstanding lawsuit liabilities, the future location of the facility, and the effect on New River employees. In response, bank officials stated that the potential lawsuit liability is included in the reserve amounts, that no decision has been made as to the future location of the banking facility but that the needs of the service area will be met, and that it is their intention to draw talent from the New River staff. Shareholder Amine Semaan questioned whether New River would be represented on the Board of Directors at 1st United, whether minority areas would be a priority for the future location of the facility, and whether another buyer would have paid $10.50 per share. In response, bank officials maintained that New River will have one member on the Board of Directors at 1st United, that the needs of the service area will be met, and that no other, more attractive, buyer is available. On January 11, 1994, MaryAnn Cassel, a shareholder who reportedly attended the public hearing on December 13, 1993, filed a motion for leave to become a party. Such motion alleged that the movant, a minority shareholder, will be forced to accept Bancorp common stock in exchange for her New River shares or be forced to accept appraisal rights in lieu of her shares. Further, movant claimed that the plan is not fair to all parties because the shares of New River have been undervalued. Having deemed such motion untimely, and having determined such request does not allege circumstances unknown to movant prior to the December 13, 1993 public hearing, it is denied. DONE AND ENTERED this 24th day of January, 1994, in Tallahassee, Leon County, Florida. Joyous D. Parrish Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 24th day of January, 1994. COPIES FURNISHED: Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350 William G. Reeves General Counsel Department of Banking and Finance Room 1302, The Capitol Tallahassee, Florida 32399-0350 Donald E. Thompson, II Proskauer Rose Goetz and Mendelsohn One Boca Place, Suite 340 2155 Glades Road Boca Raton, Florida 37431 Michael W. Ford Phillip T. Ridolfo, Jr. Mershon, Sawyer, Johnston, Dunwody & Cole Phillips Point East Tower 777 South Flagler Drive, Suite 900 West Palm Beach, Florida 33401 Jeffrey D. Jones Department of Banking and Finance Division of Banking The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 David S. Zimble Zimble Formoso-Murias, P.A. 1401 Brickell Avenue, Suite 730 Miami, Florida 33131
Findings Of Fact Primary Service Area (PSA) The proposed association will be located in the Paddock Plaza adjacent to the Paddock Mall Regional Shopping Center, both of which are currently under construction. The site is in the vicinity of the intersection of Southwest 27th Avenue and State Road 200 in the southwest portion of Marion County. The PSA encompasses the southwestern portion of Marion County, including a part of Ocala which is a concentrated residential community. Beyond the city limits, there are schools, recreational areas, an airport, horse farms, a community college, and light industrial type firms in the surburban area. The proposed site is located in the northeastern part of the PSA. The PSA is in a developmental stage with current plans of residential and commercial development which should make the area the fastest growing sector in Marion County. The home offices of Fidelity Federal Savings and Loan Association and Midstate Federal Savings and Loan Association, and a satellite office of the latter association are located near the northeast boundary of the PSA some three miles from the proposed site. The northern and eastern boundaries of the PSA follow well-defined highways. The southern boundary follows the Marion County line, and the western boundary is drawn due north from the intersection of State Road 200 and the Marion County line. (Testimony of Starke, Exhibit 1) Standards (a) Public convenience and advantage. One commercial banking facility, the main office of Citizens First Bank of Ocala, is located in the northeast corner of the PSA approximately two and one-half miles from the proposed site. It provides full banking services to its customers. Two savings and loan associations have received approval to operate in the PSA. One will be a branch of Midstate Federal Savings and Loan Association which will be located at the Paddock Mall adjacent to the proposed site. The other will be a limited facility of the First Federal Savings and Loan Association of Mid-Florida (Volusia County) which will he situated approximately 11.3 miles south of the proposed site in a residential community. Neither of these approved institutions have commenced operations. The proposed site is readily accessible from all sectors of the market area. State Road 200 is a primary artery for northeast/southwest travel. Southwest 27th Avenue is a primary north/south thoroughfare. There are numerous other feeder streets which connect with those two roads to bring traffic to the new mall and plaza area. In addition, Interstate Highway 75 intersects State Road 200 approximately one mile southwest of the proposed site. An extension to Southwest 17th Street is currently proposed which would provide direct access from the northeast to the proposed site. The location of the proposed association at a large regional shopping center will provide an opportunity for residents of the PSA to combine shopping and financial business. This will be facilitated through the utilization of a drive-in facility at the site. Ample parking will be provided in the plaza area, and the network of roads in and around the shopping center will facilitate use of the applicant's services. It will provide a convenient location to conduct savings and loan business for residents and businessmen in the southwestern portion of the county without the necessity of traveling to the more congested downtown area of Ocala. The fact that the proposed association will be a home office rather than a branch office will tend to attract a greater number of individuals within the PSA than a satellite office, and undoubtedly will induce persons outside the PSA to use the institution's services. In 1960, the City of Ocala had a population of 13,598. It increased 66.1 percent to 22,583 by 1970. The 1978 city population was estimated to be 32,652, a 44.6 percent increase over 1970. An April 1, 1979 estimate placed the population at 34,034. In 1960, Marion County had a population of 51,616. It increased 33.7 percent to 69,030 in 1970 and was estimated at 102,722 in 1978, an increase of 48.8 percent over 1970. The population was estimated to be 106,852 in April 1979 and is scheduled to reach 164,400 by 1990. It is estimated that the population of the PSA was about 7,700 in 1960 and increased to 10,500 or 36.4 percent by 1970. It is now estimated to be some 17,000 and projected to reach over 19,000 by 1982. This projection is based on the area's recent growth history, current housing developments in the area, and projected growth within Marion County. The 45 to 64 year group of the population of Marion County has shown a modest increase since 1960 from 21 percent to 22.6 percent in 1978. At that time, the state percentage was 22 percent. Those 65 years of age and over in Marion County increased from 10.6 percent in 1960 to 15.7 percent in 1978. This was lower than the statewide average of 17.5 percent in that category. It is anticipated that those 45 years and older will continue to show a steady increase in the future due to the fact that most of the county increase in population has been due to continuing in-migration of retirees. These individuals normally bring cash assets which are available for deposit in savings and loan associations, and they ordinarily would have no prior connection with other banks or savings and loan associations in the immediate area. The per capita personal income in Marion County in 1969 was $2,646 and increased to $5,157 in 1977. Per capita personal income in Florida in 1977 was $6,697. In 1969 the mean family income of residents of Ocala was $9,775, as compared with $8,062 in Marion County and $10,120 throughout the State of Florida. It is estimated that the current mean family income in Ocala is approximately $17,506, as compared to $14,438 in the county and $18,123 in the state. The unemployment rate in Marion County in January 1980 was 6 percent whereas the rate in the State of Florida was 5.2 percent. Residential building permits issued in the City of Ocala in 1975 rose from 156 units for a total of 3.5 million dollars to 511 permits in 1979 for a total of 10.7 million dollars. For Marion County, 872 permits were issued in 1975 for a total of 14.3 million dollars and 1,706 in 1979 for a total of 44.5 million dollars. It is currently estimated that the median value of owner occupied housing units in Ocala is $32,775 and $26,173 in Marion County. Local Conditions There are seven commercial banks with approval to operate a total of 18 offices in Marion County. In June 1975, the commercial banks headquartered in Marion County held combined time and savings deposits of some 104 million dollars and by mid-1979, such deposits totaled over 176 million dollars, an increase of about 69.5 percent. From