<PAGE>
TO OUR STOCKHOLDERS
________________________________________________________________________________
Nineteen ninety-eight was a record year for First National of Nebraska.
Net income totaled $86.5 million an increase of 15% over the $75.2 million
earned in 1997. Total revenue was $1.1 billion in 1998, compared to $1 billion
in 1997.
Return on average stockholders' equity was 15.7%. This is the twenty-sixth
straight year that return on average stockholders' equity has exceeded 15%.
On December 31, 1998, First National of Nebraska reached a new high of $8.2
billion in total assets. This compares to $7.3 billion on December 31, 1997.
In addition, we have funded $653 million in credit card loans through various
off balance sheet securitization programs. At year end 1997, this number was
$950 million.
During 1998, First National made twenty-five credit card portfolio acquisitions
which ranged in size from $150,000 to $254 million. We look forward to a strong
relationship with each of these financial institutions, as we work hard to
service their customers.
New branches were opened in Longmont and Louisville, Colorado. We also
celebrated the opening of new headquarters buildings for the Platte Valley State
Bank in Kearney and the First National Bank in North Platte. First Bankcard
Center moved into a greatly expanded servicing center in Wayne, Nebraska and a
new Colorado check processing facility was opened in Loveland.
This was an exciting year of growth and expansion. I want to thank our
customers, stockholders, and 5,428 associates for their tremendous support
during this record-breaking year.
/s/ Bruce R. Lauritzen
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
PERFORMANCE TRENDS
- --------------------------------------------------------------------------------
(IN MILLIONS)
BAR GRAPHS DEPICTING:
<TABLE>
<CAPTION>
Managed Assets* 1998: $8,841 Earnings 1998: $86.5 Capital & Loan Loss Allowance
1998: $ 706
YEAR YEAR YEAR
- --------------------------- ----------------------- ---------------------
<S> <C> <C>
1972 298 1972 1.959 1972 20
1973 366 1973 2.213 1973 22
1974 360 1974 2.405 1974 20
1975 351 1975 2.597 1975 18
1976 372 1976 3.155 1976 20
1977 439 1977 3.614 1977 23
1978 503 1978 3.976 1978 27
1979 583 1979 4.473 1979 31
1980 625 1980 5.075 1980 35
1981 666 1981 5.743 1981 41
1982 715 1982 6.575 1982 46
1983 844 1983 7.000 1983 49
1984 873 1984 8.700 1984 59
1985 1,081 1985 10.076 1985 69
1986 1,118 1986 11.637 1986 80
1987 1,314 1987 15.133 1987 95
1988 1,726 1988 23.253 1988 121
1989 2,076 1989 28.123 1989 147
1990 2,548 1990 33.217 1990 186
1991 3,033 1991 40.017 1991 225
1992 3,574 1992 52.126 1992 272
1993 4,272 1993 70.082 1993 345
1994 5,262 1994 77.133 1994 415
1995 6,311 1995 82.241 1995 498
1996 7,112 1996 70.232 1996 593
1997 8,282 1997 75.187 1997 639
1998 8,841 1998 86.492 1998 706
Managed Loans* 1998: $6,399 Deposits 1998: $ 6,868 Return On Average Equity 1998:
15.7%
YEAR YEAR YEAR
- --------------------------- ----------------------- ---------------------
1972 152 1972 251 1972 13.5
1973 183 1973 296 1973 16.5
1974 172 1974 299 1974 17.4
1975 175 1975 280 1975 18.5
1976 202 1976 302 1976 19.5
1977 215 1977 336 1977 19.2
1978 265 1978 369 1978 18.2
1979 327 1979 411 1979 17.9
1980 297 1980 428 1980 17.7
1981 377 1981 411 1981 17.4
1982 426 1982 432 1982 17.1
1983 528 1983 557 1983 16.3
1984 645 1984 608 1984 18.6
1985 738 1985 741 1985 18.0
1986 813 1986 799 1986 18.0
1987 988 1987 970 1987 19.8
1988 1,321 1988 1,308 1988 25.7
1989 1,581 1989 1,642 1989 24.3
1990 1,890 1990 2,097 1990 23.2
1991 2,224 1991 2,575 1991 23.3
1992 2,602 1992 3,070 1992 24.7
1993 3,184 1993 3,652 1993 26.8
1994 3,945 1994 4,383 1994 24.1
1995 4,651 1995 5,090 1995 20.8
1996 5,307 1996 5,836 1996 15.4
1997 5,961 1997 6,401 1997 15.2
1998 6,399 1998 6,868 1998 15.7
</TABLE>
*Reported assets or loans plus securitized credit card loans
2
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Total assets $8,187,815 $7,332,021 $6,912,057 $6,110,542 $5,261,907
Net income $ 86,492 $ 75,187 $ 70,232 $ 82,241 $ 77,133
Stockholders' equity $ 584,303 $ 510,057 $ 487,966 $ 429,831 $ 359,216
Allowance for
loan losses $ 121,877 $ 128,990 $ 104,812 $ 67,740 $ 55,265
====================================================================================================================================
====================================================================================================================================
Per share data:
Net income $ 258.19 $ 220.68 $ 202.53 $ 237.17 $ 222.43
Dividends $ 35.00 $ 33.76 $ 37.22 $ 33.73 $ 38.07
Stockholders' equity $ 1,744.19 $ 1,522.56 $ 1,407.19 $ 1,239.54 $ 1,035.90
====================================================================================================================================
====================================================================================================================================
Profit ratios:
Return on average
equity 15.7% 15.2% 15.4% 20.8% 24.1%
Return on average
assets 1.2% 1.1% 1.1% 1.5% 1.7%
====================================================================================================================================
</TABLE>
BANKING LOCATIONS
MAP DEPICTING:
NEBRASKA SOUTH DAKOTA KANSAS COLORADO
- --------------------------------------------------------------------------------
OMAHA YANKTON FAIRWAY FORT COLLINS
NORTH PLATTE OVERLAND PARK GREELEY
COLUMBUS OLATHE LOVELAND
KEARNEY WINDSOR
FREMONT BOULDER
BEATRICE LONGMONT
DAVID CITY LOUISVILLE
CHADRON BROOMFIELD*
ALLIANCE
SCOTTSBLUFF
GERING
NORFOLK
* Opening in May 1999
3
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
(in thousands except share and per share data)
<S> <C> <C>
ASSETS
Cash and due from banks $ 434,275 $ 428,832
Federal funds sold and other short-term investments 382,234 327,010
- ----------------------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 816,509 755,842
Securities available-for-sale (amortized cost $852,374 and $378,714) 854,183 381,337
Securities held-to-maturity (fair value $423,554 and $874,646) 420,918 872,907
Loans 5,746,054 5,010,982
Less: Allowance for loan losses 121,877 128,990
Unearned income 13,450 13,380
- ----------------------------------------------------------------------------------------------------------------------------------
Net loans 5,610,727 4,868,612
Premises and equipment, net 138,853 136,054
Other assets 346,625 317,269
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $8,187,815 $7,332,021
==================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 896,485 $ 842,195
Interest-bearing 5,971,396 5,558,850
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits 6,867,881 6,401,045
Federal funds purchased and securities sold under repurchase agreements 358,975 217,891
Other liabilities 250,753 80,530
Other borrowings 33,039 28,446
Capital notes 92,864 94,052
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 7,603,512 6,821,964
Contingencies and commitments
Stockholders' equity:
Common stock, $5 par value, 346,767 shares authorized,
335,000 shares issued and outstanding 1,675 1,675
Additional paid-in capital 2,515 2,515
Retained earnings 578,951 504,184
Accumulated other comprehensive income 1,162 1,683
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 584,303 510,057
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,187,815 $7,332,021
==================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands except share and per share data)
Interest income:
Interest and fees on loans and lease financing $755,803 $735,638 $700,472
Interest on securities:
Taxable interest income 65,598 64,165 49,809
Nontaxable interest income 835 1,036 1,116
Interest on federal funds sold
and other short-term investments 13,320 14,268 14,017
- -------------------------------------------------------------------------------------------------------
Total interest income 835,556 815,107 765,414
- -------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 305,127 286,226 250,170
Interest on federal funds purchased and
securities sold under repurchase agreements 8,310 7,841 5,667
Interest on other borrowings and capital notes 9,625 9,549 8,451
Interest on commercial paper and
commercial paper based borrowings -- 13,479 15,943
- -------------------------------------------------------------------------------------------------------
Total interest expense 323,062 317,095 280,231
- -------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 512,494 498,012 485,183
Provision for loan losses 173,311 201,494 180,059
- -------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 339,183 296,518 305,124
Noninterest income:
Processing services 99,143 91,553 85,440
Credit card securitization income 60,980 51,817 15,007
Deposit services 24,948 22,879 19,928
Trust and investment services 22,979 20,616 17,818
Commissions 15,703 14,212 11,064
Miscellaneous 50,585 30,857 25,800
- -------------------------------------------------------------------------------------------------------
Total noninterest income 274,338 231,934 175,057
- -------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 182,848 155,956 135,718
Communications and supplies 58,046 55,922 61,273
Loan servicing expense 43,727 36,099 32,637
Processing expense 28,784 26,560 21,000
Net occupancy expense of premises 30,045 22,355 21,570
Equipment rentals, depreciation and maintenance 36,993 29,880 26,117
Professional services 53,023 48,701 44,072
Miscellaneous 37,855 29,074 23,441
- -------------------------------------------------------------------------------------------------------
Total noninterest expense 471,321 404,547 365,828
- -------------------------------------------------------------------------------------------------------
Income before income taxes 142,200 123,905 114,353
Income tax expense (benefit):
Current 57,165 53,947 57,641
Deferred (1,457) (5,229) (13,520)
- -------------------------------------------------------------------------------------------------------
Total income tax expense 55,708 48,718 44,121
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 86,492 $ 75,187 $ 70,232
=======================================================================================================
Average number of common shares outstanding 335,000 340,706 346,767
=======================================================================================================
Net income per common share $258.19 $220.68 $202.53
=======================================================================================================
Cash dividends declared per common share $35.00 $33.76 $37.22
=======================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(in thousands)
NET INCOME $86,492 $75,187 $70,232
Other comprehensive income (loss), before tax:
Net unrealized holding gains arising during period 495 2,626 1,431
Less: Reclassification adjustment for net gains realized in net income 1,307 1,267 167
- --------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss), before tax (812) 1,359 1,264
Less: Income tax expense (benefit) related to other comprehensive income (291) 485 455
- --------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX (521) 874 809
- --------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $85,971 $76,061 $71,041
====================================================================================================================
</TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
($5 PAR VALUE) CAPITAL EARNINGS INCOME EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(in thousands except per share data)
Balance, January 1, 1996 $1,734 $2,604 $425,493 $ -- $429,831
Net Income -- -- 70,232 -- 70,232
Net unrealized appreciation on securities
available-for-sale, net of tax -- -- -- 809 809
Cash dividends - $37.22 per share -- -- (12,906) -- (12,906)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,734 2,604 482,819 809 487,966
Net Income -- -- 75,187 -- 75,187
Repurchase of common stock (59) (89) (42,214) -- (42,362)
Net unrealized appreciation on securities
available-for-sale, net of tax -- -- -- 874 874
Cash dividends - $33.76 per share -- -- (11,608) -- (11,608)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 1,675 2,515 504,184 1,683 510,057
NET INCOME -- -- 86,492 -- 86,492
NET UNREALIZED DEPRECIATION ON
SECURITIES AVAILABLE-FOR-SALE, NET OF TAX -- -- -- (521) (521)
CASH DIVIDENDS - $35.00 PER
SHARE -- -- (11,725) -- (11,725)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $1,675 $2,515 $578,951 $1,162 $584,303
============================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 86,492 $ 75,187 $ 70,232
Adjustments to reconcile net income to net cash
flows from operating activities:
Provision for loan losses 173,311 201,494 180,059
Depreciation and amortization 44,412 41,888 37,195
Provision for deferred taxes (1,457) (5,229) (13,520)
Origination of mortgage loans for resale (146,816) (41,991) (46,887)
Proceeds from the sale of mortgage loans for resale 131,847 40,851 47,053
Other asset and liability activity, net 8,537 (41,440) (27,159)
- ---------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 296,326 270,760 246,973
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash received $ (855) $ -- $ (11,584)
Maturities and sales of securities available-for-sale 348,663 211,676 7,176
Purchases of securities available-for-sale (665,392) (334,172) (226,734)
Maturities of securities held-to-maturity 625,871 283,446 312,406
Purchases of securities held-to-maturity (174,065) (507,975) (127,598)
Net change in loans (230,115) (586,113) (723,203)
Credit card securitization activities (296,978) 750,000 --
Purchases of loan portfolios (402,331) (288,998) --
Purchases of premises and equipment (41,987) (41,072) (26,363)
Other, net 2,277 2,141 732
- ---------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (834,912) (511,067) (795,168)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits $ 466,836 $ 564,876 $ 647,066
Net change in federal funds purchased and
securities sold under repurchase agreements 141,084 71,876 2,548
Issuance of other borrowings and capital notes 86,255 135,771 61,799
Principal repayments on other borrowings
and capital notes (83,197) (117,149) (68,889)
Net change in commercial paper and
commercial paper based borrowings -- (280,169) (25,145)
Repurchase of common stock -- (42,362) --
Cash dividends paid (11,725) (11,608) (12,906)
- ---------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities 599,253 321,235 604,473
- ---------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 60,667 80,928 56,278
Cash and cash equivalents at beginning of year 755,842 674,914 618,636
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 816,509 $ 755,842 $ 674,914
===============================================================================================================
Cash paid during the year for:
Interest $ 324,766 $ 312,318 $ 278,548
Income taxes $ 53,387 $ 44,979 $ 50,233
Noncash investing and financing activities:
Consideration for business acquisitions $ -- $ -- $ 724
===============================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
7
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of
First National of Nebraska and subsidiaries (the Company) include the
accounts of the parent company; its 99.67% owned subsidiary, First National
Bank of Omaha and wholly-owned subsidiaries (the Bank); its wholly-owned
other banking subsidiaries; and its nonbanking subsidiaries. All material
intercompany transactions and balances have been eliminated in
consolidation.
