HomeMy WebLinkAboutRESPONSE - RFP - 8407 BANKING SERVICESTo Our Stockholders
For the fourth consecutive year, we are pleased to report growing loans, deposits, revenues and
net income. Net income was $201 million, second best to 2010 when we recorded a $271 million
pre-tax gain as a result of the sale of a business unit.
NET INCOME
2015 $200,771,000
2014 $192,173,000
2013 $166,976,000
2012 $166,600,000
2011 $158,893,000
Our return on equity of 10.9 percent and return on assets of 1.2 percent were again in the top
quartile of the industry. We declared dividends totaling $164 per share, up from $150 per share
in 2014.
The Franchise
Our loans grew $901 million or 7.2 percent in 2015. Loans grew in nearly every category and in
every market. Credit card loans were up 8.8 percent. Real estate loans were up 9.9 percent,
while business or C&I loans were up 7.8 percent. Alternatively, agriculture loans ended five
consecutive years of growth by falling 5.6 percent in 2015. Falling commodity prices, resulting
in slower credit demand from our agriculture customers, led to the decline.
GROSS LOANS DEPOSITS
2015 $13,464,759,000 $14,917,253,000
2014 $12,563,835,000 $14,385,839,000
2013 $11,682,143,000 $13,549,104,000
2012 $11,169,380,000 $14,098,080,000
2011 $10,389,464,000 $12,313,633,000
While loan growth is good for our bank, it is a clear reflection of the strength and optimism of
our customers. We processed record consumer purchase volume and our consumer customers
are borrowing more. Furthermore, we originated more single-family residential loans than we
have in at least a decade.
Longmont, Colorado
Opened: March 2015
We now have 108 total branches
Our deposits grew by $531 million or 3.7 percent to a record $14.9 billion. Consumer and
commercial deposits in most every market grew. Since the beginning of the Great Recession in
2008, we have consistently grown our deposit franchise. Since 2011, the compound annual
growth rate of our deposits has exceeded 5 percent, well beyond GDP and another testament to
the strength of our customers.
In case you missed it, in December 2015, the Federal Reserve increased the Fed Funds rate for
the first time since 2006. The rate was increased by 25 basis points. As we have told you before,
we are cautiously optimistic that Fed Fund rate increases will be accretive to
earnings. However, among the things we have learned over the last 10 years is that "normal" is
often unpredictable and models are challenged to accurately predict the future.
Before we leave loans and deposits, we thought you would enjoy a little historical perspective.
As mentioned, we grew loans in 2015 by nearly $1 billion. You have to go back only 25 years
when First National had loans of just over $1 billion. That means we have grown loans at a
compounded annual rate of 11 percent during a period which included two recessions (1990-
1991 and 2001) and the Great Recession (2007-2009). Moreover, 90 percent of the 6,200 banks
in the United States have total assets of less than $1 billion.
We ended the year with cash at our holding company of $218 million. We continue to have no
holding company revolving debt, and our capital position is growing. Perhaps the easiest way to
appreciate the growth of our capital is by simply looking at the proportion of total stockholders’
equity to total assets. That ratio is now 10.31 percent versus 8.32 percent five years earlier.
This results in an increase in total stockholders’ equity of $365 million to $1.9 billion.
A Few Of The Things That Keep Us Up At Night
Here again are a few of the things that “keep us up at night.”
The Economy and the Credit Environment. We believe the current credit environment may be
as good as it gets. Our reserve rate (allowance for loan losses divided by loans) of 2.06 percent is
13 basis points below a year ago and is at its lowest level in many years. We do not believe it is
appropriate to expect it to fall further. Moreover, credit card charge-offs are 100 to 200 basis
points below long-term historical averages. While sharp increases in credit card charge-offs do
not appear imminent and we have reasons to believe charge-offs may not fully return to long-
term historical averages, it is possible they will normalize at higher than current levels. For
perspective, a 100 basis point increase in credit card charge-offs (all other things being equal)
generally translates into increased credit losses of approximately $55 million, the difference
between a great year and a ho-hum year.
Competition. Competition from traditional and non-traditional financial services companies is
intense and likely to increase. While the “too big to fail” provisions of the Dodd-Frank Act
suggested systemically important banks may get smaller, just the opposite has occurred. The
five largest U.S. based banks report even more market share today than they did before the
Great Recession. Furthermore, the proliferation of unregulated FinTech (financial services
technology companies) has further intensified competition, particularly with consumers, a
significant component of our business model. We work tirelessly to enhance our customer
experience and our value proposition. In doing so, we continue to make significant investments
in our various delivery channels, including our technology platforms in which we currently
invest well over $100 million a year. We expect that this investment will likely increase to meet
increasing customer and regulatory expectations, particularly related to mobile and on-line
banking.
Cyber and Physical Security. The stark realities of our time have appropriately elevated cyber
and physical security into board rooms throughout the country and to top policy makers. We
view cyber and physical threats as serious, and as such, we invest what it takes to protect our
facilities and customer data. Needless to say, the amount is significant and increasing.
Regulation. We are in a heavily regulated business, and to be clear, we believe prudent
regulation is critical to the long-term success of our industry. The size and diversity of our
business, particularly the consumer segment of our business, subjects us to oversight and
regulation for which many of our competitors are exempt or less effected. We are occasionally
asked about the cost of regulation. While we have an idea regarding the impact of specific
regulations, we do not spend a lot of time trying to compute the overall cost of regulation. We
can only say it is material, and we believe that regulation will continue to require or encourage
higher capital levels while increasing pressure on revenues and expenses.
Notwithstanding these challenges, we believe our people and their commitment to our
Operating Philosophy, our convergence to One Bank, and our financial condition position us
quite well to achieve our mission of “building and maintaining long-term relationships by
delivering a superior customer experience through simplicity, efficiency and engaged employees
while driving profitability and long-term growth.”
Intended Customer Experience
“We will do whatever it takes to deliver a superior customer experiences” – Our Operating Philosophy
Have you seen the green shoes?
While many companies have similar promises regarding customer experiences, their ability to
execute on that promise is another story. At First National, we have a long-standing history of
doing what is right for our customers and delivering the kind of experiences they would want to
tell others about. In today’s highly regulated, highly competitive marketplace, where
customers’ expectations continue to evolve at a rapid pace; it is critical that our commitment to
them continues to evolve as well. This year we provided all 4,700 employees a pair of green
shoes as a reminder of our commitment “to walk in our customers’ shoes” and to challenge them
to think and work differently. Going forward, you will see an enhanced focus, effort and
enterprise alignment on ensuring we continue to deliver on this promise.
Thank You!
We are proud of our exceptional management team, our employees and everything we are
achieving for our customers, communities and shareholders. 2015 was another terrific year.
Thank you!
Before we go …
Bill Henry, a former senior executive at First National, passed away on March 7, 2016. Bill was
a member of the First National family for over fifty years, most recently serving as a member of
the board of directors. We are grateful for his leadership and contributions during a time of
tremendous growth and transformation. Thank you and farewell.
Your Executive Committee
Bruce R. Lauritzen
Chairman
Daniel K. O’Neill
President
Clark D. Lauritzen
Executive Vice President
First National of Nebraska and Subsidiaries
Performance Trends
($ in millions)
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First National of Nebraska and Subsidiaries
Financial Highlights
2015 2014 2013 2012 2011
(in thousands except per share data)
Total assets $ 18,346,653 $ 17,465,465 $ 16,271,487 $ 16,409,360 $ 15,274,648
Total interest income $ 1,390,053 $ 1,293,615 $ 1,244,395 $ 1,228,613 $ 1,223,376
and noninterest income
Net income $ 200,771 $ 192,173 $ 166,976 $ 166,600 $ 158,893
Stockholders’ equity $ 1,891,079 $ 1,755,456 $ 1,650,418 $ 1,487,484 $ 1,389,429
Allowance for loan losses $ 270,973 $ 275,420 $ 279,743 $ 287,971 $ 325,271
Per share data:
Diluted earnings $ 659.85 $ 627.45 $ 541.29 $ 529.13 $ 504.42
Dividends $ 164.00 $ 150.00 $ 106.00 $ 130.00 $ —
Stockholders’ equity $ 6,230.64 $ 5,759.26 $ 5,358.81 $ 4,821.74 $ 4,410.88
Dividend payout ratio 24.8% 23.9% 19.6% 24.6% —
Profit ratios:
Return on average equity 10.9% 11.2% 10.8% 11.4% 11.7%
Return on average assets 1.2% 1.2% 1.1% 1.1% 1.1%
Years ended December 31,
First National of Nebraska and subsidiaries have locations as noted on the map below.
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First National of Nebraska and Subsidiaries
Consolidated Statements of Financial Condition
2015 2014
(in thousands except share and per share data)
Assets
Cash and due from banks $ 855,843 $ 890,641
Federal funds sold and other short-term investments 10,216 65,326
Total cash and cash equivalents 866,059 955,967
Interest-bearing time deposits due from banks 53,289 55,898
Investment securities:
Available-for-sale (amortized cost $2,678,936 and $2,593,749 ) 2,668,679 2,584,273
Held-to-maturity (fair value $245,552 and $261,130) 245,232 260,960
Trading, at fair value — 1,952
Other securities, at cost 37,331 36,108
Total investment securities 2,951,242 2,883,293
Credit card loans held for sale 307,257 —
Loans and leases (1) 13,157,502 12,563,835
Less: Allowance for loan losses 270,973 275,420
Net loans and leases 12,886,529 12,288,415
Premises, equipment and software, net 567,486 584,756
Other assets (1) 479,672 469,694
Goodwill 165,329 165,329
Intangible assets 69,790 62,113
Total assets $ 18,346,653 $ 17,465,465
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing $ 4,783,192 $ 4,664,114
Interest-bearing 10,134,061 9,721,725
Total deposits 14,917,253 14,385,839
Short-term fundings 122,878 395,409
Federal Home Loan Bank advances — 5,000
Other borrowings (1) 800,814 300,934
Accrued expenses and other liabilities 414,629 422,827
Capital notes and trust preferred securities 200,000 200,000
Total liabilities 16,455,574 15,710,009
Contingencies and commitments (Note L)
Stockholders’ equity:
Common stock, $5 par value, 370,000 shares authorized;
315,000 shares issued; 303,513 and 304,806 outstanding 1,575 1,575
Additional paid-in capital 3,368 2,868
Retained earnings 2,019,108 1,868,196
Treasury stock of 11,487 and 10,194 shares, at cost (58,071) (49,168)
Accumulated other comprehensive loss (74,901) (68,015)
Total stockholders’ equity 1,891,079 1,755,456
Total liabilities and stockholders’ equity $ 18,346,653 $ 17,465,465
December 31,
(1) Balances at December 31, 2015 and 2014 include assets and liabilities of a consolidated securitization trust, including loans of $2.8 billion and
$3.0 billion, restricted cash of $6.5 million and $3.9 million (included in other assets), and other borrowings of $800.0 million and $300.0 million,
respectively.
See Notes to Consolidated Financial Statements
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First National of Nebraska and Subsidiaries
Consolidated Statements of Income
2015 2014 2013
(in thousands except share and per share data)
Interest income:
Interest and fees on loans and lease financing $ 926,255 $ 853,631 $ 820,793
Interest on investment securities 55,858 51,982 43,409
Interest on federal funds sold and other short-term investments 1,542 2,542 2,736
Total interest income 983,655 908,155 866,938
Interest expense:
Interest on deposits 34,859 38,409 38,853
Interest on short-term fundings 301 307 350
Interest on Federal Home Loan Bank advances 437 123 228
Interest on other borrowings 4,291 2,103 1,203
Interest on capital notes and trust preferred securities 6,808 6,718 8,892
Total interest expense 46,696 47,660 49,526
Net interest income 936,959 860,495 817,412
Provision for loan losses 177,978 169,062 163,986
Net interest income after provision for loan losses 758,981 691,433 653,426
Noninterest income:
Processing services 189,380 182,195 173,860
Deposit services 32,930 35,671 38,634
Trust and investment services 47,963 47,623 46,233
Gain on sale of mortgage loans 30,788 21,574 24,535
Managed services 43,906 40,607 26,010
Other 61,431 57,790 68,185
Total noninterest income 406,398 385,460 377,457
Noninterest expense:
Salaries and employee benefits 399,685 360,238 380,024
Net occupancy expense of premises 47,902 48,112 58,387
Equipment rentals, depreciation and maintenance 83,896 82,109 75,502
Marketing, communications and supplies 96,393 83,115 70,889
Processing expense 41,820 42,046 39,588
Loan servicing expense 49,137 47,821 44,688
Professional services 22,815 27,236 25,509
Intangibles amortization 9,356 9,750 11,471
Contingent litigation 9,146 9,210 10,000
Other 91,567 69,045 56,870
Total noninterest expense 851,717 778,682 772,928
Income before income taxes 313,662 298,211 257,955
Income tax expense (benefit):
Current 115,604 97,016 75,617
Deferred (2,713) 9,022 15,362
Total income tax expense 112,891 106,038 90,979
Net income $ 200,771 $ 192,173 $ 166,976
Basic and diluted earnings per common share $ 659.85 $ 627.45 $ 541.29
Average basic and diluted common shares outstanding 304,269 306,278 308,479
See Notes to Consolidated Financial Statements
Years ended December 31,
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First National of Nebraska and Subsidiaries
Consolidated Statements of Comprehensive Income
2015 2014 2013
(in thousands)
Net income $ 200,771 $ 192,173 $ 166,976
Other comprehensive income (loss), before tax:
Net unrealized gain (loss) on available-for-sale securities (305) 21,694 (45,868)
Net unrealized gain (loss) on qualifying cash flow hedges 889 (355) 12,338
Net unrealized gain (loss) on employee benefit plans (10,472) (54,192) 88,027
Net unrealized loss on transfer of securities from
available-for-sale to held-to-maturity (530) — —
Less: Reclassification adjustment for net gains realized in
net income 477 25 4,932
Other comprehensive income (loss), before tax (10,895) (32,878) 49,565
Less: Income tax expense (benefit) for other comprehensive income (4,009) (11,503) 18,073
Other comprehensive income (loss), net of tax (6,886) (21,375) 31,492
Comprehensive income $ 193,885 $ 170,798 $ 198,468
See Notes to Consolidated Financial Statements
Years ended December 31,
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First National of Nebraska and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2015, 2014, and 2013
Common Accumulated
Stock Additional Treasury Other Total
($5 par Paid-in Retained Stock Comprehensive Stockholders’
value) Capital Earnings (at cost) Loss Equity
(in thousands except per share data)
Balance, January 1, 2013 $ 1,575 $ 2,365 $ 1,587,606 $ (25,930) $ (78,132) $ 1,487,484
Net income — — 166,976 — — 166,976
Other comprehensive income, net of tax — — — — 31,492 31,492
Purchases of treasury stock - 726 shares — — — (3,764) — (3,764)
Sales of treasury stock - 213 shares — 93 — 822 — 915
Cash dividends - $106.00 per share — — (32,685) — — — (32,685)
Balance, December 31, 2013 1,575 2,458 1,721,897 (28,872) (46,640) 1,650,418
Net income — — 192,173 — — 192,173
Other comprehensive loss, net of tax — — — — (21,375) (21,375)
Purchases of treasury stock - 3,415 shares — — — (21,162) — (21,162)
Sales of treasury stock - 239 shares — 410 — 866 — 1,276
Cash dividends - $150.00 per share — — (45,874) — — (45,874)
Balance, December 31, 2014 1,575 2,868 1,868,196 (49,168) (68,015) 1,755,456
Net income — — 200,771 — — 200,771
Other comprehensive loss, net of tax — — — — (6,886) (6,886)
Purchases of treasury stock - 1,489 shares — — — (9,613) — (9,613)
Sales of treasury stock - 196 shares — 500 — 710 — 1,210
Cash dividends - $164.00 per share — — (49,859) — — (49,859)
Balance, December 31, 2015 $ 1,575 $ 3,368 $ 2,019,108 $ (58,071) $ (74,901) $ 1,891,079
See Notes to Consolidated Financial Statements
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First National of Nebraska and Subsidiaries
Consolidated Statements of Cash Flows
2015 2014 2013
(in thousands)
OPERATING ACTIVITIES
Net Income $ 200,771 $ 192,173 $ 166,976
Adjustments to reconcile net income to net cash flows
from (used in) operating activities:
Provision for loan losses 177,978 169,062 163,986
Depreciation, amortization and accretion 96,539 105,972 98,072
Provision for deferred taxes (2,713) 9,022 15,362
Origination of mortgage loans for resale (1,197,118) (723,947) (913,419)
Proceeds from the sale of mortgage loans
originated for resale 1,212,442 712,491 996,750
Contingent litigation payments (6,575) (18,584) (9,047)
Gain on sale of loan portfolio (5,352) — —
Other asset and liability activity, net 4,441 2,593 9,820
Net cash flows from operating activities 480,413 448,782 528,500
INVESTING ACTIVITIES
Maturities of securities available-for-sale 424,367 594,225 633,377
Sales of securities available-for-sale 139,723 127,407 455,331
Purchases of securities available-for-sale (680,860) (1,283,903) (748,333)
Maturities of securities held-to-maturity 35,550 6,823 —
Purchases of securities held-to-maturity (30,913) (19,282) (3,604)
Redemptions of FHLB stock and other securities 28,241 10,120 19,725
Purchases of FHLB stock and other securities (29,464) (6,672) (19,577)
Maturities of interest-bearing time deposits 22,609 33,886 73,992
Sales of interest-bearing time deposits — 25,000 —
Purchases of interest-bearing time deposits (20,000) (10,200) (15,240)
Net change in loans and leases (1,049,592) (1,019,773) (728,199)
Net change in restricted cash (2,033) — (3,947)
Sale of loan portfolio 32,789 — —
Purchases of loan portfolios (91,847) (18,603) (50,354)
Purchases of premises and equipment (43,422) (47,840) (395,550)
Other, net 14,270 15,665 29,495
Net cash flows used in investing activities (1,250,582) (1,593,147) (752,884)
FINANCING ACTIVITIES
Net change in deposits 531,414 836,735 (548,976)
Net change in short term fundings (272,531) 179,928 119,503
Issuance (redemption) of FHLB advances — (8,262) 8,238
Principal repayments on FHLB advances (5,000) — —
Issuance of other borrowings 1,685 30 85
Principal repayments on other borrowings (1,805) (534) (834)
Proceeds from new securitizations 600,000 — 775,000
Principal repayments on other borrowings of
securitization trusts (100,000) — (475,000)
Principal repayments on capital notes — — (100,000)
Cash dividends paid (65,099) (30,634) (32,685)
Net change in treasury stock (8,403) (19,886) (2,849)
Net cash flows from (used in) financing activities 680,261 957,377 (257,518)
Net change in cash and cash equivalents (89,908) (186,988) (481,902)
Cash and cash equivalents at beginning of year 955,967 1,142,955 1,624,857
Cash and cash equivalents at end of year $ 866,059 $ 955,967 $ 1,142,955
Cash paid during the year for:
Interest $ 46,404 $ 47,814 $ 50,314
Income taxes $ 115,016 $ 78,544 $ 85,243
Years ended December 31,
The Company transferred $4.3 million, $5.6 million, and $9.4 million from loans to other real estate owned during the years ended December 31,
2015, 2014 and 2013, respectively.
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First National of Nebraska and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 2015, 2014 and 2013
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation – The consolidated financial statements of First National of
Nebraska, Inc. (the Parent Company) and subsidiaries (collectively, the Company) include the accounts of the
Parent Company; its 99.99% owned subsidiary, First National Bank of Omaha and subsidiaries (the Bank); its
nonbanking subsidiaries; and its variable interest entities (VIEs) in which it is the primary beneficiary. In 2014, the
Company merged its wholly-owned other banking subsidiary charters. All intercompany transactions and
balances have been eliminated in consolidation. Subsequent events are analyzed through March XX, 2016, the
date the report is available to be issued, and, where applicable, they are disclosed.
Nature of Business – The Company is a Nebraska based interstate financial holding company with headquarters
located in Omaha, Nebraska whose primary asset is its banking subsidiary. This subsidiary is principally engaged
in credit card, other consumer, commercial, real estate and agricultural lending, retail deposit activities, wealth
management and trust services, cash management and other services. Additionally, the Company has
nonbanking subsidiaries that are engaged in various businesses including technology hosting and related
activities, among other things.
Use of Estimates – In preparing the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents – 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.
Investment Securities – Securities not classified as trading or held-to-maturity, including equity securities with
readily determinable fair values, are classified as available-for-sale and recorded at fair value, with unrealized
gains and losses on a net-of-tax basis excluded from earnings and reported in other comprehensive income.
Other securities include Federal Reserve stock, Federal Home Loan Bank (FHLB) stock and other securities that
are not actively traded. These securities are reported at cost.
Held-to-maturity securities are limited to securities for which the Company has the intent and ability to hold to
maturity. These securities are reported at amortized cost.
Purchase premiums and discounts are recognized in interest income using the effective interest method over the
period to maturity. Gains and losses on the sale of securities are determined using the specific-identification
method.
The Company regularly evaluate debt and equity securities whose values have declined below amortized cost /
cost to assess whether the decline in fair value represents an other-than-temporary impairment (OTTI). Amortized
cost reflects historical cost adjusted for amortization of premiums, accretion of discounts and any previously
recorded impairments.
Credit Card Loans Held for Sale – Loans held for sale are carried at the lower of aggregate cost or fair value.
Gains or losses on loan sales are recognized at the time of sale.
Loans – Net loans are reported at their outstanding principal balance adjusted for charge-offs, 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 to the yield of the related loan over the estimated average life of
the loan. The par value of credit card loans represents outstanding principal amounts plus unpaid billed fees and
finance charges less charge-offs and is reduced for the net unearned revenue related to loan origination which is
amortized over 12 months. The Company refers to two categories of loans: credit card loans, predominately
unsecured, and other community banking loans, all other loans generally secured by underlying real estate,
business assets, personal property and personal guarantees.
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Loans are considered impaired when, based on current information and events, it is probable the Company will be
unable to collect all amounts due in accordance with the original contractual terms of the loan agreement.
Impairment is evaluated in total for smaller-balance loans and on an individual basis for other loans.
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. All
interest accrued but not collected for loans that are charged off or placed on non-accrual, is reversed against
interest income. All cash payments received while the loans (with an outstanding balance greater than $100,000)
are placed on non-accrual, including impaired loans placed on non-accrual, are applied to principal until all
principal is received or the loan is removed from non-accrual status. Loans are returned to accrual status when
all the principal and interest amounts contractually due are brought current and future payments are reasonably
assured. Credit card loans continue to accrue interest up to 90 days contractually past due. The credit card
loans are then put on non-accrual status for an additional 90 days. After 180 days the credit card loan balance
plus accrued interest is charged off, with the exception of credit card loans modified in troubled debt restructurings
which charge off after 120 days. Community banking loans are charged off when identified as losses by
management.
Mortgage Loans Held for Sale – Mortgage loans held for sale (MHFS) include commercial and residential
mortgages originated for sale and securitization in the secondary market, which is our principal market, or for sale
as whole loans. The Company measures new residential MHFS originated by the Bank at fair value.
All other residential and commercial mortgage loans originated and intended for sale in the secondary market
continue to be carried at the lower of cost or estimated fair value. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to income. Loan origination fees and loan origination costs are
deferred and included in the carrying amount of the loans. When loans are sold with the servicing released, gains
or losses are recognized on sales as the difference between the cash proceeds, which includes a service release
premium, and the carrying amount of the loans. The revenue generated on the sale, including the service release
premium, is included in noninterest income as a gain on sale of mortgage loans. When loans are sold with the
servicing retained, the gain or loss is recognized as the difference between the cash proceeds and the carrying
value of the loans and a mortgage servicing right asset is recorded.
Loan Securitizations – The Company sells credit card loans to securitization trusts whereby securities are
issued and sold to investors, a process referred to as securitization. The securitization trusts are consolidated in
the Company’s financial statements; therefore, the credit card loans sold to the trusts are reported within net
loans and leases and the cash received from investors is reported as other borrowings. The assets of the
securitization trusts are restricted to the settlement of the debt and other liabilities of the trusts and the holders of
the debt do not have recourse to the general assets of the Company. The Company’s credit card securitizations
are accounted for as secured borrowings and the trusts are treated as consolidated subsidiaries of the Company.
Allowance for Loan Losses – The Company’s allowance for loan losses represents management’s estimate of
probable losses inherent in the loan portfolio. Additions to the allowance are recorded in the provision for loan
losses. Credit losses are charged and recoveries are credited to the allowance for loan losses.
The Company’s allowance for loan losses consists of specific valuation allowances established for probable
losses on specific loans and general valuation allowances calculated based on historical and inherent losses for
similar loans with similar characteristics adjusted to reflect the impact of current conditions.
Premises, Equipment and Software, net – Premises, furniture and equipment and leasehold improvements are
carried at cost, less accumulated depreciation and amortization. The Company primarily uses the straight-line
method of depreciation and amortization. Estimated useful lives range up to 50 years for buildings and up to
15 years for software and equipment. Leasehold improvements are amortized over the shorter of the estimated
useful life or lease term. Land is carried at cost.
Foreclosed Assets – Assets acquired through loan foreclosures are held for sale and initially recorded at the
lower of cost or fair value less estimated selling costs when acquired, establishing a new cost basis. If the fair
value of the assets decline, a write-down is recorded through expense. The valuation of foreclosed assets is
subjective in nature and may be adjusted in the future because of changes in economic conditions. Foreclosed
assets are included in other assets in the Consolidated Statements of Financial Condition and totaled
$15.3 million and $19.1 million at December 31, 2015 and 2014, respectively.
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Goodwill – 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 not amortized, but instead, reviewed for
impairment at least annually or whenever events or changes in circumstances indicate that the carrying value
may not be recoverable.
The accounting guidance provides the Company an option to first assess qualitative factors to determine whether
the existence of events or circumstances leads to a determination that it is more likely than not (more than 50%)
that the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a
qualitative assessment and determines that an impairment is more likely than not, the Company is then required
to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. The
Company may also elect not to perform the qualitative assessment and, instead, proceed directly to the two-step
quantitative impairment test.
Under the qualitative assessment, various events and circumstances that would affect the estimated fair value of
a reporting unit (e.g., macroeconomic conditions, industry and market conditions, cost factors, overall financial
performance and other relevant entity-specific events) are identified and assessed. The Company’s policy
requires the completion of a quantitative assessment for its reporting unit every three years unless circumstances
indicate that such assessment should be performed more frequently. The Company completed its periodic
quantitative assessment for the 2014 annual review of goodwill. The Company uses a weighted average of two
generally accepted approaches, the market approach and the income approach, in determining the fair value of
goodwill. Under the market approach the fair value of the asset reflects the price at which comparable assets are
purchased under similar circumstances. The income approach is based on value of future cash flows that an
asset will generate in its economic life.
Intangible Assets – The Company’s intangible assets relate to core deposits and purchased credit card
relationships. Core deposit intangibles represent the intangible value of depositor relationships resulting from
deposit liabilities assumed in acquisitions and are amortized over periods not exceeding 22 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 periods not exceeding 15 years using an accelerated
method. The Company periodically assesses the recoverability of these identifiable intangible assets by
reviewing such assets at least annually or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Impairment is recognized when the carrying value of the intangible asset
exceeds its fair value.
Mortgage Servicing Rights – The Company measures mortgage servicing rights (MSRs) at fair value. The fair
value of MSRs is determined using present value of estimated future cash flow methods, incorporating
assumptions that market participants would use in their estimates of fair value. Fees received for servicing
mortgage loans owned by investors are based on a percentage of the outstanding monthly principal balance of
such loans and are included in income as loan payments are received. Costs of servicing mortgage loans are
charged to expense as incurred. The Company’s MSRs are classified in intangible assets.
Securities Sold Under Repurchase Agreements – Securities sold under agreements to repurchase, which are
classified as secured borrowings and included in short-term fundings, generally mature within one day from the
transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in
connection with the transaction. The Company may be required to provide additional collateral based on the fair
value of the underlying securities.
Derivative Financial Instruments – The Company’s Board of Directors has established derivative usage
policies. The Company’s derivative activities are monitored by management with oversight by the Board of
Directors. The Company assesses interest rate cash flow risk by monitoring changes in interest rate exposures
and by evaluating hedging opportunities. The Company’s policies permit the use of various derivative financial
instruments to manage interest rate risk or to hedge specific assets. The Company uses derivatives on a limited
basis mainly to hedge against interest rate risk and to meet the needs of its customers.
11
All derivatives are recorded at fair value on the Company’s financial statements. Changes in fair value on
derivatives that are designated and qualify as a cash flow hedge are recorded as a component of other
comprehensive income. All other gains and losses on the Company’s derivative instruments are recorded in
earnings. To qualify for hedge accounting, derivatives must be highly effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at inception. The Company formally
documents the relationship between hedging instruments and hedged items, as well as the risk management
objective and strategy for undertaking various hedge transactions. Ineffective portions of hedges are reflected in
earnings as they occur. The Company measures the effectiveness of its hedging relationships both at the hedge
inception and on an ongoing basis in accordance with its risk management policy.
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, the Company provides deferred taxes for differences between the financial statement
carrying amounts and tax bases of existing assets and liabilities by applying currently enacted statutory tax rates
which are applicable to future periods. The Company recognizes tax benefits only for tax positions that are more
likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the
largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for
unrecognized tax benefits is recorded for any tax benefits claimed in tax returns that do not meet these
recognition and measurement standards. The Company recognizes both interest and penalties (if applicable) as
a component of income tax expense.
Fair Values of Financial Instruments – The 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, including the discount rate and estimates of future cash flows. The
Company assumes that the carrying amount of cash and short-term financial instruments, including federal funds
sold, accrued interest receivable, short-term fundings and accrued interest payable, approximate their fair values.
Trust Assets – Property (other than cash deposits) held by the banking subsidiary in fiduciary or agency
capacities for its customers is not included in the accompanying Consolidated Statements of Financial Condition
since such items are not assets of the Company.
Earnings Per Share – Basic and diluted earnings per common share (EPS) is computed using the weighted
average number of shares of common stock outstanding during the period.
12
B. INVESTMENT SECURITIES
Available-for-Sale
The amortized cost of available-for-sale securities and their approximate fair values at December 31 were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
2015
U.S. government obligations $ 717,104 $ 1,789 $ (2,974) $ 715,919
Obligations of states and political subdivisions 47,863 772 (28) 48,607
Agency mortgage-backed securities 1,875,018 4,948 (12,772) 1,867,194
Other securities 38,951 816 (2,808) 36,959
Total securities available-for-sale $ 2,678,936 $ 8,325 $ (18,582) $ 2,668,679
2014
U.S. government obligations $ 667,803 $ 1,060 $ (4,169) $ 664,694
Obligations of states and political subdivisions 50,576 650 (3) 51,223
Agency mortgage-backed securities 1,832,461 7,499 (13,938) 1,826,022
Other securities 42,909 876 (1,451) 42,334
Total securities available-for-sale $ 2,593,749 $ 10,085 $ (19,561) $ 2,584,273
Other securities include $14.8 million and $16.1 million of auction rate securities, $11.9 million and $15.4 million
of mutual funds, and $10.3 million and $10.9 million of other securities at December 31, 2015 and 2014,
respectively.
Gross realized gains on sales of available-for-sale securities were $0.7 million, $0 million and $5.4 million for
2015, 2014 and 2013, respectively and recorded in other noninterest income on the Consolidated Statements of
Income. The proceeds from sales of available-for-sale securities were $139.7 million, $127.4 million and
$450.4 million for 2015, 2014 and 2013, respectively.
Held-to-Maturity
The amortized cost of held-to-maturity securities and their approximate fair values at December 31 were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
2015
U.S. government obligations $ 70,708 $ 362 $ (65) $ 71,005
Obligations of states and political subdivisions 38,146 144 (37) 38,253
Agency mortgage-backed securities 136,378 448 (532) 136,294
Total securities held-to-maturity $ 245,232 $ 954 $ (634) $ 381,245,846 552
2014
U.S. government obligations $ 76,335 $ 162 $ (1,773) $ 74,724
Obligations of states and political subdivisions 44,822 1,215 (27) 46,010
Agency mortgage-backed securities 139,803 656 (63) 140,396
Total securities held-to-maturity $ 260,960 $ 2,033 $ (1,863) $ 261,130
13
In 2014, the Company transferred $247.5 million of available-for-sale securitites to the held-to-maturity category
at fair value. It is the Company intent to hold the reclassified securities to maturity.
