---

---




FORM 10-Q











SECURITIES AND EXCHANGE COMMISSION


Washington D.C. 20549











QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)


x


OF THE SECURITIES EXCHANGE ACT OF 1934





For the Quarterly Period Ended March 31, 2001, or





TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


 ̈


SECURITIES EXCHANGE ACT OF 1934





For the transition period from  to





Commission file number 03502





First National of Nebraska, Inc.


(Exact name of registrant as specified in its charter)





|Nebraska
(State or other jurisdiction of
incorporation or organization) |  | 47-0523079
(I.R.S. Employer
Identification No.) | 
|----------------------------------------------------------------------- |  | ----------------------------------------------- | 




|1620 Dodge Street Omaha, NE
(Address of principal executive offices) |  | 68197
(Zip Code) | 
|-------------------------------------------------------------------- |  | ---------------- | 




Registrants telephone number, including area code (402) 341-0500





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 Yes x No     .





As of May 6, 2001, the number of outstanding shares of the registrants common stock ($5.00 par value)
was 334,500.





---

---




Part I. FINANCIAL INFORMATION


Part I. Item 1. Financial Statements





FIRST NATIONAL OF NEBRASKA, INC.





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION





|                                                                                                             |  | March 31,

2001 |  | December 31,

2000
|------------------------------------------------------------------------------------------------------------ |  | --------------- |  | ------------------
|
|
|
|Cash and due from banks                                                                                      |  | $    388,098    |  | $    430,091      
|Federal funds sold and other short-term investments                                                          |  | 308,700         |  | 385,360           
|                                                                                                             |  |                 |  |                   
|Total cash and cash
equivalents                                                                              |  | 696,798         |  | 815,451           
|Investment securities:                                                                                       |  |                 |  |                   
|Available-for-sale (amortized cost $626,359 and $814,458)                                                    |  | 630,586         |  | 813,398           
|Held-to-maturity (fair value $438,741 and $203,127)                                                          |  | 434,777         |  | 201,253           
|Federal Home Loan Bank stock and other securities, at cost                                                   |  | 30,810          |  | 24,843            
|                                                                                                             |  |                 |  |                   
|Total investment
securities                                                                                  |  | 1,096,173       |  | 1,039,494         
|Loans                                                                                                        |  | 7,199,890       |  | 6,926,199         
|Less:    Allowance for loan losses                                                                           |  | 103,198         |  | 105,304           
|Unearned income                                                                                              |  | 21,739          |  | 20,591            
|                                                                                                             |  |                 |  |                   
|Net loans                                                                                                    |  | 7,074,953       |  | 6,800,304         
|Premises and equipment, net                                                                                  |  | 166,760         |  | 164,410           
|Other assets                                                                                                 |  | 454,708         |  | 463,655           
|                                                                                                             |  |                 |  |                   
|Total assets                                                                                                 |  | $9,489,392      |  | $9,283,314        
|                                                                                                             |  |                 |  |                   
|                                                                                                            
|                                                                                                            
|                                                                                                            
|
|Deposits:                                                                                                    |  |                 |  |                   
|Noninterest-bearing                                                                                          |  | $    899,622    |  | $   954,665       
|Interest-bearing                                                                                             |  | 7,055,199       |  | 6,893,284         
|                                                                                                             |  |                 |  |                   
|Total deposits                                                                                               |  | 7,954,821       |  | 7,847,949         
|Federal funds purchased and securities sold under repurchase agreements                                      |  | 98,461          |  | 156,805           
|Federal Home Loan Bank advances                                                                              |  | 294,006         |  | 189,325           
|Other borrowings                                                                                             |  | 147,629         |  | 91,098            
|Other liabilities                                                                                            |  | 137,033         |  | 154,340           
|Capital notes                                                                                                |  | 93,197          |  | 93,594            
|                                                                                                             |  |                 |  |                   
|Total
liabilities                                                                                            |  | 8,725,147       |  | 8,533,111         
|Stockholders equity:                                                                                        |  |                 |  |                   
|Common stock, $5 par value, 346,767 shares authorized, 334,500 shares

               issued and outstanding |  | 1,673           |  | 1,673             
|Additional paid-in capital                                                                                   |  | 2,511           |  | 2,511             
|Retained earnings                                                                                            |  | 757,371         |  | 746,718           
|Accumulated other comprehensive income (loss)                                                                |  | 2,690           |  | (699              
|                                                                                                             |  |                 |  |                   
|Total stockholders
equity                                                                                   |  | 764,245         |  | 750,203           
|                                                                                                             |  |                 |  |                   
|Total liabilities and
stockholders equity                                                                   |  | $9,489,392      |  | $9,283,314        
|                                                                                                             |  |                 |  |                   




See Notes to Consolidated Financial Statements.





