o o OFFICE OF FINANCIAL REGULATION REPORT OF EXAMINATION FIRST COMMERCIAL BANK OF TAMPA BAY #993 Tampa, Hillsborough County, Florida Date of Examination: February 23,2009 Date of Financial Statements: December 31, 2008 Examiner-in-Charge: Dina Buccarelli THIS REPORT OF EXAMINATION IS STRICTLY CONFIDENTIAL This Report of Examination is furnished by the Office of Financial Regulation to the officers and directors of the examined financial institution for their information and consideration. It is desired that each director in keeping with their responsibilities to both depositors and shareholders review this Report in detail. In addition, it is desired that each director, in reviewing this Report, continue to bear in mind that this Report does not represent a complete audit of the financial institution's books. Pursuant to Section 655.057, Florida Statutes, this Report is a confidential record of the Office of Financial Regulation. The financial institution, and any person in custody of the Report, may not publish or make public, all or any part of this document. The Board of Directors of the financial institution may allow inspection of and access to this Report or portions thereof by its lawyers, accountants, auditors, fidelity insurance company, and persons seeking to acquire a controlling interest in or merge with the financial institution. In addition, this Report may be inspected by any federal or state examiner responsible for the regulation or supervision of financial institutions. Access by any other person is strictly prohibited without the prior written consent of the Office of Financial Regulation. The information contained herein is based upon the books and records of the financial institution, upon statements made to the Examiner by directors, officers, and employees, and upon information derived from other sources which the Examiner considered reliable and correct. LINDA B. CHARITY ACTING COMMISSIONER This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Tabl of ontent Examination Conclusions and Comments Compliance with Enforcement Actions Risk Management Assessment Violations of Laws and Regulations Examination Data and Ratios Comparative Statements of Financial Condition Loans and Lease Financing Receivables Summary ofItems Subject to Adverse Classification and Special Mention Items Subject to Adverse Classification Items Listed for Special Mention Concentrations Capital Calculations Analysis ofEamings Signatures of Directors Officer's Questionnaire All dollar amounts are reported in thousands, Wlless otherwise indicated. This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 1 10 19 24 27 28 29 30 31 40 43 45 46 47 Examination Conclusions and ent 10993 Current Exam Ratings by Examination Function Risk Management Composite Prior Exam Prior Exam 02/23/20091 S 09/02/2008 0811312007 1 S 5 3 4 5 5 5 5 4 2 3 3 Risk Management Component: Capital Asset Quality Management Earnings Liquidity Sensitivity to Market Risk 3 2 2 SUMMARY The bank's overall condition is unsafe and unsound, and its ability to remain viable is uncertain without strong and immediate corrective action. The bank's condition has continued to deteriorate, with a notably severe decline in asset quality, liquidity, and earnings. The Board and management have been slow and ineffective in recognizing loan problems and downgrades, maintaining the allowance for loan and lease losses (ALLL) at acceptable levels, and returning the bank to profitability. Liquidity levels have deteriorated to dangerously low levels in view of the bank's risk profile. Management has failed to adhere to applicable laws, regulations, and supervisory guidelines. Board oversight and independence has been lax. Decisive and immediate attention is required to return the bank to a safe and sound condition. COMPLIANCE WITH ENFORCEMENT ACTIONS On April 3, 2008, the State of Florida, Office of Financial Regulation (OFR) issued and served against First Commercial Bank of Tampa Bay (FCBTB) an Administrative Complaint. The bank then requested an administrative hearing, which was referred to the Division of Administrative Hearings. Prior to an administrative hearing, FCBTB entered into a Stipulation and Consent Agreement (Agreement) on November 21,2008. On November 25, 2008, the assigned Administrative Law Judge entered an Order relinquishing jurisdiction for the OFR to issue a Final Order. The Final Order was issued on December 3,2008. The effective date of the Agreement is December 8, 2008. The bank has submitted progress reports to the OFR in accordance with the Agreement. However, the bank is not in compliance with all of the provisions outlined in the Agreement. Refer to the "Compliance with Enforcement Actions" schedule for further details and discussion. MANAGEMENT - 5 Management is unsatisfactory. The Board and daily management have failed to operate the bank in a safe and sound manner. Senior management, particularly Chainnan of the Board and Chief Executive Officer Albert M. Salem, Jr. (CEO Salem), has pursued a course that has weakened the bank's condition. The bank's overall condition continues to deteriorate and has now reached such a precarious state that without substantial, sustained, This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and Comments (Continued) 10993 and immediate action, its viability is threatened. A pattern of pervasive and egregious disregard for prudent management and sound banking practices are apparent and appear to have worsened since the previous State examination. Senior management, along with the Board, has failed to adequately address negative trends or adhere to formal regulatory actions and recommendations. Unfavorable trends in almost every area continue. The Board and management have allowed the bank to remain subject to excessive risk for some time and their response to the severe economic downturn and it effects on asset quality and earnings have been grossly inadequate. The extent of the bank's problem credits has not been adequately identified or determined by management. As a result, nearly 32 percent ofthe loans classified at this examination were downgraded from the bank's internal loan grades. Risk management practices are poor for the high level of risk to which the bank is exposed. A significant portion of the loan portfolio is concentrated in acquisition, development, and construction loans, but appropriate risk management systems and policies to deal with them have apparently not been implemented. The lack of oversight and control of the lending function in the past years has led to the bank's poor asset quality. Until very recently, management engaged in risky, speculative lending while failing to adequately monitor declining economic conditions and adjust plans accordingly. Despite criticisms at prior regulatory examinations, the Board and management have been slow to respond with appropriate action to control excessive risks and improve the bank's condition. Instead, regulatory actions and recommendations have repeatedly been met with resistance and delays. Severe credit administration weaknesses are noted, including inadequate or inconsistent bank policies, conflicting stipulations within policies, and stale or missing financial information on borrowers. Bank policy inadequacies are discussed elsewhere within this Report of Examination (Report). Collection practices have not been effective, as evidenced by the extremely high level of past due and nonaccrualloans, and they appear to have been unevenly applied to bank customers, as demand letters have not routinely been sent out on a consistent or timely basis. Numerous and severe violations of laws and regulations, along with contraventions of supervisory policy statements, are cited on the "Violations of Laws and Regulations" schedule. Some of the cited violations are repeated from prior examinations and reflect unfavorably on the Board's and management's familiarity with oversight and regulations. The continued lack of adherence to banking laws and regulations and regulatory policy statements is an indication of senior management's inability or unwillingness to consistently operate the bank in a safe and sound manner. Efforts to correct cited infractions and ensure compliance with applicable requirements have been very ineffective and disappointing. The management of operational areas of the bank, in addition to those that resulted in violations, has also been inept. Management has failed to heed previously cited regulatory concerns and deterioration in these areas has continued. The bank's liquidity position is poor and inadequately managed. Management allowed correspondent bank lines of credit to lapse and those had not been restored during the examination. Without these secondary sources of liquidity available, the bank, in its current condition, could have come dangerously close to being unable to meet its immediate cash outflow obligations. A large portion of the investment securities is already pledged and therefore unavailable to secure additional borrowings. The bank's liquidity position was already weakened with an extremely high dependence on volatile liabilities, while the lack of earnings and the existence of formal regulatory action made the ability to obtain additional funding or credit doubtful, even on a short-term basis. During the examination, First Vice President and Controller Michael L. Faber (Controller Faber) stated, on more than one occasion, that he was uncertain of the availability of correspondent bank lines of credit, although after the conclusion of the onsite portion of the examination, he stated that examination staff misunderstood his statements. 2 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and Comments (Continued) 10993 The bank's December 31, 2008 Consolidated Reports of Condition and Income (Call Report) was filed nine days late. Amended Call Reports for 2007 and 2008 are in process, but have not yet been filed. The amendments pertain to adjustments in the timing of the recognition ofloan losses and provision expense. In addition, the bank has not received a finalized 2007 audit from its external auditor, which resulted in a repeat violation of Florida Statutes since the audit could not be forwarded to OFR within the required timeframes. The Board of Directors has been largely ineffective and has demonstrated a lack of independence and inadequate oversight of executive management. The Board has failed to recognize the severity of the bank's condition or take timely and necessary corrective actions. Insufficient efforts to ensure compliance with applicable laws and regulations are apparent and weaknesses in some Board-approved policies are noted. For example, the bank's blanket bond insurance policy lapsed for an extended period of time at the end of 2008, which is an unsafe and unsound banking practice. The insurance provider reportedly provided the required notification in the form of a letter to the bank in October 2008 indicating that the policy would be cancelled at year- end. The letter was received by CEO Salem; however, minutes of the Board meetings indicate that the cancellation was not made known to the Board until December and the Board did not take immediate action to obtain a new policy, but relied upon CEO Salem to handle it. The OFR was not notified of the lapse in the fidelity coverage as required under the significant events reporting requirements in effect for the bank and for which a violation is cited. A new policy was not obtained until February 19, 2009. In another instance, an employee's Fedline security password was compromised as a result of the bank's incoming mail procedures. An almost universal morale problem exists among bank officers and employees. The bank has experienced a high level of senior officer turnover since its inception. CEO Salem's response has been to establish apparent counter-productive personnel policies, with the Board's approval, that include punitive sanctions on longer-term employees for providing a customary two-week notice when resigning. Under current policy, an inordinate amount of notice is required in order for a long-term employee to continue to receive his or her regular salary. Failure to provide the extra notice results in the employee being compensated at minimum wage for the remainder of his or her employment. The result has been for longer-term employees to resign without notice rather than work at minimum wage. During the examination, the bank's Bank Secrecy Act officer resigned without the required notice due to this policy according to other bank employees. Experienced employees are typically more difficult to replace and policies that discourage employees from providing customary notice are counterproductive to the bank's operations. The bank's poor performance with respect to asset quality and diversification, capital adequacy, earnings performance and trends, liquidity and funds management, and sensitivity to fluctuations in market interest rates is largely the result of decisions made by the bank's directors and officers while operating in a rapidly and significantly declining economic environment. Overall, risk management practices are critically deficient as the Board and management have not demonstrated the ability to correct problems and implement appropriate corrective action. Significant risks are inadequately identified, measured, monitored, and controlled. Paul J. Nidasio was appointed interim executive vice president and chief credit officer on January 28, 2009. In addition, Bank Secrecy Act Officer Marya N. Wall resigned on March 2, 2009. ASSET QUALITY - 5 Asset quality is critically deficient and presents an imminent threat to the bank if not substantially improved. Adversely classified items of$28,416,000 represent 183.99 percent of the banks capital and reserves or 18.48 percent oftotal assets and are at an unsafe and unsound level. In addition, $3,798,000 in loans is listed for 3 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and Comments (Continued) 10993 Special Mention due to potential weaknesses that, if not corrected, could result in the deterioration of repayment prospects for these loans. The bank's internal loan grading system is inadequate. The Board and management should strengthen efforts to accurately and timely recognize and properly grade loans since nearly 32 percent of the loans classified during this examination were downgrades from the internal bank ratings. Management had pending recommendations for additional downgrades scheduled to be considered at the March Executive Loan Committee meeting; however, even if approved, the adjusted total downgrades would have been a high 23 percent of classified loans. The majority of the Loss classifications at this examination were determined based on recently updated appraisals. Past due and nonaccrualloans have increased significantly since the last regulatory examination and are now in excess of22 percent of the portfolio. Collection practices are poor and appear to have been inconsistently applied. In some cases, demand letters have not been sent for loans past due as long as 60 days. Follow-up procedures are also poor and inconsistent, with unclear authority on attorney referrals. Multiple law firms have been engaged by CEO Salem to handle the most severe collection and collateral repossession cases, but other senior officers do not always have access to complete information on which firms have been assigned or the account status. Executive Vice President and Chief Credit Officer Paul J. Nidasio (CCO Nidasio) was hired in January 2009 and has begun reviewing collection and workout procedures. Senior Vice President and Workout Officer Charles E. Good (SVP Good) has been working to collect the largest, most critical credits, although he is currently only working on a part-time basis. Stronger and more concerted efforts are required to reduce delinquencies, prevent further deterioration, and reduce losses. Approximately 31 percent of loan files reviewed had documentation deficiencies consisting primarily of stale or missing borrower financial statements and tax returns. Current financial information is necessary to monitor the borrowers' ability to repay the debt. Improvement is needed in loan documentation monitoring. The vast majority of the past due and nonaccrualloans is comprised of real estate (RE) loans. Management pursued a high-risk course of primarily RE lending in a market severely affected by the economic downturn, with inadequate risk management practices in place. Management is now concentrating on problem loan identification and the control of asset quality and few new loans have been made since the prior regulatory examination. Prior poor loan underwriting, coupled with inadequate risk management practices, have contributed to the bank's unsatisfactory asset quality. LIQUIDITY - 5 The bank's overall liquidity position is weak and precarious, while liquidity risk is high. The bank's continued survival could be threatened should large, unforeseen, short-term funding requirements arise. Funds management practices are critically deficient and management's ability to obtain sufficient funding at a reasonable cost is highly questionable. The bank's rapidly declining financial condition, very low level ofliquid assets, excessive reliance on wholesale funding sources, and extremely limited borrowing capacity have placed the bank under severe liquidity pressure. The liquidity risk could be further exacerbated by negative media attention resulting from the current formal action imposed by the OFR 4 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and Comments (Continued) 10993 Management's internally-calculated liquidity ratio is 15.67 percent as of December 31, 2008, and just slightly above the bank's minimum policy threshold of 15 percent. However, the net non-core funding dependence ratio of 50.39 percent for the same date is at an extremely elevated level indicating an over reliance on volatile sources. In addition, the short-term asset to short-term liability ratio has decreased during the last quarter of2008 from 64 percent to 35 percent. The bank's primary sources of liquidity consist of cash and due from accounts totaling $8,672,000, and unpledged investment securities totaling $7,389,000 and representing only 28 percent of the investment portfolio. The liquidity available in the investment portfolio is limited since nearly 72 percent is already pledged to secure repurchase agreements. While remaining securities could be liquidated to generate additional cash, the risk associated with this strategy is the bank may need the available securities to pledge as additional collateral in an emergency. Alternative funding sources have been negatively impacted by the bank's weakening financial condition. Unsecured Federal funds lines, which previously existed wit , have been rescinded or are not available. The bank's credit rating declined to the most severe level and in January 2009, the reduced the bank's available secured borrowing line from 20 percent of total assets to 10 percent while increasing the collateral requirements. collateral requirements require performing one- to four-family first mortgage loans with original documentation and additional margin conditions apply. In addition, during the examination, , notified the bank that it is no longer eligible to borrow under the and that it has zero . Of particular concern is the bank's increasing reliance on wholesale funding. As of December 2008, the bank had $22,787,000 in large certificates of deposit, $30,475,000 in brokered deposits, $14,557,000 in repurchase agreements, and $3,840,000 in FHLB advances. The aggregate ofthese non-core liabilities is $71,659,000. Conversely, short-term investments have decreased from $11,247,000 at year-end 2007 to $2,258,000 currently. As a result, the net non-core funding dependence ratio has more than doubled to its present level of over 50 percent, well outside the bank's policy limit of20 percent. Increases in large time deposits and brokered deposits along with significant declines in short-term investments are contributing factors to the increasing dependency on volatile funds. The brokered deposit to total deposits ratio increased significantly from 5.41 percent at year-end 2007 to 25.03 percent as of the examination date, which also exceeds the bank policy maximum of 15 percent. Approximately 77 percent of the brokered deposits are maturing in less than a year; however, management has not developed a formal plan for funding or replacing these deposits. The bank's low liquidity, high net non-core funding dependence, high level of pledged securities, and restricted credit lines have inordinately increased the degree of liquidity risk. Management utilizes a daily liquidity reserve calculation worksheet to measure and monitor the bank's liquidity position. However, the bank does not have a well-planned, formal liquidity contingency plan that addresses alternative funding if a liquidity crisis arises. The current Board-approved contingency funding strategy states that permissible instruments that should be considered to manage liquidity in a crisis situation are as follows: brokered certificates of deposits; FHLB advances; Federal funds sales and purchases; loan swaps with a correspondent bank; and derivatives or structured notes. However, since volatile liability dependence is already high and formal regulatory action prohibits additional brokered deposits, these sources are no longer available. Available credit lines have been eliminated or curtailed and loan swaps and derivatives are not anticipated to be utilized based on the current size and complexity of the bank and they are not a realistic alternative liquidity source in view of the bank's risk profile. 