<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996, or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission file number 03502
First National of Nebraska, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nebraska 47-0523079
- --------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One First National Center Omaha, NE 68102
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 341-0500
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----.
As of May 7, 1996, the number of outstanding shares of the registrant's common
stock ($5.00 par value) was 346,767.
<PAGE>
PART I. ITEM 1. FINANCIAL STATEMENTS
FIRST NATIONAL OF NEBRASKA, INC.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ASSETS March 31, December 31,
1996 1995
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(In Thousands)
<S> <C> <C>
Cash and due from banks $ 330,878 $ 309,405
Federal funds sold and other short-term
investments 301,221 309,231
- -------------------------------------------------------------------------------
Total cash and cash equivalents 632,099 618,636
Securities held-to-maturity; fair value
$908,244,000 and $804,898,000 908,618 846,737
Loans 4,402,444 4,451,120
Less: Allowance for loan losses 75,831 67,740
Unearned income 10,785 11,693
- -------------------------------------------------------------------------------
Net loans 4,315,828 4,371,687
Premises and equipment, net 105,809 99,550
Other assets 181,536 173,932
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TOTAL ASSETS $ 6,143,890 $ 6,110,542
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Deposits:
Non-interest bearing $ 611,217 $ 631,837
Interest bearing 4,565,354 4,458,043
- -------------------------------------------------------------------------------
Total deposits 5,176,571 5,089,880
Federal funds purchased and U.S.
Treasury notes 77,819 133,488
Commercial paper and commercial paper
based borrowings 275,355 289,827
Other liabilities 71,597 58,300
Long-term debt and other
interest-bearing obligations 8,220 8,437
Capital notes 97,026 100,779
- -------------------------------------------------------------------------------
Total liabilities 5,706,588 5,680,711
Stockholders' equity:
Common stock, par value $5 a
share; 346,767 shares authorized,
issued, and outstanding 1,734 1,734
Additional paid-in capital 2,604 2,604
Retained earnings 432,964 425,493
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Total stockholders' equity 437,302 429,831
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,143,890 $ 6,110,542
===============================================================================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FIRST NATIONAL OF NEBRASKA, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Quarter ended March 31,
1996 1995
- ------------------------------------------------------------------------------
(In Thousands, Except Share and Per Share Data)
<S> <C> <C>
Interest income:
Interest and fees on loans and lease financing $163,306 $149,221
Interest on securities:
Taxable interest income 12,505 11,159
Nontaxable interest income 282 377
Interest on federal funds sold and other
short-term investments 3,729 2,020
- ------------------------------------------------------------------------------
Total interest income 179,822 162,777
- ------------------------------------------------------------------------------
Interest expense:
Interest on deposits 62,454 51,724
Interest on commercial paper and
commercial paper based borrowings 4,227 4,676
Interest on federal funds purchased and U.S.
Treasury notes 1,088 910
Interest on long-term debt and other
obligations and capital notes 2,049 1,927
- ------------------------------------------------------------------------------
Total interest expense 69,818 59,237
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NET INTEREST INCOME 110,004 103,540
Provision for loan losses 38,197 19,469
- ------------------------------------------------------------------------------
Net interest income after provision for loan
losses 71,807 84,071
Other operating income:
Processing services 22,413 13,821
Deposit services 4,727 4,992
Trust and investment services 3,975 3,704
Commissions 5,967 4,982
Miscellaneous 4,924 5,968
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Total other operating income 42,006 33,467
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Income before other operating expense 113,813 117,538
Other operating expense:
Salaries and employee benefits 35,036 30,622
Communications and supplies 18,676 15,604
Loan services purchased 14,512 10,935
Purchased processing 5,310 5,439
Net occupancy expense of premises 5,165 5,556
Equipment rentals, depreciation and
maintenance 6,364 4,963
Other professional services purchased 3,419 3,378
Federal deposit insurance 63 2,528
Miscellaneous 5,945 6,566
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Total other operating expense 94,490 85,591
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Income before income taxes 19,323 31,947
Income tax expense/(benefit):
Current 11,061 12,905
Deferred (3,336) (1,446)
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Total income tax expense 7,725 11,459
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NET INCOME $ 11,598 $ 20,488
==============================================================================
Average number of shares outstanding 346,767 346,767
==============================================================================
Net income per share $ 33.45 $ 59.08
==============================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FIRST NATIONAL OF NEBRASKA, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
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Three Months Ended March 31,
1996 1995
- -----------------------------------------------------------------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 11,598 $ 20,488
Adjustments to reconcile net
income to net cash flows from
operating activities:
Provision for loan losses 38,197 19,469
Depreciation and amortization 6,710 4,942
Provision for deferred taxes (3,336) (1,446)
Origination of loans for resale (9,482) (4,032)
Proceeds from the sale of loans 8,264 4,477
Other asset and liability
activity, net 10,716 16,022
- -----------------------------------------------------------------------