FIRST NATIONAL OF NEBRASKA, INC.





CONSOLIDATED STATEMENTS OF INCOME


(unaudited)





|                                                                                                    |  | Three Months Ended

March 31,
|--------------------------------------------------------------------------------------------------- |  | -----------------------------
|
|Interest income:                                                                                    |  |                              
|Interest and fees on loans and lease financing                                                      |  | $188,453                     
|Interest on securities:                                                                            
|Taxable interest
income                                                                             |  | 14,385                       
|Nontaxable interest
income                                                                          |  | 448                          
|Interest on federal funds sold and other short-term investments                                     |  | 3,794                        
|                                                                                                    |  |                              
|Total interest
income                                                                               |  | 207,080                      
|                                                                                                    |  |                              
|Interest expense:                                                                                   |  |                              
|Interest on deposits                                                                                |  | 93,181                       
|Interest on federal funds purchased and securities sold under repurchase

               agreements |  | 1,533                        
|Interest on Federal Home Loan Bank advances                                                         |  | 2,669                        
|Interest on other borrowings                                                                        |  | 1,651                        
|Interest on capital notes                                                                           |  | 1,769                        
|                                                                                                    |  |                              
|Total interest
expense                                                                              |  | 100,803                      
|                                                                                                    |  |                              
|Net interest income                                                                                 |  | 106,277                      
|Provision for loan losses                                                                           |  | 29,447                       
|                                                                                                    |  |                              
|Net interest income after provision for loan losses                                                 |  | 76,830                       
|Noninterest income:                                                                                 |  |                              
|Processing services                                                                                 |  | 55,725                       
|Credit card securitization income                                                                   |  | 15,329                       
|Deposit services                                                                                    |  | 8,216                        
|Trust and investment services                                                                       |  | 5,738                        
|Miscellaneous                                                                                       |  | 17,274                       
|                                                                                                    |  |                              
|Total noninterest
income                                                                            |  | 102,282                      
|                                                                                                    |  |                              
|Noninterest expense:                                                                                |  |                              
|Salaries and employee benefits                                                                      |  | 69,702                       
|Communications and supplies                                                                         |  | 22,084                       
|Professional services                                                                               |  | 13,589                       
|Equipment rentals, depreciation and maintenance                                                     |  | 13,018                       
|Net occupancy expense of premises                                                                   |  | 12,275                       
|Processing expense                                                                                  |  | 7,900                        
|Goodwill and other intangibles amortization                                                         |  | 5,327                        
|Loan servicing expense                                                                              |  | 2,508                        
|Miscellaneous                                                                                       |  | 6,340                        
|                                                                                                    |  |                              
|Total noninterest
expense                                                                           |  | 152,743                      
|                                                                                                    |  |                              
|Income before income taxes                                                                          |  | 26,369                       
|Income tax expense (benefit):                                                                       |  |                              
|Current                                                                                             |  | 9,416                        
|Deferred                                                                                            |  | 584                          
|                                                                                                    |  |                              
|Total income tax
expense                                                                            |  | 10,000                       
|                                                                                                    |  |                              
|Net income                                                                                          |  | $  16,369                    
|                                                                                                    |  |                              
|Basic earnings per common share                                                                     |  | $    49.45                   
|                                                                                                    |  |                              
|Diluted earnings per common share                                                                   |  | $    48.94                   
|                                                                                                    |  |                              
|Basic common shares outstanding                                                                     |  | 331,034                      
|                                                                                                    |  |                              
|Diluted common shares outstanding                                                                   |  | 334,500                      
|                                                                                                    |  |                              
|Cash dividends declared per common share                                                            |  | $    17.09                   
|                                                                                                    |  |                              




See Notes to Consolidated Financial Statements.