The following table presents the amortized cost and fair value by the contractual maturity of available-for-sale and
held-to-maturity debt securities held on December 31, 2015:
Amortized Fair Amortized Fair
Cost Value Cost Value
(in thousands)
Debt securities
Due in one year or less $ 4,769 $ 4,771 $ 7,901 $ 7,901
Due after one year through five years 686,868 685,926 45,412 45,615
Due after five years through ten years 49,367 49,166 49,046 49,206
Due after ten years 23,963 24,663 6,495 6,536
Agency mortgage-backed securities
(weighted average life of 3.2 years) 1,875,018 1,867,194 136,378 136,294
Total $ 2,639,985 $ 2,631,720 $ 245,232 $ 245,552
Available-Maturityfor-Sale Held-to-
The following table shows the fair value and gross unrealized losses of the Company’s investments, aggregated
by investment category and length of time that individual securities have been in a continuous unrealized loss
position, at December 31, 2015 and 2014:
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
(in thousands)
2015
U.S. government
obligations $ 118,045 $ (696) $ 220,378 $ (2,343) $ 338,423 $ (3,039)
Obligations of states and
political subdivisions 19,162 (64) 797 (1) 19,959 (65)
Agency mortgage-backed
securities 569,784 (5,361) 723,192 (7,943) 1,292,976 (13,304)
Other securities — — 24,182 (2,808) 24,182 (2,808)
Total temporarily impaired
securities $ 706,991 $ (6,121) $ 968,549 $ (13,095) $ 1,675,540 $ (19,216)
2014
U.S. government
obligations $ 227,688 $ (285) $ 252,550 $ (5,657) $ 480,238 $ (5,942)
Obligations of states and
political subdivisions 2,299 (14) 22,354 (16) 24,653 (30)
Agency mortgage-backed
securities 395,842 (2,177) 772,971 (11,824) 1,168,813 (14,001)
Other securities — — 25,614 (1,451) 25,614 (1,451)
Total temporarily impaired
securities $ 625,829 $ (2,476) $ 1,073,489 $ (18,948) $ 1,699,318 $ (21,424)
Less than 12 months 12 months or greater Total
The Company conducts periodic reviews of impaired investments to determine if the unrealized losses are other
than temporary. The Company has determined the unrealized losses in these investments to be temporary in
nature. The primary factor in making that determination is management’s intent and ability to hold each
investment for a period of time sufficient to allow for an anticipated recovery in fair value. Additionally, for each
debt security with an unrealized loss, the Company determines whether it is probable that it will receive all
amounts due according to the contractual terms of the agreement. The Company determined these investments
were not impaired due to the creditworthiness of the issuer. Additionally, management did not have the intent to
sell any of the above securities at December 31, 2015, nor is it more likely than not that the Company will have to
14
sell any such security before a recovery of the cost. If any such impairments are determined to be other than
temporary, such impairments would be recorded in earnings.
Securities totaling $2.1 billion and $1.9 billion at December 31, 2015 and 2014, respectively, were pledged to
secure public deposits, repurchase agreements and for other purposes as required or permitted by law.
The Company did not hold any trading securities at December 31, 2015. The Company held trading securities of
$2.0 million at December 31, 2014.
C. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans
The Company grants individual consumer, commercial, agricultural and real estate loans to its customers. It is
diversified in its lending by providing financing to a variety of borrowers throughout the Company’s operating
regions in Nebraska, Colorado, Kansas, South Dakota, Iowa, Minnesota, Wisconsin, Oklahoma, Texas, Missouri
and Illinois. Additionally, its credit card loan portfolio includes national, co-branded, and affinity portfolios which
include borrowers from across the country.
The following table reflects the diversification of the lending activities for loans at December 31:
2015 2014
(in thousands)
Credit card (1) $ 5,492,888 $ 5,329,631
Real estate – commercial 2,216,588 1,987,552
Real estate – residential (2) 1,289,679 1,203,675
Commercial 1,511,141 1,401,989
Agricultural 1,598,323 1,693,101
Other 1,045,161 946,441
Gross loans 13,153,780 12,562,389
Deferred loan costs, net (3,722) (1,446)
Total loans 13,157,502 12,563,835
Less:
Allowance for loan losses 270,973 275,420
Net loans $ 12,886,529 $ 12,288,415
(1) Includes credit card loans held for sale of $30.6 million at December 31, 2014.
(2) Includes mortgage loans held for sale of $100.7 million and $88.1 million at December 31, 2015 and 2014, respectively.
Related Party Loans
Loan participations sold to banks owned by controlling stockholders of the Company were $9.5 million and
$10.3 million at December 31, 2015 and 2014, respectively. Loan participations of $44.1 million and $69.8 million
were also purchased from companies owned by controlling stockholders at December 31, 2015 and 2014,
respectively. Loans to Company directors and their associated entities were made in the ordinary course of
business and were approximately $2.2 million and $2.7 million at December 31, 2015 and 2014, respectively.
Allowance for Loan Losses
The allowance for loan losses is intended to cover losses inherent in the Company’s loan portfolio as of the
reporting date. The Company evaluates its allowance for loan losses based upon a review of collateral values,
delinquencies, non-accruals, payment histories and various other analytical and subjective measures relating to
the various loan portfolios within the Company.
15
Changes in the allowance for loan losses for the years ended December 31 were as follows:
2015 2014 2013
(in thousands)
Balance, beginning of year $ 275,420 $ 279,743 $ 287,971
Provision for loan losses 177,978 169,062 163,986
Transfer of loans to held for sale (9,879) — —
Loans charged off (227,413) (218,805) (218,906)
Loans recovered 54,867 45,420 46,692
Total net charge-offs (172,546) (173,385) (172,214)
Balance, end of year $ 270,973 $ 275,420 $ 279,743
Changes in the allowance for loan losses for the year ended December 31 by portfolio segment were as follows:
Community
Banking Credit Card
(in thousands)
2015
Balance, beginning of year $ 102,519 $ 172,901
Provision for loan losses 10,223 167,755
Transfer of loans to held for sale — (9,879)
Loans charged off (20,188) (207,225)
Loans recovered 11,673 43,194
Total net charge-offs (8,515) (164,031)
Balance, end of year $ 104,227 $ 166,746
2014
Balance, beginning of year $ 93,435 $ 186,308
Provision for loan losses 19,064 149,998
Loans charged off (21,841) (196,964)
Loans recovered 11,861 33,559
Total net charge-offs (9,980) (163,405)
Balance, end of year $ 102,519 $ 172,901
2013
Balance, beginning of year $ 102,556 $ 185,415
Provision for loan losses 568 163,418
Loans charged off (26,206) (192,700)
Loans recovered 16,517 30,175
Total net charge-offs (9,689) (162,525)
Balance, end of year $ 93,435 $ 186,308
The Company’s allowance for loan losses consists of various methodologies to determine impairment: (a) loans
individually evaluated for impairment are evaluated based on probable losses on specific loans, and (b) loans
collectively evaluated for impairment are evaluated based on historical loan loss experience for similar loans with
similar characteristics, adjusted to reflect the impact of current conditions.
Additionally, the Company’s total allowance for loan losses includes general valuation allowances based on
economic conditions and other qualitative risk factors. Such valuation allowances are determined by evaluating,
among other things: (a) changes in asset quality, (b) composition and concentrations of credit risk and (c) the
impact of economic risks on the portfolio including unemployment rates and bankruptcy trends.
16
In determining the allowance for loan losses, management considers factors such as economic and business
conditions affecting key lending areas, credit concentrations and credit quality trends. Since the evaluation of the
inherent loss with respect to these factors is subject to a higher degree of uncertainty, the measurement of the
overall allowance is subject to estimation risk and the amount of actual losses can vary significantly from the
estimated amounts.
Methods for measuring the appropriate level of the allowance for community banking loans evaluated collectively
for impairment include the application of estimated loss factors to outstanding loans based on migration analysis
of actual losses and subjective adjustments that incorporate the risk attributes of various loans with economic
conditions, industry situations and other internal/external factors that may impact potential loss factors.
Adjustments are made to the baseline rates to properly reflect management’s judgment with respect to evolving
conditions influencing loss recognition.
For credit card loans, management estimates losses inherent in the portfolio based on a model which tracks
historical loss experience on current and delinquent accounts, FICO scores, and charge-offs, net of estimated
recoveries, due to bankruptcies, deceased cardholders and account settlements. The Company uses a migration
analysis that estimates the likelihood that a credit card receivable will progress through the various stages of
delinquency and to charge-off. The migration analysis considers uncollectible principal, interest and fees
reflected in loan receivables. An estimated charge-off ratio is then applied to each delinquency category to derive
an estimated reserve rate.
Credit card and other consumer loans are predominately unsecured, and the allowance for potential losses
associated with these loans has been established accordingly. All other loans are generally secured by
underlying real estate, business assets, personal property and personal guarantees. The amount of collateral
obtained is based upon management’s evaluation of the borrower.
The following table provides an allocation of the year end recorded investment which includes unearned income,
and the allowance for loan losses by loan type; however, allocation of a portion of the allowance to one category
of loans does not preclude its availability to absorb losses in other categories:
Recorded Ending Recorded Ending
Investment in Allowance: Investment in Allowance:
Loans Individually Individually Loans Collectively Collectively
Evaluated for Evaluated for Evaluated for Evaluated for
Impairment Impairment Impairment Impairment
(in thousands)
2015
Credit card $ 44,918 $ 13,362 $ 5,447,970 $ 153,384
Real estate – commercial 34,470 694 2,182,118 24,964
Real estate – residential 16,690 1,865 1,272,989 7,499
Commercial 12,175 240 1,498,966 21,043
Agricultural 2,514 1 1,595,809 19,854
Other 50 9 1,045,111 28,058
Total $ 110,817 $ 16,171 $ 13,042,963 $ 254,802
2014
Credit card $ 55,618 $ 16,866 $ 5,274,013 $ 156,036
Real estate – commercial 25,989 220 1,961,563 26,215
Real estate – residential 30,482 2,511 1,173,193 9,612
Commercial 20,653 601 1,381,336 17,616
Agricultural 16,499 9 1,676,602 20,717
Other 5,265 12 941,176 25,005
Total $ 154,506 $ 20,219 $ 12,407,883 $ 255,201
17
Impaired Loans
Loans individually evaluated for impairment are evaluated based on probable losses on specific loans. A loan is
considered impaired when it is probable that all principal and interest amounts due will not be collected in
accordance with the loan’s contractual terms. Additionally, all loans modified in a troubled debt restructuring are
classified as impaired loans. For all community banking loans, the Company uses internal credit ratings to
determine which subset of loans should be individually evaluated for impairment. For credit card receivables, only
loans that have been modified in a troubled debt restructuring are considered impaired loans.
The allowance established for probable losses on specific loans are based on a periodic analysis and evaluation
of classified loans. Specific reserves for impaired loans are measured and recognized to the extent that the
recorded investment of an impaired loan exceeds its value based on either the fair value of the loan’s underlying
collateral less costs to sell or the calculated present value of projected cash flows discounted at the contractual
effective interest rate.
The following table summarizes the Company’s impaired loans at December 31, 2015 and 2014. The unpaid
contractual principal balance represents the Company’s gross investment in the loan without unearned income.
Unpaid Recorded Recorded
Contractual Investment Investment Total
Principal With No With Recorded Related
Balance Allowance Allowance Investment Allowance
(in thousands)
2015
Credit card $ 44,918 $ — $ 44,918 $ 44,918 $ 13,362
Real estate – commercial 34,476 20,640 13,830 34,470 694
Real estate – residential 16,693 8,310 8,380 16,690 1,865
Commercial 12,177 5,087 7,088 12,175 240
Agricultural 2,514 2,286 228 2,514 1
Other 50 41 9 50 9
Total $ 110,828 $ 36,364 $ 74,453 $ 110,817 $ 16,171
2014
Credit card $ 55,618 $ — $ 55,618 $ 55,618 $ 16,866
Real estate – commercial 25,995 21,571 4,418 25,989 220
Real estate – residential 30,489 10,304 20,178 30,482 2,511
Commercial 20,658 15,230 5,423 20,653 601
Agricultural 16,503 16,256 243 16,499 9
Other 5,266 5,022 243 5,265 12
Total $ 154,529 $ 68,383 $ 86,123 $ 154,506 $ 20,219
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The following table summarizes the Company’s average balance of impaired loans during 2015 and 2014 and
interest income recognized during 2015 and 2014 on impaired loans subsequent to their classification as
impaired:
Recognized
Average Interest
Balance Income
(in thousands)
2015
Credit card $ 49,685 $ 3,132
Real estate – commercial 27,311 1,269
Real estate – residential 26,149 567
Commercial 20,388 1,275
Agricultural 8,593 88
Other 211 —
Total $ 132,337 $ 6,331
2014
Credit card $ 64,343 $ 3,749
Real estate – commercial 35,651 1,658
Real estate – residential 30,950 495
Commercial 22,186 1,178
Agricultural 19,835 176
Other 5,280 —
Total $ 178,245 $ 7,256
Restructurings
Included in impaired loans are troubled debt restructurings (TDR). Troubled debt restructurings occur when
concessions are granted to borrowers experiencing financial difficulties. These concessions could include a
reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other
action intended to maximize collection. These loans are measured for impairment based on either the fair value
of the underlying collateral or based on the present value of expected future cash flows discounted at the effective
interest rate of the original loan contract with any shortfall recorded as a part of the allowance for loan losses.
Some loans modified through the loan restructurings may not be accruing interest at the time of the modification.
The Company returns modified loans to accrual status once the borrower demonstrates performance according to
the terms of the restructuring agreement for a period of at least six months. A loan modified as a troubled debt
restructuring is reported as a troubled debt restructuring for a minimum of one year. A loan will no longer be
included in the balance of troubled debt restructurings in the calendar year following a modification if the loan was
modified to yield a market rate for loans of similar credit risk at the time of restructuring and the loan is not
impaired based on the terms of the restructuring agreement.
Consumers with outstanding credit card loans that are experiencing financial difficulties are restructured through
loan restructuring programs. Once a credit card loan is restructured, the Company no longer has a commitment
to provide additional funding on the loan.
19
The following table represents a summary of the loans modified as a troubled debt restructuring by the Company
as of the year ended December 31 and the ending balance of all troubled debt restructured loans at
December 31:
Number of
loans
modified
Recorded
investment in
loans
classified as
a TDR
($ in thousands)
2015
Credit card 6,768 $ 44,918
Real estate – commercial 46 31,392
Real estate – residential 161 16,690
Commercial 24 9,995
Agricultural 8 1,489
Other 5 50
Total modifications 7,012 $ 104,534
2014
Credit card 7,502 $ 55,618
Real estate – commercial 56 33,254
Real estate – residential 160 18,603
Commercial 25 18,160
Agricultural 6 3,544
Other 3 5,037
Total modifications 7,752 $ 134,216
At December 31, 2015 and December 31, 2014, community banking loans modified as troubled debt
restructurings of $12.3 million and $15.8 million, respectively, were not in compliance with their modified terms.
There were no significant commitments for additional funding on any of the community banking loans that were
troubled debt restructurings at December 31, 2015 or December 31, 2014.
At December 31, 2015 and 2014, respectively, $6.1 million and $8.0 million of credit card restructured loans were
not in compliance with their modified terms. Modifications on credit card loans typically include a reduction in the
interest rate charged on the loan and a conversion of the revolving loan into a term loan paying principal and
interest; therefore, based on the methodology used to determine allowance on troubled debt restructurings, the
Company increased the allowance recorded on these loans by $2.7 million and $3.3 million upon classification in
2015 and 2014, respectively. The Company recorded an allowance for loan loss equal to $13.4 million and
$16.9 million on all credit card troubled debt restructurings in 2015 and 2014, respectively.
Credit Risk
The Company uses an internal credit ratings system to monitor the credit risk within its community banking loan
portfolio. The internal credit ratings system assigns credit risk ratings based on the strength of the primary
repayment source for the loan outstanding. The assigned risk rating is based on the likelihood that the borrower
will be able to service its obligations under the terms of the agreement. In assigning a rating, the Company
assesses the strength of the borrower’s repayment capacity and the probability of default, where default is the
failure to make a required payment in full and on time. The Company first assesses the paying capacity of the
borrower; then, it analyzes any pledged collateral or guarantees. As the primary repayment source weakens and
default probability increases, collateral and other protective structural elements have a greater bearing on the risk
rating.
20
The Company’s internal rating scale aligns with the regulatory agency’s risk rating scale used to identify problem
credits and identifies three varying degrees of credit worthiness: (a) pass, (b) special mention and
(c) substandard. Pass loans exceed the Company’s minimum level of acceptable credit risk and servicing
requirements; all loans not rated special mention or substandard are considered pass loans. A special mention
loan has potential weaknesses that if left uncorrected may result in deterioration of the repayment prospects for
the asset or in the borrower’s credit position at some future date. A substandard loan is inadequately protected
by the current worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as
substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if these
deficiencies are not corrected, it is possible that the Company will sustain some loss. The Company reviews and
updates the risk rating on its loans as circumstances change or at least quarterly.
For the credit card portfolio, delinquencies are an indicator of credit quality at any point in time. Loan balances
are considered delinquent when contractual payments on the loan become 30 days past due. All loans that are
current on their payments are considered performing loans. All loans that are 30 days past due are considered
nonperforming.
The Company’s loan portfolio was evaluated based on the following credit quality indicators as of December 31:
Real Estate - Real Estate -
Commercial Residential Commercial Agricultural Other Total
(in thousands)
2015
Internally assigned grade:
Pass $ 2,163,632 $ 1,272,516 $ 1,467,427 $ 1,549,859 $ 1,043,268 $ 7,496,702
Special mention 7,768 1,330 17,012 14,364 9 40,483
Substandard 45,188 15,833 26,702 34,100 1,884 123,707
Total $ 2,216,588 $ 1,289,679 $ 1,511,141 $ 1,598,323 $ 1,045,161 $ 7,660,892
Credit Card
Based on payment activity:
Performing $ 5,384,164
Nonperforming 108,724
Total $ 5,492,888
2014
Internally assigned grade:
Pass $ 1,923,912 $ 1,183,214 $ 1,337,932 $ 1,657,304 $ 944,973 $ 7,047,335
Special mention 10,529 423 16,572 11,183 1 38,708
Substandard 53,111 20,038 47,485 24,614 1,467 146,715
Total $ 1,987,552 $ 1,203,675 $ 1,401,989 $ 1,693,101 $ 946,441 $ 7,232,758
Credit Card
Based on payment activity:
Performing $ 5,227,667
Nonperforming 101,964
Total $ 5,329,631
Nonperforming and Past-Due Loans
The Company places loans on non-accrual when management believes collection of principal and interest is
doubtful after considering economic and business conditions, collection efforts and the financial condition of the
borrower.
21
The following is an aging analysis of the contractually past due loans as of December 31:
Greater than
30 – 89 90 or More 90 Days
Days Days Total Nonaccrual Past Due
Past Due Past Due Past Due Loans and Accruing
(in thousands)
2015
Credit card $ 54,979 $ 53,745 $ 108,724 $ 51,709 $ 71
Real estate – commercial 7,266 475 7,741 7,244 475
Real estate – residential 6,110 1,507 7,617 11,474 1,514
Commercial 7,959 551 8,510 4,736 551
Agricultural 3,808 270 4,078 1,703 165
Other 4,335 81 4,416 1,761 81
Total $ 84,457 $ 56,629 $ 141,086 $ 78,627 $ 2,857
Greater than
30 – 89 90 or More 90 Days
Days Days Total Nonaccrual Past Due
Past Due Past Due Past Due Loans and Accruing
(in thousands)
2014
Credit card $ 51,171 $ 50,793 $ 101,964 $ 49,602 $ 18
Real estate – commercial 3,729 17 3,746 8,885 17
Real estate – residential 6,224 582 6,806 14,894 582
Commercial 6,110 137 6,247 4,487 136
Agricultural 3,532 370 3,902 13,718 250
Other 3,707 72 3,779 1,437 70
Total $ 74,473 $ 51,971 $ 126,444 $ 93,023 $ 1,073
Acquired Loans
During 2015 and 2014, the Company acquired two separate loan asset portfolios as part of the strategy to expand
its business through partner-based marketing and leveraging its core capabilities and assets to grow new
business.
On July 24, 2015, the Company acquired co-branded credit card assets. The estimated fair value of the credit
card assets purchased was approximately $81.5 million at the acquisition date. The Company also recorded an
estimated purchased credit card relationship intangible asset of approximately $10.5 million and a rewards liability
of approximately $0.1 million (included in accrued expenses and other liabilities in the Consolidated Statements of
Financial Condition).
On October 24, 2014, the Company acquired affinity and co-branded credit card assets. The estimated fair value
of the credit card assets purchased was approximately $18.7 million at the acquisition date. The Company also
recorded an estimated purchased credit card relationship intangible asset of approximately $2.2 million and a
rewards liability of approximately $2.2 million (included in accrued expenses and other liabilities in the
Consolidated Statements of Financial Condition).
22
Credit Card Loans Held for Sale
Credit card loans held for sale total $307.3 million and $30.6 million at December 31, 2015 and 2014,
respectively. The balance at December 31, 2015 is reflected on the Consolidated Statements of Financial
Condition, while the balance at December 31, 2014 is disclosed in the Notes to the Consolidated Financial
Statements. The related loans are reflected at the lower of cost (net of the related allowance for loan losses) or
fair value. During the held for sale periods, the Company continued to recognize interest and fee income on these
loans.
In June 2015, a credit card partner exercised its contractual right and notified the Company of its intent to
purchase the credit card portfolio originated by the Bank on their behalf. In December 2015, the final purchase
agreement was executed. The net cost of this portfolio totaled $307.3 million at December 31, 2015. The
transaction is expected to close in 2016.
In December 2014, a credit card partner exercised its contractual right and notified the Company of its intent to
purchase the credit card portfolio originated by the Bank on their behalf. The net cost of this portfolio totaled $30.6
million at December 31, 2014. The portfolio was sold in 2015 resulting in a gain of $5.4 million. The gain is
recorded in other noninterest income in the Consolidated Statements of Income.
D. VARIABLE INTEREST ENTITIES
Certain legal entities like credit card securitization trusts and lease financing companies are considered variable
interest entities (VIEs). VIEs are legal entities that lack sufficient equity to finance their activities, or the equity
investors of the entities, as a group, lack any of the characteristics of a controlling interest. In certain situations, a
Company is required to consolidate a VIE. The Company currently consolidates its credit card securitization
trusts because it has determined it is the primary beneficiary of the securitization trusts and the primary
beneficiary is required to consolidate the entity. The primary beneficiary of a VIE is the enterprise that has both
the power to direct the activities most significant to the economic performance of the VIE and the obligation to
absorb losses or receive benefits that could potentially be significant to the VIE. The Company evaluates its
transfers and transactions with entities to determine if it holds a variable interest in these entities. Variable
interests are typically in the form of a security representing retained interests in the transferred assets or servicing
rights or management fees. If the Company holds a variable interest, it evaluates whether the Company is the
primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and
when there is a change in circumstance that requires reconsideration. If the Company is determined to be the
primary beneficiary of a VIE, it must account for the VIE as a consolidated subsidiary. If the Company is
determined not to be the primary beneficiary of a VIE but holds a variable interest in the entity, such variable
interests are accounted for under the equity method of accounting or other accounting standards as appropriate.
The Company transacts with VIEs that it does not consolidate including mortgage loans securitization trusts and a
lease financing corporation that owned a portion of Company-occupied space through the middle of 2013.
Credit Card Securitizations
The Company sells credit card receivables to a securitization trust. These transactions isolate the related loans
through the use of a VIE. The VIEs are funded through loans from large multi-seller asset-backed commercial
paper conduits sponsored by third-party agents, asset-backed securities issued with varying levels of credit
subordination and payment priority, and residual interests. The Company retains residual interests in these
entities and, therefore, has an obligation to absorb losses and a right to receive benefits from the VIEs that could
potentially be significant to the VIEs. In addition, the Company retains servicing rights for the underlying loans
and, therefore, holds the power to direct the activities of the VIEs that most significantly impact the economic
performance of the VIEs. As a result, the Company determined it is the primary beneficiary of these VIEs and
these trusts have been consolidated in the Company’s financial statements. The assets of each VIE are
restricted to the settlement of the debt and other liabilities of the respective entity. Third-party holders of this debt
do not have recourse to the general assets of the Company. Upon transfer of credit card loan receivables to the
trust, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to
the trust’s creditors. The trust has ownership of cash balances that also have restrictions, the amounts of which
are reported in other assets. Investment of trust cash balances is limited to investments that are permitted under
the governing documents of the trust and which have maturities no later than the related date on which funds
must be made available for distribution to trust investors. With the exception of the seller’s interest in trust
receivables, the Company’s interests in trust assets are generally subordinate to the interests of third-party
investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that
are allocated to the investors in the trust’s debt. The carrying values of these restricted assets, which are
presented on the Company’s Consolidated Statement of Financial Condition as relating to securitization activities,
are shown in the table below at December 31:
23
2015 2014
(in thousands)
Restricted cash $ 6,511 $ 3,900
Total other assets $ 6,511 $ 3,900
Credit card loans $ 2,777,037 $ 2,957,913
Allowance for loan losses allocated to securitized loans (80,611) (95,959)
Total net loans $ 2,696,426 $ 2,861,954
Borrowings owed to securitization investors $ 800,000 $ 300,000
Total other borrowings $ 800,000 $ 300,000
The economic performance of the VIEs is most significantly impacted by the performance of the underlying loans.
The principal risks to which the entities are exposed are credit, prepayment and interest rate. Credit risk is
managed through credit enhancement in the form of cash collateral accounts, excess interest on the loans, and
the subordination of certain classes of asset-backed securities to other classes.
To protect investors, the securitization structures also include certain features that could result in earlier-than-
expected repayment of the securities. Specifically, insufficient cash flows would trigger the early repayment of the
securities. The Company is required to maintain a contractual minimum level of receivables in the trusts in
excess of the face value of outstanding investors’ interests. This excess is referred to as the minimum seller’s
interest. The required minimum seller’s interest in the pool of trust receivables, which is included in loans, is set
at 4% of principal receivables of the trust. If the levels of receivables in the trust were to fall below the required
minimum, the Company would be required to add receivables from the unrestricted pool of receivables, which
would increase the amount of credit card loan receivables restricted for securitization investors, or the Company
could elect to contribute cash to meet the requirements. A decline in the amount of the seller’s interest could
occur if balance repayments and charge-offs exceeded new lending on the securitized accounts or as a result of
changes in total outstanding investors’ interests. If the Company could not add enough receivables or cash to
satisfy the requirement, an early amortization (or repayment) of investors’ interests would be triggered.
The Company continues to own and service the accounts that generate the loan receivables held by the trust.
The Company receives servicing fees from the trust based on a percentage of the monthly investor principal
balance outstanding. Although the fee income offsets the fee expense to the trust and thus is eliminated in
consolidation, failure to service the transferred loan receivables in accordance with contractual requirements
could lead to a termination of the servicing rights and the loss of future servicing income.
Residential Mortgage Loans
The Company typically transfers first lien residential mortgage loans in conjunction with Government National
Mortgage Association (Ginnie Mae) and Federal National Mortgage Association (Fannie Mae) securitization
transactions whereby the loans are exchanged for cash or securities that are readily redeemed for cash proceeds
and servicing rights. The securities issued through these transactions are guaranteed by the issuer and, as such,
under seller/servicer agreements, the Company is required to service the loans in accordance with the issuers’
servicing guidelines and standards. As seller, the Company has made certain representations and warranties
with respect to the originally transferred loans under Ginnie Mae and Fannie Mae programs.
The Company evaluated these securitization transactions for consolidation under the accounting guidance. As
servicer of the underlying loans, the Company is generally deemed to have power over the securitization.
However, the Company does not hold any retained interests in these transactions; therefore, does not have the
obligation to absorb losses or the right to receive benefits that could potentially be significant to the securitization.
As a result, the Company determined that it was not the primary beneficiary of, and thus did not consolidate, any
of these securitization transactions.
24
E. PREMISES AND EQUIPMENT
Premises and equipment at December 31 were comprised of the following:
2015 2014
(in thousands)
Land $ 90,653 $ 91,884
Buildings 580,400 584,566
Leasehold improvements 46,470 48,294
Software and equipment 426,121 398,344
Total premises and equipment 1,143,644 1,123,088
Less accumulated depreciation 576,158 538,332
Net premises and equipment $ 567,486 $ 584,756
Depreciation expense included in equipment rentals, depreciation and maintenance on the Consolidated
Statements of Income totaled $53.3 million, $54.3 million and $47.3 million for 2015, 2014 and 2013, respectively.
F. GOODWILL AND INTANGIBLE ASSETS
The Company has recognized goodwill and other intangibles as a result of various acquisitions. Goodwill
represents the excess of the purchase price over the estimated fair value of the identifiable net assets associated
with merger and acquisition transactions. During the fourth quarter of 2015, the Company completed its
qualitative assessment of goodwill and did not recognize an impairment for the year ended December 31, 2015.
In prior years, the Company recorded accumulated impairment losses of $4.0 million. Absent any impairment
indicators and the scheduled quantitative assessments, the Company will perform the goodwill qualitative
assessment annually.
The carrying amount of goodwill was $165.3 million at December 31, 2015 and 2014.
As mentioned above, the Company has recorded other identifiable intangible assets as a result of past
transactions. These intangibles will continue to be amortized over their expected lives using straight-line and
accelerated methods, as appropriate. In 2015 and 2014, the Company acquired credit card portfolios of
$81.5 million and $18.7 million, respectively. The purchase amount assigned to credit card relationship
intangibles was $10.5 million and $2.2 million, in 2015 and 2014, respectively. There were no impairment
charges recorded in the Consolidated Statements of Income in 2015, 2014 or 2013.
The table below reflects the components of intangible assets subject to amortization at December 31:
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
(in thousands)
Purchased credit card relationships $ 331,349 $ 299,835 $ 320,825 $ 290,760
Core deposit intangibles 6,449 5,325 10,478 9,074
Total $ 337,798 $ 305,160 $ 331,303 $ 299,834
2015 2014
The current estimated amortization expense for each of the five succeeding years ending December 31 is
approximately $8.7 million for 2016, $7.2 million for 2017, $5.6 million for 2018, $4.3 million for 2019 and
$2.8 million for 2020.
25
Mortgage Servicing Rights
The right to service mortgage loans for others, or MSRs, are recognized when mortgage loans are sold and the
rights to service these loans are retained. Mortgage loans serviced for others totaled $3.8 billion and $3.3 billion
at December 31, 2015 and 2014, respectively. In exchange for servicing these loans, the Company receives
servicing fees. Servicing fees related to MSRs were $9.6 million, $8.5 million and $8.3 million for the years ended
December 31, 2015, 2014 and 2013, respectively, and are recognized in processing services on the Company’s
Consolidated Statements of Income. The Company records the fair value of MSRs on its Consolidated
Statements of Financial Condition. The Company determines the fair value of MSRs based on valuations
obtained from of an independent valuation specialist. The valuation model calculates the present value of
estimated future net servicing income based on assumptions including estimates of prepayment speeds, discount
rates, delinquency rates, late fees, other ancillary income and costs to service. The fair value of the MSR asset
was $37.2 million and $30.6 million as of December 31, 2015 and 2014, respectively, and is included in intangible
assets. Changes in the fair value of MSRs are recorded in current period earnings in other noninterest expense
on the Company’s Consolidated Statements of Income.
G. DEPOSITS
At December 31, 2015, the scheduled maturities of total certificates of deposit were as follows:
(in thousands)
2016 $ 1,044,636
2017 306,790
2018 188,721
2019 210,424
2020 157,373
2021 and thereafter 3
Total certificates of deposit $ 1,907,947
The aggregate amount of certificates of deposit, each with a minimum denomination of $250,000, was
approximately $283.7 million and $314.5 million at December 31, 2015 and 2014, respectively.
The amount of deposits reclassified to overdraft loans were $13.4 million and $9.9 million at December 31, 2015
and 2014, respectively.