NATURE OF BUSINESS - The Company is a Nebraska-based interstate bank
holding company whose primary assets are its banking subsidiaries. The
banking subsidiaries are principally engaged in consumer, commercial, real
estate and agricultural lending and retail deposit activities. The Company
also has subsidiaries which provide merchant credit card processing and
other services.
These operating activities involve similar types of customers, products and
services and distribution methods. Financial information is maintained and
analyzed on a total entity basis for decision making and performance
assessment. The Company's operations are also regulated by common
regulatory authorities. Therefore, in accordance with Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments
of an Enterprise and Related Information," the Company has determined that
it is a single reportable entity.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS - For the purpose of reporting cash flows, cash
and cash equivalents include cash and due from banks, federal funds sold
and other short-term investments with original maturities of three months
or less.
SECURITIES - Debt securities for which the Company has the positive intent
and ability to hold to maturity are reported at amortized cost. Premiums
and discounts are recognized in interest income using the level yield
method over the period to maturity.
Debt and equity securities which the Company may not hold to maturity are
classified as available-for-sale if they are not considered to be part of
trading-related activities. Available-for-sale securities are reported at
their fair values, with unrealized holding gains and losses reported on a
net-of-tax basis in other comprehensive income. Gains and losses on the
sale of available-for-sale securities are determined using the specific-
identification method. Premiums and discounts are recognized in interest
income using the level yield method over the period to maturity.
LOANS - Loans are reported at their outstanding principal balance net of
the allowance for loan losses and any deferred fees or costs on originated
loans. Loan fees and certain direct loan origination costs are deferred and
recognized as an adjustment of the yield of the related loan over the
estimated average life of the loan.
Accrual of interest is discontinued on a loan when management believes
collection of interest is doubtful after considering economic and business
conditions, collection efforts, and the financial condition of the
borrower.
LEASES - Equipment acquired with no outside financing is leased to
customers under direct lease financing arrangements. The net investment in
direct financing leases is the sum of all minimum lease payments and
estimated residual values, less unearned income. Unearned income is
recognized as interest income over the terms of the leases by methods that
approximate the level yield method.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is increased by
charges to income and decreased by charge-offs, net of recoveries.
Management's periodic evaluation of the adequacy of the allowance is based
on the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current
economic
8
<PAGE>
conditions. The allowance for loan losses related to impaired loans,
excluding large groups of smaller balance homogeneous loans (such as
consumer loans) that are collectively evaluated for impairment, is measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate, or as a practical expedient, at the
observable market price of the loan or the fair value of the underlying
collateral.
PREMISES AND EQUIPMENT - Premises, furniture and equipment, and leasehold
improvements are carried at cost, less accumulated depreciation and
amortization computed using the straight-line method over the estimated
useful lives of the assets or the terms of the leases. Land is carried at
cost.
CREDIT CARD LOAN SECURITIZATIONS - The Company has sold, on a revolving
basis, credit card loans through securitization programs. Beginning in
1997, these securitizations have been recorded as sales in accordance with
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." A residual earnings stream and servicing have been retained
and are recorded at estimated fair value based on the present value of
estimated expected future cash flows using a discount rate commensurate
with the risks involved. The resulting servicing liability was immaterial.
INCOME TAXES - The Company files consolidated federal and state tax
returns. Taxes of the subsidiaries, computed on a separate return basis,
are remitted to the parent company. Under the liability method used to
calculate income taxes and deferred tax assets and liabilities, the Company
accounts for differences between the financial statement carrying amount
and tax bases of existing assets and liabilities by applying currently
enacted statutory tax rates applicable to future periods.
INTANGIBLE ASSETS - Goodwill represents the excess of the purchase price
over the estimated fair value of identifiable net assets associated with
merger and acquisition transactions. Goodwill is amortized on a straight-
line basis over periods ranging up to 25 years. Core deposit intangibles
represent the intangible value of depositor relationships resulting from
deposit liabilities assumed in acquisitions and are amortized over periods
not exceeding 10 years using straight-line and accelerated methods, as
appropriate. Purchased credit card relationships represent the intangible
value of acquired credit card relationships and are amortized over 15 years
using an accelerated method.
The Company periodically assesses the recoverability of intangible assets
by reviewing such assets whenever events or changes in circumstances
indicate that the book value may not be recoverable. An impairment is
recognized when undiscounted cash flows of assets are estimated to be
insufficient to recover their related carrying value.
FAIR VALUES OF FINANCIAL INSTRUMENTS - Fair values of financial instruments
that are not actively traded are based on market prices of similar
instruments and/or valuation techniques using market assumptions. Although
management uses its best judgment in estimating the fair value of these
financial instruments, there are inherent limitations in any estimation
technique. The Company assumes that the carrying amount of cash and short-
term financial instruments approximates their fair value.
TRUST ASSETS - Property (other than cash deposits) held by banking
subsidiaries in fiduciary or agency capacities for their customers is not
included in the accompanying consolidated statements of financial condition
since such items are not assets of the Company.
NET INCOME PER SHARE - Net income per share of common stock has been
computed on the basis of the weighted-average number of shares of common
stock outstanding. The Company has no common stock equivalents.
OTHER - Certain reclassifications were made to prior years' financial
statements to conform them to the improved classifications used in 1998.
These reclassifications had no effect on net income or total assets.
9
<PAGE>
B. SECURITIES:
Debt and equity securities have been classified in the consolidated
statements of financial condition according to management's intent. The
amortized cost of securities and their approximate fair values at December
31 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
U.S. Government obligations $812,156 $3,340 $(1,325) $814,171
Obligations of states and political subdivisions 30 -- -- 30
Mortgage-backed securities 22,285 -- (206) 22,079
Other securities 17,903 -- -- 17,903
------------------------------------------------------------------------------------------------------------------------------
Total securities available-for-sale $852,374 $3,340 $(1,531) $854,183
==============================================================================================================================
HELD-TO-MATURITY SECURITIES:
U.S. Government obligations $374,009 $2,109 $ -- $376,118
Obligations of states and political subdivisions 16,671 210 -- 16,881
Mortgage-backed securities 29,788 325 (8) 30,105
Other securities 450 -- -- 450
------------------------------------------------------------------------------------------------------------------------------
Total securities held-to-maturity $420,918 $2,644 $ (8) $423,554
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
U.S. Government obligations $366,584 $2,623 $ -- $369,207
Obligations of states and political subdivisions 115 -- -- 115
Other securities 12,015 -- -- 12,015
------------------------------------------------------------------------------------------------------------------------------
Total securities available-for-sale $378,714 $2,623 $ -- $381,337
==============================================================================================================================
HELD-TO-MATURITY SECURITIES:
U.S. Government obligations $809,581 $1,903 $ (265) $811,219
Obligations of states and political subdivisions 17,184 192 (21) 17,355
Mortgage-backed securities 45,692 31 (101) 45,622
Other securities 450 -- -- 450
------------------------------------------------------------------------------------------------------------------------------
Total securities held-to-maturity $872,907 $2,126 $ (387) $874,646
==============================================================================================================================
</TABLE>
Gross realized gains on sales of available-for-sale securities were $1.3
million in 1998 and 1997. Included in U.S. Government obligations
available-for-sale as of December 31, 1998, are $152.6 million of purchases
pending cash settlement. The $152.6 million obligation for this pending
cash settlement is reflected in other liabilities.
At December 31, 1998 and 1997, securities totaling $710.2 million and
$554.7 million, respectively, were pledged to secure public deposits and
for other purposes required or permitted by law.