FIRST NATIONAL OF NEBRASKA, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(unaudited)





|                                                                                                           |  | Three Months Ended

March 31,
|---------------------------------------------------------------------------------------------------------- |  | -----------------------------
|
|
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                       |  |                              
|Net Income                                                                                                 |  | $    16,369                  
|Adjustments to reconcile
net income to net cash flows from operating

                         activities: |  |                              
|Provision for loan losses                                                                                  |  | 29,447                       
|Depreciation and amortization                                                                              |  | 12,786                       
|Provision for deferred taxes                                                                               |  | 584                          
|Origination of mortgage loans for resale                                                                   |  | (259,058                     
|Proceeds from the sale of mortgage loans for resale                                                        |  | 213,031                      
|Other asset and liability activity, net                                                                    |  | (10,811                      
|                                                                                                           |  |                              
|Net cash flows from operating activities                                                                   |  | 2,348                        
|                                                                                                          
|                                                                                                          
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                       |  |                              
|Acquisitions, net of cash received                                                                         |  | (891                         
|Maturities of securities available-for-sale                                                                |  | 187,575                      
|Sales of securities available-for-sale                                                                     |  |                             
|Purchases of securities available-for-sale                                                                 |  | (120                         
|Maturities of securities held-to-maturity                                                                  |  | 50,249                       
|Purchases of securities held-to-maturity                                                                   |  | (280,485                     
|Redemption of FHLB stock and other securities                                                              |  |                             
|Purchases of FHLB stock and other securities                                                               |  | (5,848                       
|Net change in loans                                                                                        |  | (170,610                     
|Credit card securitization activities                                                                      |  | (43,505                      
|Purchases of loan portfolios                                                                               |  | (48,598                      
|Purchases of premises and equipment                                                                        |  | (13,738                      
|Other, net                                                                                                 |  | 1,381                        
|                                                                                                           |  |                              
|Net cash flows from investing activities                                                                   |  | (324,590                     
|                                                                                                          
|                                                                                                          
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                       |  |                              
|Net change in deposits                                                                                     |  | 106,872                      
|Net change in federal funds purchased and securities sold under repurchase

               agreements      |  | (58,344                      
|Issuance of FHLB advances                                                                                  |  | 192,000                      
|Principal repayments on FHLB advances                                                                      |  | (87,319                      
|Issuance of other borrowings                                                                               |  | 214,560                      
|Principal repayments on other borrowings                                                                   |  | (158,066                     
|Principal repayments on capital notes                                                                      |  | (397                         
|Cash dividends paid                                                                                        |  | (5,717                       
|                                                                                                           |  |                              
|Net cash flows from financing activities                                                                   |  | 203,589                      
|                                                                                                           |  |                              
|Net change in cash and cash equivalents                                                                    |  | (118,653                     
|Cash and cash equivalents at beginning of period                                                           |  | 815,451                      
|                                                                                                           |  |                              
|Cash and cash equivalents at end of period                                                                 |  | $  696,798                   
|                                                                                                           |  |                              
|Cash paid during the period for:                                                                           |  |                              
|Interest                                                                                                   |  | $  101,939                   
|Income taxes                                                                                               |  | 18,360                       
|                                                                                                           |  |                              




See Notes to Consolidated Financial Statements.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





March 31, 2001





Note A: Basis of Presentation





The accompanying unaudited consolidated financial statements of First National of Nebraska, Inc. and
subsidiaries (the Company) have been prepared in accordance with accounting standards generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by accounting standards generally accepted in the United States of America for complete consolidated financial statements. For purposes of comparability, certain prior
period amounts have been reclassified.





The preparation of financial statements in conformity with accounting standards generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial statements have been included.
Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. The notes to the consolidated financial statements contained in the Annual Report
on Form 10-K for the year ended December 31, 2000 should be read in conjunction with these consolidated financial statements.





Note B: Earnings per Common Share





The following table provides the calculation of basic and diluted earnings per share:





|                                                                                                                                                      |  | Three Months Ended March 31,
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------
|
|
|Net Income                                                                                                                                            |  | $  16,369                   
|Common shares outstanding                                                                                                                             |  | 334,500                     
|Less: Shares held for executive deferred

                              compensation plan                                                             |  | 1,932                       
|Shares held in employee stock trust                                                                                                                   |  | 1,534                       
|                                                                                                                                                      |  |                             
|Common shares outstanding used in basic earnings per

     share                                                                                      |  | 331,034                     
|Add: Contingently issuable shares considered