Net cash flows from operating activities 62,667 59,920
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses $ 395 $ 28,143
Maturities of securities held-to-maturity 51,286 86,712
Purchases of securities held-to-maturity (113,596) (93,541)
Net change in customer loans 15,274 (102,590)
Purchases of premises and equipment (10,735) (3,526)
Other, net 130 (489)
- -----------------------------------------------------------------------
Net cash flows from investing activities (57,246) (85,291)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in customer deposits $ 86,691 $ 176,493
Net change in federal funds purchased (55,669) (49,167)
Issuance of debt and capital notes 11,600 15,127
Principal repayments of debt and capital
notes (15,569) (5,869)
Net change in commercial paper and
commercial paper based borrowings (14,884) (14,293)
Cash dividends paid (4,127) (3,374)
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Net cash flows from financing activities 8,042 118,917
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Net change in cash and cash equivalents 13,463 93,546
Cash and cash equivalents at beginning
of period 618,636 366,605
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Cash and cash equivalents at end of period $ 632,099 $ 460,151
=======================================================================
Cash paid during the year for:
Interest $ 68,398 $ 53,498
Income taxes $ 2,706 $ 2,921
=======================================================================
NON-CASH INVESTING AND FINANCING ACTIVITIES
Increase to liabilities from business
acquisitions $ 723 $ 15,198
=======================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
The accompanying unaudited consolidated financial statements of First National
of Nebraska and subsidiaries (the Company) include the accounts of the parent
company; its substantially wholly-owned subsidiary, First National Bank of Omaha
and its wholly-owned subsidiaries (the Bank); its wholly-owned other banking
subsidiaries; and its nonbanking subsidiaries. All material intercompany
transactions, profits and balances have been eliminated.
The consolidated financial statements contained herein should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1995 Annual Report to Shareholders and Form 10-K. The
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) which are in the opinion of management, necessary
for a fair presentation of the financial position and results of operations for
the interim period. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of the results for the entire fiscal
year ending December 31, 1996.
Certain reclassifications were made to prior years' financial statements to
conform them to the improved classifications used in 1996. These
reclassifications had no effect on net income or total assets.
Net income per share is calculated by dividing net income by the average number
of shares outstanding during the period.
In business combinations during 1996, the Company assumed liabilities of
$103,000 and non-cash assets of $431,000.
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company consists of the parent company, which is a Nebraska-based interstate
bank holding company, and its consolidated subsidiaries. Its principal assets
include First National Bank of Omaha and its wholly-owned subsidiaries; First
National Bank and Trust Company of Columbus; First National Bank, North Platte;
Platte Valley State Bank and Trust Company, Kearney; The Fremont National Bank
and Trust Company; First National Bank of Kansas, Overland Park, Kansas; First
National Bank South Dakota, Yankton, South Dakota; and First National of
Colorado, Inc., and its wholly-owned subsidiaries First National Bank, Fort
Collins, Colorado and Union Colony Bank, Greeley, Colorado. The Company also
has nonbanking subsidiaries, which in the aggregate are not material.
The Company is governed by various regulatory agencies. Bank holding companies
and their nonbanking subsidiaries are regulated by the Federal Reserve Board.
National banks are primarily regulated by the OCC. All federally-insured banks
are also regulated by the FDIC. The Company's banking subsidiaries include
seven national banks and two state-chartered banks, all of which are insured by
the FDIC. The state-chartered banks are also regulated by state banking
authorities.
The Company was one of the originators of the bank credit card industry and has
over 40 years' experience in this business. Through a banking subsidiary, the
Company conducts a significant consumer credit card service under license
arrangements with VISA USA and MasterCard International, Inc. The Company's
credit card customers are located throughout the United States, but primarily in
the Midwest. At December 31, 1995, the Company ranked among the top 25 card
issuing entities based on the amount of managed credit card loans outstanding.
The Company originates all new credit card accounts and does not purchase
existing accounts from other originators. The Company performs all credit card
servicing activities on behalf of its subsidiary banks including data
processing, payment processing, statement rendering, marketing, customer
service, credit administration and card embossing. The Company primarily funds
its credit card loans through the core deposits of its subsidiary banks.
The Company continues to make substantial investments in data processing
technology for both its own data processing needs and to provide various data
processing services for unaffiliated parties. The services provided include
automated clearinghouse transactions, merchant credit card processing, and check
processing. The Company ranks as one of the larger merchant credit card
processors in the United States. It also was among the 15 largest automated
clearinghouse processors in the country during 1995, and is one of the largest
check processors in its market area. The Company provides data processing
services to non-affiliated banks located in nine states. The Company has
increased fee income through the significant expansion of these services. With
the increased volumes processed, the Company is subjected to greater pricing and
technology risks. The Company continues to closely monitor the risks and
competitive conditions.
