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FDIC Enforcement Decisions and Orders

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   [5248] In the Matter of First Bank of Jacksonville, Jacksonville, Florida, FDIC Docket No. 96-155b (5-26-98)

(This decision was terminated by order of the FDIC dated 8-13-03; see ¶16,348.)    The FDIC adopted the ALJ's conclusion that First Bank of Jacksonville engaged in unsafe and unsound banking practices and violations of laws and regulations stemming from improper management and activities of Clyde N. Wells, Jr. who served as bank president, chief executive officer, controlling shareholder, director, chairman of the Bank's board of directors, legal counsel, and senior loan officer. The Board agreed with the ALJ finding that the Bank practices necessitate a cease and desist order and a 25-point affirmative action plan to be implemented by the Bank. The Board held the ALJ's reliance on bank examiners as expert witnesses was appropriate, and there was no denial of due process by sanctions imposed by the ALJ after repeated failures by the Bank to comply with discovery orders and FDIC regulations. (The decision was affirmed by the United States Court of Appeals for the Eleventh Circuit, 180 F.3d 269 (Table).)
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   [.1] Expert Witnesses—Weight of Testimony
   ALJ properly accorded proper deference to experts

   [.2] Administrative Law Judges—Discovery Sanctions
   ALJ has authority to hold a Show Cause Hearing and bar the offering documents at hearing.

   [.3] Due Process—Notice and Opportunity
   Respondent was given notice and opportunity for a full and fair hearing to explain failures to comply with rules and orders.

   [.4] Due Process—Sanctions
   Repeated, unexplained failures by Bank to comply with orders warranted sanctions imposed after proper notice and hearing.

   [.5] Unsafe or Unsound Practices—Separation of Duties
   Smaller bank needs greater sensitivity to added risks of limited segregation of duties. Bank had neither adequate segregation of duties nor sufficient internal controls.

   [.6] Cease and Desist Orders—Banking Practices—Unsafe and Unsound
   Finding 16 unsafe or unsound practices illustrates compelling need for order.

   [.7] Remedies—Affirmative Action Program
   ALJ's comprehensive plan to target operational and managerial deficiencies is reasonable and workable plan for rehabilitation.

In the Matter of
FIRST BANK OF JACKSONVILLE
JACKSONVILLE,FLORIDA
(Insured State Nonmember Bank)
DECISION AND ORDER
TO CEASE AND DESIST

Docket No. FDIC-96-155b

INTRODUCTION

   This proceeding is brought by the Federal Deposit Insurance Corporation ("FDIC") against the First Bank of Jacksonville, Jacksonville, Florida ("Bank" or "Respondent"), pursuant to section 8(b) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. § 1818(b).1 The FDIC alleged that the Respondent had engaged in certain unsafe or unsound banking practices and violations of laws and regulations. The FDIC sought a cease-and-desist order to halt the unsafe or unsound practices and violations of laws and regulations and to compel the implementation of an affirmative action program to correct the problems and deficiencies.
   The Board of Directors ("Board") of the FDIC has reviewed the record, the parties' briefs, the Recommended Decision and Order ("R.D.") of Administrative Law Judge Walter J. Alprin("ALJ"), and the parties' exceptions to the R.D.2 The Board agrees with the ALJ's findings and conclusions that Respondent engaged in unsafe or unsound banking practices, violated certain laws and regulations, and suffers from weak manage-
1 Section 8(b) of the FDI Act provides, in pertinent part
(b) Cease-and-desist proceedings
   (1) If, in the opinion of the appropriate Federal banking agency, any insured depository institution, depository institution which has insured deposits, or any institution-affiliated party is engaging or has engaged, or the agency has reasonable cause to believe that the depository institution or any institution-affiliated party is about to engage, in an unsafe or unsound practice in conducting the business of such depository institution, or is violating or has violated, or the agency has reasonable cause to believe that the depository institution or any institution-affiliated party is about to violate, a law, rule, or regulation, or any condition imposed in writing by the agency in connection with the granting of any application or other request by the depository institution or any written agreement entered into with the agency, the agency may issue and serve upon the depository institution or such party a notice of charges in respect thereof.


    2 Citations to the record shall be as follows:
    Recommended Decision— "R.D. at ____"
    Transcript— "Witness's Name/TR Page #."
    Exhibits&3151; "FDIC Ex. #/Page #."

{{7-31-98 p.A-2897}}ment, operational deficiencies, and a lack of internal controls. Most of these deficiencies and violations can be traced to the activities and management of Clyde N. Wells, Jr. ("Wells"), the Bank's controlling shareholder and president, and chairman of the Bank's board of directors. The Board adopts the ALJ's R.D. and Proposed Order with certain modifications discussed herein.
STATEMENT OF THE CASE

