ITEM 1. BUSINESS.
THE COMPANY
First National of Nebraska, Inc. (the "Parent Company") is a Nebraska-based interstate multi-bank holding company. It was organized in 1968 and owns or substantially owns all of the common stock of ten banking subsidiaries and nine nonbanking subsidiaries.
First National of Nebraska, Inc. and subsidiaries (the "Company") was one of the originators of the bank credit card industry and has over 40 years' experience in this business. Through a banking subsidiary, the Company conducts a significant consumer credit card service under license arrangements with VISA USA and MasterCard International Inc. The Company's credit card customers are located throughout the United States, but primarily in the Midwest.
At December 31, 1996, the Company ranked among the top 25 card issuing entities based on the amount of managed credit card loans outstanding. The Company originates all new credit card accounts and has not purchased existing accounts from other originators. The Company performs all credit card servicing activities on behalf of its subsidiary banks including data processing, payment processing, statement rendering, marketing, customer service, credit administration and card embossing. The Company primarily funds its credit card loans through the core deposits of its subsidiary banks. Gross revenues associated with credit card loans were 54% of total gross revenues in 1996.
The Company continues to make substantial investments in data processing technology for both its own data processing needs and to provide various data processing services for unaffiliated parties. The services provided include automated clearinghouse transactions, merchant credit card processing, and check processing. The Company ranks as one of the larger merchant credit card processors in the United States. It also ranked among the 25 largest automated clearinghouse processors in the country during 1996, and is one of the largest check processors in its market area. The Company provides data processing services to non-affiliated banks located in ten states.
BANKING SUBSIDIARIES
First National Bank of Omaha (the "Bank") is a national banking association founded in 1863 and substantially owns six nonbanking subsidiaries. As of December 31, 1996, the Bank had assets in excess of $3,491,000,000 and was ranked as the second largest bank in Nebraska. The Bank is engaged in a general banking business and offers complete banking and trust services to retail, commercial, industrial and agricultural customers in Nebraska, Iowa, Kansas, South Dakota, Colorado and other nearby states. The Bank offers time and demand deposits, certificates of deposits, individual retirement accounts and other products. The Bank also provides customers with trust services, safe deposit boxes, cash management and investment services. The Bank makes a variety of loans such as individual consumer loans (including credit card, installment and home equity loans), agricultural, real estate, and commercial loans. The Bank has branch locations in Omaha, Bellevue, Beatrice, and David City, Nebraska.
In addition to the Bank, the Parent Company owns all of the outstanding common stock of the following banks. These banks engage in general banking business and offer complete banking services to retail, commercial, industrial and agricultural customers.
Refer to Note L of the Company's consolidated financial statements for details regarding the Company's most recent acquisitions.
COMPETITION
Competitors of the Company include other commercial banks, savings and loan associations, consumer and commercial finance companies, credit unions and other financial services companies. The Company's credit card operation competes with other issuers of credit cards ranging from other national issuers of bank cards to local retailers which provide their own credit cards. In addition, the Company's banking subsidiaries compete for interest-bearing funds with mutual funds and issuers of commercial paper and other securities. As the industry consolidates and nonbanking companies continue to offer products traditionally offered by banks, competitive forces continue to impact product pricing and profitability.
EMPLOYEES
The Company had 4,130 full-time-equivalent employees as of December 31, 1996.
REGULATION
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 FDIC. The Parent Company's banking subsidiaries include seven national banks and three state-chartered banks, all of which are insured by the FDIC. The state- chartered banks are also regulated by the state banking authorities.
Various requirements and restrictions under federal and state laws regulate the operations of the Company. These laws, among other things, require the maintenance of reserves against deposits, impose certain restrictions on the nature and terms of loans, restrict investments and other activities, and regulate mergers and the establishment of branches and related operations. In addition, subsidiary national banks are subject to limitations under federal law in the amount of dividends they may declare.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) imposed a significant amount of regulation on the banking industry. One of the major provisions of this legislation established levels of capitalization with more scrutiny and restrictions placed on institutions with lower levels of capital. The legislation also includes regulations which relate to corrective regulatory action, audit and reporting requirements, standards of safety and soundness and various deposit insurance reforms.
Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. These quantitative measures require the Company to maintain minimum total risk- based capital (as defined in the regulations) of 8%, Tier 1 risk-based capital (as defined) of 4%, and Tier 1 leverage capital (as defined) of 4%. As of December 31, 1996, the most recent notification from the OCC categorized the Company's banking subsidiaries as well capitalized under the framework for prompt corrective action. 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%. There are no conditions or events since that notification that management believes have changed the institution's category. For further discussion, see Note J in the Annual Report to Shareholders of the Company, an exhibit to this report which is incorporated herein by reference.
The banking industry is also affected by the monetary and fiscal policies of regulatory authorities, including the Federal Reserve Board. Through open market securities transactions, variations in the discount rate, the establishment of reserve requirements, and the regulation of certain interest rates payable by member banks, the Federal Reserve Board exerts considerable influence over the cost and availability of funds obtained for lending and investing. Changes in interest rates, deposit levels, and loan demand are influenced by the changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities.
ADDITIONAL FINANCIAL INFORMATION
The following tables set forth statistical data, as specified by Guide 3, or are incorporated by reference from the Company's Annual Report to Shareholders for the year ended December 31, 1996. Such data should be read in conjunction with the other financial statements and related notes with respect to the Company and in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, which is included in the Annual Report. The information with respect to such tables should not be construed to imply any conclusion on the part of management that the results, causes or trends indicated therein will continue in the future.
SCHEDULE I.A. - AVERAGE CONSOLIDATED BALANCE SHEETS
The following table presents the average consolidated balance sheets of the Company for the years 1994 through 1996 (1):
(1) All significant intercompany balances have been eliminated in consolidation.
(2) The December 31 balances are higher than the average balances as shown in this schedule due to significant growth during the year and many of the Company's customers making large deposits at year-end.
SCHEDULE I.B. - INTEREST RATES AND DIFFERENTIAL
The following tables present an analysis of net interest earnings for the years 1994 through 1996:
(1) Non-accruing loans are included within the average loan and lease financing amount outstanding. No interest on these non-accruing loans is included within the "Total interest earned during the year" amount.
(2) Loan fees of approximately $107,018,000; $83,452,000; and $71,283,000 are included for 1996, 1995, and 1994, respectively.
(3) Calculated on a taxable equivalent basis with a 35% marginal tax rate in 1996, 1995 and 1994.
(4) Includes securities held-to-maturity, securities available-for- sale, and trading securities.
(5) Calculated net of unearned income.
SCHEDULE I.B. - INTEREST RATES AND DIFFERENTIAL (Continued)
(1) Reflects the effect of interest on nontaxable securities calculated on a taxable equivalent basis with a 35% marginal tax rate in 1996, 1995 and 1994.
SCHEDULE I. C. - INTEREST RATE AND VOLUME CHANGES
The following table presents the changes in interest income and interest expense and the amounts attributable to changes in volume and changes in rates (1):
(1) Variances attributable to rate and volume were calculated as follows:
A. A rate variance is the change in rate times the prior period volume.
B. A volume variance is the change in volume times the prior period rate.
C. The remaining variance is due to a combination of rate and volume changes. This amount was allocated proportionately to the rate and volume changes obtained in A and B.
(2) Calculated on a taxable equivalent basis with a 35% marginal tax rate in 1996, 1995 and 1994.
SCHEDULE II. A. - SECURITIES PORTFOLIO
The following table indicates the amortized cost of securities of the Company as of December 31 for the years indicated:
SCHEDULE II. B. - SECURITIES MATURITIES
The following table presents the maturity of securities held on December 31, 1996 and the weighted average yield for each range (stated on a taxable equivalent basis assuming a 35% marginal tax rate). Yield information for securities available-for-sale does not give effect to changes in fair value that are reflected as a component of stockholders' equity.