5
<PAGE>
Competitors of the Company include other commercial banks, savings and loan
associations, consumer and commercial finance companies, credit unions and other
financial services companies. The Company's credit card operation competes with
other issuers of credit cards ranging from other national issuers of bank cards
to local retailers which provide their own charge account services. The Company
believes that the level of competition will increase in the future as the
industry continues to consolidate and as nonbanking companies continue to offer
products traditionally offered by banks.
CAPITAL RESOURCES
- -----------------
The Company and its banking subsidiaries are required to maintain minimum
capital in accordance with federal guidelines. Generally, these guidelines are:
1) 3% to 5% for Tier I capital to total assets defined as stockholders' equity
less intangibles and goodwill as a percent of quarterly average assets less
intangibles and goodwill; 2) 4% for Tier I capital to risk-adjusted assets; and
3) 8% for Total capital to risk-adjusted assets. Total capital is defined as
Tier I capital plus a certain portion of allowance for loan and lease loss and
certain debt and equity instruments. The stated capital of the Company and its
banking subsidiaries is subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. The Company and its banking
subsidiaries exceeded these minimum regulatory capital requirements at March 31,
1996.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, the
Company's banking subsidiaries are reviewed by bank regulators pursuant to a
supervisory framework for prompt corrective action. This framework consists of
five categories that are defined by different levels of capital. For the top-
rated well-capitalized category, an institution must meet capital ratios of 5.0%
for Tier I capital to total assets (as defined); 6.0% for Tier I capital to
risk-adjusted assets; and 10.0% for Total capital to risk-adjusted assets. At
March 31, 1996, all of the Company's banking subsidiaries exceeded these minimum
regulatory capital requirements for the top-rated well-capitalized category
established by the supervisory agencies.
In 1995, First National Bank of Omaha issued $75 million in 15 year subordinated
capital notes. These subordinated capital notes, along with $22 million in
capital notes outstanding as of March 31, 1996 issued in connection with the
Company's previous acquisitions, count towards meeting required capital
standards, subject to certain limitations. The Company historically has paid
dividends equal to 15% of expected net income. The remainder is retained in
capital to fund the growth of future operations and to maintain minimum capital
standards.
LIQUIDITY AND INTEREST MARGIN MANAGEMENT
- ----------------------------------------
The maintenance of an adequate level of liquidity is necessary to ensure that
sufficient funds are available for loan growth and deposit withdrawals. These
funding demands are offset by funds generated from loan repayments, the maturity
of securities and core deposit growth. The Company believes liquidity can be
managed on both sides of the balance sheet. Liquidity is evaluated by the
Company using three distinct processes: addressing daily liquidity needs; the
use of non-core deposits and other funding sources; and expected loan demands
against liquidity.
The Company evaluates its interest margin in conjunction with liquidity.
Computer-based models are utilized to forecast how potential interest rate
scenarios and balance sheet strategies will interact with the Company's
liquidity and interest margin requirements. The Company closely monitors the
repricing of assets and liabilities to obtain an acceptable interest spread in
periods of rising or falling rates. Through the use of product selection and
product pricing, the Company manages asset and liability volumes and interest
spreads. The Company does not use financial instruments such as hedges, swaps,
futures, or other derivative products
The Company utilizes the commercial paper market throughout the year. As of
March 31, 1996, the Company had facilities to access the commercial paper market
up to a maximum of $340,000,000, of which $275,355,000 was outstanding and
maturing in 54 days. Commercial paper is supported by loan commitments from
various financial institutions, and is distributed on a national basis with
proceeds used to finance consumer receivables.
Additionally, in September 1995, the Company increased the diversity of its
credit card funding sources through a new securitization program. As of March
31, 1996, the Company had securitized $200 million of credit card loans through
this program.
6
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
NET INTEREST INCOME:
The Company's primary source of income is net interest income. In March 1996,
net interest income was $110.0 million, a 6.2% increase over March 1995. A
significant amount of gross interest income is derived from consumer credit card
loans. In the current rate environment and because of the contractual terms of
these loans, the Company's net interest margin will most likely remain stable if
rates change modestly, up or down. Therefore, it is anticipated that the
Company will experience a comparable margin throughout 1996.
PROVISION FOR LOAN LOSSES:
The Company evaluates the adequacy of its allowance for loan losses on a monthly
basis. This review is based upon management's review of collateral values,
delinquencies, non-accruals, payment histories and various other analytical and
subjective measures relating to individual loan portfolios within the Company.