December 1978 to December 1979, time and savings deposits in those banks rose from 161.4 million dollars to 199.8 million dollars, an increase of 23.8 percent. Total deposits in all Marion County Banks increased from 204.8 million dollars in 1975 to 304.9 million in 1979, a 48.9 percent increase. There are currently 16 savings and loan association offices approved for operation in Marion County. Three of the associations have their home office in Ocala. These are Fidelity Federal, Mid-State, and United Federal of Ocala. Fidelity Federal operates a total of five offices within the county, one of which is not yet open. Mid-State Federal has seven offices approved within the county and its office in the PSA is not as yet open. United Federal, an association which opened in January 1979, has its only office within the county. Both First Family Federal (Lake County) and First Florida Federal Savings and Loan Association (Alachua County) have recently received approval to operate branch offices within Marion County. First Federal of Mid-Florida (Volusia County) has received approval to operate an office in the southern part of the PSA but has not yet opened. In 1975, savings and loan associations headquartered in Marion County reported combined savings of $162,177,000. By the end of June 1979, their combined savings totaled $312,508,000, an increase of 92.7 percent. The combined savings accounts of the three Marion County associations totaled $312,508,000 in midyear 1979, as compared to June, 1975 savings of $162,177,000, representing an increase of $150,331,000 or 92.7 percent, during the subject four-year interval. Mid-State Federal, with an office approved at the Paddock Mall, held June, 1979 savings of $207,770,000, and those accounts represented an increase of $96,475,000, or 86.7 percent, over its savings reported June, 1975. First Federal of Mid-Florida, a Volusia County association with an office approved in the PSA, had June, 1975 savings of $199,843,000, and those savings increased by $150,637,000, or 75.4 percent, to reach a total of $350,480,000 in June, 1979. The smallest savings and loan association in Marion County is United Federal, which opened in 1975. In June, 1975, it reported savings of $6,881,000, and its midyear 1979 statement showed savings of $27,830,000. United Federal, operating only one office in Ocala, had growth in savings of $20,949,000, or 304.5 percent, during the stated interval. In the opinion of the applicant's economic consultant, approval of the applicant's application would not have an adverse effect on the other financial institutions in the area due to the steady growth of the community and anticipated growth in the future. He further is of the opinion that the proposed savings and loan association will be able to successfully operate in the PSA in view of the presence of the Paddock Mall and the general growth of population and business establishments in the area. He feels that the current national economic situation will not have a great impact on a new institution which will be able to obtain variable interest rates. He further sees an advantage to the fact that the proposed association will be the first state chartered capital stock form of organization in Marion County, and that it will provide an opportunity for public purchase of shares in the association. During the first three years of operations, the applicant projects its net profits at $75,648 for the first year, $88,335 for the second, and $103,340 for the third. These amounts were arrived at by including known cost items and estimating various income and expense amounts. The applicant anticipates acquiring accounts from new residents of the PSA and those current residents who may wish to transfer savings accounts from commercial banks in the Ocala area due to convenience and the higher rate of interest paid by savings and loan associations. The applicant does not anticipate the acquisition of a significant number of customers from existing savings and loan associations in the area. It also will look to employees at the new shopping mall who may utilize the conveniently located new institution for savings transactions. The applicant intends to compete vigorously for new business with these individuals and from those who presently do not have accounts in any existing associations. The applicant estimates that the institution will attain savings of five million dollars at the end of the first year, $9,500,000 at the end of the second year, and $14,500,000 at the end of the third year of operation. In arriving at those estimates, consideration was given to past experience of existing association offices in the Ocala area, and that of established associations in similar competitive situations. The eight organizers of the proposed association will also serve as the directors. They represent a diversity of occupations, including businessmen, attorneys, real estate broker, a physician, and a dentist. All but three reside in the Ocala area. All have been residents of Florida for over a year and none has been adjudicated a bankrupt or convicted of a criminal offense involving dishonesty or breach of trust. Their employment and business histories show responsibility in the handling of financial affairs. One of the proposed directors has served as an attorney to a large savings and loan association in Miami Beach, and is a member of the board of directors of Barnett Bank of Miami. Another serves as legal counsel for a local bank in Ocala. The proposed officers of the association have not been named as yet. The proposed association will be capitalized at $2,000,000. This capital will be divided into common capital of $1,000,000 in surplus and reserves of $1,000,000. The association intends to issue 200,000 shares of stock with a par value of $5.00 and the selling price of $10.25, plus a $.25 share organizational expense fund contribution. The proposed directors of the association have subscribed to 25,000 shares each. This is a preliminary stockholder list and it is the intention of those individuals to redistribute the stock to a minimum of 400 persons in accordance with FSLIC requirements. It is the organizers' intention to acquire pledges from 700 persons for the deposit of $1,000,000 in withdrawable savings accounts. It is intended that the majority of the stock will be sold to persons residing in Marion County, and the organizers anticipate no difficulty in this respect. (Testimony of Starke, Hastings, Bitzer, Berman, Casse, Hicks, Williams (Deposition - Exhibit 5), Broad (Deposition - Exhibit 6), Carter, Exhibits 1-3) Name As heretofore found above, the applicant amended its application to change the proposed name to Allstate Savings and Loan Association. Although the descriptive word "Allstate" is not used in the corporate name of any other savings and loan association in this state, the Office of the Comptroller received a letter, dated February 22, 1980, from Allstate Savings and Loan Association, Glendale, California, an affiliate of Sears Roebuck and Company, objecting to the use of the word "Allstate" in that the public may be misled to believe that the proposed association is in some way affiliated with Sears Roebuck and Company. (Testimony of Starke, Exhibit 1) Site and Quarters. As heretofore found, it is the organizers intention to locate the proposed association in the Paddock Plaza, adjacent to the Paddock Mall, a new shopping center to be constructed in Ocala. The applicant has an option to lease 5,000 square feet of space for a period of fifteen years for a rental price of $12.00 per square foot for 2,000 square feet and $10.00 per square foot for 3,000 square feet, plus common area maintenance. The option provides that on the fifth year of tenancy, the total annual rental will be increased by the cost of living as determined by the consumer price index. The leased area will include a two-car drive-in facility. There will be adequate parking at the site. The applicant plans to sublease 2,000 square feet of the leased premises on a short-term basis to reduce operating costs in the initial years of operation. An appraisal of the proposed association quarters establishes that the proposed leased premises are suitable for a savings and loan association and that the lease price compares favorable to current leasing arrangements for similar business property. (Testimony of Starke, Exhibit 1) Proposed Findings of Fact filed by the parties have been fully considered and those findings which have not been adopted herein are considered to be either unnecessary, or unsupported in fact and are specifically rejected. Some of the proposed findings state conclusions which properly should be considered by the Comptroller. Pursuant to Section 120.57(1)(b)(12), Florida Statutes, this REPORT does not include conclusions of law and recommendations. DONE and ENTERED this 25 day of April, 1980, in Tallahassee, Florida. THOMAS C. OLDHAM Hearing Officer Division of Administrative Hearings 101 Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32301 William L. Lyman, Esquire Assistant General Counsel The Capitol Tallahassee, Florida 32301 Daniel Hicks and Randolph Tucker, Esquires Post Office Drawer 1969 Ocala, Florida 32670 Merritt C. Fore, Esquire Post Office Box 1507 Ocala, Florida 32670