H. DEBT OBLIGATIONS
Other borrowings and capital notes and trust preferred securities of the Company as of December 31, 2015, were
as follows:
Capital
Other Notes
Borrowing - and Trust
Securitized Other Preferred
Debt Borrowings Securities
(in thousands)
Scheduled maturities and payments due on obligations:
Due in one year or less $ 500,000 $ 486 $ —
Due after one year through two years 300,000 119 —
Due after two years through three years — 88 —
Due after three years through four years — 89 —
Due after four years through five years — 32 50,000
Due after five years — — 150,000
Total debt obligations $ 800,000 $ 814 $ 200,000
26
FHLB Advances
As of December 31, 2015, there were no fixed-rate FHLB advances convertible quarterly at the option of the
FHLB into adjustable-rate advances or line of credit advances carrying a variable interest rate that changes daily
based on the FHLB. As of December 31, 2014, FHLB advances carried an interest rate of 2.32%. Fixed-rate
advances totaled $5.0 million at December 31, 2014 and were convertible quarterly at the option of the FHLB into
adjustable-rate advances. There were no variable rate line of credit advances at December 31, 2014. In 2015,
the Company exercised its option to redeem the $5.0 million advance prior to maturity. At December 31, 2015 and
2014, FHLB approved borrowing capacity available for outstanding advances based on pledged real estate loans
totaled $1.4 and $0.9 billion, respectively, and mortgage-backed securities totaled $54.9 million and $39.6 million,
respectively. Additionally, the Company held FHLB stock totaling $0.6 million at December 31, 2015 and 2014.
Other Borrowings
The Company had other borrowings at December 31 as follows:
2015 2014
(in thousands)
Borrowings owed to securitization investors $ 800,000 $ 300,000
Other borrowings 814 934
Total other borrowings $ 800,814 $ 300,934
The Company’s securitization trust is used to assist the Company in its management of liquidity and interest rate
risk. Under this method of financing, the Company utilizes the trust for the purpose of securitizing loans and
issuing beneficial interests to investors. The $800 million outstanding as of December 31, 2015, included publicly
issued term securitization facilities of $600 million and $200 million of conduit securitization facilities. The term
securitization facilities included a $300 million facility that matures in October 2016 and requires the payment of
interest at a variable rate tied to LIBOR plus 0.53% and a $300 million facility that matures in September 2017
and requires the payments of interest at a variable rate tied to LIBOR plus 0.77%. The $200 million issued
through the conduit securitization facility requires the payment of interest at a variable rate tied to commercial
paper plus 0.68% and matures in August 2016. As of December 31, 2014, only the $300 million term
securitization facility that matures in October 2016 was outstanding. The Company typically uses a mix of conduit
and term securitization structures to facilitate management’s liquidity strategies which consider a number of
competing factors. Term securitization structures are for a fixed amount and a fixed term. In a conduit
securitization, the Company’s loans are securitized and beneficial interests may be sold to commercial paper
issuers who pool the securities with those of other issuers. The amount securitized in a conduit structure is
allowed to fluctuate within the terms of the facility which may provide greater flexibility for liquidity needs. The
Company may renew or replace the outstanding conduit securitization facilities before the date they begin to
amortize which is considered the maturity date. The Company has access to committed undrawn capacity
through one additional conduit securitization facility. As of December 31, 2015, the total commitment of this
facility was $250 million. Access to the unused portions of this securitization facility expires in 2016. The terms of
each agreement provide for a commitment fee to be paid on the unused capacity, and include various affirmative
and negative covenants, including performance metrics and legal requirements similar to those required in a term
securitization transaction.
In May 2012, the Parent Company entered into a $100.0 million syndicated revolving credit facility (for general
corporate purposes) which bears a variable interest rate equal to LIBOR plus 3.00%. The Parent Company had
pledged the stock of the Bank as collateral. Among other restrictions, the loan agreement required that the
Company maintain certain financial covenants. In May 2014, the Company chose not to renew the credit facility.
In December 2009, FNN Ag Funding, LLC, a subsidiary of the Company, entered into a secured revolving credit
facility which bears a variable rate of interest. FNN Ag Funding, LLC pledges participation interests in agriculture
loans to secure this facility. The credit facility has a commitment of $200.0 million and there was no balance
outstanding at December 31, 2015 and 2014. As of December 31, 2015 FNN Ag Funding, LLC had total assets
of $244.0 million, total liabilities of $79.5 million and equity of $164.5 million.
27
Capital Notes and Trust Preferred Securities
The Company had capital notes and trust preferred securities at December 31 as follows:
2015 2014
(in thousands)
Subordinated capital notes, due 2020 $ 50,000 $ 50,000
Cumulative trust preferred securities, due 2033 25,000 25,000
Cumulative trust preferred securities, due 2037 25,000 25,000
Cumulative trust preferred securities, due 2037 100,000 100,000
Total capital notes and trust preferred securities $ 200,000 $ 200,000
In October 2005, the Company issued $50.0 million in subordinated capital notes which are due to mature
December 2020. These capital notes require the payment of a variable rate of interest tied to LIBOR (interest rate
of 2.21% at December 31, 2015) and are unsecured and subordinated to the claims of depositors and general
creditors of the Company. The Company has entered into an interest rate swap agreement that effectively fixed
the interest rates on these subordinated capital notes to limit the interest rate risk exposure. See Note M for
additional information related to the interest rate swaps.
In March 2003, First National of Nebraska Statutory Trust I, a special-purpose wholly-owned trust subsidiary of
the Parent Company, issued $25.0 million of floating-rate cumulative trust preferred securities due March 2033.
In June 2007, First National of Colorado Statutory Trust II, a special-purpose wholly-owned trust subsidiary of the
Parent Company, issued $25.0 million of floating-rate cumulative trust preferred securities due September 2037.
Another special-purpose wholly-owned trust subsidiary of the Parent Company, First National of Nebraska
Statutory Trust II, issued $100.0 million of floating-rate cumulative trust preferred securities in March 2007 which
are due March 2037. The weighted average interest rate of trust preferred securities was 2.54% at December 31,
2015. After five years from the respective issuance dates, the Company may elect to redeem these cumulative
trust preferred securities prior to their scheduled maturity. At December 31, 2015, these cumulative trust
preferred securities qualified as Tier I capital of the Company.
The Company has provided no sinking fund for subordinated capital notes and cumulative trust preferred
securities.
28
I. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities (net deferred tax assets is included in other assets in the Consolidated Statement of
Financial Condition) at December 31 were as follows:
2015 2014
(in thousands)
Deferred tax assets:
Allowance for loan losses $ 99,710 $ 101,345
Credit card rewards 19,844 18,207
Reserve for unfunded commitments 6,995 6,925
Employee benefits 59,846 55,688
Purchased credit card relationships 15,121 18,303
Net operating loss carryforwards (1) 2,517 3,369
Accrual for regulatory matter 6,636 1,116
Accrual for contingent litigation 4,531 3,585
Unrealized loss on derivatives 2,969 3,296
Market adjustment on available-for-sale securities 3,965 3,484
Other 12,990 8,169
Gross deferred tax assets 235,124 223,487
Valuation allowance on net operating loss carryforwards (1,423) (2,001)
Total deferred tax assets 233,701 221,486
Deferred tax liabilities:
Credit card loan fee deferral 53,151 47,262
Depreciation and amortization 36,306 39,489
Mortgage servicing rights 13,672 11,277
Other 13,152 12,758
Total deferred tax liabilities 116,281 110,786
Net deferred tax assets $ 117,420 $ 110,700
(1) Expire from 2016 to 2029
The following is a comparative analysis of the provision for federal and state taxes for the years ended
December 31:
2015 2014 2013
(in thousands)
Current federal $ 106,746 $ 89,394 $ 69,498
Current state 8,858 7,622 6,119
Total current taxes 115,604 97,016 75,617
Deferred federal (2,635) 8,843 15,227
Deferred state (78) 179 135
Total deferred taxes (2,713) 9,022 15,362
Total provision for income taxes $ 112,891 $ 106,038 $ 90,979
29
The effective rates of total tax expense for the years ended December 31, 2015, 2014 and 2013, were different
than the statutory federal tax rate. The reasons for the differences were as follows:
2015 2014 2013
(percent of pretax income)
Statutory federal tax rate 35.0 % 35.0 % 35.0 %
Additions (reductions) in taxes resulting from:
Tax-exempt interest income (0.8) (0.9) (1.0)
State taxes 1.9 1.7 1.7
Income tax credits (0.6) (0.4) (0.7)
Change in unrecognized tax benefits (0.1) — (0.2)
Other items, net 0.6 0.2 0.5
Effective tax rate 36.0 % 35.6 % 35.3 %
At December 31, 2015, there were no unrecognized tax benefits. There were no interest or penalties recorded in
2015. At December 31, 2014, the total amount of unrecognized tax benefits was $0.2 million. There were no
interest and penalties recorded in 2014. The total amount of unrecognized tax benefits that, if recognized would
affect the effective tax rate was $0.2 million. At December 31, 2013, the total amount of unrecognized tax
benefits was $0.2 million. There were no interest and penalties recorded in 2013. The total amount of
unrecognized tax benefits that, if recognized would affect the effective tax rate was $0.2 million.
The Company is subject to U.S. federal income tax as well as income tax in numerous state and local
jurisdictions. The statute of limitations related to the consolidated Federal income tax return is closed for all tax
years up to and including 2011. The expiration of the statute of limitations related to the various state income tax
returns that the Company and subsidiaries file varies by state. There are no Federal income tax examinations in
progress. State income tax examinations are currently in progress.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2015 2014 2013
(in thousands)
Balance, beginning of year $ 217 $ 217 $ 839
Decreases for tax positions related to prior years (217) — (327)
Decreases related to settlements with taxing authorities — — (295)
Balance, end of year — $ 217 $ 217
J. EMPLOYEE BENEFIT PLANS
The Company provides a noncontributory defined benefit pension plan to employees. Pension benefits are based
on years of service and the employee’s highest average compensation using 60 consecutive months out of the
last 120 months of employment. Effective December 31, 2007, the defined benefit pension plan was frozen.
Effective as of the freeze date, no future years of service for benefit accrual purposes are earned and no new
entrants to the plan are allowed. Individuals with at least 5 years of service and age plus service to the Company
equal to or greater than 50 years on the freeze date have their average compensation computed at the time they
leave the Company, not as of the freeze date. The pension benefits are funded under a self-administered
pension trust with the Company’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.
30
In addition to providing pension benefits, the Company also provided postretirement medical and death benefits to
retired employees meeting certain eligibility requirements for 2013 and part of 2014. The medical plan was
contributory, whereby the retired employee paid a portion of the health insurance premium, and contained other
cost-sharing features such as deductibles and coinsurance. In 2014, the Company amended the plan to modify
eligibility requirements for such benefits. This change reduced and / or eliminated benefits to be provided to the
retiree. This reduction in benefits caused the Company to account for the changes as a curtailment. In 2014, the
Company recorded a curtailment gain of $22.5 million before tax in salaries and employee benefits in the
Consolidated Statements of Income. The result of this transaction has been included in the following tables.
Using a measurement date of December 31, the following tables provide a reconciliation of the benefit obligations,
plan assets and funded status of the pension and postretirement benefit plans:
2015 2014 2015 2014
(in thousands)
Change in benefit obligation:
Benefit obligation at January 1 $ 330,675 $ 271,534 $ 2,408 $ 27,608
Service cost — — 10 405
Interest cost 12,994 13,705 99 1,021
Retiree contributions — — 330 1,416
Actuarial loss 1,618 56,341 115 1,917
Benefits paid (1) (14,912) (14,759) (845) (3,561)
Plan amendments — — — (26,569)
Effect of plan merger — 5,583 — —
Effect of remeasurement — (1,729) — —
Federal subsidy/reinsurance receipts — — 175 171
Benefit obligation at December 31 $ 330,375 $ 330,675 $ 2,292 $ 2,408
Change in plan assets:
Fair value of plan assets at January 1 $ 256,134 $ 248,282 $ — $ —
Actual return on plan assets 10,115 18,371 — —
Contributions by employer 25 1,500 — —
Benefits paid (14,912) (14,759) — —
Effect of plan merger — 4,469 — —
Effect of remeasurement — (1,729) — —
Fair value of plan assets at December 31 $ 251,362 $ 256,134 $ — $ —
Funded status at December 31 $ (79,013) $ (74,541) $ (2,292) $ (2,408)
Pension Benefits Postretirement Benefits
(1) In 2015, the Company made lump sum benefit payments of $7.5 million and monthly annuity payments of $7.4 million. In
2014, the Company made lump sum benefit payments of $8.4 million and monthly annuity payments of $6.3 million.
The funded status is included in the Consolidated Statements of Financial Condition as a component of accrued
expenses and other liabilities.
The accumulated benefit obligation for the defined benefit pension plan was $308.6 million and $306.8 million at
December 31, 2015 and 2014, respectively.
For the years ended December 31, amounts recognized in other comprehensive income (loss), net of tax,
consisted of the following:
2015 2014 2013 2015 2014 2013
(in thousands)
Net gain (loss) $ (6,687) $ (36,014) $ 54,320 $ 174 $ 1,355 $ (3,317)
Transition obligation — — — (105) (194) 4,280
Other comprehensive income (loss) $ (6,687) $ (36,014) $ 54,320 $ 69 $ 1,161 $ 963
Pension Benefits Postretirement Benefits
31
As of December 31, amounts recognized in accumulated other comprehensive loss, net of tax, consisted of the
following:
2015 2014 2015 2014
(in thousands)
Net loss $ (62,779) $ (56,092) $ (243) $ (417)
Transition obligation — — — 105
Accumulated other comprehensive loss $ (62,779) $ (56,092) $ (243) $ (312)
Pension Benefits Postretirement Benefits
Net periodic benefit cost reflected in the Consolidated Statements of Income included the following components:
2015 2014 2013 2015 2014 2013
(in thousands)
Service cost $ — $ — $ — $ 10 $ 405 $ 771
Interest cost 12,994 13,705 12,890 99 1,021 1,227
Expected return on plan assets (20,201) (19,716) (16,220) — — —
Curtailment gain — — — — (22,195) —
Amortization of prior service cost — — — — (31) (42)
Amortization of loss 2,039 55 6,715 436 — 263
Net periodic benefit cost $ (5,168) $ (5,956) $ 3,385 $ 545 $ (20,800) $ 2,219
Pension Benefits Postretirement Benefits
The following table includes the weighted average assumptions used to determine benefit obligations at
December 31:
2015 2014 2015 2014
(weighted averages)
Discount rate 4.4 % 4.0 % 4.4 % 4.0 %
Rate of compensation increase 4.0 % 4.0 % — % —
Pension Benefits Postretirement Benefits
The weighted average assumptions used to determine net periodic benefit cost for years ended December 31,
were as follows:
2015 2014 2013 2015 2014 2013
(weighted averages)
Discount rate 4.0 % 5.1 % 4.2 % 4.0 % 5.1 % 4.2 %
Expected return on plan assets 8.0 % 8.0 % 8.0 % — — —
Rate of compensation increase 4.0 % 4.0 % 4.0 % — — —
Pension Benefits Postretirement Benefits
The Company has estimated the overall expected long-term rate-of-return-on-assets based on historical returns.
This assumption will be used to calculate the net periodic benefit cost beginning in 2016. Over long periods of
time, equity securities have provided a return of approximately 8%, while debt securities have provided a return of
approximately 4%. Consistent with the investment strategy, the Company’s portfolio consists of 40.3% publicly
traded equity securities, 30.8% Parent Company stock and 26.1% fixed income debt securities, indicating that a
long-term expected return would be approximately 7.5%.
32
The major categories of assets in the Company’s pension plan as of December 31, 2015 and 2014 are presented
in the following table. Assets are segregated by the level of valuation inputs within the fair value hierarchy, see
Note Q.
Level 1 Level 2 Level 3 Total
(in thousands)
2015
Money market funds $ 6,990 $ — $ — $ 6,990
U.S. government securities and agencies 24,232 3,383 — 27,615
Obligations of states and political subdivisions — 2,342 — 2,342
Corporate bonds — 35,738 — 35,738
Mutual funds 37,593 — — 37,593
Common stocks 63,323 77,761 — 141,084
Total fair value $ 132,138 $ 119,224 $ — $ 251,362
2014
Money market funds $ 8,678 $ — $ — $ 8,678
U.S. government securities and agencies 21,358 3,471 — 24,829
Obligations of states and political subdivisions — 2,859 — 2,859
Corporate bonds — 33,294 — 33,294
Mutual funds 45,714 — — 45,714
Common stocks 72,299 68,461 — 140,760
Total fair value $ 148,049 $ 108,085 $ — $ 256,134
The fair values of investments classified within Level 1 are based on quoted market prices. The fair values of
investments classified within Level 2, including common stock of the Parent Company, are based on quoted
market prices in markets that are not active. The investments in common stock held by the pension plan include
investments in the following sectors: industrial materials, consumer goods, financial services, healthcare,
hardware and others.
The assumed health care cost trend rates for the Company’s postretirement benefits plan at December 31 were
as follows:
2015 2014 2013
Health care cost trend rate assumed for next year 6.5 % 6.0 % 7.0 %
Rate at which the cost trend rate is assumed to decline (ultimate trend rate) 5.0 % 5.0 % 5.0 %
Year the rate reaches the ultimate trend rate 2019 2016 2016
A one percentage point change in the assumed healthcare cost trend rates would not materially affect the service
or interest cost components of the net periodic postretirement healthcare cost or postretirement benefit obligation.
The following table reflects the Company’s pension plan asset allocation at December 31:
2015 2014
(percent of plan assets)
Asset category:
Equity securities 71.1 % 72.8 %
Debt securities 26.1 % 23.8 %
Cash and cash equivalents 2.8 % 3.4 %
Total 100.0 % 100.0 %
33
The primary investment objective of the Company’s pension plan is to provide long-term asset growth with
income. To accomplish this objective, the Company has adopted a moderate risk tolerance to achieve an annual
rate of return that meets or exceeds the returns of an index composed of 60% S&P 500 and 40% Barclays Capital
Aggregate. In accordance with the Company’s moderate risk tolerance, rate of return expectations and
appropriate cash levels needed to fund short-term expected benefit distributions, the target ranges of the asset-
mix are as follows: equity securities other than Parent Company stock (25% - 45%); investment in Parent
Company stock (25% - 45%); fixed income securities (10% - 30%); and cash equivalents (0% - 10%). Each of the
major categories of asset classes is adequately diversified among economic sectors of the market. Investments
are made in accordance with permitted and prohibited investments identified in the plan’s Investment Policy
Statement.
The pension plan owned Parent Company common stock with a fair value of $77.5 million and $68.2 million at
December 31, 2015 and 2014, respectively.
The Company made no contributions to the pension plan for the 2015 plan year. The Company does not expect
to make further contributions to the pension plan in 2016.
At December 31, 2015, estimated benefit payments net of estimated federal subsidy receipts, which reflect
expected future service, as appropriate, are expected to be paid as follows:
Pension Postretirement
(in thousands)
2016 $ 8,091 $ 588
2017 8,827 531
2018 9,737 472
2019 10,675 363
2020 11,692 195
2021 – 2025 72,627 360
In addition to the pension and postretirement benefit plans, the Company also has contributory 401(k) savings
plans which cover substantially all employees. Total cost for these plans, included within noninterest expense on
the Consolidated Statements of Income, for the years ended December 31, 2015, 2014 and 2013, was
$20.0 million, $18.4 million and $17.9 million, respectively.
The Company has established an executive long-term incentive plan (LTIP). For the years ended December 31,
2015, 2014 and 2013, expense attributable to the LTIP plan was $3.7 million, $3.7 million, and $2.5 million,
respectively. The LTIP allows eligible participants to select among the investment alternatives provided by the
plan, which includes Parent Company stock (for some or all participants, at the discretion of the Executive
Committee). The shares of Parent Company stock are held in a qualifying Grantor Trust which is consolidated
into the Company’s financial statements. Accordingly, these shares are reflected as treasury stock on the
Company’s Consolidated Statements of Stockholders’ Equity.
K. CARD ASSOCIATION TRANSACTIONS
On October 3, 2007, the global VISA organization completed a series of restructuring transactions that resulted in
the creation of VISA, Inc. (VISA). As part of this restructuring, there was a revision of bylaws to provide indemnity
to VISA for potential damages related to litigation against VISA USA and some of its member banks as part of
litigation defined below (Covered Litigation). As a result of these restructuring transactions, the Company
received shares of restricted Class B stock in VISA and recorded its proportionate and estimated obligations
arising from the Covered Litigation, all based on its prior membership interest in VISA USA. The Class B stock is
convertible into Class A stock at a variable conversion rate (the conversion rate). The liability, recorded as
accrued expenses and other liabilities in the Consolidated Statements of Financial Condition, is an estimate made
by management based on information from VISA and others about the Covered Litigation. The contingent
litigation liability has been and will continue to be reduced by contributions to an escrow account (VISA Escrow),
as described below. This liability is subject to significant estimation risk and may materially change.
34
Under VISA’s initial public offering (IPO) which occurred in March 2008, a portion of the Company’s Class B
ownership in VISA was redeemed for cash and a portion of the proceeds were deposited into the VISA Escrow.
The VISA Escrow was established by VISA. It is funded by VISA USA member banks, including the Company, to
support resolution of the covered litigation. Additional funding may be required depending upon the ultimate
resolution of the covered litigation. Upon each additional funding of the VISA Escrow, the conversion rate
declines resulting in fewer Class A shares to be received upon conversion of Class B shares.
Since VISA’s IPO, VISA has periodically funded the escrow account. These fundings result in a reversal of a
portion of the Company’s contingent liability, if estimated and accrued, or are recorded as a noninterest expense,
based on a formula that primarily represents a reduction in the Company’s potential exposure related to the
indemnification that is now funded by the VISA Escrow.
Through a series of transactions that occurred in September and December 2009, the Company sold all of its
approximately 5.3 million shares of Class B VISA stock for cash. The Company recorded a gain upon sale of its
Visa stock of $195.2 million. As a part of the sales, the Company retained a conversion swap agreement that
requires the Company to reimburse the purchaser for any reduction of the Conversion Rate below the rate of
0.5824, which was the conversion rate as of the closing of the VISA stock sale, and requires the Company to
make certain periodic payments (which began in 2011) until the escrow account is terminated. The Company has
posted collateral of agency collateralized mortgage obligations and agency bonds in the amount of $258.2 million
to secure this reimbursement obligation. Due to VISA’s funding of the escrow account, the conversion rate was
0.4121 as of December 31, 2015 and 2014. As a result, the Company did not make any reimbursement
payments to the purchaser in 2015 and made payments of $9.5 million during the year ended December 31,
2014.
The Company continues to retain a contingent litigation liability because the Company continues to be liable to
VISA for obligations arising from its prior membership interests. At December 31, 2015 and 2014, the Company’s
contingent litigation liability equaled $12.3 million and $9.7 million, respectively, and is recorded in accrued
expenses and other liabilities on the Consolidated Statements of Financial Condition. To the extent that the
Company’s proportionate share of any settlement exceeds the recorded contingent litigation liability, the
Company’s financial results will be impacted.
L. CONTINGENCIES AND COMMITMENTS
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 funding requirements. The Company uses the same credit and collateral policies in making commitments
as making loans and leases.
The Company had unused credit card lines of $24.2 billion and $21.7 billion at December 31, 2015 and 2014,
respectively. The Company has the contractual right to reduce 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 assesses the credit risk of these commitments using a similar analysis and methodology as is used
for determining loss exposures on funded loans and records a liability for expected credit losses associated with
these commitments. The Company assesses the credit risk of these commitments collectively and records a
liability at a fraction of the funded reserve factor based upon portfolio risk.
At December 31, 2015 and 2014, the Company had commercial letters of credit and unused loan commitments,
excluding credit card lines, of $4.1 billion and $3.9 billion, respectively. Additionally, standby letters of credit of
$88.8 million and $136.0 million had been issued at December 31, 2015 and 2014, respectively. No material
future payments or losses are anticipated as a result of these transactions and the fair value of these guarantees
is estimated to be immaterial. Correspondingly, the Company has not recorded a liability for these contingencies
in the Consolidated Statements of Financial Condition.
35
The Company has operating leases for equipment and office space with most terms ranging from one to twenty
years, which may include renewal options. The future minimum annual rental payments related to these leases
are as follows: 2016 $8.1 million; 2017 $7.5 million; 2018 $5.8 million; 2019 $4.3 million; 2020 $2.5 million and
$13.3 million thereafter through the year 2056. Rental expense on leases for the years ended December 31,
2015, 2014 and 2013 was approximately $8.6 million, $6.6 million and $6.3 million, respectively.
Covered Litigation
In re: Payment Card Fee and Merchant Discount Antitrust Litigation
Beginning in June 2005, several retail merchants filed lawsuits in federal courts, claiming to represent a class of
similarly situated merchants, and alleging that MasterCard and VISA USA, together with their members,
conspired to charge retailers excessive interchange in violation of federal antitrust laws. In October 2005, these
suits were consolidated in re: Payment Card Fee and Merchant Discount Antitrust Litigation. The plaintiffs seek
treble damages, injunctive relief, attorneys’ fees and costs.
On April 24, 2006, plaintiffs filed a first consolidated and amended complaint, naming the Parent Company, the
Bank and others as defendants. The plaintiffs realleged the claims in their original complaints and further claimed
that defendants violated federal and California antitrust laws by combining to impose certain fees and to adopt
rules and practices of VISA USA and MasterCard that the plaintiffs contend constitute unlawful restraints of trade.
In July 2007, the Parent Company and the Bank entered into judgment and loss sharing agreements (the sharing
agreements) with VISA USA and certain financial institutions to apportion financial responsibilities arising from
any potential adverse judgment or settlement. In 2010, the Bank entered into additional contracts among the
defendants relating to the apportionment of financial responsibilities which may arise from any potential adverse
judgment or settlement.
On October 19, 2012, the parties entered into a settlement agreement to resolve these claims. The terms of the
settlement agreement include (a) a comprehensive release from class members for liability arising out of the
claims asserted in the litigation, (b) certain settlement payments, (c) distribution to class merchants of a portion of
interchange across all credit rate categories for a period of eight consecutive months, and (d) certain
modifications to the networks’ rules. The court granted preliminary approval of the settlement agreement on
November 9, 2012 and on December 13, 2013 the court granted final approval of the settlement agreement.
However, until all appeals are finally resolved, no assurance can be provided that the defendants will be able to
resolve the claims as contemplated by the settlement agreement.
The consolidated financial statements include management’s estimate of the Company’s proportionate obligation
associated with the ultimate disposition of this litigation. This liability is subject to significant estimation risk and
may materially change. Furthermore, management cannot predict with any degree of certainty how the final
outcome of this litigation may impact the broader credit card industry, and in this regard, the Company.
Other Covered Litigation
Other antitrust lawsuits have been filed against VISA from time to time. Neither the Parent Company nor the
Bank has been party to any material suits; however, the Parent Company and the Bank are members of the
MasterCard and VISA USA associations and these suits have been covered in the sharing agreements referred to
above. Each of these matters has been settled by VISA, with settlement payments being made from the escrow
created by VISA’s stock offerings. Neither the Parent Company nor the Bank has had any direct liability with
respect to such settlements.
Patent Infringement and Other Litigation
The Company is party to various legal proceedings, including various proceedings alleging that the Company has
infringed upon patents owned by third parties. Some of these proceedings, including the patent infringement
proceedings, involve complex claims that are subject to substantial uncertainties and unascertainable damages.
Accordingly, except as disclosed, the Company has not established reserves or ranges of possible loss related to
these proceedings, as at this time in the proceedings, the matters do not relate to a probable loss and/or amounts
are not reasonably estimable. Although the Company believes that it has strong defenses for such litigation, it
could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on
the Company’s results of operations, financial position or cash flows.
36
M. DERIVATIVE ASSETS AND LIABILITIES
The fair values of outstanding derivative positions are included in the Consolidated Statements of Financial
Condition in other assets or accrued expenses and other liabilities.
Interest Rate Derivatives
The Company uses various interest rate derivatives to manage its interest rate risk. The Company uses interest
rate swaps, caps and floors to mitigate the exposure to interest rate risk and to facilitate the needs of its
customers.
The Company has entered into an interest rate swap to limit the interest rate exposure on variable-rate
subordinated capital notes. The interest rate swap agreement in place at December 31, 2015, converts the
Company’s variable exposure to a fixed rate of 6.6%. The notional amount of the interest rate swap agreement is
$50.0 million and it expires in 2020. The Company is accounting for the interest rate swap agreement as a cash
flow hedge; therefore, the effective portion of the change in fair value was recorded in other comprehensive loss
for the years ended December 31, 2015, 2014 and 2013.
The following table presents the net losses recorded in the Consolidated Statements of Income and accumulated
other comprehensive income related to interest rate contracts designated as cash flow hedges for the years
ended December 31:
2015 2014 2013
(in thousands)
Amount of gain recognized in other comprehensive income $ 4,189 $ 2,027 $ 14,211
Amount of loss reclassified from other comprehensive income into
net interest income (effective portion) (3,300) (2,382) (1,873)
The Company estimates it will reclassify losses of $1.9 million into earnings within the next 12 months.
The Company has provided certain loan customers with interest rate swaps (customer swaps) that have the effect
of converting all or a portion of the customer’s variable-rate loan to a fixed rate loan. To hedge the risk related to
customer swaps, the Company simultaneously enters into offsetting swap agreements with independent, third-
party banks (counter customer swaps). In connection with each swap transaction, the Company agrees to pay
interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on
that same notional amount at a fixed interest rate. Simultaneously, the Company agrees to pay another financial
institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on
the same notional amount. Because the Company acts as an intermediary for its customer, changes in the fair
value of the underlying derivative contracts offset each other and do not impact the Company’s results of
operations. The related contracts are structured so that the notional amounts reduce over time to generally match
the expected amortization of the underlying loan.
The Company has provided certain customers with foreign currency swaps (customer forwards) that have the
effect of converting all or a portion of the customer’s variability in foreign currency to a fixed rate. To hedge the
risk related to customer swaps, the Company simultaneously enters into offsetting swap agreements with
independent, third-party banks (counter customer forwards).
There is counterparty risk related to the aforementioned derivatives. Counterparties include independent, third-
party banks and customers. Risks associated with these counterparties are evaluated upon execution of the
related agreement and are continually reevaluated. Under certain circumstances, the Company is required to
provide counterparties with collateral to support the counter customer swaps. Such collateral generally includes
U.S. Government or agency-backed securities. The Company also requires collateral, under certain
circumstances, from counterparties to support customer swaps. Failure of these counterparties to perform could
have a significant adverse impact on the Company’s ability to effectively hedge interest rate and foreign currency
risk, the fair value assigned to these agreements and the Company’s financial condition. These risks were
considered in determining the fair value of these instruments. The customer swaps and counter customer swaps
do not qualify for hedge accounting.
37
Derivative instruments include interest rate locks on commitments to originate loans for the held for sale portfolio
and forward commitments on contracts to deliver mortgage-backed securities and loans. The Company has
entered into forward commitments for the sale of mortgage loans principally to protect against the risk of adverse
interest rate movements on net income. The Company recognizes the fair value of the contracts when the
characteristics of those contracts meet the definition of a derivative. These derivatives are not designated in a
hedging relationship; therefore, gains and losses are recognized immediately in the Consolidated Statements of
Income as other noninterest expense. In addition, the Company has entered into commitments to originate loans,
which when funded, are classified as held for sale. Such commitments meet the definition of a derivative and are
not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the
Consolidated Statements of Income as other noninterest expense.
The notional amounts and estimated fair values of interest rate and foreign currency derivative positions
outstanding at December 31, 2015 and 2014, respectively, are presented in the following table.
Fair Value Fair Value
Notional Asset/ Notional Asset/
Amount (Liability) Amount (Liability)
(in thousands)
Derivative positions designated as hedges of
cash flows:
Interest rate swaps on variable-rate
subordinated capital notes $ 50,000 $ (8,068) $ 50,000 $ (8,957)
Non hedging interest rate derivatives:
Customer swaps 154,686 9,700 167,372 9,870
Counter customer swaps 154,686 (9,700) 167,372 (9,870)
Mortgage forwards 186,725 422 156,255 (890)
Mortgage written options 96,836 1,401 81,707 1,193
Foreign currency derivatives:
Customer forwards 23,159 703 18,072 1,597
Counter customer forwards 23,159 (645) 18,072 (1,454)
2015 2014
N. REGULATORY AND CAPITAL RELATED MATTERS
The Company is governed by various regulatory agencies. The Parent Company is a “financial holding company”
under the Gramm-Leach-Bliley Act. Financial holding companies and their nonbanking subsidiaries are regulated
by the Federal Reserve Board (FRB). 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). In 2014, the Company merged its banking charters and as of December 31, 2014, the Company has one
national bank, which is insured by the FDIC. The Company’s banking subsidiary is also subject to supervision by
the Consumer Financial Protection Bureau (CFPB). Regulators have the authority, among other things, to:
(i) examine and supervise the Company; (ii) identify matters requiring attention by the Company; and (iii) take
certain formal or informal actions against the Company.
