Transfer of funds

Denny Williams, the market president of First National Bank of Nevada in Reno, was wrapping up a round of golf with customers late on the afternoon of July 25 when he took a call from one of his employees.

An official from the Federal Deposit Insurance Corp. was waiting at the bank, the employee said, and it might be a good idea for Williams to get back to the office as quickly as possible.

When he got back, Williams learned the bank had been placed into receivership by the U.S. Comptroller of the Currency, and the FDIC would take control. Within an hour, a press release from federal regulators announcing the bank's failure hit the nation's news wires.

Swarms of stone-faced FDIC staffers arrived at each of First National's offices three in Reno and Sparks, one in Carson City, six in Clark County, along with locations in Arizona and California and began to methodically audit the bank's books.

A stunned Williams thought of his employees. His customers. His career. He wondered if he would be allowed to make a phone call and decided against it.

Ninety minutes later, a stranger walked in and introduced himself as Bob Strong, the market president for Mutual of Omaha Bank in the Dallas area. When Williams asked what he was doing at First National, Strong told him the Omaha-based bank was buying the deposits of First National and would reopen the institution under the Mutual of Omaha Bank name. Williams kept his job with the new bank.

"I let out a deep breath," Williams recalled a few days later. "I knew then that things would be OK."

While both the FDIC and the Comptroller of the Currency keep a tight lid on their decisions to close failed banks, regulators and banking executives had been busy in the background for weeks before First National Bank of Nevada was taken over.

The problem began with the mortgage market, where the subsidiaries of First National Bank Holding Co. of Scottsdale, Ariz., had been active originators of so-called "Alt-A" loans not quite subprime mortgages, but not quite top-quality loans either.

In a filing with the FDIC, the holding company reported a loss of $141.2 million in the first three months of this year with its Arizona operations accounting for more than 93 percent of the loss.

Alarmed federal regulators cracked down on the holding company.

On June 4, the holding company's directors signed a 24-page consent agreement with the Comptroller of the Currency. (The agreement was publicly disclosed only after the banking company's failure.)

The holding company didn't acknowledge any wrongdoing in signing the consent agreement, but its directors agreed to tighten up the banks' operation.

They agreed to keep closer tabs on commercial real estate loans, tighten the screws on borrowers who were late with repayment and strengthen the holding company's board of directors.

Most critically, the regulators demanded that the company raise more capital. While the consent order didn't specify a number, banking industry sources said last week it was approximately $200 million.

Twelve days after the bank's directors signed the consent order with the Comptroller of the Currency, the Federal Reserve System also ordered the company to raise more capital.

The First National Banks in Nevada and Arizona, along with the company's California operation, First Heritage Bank, began packaging and selling loans to raise cash. And the holding company decided to merge the undercapitalized Arizona bank into the healthy Reno-based First National Bank of Nevada. By taking on a bucket filled with bad loans made by the Arizona bank, the Reno institution became thinly capitalized,

Williams says.

Still, the troubled bank drew some interest as it began shopping for more capital. Potential investors, however, got spooked by the failure of IndyMac Bank in mid-July the third largest bank failure in U.S. history and wanted more time to think about a capital infusion into First National Banking Holding Co. before they acted.

The company didn't have more time.

Early in the week of July 14, the Comptroller of the Currency and the FDIC decided to move, and began soliciting bids from potential buyers of the deposits of First National Bank of Nevada and the California bank.

What triggered the decision? Federal regulators are mum, but a release from the Comptroller of the Currency said regulators believed "the bank was undercapitalized and had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices."

Furthermore, they said, "The bank had incurred and is likely to incur losses that will deplete all or substantially all of its capital, and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance."

Potential bidders, which included Nevada State Bank and Western Alliance Bancorporation, the Las Vegas-based parent of First Independent Bank of Nevada, had about a week to analyze First National, make a decision and prepare their bids.

Also on the list of bidders was Mutual of Omaha Bank, an institution with some $800 million in assets, 14 retail branches in Nebraska and Colorado and commercial lending offices in Dallas and Des Moines.

The bank, a subsidiary of the insurance giant, didn't start from scratch in its analysis of the First National properties. It already had begun looking at the region for possible expansion.

"Mutual of Omaha Bank's growth strategy is to expand into fast-growing markets where Mutual of Omaha has strong brand recognition and a good pool of existing insurance customers," says Jim Nolan, a spokesman for the company. "The Southwest figured prominently in those plans."

At noon on July 24 just barely more than 24 hours before the closure of the banks would be disclosed Mutual of Omaha Bank executives learned they were the successful bidders to take over the $3.2 billion in deposits at the First National and First Heritage banks.

The bank agreed to take over all the deposits even those that weren't covered by FDIC insurance. That's a rarity, only the second time it's happened in the 10 bank failures recorded nationwide in the last two years.

More typically, customers of failed banks have received only a percentage of their uninsured deposits.

Mutual of Omaha Bank also agreed to buy about $200 million in assets mostly loans that were on the failed banks' books.

It's still sorting through those loans, deciding which ones it wants to keep, Williams says. The loans that Mutual of Omaha Bank doesn't take will end up in the hands of the FDIC.

Executives of the Nebraska bank worked furiously during the weekend to get the institutions reopened under a new name and new ownership.

Financial, legal, banking, human resources, facilities and communications teams worked at locations in Nevada, Arizona and California as well the bank's Nebraska home office through the weekend.

In Reno, they labored alongside employees of First National Bank of Nevada.

"Since we had no operations in Nevada, Arizona and California prior to this acquisition, the existing bank team was critical to our being able to open successfully on Monday morning," Mutual of Omaha Bank's

Nolan says. "Over the next 60 days, we will be evaluating the current management and staff and making sure the right people are in place to ensure that we are successful."

As they worked, they had fresh memories of the angry customers who had lined up for blocks to withdraw funds from the failed IndyMac Bank in Southern California.

They decided they wouldn't treat the Reno re-opening on Monday morning as the defeat of failed bank, but instead planned a gala celebration balloons, doughnuts of the opening of a new bank in Reno.

And at 7:15 a.m. on Monday, more than an hour and half before the scheduled opening of the Neil Road location, Mutual of Omaha Bank officials threw open the doors, rapped on the windows of a few waiting cars and invited customers to come in.

Only a handful of customers, Williams says, decided to withdraw their deposits and a few more wanted advice on how to structure accounts for maximum FDIC coverage.

A sheriff's deputy posted in the bank's lobby to keep order didn't have much to do and was deep into a book by mid-week.

Williams, who didn't sleep at all the night that the bank was shut down and slept only six hours during the entire weekend, was relieved last week as he began to set aside the turmoil of the failed bank and began calling potential borrowers to put the bank's deposits to work.

"It's an opportunity to put good quality loans on our books," he says, "an opportunity to start off with a clean slate."