   Respondent, a corporation existing and doing business under the laws of the state of Florida, has been in business since August 28, 1989, and has been, at all times pertinent to this proceeding, a federally insured state nonmember bank with assets totaling approximately $8 million. During the relevant time period, Wells was Respondent's controlling stockholder and served as its president, director, chief executive officer, senior loan officer, and legal counsel and chairman of the Bank's board of directors. As such, Wells was an "institution-affiliated party" of Respondent as defined in section 3(u) of the FDI Act, 12 U.S.C. § 1813(u).
   Commencing on July 5, 1995, the Florida Department of Banking and Finance ("DBF") examined Respondent. Upon completion of its examination, the DBF prepared and furnished to Respondent a written Report of Examination. ("DBF Report"). The DBF gave Respondent an overall CAMEL rating of "2" but assessed it at "5" for its management component. The DBF's harsh assessment of Respondent's management was based on many factors including inadequate supervision by Wells and the Bank's board of directors, lack of written policies and a strategic plan, inadequate staffing, and a failure to respond to regulatory recommendations with respect to deficiencies in Respondent's operating policies. R.D. at 11–12. On October 31, 1995, following negotiations between the DBF and Respondent, Respondent's board of directors adopted a resolution which was crafted to correct certain deficiencies identified in the DBF Report.
   On May 22, 1996, the FDIC began a safety and soundness examination of Respondent. The resulting FDIC Report of Examination ("FDIC Report") revealed many operational and managerial deficiencies falling broadly into the following categories: failure to comply with the resolution adopted by the Bank's board of directors after the 1995 DBF examination; lack of internal routine and controls; inadequate administration, supervision, and control; failure to meet financial disclosure requirements; and lack of effective oversight. R.D. at 11–23. In the FDIC Report, the examiner assigned Respondent an overall composite rating of "3" which represented a reduction from the Bank's previous rating of "2". The management component was again rated "5" reflecting critical weaknesses.
   Shortly thereafter, the FDIC examined Respondent's electronic information systems as of June 11, 1996. In this Report of Examination ("EDP Report"), the FDIC examiner rated Respondent's systems an overall "4" which signified unacceptable conditions and a high risk of operational or financial failure. R.D. at 20–21. Based on the findings of the EDP Report, the FDIC Examiner-in-Charge recommended that the FDIC pursue supervisory action against the Bank to correct the operational deficiencies in its information systems. FDIC Ex. 3/13; Anderson TR 773–774.
   On November 14, 1996, the FDIC Regional Director for the Atlanta Regional Office ("Regional Director"), acting pursuant to delegated authority, initiated this action by issuing a Notice of Charges and of Hearing ("Notice") against the Bank under section 8(b) of the FDI Act, 12 U.S.C. § 1818(b), and Part 308 of the FDIC Rules of Practice and Procedure, 12 C.F.R. § 308. The Notice charged that, based upon the FDIC examination of May 22, 1996, and the FDIC EDP Report of June 11, 1996, Respondent had engaged in unsafe and unsound banking practices and violations of law and FDIC regulations. The FDIC sought a cease-and-desist order to halt such practices and violations and to implement corrective action.
   On January 31, 1997, Respondent filed a Motion to Dismiss the charges based on the assertion that the Notice was defective. On February 21, 1997, the ALJ issued an Order on Respondent's Motion to Dismiss the Notice of Charges and of Hearing denying Respondent's Motion to Dismiss, finding that the Notice was defective only insofar as it failed to include a proposed order and a specific prayer for relief. In accordance with the ALJ's order, the FDIC issued an Amended Notice on February 25, 1997. Thereafter, Respondent filed an Answer and an Amended {{7-31-98 p.A-2898}}Answer to the Notice, contesting the charges and raising five affirmative defenses.
   On February 20, 1997, the ALJ issued an Order on FDIC's Motion Objecting to Appearance of Clyde N. Wells denying FDIC Enforcement Counsel's request to preclude Wells from representing Respondent. The ALJ ruled that the fact that the FDIC may call Wells as a hostile witness and that certain privilege issues could arise as a result, did not bar Wells from representing the Bank as a duly authorized officer, director, or employee. Throughout the proceeding, Wells referred to himself as a representative or advocate rather than as legal counsel for Respondent.3 On May 27, 1997, at the request of the DBF, the ALJ issued an order directing that all confidential non-public documents produced by DBF shall be marked confidential and placed under seal to be used only for the purpose of this proceeding.
   On April 28, 1997, following a Motion for Sanctions by FDIC Enforcement Counsel, the ALJ issued an Order to Show Cause why sanctions should not be imposed and scheduled, for May 1, 1997, a hearing for arguments on the motion. The need for a Show Cause Hearing was prompted by Respondent's repeated failure to produce documents responsive to FDIC Enforcement Counsel's discovery requests and comply with the ALJ's scheduling Order or to heed a subsequent March 31, 1997 Order directing that the Respondent "immediately" produce responsive documents. FDIC Enforcement Counsel's Motion sought—based on Wells conduct—to exclude him from further participation in the proceedings, payment of costs and expenses incurred by the FDIC in preparation of the motion, a ruling barring Respondent from introducing either testimonial or documentary evidence at hearing, and a recommendation to the Board for entry of a final cease and desist order.
   At the conclusion of the May 1 hearing on sanctions at which Wells asserted that he was unable to timely produce the requested documents due to an arm injury and bad back, the ALJ ruled from the bench and then subsequently issued a written Order on May 12, 1997 ("Order on Sanctions"). In his Order on Sanctions, the ALJ found that Respondent, as the result of Wells' conduct, had deliberately attempted to delay the proceedings at FDIC Enforcement Counsel's expense. As such, the ALJ ruled that Respondent was precluded from offering into evidence any document or testimony regarding facts or issues relating to documents not timely produced in discovery. The Order on Sanctions contained two exceptions to this ruling: 1) documents promulgated by the FDIC of which the agency should have been aware, and 2) documents generated by the Bank and delivered to the FDIC prior to the institution of this proceeding. The ALJ also permitted Respondent to make a proffer of evidence regarding the excluded documents. The Order on Sanctions further directed that Respondent pay costs incurred by the FDIC in connection with the Motion for Sanctions, but it reserved the assessment of a specific amount until the R.D. was issued.4 The ALJ declined, however, to either recommend the issuance of a final cease-anddesist order or bar Wells from further participation in the proceedings. Respondent filed three motions for Interlocutory Review of the Order on Sanctions, all of which were denied, pursuant to delegated authority, by the FDIC Executive Secretary, inasmuch as each failed to meet the regulatory standard for review.
   The administrative hearing was held before the ALJ in Jacksonville, Florida, from June 2 to June 9, 1997. Because of the ALJ's ruling in the Order on Sanctions and Respondent's subsequent failure to comply with either section 308.32(a) of the FDIC's Rules of Practice and Procedure, 12 C.F.R. § 308.32(a), or a May 20, 1997, Order by the ALJ requiring Respondent to prepare and present exhibits in an identifiable manner, none of the exhibits offered by Respondent were admitted into evidence at the administrative hearing. The ALJ did, however, permit Respondent to make a proffer regarding each proposed exhibit. Respondent's rejected exhibits were collected by the ALJ and placed in a file available for the Board's review.

3 Section 308.6(a)(2) of the FDIC Rules of Practice and Procedure permit non-attorneys to appear and practice in FDIC adjudicatory proceedings: "a duly authorized officer, director, or employee of any government unit, agency, institution, corporation or authority may represent that unit, agency, institution, corporation or authority if such officer, director, or employee is not currently suspended or debarred from practice before the FDIC." 12 C.F.R. § 308.6(a)(2).

4 In the Proposed Order accompanying his R.D., the ALJ directed that, as a result of the Order on Sanctions, Respondent pay the FDIC costs in the amount of $3,245.44. R.D. at 8–10, 75.
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   After the evidentiary hearing, findings of fact, conclusions of law, proposed orders and post-hearing briefs were filed by Respondent and FDIC Enforcement Counsel. On January 22, 1998, the ALJ issued his R.D., recommending that a cease and desist order be issued against Respondent. Respondent filed extensive exceptions to the R.D., and the FDIC filed two exceptions.5

THE ALJ'S RECOMMENDED DECISION AND PROPOSED ORDER

   Under 12 U.S.C. § 1818(b)(1), the FDIC may issue an order to cease and desist against an insured depository institution that has engaged, is engaging, or is about to engage in unsafe or unsound banking practices or violations of law, rule or regulations. Therefore, the issues before the ALJ were whether Respondent either had engaged in or was about to engage in unsafe or unsound practices or had violated or was about to violate a law, rule or regulation.
   The ALJ analyzed at length the findings in the DBF Report, the FDIC Report, and the EDP Report as well as the documentary and testimonial evidence presented at the hearing. In his R.D., the ALJ agreed with the examiners' findings and the FDIC's charges in its Notice and concluded that Respondent has engaged in unsafe and unsound banking practices, principally as the result of failures by its management, and that Respondent has violated both Florida state laws and federal laws and regulations.
   Because the ALJ provided a detailed and well-reasoned opinion replete with citations to the record in support of his conclusions, the Board finds it unnecessary to reiterate in full the contents of the R.D. The summary below, however, provides an overview of Respondent's managerial and operational deficiencies as found in the three examination reports and corroborated by the testimonial and documentary evidence.

The DBF Report

   The Bank is inadequately staffed, employing Wells as its only officer. Hager TR 78–79. Before he became Bank president, Wells, who had been a director and legal counsel for a national bank, had no day-to-day bank management experience. Hager TR 79. After the DBF examination, the vice-president and loan officer and the comptroller resigned, and neither of these positions was filed. FDIC Ex. 4/21. Employee turnover has been unusually high with 29 employees and officers leaving the Bank between the 1994 and 1995 DBF examinations. Hager TR 89, 91; FDIC Ex. 4/21. At the time of the 1995 DBF examination, the Bank had only six employees. Hager TR 91. The Bank's skeletal staff created a further problem with regard to segregation of duties, since Wells was involved in all aspects of the Bank's business. FDIC Ex. 4/21.
   The Bank management received a CAMEL rating of "5" from the DBF, constituting an unsatisfactory level of management supervision. Hager TR 78. The Bank received this rating because of the gravity of its management deficiencies, the total lack of cooperation from management, and the apparent willful violation of statutes. FDIC Ex. 4/49.
   Furthermore, the DBF found that Respondent's board of directors engaged in unsafe and unsound practices by improperly delegating authority to Wells. FDIC Ex. 4/28; Hager TR 104–105. Respondent's board of directors permitted Wells to dominate all affairs of the Bank and it failed to take steps to supervise his activities, particularly where he engaged in business dealings with the Bank which presented clear conflicts of interest. FDIC Ex. 4/22. Respondents' board


