The Issue The parties' Pretrial Stipulation executed herein, limits the issues framed by the Amended Administrative Charges and Complaint for Removal: Do Respondent's acts between January 1, 1980 and May 22, 1981 constitute conduct that is an unsafe or unsound practice as that term is defined in Section 655.005(1)(d), F.S. (1985)? Do Respondent's acts of commission or omission between January 1, 1980 and May 22, 1981 constitute conduct that is a breach of fiduciary duty as utilized and understood under Title XXXVIII, Banks and Banking, F.S. (1985)? Do Respondent's acts between January 1, 1980 and May 22, 1981 constitute a violation of any other law involving fraud or moral turpitude which constitutes a felony, to wit, a violation of Section 517.301(1), F.S. (1985)? BACKGROUND AND PROCEDURE The Prehearing Stipulation was admitted as Hearing Officer Exhibit A. Petitioner presented the oral testimony of Thomas Flood and Gualalupe Prada, and had admitted one exhibit in evidence. Respondent presented the oral testimony of Thomas Flood, Manuel Diner, and Rolando Pozo, and had admitted nine exhibits in evidence. Petitioner filed the transcript. The parties timely submitted posthearing proposed findings of fact and conclusions of law which have been duly considered and which are ruled upon in the appendix hereto pursuant to Section 120.59(2), Florida Statutes.
Findings Of Fact Respondent Rolando Pozo was and is an officer of Capital Bank, Miami, Florida, having held the following positions: Assistant Vice-President, from July 25, 1978 to December 28, 1978; Vice-President and Branch Manager of the Downtown Branch from December 28, 1978 to September 1, 1980; Vice-President, Commercial Loans at the North Bay Village Branch (Main Office) from September 1, 1980 to May 22, 1981; and from February 3, 1986 to the present in the capacity of Vice-President and Branch Manager of the Downtown Branch. Mr. Pozo is fluent in both Spanish and English. The downtown branch offices of Capital Bank are located at 145 East Flagler Street, Miami, Florida. Guadalupe Prada is a female Mexican national with limited command of the English language. Her native language is Spanish. Ms. Prada, the state's chief complaining witness, testified through a qualified interpreter. In making the following findings of fact, it has been necessary to weigh the relative credibility of Mr. Pozo's version of the events and chronology thereof against the narrative of events and chronology of events related by Ms. Prada. Wherever possible, Ms. Prada has been taken at her word and every benefit of doubt that may accrue to her as a result of possible unfamiliarity with the English language has been accorded her. Wherever possible, extrinsic evidence, either documentary or oral by way of other witnesses, has been used to resolve all discrepancies of fact so that all witnesses may be found to speak the truth. However, in some respects, Ms. Prada's testimony is simply not internally or externally consistent and/or credible. Her memory is "convenient" to say the least. Her concept of time and chronology was elastic on direct examination and contradictory on cross- examination. Her version of the "truth" of crucial events and with regard to her finances varies with the circumstances and with the type of legal action in which she has been involved. Most telling to the undersigned is that with regard to every effort at impeachment of her testimony by Respondent's attorney, Ms. Prada either asserted that too many questions confuse her or asserted that her prior contradictory assertions under oath within various lawsuits, including a 1981 divorce, were the result of having been told by a succession of attorneys to perjure herself; then, she claimed that one of her prior attorneys also tried to swindle her. The final impression left by Ms. Prada's testimony is that when events work out to suit her, she considers herself in charge, and when events do not work out to suit her, she considers it everybody's fault but Ms. Prada's. Ms. Prada entered the United States in 1979 and between 1979 and May 1981 was unemployed and actively seeking a job and investment opportunities. She was a customer of the downtown branch of Capital Bank, during the period 1979 to and including May 22, 1981. Guadalupe Prada was and is affluent. Among other personal individual assets, she held certificates of deposit (CDs) issued by Capital Bank during 1979 through and including May 22, 1981 in varying amounts up to and including $90,000. Ms. Prada met Respondent Pozo in 1979 while her then-husband, Frank Prada, was trying to obtain a loan at the Capital Bank, downtown branch. Ms. Prada's husband, with whom she was in business in a jewelry manufacturing company called "Caribe Manufacturing", urged her to come in on the corporate loan which Pozo had agreed to grant, provided a guarantor was found. In the course of loan negotiations with both the Pradas, Pozo candidly explained to Ms. Prada that if she co-signed the loan, she could lose the bulk of her individual assets if her husband/the corporation defaulted on the loan. Therefore, Ms. Prada, on her own initiative, declined to become her husband's guarantor and developed confidence in Pozo's honesty and financial acumen. This confidence was in part due to Pozo's fluency in Spanish. In the course of reviewing Mr. and Mrs. Prada's respective individual financial statements for the loan application, Pozo became familiar with Ms. Prada's 1979 financial arrangements at Capital Bank, including the aforementioned CDs and a small checking account, and with her assets remaining in Mexico. He formed the initial opinion that she was a knowledgeable businesswoman. Thereafter, Ms. Prada would speak to Respondent Pozo from time to time at Capital Bank, however, Ms. Prada's personal banking needs were attended-to either by tellers or by a Capital Bank officer named Margarita Gonzalez. Ms. Prada continued to seek out Mr. Pozo and a personal friendship developed. Mr. Pozo and Ms. Prada met on mixed business/social occasions away from the Capital Bank and they spoke on the telephone on matters wholly unrelated to development of Capital Bank depository accounts. Between 1979 and May 1981, Ms. Prada and Respondent discussed potential investments for Ms. Prada and how she was going to get a job. These discussions were usually initiated by Ms. Prada but Mr. Pozo was a willing participant. In testimony, Ms. Prada named several investment opportunities she says Pozo recommended during this period of time. She also claims he told her to withdraw money from Capital Bank. Contrariwise, Pozo testified that he told her to leave her money in the bank and not to invest in these projects, two restaurants and a boutique, but he admits that he did refer Ms. Prada to a Mr. Savloff for a possible job in an electronics store. Ms. Prada describes the referral to Mr. Savloff as one for investment purposes. Mr. Savloff was also a Capital Bank customer. The disparity of testimony on these contacts is largely immaterial because even if each were an investment opportunity, which is hardly to be believed on the undersigned's assessment of Ms. Prada's overall credibility, each "opportunity" was rejected by Ms. Prada. In each instance, Ms. Prada acted as a knowledgeable investor at least to the extent of controlling her own money and to the extent of choosing when and in which projects she would invest. Neither Ms. Prada's nor Mr. Pozo's testimony gives the slightest hint that he exerted undue pressure to get her invest any of her money from any source or depository in any of these alleged investment ventures. During the time Mr. Pozo was employed at Capital Bank, Ms. Prada never withdrew any of the monies which she had entrusted to Capital Bank. After being transferred to Capital Bank's North Bay Village branch in September, 1980, Mr. Pozo did not maintain an office at, nor did he work out of Capital Bank's downtown branch offices at Flagler street. On or about May 23, 1981, Mr. Pozo commenced employment at Miami National Bank, located at 8101 Biscayne Boulevard, Miami, Florida. Thereafter, Mr. Pozo had no relationship with Capital Bank until he resumed employment at Capital Bank in February, 1986. In June 1981, Respondent Pozo and Ms. Prada became involved together in a business project known as "Hobby Market, Inc." This involvement occurred after Pozo had severed his association with Capital Bank and at a time Ms. Prada was not a customer at Miami National Bank, the Bank with which Pozo was then- associated. Pozo did not at first approach Prada with the investment opportunity. He had arranged with another Capital Bank customer, George Leijtman, to invest 50-50 in this project. Prada overheard Pozo's end of a telephone conversation concerning his arrangement while she was visiting him in his Miami National Bank office in early June 1981. She then urged Pozo to allow her to buy into the Hobby Market project and to help her get a job as a salesperson with the new corporation so that she would have a continuing source of income. At this time, Mr. Pozo knew Ms. Prada to be a qualified salesperson. He also knew she had money and assets in Mexico besides her money at Capital Bank. The record is unclear whether he knew she also had at least a $5,000 checking account at Southeast Bank in Miami, but she did. The agreement ultimately reached involved Ms. Prada, Jorge Lejtman, and Rolando Pozo and is memorialized by letter agreement and by assignment of stock interest executed on June 15, 1981, and June 16, 1981 respectively. Mr. Lejtman invested $10,000 in the business for 2,000 stock shares. In addition to the money, Lejtman's contribution was to be expertise and experience in the toy/hobby business. Lejtman would operate the first store in Omni Mall. The agreement called for Ms. Prada to pay $20,000 to Mr. Pozo in return for 800 shares of the 4000 shares of the company's outstanding stock. Pozo had subscribed to 2,000 shares of Hobby Market stock on June 12, 1981, at $10 per share. Pozo had $15,000 in savings and anticipated borrowing the remaining $5,000 needed to fulfill his subscription. Instead, he raised the necessary $20,000 by selling 800 of his subscribed-to but unpaid-for 2,000 shares to Ms. Prada, not his the $10 per share subscription price, but at $25 per share. The result enabled Pozo to secure 1200 shares free and clear without delving into his savings and without borrowing. Pozo immediately turned the money he received from Prada over to the business. In addition to his money investment, Pozo's contribution to the venture was to be his financial experience and his assistance to Hobby Market in obtaining credit from toy/hobby suppliers. Ms. Prada also agreed to tender $20,000 in loans to the business and to fund another $25,000 in loans in the future. In return, Ms. Prada received two promissory notes for $10,000, each note to bear interest at 18 percent. Ms. Prada ultimately failed to fund the additional $25,000 loan but in return for providing the first $20,000 and promising the additional $25,000, Ms. Prada was also guaranteed a job at a second Hobby Market store to be opened with the additional monies she was going to provide, but did not. Ms. Prada's contribution in expertise was purely as a salesperson. Ms. Prada was eventually paid $7,000 principal and interest on the cash loans. The Hobby Market transaction was conducted at the law offices of attorney Manuel Diner. The documents were drafted by Diner in English. All negotiations were in Spanish. Signature authority for all Hobby Market bank accounts were in Lejtman and Prada jointly. These were opened at Central National Bank located in the Omni Mall where a lease was obtained for the first store. Prada was made corporate Secretary. Prada initialed certain written English changes indicating her assent to various agreements formalized after oral negotiations in Spanish. With regard to the cash that Ms. Prada turned over to Pozo/Hobby Market Inc., her testimony is that Pozo told her to take it out of Capital Bank and she did. His testimony is that he did not and that he thought she was transferring her Mexican funds. Subsequently, Ms. Prada and Mr. Lejtman had disagreements. Ms. Prada never funded the additional loans and the second Hobby Market store was unable to open. Ultimately, Mr. Lejtman offered to purchase back from Ms. Prada and Mr. Pozo their respective interests in the business. Ms. Prada rejected an offer that would have paid her back the monies she had invested and she later filed a lawsuit against Mr. Pozo, Mr. Lejtman, and the business. In that litigation, Prada v. Lejtman, Pozo, et al., Case No. 82-1370 (Eleventh Circuit Court in and for Dade County, Florida), Ms. Prada received a money judgment against Rolando Pozo. That judgment states in part: . . . considered that it was the Defendant Rolando Pozo who committed the fraud against the Plaintiffs and thereby caused Plaintiffs to suffer the loss of funds due to the conversion of the stock. The case was affirmed on appeal. This judgment, admitted by stipulation, shows that Ms. Prada's son, who apparently had an interest only in her monies still in Mexico in 1981, joined in the lawsuit as a co-plaintiff. His joinder strongly suggests that her Hobby Market investment monies came from her family funds in Mexico, not from her personal funds anywhere in the United States. As to the issue of fraud, the judgment is not binding on the undersigned finder of fact in this de novo proceeding, due to different rules as to the quantum of proof in each case. The classic tort of fraud or deceit requires proof only by a preponderance of the evidence. A license disciplinary case, such as the instant one, requires proof by the "clear and convincing standard." See, Rigot v. Bucci, 245 So.2d 51 (Fla. 1971); and Spayberry v. Sheffield Auto and Truck Service, Inc., 422 So.2d 1073 (Fla. 1st DCA 1982). Rolando Pozo is held in high esteem at Capital Bank, has an excellent and unblemished work record, and has an excellent reputation in that limited "community" for truth and honesty. Capital Bank has never initiated or joined in any complaint against Rolando Pozo relating to Mr. Pozo's association with Ms. Prada. The only evidence of banking standards presented at formal hearing was that presented by Mr. Thomas Flood, Senior Vice-President of Capital Bank, who is personally very supportive of Mr. Pozo. He stated that it is internal policy of Capital Bank, when it deems it to be a prudent decision, to advise persons with whom it has a banking relationship that the bank will sever that banking relationship and will request or require that person to remove his or her deposits from Capital Bank; that such severance of relationship is extraordinary and is a bank decision that would have been transmitted to a bank manager such as Mr. Pozo; that Capital Bank made no such decision with regard to Guadalupe Prada; and that it would be "extraordinary" for a branch manager, which is the position Respondent held from January 1, 1979 through 1980, to tell a depositor to invest elsewhere. At no time did Mr. Flood characterize such a suggestion as a breach of banking standards or ethics.
Recommendation Upon the foregoing findings of fact and conclusions of law it is recommended that the Comptroller enter a Final Order dismissing all charges against Respondent Rolando Pozo. DONE and RECOMMENDED this 14th day of December, 1987, at Tallahassee, Florida. ELLA JANE P. DAVIS, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of December, 1987. APPENDIX TO RECOMMENDED ORDER The following constitute rulings pursuant to Section 120.59(2), Florida Statutes, upon the parties' respective posthearing proposed findings of fact (PFOF). Petitioner's PFOF: 1-2 Except as subordinate and unnecessary covered in FOF 1-3. Covered in FOF 5 and 7. Covered in FOF 6-9. Covered in FOF 23. Except as unnecessary, covered in FOF 10. Rejected as stated as not supported by the greater weight of the credible evidence as a whole, see FOF 4, 7, 11, 14, and 16. 8-11 Rejected as not supported by the greater weight of the credible evidence as a whole and as largely subordinate and unnecessary, see FOF 16-18. Covered in FOF 20. Rejected as covered in FOF 4. Covered in FOF 21-23. Respondent' PFOF: 1 Covered in FOF 1. 2 Covered in FOF 2. 3 Covered in FOF 12. 4 Covered in FOF 13. 5 Covered in FOF 5. 6 Covered in FOF 6. 7 Covered in FOF 14. 8 Covered in FOF 7. 9 Covered in FOF 9. 10 Covered in FOF 5. 11-13 Covered in FOF 1. 14, 15, and 17 Covered in FOF 13-16. 16, 18, and 24 are of such an ultimate nature as to be conclusions of law and are addressed as such within the Recommended Order. To the extent they constitute PFOF, they are covered in FOF 14-16, and 18. 19-23 Covered in FOF 16. Covered in FOF 20. Covered in FOF 21. Covered in FOF 22. COPIES FURNISHED: GERALD LEWIS, COMPTROLLER DEPARTMENT OF BANKING AND FINANCE THE CAPITOL TALLAHASSEE, FLORIDA 32399-0350 MALCOLM S. GREENFIELD, ESQUIRE OFFICE OF COMPTROLLER THE CAPITOL, SUITE 1302 TALLAHASSEE, FLORIDA 32399 MICHAEL S. PASANO, ESQUIRE 2100 PONCE DE LEON BOULEVARD SUITE 1100 CORAL GABLES, FLORIDA 33134 CHARLES L. STUTTS, ESQUIRE OFFICE OF COMPTROLLER THE CAPITOL, SUITE 1302 TALLAHASSEE, FLORIDA 32399
Findings Of Fact Petitioner is an agency of the State of Florida charged with the responsibility and duty to prosecute violations of the statutes and rules regulating the practice of real estate in the State of Florida. Respondent, Benjamin C. Rolfe, is now and was at all times material hereto a licensed real estate broker in the State of Florida, having been issued license number 0318091 in accordance with Chapter 475, Florida Statutes. The last license issued to Mr. Rolfe was as a broker with Squires Realty of the Palm Beaches, Inc., 721 U.S. 1, #217, North Palm Beach, Florida. Respondent, Duane C. Heiser, is now and was at all times material hereto a licensed real estate broker in the State of Florida having been issued license number 0038233 in accordance with Chapter 475, Florida Statutes. The last license issued to Mr. Heiser was as a broker effective February 8, 1991, at Duane C. Heiser Realty Co., 1312 Commerce Lane A1, Jupiter, Florida. On or about December 12, 1998, a Final Order was issued by the Florida Real Estate Commission and received by Mr. Heiser whereby his real estate broker's license was suspended for two (2) years from January 12, 1989, through January 10, 1991. During the month of October 1989, Mr. Heiser violated the lawful suspension order of the Commission by personally delivering rental checks to and ordering the disbursement of escrow funds from the Property Management-Operating Account, which is an escrow account, of Squire's Realty Company of the Palm Beaches, Inc. Between March 22 and March 26, 1990, the escrow account records of Mr. Rolfe, who was the qualifying broker for Squire's Realty of the Palm Beaches, Inc., were audited by Petitioner's authorized representatives. The Escrow/Trust Account Audit revealed that Respondent Rolfe failed to properly document and reconcile the Property Management-Operating Account, which is an escrow account. Mr. Rolfe was responsible for this account. Mr. Rolfe was negligent regarding the management of this escrow account by allowing a suspended licensee, Mr. Heiser, access to this account. Mr. Rolfe and Petitioner stipulated that the appropriate penalty for Mr. Rolfe's violation of Section 475.25(1)(b), Florida Statutes, would be the imposition of an administrative fine in the amount of $300.00 and the placement of his licensure on probation for a period of one year. They further stipulated that the administrative fine was to be paid within thirty days of the filing of the final order. They also stipulated that during his term of probation Mr. Rolfe would be required to complete sixty hours of continuing education with thirty of those sixty hours being the thirty hour management course for brokers. They further stipulated that Mr. Rolfe would be required to provide to Petitioner satisfactory evidence of his completion of those sixty hours of continuing education and that those sixty hours of continuing education are to be in addition to any other continuing education required of Mr. Rolfe to remain active and current as a real estate broker in the State of Florida. Mr. Heiser and Petitioner stipulated that the appropriate penalty for Mr. Heiser's violation of Section 475.25(1)(b), Florida Statutes, would be the imposition of an administrative fine in the amount of $300.00 and the placement of his licensure on probation for a period of one year. They further stipulated that the administrative fine was to be paid within thirty days of the filing of the final order. They also stipulated that during his term of probation, Mr. Heiser would be required to complete sixty hours of continuing education with thirty of those sixty hours being the thirty hour management course for brokers. They further stipulated that Mr. Heiser would be required to provide to Petitioner satisfactory evidence of his completion of those sixty hours of continuing education and that those sixty hours of continuing education are to be in addition to any other continuing education required of Mr. Heiser to remain active and current as a real estate broker in the State of Florida.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered which: Dismisses Counts I, III, and V of the Administrative Complaint; Finds Mr. Heiser guilty of having violated a lawful order of the Florida Real Estate Commission in violation of Section 475.25(1)(e), Florida Statutes, as alleged in Count II of the Administrative Complaint. It is further recommended that the Final Order impose an administrative fine in the amount of $300.00 upon Mr. Heiser and place his licensure on probation for a period of one year. It is also recommended that the conditions of probation require that Respondent Heiser pay the said administrative fine within thirty days of the filing of the final order and that he be required to complete sixty hours of continuing education during his term of probation. It is further recommended that as part of the sixty hours of continuing education, Mr. Heiser be required to successfully complete the thirty hour management course for brokers, that he be required to provide satisfactory evidence of completion of such continuing education to Petitioner, and that these sixty hours of continuing education be in addition to any other continuing education required of Respondent Heiser to remain active and current as a real estate broker in the State of Florida. Finds Mr. Rolfe guilty of culpable negligience in a business transaction in violation of Section 475.25(1)(b), Florida Statutes, as alleged in Count IV of the Administrative Complaint. It is further recommended that the Final Order impose an administrative fine in the amount of $300.00 upon Mr. Rolfe and place his licensure on probation for a period of one year. It is also recommended that the conditions of probation require that Respondent Rolfe pay the said administrative fine within thirty days of the filing of the final order and that he be required to complete sixty hours of continuing education during his term of probation. It is further recommended that as part of the sixty hours of continuing education, Mr. Rolfe be required to successfully complete the thirty hour management course for brokers, that he be required to provide satisfactory evidence of completion of such continuing education to Petitioner, and that these sixty hours of continuing education be in addition to any other continuing education required of Respondent Rolfe to remain active and current as a real estate broker in the State of Florida. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 30th day of December, 1991. CLAUDE B. ARRINGTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 1991. COPIES FURNISHED: James H. Gillis, Esquire Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801 Neil F. Garfield, Esquire Garfied & Associates, P.A. World Executive Building Suite 333 3500 North State Road 7 Fort Lauderdale, Florida 33319 Jack McRay General Counsel Department of Professional Regulation 1940 North Monroe Street Suite 60 Tallahassee, Florida 32399-0792 Darlene F. Keller Division Director Division of Real Estate Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: On July 31, 1973, petitioner submitted to respondent its application to organize and operate a new banking facility in St. Cloud, Osceola County, Florida. A filing date of August 20, 1973, was assigned by respondent. Accompanying the application was a long and detailed Economic Survey dated June, 1973, containing economic information and statistics pertaining to the City of St. Cloud and its environs. By letter dated October 26, 1973, the management of the Sun Bank of St. Cloud, the only bank existing in St. Cloud, opposed the establishment of petitioner's proposed bank, citing as grounds therefore the present economic conditions and the limited economic growth prospects for the St. Cloud area. By letter dated February 20, 1974, The First National Bank of Kissimmee protested the granting of a charter for any new bank in Osceola County, contending that "additional banks could only dilute the deposits of the existing banks, and this would not be in the areas' interest." An investigation of petitioner's application was conducted by Frank C. Dobson, a state bank examiner for respondent, on February 19, 1974. By a report dated February 22, 1974, Mr. Dobson recommended disapproval of the application on the ground that three of the five factors were considered unfavorable. Mr. Dobson considered the factor of "financial history, condition of the bank, and fixed assets" to be favorable, as well as the factor of "adeqeacy of capital." Considered unfavorable were future earnings prospects," "general character of management" and "convenience and needs of the community." In contrast to the petitioner's original estimate of total deposits in the amount of $10,000,000.00 at the end of its third year of operation, Examiner Dobson projected deposits of only $6,000,000.00 at the end of the third year and therefore concluded that petitioner would not achieve a profitable position. Based upon his observation that the originally proposed chief executive officer, Mr. John J. Jenkins, might possibly he unable to await favorable action on petitioner's application and that the proposed Vice President and Cashier, Mr. Robert J. McTeer, would need supervision and guidance, Mr. Dobson considered the factor of "general character of management" unfavorable. After a brief resume of each of the proposed directors and officers, Dobson concluded that each was considered "satisfactory" with the exception of McTeer, who was considered only "fair." The unfavorable rating on the factor of "convenience and needs of the community" was based upon Dobson's opinion that the proposed site did not appear conducive to convenient service, the existing bank in St. Cloud was completing a new facility which would provide adequate service for its customers and a national bank application was pending. On October 16, 1974, Fred O. Dickinson, Jr., then State Commissioner of Banking, issued his conditional approval order on petitioner's application. This order indicates that a change in location of petitioner's proposed bank was made and that M. Raymond Daniel was designated as president. Mr. Daniel accepted the conditions on October 18, 1974. In January of 1975, present Comptroller Gerald A. Lewis revoked the conditional approval of Mr. Dickinson. An updated economic survey dated April of 1975 was submitted to respondent on behalf of petitioner. An update investigation was conducted by State Bank Examiner Fred H. Brannen, Jr. on May 21, 1975. Mr. Brannen reviewed the file and found as favorable the factors of "financial history, condition of the bank and fixed assets" and "adequacy of capital." Listed as "borderline-favorable" was the factor of "general character of management." Brannen agreed with the projected figures of the original examiner, Mr. Dobson, and thus reported the factor of "future earnings prospects" as unfavorable. Mr. Brannen found the factor of "convenience and needs of the community" to be unfavorable, noting that the proposed site appeared to be somewhat removed from the existing businesses, Sun Bank of St. Cloud had completed its new facility and planned to use its old building as a remote facility and that the proposed national bank was rejected by regulatory authorities. Based upon his examination, Mr. Brannen concurred with the original recommendation of disapproval. On April 1, 1975, the Sun Bank of St. Cloud filed with respondent its application for authority to open a remote facility at 1001 New York Avenue in St. Cloud. A Comptroller's Conference was held in regard to this application on August 8, 1975, and respondent granted approval for the remote facility on or about September 25, 1975. On June 10, 1975, a Comptroller's Conference was held for the purpose of updating and culminating the investigation of petitioner's application. By a supplement dated June, 1975, petitioner presented additional data concerning existing financial institutions in Osceola County and in six other counties with similar populations as Osceola County. No protestants of the application appeared at this conference. On June 20, 1975, respondent received from the Sun Bank of St. Cloud a 37-page booklet containing comments relating to petitioner's application. It was Sun Bank's conclusion that public convenience and advantage would not be promoted by the establishment of petitioner's bank and that local conditions did not assure reasonable promise of successful operation for petitioner and those banks already established in the community. It appears that petitioner has changed the proposed location of its bank several times since submitting its original application. At the Comptroller's Conference on June 10th, the proposed site was described to be at the intersection of New York Avenue with U.S. Highway 192/441 In its Comments regarding petitioner's application, Sun Bank describes the location formerly proposed the intersection of Neptune Road and U.S. Highway 192/441. This is also the site discussed in the reports of both examiners. 