The provision for loan losses was $38.2 million for the first quarter of 1996,
which has increased $18.7 million, or 96.2%, from the same period in 1995. The
increase is build the reserve for current and future losses due to a rise in
delinquent and nonperforming consumer credit card loans, which is being
experienced throughout the credit card industry, and the large volume of
consumer credit card loans originated in 1994 which continue to mature. The
offset to the increased risk of loss traditionally associated with consumer
credit card loans is the higher interest rates charged resulting in favorable
net earnings.
OTHER OPERATING INCOME:
Other operating income rose 25.5% in 1996. The majority of the increase was due
to processing services income increasing by 62.2% in 1995 relating to increases
in volumes processed from new and existing customers in merchant processing.
Income related to trust and investment services and commissions grew in 1996 as
a result of the general growth of the Company. The decrease of 17.5% in
miscellaneous income was related to general business fluctuations.
OTHER OPERATING EXPENSE:
Other operating expense rose 10.4% in 1996. The increase in loan services
purchased totaled $14.5 million in the first quarter of 1996, resulting in a
32.7% increase from the same period in 1995. The 1996 increase reflects
expenses incurred in processing additional volumes and in the increased
promotion of new business. Equipment rentals, depreciation and maintenance
increased 28.2% in 1996, primarily due to investments in technology and general
growth. Federal deposit insurance decreased by 97.5% in 1996 due to a change in
the regulatory assessment rates. Expenses in 1996 related to salaries and
employee benefits, communications and supplies, and other professional services
grew as a result of the general growth of the Company and were offset by
decreases in purchased processing, net occupancy and miscellaneous expense.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
Statement of Financial Accounting Standards No. 121 (SFAS121), "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," is effective for fiscal years beginning after December 15, 1995. SFAS121
requires qualifying long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair value less costs
to sell. The Company believes that the adoption of this Statement will not have
a material impact to its consolidated financial statements.
Statement of Financial Accounting Standards No. 122 (SFAS122), "Accounting for
Mortgage Servicing Rights," is effective for fiscal years beginning after
December 15, 1995. SFAS122 requires a mortgage banking enterprise to recognize
as separate assets, rights to service mortgage loans for others, however those
servicing rights are acquired. This Statement also requires a mortgage banking
enterprise to assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. The Company believes that the adoption
of this Statement will not have a material impact to its consolidated financial
statements.
7
<PAGE>
PART II. OTHER INFORMATION
Items 1,2,3,4,5, and 6(b): Not applicable or negative response.
Item 6(a): Articles of Incorporation of the Parent Company
(previously filed as Exhibit No. 1 to Form 10-K
filed with the Securities and Exchange Commission
by the Company on March 31, 1993) is incorporated
herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST NATIONAL OF NEBRASKA, INC.
By /s/ Bruce R. Lauritzen
----------------------
Bruce R. Lauritzen
President and Treasurer, Principal Accounting
and Financial Officer and Director
Date: May 9, 1996
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 330,878
<INT-BEARING-DEPOSITS> 4,565,354
<FED-FUNDS-SOLD> 301,221
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 908,618
<INVESTMENTS-MARKET> 908,244
<LOANS> 4,402,444
<ALLOWANCE> 75,831
<TOTAL-ASSETS> 6,143,890
<DEPOSITS> 5,176,571
<SHORT-TERM> 0
<LIABILITIES-OTHER> 71,597
<LONG-TERM> 105,246<F1>
<COMMON> 1,734
0
0
<OTHER-SE> 435,568
<TOTAL-LIABILITIES-AND-EQUITY> 6,143,890
<INTEREST-LOAN> 162,773
<INTEREST-INVEST> 12,787
<INTEREST-OTHER> 3,730
<INTEREST-TOTAL> 179,290
<INTEREST-DEPOSIT> 62,454
<INTEREST-EXPENSE> 69,818
<INTEREST-INCOME-NET> 109,472
<LOAN-LOSSES> 38,197
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 94,490
<INCOME-PRETAX> 19,323
<INCOME-PRE-EXTRAORDINARY> 11,598
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,598
<EPS-PRIMARY> 33.45
<EPS-DILUTED> 33.45
<YIELD-ACTUAL> 0<F2>
<LOANS-NON> 0<F2>
<LOANS-PAST> 0<F2>
<LOANS-TROUBLED> 0<F2>
<LOANS-PROBLEM> 0<F2>
<ALLOWANCE-OPEN> 0<F2>
<CHARGE-OFFS> 0<F2>
<RECOVERIES> 0<F2>
<ALLOWANCE-CLOSE> 0<F2>
<ALLOWANCE-DOMESTIC> 0<F2>
<ALLOWANCE-FOREIGN> 0<F2>
<ALLOWANCE-UNALLOCATED> 0<F2>
<FN>
<F1> INCLUDES 97,026 IN CAPITAL NOTES.
<F2> THIS INFORMATION IS NOT REQUIRED FOR INTERIM REPORTING PURPOSES.
</FN>
</TABLE>
