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FIRST NATIONAL OF NEBRASKA INC
10-Q, 2000-05-11
NATIONAL COMMERCIAL BANKS

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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended March 31, 2000, or
[_]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                  to                 .

Commission file number 03502

First National of Nebraska, Inc. (Exact name of registrant as specified in its charter)

 

Nebraska (State or other jurisdiction of incorporation or organization)		47-0523079 (I.R.S. Employer Identification No.)
One First National Center Omaha, NE (Address of principal executive offices)		68102 (Zip Code)
Registrant's telephone number, including area code		(402) 341-0500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    X    No    .

As of May 5, 2000, the number of outstanding shares of the registrant's common stock ($5.00 par value) was 334,500.

Part I. FINANCIAL INFORMATION
Part I. Item 1. Financial Statements

FIRST NATIONAL OF NEBRASKA, INC.
Consolidated Statements of Financial Condition

 

		March 31, 2000				December 31, 1999
(in thousands except share and per share data)		(unaudited)
Assets
Cash and due from banks	$	407,817			$	407,584
Federal funds sold and other short-term investments		212,634				247,148
Total cash and cash equivalents		620,451				654,732
Investment Securities:
Available-for-sale (amortized cost $973,241 and $987,943)		953,027				971,449
Held-to-maturity (fair value $202,080 and $178,188)		203,795				179,406
Federal Home Loan Bank stock and other securities, at cost		34,576				42,215
Total investment securities		1,191,398				1,193,070
Loans		6,182,267				6,313,732
Less:  Allowance for loan losses		100,023				106,484
Unearned income		16,143				15,429
Net loans		6,066,101				6,191,819
Premises and equipment, net		151,767				149,803
Other assets		372,323				371,020
Total assets	$	8,402,040			$	8,560,444
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing	$	938,887			$	858,895
Interest-bearing		6,311,905				6,149,817
Total deposits		7,250,792				7,008,712
Federal funds purchased and securities sold under repurchase agreements		116,299				341,485
Federal Home Loan Bank advances		137,381				372,077
Other borrowings		34,179				3,758
Other liabilities		102,899				89,549
Capital notes		93,992				94,389
Total liabilities		7,735,542				7,909,970
Stockholders' equity:
Common stock, $5 par value, 346,767 shares authorized,           334,500 shares issued and outstanding		1,673				1,673
Additional paid-in capital		2,511				2,511
Retained earnings		675,270				656,786
Accumulated other comprehensive income (loss)		(12,956	)			(10,496	)
Total stockholders' equity		666,498				650,474
Total liabilities and stockholders' equity	$	8,402,040			$	8,560,444
See Notes to Consolidated Financial Statements.

FIRST NATIONAL OF NEBRASKA, INC.
Consolidated Statements of Income
(unaudited)

			Three Months Ended March 31,
				2000				1999
(in thousands except share and per share data)
Interest income:
	Interest and fees on loans and lease financing		$	190,819			$	184,612
	Interest on securities:
	Taxable interest income			16,463				15,579
	Nontaxable interest income			485				222
	Interest on federal funds sold and           other short-term investments			3,746				2,170
		Total interest income		211,513				202,583
Interest expense:
	Interest on deposits			76,913				71,052
	Interest on federal funds purchased and securities sold           under repurchase agreements			2,578				1,606
	Interest on Federal Home Loan Bank advances			3,177				493
	Interest on other borrowings			335				84
	Interest on capital notes			1,796				1,770
		Total interest expense		84,799				75,005
Net interest income				126,714				127,578
Provision for loan losses				28,072				40,566
Net interest income after provision for loan losses				98,642				87,012
Noninterest income:
	Processing services			18,442				18,325
	Credit card securitization income			17,901				16,244
	Deposit services			7,417				6,194
	Trust and investment services			5,580				5,998
	Commissions			6,539				7,007
	Miscellaneous			14,564				9,741
		Total noninterest income		70,443				63,509
Noninterest expense:
	Salaries and employee benefits			63,877				53,123
	Communications and supplies			13,479				14,161
	Equipment rentals, depreciation and maintenance			10,522				9,467
	Net occupancy expense of premises			10,112				7,718
	Professional services			8,650				9,983
	Processing expense			7,760				7,406
	Loan servicing expense			6,036				7,097
	Miscellaneous			10,235				10,141
		Total noninterest expense		130,671				119,096
Income before income taxes				38,414				31,425
Income tax expense (benefit):
	Current			14,439				11,972
	Deferred			(19	)			(16	)
		Total income tax expense		14,420				11,956
Net income			$	23,994			$	19,469
Average number of common shares outstanding				334,500				334,994
Net income per common share			$	71.73			$	58.12
Cash dividends declared per common share			$	16.47			$	12.47
See Notes to Consolidated Financial Statements.