5 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and Comments (Continued) 10993 Liquidity risk is exacerbated by reputational risk arising from publicly disclosed formal regulatory actions to which the bank is or may be subject and independent bank rating services that utilize Call Report information and often publish individual bank ratings. Management does not have a well-planned liquidity contingency plan that adequately addresses alternative funding should a liquidity crisis arise. Secondary liquidity sources are not adequate and the bank does not maintain sufficient sources of primary liquidity to meet contingent funding needs. Controller Faber is in the process of finalizing a revised formal liquidity contingency funding plan. Approximately $18,820,000 or 72 percent of the investment securities portfolio is pledged as collateral for customer retail repurchase agreements. A portion ($2,540,000) of the pledged securities consists of municipal bond securities. The pledging of municipal securities for repurchase agreements is an exception to the Sales/Repurchase Agreement executed between the bank and the customer. Refer to the "Risk Management Assessment" schedule for details. EARNINGS-5 Earnings are poor and insufficient to support operations and augment capital. The poor earnings performance is the direct result of poor asset quality, a weak net interest margin (NIM), and high overhead expenses. Earnings at year-end 2008 indicate pretax losses of $5,026,000. The bank's return on average assets (ROAA) of negative 2.01 percent, compared to 0.28 percent for 2007, reflects a severe downward trend primarily attributed to an extremely poor and deteriorating asset quality requiring large provisions to the ALLL. The extremely high level of adversely classified loans identified at this examination will, at a minimum, require additional provisions to the ALLL of$2,591,000 to restore it to an acceptable level, which will further negatively impact earnings in 2009. Management has still not completed revisions to the December 31, 2008, and December 31, 2007 Call Reports. Adjustments are anticipated to reflect the recognition of additional loan losses in 2007 that are now recognized in 2008. However, there should be no net effect on capital. The composition and level of problem assets, along with a low loan portfolio yield and high interest expense, generate a weak NIM. The already weak NIM has been adversely affected by the high level of nonperforming assets and charge off of accrued interest on loans placed on nonaccrual. The NIM is compressed while the bank continues to experience loan losses and downgrades requiring additional provisions to the ALLL. Current loan officers continue to devote notable resources to loan monitoring, collection, and workout efforts. However, in view of the rising levels of past due, nonaccrual, and watch list loans, stronger efforts are warranted. Asset quality is unsatisfactory and rapidly deteriorating. The likelihood of additional, significant loan losses occurring this year is high. As a result, earnings prospects remain dismal for the remainder of 2009 and are uncertain, at best, for 2010. Overhead expense increased considerably in 2008 due to the addition of President and Chief Operating Officer Lee J. Cieslak (President Cieslak), and SVP Good. Controller Faber was hired in 2008 to replace the prior chief financial officer who resigned. In addition, CCO Nidasio was hired in January 2009. While the addition of a full-time chief credit officer should assist in the necessary identification and workout of problem credits, personnel expenses have increased further as a result. Other miscellaneous expenses have also increased due to various collection and legal expenses. The prospective earnings performance appears bleak, at least in the short-term. The Board-approved budget for 2009 projected pretax operating income of $311 ,000 for an ROAA of 0.12 percent. Due to the deficiency 6 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and omments (Continued) 10993 identified in the ALLL, net operating income is adjusted to negative $2,276,000 or an ROAA of negative 1.38 percent based on the current budget. However, current 2009 budget projections are highly unrealistic and likely unattainable and should be revised with current information, using more realistic assumptions and projections based on current conditions. The bank's Strategic Plan also needs revising in view of the bank's present unsatisfactory condition and the uncertain economic outlook. Extensive, sustained efforts will be required to address the bank's myriad problems, improve asset quality, and eventually restore profitability. ALLL Based on the level of adversely classified loans at this examination, along with the impairment analyses performed in accordance with Financial Accounting Standards Board (F AS B) guidelines, the ALLL is deficient and additional provisions of $2,591 ,000 appear necessary to bring the ALLL to a minimally sufficient level. CAPITAL-4 The bank's capital position continues to decline and is deficient in light of the bank's heightened risk profile and poor earnings. The substantial increase in adversely classified assets, growing past due and nonaccrualloans, critically deficient earnings, large concentration of commercial real estate (CRE) loans, and excessive reliance on volatile funding sources warrant the need for additional capital. At this examination, the bank's December 31, 2008 capital position was "adequately capitalized" as defined by the Prompt Corrective Action provisions of Part 325 of the FDIC Rules and Regulations. The change from "wellcapitalized" was prompted by FASB guidelines requiring $2,591,000 in additional provisions to the ALLL necessitated by classified loans at this examination. The guidelines require that the ALLL be adequately funded after deduction for loans classified Loss. These examination adjustments resulted in the total risk-based capital (RBC) ratio declining to 9.00 percent. Prior to the revision, the total RBC ratio was 10.89 percent, indicating improvement from the last regulatory examination. The prior improvement was the result of a combination of capital injections in late 2008 and shrinkage in the asset base. The level of adversely classified items has continued to escalate and represents nearly 184 percent of capital and the ALLL at this examination. The overall inherent risk profile of the loan portfolio is extremely high based on the existing concentration of CRE, watch list, and past due and nonaccrualloans. The continuing decline in overall economic conditions adds to the capital concerns of this bank. In addition, due to the net loss reported for 2008 and the likely larger than currently projected net losses for 2009, the bank is dependent on outside support to absorb further losses, maintain capital levels, and/or sustain any potential growth. As of December 31, 2008, the on deposit in the bank. CEO Salem indicated that bank's holding company (HC) had approximately the HC is committed to supporting the bank and would consider downstreaming some or all of these funds to the bank. Without additional outside capital, the bank's Tier 1 Leverage Capital ratio would decline to an unacceptable 4.77 percent at year-end 2009 assuming zero asset growth and the projected loss of $2,276,000. SENSITIVITY TO MARKET RISK - 4 Material weaknesses in the bank's interest rate risk (IRR) management process have exposed the bank to a potentially unacceptable level ofIRR. Inaccurate assumptions underlying the bank's December 31,2008 IRR simulation model indicate an inaccurate assessment of the current risk position. Accurate identification of IRR is 7 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and '-''-''IUIUIOL,II (Continued) 10993 especially important since losses and inadequate capital levels provide little, if any, protection against interest rate fluctuations. Sensitivity to market risk is unacceptable and poorly managed. Earnings have declined rapidly and the NIM has been significantly compressed partly due to the bank's exposure to IRR. Earnings and capital provide inadequate support for the degree of risk accepted by the bank. Of principal concern is the failure in managing the bank's balance sheet structure so as to optimize the NIM and maintain a relatively steady rate of net interest income. Although the national economic downturn resulted in the frequent lowering of interest rates during 2008, the bank was overexposed to market risk in the declining rate environment. The bank's assets, primarily comprised of adjustable-rate loans, adjusted downward based on the movement in prime interest rates, which plummeted nearly 400 basis points during the year. The net loan portfolio contained $61,374,000 or 55 percent ofloans tied to prime interest rates and subject to daily repricing, and 80 percent of these loans failed to contain a minimum interest rate provision or floor. The bank's liabilities also restructured from money market deposit accounts into longer term and non-core certificates of deposit products and continue to migrate into longer time horizons. The bank utilizes the Plansmith quarterly analysis model in projecting interest income under varying scenarios; however, the model's assumptions are flawed in that they do not adequately reflect ongoing or potential deposit migration, or account for the increased volume of nonperforming assets, declining NIM, and increased provisions to the ALLL. Policies and monitoring tools are insufficient to adequately analyze and manage the bank's sensitivity to market risk. Additional comments can be found in the "Risk Management Assessment" schedule. Management has not been able to reverse rising and unfavorable trends in the levels of non-core liabilities, nonperforming assets, and operational losses. Risk management practices are deficient for the size, sophistication, and level of market risk accepted. As a result of management's failure to effectively control the high level of market risk, it is likely that the bank's future earnings performance and capital levels will be further adversely affected. VIOLATIONS OF LAWS AND REGULATIONS As discussed previously, numerous violations of laws and regulations and contraventions of supervisory guidelines are detailed on the "Violations of Laws and Regulations" schedule. The volume and pervasiveness of items on this schedule reflect very poorly on the Board and management, especially considering that those pertaining to concentrations, the internal audit, and the ALLL are repeated from prior regulatory examinations. Management's apparent lack of familiarity with laws and regulations and the Board's apparent lax oversight are unacceptable. CONCENTRATIONS The bank continues to have excessive concentrations ofCRE loans that represent 550 percent of total RBC. While some improvement in the volume of concentrations has occurred since prior regulatory examinations, the level remains excessive and is unacceptable considering the bank's overall high-risk profile. Current risk management practices for controlling the level of concentrations are inadequate. Management is encouraged to closely monitor CRE sectors identified on the "Concentrations" schedule. Efforts to mitigate these risks should be increased and management should strive to further reduce the overreliance on certain volatile market sectors. 8 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Conclusions and 'L-.,' . . . . . . ~J.IL~ (Continued) 10993 BANK SECRECY ACT (BSA) Minor weaknesses and deficiencies in the BSA compliance program are discussed on the "Risk Management Assessment" schedule. Of more concern is that the bank's BSA officer resigned during the examination, which resulted in a violation of BSA regulations. The duties of this position are temporarily being performed by support personnel. Management is urged to fill the vacancy with a qualified individual as soon as possible. DISPOSITION OF ITEMS CLASSIFIED LOSS Upon receipt of this Report, all items adversely classified Loss should be charged off unless collected or materially improved in the interim. MEETING WITH MANAGEMENT A meeting was held on April 1,2009, to discuss the preliminary findings of the examination. Representing the bank were CEO Salem, President Cieslak, Controller Faber, Executive Vice President and Senior Loan Officer Troy W. Newsome, Jr., CCO Nidasio, Vice President of Operations Wesley T. Small, First Vice President, Executive Assistant, and Secretary to the Board Jill A. Clements, Vice Chairman ofthe Board Jimmy C. Fischer, and Directors Albert M. Salem, III, and David L Williams. Representing the FDIC was Examiner John D. Jackson. Representing the OFR were Area Financial Manager C. Benton Eisenbach, Jr., and Examiner-in-Charge Dino Buccarelli. UNIFORM BANK RATING The financial condition and operational soundness of each bank is evaluated using the Uniform Financial Institutions Rating System developed by the Federal Financial Institutions Examination Council. Each institution is assigned a composite rating between" 1" and "5." A rating of" 1" is the highest and represents the least degree of supervisory concern, while a rating of "5" is the lowest and represents the greatest degree of supervisory concern. The bank is assigned a rating of" 5" based on the findings of this examination. DIRECTORATE RESPONSIBILITY Each member of the Board of Directors is responsible for thoroughly reviewing this Report. Each director must sign the "Signatures of Directors" page, which affirms that he has reviewed this Report in its entirety. Examiner (Signature) /s/ Dino Buccarelli This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement ns 10993 On April 3, 2008, the OFR issued and served against FCBTB an Administrative Complaint. The bank then requested an administrative hearing, which was referred to the Division of Administrative Hearings. Prior to any administrative hearing, FCBTB entered into an Agreement on November 21,2008. On November 25,2008, the assigned Administrative Law Judge entered an Order relinquishing jurisdiction for the OFR to issue a Final Order. The Final Order was issued on December 3, 2008. The following Agreement represents a formal agreement between the Board of FCBTB and the Director of the Division of Financial Institutions of Florida's OFR, whereby the bank, through its Board, agrees that it will act in good faith to implement the requirements ofthe program and eliminate the deficiencies cited in the OFR Report dated August 13,2007. The effective date of the Agreement is December 8, 2008. The provisions ofthe Agreement and the bank's compliance with each provision are addressed below. MANAGEMENT 12. The Board of Directors of FCBTB, hereinafter "Board," will immediately increase its participation in the affairs ofFCBTB, assuming full responsibility for the approval of sound policies and objectives, and for the supervision of all of FCBTB' s activities, consistent with the role and expertise commonly expected for directors of banks of comparable size. This participation will include in-person meetings to be held no less frequently than monthly. Pursuant to Section 607.0820(4), Florida Statutes, Directors may participate in meetings through the use of any means of communication by which all directors participating may simultaneously hear each other during the meeting, unless FCBTB' s articles of incorporation or bylaws provide otherwise. Detailed written minutes of all Board meetings will be maintained and recorded on a timely basis fully documenting the Board's review, discussion, and approval of all agenda items and any other matters discussed at the meeting and will include the names of dissenting directors. The bank is in compliance with this provision. The Board held meetings on December 17, 2008, and January 21, 2009. There appeared to be acceptable participation by the directors during the December 17, 2008 Board meeting, with the exception of Director Gregory D. Jones, who was absent. The Consumer Loan Policy was approved by the Board members. There also appeared to be an acceptable level of participation by the directors in the January 21, 2009 Board meeting, with the exception of Vice Chairman of the Board Jimmy C. Fischer, who was absent. The Board members received an online training package to comply with the Agreement. The following policies were presented for review and approval: Security Policy, Code of Ethics Policy, Personnel Policy, Email Internet Policy, and Electronic Banking Policy. Minutes are generally detailed and document any discussions, with votes appropriately recorded. 