The sale of Mutual of Omaha’s fast-growing bank operations to New York-based CIT Group does not necessarily mean bad news for the bank’s 189 Nebraska employees, Mutual’s CEO said Tuesday.
But James Blackledge said he can’t make any guarantees.
In his conversations with CIT’s top executive, Blackledge said, she seemed appreciative of the talent already in place here, as well as the low costs and potential in “a great operational place like Nebraska.” He said he thinks Omahans ultimately will be happy to see that the existing employee base in Omaha “will be an important part of CIT moving forward.”
“We would hope that CIT would see the same great things we see in Omaha and would want to grow that workforce,” Blackledge said in an interview.
At the same time, Mutual’s CEO said the $1 billion transaction will give his company much-needed capital to continue to expand its core insurance operations here in Omaha.
The two companies jointly announced Tuesday that CIT is acquiring Mutual of Omaha Bank, which the Fortune 500 insurance company had nurtured from scratch over the past 12 years into the 126th-largest bank in the nation and third-largest in the state.
The bank has a headquarters in Omaha in the Landmark building at 13th and Farnam Streets, as well as five branches in Omaha and one in Lincoln. The bank has about 20 other retail and commercial centers in Denver, Kansas City, Arizona, California, Nevada, Florida, Texas and Hawaii, in all employing 850 workers nationwide.
Mutual was unusual among insurance companies in launching the bank in 2007, using extra cash from its insurance operations to get it off the ground. Mutual also took advantage of its brand name and reputation for friendly financial strength that dates back decades to the “Wild Kingdom” television series.
The bank’s growth came both organically and through acquisitions, the most critical being its purchase of the First National Bank of Arizona out of FDIC receivership in July 2008. Due to that sizable acquisition, nearly half the bank’s employees are based in Arizona, which is also home of the bank’s main technology center, in the Phoenix area.
By 2018, banking represented about 4% of Mutual revenues. Because of a down year in insurance, the bank also provided roughly 20% of Mutual’s pretax earnings that year.
“It certainly has been a tremendous success story,” Blackledge said. “It speaks to the quality of the bank team, the bank associates and the support of the business climate in Nebraska.”
Blackledge called the sale of the bank a difficult but necessary one for the future of both the bank and Mutual’s insurance operations.
Like the bank, Mutual’s insurance business also has been growing. In the past three years, Mutual has seen its workforce spike by nearly 700 workers to 5,166, the bulk of them in Omaha.
Financing that growth requires capital, and as a mutual insurance company, Mutual has limited access to external cash. As Blackledge and other Mutual executives looked at how to allocate scarce capital over the two growing business lines, they began to explore selling the bank.
“We had to make a choice there,” he said. “In a lot of ways, we are victims of our own success.”
As Mutual’s leaders undertook the process of finding the right buyer, they kept the future of the bank’s associates in mind, Blackledge said. And in CIT, they think they found a good partner.
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CIT primarily has operations on the East and West Coasts, with almost no footprint in the Midwest or in most of the other states where Mutual’s bank does business. That means there are no redundant branches here and little in the way of redundant operations, he said.
Blackledge said that in his conversations with Ellen Alemany, the CEO of CIT, she also recognized the business advantages available here, including the lower cost of operations. It ultimately will be up to CIT to figure out how best to leverage that, he said.
“I can’t guarantee anything for anybody, but we thought it was a great fit,” Blackledge said. “I have every confidence there is going to be some great opportunities for folks here in Nebraska, as well as back in Phoenix.”
Jeff Schmid, who has been the chief executive of Mutual’s banking division from the start, declined to talk about his own future Tuesday. He said through a Mutual spokesman that his focus remains on running the bank and continuing its growth.
The transaction is expected to close in the first quarter of 2020, subject to regulatory approval and satisfaction of other customary closing conditions.
CIT officials did not return a call to The World-Herald on Tuesday. CIT officials said in a conference call with analysts that they expected over three years to realize $54 million in cost savings through the transaction. They offered no details on where CIT would find those savings across the merged banks.
Alemany did note how well the Omaha bank complements its “existing franchise” and said it also offers her bank’s customers “a broader set of product and technology solutions.” She also said the Omaha bank’s view on risk and its customer focus also match that of CIT.
“We believe Mutual of Omaha Bank is a good fit,” she said during the conference call.
Particularly attractive to CIT was a unique part of the Omaha bank’s business.
Mutual serves as the banker for 31,000 homeowners associations nationwide, a niche that also came with acquisition of the Arizona bank. Some $4.5 billion of Mutual of Omaha Bank’s $6.8 billion in deposits now relate to that business, which Blackledge called the bank’s “crown jewel.”
The Omaha bank’s $8.3 billion in total assets also include some $3.9 billion in commercial loans, with 3,200 business clients overall.
No Mutual real estate will change hands in the acquisition, as the company leases all of its bank buildings. Some of the leases are long-term.
The purchase agreement excludes Mutual’s mortgage subsidiary, Synergy One Lending, which Blackledge says Mutual decided to keep. Mortgages serve as a good complement to Mutual’s insurance products, as both are sold primarily to individuals.
“The protection products we sell fit in very well around buying a home,” he said. “We like that business.”
Now Mutual will figure out how to deploy the proceeds from the bank sale, which will include at least $850 million in cash and up to $150 million in CIT stock. Blackledge gave no details other than to say the cash will be invested to continue the growth and momentum of Mutual’s primary business.
David G. Brown, president and CEO of the Greater Omaha Chamber, also struck a positive tone in assessing the transaction Tuesday. He noted that having another new “employer brand” like CIT in Omaha can offer other opportunities for growth in the region.
“We have every confidence in Mutual of Omaha’s leadership during this transition, and join them in support of the opportunities this means for the organization and their employees,” he said.