STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DANNY R. METCALF, SR.; MARION )

1. METCALF; METCALF CRAB COMPANY, ) INC.; R. M. SPEARS; DONALD L. ) TUCKER, P.A.; ERIK METCALF; CARL ) METCALF; NICOLE METCALF; RANDALL ) REDMOND; SHELLEY METCALF; and ) DANNY METCALF, JR., )

   )

   Petitioners, )

   )

   vs. ) Case No. 99-3474

   ) DEPARTMENT OF BANKING AND FINANCE ) and CITIZENS BANK OF WAKULLA, )

   )

   Respondents. )

   )

   
   

   RECOMMENDED ORDER

   
   

   Pursuant to notice, the Division of Administrative Hearings, by its duly designated Administrative Law Judge, Mary Clark, held a formal hearing in the above-styled case on June 27 through 29, 2000, in Tallahassee, Florida.

   APPEARANCES

   
   

   For Petitioner: Ronald A. Mowrey, Esquire

   Donna S. Biggins, Esquire Mowrey & Biggins, P.A.

   515 North Adams Street Tallahassee, Florida 32301

   
   

   For Respondent Citizens Bank of Wakulla:

   
   

   Edward W. Dougherty, Jr. Igler & Dougherty, P.A. 1501 East Park Avenue Tallahassee, Florida 32301

   For Respondent Department of Banking and Finance:

   
   

   Robert Alan Fox, Esquire Department of Banking and Finance

   101 East Gaines Street Fletcher Building, Suite 256

   Tallahassee, Florida 32399-0350 STATEMENT OF THE ISSUE

   The issue for determination in this proceeding is the fair market value as of October 15, 1998, of common stock of Citizens Bank of Wakulla held by Petitioners, dissenting minority shareholders.

   PRELIMINARY STATEMENT

   
   

   After disputing a stock appraisal commissioned by the Department of Banking and Finance (agency or DBF) pursuant to Section 658.44(5), Florida Statutes, Petitioners requested a formal administrative hearing in a petition filed with the agency on August 2, 1999. Citizens Bank of Wakulla (CBW) was named as Co-Respondent.

   The agency forwarded the petition to the Division of Administrative Hearings (DOAH) where it was assigned and scheduled to be heard. After continuances for good cause the case proceeded to hearing as described above.

   At hearing Petitioners presented the following witnesses: Danny R. Metcalf, Sr.; R. Marshall Spears; Donald L. Tucker; and Richard Knight and Dr. Donald A. Wiggins, both qualified as experts. Petitioners' exhibits received in evidence were: 1-11, 16-18, 32-37, 39-60 and 63-99. Certain exhibits offered by

   Petitioners were received subject to CBW's objections regarding discussions with FirsTrust and other entities concerning possible sales of CBW. CBW also objected to evidence of Petitioners' own valuation of their stock. The Administrative Law Judge has considered these objections in determining the weight to be accorded the evidence.

   Respondent, CBW, presented these witnesses: L. F. "Skip" Young, Jack D. Davis, P. Greg Robichaud, Richard E. Kohler, Dr. Douglas Austin, Jeffrey N. DeWeese, Nathan O. Botts, and Danny R. Metcalf, Sr. Mr. Kohler, Mr. DeWeese, Dr. Austin, and Mr. Botts were qualified as experts. CBW's exhibits received in evidence were A, 1-19, 23-25, 27, 30, 32, 37, 40, and 41.

   The agency presented no witnesses but offered these exhibits received in evidence: 2-5, 7-12, 14-24, 26-41, and 43-51.

   In addition, and without objection, these depositions were received: Skip Young, Delmar Thomas, Billie Rae Sanders, and Randy Lovitt.

   The Transcript of the hearing was filed on July 31, 2000; the parties' Proposed Recommended Orders were filed on August 10, 2000.

   FINDINGS OF FACT

   
   

   1. Petitioners are stockholders of approximately 36% of the outstanding 150,000 shares of stock of Citizens Bank of Wakulla (CBW). Danny Ray Metcalf, Sr. is president of Metcalf Crab Company, Inc., a seafood processing plant in Wakulla County.