Findings Of Fact Caribank, N.A. ("Caribank"), was acquired by J. J. Gonzalez Gorrondona, Jr. ("Gorrondona Jr.") and George Childs, Jr. ("Childs") in May, 1977, and Dania Bank was acquired by these individuals through a tender offer in April, 1978. Caribank Corporation, the Applicant herein, is a bank holding company that now owns more than 99 percent of the stock of Caribank. Gorrondona Jr. owns 90 percent of Caribank Corporation and Childs owns 10 percent. Caribank Corporation was originally named Banconac Shares, Inc. when it was established in November, 1977. Its name was changed to Caribank Corporation on June 5, 1979. Banconac is a name used by many subsidiaries of the Banco National de Descuento ("BND"), a Venezuelan private commercial bank, a majority of the stock of which was formerly owned by Gorrondona Jr. and his father, J. J. Gonzalez Gorrondona, Sr. ("Gorrondona Sr."). It is derived from the name Banco National de Descuento and is used in Venezuela to signify business owned by the BND directly or indirectly. The use of the name Banconac in the Applicant's former name was not explained by the Applicant although Gorrondona Jr.'s testimony established that BND funds were not used to purchase Caribank. Gorrondona Jr. owns approximately 90 percent of Dania Bank and Childs owns approximately 10 percent of the Dania Bank, a state chartered bank. Approximately .3 percent is owned by shareholders who did not surrender their shares. Martin L. Wyneken ("Wyneken") is President and chief executive officer of both the Dania Bank in Broward County and of the Caribank in Coral Gables, Dade County. Childs is Chairman of the Board of the Dania Bank and Caribank, and President, Treasurer and a Director of Caribank Corporation. Policies of Caribank and Dania Bank are established through frequent conferences between Childs and Wyneken. Wyneken has a very close working relationship with Childs. Gorrondona, Jr. has the power to remove Wyneken and Childs. Childs comes to Florida about three times per month to confer with Wyneken. In these above-mentioned discussions, Childs is the spokesman for the "capital." Owning 90 percent of the stock of the Dania Bank provides Gorrondona, Jr. with authority concerning the management and policies of the bank. Directors of the Dania Bank are selected by the shareholders. Gorrondona, Jr. and Childs have not taken any dividends as shareholders of Dania Bank or Caribank, despite the substantial earnings of these banks. Dania Bank and Caribank centralize their operations as much as possible with two separate corporations. Dania Bank and Caribank trade employees back and forth and bill each other through an elaborate accounting system. Thad R. Chamberlain, a director of Caribank Corporation, is executive director of the Banco Suramericano de Desarollo, a Panamanian bank in which Gorrondona, Jr. owns a controlling interest. This is an application pursuant to the Florida Banking Code, Section 658.28, Florida Statutes, for permission to acquire control of Dania Bank by Caribank Corporation. This change in control is sought in order to facilitate a merger of Caribank and Dania Bank. The merger is desired to facilitate the expansion of branch banking, the development of an international department and the development of subsidiaries in such areas as leasing, mortgage financing, and small business investment (S.B.I.C.). The combined capital of Caribank, of approximately $4 million, and the Dania Bank, of $16 million, is expected to facilitate the establishment of subsidiaries. Dania and Caribank are, according to their Chief Executive Officer, Wyneken, "aggressive" banks and there exists a policy of increasing total assets from $265 million at the end of June, 1982, to $500 million by the end of 1985; there is also an aggressive program for subsidiaries. The merged bank plans to spend more on advertising in Dade County. Caribank at its present size cannot justify an increase in advertising expenditures. If this application is approved and a merger subsequently occurs, management expects that there will be benefit on the deposit side since assertedly better use will be able to be made of the money deposited. The Caribank/Dania Bank management has an ambitious program of branch banking. Gorrondona, Jr. and Childs have asked that Dania and Caribank branch into the counties as quickly as possible. Management would like to concentrate branching efforts in Dade County, but their capital at Caribank is so much smaller that it must rely on the Dania Bank for all kinds of assistance. Denial of this application and the failure to merge would restrict expansion in Dade County. The Caribank/Dania Bank management hope that the merged bank will become a large chain bank. The Chief Executive Officer of the two banks testified that to become a large chain bank "[W]e need every bit of help we can get, and that is why we need this consolidation." According to Childs, merger is expected to allow a "substantial increase in the capital base of all the subsidiaries which we have established or intend in the future to establish." A merger is expected to follow immediately upon the granting of the application. If the application were approved and for some reason the merger did not occur, Applicant would seek to change the name of the Dania Bank to Caribank to get the maximum effect out of their advertising dollars. It is further expected that if the application for change in control is granted, the two banks could file a consolidated tax return with an annual tax saving of approximately $64,000. From the above findings, it can reasonably be inferred that this application is made to facilitate a program of rapid expansion and establishment of subsidiaries, and if the application is granted, it can be expected that rapid expansion and development of subsidiaries will be more likely to occur. George Childs, Jr., started Banac Management, Inc. ("Banac") for Gorrondona, Jr. seven and a half years ago and was president of the corporation at the time of the intervention of the BND (discussed below). Banca is a BND subsidiary located in New York City. At the time of the intervention it was acting as a representative of the BND and its subsidiaries to obtain credit lines. Prior to the intervention, Gorrondona, Jr. was involved in the affairs of Banac. He visited Banac in New York six to seven times per year. He was a member of the Banac Board of Directors from 1975 to 1979. The BND was founded in 1954 by Dr. Jose Joaquin Gonzalez Gorrondona, Sr., who is the father of Gonzalez Gorrondona, Jr., the ninety percent (90 percent) owner of the Petitioner, Caribank Corporation, and the subject bank, The Dania Bank. Dr. Gonzalez Gorrondona, Sr. does not now, nor has he ever had any interest in, nor involvement with, Caribank Corporation, The Dania Bank or Caribank, N.A. Since its beginning, the BND had a steady growth until, at the time of the intervention of the bank by the government on December 7, 1978, it was the largest privately owned (nongovernmental) bank in Venezuela with the largest amount of private deposits, 6.3 billion Bolivars (1 Bolivar equals about 0.25 in U.S currency). Gorrondona, Jr. began working at the bank in 1958, worked throughout his early years, and continued to work full-time for the bank after receiving his doctoral degree in economics from the Catholic University in Venezuela with a doctoral thesis in economic planning. During his education, Gorrondona, Jr. studied such subjects as Monetary Theory, History of Financial Institutions, Operation of Financial Institutions, and Public Finance. His interest in economics began early in his life because Dr. Gonzalez Gorrondona, Sr. was the founder of the School of Economics in Venezuela, having been the founder of the Venezuelan Economic Council and the representative of Venezuela at the Bretton Woods meeting in 1943 at which the International Monetary Fund was founded. After graduation, Gorrondona, Jr. continued to study, taking courses in management such as Management by Objective, Computer Science, Systems Analysis, and other courses which would enable him to perform as a manager of a financial institution. Gorrondona, Jr. worked in many phases of the management of the bank, until in 1974, he became president in charge, which means that he was the chief executive officer in the absence of his father. He never drew a salary. By the time of the BND intervention, the stock interest of Gorrondona, Jr. was worth between $350 and $700 million dollars. As an outcome of the intervention, Gorrondona, Jr. lost between $150 and $200 million dollars in the worth of the BND stock which was owned by him. By the time of the intervention, the BND had grown to a bank which included approximately 60 branches, primarily in urban areas of Venezuela. The BND also owned several profitable subsidiaries, including Crenca, a financial society which was able to engage in financial transactions forbidden for commercial banks; Credimatico, which was the owner of a Master Charge franchise in Venezuela which had a market share of twenty-five percent of the credit card sales in the