Various 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. Furthermore, the Company, on a consolidated basis, is subject to the regulatory capital requirements
administered by the FRB, while the Company’s banking subsidiary is individually subject to the regulatory capital
requirements administered by the OCC, FDIC and state regulatory agencies.
38
Total capital of the Company and its banking subsidiary is divided into three tiers:
Common Equity Tier I capital, which includes common equity, noncontrolling interests in consolidated
depository institution subsidiaries, less goodwill, intangibles, mortgage servicing assets and purchased credit
card relationships.
Tier I capital, which includes common equity, noncontrolling interests in consolidated depository institution
subsidiaries, the grandfathered trust preferred securities, less goodwill, intangibles, mortgage servicing assets
and purchased credit card relationships.
Tier II capital, which includes hybrid capital instruments, subordinated debt including capital notes and
portions of the allowance for loan losses.
In addition, for risk-based capital computations, the assets and certain off-balance sheet commitments of the
Company and its banking subsidiary are assigned to risk-weighted categories based on the level of credit risk
ascribed to such assets or commitments.
As of December 31, 2015 and 2014, the Company’s banking subsidiary was well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized under the framework for prompt
corrective action, the Company’s banking subsidiary must maintain minimum common equity Tier I capital of
6.5%, total risk-based capital of 10%, Tier I risk-based capital of 8% and Tier I leverage capital of 5%. Regulators
are also permitted to establish individual minimum capital ratios for the Company’s banking subsidiary that may
be higher than those necessary to be considered well capitalized under the regulatory framework for prompt and
corrective action.
The Company’s and the Bank’s actual capital amounts and ratios are presented in the following table:
Amount Ratio Amount Ratio
($ in thousands)
Common Equity Tier I Capital to Risk Weighted Assets
Consolidated Company $ 1,790,721 10.93 % n/a n/a
First National Bank of Omaha $ 1,723,511 10.56 % n/a n/a
Total Capital to Risk Weighted Assets
Consolidated Company $ 2,169,622 13.24 % $ 2,040,193 14.03 %
First National Bank of Omaha $ 1,961,710 12.02 % $ 1,870,153 12.93 %
Tier I Capital to Risk Weighted Assets
Consolidated Company $ 1,940,470 11.84 % $ 1,806,957 12.43 %
First National Bank of Omaha $ 1,723,511 10.56 % $ 1,637,904 11.32 %
Tier I Capital to Average Assets
Consolidated Company $ 1,940,470 10.91 % $ 1,806,957 10.72 %
First National Bank of Omaha $ 1,723,511 9.74 % $ 1,637,904 9.76 %
Actual, as of Actual, as of
December 31, 2015 December 31, 2014
The ability of the Parent Company to meet its financial obligations, including debt service, and pay cash dividends
to its stockholders is dependent upon cash dividends from its subsidiary bank. Subsidiary banks are subject to
various legal limitations on the amount of dividends they may declare. These limitations include the maintenance
of minimum capital levels, the generation of net income to support proposed cash dividends, compliance with the
aforementioned regulatory agreements and other limitations as defined by regulatory authorities.
Under the terms of an agreement with related party shareholders, the Company and certain related parties have
the option to purchase up to 52,286 shares of Company common stock at fair market value. Fair market value
will be negotiated by the parties and may or may not require independent appraisals. The option is exercisable
no earlier than January 2018 unless otherwise agreed by both parties. Exercise of the option is subject to a
number of factors including the sufficiency of capital, availability of cash or borrowing capacity, regulatory
approval and approval by the Company’s Board of Directors, if the Company is the purchaser.
39
On July 21, 2010, financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and
Consumer Protection Act” (Dodd-Frank Act) was signed into law. The Dodd-Frank Act was generally effective the
day after it was signed into law, however different effective dates apply to specific provisions of the Dodd-Frank
Act. Various aspects of the Dodd-Frank Act have taken effect, as described below. Amongst other matters, the
Dodd-Frank Act changed the assessment base for federal deposit insurance from the amount of insured deposits
to consolidated assets less tangible capital. The immediate impact of this change on the Company’s banking
subsidiary decreased the cost of federal deposit insurance. In addition, the Dodd-Frank Act also repealed the
prohibition of payment of interest on demand deposits. Additionally, debit-card interchange fees were further
impacted by the Durbin Amendment (the Amendment) in the Dodd-Frank Act, which directed the Board of
Governors of the Federal Reserve System to establish rules which took effect October 2011, related to debit-card
interchange fees.
In July 2013, the Federal Reserve approved a final rule to implement in the United States the Basel III regulatory
capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-
Frank Act. The final rule increases minimum requirements for both the quantity and quality of capital held by
banking organizations. The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted
assets of 4.5% and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final
rule also adjusted the methodology for calculating risk-weighted assets to enhance risk sensitivity. As part of
Basel III, the Company’s cumulative trust preferred securities were grandfathered and will be allowed to qualify as
tier 1 capital. For the quarter beginning January 1, 2015, the Company was compliant with revised minimum
regulatory capital ratios and began the transitional period for definitions of regulatory capital and regulatory capital
adjustments and deductions established under the final rule. The Company was also in compliance with the risk-
weighted asset calculations as of January 1, 2015.
In accordance with the Dodd-Frank Act, the Federal Reserve published regulations that required bank holding
companies with $10 billion to $50 billion in assets to perform annual capital stress tests. The requirements for
annual capital stress tests became effective for the Company in the fourth quarter of 2013. The Company is in
compliance with annual capital stress testing and publically releases its results as required by regulation.
The banking industry is also affected by the monetary and fiscal policies of regulatory authorities, including the
FRB. 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 FRB 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. Pursuant to FRB reserve
requirements, the banking subsidiaries were required to maintain certain cash reserve balances with the Federal
Reserve System of approximately $75.4 million and $73.6 million at December 31, 2015 and 2014, respectively.
The CFPB regulates financial products and services, as well as certain financial services providers. The CFPB is
authorized to prevent “unfair, deceptive or abusive acts or practices” and ensure consistent enforcement of laws
so that all consumers have access to markets for consumer financial products and services that are fair,
transparent and competitive. The CFPB has rulemaking and interpretive authority under the Dodd-Frank Act and
other federal consumer financial services laws, as well as broad supervisory, examination and enforcement
authority over large providers of consumer financial products and services and is authorized to collect fines and
require consumer restitution in the event of violations of laws and / or regulations. Several of our products,
including credit cards, are areas of focus of the CFPB. This focus may result in additional guidance for credit card
issuers, regulatory changes or legislative recommendations to Congress. The ultimate impact of increased
regulation and scrutiny is uncertain at this time.
From December 1997 through July 2013, the Bank marketed and sold certain ancillary products to its credit card
customers (commonly referred to as “credit card add-on products.”) In 2013, the Bank discontinued the marketing
and sale of these products, and as a result, the revenues and direct expenses attributable to credit card add-on
products for the three years ended December 31, 2015 were either zero or negligible. In 2015, the Bank engaged
in negotiations with the regulators for resolution of their investigation into the Bank’s marketing and sale of these
products. In conjunction with these negotiations, the Bank increased its related reserve by $18.0 million to $21.5
million which is largely composed of potential refunds to impacted customers. While the Bank intends to
vigorously defend its positions, the ultimate resolution of this matter and the sufficiency of the related reserve are
uncertain.
40
O. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in each component of accumulated other comprehensive income (loss) were as follows:
Available Qualifying Employee
for Sale Cash Flow Benefit
Securities Hedges Plans Total
(in thousands)
Balance, January 1, 2013 $ 12,569 $ (13,263) $ (77,438) $ (78,132)
Net change in unrealized gains (losses) (45,868) 12,338 88,027 54,497
Reclassification adjustment for net gains
realized in net income (4,932) — — (4,932)
Income tax (expense) benefit 18,570 (4,503) (32,140) (18,073)
Balance, December 31, 2013 (19,661) (5,428) (21,551) (46,640)
Net change in unrealized gains (losses) 21,694 (355) (54,192) (32,853)
Reclassification adjustment for net gains
realized in net income (25) — — (25)
Income tax (expense) benefit (7,957) 121 19,339 11,503
Balance, December 31, 2014 (5,949) (5,662) (56,404) (68,015)
Net change in unrealized gains (losses) (305) 889 (10,472) (9,888)
Net unrealized loss on transfer of securities
from available-for sale to held-to-maturity (530) — — (530)
Reclassification adjustment for net gains
realized in net income (477) — — (477)
Income tax (expense) benefit 482 (327) 3,854 4,009
Balance, December 31, 2015 $ (6,779) $ (5,100) $ (63,022) $ (74,901)
See the Consolidated Statements of Comprehensive Income and Note B for additional discussion of
reclassifications adjustments realized in net income.
P. RECENT ACCOUNTING PRONOUNCEMENTS
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” relates to revenue recognition from
contracts with customers, which amends certain existing revenue recognition accounting guidance. The ASU
hopes to improve the consistency of requirements, comparability of practice and usefulness of disclosures. The
guidance allows for either retrospective application to all periods presented or a modified retrospective approach
where the guidance would only be applied to existing contracts in effect at the adoption date and new contracts
going forward. At the time ASU 2014-09 was issued, the guidance was effective for annual periods beginning
after December 15, 2016. In July 2015, the FASB approved a deferral (ASU 2015-14) of the effective date by one
year, which would result in the guidance becoming effective for annual periods beginning after December 15,
2017. The Company is currently evaluating the impact that this guidance will have on its consolidated financial
statements and related disclosures.
ASU 2014-14, “Receivables – Troubled Debt Restructuring by Creditors (Subtopic 310-40)” attempts to give
greater consistency in the classification of government-guaranteed loans upon foreclosure. ASU 2014-14 applies
to all loans that contain a government guarantee that is not separable from the loan or for which the creditor has
both the intent and ability to recover a fixed amount under the guarantee by conveying the property to the
guarantor. Upon foreclosure, the creditor should reclassify the mortgage loan to an other receivable that is
separate from loans and should measure the receivable at the amount of the loan balance expected to be
recovered from the guarantor. ASU 2014-14 is effective for the Company for annual periods beginning after
December 15, 2015. The Company has assessed the impact of this standard and it does not have a material
impact on its consolidated financial statements or related disclosures.
ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis” changes the analysis that
a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This
guidance is effective for annual periods beginning after December 15, 2015 and is to be applied retrospectively.
The Company has assessed the impact of this standard and it does not have a material impact on its
consolidated financial statements or related disclosures.
41
ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs” states that entities should present the debt
issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset.
Amortization of the costs is reported as interest expense. The effective date for the revised standard is for fiscal
years beginning after December 15, 2016, with early adoption permitted. The Company does not expect this
standard to have a material impact on its consolidated financial statements or related disclosures.
ASU 2016-02, “Leases (Topic 842),” was issued to amend certain lease accounting guidance in order to increase
transparency and comparability among organizations by recognizing lease assets and lease liabilities on the
balance sheet and requiring the disclose of key information about leasing arrangements. The effective date for
the revised standard is for fiscal years beginning after December 15, 2018, with early adoption permitted. The
Company is currently evaluating the impact that this guidance will have on its consolidated financial statements
and related disclosures.
Q. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. In cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flows or other valuation techniques. Inputs to valuation techniques are
assumptions that market participants would use in pricing the asset or liability. Inputs may be observable,
meaning those that reflect the assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources, or unobservable, meaning those that reflect
the Company’s own assumptions about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available. The Company determines the fair values of its
financial instruments based on the fair-value hierarchy established by generally accepted accounting principles
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for
identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data of substantially the full term of the assets or liabilities. Financial instruments are
considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies
or similar techniques and at least one significant model input is unobservable. Level 3 is assigned when
determination of the fair value requires significant management judgment or estimation.
Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out
of Level 1, Level 2 or Level 3 during the years ended December 31, 2015 and 2014, respectively.
In general, fair value is based upon quoted market prices, where available. Inputs for quoted prices for similar
assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or
liability (including interest rates or credit risk) are also used to determine fair value. If such quoted market prices
are not available, fair value is based upon internally developed models that primarily use, as inputs, observable
market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded
at fair value. As necessary, these adjustments include amounts to reflect counterparty credit quality, the
Company’s creditworthiness, as well as unobservable parameters. Any such valuation adjustments are applied
consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may
not be indicative of net realizable value or reflective of future fair values. While management believes the
Company’s valuation methodologies are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.
In accordance with Topic 825, “Financial Instruments – Fair Value Option”, the Company elects to measure
residential MHFS at fair value, prospectively, as an active secondary market and readily available market prices
currently exist to reliably support fair value models used for these loans. The Company believes the election for
MHFS will reduce certain timing differences and better match changes in the value of these assets with changes
in the value of derivatives used to protect against the risk of adverse interest rate movements.
42
The fair value of MHFS for which the Company elected the fair value option and the contractual aggregate unpaid
principal balance, as of December 31, 2015, was $100.7 million and $99.4 million, respectively. The fair value of
MHFS for which the Company elected the fair value option and the contractual aggregate unpaid principal
balance, as of December 31, 2014, was $88.1 million and $86.2 million, respectively. Changes in the fair value of
MHFS are recorded in gain on sale of mortgage loans in the Consolidated Statements of Income, and decreased
pre-tax net income by $0.9 million in 2015 and increased pre-tax net income by $1.8 million in 2014. At
December 31, 2015 and 2014, there were no MHFS that were 90 days or more past due nor were any of the
MHFS placed on nonaccrual status. No credit losses were recognized on MHFS for the year ended December 31,
2015 and 2014.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis
as of December 31, 2015 and 2014, segregated by the level of the valuation inputs within the fair-value hierarchy
utilized to measure fair value:
Level 1 Level 2 Level 3 Total
(in thousands)
2015
Available-for-sale securities
U.S. government obligations $ 301,916 $ 414,003 $ — $ 715,919
Obligations of states and political — 48,607 — 48,607
Agency mortgage-backed securities — 1,867,194 — 1,867,194
Other securities 21,609 15,350 — 36,959
Total available-for-sale securities 323,525 2,345,154 — 2,668,679
Mortgage loans held for sale — 100,659 — 100,659
Mortgage servicing rights — — 37,152 37,152
Interest rate derivative assets — 12,226 — 12,226
Interest rate derivative liabilities — (18,413) — (18,413)
Total fair value $ 323,525 $ 2,439,626 $ 37,152 $ 2,800,303
2014
Available-for-sale securities
U.S. government obligations $ 299,507 $ 365,187 $ — $ 664,694
Obligations of states and political — 51,223 — 51,223
Agency mortgage-backed securities — 1,826,022 — 1,826,022
Other securities 23,409 18,925 — 42,334
Total available-for-sale securities 322,916 2,261,357 — 2,584,273
Trading securities 1,952 — — 1,952
Mortgage loans held for sale — 88,127 — 88,127
Mortgage servicing rights — — 30,644 30,644
Interest rate derivative assets — 12,660 — 12,660
Interest rate derivative liabilities — (21,171) — (21,171)
Total fair value $ 324,868 $ 2,340,973 $ 30,644 $ 2,696,485
Available-for-sale securities – The fair values of available-for-sale securities are generally based on quoted
market prices or market prices for similar assets. Market price quotes may not be readily available for some
positions, or positions within a market sector where trading activity has slowed significantly. Some of these
instruments are valued using a net asset value approach, which considers the value of the underlying securities.
Underlying assets are valued using external pricing services, where available, or matrix pricing based on the
vintages and ratings. Equity securities and U.S. Treasuries held by the Company are reported at fair value
utilizing Level 1 inputs. U.S. government agency obligations, obligations of states and political subdivisions,
agency mortgaged-backed securities and a portion of the Company’s other securities are reported at fair value
utilizing Level 2 inputs.
Trading securities – Equity securities held for trading are reported at fair value utilizing Level 1 inputs.
Mortgage loans held for sale – The fair value of MHFS is based on quoted market prices of such loans sold in
securitization transactions, including related unfunded loan commitments.
43
Mortgage servicing rights – The fair values of MSRs are determined using models which depend on estimates
of prepayment rates, delinquency rates, late fees, other ancillary income and costs to service. MSRs are further
explained at Note F to the Consolidated Financial Statements. Changes in the fair value of MSRs are reported in
other noninterest expense in the Consolidated Statements of Income.
Derivative assets and liabilities – The majority of the derivatives entered into by the Company are generally fair
valued using a valuation model based on a discounted cash flow approach that uses market based observable
inputs for all significant assumptions and therefore, are classified within Level 2 of the fair-value hierarchy.
Changes in the fair value of derivatives designated as hedges are included in other comprehensive income.
Changes in the fair value of non-hedging derivatives are included in noninterest expense in the Consolidated
Statements of Income.
Non-financial assets and non-financial liabilities – The Company has no non-financial assets or non-financial
liabilities measured at fair value on a recurring basis.
The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at
least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the
valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily
observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair
value related to both observable and unobservable inputs.
The following table presents the changes in the Level 3 fair value category related to assets measured at fair
value on a recurring basis for the years ended December 31, 2015, 2014 and 2013:
Total
losses Purchases,
realized and issuances, Transfers
December 31, unrealized in transfers or in (out) of December 31,
2014 earnings settlements Level 3 2015
(in thousands)
Mortgage servicing rights $ 30,644 $ (6,602) $ 13,110 $ — $ 37,152
Total fair value $ 30,644 $ (6,602) $ 13,110 $ — $ 37,152
Total
losses Purchases,
realized and issuances, Transfers
December 31, unrealized in transfers or in (out) of December 31,
2013 earnings settlements Level 3 2014
(in thousands)
Mortgage servicing rights $ 30,101 $ (6,604) $ 7,147 $ — $ 30,644
Total fair value $ 30,101 $ (6,604) $ 7,147 $ — $ 30,644
Total
gains Purchases,
realized and issuances, Transfers
December 31, unrealized in transfers or in (out) of December 31,
2012 earnings settlements Level 3 2013
(in thousands)
Mortgage servicing rights $ 18,761 $ 3,220 $ 8,120 $ — $ 30,101
Total fair value $ 18,761 $ 3,220 $ 8,120 $ — $ 30,101
44
The following table presents a summary of quantitative information about recurring fair value measurements
based on significant unobservable inputs (Level 3) as of December 31, 2015:
Fair Value -
December 31,
2015 Valuation Technique
Significant
Unobservable
Input
Range
(Weighted Average)
(in thousands)
Mortgage servicing rights $ 37,152 Discounted cash flows Prepayment rate 5 - 34% (10.6%)
Discount rate 9 - 17% (9.3%)
The fair values of these assets (measured using significant unobservable inputs) are sensitive primarily to
changes in prepayment and discount rates. At December 31, 2015, a 10% and 20% increase in the prepayment
and discount rates used to measure fair value would result in a decrease in the fair value of $1.4 million,
$2.8 million, $1.3 million and $2.5 million, respectively. These sensitivities are hypothetical. Changes in fair value
based on variations in assumptions generally cannot be extrapolated because the relationship of the change in
fair value may not be linear. Additionally, the effect of a variation in a particular assumption on the fair value of
the MSRs is calculated without changing any other assumptions. Changes in one factor may result in changes in
another, which could increase or decrease the magnitude of the sensitivities.
Certain financial and non-financial assets and liabilities are measured at fair value on a nonrecurring basis; that is,
these items are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). These include collateral for certain impaired
loans, foreclosed assets acquired to satisfy loans, impaired other long-lived assets, impaired indefinite-lived
intangibles and/or goodwill, and pension plan assets. The following table summarizes carrying value of assets
measured at fair value on a nonrecurring basis as of December 31, 2015 and 2014, segregated by the level of the
valuation inputs within the fair-value hierarchy utilized to measure fair value.
Level 1 Level 2 Level 3 Total
(in thousands)
2015
Impaired loans $ — $ — $ 23,611 $ 23,611
Foreclosed assets — 15,283 — 15,283
Total fair value $ — $ 15,283 $ 23,611 $ 38,894
2014
Impaired loans $ — $ — $ 46,200 $ 46,200
Foreclosed assets — 19,091 — 19,091
Total fair value $ — $ 19,091 $ 46,200 $ 65,291
Impaired loans - Impaired loans were measured at fair value on a non-recurring basis in 2015 and 2014. Certain
impaired loans are reported at fair value if repayment is expected solely from the collateral. The fair value is
primarily based on an appraisal of the underlying collateral using unobservable data; therefore, these loans are
classified within Level 3 of the fair-value hierarchy. At December 31, 2015 and 2014, the par value of the
impaired loans reported at fair value was $24.2 million and $46.8 million, respectively.
Foreclosed assets - The fair value of a foreclosed asset upon initial recognition is estimated using Level 2 inputs
based on observable market data. The observable market data is obtained through unadjusted third-party
appraisals. Foreclosed assets measured during the year ended at fair value upon initial recognition totaled
$4.3 million and $6.1 million at December 31, 2015 and 2014, respectively. The Company recognized
$1.4 million and $0.7 million in losses related to the change in fair value of all foreclosed assets held during 2015
and 2014, respectively.
45
The following table presents a summary of quantitative information about nonrecurring fair value measurements
based on significant unobservable inputs (Level 3) as of December 31, 2015:
Fair Value -
December 31,
2015 Valuation Technique
Significant
Unobservable Input
Range
(Weighted Average)
(in thousands)
Impaired loans $ 23,611
Appraised value, as
adjusted
Adjustments to
appraised value 0 - 66% (11.0%)
The fair values of these assets (measured using significant unobservable inputs) are sensitive primarily to
changes in management’s adjustments to the appraised value of the underlying collateral. At December 31,
2015, a 10% and 20% increase in the appraisal adjustments to measure fair value would result in a decrease in
the fair value of $0.4 million and $1.1 million, respectively.
The Company is required to disclose the fair value of financial assets and financial liabilities, including those
financial assets and liabilities that are not measured and reported at fair value.
The following table presents the estimated fair values of financial assets and liabilities which are not measured
and reported at fair value at December 31, 2015 and 2014, and the level of the valuation inputs within the fair-
value hierarchy utilized to measure fair value at December 31, 2015. Although management is not aware of any
factors that would significantly affect the estimated fair value amounts after December 31, 2015, such amounts
have not been comprehensively revalued, and the current estimated fair value of these financial instruments may
have changed since that point in time.
Estimated
Carrying Fair
Amount Value Level 1 Level 2 Level 3
(in thousands)
Financial assets:
Interest-bearing time deposits due $ 53,289 $ 53,289 $ 53,289 $ — $ —
from banks
Held-to-maturity securities 245,232 245,552 — 245,552 —
Federal Home Loan Bank stock and other
securities, at cost 37,331 37,331 — 37,331 —
Credit card loans held for sale 307,257 369,884 — 369,884 —
Net loans and lease financing 12,785,870 12,636,000 — — 12,636,000
Financial liabilities:
Deposits $ 14,917,253 $ 13,749,845 $ — $ 13,749,845 $ —
Other borrowings 800,814 800,814 — 800,814 —
Capital notes and trust preferred securities 200,000 160,900 — 160,900 —
Estimated
Carrying Fair
Amount Value Level 1 Level 2 Level 3
(in thousands)
Financial assets:
Interest-bearing time deposits due $ 55,898 $ 55,898 $ 55,898 $ — $ —
from banks
Held-to-maturity securities 260,960 261,130 — 261,130 —
Federal Home Loan Bank stock and other
securities, at cost 36,108 36,108 36,108 —
Net loans and lease financing (1) 12,200,288 12,542,081 — — 12,542,081
Financial liabilities:
Deposits $ 14,385,839 $ 13,092,599 $ — $ 13,092,599 $ —
Federal Home Loan Bank advances 5,000 5,009 — 5,009 —
Other borrowings 300,934 300,934 300,934 — —
Capital notes and trust preferred securities 200,000 168,500 — 168,500 —
46
The following methods and assumptions were used in estimating fair value disclosures for the Company’s
financial instruments listed above.
Interest-bearing time deposits due from banks – Company’s interest-bearing time deposits due from banks
represents certificates of deposits due from banks with original maturities greater than 90 days. Based on the
short term nature of these cash deposits the carrying value of the assets approximates fair value.
Held-to-maturity securities – The fair values of the Company’s held to maturity securities, which are comprised
of obligations of state and political subdivisions, is measured utilizing Level 2 inputs.
Federal Home Loan Bank stock and other securities – The carrying amount is a reasonable fair value
estimate for the Federal Home Loan Bank stocks given their restricted nature (i.e., the stock can only be sold
back to the respective institutions, Federal Home Loan Bank, or another member institution at par).
Credit card loans held for sale – The fair value of the Company’s credit card loans held for sale is measured
based on the sales price included in the purchase agreement between the Company and our credit card partner.
Net loans and lease financing – The fair values of the Company’s loans and lease financing have been
estimated using two methods: 1) the carrying amounts of short-term and variable rate loans approximate fair
values excluding certain credit card loans which are tied to an index floor; 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 values for all loans, the best estimate of losses inherent
in the portfolio is deducted.
Deposits – The methodologies used to estimate the fair values of deposits are similar to the two methods used to
estimate the fair values 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.
Federal Home Loan Bank advances – The fair values of FHLB advances are estimated by discounting future
cash flows using current market rates for similar types of borrowing arrangements.
Other borrowings – The estimated fair value of other borrowings generally approximates carrying value because
they are short term in nature and the interest rates approximate market. The estimated fair value of securitized
debt generally approximates carrying value because the interest rate is variable and approximates market.
Capital notes and trust preferred securities – The fair values of capital notes and trust preferred securities are
estimated by discounting future cash flows using current market rates for similar types of borrowing
arrangements.
Off-balance sheet financial instruments – The estimated fair value of loan commitments and standby letters of
credit is insignificant because the underlying rates are variable or the commitment is short-term and the Company
has the contractual right to terminate unused commitments if the customer’s credit quality deteriorates.
47
R. CONDENSED FINANCIAL INFORMATION OF FIRST NATIONAL OF NEBRASKA
First National of Nebraska (parent company only)
Condensed Statements of Financial Condition
2015 2014
(in thousands)
Assets
Cash and due from banks $ 198,134 $ 160,355
Other short-term investments — 710
Total cash and cash equivalents 198,134 161,065
Interest-bearing time deposits due from banks 20,000 10,000
Investment securities available-for-sale 1,073 3,323
Other securities 23 28
Loans to subsidiaries 4,250 9,375
Investment in subsidiaries:
First National Bank of Omaha 1,818,864 1,731,241
Nonbanking subsidiaries 31,840 30,055
Total investment in subsidiaries 1,850,704 1,761,296
Other assets 42,925 45,199
Total assets $ 2,117,109 $ 1,990,286
Liabilities and Stockholders’ Equity
Accrued expenses and other liabilities $ 71,465 $ 80,847
Due to subsidiaries 155,100 154,613
Total liabilities 226,565 235,460
Stockholders’ equity:
Common stock 1,575 1,575
Additional paid-in capital 3,368 2,868
Retained earnings 2,019,108 1,868,196
Treasury stock, at cost (58,606) (49,798)
Accumulated other comprehensive loss (74,901) (68,015)
Total stockholders’ equity 1,890,544 1,754,826
Total liabilities and stockholders’ equity $ 2,117,109 $ 1,990,286
December 31,
48
First National of Nebraska (parent company only)
Condensed Statements of Operations
2015 2014 2013
(in thousands)
Revenues:
Income from subsidiaries:
Dividends from First National Bank of Omaha $ 97,488 $ 94,992 $ 82,505
Dividends from other banking subsidiaries — — 30,968
Dividends from nonbanking subsidiaries 8,108 106 168
Management and service fees 3,523 3,533 3,068
Interest income on short-term investments 59 53 74
Investment interest and other income 5,637 3,176 9,805
Total revenues 114,815 101,860 126,588
Expenses:
Other 11,230 15,645 22,222
Total expenses 11,230 15,645 22,222
Income before income taxes and equity in
undistributed earnings of subsidiaries 103,585 86,215 104,366
Income tax benefit (961) (2,468) (4,098)
Total income before equity in undistributed
earnings of subsidiaries 104,546 88,683 108,464
Equity in undistributed earnings (losses) of subsidiaries:
First National Bank of Omaha 94,440 94,264 70,483
Other banking subsidiaries — — (16,719)
Nonbanking subsidiaries 1,785 9,226 4,748
Total equity in undistributed earnings
of subsidiaries 96,225 103,490 58,512
Net income $ 200,771 $ 192,173 $ 166,976
Years ended December 31,
49
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders of
First National of Nebraska, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated financial statements of First National of Nebraska, Inc.
and its subsidiaries (the “Company”), which comprise the consolidated statements of financial condition
as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for the three years in the period ended December 31, 2015,
and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America;
this includes the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of
America. 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the Company’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the consolidated financial
statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
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 its subsidiaries as of December 31,
2015 and 2014, and the results of their operations and their cash flows for each of the three years then
ended in accordance with accounting principles generally accepted in the United States of America.
March XX, 2016
50
Officers and Directors *
Bruce R. Lauritzen *
Chairman
Daniel K. O’Neill *
President
Clarkson D. Lauritzen *
Executive Vice President
Michael A. Summers
Chief Financial Officer
Jerry J. O’Flanagan
Chief Credit Officer
Nicholas W. Baxter
Chief Risk Officer &
Secretary
Timothy D. Hart
Senior Vice President &
Treasurer
Roger A. Fleury *
Senior Vice President
Jeffrey A. Sims
Senior Vice President
George J. Behringer *
John W. Castle *
Margaret Lauritzen Dodge *
J. William Henry *
Thomas C. Stokes *
51
Daniel K. O’Neill*, Chairman & President
Nicholas W. Baxter* ......... Chief Risk Officer & Secretary Kenneth J. Bunnell……… Sr. VP, Human Resources
Patrick J. Burns ................ Sr. VP, Credit Risk Administration Mark A. Chronister……… Sr. VP, Consumer Banking
David E. Cota, Jr* ............ Ex. VP, Wealth Management Brenda L. Dooley……….. Sr. VP, Buildings
Jon P. Doyle .................... Sr. VP, Operations Michael L. Earleywine….. Sr. VP, Consumer Banking
Stephen F. Eulie*………... Ex. VP, Consumer Banking Stephen J. Farrell………. Sr. VP, Consumer Banking
Roger A. Fleury*…………. Senior Vice President Michael S. Foutch*……... Ex. VP, Customer & Employee
Experience
Stephen R. Frantz ............ Sr. VP, Tributary Capital Mgmt. Allen C. Hansen………… Sr. VP, Corporate Banking
Timothy D. Hart………….. Sr. VP & Treasurer Thomas H. Jensen……... Sr. VP, Corporate Banking
Steven R. Knapp……….... Sr. VP, Corporate Banking Mihaela Kobjerowski…… Sr. VP & Chief Compliance Officer
Michael J. Kuester……..... Sr. VP, Corporate Banking Clarkson D. Lauritzen*…. Executive Vice President
Stephanie H. Moline*…..... Ex. VP, Corporate Banking Charles E. Nelson………. Sr. VP, Consumer Banking
Russell K. Oatman………. Sr. VP, Corporate Banking Maureen M. O’Connor…. Sr. VP & General Counsel
Jerry J. O’Flanagan*…….. Chief Credit Officer Jeffrey A. Sims………….. Sr. VP, Credit Risk Administration
Scott A. Smith……………. Sr. VP, Consumer Banking Michael A. Summers*….. Chief Financial Officer
Stephen C. Wade……...... Sr. VP, Wealth Management Kimberly S. Weiss……… Sr. VP, Corporate Audit Services
Katrina L. Wells………….. Sr. VP, Consumer Banking
Margaret L. Dodge* Bruce R. Lauritzen*
*Director
FIRST NATIONAL BANK MARKETS
Colorado
Fort Collins – Boulder – Brighton – Broomfield – Greeley
Johnstown – Kersey – Longmont – Louisville – Loveland
Platteville – Wellington – Westminster – Windsor
Mark P. Driscoll*, Market President
Community Board Members
Harold G. Evans Chris Richmond Ronald Secrist
Masoud S. Shirazi Thomas Stokes
Nebraska
Columbus – David City – Norfolk
William W. Flint*, Market President
James R. Mangels, Market President – Norfolk
Community Board Members
James M. Bator Ronald Deets John F. Lohr
Ryan Loseke John M. Peck Dale Svehla
Omaha, Nebraska
52
Fremont
Barry A. Benson*, Market President
Community Board Members
Kenneth D. Beebe Rodney K. Koerber, M.D. Nicholas J. Lamme
F. Steven Leonard Ronald J. Sawyer Larry M. Shepard
Thomas J. Milliken, Director Emeritus
Kearney – Grand Island
Mark A. Sutko*, Market President
John M. Hoggatt, Market President – Grand Island
Lincoln – Beatrice
Richard L. Herink, Market President
North Platte – Alliance – Chadron – Scottsbluff
Greg W. Wilke*, Market President
Community Board Members
Timothy P. Brouillette Donald Colvin Gary L. Conell, M.D.
