By Linda Goodspeed
After 150 years of leadership by the Humphrey family, Five Star Bank has a new CEO from outside the family.
Peter Humphrey, the fourth generation of his family to lead Five Star Bank, retired in August after shepherding the bank for the last 35 years. He will continue to play a key role at the bank as a member of the board of directors and a major shareholder. The new CEO is Martin K. Birmingham, who took that title on Feb. 20. Prior to Humphrey’s retirement, Birmingham had served as president and chief of community banking.
Humphrey’s retirement came on the heels of two major acquisitions by Financial Institutions, Inc., the parent company of Five Star Bank. In the second and third quarters of 2012, the company acquired four former HSBC branches and four First Niagara branches, bringing Five Star’s total assets to $2.7 billion with 52 branches spread across 14 contiguous counties in western and central New York. The bank provides a full range of banking, brokerage and insurance products aimed at individuals, small to medium-sized businesses and municipalities.
Alex Twerdahl, associate director at Sandler O’Neill & Partners, who follows the bank, commented last year, “They’ve shown some good growth for awhile now. They just closed on eight new branch offices. Their credit has been very solid. They have got plenty of capital and a low level of non performing loans. They’re in a good position.”
Birmingham said integrating the new branches into Five Star’s network is his top priority. The integration is “substantially complete,” he said recently, noting that it went “extremely well.”
The acquisitions “represent a significant opportunity in the markets we are serving in greater Rochester and Buffalo and the southern tier in Corning and Elmira,” Birmingham said. He and Richard Harrison, chief operating officer, were instrumental in negotiating the branch office acquisitions. “Those new branches have allowed us to pick up some critical mass we didn’t have on our own. We need to maximize those opportunities,” Birmingham said.
Thanks in large part to those new branches, Five Star’s deposits grew to $2.3 billion at Sept. 30, 2012, an increase of $196.4 million from the end of the second quarter of 2012 and up $400 million compared with the end of 2011.
Birmingham sees even more room for growth.
“Rochester and Buffalo are a key focus for us,” he said, noting that Rochester represents a $19.3 billion deposit market and Buffalo a $34 billion deposit market.
“We think there is lots of upside in those markets,” Birmingham continued. “We’re going to go after it in a very traditional way by delighting our deposit customers, growing our deposit base and lending those funds back out in the form of loans, retail and commercial.”
With the branch acquisitions, Five Star also grew its loans by $70.4 million, bringing its total loan portfolio to $1.659 billion at Sept. 30, 2012, up $34.8 million, or 2 percent, from June 30, 2012 and up $174.2 million, or 12 percent, from Dec. 31, 2011.
However, Rick Weiss, an analyst at Janney Capital Markets who follows the bank, cautioned in a report late last year that indirect auto loans made up more than one-third (34 percent) of Five Star’s total loan portfolio, and said it was time for the bank to diversify.
“We would like to see the company begin to stabilize the indirect auto portfolio around current levels and continue to build relationship-type loans such as commercial business,” he wrote last year. “We await signs that the company will effectively diversify its loan portfolio before fully endorsing the stock at the current price.”
But Weiss also said then that Five Star’s overall asset quality metrics were good and remained relatively stable. At Sept. 30, 2012, Five Star’s nonperforming loans were $10.4 million, just 0.63 percent of total loans.
Birmingham credited the bank’s low level of nonperforming loans to the region’s more stable economy and the bank’s conservative lending philosophy.
“Upstate New York never had the highs and lows that other parts of the country have experienced,” he said. “On top of that, we have a very disciplined credit culture. As a result, we’ve had some good outcomes.”
At $2.7 billion in total assets, Birmingham said Five Star Bank has “enough critical mass to benefit from economies of scale to support compliance and regulatory efforts under Dodd-Frank, and at the same time can still drive sufficient growth in our loan portfolio and also allow us to operate the bank in a very efficient manner.”
Twerdahl agreed: “They are a good, healthy, community bank. They have a great branch network. They’re clean with credit and have enough capital to grow and take advantage of their new branches. They are positioned very well.”■