country; Arrendarca, a leasing and factoring company; and Almacendadora Caracas, a bonded warehouse company owning bonded warehouses in several cities in Venezuela. The BND also owned Servimatico, which dealt mainly with consumer credit and financed appliance and other small consumer purchases. Each of these subsidiaries was profitable to the bank and assisted the bank in paying dividends which had been declared each year, since 1973. Beginning prior to 1977, the BND was required to send its minutes of Board meetings to the Superintendent of Banks because there had been detected, as a result of special inspection, a tendency toward concentration of credit. In 1978, BND was the only bank required to send minutes of Board meetings to the Superintendent. At a majority of the meetings of the Board of the Central Bank of Venezuela ("CBV") during the last six months of 1978, there was an agenda item entitled "BND." During this time, employees of the Superintendent and the CBV were at the BND carrying out studies to see in what way or ways the BND's financial soundness could be improved. In August of 1978, the Superintendent of Banks wrote to the Minister of Finance about the situation of the BND. The letter notes that credits of Bs. 2,553.8 million were concentrated in 130 companies, that directors of these companies were in turn, directors of the bank, that there was a disproportion between the amount of these credits and the net worth of the borrower, that renewals were made even after delay in payment and that the credits were extended without analysis of the balance sheet. In September, 1973, the BND was prohibited from distributing dividends by the Superintendent of Banks because it would have adversely affected the liquidity of the BND. In November of 1978, the BND asked the Venezuelan Government for special financial aid in the amount of Bs. 600 million. The BND proposed that it be made the subject of a "private intervention" during the period of time such advance was outstanding. On December 6, 1978, the CBV excluded the BND from the Clearing House effective December 7, 1978, by vote of its Board. The CBV, the equivalent of the U.S. Federal Reserve, is a public institution of the Republic of Venezuela, but is considered independent. Eight members of its Board of Directors and its President are appointed by the government. Six members are appointed on recommendation of the private sector. The CBV, through its credit functions, provides credit assistance to banks and credit institutions in Venezuela. Through its operations, it seeks to safeguard the solvency and liquidity of Venezuela's banking system. A Clearing House to settle accounts between banks is operated by the CBV. When bank customers draw and deposit checks, credits and debits between banks are created that have to be reconciled on a daily basis. Venezuelan banks are required by law to maintain a deposit account at the CBV in order to settle such accounts. If after reconciliation, a bank owes money to other banks, its CBV account is debited to cover the debt. If after reconciliation, a bank is owed money, its account is credited. If a bank does not have enough on deposit to cover its debts, it can present to the CBV cash or checks or payment orders against other banks in sufficient amount. It can also present funds obtained outside the country. Finally, it can obtain funds by rediscounting commercial paper at the CBV. Rediscount consists of endorsing eligible commercial paper to the CBV in return for payment. Eligible paper, for example, must mature within 360 days and be adequately secured so that there is assurance as to its liquidity or self-liquidating nature. Thus, medium or long-term loans do not normally give rise to eligible paper. The decision to exclude the BND from the Clearing House was reached on December 5 and 6, 1978. Prior to this time, BND had had repeated difficulties converting its debts at the Clearing House. On December 5, the CBV Board authorized the exclusion of the BND in principle subject to discussion with the Venezuelan Government. At the time, the BND did not have commercial paper considered eligible by the CBV to receive credit assistance from the CBV. The situation was examined again on December 6 by the CBV to see if there were new elements or new alternatives. On December 6, 1978, the BND was overdrawn at the Clearing House to the extent of being unable to make good in its negative balance of approximately Bs. 100 million. It was decided there were no new elements or alternatives, and accordingly, the President of the CBV wrote to the Venezuelan Minister of Finance to let him know (1) that the BND had a deficit in its legal reserve requirement (see below); and (2) that the CBV Board had decided to exclude the BND from the Clearing House effective December 7, 1978. Prior to the exclusion of the BND from the Clearing House, the CBV Board considered the possibility of extending extraordinary credit assistance to the BND. The Board concluded that such assistance would be in violation of Article 45 of the law governing the CBV. That article provides: "Article 45. - In exceptional cases and with the favorable vote of the six members of its Board of Directors, the Banco Central de Venezuela may, in order to insure the due liquidity of a bank or credit institution in transitory difficulties, provide it with funds for a period not to exceed ninety days, which may be extended for an equal term at the Bank's discretion, secured by other assets of said bank or credit institution, different from those listed in the previous article. "Loans may in no event be made to a bank or credit institution if the trans- itory difficulties it faces are due, in the Board's opinion, after having consulted with the Bank Regulatory Commission, to the poor management or inadequate investment of its resources." In the case of the BND, the CBV Board concluded extraordinary credit assistance would be illegal because BND's liquidity problems were not "transitory" but rather structural, permanent and progressive, because the liquidity problems of the BND were due to improper investment of its resources, and because its funds were invested in operations that were insecure or lacking in guarantees, which reflected bad banking management. Under the rules and regulations of the Clearing House, the exclusion of the BND was mandatory. On the evening of December 6, 1978, a meeting was held at the Presidential Palace attended by the President of Venezuela, the Minister of Finance, other ministers involved in the financial sector, some of the board members of the CBV and the Superintendent of Banks. The stated purpose of the meeting was to inform the President of the Republic about the BND situation. The meeting lasted three hours. There was a discussion as to whether there was any alternative to the one proposed by the CBV. It was concluded that there was no alternative. The President of the Republic instructed the Minister of Finance and the President of CBV to hold a meeting the following morning to inform the banking community that the BND had been excluded from the Clearing House and that the government had decided to intervene the BND. The decision to intervene was unanimous. Two major events which contributed to the liquidity crisis which allowed the government to intervene the BND, were the result of actions by the government itself. The first of these actions was the substantial withdrawal of public funds from the BND. Between November 30 and December 6, over 100 million dollars was withdrawn by the government agencies from the BND. Withdrawals averaged 20 million dollars per day with a high of 30 million dollars on December 6. These daily balances were reported by the Comptroller of the bank to Gorrondona, Jr. on a twice daily basis during these days. No testimony, either from a witness or in the form of an exhibit, was ever introduced to contradict Gorrondona, Jr.'s testimony concerning these substantial withdrawals during the week prior to the intervention. The second action which was taken by the government injurious to the BND was the refusal to accept commercial paper for rediscount. Gorrondona, Jr.'s unrebutted testimony established that the same paper which was denied rediscount by the Central Bank on December 6 was granted rediscount on December 30 and during the period of time after the intervention. Gorrondona, Jr.'s testimony established that it would have been impossible to change the loan portfolio within such a short period of time and therefore of necessity it was the same loan portfolio which was granted rediscount after the intervention which had been denied rediscount during the week prior to the intervention. Gorrondona, Jr. further testified that the December 7, 1978, hand- written balance sheet, contained in Petitioner's Exhibit 70, the Intervenor's January 12, 1979, report, was a consolidated balance sheet including all 60 of the BND's branches. Therefore, the balance sheet was prepared by employees of the intervenor during the period between December 7, 1978 and January 12, 1979. On the issue of loans eligible for rediscount on December 7, Mr. Gabledone, Respondent's witness, using Respondent's Exhibit 