SCHEDULE III. A. - LOAN PORTFOLIO TYPES
The following table indicates the distribution of loans, net of unearned income, of the Company as of December 31, for the years indicated:
(1) Individual consumer loans include credit cards and related plans.
SCHEDULE III. B. - LOAN MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following table presents certain consolidated loan maturities by ranges based upon contract dates. Also included for loans maturing after one year are the amounts which have predetermined interest rates and floating or adjustable interest rates.
SCHEDULE III. C. - RISK ELEMENTS
1. Nonaccrual, Restructured and Past Due Loans:
(a) Loans are placed on nonaccrual status when there is sufficient evidence to indicate the borrower may be unable to meet the obligation.
(b) Does not include loans classified in the nonaccrual loans or loans past due 90 days or more categories.
(c) The gross amount of interest income which would have been recorded on these loans for the year ended December 31, 1996 if such loans had been current is $1,228,000. The amount of interest income on these loans that was included in net income for the same year is $358,000.
(d) Does not include loans classified in the nonaccrual loans category. For further information regarding the increase in loans past due 90 days or more, see the Asset Quality section of Management's Discussion and Analysis in the Annual Report to Shareholders of the Company, an exhibit to this report which is incorporated herein by reference.
It is the Company's policy for a committee of senior loan officers to review all loans 90 days or more past due for placement on nonaccrual status. If there is sufficient evidence to indicate that the borrower may be unable to meet the obligation, the loan is placed on nonaccrual status. Loans may be placed on nonaccrual status prior to reaching 90 days or more past due if circumstances warrant.
2. Potential Problem Loans for the Year Ended December 31, 1996:
The following table presents potential problem loans categorized by loan type. Potential problem loans include all loans that are classified by management as substandard and doubtful less non-accrual loans, restructured loans and loans past due 90 days or more.
3. Foreign Outstandings: None
4. Loan Concentrations: There were no concentrations of loans exceeding 10% of total loans which are not otherwise disclosed as a category of loans under III.A.
SCHEDULE III. D. - OTHER INTEREST BEARING ASSETS
There were no other interest bearing assets that would require disclosure under Item III.C.1. or 2., if such assets were loans.
SCHEDULE IV. - SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes activity in the allowance for loan losses of the Company:
SCHEDULE IV. - SUMMARY OF LOAN LOSS EXPERIENCE (Continued)
The following table presents the loan loss allowance by loan category and the percentage of loans in each category to loans, net of unearned income, as of December 31 for the years indicated:
(1) Certain reclassifications were made to prior years Schedule IV Summary of Loan Loss Experience Loan Loss Allowance numbers to conform them to the revised allocation method used since 1993. These reclassifications more accurately depict the Company's procedure in determining the required loan loss allowance for each loan category and had no effect on net income or the total loan loss allowance.
The allowance for loan losses is intended to cover losses inherent in the Company's loan portfolio as of the reporting date and is continually monitored using statistically-based computer simulation models. 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. Management's review of the adequacy of the allowance for loan losses is 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 further discussion, see the Asset Quality section of Management's Discussion and Analysis in the Annual Report to Shareholders of the Company, an exhibit to this report which is incorporated herein by reference.
SCHEDULE V. - DEPOSITS
The following table shows the breakdown of average deposits of the Company for the years 1994 through 1996:
The following table indicates the maturity of time certificates of deposit and other time deposits issued in amounts of $100,000 or more as of December 31, 1996:
SCHEDULE VI. - RETURN ON EQUITY AND ASSETS
The following table presents the return on average assets, the return on average equity, the dividend payout ratio and the equity to assets ratio of the Company:
The return on average assets and the return on average equity remain favorable although they have declined over the past three years. The primary reason for the overall reduction in these performance ratios relates to the increases in the provision for loan losses as a result of increased delinquencies and charge-offs on credit card and other consumer loans.
