Commercial Federal Corporation Business Information, Profile, and History

Company Perspectives:

Many Perspectives. One vision. People make the difference at Commercial Federal. Each of our 2,800 employees plays a starring role in delivering the kind of service that has separated Commercial Federal from the competition. We pride ourselves on presenting an "opening night" performance to each customer we serve, every day. We take the business of banking personally at Commercial Federal. That might mean delivering an account application to a customer in a nursing home or visiting the construction site of one of our business customers. It's all about being there when and where we're needed. We know that elevating the customer experience from ordinary to extraordinary will enable us to achieve our vision to be: "The Bank of Choice in the communities we serve."

History of Commercial Federal Corporation

Commercial Federal Corporation (ComFed) is the holding company for a leading thrift institution. Its major markets are Omaha, Nebraska; Denver, Colorado; and Des Moines, Iowa. Based in Nebraska, the company extended its operations to Colorado, Kansas, and Oklahoma during the 1980s. Following the period of economic malaise generally characterizing the savings and loan (thrift) industry as a whole in 1989 and 1990, Commercial Federal rebounded and again expanded its operations in the mid-1990s.

The second half of the 1990s was characterized by struggles to achieve sufficient profitability to prevent a takeover. ComFed made several acquisitions during this time and doubled in size in the late 1990s. It then underwent some consolidation before building new branch offices. At the end of 2003, ComFed had about $13 billion in assets and a network of about 200 offices in Arizona, Colorado, Iowa, Kansas, Missouri, Nebraska, and Oklahoma. As the company has grown, it has supplemented its traditional mortgage financial business with more commercial bank-type activities.

Origins

The history of Commercial Federal may be traced to the 1880s, when a group of Omaha businessmen bought land just south of the city limits, near the new Union Stockyards then under construction. In 1887, only a year after the village was incorporated, the South Omaha Loan and Building Association was opened. It was a mutual (depositor-owned) savings association, with voting privileges for all who subscribed for five shares at $200 a share. Customers paid for their shares through a regular savings plan and, to encourage regular saving, were fined if they missed a monthly payment. Once payments and interest reached $200 a share, the saver could then exchange the five shares for $1,000. A customer whose payments had reached one-quarter to one-third of the value of the shares could pledge them for a mortgage on a $2,000 home.

One of the savings and loan's early customers was an Irish immigrant named James J. Fitzgerald. In 1893, Fitzgerald was elected to the board of directors. Five years later, he quit his job in a packing plant to become secretary-manager of the association at a salary of $60 a month. By 1910, the association was prosperous enough to establish an office in downtown Omaha and changed its name to the Commercial Savings and Loan Association. When South Omaha was annexed by Omaha in 1915, however, the association closed the downtown office and used the savings to purchase its own three-story office building.

By 1929, Commercial's assets had grown from the original $10,000 to $4 million. Under the impact of the Great Depression, however, assets fell to $2.1 million in 1935. During this bleak period, the thrift institution made every effort to avoid foreclosing on the property of its borrowers. This was done in order to maintain good customer relations and because land sold after foreclosure typically went at a sharply reduced selling price. Commercial also refinanced mortgages at lower interest rates during this time, which meant smaller returns on its investments. Unlike some thrift institutions, Commercial did not go "on notice"--meaning the institution was not required to have the cash to pay for all withdrawals. Fitzgerald's younger son William F. Fitzgerald, who became a teller in 1933, later recalled that sometimes, when a customer would come in to withdraw his funds, he "would count the money very slowly to give them time to think. ... Once they realized the cash was there and Commercial would be able to meet their withdrawal, they would decide to leave the money and let it continue to earn dividends."

Total assets did not begin to rise again until 1939, and by 1945 assets had again reached the 1929 level. By this time, James Fitzgerald was the company's president, with Williams serving as secretary-treasurer. Commercial, fifth in assets among the six Omaha savings and loan associations at the end of World War II, soon became the largest lender to veterans in Nebraska under the G.I. Bill. It was also aggressive in meeting the pent-up postwar demand for housing by financing tract developments.

