Fitch Ratings has revised the Rating Outlook for First
National of Nebraska, Inc. (FINN, rated 'BBB/F3' by Fitch) and its
principal subsidiaries to Negative from Stable. At the same time,
Fitch has affirmed all current ratings for FINN and its principal
banking subsidiaries. A complete list of ratings follows at the end of
this release.
Fitch's revision of FINN's Rating Outlook to Negative from Stable reflects the company's continued weak earnings performance and uncertainty surrounding earnings in the near and medium term. During 2005, FINN earned a return on assets of just 0.46% on a reported basis. FINN is currently restructuring its credit card line of business, and the likelihood and magnitude of any restructuring charges and impact on earnings are unclear. Importantly, FINN has brought in seasoned senior management who possess many years of experience in the credit card industry with large credit card issuers. Fitch is encouraged by steps new management has taken to improve all phases of FINN's credit card business and restore profitability. However, FINN will continue to face fierce competition from larger players in this industry. Significant improvements in profitability and volumes in this scale-sensitive business will take time. While the company's credit card business segment is the principal driver of lower than peer profitability, Fitch notes the need for greater efficiencies in FINN's core community banking franchise. Additionally, Fitch continues to expect FINN to develop better internal profitability reporting company-wide. Fitch will review the company's progress in improving profitability and restructuring the credit card segment each quarter. Lack of meaningful progress in restoring profitability or significant charges that create earnings volatility will likely result in a one-notch downgrade in the long-term ratings of the parent company and subsidiaries.
Fitch also views the company's weak earnings generation in conjunction with thin capital levels. FINN is less able to withstand periods of continued weak earnings or earnings volatility due to its lower than peer capitalization. Regulatory capital ratios remain at slight cushions above well capitalized requirements with a 10.64% total risk-based capital ratio at Dec. 31, 2005.
Along with new, veteran leadership in credit cards, other factors support FINN's current ratings. Some of the subsidiary banks maintain the leading deposit market share in their respective market. Asset quality in the noncard loan portfolio remains good and this portfolio is sufficiently diversified. FINN's net interest margin has started benefiting from the rise in short-term interest rates as credit card receivables have exceeded their rate floors and will continue to reprice in the current rising short-term interest rate environment.
The following ratings are affirmed with a Negative Rating Outlook:
First National of Nebraska, Inc.
-- Long-term senior 'BBB';
-- Short-term 'F3';
-- Individual 'C';
-- Support '5'.
First National Bank of Omaha
First National Bank - Fort Collins
First National Bank - North Platte
-- Long-term deposits 'BBB+';
-- Long-term senior 'BBB';
-- Short-term 'F2';
-- Short-term deposits 'F2';
-- Individual 'C';
-- Support '5'.
First National Bank of Omaha
-- Subordinated debt 'BBB-'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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's revision of FINN's Rating Outlook to Negative from Stable reflects the company's continued weak earnings performance and uncertainty surrounding earnings in the near and medium term. During 2005, FINN earned a return on assets of just 0.46% on a reported basis. FINN is currently restructuring its credit card line of business, and the likelihood and magnitude of any restructuring charges and impact on earnings are unclear. Importantly, FINN has brought in seasoned senior management who possess many years of experience in the credit card industry with large credit card issuers. Fitch is encouraged by steps new management has taken to improve all phases of FINN's credit card business and restore profitability. However, FINN will continue to face fierce competition from larger players in this industry. Significant improvements in profitability and volumes in this scale-sensitive business will take time. While the company's credit card business segment is the principal driver of lower than peer profitability, Fitch notes the need for greater efficiencies in FINN's core community banking franchise. Additionally, Fitch continues to expect FINN to develop better internal profitability reporting company-wide. Fitch will review the company's progress in improving profitability and restructuring the credit card segment each quarter. Lack of meaningful progress in restoring profitability or significant charges that create earnings volatility will likely result in a one-notch downgrade in the long-term ratings of the parent company and subsidiaries.
Fitch also views the company's weak earnings generation in conjunction with thin capital levels. FINN is less able to withstand periods of continued weak earnings or earnings volatility due to its lower than peer capitalization. Regulatory capital ratios remain at slight cushions above well capitalized requirements with a 10.64% total risk-based capital ratio at Dec. 31, 2005.
Along with new, veteran leadership in credit cards, other factors support FINN's current ratings. Some of the subsidiary banks maintain the leading deposit market share in their respective market. Asset quality in the noncard loan portfolio remains good and this portfolio is sufficiently diversified. FINN's net interest margin has started benefiting from the rise in short-term interest rates as credit card receivables have exceeded their rate floors and will continue to reprice in the current rising short-term interest rate environment.
The following ratings are affirmed with a Negative Rating Outlook:
First National of Nebraska, Inc.
-- Long-term senior 'BBB';
-- Short-term 'F3';
-- Individual 'C';
-- Support '5'.
First National Bank of Omaha
First National Bank - Fort Collins
First National Bank - North Platte
-- Long-term deposits 'BBB+';
-- Long-term senior 'BBB';
-- Short-term 'F2';
-- Short-term deposits 'F2';
-- Individual 'C';
-- Support '5'.
First National Bank of Omaha
-- Subordinated debt 'BBB-'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.