By Jim Fuquay, STAR-TELEGRAM, Sun, Feb. 11, 2007

OmniAmerican Bank directors voted Jan. 30 to take the next step toward making the county's largest locally owned bank a publicly traded company.

Barely a week later, longtime Chief Executive Larry Duckworth died at his home while recuperating from heart surgery.

Now the $1 billion institution faces the prospect of continuing its year-old conversion from a credit union to a commercial bank — not a simple task even in the best of circumstances, financial executives say — without the man who headed the Fort Worth-based company since 1990 and who for years kept his own counsel when it came to making decisions.

In the year since OmniAmerican Bank converted from a nonprofit credit union to a mutual savings bank, it has added commercial bankers and has grown its business loans.

But it also racked up a hefty $8.8 million operating loss last year, a sharp contrast to the steadily growing profits it typically tallied in previous years as the county's second-largest credit union. Only the use of nearly $7.4 million in federal income tax benefits allowed OmniAmerican to trim its net loss to $900,000 for the year, according to the bank's regulatory filings with the Federal Deposit Insurance Corp.

OmniAmerican began in 1956 as the credit union at the former Carswell Air Force Base. Under Duckworth, who first joined the institution in 1986, its field of membership expanded to encompass scores of employers as well as geographic markets, including southeast Fort Worth. OmniAmerican's members, at the behest of management and the board of directors, voted more than 3-to-1 in July 2005 to convert to a bank. It officially changed its name to OmniAmerican Bank on Jan. 1, 2006.

With the recent sales of Fort Worth-based TexasBank, Summit Bancshares and State National Bancshares, OmniAmerican became Tarrant County's largest community bank. As part of its conversion, the bank had said that it intended to sell about $100 million in new shares to finance growth, a move that the board's Jan. 30 vote advanced by approving the creation of a mutual holding company.

Jane Adams, OmniAmerican's acting CEO, said in an interview shortly before Duckworth's death that there was no timetable for the stock issue. The bank's regulator, the Office of Thrift Supervision, requires that it first obtain an independent appraisal of the company's value to help set a value on the shares, and that hasn't been done, she said.

Duckworth's absence raises another challenge for OmniAmerican as it continues its transition to commercial banking. Although it has added several area bankers to its roster, OmniAmerican also has experienced high turnover among its most senior officers, notably the departure in December of Lea Ann Capel, who became executive vice president and chief operating officer less than a year ago. Other departures in the past 15 months include the bank's chief financial officer, chief legal officer and chief information officer.

As a result, Duckworth was one of the few senior executives with long tenure at OmniAmerican. One former senior executive described Duckworth's management style as "an absolute 'I'm in charge' kind of guy," a view that others said they shared.

Adams, who has been with OmniAmerican for six years, said that's just what was needed, and the turnover in the top ranks "is not a concern to us." Rather, she said, "It's a good opportunity to bring in people," including about 30 bankers of various job levels from TexasBank, which lost more than 100 employees after its merger with Compass Bank in April. Additions from TexasBank included Capel, as well as Kevin Downing, who became president of the bank's commercial banking group, and Bob Havren, who heads real-estate lending, an important market for community banks.

Not losing but not gaining

Expanding into the commercial lending market was one of the principal arguments OmniAmerican officials made for the conversion. Credit unions are regulated in how many commercial loans they can make, and OmniAmerican's loan portfolio had not grown in the two years before the conversion.

However, as of Sept. 30, OmniAmerican's total loans had declined slightly compared with a year earlier. Assets also fell in that time, as did the institution's net worth. Adams declined to disclose the bank's figures as of year's end, citing regulatory restrictions. It's not surprising to see a dip in operations right after a credit union converts to a bank, said several people with experience in the matter. But to rack up a loss is not typical, they said.

"We never lost any money, but we spent a few years not making money," said Garry Graham, president of Affiliated Bank, which has locations in Arlington and Bedford. It was originally the credit union for employees of Affiliated Foods, but in 1998 it converted to a bank, several years after the grocer's failure.

Graham said the first order of business is ramping up the operation to compete in commercial banking, and that's not cheap to do.

"Credit unions are car lenders, home-improvement lenders," Graham said. "They're the best retail lenders. But they don't have the background to do commercial banking."

And it boosted business loans by 12 percent between March 31 and Sept. 30, the latest figures available from the Federal Deposit Insurance Corp. But OmniAmerican has a long way to go before its loan portfolio looks like a bank's. Business loans made up barely 10 percent of its assets as of Sept. 30, compared with about 45 percent for a peer group of 18 Texas banks with similar assets, FDIC data show.

Loans to individuals are similarly skewed. At OmniAmerican, they're about 44 percent of all assets, compared with 6 percent at the peer banks. Under OmniAmerican's current charter, it must get its consumer loans down to no more than 35 percent of its portfolio.

"In terms of profitability, it takes a while for them to look more like their banking peers," consultant Alan Theriault said. Theriault, president of Credit Union Financial Services in Portland, Maine, worked with OmniAmerican on its conversion to a bank. OmniAmerican is no longer a client, he said.

"The business plans are designed for more gradual evolution" to a banking portfolio, he said. "It would be unusual for a business plan to be for real aggressive loan growth."

Losses triple in short time

Almost all of OmniAmerican's 2006 loss came in the fourth quarter, when it more than tripled its provision for bad loans to $3.4 million and its personnel expenses jumped 40 percent from the previous quarter.

Adams said that boosting the bad-loan reserve, along with expenses such as new signage and the cost of bringing in employees from TexasBank, produced the loss.

"Yes, we lost money. It's part of that process," she said. "At the beginning of 2006, we didn't anticipate bringing on as many people as we did," but the sudden availability of so many qualified people was an opportunity that management felt that it should take, she said.

ViewPoint Bank of Plano, formerly Community Credit Union, appears to be making the transition to banking somewhat faster. Community's members approved a conversion to a bank charter in June, just a month before OmniAmerican, and the institution changed its name the same day as OmniAmerican. It's about 50 percent larger than OmniAmerican, at $1.5 billion in assets, and went public last year with the sale of $116 million in new stock to fund growth.

ViewPoint grew its business loans 26 percent between March 31 and Sept. 30, or about twice as fast as OmniAmerican, according to FDIC reports. When it reported its third-quarter financial results, it said it was focusing on commercial real-estate lending.

ViewPoint also reported an operating profit for the year's first nine months, unlike OmniAmerican.

ViewPoint said it earned $3.4 million on its operations in the period.

A tax credit — like OmniAmerican's, a product of accounting adjustments when nonprofit enterprises switch from a nonprofit to a taxable entity — helped ViewPoint report a net profit of $7.8 million.

Long-term, OmniAmerican occupies a favorable position in a strong local market. Several people, including former executives, said the institution should do well.

"I think OmniAmerican will be just fine, once they get commercial-banking loan assets," Graham said. "I think there is a void of regional banks out there right now that they should be able to fill."

Source: http://www.dfw.com/mld/dfw/business/16676068.htm