13.. In August of 1975, petitioner presented to respondent a Supplemental Summary relevant to petitioner's application versus the Sun Bank's application for authority to open a remote facility in St. Cloud. On November 17, 1975, Comptroller Lewis concluded that petitioner's proposal did not meet the requirements of F.S. s659. 03(2). As grounds therefore, the Comptroller cited the following: ... The primary service area had a 1970 population of 10,000; the applicants estimate that the service area has a current population of 16,000. The proposed bank's site is approximately .4 of a mile from the existing bank in St. Cloud. The proposed bank would not appear to be any more convenient for the residents of St. Cloud than the existing bank. The applicants have made some showing that the proposed bank would have some pro-competitive advantage for the residents of St. Cloud. However, the banks in Kissimmee are accessible by some of the St. Cloud residents. For this reason, the issue of a monopoly in the existing St. Cloud bank is not as compelling as it might otherwise be. On balance, it appears that the public convenience and advantage would be promoted to some extent by the establishment of the proposed bank, although the case is not an overwhelming one. As shown above, the population base of the service area is fairly small and future growth is not expected to be significant. The population of St. Cloud increased by less than 1,000 persons between 1960 and 1970. The existing bank in St. Cloud had total deposits, as of June 30, 1975, of less than $20 million and its total deposits during the last two calendar years increased by less than $4 million. It appears that local conditions do not assure reasonable promise of successful operation of the proposed bank and the existing banks. On the basis of the foregoing, the Comptroller has concluded that, while the first criterion may be met in this case, the second criterion is not met. Therefore, the application is denied. Since the conclusion renders the other four criteria moot, the Comptroller has not reached any conclusions with respect to those other four criteria." Four banks, all members of various statewide holding companies, presently exist in Osceola County. There is one bank, the intervenor herein, in St. Cloud, which bank also has a remote facility in St. Cloud, and there are three banks in Kissimmee, which is eight to ten miles west of St. Cloud. Petitioner's proposed primary service area is defined to be the City of St. Cloud and its environs. Its general service area is defined to be all of Osceola County. Population estimates by witnesses for petitioner and for the intervenor differed. Petitioner estimated the present population of the general service or trade area to be slightly in excess of 41,000, while figures contained in the booklet entitled "Florida Estimates of Population" show Osceola County to have an estimated population of 36,668 as of July 1, 1975. The petitioner estimates the primary service area population to be in excess of 16,000, and this figure was not disputed by the intervenor. In fact, in its application for a remote facility, the intervenor stated that the "Osceola Planning Commission is projecting that the population of the St. Cloud trade area will increase to approximately 45,000 by 1990." As of the 1975 year end, the intervenor Sun Bank, the existing bank In St. Cloud, had total deposits of $21,210,955.50. During the first quarter of 1976, total deposits increased by over $1,600,000.00 at Sun Bank. Over the past five years, deposits at Sun Bank have doubled. The three Kissimmee banks have a combined total of over $40,000,000.00 in deposits. Net profits at the end of 1975 for the existing four banks in the County were as follows: approximately $286,000.00 for the First National Bank of Kissimmee; $216,198.87 for Sun Bank of St. Cloud; $22,359.66 for the Exchange Bank of Osceola; and a figure of minus $56,231.32 for the Flagship Bank of Kissimmee. The Flagship Bank opened in 1974 in a modular unit and moved into a new facility in its second year Using twenty-four factors to measure the economic growth rating of Osceola County, Mr. William C. Payne, a bank marketing consultant, rated said County along with six other counties of similar size. Osceola was rated second, preceded only by Citrus County. The Comparative Figures Report for December 31 1975, as compared with December 31, 1974, shows the following percentages for Osceola County and statewide: OSCEOLA STATEWIDE TOTAL LOANS 12.8+ 4.7- TOTAL TIME DEPOSITS 20.1+ 7.5+ TOTAL DEMAND DEPOSITS 0.4- 2.0- TOTAL DEPOSITS 10.1+ 3.3+ The presidents of three of the four existing banks appeared and testified as protestants to petitioner's application. The presidents of Flagship and First National in Kissimmee felt that a new bank in St. Cloud would have an adverse effect upon them because they each have a number of customers who are residents of St. Cloud. First National estimates that it has 200 customers from St. Cloud representing approximately $500,000.00 in deposits. Sun Bank recognized than most of petitioner's customers would be derived from Sun's bank, and estimated that probably one million dollars in deposits would be lost to petitioner, thus reducing Sun's profit figures. Sun opened its remote facility in St. Cloud in December of 1975 and First National submitted its application for a remote or branch facility in St. Cloud in January of 1976. Due to financial backing and management expertise and assistance, all three presidents felt that a holding company bank, as opposed to an independent bank, would have a better chance of success in St. Cloud. Flagship pays over $14,000.00 per year as a member of a holding company, while Sun and First National each pay approximately $90,000.00 per year. Sun Bank felt that a certain bank could exist in St. Cloud and that it would, in fact, promote competition. All three presidents noted that 1974 and 1975 were lean years for banking, but that loan demands and total deposits were now increasing. As noted above, petitioner's proposed new bank is to be independently owned and operated at the corner of U.S. Highway 192/441 and New York Avenue in St. Cloud. This downtown intersection provides the only permanent stop light on the main thoroughfare through St. Cloud, and the site provides easy access from either the east/west direction of the main highway or the north/south direction of New York Avenue. It should be noted again that this proposed site is not the same site reviewed by the two state bank examiners in their reports nor by the Sun Bank in its Comments submitted to respondent in June 1975. There was no evidence that the proposed name of petitioner's new bank -- Public Bank of St. Cloud -- would create any conflict or confusion with the name of any other existing bank. There is no evidence in the record that petitioner's proposed capital structure is other than adequate. Its total capitalization is proposed to be $1,000,000.00 and its deposits are estimated to be $7,000,000.00 at the end of the third year of operation. Mr. Payne's updated June, 1976, survey (Exhibit 13) contains drawings and details of petitioner's proposed banking house quarters. The physical structure will promote convenience to customers and the proposed costs are sufficient and reasonable. Security and Federal Deposit Insurance Corporation requirements have been met. Petitioner's proposed Board of Directors consists of ten men. Included therein are attorneys, bankers, cattlemen, a physician, a pharmacist, a University of Florida athletic director and those engaged in real estate development and sales. While some directors do not reside in St. Cloud, others have lived there for years, with one director claiming to have some 1,200 blood relatives in the area. Two of the proposed directors, one of which is the proposed chief executive office, has previously been involved with newly chartered banks. At least three of the proposed directors presently serve as directors of other banks in Florida. The proposed president, Mr. Raymond Daniel, will move to St. Cloud and will devote all his time to his duties as president and director. Two of the proposed directors, one of which is the largest shareholder and the other of which is the proposed vice president and cashier, have suits pending against them for considerable amounts of money. One has a judgment against him in the amount of approximately $40,000.00, and the presidents of two banks in Osceola County testified that his reputation in the community as a businessman was not good.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that respondent disapprove petitioner's application to organize and operate a state banking facility in St. Cloud for the reason that petitioner, while showing that it satisfies all other criteria, has failed to illustrate that all its officers and directors possess sufficient ability and standing to assure a reasonable promise of successful operation. It is further recommended that such disapproval be without prejudice to petitioner to file with the respondent, if it so desires, within fifteen days of respondent's final order, an amended list of directors and/or officers and that respondent render a decision upon this criterion within twenty days from the filing thereof. Respectfully submitted and entered this 30th day of July, 1976, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Honorable Gerald A. Lewis Comptroller State of Florida The Capitol Tallahassee, Florida 32304 Mr. Clyde M. Taylor TAYLOR, BRION, BUKER & GREENE, P.A. P.O. Box 1796 Tallahassee, Florida 32302 Attorney for Petitioner Mr. Nicholas Yonclas AKERMAN, SENTERFITT & EIDSON Box 231 Orlando, Florida 32802 Attorney for Intervenor Mr. Earl Archer The Comptroller's Office State of Florida The Capitol Tallahassee, Florida 32304 Attorney for Respondent ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE DIVISION OF BANKING PUBLIC BANK OF ST. CLOUD (proposed new bank), Petitioner. vs. CASE NO. 76-088 STATE OF FLORIDA, DIVISION OF BANKING, Respondent, SUN BANK OF ST. CLOUD, Intervenor. /
Findings Of Fact All parties submitted proposed findings of fact. The Applicant's proposed findings 1-5 and 7-14 are hereby accepted except where they might specifically conflict with the findings stated in this Final Order or where they constitute conclusions of law. The Applicant's proposed finding 6 is accepted, with the exception of fourth sentence which is not supported by competent substantial evidence in the record. Proposed findings 1-6 of the Protestant, First Federal, are accepted except where they might specifically conflict with the findings stated in this Final Order or where they constitute conclusions of law. Proposed findings 7 through 9 of Protestant, First Federal, are rejected in that they constitute conclusions of law. Proposed findings 1, 2, 4, and 5 of the Protestant, United, are accepted except where they might specifically conflict with the findings stated in this Final Order. Its proposed finding 3 is accepted with the exception that the record showed that the primary market area is served by four savings and loan association offices. Its proposed finding 6 and 7 are rejected as not supported by competent substantial evidence in the record adduced at the hearing. The Department's proposed findings 1 through 9 and 11 through 13 are accepted except where they might specifically conflict with the findings stated in this Final Order. The Department's proposed finding 10 is accepted except for the finding as to net income which is not supported by competent substantial evidence in the record and conflicts with the findings stated in finding 11.
Findings Of Fact Upon consideration of the evidence adduced at the hearing, the Report of the hearing officer submitted on December 6, 1979, is hereby adopted and incorporated herein. It should be noted, however, that the total time and savings deposits for commercial banks in Collier County as of June 30, 1979, was $266,668,000 rather than $226,668,000 as indicated in the hearing officer's Report. The idea of establishing another savings and loan association in Naples originated with Robert E. Talley, a banker, and Allan L. McPeak, a lawyer. The name proposed for the new association is Marine Savings and Loan Association. No financial institution operating in Collier County at the time of the hearing had the word "Marine" in its name. All of the savings and loan associations in operation in Collier County at the time of the hearing had the word "federal" in their names. Applicant proposes to establish an office in downtown Naples, within a few blocks of several other financial institutions. Applicant has entered into a lease for the proposed facility, at an annual rental of $50,000, renewable for two three-month periods, during the pendency of Applicant's application. The lease provides for a ten-year term at an annual rental of $50,000, if the application is approved, with the option to renew for two additional five-year terms. The lease also contains an option to purchase which must be exercised within thirty-six months of opening or no later than March, 1983, whichever first occurs, at a purchase price of $600,000. In support of its application, Applicant caused an MAI appraisal to be prepared. According to the appraisal, the leased premises have a fair market value, as of March 14, 1979, of $433,000. According to a second, CCIM appraisal, also prepared at Applicant's instance, the property will be worth $632,400 as of February 26, 1982. Initially, Applicant plans to occupy the northern 4,285 square feet of the 6,700 square foot, single-story building it is leasing. Subleases with two tenants who are to occupy the southern portion of the building will be structured so as to provide additional space for expansion by Applicant. The leased premises include 43 parking spaces. Additional parking is available on adjacent streets. The site is easily accessible. Traffic conditions appear to pose no problems. The proposed savings and loan association would be a full service financial institution and expects to be competitive with the existing savings and loan offices in the primary service area (hereinafter PSA) with respect to interest rates and breadth of services. Some of the services that the proposed savings and loan association plans are a drive-in teller window, a night depository, safety deposit boxes, a walk-up window, extended hours on week days (from 9:00 a.m. to 6:00 p.m.), evening hours on Fridays (from 9:00 a.m. to 7:00 pm.), Saturday hours (from 9:00 a.m. to Noon), and safekeeping facilities. Most of the existing savings and loan associations in the PSA do not offer extended hours, drive-in teller windows or safekeeping facilities. The proposed PSA includes the populated portion of the city of Naples and segments of unincorporated Collier County to the north and east of the city. It is bounded on the north by Pine Ridge Road, 4.7 miles away; on the east by County Barn Road, 4.2 miles away; on the south by Gordon Pass and Holly Avenue, 3 miles away; and on the west by the Gulf of Mexico, .7 miles away. The PSA is roughly rectangular except for an indentation in the northeastern corner. Twelve savings and loan association offices now operate within the PSA. One savings and loan association has headquarters within the PSA. Four of the eleven branch offices in the PSA are limited facilities. The Protestant's main office is located 0.2 miles southeast of the premises Applicant has leased. Protestant has filed an application to relocate its main office to a site in unincorporated Collier County, 4.8 miles north of Applicant's proposed site and to make its present main office a branch office. One branch office is now located 0.2 miles southwest of the proposed site; three are between 1.3 miles and 2.0 miles from it; and one is 8.7 miles to the north. Except for the Protestant, no savings and loan association now operating in Collier County has headquarters in Collier County. There are 14 commercial bank offices, including five main banking offices and nine branch offices in operation within the PSA. Three of the five main bank offices are located within 0.3 miles of the proposed site; one is 2.6 miles away and another is 7.5 miles away. Of the branch offices, one is located one mile southwest of the proposed site; three are 1.3 to 2.0 miles from it; four are between 2.2 and 4.0 miles from it and one is 8 miles away. In addition, there are three approved but unopened branch offices which are to be located between 3.1 and 5.3 miles-from Applicant's proposed site. The main office of Security Trust of Naples, a non-deposit trust company, is located 0.3 miles southwest of Applicant's proposed site. Applicant proposed five million dollars as the initial capitalization for the savings and loan association. The capital accounts would initially consist of $1,500,000 common stock and $3,500,000 paid-in surplus. Eighteen percent of the stock of the proposed savings and loan association has been subscribed to by nine organizers. The remaining 82 percent has been subscribed to by more-than 400 members of the general public, mostly from the Collier County area. Applicant has estimated the permanent 1979 population of the PSA at 47,000. This represents an average annual rate of growth of 11.6 percent from the PSA's 1970 population of 23,000. Applicant estimates the County's 1979 permanent population at 77,900, the seasonal population of the PSA at between 12,000 and 14,000, and the seasonal County population at between 15,000 and 20,000. The Applicant estimated the combined permanent and seasonal populations of the County at between 92,900 and 97,900 and that of the PSA at between 59,000 and 61,000. The Applicant projects for the 1982 permanent population of the PSA a figure of 53,000, representing an average annual growth rate of 4.3 percent from 1979. According to data compiled by the Bureau of Economic and Business Research, Division of Population Studies, at the University of Florida, the population of Collier County on April 1, 1970, was 38,040; on July 1, 1979, 64,761; on July 1, 1977, 68,900; on July 1, 1978, 74,572. According to the same source, the population of Naples on April 1, 1970, was 12,042; on July 1, 1976, 17,425; on July 1, 1977, 17,437; and on July 1, 1978, 17,462. The population of unincorporated areas of Collier County, including Everglade City, according to the same source, was 25,998, on April 1, 1970; 47,336, on July, 1976; 51,463 on July 1, 1977; and on July 1, 1978, The population of Collier County grew at an average annual rate of approximately 11.7 percent between 1970 and 1976. Between 1976 and 1977, the County's population grew at a slower rate, viz., approximately 6.4 percent. The rate of growth increased to approximately 8.2 percent between 1977 and 1978. Between 1970 and 1976, the population of Naples grew at an annual average rate of approximately 7.5 percent. During the years 1976, 1977 and 1978, the population of Naples did not increase significantly. The population of the unincorporated areas of Collier County grew at an average annual rate of approximately 13.7 percent between 1970 and 1976, at a rate of approximately 8.7 percent between 1976 and 1977, and at a rate of approximately 11.0 percent between 1977 and 1978. Almost all (94.14 percent) of the population growth in the County between 1970 and 1978, was the result of net migration. Between 1970 and 1978, the proportion of Collier County's population older than 65 years of age increased from 14.0 percent in 1970, to approximately 17.5 percent in 1978. Recent unemployment data for Collier County show an unemployment rate of 10.2 percent for July, 1979 (revised), and 9.8 percent for August, 1979 (preliminary), in the County as compared to the state averages of 6.6 and 6.1 percent for the same months, respectively. The per capita personal income for Collier County was $6,905 in 1976, and $7,663 in 1977. The 11.0 percent increase from 1976 to 1977, is higher than the 9.8 percent increase in the state average for the same period. Collier County's averages were above the state averages of $6,101 in 1976, and $6,697 in 1977. The proposed board of directors would be composed of nine members, at least seven of whom are full-time Florida residents and at least eight of whom are United States citizens. Robert E. Talley, the proposed president and chief executive officer, has had extensive commercial banking experience. From 1964 to 1972, he served as vice-president and loan officer for the Manatee National Bank; from 1972 through 1973, he was senior vice-president of the National Bank of St. Petersburg; from 1973 through 1977, he was president, chief executive officer, and a director of the Community Bank of Homestead; and from 1977 to 1978, he was executive vice-president and branch manager of the National Bank of Collier County. Proposed director, Roland Erickson, served as president and director of the Guaranty Bank and Trust Company, Worcester, Massachusetts, from 1947 to 1964. Proposed director, Harold S. Smith, served as a director and member of the executive committee of the Bank of Everglades from 1948 through 1951. Proposed director, Hendry P. Albrecht, is president of Gale-Realty, Inc., which is involved in investments, including rental property. Although most of the proposed board of directors appear to be successful businessmen, none of them has had direct savings and loan association experience. On June 30, 1975, commercial banks in Collier County had total deposits of $245,086,000 of which $152,499,000 were time and savings deposits. On June 30, 1976, commercial banks in Collier County had total deposits of $301,664,000, of which $193,488,000 were time and savings deposits. On June 30, 1978, commercial banks in Collier County had total deposits of $369,928,000 of which $224,982,000 were time and savings deposits. On June 30, 1979, commercial banks in Collier County had total deposits of $423,365,000 of which $266,668,000 were time and savings deposits. In March of 1979, Protestant held more than three quarters of all moneys on deposit with savings and loan associations in Collier County. At that time, $141,996,000 was on deposit at the Protestant's home office; $10,890,000 at its Tamiami North branch, even though this office first opened in September of 1977; $26,989,000 at its Lely branch; $4,728,000 at its Tamiami South satellite; and $5,537,000 at its Golden Gate facility. In March of 1979, Coast Federal's Tamiami North branch held $56,667,000. On deposit at First City Federal's Tamiami North branch was $6,855,000 in March of 1979. At the same time, Gulf Federal's Fifth Avenue branch had deposits of $7,018,000. In March of 1979, First Federal of Fort Myers had $10,256,000 on deposit at its Tamiami North branch and $235,000 at its Olde Naples facility, which opened in February of 1979. Time and savings deposits in savings and loan associations and commercial banks in Collier County amounted to $552,839,000 in 1978, up 55.62 percent from 1976. At the time of the hearing, there was commercial activity in Naples and residential development, particularly to the north of the PSA. Some thirteen financial institutions were in operation in the western part of Collier County, north of Applicant's proposed site, at the time of the hearing. Applicant has projected savings deposits at the end of the first, second and third years of operation to be $10,000,000, $15,000,000 and $20,000,000, respectively. Applicant also presented a pro forma budget which projected net profit for the first three years to be $191,700, $256,000 and $319,100, respectively. The Deputy Comptroller, Gerri Raines Dolan, and the Director of the Division of Banking, Ryland Terry Rigsby, as advisory staff members to the Comptroller, reviewed the application and the Department's entire file relating to the application. They assisted and concurred with the Comptroller in the ultimate determination of the application.
