Mutual Of Omaha Expanding Number of Locations

Going Against the Grain

US Banker  |  June 2010

By David Lagesse
  
Mutual of Omaha isn't the first or largest insurance company to venture into banking, but it could soon be the most visible.

While competitors like Nationwide and State Farm rely heavily on the Internet and their own agents to generate deposits and loans, Mutual of Omaha Bank is building its customer base in a more traditional way: through acquisitions and de novo branching.

Just three years old, the bank already has $4.1 billion of assets and nearly 40 branches in six states, and it isn't done yet. Jeffrey Schmid, the bank's chief executive, says his goal is to create a brick-and-mortar franchise stretching from Washington State to the Carolinas, and with the backing of a deep-pocketed parent, he has the resources to do it.

"We're in a position now where we can look at every deal that becomes available," Schmid says.

Still, building a nationwide banking franchise one deal at a time is one thing, managing it profitably is another. Mutual of Omaha Bank's strategy is less about establishing critical mass in a handful of states than it is having small branch networks in multiple states. That's not always the most efficient way to run things, as several banking companies have painfully discovered.

And the bank's long-term plans to cross-sell banking products to insurance customers, and vice versa, is alsoeasier said than done, observers say.

Yet perhaps more than most acquisition-minded companies, Mutual of Omaha can afford to be patient; as a mutual owned by its policy holders, it's under less pressure than publicly traded firms to generate profits quickly.

With strong name recognition—particularly in the Midwest—it is also positioned well to take advantage of growing customer dissatisfaction with big banks. Mutual of Omaha is an iconic brand, untainted by a financial crisis that has sullied the reputations of so many financial firms.

"The thing that gives us a huge amount of momentum is the brand," Schmid says. "We don't have to spend a lot of time telling people that they should trust us."
Mutual of Omaha Bank is the brainchild of Schmid's boss, Daniel Neary, the chairman and CEO of Mutual of Omaha Insurance Co.

Neary, a lifelong insurance industry executive, had studied banking up close as a director at Commercial Federal Bank in Omaha and was struck by the similarities with the insurance business. Both pay interest on money taken in from customers, collect interest on money loaned to others, and try to profit on the margin. Neary also saw that banks were becoming a key channel for selling insurance, while insurers were starting to offer bank products, such as certificates of deposit, loans and credit cards, to their policyholders.
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