13. Within 30 days from the effective date of this agreement, FCBTB's Board shall designate a committee to oversee FCBTB's compliance with the requirements set forth in this agreement. Such Directors' committee shall exclude members who are involved in the day-to-day operations of the FCBTB and shall receive monthly reports from management regarding FCBTB's compliance with this agreement. The Directors' committee shall present a report regarding FCBTB's compliance with this agreement to the entire Board at each of its regularly scheduled meetings. Such report will be recorded in appropriate minutes of the Board's meeting and will be retained in FCBTB's records. The bank is in compliance with this provision. The November 19, 2008 Board minutes discuss the establishment of the Oversight Committee. The December 17, 2008 Board minutes indicate that the Oversight Committee met prior to the general meeting and appointed Director Albert M. Salem, III, as the 10 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement (Continued) 10993 chairman, with all directors as committee memhers except CEO Salem. A report on the Oversight Committee's status was prepared and presented to the Board at the January 21, 2009 regular Board meeting. 14. Prior to the effective date of this agreement, FCBTB has submitted a Management Plan to the OFR, which provides for the following: (a) Identification of the structure of the executive management team, along with the names of the individuals currently holding executive management positions within the FCBTB; (b) Identification ofFCBTB's short- and long-term management succession plan, and; (c) Job descriptions for all executive officer positions including, but not limited to, the Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer, Senior Loan Officer, and Chief Credit Officer. The job descriptions also indicate the date the description was approved by the Board of Directors, the name of the current officer, and the date the officer assumed his position. FCBTB will submit a Revised Management Plan within 30 days of the replacement or addition of any executive officer or the modification of the job description of any executive officer or of the management succession plan. The bank is in compliance with this provision. The bank's January 21, 2009 progress report to the OFR included a Management Succession Plan, organizational chart, and job titles or descriptions on executive officers. 15. Within 90 days from the effective date ofthis Agreement, the Board will conduct evaluations to assess the qualifications and performance of all senior managers, including all department heads and executive officers, of FCBTB to determine if each person has the experience commensurate with his or her duties and responsibilities at FCBTB. FCBTB's management will be assessed on its ability to: (a) Comply with the requirements of this Agreement; (b) Operate FCBTB in a safe and sound manner, and; (c) Comply with applicable laws and regulations. The results ofthe evaluations will be submitted to the OFR for review and comment within 90 days of the effective date of this Agreement. The bank is not in compliance with this provision. This evaluation process is not complete. An abbreviated "evaluation" was provided to the OFR in the February 2009 progress report; however, the "evaluation" does not provide any specific findings or conclusions on management generally or on specific individual officers. It only provides brief points that the Board has considered in conducting the "evaluation." The response does not constitute an actual evaluation; therefore, it does not satisfy the requirement. 16. The OFR acknowledges that in response to supervisory concerns FCBTB has hired an experienced Chief Operating Officer and President, who is acceptable to the OFR, to replace the former president and manage the operations of the FCBTB. FCBTB agrees that, if the OFR determines and advises FCBTB that additional or replacement personnel are needed to properly staff FCBTB with qualified, experienced officers sufficient to provide the leadership required to comply with the business plan and strategies adopted in compliance with the 11 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement (Continued) 10993 terms of this Agreement and the supervisory concerns previously identified by OFR, then FCBTB will recruit and hire such personnel. The bank is in compliance with this provision. Lee J. Cieslak joined the bank on June 2, 2008, and is the current President and Chief Operating Officer. 17. At all times, the management of FCBTB will include a fully qualified, experienced Chief Credit Officer, who shall remain independent of loan production. The Chief Credit Officer will be employed full time to manage, implement, coordinate and monitor the implementation of Board approved loan policies, troubled loans, day-today loan review and the quality assessment program, and will not be assigned responsibility for any supplemental duties. The OFR acknowledges that FCBTB hired a Chief Credit Office in January 2008, and notified the OFR of his proposed appointment as an executive officer and Chief Credit Officer ofFCBTB in February 2008, pursuant to Section 655.0385, Florida Statutes. The OFR notified FCBTB that it would not issue a notice of disapproval with regard to the proposed appointment in April 2008. The bank is in compliance with this provision. Charles E. Good joined the bank in January 2008 as Senior Vice President and Chief Credit Officer, and was promoted to Executive Vice President and Chief Credit Officer in May 2008. On January 28, 2009, Paul J. Nidasio was hired to replace Mr. Good as Executive Vice President and Chief Credit Officer. The OFR was notified and responded in a letter dated January 28, 2009, that Mr. Nidasio had been approved to serve as the bank's Chief Credit Officer on an interim basis. On March 12, 2009, the OFR issued a "no objection" letter for Mr. Nidasio to serve in the position on a permanent basis. EARNINGS, BUDGETS AND STRATEGIC PLANS 18. Within 60 days of the effective date of this agreement, FCBTB's Board shall prepare a written plan for improving FCBTB's earnings as measured by both the ROAA and Return on Equity ("ROE"). The plan shall, at a minimum, describe all actions necessary for improving and maintaining FCBTB's profitability; include realistic projections, and; address how the budget and strategic plan may be affected by the plan. FCBTB shall submit the plan to the OFR for review and comment. FCBTB agrees that any and all commentary provided by the OFR will be reviewed and discussed by FCBTB's entire Board at its next scheduled meeting with the discussion being duly recorded in appropriate minutes of the Board's meeting and retained in FCBTB's records. The bank is only in partial compliance with this provision. A budget and Strategic Plan have been prepared and submitted to the OFR in compliance with this Agreement. However, the budget does not incorporate realistic projections or indicate how specific goals are to be achieved. The Strategic Plan also does not provide sufficient specific details for achieving the goals of the plan. The current budget and Strategic Plan are inadequate considering the bank's present condition and lack of anticipated profitability or growth. Additional discussion is included in the "Risk Management Assessment" schedule. 19. Within 60 days of the effective date of this agreement, FCBTB's Board shall finalize a comprehensive budget and earnings forecast for 2009. FCBTB shall submit the 2009 budget and earnings forecast to the OFR for review and comment no later than January 31, 2009. In the future, FCBTB shall submit annual comprehensive budget and earnings forecasts to the OFR for review and comment no later than January 31 of each subsequent calendar year. In preparing the budgets, a complete review of income and expense accounts should be conducted for the purpose of identifying areas where earnings might be improved, with particular emphasis given to improving net interest margin, maintaining an adequate allowance for loan loss reserves, and increasing non-interest income. 12 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement ns (Continued) 10993 The budget shall contain narrative comments which address FCBTB's expectations for asset growth rates and lirriitations, time frames for reaching financial projections, and the underlying assumptions used in determining FCBTB's financial projections. After submitting its budget and earnings forecasts to the OFR for review and comment, FCBTB shall submit quarterly progress reports to the OFR documenting FCBTB's actual performance compared with the budgets. FCBTB shall submit its quarterly progress reports concurrently with any other reporting requirements set forth in this Agreement. The bank is only in partial compliance with this provision. A budget has been prepared, but it is unrealistic and does not indicate how specific goals are to be achieved. Refer to the "Earnings" comments and "Risk Management Assessment" schedule for additional information. 20. Within 90 days from the effective date of this Agreement, FCBTB shall finalize its Strategic Plan for three years to include 2009, 2010, and 2011, which provide specific goals and parameters regarding: (a) consideration ofFCBTB's capital and liquidity positions; (b) an operating plan to accomplish specific short-term goals; (c) specific long-term goals for growth, profitability, capital maintenance, and service to the community; and (d) future information technology needs, product and service enhancements, and the budget implications thereof. The Strategic Plan shall be submitted to the OFR for review and approval within 30 days of being finalized. The bank is only in partial compliance with the provision. A three-year Strategic Plan was submitted to the OFR, but it is general and simplistic in nature and inadequate for the bank's current needs. LENDING AND CREDIT ADMINISTRATION 21. Within 60 days from the effective date of this Agreement, FCBTB shall submit to the OFR a plan and proposal detailing how it will effect the reduction and/or collection of any outstanding asset with an aggregate value of $200,000 or more that was adversely classified in the OFR's 2007 Report. Thereafter, the FCBTB shall submit quarterly progress reports to the OFR describing actions taken to improve and/or collect all adversely classified assets, including assets internally classified after August 15,2007. The progress reports shall be provided concurrently with the other reporting requirements set forth in this Agreement. The bank is technically in compliance with this provision. A progress report dated January 9, 2009, was submitted to the OFR detailing the actions to be taken to reduce or collect adversely classified assets of $200,000 or more. However, the level of adversely classified assets above $200,000 identified at this examination greatly increased from the levels at prior examinations. The next progress report should include an updated plan to reduce the current level of classified assets. 22. FCBTB's Loan Policies have been revised to address the concerns and criticisms set forth in the OFR's Report and the Complaint including revisions containing: (a) Specific criteria for the use of interest reserves; and The bank is in compliance with this provision. The Loan Policy states that due to the existing conditions in the local CRE market, including development loans, interest reserve funding is suspended for the immediate future and until conditions in the market change and improve. No new loans with interest reserves funded by loan proceeds were identified. (b) A requirement for annual reviews for all types of larger commercial credits. 13 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement 10993 (Continued) The bank is in compliance with this provision. The bank is utilizing the credit approval memorandum (CAM) for new loans, annual loan reviews, and loan renewals and modifications. 23. Within 60 days from the effective date of this Agreement, FCBTB shall develop and implement a plan to improve credit administration and the underwriting process. These improvements shall include: (a) Review of appraisals on complex commercial real estate loans by personnel with appraisal training to ensure that adequate collateral coverage exists; The bank is in compliance with this provision. CCO Nidasio stated that appraisals are currently being reviewed by him and his credit analyst in the credit administration area. (b) Documentation that each borrower's liquid assets were verified by FCBTB personnel and evidence of each borrower's cash equity position; The bank is not in compliance with this provision. Verification of borrowers' liquid assets is not yet being consistently performed according to loan operations and credit personnel. (c) Correction of any errors in loan officer's loan presentations by credit analysts prior to approval by any Loan Committee; The bank is in partial compliance with this provision. Written presentations for newer loans that were reviewed appear to be largely free of errors. However, numerous loan documentation deficiencies identified in this Report, including those of recently renewed loans, indicate that further improvement is needed in the overall loan underwriting and credit review processes. (d) Ensuring that current operating statements or current tax returns and audited or signed financial information for business entities and personal statements are obtained; The bank is not in compliance with this provision. A review of the loans during the examination reflects a substantial volume of missing borrower current financial statements and tax returns. A list of documentation exceptions was provided to management at the conclusion of the examination. (e) Documentation of the borrowing entity's partnership structures/compositions, where applicable; The bank is in compliance with this provision. Documentation of partnership structures are typically obtained prior to closing. (f) Ensuring that cash flow analyses are based on the borrower's entire debt service, including payments on junior mortgages; The bank is only in partial compliance with this provision. The new CAM reflects that full cash flow analyses are usually performed on the borrowers utilizing financial statements and tax returns for new or renewed loans. However, the lack of financial information found on certain borrowers listed for documentation exceptions in this Report indicates that adequate analyses could not have been performed. (g) Ensuring consistency and completeness in loan presentations, including disclosure of the existence of all junior liens, disclosure and justification for interest reserves and speculative aspects of construction/development 14 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement 10993 (Continued) loans, documentation of borrower's financial capacity for repayment of the debt; and accurate loan-to-value ratios, and; The bank is in compliance with this provision. Refer to the comments in (h) below. (h) Ensuring that loan presentations for loan renewals address any deterioration in a borrower's overall financial condition. The bank is in compliance with this provision. Prior to the implementation to the new CAM, loan presentations for renewals were not adequately being documented to reflect a borrower's overall financial condition. Recent loan presentations appear complete and adequate for determining a borrower's credit worthiness. Collateral lien status, interest reserves, and purpose are indicated on CAMs. Improvement is noted in this area, especially for new or recently renewed loans. Provided complete and current financial information continues to be used, the new CAM addresses, in detail, any deterioration in the borrower's overall financial condition. 24. Within 60 days from the effective date of this Agreement, the Board shall develop a written plan acceptable to the OFR which will enable the Board and FCBTB's management to monitor and manage concentrations of risk in its credit and lending activities in relation to FCBTB's capital, assets, and deposits. At a minimum, the plan shall include appropriate limits for concentrations of credit by industry, product line, type of collateral, and borrower. The plan shall establish limits and identify the risks associated with the concentration of commercial real estate loans noted in the OFR's 2007 Report and shall address the required reduction in real estate loan-tovalue exceptions to comply with Appendix A to Part 365 of the FDIC Rules and Regulations - Interagency Guidelines for Real Estate Lending Policies (Part 365 Guidelines). Further, the Board shall identify procedures for monitoring compliance with the plan and management shall be required to provide monthly reports to the Board regarding the level and composition of concentrations. Any discussions by the Board, or its designated committees, which are related to concentrations of risk shall be recorded in the minutes of the Board's regular monthly meetings and retained in FCBTB's records. The bank is in partial compliance with this provision. The review of the Board-approved plan disclosed the current plan to be deficient as it lacks appropriate specific courses to be undertaken to further reduce the current significant level of concentrations of the various asset types. It is noted that management has made progress in reducing the volume of concentrations, but it remains very high in comparison to the declining capital levels. In view of the bank's deteriorating asset quality, stronger efforts to further reduce concentrations are warranted. The Board should revise its plan with more stringent and specific reduction goals and outline a strategy to achieve them. It is recommended that the plan specify conditions that must be met prior to the approval of loans in one of the high-concentration categories. Reporting requirements are being met as information provided to the Board is comprehensive and all concentrations of credit by industry, product line, type of collateral, and borrower are appropriately identified. The significant level of high LTV loans has been reduced slightly since the August 2007 OFR examination from 148 percent of capital to 134 percent of capital. Although the balance outstanding of high LTV loans has decreased, the level of capital has also decreased markedly, thus this ratio remains high. It is noted that over 64 percent of the bank's high LTV loans are adversely classified at the current examination. One of the loans reviewed, , was granted on November 15, 2008, as an assumption of another borrower's high LTV loan without requiring any principal reduction or additional collateral to lower the LTV to an acceptable level. 15 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement Actions (Continued) 10993 25. Within 90 days from the effective date of this Agreement, FCBTB's Directors will receive training in the review and underwriting of commercial real estate loans, so that the Board will have increased ability to make infonned decisions about FCBTB' s lines of business. The bank is in compliance with this provision. A list of the courses attended by all of the Directors was provided by management. 