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Fitch Affirms First National of Nebraska at 'BBB-'/'F3' Following Peer Review; Outlook Stable

February 5, 2014

NEW YORK --(BUSINESS WIRE)-- Fitch Ratings affirms First National of Nebraska, Inc.'s (FNNI) ratings at 'BBB-'/'F3'. The Rating Outlook remains Stable. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRS, VRs, AND SENIOR DEBT The affirmation of FNNI's rating and maintenance of the Stable Outlook reflect the company's stable operating performance, improvement in asset quality, and steady capital levels. FNNI's earnings and profitability have continued to improve over the last year as its margin has held firm and efficiencies continue to be found. The company's ability to maintain its margin in the sustained low rate environment is primarily due to high single-digit loan growth over the past year. Credit card balances are up 10% due to stronger penetration in consumer and agricultural lending is up nearly 20% year-over-year (YoY) helping drive a higher level of interest income and stronger top line. Meanwhile, Fitch observes that the company has continued to reasonably manage costs, leading to modest improvement in efficiencies. FNNI's loan portfolio has experienced positive credit trends as both past due loans and non-accruals loans were down significantly YoY. Absolute levels of nonperforming assets (NPAs) have decreased another 20% YoY while net charge offs (NCOs) have also continued to fall, down to 1.5% of gross loans through the third quarter of 2013 (3Q'13) from 1.8% a year prior. Fitch expects asset quality improvements to level off over the near-to-medium term as card performance across the industry has reached its peak. This expectation is reflected in today's affirmation as well as the Outlook Stable. Capital levels continue to be managed appropriately relative to the company's overall risk profile and rating category. FNNI's risk based Tier 1 ratio fell 60 basis points (bps) to 12.5% over the last year. Fitch observes capital ratio deterioration is primarily due to an 11% increase in risk weighted assets driven by the aforementioned loan growth. In the past, holding company liquidity had been a negative ratings driver. Fitch notes that the holding company's financial profile is adequate and in line with expectations given its level of cash and other contingent sources of liquidity. RATING SENSITIVITIES - IDRS, VRs, AND SENIOR DEBT Further upward movement of the company's ratings are considered limited in the near term. Over the long-term, sustained improvement in asset quality, and earnings, coupled with capital levels commensurate with higher rated peers could result in further movement of the rating. Factors that could negatively weigh on FNNI's ratings include stagnant operating performance, a reversal of the currently positive credit trends, as well as any significant shareholder capital distributions. The latter could put pressure on FNNI's ratings, if capital build significantly slows or even cause the company's capital ratios to decline on an absolute basis. KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by FNNI, and its subsidiaries are all notched down from FNNI's Viability Rating (VR) of 'bbb-' in accordance with Fitch's assessment of each instrument's respective non-performance and relative Loss Severity risk profiles, which vary considerably. RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES FNNI's subordinated debt and other hybrid capital ratings are is sensitive to changes in FNNI's VR . Rating sensitivities for the VR are listed above. SUBSIDIARY AND AFFILIATED COMPANY KEY RATING DRIVERS First National Bank of Omaha (FNBO) is a wholly owned subsidiary of FNNI. FNBO's ratings are aligned with FNNI reflecting Fitch's view that the bank subsidiary is core to the franchise. SUBSIDIARY AND AFFILIATED COMPANY RATING SENSITIVITIES FNBO's ratings are sensitive to changes to FNNI's VR or any changes to Fitch's view of structural subordination between bank subsidiary and holding company. Rating sensitivities for the VR are listed above. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed. KEY RATING SENSITIVITIES- SUPPORT RATING AND SUPPORT RATING FLOOR Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. Fitch Ratings reviewed FNNI's ratings as part of the mid-tier regional bank review. The 19 banks in today's review include: Associated Banc-Corp. (ASBC), BOK Financial Corp (BOKF), Cathay General Bancorp (CATY), City National Bancorp (CYN), Cullen/Frost Bankers, Inc. (CFR), East West Bancorp, Inc. (EWBC), First Horizon National Corp. (FHN), First National of Nebraska, Inc. (FNNI), First Niagara Financial Group, Inc. (FNFG), First Republic Bank (FRC), First Merit (FMER), Fulton Financial Corp. (FULT), Hancock Holding Company (HBHC), People's United Financial, Inc. (PBCT), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), UMB Financial Corporation (UMB), Webster Financial Corp. (WBS), Wintrust (WTFC). Fitch has affirmed the following ratings with a Stable Outlook: First National of Nebraska, Inc. --Long-term IDR at 'BBB-'; --Viability at 'bbb-'. --Short-term IDR at 'F3'; --Support Ratings at '5'; --Support Rating Floor at 'NF'. First National Bank of Omaha --Long-term IDR at 'BBB-'; --Viability at 'bbb-'; --Long-term deposits at 'BBB'; --Short-term deposits as 'F2'; --Short-term IDR at 'F3'; --Subordinated debt at 'BB+'; --Support Ratings at '5'; --Support Rating Floor at 'NF'. Additional information is available at ' www.fitchratings.com '. Applicable Criteria and Related Research : --2014 Outlook: U.S. Banks ( Nov. 21, 2013 ); --U.S. Banks: Liquidity and Deposit Funding ( Aug. 08, 2013 ); --U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) ( June 18, 2013 ); --U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? ( July 11, 2013 ); --Global Trading and Universal Banks - Periodic Review ( Dec. 12, 2013 ); --Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13 ( Jan. 15, 2014 ); --Risk Radar Global - Q313 ( Sept 05, 2013 ); --Fitch Global Corporate Rating Activity Third Quarter 2013 ( Dec. 5, 2013 ); --U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) ( Jan. 27, 2014 ); --Global Financial Institutions Rating Criteria ( Jan. 31, 2014 ); --Assessing and Rating Bank Subordinated and Hybrid Securities ( Jan. 31, 2014 ). Applicable Criteria and Related Research : 2014 Outlook: U.S. Banks http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723989 U.S. Banks: Liquidity and Deposit Funding http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196 U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875 U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539 Global Trading and Universal Banks - Periodic Review http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726150 Fitch Fundamentals Index http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729196 Risk Radar Global - Q313 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717023 Fitch Global Corporate Rating Activity Third-Quarter 2013 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720480 U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732295 Global Financial Institutions Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397 Assessing and Rating Bank Subordinated and Hybrid Securities Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732137 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=819713 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Fitch Ratings Media Relations Brian Bertsch , New York , +1-212-908-0549 brian.bertsch@fitchratings.com or Primary Analyst Doriana Gamboa , +1-212-612-0865 Director Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 or Secondary Analyst Megan Neenan , CFA, +1-212-612-0121 or Committee Chairperson Christopher Wolfe , +1-212-908-0771 Managing Director Source: Fitch Ratings


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