Daniel P. O’Neill Robert Sandberg James E. Smith
Illinois
DeKalb – Belvidere – Harvard – Huntley – Lake of the Hills
Marengo – Oswego – Plano – Sandwich
Sugar Grove – Sycamore – Yorkville
Timothy A. Struthers*, Market President
Community Board Members
John W. Castle Peter Dell Austin Dempsey
Louis J. Faivre Ryan Fitzgerald Jack D. Franks
Andrew Kolb Michael D. Larson James Ratos
John Rung Susan M. Wagner
Kansas
Overland Park – Fairway – Olathe – Shawnee
David J. Janus*, Market President
53
South Dakota
Yankton – Huron – Mitchell – Woonsocket
Jeff D. Jones*, Market President
Texas
Frisco – Plano
Clifton B. Whisenhunt, Market President
First National Technology Solutions, Inc. Omaha, Nebraska
Kenneth J. Kucera, President
Directors
Mark P. Driscoll Stephen F. Eulie David J. Janus
Kenneth J. Kucera Clarkson D. Lauritzen Stephanie H. Moline
Timothy A. Struthers Michael A. Summers Kimberly M. Whittaker
First National of Nebraska and Subsidiaries
Performance Trends
($ in millions)
2
First National of Nebraska and Subsidiaries
Financial Highlights
2014 2013 2012 2011 2010
(in thousands except per share data)
Total assets $ 17,465,465 $ 16,271,487 $ 16,409,360 $ 15,274,648 $ 14,969,386
Total interest income
and noninterest income $ 1,293,615 $ 1,244,395 $ 1,228,613 $ 1,223,376 $ 1,650,135
Net income $ 192,173 $ 166,976 $ 166,600 $ 158,893 $ 207,134
Stockholders’ equity $ 1,755,456 $ 1,650,418 $ 1,487,484 $ 1,389,429 $ 1,245,424
Allowance for loan losses $ 275,420 $ 279,743 $ 287,971 $ 325,271 $ 492,603
Per share data:
Diluted earnings $ 627.45 $ 541.29 $ 529.13 $ 504.42 $ 657.57
Dividends $ 150.00 $ 106.00 $ 130.00 $ — $ —
Stockholders’ equity $ 5,759.26 $ 5,358.81 $ 4,821.74 $ 4,410.88 $ 3,953.73
Dividend payout ratio 23.9 % 19.6% 24.6% — —
Profit ratios:
Return on average equity 11.2 % 10.8% 11.4% 11.7% 17.3%
Return on average
assets 1.2 % 1.1% 1.1% 1.1% 1.3%
Years ended December 31,
First National of Nebraska and subsidiaries have locations as noted on the map below.
3
First National of Nebraska and Subsidiaries
Consolidated Statements of Financial Condition
2014 2013
(in thousands except share and per share data)
Assets
Cash and due from banks $ 890,641 $ 1,025,255
Federal funds sold and other short-term investments 65,326 117,700
Total cash and cash equivalents 955,967 1,142,955
Interest-bearing time deposits due from banks 55,898 104,584
Investment securities:
Available-for-sale (amortized cost $2,593,749 and $2,320,488 ) 2,584,273 2,289,376
Held-to-maturity (fair value $261,130 and $3,435) 260,960 3,398
Trading, at fair value 1,952 2,049
Other securities, at cost 36,108 39,544
Total investment securities 2,883,293 2,334,367
Loans and leases (1) 12,562,389 11,680,547
Less: Allowance for loan losses 275,420 279,743
Deferred loan costs, net (1,446) (1,596)
Net loans and leases 12,288,415 11,402,400
Premises and equipment, net 584,756 595,571
Other assets (1) 469,694 457,117
Goodwill 165,329 165,329
Intangible assets 62,113 69,164
Total assets $ 17,465,465 $ 16,271,487
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing $ 4,664,114 $ 3,948,964
Interest-bearing 9,721,725 9,600,140
Total deposits 14,385,839 13,549,104
Short-term fundings 395,409 215,481
Federal Home Loan Bank advances 5,000 13,262
Other borrowings (1) 300,934 301,438
Accrued expenses and other liabilities 422,827 341,784
Capital notes and trust preferred securities 200,000 200,000
Total liabilities 15,710,009 14,621,069
Contingencies and commitments
Stockholders’ equity:
Common stock, $5 par value, 370,000 shares authorized;
315,000 shares issued; 304,806 and 307,982 outstanding 1,575 1,575
Additional paid-in capital 2,868 2,458
Retained earnings 1,868,196 1,721,897
Treasury stock of 10,194 and 7,018 shares, at cost (49,168) (28,872)
Accumulated other comprehensive loss (68,015) (46,640)
Total stockholders’ equity 1,755,456 1,650,418
Total liabilities and stockholders’ equity $ 17,465,465 $ 16,271,487
December 31,
(1) Balances at December 31, 2014 and 2013 include assets and liabilities of a consolidated securitization trust, including loans of $3.0 billion and
$2.3 billion, restricted cash of $3.9 million and $3.9 million (included in other assets), and other borrowings of $300 million and $300 million,
respectively.
See Notes to Consolidated Financial Statements
4
First National of Nebraska and Subsidiaries
Consolidated Statements of Income
2014 2013 2012
(in thousands except share and per share data)
Interest income:
Interest and fees on loans and lease financing $ 853,631 $ 820,793 $ 788,765
Interest on investment securities 51,982 43,409 47,442
Interest on federal funds sold and other short-term investments 2,542 2,736 3,013
Total interest income 908,155 866,938 839,220
Interest expense:
Interest on deposits 38,409 38,853 42,760
Interest on short-term fundings 307 350 241
Interest on Federal Home Loan Bank advances 123 228 378
Interest on other borrowings 2,103 1,203 6,607
Interest on capital notes and trust preferred securities 6,718 8,892 11,486
Total interest expense 47,660 49,526 61,472
Net interest income 860,495 817,412 777,748
Provision for loan losses 169,062 163,986 140,304
Net interest income after provision for loan losses 691,433 653,426 637,444
Noninterest income:
Processing services 182,195 173,860 165,398
Deposit services 35,671 38,634 45,720
Trust and investment services 47,623 46,233 44,494
Gain on sale of mortgage loans 21,574 24,535 43,933
Other 98,397 94,195 89,848
Total noninterest income 385,460 377,457 389,393
Noninterest expense:
Salaries and employee benefits 360,238 380,024 360,852
Net occupancy expense of premises 48,112 58,387 65,663
Equipment rentals, depreciation and maintenance 82,109 75,502 63,677
Marketing, communications and supplies 83,115 70,889 69,645
Processing expense 42,046 39,588 41,279
Loan servicing expense 47,821 44,688 41,578
Professional services 27,236 25,509 28,638
Intangibles amortization 9,750 11,471 12,392
Contingent litigation 9,210 10,000 25,904
Other 69,045 56,870 58,190
Total noninterest expense 778,682 772,928 767,818
Income before income taxes 298,211 257,955 259,019
Income tax expense:
Current 97,016 75,617 29,357
Deferred 9,022 15,362 63,062
Total income tax expense 106,038 90,979 92,419
Net income $ 192,173 $ 166,976 $ 166,600
Basic earnings per common share $ 627.45 $ 541.29 $ 537.63
Diluted earnings per common share $ 627.45 $ 541.29 $ 529.13
Average basic common shares outstanding 306,278 308,479 309,879
Average diluted common shares outstanding 306,278 308,479 314,855
See Notes to Consolidated Financial Statements
Years ended December 31,
5
First National of Nebraska and Subsidiaries
Consolidated Statements of Comprehensive Income
2014 2013 2012
(in thousands)
Net income $ 192,173 $ 166,976 $ 166,600
Other comprehensive income (loss), before tax:
Net unrealized gain (loss) on available-for-sale securities 21,694 (45,868) (1,152)
Net unrealized gain (loss) on qualifying cash flow hedges (355) 12,338 13,519
Net unrealized gain (loss) on employee benefit plans (54,192) 88,027 (12,339)
Less: Reclassification adjustment for net gains realized in
net income 25 4,932 5,235
Other comprehensive income (loss), before tax (32,878) 49,565 (5,207)
Less: Income tax expense (benefit) for other comprehensive income (11,503) 18,073 (3,542)
Other comprehensive income (loss), net of tax (21,375) 31,492 (1,665)
Comprehensive income $ 170,798 $ 198,468 $ 164,935
See Notes to Consolidated Financial Statements
Years ended December 31,
6
First National of Nebraska and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the years ended December 31, 2014, 2013, and 2012
Common Accumulated
Stock Additional Treasury Other Employee Total
($5 par Paid-in Retained Stock Comprehensive Stock Stockholders’
value) Capital Earnings (at cost) Loss Trust Equity
(in thousands except per share data)
Balance, January 1, 2012 $ 1,575 $ 2,365 $ 1,461,956 $ — $ (76,467) $ — $ 1,389,429
Net income — — 166,600 — — — 166,600
Other comprehensive loss, net of tax — — — — (1,665) — (1,665)
Purchase shares for employee stock trust — — — — — 73 73
Sale of shares from employee stock trust — — — — — (2,314) (2,314)
Change in employee stock trust obligation — — — — — 2,241 2,241
Termination of employee stock trust — — — — — (5,977) (5,977)
Implementation of long-term incentive plan — — — (19,991) — 5,977 (14,014)
Purchases of treasury stock - 1,445 shares — — — (5,939) — — (5,939)
Cash dividends - $130.00 per share — — (40,950) — — — (40,950)
Balance, December 31, 2012 1,575 2,365 1,587,606 (25,930) (78,132) — 1,487,484
Net income — — 166,976 — — — 166,976
Other comprehensive income, net of tax — — — — 31,492 — 31,492
Purchases of treasury stock - 726 shares — — — (3,764) — — (3,764)
Sales of treasury stock - 213 shares — 93 — 822 — — 915
Cash dividends - $106.00 per share — — (32,685) — —— — (32,685)
Balance, December 31, 2013 1,575 2,458 1,721,897 (28,872) (46,640) — 1,650,418
Net income — — 192,173 — — — 192,173
Other comprehensive loss, net of tax — — — — (21,375) — (21,375)
Purchases of treasury stock - 3,415 shares — — — (21,162) — — (21,162)
Sales of treasury stock - 239 shares — 410 — 866 — — 1,276
Cash dividends - $150.00 per share — — (45,874) — — — (45,874)
Balance, December 31, 2014 $ 1,575 $ 2,868 $ 1,868,196 $ (49,168) $ (68,015) $ — $ 1,755,456
See Notes to Consolidated Financial Statements
7
First National of Nebraska and Subsidiaries
Consolidated Statements of Cash Flows
2014 2013 2012
(in thousands)
OPERATING ACTIVITIES
Net Income $ 192,173 $ 166,976 $ 166,600
Adjustments to reconcile net income to net cash flows
from (used in) operating activities:
Provision for loan losses 169,062 163,986 140,304
Depreciation, amortization and accretion 105,972 98,072 92,341
Provision for deferred taxes 9,022 15,362 63,062
Origination of mortgage loans for resale (723,947) (913,419) (1,180,514)
Proceeds from the sale of mortgage loans
originated for resale 712,491 996,750 1,153,627
Contingent litigation accrual, net (18,584) (9,047) (23,432)
Other asset and liability activity, net 17,833 9,820 64,479
Net cash flows from operating activities 464,022 528,500 476,467
INVESTING ACTIVITIES
Maturities of securities available-for-sale 594,225 633,377 721,048
Sales of securities available-for-sale 127,407 455,331 310,849
Purchases of securities available-for-sale (1,283,903) (748,333) (1,816,472)
Maturities of securities held-to-maturity 6,823 — —
Purchases of securities held-to-maturity (19,282) (3,604) (3,421)
Redemptions of FHLB stock and other securities 10,120 19,725 37,638
Purchases of FHLB stock and other securities (6,672) (19,577) (38,772)
Maturities of interest-bearing time deposits 33,886 73,992 59,202
Sales of interest-bearing time deposits 25,000 — —
Purchases of interest-bearing time deposits (10,200) (15,240) (101,583)
Net change in loans and leases (1,019,773) (728,199) (619,530)
Net change in restricted cash — (3,947) (96,711)
Purchases of loan portfolios (18,603) (50,354) (351,981)
Purchases of premises and equipment (47,840) (395,550) (45,908)
Other, net 15,665 29,495 28,433
Net cash flows from (used in) investing activities (1,593,147) (752,884) (1,917,208)
FINANCING ACTIVITIES
Net change in deposits 836,735 (548,976) 1,784,447
Net change in short term fundings 179,928 119,503 3,819
Issuance (redemption) of FHLB advances (8,262) 8,238 —
Principal repayments on FHLB advances — — (222)
Issuance of other borrowings 30 85 45,491
Principal repayments on other borrowings (534) (834) (105,955)
Proceeds from new securitizations — 775,000 350,000
Principal repayments on other borrowings of
securitization trusts — (475,000) (875,000)
Principal repayments on capital notes — (100,000) (30,000)
Cash dividends paid (45,874) (32,685) (40,950)
Net change in treasury stock (19,886) (2,849) (5,939)
Net cash flows from (used in) financing activities 942,137 (257,518) 1,125,691
Net change in cash and cash equivalents (186,988) (481,902) (315,050)
Cash and cash equivalents at beginning of year 1,142,955 1,624,857 1,939,907
Cash and cash equivalents at end of year $ 955,967 $ 1,142,955 $ 1,624,857
Cash paid during the year for:
Interest $ 47,814 $ 50,314 $ 62,903
Income taxes $ 78,544 $ 85,243 $ 31,684
Years ended December 31,
The Company transferred $5.6 million, $9.4 million, and $22.5 million from loans to other real estate owned during the years ended December 31,
2014, 2013 and 2012, respectively.
See Notes to Consolidated Financial Statements
8
First National of Nebraska and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended December 31, 2014, 2013 and 2012
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation – The consolidated financial statements of First National of
Nebraska, Inc. (the Parent Company) and subsidiaries (collectively, the Company) include the accounts of the
Parent Company; its 99.99% owned subsidiary, First National Bank of Omaha and subsidiaries (the Bank); its
nonbanking subsidiaries; and its variable interest entities (VIEs) in which it is the primary beneficiary. In 2014, the
Company merged its wholly-owned other banking subsidiary charters. All intercompany transactions and
balances have been eliminated in consolidation. Subsequent events are analyzed through March XX, 2015, the
date the report is available to be issued, and, where applicable, they are disclosed.
Nature of Business – The Company is a Nebraska based interstate financial holding company with headquarters
located in Omaha, Nebraska whose primary assets are its banking subsidiary. This subsidiary is principally
engaged in credit card, other consumer, commercial, real estate and agricultural lending, retail deposit activities,
wealth management and trust services, cash management and other services. Additionally, the Company has
nonbanking subsidiaries that are engaged in various activities including technology hosting, among other things.
Use of Estimates – In preparing the consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents – 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.
Investment Securities – Securities not classified as trading or held-to-maturity, including equity securities with
readily determinable fair values, are classified as “available-for-sale” and recorded at fair value, with unrealized
gains and losses on a net-of-tax basis excluded from earnings and reported in other comprehensive income.
Other securities include Federal Reserve stock, Federal Home Loan Bank (FHLB) stock and other securities that
are not actively traded. These securities are reported at cost.
Held-to-maturity securities are limited to securities for which the Company has the intent and ability to hold to
maturity. These securities are reported at amortized cost.
Purchase premiums and discounts are recognized in interest income using the effective interest method over the
period to maturity. Gains and losses on the sale of securities are determined using the specific-identification
method.
Loans – Net loans are reported at their outstanding principal balance adjusted for charge-offs, 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 to the yield of the related loan over the estimated average life of
the loan. The par value of credit card loans represents outstanding principal amounts plus unpaid billed fees and
finance charges less charge-offs and is reduced for the net unearned revenue related to loan origination which is
amortized over 12 months. The Company refers to two categories of loans: credit card loans, predominately
unsecured, and other community banking loans, all other loans generally secured by underlying real estate,
business assets, personal property and personal guarantees.
Loans are considered impaired when, based on current information and events, it is probable the Company will be
unable to collect all amounts due in accordance with the original contractual terms of the loan agreement.
Impairment is evaluated in total for smaller-balance loans and on an individual basis for other loans.
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. All
interest accrued but not collected for loans that are charged off or placed on non-accrual, is reversed against
interest income. All cash payments received while the loans (with an outstanding balance greater than $100,000)
are placed on non-accrual, including impaired loans placed on non-accrual, are applied to principal until all
principal is received or the loan is removed from non-accrual status. Loans are returned to accrual status when
9
all the principal and interest amounts contractually due are brought current and future payments are reasonably
assured. Credit card loans continue to accrue interest up to 90 days contractually past due. The credit card
loans are then put on non-accrual status for an additional 90 days. After 180 days the credit card loan balance
plus accrued interest is charged off, with the exception of credit card loans modified in troubled debt restructurings
which charge off after 120 days. Community banking loans are charged off when identified as losses by
management.
Mortgage Loans Held for Sale – Mortgage loans held for sale (MHFS) include commercial and residential
mortgages originated for sale and securitization in the secondary market, which is our principal market, or for sale
as whole loans. The Company measures new residential MHFS originated by the Bank at fair value.
All other residential and commercial mortgage loans originated and intended for sale in the secondary market
continue to be carried at the lower of cost or estimated fair value. Net unrealized losses, if any, are recognized
through a valuation allowance by charges to income. Loan origination fees and loan origination costs are
deferred and included in the carrying amount of the loans. When loans are sold with the servicing released, gains
or losses are recognized on sales as the difference between the cash proceeds, which includes a service release
premium, and the carrying amount of the loans. The revenue generated on the sale, including the service release
premium, is included in noninterest income as gain on sale of mortgage loans. When loans are sold with the
servicing retained, the gain or loss is recognized as the difference between the cash proceeds and the carrying
value of the loans and a mortgage servicing right asset is recorded.
Credit Card Loans Held for Sale – Loans held for sale are carried at the lower of aggregate cost or market
value. Loan fees (net of certain direct loan origination costs) on loans held for sale are deferred until the related
loans are sold or repaid. Gains or losses on loan sales are recognized at the time of sale.
Loan Securitizations – The Company sells credit card loans to securitization trusts whereby securities are
issued and sold to investors, a process referred to as securitization. The securitization trusts are consolidated in
the Company’s financial statements; therefore, the credit card loans sold to the trusts are reported within net
loans and leases and the cash received from investors is reported as other borrowings. The assets of the
securitization trusts are restricted to the settlement of the debt and other liabilities of the trusts and the holders of
the debt do not have recourse to the general assets of the Company. The Company’s credit card securitizations
are accounted for as secured borrowings and the trusts are treated as consolidated subsidiaries of the Company.
Allowance for Loan Losses – The Company’s allowance for loan losses represents management’s estimate of
probable losses inherent in the loan portfolio. Additions to the allowance are recorded in the provision for loan
losses. Credit losses are charged and recoveries are credited to the allowance for loan losses.
The Company’s allowance for loan losses consists of specific valuation allowances established for probable
losses on specific loans and general valuation allowances calculated based on historical and inherent losses for
similar loans with similar characteristics adjusted to reflect the impact of current conditions.
Premises and Equipment – Premises, furniture and equipment and leasehold improvements are carried at cost,
less accumulated depreciation and amortization. The Company primarily uses the straight-line method of
depreciation and amortization. Estimated useful lives range up to 50 years for buildings and up to 15 years for
furniture and equipment. Leasehold improvements are amortized over the shorter of the estimated useful life or
lease term. Land is carried at cost.
Foreclosed Assets – Assets acquired through loan foreclosures are held for sale and initially recorded at the
lower of cost or fair value less estimated selling costs when acquired, establishing a new cost basis. If the fair
value of the assets declines, a write-down is recorded through expense. The valuation of foreclosed assets is
subjective in nature and may be adjusted in the future because of changes in economic conditions. Foreclosed
assets are included in other assets in the Consolidated Statements of Financial Condition and totaled
$19.1 million and $25.5 million at December 31, 2014 and 2013, respectively.
Goodwill – 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 not amortized, but instead, reviewed for
impairment at least annually or whenever events or changes in circumstances indicate that the carrying value
may not be recoverable.
The guidance provides the Company an option to first assess qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not (more than 50%) that
the estimated fair value of a reporting unit is less than its carrying amount. If the Company elects to perform a
10
qualitative assessment and determines that an impairment is more likely than not, the Company is then required
to perform the existing two-step quantitative impairment test, otherwise no further analysis is required. The
Company may also elect not to perform the qualitative assessment and, instead, proceed directly to the two-step
quantitative impairment test.
Under the qualitative assessment, various events and circumstances that would affect the estimated fair value of
a reporting unit (e.g., macroeconomic conditions, industry and market conditions, cost factors, overall financial
performance and other relevant entity-specific events) are identified and assessed. The Company’s policy
requires the completion of a quantitative assessment for its reporting unit every three years unless circumstances
indicate that such assessment should be performed more frequently. The Company completed its periodic
quantitative assessment in 2014 for the annual review of goodwill. The Company uses a weighted average of two
generally accepted approaches, the market approach and the income approach, in determining the fair value of
goodwill. Under the market approach the fair value of the asset reflects the price at which comparable assets are
purchased under similar circumstances. The income approach is based on value of future cash flows that an
asset will generate in its economic life.
Intangible Assets – The Company’s intangible assets relate to core deposits and purchased credit card
relationships. Core deposit intangibles represent the intangible value of depositor relationships resulting from
deposit liabilities assumed in acquisitions and are amortized over periods not exceeding 22 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 periods not exceeding 15 years using an accelerated
method. The Company periodically assesses the recoverability of these identifiable intangible assets by
reviewing such assets at least annually or whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Impairment is recognized when the carrying value of the intangible asset
exceeds its fair value.
Mortgage Servicing Rights – The Company measures mortgage servicing rights (MSRs) at fair value. The fair
value of MSRs is determined using present value of estimated future cash flow methods, incorporating
assumptions that market participants would use in their estimates of fair value. For purposes of measuring fair
value, the rights are stratified based on interest rate and original maturity. Fees received for servicing mortgage
loans owned by investors are based on a percentage of the outstanding monthly principal balance of such loans
and are included in income as loan payments are received. Costs of servicing mortgage loans are charged to
expense as incurred. The Company’s MSRs are classified in intangible assets.
Securities Sold Under Repurchase Agreements – Securities sold under agreements to repurchase, which are
classified as secured borrowings and included in short-term fundings, generally mature within one day from the
transaction date. Securities sold under agreements to repurchase are reflected at the amount of cash received in
connection with the transaction. The Company may be required to provide additional collateral based on the fair
value of the underlying securities.
Derivative Financial Instruments – The Company’s Board of Directors has established derivative usage
policies. The Company’s derivative activities are monitored by management with oversight by the Board of
Directors. The Company assesses interest rate cash flow risk by monitoring changes in interest rate exposures
and by evaluating hedging opportunities. The Company’s policies permit the use of various derivative financial
instruments to manage interest rate risk or to hedge specific assets. The Company uses derivatives on a limited
basis mainly to hedge against interest rate risk and to meet the needs of its customers.
All derivatives are recorded at fair value on the Company’s financial statements. Changes in fair value on
derivatives that are designated and qualify as a cash flow hedge are recorded as a component of other
comprehensive income. All other gains and losses on the Company’s derivative instruments are recorded in
earnings. To qualify for hedge accounting, derivatives must be highly effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at inception. The Company formally
documents the relationship between hedging instruments and hedged items, as well as the risk management
objective and strategy for undertaking various hedge transactions. Ineffective portions of hedges are reflected in
earnings as they occur. The Company measures the effectiveness of its hedging relationships both at the hedge
inception and on an ongoing basis in accordance with its risk management policy.
11
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, the Company provides deferred taxes for differences between the financial statement
carrying amounts and tax bases of existing assets and liabilities by applying currently enacted statutory tax rates
which are applicable to future periods. The Company recognizes tax benefits only for tax positions that are more
likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the
largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for
“unrecognized tax benefits” is recorded for any tax benefits claimed in tax returns that do not meet these
recognition and measurement standards. The Company recognizes both interest and penalties (if applicable) as
a component of income tax expense.
Fair Values of Financial Instruments – The 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, including the discount rate and estimates of future cash flows. The
Company assumes that the carrying amount of cash and short-term financial instruments, including federal funds
sold, accrued interest receivable, short-term fundings and accrued interest payable, approximate their fair values.
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.
Earnings Per Share – Basic earnings per common share (EPS) is computed using the weighted average number
of shares of common stock outstanding during the period. This calculation does not include outstanding common
shares held in trust for the Company’s deferred compensation plans and employee stock trust plan or shares
reflected as treasury stock. In 2012, the deferred compensation plans and employee stock trust plan were
terminated and replaced with the implementation of the long-term incentive plan.
Diluted EPS is computed using the weighted average number of shares of common stock outstanding calculated
for basic EPS, plus the dilutive effect of the contingently issuable shares of common stock held in trust for the
Company’s deferred compensation plans and employee stock trust plan. Subsequent to the termination of the
deferred compensation plans and employee stock trust plan there would be no dilutive effect on EPS.
12
B. INVESTMENT SECURITIES
Available-for-Sale
The amortized cost of available-for-sale securities and their approximate fair values at December 31 were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
2014
U.S. Government obligations $ 667,803 $ 1,060 $ (4,169) $ 664,694
Obligations of states and political subdivisions 50,576 650 (3) 51,223
Agency mortgage-backed securities 1,832,461 7,499 (13,938) 1,826,022
Other securities 42,909 876 (1,451) 42,334
Total securities available-for-sale $ 2,593,749 $ 10,085 $ (19,561) $ 2,584,273
2013
U.S. Government obligations $ 541,127 $ 2,307 $ (11,112) $ 532,322
Obligations of states and political subdivisions 97,053 1,461 (1,125) 97,389
Agency mortgage-backed securities 1,636,154 6,490 (28,197) 1,614,447
Other securities 46,154 949 (1,885) 45,218
Total securities available-for-sale $ 2,320,488 $ 11,207 $ (42,319) $ 2,289,376
Other securities include $16.1 million and $21.4 million of auction rate securities, $15.4 million and $12.9 million
of mutual funds, and $10.9 million and $10.9 million of other securities at December 31, 2014 and 2013,
respectively.
Gross realized gains on sales of available-for-sale securities were $0 million, $5.4 million and $5.2 million for
2014, 2013 and 2012, respectively and recorded in other noninterest income on the Consolidated Statements of
Income. The proceeds from sales of available-for-sale securities were $127.4 million, $450.4 million and
$305.6 million for 2014, 2013 and 2012, respectively.
Held-to-Maturity
The amortized cost of held-to-maturity securities and their approximate fair values at December 31 were as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
2014
U.S. Government obligations $ 76,335 $ 162 $ (1,773) $ 74,724
Obligations of states and political subdivisions 44,822 1,215 (27) $ 46,010
Agency mortgage-backed securities 139,803 656 (63) $ 140,396
Total securities held-to-maturity $ 260,960 $ 2,033 $ (1,863) $ 401,261,526 130
2013
U.S. Government obligations $ — $ — $ — $ —
Obligations of states and political subdivisions 3,398 37 — 3,435
Agency mortgage-backed securities — — — —
Total securities held-to-maturity $ 3,398 $ 37 $ — $ 3,435
13
In 2014, the Company transferred $247.5 million of available-for-sale securitites to the held-to-maturity category
at fair value. It is the Company intent to hold the reclassified securities to maturity.
The following table presents the amortized cost and fair value by the contractual maturity of available-for-sale and
held-to-maturity debt securities held on December 31, 2014:
Amortized Fair Amortized Fair
Cost Value Cost Value
(in thousands)
Debt securities
Due in one year or less $ 53,509 $ 53,775 $ 7,146 $ 7,218
Due after one year through five years 587,812 584,831 51,175 52,104
Due after five years through ten years 55,948 55,577 29,933 29,369
Due after ten years 21,110 21,734 32,903 32,043
Agency mortgage-backed securities
(weighted average life of 3.3 years) 1,832,461 1,826,022 139,803 140,396
Total $ 2,550,840 $ 2,541,939 $ 260,960 $ 261,130
Available-Maturityfor-Sale Held-to-
The following table shows the fair value and gross unrealized losses of the Company’s investments, aggregated
by investment category and length of time that individual securities have been in a continuous unrealized loss
position, at December 31, 2014 and 2013:
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
(in thousands)
2014
U.S. Government
obligations $ 227,688 $ (285) $ 252,550 $ (5,657) $ 480,238 $ (5,942)
Obligations of states and
political subdivisions 2,299 (14) 22,354 (16) 24,653 (30)
Agency mortgage-backed
securities 395,842 (2,177) 772,971 (11,824) 1,168,813 (14,001)
Other securities — — 25,614 (1,451) 25,614 (1,451)
Total temporarily impaired
securities $ 625,829 $ (2,476) $ 1,073,489 $ (18,948) $ 1,699,318 $ (21,424)
2013
U.S. Government
obligations $ 289,496 $ (10,181) $ 22,372 $ (931) $ 311,868 $ (11,112)
Obligations of states and
political subdivisions 4,458 (1,110) 1,050 (15) 5,508 (1,125)
Agency mortgage-backed
securities 733,166 (14,708) 467,676 (13,489) 1,200,842 (28,197)
Other securities 144 (6) 30,686 (1,879) 30,830 (1,885)
Total temporarily impaired
securities $ 1,027,264 $ (26,005) $ 521,784 $ (16,314) $ 1,549,048 $ (42,319)
Less than 12 months 12 months or greater Total
14
The Company conducts periodic reviews of impaired investments to determine if the unrealized losses are other
than temporary. The Company has determined the unrealized losses in these investments to be temporary in
nature. The primary factor in making that determination is management’s intent and ability to hold each
investment for a period of time sufficient to allow for an anticipated recovery in fair value. Additionally, for each
debt security with an unrealized loss, the Company determines whether it is probable that it will receive all
amounts due according to the contractual terms of the agreement. The Company determined these investments
were not impaired due to the creditworthiness of the issuer. Additionally, management did not have the intent to
sell any of the above securities at December 31, 2014, nor is it more likely than not that the Company will have to
sell any such security before a recovery of the cost. If any such impairments are determined to be other than
temporary, such impairments would be recorded in earnings.
Securities totaling $1.9 billion and $1.7 billion at December 31, 2014 and 2013, respectively, were pledged to
secure public deposits, repurchase agreements and for other purposes as required or permitted by law.
The Company held trading securities of $2.0 million and $2.0 million at December 31, 2014 and 2013,
respectively.
C. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans
The Company grants individual consumer, commercial, agricultural and real estate loans to its customers. It is
diversified in its lending by providing financing to a variety of borrowers throughout the Company’s operating
regions in Nebraska, Colorado, Kansas, South Dakota, Iowa, Minnesota, Wisconsin, Texas, Missouri and Illinois.
Additionally, its credit card loan portfolio is a national portfolio including borrowers from across the country.
The following table reflects the diversification of the lending activities for loans at December 31:
2014 2013
(in thousands)
Credit card (1) $ 5,329,631 $ 4,940,716
Real estate – commercial 1,987,552 1,882,753
Real estate – residential (2) 1,203,675 1,119,171
Commercial 1,401,989 1,284,840
Agricultural 1,693,101 1,654,288
Other 946,441 798,779
Gross loans 12,562,389 11,680,547
Deferred loan costs, net (1,446) (1,596)
Total loans 12,563,835 11,682,143
Less:
Allowance for loan losses 275,420 279,743
Net loans $ 12,288,415 $ 11,402,400
(1) Includes loans held for sale of $30.6 million at December 31, 2014. There were no loans held for sale at December 31, 2013.
(2) Includes loans held for sale of $88.1 million and $56.2 million at December 31, 2014 and 2013, respectively, of which $88.1 million and
$53.6 million are carried at fair value at December 31, 2014 and 2013, respectively.
Related Party Loans
Loan participations sold to banks owned by controlling stockholders of the Company were $10.3 million and
$12.1 million at December 31, 2014 and 2013, respectively. Loan participations of $69.8 million and $97.3 million
were also purchased from companies owned by controlling stockholders at December 31, 2014 and 2013,
respectively. Loans to Company directors and their associated entities were made in the ordinary course of
business and were approximately $2.3 million and $25.7 million at December 31, 2014 and 2013, respectively.