 

FIRST NATIONAL OF NEBRASKA, INC.
Consolidated Statements of Cash Flows
(unaudited)

				Three Months Ended March 31,
						2000				1999
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
	Net Income				$	23,994			$	19,469
		Adjustments to reconcile net income to net cash flows from operating activities:
			Provision for loan losses			28,072				40,566
			Depreciation and amortization			15,780				11,392
			Provision for deferred taxes			(19	)			(16	)
			Origination of mortgage loans for resale			(115,214	)			(43,818	)
			Proceeds from the sale of mortgage loans for resale			103,859				41,549
			Other asset and liability activity, net			19,590				(147,783	)
	Net cash flows from operating activities					76,062				(78,641	)
CASH FLOWS FROM INVESTING ACTIVITIES
		Acquisitions, net of cash received				(13,002	)			—
		Maturities of securities available-for-sale				30,290				118,787
		Sales of securities available-for-sale				16,155				177,533
		Purchases of securities available-for-sale				(32,918	)			(285,603	)
		Maturities of securities held-to-maturity				3,624				101,819
		Purchases of securities held-to-maturity				(26,569	)			(2,273	)
		Redemption of FHLB stock and other securities				7,887				178
		Purchases of FHLB stock and other securities				(247	)			(11,273	)
		Net change in loans				(67,943	)			74,746
		Credit card securitization activities				204,057				—
		Purchases of loan portfolios				(9,340	)			(17,866	)
		Purchases of premises and equipment				(10,293	)			(9,162	)
		Other, net				576				190
	Net cash flows from investing activities					102,277				147,076
CASH FLOWS FROM FINANCING ACTIVITIES
		Net change in deposits				241,930				(135,556	)
		Net change in federal funds purchased and           securities sold under repurchase agreements				(225,186	)			(195,167	)
		Issuance of FHLB advances				112,576				40,180
		Principal repayments on FHLB advances				(347,272	)			(13,190	)
		Issuance of other borrowings				95,630				—
		Principal repayments on other borrowings				(84,392	)			(241	)
		Principal repayments on capital notes				(397	)			(397	)
		Repurchase of common stock				—				(1,572	)
		Cash dividends paid				(5,509	)			(4,177	)
	Net cash flows from financing activities					(212,620	)			(310,120	)
Net change in cash and cash equivalents						(34,281	)			(241,685	)
Cash and cash equivalents at beginning of period						654,732				816,509
Cash and cash equivalents at end of period					$	620,451			$	574,824
Cash paid during the period for:
		Interest			$	81,440			$	75,978
		Income taxes				5,449				2,218
See Notes to Consolidated Financial Statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000

Note A: Basis of Presentation

The accompanying unaudited consolidated financial statements of First National of Nebraska, Inc. and subsidiaries (the Company) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete consolidated financial statements. For purposes of comparability, certain prior period amounts have been reclassified.

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 as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial statements have been included. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The notes to the consolidated financial statements contained in the Annual Report on Form 10-K for the year ended December 31, 1999 should be read in conjunction with these consolidated financial statements.

Note B: Earnings per Common Share

Net income per share is calculated by dividing net income by the average number of common shares outstanding during the period.