5 Each party filed Motions to Strike the other's exceptions. FDIC Enforcement Counsel's Motion to Strike Respondent's Exceptions is based on Respondent's failure to timely file its exceptions in accordance with the applicable provisions of Part 308 of the FDIC's Rules of Practice and Procedure. See 12 C.F.R. §§ 308.11(c), 308.12(a), 308.12(b)(ii), 308.12(c)(1), and 308.39(a). FDIC Enforcement Counsel's interpretation of the Rules is correct and, in fact, Respondent's exceptions and supporting brief were filed one day late. Respondent's Motion to Strike FDIC Enforcement Counsel's Exceptions is premised on FDIC Enforcement Counsel's failure to technically comply with section 308 of the FDIC's Rules of Practice and Procedure which requires that an original and one copy of a pleading be filed with the FDIC Office of the Executive Secretary. See 12 C.F.R. Part 308. With regard to FDIC Enforcement Counsel's Motion to Strike, Respondent makes certain arguments regarding the date by which it must file its exceptions which are clearly incorrect. Nevertheless, the Board denies FDIC Enforcement Counsel's Motion to Strike. Under the circumstances, and taking into consideration the fact that Respondent's exceptions were filed just one day late, the Board does not believe that any disadvantage to FDIC Enforcement Counsel resulted. Likewise, the Board denies Respondent's Motion to Strike because it is clear that FDIC Enforcement Counsel's failure to comply with section 308 was nothing more than an inadvertent technical violation which caused no undue advantage to either party.
{{7-31-98 p.A-2900}}of directors was also remiss in failing to approve insurance coverage, real estate appraisers, signing authorities or lending limits and policies. FDIC Ex. 4/21, 4/28. Moreover, the DBF found that Respondent's board failed to provide competent management and that it did not respond to regulatory recommendations despite earlier warnings of the same operational problems and deficiencies. FDIC Ex. 4/2, 4/9; Hager TR 77.
   The DBF examination revealed many deficiencies in Respondent's written policies as well. For example, its loan policy failed to include the amount of an officer's lending limit authority or establish file documentation procedures in the event collateral was collected. FDIC Ex. 4/23. The Bank's board of directors failed to adopt, review, and approve annually in its appraisal policy the minimum appraisal standards as required by Florida regulations. FDIC Ex. 4/23. The examiner also found a high number of loan documentation exceptions, cited at 38 percent. FDIC Ex. 4/23. Some of the loan documentation deficiencies were found to be in violation of Florida statutes. FDIC Ex. 4/30. The DBF Report also identified deficiencies in Respondent's investment policy, strategic plan, and budget. R.D. at 35–36.
   The DBF Report noted that the Bank had neglected to correct internal and routine control deficiencies that had been detected during previous examinations. These failures included lack of account reconciliations, lack of an internal audit program, unrestricted access to teller areas, inadequate controls over negotiable collateral, and failure to have an effective audit function. FDIC Ex. 4/25. Also identified in the DBF Report were uncorrected problems with Respondent's electronic data processing system, another problem that had been cited in the previous Florida examination. For example, the door to the Respondent's computer room was often left open or unlocked. FDIC Ex. 4/36. Finally, an external audit of the Bank, conducted as of October 31, 1994, found that the Bank does not routinely follow any definable accounting procedures and also fails to reconcile its accounts on a regular basis, reconcile subsidiary ledgers to general ledgers, and record entries on a consistent basis. FDIC Ex. 4/36.
   After the results of the DBF Report were revealed, the Bank's board of directors agreed to adopt a resolution to correct some of the problems. Included in the resolution was a provision to amend the Bank's written policies and provide an opportunity to review and comment by the DBF prior to final adoption by the board. Hager TR 142–147; FDIC Ex. 14.

The FDIC Report

   The FDIC conducted a safety and soundness examination of the Bank on May 22, 1996, to assess any risk the Bank may pose to the insurance fund. FDIC Ex. 2; Valle TR 324. Like the DBF, the FDIC examiner also found that the Bank was at risk due to excessive internal and routine control deficiencies, serious weaknesses in accounting procedures and multiple violations of law and regulations. FDIC Ex. 2/4.
   The FDIC examiner found that many of the provisions of the resolution adopted by the Bank's board at the conclusion of the DBF examination, had not been adequately implemented and, therefore, had very little remedial impact. Although the purpose of the resolution was to correct operational deficiencies, the FDIC examiner found that the Bank's operational standards had, in fact, deteriorated since the DBF examination. Valle TR 410. The FDIC examiner found that the Bank had failed to satisfy fifteen of the twenty provisions of the resolution. FDIC Ex. 2/5. For example, as of the May 22, 1996, FDIC examination, the following deficiencies targeted in the resolution were still present: the general suspense ledger account was unreconciled (FDIC Ex. 2/36); the loan policy failed to include officers' lending limit authority; the appraisal policy did not comply with applicable law (FDIC Ex. 2/36); the strategic plan was not clear enough to provide meaningful guidance (FDIC Ex. 2/16); and the budget was based on outdated assumptions (FDIC Ex. 2/17). The Bank's board of directors also failed to submit reports to the regulators regarding uncorrected violations (FDIC Ex. 2/18) and neglected to formally adopt amended written policies. Thus, in most key respects, Wells and the Bank's board of directors simply ignored the earlier agreement to correct the deficiencies. Indeed, the evidence clearly demonstrates that the board's agreement was regarded as little more than window dressing designed to appease the regulators. As the ALJ observed, "Respondent was either indifferent or unwilling to correct many repeatedly cited unsafe or unsound practices and violations, to the point where enforcement action was deemed necessary." R.D. at 44.
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   Many of the staffing problems cited in the 1995 DBF Report were also present during the 1996 FDIC safety and soundness examination. Wells remained the only Bank officer and continued as the dominant presence in all aspects of the Bank. FDIC Ex. 2/5. Respondent continued to experience a high employee turnover rate due to low wages, lack of leadership, and a poor working environment. FDIC Ex. 2/5; Valle TR 381, 388. The small Bank staff was poorly trained with very little guidance from Wells and, as a result, employees were unable to adequately perform routine tasks and fulfill their job responsibilities. Valle TR 383, 385-386. Based, in part, on inadequate personnel training. Respondent was found to be in violation of 12 C.F.R. § 326.8(b) which requires the development of a Bank Secrecy Act compliance program. FDIC Ex. 2/54; Valle TR 440–441.
   The FDIC Report also revealed imprudent lending practices. Valle TR 424. Of the loans reviewed, 47 percent contained technical exceptions. Valle TR 422. Among the loan problems cited were capitalization of interest (FDIC Ex. 2/39, 62–64; Valle TR 424–430), past due loans (Valle TR 56; FDIC Ex. 2/57), a loan with an expired title policy commitment in violation of Fla. Stat. 658.48(5)(d) (1996) (FDIC Ex. 2/57), and a loan in violation of the legal lending limits under Fla. Stat. 658.48(3) (1996). (Valle TR 455; FDIC Ex. 2/56). Based on the number of exceptions found, the FDIC examiner concluded that Respondent was incapable of maintaining its loan files in a manner consistent with prudent banking practices. Valle TR 424.
   The most serious conclusion in the FDIC Examination Report pertained to Respondent's poor management which received a "5" component CAMEL rating. Valle TR 474. The unsatisfactory rating was based on Wells' limited ability to run the Bank, combined with the employees' inexperience and high turnover rate. FDIC Ex. 2/35. Inadequate management was cited as a contributing factor to many of the Bank's operational deficiencies, including the employees' inability to reconcile suspense accounts, timely detect and resolve accounting errors, correctly and consistently initiate general ledger entries, accurately prepare Call Reports, and prudently maintain loan files. FDIC Ex. 2/35. Management also neglected to correct the Bank's lack of "segregation of duties" which had been previously cited as an unsafe and unsound practice. Valle TR 483, Hager TR 81–82, 84.