70, stated that if the figures in Exhibit 70 were correct, the BND had 3.663 billion Bolivars eligible for rediscount on December 7, and that "the BND would have been able to obtain a large amount of rediscounts, or large amounts that would be eligible for rediscounts." In part, a result of the withdrawal of government funds, the failure of the government to repay its loans and overdrafts, and the denial of rediscount by the Central Bank of BND commercial paper, the BND had a deficit at the Central Clearing House on December 6 of 100 million Bolivars. Article 166 of the General Banking Law of Venezuela provides: "Whenever a bank or credit institute, subject to the Provisions of this Act, faces a preca- rious situation which might entail an eventual detriment to its depositors or creditors, or endanger the banking system in general, or when infringing repeatedly (the provisions of) this Act, or those of the Central Bank of Venezuela Statute or the Regulations of either or both, or any Resolution adopted by the Executive Branch, the Superintendent of Banks or of the Central Bank of Venezuela, then the Executive Branch shall empower the Superintendent of Banks or any other individual it may deem com- petent to place the Bank or Credit Institute in Receivership. The Receiver may agree with the Central Bank of Venezuela on the course of action to be taken for the respective bank's or credit institute's redress, its eventual reorganization or liquidation, which shall become mandatory for the respective financial house. But he shall, without exception, pre- pare, within a period not exceeding thirty days as from the date or resolution decreeing the receivership, a complete and itemized report concerning the legitimacy of the respective intervention and submit it to the Executive Branch. By Resolution 2296 issued December 7, 1978, the Minister of Finance of Venezuela intervened the BND. Intervention is an uncommon occurrence and the law contemplates it will occur only when a financial institution is in danger. The decision to intervene the BND could have been appealed to the Supreme Court of Venezuela. No appeal was taken. Neither Gorrondona, Sr. or Jr. or any other shareholder filed suit to block or overturn the intervention, although they had lawyers in Venezuela and Gorrondona, Sr. was in Venezuela. The BND is still under intervention. On march 31, 1979, the Superintendent of Banks of Venezuela issued its Annual Report for the year 1978 ("Superintendent's Report"). The Report contains an extensive discussion of the BND and the reasons for its intervention. The Superintendent's Report states the following: In 1977 and 1978, a decrease in the rate of growth of the Venezuelan economy together with unbalanced financial management at the BND whose key feature was credit over- expansion, especially as regarded credits to companies connected to the bank, placed the BND in a non-liquidity crisis to be- come increasingly notorious. The BND was the object of special attention by the Bank Regulatory Commission because over the 5 years preceding the intervention several violations of the General Law on Banks and other Credit Institutions had been detected. The BND had repeated insufficiency of the reserve requirement, a problem from which the bank chronically suffered. The BND was twice fined the maximum amount for illegal credits extended (1) to the Banco Suramericano de Desarollo ("BSD"), a Panamanian bank in which Gorrondona Jr. owns 80 percent of the shares, and (2) Crenca, a BND subsidiary, in violation of Article 153 of the Banking Law. Certain credits regarded by the BND as agricultural were not properly classified as agricultural. As of March 31, 1978, Bs. 2,553.8 million of bank loans were concentrated in 130 customers (the "Specially Classified Companies"). Directors of these companies were also bank directors. Credits were granted to these companies easily, then were renewed frequently and even when over- due, balance sheets for some of these credits did not exist and most of the credits were unsecured. The minutes provided by the BND to the Superintendent of Banks were not identical to those recorded in the BND's minute book, including that innumerable credit operations with subsidiaries had been omitted from the provided minutes. BND employees failed to cooperate with the Superintendency in providing requested in- formation. An official memorandum was sent to the BND president about this matter, ordering him to rectify this situation. Irregularities in the BND's legal reserve led to numerous notices to the BND president as well as to the levying of several fines. Until December 12, 1978, the BND received 224 memoranda concerning shortages in the legal reserve requirement and was fined 32 times for such legal reserve requirement deficiencies. The average weekly shortage in the legal reserve requirement through- out 1978 was Bs. 124 million. An audit conducted as of September 30, 1978, showed that the estimated loss on the loans to the Specially Classified Companies was Bs. 632.9 million. The estimated loss on other credits in the bank Portfolio was 35.7 million. The reserve for Portfolio Contin- gencies was Bs. 12 million. On January 12, 1979, the BND Intervenor, Tinco, made a report 1/ to the Minister of Finance pursuant to Article 166 of the General Banking Law of Venezuela. The Report describes the reasons for intervention. The Intervenor's Report states the following: During the first eleven months of 1978 the BND increased its Invested Assets by Bs. 1.0789 billion while in that same period deposits increased only Bs. 183 million. The imbalance was partially covered by rediscounts. By November 30, 1978, the BND had rediscounts of Bs. 485.4 million, which is 32.7 percent of all commercial bank re- discounts for that period. Many of the documents submitted to the Central Bank for rediscounts were rejected by it since they did not comply with the requirements for eligible paper. Credit restrictions were imposed on the BND by other banks. The BND's failure to make timely remittance of funds to correspondents resulted in their not honoring checks and refusing to open let- ters of credit. In 1975-78 the BND had a chronic shortage in its legal reserve requirement. The BND had a shortage in the legal reserve in 38 of 48 weeks during the first 11 months of 1978. The BND's reserve shortage stabilized during the months of September 1978 through November 1978 at over Bs. 100 million and reached Bs. 169 million in the last week of November. Prior to the intervention the BND was twice fined Bs. 30,000 for having granted illegal credits to the BSD, the Panamanian bank owned by Gorrondona Jr., and to Crenca. Even after the fines, the illegality was not corrected. In the case of the BSD the credit at the time of the fine through a time deposit was Bs. 657 million. At the time the BND was inter- vened, this deposit had not been reduced at all. In late November and early December of 1978 the situation grew more serious as the BND's negative balances at the Clearing House in- creased, and the BND had difficulty sub- mitting documents eligible for rediscount by the CBV. Questions from abroad about the BND's situation became more insistent. When the BND was unable to make good on its negative balance at the Clearing House on December 6, the BND was expelled as of December 7 in compliance with Article 11 of the pertinent Rules and Regulations. Thereupon the BND was intervened pursuant to Article 166. There were large withdrawals after the intervention and instructions were given that teller windows would not close as long as there were clients present. As of December 7, 1978 loans placed with affiliates (companies owned totally or partially by the BND) totaled more than Bs. 1.302 billion. Loans placed in 93 companies with which important shareholders, directors or executive officers of either the BND or its affiliates were directly or indirectly associated totaled Bs. 1.739 billion. Other credits were as of the date of the Intervenor's Report are still under study. On October 14, 1976, five vice-presidents of the BND, including the vice-president of Credit, the First Vice- President-Treasurer, the Vice- President-Comptroller, the Vice- President of Branches and Agencies, and Jaime Benitez ("Benitez") Vice-President for Banking Services, wrote a confidential memorandum to Gorrondona, Sr. and Gorrondona, Jr. in order to emphasize deficiencies and problems within the BND and to present recommendations. As summarized by Benitez, who testified at the hearing in this matter on July 16, 1982, the principal problem was a high concentration of credits in a group of businesses. These credits were not paid as they matured. This created a deficiency in cash flow and caused liquidity problems. There were also deficits in the legal reserve requirement. Accounting procedures were not being correctly applied and there was a problem of overdrafts. The memorandum recommended: (1) a change in credit policy even though this would limit the expansion program; (2) affiliated and related companies should start paying their debts; (3) concentration of credit should be eliminated; and (4) internal controls aid internal procedures should be