      Marshall Spears is owner and president of RMS Marine Supply in Wakulla County. Donald L. Tucker is a practicing attorney and former legislator in Tallahassee, Florida.

   2. CBW was chartered in 1987 largely through the efforts of Tommy Rowell, prior chairman of the board of the only other bank in the county, Wakulla Bank. With the exception of Mr. Rowell and another banker, CBW's first board was "very green," comprised primarily of businessmen in the community, including Mr. Metcalf.

   3. The bank lost money for the first few years. By 1991 when Mr. Rowell resigned as president, the bank's book value had decreased from its initial price of $10 a share to $8 a share. After CBW hired another president it prospered and grew to approximately $18 million.

   4. In spite of some financial success the bank's board felt its president's involvement in the community did not adequately enhance the bank's image so that individual left. Skip Young, owner and operator of Harvey Young Funeral Home in Crawfordville, Wakulla County, Florida, became president and chief executive officer of CBW in mid-1994. Mr. Young had been an active director of the bank since its inception. At Mr. Young's insistence the bank hired an experienced financial person, Jack Davis, as executive vice-president and chief financial officer.

   5. Both Mr. Young and Mr. Davis remain in their positions. The bank's assets have grown to approximately $35 million and the

      bank has been profitable since 1993 or 1994. CBW has only paid a single $.15 dividend to its shareholders.

   6. In 1997, CBW's board voted in favor of forming a holding company and the bank retained a law firm to set up the company. After the necessary documents were prepared and the issue was presented to the stockholders, Petitioners were concerned that the increased number of authorized shares and broad grant of authority to the board of directors would dilute the stockholders' control. Petitioners therefore dissented from the majority decision to form the holding company.

   7. After necessary regulatory approval Citizens Bankshares, Inc., became the holding company of CBW by trading one share of holding company stock for one share of bank stock. Because they did not want shares in the holding company the dissenting shareholders were offered $18 a share, slightly over the October 15, 1998, book value of $17.54, and an amount the board anticipated the stock could bring in the local market.

   8. The dissenters declined, and when the parties were unable to agree on a value, it became necessary to select individual appraisers pursuant to Section 658.44, Florida Statutes.

   9. CBW's appraiser, Dr. Douglas Austin, issued a report appraising the stock for $19.78; the dissenting shareholders' appraiser, Richard Knight, established the value at $39.60 a share. When the two appraisers could not agree on a third to

      resolve the disparity, the Florida Department of Banking and Finance (DBF) as required, selected the third independent appraiser, the firm of Sheldrick, McGehee, and Kohler, Inc. (SMK).

   10. On June 23, 1999, SMK issued its appraisal establishing a value of $18.55 per share for CBW common stock, effective the date of the merger: October 15, 1998. CBW's offer of that price was rejected by the dissenters and the Petitioners filed a timely request for a formal evidentiary hearing. Their petition resulted in this proceeding.

   11. As distilled from the testimony of the several experts in this proceeding and from scant available case law, the valuation or appraisal process requires the a combination of standard formulaic procedures and the appraisers' professional judgement. It is not an entirely mechanical process, and to assess the validity of the process requires scrutiny of the individual experts' background and experience. The individual appraisers who testified were candid and credible professionals. In no instance did it appear that any one appraiser was bent on deriving a pre-determined value. Nonetheless, the values were widely disparate. The task therefore is to probe the methodologies utilized, weigh the experts' evidence, and determine the appropriate value.

       Richard A. Knight's Opinion

       
       

   12. Richard Knight was qualified as an expert in the valuation of stock in this case over the objection of CBW. Mr. Knight has extensive background and experience in banking and finance and little experience in actual appraisals.