10
<PAGE>
Contractual maturities at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES AVAILABLE-FOR-SALE SECURITIES
--------------------------- ------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $147,003 $148,089 $231,213 $232,092
Due after one year through five years 238,533 239,733 580,973 582,109
Due after five years through ten years 2,154 2,187 -- --
Due after ten years 3,440 3,440 17,903 17,903
Mortgage-backed securities 29,788 30,105 22,285 22,079
-------------------------------------------------------------------------------------------------------------------
Total securities $420,918 $423,554 $852,374 $854,183
==================================================================================================================
</TABLE>
C. LOANS:
Loans were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Individual consumer $3,188,367 $2,804,727
Commercial and financial 832,070 722,193
Real estate - mortgage 959,904 794,167
Real estate - construction 234,757 196,720
Agricultural 427,274 408,602
Lease financing 73,726 75,637
Other 29,956 8,936
---------------------------------------------------------------------------------------------------------------------------
Gross loans 5,746,054 5,010,982
Less:
Allowance for loan losses 121,877 128,990
Unearned income 13,450 13,380
---------------------------------------------------------------------------------------------------------------------------
Net loans $5,610,727 $4,868,612
===========================================================================================================================
</TABLE>
In addition to the above loans owned by the Company, credit card loans
securitized and serviced for others totaled $653 million and $950 million
at December 31, 1998 and 1997, respectively. Mortgage loans serviced for
others totaled $394.7 million and $355.2 million, respectively, at December
31, 1998 and 1997.
Lease financing was comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Direct financing leases:
Lease payments receivable $62,731 $64,836
Estimated residual value of equipment 10,995 10,801
------------------------------------------------------------------------------------------------------------------------
73,726 75,637
Less unearned income 9,364 10,243
------------------------------------------------------------------------------------------------------------------------
Net leases $64,362 $65,394
========================================================================================================================
</TABLE>
At December 31, 1998, minimum lease financing payments receivable for each
of the five succeeding years are approximately: $31.2 million for 1999;
$13.1 million for 2000; $9.8 million for 2001; $4.9 million for 2002; and
$2.1 million for 2003.
11
<PAGE>
An analysis of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Balance beginning of year $ 128,990 $ 104,812 $ 67,740
Addition due to acquisitions and purchases of loans 13,035 10,895 1,738
Reduction due to sales of loans (8,990) -- --
Provision for loan losses 173,311 201,494 180,059
Loans charged off (213,325) (213,348) (164,711)
Loans recovered 28,856 25,137 19,986
-----------------------------------------------------------------------------------------------------------------------
Total net charge-offs (184,469) (188,211) (144,725)
-----------------------------------------------------------------------------------------------------------------------
Balance end of year $ 121,877 $ 128,990 $ 104,812
=======================================================================================================================
</TABLE>
The Company grants individual consumer, commercial, agricultural, and real
estate loans to its customers. The commercial loan portfolio is
diversified, consisting of numerous industries located or headquartered
primarily in the Company's operating region which includes Nebraska,
Colorado, Kansas, South Dakota and Iowa. The majority of individual
consumer loans are to customers located in the Midwest.
The Company evaluates each borrower's creditworthiness on a case-by-case
basis. The individual consumer loan category is predominately unsecured,
and the allowance for potential losses associated with these loans has been
established accordingly. The majority of the non-consumer loan categories
are generally secured by real estate, operating assets, or financial
instruments. The amount of collateral obtained is based upon management's
evaluation of the borrower.
As of December 1998 and 1997 and for the years then ended, the Company's
recorded investment in impaired loans and associated interest income were
immaterial.
Loan participations sold to banks owned by shareholders of the Company were
$90.6 million and $81.6 million, respectively, at December 31, 1998 and
1997. Loans to subsidiary bank directors and their associates were
approximately $27.7 million and $35 million at December 31, 1998 and 1997,
respectively.
D. PREMISES AND EQUIPMENT:
Premises and equipment were comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Land $ 14,166 $ 14,428
Buildings 77,557 73,342
Leasehold improvements 24,526 25,558
Equipment 164,958 144,917
----------------------------------------------------------------------------------------------
281,207 258,245
Less accumulated depreciation 142,354 122,191
----------------------------------------------------------------------------------------------
Net premises and equipment $138,853 $136,054
==============================================================================================
</TABLE>
12
<PAGE>
E. DEPOSITS:
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100,000, was approximately $564.2 million and $367.4 million
in 1998 and 1997, respectively.
At December 31, 1998, the scheduled maturities of total certificates of
deposit were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
(in thousands)
<S> <C>
1999 $2,751,081
2000 811,715
2001 78,638
2002 54,500
2003 and thereafter 34,293
-------------------------------------------------------------------------
Total certificates of deposit $3,730,227
=========================================================================
</TABLE>
F. OTHER BORROWINGS AND CAPITAL NOTES:
Included in other borrowings, the Company had advances from the Federal
Home Loan Bank with maturities as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT RATE AMOUNT
----------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Scheduled maturities due:
Due in one year or less 6.07% $ 639 6.17% $ 433
Due after one year through two years 6.04 752 6.50 240
Due after two years through three years 6.10 669 6.29 449
Due after three years through four years 6.28 1,088 6.50 259
Due after four years through five years 4.84 20,986 6.50 269
Due after five years 6.41 4,401 6.77 2,307
----------------------------------------------------------------------------------------------------------------
Total advances 5.23% $28,535 6.60% $3,957
================================================================================================================
</TABLE>
As of December 31, 1998, these Federal Home Loan Bank advances carried
interest rates ranging from 4.47% to 7.34% and are collateralized by certain
real estate loans in compliance with Federal Home Loan Bank requirements.
Additionally, the Company holds shares of Federal Home Loan Bank stock as
required.
At December 31, 1998 and 1997, Bank premises were subject to a mortgage
which requires annual payments of $1.3 million including interest at 7.75%,
through the year 2003. The Bank may prepay the mortgage with a prepayment
premium. The mortgage balance was $4.4 million and $5.3 million at December
31, 1998, and 1997, respectively.
In December 1997, the parent company replaced an existing $75 million
revolving credit line with a $100 million syndicated revolving credit
facility. This revolving credit facility bears a variable rate of interest
tied to publicly announced debt ratings of the Bank. At December 31, 1998,
there was no balance outstanding and at December 31, 1997, there was $19
million outstanding under this credit facility reflected in other borrowings.
The credit facility will mature on December 4, 2000, at which time, any
outstanding balance will be due. Among other restrictions, the loan agreement
requires that the Company maintain certain financial covenants.
In addition to the aforementioned syndicated revolving credit facility for
the Company, a $150 million revolving credit facility for the Bank was also
syndicated to the same bank group. This credit facility is available for
general liquidity purposes and bears a variable rate of interest tied to
publicly announced debt ratings of the Bank. At December 31, 1998 and 1997,
there was no balance outstanding under this credit facility. The credit
facility will mature on December 4, 2000, at which time, any outstanding
balance will be due. Among other restrictions, the loan agreement requires
that the Bank maintain certain financial covenants.
13
<PAGE>
The Bank has $75 million in subordinated capital notes which are due to
mature on December 1, 2010. The subordinated capital notes pay interest semi-
annually on June 1 and December 1 at a fixed rate of 7.32%. The subordinated
capital notes are unsecured and subordinated to the claims of depositors and
general creditors of the Bank. No sinking fund has been provided, and the
subordinated capital notes may not be redeemed, in whole or in part, prior to
maturity.
The parent company has unsecured capital notes which require principal
payments through 2006. At December 31, 1998 and 1997, $17.9 million and $19.1
million, respectively, were outstanding on these notes. The capital notes are
noncallable and carry interest rates ranging from 9.00% to 12.50%. Principal
amounts due on capital notes in each of the succeeding five years and
thereafter are approximately: $800,000 in 1999 and 2000; $700,000 in 2001;
$7.5 million in 2002; $1.9 million in 2003; and $6.2 million in years
thereafter.
G. INCOME TAXES:
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $42,870 $45,875
Employee benefits 7,212 6,210
Purchased credit card relationships 3,473 896
Other 5,118 3,974
--------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 58,673 56,955
--------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Basis difference between tax and financial reporting arising from acquisitions 522 778
Lease financing 3,577 2,158
Change in accrual method recognized over future periods for tax purposes 6,825 4,444
Retained interests recorded in securitization 3,823 6,036
Other 3,164 1,822
--------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 17,911 15,238
--------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $40,762 $41,717
====================================================================================================================
</TABLE>
The following is a comparative analysis of the provision for federal and
state taxes:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
---------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current:
Federal $51,680 $49,969 $ 54,302
State 5,485 3,978 3,339
---------------------------------------------------------------------------------------------------------------------
57,165 53,947 57,641
Deferred:
Federal (1,497) (4,841) (13,257)
State 40 (388) (263)
---------------------------------------------------------------------------------------------------------------------
(1,457) (5,229) (13,520)
---------------------------------------------------------------------------------------------------------------------
Total provision for income taxes $55,708 $48,718 $ 44,121
=====================================================================================================================
</TABLE>
14
<PAGE>
The effective rates of total tax expense for the years ended December 31,
1998, 1997, and 1996 were different than the statutory federal tax rate. The
reasons for the differences were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
(percent of pretax income)
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
Additions/(reductions) in taxes resulting from:
Tax-exempt interest income (0.6) (0.8) (0.8)
State taxes 2.0 2.1 1.9
Other items, net 2.8 3.0 2.5
- ------------------------------------------------------------------------------------------------------------------------------------
Effective tax rate 39.2% 39.3% 38.6%
====================================================================================================================================
</TABLE>
H. EMPLOYEE BENEFIT PLANS:
The Company provides a noncontributory defined benefit pension plan to
employees. The pension plan covers substantially all employees with one or
more years of service. Pension benefits are based on years of service and
the employee's high five-year average compensation. The pension benefits are
funded under a self-administered pension trust with the Bank's trust
department acting as trustee. The Company's policy is to fund the pension
plan with sufficient assets necessary to meet benefit obligations as
determined on an actuarial basis (normally up to the amount deductible under
existing tax regulations).
In addition to providing pension benefits, the Company also provides
postretirement medical and death benefits to retired employees meeting
certain eligibility requirements. The medical plan is contributory, whereby
the retired employee pays a portion of the health insurance premium, and
contains other cost-sharing features such as deductibles and coinsurance.
The following tables provide a reconciliation of the benefit obligations,
plan assets and funded status of the pension and postretirement benefit
plans.
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
----------------------------- ----------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at January 1 $45,532 $35,871 $5,373 $4,485
Service cost 4,605 3,817 526 415
Interest cost 3,329 2,676 382 306
Retiree contributions -- -- 61 53
Actuarial gain 6,656 4,359 406 331
Benefits paid (1,369) (1,191) (181) (217)
- ------------------------------------------------------------------------------------------------------------------------------------
Benefit obligation at December 31 $58,753 $45,532 $6,567 $5,373
====================================================================================================================================
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------------------- ----------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
CHANGE IN PLAN ASSETS:
Fair value of plan assets at January 1 $78,875 $72,554 -- --
Actual return on plan assets 1,013 7,512 -- --
Benefits paid (1,369) (1,191) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 $78,519 $78,875 -- --
====================================================================================================================================
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
-------------------------------- -------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Funded status $ 19,766 $ 33,343 $(6,567) $(5,373)
Unrecognized net actuarial gain (16,509) (29,841) (1,497) (1,975)
Unrecognized prior service cost 485 549 -- --
Unrecognized net assets at transition (728) (1,123) -- --
Unrecognized transition obligation -- -- 3,052 3,268
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 3,014 $ 2,928 $(5,012) $(4,080)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS AS OF DECEMBER 31:
(WEIGHTED AVERAGES)
<S> <C> <C> <C> <C>
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 8.00% 8.00% -- --
Rate of compensation increase 5.00% 5.00% -- --
</TABLE>
Pension plan assets consist primarily of equity securities, corporate bonds
and government and agency securities. At December 31, 1998, the pension plan
owned parent company common stock with an original cost of $270,000.
