Mutual of Omaha banks open

Firm glad of First National takeover opportunity, chance to make its mark in Southwestern region

by Russ Wiles - Jul. 29, 2008 12:00 AM
The Arizona Republic

The banking industry is slogging through its worst year in well over a decade and the Southwestern real-estate market remains in the dumps, yet Arizona's newest player is betting on better times ahead.

Mutual of Omaha Bank became one of the state's top 10 banks virtually overnight by purchasing deposits and certain assets of First National Bank, after regulators closed the Scottsdale firm Friday in a transaction that will leave depositors fully protected.

"We're just so excited," said Jeff Schmid, chairman and chief executive officer of the Nebraska-based bank. "We're going to look back on this in five years and be so happy."

Mutual of Omaha takes over a network of 28 branches, including 15 in Arizona and the rest in California and Nevada.

The firm had no previous operations in those states yet recognizes the growth potential in the region. Mutual of Omaha had started exploring ways to enter the Southwestern region around the start of the year, before First National's financial problems escalated.

"This couldn't have happened at a better time for us," Schmid said.

He predicted that Mutual of Omaha will retain most former First National employees.

"The fact we're a new player here has a huge upside because it means we need everybody," Schmid said.

After the Office of the Comptroller of the Currency closed First National and appointed the Federal Deposit Insurance Corp. as receiver, First National's staff temporarily became employees of the FDIC. But most of them will transition to Mutual of Omaha Bank, starting with customer-service representatives and extending to loan officers, information-technology staff and others.

"The most important thing at the moment is to make customers feel good," Schmid said.

He said Mutual of Omaha will honor the yields on deposit accounts offered by First National. He said customer activity was low after the news broke late Friday. Now that the status of depositors has been resolved, "we're sensing some money is moving back in," he said.

Schmid said his firm was especially interested in Community Association Banc, a First National unit that caters to the banking needs of homeowner associations.

"That supercharged our interest," he said. "We can brand that big time."

Schmid and other Mutual of Omaha executives can afford to be upbeat. The bank, founded last year, is too new to have much exposure to the subprime-mortgage debacle and resulting fallout. It also has a big-pocket parent in Mutual of Omaha, a 99-year-old insurer.

In fact, Schmid said that Mutual of Omaha Bank will become an active mortgage lender, adding that the firm not only will retain all of First National's Arizona branches but may add some.

He indicated Mutual of Omaha hasn't yet decided what to do with First National's headquarters in north Scottsdale. Nor has the firm named a top Arizona-based executive.

Schmid isn't the only one expressing optimism for banking in Arizona.

"Long term, the Arizona market still has very good demographics," said Robert Sarver, head of Western Alliance Bancorporation, whose Alliance Bank of Arizona unit recently posted a 25 percent profit increase for the second quarter while generating a record amount of new loans.

"The current economic environment has created challenges, but the disruption in the marketplace also creates opportunities," he said.

Sarver said the short-term outlook for banks here will be heavily influenced by lingering real-estate weakness. But he cited favorable signs such as firming prices for new homes, a stable number of listings and improving sales figures.

"I think we're seeing the beginning of the bottom on the residential side," he said.

Bank failures are expected to keep rising this year and possibly into 2009 or 2010. Still, the pace of failures has been below past periods of stress in the financial industry, such as in the late 1980s and early 1990s.

"We're not out of the woods yet," said Herbert Kaufman, a finance professor at the W.P. Carey School of Business at Arizona State University. He cited the possible failure of a much larger bank as a development that could seriously rattle the financial markets.

"It's a precarious time," Kaufman said. "But barring that, we see some signs of stabilization in credit and housing."

Kaufman said he supports the government lifeline to Fannie Mae and Freddie Mac as well as Federal Reserve efforts to lower interest rates and generally provide more liquidity.

"The unprecedented cooperation among Congress, the White House and the Fed has been appropriate and welcome," he said.