   13. Mr. Knight considered population growth of Wakulla County of 66.58% from 1990 (11,202) to 1997 (18,660). He also considered the growth rate of the bank which was substantially higher than the state average (275.48% compared to 171.3% from 1989-1996; and 16% versus 5% for the 12-month period ending June 30, 1998). Mr. Knight considered recent stock transfers of $18 per share to be unreliable as a measure of value since the bank is a non-publicly traded, stockholder-owned community bank. Mr. Knight looked at reported return on asset and net operating income per share.

   14. Mr. Knight selected a multiple of 18 times net operating income per share applied for the year ending 1997, ($2.20) for a value per share of $39.60. Mr. Knight also opined that a fair value of the bank's shares would be 2.25 times book value, translated to $39.04 at the end of August 1998. Although the two methods yielded similar results, Mr. Knight felt the multiple of book method was preferable as with a bank the size of CBW earnings are "somewhat variable."

   15. The valuation figures proposed by Mr. Knight did not include marketability or minority shareholders discounts.

   16. In cross-examination Mr. Knight agreed that 8-10% would be a fairly reasonable range for CBW's capitalization rate. Capitalization rate is the inverse of the price to earnings (P/E) ratio. A capitalization rate of 10 results in a P/E ratio of 10 times earnings; a capitalization rate of 8 $ results in a P/E ratio of 12.5 times earnings. In either case the multiple of 18 times earnings used by Mr. Knight is inconsistent. The rate of

       10 or 12.5 times earnings would yield a lower value than the

       
       

       $39.60 suggested by Mr. Knight.

       
       

   17. Mr. Knight's opinion that 2.25 was a reasonable multiple of book value was basically an educated guess based partially on his experience that no healthy bank in Florida has sold for under two times book. This opinion did not determine the likelihood of a sale of CBW nor was Mr. Knight able to compile a peer group list of banks sold with which he could compare CBW.

       Dr. Charles Donald Wiggins' Opinion

       
       

   18. Dr. Wiggins was retained by Petitioners and produced a thorough detailed report dated March 16, 2000. Dr. Wiggins has a doctorate in business administration and is a licensed CPA in the State of Florida, although he is not practicing as a CPA. He is employed by the firm, Business Valuation, Inc., in Jacksonville, Florida. Dr. Wiggins has extensive experience conducting business appraisals, including dissenters' rights appraisals in

       other types of businesses and in two bank cases, including the present case.

   19. Dr. Wiggins described three primary stock appraisal methods: the income or going concern appraisal based on earnings, cash flow, or some other economic measure of return; a market comparable method based on examination of similar businesses sold; and a liquidation method, in the case of a bank, an adjusted book value approach where the appraiser looks at underlying assets and liabilities and adjusts those from book value to market value.

   20. Dr. Wiggins considered the various methods and selected the market comparable method, primarily because he had information on comparable sales from S and L Securities, a well- known organization that provides data on bank sales, by region, asset size, and other specific information on the value multiples (such as P/E), the buyer and the seller.

   21. The result of Dr. Wiggins' appraisal was a fair market value of 100 $ equity interest in CBW of $38.13 per share, or a minority equity interest of $28.61 per share.

   22. Dr. Wiggins obtained information from appraisal reports prepared for CBW by its experts; he also obtained historical financial and economic information from various banking publications and economic reports; he looked up CBW and similar banks on the FDIC web site and used information already in his office on comparable bank sales. He did not use comparable sales

       of Florida banks because there was only one reported in the relevant asset range for the prior two years.

   23. Instead Dr. Wiggins established a criteria of banks in the $30 to $50 million range in the Southeast that sold in the prior two years. This yielded a sample of 9 banks from West Virginia to Mississippi. In his sample he looked at the average and median market-to-book ratio and found them very close: 2.17, and 2.03, or 2.07. This comparison is based on the reported value the bank sold for versus the reported book value. 2.17 means the bank sold for 2.17 times book value.

   24. Although he has published numerous articles on discounted cash flow analysis in appraisals and likes that type of appraisal, Dr. Wiggins did not do that analysis in this case as he did not have the necessary information or time. Nor did Dr. Wiggins examine information with respect to his comparables' net income, equity, market size, market share, and competition. He did not talk with management, and for that and other reasons he designated his appraisal as a "limited scope appraisal."