Postwar Pioneering

Commercial placed the first television ad in Omaha, widely promoting its sixty-fifth anniversary in 1952, and in 1953 opened a drive-in teller window--Nebraska's first. In 1959, Commercial got into data processing, signing up other savings and loans institutions to help pay for a computer that more than met its own needs at the time.

Although James Fitzgerald retired in 1955, he continued to serve as board chairperson and went to the office nearly every day until his death the following year at the age of 87. William Fitzgerald became president in 1950, and his son, William A. Fitzgerald, joined the company in 1955. The younger William would rise in the corporate ranks, becoming president in 1974, chief executive officer in 1983, and board chairperson in 1994.

By 1960, Commercial had five locations, and a new home office was opened two years later, when assets reached $100 million. This three-story structure featured an 85-foot tower with carillon bells and served as the model for all later Commercial branches.

In 1967, the association moved outside the Omaha metropolitan area for the first time by merging with Allied Building and Loan of Norfolk, Nebraska. Soon Commercial had branches in other Nebraska communities as well, some started from scratch, others by merger with an established savings and loan institution. By the end of 1974, Commercial was the largest savings and loan association in Nebraska, with 15 offices and $516 million in assets. In 1979, it became the first such thrift in its market to sell mortgage-backed bonds. Two years later, it was among the first savings and loans to offer checking accounts. Also in 1981, Commercial introduced automated teller machines and spun off its lending division into a separate mortgage-banking subsidiary. A full-service brokerage program was introduced in 1983.

Reincorporated 1983

Reincorporated in Nebraska on August 18, 1983, as Commercial Federal Savings & Loan Association, the company converted the next year from a depositor-owned federal mutual savings and loan to a publicly traded, investor-owned institution. A holding company, Commercial Federal Corporation, became the parent company of the savings and loan association. A national public offering of shares in Commercial Federal was completed before the end of 1984, with 1.76 million shares of common stock sold at $8.50 each.

Commercial Federal's business strategy in the 1980s was based on expansion, diversification, high-quality loans, and economies of scale achieved through computer technology. By early 1986, it was the largest depository financial institution in Nebraska, with assets in excess of $3 billion. On March 3, 1986, Commercial Federal opened its first depository institution outside the state, acquiring about $86 million in insured deposits of the insolvent Denver-based Sierra Federal Savings and Loan Association from the Federal Savings and Loan Insurance Corporation. Fitzgerald told American Banker that the acquisition was "part of an overall plan for targeted expansion in the Midwest," which would mean expanding into "four additional states within the next four years."

The company already had loan mortgage banking offices in surrounding states, was offering discount stock brokerage services, and was adding a full range of insurance products. By early 1988, it also had a subsidiary, Commercial Service Corporation, which acted as a vehicle for insurance sales, real estate developments and the marketing of pooled real estate investments, and other projects.

In September 1984, even before the holding company was formed, Commercial Federal had purchased an 81.3 percent interest in Systems Marketing Inc., a firm that primarily leased IBM peripheral computer equipment to Fortune 500 companies. It was also active in the mortgage market, buying fixed-rate mortgage loans and securities with long-term Federal Home Loan Bank borrowings. By March 1986, the company had realized substantial gains from these investments, while avoiding direct loans to agriculture, despite its location in the nation's farm belt. Its rate of nonperforming loans was less than 1 percent, and its stock had risen from the original $8.50 a share to about $27.

Soon thereafter, Commercial Federal acquired two failed thrift institutions. The first, purchased in August 1986, was Coronado Federal Savings and Loan Association of Kansas City, Kansas. One month later, it bought Denver's Empire Savings, Building and Loan Association from bankrupt Baldwin-United Corporation for $45 million in cash. The purchase price, about 57 percent of Empire's regulatory net worth, was considered a bargain. To help pay for the acquisition, Commercial Federal issued $60 million of preferred stock to El Paso Electric Co. The company then moved into its fourth state--Oklahoma--when it acquired insolvent Territory Savings and Loan Association of Seminole, Oklahoma, in January 1988 for $4.2 million.

