DOTHAN, Ala.—A credit union in line to become the first-ever to purchase two banks believes it has found a formula that works for turning around banks that have not been profitable.
The $318-million Five Star CU here has signed an agreement to purchase the $47-million Farmers State Bank in Lumpkin, Ga. In 2014, Five Star completed the purchase of the $23-million Flint River National Bank in Camilla, Ga. Flint River was struggling at the time Five Star signed the purchase agreement, and the same situation faces Five Star in the intended purchase and assumption of the 100-year-old Farmers State Bank.
“I believe Farmers State Bank may have had one profitable year in the last five,” acknowledged Five Star CEO Bob Steensma.
Five Star completed the purchase of Flint River last year, and in less than 12 months the credit union has dramatically turned around the performance experienced by the former bank, Steensma reported.
In the six months following Five Star taking over operations at Flint River, the new credit union location has grown deposits by 41% and membership by more than 11%.
Bad Loans
Farmers State’s problems, Steensma explained, center on bad loans and the CU struggling to keep up with the growing compliance burden.
But Steensma said the credit union’s operating efficiency and scale—compared to the bank’s—plus a local market the CEO feels is ripe for a credit union to attract and keep bank customers, combined with the knowledge Five Star has gained from its first bank buy, will turn things around quickly with Farmers State.
“The due diligence we did with this deal is much better, and with the next deal we do with a bank our diligence will be even better,” said Steensma, adding that he hopes the credit union can purchase more banks in the future. “We are building a lot of muscle memory on systems conversion with a bank, and other aspects of these deals. We expect to continue to look.”
Steensma acknowledged that many of the banks that other credit unions have purchased have also struggled with profitability.
“Everyone wants really clean deals here, and there really is just not anything like that out there right now,” said Steensma. “These deals come with a little hair on them and we are just not afraid of that—maybe that comes a little from my blue-collar mentality.”
Approvals Needed
The Farmers State buy awaits FSB shareholder approval, as well as regulator OKs—NCUA, FDIC, the Georgia Department of Banking and Finance, the Alabama Credit Union Administration, and the Alabama State Department of Banking.
The purchase-and-assumption agreement calls for Five Star to purchase substantially all of the assets and assume substantially all of the deposits and other liabilities of FSB. It is the intent of FSCU to purchase all loans, investments, real estate, accrued interest receivables, and other banking-related assets; and all deposits and accrued interest payables of FSB, the CU stated in a release. FSCU intends to continue to operate all three of FSB’s current branch locations after the proposed transaction is closed.
Steensma added that Five Star is not certain how many of the bank’s employees will become Five Star staff, noting that in the Flint River buy having familiar faces helped in making bank customers CU members.
Gary Blackburn, president/CEO of FSB, will remain in a position that has yet to be finalized.
Michael Bell, attorney and counselor with Royal-Oak, Mich.-based Howard & Howard, is representing Five Star. Bell has been an integral part of four completed deals in which CUs have purchased banks. Bell contends Five Star’s intended purchase of Farmers State Bank is a clear sign more CU purchases of banks are coming.
"Just as the legal teams have become better at these deal the more we do them, the same is true for credit unions,” Bell said.