   25. Dr. Wiggins' report discusses the factors listed in

       
       

       U.S. Internal Revenue Services' Rule 59-60 provided by the IRS for guidance to appraisers of closely held businesses.

   26. Dr. Wiggins' approach favored a larger over a smaller sample of "comparable" banks but the basic problem of his approach is that it is not possible to determine how valid it is to compare his bank sample to CBW without considering the other

       factors he felt would limit the sample size. In other words, a single close comparable would have been more valid than the disparate multiple comparables utilized by Dr. Wiggins. The two of the banks in Dr. Wiggins' sample that were closest to CBW in value of deposits, rural market location, and market competition, sold in their entirety for an average of P/B of 1.6 and P/E of

       14.43. Those two banks also had substantially better earnings than CBW for the first 3 quarters of 1998.

       Richard Kohler's Opinion

       
       

   27. Richard Kohler is principal in the firm, Sheldrick, McGhee, and Kohler (SMK) in Jacksonville, Florida. The firm conducts business appraisals primarily throughout the southeast and has been in operation since 1946. Mr. Kohler's training and experience amply justified his qualification without objection as an expert in valuation of bank stock.

   28. In performing his appraisal at the request of the DBF Mr. Kohler and SMK's senior appraiser, Jess Wright, gathered information from CBW and other relevant sources, including a letter from counsel for the dissenter shareholders. Of the three basic methodologies (income, market, and cost or asset approach) they determined the best methodology would be the income or earnings approach, which is most appropriate in any appraisal where the company is making money.

   29. Mr. Kohler built a model based on return expectations at different levels of risk in the markets and derived a P/E

       multiple of 10.7; to that he applied the average of CBW's prior five years earnings, which with ups and downs came close to the anticipated earnings in 1998. The average was $260,000.

   30. Multiplying the average earnings times the P/E multiple of 10.7 resulted in a finding of $2,782,000, or $18.55 per share as of October 15, 1998.

   31. After that exercise, Mr. Kohler and his colleague applied various reasonableness tests to determine whether their core finding was appropriate. They looked at public companies and using guideline models discounted from their values. They also looked at actual stock transfers at each bank and found they had all been at basically book value.

   32. In developing his P/E multiple and capitalization rate the 10% growth selected by Mr. Kohler was very conservative. That is, he erred, if at all, to the benefit of the Petitioners.

       When he conducted his reasonableness test Mr. Kohler took a 50 $ discount from the value of public companies. Companies that were publicly traded were at approximately 19 or 20 times earnings and about 2 to 2.3 times book value. These companies were much larger than CBW and further, CBW had only paid a one-time token dividend.

   33. Mr. Kohler did not apply a minority discount to his valuation. The value he derived from his methodology is a per share value of the entire bank; it is neither a majority nor

       minority value. If a 51$ interest or other controlling block were to be valued it might have a slight premium.

       Dr. Douglas V. Austin's Opinion

       
       

   34. Dr. Douglas V. Austin is a professor Emeritus Finance, at the University of Toledo, Ohio. Prior experience after graduate school included teaching at the College of Business at the University of Michigan and working on mergers and acquisitions for the Federal Reserve Bank of Cleveland. When he began to lose his eyesight in 1967, Dr. Austin returned to academia and at the time of his retirement in 1989 had been a full professor and department chairman for approximately 20 years. Since 1989 Dr. Austin teaches one semester a year and runs his own consulting firm full-time. He is also an attorney licensed to practice in Michigan and Ohio.

   35. Dr. Austin has written numerous books and articles on banking-related topics, including bank stock valuation and dissenters' stock appraisals. Without objection Dr. Austin was qualified as an expert in bank stock valuation. In the words of another witness, if bank valuations were rock and roll, Dr. Austin would be Elvis Presley.

   36. Dr. Austin is now fully blind and the work done by his firm is under his supervision. Steve Byers, the firm's vice- president, physically prepared the appraisal report in this case. Dr. Austin is fully familiar with the report and directed and

       reviewed the work. Assured that it was his work product, Dr. Austin signed the report.