The fourth leg of the company's strategy--computer technology--was represented by several efforts. In 1985, for example, Commercial Federal became the first financial institution in the nation to introduce personal banking machines (PBMs) in branch offices. By April 1988, it had 68 branches and was providing at least one product or service to 54 percent of the households in its home market of Omaha. To better understand its customer base, the company had created a Marketing Customer Information File, a database of its account relationships. One objective of this database was to increase revenues by repackaging and repricing products for specific customer segments. In addition, the paper records of the company's largest subsidiary, Commercial Federal Mortgage Corporation, were transferred to a microfilm-based computer-assisted retrieval system. By 1994, the company credited its computer-driven automation with allowing each agent to service 850 loans, compared to an industry average of about 600.

However, Commercial Federal faced some major challenges beginning in 1989. With Denver's economy in a serious slump, Empire Savings became a liability rather than an asset. Part of the problem was attributed to federal regulators, who had imposed tighter capital restrictions, making it harder for Commercial Federal to mark down Empire's bad loans as goodwill. The objective of the regulators, Fitzgerald later said in a 1994 interview published in American Banker, "was to see how many write-downs they could take to finally find the bottom in the value of a financial institution. Whether or not you agreed with them, it didn't matter."

Suddenly Commercial Federal was facing the same abyss that had swallowed so many of the savings and loans during this time. "They had one foot in the grave," a banking analyst recalled of Commercial Federal in an American Banker article, noting that "on a tangible net worth basis, they were bankrupt." Company executives responded by shedding nonperforming assets--mostly commercial loans--and cutting costs. Over a 15-month period, they reduced assets from $6.8 billion to $4.8 billion, closed 20 branches, and laid off 400 employees. All lending was halted, and all assets were converted to mortgage-backed securities. The company's stock fell below $2 a share in 1990.

Federal Charter in 1990

Commercial Federal emerged by issuing a capital plan that was approved by the Federal Office of Thrift Supervision in May 1990. By then, the holding company had purchased Commercial Federal Savings and Loan's outstanding preferred stock, augmenting tangible capital by $61.4 million. The plan called for adding $70 million to its capital by mid-1991 and meeting the new federal capital guidelines about two years before the compliance deadline of December 31, 1994. Commercial Federal Savings and Loan Association converted its federal charter to a federal savings bank on July 30, 1990, changing its name to Commercial Federal Bank, FSB (the initials standing for Federal Savings Bank).

During a six-month period in 1992, the parent company sold all $3.3 billion of its mortgage-backed securities to several investors. In addition, the company sold $950 million in loan servicing rights to Source One Mortgage Services Corporation of Detroit in a single transaction. Then it offered about $40 million in equity and a similar amount in subordinated notes to improve its capital position and, in Fitzgerald's words, "get the regulators off our backs."

Commercial Federal also began bolstering its thrift holdings again in 1993, acquiring 19 thrift branches in Oklahoma and Kansas to reach a total of 67. In October 1993, the company paid $18.2 million to the Federal Deposit Insurance Corporation for 12 offices and the $567.9 million of deposits of Heartland Federal Savings and Loan Association of Ponca City, Oklahoma. In June 1994, it acquired four branches and about $255.7 million of deposits of the bankrupt Franklin Federal Savings Association in Kansas from the Resolution Trust Corporation, a federal bailout agency, for about $9 million. In July 1994, the company announced it had paid about $9 million for the two branch offices and $87.1 million of deposits of the Home Federal Savings & Loan of Ada, Oklahoma.

Growth and Independence in the 1990s

By 1993, Commercial Federal had recovered so well that it had become the subject of takeover talk. CAI Corporation, a Dallas-based investor group with a stake of nearly 10 percent in the company, campaigned for a sale, driving the stock price to over $23 a share in June. However, the offer was ultimately rejected. Over the course of the following year, the company's stock value ranged between $28 and $17.50 per share. Moreover, for fiscal 1994 (the year ended June 30), operating earnings had increased 20 percent and total assets had reached $5.52 billion on deposits of $3.36 billion. By the end of the calendar year, total assets had grown to $5.8 billion.