Conclusions As set forth in Rule 3C-20.45, Florida Administrative Code, when an application for authority to organize and operate a new state savings and loan association is filed pursuant to Chapter 3C-9, Florida Administrative Code, it is the applicant's responsibility to prove that the statutory criteria warranting the grant of authority are met. The Department shall conduct an investigation pursuant to Subsection 665.031(3), Florida Statutes, which was done in this case, and then approve or disapprove the application in its discretion. This discretion is neither absolute nor unqualified, but is instead conditioned by a consideration of the criteria listed in Subsection 655.031(4), Florida Statutes, wherein it is provided that: The Department shall approve the application upon such terms and conditions as it determines necessary to protect the public interest or disapprove the application at its discretion, but it shall not approve such application, unless in its opinion: Public convenience and advantage will be promoted by the establishment of the proposed thrift institution; Local conditions assure reasonable promise of successful operation of the proposed thrift institution and those thrift institutions already established in the community; The proposed officers and directors have good character, sufficient financial standing, and adequate experience and responsibility to assure reasonable promise of successful operation of the thrift institution; and The proposed savings account capital and organization expense fund or capital stock subscriptions comply with the requirements of this chapter. and Subsection 665.051(1), Florida Statutes, wherein it is provided that, The name of every association shall include either the words "savings association" or "savings and loan association." If in the opinion of the Department, any one of the above criteria has not been met and cannot be remedied by the applicant, it cannot approve the application. An applicant can, however, take corrective action in most circumstances to meet the criteria set forth in Subsections 665.031(4)(c), or (d), and 665.051(1), Florida Statutes, if any of these are found to be lacking. For example, if all other statutory criteria are met, the applicant may increase capital, or make certain changes in the board of directors, or change the name, or alter the provisions for suitable quarters, because these factors, at least to some degree, are within its control. It is the Department's policy to allow applicants to make certain changes to meet these criteria if all other criteria are met; to do otherwise would be to subject applicants to unnecessary red tape. However, it is the Department's opinion that there is little, if anything, that an applicant can do to alter its ability to meet the criteria set forth in Subsections 665.031(4)(a) and (b), Florida Statutes, since applicants CANNOT readily change the economic and demographic characteristics of an area. Therefore, if either one or both of these criteria are not met, the Department cannot approve the application. For purposes of applications for authority to organize and operate a new state savings and loan association, Rule 3C-20.45(1), Florida Administrative Code, defines PSA as the "smallest area from which the proposed association expects to draw approximately seventy-five percent of its deposits. It should be drawn around a natural customer base, should not be unrealistically delineated to exclude competing financial institutions or to include areas of concentrated population." Based upon, traffic patterns, natural and manmade geographic barriers and the location of other existing offices of financial institutions in the area, the Department concludes that the Applicant's PSA is realistically delineated. It is the opinion and conclusion of the Department that public convenience and advantage will be promoted by the establishment of the proposed savings and loan association. Therefore, the criterion in Subsection 665.031(4)(a), Florida Statutes, IS met. As set forth in Rule 3C-20.45(2)(a), Florida Administrative Code, the location and services offered by existing savings and loan association offices in a service area are indicative of the competitive climate of the market and should be considered. Other financial institutions such as banks and credit unions may be considered competing institutions to the extent their services parallel those of a new savings and loan association. Also, the traffic patterns in the area, as well as the general economic and demographic characteristics of the area, must be considered in evaluating this statutory criterion. Because it is recognized that the establishment of a new savings and loan association ANYWHERE would promote the convenience and advantage for at least a few people, SUBSTANTIAL convenience and advantage for a SIGNIFICANT number of people must be shown; otherwise, a new savings and loan association could be justified for every street corner in the state. Clearly, such a result was not the legislative intent in regulating entry into the savings and loan association industry, nor is it in the public interest. Based upon the facts set forth above, the Department has determined that the establishment of the proposed savings and loan association will substantially increase convenience to a significant number of residents of the PSA. This is particularly true in view of the significant growth of the various financial institutions in the area since 1976, as well as the past and projected population growth in the PSA. The Protestant, which is the only other savings and loan association with a main office in Collier County, held more than seventy-five percent of all savings and loan deposits in the County in March, 1979. Consequently, the proposed institution will served as a needed competitive alternative. The site is easily accessible and traffic patterns are favorable. Furthermore, the Applicant intends to offer a variety of new services not generally offered by other financial institutions within the PSA. Therefore, the criterion of public convenience and advantage is met. It is the opinion and conclusion of the Department that local conditions do assure reasonable promise of successful operation of the proposed thrift institution and those thrift institutions already established in the community. Therefore, the criterion in Subsection 665.031(4)(b), Florida Statutes, IS met. As set forth in Rule 3C-20.45(2)(b), Florida Administrative Code, current economic conditions and, to a lesser extent, the growth potential of the area in which the new savings and loan association proposes to locate are important considerations in determining the association's probable success. Essential to the concept of thrift institution opportunity is that there does and will exist a significant volume of business for which the new savings and loan association can realistically compete. The growth rate, size, financial strength and operating characteristics of savings and loan associations and other financial institutions in the service area are also important indicators of economic conditions and potential business for a new savings and loan association. It is noted that the statutory standards require that " . . . local conditions ASSURE reasonable PROMISE of successful operation of the proposed thrift institution and those thrift institutions already established in the community . . ." (E.S.), NOT merely that local conditions INDICATE a POSSIBILITY of such success. Thrift institutions involve a public trust. Unlike private enterprise establishments generally, a savings and loan association operates on the public's capital and therefore, the Legislature has vested in the Comptroller the responsibility to protect that public interest. Furthermore, the failure of a savings and loan association, as opposed to private enterprise establishments generally, may have an unsettling effect on the overall economic welfare of the community and that is why the Florida Legislature and the United States Congress have imposed stringent requirements for the industry. This Department is responsible for enforcing this legislative standard. Public interest is best served by having a thrift institution system whereby new competition is encouraged where appropriate, yet, at the same time, ensuring that the financial resources of the residents in the community are stable and safe. That was the obvious intent of the Legislature in regulating entry into the thrift institution industry. The Applicant's estimated 1979 PSA population of 47,000 and its projections for the near future seem more than reasonable in view of the latest official estimates by the University of Florida. The population base is healthy, a balanced mixture of residents, local businessmen and commuters, with a steady recent history of growth and projections for significant future growth. Although there are other savings and loan offices already existing in or near the PSA, the Department has concluded that the total savings potential within the PSA will readily support a new institution. The Department further concludes that the extensive deposit and loan growth of the existing financial institutions within the PSA justifies the establishment of another competitive alternative. The increasing population, the high per capita income, and the business and residential mix of the PSA point to an expanding and stimulated economy in the PSA for the present as well as the near future. Clearly, these factors are conducive to assuring the reasonable promise of success for the proposed savings and loan association and for those thrift institutions already established in the community. It is the opinion and conclusion of the Department that the proposed directors, as a group, have good character, sufficient financial standing and responsibility, but do not have sufficient experience in the savings and loan field to assure reasonable promise of successful operation of the proposed association. Therefore, one of the criteria of Subsection 665.031(4)(c), Florida Statutes, IS NOT met. As set forth in Rule 3C-20.45(2)(c), Florida Administrative Code, the organizers, proposed directors and officers shall have reputations evidencing honesty and integrity. They shall have employment and business histories demonstrating their responsibility in financial affairs. At least one member of a proposed board of directors, other than the chief managing officer, shall have experience in the savings and loan field or in a business directly related thereto such as mortgage banking, real estate finance and commercial banking where real property lending has constituted an integral part of such banking experience. The organizers, proposed director's and officers shall meet the requirements of Sections 665.131 and 665.703, Florida Statutes, as applicable. A majority of the organizers and directors of a proposed thrift institution shall be, whenever possible, from the local community and shall represent a diversification of occupation and experience commensurate with the position for which proposed. Members of the initial management group, which includes directors and officers, shall require prior approval of the Department. Changes of directors or chief managing officer during the first year of operation shall also require prior approval of the Department. While it is not necessary that the names of proposed officers he submitted with an application to organize a new savings and loan association, the chief managing officer and operations officer must be named and their names submitted for departmental approval at least sixty (60) days prior to the association' opening. In addition, interlocking directorships involving existing financial institutions competitively near the proposed site of a new institution are discouraged. Such interlocking directorships could possibly restrict competition and create fiduciary problems. Although the proposed directors have, as a group, good character, sufficient financial standing and responsibility, none of the proposed directors has any direct experience in the savings and loan field. Only Robert E. Talley, as a proposed director, has demonstrated that he has the requisite related business experience by virtue of his background in commercial banking, real estate, and mortgage brokerage. Because the selection of directors for a proposed new savings and loan association is generally within an applicant's control, the Department wilt, in this case, allow the Applicant to remedy the above inadequacy in the proposed board of directors by the addition of one director with sufficient experience in the savings and loan field or in a business directly related thereto or by further demonstrating that one of the proposed board members already has the requisite related business experience. While the department has noted that Robert E. Talley has been proposed as the chief managing officer, the Department does not approve or disapprove an applicant's proposed chief managing officer until the association makes an application for insurance of its accounts. It is the opinion and conclusion of the Department that the proposed savings account capital and the organization expense fund or capital stock subscriptions comply with the requirements of Chapter 665, Florida Statutes. Therefore, the criteria of Subsection 665.031(4)(d), ARE met. As set forth in Rule 3C-20.45(2)(d), Florida Administrative Code, capital should be adequate to enable the new savings and loan association to provide the necessary services of promoting thrift and home financing to meet the needs of prospective customers. Capital should be sufficient to purchase, build or lease a suitable permanent facility complete with equipment. Generally, the initial capital (withdrawable savings for a mutual association applicant and total stock and paid-in surplus for a stock association applicant) for a new savings and loan association should not be less than $1.5 million in non- metropolitan areas and $2.0 million in metropolitan areas. To encourage community support, a wide distribution of stock ownership is desirable. A majority of the stock should be issued wherever possible to local residents of the community, persons with substantial business interests in the community, or others who may reasonably be expected to utilize the services of the association. Subscribers to five (5) percent or more of the stock may not finance more than fifty (50) percent of the purchase price if the extension of credit is predicated in any manner on the stock of the new association, whether or not such stock is pledged. Generally, all proposed stock for-a stock savings and loan association shall be subscribed to at the time the application is submitted to the Department. The organizers may initially subscribe to all proposed stock, but should disclose the anticipated amount of individual stock to be retained. It is the opinion and conclusion of the Department that the name, Marine Savings and Loan Association, meets the criterion of Subsection 665.051(1), Florida Statutes, and is not so similar as to cause confusion with the name of an existing financial institution. As set forth in Rule 3C-20.45(4), Florida Administrative Code, the Department will consider the possibility that a name similar to that of another financial institution may cause confusion in the minds of the public or be misleading and may deny the use of such name, with the exception of names specifically authorized under Subsection 665.051(1), Florida Statutes. The Department concludes that the name Maring Savings and Loan Association is not so similar as to cause confusion with the name of an existing financial institution. It is the opinion and conclusion of the Department that provision has been made for suitable quarters. Therefore, the provisions of Rule 3C- 20.45(6)(d), Florida Administrative Code, ARE met. As set forth in Rule 3C-20.45(6)(d), should temporary quarters be contemplated by an applicant until a permanent facility is completed, permission to open in temporary quarters may be granted, generally not to exceed one year. The permanent structure of a new savings and loan association should generally contain a minimum of 5,000 square feet unless the applicant satisfactorily shows that smaller quarters are justified due to the performance of certain auxiliary services off-premises. It shall be of sufficient size to handle the projected business for a reasonable period of time. The facility shall be of a nature to warrant customer confidence in the association's security, stability and permanence. Other pertinent factors include availability of adequate parking, an adequate drive-in facility if such is contemplated and possibilities for expansion. The Applicant presently plans permanent quarters in a building containing 4,285 square feet, which will have adequate parking and drive-in facilities. No temporary quarters are contemplated. Since adequate provision has been made for expansion up to 6,700 square feet, the Department considers that provision has been made for suitable quarters. It is the opinion and conclusion of the Department that the proposed acquisition of the association's proposed site has been fully disclosed and does not constitute an insider transaction. Therefore, the provisions of Rule 3C- 20.45(3) ARE met. Rule 3C-20.45(3), Florida Administrative Code, provides that any financial arrangement or transaction involving the organization of a proposed association and its organizers, directors, officers and shareholders owning five (5) percent or more of the stock, or their relatives, their associates or interests should ordinarily be avoided. Should there be transactions of this nature, they must be fair and reasonable, fully disclosed and comparable to similar arrangements which could have been made with unrelated parties. It is the opinion and conclusion of the Department that the provisions of Rule 3C-20.45(6)(e), Florida Administrative Code, have NOT been met. Pursuant to Rule 3C-20.45(6)(e), Florida Administrative Code, appraisals of land and improvements thereon shall be made by an independent qualified appraiser and be dated no earlier than six months from the filing date of the application. In those instances where the application involves a lease arrangement, the appraisal should be directed to the comparability of the proposed lease with other leasing arrangements for similar business property. The application involves a lease arrangement and, although the Applicant has submitted an acceptable appraisal as to the fair market value of the leased premises, it has not submitted an appraisal directed to the comparability of the proposed lease with other leasing arrangements for similar business property. However, since this is a criterion that is within the control of the Applicant, the Department may approve the application upon the condition that this deficiency is remedied.
The Issue In Case No. 00-0262, the issue is whether Respondent Wells is guilty of various acts and omissions that would justify the imposition of an order removing him as a director of Respondent First Bank or imposing upon him an administrative fine of $10,000. In Case No. 00-0262, an additional issue is whether Respondent Alters waived his right to request a hearing; if not, an additional issue is whether Respondent Alters is guilty of various acts and omissions that would justify the imposition of an order removing him as a director of Respondent First Bank or imposing upon him an administrative fine of $5000. In Case No. 00-0434, the issue is whether Respondent First Bank must pay Petitioner the costs of the examination conducted by Petitioner from September 13 through October 15, 1999, and, if so, the amount of such costs for which Respondent First Bank is liable.
Findings Of Fact Background of First Bank and Wells The incorporators filed Articles of Incorporation for Respondent First Bank of Jacksonville (First Bank) on August 8, 1988. Requiring at least five directors, the articles identify the following persons as the initial directors: Irby S. Exley, Sr., Edward L. Green, Nicholas W. Kish, William C. Mick, Jr., and Respondent Clyde N. Wells, Jr. (Wells). Wells, as “President/Cashier” of First Bank, filed amended articles of incorporation on July 25, 1990, naming the same initial directors. Elaborating upon the method of electing directors, the amended articles provide that the shareholders shall elect directors, except when the board of directors elects a director to fill a vacancy. Article V, Paragraph 4, of the amended articles authorize the election of a director by the vote of a “majority of the remaining or sitting directors, although less than a quorum of the Board is sitting at such vote.” Wells was a scholarship student at the University of Georgia, from which he graduated in 1958. He attended law school at the University of Georgia and earned his law degree in 1962. After a year or two practicing with a large corporate law firm in Philadelphia, Wells moved to Jacksonville, where he joined a local law firm and began to specialize in corporate, tax, and real estate law. He later obtained Florida Bar certification in tax law. Wells first became professionally involved with banks when he represented several banks owned by Florida National Bank. Leaving the regulatory work to larger firms, Wells and his firm provided legal services in loans, transactions, and litigation. In the late 1960s, Wells became a director of, and general counsel to, Marine National Bank. Although he continued to provide services for Florida National Bank, Wells served Marine National Bank until its sale in 1982. Wells’ involvement with Marine National Bank introduced him to the operational side of banking, such as receiving and disbursing funds, and the regulatory environment in which banks function. At this time, Wells acquired some knowledge about banking hardware and software. Wells’ involvement with Marine National Bank also introduced him to the regulatory side of retail banking. For instance, the Office of the Controller of the Currency criticized the extent to which buildings and land represented the bank’s capital. Wells communicated with the federal regulatory agency about a possible sale of a building, but the situation eventually resolved itself by the growth of the bank’s other assets. While associated with Marine National Bank, Wells was closely involved with the establishment of other banks owned by the holding company that owned Marine National Bank. Following the sale of Marine National Bank in 1982, Wells served as special counsel to First Commercial Bank of Live Oak. He also served as special counsel to General Financial Systems, a 29-bank holding company that controlled the banks with the largest deposits in Palm Beach County. After General Financial Systems sold its banks, Wells returned to a general law practice in Jacksonville. In 1985, after Wells had been out of banking for at least three years, Wells and some Jacksonville residents discussed the possibility of forming a new bank, which became First Bank. From 1986-89, Wells was involved in organizing First Bank. He and the others hired Scott Bain as a consultant and president. Mr. Bain, who had been a vice president of Barnett Banks for several years, served the group for a couple of years. However, at about the time of the opening of First Bank, Mr. Bain suffered a personal tragedy in the death of a young child, and he and his wife moved to North Carolina. Wells tried to persuade Mr. Bain to return to Jacksonville and manage First Bank when it opened. Wells had not intended to serve as the president of First Bank, although he had likely intended to provide legal services to the bank. Of the 310,000 outstanding shares in First Bank, Wells personally owns 75,000 shares and Welco Investment Trust, of which Wells owns beneficially, 90,000 shares. The value of Wells’ overall investment in First Bank was originally valued at $1.7 to $2.0 million. Background of Federal and State Regulation of First Bank Annual Examinations and Reports of Examination First Bank began operations on August 28, 1989, as a federally insured State bank that is not a member of the Federal Reserve System. As such, First Bank is under the concurrent jurisdiction of the Federal Deposit Insurance Corporation (FDIC) and Petitioner. In practice, the federal and state banking agencies alternate responsibility for conducting annual bank examinations, which must take place at intervals no greater than 36 months. Following annual examinations, Petitioner has prepared reports of examinations (ROE) dated July 5, 1995; September 2, 1997; and September 13, 1999. The FDIC has prepared ROEs dated May 22, 1996; December 7, 1998; and March 20, 2000. Petitioner commenced the proceeding to remove the directors approximately three months after the ROE dated September 13, 1999. The 1999 ROE followed the 1998 ROE by only nine months, and the 2000 ROE followed the 1999 ROE by only six months. Counsel devoted a significant amount of hearing time to issues involving the admissibility of these six ROEs. The Administrative Law Judge declined to admit any of the ROEs as hearsay exceptions in the form of official records or business records. After considerable discussion, the Administrative Law Judge admitted the ROE dated September 13, 1999, for all purposes (subject to a relatively minor exception set forth above) and admitted the 1998 and 2000 ROEs, but not for the truth of their contents. A particularly difficult evidentiary issue arose as to the admissibility of the 2000 ROE. Although the FDIC was prepared to allow Petitioner to call as a witness the FDIC examiner who had prepared this ROE, the FDIC was unwilling, until several days after the hearing had started, to allow opposing counsel to examine the work papers supporting this ROE. As authorized by federal law, the FDIC had withheld these work papers when the FDIC examiner had been deposed. After the FDIC belatedly agreed to produce these work papers, opposing counsel argued that the tardiness of the production had prejudiced their clients. Most persuasively, counsel argued that this tardy production of work papers would impose upon their clients considerable additional costs that would have been saved if the FDIC had produced the work papers by the time of the deposition of the federal examiner. Finding merit to this claim, the Administrative Law Judge excluded the 2000 ROE for the truth of its contents. Federal and State Enforcement Decisions Using the findings of the various ROEs, Petitioner and the FDIC have issued three orders concerning First Bank. These are the FDIC’s May 26, 1998, Decision and Order to Cease and Desist, which is based on a Recommended Decision dated January 22, 1998 (collectively, Cease and Desist Order); Petitioner’s October 13, 1998, consent Final Order approving a September 29, 1998, Settlement Stipulation (collectively, Consent Order); and the FDIC’s September 8, 1999, Safety and Soundness Order (Safety and Soundness Order). FDIC’s 1998 Cease and Desist Order Based on Petitioner’s ROE dated July 5, 1995, and the FDIC’s ROE dated May 22, 1996, the Cease and Desist Order notes that Petitioner had assigned First Bank a composite CAMEL rating of 2, with a 5 for the management component, and that the FDIC also had assigned a 5 for the management component. The evaluation scheme, now known as CAMELS ratings, assigns a rating ranging from the best of 1 to the worst of 6 for composite performance and for each of six criteria crucial to a bank’s operation: capital, assets, management, earnings, liquidity, and sensitivity. “Capital” is the adequacy of the capital. As defined in the FDIC Division of Supervision Manual of Examination Policies (FDIC Examination Manual), “capital” is a measure of the maintenance of “capital commensurate with the nature and extent of risks to the institution and the ability of management to identify, measure, monitor, and control these risks.” For capital, a rating of 1 means “a strong capital level relative to the institution’s risk profile”; a rating of 2 means “a satisfactory capital level relative to the financial institution’s risk profile”; a rating of 3 means “a less than satisfactory level of capital that does not fully support the institution’s risk profile,” even “if the institution’s capital level exceeds minimum regulatory and statutory requirements”; a rating of 4 means “a deficient level of capital” in which “viability of the institution may be threatened”; and a rating of 5 means “a critically deficient level of capital such that the institution’s viability is threatened.” “Assets” is the quality of assets, including the loan and investment portfolios, real estate, and other assets. As defined in the FDIC Examination Manual, a rating of 1 means “strong asset quality and credit administration practices”; a rating of 2 means “satisfactory asset quality and credit administration practices”; a rating of 3 means “asset quality or credit administration practices are less than satisfactory”; a rating of 4 means “deficient asset quality or credit administration practices”; and a rating of 5 means “critically deficient asset quality or credit management practices.” “Management” is, according to the FDIC Examination Manual, the “capability of the board of directors and management, in their respective roles, to identify, measure, monitor, and control the risks of an institution’s activities and to ensure a financial institution’s safe, sound, and efficient operation in compliance with applicable laws and regulations.” As defined in the FDIC Examination Manual, the following ratings apply to management: A rating of 1 indicates strong performance by management and the board of directors and strong risk management practices relative to the institution’s size, complexity, and risk profile. All significant risks are consistently and effectively identified, measured, monitored, and controlled. Management and the board have demonstrated the ability to promptly and successfully address existing and potential problems and risks. A rating of 2 indicates satisfactory management and board performance and risk management practices relative to the institution’s size, complexity, and risk profile. Minor weaknesses may exist, but are not material to the safety and soundness of the institution and are being addressed. In general, significant risks and problems are effectively identified, measured, monitored, and controlled. A rating of 3 indicates management and board performance that need improvement or risk management practices that are less than satisfactory given the nature of the institution’s activities. The capabilities of management or the board of directors may be insufficient for the type, size, or condition of the institution. Problems and significant risks may be inadequately identified, measured, monitored, or controlled. A rating of 4 indicates deficient management and board performance or risk management practices that are inadequate considering the nature of the institution’s activities. The level of problems and risk exposure is [sic] excessive. Problems and significant risks are inadequately identified, measured, monitored, or controlled and require immediate action by the board and management to preserve the soundness of the institution. Replacing or strengthening management or the board may be necessary. A rating of 5 indicates critically deficient management and board performance or risk management practices. Management and the board of directors have not demonstrated the ability to correct problems and implement appropriate risk management practices. Problems and significant risks are inadequately identified, measured, monitored, or controlled and now threaten the continued viability of the institution. Replacing or strengthening management or the board of directors is necessary. Section 4.1.V of the FDIC Examination Manual links a bank’s performance under the other CAMELS components to its management component: “Consequently, examiners’ findings and conclusions in regard to the other four elements of the CAMELS rating system are often major determinants of the management rating.” “Earnings” means “not only the quantity and trend of earnings, but also factors