   37. Dr. Austin's report was by far the most in-depth analysis that was conducted of the bank. He attempted all three methods of business valuation. Dr. Austin appraised the value of 100% of CBW at $23.76 per share and the minority interest held by the dissenters at $19.78 per share. As a result of a computer data entry error, these values were overstated by about $.50, but this is not material.

   38. The first action Dr. Austin took in preparing his valuation was to send CBW a 17-page information request for financial statements and information like non-accrual and substandard and doubtful loans, yields on loans, yields on deposits, quality of the loans, and securities. He always looks at the bank. In valuing small financial institutions which are not publicly traded and which have a small number of shareholders, there are no public data to compare it with so you must look at the financial institution itself. Dr. Austin familiarized himself with the balance sheet, the income statement, all the historic bank ratios of this particular bank for five years; he did a peer group analysis, and compared this bank to other banks in the industry. He also gathered data concerning the economy, national, state and local, because growth in deposits and growth in population are figured into economic projections.

   39. CBW underperformed in terms of a rate of return on assets. Four out of the previous five years, it was below the 1% rate of return on assets which was standard for the industry. Only in 1997 was the rate above 1%. From a peer group standpoint, CBW had not performed equal to the average of the previous five years of banking history of banks of its size.

   40. The bank had a lower return on equity than did other banks. It had a lower capital to asset ratio than did other banks of the same size. It was marginally capitalized in that it had less than 8% capital. Its loan-to-deposit and loan-to-asset ratios were higher than other banks that were competing in the county and other peer group banks in Florida. CBW was suffering some losses which were higher than peer group banks.

   41. A discount rate was applied by Dr. Austin from the capital asset pricing model. This is an accepted financial model for determining discount rates and capitalization rates indirectly. Cash flows are a combination of earnings plus available capital minus capital expenditures plus depreciation for each year.

   42. Dr. Austin utilized different growth rates in different stages of his valuation. For the first five years, he utilized the growth rate of 8.25%. This was slightly lower than the 9% growth rate of the bank for the past three years. The growth of earnings was predicted to be 2% after the fifth year into the future. In the previous five years, the bank's earnings had

       fluctuated wildly and it had only one good year of earnings -- 1997. The earnings for 1998 were going to be less than 1997. Looking five years into the future, Wakulla County was going to mature and so was the bank. Therefore, Dr. Austin thought five years into the future the earnings growth of 2% was a logical growth. In the long term, economic growth will remain at approximately 2.0% to 2.4%, barring any exogenous shocks to the economy such as oil embargoes, military conflicts, or political upheavals. Analysts expect annual compound population growth rates of approximately 5.9% for 1997-2000, and approximately 2.0%

       to 2.5% thereafter.

       
       

   43. The second valuation method that was used by Dr. Austin was adjusted book value. It was used as a confirmation and as an alternative technique. This technique marks all of the assets and liabilities of the bank's institution from cost to market for a picture of what the bank is worth in terms of market at a point in time. Dr. Austin did not use market comparables because he could not come up with a database which allowed him to identify comparables that traded in the same size level as Citizens Bank. Nor did he do bank sales comparables. It is only appropriate to use bank sales comparables if the dissenters were dissenting from a merger or a holding company acquisition and did not like the price that the acquirers were giving to the sellers and the whole bank was going to disappear. Dr. Austin has done that kind of dissenters' appraisal and used bank sales comparables.

   44. In determining the adjusted book value, the first thing that Dr. Austin did was to determine the market value of the CBW's securities portfolio. He then took the yields on various loans and compared them to the Uniform Bank Performance Report for September 30, 1998. He next modified the value of the loans up or down, based on the yield differentials. The loan portfolio was then further adjusted based upon an analysis of the quality of the portfolio. The next thing Dr. Austin did was determine a core deposit value. Because they are perceived as "hot money" (moved from bank to bank based on small changes in interest rates) Dr. Austin disregarded all certificates of deposit (CDs), both above and below $100,000, from core deposits.