improved. Benitez' testimony established that as a whole, recommedations were not carried out and deficiencies were not eliminated. The Memorandum of October 14, 1976, stated that: "The Office of the First Vice-President for the Treasury has repeatedly voiced to the highest authorities in the institution its opinion regarding the excessive placements with Group Companies and has gone as far as to file a written report with the President and the Acting President. In spite of the fact that, on account of its position, it must authorize almost all of the overdrafts and/or charges to the accounts of Group companies, it acknowledges the need to put an end to this practice. This question has been the subject of repeated discussions with the President and the Acting President, who are the only authorities empowered to put an end to this situation. The Memorandum of October 14, 1976, identified a number of problems then existing at the BND. It stated that there existed problems of: "1. High credit concentration (approximately 60 percent of the entire credit portfolio is placed with 1.4 percent of the total number of clients) in Group companies or companies directly or in- directly tied and/or related to it. We mean by this those companies or natural persons in the organization created by the highest ex- ecutive level or under instructions from it, who are organized with high Group officials, Bank officers or trusted persons, both as regards the holding and representation of their shares and their administrative or Director offices. These companies were expedited by said high levels or under orders from them, given through high Bank officers." "2. Non-payment by said companies due to con- stant renewals, without partial [the translation of "abonos parciales" should be "partial pay- ment" in the sense of "amortization"] or in- terest payments." "3. Credits to Group companies, above the legal limits, which are authorized or ordered by the highest officials." "4. Interest documented as promissory notes that accumulates above and beyond the credits originally granted." "5. Excessive number of permanent overdrafts with the National Government, governmental de- pendencies and especially and in an increasing fashion, with Group companies or companies directly tied or related thereto." "6. Overdrafts and collateral obligations in overseas banks due to the financing com- mitment and ever increasing requirements of Group companies or companies directly or indirectly tied or related thereto, which render the institution vulnerable to possible changes in the financial market." "7. Constant use of the Bank's own credit resources for the financing of Group companies directly or indirectly tied or associated there- to, whether they be already in existence or some of the ones that are constantly being created for expanionist purposes and whose activities represent a medium or long-term investment, at loggerheads with the soundness of commercial banking (Treasury Commission: see the material submitted at the meetings and on the minutes)" "8. Exclusion from the List ratified by the Board of Directors of certain operations of Group's companies and of companies directly or indirectly tied or related thereto, following longstanding instructions from high officers, who, in turn, received them from the highest levels." "9. Credits to companies whose balance sheets do not justify the amounts of said loans, mainly Group companies, and which credits are authorized or ordered by the highest levels." "10. Accounting omission of operations-especially guarantees and bonds-conducted from the Group com- panies under order from the highest levels." "11. Excessive financial burden due to the payment of surtaxes and commissions on deposits." "12. Increase in expenses through outlays that are not compatible with the normal management of the Bank." "13. Insufficient income generation, In relation to portfolio volume, which causes the interest account to be affected by amounts equal to the yield said portfolio should generate. Therefore, an insufficient amount in the account Interest Collected in Advance due to the drain it has been withstanding." "14. Inconsistency in the Reserve Requirements position due to a weak treasury and the continuous negative balances at the Clearing House." "15. Unbridled personnel growth at all levels, which has brought about an evident bueaucratization of Bank functions." "16. Ignorance of normal communication channels and of approved bonus norms and procedures." One of the signers of the memorandum of October 14, 1976, Santiago Rodriquez Marcano, was made an Assistant to the President of BND after the memorandum was sent, but he left after a few months saying that he did not receive the necessary cooperation in his new position. Gorrondona, Jr. testified that in 1978, BND was facing a "serious . . . liquidity crisis" and "had very little liquidity." Gorrondona, Jr.'s testimony established that he made his fortune in real estate. Gonzalez' testimony indicated that in 1978 the BND faced liquidity problems, a "liquidity crisis" which even with government assistance would have continued until the end of 1979. Benitez' testimony indicated that the BND was in serious trouble at the time of intervention and that the primary cause was credit concentration and the lack of payment upon maturity. Romero's testimony indicated that at the time of intervention the BND had the following problems in the area of credits or loans: A substantial part was concentrated in real estate activities. A lot of the business that had received credits from the bank was related indirectly with directors and executives of the bank. Some businesses received credits for amounts that went over what the law allows. The credits were not sufficiently col- lateralized or guaranteed. Some of these credits had a maturity of more than one year which is illegal for a commercial bank. Gabaldon's testimony established that while he has been President of the BND many adjustments had to be made to correct the accounts of the BND as they existed at the time of intervention; that the BND Board had decided to make an appropriate footnote reservation in the BND financial statements calling attention to the possibility of future adjustments which might result from investigations and analyses of the BND's accounts prior to the intervention. Gabaldon's testimony, based on his study of BND records, established that at the time of intervention is some cases the loans to subsidiary companies were paying interest but in a majority of the cases they were not doing so but rather the BND would increase the amount of the debt to cover the amount of the interest due. At the time of intervention, approximately 12 to 15 percent of the BND loan portfolio consisted of loans to these subsidiary companies. Alejandro Guevara Chacin's ("Guevara Chacin") testimony established that the minutes of the BND sent to the Superintendent compared with the minute books of the bank revealed that many operations were omitted. Guevara Chacin supervised the comparison. Juan Ramirez' ("Ramirez"), the present Superintendent of Banks of Venezuela, testimony indicated that there were many reasons for the intervention of the BND and any one of them, if put together with or alongside the others, was enough to support the decision. Benitez' testimony indicated that the basic principle of the banking business is diversification; in other words, to place loans with diverse or different customers. Childs' testimony indicated that renewal of loans without payment of interest is bad banking practice. Childs' testimony indicated that loans to corporations in which directors have an equity interest should be secured and at arms length. Wyneken's testimony indicated that there are reserve requirements in the United States and violation is not a trivial matter. The testimony of Guevara Chacin, Eenitez, Lopez-Romero and Ramirez established that one of the BND's major problems under Gorrondona, Jr. was repeated deficiencies in the BND's legal reserve. After the intervention, there was a run on the BND. Between June 30, 1978, and December 31, 1978, deposits from the public decreased by Bs. 2.1 billion and most of this decrease occurred between December 7, 1978, and December 31, 1978. In the six months following the intervention government deposits at the BND went from Bs. .6 to Bs. 2.7 billion. These deposits permitted the BND to cover withdrawals. Gorrondona, Jr. left Venezuela for a two week period on November 17, 1978, and a detention order was issued on November 24 which would have resulted in arrest had he had been in the country. In Venezuela, the subject of a detention order is immediately arrested and is held without any opportunity for posting bail until the detention order is resolved. The detention order was based upon an allegation that Gorrondona, Jr. had been involved in a company which had committed a security violation more than five years prior to the detention order. Petitioner contends that the charges against him, which resulted in the detention order, were politically motivated. This order kept Gorrondona, Jr. out of the country during the intervention, and was eventually dismissed. The