Bank numbers mostly positive

Omaha-area banks are showing some signs of loan stress, but they also improved their financial strength and profits during 2009 and compare favorably with banks elsewhere in some key financial measures.

The bottom line appears to be that with a few exceptions, local banks made it through the “Great Recession” without serious problems.

The World-Herald looked at year-end reports sent to the Federal Deposit Insurance Corp. by 26 banks in the Omaha area, including those based here and some based elsewhere with major operations here. Five banks with most of their operations in other states, including Wells Fargo Bank and U.S. Bank, were examined separately.

“We feel pretty good about the way '09 ended up,” said Mike Summers, chief financial officer at First National Bank of Omaha, which is working to increase its capital, or basic financial underpinnings.

“If we continue to see this improvement, I would say that we'll perform in 2010 at least as well as we did in 2009. But it has to be preceded by continued improvement in asset quality.”

His views are similar to those of other bankers interviewed.

Asset quality has been hurt by increased troubled loans and repossessed real estate, which three out of four Omaha banks reported at the end of 2009. Although some troubled loans will be collected and some repossessed real estate will be sold, a decline in asset quality is a sign of economic stress.

Of the 26 banks in the study, 20 had more loans, 21 had more deposits and 19 had higher capital levels at the end of 2009 than a year earlier. Nineteen had higher net incomes in 2009 than in 2008.

But 20 of the banks also had more troubled assets.

Combined net income for all 26 banks was down in 2009 from 2008 largely because of a $200 million loss posted by TierOne Bank of Lincoln, which is battling problems stemming from bad real estate loans in other parts of the country.

Excluding TierOne, combined 2009 net income for the 25 other banks was up 38 percent, year over year.

TierOne also reported the highest proportion of troubled loans and the lowest level of capital, at 5.4 percent of assets. Under FDIC standards, a bank with capital amounting to at least 10 percent of assets is considered “well-capitalized.”

TierOne is working to increase its capital under an order from the Office of Thrift Supervision.

The bank plans to sell 32 of its offices, including nine in Omaha, one in Papillion and three in Council Bluffs, to Great Western Bank, a step that would reduce its size and boost its capital, said Michael Falbo, who was named chairman and CEO of TierOne in January.

He said the 2009 losses came from writing down the value of troubled real estate loans in Florida, Arizona, Nevada and South Carolina, and the process of getting rid of the problem loans continues.

“I think we're close to through,” Falbo said, but it's difficult to determine the value of property in those markets. “Nobody's willing to take a chance on what the value may be.”

He said the sale to Great Western will improve TierOne's capital, but the bank still needs to “clean out our portfolio and get profitable again and be a lender in our major markets. Obviously we're trying to get out of those markets and to refocus our efforts in our traditional footprint.”

The 25 other Omaha-area banks had capital higher than 10 percent of assets.

In past years, only a few banks had problem loans, repossessed property and other nonperforming assets that represented more than 1 percent of their assets. At the end of 2009, the national average for banks was 3.32 percent, the FDIC said.

Of the 26 Omaha-area banks, 23 were below that average, a sign that real estate defaults and other loan problems were less prevalent here.

Wells Fargo and U.S. Bank, which do most of their business outside Nebraska and Iowa, reported above-average troubled loans.

For all U.S. banks, the average ratio of capital to assets was 14.34 percent, the FDIC said. Seven of the 26 Omaha-area banks had higher ratios. While having more capital generally is good, a high percentage of capital also can signal problems. Federal regulators require banks to boost their capital if they have high levels of troubled assets.

Of the five out-of-state banks, all had more nonperforming assets at year's end. Only one — UMB Bank of Kansas City, Mo. — had lower capital at the end of 2009 than a year earlier.

Three of the five reported worse net income, including Bank of the West of San Francisco, which lost $403.5 million.

Summers, the First National Bank officer, said nonperforming loans at the bank peaked in September and have declined since then, including during the first two months of this year. Many of those loans were related to the ethanol production industry, which suffered from low fuel prices last year.

But the bank didn't write off those loans, Summers said, and it expects to eventually be “made whole.”

Despite the increase in nonperforming loans, First National's 2009 net income was up about 1 percent from 2008. Deposits decreased because it is eliminating its brokered deposits, those from large investors that carry higher interest rates than ordinary consumer deposits, Summers said.

At the same time, First National is building its capital, including a plan announced earlier this week to sell 51 percent of its merchant services business for $150.5 million.

Mid City Bank's troubled asset figure is high because it owns the vacant former Northern Natural Gas headquarters building at 2223 Dodge St., acquired through a foreclosure in 2001.

Bank President James Fitl said the bank is following the requirements of a supervision order issued earlier by the FDIC. Potential buyers are looking at the 15-story building, which carries an $11 million price tag, and Mid City Bank has increased its capital to cover the risk posed by the building, Fitl said.

The most significant declines in capital came at three newcomers to Omaha banking: Access Bank, United Republic Bank and Mutual of Omaha Bank. That's typical for newly opened banks, which usually start with high capital levels and increase their lending over time, bringing down their capital-to-asset ratio.

The declines at the three banks brought down the average for all 26 banks.

Mutual of Omaha Bank President Mike Homa said Nebraska, Iowa and other Midwestern markets are doing better economically than Arizona, Nevada, California and Florida, where Mutual acquired some failed banks.

But Mutual of Omaha Bank didn't acquire those failed banks' troubled loans, Homa said.

“As those markets come back, we're going to be in a great position to capitalize,” he said. “We don't have much baggage. It gives us great diversification by being in a lot of different markets even though some are down and will continue to be down.”

He said the Omaha housing and business markets were stable and showing some signs of growth.

“Without question, the Omaha area, the Nebraska area, has weathered this storm as good or better than any other market we're in.”

Access Bank's capital dropped from 33 percent of assets at the end of 2008, its first full year, to 19 percent at the end of 2009. Patrick Corrigan, president and CEO, said the figure will end up in the 12 to 14 percent range as lending and capital reach a normal balance.

“It was all planned and expected,” Corrigan said. “We're trending the way we want with a new bank.”

The bank lost $443,000 for the year, but earnings improved each quarter and the bank was profitable in the last three months of 2009. Corrigan expects a profit for 2010.

In past years, several Omaha-area banks would report zero nonperforming loans, but this year Access Bank was the only one to do so.

The increase in nonperforming loans is “indicative of the stress in the marketplace,” Corrigan said, but the capital increase is a good sign for the banks' overall financial health.

Michael Dahir, CEO of Omaha State Bank, said he expects a few years of slow growth, given the low demand for borrowing and today's tighter lending standards. Although Omaha's economy is better than most, he said, the higher level of problem loans indicates it's not immune from the effects of the recession.

“The banks in our community have ample capital, and that means they have money to lend,” Dahir said. “It's just a matter of finding that creditworthy borrower to walk through that door.”

Contact the writer:

444-1080, steve.jordon@owh.com

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