                              outstanding for diluted earnings per

                              share |  | 3,466                       
|                                                                                                                                                      |  |                             
|Common shares outstanding used in diluted earnings per

     share                                                                                    |  | 334,500                     
|                                                                                                                                                      |  |                             




Note C: Comprehensive Income





Comprehensive income is defined as the periods change in the equity of a business enterprise from
transactions and other events or circumstances from nonowner sources. Comprehensive income consists of net income and the change in unrealized appreciation or depreciation of available-for-sale securities. The following table reflects consolidated
statements of comprehensive income for the three months ended March 31, 2001 and 2000.





|                                                                                                         |  | Three Months Ended

March 31,
|-------------------------------------------------------------------------------------------------------- |  | -----------------------------
|
|
|Net Income                                                                                               |  | $16,369                      
|Other comprehensive income (loss), before tax                                                            |  |                              
|Net unrealized holding gains (losses) on available-for-sale

               securities                   |  | 5,340                        
|Less:    Reclassification adjustment for net gains realized in

                              net income |  | 49                           
|                                                                                                         |  |                              
|Other comprehensive gain (loss), before tax                                                              |  | 5,291                        
|Less:    Income tax expense (benefit) for other comprehensive

                    gain (loss)           |  | 1,902                        
|                                                                                                         |  |                              
|Other comprehensive gain (loss), net of tax                                                              |  | 3,389                        
|                                                                                                         |  |                              
|Comprehensive income                                                                                     |  | $19,758                      
|                                                                                                         |  |                              




Note D: Credit Card Activities





The Company sells credit card loans which are converted into securities and sold to investors, a process
referred to as securitization. In credit card securitizations, designated pools of credit card receivables, including related allowances for credit losses, are removed from the balance sheet and a security is sold to investors. In all of these
transactions, the Company retains servicing responsibilities. The Company receives annual servicing fees, which are classified in processing services income, approximating two percent of the outstanding balances of the credit card loans securitized.
The Company also retains rights to future cash flows arising after investors in the securitization trust have received the return for which they are entitled to receive. These retained interests are known as interest-only strips and are subordinate
to investors interests. The value of the interest-only strips is subject to credit, prepayment and interest rate risks on the transferred financial assets. The investors and the securitization trusts have no recourse to the Companys
assets for failure of debtors to pay. However, as contractually required, the Company may designate certain accounts, known as spread accounts, to be used as collateral for the benefit of investors.





During the revolving period of a credit card securitization, an additional gain is recognized as additional
credit card receivables are sold. During the first quarter of 2001, the Company recognized pretax gains of $10.8 million on securitizations of credit card receivables. As of March 31, 2001, the fair value of interest-only strips was $18.4 million
compared to $18.2 million at December 31, 2000.





Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations





Managements discussion and analysis contains forward-looking statements which reflect
managements current views and estimates of future economic circumstances, industry conditions, company performance and financial results. The statements are based on many assumptions and factors, including economic conditions, performance of
financial markets, adequacy of allowance for loan losses, competition, rapid fluctuations in interest rates, and changes in the legislative and regulatory environment. Many of these factors are beyond the Companys ability to control or
predict, and any changes in such assumptions or factors could produce future results which may differ from those indicated in this report.





Results of Operations





Overview





Net income was $16.4 million for the three months ended March 31, 2001, down $7.6 million, or 31.8%, from
$24 million for the same period in 2000. Diluted earnings per common share decreased to $48.94 for the three months ended March 31, 2001 from $71.73 per diluted common share for the same period in 2000. The Companys earnings were impacted by
reduced net interest margins caused primarily by the sensitivity of its loan portfolio to interest rate changes and a shift in the mix of loans, and increases in credit card marketing and promotional expenses related to the Companys growth
initiatives. These growth initiatives include the Companys expansion into new markets in Dallas, Texas, Denver, Colorado and Lincoln, Nebraska.