Court, in dismissing the charges, stated: It then follows from the aforesaid, that it would -- clearly result in an injustice to assign any criminal liability to persons who are not even members of the Board when the presumed irregularities may have been committed. The period leading up to the intervention of the BND was also the period immediately prior to the national election which was held on December 3, 1978. In the elections in 1974, Gorrondona, Jr. had contributed 9 million dollars to the unsuccessful opponent of President Perez. In the election of 1978, Gorrondona, Jr. had contributed over 1 million dollars to the opponent of President Perez's party, the Accion Demicratico (AD) party. Venezuelan laws do not restrict the size of campaign contributions. Gorrondona, Jr. returned to Venezuela in June, 1979. At that time Gonzalez recommended to Gorrondona, Jr. that he go to court to prove his innocence. In June, 1979, Gorrondona, Jr. and Sr. initiated a noticia criminis proceeding in a Venezuelan Penal Court of First Instance. There are three ways to initiate a criminal proceeding in Venezuela: denunciation (a person makes a charge that a crime may have been committed), accusation (a person makes a charge that a particular person may have committed a crime), and noticia criminis (the court takes notice that a crime may have been committed). In Venezuela, the courts may call witnesses and thereby take investigative initiative. The noticia criminis proceeding is based on the obligation of a Venezuelan court to investigate a possible crime of which it has notice from whatever source. In the case of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr., the court was called on to determine if the BND administrators had participated in the commission of any crime while they were serving as such. In other words, the purpose of the noticia criminis proceeding initiated by Gorrondona, Jr. and Sr. was to determine if during the period of time in which they were administering the bank they committed an act that would or could be considered criminal in Venezuela. The word used by Gonzalez in describing the noticia criminis determination was "delito," which the interpreter testified means crime. The decision of the Court of First Instance in the noticia criminis proceeding was to terminate the summary investigation pursuant to Article 206 of the criminal code for criminal trials. The court found there was no evidence of crime. In other words, the determination of the judge in the noticia criminis proceeding was to end the criminal investigation because the facts presented were not of a criminal nature. With regard to the violation of banking laws described in the Superintendent's Report and the Intervenor's Report, the Court said "[a]s is clearly appreciated from these provisions, none establishes penal sanctions and although they constitute a violation of juridical regulations and comprise sanctions, same have no other character than an administrative one. The appellate court said, "this Superior Court considers that lack of maintenance of reserves in such proportion and manner as established in Articles 20, 21, and 163 of the General Act governing Banks and other Credit Institutes, is object of a sanction under Article 170 of the said law consisting of a fine to be applied by the Superintendent of Banks. Efforts to collect the loans made by the BND prior to intervention: On February 28, 1980, the BND entered into an agreement with Gorrondona, Sr. and Gonzalez regarding the loans to certain debtors of the BND ("February 28, 1980 Agreement"). All these loans were made prior to the intervention. The February 28, 1980 Agreement fixed the amount of the debt to the BND of the ap- proximately 180 companies specified therein at Bs. 4.038 billion. It specified that the BND would accept in payment of this debt the amount of Bs. 3.388 billion. It specified that payment would be made within one year. It specified that during that year no actions would be commenced to compel payment of this debt. Gorrondona, Sr. and Gonzalez signed the February 28, 1980 Agreement either as business brokers for the companies specified therein or as representatives of such companies. According to Gorrondona, Jr. all the debtor companies obligated themselves jointly, and any collateral posted by one could be used to satisfy the debts of the other. Paragraph 15 of the February 28, 1980 Agree- ment specifies certain responsibilities assumed by Gorrondona, Sr. and Gonzalez. "We, JOSE JOAQUIN GONZALES GORRONDONA, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 30.580; and DIOGENES Jr. GONZALES HURTADO, a Venezuelan citizen, of legal age, of this domicile, the bearer of identity card number 1.193.753, state that acting as business brokers for THE DEBTORS by virtue of the already noted common interests, personally and jointly and severally in behalf of all of THE DEBTORS undertake to accept and comply with the present agreement in all of its parts. Therefore, and to preserve the fullness of its effects, we undertake to have those debtor companies whose Articles of Incorporation or By-Laws forbid or limit the granting or posting of guarantees or securities, amend them as needed in order to allow for the profferred guarantees; we likewise undertake to have them grant their consent lawfully and execute the present in- strument within the term of thirty (30) days, and to execute any other documents, as re- quired, that may be necessary for the per- formance thereof. As of the present, the loans of the com- panies specified in the February 28, 1980 Agreement have not been paid in full. The amount remaining to be paid, exclusive of interest, is either approximately 2.8 bil- lion B's or 2.1 billion B's depending on whether the loans compromised in the February 28, 1980 Agreement (the difference between Bs. 4.038 billion and Bs. 3.388 billion) are treated as paid. Such unpaid loans as of this time are neither principal nor interest. At this time the BND's total loan portfolio is approximately Bs. 6.2 billion. Whether the figure of Bs. 2.1 or Bs. 2.8 billion is used for the amount of these unpaid loans, these frozen loans from prior to the intervention represent a substantial portion of the BND loan port- folio. These loans to related or Specially Classified Companies are in addition to the approximately Bs. 900 million in loans to subsidiary or affiliated companies that are not paying interest or amortizing principal. There is no evidence that Gorrondona, Sr. or Gonzalez were coerced into signing the February 28, 1980 Agreement. The Agreement was negotiated over an extended period of time. Gonzalez has testified that he signed the February 28, 1980 Agreement in order to assist the rehabilitation of BND and that Gorrondona, Sr. signed in the same spirit. Both men initialed each page when they signed it. Gorrondona, Jr. has testified that it is his position that the agreement is invalid in parts because he did not sign it. The BND has negotiated with Gorrondona, Jr. concerning the performance of the February 28, 1980 Agreement and the debts owed by the Specially Classified Companies. Such negotiations have not been successful. Under the February 28, 1980 Agreement, suits could not be filed for one year. When the agree- ment was not performed, the administration of Borjas pursued negotiations with Gorrondona, Jr. and, when Gabaldon became President of BND in August, 1981, he continued negotiations with Gorrondona, Jr. No suits have been filed against Gorrondona, Sr. or Gonzalez personally on account of the February 28, 1980 Agreement. The BND has very recently started to file suits against some of the debtors. Gorrondona, Sr.'s signing of the Agreement of February 28, 1980, Gorrondona, Jr.'s partici- pation in negotiations with respect to the performance thereof, together with the state- ments made in Memorandum of October 14, 1976 and described above concerning loans made prior to intervention to companies owned directly or indirectly by owners of the BND, corroborates the finding of the Intervenor that prior to intervention a substantial amount of loans were made to companies in which officers and directors of the BND had an interest. The inability to collect these loans corroborates the conclusion of the Superintendent and Intervenor that these loans were not adequately collateralized and were made in amounts in excess of what prudent credit practices would dictate based on the companies' balance sheets. Transfer of ownership of the BND: In the days following the intervention, members of the national government of Venezuela, including the Minister of Finance, met with Gorrondona, Sr. The possible liquidation of the BND and the possible transfer of ownership were discussed. On February 8, 1979, agreements were signed providing for the sale of 65 percent of the BND's shares to the Corporation Venezolana de Fomento ("CVF") . Sixteen shareholders, including Gorrondona, Sr., signed these agreements. They covered the shares owned by both Gorrondona, Sr. and Jr. The February 8, 1979 Agreement set a minimum price of Bs. 1 per share. The Agreement provided that the actual price would be set by the Superintendent of Banks prior to July 31, 