that may affect the sustainability or quality of earnings,” such as likely loan losses or undue exposure to interest-rate volatility. As defined in the FDIC Examination Manual, a rating of 1 indicates “earnings that are strong”; a rating of 2 indicates “earnings that are satisfactory”; a rating of 3 indicates “earnings that need to be improved”; a rating of 4 indicates “earnings that are deficient” because they are “insufficient to support operations and maintain appropriate capital and allowance levels” and may leave the institution with “erratic fluctuations in net income or net interest margin, the development of significant negative trends, nominal or unsustainable earnings, intermittent losses, or a substantive drop in earnings from the previous years”; and a rating of 5 indicates “earnings that are critically deficient.” “Liquidity” is the ability of the financial institution to meet its anticipated funding needs with cash, assets readily convertible to cash, deposits, and loans. As defined in the FDIC Examination Manual, a rating of 1 means “strong liquidity levels and well-developed funds management practices”; a rating of 2 means “satisfactory liquidity levels and funds management practices” so that the institution “has access to sufficient sources of funds on acceptable terms to meet present and anticipated liquidity needs,” even though “[m]odest weaknesses may be evident in funds management practices:; a rating of 3 means “liquidity levels of funds management practices in need of improvement” because the institution “may lack ready access to funds on reasonable terms or may evidence significant weaknesses in funds management practices”; a rating of 4 means “deficient liquidity levels or inadequate funds management practices”; and a rating of 5 means “liquidity levels or funds management practices so critically deficient that the continued viability of the institution is threatened.” “Sensitivity” is sensitivity to market risk, which reflects the “degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or economic capital.” As defined in the FDIC Examination Manual, a rating of 1 means that “market risk sensitivity is well controlled and that there is minimal potential that the earnings performance or capital positions will be adversely affected”; a rating of 2 means that “market risk sensitivity is adequately controlled and that there is only moderate potential that the earnings performance or capital position will be adversely affected”; a rating of 3 means that “control of market risk sensitivity needs improvement or that there is significant potential that the earnings performance or capital position will be adversely affected”; a rating of 4 means that “control of market risk sensitivity is unacceptable or that there is high potential that the earnings performance or capital position will be adversely affected”; and a rating of 5 means that “control of market risk sensitivity is unacceptable or that the level or market risk taken by the institution is an imminent threat to its viability.” According to the FDIC examination manual, the composite rating is based on a “careful evaluation of an institution’s managerial, operational, financial, and compliance performance.” A composite rating of 1 means that the financial institution is “sound in every respect and generally [has] components rated 1 or 2.” A composite rating of 2 means that the financial institution is “fundamentally sound” and generally has “no component rating more severe than 3.” A composite rating of 3 means that the financial institution exhibits: some degree of supervisory concern in one or more of the component areas. These financial institutions exhibit a combination of weaknesses that may range from moderate to severe; however, the magnitude of the deficiencies generally will not cause a component to be rated more severely than a 4. Management may lack the ability or willingness to effectively address weaknesses within appropriate time frames. Financial institutions in this group generally are less capable of withstanding business fluctuations and are more vulnerable to outside influences . . .. Additionally, these financial institutions may be in significant noncompliance with laws and regulations. Risk management practices may be less than satisfactory relative to the institution’s size, complexity, and risk profile. These financial institutions require more than normal supervision, which may include formal or informal enforcement actions. Failure appears unlikely, however, given the overall strength and financial capacity of these institutions. A composite rating of 4 means that the financial institution exhibits: unsafe and unsound practices or conditions. There are serious financial or managerial deficiencies that result in unsatisfactory performance. The problems range from severe to critically deficient. The weaknesses and problems are not being satisfactorily addressed or resolved by the board of directors and management. Financial institutions in this group are generally not capable of withstanding business fluctuations. There may be significant noncompliance with laws and regulations. Risk management practices are generally unacceptable relative to the institution’s size, complexity, and risk profile. Close supervisory attention is required, which means, in most cases, formal enforcement action is necessary to address the problems. Institutions in this group pose a risk to the deposit insurance fund. Failure is a distinct possibility if the problems and weaknesses are not satisfactorily addressed and resolved. A composite rating of 5 means that the financial institution exhibits: extremely unsafe and unsound practices or conditions; exhibit[s] a critically deficient performance; often contain[s] inadequate risk management practices relative to the institution’s size, complexity, and risk profile; and [is] of the greatest supervisory concern. . . . The Cease and Desist Order states that Petitioner’s ROE dated July 5, 1995, found the management of First Bank unsatisfactory because: [First Bank’s] staffing was found to be inadequate, in part because of excessive employee turnover. [First Bank’s] board of directors was failing to provide [First Bank] sound management, adequate guidance in the form of appropriate written policies, or adequate supervision of management. Wells dominates [First Bank’s] board of directors, and the board of directors did not adequately supervise management’s operation of [First Bank]. [First Bank’s] board of directors had not responded to regulatory recommendations with respect to deficiencies in [First Bank’s] operating policies. [First Bank] did not have a Strategic Plan. [First Bank] employed an annual budget that had no written assumptions to support its projections and unrealistically continued to project net losses. Wells could not attest to the accuracy of the general ledger, [First Bank] lacked an effective internal audit program, and [First Bank] needed to hire a full-time president, a cashier, and a loan officer. [First Bank’s] board of directors inappropriately delegated its authority by permitting Wells to set his own salary and bonus and by permitting Wells to authorize and approve payments of legal bills by [First Bank] to Wells’ law firm without review by [First Bank’s] board of directors. [Petitioner] cited these practices as an apparent conflict of interest.] [First Bank’s] Consolidated Reports of Condition and Income as of December 31, 1994 and March 31, 1995 contained errors and needed to be amended and re-filed. During the period covered by the Report, [First Bank] had violated six laws and regulations, including violations of the Financial Record Keeping and Reporting of Currency and Foreign Transactions regulation, 31 C.F.R. Part 103. [First Bank] did not adequately segregate the duties of its employees. The door to the Bank’s computer room was frequently left open, providing unrestricted access to the computer facility. The Cease and Desist Order states that the FDIC’s ROE dated May 22, 1996, found that Wells, who was the controlling shareholder of First Bank, had been the only officer of First Bank since its formation and had served as the bank’s president, chief executive officer, chairman of the board of directors, and general counsel--all despite the fact that, prior to September 1989, Wells’ banking experience had been limited to that of bank counsel and director. The Cease and Desist Order states that the ROE dated May 22, 1996, found that First Bank had failed to respond as required to Petitioner’s July 5, 1995, ROE because: [First Bank’s] board had not adopted the following policies in conformity with the Board resolution [adopted after Petitioner’s examination]: Loan Policy, Appraisal Policy, Regulation O Policy, Amendment and Restatement of Asset/Liability Management Policy, and Strategic Plan. [First Bank’s] general ledger had not been reconciled and appropriate internal routine and controls had not been implemented. The Board had neither adopted the First Amended Internal Controls and Audit Program, nor implemented it as required. [First Bank] still employed a budget that had not been revised since 1994, which incorporated outdated assumptions. [First Bank] had engaged in twenty-five violations of fifteen statutes and regulations. [First Bank] had failed to submit any reports with respect to its continuing violation of section 655.60(2) of the Florida Statutes. Concerning internal routine and controls, the Cease and Desist Order states that the ROE dated May 22, 1996, found that First Bank had failed to respond as required to Petitioner’s ROE dated July 5, 1995, because: [First Bank] had not reconciled its general ledger suspense account since February, 1995. During the period covered by the FDIC’s May 22, 1996 examination, [First Bank] did not routinely reconcile its subsidiary ledgers. [First Bank] failed to segregate the duties of its employees. From October, 1995 until March 31, 1996, [First Bank’s] general ledger suspense account had an unreconciled gross credit balance that ranged from $96,000 to $186,000. As of March 31, 1996, which was the date as of which the FDIC examined its financial records during the May 22, 1996 examination, [First Bank’s] general ledger suspense account had an unreconciled gross credit balance of $137,000. From February, 1995 through May 22, 1996, [First Bank] did not reconcile the demand deposit suspense account. As of March 29, 1996, [First Bank’s] demand deposit accounts as reflected in the general ledger exceeded the demand deposit accounts as reflected in subsidiary ledgers by $8,949. As of March 29, 1996, [First Bank’s] time deposit accounts as reflected in the general ledger exceeded the time deposit accounts as reflected in subsidiary ledgers by $740,367. As of June 12, 1996, [First Bank’s] time deposit accounts as reflected in the general ledger were short by $74,474 of the time deposit accounts as reflected in subsidiary ledgers. As of May 27, 1996, [First Bank’s] total loan accounts as reflected in the general ledger were short by $12,000 of the total loan accounts as reflected in the subsidiary ledgers, and examiners were unable to reconcile these accounts during the FDIC’s May 22, 1996 examination. From January 1996 to April, 1996, [First Bank] did not reconcile its correspondent account with Independent Banker’s Bank of Florida. As a result of [First Bank’s] failure to reconcile its correspondent account with the Independent Banker’s Bank of Florida from January, 1996 to April, 1996, [First Bank] filed a Report of Condition and Income (“Call Report”) as of March 31, 1996, that incorrectly stated [First Bank’s] federal funds sold position by $51,000. As of the FDIC’s May 22, 1996 examination, three of [First Bank’s] prepaid expense accounts had not been accurately reconciled since March, 1996, and an accurate reconciliation of these accounts during the examination led to a correction in [First Bank’s] March 31, 1996 Call Report and to two items being classified as Loss. [First Bank’s] vault cash account was not reconciled between March, 1995 and April, 1q996, and during the FDIC’s examination, [First Bank’s] vault cash was found to be short by $831. [First Bank’s] teller cash accounts were not reconciled from September, 1995 until the FDIC’s May 22, 1996 examination, when one teller cash account was found to be short by $97 and another teller cash account was found to be short by $498. [First Bank] failed to make appropriate entries reflecting depreciation in four depreciation accounts from January, 1996 until the FDIC’s May 22, 1996 examination and in two other depreciation accounts from February, 1996 until the FDIC’s May 22, 1996 examination. As a result of the failure to keep the depreciation accounts current, [First Bank’s] March 31, 1996 Call Report failed to reflect $5,000 in depreciation for February and March, 1996, and the May 22, 1996 classified [sic] as Loss $6,000 in unrecognized depreciation for April and May, 1996. During the period covered by the FDIC’s May 22, 1996 [ROE, First Bank’s] wire transfer logs were incomplete, no review of daily wire transfer transaction logs was performed, and neither internal nor external audit procedures extended to review of [First Bank’s] wire transfers. Legal expenses of $4,284 for services performed by Wells’ law firm on behalf of [First Bank] between September and December, 1995, did not reflect the dates the expenses were incurred. [First Bank] operated without a security officer from March, 1996, until the FDIC’s May 22, 1996 examination. Concerning administration, supervision, and control, the Cease and Desist Order states that the ROE dated May 22, 1996, found the following conditions: Forty seven percent of the loan files reviewed by FDIC examiners, as measured by dollar volume, reflected documentation exceptions regarding credit data or collateral documentation. [First Bank] had not incorporated the requirements of Rule 3C-100.600 into its Appraisal Policy despite the fact that this discrepancy was pointed out to [First Bank] in [Petitioner’s] July 5, 1995 [ROE] and in subsequent correspondence between the Bank and [Petitioner]. Several of [First Bank’s] commercial loan files did not contain current financial statements from the borrowers. Some of [First Bank’s] loan files contained no evidence that financial statements that had been obtained from borrowers had ever been analyzed by [First Bank’s] personnel. Although [First Bank’s] Loan Policy includes a loan grading system, [First Bank’s] management had not implemented a loan grading program and did not maintain a watch list of loans that merit special attention. [First Bank] had not corrected deficiencies in its Investment Policy that had been identified by [Petitioner] in its July 5, 1995 [ROE]. These deficiencies included a failure to address potential investments in mortgage derivatives and structured note securities. [First Bank] had neither implemented a consistent system of accounting procedures nor employed a full-time accounting person or a qualified cashier or a qualified loan officer in response to the recommendations received from its external auditor and from [Petitioner] during 1995. In the absence of a qualified cashier and in the absence of a qualified loan officer, [First Bank] required lower level employees to perform functions for which they were not qualified. As for electronic data processing systems, the Cease and Desist Order notes that the FDIC, which, on June 11, 1996, had conducted an examination of First Bank’s information systems, had assigned them an unsatisfactory rating of a 4, signifying “unacceptable conditions and a high potential for operational or financial failure.” Noting that the FDIC examiner had recommended that the FDIC pursue action against First Bank to correct the deficiencies in its information systems, the Cease and Desist Order states that the FDIC’s ROE dated June 11, 1996, found the following deficiencies: [First Bank] operated its data center without internal audit coverage of the data center’s operations. [First Bank] had not tested a backup site for its data processing operations for three years. [First Bank] failed to maintain backup data files in a fireproof area. [First Bank] operated its data center without a disaster recovery program. [First Bank’s] electronic information system was not compatible with the system in use at the backup site, because [First Bank’s] operating system and applications software had not been updated with the vendor’s new software releases for the previous two years. [First Bank’s] software was not updated because [First Bank’s] hardware system was outdated and lacked the capacity to operate the updated software. [First Bank] was operating its data center in contravention of its EDP Policy with respect to the following: failure to store daily backup tapes in a fireproof location; failure to review on line log reports daily; failure to perform reconciliations on records regarding demand deposit accounts, savings accounts, certificates of deposit, or loan accounts; and failure to perform periodic internal audits of [First Bank’s] data processing functions. [First Bank’s] disaster recovery program was such that [First Bank’s] ability to continue operations without interruption after a disaster was questionable. [First Bank] operated its data center without appropriate internal controls with respect to the following: failure to reflect access to the data center by non- data center personnel; failure to review the daily on-line activity report; [and] failure to reconcile the daily totals generated by [First Bank’s] application programs to the general ledger. [First Bank] operated without a policy regarding the use of microcomputers, although [First Bank] was using microcomputers in its operations. Concerning annual financial disclosures, the Cease and Desist Order states that the ROE dated May 22, 1996, found the following failures: As of the FDIC’s May 22, 1996 examination, [First Bank] had failed to prepare an annual financial disclosure statement by March 31 of any year since [First Bank] opened for business in 1989. By letter dated April 24, 1996, in response to a request for [First Bank’s] annual financial disclosure, [First Bank] transmitted to William L. Durden, an attorney for minority shareholders of [First Bank], a financial disclosure that consisted only of a balance sheet and a net income figure and did not include the legend required by section 350.4(d) In April of each year from 1990 through 1996 inclusive, [First Bank] transmitted to its shareholders a notice of the annual shareholder’s [sic] meeting but failed to include in each such notice an announcement regarding the availability of annual financial disclosures. By letter[s] dated July 17, 1995, August 1, 1995, September 25, 1995, and October 10, 1995, Donald A. Robinson, an attorney for the estate of a deceased shareholder of [First Bank] requested [First Bank’s] annual financial disclosure statement for the year 1994. [First Bank] had not, as of the FDIC's May 22, 1996 examination, provided the annual financial disclosure statement required by Robinson. By letter dated May 8, 1996, William L. Durden, an attorney representing minority shareholders of [First Bank], requested [First Bank’s] annual financial statement. On May 24, 1996, [First Bank] transmitted to Durden financial information that included a balance sheet but did not include the remainder of the information required by section 350.4(a). The Cease and Desist Order discusses the failure of Wells, who was representing First Bank in the FDIC proceeding, to participate effectively. In early 1997, Wells failed to comply timely with an order compelling discovery, and he belatedly produced documents that were not fully responsive to the discovery requests, although he later supplemented his response. During oral argument on May 1, 1997, in response to a motion for sanctions, Wells claimed that arm and back conditions had prevented him from moving boxes of documents and fulfilling his discovery obligations. Unpersuaded by Wells’ “incredible” claims, the federal Administrative Law Judge determined, at the hearing and by written order dated May 12, 1997, that Wells had tried to delay the hearing. For sanctions, the federal Administrative Law Judge excluded all evidence related to documents not timely produced, except for certain documents prepared by the FDIC and documents generated by First Bank and delivered to the FDIC before the commencement of the proceeding. Following the administrative hearing, which took place from June 2-9, 1997, the Administrative Law Judge assessed total costs for discovery abuses of $3245.44. The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had engaged in unsafe or unsound banking practices, as defined by 12 U.S.C. section 1818(b), “by operating with a board of directors that had failed to require Bank management to implement necessary practices and procedures that reflect operational guidelines established by the board of directors.” The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had violated 12 C.F.R. 364.101, Standards for Safety and Soundness, by failing to maintain adequate internal controls and information systems; 12 C.F.R. 326.8 by failing to develop and maintain administration of a program reasonably designed to monitor compliance with the Bank Secrecy Act; 12 C.F.R. 350.3(a) by failing to prepare and make available on request an annual disclosure statement; 12 C.F.R. 350.3(b) by failing to timely provide its annual financial disclosures statement to persons requesting this document; 12 C.F.R. 350.4(a)(1) by failing to include in its annual financial disclosures information that is comparable to the information contained in specified Call Report schedules; and 12 C.F.R. 350.8 by failing to promptly provide an annual financial disclosure statement to persons requesting this document. The Cease and Desist Order determines that the FDIC proved by a preponderance of the evidence that First Bank had violated Section 658.48(1), Florida Statutes, by extending credit to any one borrower exceeding 25 percent of the bank’s capital accounts when the loan was fully secured; Section 655.044(2), Florida Statutes, by carrying as an asset in any published report or any report submitted to Petitioner a note or obligations that is past due or upon which no interest has been received for at least one year; Section 658.48(5)(d), Florida Statutes, by failing to document as a first lien real estate mortgages securing loans; and Section 655.60(2), Florida Statutes, by making loans based on the security of the real estate without adequate written appraisal standards and without policies previously established by the board of directors. Based on these violations, the Cease and Desist Order concludes that First Bank “repeatedly engaged in imprudent acts that resulted in an abnormal risk of loss or damage to the Bank” and “defiantly refused to implement needed remedial actions.” The Cease and Desist Order thus suggests an “enforceable functioning program that will facilitate operation of the Bank in a safe and sound manner.” In conclusion, the Cease and Desist Order warns that the “fact that the institution may not be operating at a loss in the current economic climate is no guarantee that unsafe and unsound practices will not eventually bear a bitter fruit.” The Cease and Desist Order discusses at length one substantive exception of First Bank and two substantive exceptions of the FDIC to the Recommended Decision, from which the preceding citations have been drawn. As for First Bank’s exception, the Cease and Desist Order recognizes that “smaller institutions cannot be expected to maintain the same level of segregation of responsibilities as their larger counterparts,” but the order rejects the exception. As for the FDIC’s exceptions, the Cease and Desist Order concludes that First Bank also violated 12 U.S.C. Section 1817(a)(1) by submitting erroneous, uncorrected Call Reports dated December 31, 1994; June 30, 1995; September 30, 1995; December 31, 1995; and March 31, 1996; and 12 C.F.R. 309.6(a) by disclosing its (favorable) supervisory subgroup assignment without FDIC authorization. The Cease and Desist Order orders First Bank to cease and desist from the following unsafe or unsound banking practices or legal violations: Failing to provide adequate supervision and direction over the affairs of the Bank by the board of directors of the Bank to prevent unsafe or unsound practices and violations of laws and regulations; Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits. Failure by the Bank’s board of directors to require Bank management to implement practices and procedures that reflect operational guidelines established by the Bank’s board of directors; Failing to provide the Bank with operational personnel who have experience that is adequate to ensure safe and sound operation of the Bank and to ensure compliance with applicable laws and regulations; Failing to provide adequate training to operational personnel; Operating the Bank with policies and practices that result in excessive employee turnover; Failing to implement generally accepted internal accounting procedures and effective internal audit controls; Failing to adopt and implement fully an appropriate loan policy, an . . . appropriate appraisal policy, and an appropriate asset/liability management policy; Failing to maintain financial records sufficiently accurate to enable the Bank to comply with applicable reporting requirements established by federal laws and regulations; Failing to prepare accurate annual financial statements; Failing to make accurate annual financial disclosure statements available to shareholders in a timely manner; Omitting pertinent or required financial information from the Bank’s annual disclosure statements; Failing to maintain adequate documentation in loan files; Failing to correct operational problems identified by the Bank’s external auditors; Operating the Bank with inadequate information systems and management reporting systems, as described in the FDIC’s EDP [ROE dated] June 11, 1996; and Engaging in violations of applicable federal and state laws and regulations, as more fully described [in the FDIC’s ROE dated] May 22, 1996. The Cease and Desist Order directs First Bank and its institution-affiliated parties to take the following affirmative action: Not later than thirty (30) days from the effective date of the ORDER, the Bank’s board of directors shall develop, or shall retain an independent banking consultant with experience in the evaluation of bank management to develop, a written analysis of the Bank’s management and staffing needs (“Management and Staffing Plan”), which shall include, at a minimum: identification of both the type and number of officer and operational staff positions that are needed to manage and supervise the affairs of the Bank in a safe and sound manner; evaluation of each current Bank officer and staff member to determine whether these individuals possess the ability, knowledge, experience,training, and other qualifications that are required to perform present and anticipated duties, including adherence to the requirements of this ORDER, adherence to the Bank’s policies, and operation of the Bank in a safe and sound manner; a review of the rate of turnover of Bank employees during the past five years and a plan to recruit, hire, and retain any additional or replacement personnel with the requisite ability, knowledge, experience, and other qualifications to fill Bank officer or staff positions consistent with the analysis and assessment heretofore described in Paragraph 1(a)(i) and (ii) of this ORDER; and a review of the training deficiencies that were identified in the FDIC’s [ROE dated] May 22, 1996. Not later than thirty (30) days from the effective date of this ORDER, the written Management and Staffing Plan shall be submitted to the Regional Director and to the Comptroller for review and comment. Not later than sixty (60) days from the date of such submission, the Bank’s board of directors shall approve the Management and Staffing Plan, taking into consideration any comments received from the Regional Director and/or the Comptroller within that period, and such approval shall be recorded in the minutes of the Bank’s board of directors. Thereafter, the Bank shall implement the Management and Staffing Plan. Subsequent modifications of the Management and Staffing Plan may be made only if, at least [30] days prior to the effective date of any proposed modification, the Bank submits such proposed modification to the Regional Director and to the Comptroller for review and if the Bank’s board of directors shall have approved such modification after considering any responsive comments submitted by the Regional Director and/or the Comptroller. Not later than ninety (90) days from the effective date of this ORDER, the Bank shall have and retain qualified management consistent with the Management and Staffing Plan that is required by Paragraph 1 of this ORDER. At a minimum, such management shall include officers with proven ability in managing a bank of comparable size. Such officers shall have proven ability in managing a loan portfolio of at least comparable size and shall have an appropriate level of lending, collection, and loan supervision experience necessary to supervise any anticipated growth in the Bank’s loan portfolio, and shall have proven ability in managing the assets and operations of a financial institution of at least comparable size and with banking operations experience sufficient to supervise the upgrading of the Bank’s operational deficiencies. Such officers shall be provided the necessary written authority to implement the provisions of this ORDER. The qualifications of management shall be assessed on its ability to: comply with the requirements of this Order; operate the Bank in a safe and sound manner; comply with applicable laws and regulations; and restore all aspects of the Bank to a safe and sound condition. As long as this ORDER remains in effect, the Bank shall notify the Regional Director and the Comptroller in writing of any changes in management. Such notification shall be in addition to any application and prior approval requirements established by section 32 of the FDI Act, 12 U.S.C. §1831i, and implementing regulations; must include the names and qualifications of any replacement personnel; and must be provided at least [30] days prior to any individual’s assuming a management position. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall adopt and implement an internal audit program. Thereafter, the Bank shall operate with an effective, ongoing system of internal audits. Not later than thirty (30) days from the effective date of this ORDER, the Bank’s board of directors shall adopt, and the Bank shall implement, a plan to correct the Bank’s internal routine and control deficiencies, including specific provisions to assure that: suspense accounts are reconciled in a timely fashion; subsidiary accounts are reconciled to the general ledger in a timely fashion; accounting errors, once discovered, are resolved in a timely fashion; general ledger entries are initiated consistently, correctly, and in a timely fashion; and the duties of Bank employees are segregated in a manner that minimizes the potential for misapplication of funds, defalcation, or sabotage. Effective immediately, and until such time as the Bank’s accounts are successfully reconciled, the Bank shall retain the full-time services of a qualified, independent accountant, who shall be responsible for reconciling the Bank’s accounts as expeditiously as possible, but in no event later than thirty [30] days from the effective date of this ORDER. