Great Southern Bancorp Inc. was not a buyer of other institutions for most of its 86-year history, but a few months ago the Springfield, Mo., company saw an unusual opportunity across state lines.
TeamBank in Paola, Kan., had been hard-hit by residential construction loans and was struggling to survive. But it was an attractive target, with 17 branches in Nebraska, Missouri and its home state — a market where Great Southern had operations and wanted to expand — and brokered deposits making up just 3.6% of its total. Great Southern watched from the sidelines, and when regulators seized TeamBank this month, it pounced.
"Over the last couple of months, we've been collecting information on Team," Joseph W. Turner, Great Southern's president and chief executive, said in an interview last week. "We never talked with Team directly, but we were aware of the problems they were going through."
On March 20 Great Southern bought $474 million of TeamBank's deposits and $656 million of its assets from the Federal Deposit Insurance Corp. The $2.65 billion-asset company, which in recent years has opened two branches a year, on average, thus boosted its retail network by 43%, to 56 branches, overnight.
Turner said Great Southern would not have made the deal without a risk-sharing arrangement under which the FDIC will take 80% of any losses up to $115 million and 95% of losses thereafter.
"With straight acquisitions, we just never felt the multiples that you have to pay made sense," Turner said. "But the economics of these sorts of deals are compelling, and we would be interested in looking at more of them."
Given the large number of banks expected to fail, experts say, companies that have spent their time growing organically may emerge as players in the deal market for failed banks.
"There will be some companies that have not been particularly acquisitive over the years drawn to the rather low prices and relatively low risk associated with failed-bank deals," said Charles R. Crowley, a managing director at Stifel Nicolaus & Co. Inc. Such companies do not have to give up their organic focus to do a deal, he added.
Great Southern bought three branches from Peoples Bank of the Ozarks in Nixa, Mo., in 2005 and has made a few small acquisitions to bolster its travel agency business. Turner said it started considering bank acquisitions last year when it became clear there would be a flood of failures. The company paid a 1% premium for the TeamBank deposits and got the assets at a $100 million discount.
Brian Martin, an analyst at Howe Barnes Hoefer & Arnett Inc., wrote in a March 23 report that Great Southern's maximum loss exposure on the deal was $40 million and that the purchase should increase the company's profits in the first year. "We view this as an attractive proposition," he wrote.
At yearend, TeamBank's noncurrent loans made up slightly more than one-quarter of its portfolio, compared to 0.97% a year earlier. But Great Southern has experience in cleaning up loans related to residential development. In the company's fourth-quarter earnings report, it detailed the workouts of five nonperformers, primarily in residential real estate.
"I meet with our lenders weekly to talk about strategies for resolving issues," Turner said. "I want us to quickly get our arms around any issues our borrowers might be facing." With TeamBank, his staff is now going through the problems loan-by-loan to assess the damage and find ways to resolve the problems.
Great Southern previously had only a loan production office in Kansas. Turner said he does not expect to close any branches. TeamBank's network in Missouri complements what Great Southern already had.
Some jobs will be cut, but Turner said the focus right now is on integrating employees into Great Southern, as well as on quelling customers' concerns about the transition, their deposits and the future of their bank relationships.
"We want to make this as seamless as possible," he said, "so that means having those same associates taking care of their customers."
Great Southern might buy other banks, Turner said, but remains focused on organic growth. It thinks it will still average two branch openings a year.
"This just fast-forwards things for us by about three or four years," he said.