The EDP Report

   The FDIC examination of Respondent's data processing activities was conducted on June 11, 1996. FDIC Ex. 3. Included in the examination was a review of information systems audit coverage, management, systems and programming, computer operations, teleprocessing, and microcomputers. FDIC Ex. 3/6. This examination, as well, revealed many weaknesses which exposed the Bank to an excessive amount of risk and amounted to unsafe or unsound practices. Anderson TR 767–768. Respondent's data processing operation received an overall rating of "4", signifying unsuitable conditions. FDIC Ex. 3/7, 3/12. Some of the more glaring deficiencies are noted below.
   The EDP Report revealed defects in Respondent's external and internal audit coverage. While the examiner found that the Bank engaged an external auditor who conducted adequate annual director's examinations, he found, however, that the Bank's board of directors failed to take corrective action regarding areas of concern identified by the auditor. FDIC Ex. 3/8. The EDP examiner found that, although previous examination reports had criticized the Bank's lack of internal audit coverage of its data center, the problem remained uncorrected. FDIC Ex. 3/8.
   The EDP examiner also cited the Bank's inadequate oversight of the data processing function as an unsafe and unsound practice. Anderson TR 771–773. The EDP Report assigned management a rating of "4". Anderson TR 768. Among the deficiencies noted in the EDP Report was management's failure to correct previously identified problems. These included inadequate audit coverage and segregation of duties, a lack of a disaster recovery program for the data center, and a failure to maintain backup files in a fireproof area. FDIC Ex. 3/8. Although Respondent's board of directors had adopted an EDP policy to address some of the problems identified, it failed to ensure compliance with the policy. FDIC Ex. 3/9–10; Anderson TR 753.
   Serious concerns about Respondent's disaster recovery plan were raised in the EDP {{7-31-98 p.A-2902}}Report. Among other things, the Examiner found that Respondent lacked a detailed recovery program for the data center; the data center backup had not been tested in three years; employees were not familiar with disaster recovery procedures; backup copies programs, data files, documents, and contingency plans were not maintained off-site; and the software version used at the Bank was not compatible with the software at the back-up site. Anderson TR 805. Based on these findings, the Examiner concluded it is unlikely that, in the event of a disaster, Respondent could continue operations without significant interruption. FDIC Ex. 3/10.

The ALJ's R.D. and Order

   The ALJ concluded that Respondent engaged in unsafe and unsound banking practices within the meaning of section 8(b) of the FDI Act, 12 U.s.C. § 1818(b), by operating with a board of directors that failed to require management to implement necessary practices and procedures reflecting the operational guidelines established by the board. R.D. at 54. The ALJ further concluded that Respondent had violated the following federal laws and regulations: 12 C.F.R. § 364.101 (failure to have adequate internal controls for safety and soundness), 12 C.F.R. § 326.8 (failure to develop and provide for continued administration of a program designed to monitor compliance with the Bank Secrecy Act); 12 C.F.R. § 350.3(a) (failure to prepare and make available on request an annual disclosure statement); 12 C.F.R. § 350.3(b) (failure to make annual disclosure statement timely available to requestors); 12 C.F.R. § 350.4(a)(1) (failure to include in its annual financial disclosure, at a minimum, information comparable to the information contained in specified Call Report schedules); and 12 C.F.R. § 350.8 (failure to promptly mail or otherwise furnish an annual financial disclosure statement to a requester). Finally, the ALJ concluded that Respondent violated the following Florida Statutes: FLA. STAT. Ann. § 658.48(1)(a) (extending credit to any one borrower exceeding 25 percent of the Bank's capital accounts when the loan was fully secured); FLA. STAT. Ann. § 655.044(2) (carried as an asset in a report to the DBF or in any published report, a note or obligation which is past due or upon which no interest has been paid for one year or longer); FLA. STAT. Ann. § 658.48(5)(d) (failed to document as a first lien real estate mortgages securing loans); and FLA. STAT. Ann. § 655.60(2) (made loans based on real estate collateral without adequate written appraisal standards and without policies previously established by the board of directors). R.D. at 55–56.
   Based on his findings and conclusions, the ALJ recommended that a cease-and-desist order, with affirmative action, be issued. The proposed Order directed that Respondent, its institution-affiliated parties, and its successors and assigns cease and desist from following unsafe or unsound banking practices and violating laws and regulations. The proposed Order identifies a total of sixteen unsafe or unsound practices and violations of law or regulation constituting conduct from which the Bank must refrain. All of the proscribed activities relate to the managerial and operational deficiencies described in the R.D. R.D. at 58–59.
   The ALJ's proposed affirmative action ("Affirmative Action Program") is a 25 point comprehensive plan to rehabilitate Respondent by establishing an enforceable program set on a strict timetable and designed to enable the Bank to operate in a lawful and safe and sound manner. Among other things, the Affirmative Action Program requires the Bank to develop a written analysis of Respondent's management and staffing needs; retain qualified management consistent with the written management and staffing plan; adopt and implement an internal audit program; adopt and implement a plan to correct Respondent's internal routine and control deficiencies; prepare complete and accurate financial disclosure statements; develop an appropriate electronic data processing plan for submission to the FDIC and, upon receipt of written comments by the FDIC's Regional Director and the Florida State Comptroller ("Comptroller"), approve and implement such EDP plan; review and rewrite its written loan policy; prepare a realistic and comprehensive budget; take all necessary steps to eliminate all violations of law and regulations identified in the FDIC Report; retain a qualified Bank Secrecy Act officer, develop a three-year strategic plan for the Bank; and furnish quarterly progress reports to the FDIC Regional Director and the Comptroller, describing what steps it is taking to comply with the Order and Affirmative Action Plan and the results of these undertakings. R.D. 60–75.
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EXCEPTIONS

A. Respondent's Exceptions

   Respondent filed nearly 200 exceptions to the R.D., challenging virtually every factual finding, legal conclusion, and many of the ALJ's evidentiary rulings. The Board has reviewed the Respondent's exceptions and supporting brief. These exceptions, viewed charitably, constitute a rambling discourse, filled with largely unsupported and imprecise legal arguments and factual assertions which, in many instances, are, at best, difficult to understand, but which can be fairly read to attack practically every aspect of these proceedings. The Board concludes that Respondent's exceptions are, by and large, frivolous, repetitious, and, in many instances, merely reargue matters raised below which were adequately addressed by the ALJ. As such most do not justify further analysis. The few exceptions raised by Respondent that warrant further discussion are addressed below. Those not discussed are denied.
   Many of Respondent's exceptions criticize the ALJ for apparently relying too heavily on testimony of FDIC bank examiners and the bank examination reports in making his findings. At the evidentiary hearing, FDIC Enforcement Counsel offered expert testimony relating to FDIC examinations of the Bank through three FDIC officials. FDIC Examiner Rafael A. Valle ("Vallee"), the examiner-in-charge of the FDIC's examination of the Bank as of May 22, 1996, is a highly-trained examiner with more than five years of experience as a commissioned bank examiner who has participated in over 180 bank examinations. Valle TR 323. After examining Respondent, Valle concluded that the Bank engaged in conduct which posed abnormal risk of loss or damage to the institution and which, in his expert opinion, amounted to unsafe or unsound banking practices as well as violations of applicable federal banking laws. Valle further testified that, in his expert opinion and based on the findings and conclusions in the FDIC Report, corrective action was necessary. See Valle TR 314–694.
   The second expert witness to testify for the FDIC was Thomas B. Anderson ("Anderson"), the FDIC examiner-in-charge of the FDIC's June 11, 1996, EDP examination of the Bank. Anderson is also a highly-qualified examiner who has been involved in approximately 130 bank examinations. Anderson TR 700. Anderson testified in his expert opinion that, as a result of his examination of the Bank's data processing operations, he concluded that the Bank was engaging in conduct and practices contrary to prudent bank operation which, if continued, would expose the bank to abnormal risk of loss or damage, and, as a result, the Bank had engaged in unsafe or unsound practices. See Anderson TR 694–872.
   Also testifying as an expert witness for the FDIC was Assistant Regional Director James A Shumaker ("Shumaker") of the FDIC's Atlanta Regional Office, Division of Supervision. Shumaker is also a commissioned bank examiner, who has participated in approximately 150–200 bank examinations. By virtue of his substantial experience and expertise, Shumaker has risen to a senior managerial position in the FDIC's Atlanta Regional Office. Shumaker testified about the procedures involved in processing and finalizing reports of examination submitted by field examiners. Shumaker testified that he reviewed both the 1996 FDIC Report and the EDP Report and, on the basis of the findings and conclusions contained in those reports, he concluded that the Bank had engaged in unsafe or unsound practices and had violated applicable laws and regulations. Shumaker testified that, based on these facts and conclusions, he recommended the institution of formal cease and desist proceedings against the Bank. See Shumaker TR 873–960.
   Courts have long recognized that, in assessing the weight and deference to be given expert witnesses, such as those presented here by FDIC Enforcement Counsel, determination of expertise is primarily a function of a witness's experience in a given area. The court in Moran v. Ford Motor Company, 476 F.2d 289, 291 (8th Cir. 1973), held that the pertinent inquiry into a witness's qualification as an expert is whether the witness's training and experience demonstrates a significant knowledge of the subject matter. The Eleventh Circuit Court of Appeals held that the FDIC's bank examiners' unique experience leads to the conclusion that certain of their determinations are entitled to great deference and cannot be overturned unless shown to be arbitrary and capricious or outside a "zone of reasonableness." Sunshine State Bank v. FDIC, 783 {{7-31-98 p.A-2904}}F.2d 1580 (11th Cir. 1986). The court in Sunshine State Bank adopted in whole a statement by the Board on the level of deference to be paid to FDIC examiners:

    Although there are no court opinions addressing the weight to be given examiners' loan classifications, the Board's inquiry on this point is guided by several decisions addressing agency functions which require similar exercises of expert judgment and informed discretion. The courts have uniformly recognized that certain types of agency judgments are not susceptible to strict "proof" because they involve the exercise of discretion, technical expertise and informed prediction about the likely course of future events. One court's explanation of the deference accorded such judgments is equally applicable to the judgments made by FDIC commissioned bank examiners in assigning loan classifications.
...