Net periodic benefit cost (income) included the following components:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 4,605 $ 3,817 $ 3,210 $ 526 $ 415 $ 314
Interest cost 3,329 2,676 2,288 382 306 300
Amortization of prior service costs 63 63 63 -- -- --
Expected return on plan assets (6,262) (5,219) (5,081) -- -- --
Recognized net actuarial gain (1,427) (1,683) (2,138) (72) (105) (95)
Amortization of transition amounts (394) (394) (394) 217 217 217
- -----------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost (income) $ (86) $ (740) $(2,052) $1,053 $ 833 $ 736
=============================================================================================================================
</TABLE>
The assumed healthcare cost trend rate used to measure the expected cost of
benefits covered by the postretirement benefit plan was 7% in 1998 decreasing
to 5% in 2000, and remaining constant thereafter. The healthcare cost trend
rate assumption could have a significant effect on the amounts reported. A
one percentage point change in the assumed healthcare cost trend rates would
have the following effects:
<TABLE>
<CAPTION>
One Percentage One Percentage
Point Increase Point Decrease
---------------- ---------------
(in thousands)
<S> <C> <C>
Effect on total of service and interest cost components
of net periodic postretirement healthcare cost $ 52 $ (44)
Effect on postretirement benefit obligation 297 (255)
</TABLE>
16
<PAGE>
In addition to the pension and postretirement benefit plans, the Company also
has a 401(k) savings plan which covers substantially all employees. Total
cost for these plans, included within other operating expense, for the years
ended December 31, 1998, 1997 and 1996 approximated $1.7 million, $1.3
million and $1.2 million, respectively.
I. CONTINGENCIES AND COMMITMENTS:
In the normal course of business, there are various outstanding commitments
to extend credit in the form of unused loan commitments and standby letters
of credit that are not reflected in the consolidated financial statements.
Since commitments may expire without being exercised, these amounts do not
necessarily represent future cash requirements. The Company uses the same
credit and collateral policies in making commitments as those described in
Note C.
At December 31, 1998 and 1997, the Company had unused loan commitments,
excluding consumer credit card lines, of $1.6 billion and $1.3 billion,
respectively. Additionally, standby letters of credit of $86.4 million and
$49.3 million at December 31, 1998 and 1997, respectively, had been issued.
The majority of these commitments are collateralized by various assets. No
material losses are anticipated as a result of these transactions.
The Company had unused consumer credit card lines of $21.3 billion and $17.5
billion at December 31, 1998 and 1997, respectively. The Company has the
contractual right to change the conditions of the credit card members'
benefits or terminate the unused line at any time without prior notice.
Since many unused credit card lines are never actually drawn upon, the
unfunded amounts do not necessarily represent future funding requirements.
The Company has operating leases for office space with terms ranging from one
to ten years, which may include renewal options. Certain leases also include
residual value guarantees up to $102 million, or alternatively, the Company
may elect to exercise purchase options totaling $118 million. Operating
leases on equipment and office space require future minimum annual rental
payments as follows: 1999-$20.9 million; 2000-$20.6 million; 2001-$16
million; 2002-$15.5 million; 2003-$10.6 million; and $15.6 million thereafter
through the year 2022. Rental expense on leases for the years ending
December 31, 1998, 1997 and 1996 was approximately $19.9 million; $14.8
million; and $12.8 million, respectively.
J. REGULATORY MATTERS:
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 Office of the
Comptroller of the Currency (OCC). All federally-insured banks are also
regulated by the Federal Deposit Insurance Corporation (FDIC). The Company's
banking subsidiaries include nine national banks and three state-chartered
banks, all of which are insured by the FDIC. The state-chartered banks are
also regulated by state banking authorities.
The ability of the parent company to pay cash dividends to its shareholders
and service debt may be dependent upon cash dividends from its subsidiary
banks. Subsidiary national banks are subject to regulatory restrictions on
the amount they may pay in dividends. At December 31, 1998, approximately
$106.2 million of subsidiary national banks' retained earnings were available
for dividend declaration without prior regulatory approval.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and its bank subsidiaries must meet specific
capital guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
practices. These quantitative measures require the Company and its bank
subsidiaries to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). The Company and its bank subsidiaries' capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
As of December 31, 1998, the most recent notification from the OCC
categorized the Company's banking subsidiaries as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions
or events since that notification that management believes have changed the
institution's category. To be categorized as well capitalized the Company's
banking subsidiaries must maintain minimum total risk-based capital of 10%,
Tier I risk-based capital of 6%, and Tier I leverage capital of 5%.
17
<PAGE>
The Company's and First National Bank of Omaha's actual capital amounts and
ratios are presented in the following table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR MINIMUM CAPITAL ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ -------------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998
Total Capital to Risk Weighted Assets
Consolidated $689,260 10.7% $515,343 8.0% N/A
First National Bank of Omaha $348,203 10.5% $264,559 8.0% $330,699 10.0%
Tier I Capital to Risk Weighted Assets
Consolidated $520,574 8.1% $257,671 4.0% N/A
First National Bank of Omaha $231,690 7.0% $132,280 4.0% $198,419 6.0%
Tier I Capital to Average Assets
Consolidated $520,574 6.8% $304,980 4.0% N/A
First National Bank of Omaha $231,690 5.8% $159,924 4.0% $199,905 5.0%
AS OF DECEMBER 31, 1997
Total Capital to Risk Weighted Assets
Consolidated $601,555 10.7% $450,062 8.0% N/A
First National Bank of Omaha $311,243 11.2% $223,238 8.0% $279,048 10.0%
Tier I Capital to Risk Weighted Assets
Consolidated $440,739 7.8% $225,031 4.0% N/A
First National Bank of Omaha $201,002 7.2% $111,619 4.0% $167,429 6.0%
Tier I Capital to Average Assets
Consolidated $440,739 6.1% $288,026 4.0% N/A
First National Bank of Omaha $201,002 5.5% $146,078 4.0% $182,598 5.0%
</TABLE>
Pursuant to Federal Reserve Bank requirements, the Company's banking
subsidiaries are required to maintain certain cash reserve balances with the
Federal Reserve system. At December 31, 1998 and 1997, the aggregate
required cash reserve balances were approximately $24.1 million and $58.9
million, respectively.
K. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The following presents the carrying amount and fair value of the specified
assets and liabilities held by the Company at December 31, 1998 and 1997.
The information presented is based on pertinent information available to
management as of December 31, 1998 and 1997. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued since that time,
and the current estimated fair value of these financial instruments may have
changed since that point in time.
SECURITIES: The fair value of the Company's securities is based on the
quoted market prices at December 31, 1998 and 1997. Available-for-sale
securities are carried at their aggregate fair value. The carrying amount
and fair value of the Company's held-to-maturity securities at December 31,
1998 was $420.9 million and $423.6 million, respectively. The carrying amount
and fair value of the Company's available-for-sale securities at December 31,
1998 was $854.2 million. The carrying amount and fair value of the Company's
held-to-maturity securities at December 31, 1997 was $872.9 million and
$874.6 million, respectively. The carrying amount and fair value of the
Company's available-for-sale securities at December 31, 1997 was $381.3
million.
LOANS: The fair value of the Company's loans have been estimated using two
methods: 1) the carrying amount of short-term and variable rate loans
approximates fair value; and 2) for all other loans, discounting of projected
future cash flows. When using the discounting method, loans are pooled in
homogeneous groups with similar terms and conditions and discounted at a
target rate at which similar loans would be made to borrowers at year end.
In addition, when computing the estimated fair value for all loans, the
allowance for loan losses is subtracted from the calculated fair value for
consideration of credit issues. At December 31, 1998, the carrying amount
and fair value of the Company's loans was $5.6 billion and $6 billion,
respectively. The carrying amount for 1998 consists of gross loans of $5.7
billion less the allowance for loan losses of $121.9 million. The fair value
for 1998 consists of gross loans of $6.1 billion less the allowance for loan
losses of $121.9 million. At December 31, 1997, the carrying amount
18
<PAGE>
and fair value of the Company's loans was $4.9 billion and $5.1 billion,
respectively. The carrying amount for 1997 consists of gross loans of $5
billion less the allowance for loan losses of $129 million. The fair value
for 1997 consists of gross loans of $5.2 billion less the allowance for loan
losses of $129 million.
DEPOSITS: The methodologies used to estimate the fair value of deposits are
similar to the two methods used to estimate the fair value of loans. Deposits
are pooled in homogeneous groups and the future cash flows of these groups
are discounted using current market rates offered for similar products at
year end. The carrying amount and fair value of the Company's deposits at
December 31, 1998 was $6.9 billion. The carrying amount and fair value of the
Company's deposits at December 31, 1997 was $6.4 billion.
OTHER BORROWINGS AND CAPITAL NOTES: The fair value of other borrowings and
capital notes is estimated by discounting future cash flows using current
market rates for similar debt instruments. The carrying amount and fair value
of other borrowings and capital notes at December 31, 1998 was $125.9 million
and $135.2 million, respectively. The carrying amount and fair value of other
borrowings and capital notes at December 31, 1997 was $122.5 million and
$123.3 million, respectively.
OTHER FINANCIAL INSTRUMENTS: All other financial instruments of a material
nature fall into the definition of short-term and fair value is estimated as
the carrying amount. The carrying amount and fair value at December 31, 1998
of cash and due from banks was $434.3 million, federal funds sold and other
short-term investments was $382.2 million, and interest earned not collected,
which is included in other assets, was $74 million. The carrying amount and
fair value at December 31, 1997 of cash and due from banks was $428.8
million, federal funds sold and other short-term investments was $327
million, and interest earned not collected, which is included in other
assets, was $71.9 million.
The carrying amount and fair value at December 31, 1998 of federal funds
purchased and securities sold under repurchase agreements was $359 million,
and accrued interest payable, which is included in other liabilities, was
$35.1 million. The carrying amount and fair value at December 31, 1997 of
federal funds purchased and securities sold under repurchase agreements was
$217.9 million, and accrued interest payable, which is included in other
liabilities, was $36.9 million.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS: All material amounts of off-balance
sheet financial instruments are characterized as short-term instruments
because of the conditions of the contract and repricing ability. The
carrying value of all off-balance sheet financial instruments approximates
the fair value. At December 31, 1998 and 1997, the Company had unused loan
commitments of $1.6 billion and $1.3 billion, respectively; standby letters
of credit of $86.4 million and $49.3 million, respectively; and unused
consumer credit card lines of $21.3 billion and $17.5 billion, respectively.
L. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement establishes accounting
and reporting standards requiring that every derivative (including certain
derivatives embedded in contracts) be recorded in the balance sheet as either
an asset or liability measured at its fair value. The statement requires
that changes in the fair value of derivatives be recognized currently in
earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gain or loss to offset
related results on the hedged item in the income statement, and requires that
a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999, but
it may be implemented earlier at a company's election. A company must also
implement the statement as of the beginning of any quarter and it can not be
applied retroactively to financial statements of prior periods. SFAS No. 133
must be applied to (a) derivatives and (b) certain derivatives embedded in
hybrid contracts that were issued, acquired or substantively modified after
December 31, 1997 (and, at the company's election, before January 1, 1998).
The Company has elected not to implement SFAS No. 133 before it is required
and therefore, it has not determined the impact of this new accounting
standard on its financial statements.
19
<PAGE>
M. CONDENSED FINANCIAL INFORMATION OF FIRST NATIONAL OF NEBRASKA:
FIRST NATIONAL OF NEBRASKA (parent company only)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
DECEMBER 31,
1998 1997
- --------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 529 $ 603
Other short-term investments 2,750 1,400
- --------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents 3,279 2,003
Securities available-for-sale 445 445
Loans to nonbanking subsidiaries 2,525 2,295
Investment in subsidiaries:
First National Bank of Omaha 231,976 201,820
Other banking subsidiaries 365,091 342,552
Nonbanking subsidiaries 5,164 3,068
- --------------------------------------------------------------------------------------------------------------
Total investment in subsidiaries 602,231 547,440
Other assets 5,324 6,047
- --------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $613,804 $558,230
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings $ -- $ 19,000
Deferred gain on sale of buildings 5,165 5,767
Other liabilities 6,472 4,354
Capital notes 17,864 19,052
- --------------------------------------------------------------------------------------------------------------
Total liabilities 29,501 48,173
Stockholders' equity:
Common stock 1,675 1,675
Additional paid-in capital 2,515 2,515
Retained earnings 578,951 504,184
Accumulated other comprehensive income 1,162 1,683
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 584,303 510,057
- --------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $613,804 $558,230
==============================================================================================================
</TABLE>
20
<PAGE>
FIRST NATIONAL OF NEBRASKA (parent company only)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
(in thousands except share and per share data)
<S> <C> <C> <C>
Revenues:
Income from subsidiaries:
Dividends from First National Bank of Omaha $ 14,988 $ 21,491 $ 23,436
Dividends from other banking subsidiaries 23,575 20,100 24,200
Dividends from nonbanking subsidiaries -- 13,069 5,600
Interest income on commercial paper 159 2,380 2,546
Recognized gain on sale of buildings 602 602 602
Investment interest and other income 462 796 569
- ------------------------------------------------------------------------------------------------------
Total revenues 39,786 58,438 56,953
Expenses:
Interest 2,749 5,622 5,065
Other 3,358 2,243 2,338
- ------------------------------------------------------------------------------------------------------
Total expenses 6,107 7,865 7,403
- ------------------------------------------------------------------------------------------------------
Income before income taxes and equity in undistributed
earnings of subsidiaries 33,679 50,573 49,550
Income tax expense (benefit) 641 371 (174)
- ------------------------------------------------------------------------------------------------------
Total income before equity in undistributed
earnings of subsidiaries 33,038 50,202 49,724
- ------------------------------------------------------------------------------------------------------
Equity in undistributed (overdistributed) earnings
of subsidiaries:
First National Bank of Omaha 30,688 14,978 21,669
Other banking subsidiaries 22,530 14,737 598
Nonbanking subsidiaries 236 (4,730) (1,759)
------------------------------------------------------------------------------------------------------
Total equity in undistributed earnings of subsidiaries 53,454 24,985 20,508
- ------------------------------------------------------------------------------------------------------
NET INCOME $ 86,492 $ 75,187 $ 70,232
======================================================================================================
Average number of shares outstanding 335,000 340,706 346,767
======================================================================================================
Net income per share $ 258.19 $ 220.68 $ 202.53
======================================================================================================
</TABLE>
21
<PAGE>
FIRST NATIONAL OF NEBRASKA (parent company only)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 86,492 $ 75,187 $ 70,232
Adjustments to reconcile net income to net cash
flows from operating activities:
Equity in undistributed earnings of subsidiaries (53,454) (24,985) (20,508)
Recognized gain on sale of buildings (602) (602) (602)
Other, net 2,913 (28) 415
- ------------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 35,349 49,572 49,537
CASH FLOWS FROM INVESTING ACTIVITIES
Change in investment in subsidiaries and other assets (2,090) (14,975) (35,102)
- ------------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (2,090) (14,975) (35,102)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of other borrowings and capital notes $ -- $ 52,029 $ 23,000
Principal repayments of other borrowings
and capital notes (20,258) (80,662) (27,232)
Repayment of payable to subsidiary -- (2,075) --
Repurchase of common stock -- (42,362) --
Cash dividends paid (11,725) (11,608) (12,906)
- ------------------------------------------------------------------------------------------------------------
Net cash flows from financing activities (31,983) (84,678) (17,138)
- ------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 1,276 (50,081) (2,703)
Cash and cash equivalents at beginning of year 2,003 52,084 54,787
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,279 $ 2,003 $ 52,084
============================================================================================================
Cash paid during the year for:
Interest $ 2,833 $ 5,735 $ 5,328
============================================================================================================
</TABLE>
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First National of Nebraska, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated statements of financial condition
of First National of Nebraska, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First National of
Nebraska, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Omaha, Nebraska
February 2, 1999
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL:
The Company consists of the parent company, which is a Nebraska-based interstate
bank holding company, and its consolidated subsidiaries. Its principal
subsidiaries 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 and its wholly-owned subsidiary:
Nebraska Trust Company, N.A.; 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 Colorado subsidiaries which
primarily include: First National Bank, Fort Collins; Union Colony Bank,
Greeley; The Bank in Boulder; and FNC Trust Group, N.A. 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 nine
national banks and three state-chartered banks, all of which are insured by the
FDIC. The state-chartered banks are also regulated by state banking authorities.
The Company has 46 years of experience providing credit card services and was
one of the originators of the bank credit card industry. 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, 1998, the Company was the eighteenth
largest bank credit card issuer based on the amount of managed credit card loans
outstanding. The Company performs credit card servicing activities on behalf of
its affiliate 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 affiliate banks.
Competitors of the Company include 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 credit cards. Asset quality issues
continue to be an industry-wide concern for all credit card issuers due to the
continued high levels of consumer delinquencies and bankruptcies.
The Company continues to make substantial investments in data processing
technology for 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. In 1998, the Company was ranked the ninth largest merchant credit
card processor in the United States with over $19.2 billion transactions
processed in 1998 and $16.7 billion transactions processed in 1997. It was also
ranked among the top twenty largest automated clearinghouse processors in the
country and is one of the largest check processors in its market area.
Furthermore, the Company provides data processing services to 44 non-affiliated
banks located in ten states. Fee income continues to increase through the
ongoing expansion of these and other processing services. The Company continues
to closely monitor the risks and competitive conditions as they relate to
pricing and technological issues associated with these processing services.
Management's discussion and analysis contains forward looking statements which
reflect management's current views and estimates of future economic
circumstances, industry conditions, company performance and financial results.
The statements are based on many assumptions and factors, including general
economic conditions, consumer behavior, competitive environment and related
market conditions, operating efficiencies, and actions of governments. Any
changes in such assumptions or factors could produce different results.
RESULTS OF OPERATIONS:
OVERVIEW:
The Company earned a record net income for 1998 of $86.5 million. In 1998, net
income increased $11.3 million, or 15% from 1997, while in 1997, net income
increased $5 million, or 7.1% from 1996. Earnings have remained strong primarily
due to continued growth in net interest income, noninterest income, and ongoing
expense control. In 1998, net income also reflected proceeds received by the
Company related to the settlement of litigation. In 1998, net income per share
was $258.19 compared to $220.68 and $202.53, respectively, for 1997 and 1996.
The increase of $18.15 in earnings per share from 1996 to 1997 is partially
attributable to the repurchase and retirement of 11,767 shares of the Company's
24
<PAGE>
common stock in 1997. Return on average stockholders' equity for 1998 was 15.7%
compared to 15.2% for 1997 and 15.4% for 1996. Return on average assets for 1998
was 1.2% compared to 1.1% for 1997 and 1996.
NET INTEREST INCOME:
The Company's primary source of income is net interest income which is defined
as the difference between interest income and fees derived from earning assets
and interest expense on interest-bearing liabilities. Interest income and
expense are affected by changes in the volume and mix of interest-earning assets
and interest-bearing liabilities, in addition to changes in interest rates. The
following table presents a summary of net interest income on a tax-equivalent
basis, related average earning assets and net interest margin:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Net interest income on a tax equivalent basis $ 512,944 $ 498,570 $ 485,783
Average earning assets 6,801,408 6,466,847 5,714,329
Net interest margin 7.54% 7.71% 8.50%
</TABLE>
Net interest margins and percentage spreads decreased primarily due to asset
yields repricing downward in response to market conditions at a faster rate than
the repricing of deposits. The Company's proactive asset and liability
management strategies are reflected in the continued growth in net interest
income over the three-year period ending December 31, 1998.
PROVISION FOR LOAN LOSSES:
On a monthly basis, the Company evaluates its allowance for loan losses based
upon a review of collateral values, delinquencies, nonaccruals, payment
histories and various other analytical and subjective measures relating to the
various loan portfolios within the Company. The provision for loan losses
decreased $28.2 million to $173.3 million for 1998 compared to $201.5 million
for 1997. In 1997, the provision for loan losses increased $21.4 million
compared to 1996. The decrease in the provision for loan losses in 1998 related
primarily to an improvement in total net charge-offs as a percentage of average
loans decreasing to 3.38% in 1998 from 3.67% in 1997 and reflected the Company's
increased collection efforts during 1998. The increase in the provision for loan
loss in 1997 was the result of higher net charge-offs primarily due to a
weakening consumer credit environment. The level of net charge-offs remains high
primarily due to the high volume of delinquencies on consumer credit card loans
and consumer bankruptcies which continue to adversely affect the credit card
industry.