Note C: Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events or circumstances from nonowner sources. Comprehensive income includes net income and other items of comprehensive income meeting the above criteria. The Company's only component of other comprehensive income is the change in unrealized appreciation or depreciation of available-for-sale securities. The following table reflects consolidated statements of comprehensive income for the three months ended March 31, 2000 and March 31, 1999.

	Three Months Ended March 31,
		2000				1999
(in thousands)
Net Income	$	23,994			$	19,469
Other comprehensive income (loss), before tax
Net unrealized holding gains (losses) on available-for-sale securities		(1,764	)			(3,369	)
Less: Reclassification adjustment for net gains realized in net income		2,040				894
Other comprehensive gain (loss), before tax		(3,804	)			(4,263	)
Less: Income tax expense (benefit) for other comprehensive loss		(1,344	)			(1,535	)
Other comprehensive gain (loss), net of tax		(2,460	)			(2,728	)
Comprehensive income	$	21,534			$	16,741

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 the 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

Net income for the three months ended March 31, 2000 was $24 million, or $71.73 per common share, compared to $19.5 million, or $58.12 per common share, for the same period ended in 1999. The increase in net income for the three months ended March 31, 2000 compared to the same period in 1999 relates primarily to a decrease of $12.5 million, or 30.8%, in the provision for loan losses. The Company also experienced increased noninterest expense partially offset by increased noninterest income for the period.

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.

	Three Months Ended March 31,
		2000				1999
(in thousands)
Net interest income on a tax-equivalent basis	$	126,975			$	127,698
Average earning assets		7,580,489				6,973,932
Net interest margin (annualized)		6.74	%			7.43	%

The decrease in net interest margin relates primarily to declines in higher yielding outstanding credit card balances net of increases in outstanding non-credit card loan average balances. The decrease in net interest margin caused by the change in loan mix was partially offset by asset yields repricing upward in response to market rates at a faster rate than the repricing of deposits.

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. For the three months ended March 31, 2000, the provision for loan losses decreased $12.5 million, or 30.8%, to $28.1 million compared to $40.6 million for the same period in 1999. The reduction in the provision for loan losses for the three months ended March 31, 2000 compared to the same period in 1999 is due to improved delinquency and charge-off rates and a reduction in the outstanding balances of credit card loans and related plans relative to the entire portfolio. These reductions have resulted in a decline in the Company's allowance for loan losses as a percentage of loans. Although the level of net charge-offs as a percentage of average loans has improved, it remains high primarily due to delinquencies on consumer credit card loans and consumer bankruptcies which continue to adversely affect the credit card industry.

Noninterest income

Noninterest income for the three months ended March 31, 2000, increased $6.9 million, or 10.9%, to $70.4 million compared to the same period in 1999. A portion of the increase in noninterest income is due to credit card securitization income which increased $1.7 million, or 10.2%, to $17.9 million for the three months ended March 31, 2000 compared to $16.2 million for the same period in 1999. This increase in credit card securitization income resulted from the net impact of a $5.2 million, or 179.3%, increase in securitization gains to $8.1 million from $2.9 million offset by a $3.5 million, or 26.3%, decrease in servicing income to $9.8 million from $13.3 million. The increase in securitization gains for the three months ended March 31, 2000 relates to an increase in credit card loans sold of $255 million. Deposit services income increased $1.2 million, or 19.7%, for the three months ended March 31, 2000 as compared to the same period in 1999 generally as a result of growth in the Company's customer base and overall transaction volume. Miscellaneous income increased $4.8 million, or 49.5%, in the three months ended March 31, 2000 when compared to the same period in 1999 which was primarily attributable to net gains recognized on the sale of mortgage loans, charged-off credit card loans and investment securities.