26. FCBTB' s Chief Credit Officer will present a full report concerning the status of all material issues relating to the condition ofFCBTB ' s loan portfolio, credit administration and loan underwriting practices to FCBTB's Board and loan committee on no less than a monthly basis. The Chief Credit Officer's report to the Board will not be subject to modification or approval by FCBTB's management before they are presented to the Board. The Chief Credit Officer will at all times have unrestricted access to the Board concerning lending and credit policies or issues, and the Board will at all times have unrestricted access to the Chief Credit Officer. The Chief Credit Officer's compensation will be detennined by FCBTB's Board, and the Chief Credit Officer's perfonnance evaluations will be perfonned by the Board. The bank is in compliance with this provision. A Credit Quality Summary Report is being prepared and presented to the Board. The report, dated December 31, 2008, was included in the January progress report submitted to the OFR. CCO Nidasio's compensation was approved by the Board on January 21, 2009. CAPITAL 27. Within 60 days from the effective date of this Agreement, the Board shall review the ALLL for adequacy. Thereafter, the Board shall provide for a review of the ALLL at least once each calendar quarter. The review shall be conducted in a timely fashion so that the review findings may be reported in the quarterly Call Reports. The review shall focus on delinquent and nonaccrualloans, an estimate of potential loss exposure of significant credits, concentrations of credit and present and prospective economic conditions. A deficiency in the ALLL shall be remedied by a charge to current operating earnings in the calendar quarter in which it is discovered and prior to submitting the Call Reports. The bank is not in compliance with this provision. An analysis of the ALLL performed at this examination resulted in a deficiency of $2,591,000 due to substantially increased loan classifications and downgrades. The last review of the bank's ALLL and internal loan grading system was apparently insufficient. The scope of future reviews should include an assessment of the loan grading criteria and a more thorough assessment of watch list loans. Management should determine a reasonable factor or appropriate range of factors for loan types and subtypes to apply to updated appraisals in order to better identify impairment in individual loans. 28. FCBTB agrees that it will at all times until the tennination of this Agreement, maintain Tier 1 Capital, Tier 1 risk-based capital and total risk-based capital ratios that are equal to the ratios of a well capitalized institution as that tenn is defined in 12 C.F.R. 32S.103(b)(1). The level of Tier 1 capital, Tier 1 risk-based capital, and total risk-based capital to be maintained shall be in addition to a fully funded ALLL the adequacy of which shall be satisfactory to OFR, as detennined during subsequent examinations and/or visitations. An increase in Tier 1 capital to meet the requirements of this paragraph may not be accomplished through a deduction from FCBTB' s ALLL without the prior written authorization of OFR. In the event that any of the Capital Ratios fall below the levels required for a "well capitalized" institution, FCBTB agrees to use all means necessary to restore such 16 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement Actions (Continued) 10993 Capital Ratios to the level required for a "well capitalized" institution within 90 days after FCBTB has detennined, or the Office has advised FCBTB, that the levels have fallen below those required. FCBTB's failure to restore the Capital Ratios within 90 days shall be deemed a breach of this agreement. The bank is not in compliance with this provision. The capital ratios at this examination indicate the bank is "adequately capitalized" after restoring the ALLL to an adequate level. OTHER MATTERS 29. FCBTB agrees that it shall immediately take the necessary steps, consistent with the other provisions ofthis Agreement and sound banking practices, to address the supervisory concerns and correct any alleged violation of laws, rules and regulations cited on page 16 of the Report. Additionally, the FCBTB agrees that it shall adopt procedures and controls to enable it to comply with applicable banking laws and regulations in the future. The bank is not in compliance with this provision. Numerous, severe violations oflaws and regulations and supervisory guidelines and unsafe and unsound banking practices are cited and discussed in this Report. The violation pertaining to the bank's failure to submit the 2007 audit report to the OFR is a repeat violation. The bank was cited at the prior regulatory examination for failure to submit the 2006 audit report. In addition, the bank is again in contravention of the regulatory guidelines and policy statements regarding CRE loan concentrations. 30. FCBTB has provided documentation to the OFR that indicated that it has implemented procedures necessary to comply with the Guidelines Establishing Standards for Safeguarding Customer Infonnation, 12 C.F.R. Part 364, Appendix B, of the FDIC regulations. These procedures include control procedures designated to mitigate risks identified in the risk assessment program. The bank appears to be largely in compliance with this provision. However, the BSA officer, Marya N. Wall, resigned March 2, 2009, and the bank has not appointed or hired a replacement. Additional policy and procedure weaknesses are discussed in the "Risk Management Assessment" schedule. 31. FCBTB has provided documentation to the OFR that indicates that it revised its Business Continuity Plan to include guidance on when managers should declare an emergency or invoke the use ofthe back-up site, and documenting that such revised plan has been reviewed and approved by the Board. The bank is in compliance with this provision. A Business Continuity and Management Succession Plan was submitted to the OFR in the January progress report. 32. While this Agreement remains in effect, FCBTB agrees that it shall notify the OFR in writing when it proposes to add any individual to the Board or employ any individual as an executive officer, as that tenn is defined in Section 655.005(1 )(f), Florida Statutes, including, but not limited to, the president, chief executive officer, BSA officer, chief lending officer, and chief operations officer. Such notification must be received at least 60 days before such addition or employment is intended to be effective. All notifications to the OFR shall, at a minimum, comply with the requirements set forth in Rule 69U-I00.03852, Florida Administrative Code. The OFR may specify, at its sole discretion, such additional infonnation or notice requirements for FCBTB to submit as may be deemed necessary for the OFR to properly evaluate the proposed individual(s). FCBTB shall not add or employ any proposed individual(s) if the OFR issues a written notice of disapproval. The OFR agrees that it will make its best efforts to respond within 10 business days of receipt of a properly completed fonn OFR U-l 0 to 17 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Compliance with Enforcement Actions (Continued) 10993 any request for an interim appointment of an executive officer or Director candidate submitted to the OFR pursuant to Rule 69U-l 00.03852, Florida Administrative Code. The bank is in compliance with this provision. The bank notified the OFR in writing on January 21, 2009, that Paul J. Nidasio had been appointed interim Executive Vice President and Chief Credit Officer pending approval. In addition, President Cieslak notified the OFR via a letter dated March 12, 2009, that BSA Officer Marya N. Wall resigned on March 2, 2009. 33. All plans, policies, and procedures required by this Agreement shall be reviewed by the Board at least annually for their effectiveness and revised and/or amended if appropriate. The bank is in compliance with this provision. All policies are periodically reviewed by the Board at least on an annual basis. 34. Within 60 days of the calendar quarter ending December 31,2008, and then within 30 days from the end of each subsequent calendar quarter, FCBTB shall furnish written progress reports to OFR detailing the form and manner of all actions taken to comply with this Agreement and the results thereof. The requirements for progress reports shall continue unless modified or terminated in writing by OFR. All progress reports and other written responses to this Agreement shall be reviewed by the Board and be made a part of the minutes of the appropriate Board meeting. The bank is in compliance with this provision. In accordance with the Agreement, the bank provided progress reports to the OFR on January 21, 2009, and February 19,2009, which were reviewed by the Board. The next quarterly written progress report is scheduled for April 2009. 18 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Risk Management Assessment 1. Are risk management processes adequate in relation to economic conditions and asset concentrations? No. The bank does not have adequate risk management practices in place, especially considering its overall unsatisfactory condition and high-risk profile. The bank remains subject to excessive credit, liquidity, and market risks. Unfavorable trends noted at this examination resulted from declining economic conditions in the bank's market area and unsatisfactory risk management practices. Risk has been inadequately identified and controlled, and further deterioration in the bank's condition is possible. Despite criticism and recommendations at previous regulatory examinations, policies and procedures have not adequately limited nor substantially reduced excessive loan concentrations in comparison to capital, although the volume has been reduced. Contraventions of Interagency Policy on concentrations have not been corrected. Management should establish acceptable concentration limits for RE loans and other higher risk loan subcategories. Plans should be revised and include stated reduction targets and strategies for achieving them. Optimally, plans should specify conditions for deviating from the revised strategy to allow for changing and uncertain economic conditions. Overall, stronger risk management processes are warranted. 2. Are risk management policies and practices for the credit function adequate? No. Efforts to properly reflect problem credits on the watch list need strengthening. Management recently hired a chief credit officer to assist in addressing credit quality and loan collection practices. However, a substantial portion of the adversely classified loans at this examination represent downgrades from management's internal grade and reflect poorly on credit practices. Additional efforts should be made to ensure that loan grades are commensurate with the potential degree of risk. The rising level of past due and nonaccrualloans indicates collection efforts need further attention. The bank continues to have excessive loan concentrations in its portfolio, which are detailed elsewhere in this Report. Management has taken action to reduce the concentrations, but the level remains excessive. These loan concentrations are exceptions to interagency policy guidelines as outlined on the "Violations of Laws and Regulations" schedule and represent severe continuing risk to the bank's asset quality and earnings. Overall risk management policies and practices, particularly in this area, have been critically deficient. A review of the bank's Loan Policy, last amended on 02/1712009, revealed several weaknesses. All exceptions were discussed with the senior loan officer or loan operations personnel. The three sections in the bank's Loan Policy Manual covering overdrafts are Sections 106.9, 102.4, and 103.7. All three sections pertaining to the treatment of continuous overdrafts are in partial or direct conflict in the number of days specified. The Board should review these sections and combine them into one uniform guideline. Section 103.140 of the Loan Policy requires all requests for credit to be accompanied by a financial statement or have such information included in the formal loan application signed by the borrower. Numerous loans reviewed during this examination had missing or stale borrower financial statements. Section 103 .150 of the Loan Policy requires that income should be verified on each applicant and should, at a minimum, include copies of current pay stubs and prior years W-2 statements, if tax returns are not provided. It also specifies that verification ofliquid assets should be performed when liquidity presented 19 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Risk Management Assessment ed) 10993 in an application is significant to the credit decision. Several instances of missing income, W-2 statements, or tax returns are noted. Section 103.160 of the Loan Policy requires that current credit bureau and agency reports should be obtained on all borrowers and guarantors within the last 12 months since the manner in which a borrower has handled prior credit is often a good indicator of the manner in which they will perform on new extensions of credit. Several loan files were missing credit scores and business credit references. Finally, the Loan Policy states that due to the existing conditions in the local CRE market, including development loans, interest reserve funding is suspended for the immediate future and until conditions in the market change and improve. No new loans with interest reserves funded by loan proceeds were identified, but several seasoned loans reviewed had interest reserves set up that contradict this policy. Management should review and evaluate loans with debt service carried via an interest reserve and ensure that the use of interest reserves in each case is appropriate. Underwriting practices and procedures should be according to written policies. 3. Are risk management policies and practices for asset/liability management and the investment function adequate? No. Liquidity levels are declining, funding sources have been withdrawn or restricted and are only available at higher interest rates, and no sound, adequate liquidity contingency plan is in place. Risk management practices need improvement and should include steps to improve the liquidity levels, lower non-core funding reliance, and develop more diversified funding sources at reasonable costs. The following weaknesses in the bank's risk management practices are noted and should be addressed: o During the examination, Controller Faber was unsure which unsecured Federal fund lines of credit are available. Without this information, management is unable to report an accurate liquidity position to the Board. Sufficient sources of liquidity must be maintained in order to ensure the bank's ability to meet immediate and short-term obligations. o Management does not have a well-planned liquidity contingency plan that addresses alternative funding if a liquidity crisis arises. Management needs to develop a contingency plan stating specific parameters that would warn management of any impending liquidity problems and allow corrective actions to be taken. o Management does not utilize a source and use of funds report. Such a report should be utilized to assess daily cash and liquidity positions and it should be regularly reported to the Board. o Management utilizes the Certificate of Deposit Account Registry Service CCDARS) program; however, the Liquidity Policy does not address the use of this program. Management needs to address the CDARS program in the Liquidity Policy and specify maximum amounts allowed, the percentage of deposits maintained, and maximum maturity dates. o The Investment Policy is vague regarding repurchase agreements. The Investment Policy should be enhanced to include requirements and restrictions for repurchase agreements as outlined in the 20 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Risk Management Assessment FDIC Statements of Policy (FFIEC Supervisory Policy - Repurchase Agreements of Depository Institutions with Securities Dealers and Others). o o The Investment Policy states that the Asset Liability Management Committee (ALCO) will meet regularly. Documentation in the ALCO minutes is vague as to what the committee is reviewing. The Investment Policy should be enhanced to specify, at a minimum, that the ALCO meetings will be held on a quarterly basis. In addition, the ALCO minutes should include pertinent source documents that are relevant to the presentations (i.e., charts and reports). o 4. The amount of pledged municipal securities for retail repurchase agreements totals $2,540M as of 12/31/2008. The Sales/Repurchase Agreement executed by the customer and the bank defines acceptable marketable securities as United States Treasury securities or securities issued by instrumentalities of the United States Government. The bank needs to substitute the municipal securities pledged against the retail repurchase agreements with other qualifying securities as specified in the Sales/Repurchase Agreement. Four municipal securities held in the investment portfolio are rated lower than the target rating (AA) stated in the Investment Policy. Management should report all exceptions to the Investment Policy to the Board. Are risk management processes adequate in relation to and consistent with, the institution's business plan, competitive conditions, and proposed new activities or products? No. Management revised the Strategic Plan in February 2009 as required by the OFR Agreement to incorporate a three-year plan for 2009,2010, and 2011; however, it failed to include specific and realistic financial projections. The plan does not specify measures to improve the bank's NIM. The bank incurred a significant reduction in total assets in 2008, while the budget projects growth of 7% for 2009, with no other growth projections included for future years. President Cieslak stated that management intends to slow or reduce asset growth even more in order to concentrate on improving earnings and asset quality. The 2009 budget and Strategic Plan are unrealistic and inadequate for the bank's needs and should be revised to be consistent with the present condition of the bank. 5. Are internal controls, audit procedures, and compliance with laws and regulations adequate (includes compliance with the Bank Secrecy Act [BSA] and related regUlations)? No. Recommendations for improvements in internal controls and the BSA program are detailed below: Internal Controls o Cashier's Check for $74,453.25, dated was signed by Ellen Soriano, a teller, and Gregory Hill, a personal banker. According to the General Authorities Policy, an assistant vice president or loan officer must sign official checks for amounts from $55M to $150M. o Audit Committee minutes for the 08114/2008 and 11/20/2008 meetings should be prepared, approved, and provided to the full Board. No minutes for these two meetings were provided for review during the examination. 