    Congress has instructed this Board to "appoint examiners," and had provided that "[e]ach examiner shall have power to make a thorough examination of all of the affairs of the bank and its affiliates, and shall make a full and detailed report of the condition of the bank to the Corporation." 12 U.S.C. § 1820(b). After extensive training, lengthy apprenticeship and careful evaluation, FDIC examiners are appointed as "commissioned examiners," and thereby vested with authority to make informed predictions about the risk inherent in a bank's assets. This exercise of informed judgment on the part of commissioned examiners is entitled to deference, and should not be disregarded in the absence of compelling evidence that it is without rational basis.
Id. at 1582-83.
   The extent to which great deference should be accorded to the opinions and conclusions of the FDIC's expert bank examiners was more recently addressed by the Board in In the Matter of Anderson Country Bank, Clinton, Tennessee, 2 FDIC Enf. Dec. ¶ 5165A (1991), where the Board concluded that considerable deference and weight should be given to the opinions and conclusions of FDIC examiners in matters relating to the safety and soundness of banks.
    [I]n making [judgments], the examiner must look at the underlying facts, evaluate those facts and, then, based on these facts, make a predictive judgment concerning the likelihood of repayment. If that predictive judgment is based on facts in evidence (which are subject to an ALJ's review), and if the predictive judgment is not arbitrary or capricious, or outside the zone of reasonableness, it may not be displaced by the ALJ. This is the conclusion of the Sunshine decision. 783 F.2d 1583-4.
Id. at A-1734.4. See also in the Matter of Mansfield Bank, Mansfield, Louisiana, 2 FDIC Enf. Dec. p 5165 at A-1734.12 (1991)

   [.1] Under the standard described above and based on the training, experience, and expertise of the FDIC expert witnesses, the findings, conclusions, and predictive judgments of the FDIC's bank examiner witnesses are entitled to considerable weight and deference in determining whether the Bank engaged in unsafe or unsound practices and violations of banking laws and regulations. Accordingly, the Board finds that the ALJ accorded appropriate deference to the testimony of the FDIC examiners and the Assistant Regional Director.

   [.2] Respondent excepts to the ALJ's Order on Sanctions and the Show Cause Hearing which preceded it. In essence, Respondent argues that because the ALJ barred the Bank from calling witnesses and offering documentary evidence in support of its defense at the Show Cause Hearing, enforcement of the Order on Sanctions constitutes a violation of due process rights under both the Administrative Procedure Act and the Constitution of the United States. The Board disagrees. Under section 308.5 of the FDIC's Rules of Practice and Procedure, 12 C.F.R. § 308.5, the ALJ has the authority to hold prehearing conferences as set forth in section 308.31 which may address, among other things, the resolution of discovery disputes (12 C.F.R. § 308.31(b)(6)), and any other issues that may aid in the orderly disposition of the proceeding (12 C.F.R. § 308.31 (b)(8)). The ALJ, pursuant to 12 C.F.R. § 308,108(d)(2), may allow the party against whom sanctions are sought to be heard in any manner he directs, and the opportunity to be heard may be limited to a chance to respond orally.
   Respondent also challenges, on constitutional grounds, the portion of the Order on Sanctions which barred the Bank, subject to certain exceptions discussed above, from offering evidence at the hearing relating to issues in the FDIC's document requests which {{7-31-98 p.A-2905}}were not timely delivered to FDIC Enforcement Counsel. Respondent also objects to the ALJ's ruling, as required by section 308.32(b) of the FDIC's Rules of Practice and Procedure,6 precluding it from offering exhibits at the hearing because Respondent failed to provide an Exhibit List pursuant to the ALJ's May 30, 1997 Order. The ALJ did, however, protect the record by allowing Respondent to make a proffer of evidence with respect to the excluded documents. R.D. at 8.

   [.3] The process by which the ALJ arrived at his determination to limit Respondent's opportunity to offer evidence at the hearing did not violate Respondent's due process rights. As the record plainly shows, Respondent was provided a full and fair opportunity to explain its repeated failures to comply with the ALJ's scheduling and discovery orders and the FDIC Rules of Practice and Procedure prior to the entry of the orders at issue. An important component of due process is the requirement that a party be given adequate notice of the charges or evidence to be presented and an opportunity to respond. See e.g., In the Matter of Donald E. Thompson, Bank of Bellevue, Bellevue, Nebraska, 1992 WL 812806 (F.D.I.C.). Here, sanctions were awarded only after Respondent's persistent failure to produce documents in discovery, even after the ALJ, at Respondent's request, extended production deadlines and directed FDIC Enforcement Counsel to reimburse Respondent for copying costs.
   After Respondent continued to ignore discovery orders and deadlines, FDIC Enforcement Counsel filed a motion for the imposition of sanctions. On April 28, 1997, the ALJ issued an Order to Show Cause and scheduled the Sanctions Hearing for May 1, 1997. On the same day, the ALJ notified the parties of the order and scheduled hearing and also served copies of the order on the parties by fax and overnight mail delivery. On April 30, 1997, Respondent filed its opposition to FDIC Enforcement Counsel's Motion for Sanctions. The Sanctions Hearing was held as scheduled, and each party argued its respective position. Due process requires no more in this situation. At the conclusion of the Sanctions Hearing, the ALJ issued his ruling limiting the documents and related testimony Respondent would be permitted to offer at the evidentiary hearing. Order on Sanctions at 6.
   Likewise, the ALJ's ruling rejecting admission of Respondent's exhibits at the evidentiary hearing also satisfied due process requirements. On May 9, 1997, based on Respondent's failure to timely provide a complete exhibit and witness list as required by section 308.32(a), of the FDIC's Rules of Practice and Procedure, 12 C.F.R. § 308.32(a), FDIC Enforcement Counsel filed a Motion to Exclude Respondent's Witnesses and Exhibits from the hearing. Because the response to FDIC Enforcement Counsel's motion was due very near to the commencement date of the evidentiary proceeding, the ALJ ordered an expedited response time of May 19, 1997. Respondent timely opposed FDIC Enforcement Counsel's motion. On the following day, May 20, 1997, the ALJ issued an Order ("May 20 Order") which, among other things, found that Respondent's exhibit list, as submitted, was seriously defective, but the ALJ allowed Respondent to offer exhibits at the hearing upon the condition that it present, at the opening of the evidentiary hearing, each exhibit to be offered into evidence in an organized and identifiable manner. The May 20 Order, in fact, provided Respondent with detailed and specific instructions as to how its exhibits should be prepared and presented. The ALJ made it clear that, if Respondent failed to make a timely submission in accordance with the terms of the Order, he would withdraw the condition and grant the motion to preclude exhibits at the opening of the hearing.7 May 20 Order at 7–8. The ALJ further ruled that, if Respondent made the submission as directed, he would rule on each document individually when offered by the Respondent. At the commencement of the evidentiary hearing on June 2,


6 The pertinent portion of section 308.32 (Prehearing submissions) states:
(b) Effect of failure to comply. No witness may testify and no exhibits may be introduced at the hearing if such witness or exhibit is not listed in the prehearing submissions pursuant to paragraph (a) of this section, except for good cause shown. 12 C.F.R. § 308.32(b).