15
Allowance for Loan Losses
The allowance for loan losses is intended to cover losses inherent in the Company’s loan portfolio as of the
reporting date. The Company evaluates its allowance for loan losses based upon a review of collateral values,
delinquencies, non-accruals, payment histories and various other analytical and subjective measures relating to
the various loan portfolios within the Company.
Changes in the allowance for loan losses for the years ended December 31 were as follows:
2014 2013 2012
(in thousands)
Balance, beginning of year $ 279,743 $ 287,971 $ 325,271
Provision for loan losses 169,062 163,986 140,304
Loans charged off (218,805) (218,906) (225,379)
Loans recovered 45,420 46,692 47,775
Total net charge-offs (173,385) (172,214) (177,604)
Balance, end of year $ 275,420 $ 279,743 $ 287,971
Changes in the allowance for loan losses for the year ended December 31 by portfolio segment were as follows:
Community
Banking Credit Card
(in thousands)
2014
Balance, beginning of year $ 93,435 $ 186,308
Provision for loan losses 19,064 149,998
Loans charged off (21,841) (196,964)
Loans recovered 11,861 33,559
Total net charge-offs (9,980) (163,405)
Balance, end of year $ 102,519 $ 172,901
2013
Balance, beginning of year $ 102,556 $ 185,415
Provision for loan losses 568 163,418
Loans charged off (26,206) (192,700)
Loans recovered 16,517 30,175
Total net charge-offs (9,689) (162,525)
Balance, end of year $ 93,435 $ 186,308
The Company’s allowance for loan losses consists of various methodologies to determine impairment: (a) loans
individually evaluated for impairment are evaluated based on probable losses on specific loans, and (b) loans
collectively evaluated for impairment are evaluated based on historical loan loss experience for similar loans with
similar characteristics, adjusted to reflect the impact of current conditions.
Additionally, the Company’s total allowance for loan losses includes general valuation allowances based on
economic conditions and other qualitative risk factors. Such valuation allowances are determined by evaluating,
among other things: (a) changes in asset quality, (b) composition and concentrations of credit risk and (c) the
impact of economic risks on the portfolio including unemployment rates and bankruptcy trends.
16
In determining the allowance for loan losses, management considers factors such as economic and business
conditions affecting key lending areas, credit concentrations and credit quality trends. Since the evaluation of the
inherent loss with respect to these factors is subject to a higher degree of uncertainty, the measurement of the
overall allowance is subject to estimation risk and the amount of actual losses can vary significantly from the
estimated amounts.
Methods for measuring the appropriate level of the allowance for community banking loans evaluated collectively
for impairment include the application of estimated loss factors to outstanding loans based on migration analysis
of actual losses and subjective adjustments that incorporate the risk attributes of various loans with economic
conditions, industry situations and other internal/external factors that may impact potential loss factors.
Adjustments are made to the baseline rates to properly reflect management’s judgment with respect to evolving
conditions influencing loss recognition.
For credit card loans, management estimates losses inherent in the portfolio based on a model which tracks
historical loss experience on current and delinquent accounts and charge-offs, net of estimated recoveries, due to
bankruptcies, deceased cardholders and account settlements. The Company uses a migration analysis that
estimates the likelihood that a credit card receivable will progress through the various stages of delinquency and
to charge-off. The migration analysis considers uncollectible principal, interest and fees reflected in loan
receivables. An estimated charge-off ratio is then applied to each delinquency category to derive an estimated
reserve rate.
Credit card and other consumer loans are predominately unsecured, and the allowance for potential losses
associated with these loans has been established accordingly. All other loans are generally secured by
underlying real estate, business assets, personal property and personal guarantees. The amount of collateral
obtained is based upon management’s evaluation of the borrower.
The following table provides an allocation of the year end recorded investment which includes unearned income,
and the allowance for loan losses by loan type; however, allocation of a portion of the allowance to one category
of loans does not preclude its availability to absorb losses in other categories:
Recorded Ending Recorded Ending
Investment in Allowance: Investment in Allowance:
Loans Individually Individually Loans Collectively Collectively
Evaluated for Evaluated for Evaluated for Evaluated for
Impairment Impairment Impairment Impairment
(in thousands)
2014
Credit card $ 55,618 $ 16,866 $ 5,274,013 $ 156,036
Real estate – commercial 25,989 220 1,961,563 26,215
Real estate – residential 30,482 2,511 1,173,193 9,612
Commercial 20,653 601 1,381,336 17,616
Agricultural 16,499 9 1,676,602 20,717
Other 5,265 12 941,176 25,005
Total $ 154,506 $ 20,219 $ 12,407,883 $ 255,201
2013
Credit card $ 76,850 $ 28,645 $ 4,863,866 $ 157,664
Real estate – commercial 53,935 633 1,828,818 27,557
Real estate – residential 32,581 2,292 1,086,590 11,930
Commercial 32,473 786 1,252,367 15,208
Agricultural 4,625 26 1,649,663 17,553
Other 7,390 12 791,389 17,437
Total $ 207,854 $ 32,394 $ 11,472,693 $ 247,349
17
Impaired Loans
Loans individually evaluated for impairment are evaluated based on probable losses on specific loans. A loan is
considered impaired when it is probable that all principal and interest amounts due will not be collected in
accordance with the loan’s contractual terms. Additionally, all loans modified in a troubled debt restructuring are
classified as impaired loans. For all community banking loans, the Company uses internal credit ratings to
determine which subset of loans should be individually evaluated for impairment. For credit card receivables, only
loans that have been modified in a troubled debt restructuring are considered impaired loans.
The allowance established for probable losses on specific loans are based on a periodic analysis and evaluation
of classified loans. Specific reserves for impaired loans are measured and recognized to the extent that the
recorded investment of an impaired loan exceeds its value based on either the fair value of the loan’s underlying
collateral less costs to sell or the calculated present value of projected cash flows discounted at the contractual
effective interest rate.
The following table summarizes the Company’s impaired loans at December 31, 2014 and 2013. The unpaid
contractual principal balance represents the Company’s gross investment in the loan without unearned income.
Unpaid Recorded Recorded
Contractual Investment Investment Total
Principal With No With Recorded Related
Balance Allowance Allowance Investment Allowance
(in thousands)
2014
Credit card $ 55,618 $ — $ 55,618 $ 55,618 $ 16,866
Real estate – commercial 25,995 21,571 4,418 25,989 220
Real estate – residential 30,489 10,304 20,178 30,482 2,511
Commercial 20,658 15,230 5,423 20,653 601
Agricultural 16,503 16,256 243 16,499 9
Other 5,266 5,022 243 5,265 12
Total $ 154,529 $ 68,383 $ 86,123 $ 154,506 $ 20,219
2013
Credit card $ 76,850 $ — $ 76,850 $ 76,850 $ 28,645
Real estate – commercial 53,948 48,192 16,260 53,935 633
Real estate – residential 32,589 12,352 9,691 32,581 2,292
Commercial 32,481 34,301 5,419 32,473 786
Agricultural 4,626 4,369 255 4,625 26
Other 7,392 144 21 7,390 12
Total $ 207,886 $ 99,358 $ 108,496 $ 207,854 $ 32,394
18
The following table summarizes the Company’s average balance of impaired loans during 2014 and 2013 and
interest income recognized during 2014 and 2013 on impaired loans subsequent to their classification as
impaired.
Recognized
Average Interest
Balance Income
(in thousands)
2014
Credit card $ 64,343 $ 3,749
Real estate – commercial 35,651 1,658
Real estate – residential 30,950 495
Commercial 22,186 1,178
Agricultural 19,835 176
Other 5,280 —
Total $ 178,245 $ 7,256
2013
Credit card $ 96,505 $ 5,014
Real estate – commercial 71,775 2,272
Real estate – residential 33,536 775
Commercial 39,119 1,323
Agricultural 6,230 17
Other 7,415 16
Total $ 254,580 $ 9,417
Restructurings
Included in impaired loans are troubled debt restructurings (TDR). Troubled debt restructurings occur when
concessions are granted to borrowers experiencing financial difficulties. These concessions could include a
reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other
action intended to maximize collection. These loans are measured for impairment based on either the fair value
of the underlying collateral or based on the present value of expected future cash flows discounted at the effective
interest rate of the original loan contract with any shortfall recorded as a part of the allowance for loan losses.
Some loans modified through the loan restructurings may not be accruing interest at the time of the modification.
The Company returns modified loans to accrual status once the borrower demonstrates performance according to
the terms of the restructuring agreement for a period of at least six months. A loan modified as a troubled debt
restructuring is reported as a troubled debt restructuring for a minimum of one year. A loan will no longer be
included in the balance of troubled debt restructurings in the calendar year following a modification if the loan was
modified to yield a market rate for loans of similar credit risk at the time of restructuring and the loan is not
impaired based on the terms of the restructuring agreement.
Consumers with outstanding credit card loans that are experiencing financial difficulties are restructured through
loan restructuring programs that allow the Company to maximize its collections on the loans. Once a credit card
loan is restructured, the Company no longer has a commitment to provide additional funding on the loan.
19
The following table represents a summary of the loans modified as a troubled debt restructuring by the Company
as of the year ended December 31 and the ending balance of all troubled debt restructured loans at
December 31.
Number of
loans
modified
Recorded
investment in
loans
classified as
a TDR
($ in thousands)
2014
Credit card 7,502 $ 55,618
Real estate – commercial 56 33,254
Real estate – residential 160 18,603
Commercial 25 18,160
Agricultural 6 3,544
Other 3 5,037
Total modifications 7,752 $ 134,216
2013
Credit card 8,447 $ 76,850
Real estate – commercial 56 57,516
Real estate – residential 158 20,280
Commercial 33 30,236
Agricultural 3 780
Other 8 7,144
Total modifications 8,705 $ 192,806
At December 31, 2014 and December 31, 2013, community banking loans modified as troubled debt
restructurings of $15.8 million and $21.2 million, respectively, were not in compliance with their modified terms.
There were no significant commitments for additional funding on any of the community banking loans that were
troubled debt restructurings at December 31, 2014 or December 31, 2013.
At December 31, 2014 and 2013, respectively, $8.0 million and $11.8 million of credit card restructured loans
were not in compliance with their modified terms. Modifications on credit card loans typically include a reduction
in the interest rate charged on the loan and a conversion of the revolving loan into a term loan paying principal
and interest; therefore, based on the methodology used to determine allowance on troubled debt restructurings,
the Company increased the allowance recorded on these loans by $3.3 million and $4.9 million upon classification
in 2014 and 2013, respectively. The Company recorded an allowance for loan loss equal to $16.9 million and
$28.6 million on all credit card troubled debt restructurings in 2014 and 2013, respectively.
Credit Risk
The Company uses an internal credit ratings system to monitor the credit risk within its community banking loan
portfolio. The internal credit ratings system assigns credit risk ratings based on the strength of the primary
repayment source for the loan outstanding. The assigned risk rating is based on the likelihood that the borrower
will be able to service its obligations under the terms of the agreement. In assigning a rating, the Company
assesses the strength of the borrower’s repayment capacity and the probability of default, where default is the
failure to make a required payment in full and on time. The Company first assesses the paying capacity of the
borrower; then, it analyzes any pledged collateral or guarantees. As the primary repayment source weakens and
default probability increases, collateral and other protective structural elements have a greater bearing on the risk
rating.
The Company’s internal rating scale aligns with the regulatory agency’s risk rating scale used to identify problem
credits and identifies three varying degrees of credit worthiness: (a) pass, (b) special mention and
20
(c) substandard. Pass loans exceed the bank’s minimum level of acceptable credit risk and servicing
requirements; all loans not rated special mention or substandard are considered pass loans. A special mention
loan has potential weaknesses that if left uncorrected may result in deterioration of the repayment prospects for
the asset or in the borrower’s credit position at some future date. A substandard loan is inadequately protected
by the current worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as
substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt, and if these
deficiencies are not corrected, it is possible that the Company will sustain some loss. The Company reviews and
updates the risk rating on its loans as circumstances change or at least quarterly.
For the credit card portfolio, delinquencies are an indicator of credit quality at any point in time. Loan balances
are considered delinquent when contractual payments on the loan become 30 days past due. All loans that are
current on their payments are considered performing loans. All loans that are 30 days past due are considered
nonperforming.
The Company’s loan portfolio was evaluated based on the following credit quality indicators as of December 31:
Real Estate - Real Estate -
Commercial Residential Commercial Agricultural Other Total
(in thousands)
2014
Internally assigned grade:
Pass $ 1,923,912 $ 1,183,214 $ 1,337,932 $ 1,657,304 $ 944,973 $ 7,047,335
Special mention 10,529 423 16,572 11,183 1 38,708
Substandard 53,111 20,038 47,485 24,614 1,467 146,715
Total $ 1,987,552 $ 1,203,675 $ 1,401,989 $ 1,693,101 $ 946,441 $ 7,232,758
Credit Card
Based on payment activity:
Performing $ 5,227,667
Nonperforming 101,964
Total $ 5,329,631
2013
Internally assigned grade:
Pass $ 1,763,272 $ 1,090,619 $ 1,193,799 $ 1,528,810 $ 798,139 $ 6,374,639
Special mention 12,464 622 23,205 4,953 15 41,259
Substandard 107,017 27,930 67,836 120,525 625 323,933
Total $ 1,882,753 $ 1,119,171 $ 1,284,840 $ 1,654,288 $ 798,779 $ 6,739,831
Credit Card
Based on payment activity:
Performing $ 4,838,430
Nonperforming 102,286
Total $ 4,940,716
Nonperforming and Past-Due Loans
The Company places loans on non-accrual when management believes collection of principal and interest is
doubtful after considering economic and business conditions, collection efforts and the financial condition of the
borrower.
21
The following is an aging analysis of the contractually past due loans as of December 31:
Greater than
30 – 89 90 or More 90 Days
Days Days Total Nonaccrual Past Due
Past Due Past Due Past Due Loans and Accruing
(in thousands)
2014
Credit card $ 51,171 $ 50,793 $ 101,964 $ 49,602 $ 18
Real estate – commercial 3,729 17 3,746 8,885 17
Real estate – residential 6,224 582 6,806 14,894 582
Commercial 6,110 137 6,247 4,487 136
Agricultural 3,532 370 3,902 13,718 250
Other 3,707 72 3,779 1,437 70
Total $ 74,473 $ 51,971 $ 126,444 $ 93,023 $ 1,073
Greater than
30 – 89 90 or More 90 Days
Days Days Total Nonaccrual Past Due
Past Due Past Due Past Due Loans and Accruing
(in thousands)
2013
Credit card $ 52,904 $ 49,382 $ 102,286 $ 48,835 $ 18
Real estate – commercial 11,780 308 12,088 12,874 308
Real estate – residential 10,532 2,076 12,608 16,973 1,653
Commercial 5,647 55 5,702 7,934 54
Agricultural 22,186 493 22,679 4,683 312
Other 5,221 160 5,381 2,345 144
Total $ 108,270 $ 52,474 $ 160,744 $ 93,644 $ 2,489
Acquired Loans
During 2014 and 2013, the Company acquired three separate loan asset portfolios as part of the strategy to
expand its business through partner-based marketing and leveraging its core capabilities and assets to grow new
business.
On October 24, 2014, the Company acquired affinity and co-branded credit card assets. The estimated fair value
of the credit card assets purchased was approximately $18.7 million at the acquisition date. The Company also
recorded an estimated purchased credit card relationship intangible asset of approximately $2.2 million and a
rewards liability of approximately $2.2 million (included in accrued expenses and other liabilities in the
Consolidated Statements of Financial Condition).
On July 31, 2013, the Company acquired financial institution assets in a transaction that was accounted for as an
asset purchase. The estimated fair value of the credit card assets purchased was approximately $24.8 million at
the acquisition date. The Company also recorded an estimated purchased credit card relationship intangible
asset of approximately $3.0 million and a rewards liability of approximately $1.3 million (included in accrued
expenses and other liabilities in the Consolidated Statements of Financial Condition).
On October 1, 2013, the Company acquired affinity and co-branded credit card assets. This acquisition was
accounted for as an asset purchase. The estimated fair value of the credit card assets purchased was
approximately $25.4 million at the acquisition date. The Company also recorded a rewards liability of
approximately $1.5 million (included in accrued expenses and other liabilities in the Consolidated Statements of
Financial Condition).
22
D. VARIABLE INTEREST ENTITIES
Certain legal entities like credit card securitization trusts and lease financing companies are considered variable
interest entities (VIEs). VIEs are legal entities that lack sufficient equity to finance their activities, or the equity
investors of the entities, as a group, lack any of the characteristics of a controlling interest. In certain situations, a
Company is required to consolidate a VIE. The Company currently consolidates its credit card securitization
trusts because it has determined it is the primary beneficiary of the securitization trusts and the primary
beneficiary is required to consolidate the entity. The primary beneficiary of a VIE is the enterprise that has both
the power to direct the activities most significant to the economic performance of the VIE and the obligation to
absorb losses or receive benefits that could potentially be significant to the VIE. The Company evaluates its
transfers and transactions with entities to determine if it holds a variable interest in these entities. Variable
interests are typically in the form of a security representing retained interests in the transferred assets or servicing
rights or management fees. If the Company holds a variable interest, it evaluates whether the Company is the
primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and
when there is a change in circumstance that requires reconsideration. If the Company is determined to be the
primary beneficiary of a VIE, it must account for the VIE as a consolidated subsidiary. If the Company is
determined not to be the primary beneficiary of a VIE but holds a variable interest in the entity, such variable
interests are accounted for under the equity method of accounting or other accounting standards as appropriate.
The Company transacts with VIEs that it does not consolidate including mortgage loans securitization trusts and a
lease financing corporation that owned a portion of Company-occupied space through the middle of 2013.
Credit Card Securitizations
The Company sells credit card receivables to a securitization trust. These transactions isolate the related loans
through the use of a VIE. The VIEs are funded through loans from large multi-seller asset-backed commercial
paper conduits sponsored by third-party agents, asset-backed securities issued with varying levels of credit
subordination and payment priority, and residual interests. The Company retains residual interests in these
entities and, therefore, has an obligation to absorb losses and a right to receive benefits from the VIEs that could
potentially be significant to the VIEs. In addition, the Company retains servicing rights for the underlying loans
and, therefore, holds the power to direct the activities of the VIEs that most significantly impact the economic
performance of the VIEs. As a result, the Company determined it is the primary beneficiary of these VIEs and
these trusts have been consolidated in the Company’s financial statements.The assets of each VIE are restricted
to the settlement of the debt and other liabilities of the respective entity. Third-party holders of this debt do not
have recourse to the general assets of the Company. Upon transfer of credit card loan receivables to the trust,
the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the
trust’s creditors. The trust has ownership of cash balances that also have restrictions, the amounts of which are
reported in other assets. Investment of trust cash balances is limited to investments that are permitted under the
governing documents of the trust and which have maturities no later than the related date on which funds must be
made available for distribution to trust investors. With the exception of the seller’s interest in trust receivables, the
Company’s interests in trust assets are generally subordinate to the interests of third-party investors and, as such,
may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the
investors in the trust’s debt. The carrying values of these restricted assets, which are presented on the
Company’s Consolidated Statement of Financial Condition as relating to securitization activities, are shown in the
table below at December 31:
2014 2013
(in thousands)
Restricted cash $ 3,900 $ 3,900
Total other assets $ 3,900 $ 3,900
Credit card loans $ 2,957,913 $ 2,341,043
Allowance for loan losses allocated to securitized loans (95,959) (88,278)
Total net loans $ 2,861,954 $ 2,252,765
Borrowings owed to securitization investors $ 300,000 $ 300,000
Total other borrowings $ 300,000 $ 300,000
23
The economic performance of the VIEs is most significantly impacted by the performance of the underlying loans.
The principal risks to which the entities are exposed are credit, prepayment and interest rate. Credit risk is
managed through credit enhancement in the form of cash collateral accounts, excess interest on the loans, and
the subordination of certain classes of asset-backed securities to other classes.
To protect investors, the securitization structures also include certain features that could result in earlier-than-
expected repayment of the securities. Specifically, insufficient cash flows would trigger the early repayment of the
securities. The Company is required to maintain a contractual minimum level of receivables in the trusts in
excess of the face value of outstanding investors’ interests. This excess is referred to as the minimum seller’s
interest. The required minimum seller’s interest in the pool of trust receivables, which is included in loans, is set
at 4% of principal receivables of the trust. If the levels of receivables in the trust were to fall below the required
minimum, the Company would be required to add receivables from the unrestricted pool of receivables, which
would increase the amount of credit card loan receivables restricted for securitization investors, or the Company
could elect to contribute cash to meet the requirements. A decline in the amount of the seller’s interest could
occur if balance repayments and charge-offs exceeded new lending on the securitized accounts or as a result of
changes in total outstanding investors’ interests. If the Company could not add enough receivables or cash to
satisfy the requirement, an early amortization (or repayment) of investors’ interests would be triggered.
The Company continues to own and service the accounts that generate the loan receivables held by the trust.
The Company receives servicing fees from the trust based on a percentage of the monthly investor principal
balance outstanding. Although the fee income offsets the fee expense to the trust and thus is eliminated in
consolidation, failure to service the transferred loan receivables in accordance with contractual requirements
could lead to a termination of the servicing rights and the loss of future servicing income.
Residential Mortgage Loans
The Company typically transfers first lien residential mortgage loans in conjunction with Government National
Mortgage Association (Ginnie Mae) and Federal National Mortgage Association (Fannie Mae) securitization
transactions whereby the loans are exchanged for cash or securities that are readily redeemed for cash proceeds
and servicing rights. The securities issued through these transactions are guaranteed by the issuer and, as such,
under seller/servicer agreements, the Company is required to service the loans in accordance with the issuers’
servicing guidelines and standards. As seller, the Company has made certain representations and warranties
with respect to the originally transferred loans under Ginnie Mae and Fannie Mae programs.
The Company evaluated these securitization transactions for consolidation under the accounting guidance. As
servicer of the underlying loans, the Company is generally deemed to have power over the securitization.
However, the Company does not hold any retained interests in these transactions; therefore, does not have the
obligation to absorb losses or the right to receive benefits that could potentially be significant to the securitization.
As a result, the Company determined that it was not the primary beneficiary of, and thus did not consolidate, any
of these securitization transactions.
Lease Financing
The Bank used a variable-rate operating lease to finance company-occupied space in order to obtain more
favorable interest rates than a typical mortgage financing arrangement. The financing arrangement was
transacted with a VIE. The VIE was created to develop, own and lease commercial real estate and had entered
into similar transactions with other entities unrelated to the Company.
The eight properties covered by this lease included a west Omaha office building that is occupied by the Bank,
the Company’s downtown Omaha technology center and a downtown Omaha office tower for which the Bank is
the primary occupant. These properties were owned by the VIE and the VIE received lease payments from the
Bank to service floating rate debt. The Bank was obligated to occupy the space for the term of the lease (expired
June 2013). At December 31, 2012, the cost of the buildings financed through this lease totaled $334.0 million.
The lease included residual value guarantees up to $280.5 million, or alternatively, in accordance with restrictions
in the leasing documents, the Bank could elect to exercise purchase options totaling $334.0 million. During
December 2012, the Bank exercised its irrevocable option to purchase the properties for $334.0 million in June
2013. As a result, the Bank was effectively released from its obligation under the residual value guarantees.
Accordingly, the corresponding liability was released resulting in a $12.0 million reduction to noninterest expense.
In June 2013, the purchase was finalized and the eight properties were recorded on the Consolidated Statements
of Financial Condition in premises and equipment, net. Through June of 2013, the Bank was in compliance with
its financial covenants under the lease agreement, as amended.
24
Concurrent with entering into this lease agreement, the Company entered into three separate interest rate swap
agreements that effectively fixed the lease payments to limit the interest rate risk exposure on $280.5 million at
December 31, 2012. See Note N for additional information related to the interest rate swaps.
The Company did not have power to direct the activities of the VIE; therefore, the Company did not control the
ongoing activities that have a significant impact on the economic performance of the VIE. Additionally, the
Company’s interest in the VIE through this lease transaction was not significant to the VIE. Any potential benefits
or losses absorbed by the Company from its lease transaction would not have been significant to the VIE.
Therefore, the Company was not the primary beneficiary of the VIE and did not consolidate the entity.
E. PREMISES AND EQUIPMENT
Premises and equipment at December 31 were comprised of the following:
2014 2013
(in thousands)
Land $ 91,884 $ 91,677
Buildings 584,566 574,914
Leasehold improvements 48,294 48,831
Equipment 398,344 389,716
1,123,088 1,105,138
Less accumulated depreciation 538,332 509,567
Net premises and equipment $ 584,756 $ 595,571
Depreciation expense included in equipment rentals, depreciation and maintenance on the Consolidated
Statements of Income totaled $54.3 million, $47.3 million and $38.3 million for 2014, 2013 and 2012, respectively.
F. GOODWILL AND INTANGIBLE ASSETS
The Company has recognized goodwill and other intangibles as a result of various acquisitions. Goodwill
represents the excess of the purchase price over the estimated fair value of the identifiable net assets associated
with merger and acquisition transactions. During the fourth quarter of 2014, the Company completed its
quantitative assessment of goodwill and and did not recognize an impairment for the year ended December 31,
2014. In prior years, the Company recorded accumulated impairment losses of $4.0 million. Absent any
impairment indicators and the scheduled quantitative assessments, the Company will perform the goodwill
qualitative assessment annually.
The carrying amount of goodwill was $165.3 million at December 31, 2014 and 2013.
As mentioned above, the Company has recorded other identifiable intangible assets as a result of past
transactions. These intangibles will continue to be amortized over their expected lives using straight-line and
accelerated methods, as appropriate. In 2014 and 2013, the Company acquired credit card portfolios of
$18.7 million and $50.2 million, respectively. The purchase amount assigned to credit card relationship
intangibles was $2.2 million and $3.0 million, in 2014 and 2013, respectively. There were no impairment charges
recorded in the Consolidated Statements of Income in 2014, 2013 or 2012.
25
The table below reflects the components of intangible assets subject to amortization at December 31:
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
(in thousands)
Purchased credit card relationships $ 320,825 $ 290,760 $ 318,668 $ 281,346
Core deposit intangibles 10,478 9,074 10,478 8,737
Total $ 331,303 $ 299,834 $ 329,146 $ 290,083
2014 2013
The current estimated amortization expense for each of the five succeeding years ending December 31 is
approximately $8.4 million for 2015, $6.9 million for 2016, $5.6 million for 2017, $4.2 million for 2018 and
$3.1 million for 2019.
Mortgage Servicing Rights
The right to service mortgage loans for others, or MSRs, are recognized when mortgage loans are sold and the
rights to service these loans are retained. Mortgage loans serviced for others totaled $3.3 billion and $3.1 billion
at December 31, 2014 and 2013, respectively. In exchange for servicing these loans, the Company receives
servicing fees. Servicing fees related to MSRs were $8.5 million, $8.3 million and $8.3 million for the years ended
December 31, 2014, 2013 and 2012, respectively, and are recognized in processing services on the Company’s
Consolidated Statements of Income. The Company records the fair value of MSRs on its Consolidated
Statements of Financial Condition. To determine the fair value of MSRs, the Company uses an independent
valuation specialist. The valuation model calculates the present value of estimated future net servicing income
based on assumptions including estimates of prepayment speeds, discount rates, delinquency rates, late fees,
other ancillary income and costs to service. The fair value of the MSR asset was $30.6 million and $30.1 million
as of December 31, 2014 and 2013, respectively, and is included in intangible assets. Changes in the fair value
of MSRs are recorded in current period earnings in other noninterest expense on the Company’s Consolidated
Statements of Income.
G. DEPOSITS
At December 31, 2014, the scheduled maturities of total certificates of deposit were as follows:
(in thousands)
2015 $ 1,064,340
2016 351,717
2017 178,856
2018 139,700
2019 203,430
2020 and thereafter 3
Total certificates of deposit $ 1,938,046
The aggregate amount of certificates of deposit, each with a minimum denomination of $100,000, was
approximately $781.9 million and $717.2 million at December 31, 2014 and 2013, respectively.
The amount of deposits reclassified to overdraft loans were $9.9 million and $12.7 million at December 31, 2014
and 2013, respectively.
26
H. DEBT OBLIGATIONS
FHLB advances, other borrowings, and capital notes and trust preferred securities of the Company as of
December 31, 2014, were as follows:
Capital
Other Notes
Borrowing - and Trust
FHLB Securitized Other Preferred
Advances Debt Borrowings Securities
(in thousands)
Scheduled maturities and payments due on obligations:
Due in one year or less $ — $ — $ 514 $ —
Due after one year through two years — 300,000 387 —
Due after two years through three years — — 33 —
Due after three years through four years 5,000 — — —
Due after four years through five years — — — —
Due after five years — — — 200,000
Total debt obligations $ 5,000 $ 300,000 $ 934 $ 200,000
FHLB Advances
As of December 31, 2014, FHLB advances carried an interest rate of 2.32%. Fixed-rate advances totaling
$5.0 million at December 31, 2014 are convertible quarterly at the option of the FHLB into adjustable-rate
advances. There were no line of credit advances at December 31, 2014 which carry a variable interest rate that
changes daily based on the FHLB. At December 31, 2014 and 2013, FHLB approved borrowing capacity
available for outstanding advances based on pledged real estate loans totaled $0.9 and $1.2 billion, and
mortgage-backed securities totaled $39.6 million and $0.7 million, respectively. Additionally, the Company held
FHLB stock totaling $0.6 million and $5.8 million at December 31, 2014 and 2013, respectively.
Other Borrowings
The Company had other borrowings at December 31 as follows:
2014 2013
(in thousands)
Borrowings owed to securitization investors $ 300,000 $ 300,000
Other borrowings 934 1,438
Total other borrowings $ 300,934 $ 301,438
The Company’s securitization trusts are used to assist the Company in its management of liquidity and interest
rate risk. Under this method of financing, the Company utilizes the trust for the purpose of securitizing loans and
issuing beneficial interest to investors. The $300 million outstanding as of December 31, 2014 and 2013, was
publicly issued in a term securitization facility which matures in October 2016 and requires the payment of interest
at a variable rate tied to LIBOR plus 0.53%. The Company typically uses a mix of conduit and term securitization
structures to facilitate management’s liquidity strategies which consider a number of competing factors. Term
securitization structures are for a fixed amount and a fixed term. In a conduit securitization, the Company’s loans
are securitized and beneficial interest may be sold to commercial paper issuers who pool the securities with those
of other issuers. The amount securitized in a conduit structure is allowed to fluctuate within the terms of the
facility which may provide greater flexibility for liquidity needs. The Company may renew or replace the
outstanding conduit securitization facilities before the date they begin to amortize which is considered the maturity
date. The Company has access to committed undrawn capacity through two conduit securitization facilities. As
of December 31, 2014, the total commitment of these facilities was $600 million. Access to the unused portions
of these securitization facilities expire in 2015. The terms of each agreement provide for a commitment fee to be
27
paid on the unused capacity, and include various affirmative and negative covenants, including performance
metrics and legal requirements similar to those required in a term securitization transaction.
In May 2012, the Parent Company entered into a $100.0 million syndicated revolving credit facility (for general
corporate purposes) which bears a variable interest rate equal to LIBOR plus 3.00%. The Parent Company had
pledged the stock of the Bank as collateral. At December 31, 2013, there was no outstanding balance under this
credit facility. Among other restrictions, the loan agreement required that the Company maintain certain financial
covenants. In May 2014, the Company choose not to renew the credit facility.
In December 2009, FNN Ag Funding, LLC, a subsidiary of the Bank, entered into a secured revolving credit
facility which bears a variable rate of interest. The Company pledges agriculture loans to secure this facility. The
credit facility has a commitment of $200.0 million. As of December 31, 2014 FNN Ag Funding, LLC had total
assets of $222.7 million, total liabilities of $114.5 million and equity of $108.2 million. There was no balance
outstanding at December 31, 2014 and 2013.
Capital Notes and Trust Preferred Securities
The Company had capital notes and trust preferred securities at December 31 as follows:
2014 2013
(in thousands)
Subordinated capital notes, due 2020 $ 50,000 $ 50,000
Cumulative trust preferred securities, due 2033 25,000 25,000
Cumulative trust preferred securities, due 2037 25,000 25,000
Cumulative trust preferred securities, due 2037 100,000 100,000
Total capital notes and trust preferred securities $ 200,000 $ 200,000
In September 2004, the Bank issued $50.0 million in subordinated capital notes which were due to mature
September 2019. A subsidiary bank of the Parent Company issued $25.0 million of subordinated capital notes in
September 2002, which were due to mature September 2017. In December 2002, another subsidiary bank of the
Parent Company issued $25.0 million of subordinated capital notes, which were due to mature December 2017.