21 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Risk Management Assessment o While the bank has a Remote Deposit Capture (RDC) procedure, there is not a comprehensive, Board-approved policy related to this function. The Board should formulate and approve a formal policy governing this activity. o The General Authorities Policy provides for unlimited authority for settlement wires for the President, chief financial officer (CFO), or deposit operations manager. It is recommended the authority for anyone individual be limited to the amount of the bank's fidelity bond. Also, the bank does not have a CFO. o The bank does not have an internal control matrix/tracking report. Management should consider implementing a matrix report to track outstanding internal control issues and monitor the progress of corrective actions more efficiently. o All mail, including invoices, goes through CEO Salem's office. Invoices may be delayed getting to the accounting department, as there were two legal invoices noted that should have been accrued at year-end 2008. Without the timely receipt of invoices by the controller, expenses may be understated in a given time period. o The bank has not recently conducted a physical inventory of its fixed assets. o There was a lapse in the fidelity bond insurance coverage for nearly two consecutive months at the beginning of2009. o The BSAJAnti-Money Laundering (AML) Policy states that the Board will review and approve the BSAJAML and Office of Foreign Assets Control (OFAC) risk assessments on an annual basis. The bank's 2008 risk assessments have not been approved by the Board. The Board must approve and record approval of the BSAJAML risk assessments to stay in compliance with BSA requirements. o The bank's BSA officer resigned during the examination and no qualified BSA officer has been designated by the Board. The appointment of a new BSA officer requires that the individual have the required training and knowledge of all related regulations in order to fulfill the responsibility for overall BSAJAML compliance. Refer to the schedule "Violations of Laws and Regulations" schedule. o The BSAJAML Policy states that new hires will receive computer-based BSAJAML training within the first 90 days of employment, with ongoing training at least annually thereafter. It is recommended that the policy be revised to require that new hires receive the BSAJAML training during their first 30 days of employment prior to any extended interaction with customers. In addition, each employee's training should be documented. o Customer Identification Procedures (CIP) fail to contain the minimum required identifying information for verifying the identity of a new customer. The procedures do not indicate that the taxpayer identification number (TIN) must be obtained when opening an account. The CIP Policy should be amended to require the TIN at account opening. 22 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Risk Management Assessment 10993 o o The BSAIAML Policy requires that records of documentary verification on new accounts opened are to be forwarded to the operations department as soon as procedures are completed, but no later than two business days after the opening of a new account. Several instances where the records of documentary verification were not forwarded to the operations department were found. o 6. A review of the "New Account Infonnation Sheet" fonns for the period 10/0112008 through 12/3112008 indicated that some new customer's TINs, driver's license, passport, or other identity verification data were missing. Infonnation necessary to detennine whether a customer is high or low risk was also missing. CEO Salem approved opening an additional account to an existing customer on 11121/2008, Management is in direct contravention of the "Know Your Customer/Customer Due Diligence Policy" for opening an account to a customer that poses a high risk to the bank. Is Board supervision adequate, and are controls over insider transactions, conflicts of interest, and parent/affiliate relationships acceptable? No. Board oversight and supervision are not adequate. The bank is currently operating in an unsafe and unsound manner. Asset quality is poor and continues to deteriorate. A substantial portion of loans reviewed at this examination were classified more severely than management's internal grade. As a result, the ALLL is severely underfunded. Earnings are poor and the perfonnance outlook is dismal. Liquidity risk is critical and poorly managed. An excessive number of violations oflaws and regulations is cited at this examination. Board minutes do not reflect the depth of discussion or concern that is warranted for a bank in this condition. By virtue of ownership or control by CEO Salem, the following Tampa entities are listed as bank affiliates: ; ; and 23 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Violations of Laws and Regulations 10993 INTERNAL AUDITS Section 655.045(3)(a), Florida Statutes, and Rule 69U-120.045(6), Florida Administrative Code, require that a state financial institution have an internal audit performed every calendar year. The bank is in violation of this statute and rule because the audit report for the 2007 calendar year has not been completed and submitted. This violation has been cited at previous regulatory examinations. INTERAGENCY POLICY STATEMENT ON THE ALLL The bank is in contravention of the Interagency Policy Statement on the ALLL. The Policy Statement states, in part, that it is the responsibility of the Board and management of each institution to maintain the ALLL at an adequate level. Additionally, adequacy of the ALLL should be evaluated as ofthe end of each quarter, or more frequently if warranted, and appropriate provisions made to maintain the ALLL at an adequate level as of each Call Report date. Moreover, in carrying out their responsibility for maintaining an adequate ALLL, the Board and management are expected to: o o o Ensure that the institution has an effective loan review system and controls (which include an effective credit grading system) that identify, monitor, and address asset quality problems in an accurate and timely manner; Ensure the prompt charge-off of loans, or portions of loans, that available information confirms to be uncollectible; and Ensure that the institution's process for determining an adequate level for the ALLL is based on comprehensive, adequately documented, and consistently applied analysis of the loan portfolio and the analysis should consider all significant factors that affect the collectibility of the portfolio and should support the credit losses estimated by this process. The Board has failed to maintain the ALLL at an adequate level. Based on the loan review conducted at this examination, the ALLL was found to be deficient by $2,591M. This deficiency was ascertained via a loan impairment analysis conducted in accordance with FAS 105 and 114 guidelines and the reduction from the ALLL for loans classified Loss at this examination. The ALLL was also found to be deficient at the last regulatory examination. SIGNIFICANT EVENTS - INTERRUPTION OF FIDELITY INSURANCE COVERAGE Section 655.948(2)(a)(4), Florida Statutes, and Rule 69U-IOO.948, Florida Administrative Code, require financial institutions not exempted by the OFR to report the occurrence of certain conditions or events within 30 days of the occurrence of the condition or event. Due to its ratings and the existence of a regulatory action, the bank is not exempted from filing reportable events. Events which must be reported include any interruption in fidelity msurance coverage. The bank is in violation ofthis statute and rule as the bank's financial institution bond coverage lapsed for the period 01/01/2009 to 0211912009 and the bank did not report it to the OFR. 24 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Violations of Laws and Regulations (Continued) 10993 TIMEL Y FILING OF REGULATORY REPORTS Section 655.045(2)(a), Florida Statutes, requires, in part, that each state financial institution submit a Call Report, at least four times each calendar year, as of such dates as the commission or office determines. The bank is in violation of this statute as the original 12/31/2008 Call Report was not filed until 02/09/2009, nine days past due. Per paragraph (b) of the statute, an administrative fine of up to $100 per day for each day the report is past due shall be levied, unless it is excused for good cause. For intentional late filing ofthe report, an administrative fine of up to $1,000 per day for each day the report is past due shall be levied. CONTRA VENTION OF REGULATORY GUIDANCE On 12112/2006, the regulatory agencies issued joint guidance to address institutions' increased concentrations of CRE loans in Financial Institution Letter 104.;2006, Commercial RE Lending. Concentrations of credit exposures add a dimension of risk that compound risks inherent in individual loans. The guidance did not establish specific CRE lending limits; rather, it promoted sound risk management practices and appropriate levels of capital that would allow banks to continue CRE lending in a safe and sound manner. The sophistication of the CRE risk management process should be appropriate for the size and risk inherent in the portfolio, as well as the level and nature of concentrations. The bank,is in contravention to the interagency guidance because the Board and management continue to fail to properly measure, monitor, and control CRE risk or to produce an adequate plan to reduce previously identified high levels of CRE concentrations. Refer to the "Concentrations" schedule for further details. This contravention is a repeat of that cited at the prior regulatory examination. BSA Section 326.8(c)(3) of the FDIC Rules and Regulations requires that a bank's BSA compliance program must provide for the designation of an individual or individuals to coordinate and monitor day-to-day compliance. The bank is in violation of this section due to the bank's designated BSA officer resigning on 03/02/2009. Management has not appointed a qualified individual as a replacement. FAILURE TO FILE A TIMELY SUSPICIOUS ACTIVITY REPORT (SAR) Section 353.3(4)(b) ofthe FDIC Rules and Regulations requires, in part, that a bank file a SAR no later than 30 calendar days after the initial detection of facts that may constitute a basis for filing a SAR. The bank is in violation of this section due to the following: on the BSA officer completed a SAR . The date range of the activity was to 7 However, according to a memorandum from the BSA officer, the SAR was not Since the detection of the facts was known on the SAR should have been mailed until filed within 30 days of that date. 25 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Violations of Laws and Regulations (Continued) 10993 STANDARDS FOR SAFETY AND SOUNDNESS Interagency Guidelines Establishing Standards for Safety and Soundness prescribed pursuant to Section 39 ofthe Federal Deposit Insurance Act are set forth as Appendix A to Part 364. Appendix A, Part II (A), states that an institution should have internal controls and infonnation systems that are appropriate to the size of the institution and the nature, scope and risk of its activities, and that provide for: o o o Timely and accurate financial, operational and regulatory reports; Adequate procedures to safeguard and manage assets; and Compliance with applicable laws and regulations. Appendix A, Part II (D), states that an institution should establish and maintain prudent credit underwriting practices that, in part: o Take adequate account of concentration of credit risk. Appendix A, Part II (G), states that an insured depository institution should establish and maintain a system that is commensurate with the institution's size and the nature and scope of its operations to identify problem assets and prevent deterioration in those assets. The institution should: o o Estimate the inherent losses in those assets and establish reserves that are sufficient to absorb estimated losses; and Consider the size and potential risks of material asset concentrations. The bank is in contravention of Appendix A, Parts II (A), (D), and (G), due to inadequate internal controls and infonnation systems; imprudent credit underwriting practices; poor loan administrative practices, as evidenced by the incomplete 2007 financial statement audit; lateness of filing the 12/31/2008 Call Report; the two month interruption in financial institution bond coverage; numerous violations of laws and regulations cited in this Report; excessive concentration of CRE loans; and the inadequately funded ALLL. 26 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Examination Data and Ratios 10993 ASSET QUALITY Loans and Leases Securities Other Real Estate Owned Other Assets Other Transfer Risk Subtotal Contingent Liabilities Totals at Exam Date Totals at Prior Exam Totals at Prior Exam Substandard 20,1 69 744 1,570 26,093 744 1,570 9 22,483 3,1 08 28,416 22,483 12/31/2008 I S 06/30/2008 06/30/2007 I S 2,825 2,825 3,108 28,416 170 7,491 7,321 CAPITAL Tier 1 Leverage Capital/Average Total Assets lTier 1 Risk-Based Capital/Risk-Weighted Assets 1T0tal Risk-Based Capital/Risk-Weighted Assets Capital Category IThe capital category relates only to the Prompt Corrective Action )rovisions of Part 325 of the FDIC Rules and Regulations. PCA Categories: W - Well-capitalized, A - Adequately capitalized, U - Undercapitalized, S - Significantly undercapitalized, C - Critically undercapitalized Period Ended 12/31/2008 Retained Earningsl Average Total Equity (24.08 Asset Growth Rate (11.58 Cash DividendslNet Income EARNINGS Net Income (After Tax)/Average Assets Net Interest Income (TE)/Average Earning Assets Total N on interest Expensel Average Assets lNet Non-Core Funding Dependence lNet Loans and LeaseslAssets Total 9 iI'otal Special Mention iAdversely Classified Items Coverage Ratio iI'otal Adversely Classified AssetslTotal Assets Past Due and Nonaccrual Loans and LeaseslGross Loans and Leases iAdversely Classified Loans and LeaseslTotal Loans iALLLlTotal Loans and Leases LIQUIDITY ADVERSELY CLASSIFIED Doubtful Loss 2,825 3,099 Exam Date 12/3112008 I S 3,798 183.99 18.48 22.55 22.72 2.82 Prior Exam 06/30/2008 Prior Exam 06/30/2007 I S 6,325 46.92 3.92 2.04 4.90 1.18 Exam Date 12/31/2008 I S 6.38 7.74 9.00 Prior Exam 06/30/2008 Prior Exam 06/30/2007 I S 7.95 9.43 10.53 A Peer 12/31/2008 8.76 38.31 W Period Ended 12/31/2007 3.48 2.03 Period Ended 12/3112006 10.20 (0.46 Period Ended 12/3112008 (2.01 2.79 3.12 Peer 12/3112008 0.45 3.62 2.82 Period Ended 12/3112007 0.28 3.56 2.31 Period Ended 12/3112006 0.78 4.03 2.79 Period Ended 12/3112008 50.39 72.56 Peer 12/3112008 30.75 70.46 Period Ended 12/31/2007 21.67 75.45 Period Ended 12/3112006 20.09 76.97 27 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Comparative Statements of Financial Condition 1099 12/3112008 114,827 3,237 111,590 1,000 12/3112007 133,457 2,225 131,232 9,493 1,909 24,300 2,11 7 19,017 138,799 7,672 1,272 1,570 161,85~ 4.471 153,784 3,158 173.929 121,771 14,557 3,840 687 143,937 3,844 11,160 618 140,855 159,559 12,929 14,370 12,929 153,784 14,370 173,929 13,501 956 18,44( 1,724 51 ASSETS Total Loans and Leases Less: Allowance for Loan & Lease Losses Loans and Leases (net) Interest-Bearing Balances Federal Funds Sold and Securities Purchased Under Agreements to Resell Trading Account Assets Securities: Held-to-Maturity (at Amortized Cost) Available-for-Sale (at Fair Value) (12) Total Earning Assets Cash and Noninterest-Bearing Balances Premises and Fixed Assets Other Real Estate Owned Intangible Assets Other Assets TOTAL ASSETS LIABILITIES Deposits Federal Funds Purchased and Securities Sold Under Agreements to Repurchase Other Borrowed Money Other Liabilities Subordinated Notes and Debentures Total Liabilities Minority Interest in Consolidated Subsidiaries EQUITY CAPITAL Perpetual Preferred Stock Common Equity Capital Includes net unrealized holding gains (losses) on available-far-sale securities. Other Equity Capital Total Equity Capital TOTAL LIABILITIES, MINORITY INTERESTS, AND EQUITY CAPITAL OFF-BALANCE SHEET ITEMS Unused Commitments Letters of Credit Other Off-Balance Sheet Items Other Derivative Contracts Appreciation (Depreciation) in Held-to-Maturity Securities Footnotes: 28 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 6,43 5 1,297 1,180 10993 Loan and Lea e Financing Receivables 12/31/2008 Date: Category: Real Estate Loans Installment Loans Credit Card and Related Plans Commercial Loans All Other Loans and Leases Gross Loans and Leases Amount 101,192 1,574 10 12,140 7 114,923 Percent 88.05 1.37 0.01 10.56 0.01 100.00 PAST DUE AND NONACCRUAL LOANS AND LEASES Date: Category Real Estate Loans Installment Loans Credit Card and Related Plans Commercial and All Other Loans and Leases Totals Memorandum Restructured Loans and Leases Included in the Above Totals 12/3112008 9,13 5 44 9.03 2.80 16,4 13 Nonaccrual Percent of Category 16.22 130 130 1.07 193 1.59 9,309 9,309 8.1 0 16.606 14.45 Past Due 90 Past Due 30 through 89 Days Days or More and Accruing and Accruing 9,135 44 Total Past Due and Accruing Percent of Category Nonaccrual Footnotes: The above breakdown reflects the bank's high level of RE loans. The vast majority of past due and nonaccrual loans are comprised of RE loans. Management has pursued a high-risk course of operations, primarily RE lending in a market severely affected by the economic downturn, with inadequate risk management practices in place. 29 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Summary of Items Subject to Adverse Classification and Special Mention CATEGORY Loans and Leases Securities Other Real Estate Owned Other Assets Other Transfer Risk Subtotal Contingent Liabilities Totals at Exam Date Totals at Prior Exam Totals at Prior Exam Totals at Prior Exam Substandard 20,169 744 1,570 10993 ADVERSELY CLASSIFIED Doubtful Loss 3,099 2,825 Total 9 26,093 744 1,570 9 22,483 3,108 28,416 22,483 12/3112008 1 S 06/30/2008 06/30/2007 1 S 03/3112006 2,825 2,825 3.108 28,4 16 170 7,49 1 7,321 SUMMARY OF ITEMS LISTED AS SPECIAL MENTION Exam Date 12/31/20081 S 3,798 Total Special Mention Prior Exam 06/30/2008 Prior Exam 06/30/2007 1 S 6,325 30 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Prior Exam 03/3112006 10993 Items Subject to Adverse Classification Includes assets and off-balance sheet items which are detailed in the foll owing categories: Substandard Assets - A Substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful Assets - An asset classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loss Assets - An asset classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basicall v worthless asset even lhou artial r coverv ma . be effected in the future . AMOUNT, DESCRIPTION AND COMMENTS Substandard CATEGORY Doubtfu l Loss LOANS 7,009 (3 ,925) 3,084 Participation Sold Days Past Due: 1851N0naccruai 964 3,747 (397) (785) 2,565 Participation Sold Charge-off Days Past Due: 3371N0naccruai 2,565 2,120 Gty: The loan originated on 10/31/2006 for $4,840M. The purpose of the loan was to purchase three parcels, subdivide them into 13 lots, and fund the renovation of three existing residences. The primary repayment source on 08118/2006 is the sale of the lots and refurbished residences. An appraisal was prepared for by Bohannan Realty Advisors, Inc., with an "as is" value of $3,550M. An appraisal review was performed on 1010612006 and accepted as valid, with no concerns or weaknesses noted. There has been no development or improvements to the property. New appraisals for the parcels were obtained on 09/0712007, valuing them at $3 ,150M. The loan matured on 10/31/2008, is 337 days past due, and was placed on nonaccrual on 02/0712008. Management decided to pursue legal action against the guarantors and not foreclose on the property. There is no financial information on the guarantors in file with the exception of stale-dated with in cash, in NR and AR, and in IRAs FS of 04/04/2006 reflects TA of and other qualified funds; TL of in AP (credit cards); and a NW of . The bank recently received a final judgment dated 01128/2009 on the guarantors. Management stated that , who has abandoned the project and is not cooperating, have guarantors, with the exception of agreed to pay approximately Of that amount, would be applied to delinquent interest to bring the loan current and removed from nonaccrual status, would be applied to the principal, and the remainder would be used for improvements on the properties. This credit was classified Substandard . Based on the past due and nonaccrual status and the workout situation, a Substandard classification is continued. 