Noninterest expense

For the three months ended March 31, 2000, noninterest expense increased $11.6 million, or 9.7%, to $130.7 million compared to the same period in 1999. A significant portion of the increase was due to salaries and employee benefits which increased $10.8 million, or 20.2%, in the three months ended March 31, 2000 compared to the same period in 1999 resulting from Company growth and expansion into new products and into new markets. Professional services expense decreased $1.3 million, or 13.4%, in the three months ended March 31, 2000 compared to the same period in 1999 principally due to decreased fees paid to a third party merchant sales organization. Loan servicing expense decreased $1.1 million, or 14.9%, in the three months ended March 31, 2000 compared to the same period in 1999 primarily due to decreased credit card loans outstanding. Increases in remaining expense categories generally relate to the acquisition of new customer relationships and portfolios and continued investments in technology.

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." Since the Company continues to service these securitized loans, it takes the role of a loan servicer rather than a lender. As loans are sold, 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 net of unearned income between reported and managed loans at March 31, 2000 and December 31, 1999.

	March 31, 2000				December 31, 1999
	Reported	Securitized	Managed		Reported	Securitized	Managed
(in thousands)
Managed Loan Data
As of Period End:
Total loans outstanding	$ 6,166,124	$ 855,101	$ 7,021,225		$ 6,298,303	$ 651,044	$ 6,949,347
Total credit cards and related       plans outstanding	$ 2,207,171	$ 855,101	$ 3,062,272		$ 2,540,774	$ 651,044	$ 3,191,818
Year-to-Date Average:
Total loans outstanding	$ 6,113,501	$ 794,099	$ 6,907,600		$ 5,741,204	$ 652,599	$ 6,393,803
Total credit cards and related       plans outstanding	$ 2,312,430	$ 794,099	$ 3,106,529		$ 2,587,720	$ 652,599	$ 3,240,319

The decrease in reported credit cards and related plans outstanding at March 31, 2000 is partially attributable to a net increase in securitization volume of $204.1 million during the first quarter.

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 computer simulation models.

Although the level of delinquencies and charge-offs has improved, the consumer credit industry continues to experience relatively high levels of delinquencies and charge-offs when compared to other loan sectors. As a major credit card issuer, the Company also continues to experience relatively high net charge-off and delinquency rates. While delinquency and charge-off rates have declined, selected segments of consumers will continue to experience credit problems. 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 improved to a level of 2.64% at March 31, 2000 compared with 2.86% at December 31, 1999. The delinquency rate as a percentage of total credit card loans and related plans was 4.65% at March 31, 2000 down from 5.01% at December 31, 1999.

Delinquent Loans:

	March 31, 2000						December 31, 1999
(in thousands)
Total Loans				% of Loans						% of Loans
Loans outstanding	$	6,166,124					$	6,298,303
Loans delinquent:
30 - 89 days	$	109,711		1.78	%		$	121,465		1.93	%
90 days or more & still accruing		52,987		.86	%			58,809		0.93	%
Total delinquent loans	$	162,698		2.64	%		$	180,274		2.86	%
Nonaccrual loans	$	14,252		.23	%		$	11,766		.19	%
Credit Cards and Related Plans
Loans outstanding	$	2,207,171					$	2,540,774
Loans delinquent:
30 - 89 days	$	59,269		2.69	%		$	74,335		2.93	%
90 days or more & still accruing		43,327		1.96	%			52,903		2.08	%
Total delinquent loans	$	102,596		4.65	%		$	127,238		5.01	%
Nonaccrual loans		—		—				—		—

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 $32.2 million for the three months ended March 31, 2000 compared to $46.9 million for the same period in 1999. Net charge-offs as a percentage of average loans has improved to .53% for the three months ended March 31, 2000 compared to .83% for the same period last year.

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.