7 The May 20 Order denied FDIC Enforcement Counsel's motion to exclude witness testimony but noted that FDIC Enforcement Counsel could raise at the evidentiary hearing, after each witness had been called by Respondent, the ALJ's prior ruling that Respondent may not elicit testimony from witnesses on documents not timely produced in discovery. May 20 Order at 8.
{{7-31-98 p.A-2906}}1997, Respondent presented a portion of the exhibits it intended to offer. Although the exhibits as presented did not generally appear to comply with the format required by the May 20 Order, the ALJ ruled that the documents presented would be ruled on after motion when offered by Respondent. He further ruled "[t]hose documents which have not been presented are hereby stricken, will not be included within this record." ALJ, TR 23.8

   [.4] The Board finds, therefore, that Respondent's exceptions to the ALJ's authority to hold the Show Cause Hearing and to the rulings barring him from offering documents at the hearing are without merit. The Board agrees with the ALJ that Respondent has offered an inadequate defense for his failure to timely comply with the ALJ's orders and the applicable FDIC regulations. Based on Respondent's conduct, the ALJ properly imposed discovery sanctions limiting Respondent's ability to introduce documentary evidence at the evidentiary hearing. See e.g., Jankins v. TDC Management Corporation, Inc. 21 F.3d 436, 443-444 (D.C. Cir. 1994) (Discovery sanctions imposed pursuant to Fed. R. Civ. P. 37(b)(2), barring employer from refuting evidence of liability in fraud trial and requiring employer to pay attorney fees and expenses, was warranted by employer's failure to produce requested financial records despite outstanding discovery order compelling production.) To hold otherwise would eviscerate the applicable procedural rules and would permit parties to simply refuse to participate in discovery at their whim. It is clear that the ALJ's orders


8 The ALJ's Order on Sanctions and rulings rejecting the exhibits offered by Respondent at the evidentiary hearing are consistent with provisions of the Federal Rules of Civil Procedure which permit judges to impose sanctions upon parties who fail to comply with scheduling or discovery orders. Federal Rule of Civil Procedure 37(b)(2) provides, among other things, that a district court, as a sanction for failure to comply with discovery orders, may enter an order dismissing the action or proceeding or any part thereof, refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting the party from introducing designated matters into evidence. Rule 37(b)(2) also permits the court to require the party failing to obey the order to pay expenses caused by the failure. Rule 16(f) of the Federal Rules of Civil Procedure authorizes district courts to employ those sanctions provided in Rule 37(b)(2) in a number of situations such as where a party or its attorney fails to obey a scheduling or pretrial order. A trial court may preclude a party from introducing evidence or supporting a claim "under Fed. R. Civ. P. 37(b)(2)(B) even if to do so is tantamount to a ... dismissal." Rabb v. Amatex Corp., 769 F.2d 996, 1000 (4th Cir. 1985). The Supreme Court has stated that a district court's broad discretion to impose discovery sanctions pursuant to Rule 37(b)(2) is limited by two requirements: (1) any sanctions must be "just", and (2) the sanction must be specifically related to the particular "claim" which was at issue in the order to provide discovery. Insurance Corp. of Ireland, LTD. et al. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 705 (1982). The Court noted that the first standard reflects general due process restrictions on the court's discretion and the second embodies the due process protections applicable to a motion to strike a pleading for failure to comply with a discovery order. Id. (citing Hammond Pacing Co. v. Arkansas. 212 U.S. 322, 350–51 (1909)).
   In this case, the ALJ's Order on Sanctions and subsequent rulings rejecting Respondent's exhibits satisfied both of the requirements enunciated by the Supreme Court. In finding that the ALJ's rulings were "just", the Board notes that FDIC Enforcement Counsel's initial document requests were made in February 1997. Two months later, despite repeated orders from the court to provide the requested materials, Respondent still had neither produced the requested documents nor explained why it had failed to do so. FDIC Enforcement Counsel then moved for the imposition of sanctions and, on April 28, 1997, the ALJ issued an Order to Show Cause and scheduled the Sanctions Hearing for May 1, 1997. Similarly, based on Respondent's failure to provide a complete exhibit list as required by the FDIC Rules of Practice and Procedure, FDIC Enforcement Counsel filed a Motion to Exclude. The Respondent responded to FDIC's Enforcement Counsel's motion and the ALJ then issued his ruling directing Respondent to produce its exhibits in a specified manner at the evidentiary hearing and warning Respondent that failure to comply would result in a rejection of Respondent's exhibits. Thus, the ALJ had warned Respondent of the consequences of its continued failure to comply with the FDIC Rules of Practice and Procedure and his order. Moreover, with respect to the Order on Sanctions, Respondent had both the opportunity to respond to FDIC's Enforcement Counsel's Motion for Sanctions and argue in his own defense at the Sanctions Hearing. Likewise, Respondent had both the opportunity to respond to FDIC Enforcement Counsel's Motion to Exclude his exhibits and was even afforded a "second chance" to remedy his noncompliance with the pre-trial order by presenting his exhibits at the evidentiary hearing. Faced with Respondent's continued disregard of his orders, the ALJ's decision to reject Respondent's exhibits at the evidentiary hearing was clearly appropriate.
   There is also no doubt that the ALJ's rulings satisfy the second requirement. At least part of what FDIC Enforcement Counsel was seeking through discovery was to respond to Respondent's denials and affirmative defenses to the charges in the Notice. Because of Respondent's failure to comply with the ALJ's orders and the FDIC's Rules of Practice and Procedure, FDIC Enforcement Counsel was unable to discern the full extent of Respondent's purported defenses and was not provided with adequate opportunity to examine the exhibits offered by Respondent. It was therefore, entirely appropriate for the ALJ to reject Respondent's exhibits at the evidentiary hearing. Indeed, the ALJ's rulings, as applied here, do not go nearly so far as the Supreme Court's holding that "[P]etitioners' failure to supply the requested information ... supports `the presumption that the refusal to produce evidence ... was but an admission of the want of merit in the asserted defense.'" Insurance Corp. of Ireland Ltd. et al., 456 U.S., at 694 (citing Hammond Packing. 212 U.S., at 351).
{{7-31-98 p.A-2907}}in this regard were appropriate under the circumstances and caused no deprivation of Respondent's right to due process of law. To the extent that Respondent's rights to fully participate in the hearing and introduce evidence were restricted, it is the direct result of Respondent's own actions. The Board, therefore, finds it unnecessary to review Respondent's rejected exhibits.
   Respondent also disagrees with the ALJ's admission into evidence of FDIC Exhibit 4, the DBF Report, apparently because it was not referenced in the FDIC's Notice or Amended Notice. As discussed above, it was the 1995 DBF examination that led to the resolution in which the Bank's board of directors resolved to take certain specific corrective actions. FDIC Enforcement Counsel included the DBF on its exhibit list and the ALJ properly admitted it into evidence.
   Finally, Respondent challenges the findings and conclusions of the ALJ regarding inadequate segregation of duties, arguing that the Bank's small size limits its ability to separate responsibilities in the same manner as larger institutions. The Board does not disagree with Respondent's assertion that smaller institutions cannot be expected to maintain the same level of segregation of responsibilities as their larger counterparts. See in the Matter of The Greene County Bank, Strafford, Missouri, 1995 WL 618676, *9 (FDIC). Nonetheless, it is self-evident that all institutions, regardless of size, must operate in a safe and sound manner. It is therefore, important that smaller banks be sensitive to the added risk presented by limited segregation of duties. As FDIC Examiner Valle observed: "Given the [Bank's] limited size, it's very difficult to segregate all the duties. That is where it is critical to have strong internal controls and a strong internal audit program and implement recommendations by external auditors to correct individual deficiencies noted in a specific area." Valle TR 577. Although small, Respondent's size is not unique. Rather, it is the magnitude of the Bank's management deficiencies that is exceptional.