NONINTEREST INCOME:
Noninterest income was $274.3 million in 1998, an increase of 18.3%, or $42.4
million, from 1997. In 1997, noninterest income was $231.9 million, an increase
of 32.5%, or $56.9 million, from 1996. The 1998 increase is spread across all
noninterest income areas. The increase in miscellaneous income largely reflects
proceeds received from the settlement of litigation. Credit card securitization
income was $61 million in 1998 compared to $51.8 million and $15 million in 1997
and 1996, respectively. These increases of $9.2 million and $36.8 million in
1998 and 1997, respectively, are the result of increased average securitization
volumes of $695 million, $442 million and $200 million during 1998, 1997 and
1996, respectively. The related credit card securitization income includes
servicing income of $47.8 million and $34.6 million recognized in 1998 and 1997,
respectively, and securitization gains recognized by the Company in accordance
with SFAS No. 125 of $13.2 million and $17.2 million in 1998 and 1997,
respectively (see also Credit Card Loan Activities). Deposit services income
increased $2.1 million, or 9%, in 1998 and $3 million, or 14.8%, in 1997 due
primarily to the growth in total deposits. Trust and investment services
increased $2.3 million, or 11.5%, in 1998 and $2.8 million, or 15.7%, in 1997,
generally, as a result of growth in the Company's customer base. Commission
income was $15.7 million in 1998 compared to $14.2 million and $11.1 million in
1997 and 1996, respectively, reflecting an increase of 10.5% and 28.5% in 1998
and 1997, respectively. These increases largely relate to growth in investment
sales activities.
NONINTEREST EXPENSE:
Noninterest expense was $471.3 million in 1998, an increase of 16.5% or $66.8
million, from 1997. Noninterest expense in 1997 was $404.5 million, an increase
of 10.6% or $38.7 million from 1996. A significant portion of these increases
was due to salaries and employee benefits which increased 17.2% in 1998 and
14.9% in 1997 resulting from overall Company growth. Processing expense
increased 8.4% and 26.5% in 1998 and 1997, respectively, primarily due to credit
card processing expenses temporarily paid to external processors until
conversion of newly acquired credit card portfolios to the Company's own
computer system. Miscellaneous expense increased $8.8 million, or 30.2%, and
$5.6 million, or 24%, respectively, in 1998 and 1997. These increases in
miscellaneous expense were largely due to the amortization of the premiums paid
relating to the credit card portfolio acquisitions. Loan servicing expense
increased $7.6 million, or 21.1%, in 1998 partially due to the Company's
increased collection efforts and the resulting increases in collection costs.
Professional services increased 8.9% and 10.5%, respectively, in 1998 and 1997
principally due to increased fees paid to sales representatives and
organizations to acquire additional merchant sales business. Increases in
remaining expense
25
<PAGE>
categories related to continued Company growth and addressing Year 2000 issues.
This growth was primarily due to increased processing volumes, the acquisition
of new customer relationships and loan portfolios and continued investments in
technology. The increases in noninterest expense in 1997 compared to 1996 were
partially offset by a decrease of 8.7% in communication and supplies expense
principally due to reductions in marketing expenditures during 1997 which have
remained at a lower level during 1998.
CREDIT CARD LOAN ACTIVITIES:
The Company securitizes credit card loans on a revolving basis as a funding
vehicle to supplement its use of core deposits as its primary source of funding.
These securitizations are accounted for as sales in accordance with SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which was adopted by the Company in 1997. Since
the Company continues to service these securitized loans, it takes the role of a
loan servicer rather than a lender. As loans are securitized, gains which
represent the present value of retained cash flows are recorded, and the loans
along with the related allowance for credit losses are removed from the balance
sheet. The securitizations result in differences in the amount of reported loans
versus managed loans. Reported loans reflect the removal of these securitized
loans from the balance sheet in accordance with generally accepted accounting
principles while managed loans include both securitized loans and reported
loans. The following table reflects the reconciliation of the loan portfolio
between reported and managed loans at December 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
REPORTED SECURITIZED MANAGED REPORTED SECURITIZED MANAGED
---------------------------------------------------------------------------------
(in thousands)
MANAGED LOAN DATA
- -----------------
<S> <C> <C> <C> <C> <C> <C>
AS OF YEAR END:
Total loans outstanding $5,746,054 $653,022 $6,399,076 $5,010,982 $950,000 $5,960,982
Total credit cards and related
plans outstanding $2,781,626 $653,022 $3,434,648 $2,442,527 $950,000 $3,392,527
ANNUAL AVERAGE:
Total loans outstanding $5,454,209 $695,367 $6,149,576 $5,135,400 $442,338 $5,577,738
Total credit cards and related
plans outstanding $2,728,328 $695,367 $3,423,695 $2,872,623 $442,338 $3,314,961
</TABLE>
In addition to credit card securitization activities, the Company acquired 25
credit card loan portfolios totaling $370.4 million throughout 1998. In June
1997, the Company purchased $265 million in credit card loans.
ASSET QUALITY:
The Company's loan delinquency rates and net charge-off activity reflect, among
other factors, general economic conditions, the quality of the loans, the
average seasoning of the loans and the success of the Company's collection
efforts. The Company's objective in managing its loan portfolio is to balance
and optimize the profitability of the loans within the context of acceptable
risk characteristics. The Company continually monitors the risks embedded in the
credit card loan portfolio with the use of statistically-based simulation
models.
The consumer credit industry continues to experience high levels of
delinquencies and charge-offs. As a major credit card issuer, the Company also
continues to experience high net charge-off and delinquency rates. The increased
delinquencies and charge-off trends appear to have leveled off, but it is likely
selected segments of consumers may continue to experience declines in credit
quality. Therefore, management continues to closely evaluate and monitor
consumer behavior, credit standards and marketing strategies.
The following table reflects the delinquency rates for the Company's overall
loan portfolio and for credit cards and related plans. An account is
contractually delinquent if the minimum payment is not received by the specified
billing date. The overall delinquency rate as a percentage of total loans was
3.37% at December 31, 1998 compared with 3.56% at December 31, 1997. The
increase in the outstanding balance of credit cards and related plans of $339.1
million during 1998 is primarily related to purchases of credit card portfolios.
26
<PAGE>
DELINQUENT LOANS:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------------------------
(in thousands)
TOTAL LOANS % OF LOANS % OF LOANS
- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Loans outstanding $ 5,746,054 $ 5,010,982
Loans delinquent:
30 - 89 days $ 121,237 2.11% $ 112,300 2.24%
90 days or more & still accruing 72,482 1.26% 66,221 1.32%
------------- ----------- ------------- ----------
Total delinquent loans $ 193,719 3.37% $ 178,521 3.56%
============= =========== ============= ==========
Nonaccrual loans $ 7,027 .12% $ 5,289 .11%
============= =========== ============= ==========
CREDIT CARDS AND RELATED PLANS
- ------------------------------
Loans outstanding $ 2,781,626 $ 2,442,527
Loans delinquent:
30 - 89 days $ 96,625 3.47% $ 89,902 3.68%
90 days or more & still accruing 68,578 2.47% 62,969 2.58%
------------- ----------- ------------- ----------
Total delinquent loans $ 165,203 5.94% $ 152,871 6.26%
============= =========== ============= ==========
Nonaccrual loans -- -- -- --
============= =========== ============= ==========
</TABLE>
The Company's policy is to charge off credit card and related plans when they
become 180 days contractually past due. Net loan charge-offs include the
principal amount of losses resulting from borrowers' unwillingness or inability
to pay, in addition to bankrupt and deceased borrowers, less current period
recoveries of previously charged-off loans. The allowance for loan losses is
intended to cover losses inherent in the Company's loan portfolio as of the
reporting date. The provision for loan losses is charged against earnings to
cover both current period net charge-offs and to maintain the allowance at an
acceptable level to cover losses inherent in the portfolio as of the reporting
date. Net charge-offs for the Company's overall portfolio were $184.5 million
for the year ended December 31, 1998 compared to $188.2 million for the same
period in 1997. Net charge-offs as a percentage of average loans were 3.38% for
1998 compared to 3.67% for 1997. The allowance as a percentage of loans was
2.12% as of December 31, 1998 compared to 2.57% as of December 31, 1997.
The following table presents the activity in the Company's allowance for loan
losses with a breakdown of charge-off and recovery activity related to credit
cards and related plans.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES:
FOR THE YEARS ENDED DECEMBER 31,
1998 1997
---------------------------------------------
(in thousands)
<S> <C> <C>
Balance at January 1 $ 128,990 $ 104,812
Addition due to acquisitions and loan purchases 13,035 10,895
Reduction due to sales of loans (8,990) --
Provision for loan losses 173,311 201,494
Loans charged off:
Credit cards and related plans (208,530) (205,683)
All other loans (4,795) (7,665)
Loans recovered:
Credit cards and related plans 26,527 22,754
All other loans 2,329 2,383
---------------- ---------------
Total net charge-offs (184,469) (188,211)
---------------- ---------------
Balance at December 31 $ 121,877 $ 128,990
================ ===============
Allowance as a percentage
of loans 2.12% 2.57%
Total net charge-offs as a percentage
of average loans 3.38% 3.67%
</TABLE>
27
<PAGE>
CAPITAL RESOURCES:
As described in Note J, the Company and its banking subsidiaries are required to
maintain minimum capital in accordance with regulatory guidelines. At December
31, 1998, First National Bank of Omaha and all other banking subsidiaries of the
Company exceeded the minimum requirements for the "well-capitalized" category as
established by supervisory agencies. The Company intends to maintain sufficient
capital in each of its banking subsidiaries to remain in the "well capitalized"
category.
On June 27, 1997, the Company repurchased 11,767 shares of the Company's common
stock. The 11,767 shares repurchased were retired decreasing the total number
of shares issued and outstanding to 335,000. In addition, the Company's Senior
Management Incentive Plan purchased 2,750 shares of the Company's common stock.
The purchase prices of these transactions were negotiated at arm's length and
reflected the fair value of the Company's common stock.
In 1995, First National Bank of Omaha issued $75 million in 15 year subordinated
capital notes. These subordinated capital notes, along with $17.9 million in
capital notes outstanding as of December 31, 1998 issued in connection with the
Company's previous acquisitions, count towards meeting the required capital
standards, subject to certain limitations. The Company has historically
retained approximately 85% of net income in capital to fund growth of future
operations and to maintain minimum capital standards.
LIQUIDITY MANAGEMENT:
Adequate liquidity levels are necessary to ensure that sufficient funds are
available for loan growth and deposit withdrawals. These funding needs are
offset by funds generated from loan repayments, investment maturities, and core
deposit growth. The Company's Asset and Liability Committee is responsible for
monitoring the current and forecasted balance sheet structure to ensure
anticipated funding needs can be met at a reasonable cost. Contingency plans
are in place to meet unanticipated funding needs or loss of funding sources.
The parent company's cash flows are dependent upon the receipt of dividends from
its banking subsidiaries which are subject to regulatory restrictions.
Domestic retail deposits are used as the primary source of funding for all
banking subsidiaries. In order to maintain flexibility and diversity in
liquidity management, the Company also has access to a variety of other funding
sources. These other sources include securities sold under repurchase
agreements, federal funds purchased, other short-term and long-term debt, and
subordinated capital notes. The Company also utilizes credit card-backed
securitization vehicles to assist in its management of liquidity, interest rate
risk and capital. At December 31, 1998 and 1997, $653 million and $950 million,
respectively, of the Company's managed credit card portfolio was securitized on
a revolving basis.