On September 29, 2010, upon the merger of three of the Company’s banking subsidiaries with and into the Bank,
these notes were assigned to the Bank. In 2013, the Bank exercised its option to redeem these notes prior to
maturity.
In October 2005, the Bank issued $50.0 million in subordinated capital notes which are due to mature December
2020. These capital notes require the payment of a variable rate of interest tied to LIBOR (interest rate of 1.86%
at December 31, 2014) and are unsecured and subordinated to the claims of depositors and general creditors of
the Bank. The Bank has entered into an interest rate swap agreement that effectively fixed the interest rates on
these subordinated capital notes to limit the interest rate risk exposure. See Note N for additional information
related to the interest rate swaps.
In March 2003, First National of Nebraska Statutory Trust I, a special-purpose wholly-owned trust subsidiary of
the Parent Company, issued $25.0 million of floating-rate cumulative trust preferred securities due March 2033.
In June 2007, First National of Colorado Statutory Trust II, a special-purpose wholly-owned trust subsidiary of the
Parent Company, issued $25.0 million of floating-rate cumulative trust preferred securities due September 2037.
Another special-purpose wholly-owned trust subsidiary of the Parent Company, First National of Nebraska
Statutory Trust II, issued $100.0 million of floating-rate cumulative trust preferred securities in March 2007 which
are due March 2037. The weighted average interest rate of trust preferred securities was 2.26% at December 31,
2014. After five years from the respective issuance dates, the Company may elect to redeem these cumulative
trust preferred securities prior to their scheduled maturity. At December 31, 2014, these cumulative trust
preferred securities qualified as Tier I capital of the Company.
The Company has provided no sinking fund for subordinated capital notes and cumulative trust preferred
securities.
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I. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities (net deferred tax assets is included in other assets in the Consolidated Statement of
Financial Condition) at December 31 were as follows:
2014 2013
(in thousands)
Deferred tax assets:
Allowance for loan losses $ 101,345 $ 102,795
Credit card rewards 18,207 16,108
Reserve for unfunded commitments 6,925 6,338
Employee benefits 55,688 41,349
Purchased credit card relationships 18,303 21,472
Net operating loss carryforwards (1) 3,369 4,795
Accrual for contingent litigation 3,585 7,035
Unrealized loss on derivatives 3,296 3,165
Market adjustment on available-for-sale securities 3,484 11,452
Other 9,285 8,873
Gross deferred tax assets 223,487 223,382
Valuation allowance on net operating loss carryforwards (2,001) (3,154)
Total deferred tax assets 221,486 220,228
Deferred tax liabilities:
Credit card loan fee deferral 47,262 43,144
Depreciation and amortization 39,489 45,324
Mortgage servicing rights 11,277 10,929
Other 12,758 12,611
Total deferred tax liabilities 110,786 112,008
Net deferred tax assets $ 110,700 $ 108,220
(1) Expire from 2015 to 2029
The following is a comparative analysis of the provision for federal and state taxes for the years ended
December 31:
2014 2013 2012
(in thousands)
Current federal $ 89,394 $ 69,498 $ 28,648
Current state 7,622 6,119 709
Total current taxes 97,016 75,617 29,357
Deferred federal 8,843 15,227 57,403
Deferred state 179 135 5,659
Total deferred taxes 9,022 15,362 63,062
Total provision for income taxes $ 106,038 $ 90,979 $ 92,419
29
The effective rates of total tax expense for the years ended December 31, 2014, 2013 and 2012, were different
than the statutory federal tax rate. The reasons for the differences were as follows:
2014 2013 2012
(percent of pretax income)
Statutory federal tax rate 35.0 % 35.0 % 35.0 %
Additions (reductions) in taxes resulting from:
Tax-exempt interest income (0.9) (1.0) (1.0)
State taxes 1.7 1.7 1.4
Income tax credits (0.4) (0.7) —
Change in unrecognized tax benefits — (0.2) (0.1)
Other items, net 0.2 0.5 0.4
Effective tax rate 35.6 % 35.3 % 35.7 %
At December 31, 2014, the total amount of unrecognized tax benefits was $0.2 million. There were no interest
and penalties recorded in 2014. The total amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate was $0.2 million. At December 31, 2013, the total amount of unrecognized tax benefits was
$0.2 million. There were no interest and penalties recorded in 2013. The total amount of unrecognized tax
benefits that, if recognized, would affect the effective tax rate was $0.2 million. At December 31, 2012, the total
amount of unrecognized tax benefits was $0.8 million, excluding $0.3 million for interest and $0.2 million for
penalties. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate
was $0.8 million.
The Company believes that it is reasonably possible that the total amounts of unrecognized tax benefits will
decrease up to $0.1 million for the potential resolution of various state income tax positions.
The Company is subject to U.S. federal income tax as well as income tax in numerous state and local
jurisdictions. The statute of limitations related to the consolidated Federal income tax return is closed for all tax
years up to and including 2010. The expiration of the statute of limitations related to the various state income tax
returns that the Company and subsidiaries file varies by state. There are no Federal income tax examinations in
progress. State income tax examinations are currently in progress.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2014 2013 2012
(in thousands)
Balance, beginning of year $ 217 $ 839 $ 2,815
Increases related to prior year tax positions — — 184
Decreases for tax positions related to prior years — (327) (2,129)
Decreases related to settlements with taxing authorities — (295) (31)
Balance, end of year $ 217 $ 217 $ 839
30
J. EARNINGS PER COMMON SHARE
The following table provides the calculation of basic and diluted earnings per share:
2014 2013 2012
(in thousands except share and per share data)
Net income $ 192,173 $ 166,976 $ 166,600
Average common shares outstanding 306,278 308,479 314,855
Less: Average shares held for executive deferred compensation plan — — 3,120
Average shares held in employee stock trust — — 1,856
Average common shares outstanding used in basic earnings per share 306,278 308,479 309,879
Add: Dilutive effect of shares held for deferred compensation plans — — 4,976
Average common shares outstanding used in dilutive earnings per share 306,278 308,479 314,855
Basic earnings per common share $ 627.45 $ 541.29 $ 537.63
Diluted earnings per common share $ 627.45 $ 541.29 $ 529.13
K. EMPLOYEE BENEFIT PLANS
The Company provides a noncontributory defined benefit pension plan to employees. Pension benefits are based
on years of service and the employee’s highest average compensation using 60 consecutive months out of the
last 120 months of employment. Effective December 31, 2007, the defined benefit pension plan was frozen.
Effective as of the freeze date, no future years of service for benefit accrual purposes are earned and no new
entrants to the plan are allowed. Individuals with at least 5 years of service and age plus service to the Company
equal to or greater than 50 years on the freeze date have their average compensation computed at the time they
leave the Company, not as of the freeze date. 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.
In addition to providing pension benefits, the Company also provided postretirement medical and death benefits to
retired employees meeting certain eligibility requirements for 2012, 2013 and part of 2014. The medical plan was
contributory, whereby the retired employee payed a portion of the health insurance premium, and contained other
cost-sharing features such as deductibles and coinsurance. In 2014, the Company amended the plan to modify
eligibility requirements for such benefits. This change reduced and / or eliminated benefits to be provided to the
retiree. This reduction in benefits caused the Company to account for the changes as a curtailment. The
Company recorded a curtailment gain of $22.5 million before tax in salaries and employee benefits in the
Consolidated Statement of Income. The result of this transaction has been included in the following tables.
31
Using a measurement date of December 31, the following tables provide a reconciliation of the benefit obligations,
plan assets and funded status of the pension and postretirement benefit plans:
2014 2013 2014 2013
(in thousands)
Change in benefit obligation:
Benefit obligation at January 1 $ 271,534 $ 306,002 $ 27,608 $ 28,267
Service cost — — 405 771
Interest cost 13,705 12,890 1,021 1,227
Retiree contributions — — 1,416 1,328
Actuarial loss (gain) 56,341 (41,911) 1,917 (1,059)
Benefits paid (1) (14,759) (5,447) (3,561) (3,098)
Plan amendments — — (26,569) —
Effect of plan merger 5,583 — — —
Effect of remeasurement (1,729) — — —
Federal subsidy/reinsurance receipts — — 171 172
Benefit obligation at December 31 $ 330,675 $ 271,534 $ 2,408 $ 27,608
Change in plan assets:
Fair value of plan assets at January 1 $ 248,282 $ 203,737 $ — $ —
Actual return on plan assets 18,371 45,492 — —
Contributions by employer 1,500 4,500 — —
Benefits paid (14,759) (5,447) — —
Effect of plan merger 4,469 — — —
Effect of remeasurement (1,729) — — —
Fair value of plan assets at December 31 $ 256,134 $ 248,282 $ — $ —
Funded status at December 31 $ (74,541) $ (23,252) $ (2,408) $ (27,608)
Pension Benefits Postretirement Benefits
(1) In 2014, the Company made lump sum benefit payments of $8.4 million and monthly annuity payments of $6.3 million.
The funded status is included in the Consolidated Statements of Financial Condition as a component of accrued
expenses and other liabilities.
The accumulated benefit obligation for the defined benefit pension plan was $306.8 million and $252.4 million at
December 31, 2014 and 2013, respectively.
For the years ended December 31, amounts recognized in other comprehensive income (loss), net of tax,
consisted of the following:
2014 2013 2012 2014 2013 2012
(in thousands)
Net gain (loss) $ (36,014) $ 54,320 $ (5,372) $ 1,355 $ (3,317) $ 550
Transition obligation — — — (194) 4,280 (697)
Other comprehensive income (loss) $ (36,014) $ 54,320 $ (5,372) $ 1,161 $ 963 $ (147)
Pension Benefits Postretirement Benefits
32
As of December 31, amounts recognized in accumulated other comprehensive loss, net of tax, consisted of the
following:
2014 2013 2014 2013
(in thousands)
Net loss $ (56,092) $ (20,078) $ (417) $ (1,772)
Transition obligation — — 105 299
Accumulated other comprehensive loss $ (56,092) $ (20,078) $ (312) $ (1,473)
Pension Benefits Postretirement Benefits
Net periodic benefit cost reflected in the Consolidated Statements of Income included the following components:
2014 2013 2012 2014 2013 2012
(in thousands)
Service cost $ — $ — $ — $ 405 $ 771 $ 901
Interest cost 13,705 12,890 12,668 1,021 1,227 1,201
Expected return on plan assets (19,716) (16,220) (13,945) — — —
Curtailment gain — — — (22,195) — —
Amortization of prior service cost — — — (31) (42) (42)
Amortization of loss 55 6,715 6,029 — 263 114
Net periodic benefit cost $ (5,956) $ 3,385 $ 4,752 $ (20,800) $ 2,219 $ 2,174
Pension Benefits Postretirement Benefits
The following table includes the weighted average assumptions used to determine benefit obligations at
December 31:
2014 2013 2014 2013
(weighted averages)
Discount rate 4.0 % 5.1 % 4.0 % 5.1 %
Rate of compensation increase 4.0 % 4.0 % — % —
Pension Benefits Postretirement Benefits
The weighted average assumptions used to determine net periodic benefit cost for years ended December 31,
were as follows:
2014 2013 2012 2014 2013 2012
(weighted averages)
Discount rate 5.1 % 4.2 % 4.7 % 5.1 % 4.2 % 4.7 %
Expected return on plan assets 8.0 % 8.0 % 8.0 % — — —
Rate of compensation increase 4.0 % 4.0 % 4.0 % — — —
Pension Benefits Postretirement Benefits
The Company has estimated the overall expected long-term rate-of-return-on-assets based on historical returns.
Over long periods of time, equity securities have provided a return of approximately 8%, while debt securities
have provided a return of approximately 4%. Consistent with the investment strategy, the Company’s portfolio
consists of 45.7% publicly traded equity securities, 27.1% Company stock and 23.8% fixed income debt
securities, indicating that a long-term expected return would be approximately 7.5% if the investments were made
in the broad indexes. Since the pension funds are actively managed by professional managers, the expectation is
33
to earn a premium of 0.5% above anticipated returns; therefore, the Company arrives at an overall expected
return of 8.0%.
The major categories of assets in the Company’s pension plan as of December 31, 2014 and 2013 are presented
in the following table. Assets are segregated by the level of valuation inputs within the fair value hierarchy, see
Note R.
Level 1 Level 2 Level 3 Total
(in thousands)
2014
Money market funds $ 8,678 $ — $ — $ 8,678
U.S. government securities and agencies 21,358 3,471 — 24,829
Obligations of states and political subdivisions — 2,859 — 2,859
Corporate bonds — 33,294 — 33,294
Mutual funds 45,714 — — 45,714
Common stocks 72,299 68,461 — 140,760
Total fair value $ 148,049 $ 108,085 $ — $ 256,134
2013
Money market funds $ 8,624 $ — $ — $ 8,624
U.S. government securities and agencies 20,651 4,324 — 24,975
Obligations of states and political subdivisions — 3,859 — 3,859
Corporate bonds — 28,715 — 28,715
Mutual funds 42,546 — — 42,546
Common stocks 78,877 60,686 — 139,563
Total fair value $ 150,698 $ 97,584 $ — $ 248,282
The fair values of investments classified within Level 1 are based on quoted market prices. The fair values of
investments, classified within Level 2, including common stock of the Company, are based on quoted market
prices in markets that are not active. The investments in common stock held by the pension plan include
investments in the following sectors: industrial materials, consumer goods, financial services, healthcare,
hardware and others.
The assumed health care cost trend rates for the Company’s postretirement benefits plan at December 31 were
as follows:
2014 2013 2012
Health care cost trend rate assumed for next year 6.0 % 7.0 % 8.0 %
Rate at which the cost trend rate is assumed to decline (ultimate trend rate) 5.0 % 5.0 % 5.0 %
Year the rate reaches the ultimate trend rate 2016 2016 2016
A one percentage point change in the assumed healthcare cost trend rates would not materially affect the service
or interest cost components of the net periodic postretirement healthcare cost or postretirement benefit obligation.
34
The following table reflects the Company’s pension plan asset allocation at December 31:
2014 2013
(percent of plan assets)
Asset Category:
Equity securities 72.8 % 73.3 %
Debt securities 23.8 % 23.2 %
Cash and cash equivalents 3.4 % 3.5 %
Total 100.0 % 100.0 %
The primary investment objective of the Company’s pension plan is to provide long-term asset growth with
income. To accomplish this objective, the Company has adopted a moderate risk tolerance to achieve an annual
rate of return that meets or exceeds the returns of an index composed of 60% S&P 500 and 40% Barclays Capital
Aggregate. In accordance with the Company’s moderate risk tolerance, rate of return expectations and
appropriate cash levels needed to fund short-term expected benefit distributions, the target ranges of the asset-
mix are as follows: equity securities other than Company stock (25% - 45%); investment in Company stock (25% -
45%); fixed income securities (10% - 30%); and cash equivalents (0% - 10%). Each of the major categories of
asset classes is adequately diversified among economic sectors of the market. Investments are made in
accordance with permitted and prohibited investments identified in the plan’s Investment Policy Statement.
The pension plan owned Company common stock with a fair value of $68.2 million and $60.4 million at
December 31, 2014 and 2013, respectively.
The Company made no contributions to the pension plan for the 2014 plan year. The Company does not expect
to make further contributions to the pension plan in 2015.
At December 31, 2014, estimated benefit payments net of estimated federal subsidy receipts, which reflect
expected future service, as appropriate, are expected to be paid as follows:
Pension Postretirement
(in thousands)
2015 $ 7,353 $ 536
2016 7,907 509
2017 8,683 486
2018 9,619 353
2019 10,525 179
2020 – 2024 66,767 228
In addition to the pension and postretirement benefit plans, the Company also has contributory 401(k) savings
plans which cover substantially all employees. Total cost for these plans, included within noninterest expense on
the Consolidated Statements of Income, for the years ended December 31, 2014, 2013 and 2012, was
$18.4 million, $17.9 million and $16.2 million, respectively.
The Company has established and funded an executive deferred compensation plan. For the year ended
December 31, 2012, expense attributable to this plan was $0.3 million. During 2012, the Board of Directors
approved the termination of the executive deferred compensation plan and the establishment of an executive
long-term incentive plan (LTIP). For the years ended December 31, 2014, 2013 and 2012, expense attributable
to the LTIP plan was $3.7 million, $2.5 million, and $2.1 million, respectively. The LTIP allows eligible participants
to select among the investment alternatives provided by the plan, which includes Company stock (for some or all
participants, at the discretion of the Executive Committee). The shares of Company stock are held in a qualifying
Grantor Trust which is consolidated into the Company’s financial statements. Accordingly, these shares are
reflected as treasury stock on the Company’s Consolidated Statement of Stockholders’ Equity.
35
The Company had also established and funded an employee stock trust. The employee stock trust was
established to provide funding for obligations of employee benefit plans. The employee stock trust was a non-
qualified grantor trust and was consolidated with the Company’s financial statements for the year ended
December 31, 2011. Shares held by the employee stock trust were treated for accounting purposes like treasury
stock, as a reduction of stockholders’ equity. The obligation under this employee stock trust was also classified
as a component of equity. At December 31, 2011, the employee stock trust held 2,305 shares of Parent
Company stock. None of these shares were committed to fund employee benefit obligations at December 31,
2011. During 2012, the Board of Directors approved the termination and liquidation of the employee stock trust.
The 1,649 shares held by the employee stock trust at the time of termination and liquidation were acquired by the
Company and are reflected as treasury stock on the Company’s Consolidated Statement of Stockholders’ Equity.
L. CARD ASSOCIATION TRANSACTIONS
On October 3, 2007, the global VISA organization completed a series of restructuring transactions that resulted in
the creation of VISA, Inc. (VISA). As part of this restructuring, there was a revision of bylaws to provide indemnity
to VISA for potential damages related to litigation against VISA USA and some of its member banks as part of
litigation defined below (Covered Litigation). As a result of these restructuring transactions, the Company
received shares of restricted Class B stock in VISA and recorded its proportionate and estimated obligations
arising from the Covered Litigation, all based on its prior membership interest in VISA USA. The Class B stock is
convertible into Class A stock at a variable conversion rate (the Conversion Rate). The liability, recorded as
accrued expenses and other liabilities in the Consolidated Statements of Financial Condition, is an estimate made
by management based on information from VISA and others about the Covered Litigation. The contingent
litigation liability has been and will continue to be reduced by contributions to an escrow account (VISA Escrow),
as described below. This liability is subject to significant estimation risk and may materially change.
Under VISA’s initial public offering (IPO) which occurred in March 2008, a portion of the Company’s Class B
ownership in VISA was redeemed for cash and a portion of the proceeds were deposited into the VISA Escrow.
The VISA Escrow was established by VISA. It is funded by VISA USA member banks, including the Company, to
support resolution of the Covered Litigation. Additional funding may be required depending upon the ultimate
resolution of the Covered Litigation. Upon each additional funding of the VISA Escrow, the Conversion Rate
declines resulting in fewer Class A shares to be received upon conversion of Class B shares.
Since VISA’s IPO, VISA has periodically funded the escrow account. These fundings result in a reversal of a
portion of the Company’s contingent liability, if estimated and accrued, or are recorded as a noninterest expense,
based on a formula that primarily represents a reduction in the Company’s potential exposure related to the
indemnification that is now funded by the VISA Escrow.
Through a series of transactions that occurred in September and December 2009, the Company sold all of its
approximately 5.3 million shares of Class B VISA stock for cash. The Company recorded a gain upon sale of its
Visa stock of $195.2 million. As a part of the sales, the Company retained a conversion swap agreement that
requires the Company to reimburse the purchaser for any reduction of the Conversion Rate below the rate of
0.5824, which was the conversion rate as of the closing of the VISA stock sale, and requires the Company to
make certain periodic payments (which began in 2011) until the escrow account is terminated. The Company has
posted collateral of agency collateralized mortgage obligations and agency bonds in the amount of $259.3 million
to secure this reimbursement obligation. Due to VISA’s funding of the escrow account, the Conversion Rate has
been reduced to 0.4121 as of December 31, 2014. As a result, the Company made reimbursement payments to
the purchaser in the amount of $9.5 million and $6.3 million during the years ended December 31, 2014 and
2013, respectively.
The Company continues to retain a contingent litigation liability because the Company continues to be liable to
VISA for obligations arising from its prior membership interests. At December 31, 2014 and 2013, the Company’s
contingent litigation liability equaled $9.7 million and $19.1 million, respectively, and is recorded in accrued
expenses and other liabilities on the Consolidated Statements of Financial Condition. To the extent that the
Company’s proportionate share of any settlement exceeds the recorded contingent litigation liability, the
Company’s financial results will be impacted.
36
M. CONTINGENCIES AND COMMITMENTS
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 funding requirements. The Company uses the same credit and collateral policies in making commitments
as making loans and leases.
The Company had unused credit card lines of $21.7 billion and $20.2 billion at December 31, 2014 and 2013,
respectively. The Company has the contractual right to reduce 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 assesses the credit risk of these commitments using a similar analysis and methodology as is used
for determining loss exposures on funded loans and records a liability for expected credit losses associated with
these commitments. The Company assesses the credit risk of these commitments collectively and records a
liability at a fraction of the funded reserve factor based upon portfolio risk.
At December 31, 2014 and 2013, the Company had commercial letters of credit and unused loan commitments,
excluding credit card lines, of $3.9 billion and $3.3 billion, respectively. Additionally, standby letters of credit of
$136.0 million and $122.1 million had been issued at December 31, 2014 and 2013, respectively. No material
future payments or losses are anticipated as a result of these transactions and the fair value of these guarantees
is estimated to be immaterial. Correspondingly, the Company has not recorded a liability for these contingencies
in the Consolidated Statements of Financial Condition.
The Company has operating leases for equipment and office space with most terms ranging from one to twenty
years, which may include renewal options. The future minimum annual net rental payments related to these
leases are as follows: 2015 $7.7 million; 2016 $6.9 million; 2017 $5.8 million; 2018 $4.5 million; 2019 $3.3 million
and $14.9 million thereafter through the year 2056. Net rental expense on leases for the years ended
December 31, 2014, 2013 and 2012 was approximately $6.6 million, $6.3 million and $19.8 million, respectively.
As discussed in Note D, during December 2012, the Bank exercised its irrevocable option to purchase properties
(that were subject to a variable-rate operating lease) for $334.0 million in June 2013.
Covered Litigation
In re: Payment Card Fee and Merchant Discount Antitrust Litigation
Beginning in June 2005, several retail merchants filed lawsuits in federal courts, claiming to represent a class of
similarly situated merchants, and alleging that MasterCard and VISA USA, together with their members,
conspired to charge retailers excessive interchange in violation of federal antitrust laws. In October 2005, these
suits were consolidated in re: Payment Card Fee and Merchant Discount Antitrust Litigation. The plaintiffs seek
treble damages, injunctive relief, attorneys’ fees and costs.
On April 24, 2006, plaintiffs filed a first consolidated and amended complaint, naming the Parent Company, the
Bank and others as defendants. The plaintiffs realleged the claims in their original complaints and further claimed
that defendants violated federal and California antitrust laws by combining to impose certain fees and to adopt
rules and practices of VISA USA and MasterCard that the plaintiffs contend constitute unlawful restraints of trade.
In July 2007, the Parent Company and the Bank entered into judgment and loss sharing agreements (the sharing
agreements) with VISA USA and certain financial institutions to apportion financial responsibilities arising from
any potential adverse judgment or settlement. In 2010, the Bank entered into additional contracts among the
defendants relating to the apportionment of financial responsibilities which may arise from any potential adverse
judgment or settlement.
On October 19, 2012, the parties entered into a settlement agreement to resolve these claims. The terms of the
settlement agreement include (a) a comprehensive release from class members for liability arising out of the
claims asserted in the litigation, (b) certain settlement payments, (c) distribution to class merchants of a portion of
interchange across all credit rate categories for a period of eight consecutive months, and (d) certain
modifications to the networks’ rules. The court granted preliminary approval of the settlement agreement on
November 9, 2012 and on December 13, 2013 the court granted final approval of the settlement agreement.
However, until all appeals are finally resolved, no assurance can be provided that the defendants will be able to
resolve the claims as contemplated by the settlement agreement.
37
The Bank recorded the fair value of this guarantee in the Statements of Financial Condition as part of the
contingent litigation accrual.
The consolidated financial statements include management’s estimate of the Company’s proportionate obligation
associated with the ultimate disposition of this litigation. This liability is subject to significant estimation risk and
may materially change. Furthermore, management cannot predict with any degree of certainty how the final
outcome of this litigation may impact the broader credit card industry, and in this regard, the Company.
Other Covered Litigation
Other antitrust lawsuits have been filed against VISA from time to time. Neither the Parent Company nor the
Bank has been party to any material suits; however, the Parent Company and the Bank are members of the
MasterCard and VISA USA associations and these suits have been covered in the sharing agreements referred to
above. Each of these matters has been settled by VISA, with settlement payments being made from the escrow
created by VISA’s stock offerings. Neither the Parent Company nor the Bank has had any direct liability with
respect to such settlements.
Patent Infringement and Other Litigation
The Company is party to various legal proceedings, including various proceedings alleging that the Company has
infringed upon patents owned by third parties. Some of these proceedings, including the patent infringement
proceedings, involve complex claims that are subject to substantial uncertainties and unascertainable damages.
Accordingly, except as disclosed, the Company has not established reserves or ranges of possible loss related to
these proceedings, as at this time in the proceedings, the matters do not relate to a probable loss and/or amounts
are not reasonably estimable. Although the Company believes that it has strong defenses for such litigation, it
could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on
the Company’s results of operations, financial position or cash flows.
N. DERIVATIVE ASSETS AND LIABILITIES
The fair values of outstanding derivative positions are included in the Consolidated Statements of Financial
Condition in other assets or accrued expenses and other liabilities.
Interest Rate Derivatives
The Company uses various interest rate derivatives to manage its interest rate risk. The Company uses interest
rate swaps, caps and floors to mitigate the exposure to interest rate risk and to facilitate the needs of its
customers.
In 2013, the Bank exercised its irrevocable option to purchase properties that were subject to a variable-rate
operating lease. The Company had entered into interest rate swaps on its variable-rate lease agreement which
had a total notional amount of $380.5 million at December 31, 2012. The interest rate swap agreements in place
at December 31, 2012, converted a portion of the Company’s variable exposure to fixed rates ranging from 5.0%
to 6.5%. One of these interest rate swap agreements had two remaining forward-starting tranches, each with a
notional amount of $100.0 million. A second interest rate swap agreement had a forward-starting tranche with a
notional amount of $100.0 million. A third interest rate swap agreement had a forward-starting tranche, with a
notional amount of $80.5 million. These interest rate swap agreements were being accounted for as cash flow
hedges; therefore, the effective portion of the loss was recorded in other comprehensive loss for the years ended
December 31, 2012. The forward-starting tranches within the interest rate swap agreements expired in 2013.
The Company has entered into an interest rate swap to limit the interest rate exposure on variable-rate
subordinated capital notes. The interest rate swap agreement in place at December 31, 2014, converts the
Company’s variable exposure to a fixed rate of 6.6%. The notional amount of the interest rate swap agreement is
$50.0 million and it expires in 2020. The Bank is accounting for the interest rate swap agreement as a cash flow
hedge; therefore, the effective portion of the change in fair value was recorded in other comprehensive loss for
the years ended December 31, 2014, 2013 and 2012.
38
The following table presents the net losses recorded in the Consolidated Statements of Income and accumulated
other comprehensive income related to interest rate contracts designated as cash flow hedges for the years
ended December 31:
2014 2013 2012
(in thousands)
Amount of gain recognized in other comprehensive income $ 2,027 $ 14,211 $ 30,668
Amount of loss reclassified from other comprehensive income into
net interest income (effective portion) (2,382) (1,873) (17,149)
The Company estimates it will reclassify losses of $2.1 million into earnings within the next 12 months.
The Company has provided certain loan customers with interest rate swaps (customer swaps) that have the effect
of converting all or a portion of the customer’s variable-rate loan to a fixed rate loan. To hedge the risk related to
customer swaps, the Company simultaneously enters into offsetting swap agreements with independent, third-
party banks (counter customer swaps). In connection with each swap transaction, the Company agrees to pay
interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on
that same notional amount at a fixed interest rate. Simultaneously, the Company agrees to pay another financial
institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on
the same notional amount. Because the Company acts as an intermediary for its customer, changes in the fair
value of the underlying derivative contracts offset each other and do not impact the Company’s results of
operations. The related contracts are structured so that the notional amounts reduce over time to generally match
the expected amortization of the underlying loan.
The Company has provided certain customers with foreign currency swaps (customer forwards) that have the
effect of converting all or a portion of the customer’s variability in foreign currency to a fixed rate. To hedge the
risk related to customer swaps, the Company simultaneously enters into offsetting swap agreements with
independent, third-party banks (counter customer forwards).
There is counterparty risk related to the aforementioned derivatives. Counterparties include independent, third-
party banks and customers. Risks associated with these counterparties are evaluated upon execution of the
related agreement and are continually reevaluated. Under certain circumstances, the Company is required to
provide counterparties with collateral to support the counter customer swaps. Such collateral generally includes
U.S. Government or agency-backed securities. The Company also requires collateral, under certain
circumstances, from counterparties to support customer swaps. Failure of these counterparties to perform could
have a significant adverse impact on the Company’s ability to effectively hedge interest rate and foreign currency
risk, the fair value assigned to these agreements and the Company’s financial condition. These risks were
considered in determining the fair value of these instruments. The customer swaps and counter customer swaps
do not qualify for hedge accounting.
Derivative instruments include interest rate locks on commitments to originate loans for the held for sale portfolio
and forward commitments on contracts to deliver mortgage-backed securities and loans. The Company has
entered into forward commitments for the sale of mortgage loans principally to protect against the risk of adverse
interest rate movements on net income. The Company recognizes the fair value of the contracts when the
characteristics of those contracts meet the definition of a derivative. These derivatives are not designated in a
hedging relationship; therefore, gains and losses are recognized immediately in the Consolidated Statements of
Income as other noninterest expense. In addition, the Company has entered into commitments to originate loans,
which when funded, are classified as held for sale. Such commitments meet the definition of a derivative and are
not designated in a hedging relationship; therefore, gains and losses are recognized immediately in the
Consolidated Statements of Income as other noninterest expense.
39
The notional amounts and estimated fair values of interest rate and foreign currency derivative positions
outstanding at December 31, 2014 and 2013, respectively, are presented in the following table. All derivatives
are reported within other assets or accrued expenses and other liabilities on the Consolidated Statements of
Financial Condition.
Fair Value Fair Value
Notional Asset/ Notional Asset/
Amount (Liability) Amount (Liability)
(in thousands)
Derivative positions designated as hedges of
cash flows:
Interest rate swaps on variable-rate
subordinated capital notes $ 50,000 $ (8,957) $ 50,000 $ (8,602)
Non hedging interest rate derivatives:
Customer swaps 167,372 9,870 198,217 9,646
Counter customer swaps 167,372 (9,870) 198,217 (9,646)
Mortgage forwards 156,255 (890) 92,574 1,091
Mortgage written options 81,707 1,193 42,769 291
Foreign currency derivatives:
Customer forwards 18,072 1,597 3,315 2
Counter customer forwards 18,072 (1,454) 3,315 10
2014 2013
O. REGULATORY AND CAPITAL RELATED MATTERS
The Company is governed by various regulatory agencies. The Parent Company is a “financial holding company”
under the Gramm-Leach-Bliley Act. Financial holding companies and their nonbanking subsidiaries are regulated
by the Federal Reserve Board (FRB). 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). In 2014, the Company merged its banking charters and as of December 31, 2014, the Company has one
national bank, which is insured by the FDIC. As of December 31, 2013, the Company’s banking subsidiary
charters included five national banks and one state-chartered bank, all of which were insured by the FDIC. The
state-chartered bank was also regulated by state banking authorities. The Company’s banking subsidiary is also
subject to supervision by the Consumer Financial Protection Bureau (CFPB). Regulators have the authority,
among other things, to: (i) examine and supervise the Company; (ii) identify matters requiring attention by the
Company; and (iii) take certain formal or informal actions against the Company.
Various 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. Furthermore, the Company, on a consolidated basis, is subject to the regulatory capital requirements
administered by the FRB, while the Company’s banking subsidiary is individually subject to the regulatory capital
requirements administered by the OCC, FDIC and state regulatory agencies.