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall amend its [Call Reports] as of December 31, 1996; December 31, 1997; and March 30, 1998, to the extent deemed necessary by the Regional Director, and shall file amended [Call Reports] that accurately reflect the Bank’s financial condition as of the date of each such report. Not later than thirty (30) days from the effective date of this ORDER, complete and accurate annual financial disclosure statements that conform in all respects to the requirements of Part 350 of the FDIC Rules and Regulations, 12 C.F.R. Part 350, shall be provided without charge to all persons who have requested copies of the Bank’s annual disclosure statements as of December 31, 1996, and December 31, 1997. Thereafter, the Bank shall prepare such disclosure statements, and make such disclosure statements available, in conformity with Part 350 of the FDIC Rules and Regulations. Not later than January 31, 1999, the Bank shall engage a qualified, independent accounting firm to conduct an opinion audit of the Bank’s books as of December 31, 1998. Upon completion of such audit, the independent accounting firm shall present its final report directly to the Bank’s board of directors. The Bank’s board of directors shall cause the Bank to correct promptly all deficiencies that may be identified in such audit report. The minutes of the Bank’s board of directors shall record any action that is taken by the Bank’s board of directors in response to such audit report. Effective immediately, and until such time as the Bank has been able to reconcile its accounts, as required by Paragraph 5 of this ORDER, and to correct its [Call Reports], as required by Paragraph 6 of the ORDER, the Bank’s board of directors shall, not less frequently than monthly, review all actions taken by the Bank to correct the deficiencies in the Bank’s accounting practices and internal routines and controls identified [in the FDIC’s May 22, 1996, ROE]. Such review shall be recorded in the minutes of the Bank’s board of directors. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall develop, and the Bank’s board of directors shall review, an appropriate plan (the “EDP Plan”) for the safe and sound operation of the Bank’s electronic data processing equipment, software, operating procedures, and facilities, which shall include any modifications, consistent with guidance issued by the Federal Financial Institutions Examination Council, that may be necessary for the Bank to achieve Year 2000 readiness. Within [60] days from the effective date of this ORDER, the Bank shall submit such EDP Plan to the Regional Director and to the Comptroller for review and comment. Within 30 days from the receipt by the Bank of the FDIC’s written response to the EDP Plan, and after consideration by the Bank’s board of directors of comments from the Regional Director, if any, the Bank’s board of directors shall approve, and the Bank shall implement, such EDP Plan. Thereafter, for as long as this ORDER shall remain in effect, the Bank’s board of directors shall ascertain that the Bank’s electronic data processing is conducted in accordance with such EDP Plan. At a minimum, such EDP Plan shall provide for: the acquisition and operation by the Bank of hardware and software systems that are appropriate for the safe and sound conduct of the Bank’s business; development and implementation of an appropriate, ongoing internal audit of the operations of the Bank’s information systems; immediate acquisition and permanent retention of access to an EDP backup facility that is operationally compatible with the Bank’s hardware, software, and data files; appropriate segregation of duties among the Bank employees (and contractor personnel, if any) who perform functions related to electronic data processing; storage of backup copies of operating systems, application programs, and data files in a secure, fire- resistant environment at a remote site; reconciliation of all major applications to the general ledger on a daily basis; development and implementation of an appropriate policy . . . regarding the Bank’s use of microcomputers; prompt review by the Bank’s board of directors of all audit reports and regulatory reports regarding the Bank’s electronic data processing, and written recordation of the responses by the Bank’s board of directors to such reports; i[x]. prompt correction of all information systems deficiencies identified in audit reports and regulatory reports; and x. periodic review of the Bank’s EDP Policy by the Bank’s board of directors and of Bank management’s implementation of the Bank’s EDP Policy and EDP Plan. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall eliminate from its books, by collection, charge-off or other proper entries, all assets or portions of assets classified “Loss” by the FDIC as a result of its examination of the Bank as of May 22, 1996, which have not been previously collected or charged off, unless otherwise approved in writing by the Regional Director and the Comptroller. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall review and revise its written loan policy to include the following elements: a requirement that before advancing any loan the Bank must obtain, analyze, and verify credit information which will be sufficient to identify a source of repayment and support for the scheduled repayment plan; a requirement that all collateral documentation or evidence of collateral documentation be obtained and reviewed before loan proceeds are disbursed; a requirement for the maintenance and review of complete and current credit files on each borrower with extensions of credit outstanding; [a] requirement for the establishment of criteria and guidelines for the acceptance and review of financial statements; and [a] requirement for appraisal procedures which, at a minimum, satisfy the requirements of Part 323 of the FDIC’s Rules and Regulations, 12 C.F.R. Part 323, and applicable Florida banking laws and regulations. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall implement procedures to ensure that the Bank’s loan policy and all subsequent modifications to the Bank’s loan policy are strictly enforced. 13. Not later than sixty (60) days from the effective date of this ORDER, the Bank shall correct the cited deficiencies in the assets listed for “Credit Data or Collateral Documentation Exceptions” [in the FDIC ROE dated] May 22, 1996. Thereafter, the Bank shall service these loans in accordance with its written loan policy as amended to comply with this ORDER and in accordance with safe and sound banking practices. Not later than January 31, 1999, the Bank shall prepare a realistic and comprehensive budget and earnings forecast for calendar year 1999 and shall submit this budget and earnings forecast to the Regional Director and Comptroller for review and comment. As long as this ORDER remains in effect, the Bank shall prepare annually realistic and comprehensive calendar year budget and earnings forecasts for each year subsequent to 1998 and shall submit these budget and earnings forecasts to the Regional Director and the Comptroller for review and comment no later than January 31 of each year. In preparing the budget and earnings forecasts required by paragraph 14 of this ORDER, the Bank shall, at a minimum: identify the major areas in, and means by which the board of directors will seek to improve, the Bank’s operating performance; and describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components. Quarterly progress reports comparing the Bank’s actual income and expense performance with budgetary projections shall be submitted to the Regional Director and Comptroller concurrently with the other reporting requirements set forth in paragraph 23 of this ORDER. The Bank’s board of directors shall meet and review such progress reports, which review shall be recorded in the minutes of the board of directors. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with sound banking practices, to eliminate or correct all violations of law and regulations committed by the Bank, as described [in the FDIC ROE dated] May 22, 1996. In addition, the Bank’s board of directors shall take appropriate steps to ensure that the Bank is operated in compliance with all applicable laws and regulations. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall adopt and implement an internal loan review and grading system to provide for the periodic review of the Bank’s loan portfolio in order to identify and categorize the Bank’s loans, and other extensions of credit which are carried on the Bank’s books as loans, on the basis of credit quality. Within ninety (90) days from the effective date of this ORDER, the Bank shall have and thereafter retain a qualified Bank Secrecy Act officer (“Officer”). The Officer must be a senior bank official who shall be responsible for the Bank’s compliance with [the] Bank Secrecy Act, 31 U.S.C. §§5211-5326, its implementing regulation, 31 C.F.R. Part 103, and Part 326 of the FDIC Rules and Regulations, 12 C.F.R. Part 326. The Officer shall be given written authority by the Bank’s board of directors to implement and supervise the Bank’s Bank Secrecy Act program, including but not limited to, providing appropriate training for the Bank’s employees in the bank secrecy laws and regulations (the “Bank Secrecy Laws”) enumerated in section 326.8(b) of the FDIC Rules and Regulations, 12 C.F.R. §326.8(b); establishing internal controls and procedures reasonably designed to prevent violations of the Bank Secrecy Laws; and performing or supervising periodic internal audits to ascertain compliance with the Bank Secrecy Laws and/or the Bank’s Bank Secrecy program. The Officer shall report directly to the Bank’s board of directors. The Bank shall provide the Officer with appropriate training in the Bank Secrecy Laws, and each instance of said training shall be reported to, and recorded in, the minutes of the board of directors. The Bank shall promptly notify the Regional Director and the Comptroller of the identity of the Officer. If the Officer is to be added as a director of the Bank or employed as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. §1831i, and section 303.14 of the FDIC Rules and Regulations, 12 C.F.R. §303.14, prior to the addition of the Officer to such position. The assessment of whether the Bank has a qualified Officer shall be based upon the Officer’s record of achieving compliance with the requirements of this ORDER and with the Bank Secrecy Laws. Within ninety (90) days from the effective date of this ORDER, the Bank shall adopt and implement a written program to ensure the Bank’s compliance with the Bank Secrecy Act, 31 U.S.C. §§5311-5326, as required by 12 C.F.R. §326, Subpart B. At a minimum, a system of internal controls shall be designed to: identify reportable transactions in a timely manner in order to obtain all the information necessary to properly complete the required reporting forms; ensure that all required reports are accurately completed and properly filed; ensure that customer exemptions are properly granted and recorded, including the maintenance of documentation sufficient in detail so as to substantiate exemptions granted; provide for adequate supervision of employees who accept currency transactions, complete reports, grant exemptions, or engage in any other activity covered by 31 C.F.R. Part 103; and v. establish dual controls and provide for separation of duties. The Bank shall adopt and implement a system of testing, internal or external, for compliance with the Bank Secrecy Act and the Department of the Treasury’s Regulation for Financial Record Keeping and Reporting of Currency and Foreign Transactions (“Financial Record Keeping Regulations”), 31 C.F.R. Part 103, which include, at a minimum: a test of the Bank’s internal procedures for monitoring compliance with the Bank Secrecy Act, including interviews of employees and their supervisors who handle cash transactions; a sampling of large currency transactions followed by a review of currency transaction report filings; a test of the validity and reasonableness of the customer exemptions granted by the Bank; a test of the Bank’s record keeping system for compliance with the Bank Secrecy Act; and documentation of the scope of the testing procedures performed and findings of the testing. Any apparent violations, exception or other problems noted during the testing procedures should be promptly reported to the board of directors. Each calendar quarter following the effective date of this ORDER, the Bank or a consultant shall perform an internal audit of the Bank’s Bank Secrecy Act program. Any audit of the Bank Secrecy Act program performed by the Bank shall be performed or supervised by the Officer. The results of the audit and any recommendation by the Officer, the consultant and/or the board of directors shall be recorded in the minutes of a meeting of the board of directors. Effective immediately, and for as long as the ORDER shall remain in effect, the Bank’s board of directors, not less frequently than monthly, shall review all actions taken by the Bank to comply with the requirements of this ORDER. Such review by the board of directors shall be recorded in the minutes of the Bank’s board of directors. Not later than sixty (60) days from the effective date of this ORDER, the Bank’s board of directors shall develop a three-year strategic plan for the Bank (“Strategic Plan”), which shall address, at a minimum: (i) economic conditions and economic forecasts regarding the Bank’s market area; (ii) potential methods for achieving growth in the Bank’s total assets; (iii) potential methods for improving the Bank’s operations in the context of any projected growth in the size of the Bank’s total assets; (iv) carrying on the functions of the Bank’s management in the event of a loss of the services of current personnel; and (v) integration of an assessment of the Bank’s staffing needs with the Bank’s business plan. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER: (i) in conjunction with the Bank’s next shareholder communication and also (ii) in conjunction with its notice or proxy statement preceding the Bank’s next shareholder meeting. The description shall fully describe this ORDER in all material respects. The description and any accompanying communication, statement or notice shall be sent to the FDIC . . . and to the Comptroller, for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC or the Comptroller shall be made prior to dissemination of the description, communication, notice or statement. Not later than ninety (90) days from the effective date of this ORDER, and not later than thirty (30) days following the end of each calendar quarter while this ORDER is in effect, the Bank shall furnish written progress reports to the Regional Director and to the Comptroller detailing the form and manner of all actions taken to secure compliance with this ORDER and the results of such actions. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Comptroller have released the Bank in writing from making further reports. All progress reports and other written responses to this ORDER shall be reviewed by the board of directors of the Bank and made a part of the minutes of the appropriate board meeting. As a result of the sanctions imposed upon [First Bank] for failure to produce discovery and violations of Orders issued by the Administrative Law Judge, not later than thirty (30) days from the receipt of this ORDER, the Bank’s board of directors shall pay costs in the amount of $3,235.44 to the FDIC. Pursuant to delegated authority, the Regional Director may, upon a showing of good cause, amend the compliance deadlines for any of the undertakings required by this ORDER. The provisions of this ORDER shall become effective ten (10) days from the date of its issuance and shall be binding upon the Bank, its institution-affiliated parties, and its successors and assigns. Further, the provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC. Petitioner’s 1998 Consent Order Based on Petitioner’s ROE dated September 2, 1997, the Consent Order settled administrative litigation that Petitioner had instituted against First Bank, Wells, and the other directors who are respondents in this case, plus one director no longer serving as a director of First Bank. In that litigation, Petitioner sought, among other things, an order removing Wells from the board of directors of First Bank and prohibiting Wells from serving on the board of directors of any other state-chartered financial institution. Paragraph 4 of the Settlement Stipulation incorporated into the Consent Order requires the respondents to cease and desist from violations of Section 655.033(1), Florida Statutes, and to take the following “affirmative remedial action”: As soon as practicable, but in no event later than sixty days after the execution of this Settlement Stipulation by the Respondents, and subject to prior approval by [Petitioner], Respondents shall hire new and appropriately qualified management personnel to assume responsibility for daily operations and core banking functions of [First Bank] for the duration of the Consent Order. Management personnel acceptable to [Petitioner] shall be selected and employed to perform the positions of president/chief executive officer, cashier, and senior lending officer. Any person selected by the Board of Directors to serve as president/chief executive officer shall have a demonstrated capability to manage a bank comparable in size to [First Bank]. Any person selected by the Board of Directors to serve as cashier shall have a demonstrated ability to manage and balance the accounts of a bank comparable in size to [First Bank]. Any person selected by the Board of Directors to serve as senior lending officer must have a demonstrated level of lending, collection, and loan supervision experience necessary to supervise and enhance the safety and soundness of the loan portfolio of the Bank. In determining whether to approve the selection of any person under this paragraph, [Petitioner] shall make its determination based on the ability of the candidate to: operate the bank in a safe and sound manner; comply with all applicable laws and regulations; assist in restoring the Bank to a safe and sound condition; and comply with the requirements of the [Cease and Desist Order] applicable to their area(s) of responsibility. The president, as chief lending officer of the Bank, may also discharge the duties of senior lending officer until the Bank has employed an individual to fill the position on a permanent basis. Upon written request submitted to [Petitioner] by the president employed by the Bank pursuant to Paragraph 4.A.1 of this Stipulation, the selection of a permanent senior lending officer may be delayed for no more than 90 days beyond the deadline specified in Paragraph 4.A in order to facilitate the hiring of a qualified person. For the duration of [the] Consent Order . . ., the Respondents shall provide [Petitioner] and the FDIC with written notice of any change in the complement of executive officers employed by the Bank. Any replacement executive officer as defined in §655.005(1)(f), Florida Statutes, shall be subject to the approval procedures of §655.0385, Florida Statutes. An application for approval must be submitted to [Petitioner] and to the FDIC at least 30 days before the candidate’s assumption of management duties on behalf of the Bank. Effective on the date that his successor as president and chief executive officer is approved by [Petitioner] and FDIC, [Wells] shall resign as President and Chief Executive Officer of [First Bank]. All named Respondents agree on behalf of the Bank, and [Wells] agrees individually as well, that, subsequent to this resignation, Wells will take no further action on behalf of [First Bank] in the capacity of “executive officer” within the meaning of §655.005(1)(f), Florida Statutes, for the duration of the Consent Order . . .. Nothing in this paragraph shall be construed to prohibit Wells from serving as legal counsel, inclusive of general counsel, or as consultant to [First Bank], or from receiving appropriate, reasonable compensation from [First Bank] for services provided by Wells in the capacity of counsel or consultant to the Bank. [Petitioner] agrees that Wells may serve as a director of [First Bank] and may serve on any duly constituted committee of the Board of Directors. Wells may continue to serve as Chairman of the Board of Directors if, and only if, by appropriate resolution of the Board of Directors of the Bank in accordance with §655.005(1)(f), Florida Statutes, he is excluded from participating, other than in the capacity of a director, in any major policymaking functions of [First Bank], and receives no additional compensation attributable to service as Chairman of the Board of Directors of the Bank. This paragraph shall not be deemed to disallow [Wells] from participation in reasonable Bank-paid group insurance. Respondents agree to adopt a resolution of the Board of Directors of [First Bank], pursuant to §655.006(1)(f), Florida Statutes, excluding [Wells] from participating, other than in the capacity of a director, in any major policymaking functions of [First Bank]. This resolution shall be maintained in force by the Board of Directors for the duration of [the] Consent Order . . .. Respondents agree that the primary tasks of the new management employed pursuant to this Stipulation will be to eliminate all unsafe and unsound practices detailed in [Petitioner’s] September 1997 [ROE] and to assure compliance by [First Bank] with the [Cease and Desist Order]. Respondents agree to provide new management with written authority by resolution to take such actions as may be appropriate and necessary to implement remedial action and compliance assurance activity. Respondents, individually and collectively, agree to take all actions appropriate and necessary to remedy any and all deficiencies in policies and procedures applicable to [First Bank] as noted in periodic examination reports prepared by [Petitioner] and the FDIC. [Wells] agrees that he shall not willfully or intentionally interfere with the proper execution or discharge of delegated or assigned duties performed by the new management personnel employed by the Bank under the provisions of this Stipulation. Actions taken by [Wells] that fall within the scope of authority of a director of the Bank shall not be deemed to violate this paragraph. [Wells] acknowledges that [Petitioner] considers this paragraph to be a material term of this Stipulation and that any violation of this paragraph will be deemed a material breach of the Consent Order. Paragraph 10 of the Settlement Stipulation states that the respondents acknowledge that, although they do not waive their right to litigate such issues, the “failure to comply with any of the terms, obligations, and conditions of this Stipulation or [Consent Order] will constitute grounds for disciplinary or other adverse action.” 3. FDIC’s 1999 Safety and Soundness Order Paragraph 2 of the Safety and Soundness Order states that the FDIC has determined that First Bank is deficient in meeting the safety and soundness standards set forth in Part 364 of the FDIC Rules and Regulations, 12. C.F.R. Chapter III, and the laws of the State of Florida. In particular, Paragraph 2 states: The board of directors has failed to provide sufficient resources for the Bank to meet Year 2000 timetables established by the FFIEC; The Bank’s Year 2000 project plan does not adequately address critical aspects of the Year 2000 program; The Bank’s Business Resumption Contingency Plan is inadequate; The Bank has not fully implemented its formal Year 2000 liquidity guidelines; The Bank has not completed an effective external review of its Year 2000 program. The Safety and Soundness Order asserts that the FDIC notified First Bank of these deficiencies on May 21, 1999, and “requested” that First Bank submit a compliance plan. First Bank submitted a compliance plan, but the FDIC found it unacceptable and issued, on July 21, 1999, a Notice of Intent to Issue a Safety and Soundness Order. In a response filed on August 4, 1999, First Bank submitted a revised Year 2000 Plan. However, Paragraph 6 of the Safety and Soundness Order states that the FDIC found the revised plan “unacceptable” for the following reasons: The board of directors has failed to allocate the necessary resources in order to comply with FFIEC guidelines. The bank is currently operating without a President and Chief Executive Officer and the Year 2000 project manager has not been given the requisite authority to fulfill his responsibilities regarding Year 2000 readiness. The plan does not establish acceptable guidelines for the renovation of all mission-critical systems within an acceptable time frame. The plan fails to address implementation of internal mission-critical systems that are Year 2000 ready. The plan does not provide a strategy to test the business resumption contingency plan. The plan does not specifically require that monthly management reports to the board of directors contain the information outlined in the “Interagency Statement on Year 2000 Business Risk.” The plan does not provide for the submission of monthly written progress reports to the Regional Director of the FDIC and the Comptroller of the State of Florida. Concluding that First Bank is deficient in meeting the safety and soundness standards established under Part 364 of the FDIC Rules and Regulations, 12 C.F.R. Part 364, the Safety and Soundness Order directs First Bank to: Allocate all necessary resources to achievement compliance with FFIEC Year 2000 guidelines. Within 15 days of the effective date of this Order, the board of directors shall: hire and retain a qualified Year 2000 consultant, or qualified personnel, to oversee implementation of an acceptable Year 2000 Plan, whereby the Bank achieves compliance with all FFIEC Year 2000 guidelines within 20 days of the effective date of this Order. The board of directors shall provide the consultant or hired personnel with sufficient resources to achieve Year 2000 compliance within that time frame. The qualifications of the Year 2000 consultant or personnel shall be assessed on the ability of the Year 2000 consultant or personnel to comply with the provisions of this Order. appoint and retain a qualified senior bank officer as the Year 2000 project manager. The board of directors shall provide the Year 2000 project manager with sufficient resources and authority to achieve Year 2000 compliance. The Year 2000 project manager shall submit monthly reports regarding the status of the Bank’s Year 2000 readiness to the board of directors. The monthly reports shall address the items specified for quarterly board reports in the Guidelines, the FFIEC Guidelines and, specifically, the FFIEC’s December 17, 1997 issuance entitled “Interagency Statement on Year 2000 Business Risk.” The qualifications of the Year 2000 project manager shall be assessed on his/her ability to comply with the provisions of this Order. Within 15 days of the effective date of this Order, renovate, as necessary, all mission-critical systems used by the Bank to make them Year 2000 ready and, within 20 days from the effective date of this Order, implement those Year 2000 ready systems. Develop a Business Resumption Contingency Plan within 20 days of the effective date of the Order that provides workable plain language guidance to employees and can be implemented immediately. At a minimum, the Business Resumption Contingency Plan shall: set forth the Bank’s plans to recover lost or damaged data and to mitigate risks associated with the failure of its systems at critical dates; include identification of the Bank’s core business processes and a specific recovery plan for the possible failure of each core business process; establish a manual bookkeeping system to operate parallel with the computer system beginning November 1, 1999, unless the FDIC and State Regulatory authorities have reviewed and verified that the bank is operating in compliance with all FFIEC Year 2000 guidelines; and develop a method to validate and test the Business Resumption Contingency Plan within 20 days of the effective date of the Order. Provide for the external review of Year 2000 readiness by a qualified, independent third party within 30 days from the effective date of the Order. Establish a line of credit with the appropriate Federal Reserve Bank within 20 days of the effective date of this Order. Following the effective date of this Order[,] the Bank shall send to its shareholders or otherwise furnish a description of this Order (i) in conjunction with the Bank’s next shareholder communication and also (ii) in conjunction with its notice or proxy statement preceding the Bank’s next shareholder meeting. The description shall fully describe this Order in all material respects. . . . Provide for the submission of a progress report on the requirements of this Order within 30 days of the effective date of the Order, and monthly thereafter, until the Order is terminated. The progress report shall be sent to the Regional Director of the FDIC and the Comptroller of the State of Florida. The Safety and Soundness Order concludes: This ORDER will become effective ten (10) days after its issuance. The provisions of this ORDER will be binding upon the Bank, its institution-affiliated parties, successors and assigns. Each provision of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provision shall be modified, terminated, suspended, or set aside by the FDIC. By Order Terminating Safety and Soundness Order issued on April 2, 2000, the FDIC cancelled the Safety and Soundness Order. First Bank’s Response to Regulatory Interventions These cases are about the adequacy of First Bank’s efforts to solve its operational problems as addressed by the directives from Petitioner and the FDIC. The Cease and Desist Order and Consent Order arise from the three reports of examination issued in 1995, 1996, and 1997. The period during which First Bank responded to these directives is largely 1998 and 1999. Petitioner’s ROE dated September 13, 1999, is the contemporaneous, comprehensive assessment of the adequacy of First Bank’s efforts and responses. These cases also require consideration of the role of Wells in creating and eliminating the operational problems experienced by First Bank. Petitioner’s representatives have frequently stated that the problems of First Bank would be amenable to quick solution if Wells were to sever his policymaking, consulting, and legal counseling ties to the bank. Although the determinative facts in this case are largely confined to 1998 and 1999, the preceding nine years’ operation of First Bank is relevant to the analysis of the events of 1998 and 1999. During the first nine years of the bank’s existence, Wells served as the president, until he was forced to resign, pursuant to the Consent Order, in the fall of 1998. After his resignation, though, Wells remained intimately involved with the bank’s operations as a director, consultant, and general counsel. Under Wells’ supervision as president, the bank’s internal accounting was so poorly maintained that nearly all of the internal accounts of First Bank were out of balance for extended periods of time and demanded many months of effort to balance these accounts and reconcile the subsidiary ledger accounts with the general ledger account. Under Wells’ supervision as president, an unreasonably large opportunity for employee theft existed because the bank's employees did not perform financially sensitive tasks under dual control, even to the extent practicable for a small bank. Under Wells’ supervision as president, the bank’s information technology and data processing systems were poorly integrated into operations and insufficiently secured to prevent the loss of data in the event of catastrophe. Under Wells’ supervision as president, the bank’s personnel turned over at excessive rates. However, under Wells’ supervision as president, First Bank initially earned composite CAMELS ratings of 2 during four ROEs conducted by Petitioner and the FDIC in 1992, 1994, and 1995. During this time, First Bank earned four ratings of 1 for capital and assets, three ratings of 2 and one rating of 1 for liquidity, and three ratings of 2 and one rating of 3 for earnings. However, even during this period, First Bank earned three ratings of 3 and, in 1995, one rating of 5 for management. The 1996 and 1997 ROEs, on which the Cease and Desist Order are based, assigned First Bank composite ratings of 3, and the 1998, 1999, and 2000 ROEs assigned First Bank