In April 1995, Commercial Federal announced that it had acquired the Provident Federal Savings Bank of Lincoln, Nebraska. In the transaction, Commercial Federal gained five offices in Lincoln with assets of around $95 million and deposits of $57 million. Also during this time, the company entered into an agreement to acquire Railroad Financial Corporation of Wichita, Kansas. In a press release, chairperson and CEO Fitzgerald noted that "the acquisitions will immediately strengthen our retail franchise and our future earnings potential."

A booming economy was helping the company, with unemployment below 4 percent in all four states where it maintained bank branches. "The goal now," company vice-president Stan Blakey told American Banker, "is to make yourself a little more profitable, to exceed the analysts' estimates by a little bit every quarter, and to do a little better than the rest of the guys out there."

In 1995, Commercial Federal had $6 billion in assets and operated 72 branches in Nebraska (30 branches), Colorado (20), Oklahoma (17), and Kansas (5).

The company continued to grow by acquisition. It bought Railroad Savings Corporation of Wichita, Kansas, in October 1995. A few months later, Commercial acquired Conservative Savings Corporation, also based in Omaha, for about $44 million. Conservative had $380 million in assets and 113 employees.

Mid-Continent Federal Savings Bank of El Dorado, Kansas, was soon acquired in a stock swap worth $75 million. In late 1996, Commercial announced the acquisition of Liberty Financial Corporation of Arizona for $108.6 million, which owned seven independent banks having assets of $620 million. Liberty brought with it an array of business banking products.

Larger deals followed in 1998, including acquisitions of First Colorado Bancorp, with assets of $1.6 billion, and AmerUs Bank of Des Moines, with $1.5 billion in assets. AmerUs operated 37 branches, six of them in supermarkets, a new area for Commercial Federal. A smaller, $83 million purchase of Midland Bank, Missouri, was announced in August.

By the fall of 1998, reported American Banker, nine acquisitions had nearly doubled Commercial's assets to $11.7 billion in two years. It was the tenth-largest savings and loan in the United States. According to the Omaha World-Herald, the number of workers had doubled in one year to 3,300; the number of branches had also doubled, to 241.

Having attained the critical mass necessary to weather competition and cumbersome government regulation, CEO William A. Fitzgerald led the thrift into the traditional territory of commercial banks by offering financial products such as investment and trust services and small business loans.

A New Jersey-based investment group, Franklin Mutual Advisers Inc., acquired a significant (9.2 percent) shareholding and attempted to force the board to sell the company. Another group had attempted the same thing in 1995; however, ComFed was able to fend off both these threats to its independence.

Restructuring in 2000

In order to please Wall Street, ComFed brought in new executive management and set out on a $125 million restructuring program. The number of branch offices peaked at 259 in 1999; however, within a year ComFed had consolidated them down to 192. A new president and chief operating officer, Robert J. Hutchinson, was hired in April 2001. William A. Fitzgerald remained chairman and CEO.

Commercial Federal sold its namesake Omaha tower to Blue Cross Blue Shield of Nebraska in 1999. ComFed had occupied the building for 20 years and continued to use three floors in the tower while a planned $50 million office complex was put on for economic reasons. In August 2001, ComFed's offices in the tower were moved to three different buildings.

A wave of home mortgage refinancing inspired by lower interest rates helped ComFed post record net income of $108.5 million for 2002. The thrift ended the year with assets of $13.1 billion, including $6.4 billion in deposits.

ComFed was soon opening new branches again, including its technological showcase branch in western Omaha. Officials claimed features such as cash counting machines would allow two tellers to do the work of four while boosting security.

Commercial Federal ended 2003 with assets of $12.2 billion, down about $900 million from the previous year. Net income slipped form $107 million to $89 million. The company added five new locations in 2003.

Principal Subsidiaries: Commercial Federal Bank, F.S.B.

Principal Competitors: American National Bank; First National Bank of Omaha; U.S. Bancorp; Wells Fargo Co.

Chronology

• Key Dates:
• 1887: South Omaha Loan and Building Association is founded in Omaha, Nebraska.
• 1967: The association merges with Allied Building and Loan of Norfolk, Nebraska.
• 1983: The firm is reincorporated as Commercial Federal S&L, and a holding company is formed.
• 1990: Commercial Federal is rechartered as a federal savings bank.
• 2000: After doubling in size in two years, ComFed restructures.