At December 31, 1998 and 1997, the parent company had no balance and $19
million, respectively, outstanding on a $100 million syndicated revolving credit
facility which is reflected in other borrowings. In addition to the syndicated
credit facility for the parent company, a $150 million revolving credit facility
for the Bank is also available for general liquidity purposes. The Bank had no
balance outstanding under this revolving credit facility at December 31, 1998
and 1997.
YEAR 2000 READINESS:
The Company's State of Readiness. As is the case for most financial service
- --------------------------------
companies that are heavily dependent on computer systems, the Year 2000 computer
problem presents significant issues for the Company. The Company began working
on Year 2000 challenges in 1994 and has established a Year 2000 Project
Management Office (PMO) to monitor, evaluate and manage the risks, solutions and
costs associated with Year 2000 issues. The PMO has developed a project plan
for the Company and serves as a resource to assist the Company's various
business units in assessment, remediation and testing for Year 2000 readiness.
The PMO also monitors and incorporates into the Company's plans the numerous
regulatory guidelines issued by the Federal Financial Institutions Examination
Council. The Company's various business units have been examined and will be
subject to ongoing examinations with regard to their Year 2000 readiness by
appropriate regulatory authorities and internal auditors. The Company's Year
2000 project includes internal IT (information technology) systems, internal
non-IT systems (such as microcontrollers in telephone, security and alarm
equipment) and external services and systems that are necessary to carry on the
Company's business.
The Company's Year 2000 Project includes four phases -- awareness, assessment,
remediation and testing. Executive management of the Company reviews and
approves these various phases of the project plan as they are completed.
. The Company considers the awareness phase of its Year 2000 Project to be
substantially complete from an internal standpoint. Awareness efforts with
regard to the Company's customers and vendors will be ongoing as circumstances
dictate.
28
<PAGE>
. The Company considers the assessment phase of its Year 2000 Project to be
substantially complete for internal mission critical systems (IT and non-IT).
Assessment of external services and systems has been dependent, in part, on
vendor management surveys. The Company has substantially completed this survey
process and has received a 100% response rate from mission critical vendors.
The Company's assessment phase has also included a review of its business
processes, with the goal being an identification of the Company's key
operational tasks, risks and priorities for mission critical systems.
. The remediation phase of the Company's project includes the analysis,
planning, and actual remediation necessary to bring mission critical internal
systems (both IT and non-IT) into a Year 2000 ready status. Remediation may
include upgrading, renovating or replacing existing systems. The Company
believes that this phase of its Year 2000 Project was substantially completed
as of December 31, 1998 with respect to internal mission critical systems. In
limited situations, however, completion of remediation is dependent on the
performance of third party vendors, which is not completely within the control
of the Company.
. The testing phase of the Company's project involves various types of testing
of internal and external mission critical systems and services with Year 2000
date information in various Year 2000 date scenarios. The Company has begun
the testing phase of its project and to the extent feasible plans to
substantially complete testing of mission critical systems and services by
June 30, 1999.
As remediated and tested internal mission critical systems are brought into
production, the Company plans to implement additional quality control management
practices to avoid the re-introduction of Year 2000-related problems. This is
important because normal operations and regulatory considerations may require
that modifications continue to be made to the Company's systems in 1999. To
some extent, therefore, all four phases of the Company's project will need to
continue on an ongoing basis throughout 1999 and beyond.
The Costs to Address the Company's Year 2000 Issues. Through December 31, 1998,
- ---------------------------------------------------
cumulative costs relating directly to Year 2000 issues since the project's
inception have totaled approximately $7 million. A significant portion of this
estimated total includes the cost of existing staff that have been redeployed to
the Year 2000 project from other technology development plans. These costs do
not include system upgrades and replacements that were made in the normal course
of operations for other purposes in addition to addressing Year 2000 issues. The
Company estimates that remaining Year 2000 costs will total approximately $6
million and therefore, the total estimated Year 2000 Project costs from
inception through completion should approximate $13 million.
The Risks of the Company's Year 2000 Issues. As is the case with many financial
- -------------------------------------------
services companies, the Company is heavily dependent on internal and external
computer systems and services. If those systems or services are interrupted, the
Company's ability to serve its retail banking customers and its nationwide base
of credit card customers could be directly affected. System failures could also
directly affect the Company's ability to fulfill its service commitments to
commercial customers. Many of the Company's commercial financial services are
either dependent upon computerized data processing, or are financial data
processing services in and of themselves. Some of these services include the
Company's national credit card merchant processing business, commercial cash
management services, financial institution data processing services, and
marketing and support of financial software products. Year 2000 failures
associated with internal and external systems and services could generate claims
or create other material adverse effects for the Company. Even though the
Company's Year 2000 Project will include contingency plans for third party Year
2000 failures, there can be no assurances that mission critical third party
vendors or other significant third parties (such as the telecommunications or
utilities industries, the Federal Reserve System or national credit card
associations) will adequately address their Year 2000 issues. Increased credit
losses associated with possible Year 2000 failures of major borrowers or
increased consumer cash demands resulting from publicity concerning Year 2000
problems could also have a material adverse effect on the Company. Uncertainty
prevents the Company from identifying any of these events as a reasonably likely
worst case scenario or quantifying their financial impact in any reasonable
manner. The Company generally advises commercial entities with which it does
business that it cannot guarantee that they or the Company will be completely
unaffected by the Year 2000. The Company nonetheless continues to monitor these
issues on an ongoing basis and, through its Year 2000 Project, will strive to
minimize their impact.
The Company's Contingency Plans. The Company is in the process of developing
- -------------------------------
contingency plans to address potential Year 2000 interruptions of its internal
and external mission critical systems and services. For example, the Company is
developing plans designed to meet possible unusually high cash demands generated
by the publicity concerning potential Year 2000 issues for financial
institutions. The initial contingency planning process is well under way as of
December 31, 1998. These plans will be subject to ongoing review, testing and
adjustment. Contingency plans may be limited or problematic for some systems or
services because there may be no reasonable economic alternatives for these
systems or services. There can be no assurance that contingency plans will
fully mitigate Year 2000 problems.
29
<PAGE>
The foregoing Year 2000 discussion contains forward-looking statements,
including without limitation, anticipated costs and the dates by which the
Company expects to substantially complete the remediation and testing of systems
and are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events, including the continued
availability of certain resources, representations received from third party
service providers and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific matters that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to identify and convert all relevant
computer systems, results of Year 2000 testing, adequate resolution of Year 2000
issues by governmental agencies, business or other third parties who are service
providers, suppliers, borrowers or customers of the Company, unanticipated
system costs, the need to replace hardware and the adequacy of and ability to
implement contingency plans and similar uncertainties.
MARKET RISK:
The Company's primary component of market risk is interest rate volatility. It
is the goal of the Company to maximize profits while effectively managing rather
than eliminating interest rate risk. Two primary measures are used to measure
and manage interest rate risk: Net Interest Income Simulation Modeling and
Interest Rate Sensitivity Gap Analysis.
NET INTEREST INCOME SIMULATION:
The Company uses a simulation model to analyze net interest income sensitivity
to movements in interest rates. The simulation model projects net interest
income based on both upward and downward interest rate shifts over a twelve
month period. Alternative scenarios are simulated by applying immediate shifts
in interest rates (rate shocks) and gradual shifts in interest rates (rate
ramps). These interest rate shifts are applied to a projected balance sheet for
the Company for the twelve month simulation period. Based on the information
and assumptions in effect at December 31, 1998, management believes that a 200
basis point rate shock or rate ramp over a twelve month period, up or down,
would not significantly affect the Company's annualized net interest income.
The Company has established guidelines that limit the acceptable potential
change in net interest margin and net income under these interest rate and
balance sheet scenarios. Given the minimal potential for significant risk
exposure relating to potential losses in future earnings, fair values or cash
flows of interest-rate-sensitive instruments illustrated by the simulations, the
Company does not engage in derivative transactions such as hedges, swaps, or
futures.
INTEREST RATE SENSITIVITY GAP ANALYSIS:
The Company uses interest rate sensitivity gap analysis to monitor the
relationship between the maturity and repricing of its interest-earning assets
and interest-bearing liabilities, while maintaining an acceptable interest rate
spread. Interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities maturing or repricing
within that time period. A gap is considered positive when the amount of
interest-rate-sensitive assets exceeds the amount of interest-rate-sensitive
liabilities, and is considered negative when the amount of interest-rate-
sensitive liabilities exceeds the amount of interest-rate-sensitive assets.
Generally, during a period of rising interest rates, a negative gap would
adversely affect net interest income, while a positive gap would result in an
increase in net interest income. Conversely, during a period of falling
interest rates, a negative gap would result in an increase in net interest
income, while a positive gap would negatively affect net interest income.
Management's goal is to maintain a reasonable balance between exposure to
interest rate fluctuations and earnings.
30
<PAGE>
The following table represents management's estimate of projected maturity or
repricing of the Company's interest-earning assets and interest-bearing
liabilities at December 31, 1998. Management believes that the table will
approximate actual experience; however, it should be noted that the gap analysis
is a point in time measurement that does not capture all aspects of interest
rate risk.
<TABLE>
<CAPTION>
GREATER THAN
THREE MONTHS ONE YEAR OVER
THREE MONTHS LESS THAN THROUGH FIVE
AS OF DECEMBER 31, 1998 OR LESS ONE YEAR FIVE YEARS YEARS TOTAL
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Earning assets:
Investment activities $ 602,407 $ 199,479 $ 800,779 $ 54,670 $ 1,657,335
Lending activities 2,580,332 292,357 2,116,775 756,590 5,746,054
- -------------------------------------------------------------------------------------------------------------------
Earning assets 3,182,739 491,836 2,917,554 811,260 7,403,389
Interest-bearing liabilities 2,845,767 2,193,593 1,327,016 89,898 6,456,274
- -------------------------------------------------------------------------------------------------------------------
Interest sensitive gap 336,972 (1,701,757) 1,590,538 721,362 947,115
Gap as a percent of earning assets 4.6% (23.0)% 21.5% 9.7% 12.8%
===================================================================================================================
Cumulative interest sensitive gap 336,972 (1,364,785) 225,753 947,115
Cumulative gap as a percent of
earning assets 4.6% (18.4)% 3.1% 12.8%
===================================================================================================================
</TABLE>
31
<PAGE>
FIRST NATIONAL OF NEBRASKA AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Total interest income and
noninterest income $1,109,894 $1,047,041 $ 940,471 $ 825,735 $ 645,806
Provision for loan losses 173,311 201,494 180,059 102,767 71,698
Net income 86,492 75,187 70,232 82,241 77,133
Net income per share 258.19 220.68 202.53 237.17 222.43
Cash dividends per share 35.00 33.76 37.22 33.73 38.07
Total assets 8,187,815 7,332,021 6,912,057 6,110,542 5,261,907
Managed assets (1) 8,840,837 8,282,021 7,112,057 6,310,542 5,261,907
Other borrowings and capital notes 97,368 118,541 103,136 109,216 60,966
Federal Home Loan Bank advances 28,535 3,957 740 -- --
</TABLE>
THE COMPANY'S STOCK IS TRADED OVER-THE-COUNTER.
