- 40 -
Fuller, the average of Peoples' "peer group"16 was only 7.9
percent. Mr. Fuller considered a 9-percent book equity-to-assets
ratio to be a reasonable level of capitalization for Peoples,17
and, accordingly, he reduced the balances of Peoples' total
assets and total equity accounts by $12,919,000--the amount
necessary to lower Peoples' book equity-to-asset ratio to 9
percent, resulting in adjusted total equity and total assets of
$6,999,000 and $77,770,000, respectively. Mr. Fuller then
treated the $12,919,000 in assets removed in his adjustments as
16 The depository institutions comprising Peoples' peer
group are determined by The Federal Financial Institutions
Examination Council (FFIEC), an entity established by
Congress in 1978 to promote consistent examination and
supervision of financial institutions. Members in the FFIEC
include the Comptroller of the Currency, the Chair of the
FDIC, and a member of the Federal Reserve Board of
Governors.
Peer group data is used by the FFIEC in Uniform Bank
Performance Reports, which are issued by the FFIEC for every
insured bank on a quarterly basis. The FFIEC assigns each
bank or holding company to a particular peer group based
upon asset size and number of branches or banks. Mercer,
Valuing Financial Institutions 61, 143 (1992). Peoples'
peer group consisted of 43 commercial banks and 6 thrifts
operating in Indiana, Illinois, Ohio, and Kentucky, with
average total assets of approximately $82 million.
17 We note that the 9-percent figure used by Mr. Fuller
was very close to the average equity-to-assets ratios for
the guideline companies selected by petitioner's expert,
James E. Magee, of Alex Sheshunoff & Co. Investment Banking,
discussed infra. Mr. Magee used two groups of guideline
company data: One that was based on controlling interest
transactions, and one that was based on minority interest
transactions. The average equity-to-asset ratios for the
two groups were 9.05 percent and 8.57 percent, respectively.
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