   [.5] The Board concludes that, in view of Respondent's comprehensive operational and managerial deficiencies, the ALJ's findings regarding segregation of duties were correct. Although complete segregation of duties is not always possible in a smaller bank, under such circumstances, the bank should have an internal audit program to ensure that one employee does not have access to total control over a transaction. In this case, the bank examiners found the Bank had neither adequate segregation of duties nor sufficient internal controls. The ALJ's Affirmative Action Program requires Respondent to implement plans that provide for appropriate segregation of duties specifically in the areas of internal routine and control, EDP operations, and Bank Secrecy Act Compliance. Both the management and staffing and EDP Plans are to be reviewed and approved by the FDIC's Regional Director and the Florida Comptroller before they are implemented. Notably, no additional requirements are imposed beyond the current mechanism for regulatory review and comments in this area. The FDIC's Regional director and the Florida Comptroller, with Respondent's cooperation, will craft a plan for the appropriate segregation of duties.

B. FDIC Enforcement Counsel's Exceptions

   FDIC Enforcement Counsel raises two exceptions to the R.D., urging that the Board add two conclusions to the ALJ's Conclusions of Law. First, FDIC Enforcement Counsel proposes that the R.D. include a conclusion that Respondent violated section 7(a)(1) of the FDI Act, 12 U.S.C. § 1817(a)(1), by submitting to the FDIC Reports of Condition and Income that contained numerous and material errors. The Board finds that this exception is supported by the record and incorporates the following additional findings of fact and conclusion of law into the final decision:

       1. During the FDIC's May 22, 1996 examination, Respondent's Reports of Condition and Income for December 31, 1994, December 31, 1995, and March 31, 1996, were found to contain numerous errors. FDIC Ex 2/55.
       2. As of the FDIC's May 22, 1996 examination, Respondent had not filed an amended Call Report as of December 31, 1994, although the DBF instructed the Respondent to do so in the 1995 DBF Report. FDIC Ex. 2/55.
       3. With respect to each of its Call Reports as of December 31, 1994, June 30, 1995, September 30, 1995, December 31, 1995, and March 31, 1996. Respondent violated section 7(a)(1) of the FDI Act, 12 {{7-31-98 p.A-2908}}U.S.C. § 1817(a)(1), by submitting Call Reports to the FDIC that contained information that was false as a result of Respondent's errors in preparing the reports and failure to maintain accurate accounting records. FDIC Ex. 2/55.
   Second, FDIC Enforcement Counsel submits that the R.D. should include a conclusion that Respondent violated FDIC Regulation 309.6(a), 17 C.F.R. § 309.6(a), by disclosing its Supervisory Subgroup assignment without FDIC authorization. The Board findings that this exception is also supported by the record and incorporates these additional findings of fact and conclusion of law into the final decision:
       1. The FDIC assigns insured depository institutions to supervisory subgroups as part of the process for assessing deposit insurance premiums. 12 C.F.R. § 327.4(a).
       2. Section 327.4(e) of the FDIC's Rules and Regulations states that the supervisory subgroup to which an institution is assigned is exempt information, disclosure of which is governed by the restrictions on disclosure of exempt information set forth in Part 309 of the FDIC's Rules and Regulations. 12 C.F.R. § 327.4(e).
       3. Section 309.6(a) of the FDIC's Rules and Regulations states that under no circumstances shall any person, entity, or agency disclose or make public exempt records or information without written authorization from the FDIC. 12 C.F.R. § 309.6(a).
       4. In a letter dated April 12, 1995, which was transmitted to Respondent's shareholders, Wells stated on behalf of Respondent, without authorization from the FDIC, that "the FDIC classified FirstBank as 1A which is the highest rating for safety and soundness." The Respondent thereby violated section 309.6(a) of the FDIC's Rules and Regulations. FDIC Ex. 2/56; FDIC Ex. 12/68–69.

CONCLUSION

   Based upon its review of the record, the Board finds that the ALJ's Findings of Fact and Conclusions of Law in the R.D. were correct as to Respondent's unsafe and unsound practices and violations of laws and regulations. The Board also agrees that all of the elements of section 8(b) have been proven and that, therefore, a formal Cease-and-Desist Order with affirmative action is justified.
   The Board has recognized and federal courts agree that under section 8(b) of the FDI Act, 12 U.S.C. § 1818(b), the FDIC may order an institution to cease and desist from an unsafe or unsound practice even where "it is established that the [bank] has engaged in such a practice on only a single occasion." See FDIC-83-252b&c, FDIC-84-49b, FDIC-84-50e. 1 FDIC Enf. Dec. ¶ 5049 (1985); The Greene County Bank v. Federal Deposit Insurance Corporation, 92 F.3d 633 (8th Cir. 1996). Moreover, the Board has consistently entered orders to cease and desist where it has been demonstrated that management has permitted unsafe and unsound practices to continue. See FDIC-84-191b. 1 FDIC Enf. Dec. ¶ 5052 (1985). Finally, the overwhelming majority of courts has held that the discontinuance of illicit practices or violations of law is not a defense against the issuance of a cease and desist order. See e.g., Clinton Watch Company v. Federal Trade Commission, 473 F.2d 1317 (5th Cir. 1973); Bank of Dixie v. federal Deposit Insurance Corporation, 766 F.2d 175 (5th Cir. 1985); First State Bank of Wayne County v. Federal Deposit Insurance Corporation, 770 F.2d 81 (6th Cir. 1985).
   In this case, FDIC Enforcement Counsel has conclusively established that Respondent engaged in numerous and repeated unsafe and unsound banking practices and violations of laws and regulations. The record is abundantly clear that these practices and violations have persisted despite constant regulatory efforts to correct them and assurances from Bank management that it would comply.

   [.6] The present circumstances illustrate not only a clear need but also a compelling need for an order prohibiting the adverse conduct and for a plan to correct the resulting conditions. Section 8(b) of the FDI Act provides the FDIC with broad authority to tailor an appropriate cease-and-desist order:

    Such order may, by provisions which may be mandatory or otherwise, require the depository institution-affiliated parties to cease and desist from the same and, further, to take affirmative action to correct the conditions resulting from any such violation or practice.
12 U.S.C. § 1818(b)(1).

   [.7] The Affirmative Action Program proposed in the R.D. was clearly designed to address each of the unsafe or unsound practices and violations of law and regulations {{7-31-98 p.A-2909}}established in the record of this proceeding. The Board endorses the plan proposed by the ALJ because it clearly targets the Respondent's operational and managerial deficiencies and provides what appears to be a reasonable, workable plan to rehabilitation. Section 8(b)(6) of the FDI Act confers upon the agency broad authority to fashion a corrective plan once it determines that a cease and desist order is appropriate. Sub-sections (E) and (F) provide, respectively, that the agency may order the institution to employ qualified officers or employees or to take any action the agency determines to be appropriate. 12 U.S.C. §§ 1818(b)(6)(E) and (F).
   Respondent's board of directors should be aware, however, that the success or failure of the Affirmative Action Program rests largely on its shoulders. Among other things, the Program requires Respondent's board of directors to develop and implement a Management and Staffing Plan and to approve an EDP Plan to address and correct previously cited deficiencies. Notably, the Affirmative Action Program also requires the Bank to install qualified management within 90 days from the effective date of the Cease-and-Desist Order. It is the managerial and EDP deficiencies that most seriously threaten Respondent's financial stability and ability to continue operations.
   In this case, the record clearly demonstrates that, time and again, the Bank's board of directors has either consciously ignored regulatory criticism or negligently failed to live up to its promises to take corrective action. Wells and Respondent's board of directors have been aware of cited deficiencies since at least the summer of 1995, when they received the DBF Report, yet, in most respects, they have failed to adhere to either the resolution that was generated as a result of the 1995 DBF exam or meaningfully respond to subsequent criticism by the FDIC. Given Wells' history of extreme recalcitrance and Bank management's many demonstrated failures in the past, the Board finds it necessary to admonish Respondent's board of directors that is responsible for full compliance with the Affirmative Action Program. The Board has found that Respondent has engaged in many serious violations posing great risk to the Bank, the public, and the insurance fund. The Board will not tolerate any such future misconduct. Unless the Bank demonstrates a good faith effort to fully adhere to the terms and conditions of the Cease-and-Desist Order, the Bank's board of directors may face the prospect of future regulatory action, including the imposition of civil money penalties pursuant to section 8(i) of the FDI Act, 12 U.S.C. § 1818(i), or other appropriate action under section 8, 12 U.S.C. § 1818.9
   Having determined that Respondent has engaged in numerous unsafe and unsound banking practices and violations of laws and regulations as set forth in the R.D., as modified, the Board finds that the issuance of the Cease-and-Desist Order accompanying this decision is supported by substantial evidence and is in the best interests of Respondent, its depositors, and the insurance fund.