1979. The price was to be fixed based on the book value of the BND and its subsidiaries as of December 31, 1978 less the uncollect- ible loans in its portfolio. At the time of intervention the losses on the BND loan portfolio exceeded the capital and reserve of the bank. Under Venezuelan law, when a bank has lost more than 25 per- cent of its capital, the stockholders are required to replace it. Accordingly, had they not sold their shares, the former owners of the BND would have had to make a capital contribution to the BND. As it is, the new owners of the shares have replaced the lost capital of the BND. Gorrondona, Jr., Borjas, the then President of the BND, and the Planning Minister of Venezuela met between June and November, 1979, to discuss the price for the BND shares and repayment of debts owed by the Specially Classified Companies. As a result of this meeting, an agreement was signed on December 21, 1979, regarding the fixing of the price of the stock and the negotiation of the re- payment of loans made to the Specially Clas- sified Companies. In February, 1980, two agreements were signed finalizing the sale of the BND shares to the CVF. One of these agreements (Respondent's Exhibit 82) was with the parties that had signed the February 8, 1979 Agreement. Re- spondent's Exhibit 82 was signed by Gorrondona Sr. and Gonzalez among others. In paragraph First it recites that: "In execution of the agreement reached in the Third clause of the sales contracts for Banco National de Descuento, C.A. shares, sub- scribed between C.V.F. and THE SELLERS and dated February 8, 1979, the Bank Examiner through Official Notices Nos. HSE-200- 3860 and HSE-200-3992, dated July 31 and August 7, 1979, respectively, ad- dressed to the Banco National de Descuento, C.A., determined losses in the Credit Portfolio of said Institution reaching an amount of ONE THOUSAND ONE HUNDRED AND EIGHTY SIX MILLION AND SEVEN [TOS (hundred) omitted in translation] THOUSAND BOLIVARS (Bs. 1,186,700,000.00) and therefore ordered the pertinent adjustments to the BANCO NACIONAL DE DESCUENTO C.A.'s Balance Sheet as of December 31, 1978." In paragraph Second it recites: "Due to the adjustments referred to in the previous Clause, and pursuant to the agree- ment between the parties listed in the con- tracts entered into on February 8, 1979, the Book value of the sold shares resulted in an amount less than One Bolivar (Bs. 1.00) per share, wherefore 'THE SELLERS' have, pursuant to the provisions of the Third Clause of the aforementioned contracts, agreed to accept the amount of One Bolivar (Bs. 1.00) per share, as the sale price for the shares sold." In paragraph Third it recites: "Lastly, 'THE SELLERS' state for the record that what they declare herein completely invalidates any statement or claim made by them, their agents, attorneys or represent- ative regarding any questions on the validity of the agreements executed on February 8, 1979, whose contents they are aware of, and which they execute in a final and definite manner through this document." There is no claim made in the record that the signers of Respondent's Exhibit 82 were coerced in their decision to execute that agreement. The other agreement of February 1980 regard- ing the transfer of shares of the BND (Respon- dent's Exhibit 81) was with shareholders who had not signed the February 8, 1979 Agreement. That agreement also fixed the sales price at 1 B per share. As recited therein, it used as the amount of the losses the Bs. 649 million figure established by the Minister of Finance pursuant to the appeal taken November 30, 1979, rather than the Bs. 1.186 billion figure established by the Superinten- dent of Banks prior to the appeal. This established that whether the Bs. 1.186 bil- lion or the Bs. 649 million figure is used for the amount of the losses, the shares of the BND had at most a nominal value of 1 B on December 31, 1978. Property in Venezuela cannot lawfully be taken by the Government without compensation. If it is taken for less than a fair price, the aggrieved person can go to court to seek a fair price. The judiciary in Venezuela is independent. No lawsuit has yet been filed to obtain ad- ditional compensation for the shares of the BND transferred to the new owners. Recently an "administrative letter" was sent regarding additional compensation for the shares. Nothing in Venezuelan law precluded its being sent earlier. The evidence in the record does not support a finding that the government of Venezuela coerced the owners of the BND to sell their shares or that such shares were sold at less than a fair price. As alleged by Petitioner. SUMMARY FINDINGS The decision to intervene the BND was, in part, politically motivated as evidenced by the timing of the intervention, the withdrawal of substantial government deposits immediately prior to intervention and the decision to refuse recognition of previously accepted commercial paper for rediscount. This is not to conclude, however, that the continuing liquidity problems of the BND were caused by the government. The reasons for the liquidity crisis experienced by the BND in 1978 had existed since at least 1976, and were identified in internal memoranda as well as Superintendent of Banks' and Intervenor's reports. The liquidity crisis experienced by the BND in 1978 and the intervention of the BND by the Venezuelan Government have at the present time a somewhat adverse effect on the reputation of Gorrondona, Jr. with respect to his qualifications as a banker. There is no evidence of any deficiency in his character or integrity. The education and business experience of Gorrondona, Jr. tend to establish his qualifications. However, his role as President-in-Charge of the BND during the liquidity crisis and intervention reflects adversely on those qualifications. No witness was called by the Banking Department or the Applicant on the question whether the practices that gave rise to the intervention constitute unsound banking practices. Those practices have been identified in the findings herein and include concentration of credit in the loans to the Specially Classified Companies, the renewal of loans to subsidiary companies though those loans were not paying interest, repeated violation of legal reserve requirements, failure to comply with the laws relating to agricultural loans, and failure to disclose to regulatory authorities that the minutes submitted for review by those authorities were not the same as the minutes in the books of the bank. LEGAL CONCLUSIONS AND RULINGS Subsection 120.57(1)(b) 12, Florida Statutes, provides: In applications for a license or mergers pursuant to title XXXVIII which are referred by the agency to the division for hearing pursuant to this section, the hearing officer shall complete and submit to the agency and to all parties a written report consisting of findings of fact and rulings on evidentiary matters. The agency shall allow each party at least 10 days in which to submit written exceptions to the report. Subsection 120.52(7), Florida Statutes, defines "license" as [a] franchise, permit, certificate, registration, charter, or similar form of authorization required by law, but it does not include a license required pri- marily for revenue purposes when issuance of the license is merely a ministerial act. Subsection 658.28(1), Florida Statutes, provides in part: (1) In any case in which a person or a group of persons, proposes to purchase or acquire a controlling interest in any state bank or state trust company and thereby to change the control of that bank or trust company, each person shall first make ap- plication to the department for a certificate of approval of such proposed change of control of the bank or trust company. . . The above provisions of Chapter 120 establish the Hearing Officer's report procedure for license applications under Florida banking laws. This is an application for a certificate of approval which is a form of license application within the meaning of that term as used and defined in Chapter 120. Therefore, no recommended order will be issued. Subsection 658.28(1), Florida Statutes, provides in part: [T]he department shall issue a certificate of approval only after it has made an investi- gation and determined that the proposed new owner or owners of the interest are qualified by character, experience, and financial responsibility to control and operate the bank and trust company in a legal and proper manner and that the interests of the other stockholders, if any, and the depositors and creditors of the bank or trust company and the interests of the public generally will not be jeopardized by the proposed change in ownership, controlling interest, or management. The above provision necessitates Respondent's investigation of Gorrondona, Jr.'s banking experience. Thus, the history of the BND and his role in the management of that institution are relevant to Respondent's investigation and to this proceeding. Petitioner's objection to such evidence is hereby overruled. FILED this 28th day of December, 1982, in Tallahassee, Florida. R. T. CARPENTER, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 1982.
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.
