New York, March 12, 2018 -- Moody's Investors Service has assigned a Baa2 rating to First National
of Nebraska, Inc.'s (FNNI) subordinated debt.
At the same time, Moody's affirmed all of the ratings of its
lead bank subsidiary, First National Bank of Omaha (FNBO).
FNBO has deposit ratings of A2/Prime-1 and a standalone baseline
credit assessment (BCA) of baa1. The bank also has a Baa2 issuer
rating and its counterparty risk assessments are A3(cr)/Prime-2(cr).
The rating outlook is stable.
Assignments:
..Issuer: First National of Nebraska, Inc.
....Subordinate Regular Bond/Debenture,
Assigned Baa2
Affirmations:
..Issuer: First National Bank of Omaha
.... Adjusted Baseline Credit Assessment,
Affirmed baa1
.... Baseline Credit Assessment, Affirmed
baa1
.... Counterparty Risk Assessment, Affirmed
A3(cr)
.... Short Term Counterparty Risk Assessment,
Affirmed P-2(cr)
.... Issuer Rating, Affirmed Baa2,
Stable
.... Short Term Deposit Rating, Affirmed
P-1
.... Deposit Rating, Affirmed A2,
Stable
Outlook Actions:
..Issuer: First National Bank of Omaha
....Outlook, Remains Stable
RATINGS RATIONALE
The rating action considers FNNI's continued strong asset quality,
respectable profitability, aided by improving efficiency,
and healthy core deposit base, which supports its liquidity.
FNNI's primary rating challenge remains its longstanding concentration
in credit cards. FNNI's capital profile is solid.
However, as a privately-held entity, Moody's
believes its access to incremental capital may be constrained.
The core of FNNI's franchise is its market-leading direct
retail and commercial banking business in Nebraska. The bank's
strong core deposit franchise funds not only its direct in-footprint
loan portfolio, but also its national credit card book. Although
FNNI's use of credit card securitizations increased modestly in
2017, its overall market funding reliance is comparatively low,
which supports its ratings.
With regard to asset risk, Moody's views FNNI's credit card business
as both a lending concentration and an earnings concentration.
At year-end 2017, credit card loans accounted for just under
40% of FNNI's total loan portfolio. Although earnings from
the credit card business are not disclosed, Moody's believes
that it contributes significantly to FNNI's overall earnings,
particularly in periods of low loan loss provisions.
While FNNI's recent credit card net charge-off rate remains
low in a historical context, it increased in 2017 despite a favorable
economic environment, reflecting easing underwriting trends within
the industry over the past few years. Rising net charge-offs
are a particular challenge since banks can no longer re-price their
credit card borrowers as their credit risk increases, a dynamic
that could noticeably weaken FNNI's profitability in times of rising
unemployment. This potential volatility is captured in FNNI's
current ratings.
Despite the potential for earnings volatility, Moody's noted
that FNNI's core profitability strengthened in 2017 as a result
of the bank's sustained focus on expense management and an improving
net interest margin. Further short-term rate increases will
support FNNI's core earnings in 2018 and a lower corporate tax rate
will lift its net income, in Moody's view.
Finally, Moody's added that as a function of its geographic footprint,
FNNI has an above-average exposure to the agricultural sector,
which has been hurt by commodity price declines. Currently,
agriculture exposure contributes disproportionately to FNNI's non-performing
loans. However, FNNI has significant and long-term
experience lending to the sector and Moody's considers its underwriting
to be conservative.
What Could Change the Rating Up
For upward movement on FNNI's standalone bank-level BCA to emerge,
a more diversified business mix and earnings stream are required.
What Could Change the Rating Down
Downward movement on FNNI's standalone bank-level BCA would result
if Moody's believes that the bank's asset risk or capital ratios will
materially weaken.
The principal methodology used in these ratings was Banks published in
September 2017. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Allen Tischler
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
M. Celina Vansetti-Hutchins
MD - Banking
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653