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.
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Fortune rank: No. 3 with revenue of $242.1 billion; down from No. 2 last year. First cracked Fortune list in 1989 at No. 205.
History: The holding company of large- and medium-sized firms and investments has grown largely from the singular wisdom of Chairman and CEO Warren Buffett. It started as an investment pool of family and friends in Omaha in the mid-1950s. In 1965, Buffett bought the textile company that gave Berkshire its name. (Ironically, he later called it his worst investment.) His philosophy of buying successful companies with firm niches and keeping leadership in place has achieved returns well in excess of the stock market. The move into insurance was key, as Buffett uses premium reserves available for investment to fund additional purchases. Forbes notes that Berkshire now generates nearly three-quarters of its revenue from its non-financial operating businesses. At 87, Buffett is the oldest CEO of a Fortune 500 company. The company has maintained its offices at Omaha’s Kiewit Plaza since 1962.
Fortune rank: No. 137 on revenue of $21.7 billion; down from No. 126 from last year.
History: Founded in 1955 as American Family Life Insurance by John Amos and his brothers Paul and Bill in Columbus, Georgia, Aflac pays benefits when people are sick or injured. It gained wider recognition starting in 2000 with a marketing campaign using a duck that announces its name. In 2002, Aflac moved its legal domicile to Nebraska for tax reasons and located a regional office in Omaha, although its main offices remain in Georgia.
Fortune rank: No. 141 on revenue of $21.2 billion; up from No. 143 last year. Listed each year since non-manufacturing companies were added to the list in 1995.
History: The company was created by the 1862 Pacific Railway Act, an act of Congress that called for construction of a transcontinental rail line from the Missouri River to the West Coast. The first track was laid out of Omaha in 1865, and U.P. grew into a national icon. Multiple mergers over 150 years helped U.P. amass the nation’s largest rail network, with operations in 23 western states and prime rail connections into Mexico. In 2004, the railroad opened a new 19-story headquarters downtown that serves about 2,900 of the company’s 42,000 employees.
Fortune rank: No. 313 on revenue of $9.5 billion; the same ranking as last year.
History: Founded in 1868 in Sacramento, California, as Pacific Mutual Life Insurance Co., the company’s life insurance, annuity and other financial products pay $2.3 billion in benefits each year. Although its main office is in Newport Beach, California, in 2004 Pacific Life moved its legal domicile to Nebraska for tax reasons and now has a regional office in Omaha’s Aksarben Village.
Peter Kiewit Sons’ Inc.
Fortune rank: No. 339 on revenue of $8.7 billion; down from No. 324 last year. Made its Fortune debut in 1991 and since 1998 has been listed every year but one. Is privately held but qualifies for the Fortune list because it publicly reports revenue.
History: Three sons of Peter Kiewit took over their father’s Omaha construction company, with the youngest, also named Peter, credited with turning it into one of the nation’s largest. The company took off while building military installations during World War II and the Cold War. It also built more miles of Interstate system than any other contractor, causing Fortune to dub Peter Kiewit “the Colossus of Roads.” Today, it is one of the largest employee-owned firms in the world and one of only a handful of construction companies big enough to take on billion-dollar projects.
Mutual of Omaha
Fortune rank: No. 337 on revenue of $8.7 billion; up from No. 342 last year. Made its debut in 1995, dropped off in 2006 and 2007, but solidly on the list since.
History: Got off to a humble start in 1909 as the Mutual Benefit Health and Accident Association, initially struggling to attract policyholders. Under the leadership of Creighton medical student C.C. Criss and later V.J. Skutt, it grew and by the 1950s had emerged as a leading health and accident insurer. The name was changed to Mutual of Omaha in 1962, and a year later it became a household name with sponsorship of the popular “Wild Kingdom” TV show. The company rebranded its familiar Native American head logo in 2001, expanded into banking in 2007, and renewed its commitment to its midtown Omaha headquarters by developing the mixed-use Midtown Crossing.
Fortune rank: No. 630 on revenue of $3.7 billion; up from No. 674 last year.
History: Founder Joe Ricketts saw an opportunity in 1975 when the Securities and Exchange Commission eliminated the practice of fixed brokerage commissions. Ricketts’ firm, First Omaha Securities Inc., began offering discounted commissions and helped usher in a new era of investing, coupled with technology that evolved from touch-tone phones to the Internet. Forty years later, TD Ameritrade has more than 11 million client accounts with more than $1.2 trillion in assets and custodial services for more than 6,000 independent registered investment advisers. Clients trade more than 940,000 times each day.
Green Plains Inc.
Fortune rank: No. 648 on revenue of $3.6 billion; up from No. 662 last year.
History: Since its founding in 2004, Green Plains Inc. has grown to be North America’s second-largest producer of ethanol. The Omaha-based firm grew rapidly through a series of acquisitions that gives it control over various segments of the industry, from grain handling to production to marketing and distribution. Green Plains makes about 1.5 billion gallons of ethanol each year.
Fortune rank: No. 782 on revenue of $2.7 billion; up from No. 804 last year.
History: In 1946, Robert B. Daugherty spent nearly his life’s savings — $5,000 — to buy a small manufacturing company on a farm near Valley to build farm elevators. Years later, with the invention of center-pivot irrigation, Valmont found its niche. It then expanded into steel pipe and tubing manufacturing for irrigation systems and other industries. Through acquisitions and new construction, the company grew to be a global player in certain segments of the agriculture, communications and utilities markets. Today, Valmont’s worldwide operations are constantly looking for opportunities to expand its four business sectors: engineered support structures (steel and aluminum poles for traffic lights, street lighting, etc.); utility support structures (poles for electrical transmission lines, etc.); irrigation; and coatings (galvanization).
Fortune rank: No. 929 on revenue of $2.1 billion; up from No. 934 last year.
History: Clarence L. Werner founded Werner Enterprises Inc. in 1956 at age 19. It grew to become a premier transportation and logistics company with operations throughout North America, Asia, Europe, South America, Africa and Australia. The Omaha-based company is among the five largest truckload carriers in the United States, offering diverse services that include dedicated; medium-to-long-haul, regional and local van; expedited; temperature-controlled; and flatbed. Werner also provides freight management, truck brokerage, intermodal and international services. International services are provided through subsidiary companies and include ocean, air and ground transportation; freight forwarding; and customs brokerage.