31 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Items Subject to Adverse Classification (Continued) 10993 AMOUNT, DESCRIPTION AND COMMENTS Internal Classification: Substandard Examiner: Jose W. Vilches 1,785 1,138 Days Past Due: 77 647 Gty: The loan originated on 12/0112006 to fund the conversion of a 15M square foot, single-story warehouse into a two-story, 32M square foot office condominium in Florida. The $1,900M loan is a 46.34% . The lead bank over participation in a $4,1 OOM loan purchased from advanced without presales, which was initially undetected by the subject bank. Upon detection, FCBTB's management infonned that it would no longer advance funds for the project. has subsequently ceased funding as the presales requirements still have not been met. The interest reserve was exhausted in early 2008 and the borrower initially maintained the debt service out-ofpocket. However, no payments have been received since October 2008 and the loan has been placed on nonaccrual. The loan matured during November 2008 and negotiations with the borrower to renew the loan have thus far not been successful. The building is complete and has received a certificate of occupancy; however, there are still no sales. The borrower is attempting to sell the building and has it listed with a local realtor. Internal analysis by the lead lender indicates that rental options would not likely provide sufficient funds to meet debt service nor would the sale of the building generate sufficient funds to pay off the loan. The borrowerlguarantor is currently experiencing negative global cash flow and most of his assets are in highly leveraged RE. A new appraisal was received during March 2009, indicating a value estimate of$2,700M "as is" at 01/20/2009. A revised Statement of Financial Accounting Standards (F AS) 114 calculation disclosed a loss totaling $647M. Management concurs with the examiner's downgraded classification of this loan at $1,138M Substandard and $647M Loss. Internal Classification: Substandard Examiner: Pamela H. Schrenker 1,285 (1) 1,180 Days Past Due: 1861N0naccruai , Gty: 1,311 (2) Days Past Due: 71 1,311 Gty: 2,596 (1) The loan originated on 10/2112005 for $1,050M. It was renewed on 09/26/2006 when an additional $250M was advanced. The loan was renewed again on 09/29/2007 for $1 ,300M. The primary repayment source was cash flow from rents. The purpose was for the development of a 26-10t duplex subdivision in Florida. 32 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Items Subject to Adverse Classification (Continued) 10993 AMOUNT, DESCRIPTION AND COMMENTS The loan is secured by a second mortgage on the property securing Loan (2) below and is technically crosscollateralized with that loan. The collateral also includes a CD pledged with the bank. Management plans to redeem the CD and apply approximately to interest to bring the loan current and remove it from nonaccrual status, and the remainder to reduce the principal balance. The credit files show that property taxes are delinquent for 2006. The loan matures on 09/29/2017, is 186 days past due, and was placed on nonaccrual on 10/2712008. The borrower is experiencing cash flow problems due to vacancies and also to the decline in the construction industry. Management stated that the borrower has acquired a new tenant for his commercial building and requested the bank to refinance the second mortgage. Negotiations with the borrower to obtain additional collateral and pay delinquent property taxes prior to any renewal continue. (2) The loan originated on 04/21/2004 for $1,100M for the construction associated with additions to a 36.6M square foot commercial building in Florida. The primary repayment source was cash flow from rents. An appraisal was prepared on 10/26/2005 by The Dohring Group, with an "as is" value of $2,425M. A second appraisal was obtained on 12/0212008 from the same appraiser, with valued the property "as is" at $2,750M. The loan matures on 04121/2009 and is 71 days past due. As indicated above, the borrower is experiencing cash flow problems due to vacancies and the decline in the construction field. The personal FS of with in cash, in NR and AR, and in , dated 10/28/2008, reflects TA of other qualified funds; TL of , which consists of loans payable of and past due taxes of and a NW of Both loans were classified Substandard . Based on cash flow problems, past due and nonaccrual status, and the workout situation, a Substandard classification is continued. Internal Classification: Substandard Examiner: Jose W. Vilches 1,250 948 302 Gty: The loan originated on 11115/2006 with a one-year maturity to provide 100% acquisition financing for three residential lots located in , Florida, and construct a speculative home on each lot. The initial loan represented a high LTV, which exceeds the LTV ratio limits stipulated in Part 365 Guidelines. The loan had sufficient funding to construct only one home at a time. One home was completed and issued a certificate of occupancy on 07/3012008. The primary source of the repayment is the proceeds from the sale of the residence. The property has been aggressively marketed; however, due to the current severely depressed local residential RE market, it remains unsold as of March 2009. The note and mortgage, originally granted as an interest only loan to was modified and extended to mature 11115/2008. Due to a legal lending limit violation , the primary principal and guarantor of , agreed to let his sons, and , assume the loan on 11/1512008 in the name of . The loan assumption was 33 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Items Subject to Adverse Classification (Continued) 10993 AMOUNT DESCRIPTION AND COMMENTS not completed until early 2009. The new borrower and guarantors are unable to pay down the principal balance and the assumed loan continues to exceed the LTV ratios stipulated within Part 365 Guidelines. The loan assumption terms continue as interest only, with a maturity of 06/2112009. The new guarantors show total liquidity of as of 11115/2008. The ability of the guarantors to cover a collateral deficiency upon a sale of the property is uncertain. Management believes that the guarantors' father, would pay any deficiency, although he is not legally obligated to do so. A new appraisal, dated 1211 0/2008, values the collateral properties at $1 ,045M, resulting in a revised LTV of 120%. A FAS 114 analysis estimates a collateral deficiency totaling $302M. Management concurs with the examiner's downgraded classifications of this loan at $948M Substandard and $302M Loss. Internal Classification: Substandard Examiner: Pamela H. Schrenker 686 686 Days Past Due: 10 122 (1) Days Past Due: 1521N0naccruai 85 (2) Nonaccrual 9 (3) Days Past Due: 1251N0naccruai --------'-....:.. 216 216 9 9 Days Past Due: 1101N0naccruai 491 Days Past Due: 3981N0naccruai 491 158 Days Past Due: 1401N0naccruai 158 188 Days Past Due: 12 188 31 Days Past Due: 1231N0naccruai 31 1,051 Days Past Due: 1741N0naccruai 1,051 34 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Items Subject to Adverse Classification (Continued) 10993 AMOUNT DESCRIPTION AND COMMENTS 71 71 829 829 900 472 Days Past Due: 46 472 409 (1) 352 (2) 761 761 179 Days Past Due: 421INonaccruai 179 125 Days Past Due: 54 125 837 Days Past Due: 83 837 166 (1) N onaccrual 135 (118) Charge-off 17 (2) Days Past Due: 99INonaccruai ------'-'183 159 1,330 (1) 822 (2) 380 (3) 10 (4) ----.....:........: 2,542 166 Days Past Due: 11 Days Past Due: Days Past Due: Days Past Due: Days Past Due: 159 185INonaccrual 256INonaccrual 281INonaccrual 70INonaccruai 2,542 Refer to "Other Assets" on this schedule. 35 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 17 Items Subject to Adverse Classification (Continued) 10993 AMOUNT DESCRIPTION AND COMMENTS 70 (1) Days Past Due: 275INonaccruaI 188 (141) Charge-off 47 (2) Days Past Due: 267INonaccruaI 4 (3) Days Past Due: 177INonaccruaI 121 ----,---~ 117 249 249 486 486 627 Days Past Due: 31 627 1,362 11 11 19 19 33 33 520 Days Past Due: 71 520 199 199 144 Days Past Due: 282INonaccruai 144 138 (1) Days Past Due: 158INonaccruaI 49 (2) 7 (3) 194 194 36 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 4 10993 Items Subject to Adverse Classification (Continued) AMOUNT DESCRIPTION AND COMMENTS 270 Days Past Due: 2331N0naccrual 270 148 Days Past Due: 68 148 239 Days Past Due: 34 239 3,300 (l,950) 1,350 Charge-off Days Past Due: 3831N0naccrual 1,350 695 Days Past Due: 1091N0naccrual 695 625 Days Past Due: 16 625 1,320 20,169 TOTAL ADVERSELY CLASSIFIED LOANS 2,825 3,099 SECURITIES 744 744 On 09/07/2002, the bank invested $1 ,OOOM in a floating-rate, cumulative trust preferred securities through a trust preferred private placement offering. These securities are not readily marketable and are not listed on any is a Delaware statutory trust. The exchange or over-the-counter trading. proceeds from the offering were to fund the purchase of Series A, floating-rate, junior subordinated debentures from the parent holding company of The beneficial owners of the trust were to receive cash distributions quarterly from interest payments on the junior subordinated debentures through dividend distributions upstreamed from . On entered into a Stipulation Agreement to Cease and Desist with the OFR that sets forth certain restrictions, including the curtailment of dividend payments, which would preclude payments to the trust. Since this date, the future earnings capacity of the trust has diminished and the MV of the security has declined. Management reported the security at a BV of$l,OOOM and fair MV of $744M, but was still accruing for interest income of$4.5M per month. For purposes of this examination, $744M is classified Substandard due to the security's diminished earnings capacity and limited marketability, and the accrued interest income is classified Loss under "Other Assets" on this schedule. 37 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Items Subject to Adverse CIa s 10993 ation (Continued) AMOUNT, DESCRIPTION AND COMMENTS 744 TOTAL ADVERSELY CLASSIFIED SECURITIES OTHER REAL ESTATE OWNED 133 133 Acquired 12/01/2008. Vacant lot, with an AV of$160M on 12/14/2008. 27 27 Acquired 03/0312008. Vacant lot, with an A V of $60M on 03/3112008. 540 540 Acquired 12/20/2008. Lot, slab, and walls, with an A V of $650M on 09/17/08. 870 870 Acquired 10115/2007. Eight-unit apartment building and SFR, with an A V of $1 ,OOOM on 0411512008. 1,570 TOTAL ADVERSELY CLASSIFIED OTHER REAL ESTATE OWNED OTHER ASSETS 5 5 Accrued interest. Refer to "Securities" on this schedule. 4 4 Deficiency balance after sale of vehicle. Refer to "Loans" on this schedule. 38 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Items Subject to Adverse Classification (Continued) AMOUNT. DESCRIPTION AND COMMENTS TOTAL ADVERSEL Y CLASSIFIED OTHER ASSETS 9 22,483 TOTAL ADVERSELY CLASSIFIED ITEMS 2,825 39 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 3,108 10993 Items Listed for Special Mention Includes assets and off-balance sheet items which are detailed as follows: Special Mention Assets - A Special Mention asset has potential weaknesses that deserve management's close attention. Ifieft uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or in the institution's credit position at some future date. ecial Men tion asselS are not adver el classified and do not ex osc an in titution to sufficient risk to warrant adverse classification. DESCRIPTION AMOUNT LOANS 689 (1) 689 903 (2) 903 Gty: 1,592 Loan (1) represents the balance ofa $700M home equity line on the borrowers' primary residence. The note is dated 11126/2006 and was used to refinance a similar line secured by the same property at another financial institution. The collateral is a first mortgage on a 5,979 square foot, single-family home in an exclusive Florida, residential area. The property was appraised on 1111312006 with a value of$I,700M and reappraised on 09117/2008 with a value of$I,300M, reflecting the general decline in RE market values. The original LTV was 41 % and the current LTV is 53%, but the bank also has a second mortgage on the property to secure Loan (2). Loan (2) represents the balance of a $1 ,OOOM revolving LOC for the purchase of health and beauty products. These products are wholesaled to national retail chains. The line originated at $500M on 08/08/2005 and increased to $1 ,OOOM at its 1112112006 renewal and modification. A $5M monthly principal reduction was initiated in June 2007. The line is ostensibly secured by a junior lien on the company's corporate assets and a second RE mortgage on the guarantor's personal residence discussed above in Loan (1). Since the bank was in a subordinate position on the corporate assets, management never actively monitored their value. According to SVP Good, has been using the services of a factor for some time now to convert its receivables to cash, thereby eliminating them from value as collateral; therefore, the guarantor's residence is the only real collateral for this entire relationship. Combining both lines, the LTV is now about 122% based on the 2008 appraisal indicated above. Due to the borrower's failure to rest the line as required, the revolving feature of this credit was terminated in May 2008 and the $5M monthly principal reductions were increased to $10M in November 2008. Payments have been made in a timely manner. Neither line is past due and neither has a history of delinquency, but management has been unable to obtain current financial information for either other affiliated companies. In addition, there is reportedly considerable cross-company financial activity within various companies, precluding effective financial analysis. The borrowers' performance on these lines has not been an issue, but due to the lack of adequate financial information, the inadequate collateral position from the beginning, and the failure to monitor the collateral at the inception of the loan, this relationship is listed for Special Mention. 40 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Items Listed for Special Mention 10993 1,500 (1) 1,500 360 (2) 360 346 (3) 346 Gty: 2,206 This loan relationship has been downgraded by management to a "5 - Watch" from an acceptable rating of"3." This relationship was referred by CEO Salem and the originally assigned loan officer was Kathy Walker, who is no longer with the bank. Loan (l), dated 0711612007 in the original amount of $900M, is an operating LOC. The borrower is a RE holding The original purpose listed on the CAM did not provide company owned by a sufficient description, only indicating funds would be utilized for "possible RE transactions." The loan is secured by two RE parcels with a combined LTV of 31 %. No personal guarantees by the owners were required. The guarantor, holds title to one of the parcels used as collateral; however, there is no financial information in file on . Subsequent to the initial funding, an "Amendment and Exception Form" (AEF) was approved by the Executive Loan Committee (ELC), which identified one ofthe properties as having existing liens that needed to be cleared up using some of the line's funds. The AEF failed to disclose that these existing liens totaled over $1,1 OOM as of the funding date. The line was increased to $1,500M on 12/20/2007, with no additional information noted on the CAM detailing the purpose of the new funds. The final title endorsement is dated 0111812008. The original CAM's risk assessment identifies several key risks including: 1) no guarantors; 2) subject properties' stand-alone cash flow is insufficient to support the proposed payments; and 3) the line was on an interest-only basis (should be amortized). It should be noted the loan file contained an internet search indicating and related that the Securities and Exchange Commission filed enforcement action against interests alleging that they did not comply with a subpoena relating to an investigation. This information was not listed as a risk, although CEO Salem stated he was aware of the investigation. The appraisals in file regarding the collateral were reviewed internally. One parcel is a 5,040 square foot leased building located in , Florida, and valued at $1 ,260M primarily utilizing the sales approach. Although the value provided relied on the sales occurring prior to the market downturn, the technical aspects of the appraisal are not subject to criticism. The Florida. Although the bank second parcel consists of an office warehouse located on 3.28 acres in requested an appraisal of the property and structures, the appraiser's value was prepared as if vacant and no mention is made of the value of the structure. The appraiser indicated the value as of 04112/2007 to be $1,645M. In its Report, noted significant exceptions regarding the comparables used, which impact the reasonableness of the MV provided. As such, an apparent violation of FDIC Part 323 was cited for failing to comply with the Uniform Standards for Professional Appraisal Practice. In short, three of four comparables used to determine the value do not appear to be valid and the fourth one does not appear to contain sufficient adjustments. None ofthese weaknesses were noted in the appraisal review form in file. It is possible the value of the property could be 50% to 70% of that estimated by the appraiser, which would not provide sufficient equity, along with the other parcel, to warrant a loan without guarantees of the principals. 