ORDER TO CEASE AND DESIST

   The Board of the FDIC having considered the record and the applicable law, finds and concludes that the Bank, as set forth in this Decision, has engaged in unsafe and unsound banking practices and violations of laws and regulations within the meaning of section 8(b)(1) of the Federal Deposit Insurance Act FDI Act, 12 U.S.C. § 1818(b)(1):
   Accordingly, IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as such term is defined in section 3(u) of the FDI Act, 12 U.S.C. § 1813(u), and its successors and assigns cease and desist from the following unsafe or unsound banking practices and violations of laws and regulations:

       A. 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:
       B. Operating the Bank with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits;
       C. Failure by the Bank's board of directors to require Bank management to implement practices and procedures that

    9 The Board also will not excuse any future failures by Respondent, its counsel, or representatives to observe the FDIC Rules of Practice and Procedure. While the ALJ did not bar Wells from representing the Bank in these proceedings, it would have been fully within his and the Board's authority to do so.


    {{7-31-98 p.A-2910}}reflect operational guidelines established by the Bank's board of directors;
       D. 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;
       E. Failing to provide adequate training to operational personnel;
       F. Operating the Bank with policies and practices that result in excessive employee turnover;
       G. Failing to implement generally accepted internal accounting procedures and effective internal audit controls;
       H. Failing to adopt and implement fully an appropriate loan policy, and appropriate appraisal policy, and an appropriate asset/liability management policy;
       I. Failing to maintain financial records sufficiently accurate to enable the Bank to comply with applicable reporting requirements established by federal laws and regulations;
       J. Failing to prepare accurate annual financial statements;
       K. Failing to make accurate annual financial disclosure statements available to shareholders in a timely manner;
       L. Omitting pertinent or required financial information from the Bank's annual disclosure statements;
       M. Failing to maintain adequate documentation in loan files;
       N. Failing to correct operational problems identified by the Bank's external auditors;
       O. Operating the Bank with inadequate information systems and management reporting systems, as described in the FDIC's EDP Report of Examination of the Bank as of June 11, 1996; and
       P. Engaging in violations of applicable federal and state laws and regulations, as more fully described on pages 8.19 through 8.26 of the FDIC's Report of Examination of the Bank as of May 22, 1996.
   IT IS FURTHER ORDERED that the Bank, its institution-affiliated parties, and its successors and assigns take affirmative action as follows:
   1. (a) Not later than thirty (30) days from the effective date of this 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:
       (i) 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;
       (ii) 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.
       (iii) 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
       (iv) a review of the training deficiencies that were identified in the FDIC's Report of Examination of the Bank as of May 22, 1996.
   (b) 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 thirty (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 {{7-31-98 p.A-2911}}have approved such modification after considering any responsive comments submitted by the Regional Director and/or the Comptroller.
   2. 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:
       (i) comply with the requirements of this ORDER;
       (ii) operate the Bank in a safe and sound manner;
       (iii) comply with applicable laws and regulations; and
       (iv) 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 thirty (30) days prior to any individual's assuming a management position.
   3. 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.
   4. 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:
       (i) suspense accounts are reconciled in a timely fashion;
       (ii) subsidiary accounts are reconciled to the general ledger in a timely fashion;
       (iii) accounting errors, once discovered, are resolved in a timely fashion;
       (iv) general ledger entries are initiated consistently, correctly, and in a timely fashion; and
       (v) the duties of Bank employees are segregated in a manner that minimizes the potential for misapplication of funds, defalcation, or sabotage.
   5. Effective immediately, and until such time as the Bank's accounts are successfully reconciled, the Bank shall retain the fulltime 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.
   6. Not later than thirty (30) days from the effective date of this ORDER, the Bank shall amend its Reports of Condition and Income 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 Reports of Condition and Income that accurately reflect the Bank's financial condition as of the date of each such report.
   7. 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.
   8. 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 {{7-31-98 p.A-2912}}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.
   9. 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 Reports of Condition and Income, as required by Paragraph 6 of this 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 on pages 8.9 through 8.11 of the FDIC's Report of Examination of the Bank as of May 22, 1996. Such review shall be recorded in the minutes of the Bank's board of directors.
   10. 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 sixty (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:
       (i) 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;
       (ii) development and implementation of an appropriate, ongoing internal audit of the operations of the Bank's information systems;
       (iii) 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;
       (iv) appropriate segregation of duties among the Bank's employees (and contractor personnel, if any) who perform functions related to electronic data processing;
       (v) storage of backup copies of operating systems, application programs, and data files in a secure, fire-resistant environment at a remote site;
       (vi) reconciliation of all major applications to the general ledger on a daily basis;
       (vii) development and implementation of an appropriate policy regarding the Bank's use of microcomputers;
       (viii) prompt review by the Bank's board of directors of all audit reports and regulatory reports regarding the Bank's electronic date processing, and written recordation of the responses by the Bank's board of directors to such reports;
       (ix) 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.
   11. 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.
   12. (a) 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:
       (i) 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 repay- {{7-31-98 p.A-2913}}ment and support for the scheduled repayment plan;
       (ii) a requirement that all collateral documentation or evidence of collateral documentation be obtained and reviewed before loan proceeds are disbursed;
       (iii) a requirement for the maintenance and review of complete and current credit files on each borrower with extensions of credit outstanding;
       (iv) A requirement for the establishment of criteria and guidelines for the acceptance and review of financial statements; and
       (v) 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.
   (b) 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" on pages 3b1 and 3b2 of the FDIC Report of Examination of the Bank as of 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.
   14. (a) 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 the Comptroller for review and comment.
   (b) 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.
   (c) In preparing the budget and earnings forecasts required by paragraph 14 of this ORDER, the Bank shall, at a minimum:
       (i) identify the major areas in, and means by which the board of directors will seek to improve, the Bank's operating performance; and
       (ii) describe the operating assumptions that form the basis for, and adequately support, major projected income and expense components.
   (d) Quarterly progress reports comparing the Bank's actual income and expense performance with budgetary projections shall be submitted to the Regional Director and the 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.
   15. Not later than (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 on pages 8.19 through 8.26 of the FDIC Report of Examination of the Bank as of 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.
   16. 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.
   17. (a) 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 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, {{7-31-98 p.A-2914}}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.
   (b) 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.
   (c) 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.
   18. 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.
   (a) At a minimum, a system of internal controls shall be designed to:
       (i) identify reportable transactions in a timely manner in order to obtain all the information necessary to properly complete the required reporting forms;
       (ii) ensure that all required reports are accurately completed and properly filed;
       (iii) ensure that customer exemptions are properly granted and recorded, including the maintenance of documentation sufficient in detail so as to substantiate exemptions granted:
       (iv) 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.
   (b) 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:
       (i) 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;
       (ii) a sampling of large currency transactions followed by a review of currency transaction report filings;
       (iii) a test of the validity and reasonableness of the customer exemptions granted by the Bank;
       (iv) a test of the Bank's record keeping system for compliance with the Bank Secrecy Act; and
       (v) documentation of the scope of the testing procedures performed and findings of the testing. Any apparent violations, exceptions or other problems noted during the testing procedures should be promptly reported to the board of directors.
   19. 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.
   20. Effective immediately, and for as long as this 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 Bank's board of directors shall be recorded in the minutes of the Bank's board of directors.
   21. Not later than sixty (60) days from the effective date of this ORDER, the Bank's {{3-31-03 p.A-2915}}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.
   22. 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, Registration and Disclosure Section, 550 17th Street, Washington, D.C. 20429, 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.
   23. 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.
   24. As a result of the sanctions imposed upon Respondent 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 $3,245.44 to the FDIC.
   25. 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.
   26. 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.
   By direction of the Board of Directors.
   Dated at Washington, D.C., this 26th day of May, 1998.

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