   45. Dr. Austin's discounted cash flow analysis produced a value of $22.76. The net adjusted asset value came to $23.45. Dr. Austin averaged those two numbers and adjusted the average by adding 11% for control premiums (enterprise value or value ascribed to control of the enterprise) and reduced that number by 25% for a minority discount (considering the dissenters' minority share of the total holdings).

   46. Dr. Austin's formula resulted in a value of $19.78 per share.

       Establishing the Fair Value

       
       

   47. Certain issues emerged in this proceeding as central to analysis and application of the experts' methodologies. These issues include how to characterize and whether to consider

       discussions and correspondence with FirsTrust regarding purchase of CBW. The issues also include whether to consider CDs among core assets and whether marketability or minority discounts are appropriate.

       1. FirsTrust

          
          

   48. FirsTrust is a banking business; it owns controlling interest in two banks in Louisiana, has a company that provides automated technology machines (ATMs) all over the country, and owns an insurance company and real estate development business. FirsTrust's assets range between $300 and $600 million. Joseph Canizaro is chairman of the board.

   49. From 1996 through mid-1998, Randy Lovitt was employed by FirsTrust as executive vice-president and chief operating officer. He was Mr. Canzaro's right-hand person, managing the banks and operations of all the companies.

   50. Sometime around early 1997, FirsTrust was looking to expand into several states in the Southeast. It was looking for potential candidates for merger or purchase rather than starting new banks. Someone told Mr. Lovitt about CBW.

   51. Throughout 1997, Mr. Lovitt corresponded with and, on two occasions, visited with Skip Young, Mr. Metcalf, and other CBW board members. The parties executed an exclusivity and confidentiality agreement. On July 23, 1997, Joseph Canizaro sent a non-binding letter of intent to Danny Metcalf as chairman of the board of CBW.

   52. The letter included the proposal that FirsTrust would infuse extra capital into CBW in an amount of 50% of its approximate $2,260,000. Then FirsTrust would acquire enough additional stock to give it 80% ownership, paying 2.25 times the adjusted book value. The infusion of capital would have required authorization of additional stock (75,000 shares -- 50% more than the already authorized and issued 150,000 shares) which FirsTrust would purchase at book value. As explained in Randy Lovitt's clarification letter of August 6, 1997, to Danny Metcalf, the intent of the proposal was to reduce FirsTrust's overall costs and provide needed capital for future growth.

   53. The letter of intent stated on its face that it was non-binding and was further subject to a satisfactory due diligence analysis being conducted by the purchaser.

   54. The letter of intent was never executed as acceptable to CBW. There is some evidence that there were discussions that CBW's board wanted 3 times, rather than 2.25 times adjusted book value. On September 2, 1997, Randy Lovitt sent a letter to "Mr. Metcalf and Board Members" confirming the understanding that the proposal to purchase 70% of outstanding shares at 2.25 times book and plan for additional capital did not meet the CBW's approval and any higher price would make the transaction too expensive for FirsTrust.

   55. By May 1998, Danny Metcalf was no longer on the board but continued to pursue a sale of his and other CBW stockholders'

       shares to FirsTrust for 51% control. Viewing this as a hostile effort, Mr. Young told him to stop. Mr. Young also wrote to FirsTrust's Randy Lovitt on May 5, 1998, explaining that CBW wished to remain independent and

       . . . to be the best little bank in town, which provides outstanding service and products to small and medium-size business within our community. (Petitioner's Exhibit 47)

       
       

   56. From the evidence it is apparent that FirsTrust's communications were serious "feelers," rather more significant than earlier casual buy/sell conversations between various Tallahassee bankers and CBW board members over a mullet lunch in Wakulla County. Still, the exercise never reached fruition and if the FirsTrust correspondence could be considered a firm "offer," the proposal remained speculative. The negotiations are worthy of some consideration, but little weight in fixing the value of Petitioners' stock on October 15, 1998, more than a year after the written proposal by FirsTrust, and a substantially smaller percentage of the stock.