41 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Items Listed for Special Mention (Continued) Loan (2) is an unsecured 90-day note dated 10/3112007 to and his son, the purpose of which was to refinance funds extended by to purchase a SFR for his son. The intent was to allow time for a mortgage to be obtained in the secondary market. Since the unsecured amount exceeded the individual lending authority of CEO Salem, the loan required approval by the ELC. That approval was not obtained until after the closing on 11/0712007, although the disbursement of funds was delayed until the approval was obtained. Additionally, a documentation exception form in the file dated 11/09/2007 indicated that a business purpose statement needed to be filed or consumer loan disclosures were needed. This and two other exceptions were waived by CEO Salem, who initialed the waiver request. The loan was extended for an additional 90 days with a 03/07/2008 maturity, with $S,S42 in interest and an $81 late charge paid at the closing. The note was allowed to go past the subsequent maturity date, as the bank was unable to place the loan in the secondary market primarily due to low credit score and an inability to verify his reported income. On 06/06/2008, the bank extended permanent mortgage financing with a three-year balloon at S.S% and remaining on the note as a co-maker. A 10/26/2007 appraisal valued the property at $SSOM (the purchase price), but an exception report in the file indicated the appraisal was not completed by an FCBTB-approved appraiser. The exception report also indicates the CAM did not have ELC approval as required by policy. The bank relied on the financial strength credit report and repayment capacity would clearly not support an unsecured debt. A signed personal FS dated, OSlO 112007, provided by , with reported. reflects in cash, but there is no indicates a NW of evidence in file indicating the cash was verified other than a small account held in the subject bank. Tax returns reflect wages of rom and taxable interest of . Total for 2007 for income was a negative Due to the lack of information provided, the loss reported from the partnerships of could not be analyzed. An internet search by the examiner indicated bankruptcy had been filed by companies listed in the asset portion of the FS, as well as in the "public equities" and "notes receivable" sections. Of the ten companies listed in the public entities section, no information could be found on seven of the companies. The reported income is not representative of sufficient financial strength to warrant sizable, unsecured advances. on an interestLoan (3) consists of an unsecured LOC dated OS/2312008 in the amount of $3S0M to only, demand basis. The line was approved directly by the Board on OS/2112008, with two members voting "no" because of a lack of new financial information. The line relied on a personal FS now stale dated as of OSlO 112007. In summary, the lines are listed for Special Mention given the numerous administrative deficiencies detailed above. Primary action deemed necessary at this time include obtaining updated and complete financial information on the principal, and verifying its accuracy, and contracting the appraiser to clarify the value of property. Should the appraiser be unable to resolve this issue, the bank should consider ordering an updated appraisal and, should circumstances warrant, seek the guaranty of the principals involved in the debt of TOTAL LOANS LISTED FOR SPECIAL MENTION 42 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 3,798 10993 Concentrations Listed below are concentrations of obligations, direct and indirect, according to the following guidelines: I) Concentrations of 25% or more of Tier I Capital by individual borrower, small interrelated group of individuals, single repayment source or individual project; 2) Concentrations of 100% or more of Tier I Capital by industry, product line, type of collateral, or short term obligations of one financial institution or affiliated group. Any other concentrations may be listed in the 25% category if desired. An appropriate percentage of total assets is used when a bank's capital is so low as to make its use meaningless. U.S. Treasury securities, obligations of U.S. Government agencies and corporations, and any assets collateralized by same are not scheduled. DETAIL DESCRIPTIO AMOUNT EXTE OED LOANS 61,467 CRELOANS The amount extended excludes $39,944M identified by management as owner-occupied property loans and represents 550% of total RBC. Within the CRE Loans Concentration Construction, Land Development, and Other Land Loans 26,768 This concentration represents 240% of total RBC. Subconcentrations 10,398 Raw Land Loans This subconcentration represents 93% of total RBC. 8,820 Speculative Loans This subconcentration consists of commercial loans of $1, 785M and residential loans of$7,035M and represents 79% of total RBC. Financial Institution Letter 104-2006, Commercial Real Estate Lending Joint Guidance, notes that, "As part oftheir ongoing supervisory monitoring processes, the Agencies will use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk: (1) Total reported loans for construction, land development, and other land represent 100% or more of the institution's total capital; or (2) Total CRE loans as defined in this Guidance represent 300% or more of the institution's total capital and the outstanding balance of the institution's CRE loan portfolio has increased 50% or more during the prior 36 months. The Agencies will use the criteria as a preliminary step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution's lending activity, but rather serve as high level indicators to identify institutions potentially exposed to CRE concentration risk. " 43 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Concentrations (Continued) 10993 This Guidance stipulates that a bank should have enhanced due diligence for monitoring concentrations when total CRE loans exceed 300% of total RBC and/or when construction, land development, and other land loans exceed 100%. As reflected above, the bank continues to significantly exceed both the 100% and 300% thresholds. Additionally, the individual levels of loans on raw land and speculative lending remain inordinately high. Due to the significant level of problem assets and the inherent risks in the loan portfolio, management should strengthen plans to reduce the continuing high level of concentrations. The bank's high level of concentrations is in contravention of regulatory guidelines. 44 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Capital Calculations Tier 1 Capital Perpetual Preferred Stock and Related Surplus Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Income and Other Equity Capital Components Total Equity Capital Net Unrealized Gains (Losses) on Available-For-Sale Securities (if a gain, deduct from Total Equity Capital in the calculation of Tier I Capital, if a loss, add it to Total Equity Capital) Less: Net Unrealized Losses on Available-For-Sale Equity Securities Accumulated Net Gains (Losses) on Cash Flow Hedges (if a gain, deduct from Total Equity Capital in the calculation of Tier I Capital, if a loss, add it to Total Equity Capital) Less: Nonqualifying Perpetual Preferred Stock Qualifying Minority Interest in Consolidated Subsidiaries Less: Disallowed Goodwill and Other Disallowed Intangible Assets Less: Disallowed Servicing Assets and Purchased Credit Card Relationships Less: Disallowed Deferred Tax Assets Other Additions to (Deductions from) Tier I Capital Subtotal: Tier I Capital Elements Less: Assets Other Than Loans & Leases Classified Loss Less: Additional Amount to be Transferred to Tier 2 for Inadequate Allowance for Loan and Lease Losses Other Adjustments to (from) Tier I Capital (I) Tier 1 Capital Tier 2 Capital Qualifying Subordinated Debt and Redeemable Preferred Stock Cumulative Perpetual Preferred Stock Includible in Tier 2 Capital Allowance for Loan & Lease Losses Less: Loans & Leases Classified Loss Add: Amount Transferred from Tier I Capital Adjusted Allowance for Loan & Lease Losses Less: Ineligible Portion of Allowance (If Applicable) Allowance for Loan and Lease Losses Includible in Tier 2 Capital Unrealized Gains on Available-For-Sale Equity Securities Includible in Tier 2 Capital Other Tier 2 Capital Components Other Adjustments to (from) Tier 2 Capital Tier 2 Capital (Not to Exceed 100% of Tier 1 Capital) Tier 3 Capital Allocated for Market Risk (Tier 3 Plus Tier 2 Not to Exceed 100% of Tier 1 Capital) Less: Deductions for Total Risk-Based Capital (I) Total Capital Ri k-Weighted As et and erage Total Risk-Weighted Balance Sheet Items Risk-Weighted Off-balance Sheet Items Market Risk Equivalent Assets Less: Risk-Weighted Amounts Deducted from Capital Gross Risk- Weighted Assets Less: Ineligible Portion of ALLL & ATRR (1) Total Risk-Weighted Assets Average Total Assets (From 12/31/08 Call Report Schedule RC-K) Less: Amounts Deducted from Tier I Capital (I) Adjusted Average Total Assets MEMORANDA Securities Appreciation (Depreciation) Contingent LiabilitieslPotential Loss Footnotes: (I) Includes adjustment for financial subsidiaries as defined by the Gramm-Leach-Bliley Act of 1999, if applicable. 5 9,033 3,919 (28) 12,929 (28) 750 12,207 9 2,591 9,607 3,237 3,099 2,591 2,729 IJ63 1,566 1,566 11,173 123,939 4,424 3,108 125,255 1,163 124,092 153,828 3,350 150,478 7 14,457/ The $2,591M in the "Additional Amount to be Transferred to Tier 2 for Inadequate Allowance for Loan and Lease Losses" was determined based on FAS 5 and FAS 114 loan impairment analyses. 45 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Analysis of Earnings Comparative Statement of Income Period Ended 12/3112008 8,920 4649 4,271 351 5.058 4590 (3 ,265 1,824 493 174 1,328 103 667 1,43 I Period Ended 12/3112007 1,563 477 Period Ended 12/3112006 1,520 13 56 3,237 2,225 1,563 Period Ended 12/3112008 2.79 3.12 (24.08 Period Ended 12/3112007 3.56 2.31 3.48 Period Ended 12/31/2006 4.03 2.79 10.20 2.87 (0.12 2.82 513.01 Net Operating Income (After-Tax) 2019 691 1 328 Period Ended 12/3112008 2,225 3,587 9 4,590 Net Operating Income (Pre-Tax) Applicable Income Taxes 759 266 493 ( 1,441 Net Interest Income Noninterest Income Total Noninterest Expense Provision for Loan and Lease Losses Securities Gains (Losses) Period Ended 12/3112006 11,933 5,545 6,388 396 4,765 (5,026) (1,761) (3,265 Interest Income Interest Expense Period Ended 12/31/2007 12.672 6,824 5848 119 4.069 1.139 0.34 3.98 1.67 122.38 (O.OT Extraordinary Credits (Charges), Net Net Income Other IncreaseslDecreases Includes changes in the net unrealized holding gains (losses) on Available-ForSale Securities Cash Dividends Net Change in Equity Accounts Reconcilement of Allowance for Loan and Lease Losses Beginning Balance Gross Loan and Lease Losses Recoveries Provision for Loan and Lease Losses Other Increases (Decreases) Ending Balance 1,139 Other Component Ratios and Trends Net Interest Income (TE)/Average Earning Assets Total Noninterest ExpenselAverage Assets Net Incomel Average Total Equity Net LosseslAverage Total Loans and Leases Earnings Coverage of Net Losses (X) ALLLlTotal Loans and Leases Noncurrent Loans and LeaseslALLL Footnotes: 46 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. N/A 1.18 116.95 Signatures of Directors 10993 We, the undersigned directors of First Commercial Bank of Tampa Bay, Tampa, Florida, have personally reviewed the contents of the Report of Examination dated December 31,2008. Date Signatures of Directors JOHN J. FARRIS, JR. JIMMY C. FISCHER BESHARA HARB GREGORY D. JONES ALBERT M. SALEM, JR. ALBERT M. SALEM, III DAVID L. WILLIAMS NOTE: This form should remain attached to the Report of Examination and be retained in the institution's file for review during subsequent examinations. The signatures of committee members will suffice only if the committee includes outside directors and a resolution has been passed by the full board delegating the review to such committee. 47 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. ----~.~----~.~------ 10993 OFFICER'S QUESTIONNAIRE Response to Question A. 22 NOTE: Each request for information requires a detailed answer by an executive officer of the institution. Signed supporting schedules must be attached where space provided is inadequate. If any request is not applicable to your institution insert the word "None". 1. List any extensions of credit secured by stock of other financial institutions or financiainstitution holding companies which in the aggregate represent five percent or more of the entity's outstanding shares. List name and location of entity, name of stockholder and borrower, number ofshares, certificate numbers, original amount, current balance, origination date, maturity, and interest rate. 2. List any extensions of credit for the accommodation or direct benefit of others han those whose names appear on the institution's records or on credit instruments in connection with such extensions. Only include extensions of credit that have been made since the previous examination. Indicate if any executive officer, principal shareholder, director, or-their related interest (per Federal Reserve Board Regulation 0) is, or has been involved. 3. List any extensions of credit to officers, directors, and their related interests of other financial institutions or holding companies. List name and title of the director or officer, name and location of financial institution or holding company, original amount and current balance, origination and maturity dates, interest rate, security, and purpose. Do not list loans used to finance education of the individual's children; loans used for the purchase, construction, maintenance or impro ement of the individual's primary residence; or loans aggregating $50,000 or less if used for any other purpose. 4. List transactions othtr than loans, deposits, bonuses, salaries, or directors fees between the institution and any of its executive officers, principal shareholders, directors, or their related interests. List only transactions entered into since the previous examination. Indude the insider's name, and the date and nature of the transaction. This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 OFFICER'S QUESTIONNAIRE 5. List any agreements with correspondent depository institutions, written or oral, establishing balances to be maintained or other considerations given by either institution inconnection with loans to either of the institutions' directors, officers, employees, or five percent shareholders. 6. List any extensions of credit to accountants, lawyers, consultants, appraisers, regulatory examiners, and other similar individuals (including their related interests) who are not directors, officers, or employees., but perform, or since the previous examination have performed, professional services for the institution. List name of borrower, the borrower's relationship with the in!titution, and present balance of the extension of credit. 7. List the name of any director, officer, or employee, not reported previously in writing to the Office, who has at any time been convicted of, or who is presently under indictment for, alf criminal offense involving dishonesty or a breach of trust. 8. List any assets of value owned by the institution but not shown on its books. 9. List all securities, notes, guarantees, and other instruments held by the institution as collatell which are not described upon the records to which the collateral pertains. I do hereby certify that the foregoing statements are true and correct to the best of my knowledge and belief. Officer's Name and Title Institution's Name First Commercial Bank of Tampa Bay Date / 2 2.3 /t:t1 Any false information contained in it may be grounds for prosecution and may be punishable This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. First Commercial Bank of Tampa Bay Officer's Questionnaire, No.3 Name & Title Financial Instituion Originating Origination Amount Date Current Balance Maturity Date Interest Rate Security Purpose o This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. o o First Commercial Bank of Tampa Bay Officer's Questionnaire, No.6 Name of Borrower Relationship to Institution Attorney Realtor Appraiser ( Appraiser Attorney Current Balance ) This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. o o CONFIDENTIAL COpy ONLY TO: Tampa Area Office FDIC FRB This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Confidential- Supervisory UNIFORM FINANCIAL INSTITUTION RATING: 4-5-5-5-5-4/5 EXAMINATION SCOPE Asset review date: 01/30/2009 Loan cutoff: $3,000M Number of relationships reviewed: 54 A total of $58,277M in credit extensions reviewed and represents 51 % of the total portfolio. In addition, all past due, nonaccrual, and watch list loans above $250M were reviewed. Past due and nonaccrualloans under $250M were discussed with management and classified accordingly, based on the information provided. Level "2' IRRSA examination procedures were performed during the examination. MANAGEMENT The extent of severe problems at the bank has reached a critical level. Senior management, particularly CEO Salem, has pursued a course of excessive risk while engaging in counter-productive practices. The bank's rapidly deteriorating condition cannot continue if the bank is to survive. The primary causes ofthe bank's unsafe and unsound condition is attributed to the pursuit of high-risk lending without appropriate risk management practices; poor underwriting, poor credit administration; unsatisfactory operational controls; disregard for laws, regulations, and guidelines; and inadequate Board oversight. All of these weaknesses are ascribed to management. CEO Salem continues to dominate the affairs of the bank and appears to attempt to control every area. Executive Vice President and Senior Loan Officer Troy W. Newsome (SLO Newsome) stated that he was aware of at least one instance of "manipulation" of Board minutes where the minutes erroneously reported on a presentation of a problem loan by the senior lender when, in fact, it was brought to the Board in executive session by CEO Salem. SLO Newsome said he only became aware of this "error" by obtaining a copy of the minutes of that Board meeting from one of CEO Salem's assistants. Normally, SLO Newsome does not have access to those minutes. He also indicated that CEO Salem often brings what he described as "questionable deals to the Board (like the relationship) without the loan department's knowledge or approval," many of which are approved and eventually end up as past due or on the watch list. He said that since the last State examination in 2008, he has managed to prevent the approval of many obviously weak loans. Several other senior officers also stated in separate private interviews that the bank has been led into its current condition mostly by CEO Salem. President Cieslak stated that, "CEO Salem is not a banker and his lack of leadership has been counter-productive to the bank." He said that he thinks the focus of the chief executive officer (CEO) has been to resolve the bank's problems through legal means rather than corrective actions. He also said that, with the additional capital from the BHC to buy time, he believes he could tum the bank around provided that CEO Salem resigned as the CEO and refrained from day-to-day interference. President Cieslak always attends Board meetings unless they are in executive session, and he stated that he thought the Board is largely a "rubber stamp" for CEO Salem's actions. He said that only Director Albert M. Salem, III, and Vice Chairman of the Board Jimmy C. Fischer ever substantially question management's actions. Controller Faber also stated that he questions many of "executive" management decisions, the secretive atmosphere, and the restricted flow of information to bank personnel. Finally, Assistant Vice President, Loan Operations Manager Lori Katz voluntarily requested to speak with examiners privately during the examination. She said that she was concerned because CEO Salem had on several occasions directed her not to send demand letters to certain past due Confidential - 48 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Confidential - Supervisory (Continued) 10993 customers as she was normally required because she thought that they were his personal friends, but thought this practice was detrimental to the bank. The volume and severity of problems at this bank appear to be beyond management's, particularly CEO Salem's, ability or willingness to control or correct. OWNERSHIP AND CONTROL The bank is a wholly-owned subsidiary ofFCB Financial, Inc., Tampa, Florida, a one-bank holding company. of the BHC's 891,610 common shares outstanding. CEO Salem owns or controls shares or Collectively, the Board owns or controls 370,222 shares or 41.52% of the BHC stock. Director Joseph A. McLain, III, resigned