SCHEDULE VII. - SHORT-TERM BORROWINGS
Transactions in short-term borrowings are summarized below:
(1) The majority of federal funds purchased and securities sold under repurchase agreements mature each day and are replaced by a new issue.
(2) As of December 31, 1996, all commercial paper matures within 59 days and is collateralized by individual consumer loans.
ITEM 2.
ITEM 2. PROPERTIES.
The Company owns a 22 story office building in Omaha, Nebraska where its primary corporate offices are located. The Company's business is also operated at various other facilities in the Omaha area which are either owned or leased by the Company. The Company's banking business is operated in facilities located in Nebraska, South Dakota, Kansas, and Colorado. Refer to Item 1., pages 2 and 3 for locations of the branches. Of the 52 branch locations, 34 are owned by the Company and 18 are leased. The leases on the branches and office space (not assuming renewals of exercise options) run through the year 2014.
For more explanation or detail, please see Notes D, F, and I to the consolidated financial statements contained in the Annual Report to Shareholders of the Company, an exhibit to this report which is incorporated herein by reference.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
There are no pending legal proceedings, other than routine litigation incidental to the Company's business, to which the Company is a party or of which any of its properties is subject.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during the fourth quarter of 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Reference is made to page 28 of the Annual Report to Shareholders of the Company for the fiscal year ended December 31, 1996, an exhibit to this report which is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Reference is made to page 28 of the Annual Report to Shareholders of the Company for the fiscal year ended December 31, 1996, an exhibit to this report which is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
Reference is made to pages 23-27 of the Annual Report to Shareholders of the Company for the fiscal year ended December 31, 1996, an exhibit to this report which is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to pages 4-22 and page 28 of the Annual Report to Shareholders of the Company for the fiscal year ended December 31, 1996, an exhibit to this report which is incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Reference is made to the section of the Company's proxy statement captioned "Election of Directors" to be filed with the Securities and Exchange Commission, which is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Reference is made to the section of the Company's proxy statement captioned "Compensation of Directors and Executive Officers" to be filed with the Securities and Exchange Commission, which is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the section of the Company's proxy statement captioned "Security Ownership of Certain Beneficial Owners and Management" to be filed with the Securities and Exchange Commission, which is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the section of the Company's proxy statement captioned "Information Concerning Certain Interests of Directors and Transactions with Management" to be filed with the Securities and Exchange Commission, which is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following documents are filed as a part of this report and are either attached hereto or incorporated by reference to documents previously filed with the Securities and Exchange Commission as exhibits:
(a) (1) Financial Statements: (See Item 8 for a listing of all financial statements).
(2) Financial Statement Schedules:
All schedules normally required by Form 10-K are omitted since they either are not applicable or the required information is shown in the financial statements or the notes thereto.
(3) Exhibits: See exhibit index on page 22.
(b) The Company filed no reports on Form 8-K for the quarter ended December 31, 1996.
(c) Exhibits to this Form 10-K are attached or incorporated by reference as stated above.
(d) No financial statement schedules are filed, and as such are excluded from the Annual Report as provided by Exchange Act Rule 14a-3(b)(i).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST NATIONAL OF NEBRASKA, INC.
By /s/ Bruce R. Lauritzen ---------------------- Bruce R. Lauritzen President and Treasurer, Principal Accounting and Financial Officer and Director Date: March 18, 1997 --------------
Pursuant to the requirements of the Securitites Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ F. Phillips Giltner ----------------------- F. Phillips Giltner Chairman of the Board and Secretary and Director Date: March 18, 1997 --------------
/s/ Bruce R. Lauritzen ---------------------- Bruce R. Lauritzen President and Treasurer, Principal Accounting and Financial Officer and Director Date: March 18, 1997 --------------
EXHIBIT INDEX
* incorporated by reference (see Part IV, Item 14(a)(3)).