composite ratings of 4. The record does not explain why these management problems intensified in the mid 1990s. However, under Wells’ supervision as president, these problems undermined the operations of First Bank and ultimately necessitated the regulatory interventions of the Cease and Desist Order and Consent Order. The record amply demonstrates that, without these interventions, First Bank, under Wells’ supervision as president, would have been unable or unwilling to resolve the numerous issues undermining its operations. The Cease and Desist Order and Consent Order issued at a point when the federal and state regulators reasonably expected that First Bank, although a small bank, would have matured operationally after nine years’ existence. However, even the minutes of the meetings of the board of directors of First Bank for 1997 reveal a disturbing level of disorganization and lack of focus among the directors, especially Wells. The minutes of the March 11, 1997, meeting of the board of directors illustrate one aspect of the organizational problems confronting First Bank and Wells’ inability to identify a plan for resolving the matter. According to the minutes of this meeting, Wells complained that: Organization of the Bank was proving to be one of the most difficult challenges possible. Personnel have failed or refused to follow policy guidelines and administrative requirements. The Bank generated several hundred forms prior to the organization of the Bank to expedite the handling of administrative, operational, loan and compliance matters. Most of these forms are basically disregarded by staff personnel. Employee turnover has been an ongoing problem at First Bank. However, the March 11 minutes reveal that Wells ignored the opportunity to analyze the challenge of attracting and retaining qualified personnel and identify specific solutions. Instead, Wells indulged himself in a personal diatribe whose evident purpose seems to have been to assign the blame for First Bank’s personnel problems on the undisciplined youth of Jacksonville and, to a lesser extent, their parents and school administrators. Displacing an informed examination of First Bank’s pay structure and working conditions, Wells’ denunciation of the pool of potential bank employees stated: Virtually all of the businesses and trades are publicly complaining over the quality of personnel and the ability of employees to to [sic] discharge assigned duties. This results from either lack of or poor training and the failure of the student or institution to educate the graduate in the various disciplines of which he or she were engaged in the educational process. Unfortunately, high school graduates exhibit a “warehousing” mentality. These young people oftimes describe and exhibit the attitude that they have been warehoused for their last few years of high school as opposed to receiving serious educational training and support. Conversations with educators at the high school level indicate that the students are undisciplined and virtually out of control. Responsible teachers from both Wolfson and Mandarin High Schools have advised the Bank that discipline is missing from the children’s home life. These educators say that School policy and procedures, as well as parent objections, prevent adequate discipline being applied during the school day. We are continuing to search for qualified personnel or graduates of various institutions who may be able to assist the Bank within the available employment funds of the Bank. Evidently having satisfied himself that he had adequately addressed the bank’s considerable personnel issues, Wells, according to the minutes, then turned to apparent maintenance deficiencies concerning the exterior of First Bank and, again, found Jacksonville youth to blame. Noting that three juveniles had recently been arrested for throwing golf balls and shooting guns into merchants’ signs along San Jose Boulevard, Wells stated that vandals had broken off all outside water spigots and removed floodlights at the bank. “Consequently, we are cautious about the implementation of further sign work and about repair to existing exterior facilities because of a continuing destructive environment. Merchants advise the Bank that these are, in large part, ‘latchkey’ young people who are frustrated and bored, but because of circumstances engage in destructive conduct against both public and private property.” Three months later, though, the minutes were not so richly detailed as to Wells’ description of the pending FDIC administrative litigation, in which he represented First Bank without fee. As already noted, Wells’ inability or refusal to comply timely with discovery and his “incredible” explanation not only resulted in the imposition of over three thousand dollars in discovery costs, but also in the exclusion of much of the bank’s evidence from the hearing. The first meeting of the board of directors after the Administrative Law Judge imposed these sanctions was May 20, 1997. The minutes state only that Wells advised the other directors that all pleadings would be kept in the wall unit at the bank, and he “encouraged the Directors to become very aware of the various allegations and defenses being filed in this regard.” The minutes of the meeting of the board of directors on June 26, 1998, report confirmation from Wells that “the payment of costs on sanctions had been paid to the FDIC,” although the statement does not reveal whether Wells or First Bank paid this amount. The record does not permit detailed findings of the substance of Wells’ legal representation of First Bank, apart from his obvious mishandling of the FDIC litigation and his prudence in deferring to outside counsel for the present litigation. Much of Wells’ work has involved the preparation of documentation, as to which he is experienced, and nothing in the record suggests any incompetence in this area. Some of his work has involved regulatory matters, as to which he is now experienced, but the record does not support a finding of any special competence in this area, even now. However, the record reveals a considerable level of disorganization in at least one aspect of Wells’ legal work: invoicing. According to the minutes of the meeting of the board of directors on October 31, 1997, Wells presented the board in October 1997 several invoices for legal work that he had done in 1996. The minutes of the meeting of the board of directors on April 16, 1998, note that bank staff had found an unpaid legal statement from Wells dating back three years. The minutes of the meeting of the board of directors on October 15, 1998, acknowledge the receipt of previously unpresented legal invoices for work done by Wells 12-21 months earlier. Under Wells’ supervision as president, First Bank adhered to conservative financial practices, protecting the quality of the bank’s loan portfolio, but at the expense of growth. In its initial business plan, First Bank had projected total assets of $15 million within three years. As of June 30, 1999, First Bank had total assets of only $8.3 million, down from a high of $9.3 million on December 31, 1993. Although its capital remains sufficient for its level of operations, First Bank had, until the quarter ending March 31, 2000, less capital than when it was organized. First Bank has never paid a dividend to Wells or its minority shareholders, who are dissatisfied with the performance of their investment and have commenced litigation against Wells and First Bank. First Bank’s earnings have declined in recent years. Net income in 1995 and 1996 was about $100,000 annually. Net after-tax earnings were $71,000 and $31,000 for 1997 and 1998, respectively. In 1999, First Bank suffered a net after-tax loss of $33,000. From 1997-99, First Bank’s interest income was $675,000, $624,000, and $290,000, respectively. However, year-to-date figures, through June 30, 2000, reveal that First Bank’s total income was $313,298--107 percent of budget--and its total expenses were $278,851--85 percent of budget. The bank’s performance through June 30, 2000, may reflect a reversal of the negative trends in earnings and revenues, which, at least for revenues, may have been partly attributable to the end of adverse local publicity concerning Y2K compliance. During the latter half of 1999 and early 2000, First Bank was the subject of numerous unflattering newspaper stories in The Florida Times-Union reporting, among other things, that the FDIC had issued the Cease and Desist Order, Petitioner had required Wells to resign as president in the Consent Order, the person hired to replace Wells as president had resigned only nine months after taking the job, First Bank was the last of over 10,000 banks under the FDIC to have demonstrated Y2K compliance, minority shareholders had sued for $3.5 million for the mismanagement of the bank, and First Bank, although financially sound, had been unable to balance its books and maintained poor internal controls. The directors are unpaid and, except for Wells, do not appear to own shares of First Bank. When he served as president, Wells earned $20,000 in 1989, $40,000 annually from 1990-93, and $62,000 annually from 1994 through his resignation as president in 1998. Following Wells’ resignation as president, a consulting agreement between First Bank and Welco, Inc., a corporation controlled by Wells, has required Wells personally to provide consulting services at the hourly rate $40 with a guaranteed annual minimum of $38,000. From all sources, as president, general counsel, and consultant, Wells has received compensation of over $500,000 from First Bank in its 11 years of existence. Three major additions to personnel marked 1998. The first such addition was the replacement of Wells by A. Richardson Tosh (Tosh), as reflected by the minutes of the meeting of the board of directors on September 9, 1998. The minutes state that First Bank hired Tosh, as president and chief executive officer, for $50,000 annually. Following regulatory approval, Tosh began working in these capacities in mid October 1998. The next two personnel events were the addition of James Giddens (Giddens) and Kim Jufer (Jufer). The minutes of the meeting of the board of directors on November 13, 1998, confirm and ratify the employment of Giddens in an unspecified capacity and Jufer as the manager of the operations department and staff accountant. Tosh’s banking career began in March 1964. Prior to his arrival at First Bank, Tosh had been the president of three financial institutions for a total of over 16 years. In his conversations with Wells, Tosh learned that his duties would be twofold: eliminating operational problems and marketing. The two main operational problems confronting Tosh were out-of-balance accounts and Y2K compliance. Tosh found the books and records in extremely poor condition. As Giddens testified, almost every account was out of balance. These erroneous books and records generated unreliable financial information for the board of directors and the FDIC in quarterly financial reports known as call reports submitted by the bank. The directors were aware of the problem, although probably not its severity; the 1997 and 1998 minutes reflect unsuccessful attempts by the directors to have a bank employee balance the internal accounts. Jufer and Giddens proved indispensable to the task of balancing the bank’s accounts. However, consistent with the relatively limited authority extended Tosh, he had to obtain the approval of the board of directors to hire these two employees. Jufer worked fulltime on the books and records, and Tosh worked parttime to help her until Giddens, who is a certified public accountant with considerable bank audit experience, joined First Bank a few weeks after Jufer’s arrival. Tosh’s second operational concern was Y2K compliance. By October 1998, First Bank had already missed one FDIC deadline. Shortly after Giddens’ arrival, Tosh turned his attention to the Y2K problem. If ever good, the relationship between Tosh and Wells did not take long to start to deteriorate. Other directors assured Tosh that they wanted him to report any incidents of interference by Wells in the performance of Tosh’s duties as president. An early example of the extensiveness of the involvement of the board of directors, although not necessarily Wells alone, in the management of First Bank is reflected in the minutes of the meeting of the board of directors on November 13, 1998, in which the directors approved directives detailing specific job responsibilities of all bank employees. The board issued numerous directives, whose effects were to limit Tosh’s managerial authority. At the next meeting of the board of directors, which took place on December 10, 1998, the minutes state that Tosh informed the board that he was outsourcing payroll functions, and the board directed Tosh not to outsource the payroll due to the limited number of employees. At the first board meeting of 1999, which took place on January 14, Tosh reported that he had found a bank in Perry whose hardware and software systems were sufficiently compatible with those of First Bank that it might serve as a backup source for disaster recovery. The directors requested that Tosh find a second site, but Tosh justly responded that their first priority should be testing the Perry bank to see if the backup plan could be implemented there. By this time, Tosh was handling Y2K issues, as well as other operational matters, such as compliance with the requirements of the Bank Secrecy Act, collection matters, and some internal control issues. As to these matters, Respondent Gunti was also intimately involved. By letter to Wells and the other directors dated February 7, 1999, Tosh complained about their use of directives without obtaining management input to solve the problems of the bank. In particular, Tosh criticized directives that could delay time-sensitive projects, such as Y2K testing. Tosh also noted a tendency for the directors to provide employees with binders full of policies and procedures, rather than hire experienced, competent employees capable of implementing bank policies. Addressing Wells, Tosh suggested that “it is time for him to limit his duties to those that we agreed on at the time of my interviews.” He added: “it is clear that nearly everyone that works here at the bank has a difficult time working with Mr. Wells. This level of frequent tension is not conducive to a productive workplace. Furthermore, tension produces turnover.” Turning to recent accomplishments, Tosh commended Jufer and Giddens for their work. Referring to the recent FDIC examination, which resulted in the ROE dated December 7, 1998, Tosh observed that as many as seven FDIC examiners had been at the bank for four weeks. Conceding that they were only doing their job, Tosh wrote that the timing of the examination “could not have been much worse for us.” Exacerbating the disruption to staff, such as Jufer and Giddens, was that the examiners were having the same problem that staff has in finding necessary records. Turning to work to be undertaken, Tosh noted that First Bank was having trouble finding a senior loan officer, but had obtained an extension to mid March from Petitioner to fill this position. Referring to marketing, Tosh conceded that he had not been active and that the bank needs to grow, but, when he had agreed to take on substantial marketing duties, he had had no idea of the “chaos” present at First Bank. As for Y2K mainframe testing, Tosh expressed his concern that the bank has no one with the expertise to evaluate their testing. Tosh concluded this portion of the letter with his concern, shared by the board, of the “lack of income in the near term for the bank.” He repeated his expectation, first stated during his interviews, that he hoped that the bank would spend the money to prepare to make profitable loans. On this point, he reemphasized the importance of a good senior loan officer who, although costly, would bring a book of business to First Bank. Tosh described the building as “exceptional,” but “filthy dirty” inside and lacking bright lighting and signs at night. Tosh concluded his letter by returning to the issue of Wells. Asserting that “Wells has steadfastly held onto the CEO functions,” Tosh warned that he would not remain with First Bank only to serve as a branch manager and ensure apparent compliance with the Consent Order. Tosh asked the board to “reassign and limit [Wells’] continued management function.” At the meeting of the board of directors on March 30, 1999, Tosh reported that the testing at the Perry bank had been successful, and the board reminded him that they wanted a second backup site. The minutes of the March 30 meeting reveal another aspect of the disorganization of First Bank. Hampering the bank’s efforts to timely find documents and present an attractive place to bank for customers, the minutes note that several directors “had complained of the organization and clean-up of internal Bank facilities because of the unsightly stacking of binders, file boxes standing in the teller areas visible to customers, records stacked in the lounge area, discarded equipment being stacked in a pile in the lounge area, waste materials needing shredding or other destruction, [and] unsightly organization of the storage areas (including material storage).” However, the minutes of the special meeting of the board of directors on August 18, 1999, disclose that, five months later, the unattractive disarray and obvious disorganization of the bank’s premises continued to be a problem. At a special meeting of the board of directors on April 12, 1999, the directors emphasized the need for prompt action on marketing and business development. The [Acting] Chairman [Respondent Gunti] restated the continuing operating loss must be addressed by management promptly. He again reaffirmed repeated requests for a marketing plan from Mr. Tosh and recommendations for business development activity. The Chairman stated that the Bank staff is being underutilized for customer service because of the poor attendance of customers. . . . At a special meeting of the board of directors on April 20, 1999, the directors asked Tosh to review available services for prospective customers and to survey competitors for the services that they provide customers. At the meeting of the board of directors on April 22, 1999, Tosh reported that he had made little progress in finding a senior loan officer. However, he reiterated that Wells had not interfered with his performance of his duties. By internal memorandum to the directors dated April 28, 1999, Tosh asked the board to consider Jufer’s compensation. The memorandum states that Tosh had promised her a salary review in six months, if she would initially accept $30,000 annually. Praising her work to this point, Tosh recommended that the board promote her to vice president, raise her salary to $34,000 annually, and pay her a bonus of $2000. At the meeting of the board of directors on May 13, 1999, Tosh reported that the findings of the Y2K examination team were unsatisfactory, and he recommended that the board engage a consultant to review the status of the bank’s Y2K compliance. The minutes are not clear as to the action that the board took, but it did not accept Tosh’s recommendation. Wells opposed this recommendation because he had not yet finished preparing the bank’s Y2K plan. According to the minutes of the May 13 meeting, Tosh again reported that Wells had not interfered with Tosh’s performance of his duties and that efforts to find a senior loan officer had not been successful. On questioning by directors as to possible interference by Wells, Tosh noted one incident in which a signature on a bank check had been lined out, but Respondent Gunti stated that he had done it because he was not aware of the nature of the payment. Illustrative, though, of the extent to which the directors involved themselves in management, Tosh had written the check to purchase some much-needed office furniture. Again, the directors inquired about the marketing efforts. The minutes note that Tosh was to have implemented a call program, but he had been unable to do so. The May 13 minutes also disclose that the directors had appointed Giddens as vice president and comptroller. Two days later, Tosh announced his resignation, effective June 15, 1999. Jufer also resigned at this time. By memorandum dated May 25, 1999, to the board of directors, Tosh warned that First Bank needed immediately to engage a consultant to assure timely Y2K compliance. The memorandum states: “We are lay people trying to do a specialty project. . . . Since the overall Y2K plan should have been done last summer, we are risking too much by doing it at this late date by ourselves.” Petitioner called Tosh as a witness, and his testimony was somewhat adverse to Respondents. However, Tosh testified that Respondents Gunti and Minor participated actively in directors' meetings and were concerned about compliance with the Cease and Desist Order and Consent Order. Tosh also testified that, by the summer of 1999, the mainframe and software were Y2K compliant. This testimony is credited. Tosh’s experiences at First Bank reveal the detailed level to which directors involved themselves in management issues, although, for a bank as small as First Bank, this is not unusual. However, Tosh’s experiences also reveal some of the shortcomings of the directors in handling management issues. The directors repeatedly misprioritized important tasks. From the start of their relationship with Tosh, for example, the directors were preoccupied with Tosh's spending valuable time finding a second backup site. As Tosh recognized, this would have been a misallocation of limited resources given the numerous operational challenges lying ahead of First Bank, especially as to Y2K compliance. Later, the directors became preoccupied with Tosh's spending time marketing First Bank. Although Tosh could have improved revenues by focusing more effort in marketing, his insignificant shortcomings in marketing had considerably less effect on revenues than did the directors’ misguided refusal to take Tosh’s recommendations to pay a sufficient sum of money to attract a senior loan officer with a book of business and to hire a Y2K consultant in May of 1999. The failure of the directors to timely obtain expert Y2K assistance proved especially costly to bank revenue later in 1999 after a deposit runoff due to adverse publicity surrounding First Bank. Although First Bank’s hardware and software were in fact Y2K compliant when Tosh departed, the directors failed to appreciate the magnitude of the remaining tasks of demonstration testing and preparation of a Y2K compliance plan, which Wells, despite his unfamiliarity with hardware and software systems, had been trying without success to prepare. However, Tosh also serves as a useful reference point concerning the overall condition of First Bank, despite the managerial shortcomings revealed during his tenure. Two weeks after his departure, Tosh introduced investors who, with Tosh, were interested in purchasing the stock of First Bank. At a special meeting of the board of directors on June 8, 1999, the directors approved the hiring of T. Dale Ferguson (Ferguson) as loan officer, effective June 15, 1999. At a regular meeting of the board of directors on June 10, 1999, the directors approved the hiring of Ferguson as senior loan officer, subject to regulatory approval. At a special meeting of the board of directors on June 24, 1999, the directors approved the appointment of Giddens to the position of interim president, pending the conclusion of an advertisement campaign for a permanent president. As Wells and Respondent Gunti noted, though, the adverse publicity received by First Bank had also hampered its search for a president. By letter dated July 14, 1999, to the board of directors, Petitioner notified each director that he was in violation of the Consent Order and Settlement Stipulation and, absent corrective action within 90 days, Petitioner would seek administrative fines in the amounts of $10,000 against Wells, $5000 against Respondents Alters, Drummond, and Gunti, and $2500 against Respondent Minor. At a special meeting of the board of directors on July 16, 1999, the directors approved the hiring of outside counsel to defend the bank in the legal action brought by the minority shareholders. Also, noting deficiencies cited by the FDIC in First Bank’s Y2K compliance, the directors approved an enlargement of the duties of a consultant, Reed Dearing (Dearing), to various Y2K duties. At a special meeting of the board of directors on August 10, 1999, the directors reviewed with Ferguson the marketing plan to increase bank revenues. The directors approved an executive directive specifying officer marketing activity and asked Ferguson to survey the activity of competitors to assist the directors in strategic planning. At a meeting of the board of directors on August 26, 1999, Ferguson, who was serving as Y2K project manager for First Bank, reported that the bank’s Y2K plan had failed to win approval for a second time, and the bank had assigned to Dearing the task of rewriting the plan. A letter dated August 23, 1999, from Dearing to Wells states that the May 13, 1999, business resumption contingency plan, which First Bank adopted as part of its Y2K plan, lacked necessary content, made vague assumptions, and was extremely wordy and unreadable. The letter notes that Y2K work by Ferguson has been hampered by the failure of the board to delegate him any authority, so that he must continually seek board approval for all decisions. Dearing noted that the deficiencies in the business resumption contingency plan were the focus of the FDIC’s pending Safety and Soundness Order. After Tosh’s departure, Giddens continued to work on the books and records. Although he had already completed the majority of the work, considerable, detailed effort remained. Having already restored the books and accounts so that they were accurate on a going-forward basis, Giddens analyzed information, often years old, to achieve a comprehensive balancing and reconciliation. Eventually, the main adjustment was an addition, to the bank’s favor, of $21,214.36 to the cash items account, as accepted by the board of directors on October 29, 1999. At the request of Petitioner’s examiners, Giddens issued corrected call reports to reflect this adjustment. The best indicator of the point of completion of Giddens’ work on the books and records is found in the minutes of a special meeting of the board of directors on August 31, 1999. The outside auditor appeared at the meeting and informed the directors that he was again working on his audit for the years 1996 and 1997, which he had been forced to suspend due to the condition of the books and records. On August 18, 1999, outside auditors issued an independent auditors report concerning First Bank’s financial position through 1998. As interim president of First Bank, Giddens was only employed at the rate of $14 hourly for an average of 15 hours of week. Freely expressing his dissatisfaction with his rate of pay, although not the hours, Giddens nevertheless testified that Wells had not interfered with Giddens’ performance of his duties. In reality, those duties are more in the nature of a chief financial officer, not chief executive officer. Giddens has over 30 years’ experience in bank auditing and accounting, including internal controls. His limited experience in operations derives from an assignment to Jamaica on which he was to hire and train a bank auditor, but, due to an unexpected strike, Giddens had to run operations for a relatively short period of time. Working on the books and records, Giddens gained a unique insight into the problems of First Bank. For example, where Wells might complain generally about employees misusing forms, Giddens encountered specific instances, such as the practice of some employees to use loan checks when they ran out of cashier checks, thus leaving both accounts out of balance. As his work on the books and records began to reach completion in the summer of 1999, Giddens devoted more time to internal controls. Dual control of sensitive assets, such as travelers’ checks or the night deposit box, poses unique problems for a bank with only a half of a dozen employees. However, Giddens implemented numerous internal controls to reduce the risk of employee theft. For example, under Giddens, First Bank imposed dual control upon travelers’ checks, even though Giddens had never seen another bank have to do this; Fedline wire transfers (where one person had to load and another person had to transmit), even though First Bank’s wire transfer procedures left it no more exposed to risk than had the procedures of Barnett Bank, where Giddens had worked for many years immediately prior to coming to First Bank; tellers’ cash drawers, for which different persons do unannounced money counts; and official checks, where, due to employee attrition, different persons perform the necessary reconciliations. As for internal auditing, Giddens admitted that First Bank lacks a program, but, befitting a bank of its size, has internal control systems that are verified periodically by independent persons. As Respondents Gunti and Minor testified, the directors do not do internal audits, but Giddens does. In fact, on December 20, 1998, Giddens and Tosh found a $1700 shortage in one teller’s cash box, and they referred the matter to the state attorney’s office. As for accounting practices, Giddens detailed all of the objections of Petitioner’s examiners and rebutted each of them or showed that they did not present a material risk of loss or damage. As for security practices, Giddens acknowledged that the combinations and locks had not been changed since the departure of Tosh, and the bank needs to deal with these issues. However, the bank had already dealt with minor deficiencies with the bait money that it supplies tellers in the event of a robbery. In general, Giddens testified credibly that First Bank is adequately staffed to handle the volume of business that it experiences. As described by Respondent Gunti, First Bank handles only about 40 transactions daily. At a special meeting of the board of directors on September 17, 1999, the directors gave Ferguson the authority to do whatever was necessary to implement the Y2K plan, including the business resumption contingency plan, and authorized him to purchase, on a competitive basis, needed items, as outlined in a Y2K budget. At a meeting of the board of directors on September 29, 1999, the directors for the first time in this record cast opposing votes as to a matter. Respondent Alters noted that the directors had received a letter of intent to purchase the assets or stock from the Bank by Evergreen Bancshares, Inc., evidently a different group from that in which Tosh had been involved. Wells moved that the board require the prospective purchaser first to provide background information, but Respondent Alters moved that the directors waive this requirement and consider the prospective offer directly. Joining Wells were Respondent Drummond and Wells’ son, who had been recently appointed to the board, so that Respondent Alters’ attempt to waive the requirements was defeated. However, Respondent Drummond later switched his vote, so that the directors waived the requirements that the prospective purchaser first provide background information. At Wells’ request, the directors deferred consideration of the matter until October 1, 1999. At the same meeting, Ferguson reported to the directors that the FDIC had rejected the first two Y2K plans submitted by First Bank. Dearing had given management a rough draft of his rewrite on September 15, 1999, but management had made some changes with which Dearing had disagreed. The Y2K committee had adopted a revised plan on September 27, 1999, but the FDIC had recently informed the bank that it had to rewrite the entire Y2K plan. Ferguson reported to the directors that he had deferred implementing his business development responsibilities until he had completed his Y2K tasks. At a special meeting of the board of directors