from the Board in April 2008 due to health reasons. Senior Vice President and Chief Financial Officer William M. Fleming resigned from his position on 05/28/2008. His duties are now largely performed by Controller Faber. As previously discussed, BSA Officer Marya N. Wall resigned from her position during the examination on 03/0212009. OTHER MATTERS The bank's website is www.FCBTampa.com. Regular Board meetings are usually held at noon on the third Wednesday of each month at the bank's main office. EMERGENCY CONTACT INFORMATION Primary: CEO Salem Office e-mail: ASalem(a).FCBTampa.com Home e-mail: Cell phone: Home phone: Work phone: 813-287-0502 Primary: President Cieslak Office e-mail: LCieslak(a).FCBTampa.com Home e-mail: Cell phone: Home phone: Work phone: 813-287-5139 Primary: Controller Faber Office e-mail: MFaberrmFCBTampa.com Home e-mail: Cell phone: Work phone: 813-287-5125 Confidential - 49 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. onfidential - upervi ory (Continued) Alternate Site Location South Tampa Office 3017 W. Gandy Boulevard Tampa, Florida 33611 Contact: Graham Cook Title: Vice President, Branch Administrator Office e-mail: GCook@FCBTampa.com Work phone: 813-281-5173 Confidential - 50 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Directors and Officers 10993 List alphabetically all directors, senior officers, and principal stockholders, Also indicate their titles. Number of shares owned is not rounded, (Jindicates stock jointly owned; P - indicates preferred stock owned; H - indicates holding company stock owned; C - indicates stock controlled but not owned) Net Worth Names and Comments Amount I Year Joined Bank Date of Statement Year of Birth Attendance Number of Shares Owned Salary and Bonus (B) DIRECTORS F ARRlS, JOHN J., JR. Investor/Partner, Farris Properties, LLC 409 Bradley Creek Point Road Wilmington, NC 28403 (1)(4)(5)(6)(7)(9) 09/01/2008 1989 17 FISCHER, JIMMY C. Vice Chairman of the Board CP NOwner, Jimmy C. Fischer & Company, CP As, P.A. 408 Briarcliff Drive Temp~e Terrace, FL 33617 (1)(10)(2)(4)(5)(6)(7)(8)(9) 08/3112008 1989 16 FLOOD, PHILIP G. Retired President, Tampa Barge, Inc. 2302 South Occident Tampa, FL 33629 (10)(5)(6)(9) 09110/2008 1989 15 Mr. Flood passed away on 05122/2009. He had been a founding director of the bank. HARB, BESHARA President of Superior Structures, Inc. 7301 Benjamin Road, Suite G Tampa, FL 33634 (5)(7) 01/0112009 2008 14 Mr. Harb was born in Lebanon and became a U.S. citizen in 1983. He is a graduate of Louisiana State University, Baton Rouge, Louisiana, receiving B.S. and M.S. degrees in mechanical engineering. Mr. Harb holds a professional engineer license in Louisiana, and certified general contractor and real estate broker licenses in Florida. Since 1998, he has been a owner and president of Superior Structures, Inc., Tampa, Florida, a local building structural contractor specializing in metal and structural framing, roof trusses, drywall, Confidential - 51 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Directors and Officers (Continu 1099 Net Worth Names and Comments Amount I Date of Statement Year Joined Bank Year of Birth Attendance Number of Shares Owned Salary and Bonus (B) stucco, exterior insulatlOn and finish systems, and suspended ceilings. Other busmess interests include owner and president of Harb International, Inc., owner and manager of BIHarb Investments, LLC, and owner and manager of Tampa Bay Investment Partners, LLC, all located in Tampa, Florida. The OFR issued a no objection letter on 02/26/2008 regarding Mr. Harb's appointment to the subject bank's Board. 12/07/2007 JONES, GREGORY D. Attorney 3302 Elizabeth Court Tampa, FL 33629 (2)(8) 2008 14 Mr. Jones is a lifetime resident ofthe area. He graduated in 1979 with a B.A. degree from the University of South Florida, Tampa, Florida, and in 1983 with a J.D. degree from Cumberland School of Law, Birmingham, Alabama. Since 1988, Mr. Jones has been a civil trial lawyer with the law firm of Rywant, Alvarez, Jones, Russo & Guyton, P.A., Tampa, Florida, where he is currently a shareholder and partner. Other business ownership of GCEW, LLC d/bla EVOS USF, Tampa, Florida, a fast-food franchise. interests consist of The OFR issued a no objection letter on 01/28/20008 regarding Mr. Jones' appointment to the subject bank's Board. SALEM, ALBERT M., JR. Chairman of the Board and Chief Executive Officer 824 Bayside Drive Tampa, FL 33609 (1)(10)(2)( 4)(6)(7)(8)(9) 01/0112009 1989 17 Mr. Salem is also an investor and the principal of A. Salem Law & Mediation Services, P .A., Tampa, Florida. He was originally elected to serve as the chief executive officer by the Board effective 01/05/2001 and subsequently appointed interim president on 08/30/2001. Mr. Salem's other compensation is comprised of in a monthly automobile allowance and up to in annual medical and dental expenses, including prescription drugs and supplemental health and life insurance premiums. This amount also includes professional dues and fees related to his law practice. SALEM, ALBERT M., III InvestorlAttorney, Albert Salem & Associates, P.A. Post Office Box 320062 Tampa, FL 33679 (1 )(2)(4)(5)(6)(7)(8)(9) 02115/2009 2001 17 Son of Chairman of the Board and Chief Executive Officer Albert M. Salem, Jr. Confidential - 52 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Directors and Officers (Continu 10993 Net Worth Names and Comments Amount TWITTY, ROBERT J. Property Management Owner, R. J. Twitty & Company 62 Leeland Street St. Petersburg, FL 33715 (2) I Date of Statement 01/3112009 Year Joined Bank 1989 Year of Birth Anendan ce Number of Shares Owned Salary and Bonus (B) 16 Mr. Twitty passed away on 05117/2009 as the result of a heart attack. He had been a founding director ofthe bank. WILLIAMS, DAVID L. Retiredllnvestor 16 Pinewood Circle Safety Harbor, FL 34695 (3)(4) 02/0112009 1989 16 OFFICERS, NOT DIRECTORS CIESLAK, LEE J. President and Chief Operating Officer (10)(2)(7)(8) 2008 Mr. Cieslak is a graduate of Loyola University, Chicago, Illinois, with B.B.A. and J.D. degrees. He began his banking career in May 1958 as a teller at Fidelity Federal Savings and Loan Association, Chicago, Illinois, and since then has held various advancing positions up to and including president. Prior to joining the subject bank, Mr. Cieslak had been the principal since 2004 of Cieslak Consulting Associates, Tampa, Florida, an advisor to various private banking and financial services businesses on management transitions, mergers, acquisitions, and business, operational, and long-range strategic plans. From April 2002 to October 2004, he was the Florida regional vice president and statewide manager for Encore Bank, N.A., Houston, Texas. Other banking experience includes: March 1998 to October 2001 , president of Sky Asset Management Services, Inc. , a Florida-based subsidiary of Sky Financial Group, Inc. , a diversified financial services holding company headquartered in Bowling Green, Ohio; February 1986 to November 1997, president of various subsidiary banks (including its Florida subsidiary, First of America Bank - Florida, FSB, St. Petersburg, Florida) of First of America Bank Corporation, Kalamazoo, Michigan; and from June 1981 to February 1986, president of Community Bank and Trust of Edgewater, Chicago, Illinois. Between 1958 and 1981 , Mr. Cieslak held positions in the operations, commercial, corporate, and trust departments of various Chicago, Illinois, area banks, in addition to practicing general law concentrating in banking, estate planning, and trust. The OFR and FDIC issued no objection letters on 04/25 /2008 regarding his employment as subject bank' s president and chief operating officer. Confidenti al - 53 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Directors and Officers (Continue Net Worth Names and Comments Amount FABER, MICHAEL L. First Vice President and Controller I Date of Statement Year Joined Bank Year of Birth Attendance Number of Shares Owned Salary and Bonus (B) 2008 Mr. Faber graduated from the University of Central Florida, Orlando, Florida, in 1996 with a B.S degree in accounting and is a certified public accountant. He was a part-time staff accountant at Faber & Faber, CPAs, Winter Park, Florida, from January 1994 to December 1996. From December 1996 to October 1997, Mr. Faber was employed as an associate accountant with William Kent Westbrook, CPA, Orlando, Florida, where he prepared tax returns for individuals and compiled financial statements, perfonned recordkeeping, and prepared tax returns, bank reconcilements, and fixed asset records for small businesses. In October 1997, Mr. Faber joined Osburn, Henning and Company, PA, Orlando, Florida, as an associate where his responsibilities since 1999 were solely with financial institutions. He eventually became an audit supervisor and member of the senior staff of the company. In July 1005, Mr. Faber joined Crowe Chizek and Company, LLC, Fort Lauderdale, Florida, where he was an audit manager responsible for all areas of the audits of financial institutions, including the subject bank. He left that company in June 2008 to accept his current position at the subject bank. The OFR issued a no objection letter regarding Mr. Faber's employment on 10/03/2008. The bank does not consider Mr. Faber an executive officer at this time, although it may do so at a later date. GOOD, CHARLES E. Senior Vice President and Workout Officer 2008 Mr. Good is a 1959 graduate of Duquesne University, Pittsburg, Pennsylvania, with a B.S. degree in business administration. He has been in banking since 1960, mainly in senior positions in credit analysis, loan review, credit approval, and workout loan situations with PNC Corporation, Pittsburg, Pennsylvania (1960-1976), Southeast Banking Corporation, Miami, Florida (1976-1983), Pioneer Federal Savings Bank, Clearwater, Florida (1983-1990), and First National Bank of Clearwater and its successor, AmSouth Bank of Florida, Clearwater, Florida (1990-1998). In 1998, Mr. Good was employed as executive vice president and senior credit officer at Premier Community Bank of Florida, Largo, Florida. After that bank was acquired in 2004 by Colonial BancGroup, Inc., Montgomery, Alabama, he spent time to care for his in-laws until August 2006 when he joined USAmeriBank, Largo, Florida, a de novo bank that opened in February 2007, as executive vice president and senior lending/credit officer. Mr. Good left that bank in September 2007. He was hired by the subject bank in January 2008 as senior vice president and chief credit officer (OFR issued a no objection letter on 04/29/2008) and promoted to executive vice president and chief credit officer in May 2008. Due to health reasons, Mr. Good relinquished his position as chief credit officer in January 2009 and now works part-time, primarily on the larger problem credits. NEWSOME, TROY W., JR. Executive Vice President and Senior Loan Officer 2002 Mr. Newsome graduated from the University of North Carolina, Chapel Hill, North Carolina, in 1970 with a B.S. degree in industrial relations. He is also a graduate of the Florida School of Banking at the University of Confidential - 54 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 10993 Directors and Officers (Continu Net Worth Names and Comments i----------r-------1 Amount Date of Statement Year Joined Bank Year of Birth Attendance Number of Shares Owned Salary and Bonus (B) Florida, Gainesville, Florida (1978), and the National Commercial Lending School (1980) and the National Commercial Lending Graduate School (1982) at the University of Oklahoma, Norman, Oklahoma. Mr. Newsome has been in banking since 1972, primarily in the consumer, retail, and commercial lending areas. Prior to joining the subject bank, he had served as senior vice president and consumer division manager at SunTrust Bank, Tampa, Florida, from 1988 to 2001, and a director, executive vice president, and manager of retail banking at Chase Bank of Florida, N.A., St. Petersburg, Florida. Mr. Newsome joined the subject bank in January 2002 as a credit officer. He was promoted to senior loan officer in October 2007, designated an executive officer in November 2007, and promoted to his current position in May 2008. No objection letters to his appointment as the bank's senior loan officer were issued by the FDIC on 12/2212006 and the OFR on 01104/2007. NIDASIO, PAUL 1. Executive Vice President and Chief Credit Officer 2009 Mr. Nidasio graduated from Gannon University, Erie, Pennsylvania, in 1969 with a B.S. degree in business administration. He has been in the banking industry since 1970, beginning as an examiner with the FDIC in New York, New York (1970-1979). Between 1979 and 1983, Mr. Nidasio was employed by banks in New York and Louisiana as a loan review manager and compliance officer. Since 1983, he has been employed with Florida banks, including First Florida Bank, N.A. (1983-1993), and Barnett Bank of Tampa (1993-1995), both in Tampa, Florida, and United Bank and Trust Company, St. Petersburg, Florida (1995-1999), in senior level positions where he was responsible for loan review and credit policy and administration. Mr. Nidasio was senior vice president of credit policy and administration from 1999 to 2001 at SouthTrust Bank, Fort Myers, Florida, and senior vice president of special assets from 2001 to 2005 at First National Bank of Florida and its successor, Fifth Third Bank, Naples, Florida. From 2006 to 2007, Mr. Nidasio was executive vice president and chief credit officer at Coast Bank of Florida, Bradenton, Florida, and prior to joining the subject bank in January 2009, had served in a similar capacity at Marco Community Bank, Marco Island, Florida, since 2007. The OFR granted approval for his employment as subject bank's chief credit officer on an interim basis on 01128/2009 and issued a no objeCtion letter to his employment on a permanent basis on 03/12/2009. The FDIC also issued its no objection letter to his employment as chief credit officer in March 2009. PRINCIPAL SHAREHOLDERS, NOT DIRECTORS OR OFFICERS FCB FINANCIAL, INC. Tampa, FL 536,000 Owns 100% of the outstanding stock of the bank. Confidential - 55 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. Directors and Officers 10993 Net Worth Names and Comments Amount I Date of Statement Year Joined Bank Year of Birth Attendance Number of Shares Owned Salary and Bonus (B) (I)-Executive Committee; (2)-ALCO Committee; (3)-CRA Committee; (4)-Executive Loan Committee; (5)Audit Committee; (6)-Holding Company Board; (7)-BSA Committee; (8)-Information Technology Committee; (9)-Compensation Committee; and (IO)-Management Succession Committee. Board meetings are usually held at noon on the third Wednesday of each month at the bank's main office. There have been 17 regular Board meetings held since the prior State examination. Board committees typically meet quarterly. Director and committee meeting fees are paid for each meeting attended; however, director fees are only paid every two months, while committee fees are paid every month. Director Fees Director Chairman of the Board Vice Chairman of the BoardCommittee Fees ALCO Audit Audit Chairman BSA Executive Information Technology Confidential - 56 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. SUM4Y ANALYSIS OF EXAMINATIO.EPORT (000 omitted in dollar amounts) Instituti on Name: First Commercial Bank of Tampa I Certificate Number 2 City 3 State 4 Zip Code 5 Insured Date 6 Examination Start Date 7 Examination As of Date 8 Date Examination Completed 9 Examination Type/Scope 10 SHARP Exam Number 11 Total Hours: Other 12 ErC : Last Name 13 EIC : First Name/MI 14 Composite Rating 15 Component Ratings 16 ROCA Rating 17 Total Loans 18 Total Assets 19 Total Deposits 20 Total Equity Capital 21 Disallowed Intangibles 22 ALLL Adjustment 23 Tier 1 Capital 24 Tier 2 Capital 25 Total Capital 26 A verage Total Assets 27 Adjusted Avg. Total Assets 28 Total Risk-weighted Assets 29 Leverage Ratio 30 Tier 1 RB Capital Ratio 31 Total RB Capital Ratio 32 Tang. Eq. Cap.lAvg. Tot. Assets 33 PCA Capital Category 34 ALLL 35 Substandard: Securities 36 Substandard: Loans 37 Substandard: ORE 38 Substandard: Other Assets 39 Substandard: Transfer Risk 40 Substandard: Cont. Liab. 41 Doubtful: Loans 42 Doubtful : All Other 43 Loss: Loans 44 Loss : Transfer Risk 45 Loss : All Other 46 Special Mention Items 47 Value Imp'd Transfer Risk 48 Other Transfer Risk Prob's 49 Adv Class Items Coverage Ratio 50 Tot Adv. Clas Assets/TA 51 PO + Non-Acc./Gross Loan 52 Adv. Class . Lns/Total Lns 53 Sub & Dbf Lns/TotCap+Ineli . 54 T.Sub&Dbf ltms/TotCap+Ineli 55 Total Adv Class Lns + S.M. Lns 56 Tax Loss Carryfwds Available 57 Number of Concentrations 58 Concen.lTier 1 Capital 59 Overall Loan Penetration Bay 27583 Tampa Florida 33609 09-13-1989 02-23-2009 12-31-2008 04-06-2009 A/R 0 1,874 Buccarelli Dino/ 5 4-5-5-5-5-4 0-0-0-0 114,827 153,784 121 ,771 12,929 0 2,591 9,607 1,566 11,173 153,828 150,478 124,092 6.38 7.74 9.00 6.38 A 3,237 744 20,169 1,570 0 0 0 2,825 0 3,099 0 9 3,798 0 0 183.99 18.48 22 .55 22 .72 186.40 205 .16 29,891 0 I 550 .00 51 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 III 112 113 114 I I5 116 117 Co nfiden t ia l - Rep'ion: Atlanta Field Office: Tampa Total Adv. Class. Concen . Number Adv. Class. Concen. Code/Largest Concen. Code/2nd Largest Con cent. Code/3rd Largest Con cent. Tot Lns Insiders & Related Total Loans to Affiliates Adv. Class. Lns Insiders Adv. Class. Lns Affiliates Tot Insider Lns/Reg 0 Cap. Tot Lns Past Due & Accru. Total Loans Nonaccrual Renegotiated Debt Past Due Renegotiated Debt Nonacc. Sec. App.(Depr)/Tier I Cap Pledged Sec. to Total Sec. Significant Violations? Call Report Amended/C, I, B Fidelity Coverage Adequate Amount of Blanket Bond Amount of Excess Number of Subs Consol. Any Principal Share.? % Owned by Prin. Share. # of Banks in BHC # of Banks in Chain Chg. Control Since LX? New CEO Since LX Adequate Loan Policies? Adeq. A/L Mgmt Policies? Adeq . Audit Policies? Subject to Part 335? Subject to Gov. Sec. Regs? In-House IT? Dep. or Lns Serviced Ext? Dep. or Lns Serviced In? Trust Powers Exercised? External Audit Date External Audit Scope External Audit Type External Audit Firm Change In Ext. Auditor? Meeting Held w/ Dir. Bank Secrecy Review Date Contingent Liabilities Potential Loss Large Dep. to Total Dep. Subject to Con. Conditions Identified on Qtly Lending Alert Mgmt Changes / Cntrl Change Adverse External Factors Change In Risk Profile - Offsite Niche Bank Signif. New Business Lines Effective Loan Grading Sys Dominant Officer/Policy Maker Internal Control Weakness Parallel-Owned Banking Org 57 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code. 9,377 0/0 0/0 0/0 1,591 0 0 0 12.90 9,309 16,606 0 0 0.07 71.81 Y 12-2008/1 Y 2,000 0 0 Y 1 0 N N N N N N N N N N N 0 0 0 N Y 02-23-2009 14,457 0 37.51 Y N N N N N N N Y Y N o o CONFIDENTIAL - WORKING HOURS 10993 76.5 12.0 36.0 8.0 40.0 8.0 79.0 109.25 Review Loans 45.0 BSA 8.0 5.0 7.0 52.0 104.0 108.0 56.0 38.0 152.0 32.0 41 .0 2.0 16.0 12.0 19.0 13.0 1.0 60.0 34.0 38.0 140.0 160.0 19.0 15.0 145.75 120.0 Hours xis (Rev 10/04) Confidential - 58 This Report of Examination concerns a failed state financial institution. Confidential information has been redacted and this Report is releaseable as a public record per Section 655.057(2)(g), Florida Statutes, and Rule 69U-100.057, Florida Administrative Code.