BID PRICE QUOTES PER SHARE, HIGH AND LOW, BY QUARTER (2)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
HIGH LOW HIGH LOW
------------------------------------------------
<S> <C> <C> <C> <C>
1st quarter $3,675 $3,600 $3,550 $3,300
2nd quarter 3,940 3,650 3,900 3,450
3rd quarter 3,900 3,500 4,100 3,800
4th quarter 3,500 3,250 4,000 3,600
</TABLE>
DIVIDENDS PER SHARE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------
<S> <C> <C>
1st quarter $ 8.75 $ 8.44
2nd quarter 17.50 16.88
3rd quarter 8.75 8.44
</TABLE>
NUMBER OF STOCKHOLDERS
- --------------------------------------------------------------------------------
As of January 31, 1999, there were 335,000 shares of common stock issued and
outstanding which were held by more than 380 shareholders of record. The
shareholders of record number does not reflect the persons or entities who hold
their stock in nominee or "street" name.
(1) Reported assets plus securitized credit card loans
(2) Source: Kirkpatrick Pettis Inc., Omaha, Nebraska
Such over-the-counter market quotations reflect interdealer prices,
without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions. The Company's common stock
experiences limited trading activities.
32
<PAGE>
================================================
FIRST NATIONAL OF NEBRASKA
OFFICERS AND DIRECTORS
================================================
Bruce R. Lauritzen
Chairman, President & Director
Margaret Lauritzen Dodge
Director
Elias J. Eliopoulos
Executive Vice President & Director
F. Phillips Giltner
Chairman Emeritus & Director
J. William Henry
Executive Vice President & Director
Dennis A. O'Neal
Executive Vice President, Treasurer & Director
Daniel K. O'Neill
Director
Steven K. Ritzman
Senior Vice President
Charles R. Walker
Executive Vice President, Secretary & Director
33
<PAGE>
FIRST NATIONAL BANK OF OMAHA
SENIOR OFFICERS AND DIRECTORS
<TABLE>
<S> <C>
==================================================================================================================================
Bruce R. Lauritzen......Chairman, President & Director
Elias J. Eliopoulos.....Executive Vice President & Director Dennis A. O'Neal.......Executive Vice President & Director
J. William Henry........Executive Vice President & Director Charles R. Walker......Executive Vice President & Director
- ------------------------------------------------------------------------------------------------------------------------------------
F. Phillips Giltner.....Chairman Emeritus & Director Noyes W. Rogers........Director Robert W. Tritsch......Director
- ------------------------------------------------------------------------------------------------------------------------------------
Marc M Diehl.................Senior Vice President & Director, Trust
Charles H. Fries, Jr.........Senior Vice President & Director, Corporate & Financial Institutions
Timothy D. Hart..............Senior Vice President & Director, Corporate Administration
Frances A. Marshall..........Senior Vice President & Director, Human Resources
Russell K. Oatman............Senior Vice President & Director, First Financial Services
James C.C. Schmidt...........Senior Vice President & Director, Technology Services
Richard A. Frandeen..........Senior Vice President, Real Estate Lending
Thomas R. Haller.............Senior Vice President, Retail Banking
====================================================================================================================================
THE BANK IN BOULDER BOULDER - LONGMONT - LOUISVILLE, COLORADO
- ------------------------------------------------------------------------------------------------------------------------------------
David M. Gilman, Chairman & President
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Larry F. Frey Richard E. Geesaman, MD David M. Gilman Caroline J. Hoyt
Earl McLaughlin Dennis A. O'Neal Carroll V. SoRelle Thomas W. Ward
====================================================================================================================================
FIRST NATIONAL BANK FORT COLLINS - LOVELAND, COLORADO
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas J. Gleason, Chairman Mark P. Driscoll, President
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Mark P. Driscoll John A. Duffey Dwight L. Ghent Thomas J. Gleason
Roger G. Gunlikson Lucia A. Liley Douglas E. Markley Dennis A. O'Neal
Merlin G. Otteman, MD Stephen J. Schrader Wayne K. Schrader David L. Wood
Mark J. Soukup, Director Emeritus
====================================================================================================================================
FIRST NATIONAL BANK AND TRUST COMPANY OF COLUMBUS COLUMBUS - NORFOLK, NEBRASKA
- ------------------------------------------------------------------------------------------------------------------------------------
John M. Peck, President - Columbus James R. Mangels, President - Norfolk
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
James M. Bator Donald N. Dworak Randal J. Emrich Clark D. Lehr
John F. Lohr Robert P. Loshbaugh James R. Mangels Larry D. Marik
John M. Peck Steven K. Ritzman Noyes W. Rogers Donald M. Schupbach
Dwayne G. Smith Charles R. Walker
====================================================================================================================================
FIRST NATIONAL BANK OF KANSAS OVERLAND PARK, KANSAS
- ------------------------------------------------------------------------------------------------------------------------------------
Stuart C. Lang, President
- ------------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Linda A. Acker Ben T. Embry Blair L. Gogel J. William Henry
Stuart C. Lang James A. Polsinelli Marilyn Scafe
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<S> <C>
==================================================================================================================================
FIRST NATIONAL BANK NORTH PLATTE - ALLIANCE - CHADRON - GERING - SCOTTSBLUFF, NEBRASKA
- ----------------------------------------------------------------------------------------------------------------------------------
L.H. "Rick" Kolkman, President
- ----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Gary L. Conell, MD J. William Henry Orville A. Kaschke James D. Keenan
L.H. "Rick" Kolkman William J. Pfister William C. Snodgrass Gary M. Trego
Ralph M. Tysdal
==================================================================================================================================
THE FREMONT NATIONAL BANK AND TRUST COMPANY FREMONT, NEBRASKA
- ----------------------------------------------------------------------------------------------------------------------------------
Thomas J. Milliken, Chairman David N. Simmons, President
- ----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Marc M Diehl Rupert L. Dunklau William R. Emanuel H. Haines Hill
Jim A. Hoshor Helen J. Krause Thomas J. Milliken David N. Simmons
William F. Snyder Charles R. Walker
==================================================================================================================================
PLATTE VALLEY STATE BANK & TRUST COMPANY KEARNEY, NEBRASKA
- ----------------------------------------------------------------------------------------------------------------------------------
Wayne R. McKinney, Chairman Mark A. Sutko, President
- ----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Jeff G. Beattie Gerald L. Dulitz Byron D. Hansen Peter G. Kotsiopulos
Robin W. Marshall Wayne R. McKinney Dennis A. O'Neal John H. Schulte, MD
Mark A. Sutko Gerald J. Tomka Sidney R. Hellman, Honorary Jack M. Horner, Honorary
Robert P. Sahling, Honorary Carl C. Spelts, Honorary
==================================================================================================================================
FIRST NATIONAL BANK SOUTH DAKOTA YANKTON, SOUTH DAKOTA
- ----------------------------------------------------------------------------------------------------------------------------------
Randall A. Johnson, President
- ----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Elias J. Eliopoulos Wilbur P. Foss Randall A. Johnson Joleen M. Smith Charles R. Walker
==================================================================================================================================
UNION COLONY BANK GREELEY - WINDSOR, COLORADO
- ----------------------------------------------------------------------------------------------------------------------------------
Lawrence W. Menefee, Chairman Thomas J. Flanagan, Jr., President
- ----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS
Victor J. Campbell George W. Doering Harold G. Evans Thomas J. Flanagan, Jr.
Kay Kosmicki James R. Listen Lawrence W. Menefee Dennis A. O'Neal
Robert A. Ruyle Masoud S. Shirazi Michael V. Shoop F. Scott Thomas
John M. Todd John C. Todd, Director Emeritus
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
==================================================================================================================================
COLLECTION CORPORATION OF AMERICA
- ----------------------------------------------------------------------------------------------------------------------------------
Joseph W. Barry, President
Douglas E. Kozeny, Senior Vice President John K. Keady, Vice President
James W. Shanahan, Vice President Mark L. Mathia, Second Vice President
==================================================================================================================================
DATA MANAGEMENT PRODUCTS
- ----------------------------------------------------------------------------------------------------------------------------------
James A. Mills, President
Michael J. Reynolds, Senior Vice President Darren L. Snodgrass, Vice President
==================================================================================================================================
FIRST OF OMAHA MERCHANT PROCESSING
- ----------------------------------------------------------------------------------------------------------------------------------
Elias J. Eliopoulos, President
Donald M. Gerhard, Executive Vice President Nicholas W. Baxter, Senior Vice President
Michael C. Phelan, Senior Vice President Christa M. Titus, Vice President & Chief Financial Officer
==================================================================================================================================
FIRST NATIONAL SERVICES CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------------
R. Ray Lockhart, Director Of Risk Management
Michael J. Dunetts, Director Of Internal Audit Donald A. Fees, Director Of Loan Review
==================================================================================================================================
FIRST TECHNOLOGY SOLUTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
James C.C. Schmidt, President
Charles M. Huetter, Vice President Robert J. Duros, Network Services Division Manager
Jeffrey L. Roberts, Regional Sales Manager Kimberly M. Whittaker, Regional Sales Manager
==================================================================================================================================
PLATTE VALLEY FINANCE COMPANY NORTH PLATTE, NEBRASKA
- ----------------------------------------------------------------------------------------------------------------------------------
DiAnn Kolkman, President Roger L. Miller, Manager
==================================================================================================================================
RETRIEVER PAYMENT SYSTEMS HOUSTON, TEXAS
- ----------------------------------------------------------------------------------------------------------------------------------
Elias J. Eliopoulos, Chairman William H. Higgins, President
==================================================================================================================================
</TABLE>
36
<PAGE>
<TABLE>
<S> <C> <C> <C>
==================================================================================================================================
FIRST INTEGRATED SYSTEMS OMAHA, NEBRASKA
- ----------------------------------------------------------------------------------------------------------------------------------
James A. Mills, President William G. Pierce, National Sales Manager
==================================================================================================================================
INFORMATION SYSTEMS OMAHA, NEBRASKA
- ----------------------------------------------------------------------------------------------------------------------------------
Russell K. Oatman, Chairman
LeRoy A. Swedlund, President Roberta J. Swedlund, Vice President
==================================================================================================================================
NEBRASKA TRUST COMPANY FREMONT - COLUMBUS - KEARNEY - NORTH PLATTE, NEBRASKA
- ----------------------------------------------------------------------------------------------------------------------------------
David N. Simmons, President
Joseph E. Twidwell, Jr., Executive Vice President Leanne K. Anderson, Vice President - North Platte
Bruce T. Lear, Vice President - Kearney John R. Scott, Vice President - Columbus
==================================================================================================================================
FNC TRUST GROUP BOULDER - GREELEY - LOVELAND, COLORADO
- ----------------------------------------------------------------------------------------------------------------------------------
Marc M Diehl, President
Sean P. Shelley, Senior Vice President Howard S. Fine, Vice President
Cheryl M. Jarchow, Vice President David C. Jordan, Vice President & Investment Manager
Dennis G. Swartz, Vice President - Greeley Gaylen R. Williams, Vice President - Loveland
</TABLE>
37