Allowance for Loan Losses:

	For the Three Months Ended March 31,
		2000				1999
(in thousands)
Balance at January 1	$	106,484			$	121,877
Addition due to acquisitions of loans		263				481
Reduction due to sales of loans		(2,632	)			—
Provision for loan losses		28,072				40,566
Loans charged off:
Credit cards and related plans		(37,558	)			(53,346	)
All other loans		(1,078	)			(1,324	)
Loans recovered:
Credit cards and related plans		6,151				7,212
All other loans		321				509
Total net charge-offs		(32,164	)			(46,949	)
Balance at March 31	$	100,023			$	115,975
Allowance as a percentage of loans		1.62	%			2.06	%
Total net charge-offs as a percentage of average loans		0.53	%			0.83	%

Capital Resources

On April 6, 2000, the parent company became a "financial holding company" under the Gramm-Leach-Bliley Act. As a financial holding company, the Company is permitted to engage in and to acquire companies engaged in "financial in nature" activities. These activities could include, among other things, securities and insurance activities and investment banking (through appropriate entities). Engaging in these activities could subject the parent company and its subsidiaries to regulation by additional functional regulators. The parent company is required to satisfy certain conditions in order to retain its rights as a financial holding company. One such condition is that all of the depository institutions controlled by the Company must be and remain well capitalized and well managed. Failure to satisfy this condition could result in regulatory action against the Company, including forced divestiture of its depository institution subsidiaries.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking 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 banking subsidiaries to maintain minimum amounts and ratios 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 banking subsidiaries' capital amounts and classifications are also subject to qualitative judgements by the regulators about components, risk weightings and other factors.

As of March 31, 2000, the most recent notification from the bank regulators 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 Company'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%. The Company intends to maintain sufficient capital in each of its banking subsidiaries to remain in the "well capitalized" category.

In 1995, First National Bank of Omaha issued $75 million in 15 year subordinated capital notes. During 1999, another banking subsidiary of the Company issued $2.3 million in capital notes related to the acquisition and merger of a bank. These capital notes, along with the parent company's $16.7 million in capital notes outstanding as of March 31, 2000 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 the 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, credit card-backed securitizations, Federal Home Loan Bank advances, other debt agreements and subordinated capital notes.

The Company utilizes credit card-backed securitization vehicles to assist in its management of liquidity, interest rate risk and capital. At March 31, 2000 and December 31, 1999, $855.1 million and $651 million, respectively, of the Company's managed credit card portfolio was securitized with no additional unused securitization lines available at March 31, 2000 and $255 million lines available at December 31, 1999. Additionally, the Company had Federal Home Loan Bank advances of $137.4 million as of March 31, 2000 and $372.1 million as of December 31, 1999. At March 31, 2000, the parent company had no balance outstanding under a $100 million syndicated revolving credit facility which will mature on December 4, 2000.

Item 3. 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 March 31, 2000, 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. The Company intends to use interest rate swap agreements on a limited basis in the future to change the characteristics of selected fixed rate exposures as an element of its risk management policy.

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.

Part II. OTHER INFORMATION

Items 1, 2, 3, 4 and 5:				Not applicable or negative response.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits		3(i)(ii)		Amended and Restated Articles of Incorporation and Amended and Restated Bylaws of the parent company (previously filed as Exhibits to form 10-Q filed with the Securities and Exchange Commission by the Company on June 30, 1997) are incorporated herein by reference.
		4		Fiscal and Paying Agency Agreement entered into in connection with the issuance of $75 million of Subordinated Notes by First National Bank of Omaha (the "Bank") dated December 7, 1995 between the Bank as "Issuer" and the Bank as "Fiscal and Paying Agent" incorporated by reference to the Company's Report on Form 8-K, filed December 12, 1995.
		10(a)		Deferred Compensation and Consultative Services Agreement between the Bank and John R. Lauritzen and Amendment to Deferred Compensation and Consultative Services Agreement between the Bank and John R. Lauritzen, incorporated by reference to Exhibit 10(a) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
		10(b)		Deferred Compensation and Consultative Services Agreement between the Bank and F. Phillips Giltner and Amendment to Deferred Compensation and Consultative Services Agreement between the Bank and F. Phillips Giltner, incorporated by reference to

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST NATIONAL OF NEBRASKA, INC.

By:	/s/ Dennis A. O'Neal		Date:	May 4, 2000
	Dennis A. O'Neal Executive Vice President and Treasurer, Principal Financial Officer

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