Total capital of the Company and its banking subsidiary is divided into two tiers:
Core (“Tier I”) capital, which includes common equity, noncontrolling interests in consolidated subsidiaries,
less goodwill and certain identifiable intangibles
Supplementary (“Tier II”) capital, which includes hybrid capital instruments, subordinated debt including
capital notes, and portions of the allowance for loan losses
40
In addition, for risk-based capital computations, the assets and certain off-balance sheet commitments of the
Company and its banking subsidiary are assigned to four risk-weighted categories based on the level of credit risk
ascribed to such assets or commitments.
As of December 31, 2014 and 2013, the Company’s banking subsidiaries were well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well capitalized under the framework for
prompt corrective action, 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%. Regulators are also permitted to establish
individual minimum capital ratios for the Company’s banking subsidiaries that may be higher than those
necessary to be considered well capitalized under the regulatory framework for prompt and corrective action.
The Company’s and the Bank’s actual capital amounts and ratios are presented in the following table:
Amount Ratio Amount Ratio
($ in thousands)
Total Capital to Risk Weighted Assets
Consolidated Company $ 2,040,193 14.03 % $ 1,901,214 14.03 %
First National Bank of Omaha $ 1,870,153 12.93 % $ 1,606,048 13.01 %
Tier I Capital to Risk Weighted Assets
Consolidated Company $ 1,806,957 12.43 % $ 1,680,149 12.40 %
First National Bank of Omaha $ 1,637,904 11.32 % $ 1,400,091 11.34 %
Tier I Capital to Average Assets
Consolidated Company $ 1,806,957 10.72 % $ 1,680,149 10.63 %
First National Bank of Omaha $ 1,637,904 9.76 % $ 1,400,091 9.93 %
Actual, as of Actual, as of
December 31, 2014 December 31, 2013
The ability of the Parent Company to meet its financial obligations, including debt service, and pay cash dividends
to its stockholders is dependent upon cash dividends from its subsidiary bank. Subsidiary banks are subject to
various legal limitations on the amount of dividends they may declare. These limitations include the maintenance
of minimum capital levels, the generation of net income to support proposed cash dividends, compliance with the
aforementioned regulatory agreements and other limitations as defined by regulatory authorities.
Under the terms of an agreement with related party shareholders, the Company and certain related parties have
the option to purchase up to 52,286 shares of Company common stock at fair market value. Fair market value
will be negotiated by the parties and may or may not require independent appraisals. The option is exercisable
no earlier than January 2018 unless otherwise agreed by both parties. Exercise of the option is subject to a
number of factors including the sufficiency of capital, availability of cash or borrowing capacity, regulatory
approval and approval by the Company’s Board of Directors.
On July 21, 2010, financial regulatory reform legislation entitled the “Dodd-Frank Wall Street Reform and
Consumer Protection Act” (Dodd-Frank Act) was signed into law. The Dodd-Frank Act implements far-reaching
changes across the financial regulatory landscape. The Dodd-Frank Act was generally effective the day after it
was signed into law, however different effective dates apply to specific provisions of the Dodd-Frank Act. Various
aspects of the Dodd-Frank Act have taken effect, as described below. The Dodd-Frank Act changed the
assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less
tangible capital. The immediate impact of this change on the Company’s banking subsidiaries decreased the cost
of federal deposit insurance. The Dodd-Frank Act also repealed the prohibition of payment of interest on demand
deposits. Additionally, debit-card interchange fees were further impacted by the Durbin Amendment (the
Amendment) in the Dodd-Frank Act, which directed the Board of Governors of the Federal Reserve System to
establish rules which took effect October 2011, related to debit-card interchange fees.
41
Many aspects of the Dodd-Frank Act remain subject to rulemaking and will take effect over several years, making
it difficult to anticipate the overall financial impact on the Company and the financial services industry as a whole.
Complete implications of the Dodd-Frank Act on the Company’s business will depend largely on the manner in
which rules adopted pursuant to the Dodd-Frank Act are implemented by the Company’s primary regulators and
potential changes in the market in response to those changes. Among other things, provisions in the legislation
require revision to the treatment of capital and capital requirements of the Company. In addition, the Dodd-Frank
Act requires the federal financial regulatory agencies to adopt rules that limit banks and their affiliates from
engaging in certain types of proprietary trading and investing in and sponsoring certain unregistered investment
companies (defined as hedge funds and private equity funds). Although the Dodd-Frank Act originally required
federal agencies to adopt regulations effective beginning in July 2012, final regulations have continued to be
released.
In July 2013, the Federal Reserve approved a final rule to implement in the United States the Basel III regulatory
capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-
Frank Act. The final rule increases minimum requirements for both the quantity and quality of capital held by
banking organizations. The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted
assets of 4.5% and a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final
rule also adjusted the methodology for calculating risk-weighted assets to enhance risk sensitivity. As part of
Basel III, the Company’s cumulative trust preferred securities were grandfathered and will be allowed to qualify as
tier 1 capital. For the quarter beginning January 1, 2015, the Company must be compliant with revised minimum
regulatory capital ratios and will begin the transitional period for definitions of regulatory capital and regulatory
capital adjustments and deductions established under the final rule. Compliance with the risk-weighted asset
calculations will be required on January 1, 2015. The Company believes its pro forma capital ratios are higher
than those required in the final rule.
In accordance with the Dodd-Frank Act, the Federal Reserve published regulations that required bank holding
companies with $10 billion to $50 billion in assets to perform annual capital stress tests. The requirements for
annual capital stress tests became effective for the Company in the fourth quarter of 2013. The Company will
submit its second year of stress test results by March 31, 2015. In addition, the Company will publically release its
results of the Severely Adverse Scenario stress test between June 15, 2015 and June 30, 2015, as required by
regulation.
The banking industry is also affected by the monetary and fiscal policies of regulatory authorities, including the
FRB. 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 FRB 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. Pursuant to FRB reserve
requirements, the banking subsidiaries were required to maintain certain cash reserve balances with the Federal
Reserve System of approximately $73.6 million and $55.8 million at December 31, 2014 and 2013, respectively.
42
P. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in each component of accumulated other comprehensive income (loss) were as follows:
Available Qualifying Employee
for Sale Cash Flow Benefit
Securities Hedges Plans Total
(in thousands)
Balance, January 1, 2012 $ 16,556 $ (21,707) $ (71,316) $ (76,467)
Net change in unrealized gains (losses) (1,152) 13,519 (12,339) 28
Reclassification adjustment for net gains
realized in net income (5,235) — — (5,235)
Income tax (expense) benefit 2,400 (5,075) 6,217 3,542
Balance, December 31, 2012 12,569 (13,263) (77,438) (78,132)
Net change in unrealized gains (losses) (45,868) 12,338 88,027 54,497
Reclassification adjustment for net gains
realized in net income (4,932) — — (4,932)
Income tax (expense) benefit 18,570 (4,503) (32,140) (18,073)
Balance, December 31, 2013 (19,661) (5,428) (21,551) (46,640)
Net change in unrealized gains (losses) 21,694 (355) (54,192) (32,853)
Reclassification adjustment for net gains
realized in net income (25) — — (25)
Income tax (expense) benefit (7,957) 121 19,339 11,503
Balance, December 31, 2014 $ (5,949) $ (5,662) $ (56,404) $ (68,015)
See the Consolidated Statements of Comprehensive Income and Note B for additional discussion of
reclassifications adjustments realized in net income.
Q. RECENT ACCOUNTING PRONOUNCEMENTS
ASU 2014-04, “Receivables (Topic 310) – Troubled Debt Restructurings by Creditors,” intended to reduce
diversity in practice by clarifying when an in substance repossession or foreclosure occurs and will require
disclosure of the amount of foreclosed residential real estate properties and of the recorded investment in
consumer mortgage loans secured by residential real estate properties that are in the process of foreclosure. The
provisions of ASU 2014-04 were adopted by the Company on January 1, 2014 and did not have a significant
impact on the Company’s financial statements.
ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” relates to revenue recognition from
contracts with customers, which amends certain currently existing revenue recognition accounting guidance. The
ASU hopes to improve the consistency of requirements, comparability of practice and usefulness of disclosures.
The guidance allows for either retrospective application to all periods presented or a modified retrospective
approach where the guidance would only be applied to existing contracts in effect at the adoption date and new
contracts going forward. The Company is currently evaluating the impact that ASU 2014-09 will have on its
consolidated financial statements and related disclosures. ASU 2014-09 is effective for the Company for annual
periods beginning after December 15, 2017.
ASU 2014-14, “Receivables – Troubled Debt Restructuring by Creditors (Subtopic 310-40)” attempts to give
greater consistency in the classification of government-guaranteed loans upon foreclosure. ASU 2014-14 applies
to all loans that contain a government guarantee that is not separable from the loan or for which the creditor has
both the intent and ability to recover a fixed amount under the guarantee by conveying the property to the
guarantor. Upon foreclosure, the creditor should reclassify the mortgage loan to an other receivable that is
separate from loans and should measure the receivable at the amount of the loan balance expected to be
recovered from the guarantor. ASU 2014-14 is effective for the Company for annual periods beginning after
December 15, 2015 and the Company is currently evaluating the impact on the Company’s financial statements.
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R. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. In cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flows or other valuation techniques. Inputs to valuation techniques are
assumptions that market participants would use in pricing the asset or liability. Inputs may be observable,
meaning those that reflect the assumptions market participants would use in pricing the asset or liability
developed based on market data obtained from independent sources, or unobservable, meaning those that reflect
the Company’s own assumptions about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available. The Company determines the fair values of its
financial instruments based on the fair-value hierarchy established by generally accepted accounting principles
which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs
when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.
Financial instruments are considered Level 1 when valuation can be based on quoted prices in active markets for
identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated
by observable market data of substantially the full term of the assets or liabilities. Financial instruments are
considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies
or similar techniques and at least one significant model input is unobservable. Level 3 is assigned when
determination of the fair value requires significant management judgment or estimation.
Transfers between levels are recognized as of the end of the reporting period. There were no transfers in or out
of Level 1, Level 2 or Level 3 during the years ended December 31, 2014 and 2013, respectively.
In general, fair value is based upon quoted market prices, where available. Inputs for quoted prices for similar
assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or
liability (including interest rates or credit risk) are also used to determine fair value. If such quoted market prices
are not available, fair value is based upon internally developed models that primarily use, as inputs, observable
market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded
at fair value. As necessary, these adjustments include amounts to reflect counterparty credit quality, the
Company’s creditworthiness, as well as unobservable parameters. Any such valuation adjustments are applied
consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may
not be indicative of net realizable value or reflective of future fair values. While management believes the
Company’s valuation methodologies are appropriate and consistent with other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date.
Effective January 1, 2012, in accordance with Topic 825, “Financial Instruments – Fair Value Option”, the
Company elected to measure certain new residential MHFS at fair value, prospectively, as an active secondary
market and readily available market prices currently exist to reliably support fair value models used for these
loans. The Company believes the election for MHFS will reduce certain timing differences and better match
changes in the value of these assets with changes in the value of derivatives used to protect against the risk of
adverse interest rate movements. There was no transitional effect on earnings from electing the fair value option
for MHFS because the Company continued to account for MHFS originated prior to the election at the lower of
cost or estimated fair value.
44
The fair value of MHFS for which the Company elected the fair value option and the contractual aggregate unpaid
principal balance, as of December 31, 2014, was $88.1 million and $86.2 million, respectively. The fair value of
MHFS for which the Company elected the fair value option and the contractual aggregate unpaid principal
balance, as of December 31, 2013, was $53.6 million and $53.4 million, respectively. Changes in the fair value of
MHFS are recorded in gain on sale of mortgage loans in the Consolidated Statements of Income, and decreased
pre-tax net income by $1.8 million in 2014 and decreased pre-tax income by $3.3 million in 2013. At
December 31, 2014 and 2013, there were no MHFS that were 90 days or more past due nor were any of the
MHFS placed on nonaccrual status. No credit losses were recognized on MHFS for the year ended December 31,
2014 and 2013.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis
as of December 31, 2014 and 2013, segregated by the level of the valuation inputs within the fair-value hierarchy
utilized to measure fair value:
Level 1 Level 2 Level 3 Total
(in thousands)
2014
Available-for-sale securities
U.S. Government obligations $ 299,507 $ 365,187 $ — $ 664,694
Obligations of states and political — 51,223 — 51,223
Agency mortgage-backed securities — 1,826,022 — 1,826,022
Other securities 23,409 18,925 — 42,334
Total available-for-sale securities 322,916 2,261,357 — 2,584,273
Trading securities 1,952 — — 1,952
Mortgage loans held for sale — 88,127 — 88,127
Mortgage servicing rights — — 30,644 30,644
Interest rate derivative assets — 12,660 — 12,660
Interest rate derivative liabilities — (21,171) — (21,171)
Total fair value $ 324,868 $ 2,340,973 $ 30,644 $ 2,696,485
2013
Available-for-sale securities
U.S. Government obligations $ 148,237 $ 384,085 $ — $ 532,322
Obligations of states and political — 97,389 — 97,389
Agency mortgage-backed securities — 1,614,447 — 1,614,447
Other securities 23,062 22,156 — 45,218
Total available-for-sale securities 171,299 2,118,077 — 2,289,376
Trading securities 2,049 — — 2,049
Mortgage loans held for sale — 53,600 — 53,600
Mortgage servicing rights — — 30,101 30,101
Interest rate derivative assets — 11,040 — 11,040
Interest rate derivative liabilities — (18,248) — (18,248)
Total fair value $ 173,348 $ 2,164,469 $ 30,101 $ 2,367,918
Available-for-sale securities – The fair value of available-for-sale securities are generally based on quoted
market prices or market prices for similar assets. Market price quotes may not be readily available for some
positions, or positions within a market sector where trading activity has slowed significantly. Some of these
instruments are valued using a net asset value approach, which considers the value of the underlying securities.
Underlying assets are valued using external pricing services, where available, or matrix pricing based on the
vintages and ratings. Equity securities and U.S. Treasuries held by the Company are reported at fair value
utilizing Level 1 inputs. U.S. Government agency obligations, obligations of states and political subdivisions,
agency mortgaged-backed securities and a portion of the Company’s other securities are reported at fair value
utilizing Level 2 inputs.
Trading securities – Equity securities held for trading are reported at fair value utilizing Level 1 inputs.
45
Mortgage loans held for sale – The fair value of MHFS is based on quoted market prices of such loans sold in
securitization transactions, including related unfunded loan commitments.
Mortgage servicing rights – The fair values of MSRs are determined using models which depend on estimates
of prepayment rates, delinquency rates, late fees, other ancillary income and costs to service. MSRs are further
explained at Note F to the Consolidated Financial Statements. Changes in the fair value of MSRs are reported in
other noninterest expense in the Consolidated Statements of Income.
Derivative assets and liabilities – The majority of the derivatives entered into by the Company are generally fair
valued using a valuation model based on a discounted cash flow approach that uses market based observable
inputs for all significant assumptions and therefore, are classified within Level 2 of the fair-value hierarchy.
Changes in the fair value of derivatives designated as hedges are included in other comprehensive income.
Changes in the fair value of non-hedging derivatives are included in noninterest expense in the Consolidated
Statements of Income.
Non-financial assets and non-financial liabilities – The Company has no non-financial assets or non-financial
liabilities measured at fair value on a recurring basis.
The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at
least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the
valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily
observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair
value related to both observable and unobservable inputs.
The following table presents the changes in the Level 3 fair value category related to assets measured at fair
value on a recurring basis for the years ended December 31, 2014, 2013, and 2012:
Total
losses Purchases,
realized and issuances, Transfers
December 31, unrealized in transfers or in (out) of December 31,
2013 earnings settlements Level 3 2014
(in thousands)
Mortgage servicing rights $ 30,101 $ (6,604) $ 7,147 $ — $ 30,644
Total fair value $ 30,101 $ (6,604) $ 7,147 $ — $ 30,644
Total
losses Purchases,
realized and issuances, Transfers
December 31, unrealized in transfers or in (out) of December 31,
2012 earnings settlements Level 3 2013
(in thousands)
Mortgage servicing rights $ 18,761 $ 3,220 $ 8,120 $ — $ 30,101
Total fair value $ 18,761 $ 3,220 $ 8,120 $ — $ 30,101
Total
losses Purchases,
realized and issuances, Transfers
December 31, unrealized in transfers or in (out) of December 31,
2011 earnings settlements Level 3 2012
(in thousands)
Mortgage servicing rights $ 20,782 $ (12,185) $ 10,164 $ — $ 18,761
Total fair value $ 20,782 $ (12,185) $ 10,164 $ — $ 18,761
46
The following table presents a summary of quantitative information about recurring fair value measurements
based on significant unobservable inputs (Level 3) as of December 31, 2014:
Fair Value -
December 31,
2014 Valuation Technique
Significant
Unobservable
Input
Range
(Weighted Average)
(in thousands)
Mortgage servicing rights $ 30,644 Discounted cash flows Prepayment rate 5 - 34% (11.7%)
Discount rate 9 - 19% (9.3%)
The fair values of these assets (measured using significant unobservable inputs) are sensitive primarily to
changes in prepayment and discount rates. At December 31, 2014, a 10% and 20% increase in the prepayment
and discount rates used to measure fair value would result in a decrease in the fair value of $1.3 million,
$2.5 million, $1.0 million and $2.0 million, respectively. These sensitivities are hypothetical. Changes in fair value
based on variations in assumptions generally cannot be extrapolated because the relationship of the change in
fair value may not be linear. Additionally, the effect of a variation in a particular assumption on the fair value of
the MSRs is calculated without changing any other assumptions. Changes in one factor may result in changes in
another, which could increase or decrease the magnitude of the sensitivities.
Certain financial and non-financial assets and liabilities are measured at fair value on a nonrecurring basis; that is,
these items are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain
circumstances (for example, when there is evidence of impairment). These include collateral for certain impaired
loans, foreclosed assets acquired to satisfy loans, impaired other long-lived assets, impaired indefinite-lived
intangibles and/or goodwill, and pension plan assets. The following table summarizes carrying value of assets
measured at fair value on a nonrecurring basis as of December 31, 2014 and 2013, segregated by the level of the
valuation inputs within the fair-value hierarchy utilized to measure fair value.
Level 1 Level 2 Level 3 Total
(in thousands)
2014
Impaired loans $ — $ — $ 46,200 $ 46,200
Foreclosed assets — 19,091 — 19,091
Total fair value $ — $ 19,091 $ 46,200 $ 65,291
2013
Impaired loans $ — $ — $ 62,994 $ 62,994
Foreclosed assets — 24,919 — 24,919
Total fair value $ — $ 24,919 $ 62,994 $ 87,913
Impaired loans - Impaired loans were measured at fair value on a non-recurring basis in 2014 and 2013. Certain
impaired loans are reported at fair value if repayment is expected solely from the collateral. The fair value is
primarily based on an appraisal of the underlying collateral using unobservable data; therefore, these loans are
classified within Level 3 of the fair-value hierarchy. At December 31, 2014 and 2013, the par value of the
impaired loans reported at fair value was $46.8 million and $64.1 million, respectively.
Foreclosed assets - The fair value of a foreclosed asset upon initial recognition is estimated using Level 2 inputs
based on observable market data. The observable market data is obtained through unadjusted third-party
appraisals. Foreclosed assets measured during the year ended at fair value upon initial recognition totaled
$6.1 million and $8.6 million at December 31, 2014 and 2013, respectively. The Company recognized
$0.7 million and $1.2 million in losses related to the change in fair value of all foreclosed assets held during 2014
and 2013, respectively.
47
The following table presents a summary of quantitative information about nonrecurring fair value measurements
based on significant unobservable inputs (Level 3) as of December 31, 2014:
Fair Value -
December 31,
2014 Valuation Technique
Significant
Unobservable Input
Range
(Weighted Average)
(in thousands)
Impaired loans $ 46,200
Appraised value, as
adjusted
Adjustments to
appraised value 0 - 100% (9.9%)
The fair values of these assets (measured using significant unobservable inputs) are sensitive primarily to
changes in management’s adjustments to the appraised value of the underlying collateral. At December 31,
2014, a 10% and 20% increase in the appraisal adjustments to measure fair value would result in a decrease in
the fair value of $0.5 million and $0.9 million, respectively.
The Company is required to disclose the fair value of financial assets and financial liabilities, including those
financial assets and liabilities that are not measured and reported at fair value.
The following table presents the estimated fair values of financial assets and liabilities which are not measured
and reported at fair value at December 31, 2014 and 2013, and the level of the valuation inputs within the fair-
value hierarchy utilized to measure fair value at December 31, 2014. Although management is not aware of any
factors that would significantly affect the estimated fair value amounts after December 31, 2014, such amounts
have not been comprehensively revalued, and the current estimated fair value of these financial instruments may
have changed since that point in time.
48
Estimated
Carrying Fair
Amount Value Level 1 Level 2 Level 3
(in thousands)
Financial assets:
Interest-bearing time deposits due $ 55,898 $ 55,898 $ 55,898 $ — $ —
from banks
Held-to-maturity securities 260,960 261,130 — 261,130 —
Federal Home Loan Bank stock and other
securities, at cost 36,108 36,108 — 36,108 —
Net loans and lease financing (1) 12,200,288 12,542,081 — — 12,542,081
Financial liabilities:
Deposits $ 14,385,839 $ 13,092,599 $ — $ 13,092,599 $ —
Federal Home Loan Bank advances 5,000 5,009 — 5,009 —
Other borrowings 300,934 300,934 300,934 — —
Capital notes and trust preferred securities 200,000 168,500 — 168,500 —
Estimated
Carrying Fair
Amount Value Level 1 Level 2 Level 3
(in thousands)
Financial assets:
Interest-bearing time deposits due $ 104,584 $ 104,584 $ 104,584 $ — $ —
from banks
Held-to-maturity securities 3,398 3,435 — 3,435 —
Federal Home Loan Bank stock and other
securities, at cost 39,544 39,544 39,544 —
Net loans and lease financing (1) 11,348,799 11,744,588 — — 11,744,588
Financial liabilities:
Deposits $ 13,549,104 $ 12,218,943 $ — $ 12,218,943 $ —
Federal Home Loan Bank advances 13,262 13,573 — 13,573 —
Other borrowings 301,438 301,438 301,438 — —
Capital notes and trust preferred securities 200,000 184,000 — 184,000 —
December 31, 2013
December 31, 2014
(1) Includes loans held for sale of $30.6 million at December 31, 2014. There were no loans held for sale at December 31, 2013.
The following methods and assumptions were used in estimating fair value disclosures for the Company’s
financial instruments listed above.
Interest-bearing time deposits due from banks – Company’s interest-bearing time deposits due from banks
represents certificates of deposits due from banks with original maturities greater than 90 days. Based on the
short term nature of these cash deposits the carrying value of the assets approximates fair value.
Held-to-maturity securities – The fair values of the Company’s held to maturity securities, which are comprised
of obligations of state and political subdivisions, is measured utilizing Level 2 inputs.
Federal Home Loan Bank stock and other securities – The carrying amount is a reasonable fair value
estimate for the Federal Home Loan Bank stocks given their restricted nature (i.e., the stock can only be sold
back to the respective institutions, Federal Home Loan Bank, or another member institution at par).
Net loans and lease financing – The fair values of the Company’s loans and lease financing have been
estimated using two methods: 1) the carrying amounts of short-term and variable rate loans approximate fair
values excluding certain credit card loans which are tied to an index floor; 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 values for all loans, the best estimate of losses inherent
in the portfolio is deducted.
Deposits – The methodologies used to estimate the fair values of deposits are similar to the two methods used to
estimate the fair values 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.
Federal Home Loan Bank advances – The fair values of FHLB advances are estimated by discounting future
cash flows using current market rates for similar types of borrowing arrangements.
49
Other borrowings – The estimated fair value of other borrowings generally approximates carrying value because
they are short term in nature and the interest rates approximate market. The estimated fair value of securitized
debt generally approximates carrying value because the interest rate is variable and approximates market.
Capital notes and trust preferred securities – The fair values of capital notes and trust preferred securities are
estimated by discounting future cash flows using current market rates for similar types of borrowing
arrangements.
Off-balance sheet financial instruments – The estimated fair value of loan commitments and standby letters of
credit is insignificant because the underlying rates are variable or the commitment is short-term and the Company
has the contractual right to terminate unused commitments if the customer’s credit quality deteriorates.
50
S. CONDENSED FINANCIAL INFORMATION OF FIRST NATIONAL OF NEBRASKA
First National of Nebraska (parent company only)
Condensed Statements of Financial Condition
2014 2013
(in thousands)
Assets
Cash and due from banks $ 160,355 $ 102,610
Other short-term investments 710 710
Total cash and cash equivalents 161,065 103,320
Interest-bearing time deposits due from banks 10,000 10,000
Investment securities available-for-sale 3,323 2,343
Other securities 28 102
Loans to subsidiaries 9,375 21,650
Investment in subsidiaries:
First National Bank of Omaha 1,731,241 1,496,958
Other banking subsidiaries — 160,562
Nonbanking subsidiaries 30,055 21,670
Total investment in subsidiaries 1,761,296 1,679,190
Other assets 45,199 44,940
Total assets $ 1,990,286 $ 1,861,545
Liabilities and Stockholders’ Equity
Accrued expenses and other liabilities $ 80,847 $ 57,021
Due to subsidiaries 154,613 154,851
Total liabilities 235,460 211,872
Stockholders’ equity:
Common stock 1,575 1,575
Additional paid-in capital 2,868 2,458
Retained earnings 1,868,196 1,721,897
Treasury stock, at cost (49,798) (29,618)
Accumulated other comprehensive loss (68,015) (46,639)
Total stockholders’ equity 1,754,826 1,649,673
Total liabilities and stockholders’ equity $ 1,990,286 $ 1,861,545
December 31,
51
First National of Nebraska (parent company only)
Condensed Statements of Operations
2014 2013 2012
(in thousands)
Revenues:
Income from subsidiaries:
Dividends from First National Bank of Omaha $ 94,992 $ 82,505 $ 108,471
Dividends from other banking subsidiaries — 30,968 8,250
Dividends from nonbanking subsidiaries 106 168 2,218
Management and service fees 3,533 3,068 3,069
Interest income on short-term investments 53 74 1
Investment interest and other income 3,176 9,805 6,310
Total revenues 101,860 126,588 128,319
Expenses:
Interest — — 1,020
Other 15,645 22,222 17,468
Total expenses 15,645 22,222 18,488
Income before income taxes and equity in
undistributed earnings of subsidiaries 86,215 104,366 109,831
Income tax benefit (2,468) (4,098) (3,364)
Total income before equity in undistributed
earnings of subsidiaries 88,683 108,464 113,195
Equity in undistributed earnings (losses) of subsidiaries:
First National Bank of Omaha 94,264 70,483 43,425
Other banking subsidiaries — (16,719) 8,662
Nonbanking subsidiaries 9,226 4,748 1,318
Total equity in undistributed earnings
of subsidiaries 103,490 58,512 53,405
Net income $ 192,173 $ 166,976 $ 166,600
Years ended December 31,
52
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
First National Nebraska, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated financial statements of First National of Nebraska, Inc. and its
subsidiaries (the "Company"), which comprise the consolidated statements of financial condition as of December 31,
2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders' equity, and
cash flows for the three years in the period ended December 31, 2014, and the related notes to the financial
statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation
and fair presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
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. as of December 31, 2014 and 2013, and the results of their
operations and their cash flows for each of the three years then ended in accordance with accounting principles
generally accepted in the United States of America.
March XX, 2015
53
Officers and Directors *
Bruce R. Lauritzen *
Chairman
Daniel K. O’Neill *
President
Clarkson D. Lauritzen *
Executive Vice President
Michael A. Summers
Chief Financial Officer
Jerry J. O’Flanagan
Chief Credit Officer
Nicholas W. Baxter
Chief Risk Officer &
Secretary
Timothy D. Hart
Senior Vice President &
Treasurer
Roger A. Fleury *
Senior Vice President
Jeffrey A. Sims
Senior Vice President
George J. Behringer *
John W. Castle *
Margaret Lauritzen Dodge *
J. William Henry *
Thomas C. Stokes *
54
Daniel K. O’Neill*, Chairman & President
Nicholas W. Baxter* ......... Chief Risk Officer & Secretary Eric R. Blick ......................Sr. VP, Consumer Banking
Amy S. Brown .................. Sr. VP, Consumer Banking Kenneth J. Bunnell ...........Sr. VP, Human Resources
Patrick J. Burns ................ Sr. VP, Consumer Banking Mark A. Chronister ...........Sr. VP, Consumer Banking
David E. Cota, Jr* ............ Ex. VP, Wealth Management & Brenda L. Dooley .............Sr. VP, Buildings
Investment Banking
Jon P. Doyle .................... Sr. VP, Operations Michael L. Earleywine ......Sr. VP, Consumer Banking
Stephen F. Eulie*………...Ex. VP, Consumer Banking Stephen J. Farrell .............Sr. VP, Consumer Banking
Roger A. Fleury*………….Senior Vice President Michael S. Foutch*……….Ex. VP, Customer & Employee
Experience
Stephen R. Frantz ............ Sr. VP, Tributary Capital Allen C. Hansen…………. Sr. VP, Corporate Banking
Management
Timothy D. Hart…………..Sr. VP & Treasurer Thomas H. Jensen……….Sr. VP, Corporate Banking
Steven R. Knapp………....Sr. VP, Corporate Banking Michael J. Kuester ............Sr. VP, Corporate Banking
Clarkson D. Lauritzen*…..Executive Vice President Stephanie H. Moline*........Ex. VP, Corporate Banking
Charles E. Nelson………..Sr. VP, Consumer Banking Russell K. Oatman………. Sr. VP, Corporate Banking
Jerry J. O’Flanagan*……..Chief Credit Officer Jeffrey A. Sims .................Sr. VP, Credit
Scott A. Smith…………….Sr. VP, Consumer Banking Michael A. Summers*……Chief Financial Officer
Stephen C. Wade………..Sr. VP, Wealth Management Kimberly S. Weiss ............Sr. VP, Audit Services
Katrina L. Wells…………..Sr. VP, Consumer Banking
Margaret L. Dodge* Bruce R. Lauritzen*
*Director
FIRST NATIONAL BANK MARKETS
Colorado Market
Fort Collins – Boulder – Brighton – Broomfield – Greeley
Johnstown – Kersey – Longmont – Louisville – Loveland
Platteville – Wellington – Westminster – Windsor
Mark P. Driscoll, Market President
Community Board Members
Jeffrey T. Bedingfield Harold G. Evans Dorothy A. Horrell, Ph.D.
Chris Richmond Ronald Secrist Masoud S. Shirazi
Thomas Stokes Eric Thompson David L. Wood
55
Columbus – Norfolk Market
William W. Flint, Market President
Community Board Members
James M. Bator John F. Lohr Larry D. Marik
John M. Peck Richard A. Robinson Noyes W. Rogers
Donald M. Schupbach
Fremont Market
Barry A. Benson, Market President
Community Board Members
Kenneth D. Beebe Rodney K. Koerber, M.D. Nicholas J. Lamme
F. Steven Leonard Ronald J. Sawyer Larry M. Shepard
David N. Simmons Thomas J. Milliken, Director Emeritus
Illinois Market
DeKalb – Belvidere – Harvard – Huntley – Lake of the Hills
Marengo – Oswego – Plano – Sandwich
Sugar Grove – Sycamore – Yorkville
Timothy A. Struthers, Market President
Community Board Members
John W. Castle Louis J. Faivre Jack D. Franks
Michael D. Larson John G. Peters Susan M. Wagner
Kansas Market
Overland Park – Fairway
Olathe – Shawnee
David J. Janus, Market President
Kearney – Grand Island Market
Mark A. Sutko, Market President
Lincoln Market
Richard L. Herink, Market President
56
South Dakota Market
Yankton – Mitchell – Huron
Huron – Woonsocket
Jeff D. Jones, Market President
Texas Market
Frisco – Plano
Clifton B. Whisenhunt, Market President
Western Nebraska Market
North Platte – Alliance
Chadron – Scottsbluff
Greg W. Wilke, Market President
Community Board Members
Timothy P. Brouillette Donald Colvin Gary L. Conell, M.D.
Daniel P. O’Neill Robert Sandberg James E. Smith
First National Technology Solutions, Inc. Omaha, Nebraska
Kenneth J. Kucera, President
Directors
Mark P. Driscoll Stephen F. Eulie David J. Janus
Kenneth J. Kucera Clarkson D. Lauritzen Stephanie H. Moline
Timothy A. Struthers Michael A. Summers Kimberly M. Whittaker
December 31, 2014
December 31, 2015
(1) Includes loans held for sale of $30.6 million at December 31, 2014.
See Notes to Consolidated Financial Statements