on October 4, 1999, the directors agreed to respond to the Evergreen letter of intent, but to require certain conditions precedent to further discussion, including disclosure to the directors of the amount of the purchase offer to the minority shareholders. At a special meeting of the board of directors on October 25, 1999, the board of directors discussed the Safety and Soundness Order and the Y2K deficiencies cited in that order. At a meeting of the board of directors on October 29, 1999, the directors addressed earnings, noting that expenses were over budget and income was under budget. They discussed the continuation of an operating loss and addressed Ferguson’s marketing activity, which remained on hold until resolution of the Y2K issues. Directors advised Ferguson that customer service and attention to detail would increase revenues, not, as he had tried, reduced banking costs. By letter dated November 12, 1999, to the board of directors, Ferguson noted that the FDIC had still not determined that First Bank was Y2K compliant. However, according to his letter, the FDIC Y2K examiner had said that the plan looked “fine,” but that the FDIC had not issued a written determination. Ferguson detailed recent Y2K activity, documenting his considerable efforts at securing regulatory approval. At a meeting of the board of directors on November 12, 1999, the directors discussed five loan delinquencies. The largest of the loans was for about $101,000 and was secured by a first mortgage on a residence valued at $400,000 several years ago. The smallest loan was for $649. A third loan was due to an internal error by First Bank in which it credited an account with $22,000 and did not discover the error for five months. After obtaining a note from the account holder, First Bank received a couple of payments, but had received nothing more, and collections prospects were dim. The last two loans were to Respondent Alters. One was a $20,000 unsecured note for leasehold improvements that became due on August 1, 1999. Respondent Alters had requested a renewal of the loan. The other loan was for a balance of $2800, which had been renewed in January 1999 for an additional 18 months; however, Respondent Alters had already fallen behind by three monthly payments of $153 each. Respondent Alters assured Ferguson that he would pay the past- due payments on these loans. Also at this meeting, Ferguson assured the directors that First Bank had complied with all Y2K requirements and should be certified as having done so. Ferguson stated that the bank had discharged all of its responsibilities under the Safety and Soundness Order, except for mailing notices to shareholders at the next regular communication with shareholders. At a special meeting of the board of directors on November 19, 1999, the directors told the chair of the loan committee to obtain from Respondent Alters adequate security for the $20,000 unsecured loan, as well as to require that Respondent Alters bring current a first mortgage loan and home equity loan secured by his residence. Ferguson advised the directors that Petitioner’s examiners, as part of their examination resulting in the September 13, 1999, ROE, would require that First Bank add $16,000 to its loan loss reserves due to the loans to Respondent Alters and the account holder wrongly credited with $22,000. Giddens also informed the board that one of Petitioner’s examiners had told him to amend the bank’s call reports to reflect the $21,214.36 credit to the cash items account. At a special meeting of the board of directors on November 23, 1999, Petitioner’s Bureau Chief and counsel presented the September 13, 1999, ROE. The Bureau Chief noted that the condition of First Bank was “very poor” with continuing violations of laws and regulations, deficiencies in internal controls, and other problems. The Bureau Chief stated that the “basic reason” for these problems was Wells, and he restated an earlier demand, which he had presented to the directors in the summer, that they remove Wells from the board and as general counsel. The Bureau Chief stated that Petitioner would bring an enforcement action, if the directors failed to act. Respondent Minor noted that the other directors could not legally remove Wells, and the Bureau Chief acknowledged the obvious problem posed by directors trying to remove another director who was the majority shareholder. Petitioner’s counsel added that Petitioner would prove by clear and convincing evidence that Wells is “in complete control of the bank and its operation.” An FDIC representative attending the meeting noted that First Bank would be upgraded from unsatisfactory, presumably concerning Y2K compliance. Petitioner’s examination of First Bank ran from September 13 to October 15, 1999. The ROE dated September 13, 1999, contains an composite CAMELS rating of 4 and component ratings of 2 for capital, 2 for assets, 5 for management, 4 for earnings, 3 for liquidity, and 3 for sensitivity. There can be no dispute concerning the ratings for capital, assets, and earnings. As for earnings, First Bank was experiencing an operating loss in 1999 and a downward trend in earnings. A rating of 4 for earnings indicates “intermittent losses” and “significant negative trends.” The record likewise permits no challenge to the rating of 3 for sensitivity, as the bank did not maintain an active system for identifying, measuring, and monitoring interest rate risk. A rating of 3 for sensitivity indicates either that the “control of market risk sensitivity needs improvement or that there is significant potential that the hearings performance or capital position will be adversely affected.” First Bank needed to improve its control of market risk and therefore did not merit a rating of 2 for sensitivity. The liquidity rating of 3 is clearly erroneous, however. The examiner assigned to this component correctly rated First Bank a 2, but the examiner in charge changed the rating to a 3. In doing so, the examiner in charge weighed the loss of nearly three quarters of a million dollars in deposits. The ROE states that public knowledge of First Bank’s Y2K difficulties had resulted in a decline in liquid assets. Although the ROEs dated December 7, 1998, and March 20, 2000, were not admitted for the truth of their contents, their contents are available to impeach other evidence. Both the 1998 and 2000 CAMELS ratings for liquidity were 2. The liquidity ratio in 1998 was substantially the same as the liquidity ratio in 1999; both years, the ratio of cash and short-term, marketable securities to deposits and short-term liabilities was around 30 percent. Likewise, the 1999 ratio of net loans and leases to total assets--63.69 percent--had not changed significantly from the prior year. The reliability of First Bank on potentially volatile liabilities had actually halved from 1998 to 1999. Another improvement as to liquidity from 1998 to 1999 was that First Bank had increased its credit line with the Independent Bankers’ Bank of Florida by $1 million to $1.713 million. The 2000 liquidity analysis also undermines the 1999 liquidity rating of 2. The 2000 ROE found that First Bank, misinterpreting a state statute, had reserved an additional 15 percent of a specified amount, resulting in the maintenance of more generous levels of liquidity than required. It is a likely inference that First Bank similarly misinterpreted the statutory requirement in 1999. The 2000 analysis also notes that the deposit base stabilized through the end of 1999, after an earlier runoff. The 2000 analysis states that the bank’s largest depositor is the Welco Investment Trust, which maintains 22 percent of the total deposits and is controlled by Wells. One adverse development arising after the 1999 ROE is that First Bank appears no longer to have its line of credit with Independent Bankers’ Bank of Florida. But the 2000 analysis notes that the loan portfolio, reflecting the bank’s “extremely conservative collateral-based lending philosophy,” does not leave it particularly vulnerable to economic risk, especially given the strength of the local economy, including real estate, which accounts for 70 percent of the bank’s loans. Referring to the FDIC Examination Manual definitions of ratings for liquidity, the 3 assigned in the 1999 ROE is clearly erroneous, probably reflecting undue weight assigned to a few months during which the Y2K runoff was at its height and apprehension that the deposit runoff might continue. A rating of 3 means that the bank’s liquidity levels or funds management practices are in need of improvement--facts not present in this record. A rating of 2 indicates satisfactory liquidity levels and funds management practices, even though “[m]odest weaknesses” may accompany funds management practices--facts clearly supported by this record. Of course, the key component is management, for which the 1999 ROE assigns First Bank a 5. As defined in the FDIC examination manual, this rating is reserved for management and directors that have not “demonstrated the ability to correct problems and implement appropriate risk management practices.” These uncorrected problems “now threaten the continued viability of the institution.” The rating of 4 accommodates “deficient management or board performance” in which the “level of problems and risk exposure is excessive.” Under a rating of 4, uncorrected problems “require immediate action by the board and management to preserve the soundness of the institution.” As distinguished from a rating of 5, for which replacing or strengthening management or the board is “necessary,” a rating of 4 means that replacing or strengthening management or the board “may be necessary.” A rating of 4 for management, thus, hardly represents a regulatory endorsement. To the contrary, a rating of 4 accommodates significant management deficiencies. Although not as severe as the irredeemable and comprehensive incompetence reflected by a rating of 5, these management deficiencies may nonetheless eventually impact the soundness of the institution and may only be correctable by the replacement of the incompetent parties. The present record supports a management rating of 4, not 5, in the 1999 ROE. The most difficult rating to examine is the composite rating. Under the FDIC Examination Manual, a bank with a 5 for any component generally cannot qualify for a composite rating of 3. Therefore, with a 5 in management, First Bank properly should have received no better than a composite rating of 4, which First Bank received in the 1999 ROE. However, raising the management component to a 4 and the liquidity component to a 2 increases the likelihood that the correct component rating would be 3. The distinction between the composite rating of 3 and 4 is the distinction between an institution that requires only “some degree of supervisory concern” and one that is engaging in “unsafe and unsound practices.” This is the basic question posed by these cases. In 1998 and 1999, First Bank accomplished much, including the two main tasks confronting Tosh: cleaning up the books and records and attaining Y2K compliance. Later in 1999, First Bank implemented greater internal controls, obtained an independent audit of its financial position, and implemented improved accounting, data processing, and security procedures. Even in management, First Bank showed some improvement in late 1998 and 1999, as reflected in part by the gains in the areas identified in the preceding paragraph. Capable persons filled key managerial roles during this time. From the time of Wells’ resignation as president to the present, Giddens has ably served as cashier, although not, as nominally titled, as president. For nearly the same period, Ferguson has served well as senior loan officer; for the reason noted in the Conclusions of Law, his post-hearing departure--probably not a positive development--is not properly included in this record. For the first part of this period, Tosh served ably as president. Petitioner claims that Wells effectively served as president during Tosh’s tenure. However, despite Tosh’s letter somewhat to the contrary, Tosh’s assurances to the board were consistent. Frankly, the best inferential proof that Wells was not serving, in effect, as president during Tosh’s tenure was the success enjoyed by Tosh, Giddens, and Jufer and, thus, First Bank. When Wells was in charge, the operations of First Bank suffered; after Wells resigned as president, the operations of First Bank improved substantially. The other board members made an honest effort to ensure compliance with the Consent Order, and they were successful. Petitioner claims that Wells effectively served as president after Tosh’s departure. As already found, Giddens was not really the president. However, he performed some tasks that might be associated with a chief executive officer, and the directors and Ferguson performed the remainder. Wells did not rise above the rest of the directors and seize executive control of First Bank after Tosh left. Gradually, the other directors, especially Respondents Gunti and Minor, acquired more experience with banking operations and were better able to discharge these tasks. The directors held numerous meetings, sometimes only days apart, from 1997 through 1999. Some of the directors visited the bank almost daily. Although they did not oppose Wells often, they did on at least two occasions. In addition to the handling of the already-discussed Evergreen offer, Respondents Gunti and Minor, evidently as part of a majority of the board, wisely prevailed upon Wells to sign the Settlement Stipulation. Undoubtedly, the directors have been influenced by Wells, at times strongly. However, this influence does not, as Petitioner contends, mean that Wells has reasserted his previous duties as president. It is more likely that this influence is due to Wells’ status as the majority shareholder, largest depositor, and, despite his shortcomings, only board member with legal and banking experience. By permitting Wells to serve as a director, consultant, and general counsel, the Consent Order necessarily permitted Wells to occupy a significant role in guiding the affairs of First Bank, especially when, as here, the directors have assumed greater management responsibilities. Undoubtedly, the directors, other than Wells, still offer more in enthusiasm and dedication than they do in experience in banking operations. But they, perhaps including Wells, have demonstrated the capacity to learn from past mistakes. At present, there is a reasonable chance that the other directors will continue to develop and exercise independent judgment, so as not to follow Wells’ occasional invitation to preoccupy themselves with unimportant details rather than larger issues. At the same time, the other directors will have the benefit of the example of Wells’ conservative banking philosophy, tight-fisted control of costs, and overall commitment to the bank. At times, Wells’ leadership has been wrongheaded, as evidenced by his preoccupation with trying to complete the Y2K business resumption contingency plan despite his clear lack of qualifications. At times, Wells’ leadership has been indiscriminate, as evidenced by his preoccupation with controlling costs at the expense of missed opportunities for innovation and growth. At times, Wells’ leadership has been absent, as evidenced by his bizarre denunciation of the job market when he and the other directors badly needed to make some tough decisions to stop excessive employee turnover and retain qualified management. It is unclear whether Wells will respond to this regulatory intervention by maturing as a director and allowing the other directors and bank management also to develop, perhaps in different directions. If Wells is unable to do so, this regulatory intervention notifies him that future material deficiencies in his performance will become increasingly costly for him personally and also, eventually, for the bank to which he has devoted himself. As discussed in the Conclusions of Law, for the extraordinary relief of removal or restriction of a director, Petitioner must first prove a willful violation of the Consent Order or Settlement Stipulation. These documents incorporate the Cease and Desist Order, but not, for the reasons explained in the Conclusions of Law, the Safety and Soundness Order. The considerable and reasonably successful efforts, during late 1998 and 1999, of all of the directors, including Wells, to overcome the considerable problems facing First Bank preclude a finding, by clear and convincing evidence, of a willful violation of the Consent Order or Settlement Stipulation. Even if Petitioner had proved a willful violation of the Consent Order or Settlement Stipulation, it would have to prove, by clear and convincing evidence, that, as a result of the violation, First Bank will likely suffer loss or other damage, that the interests of the depositors or shareholders could be seriously prejudiced, or that Wells has received financial gain and, as to the financial-gain criterion, the violation involves personal dishonesty or a continuing disregard for the safety and soundness of First Bank. Petitioner has failed to prove that any violation will likely cause First Bank to suffer loss or damage or could cause serious prejudice to depositors or shareholders. It is unnecessary to consider at length the financial-gain criterion because, even if Petitioner had proved financial gain to Wells, Petitioner has not proved any dishonesty or disregard for the bank’s safety and soundness in Wells’ compensation. For these reasons, Petitioner is not entitled to an order removing or restricting Wells. This finding would be unchanged by the application of the preponderance standard of proof. However, as noted in the Conclusions of Law, for the more modest relief of an administrative fine, Petitioner is required to prove, again by clear and convincing evidence, a mere violation of the Settlement Stipulation. As noted in the Conclusions of Law, the fine is up to $2500 daily for any such violation, up to $10,000 daily for a reckless violation, and at least up to $50,000 daily for a knowing violation. Petitioner has proved that Wells violated the Settlement Stipulation by failing to cause First Bank to employ a president after the departure of Tosh and a senior loan officer before the arrival of Ferguson. The record does not suggest that various committees of directors can take the place of qualified persons in these key managerial positions. Although insufficient to establish a reassertion of presidential duties, Wells' position of leadership on the board, as well as the focus of the Consent Order in removing Wells as president, fairly impose upon Wells personally the monetary responsibility for these failures. The record amply supports the inference that, if Wells had wanted to fill these two key managerial positions at all times, the board would have done so. It did not because Wells did not. As Petitioner must live by the deal that it struck, so must Wells. It is unnecessary to determine Wells’ state of mind in connection with these violations of the Settlement Stipulation. The periods of noncompliance as to the positions of president and senior loan officier lasted far longer than four days, so the $2500 daily fine, which does not require a reckless or knowing violation, justifies considerably more than the $10,000 fine that Petitioner seeks to impose at this time. This is a personal fine for which Wells shall neither seek nor accept reimbursement, directly or indirectly, from First Bank. As discussed in the Conclusions of Law, Petitioner is entitled to the costs of examination and supervision only if it proves, by a preponderance of the evidence, that First Bank has engaged in an unsafe or unsound practice. Petitioner has failed to prove such a practice. In particular, Petitioner has failed to prove that any violation of an order from Petitioner or the FDIC creates the likelihood of loss, insolvency, or dissipation of assets or otherwise prejudices the interest of the specific financial institution or its depositors. Even if Petitioner had proved such a practice, it would be precluded from recovering any costs, at this time, due to the recent pressure upon First Bank's earnings and the extraordinary expenditures that it made during 1999 in improving its operations and responding to regulatory interventions. Obviously, though, this finding is not an exemption from the responsibility to pay such costs in the future, under appropriate circumstances. The final issue is whether Respondent Alters waived his right to demand a hearing. The Administrative Law Judge gave Respondent Alters the time between the two sets of hearing dates to obtain from an old computer a print-out of a letter in which he claimed to have requested a hearing. Petitioner’s representatives disclaimed any knowledge of such a letter. Producing a dated letter at the latter portion of the hearing, Respondent Alters was required to admit that, although he had not earlier disclosed this substantial addition, he had typed in the date shown on the letter between the dates of the two hearings. Respondent Alters did not timely request a hearing, and he waived his right to request a hearing. Petitioner is thus entitled to any and all relief that it seeks against him.
Recommendation It is RECOMMENDED that the Department of Banking and Finance enter a final order: Dismissing Respondent Alters’ request for a hearing as untimely filed under circumstances showing that he waived his right to request a hearing and imposing such penalties as the department deems fit, consistent with law. Dismissing the department’s claim for reimbursement of examination and supervision costs from First Bank for the 1999 examination. Imposing a $10,000 fine against Respondent Wells, with a condition that he pay the fine personally and neither seek nor accept reimbursement, directly or indirectly, from First Bank. Dismissing all other claims for relief against Respondent Wells and all claims for relief against the remaining respondents, other than Respondent Alters. DONE AND ENTERED this 8th day of March, 2001, in Tallahassee, Leon County, Florida. ___________________________________ ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of March, 2001. COPIES FURNISHED: Honorable Robert F. Milligan Department of Banking and Finance Office of the Comptroller The Capitol, Plaza Level 09 Tallahassee, Florida 32399-0350 Robert Beitler, Acting General Counsel Department of banking and finance Fletcher Building, Suite 526 101 East Gaines Street Tallahassee, Florida 32399-0350 Richard T. Donelan, Jr. Chief Banking Counsel Robert Alan Fox Assistant General Counsel Department of Banking and Finance Suite 526, The Fletcher Building 101 East Gaines Street Tallahassee, Florida 32399 William G. Cooper Cooper, Ridge & Beale, P.A. 200 West Forsythe Street, Suite 1200 Jacksonville, Florida 32202 Jeffrey C. Regan Hendrick, Dewberry & Regan, P.A. 50 North Laura Street, Suite 2225 Jacksonville, Florida 32202 Timothy D. Alters, pro se 2020 Vela Norte Circle Atlantic Beach, Florida 32233 Arthur G. Sartorius, III 1919 Atlantic Boulevard Jacksonville, Florida 32207
Findings Of Fact The Petitioners have filed an application with the Respondent to organize a new bank in Ocala, Marion County, Florida. The name of the proposed bank would be the Citizens First Bank of Ocala. The Petitioners are the organizers and proposed directors of the bank. Each of the Petitioners is of good moral character, and each enjoys an outstanding reputation. None of the Petitioners have been convicted of any crimes involving breach of trust, and none have filed for bankruptcy, or have any history of being bad credit risks. Together the Petitioners constitute a diverse group with very broad and successful business experiences. The Petitioner William R. Kidd is a registered professional engineer and realtor who has lived and worked in Ocala since 1950. Mr. Kidd has broad experience in evaluating various aspects of real estate transactions, and he has extensive experience in arranging financing of construction projects. Mr. Kidd owns a pollution control company which has a net worth of approximately $25,000 and a real estate business with sales since 1975 in excess of $10,000,000. He also manages and operates a successful consulting engineering firm. Mr. Kidd plans to invest $40,000 in the new bank, and he has sufficient funds readily availably to make that investment. Mr. Kidd is willing to invest more money in the enterprise if additional capitalization is required. Mr. Kidd is interested in working with the bank, particularly in relation to financing of real estate transactions, and construction projects. The Petitioner Ralph Murphy was born in Marion County and has spent most of his life there. Mr. Murphy owns a linen service company which does approximately $18,500 to $19,000 in business weekly. The linen service, which Mr. Murphy has managed since it was a small entity doing less than $2,500 in business weekly, has a net worth of approximately $900,000. Mr. Murphy serves on the Boards of Directors of several other corporations. Mr. Murphy intends to purchase $40,000 of stock in the proposed new bank, and he has funds readily available with which he can do that. Mr. Murphy is willing to devote as much time as is necessary to organize the bank. The Petitioner Milton L. Copeland manages an insurance firm which writes commercial insurance policies for businesses in Florida and in Georgia. His company has offices in Ocala and Jacksonville. The Ocala office writes approximately $2,000,000 in insurance policies annually. The Jacksonville office writes approximately $15,000 in policies weekly. Mr. Copeland has a personal net worth of approximately $800,000. Mr. Copeland intends to buy $40,000 worth of stock in the proposed new bank, and he has funds readily available for that purpose. Mr. Copeland wishes to take an active part in soliciting new accounts for the bank, and he could devote as much as two full days per week to bank activities. If further capitalization of the proposed bank were considered necessary, Mr. Copeland is willing to increase his investment in the bank. The Petitioner James Cunningham owns and operates a funeral home business in Ocala. He has lived in Ocala most of his life. The dollar volume of Mr. Cunningham's business during 1976 was approximately $250,000. Mr. Cunningham is a City Councilman in Ocala. He is a black man. It has only been in recent years that blacks have even been employed at local banks, and no blacks presently serve on the Boards of Directors of any banks operating in Ocala or Marion County. Mr. Cunningham intends to purchase $40,000 worth of stock in the new bank. He will need to borrow no more than 25 percent of that amount in order to make the investment. Mr. Cunningham desires to take an active part in soliciting accounts and customers for the new bank, and he is willing to devote whatever time would be required for that purpose. The Petitioner Marjorie Renfroe owns and operates a boat, motor and trailer sales and service business in Marion County. Her business had gross sales during 1976 of approximately $350,000. Ms. Renfroe serves on the Board of Directors of the United Way in Marion County, and on the Board of Directors of the Central Florida Community College. Ms. Renfroe plans to buy $40,000 worth of stock in the new bank, and if further capitalization were found necessary, she is willing to increase her investment, and is able to do so. Ms. Renfroe is willing to devote as much time as necessary to managing the new bank, and she is particularly interested in providing services to employees and students of the local community college, especially instructional sorts of courses for students. No women presently serve on the Boards of Directors of any banks in Marion County. One woman serves on the Board of Directors of a savings and loan institution in Marion County. The Petitioner Van G. Staton manages a Belk-Lindsey Department Store in Ocala, Florida. He has lived in Ocala and managed the department store since 1956. The store employs 48 persons and had gross sales during 1976 of approximately $3,000,000. The annual payroll of the store is $400,000 to $500,000. The Petitioner serves on the Board of Directors of a local automobile sales and service corporation, and from 1970 through 1975 he served on the Marion County School Board. Mr. Staton plans to purchase $40,000 of stock in the new bank, and he would not need to borrow more than 50 percent of that amount. Mr. Staton would favor additional capitalization, and would be willing to increase his investment. Mr. Staton is particularly interested in having extended business hours in the new bank beyond the hours presently served by banks operating in Marion County, and Saturday openings. He is willing to spend as much time as is necessary with banking activities. The Petitioner Owen C. Shelton owns and manages two corporations which operate fifteen convenience stores. The total sales for the two corporations was approximately $17,000,000 during 1976. Mr. Shelton has lived in Ocala for 15 years. His personal net worth is in excess of $1,000,000. Mr. Shelton has been in the grocery business for twenty-five years. He started with one small store. His corporations employ approximately 185 persons. Mr. Shelton plans to purchase $40,000 worth of stock in the new bank, and he is willing to increase his investment if further capitalization is required. The Petitioner Terry Trexler is President and Chairman of the Board of Nobility Homes, a mobile home manufacturing business. The company does business in 29 states, and does from 5.1 to 5.2 million dollars worth of business on a quarterly basis. Mr. Trexler has lived in Ocala for 15 years. Mr. Trexler plans to invest $40,000 in purchasing stock in the new bank, and he intends to be active in soliciting new accounts and customers for the bank. The Petitioner Sam Kinlaw is a resident of Orlando, Florida. He has a Bachelor's Degree in Business Administration from the University of Florida, and attended the Banking School of the South at Louisiana State University. Mr. Kinlaw has been active in the banking business, or in similar financial businesses since approximately 1958. He has served as the head of installment loan departments and commercial lending departments of banks in Florida. Beginning in 1972, he became the Chief Executive Officer of the Semoran Bank, which was a new Federally chartered bank. He was responsible for setting up the bank, hiring personnel, establishing policies, and carrying on the day-to-day operations of the bank. He served in that capacity from near the end of 1972 until September, 1975. He has not been involved in the banking business since then. Mr. Kinlaw intends to purchase a "qualifying share" of stock in the bank. He intends to serve on the Board of Directors during the time that the bank is being organized, until other persons with direct banking experience are named to the Board of Directors. The Petitioner Braxton Jones owns and operates several convenience stores and two supermarkets. He has lived in Ocala nearly all of his life. He is prepared to purchase between $20,000 and $30,000 of stock in the new bank, and he is willing to devote whatever time would be necessary to organize and operate the bank. The Petitioner Clarence Woodrow Hicks has lived in Marion County for approximately 30 years. He formerly owned and operated Hicks News Agency, which was involved in the wholesale distribution of magazines, books, postcards and sundry items. He also owned two retail book stores. Mr. Hicks has sold his business and is now semi-retired. He serves as a consultant to the new owners of his business. During the time that he operated the businesses, they did approximately three million dollars of business per year. Mr. Hicks' net worth is in excess of one million dollars. Mr. Hicks has time available to devote to the new bank. The proposed Citizens First Bank of Ocala would, if the instant application were granted, be located at the northwest corner of the intersection of State Road 200 and Southwest 16th Avenue in Ocala. The location is approximately one mile west