FSB keeps it neighborly

Brothers Gene Neighbor, FSB president and CEO, Doug Neighbor, vice chairman, and Kent Neighbor, chairman, stand in the lobby of the bank’s main branch on a recent afternoon.


By Chase Castle
[email protected]


Farmers State Bank has undergone innumerable changes since its founding 88 years ago, but the common thread of the Neighbor family hasn’t.

Farmers State Bank (FSB), headquartered in Marion, is the largest family-owned financial institution in Linn County, with assets of $678.9 million as of June 30. Its family lineage dates back to Morris Neighbor, who was employed as a teller and bookkeeper at the bank formerly known as Alburnett State Bank shortly after his discharge from World War II. Through the post-war boom’s growth in prices and production, particularly for Iowa’s crops and livestock, the newly-dubbed Farmers State Bank entered a period of extraordinary growth.

The bank has continued to place members of the Neighbor family at the helm, most recently with Gene Neighbor assuming the role of president and CEO at the start of this year. Gene succeeded his older brother, Doug Neighbor, who continues to serve as vice chairman and heads strategic planning initiatives.

Although Gene has no immediate plans for retirement, he said, the bank’s family-led board has already selected his eventual successor: Steve Neighbor, son of current Farmers State Chairman Kent Neighbor.

At age 51, president and CEO-to-be Steve Neighbor now serves as the company’s executive vice president, while his brother, Scott Neighbor, serves as senior vice president. Along with Gene’s son, Jason Neighbor, vice president of retail operations, the three Neighbors represent the family’s third generation at the bank, which the board hopes will help expand FSB’s territory, in terms of services as well as geography.

Doug said the bank is informally surveying properties for potential branches in Coralville, North Liberty and Iowa City in order to expand its customer base, which must happen in order to grow in a market densely populated with other banks and credit unions, he said.

“Our plan is to continue to have family ownership of the bank, and in order to do that, we have to continue to grow,” Doug said. “We don’t want to become just a stagnant organization, so we will look at opportunities as they arise.”

Those opportunities may also come in the form of an acquisition. Competing institutions such as MidWestOne Financial Group, the parent company of Iowa City-based MidwestOne Bank, have made their own purchases in recent months. MidWestOne agreed last year to pay $64 million in cash in addition to 2.7 million shares of stock to acquire Central Bank of Golden Valley, Minnesota.

“There are smaller outlying banks in the area that we might have an opportunity [to buy],” Doug said. “If they … don’t have a succession plan, then we may purchase those kinds of opportunities. And we’re always looking at other opportunities as well. It’s a very competitive market.”

FSB also recently added a treasury management position, which specializes in business accounts, and has plans to expand its private banking operations, which focus on high net worth individuals.

“We’re looking at all the opportunities that are available to us, and if we need to move into those directions, we’re going to go out and find the people who can do them,” Gene said.

Regardless of where those potential hires come from, Kent said basic values like customer relationships remain key to the bank’s performance. That philosophy was instilled by FSB patriarch Morris Neighbor, who remains on the bank’s board at the age of 97.

“We were raised as a caring family, so the bottom line is it just comes naturally for us –

to treat your customers the way you want to be treated,” Kent said. “One thing that I always heard him say after he talked to a customer was, ‘Thank you for your business.’ I bet I heard him say that a million times … We try to echo that.”


Succession tips

Maurie Cashman is the president of Aspen Grove Investments, an exit planning and real estate brokerage firm in Cedar Rapids that consults with businesses during restructuring and succession planning.

He said he applauds the Neighbors for their initiative in transition planning, which should begin at least 18 months before a turnover.

“I do routinely see people making the mistake of waiting too long,” Mr. Cashman said.

While careful to note that every business is unique, he said there are several advantages to promoting a CEO from within, particularly in terms of customers’ perceptions.

In one case, Mr. Cashman said, one of his clients was a sole distributor for five large companies. During the due diligence process, Mr. Cashman said he learned that although four of those customers were amenable to the change, the threat of new leadership nearly derailed the deal due to concerns by the fifth and largest client.

Internal hires may also be less expensive. According to a 2011 study by Indiana University and global consulting firm A.T. Kearney, compensation for externally hired CEOs –

including bonuses and equity incentives – is 65 percent higher than those promoted from within. In addition, about 40 percent of CEOs hired externally lasted two years or less, and nearly 66 percent were gone within four years.