       1. Discounts

          
          

   57. Petitioners argue that a minority discount is inappropriate because it would result in a "windfall" to the purchasers, either a majority shareholder or the corporation itself. There is evidence and argument on both sides of this issue, but the most reasonable approach is that of Dr. Austin who applied both a premium and a discount in his valuation process in

       order to convert the mere numerical calculations into a comparable market price for thinly traded shares. The studies cited in his valuation report suggest that Dr. Austin's methodology was conservative and fair.

       1. Certificates of Deposit

       
       

   58. The third significant issue is whether CD's should be considered among the core deposits of the bank. The current trend among valuation experts is to exclude those CD's as "hot money." Because people are less willing to tie up their assets in a longer term deposit, the period of CD's has decreased in recent years. Those CD's are moved from bank-to-bank as competitive interest rates change from bank-to-bank.

   59. While Petitioners suggest that CD depositors in small community banks such as CBW tend to leave their money in their community bank, they presented no evidence of that practice at CBW. Intuitively as valid as Petitioners' argument is the notion that such depositors could be quickly seduced by more advantageous rates offered in the competitive banking environment in Tallahassee, where numerous and larger banks are found.

   60. No single shareholder of CBW is a majority shareholder. In order to purchase the dissenting shareholders' stock the holding company has to borrow to replenish its capital. It intends to pay off the loan by offering the stock on a pro rata basis to existing shareholders before offering it in the community.

   61. Current book value of CBW stock is between $20 and $21. The limited number of stock sales since CBW's inception have been around book value and Skip Young does not anticipate being able to sell the dissenters' stock for more than book value.

   62. Dr. Austin's approach yielded a fair value per share at 112.8% of CBW's book value as of October 15, 1998.

   63. Dr. Austin's approach was most thorough, reasonable and consistent with prevailing valuation practices, including Revenue Ruling 59-60 and the guidance of the U.S. Comptroller of the Currency. In summary, it is found that $19.78 is the fair value per share of the dissenters' shares of CBW.

       CONCLUSIONS OF LAW

       
       

   64. The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to Sections 120.569 and 120.57(1), Florida Statutes.

   65. 65.

       
       

       The administrative proceeding which is the subject of this case is a creature of statute designed to provide a method by which the value of the shares of dissenting stockholders may be determined where there is disagreement as to such value. Bank of Central Florida v. Department of Banking and Finance, 470 So. 2d 742 (Fla. 1st DCA 1985).

   66. Section 658.44, Florida Statutes, governs the procedure for valuing bank stock held by dissenting shareholders when a plan of merger has been approved. In all such cases, the law requires that the holders of such shares be paid "not more than the fair market value of the shares," and if an agreement as to

       that amount cannot be reached, certain prescribed procedures must then be followed. As is pertinent here, the agency was required to appoint an independent appraiser to appraise the value of the stock. Because a formal hearing was requested by Petitioners to contest the agency's action, the proceeding at this juncture is de novo in nature, and not merely a review of the correctness of its appraisal. J.W.C. Co., Inc. v. Department of Transportation,

       396 So. 2d 778 (Fla. 1st DCA 1981). See also Jackman, et al. v. Lewis, No. 82-2360 (Fla. 2d Cir., Nov. 2, 1982).1

   67. Section 658.44 offers no definitive guidelines or criteria to be used in the valuation process other than a general reference to "fair market value." The agency has not promulgated interpretive or instructive rules as to the meaning of that term, or the appropriate methodology to be followed in the valuation process. Further, the only state judicial decisions on the subject, or final agency order interpreting the statute in question are Jackman and Bank of Central Florida, supra.2 However, the state law is patterned after the federal law governing the merger or consolidation of national banks into or with state banks, and reference to federal judicial decisions and agency action interpreting the federal statute is helpful. Pasco County School Board v. Florida Public Employees Relation Commission, 353 So. 2d 108, 116 (Fla. 1st DCA 1978).