of Pine Street (Federal Highways 441, 27, and 301), which is the primary north/south artery through Ocala. The proposed bank would be located just over three miles east of Interstate Highway 75. State Road 200 is presently a four lane highway which serves as one of the primary routes from the Interstate Highway into Ocala. Southwest 16th Avenue is presently two- laned, but all right of ways have been acquired and construction will shortly commence to four-lane the road. All of the banks and the savings and loans associations which presently operate in the Ocala area are located east of Pine Street. There are no banking facilities in the Ocala area which are located to the west of Pine Street. Location of a banking facility to the west of Pine Street would serve the convenience of persons in Ocala who live or work on the west side of Pine Street. Pine Street is a very busy highway, which has not been properly designed so that it can be easily crossed. Furthermore, a railroad track runs parallel to Pine Street to the West, and presents an additional barrier. While it is not impossible for persons who live or work on the west side of Pine Street to bank on the east side, the testimony is unrebutted that it is inconvenient to do so due to traffic congestion, and the railroad. There are many persons who reside on the west side, of Pine Street. The area to the north of the proposed bank site is a residential area. There are many low income residences, and trailer park type residential facilities in that area. There are also many moderate income residences to the south and the west of the proposed site all on the west side of Pine Street. The total population of the primary service area, which is designated to be west of Pine Street, is estimated to be 14,300, as of July, 1977. This represents more than a 35 percent increase from 1970 population figures. Many more residences are planned in the area. Over 1,200 new homes have recently been completed, and more than 500 are under construction. Larger residential developments are in the planning stages. There is considerable commercial activity in the areas surrounding the proposed site. The Ocala Industrial Park is located immediately across State Road 200 from the proposed site, and the South 40 Industrial Park is also nearby. Thirty-eight firms presently occupy space in the Ocala Industrial Park, employing more than 1,500 persons and occupying more than one million square feet of building space. Fourteen firms are presently located at the South 40 Industrial Park, employing nearly 350 persons and utilizing more than 300,000 square feet of building space. Both Industrial Parks have experienced steady growth. Many businesses, including several automobile sales and service businesses, have located on State Road 200. Construction is scheduled to begin on a major shopping mall in January, 1978, by the Edward J. DeBartolo Corporation. The mall will be located on State Road 200 just east of Interstate Highway 75. Construction will take approximately 12 months. More than 900 persons will be employed at the mall. In addition, most of the horse farms which surround the Ocala area are located west of Pine Street. There are six banking institutions located in Marion County. The two banks located out of the Ocala area have no particular relevance to this matter. Four banks are located in Ocala. Only one of these banks is an independent bank. The others are parts of larger bank holding companies which are not centered in Ocala. Total bank deposits in Marion County have increased steadily from a total of $176,586,000 in 1973 to $236,336,000 in June, 1977. Although estimates vary, it is evident that the population of Marion County has increased from a 1970 total of approximately 69,000 to a 1977 total of from 104,000 to 127,000. It appears that existing banks in Marion County are in a healthy financial position and are experiencing steady growth. There are many interlocking relationships on the Boards of Directors of the existing banks. None of the Petitioners presently serve on the Boards of any of the existing banks, and this can only promote more lively competition among the banks. Petitioners have proposed to keep their bank open for longer hours than existing banks, and for additional banking days. Petitioners propose to provide specialized counselling for new business people, and education courses for students who attend the nearby Central Florida Community College. It appears that local banks have frequently acted adversely on loan applications from local developers, who have been able to borrow money at favorable rates outside of Marion County. The presently existing banks have not adequately served the very large and active horse farming industry that is located in Ocala, and several horse farmers have needed to go to Gainesville to obtain adequate farm businesses. Banks in Marion County have shown a deposit gain of nearly sixteen percent during the year 1976, as compared to a State of Florida average of approximately 7.4 percent. Of the sixteen counties in which new bank charters were granted in the period from January, 1975, through March, 1977, only two counties had a total deposit growth greater than was experienced in Marion County. A savings and loan association was chartered and opened in Marion County in January, 1975. The association has achieved very good success, and has not proved harmful to other financial institutions, which have also shown steady growth during this same period. Petitioners have projected a net profit at the end of the third year of their operation of $163,300 based on deposits of $10,000,000. A more conservative estimate of a net profit of $61,350, based on $8,000,000 in deposits after three years was estimated by Examiner Howze, a bank examiner who conducted an investigation of the instant application for the Respondent. George Lewis, II, the former Director of the Division of Banking, prepared a proposed budget which showed that the bank would be operating at a loss after three years. George Lewis' estimates are not credible. He estimated that the return on commercial loans would be at a rate of from 7 and 1/4 to 8 percent during the first, second and third years. Nine percent is a more realistic figure, and is itself conservative. The Respondent approved the charter of the Shores Bank of Lake Wier in Marion County which indicated a nine percent return on loans. George Lewis furthermore showed a three percent cost on all demand deposits. This cost is not justified by any factors currently accepted in the banking business. George Lewis apparently based the additional cost on his feeling that the legislature may pass a law requiring banks to pay such a return on all demand deposits. Such speculation has not been shown to be justifiable, and cannot serve as a reasonable factor to be used in predicting a proposed bank's profits. Petitioners propose to issue capital stock in the amount of $1,000,000, and thus to capitalize the new bank in that amount. This is adequate capital to serve the needs of the proposed bank during the first three years of its operation. George Lewis, II, testified that additional, capitalization would be required, but he gave no reason for his opinion. To the extent that additional capital is required, the Petitioners are in a position to raise it, and are willing to do so. Only one of the Petitioners who would serve on the first Board of Directors of the proposed bank has any direct banking experience. All of the Petitioners have engaged in considerable banking activities, but only Sam Kinlaw has served in an active capacity with a bank. The Petitioners propose to hire experienced persons to serve as the bank's Chief Executive Officer and Chief Operations Officer. These persons would also serve on the Board of Directors. The Petitioners do represent a good cross-section of successful business people. Their varied business experiences within Marion County would be very helpful to the new bank. In order to properly operate the bank, however, they will require experienced officers. Consistent with the Respondent's policy, the Petitioners have not yet named their officers. To do so, the Petitioners would place the persons they propose to hire in an untenable position in their present capacities. The Respondent has, in the past, approved bank charter applications for further processing under similar circumstances, so as to allow applicants an opportunity to recruit acceptable, experienced individuals to serve as officers. The Board of the proposed bank, as presently constituted, does not have adequate banking experience so as to assure a reasonable prospect of success. If, however, experienced, competent officers, who will also serve on the Board, are hired, the Board would be such as to assure a reasonable promise of success. The parties have stipulated that the name of the proposed bank, the Citizens First Bank of Ocala, is not so similar to any existing bank as to cause confusion with the name of the existing bank. The property which the Petitioners have obtained for the proposed bank is an excellent location. Petitioners plan to utilize a structure which is already on the land to commence operations. The structure has approximately 3,000 square feet of floor space, is aesthetically appropriate, and can be fairly easily modified to serve as a banking facility. The structure, when modified to increase the size of the lobby and to provide appropriate security measures, should prove adequate during the first three years of the bank's operation. There is sufficient land for additions to be made, and the structure is physically sound so that a second floor could be added. The Petitioners are prepared to increase the size of the facility as required.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED: That the Petitioners' application for authority to organize and operate the Citizens First Bank of Ocala be approved for further processing, and that the application be finally approved when the Petitioners have satisfied the Respondent that they have retained appropriate individuals to serve as the bank's principal officers, and that these persons will also serve on the Board of Directors. RECOMMENDED this 30th day of December, 1977, in Tallahassee, Florida. G. STEVEN PFEIFFER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of December, 1977. COPIES FURNISHED: C. Gary Williams, Esquire AUSLEY, McMULLEN, McGEHEE, CAROTHERS & PROCTOR Post Office Box 391 Tallahassee, Florida 32302 S. Craig Kiser, Esquire Assistant General Counsel Office of the Comptroller Legal Annex Tallahassee, Florida 32304 Joseph C. Jacobs, Esquire Post Office Box 1170 Tallahassee, Florida 32302 Willard Ayres, Esquire Post Office Box 1148 Ocala, Florida 32670 Appendix
Findings Of Fact Petitioner is a state government licensing and regulatory agency charged with the responsibility and duty to prosecute administrative complaints pursuant to the laws of the State of Florida, in particular Section 20.30, F.S., Chapters 120, 455, and 475, F.S., and the rules promulgated pursuant thereto. Respondent Charles B. Harvey, Jr. is now and was at all times material hereto a licensed real estate broker in the State of Florida having been issued license number 0474466 in accordance with Chapter 475, F.S. The last license issued was as a broker t/a Commercial & Investment Realty, 1116D Thomasville Road, P. O. Box 785, Tallahassee, Florida 32317. On or about April 17, 1992, Petitioner's Investigator Juanita Waller conducted a routine office/inspection audit of Respondent at 1116D Thomasville Road, Tallahassee, Florida and discovered that Respondent's trust account #077780-00242743 had an approximate shortage of $3,343.07, calculated as $29,205.00 in total trust liability but only $25,861.93 as reconciled bank balance. Thereafter, the Respondent wrote Investigator Waller and provided evidence that a portion of the missing funds was caused by an $875 "bad check" which had been deposited into his escrow account. Additionally, Investigator Waller found that Respondent failed to properly reconcile his escrow account by comparing the total trust liability with the reconciled bank balance of the trust account, as required by the rules of the Commission. Rather, he had been balancing his checkbook only. Respondent has been completely cooperative with Petitioner agency and upon notification of his errors and omissions immediately began the process of correcting the procedures used in reconciling his escrow account in accord with the requirements of the agency. He also immediately made restitution from his own monies to his escrow account as soon as he was made aware what had happened. It is noted that reconciliation of monthly written statements were not required by the agency until shortly before Respondent was investigated, however he had a duty to apprise himself of all statutes and rules and to govern himself accordingly. Likewise, he accepted "full responsibility" for allowing funds from individual clients' accounts to be used to pay for expenses incurred by other clients' properties, and has taken steps to prevent such occurrences in the future. No loss has been incurred by any party. Respondent has made good any payments owed.
Recommendation Upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED That a Final Order be issued and filed by the Florida Real Estate Commission finding the Respondents not guilty of breach of trust but guilty of culpable negligence as charged in Count I of the Administrative Complaint, guilty of having failed to maintain trust funds in escrow as charged in Count II of the Administrative Complaint, and guilty of having failed to properly reconcile his escrow account as charged in County III of the Administrative Complaint and further ordering that all the Respondent's licenses, registrations, certificates and permits be reprimanded and placed on probation for a period of one year and Respondent be required to pay an administrative fine of $300 (total) within sixty (60) days of the entry of the Final Order and that before the end of the probationary period he successfully complete and provide satisfactory evidence to the Florida Real Estate Commission of having successfully completed the thirty (30) hour Brokerage Management course, these education hours to be in addition to any other professional education required by the Respondent by the licensing provisions of this state, and further providing that if all these requirements not be successfully fulfilled as required by the Final Order, then all the Respondent's licenses, registrations, certificates and permits shall be suspended until all such requirements are completed but in no event shall such suspension exceed ten (10) years. RECOMMENDED this 12th day of January, 1993, at Tallahassee, Florida. ELLA JANE P. DAVIS 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 12th day of January, 1993. APPENDIX TO RECOMMENDED ORDER 92-6154 DOAH CASE NO. 92-6154 The following constitute specific rulings, pursuant to S120.59 (2), F.S., upon the parties' respective proposed findings of fact (PFOF) Petitioner's PFOF: 1-5 Accepted. 6 Accepted as modified. Respondent's filed no PFOF: COPIES FURNISHED: Charles B. Harvey, Esquire 1018-104 Thomasville Road Tallahassee, FL 32303 James H. Gillis, Esquire Department of Professional Regulation Division of Real Estate P. O. Box 1900 Orlando, FL 32802 Jack McRay General Counsel 1940 North Monroe Street Tallahassee, FL 32399-0792 Darlene F. Keller Division Director 400 West Robinson Street Post Office Box 1900 Orlando, FL 32802-1900
The Issue Whether the application to organize Plus International Bank should be approved.
Findings Of Fact On March 24, 2000, the Department received an application (Application) from foreign nationals (Applicants) to organize a new bank, Plus International Bank (New Bank), to be located in Miami-Dade County, Florida. The Department published notice of its receipt of the Application in the April 7, 2000, edition of the Florida Administrative Weekly. The notice complied with the requirements Section 120.80(3)(a)1.a., Florida Statutes, and Rule 3C-105.103(1), Florida Administrative Code.5 By letter dated April 11, 2000, the Department requested the Applicants to supplement their Application with additional information, including information concerning their "promise of successful operation" and the New Bank's "capital structure," its "directors and officers," and its "banking quarters." It was not until November 3, 2000, that the Department received all of the additional information it had requested from the Applicants. The Application identifies four individuals associated with the New Bank who are foreign nationals: Manuel Sacal, Harry Sacal, Alex Sacal, and Roberto Barroso. Manuel Sacal (M. Sacal) is a proposed director of the New Bank and holder of 28% of the bank's outstanding shares of common stock. He is currently the Chief Executive Officer and General Director of Casa De Cambio Plus, S.A. de C.V. (Cambio Plus), a foreign exchange house based in Mexico City, Mexico, and the Chief Executive Officer and General Director of Plusder, S.A. de C.V., a futures brokerage house located in Mexico City, Mexico. As the Chief Executive Officer and General Director of Cambio Plus, a position he has held since 1987, M. Sacal has helped Cambio Plus become one of the largest exchange houses in Mexico. Harry Sacal (H. Sacal), like M. Sacal, is a proposed holder of 28% of the New Bank's outstanding shares of common stock. Alex Sacal (A. Sacal) is a proposed holder of 14% of the New Bank's outstanding shares of common stock. M. Sacal, H. Sacal, and A. Sacal are brothers. They each are citizens of Mexico. Roberto Barroso is a proposed director of the New Bank and holder of 0.1% of the New Bank's outstanding shares of common stock. He is a citizen of Brazil. Mr. Barroso has 30 years of banking experience, primarily in the area of international banking. He has, among other things, managed financial institutions and been involved in making trade financing arrangements. From approximately 1998, until his retirement in June of 2000, he was a Vice-President of Citibank. The other proposed directors of the New Bank identified in the Application -- Enrique Cabanilla, Barry Deutsch, Jaime Medina, Ira Weindruch, Deborah Jacobson, and Patrick Fournie -- are all United States citizens. These individuals, along with Mr. Barroso, have sufficient business experience, ability, standing, and reputation to enable them to perform their duties as the New Bank's directors in a manner that can reasonably be expected to result in the successful operation of the bank. Mr. Cabanilla, who is also identified as the proposed chief executive officer of the New Bank, has had over 30 years of banking experience, with particular emphasis in the areas of international banking and trade finance. He has held banking positions which have required him to be directly involved in credit analysis and approval, bank and personnel administration, direction and control of operations, and the application of routine control and audit functions. In addition, he has been responsible for the management of multi- branch banking operations and all phases of commercial lending. Although Mr. Cabanilla has not had at least one year of direct experience as an executive officer, director, or regulator of a financial institution within the last three years, it appears that he possesses sufficient financial institution experience, ability, standing, and reputation to enable him to perform his duties as the New Bank's chief executive officer in a manner that can reasonably be expected to result in the successful operation of the bank. Mr. Deutsch has had over 30 years of banking/bank consulting experience. He has been an employee of, and consultant to, a number of large United States financial institutions, such as Mellon National Bank, Bank One, and Bank of America. In addition, as a consultant, he has assisted a number of community banks in the South Florida area with strategic planning, marketing, and investor relations. He has also served as a consultant to several Latin American financial institutions, including Banco Popular de Puerto Rico and Grupo Financiero BAC, and to Bank Polska Kasa Opieki in Warsaw, Poland. While Mr. Deutsch has had at least one year of direct experience as an executive officer or director of a financial institution, he last served in such a capacity in 1988. Mr. Medina has had almost 20 years of banking experience, primarily in the area of international banking, and has had a least one year of direct experience as an executive officer of a financial institution within three years of the date the Application was filed with the Department. Mr. Weindruch was an owner and director of RockIsland Bank, an Illinois-state chartered bank, from 1985 until 1991. In addition, he served on the bank's loan, facilities, and personnel committees. He has not served as an executive officer or director of a financial institution since his departure from RockIsland Bank. Ms. Jacobson has extensive experience in the exporting and importing business. She has never been an executive officer or director of a financial institution. Mr. Fournie is the Chief Financial Officer for Surfin, Ltd., the Latin American arm of Direct TV. Prior to assuming his current position, he was employed by Citibank, where he gained considerable experience in international banking. Mr. Fournie has never been an executive officer or director of a financial institution. None of the proposed officers, directors, or major shareholders6 of the New Bank has been convicted of, or pled guilty or nolo contendere to, any violation of Section 655.50, Florida Statutes (which is known as the "Florida Control of Money Laundering in Financial Institutions Act"), any offense described Chapter 896, Florida Statutes, or any other crime. At present, the New Bank does not have a proposed president. The New Bank's business plan reflects that the bank will offer trade financing and commercial loans to small and medium-sized United States exporters and importers located primarily in Florida; commercial loans and small business loans to small and medium-sized businesses in the Miami-Dade County community; and private banking services to high net worth individuals, particularly those who are foreign nationals and permanent or part-time residents of the United States. The Application indicates that, at the time of the opening of the New Bank, 5,000,000 shares of common stock will have been sold at $2.00 per share, producing $10,000,000.00 in start-up capital. (According to the Application, the total number of shares of common stock that the New Bank will be authorized to issue is 7,500,000.) Of the $10,000,000.00 in start-up capital that the New Bank will have at opening, $7,000,000.00 will have been contributed by the Sacal brothers (M. Sacal, H. Sacal, and A. Sacal). Approximately $2,500,000.00 of the remaining $3,000,000.00 in start-up capital has already been raised. The Sacal brothers have committed to increasing their investment in the New Bank after its opening, as circumstances warrant. The Application estimates that net organizational expenses will be $446,642.00. Of the amount ($9,553,358.00) of capital remaining following payment of these expenses, $5,000,000 will be allocated as paid-in capital (5,000,000 shares at $1.00 par value). The New Bank's proposed capital structure will also have paid-in surplus in an amount greater than 20 percent of paid-in capital and a fund designated as undivided profits in an amount greater than five percent of paid-in capital. The initial capitalization of the New Bank appears to be adequate in relation to its proposed business activities. Local conditions in Miami-Dade County indicate reasonable promise of successful operation of the New Bank. The bank's financial plan appears to be reasonable and attainable. The parties have stipulated that the corporate name, "Plus International," is not, and cannot, be reserved with the Department of State inasmuch as the Department of State no longer reserves corporate names. The New Bank, which will be located at 200 South Biscayne Boulevard, Miami, Florida, will have suitable quarters. The Applicants have applied to have the New Bank insured by the Bank Insurance Fund (BIF) of the Federal Deposit Insurance Corporation (FDIC). The application was received by the FDIC on July 11, 2000. DONE AND ENTERED this 9th day of February, 2001, in Tallahassee, Leon County, Florida. ___________________________________ STUART M. LERNER 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 9th day of February, 2001.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: In early January, 1987, the petitioners filed with the respondent their application for authority to organize a state-chartered bank to be located in Sarasota. Notice of receipt of this application was published in the Florida Administrative Weekly on January 16, 1987. The application was deemed complete in March or April of 1987. By an "Administrative Notice for Public Formal Hearing" dated September 18, 1987, and received by the Division Of Administrative Hearings on September 22, 1987, the respondent Department of Banking and Finance, Division of Banking, noticed its intent to initiate a formal hearing concerning the issue of whether to grant or deny the application. That proceeding was assigned to the undersigned as the designated Hearing Officer as Case No. 87-4417. As a result of various preliminary motions filed in Case No. 87-4417, the Department was ordered to file a more definite statement of the issues and/or statutory criteria in dispute between the parties and the final hearing was scheduled for December 16 and 17, 1987. In response, the Department filed an "Amended Administrative Notice for Public Formal Hearing," citing as authority therefore, Rule 3C-9.004, Florida Administrative Code. Due to appellate court proceedings, the December 16 and 17, 1987, final hearing was cancelled and rescheduled for the week commencing February 29, 1988. On January 6, 1988, the petitioners filed with the Division of Administrative Hearings its petition for a determination of the invalidity of Rule 3C-9.004(3), Florida Administrative Code, and the final hearing was held on February 5, 1988. The parties agreed that the final hearing in Case No. 87-4417, regarding the merits of the petitioners' application for a bank charter, should be continued pending a resolution of the instant rule-challenge proceeding. While the State of Florida has enjoyed a period of relative economic health in comparison to other regions of the country, in the past three years there have been a growing number of financial institutions experiencing difficulties related primarily to their financial condition and solvency. During this time period, the Department has found it necessary to close seven commercial banks and six savings and loan associations. Accordingly, when applications for new financial institutions are filed, the Department attempts, during the application process, to ensure the probability of success of the proposed institution. This is done through a period of investigation by the Department's trained financial investigators of all the material submitted by applicants, particularly with respect to the individuals who are named as proposed directors and officers. During the course of the Department's investigation, information frequently is discovered which is at some variance with the information contained in the application. To the extent that it is possible to do so, the Department attempts to reconcile any discrepancies between the application contents and the products of its investigation through informal dialogue or correspondence with the applicant. In instances where there may be questions of credibility on the part of the applicant, that type of informal resolution may not be feasible. The procedural processing of bank charter applications is specifically governed by Section 120.60(5), Florida Statutes, and Chapter 3C-9, Florida Administrative Code. As pertinent to the issues in this proceeding, those statutory and regulatory provisions require the Department to have published in the Florida Administrative Weekly notice of an application within 21 days of its receipt. Section 120.60(5)(a)1; Florida Statutes; Rule 3C-9.003(1), Florida Administrative Code. Within 21 days of publication of notice, "any person may request a hearing.... however, the failure to request a hearing within 21 days of publication of notice shall constitute waiver of any right to a hearing." Section 120.60(5)(a)2, Florida Statutes. Any petition for hearing filed before an application is received or more than 21 days after the publication of notice is void. Rule 3C-9.003, Florida Administrative Code. While all information in support of an application is required to be submitted with the original filing, the Department has the authority to request additional information and ask for the correction of errors or omissions within 30 days of its receipt of the original application. Thereafter, the applicant has 60 days to respond to the Department's request. Rule 3C-9.002(3), Florida Administrative Code. Every application, except for those involving foreign nationals, is required to be approved or denied within 180 days after receipt of either the original application or the timely requested additional information or correction of errors or omissions. Applications not approved or denied within that 180- day period or within 30 days after the conclusion of a public hearing on the application, whichever date is latest, are deemed approved. Section 120.60(5)(c), Florida Statutes. Rule 3C- 9.012(i), Florida Administrative Code. The procedures with regard to financial institutions involving foreign nationals differ in that the Department is required to request that a public hearing be conducted and the 180-day period for approval or denial is extended to a period of one (1) year. Section 120.60(5)(d), Florida Statutes. The statute is silent with respect to the time period within which the Department must request a hearing on applications involving foreign nationals. More often that not, the Department does request additional information from an applicant subsequent to the filing of the initial application. Since the Department has 30 days within which to request this information and the applicant has another 60 days to supply it, the additional information typically is received by the Department long after it has published notice of the application and long after the 21-day point of entry to request a hearing. The challenged rule is contained as a subsection of the rule entitled "Petition for Public Hearing." After providing that petitions for public hearing must be filed within 21 days of publication of notice and that petitions not received within that time are void, subsections (1) and (2) of Rule 3C- 9.004, subsection (3) provides that "The department may initiate a hearing on its own motion, at any time regardless of whether there has been a petition." It was the opinion of the Director of the Division of Banking that the purpose of the challenged rule was to afford the Department the opportunity for a hearing in those instances where information is discovered during the investigation process or where additional information is supplied subsequent to 21 days after publication of notice of the initial application. Generally, the character, credit worthiness and financial responsibility of the organizers, officers or directors of a proposed financial institution is determined toward the end of the application and investigation process, and not within the 21- day period after publication of notice of the initial application. According to the Director, if the Department were unable to request a hearing subsequent to that 21-day period, it would be compelled to request a hearing within that 21-day period every time an application is filed. An employee from the Division of Banking for approximately ten years could recall only one occasion when the Department had requested a hearing after the passage of 21 days from the publication of notice. In that one instance, a foreign national was involved in the application.