   68. The earliest reported federal decision involving the valuation of a dissenter's bank stock is Simonds v. Guaranty Bank

       and Trust Co. 492 F. Supp. 1079 (D. Mass. 1979). In that proceeding, the District Court was confronted with the task of reviewing an appraisal of a dissenter's stock by the U.S. Comptroller of the Currency. Like the state statute, the federal law set forth no appraisal procedure, did not define "value" or prescribe the method or criteria to determine the same, and there were no agency regulations regarding valuation. With this in mind, the Court noted that the primary objective of the valuation process was "to provide fair and reasonable compensation for the stock of the dissenting shareholder who objects to the merger." Simonds, 492 F. Supp. at 1082. The Court went on to prescribe the following general rule to be used by the Comptroller in fulfilling the requirements of the statute:

       The statute, conferring on the Comptroller authority and responsibility for determining value and prescribing no method or particularized rule for doing so, necessarily places upon the Comptroller the responsibility for determining value by the exercise of discretion, taking into account relevant factors and determining what weight they deserve in the instance at hand.

       
       

       The weight to be given to the various elements, however, will vary from case to case, depending on the attendant circumstances.

       
       

       The weighting of various elements of value is a matter calling for exercise of judgement.

       It is inappropriate and impermissible to apply a rigid formula giving equal weight to (the) factors, or sets of factors. . . in place of exercising this judgement. 492 F. Supp. at 1054. (Emphasis added)

   69. Since Simonds, the U.S. Comptroller of Currency has altered his methodology and has been substantially upheld in more recent cases. See for example Lewis v. Clark 911 F.2d 1558 (U.S. 11th Circuit 1990) and Berens v. Ludwig, 160 F.3d 1144 (7th. Cir. 1998).

   70. As described in the findings of fact, above, the valuation appraisal performed by Dr. Austin avoids a rigid formulaic approach and applies a reasonable fair process born of impeccable experience. In short, his process and his result best fit the attendant circumstances of this case.

RECOMMENDATION

Based on the foregoing, it is hereby RECOMMENDED:

That the Office of the Florida Comptroller enter its final order setting the October 15, 1998, fair market value of Petitioners' stock at $19.78 per share.

DONE AND ENTERED this 19th day of September, 2000, in Tallahassee, Leon County, Florida.

MARY CLARK

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 19th day of September, 2000.

ENDNOTES

1/ Jackman preceded Bank of Central Florida, supra, and involved the same parties. While Bank of Central Florida was an appeal from the Final Order of the Florida Comptroller, Jackman was a circuit court case which held Section 658.44(5), Florida Statutes, is constitutional based in part on Chapter 120 due process provided to the dissenters.

2/ An internet search discloses the Recommended Order of Administrative Law Judge (formerly called hearing officer) Alexander in the Bank of Central Florida case but no one including counsel for the agency has presented the Comptroller's Final Order in that case. Any guidance such as it is, is gleaned from the Recommended Order and appellate decision.

COPIES FURNISHED:

Michael J. Coniglio, Esquire Coniglio & Associates, P.A. 971 East Tennessee Street Tallahassee, Florida 32308

Edward W. Dougherty, Jr., Esquire Igler & Dougherty, P.A.

1501 East Park Avenue Tallahassee, Florida 32301

Robert Alan Fox, Esquire Department of Banking and Finance

101 East Gaines Street Fletcher Building, Suite 526

Tallahassee, Florida 32399-0350

Ronald W. Mowrey, Esquire Donna S. Biggins, Esquire Mowrey & Biggins, P.A.

515 North Adams Street Tallahassee, Florida 32301

Robert Beitler, Acting General Counsel Department of Banking and Finance

101 East Gaines Street Fletcher Building, Suite 526

Tallahassee, Florida 32399-0350

Honorable Robert F. Milligan Office of the Comptroller Department of Banking and Finance The Capitol, Plaza Level 09 Tallahassee, Florida 32399-0350

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order must be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 99-003474

Orders for Case No: 99-003474