Net interest income





The Companys primary source of income is net interest income which is defined as the difference
between interest income and fees derived from earning assets and interest expense on interest-bearing liabilities. Interest income and expense are affected by changes in the volume and mix of interest-earning assets and interest-bearing liabilities,
in addition to changes in interest rates. The following table presents a summary of net interest income on a tax-equivalent basis, related to average earning assets and net interest margin:





|                                                  |  | Three Months Ended

March 31,
|------------------------------------------------- |  | -----------------------------
|
|
|Net interest income on a tax-equivalent basis (1) |  | $    106,518                 
|Average earning assets                            |  | 8,363,941                    
|Net interest margin (annualized)                  |  | 5.16                         







|(1) | Certain loan fees have been reclassified from interest income to processing services income for the prior year presented to
conform to 2001 presentation.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------




Net interest income for the Company was impacted in the first quarter of 2001 by a shift in loan mix and
sensitivity of the loan portfolio to interest rate changes. The Company continues to experience a reduction in credit card loans as a percentage of total loans. Average reported credit card loans outstanding as a percentage of total reported average
loans outstanding has decreased to 31.9% for the three months ended March 31, 2001 from 37.8% for the same period last year. This decreased percentage of credit cards in the loan mix of the Company results from both increasing the amount of
securitized credit card loans versus those left on the reported balance sheet, and strong growth in real estate and commercial loans. This shift in reported loan mix impacts net interest margin because credit card loans had an average gross yield of
14.4% in the first quarter of 2001, compared to non-credit card loans which had an average gross yield of 9.2% for the same period. Although credit card loans have higher rates of interest, there are also higher operating expenses associated with
credit card lending.





During the first quarter of 2001, the Companys asset sensitivity resulted in the downward repricing of
variable rate loans as the Board of Governors of the Federal Reserve reduced targeted Federal Funds rates from 6.25% at December 31, 2000 to 5.375% at March 31, 2001. The Company primarily funds its loans with certificates of deposit, money market
deposit accounts and floating rate wholesale funds. The velocity of loans repricing exceeded deposits repricing in the first quarter of 2001. The excess volume of the downward repricing of loans over the downward repricing of deposits has
contributed to the reduction in the Companys net interest margin.





Management believes certain factors will contribute to an improvement in net interest margin over the
remainder of the year, assuming interest rates remain near their current levels. Specifically, the Company has contractual maturities of certificates of deposit totaling $965.8 million for the second quarter of 2001, $1.1 billion for the third
quarter of 2001 and $758.5 million for the fourth quarter of 2001. The average cost of these quarterly maturities equals 6.22%, 6.34% and 6.35% for the second, third and fourth quarters, respectively, and they are
projected to reprice near the current rate of 4.5%. Additionally, 78% of credit card loans had reached their interest rate floor as of March 31, 2001 which means this portion of the credit card portfolio acts as fixed rate loans in a declining rate
environment and therefore, the impact of further rate reductions on net interest margin will be lessened.





Provision for loan losses





On a monthly basis, the Company evaluates its allowance for loan losses based upon a review of collateral
values, delinquencies, nonaccruals, payment histories and various other analytical and subjective measures relating to the various loan portfolios within the Company. For the three months ended March 31, 2001, the provision for loan losses increased
$1.4 million, or 4.9%, to $29.4 million compared to $28.1 million for the same period in 2000. This modest increase in the provision for loan losses is reflective of the minimal change in loan delinquency and net loan charge-off rates for the three
months ended March 31, 2001 compared to the same period in 2000. The allowance as a percentage of loans decreased to 1.47% as of March 31, 2001 from 1.62% as of March 31, 2000 due primarily to changes in the loan mix of the Company to lower risk
non-credit card loans as discussed above.





Noninterest income and expense





Increases in noninterest income and expense as reflected in the following tables primarily relate to the
Companys growth initiatives which have taken place since the quarter ended March 31, 2000. The Company has expanded into new markets in Dallas, Texas, Denver, Colorado, and Lincoln, Nebraska. Additionally, as discussed in the Companys
December 31, 2000 Form 10-K and Annual Report, the Company acquired InfiCorp Holdings, Inc. in Atlanta, Georgia in July 2000 and sold an 80.13% interest in a subsidiary, Retriever Payment Systems (Retriever) in December 2000.





As part of the terms relating to the sale of Retriever, the Company has a multi-year processing contract
with Retriever to continue to provide certain processing services. Reflected in the increases for processing services income and professional services expense is $7.2 million relating to Retriever. These amounts associated with Retriever were not
reflected in processing services income and professional services expense when Retriever was consolidated as a wholly-owned subsidiary during the first quarter of 2000. Processing services income also reflects an increase of $6.7 million related to
increased credit card processing volumes during the first quarter of 2001 as compared to the same period last year. Also contributing to the increase in processing services was a $2 million increase in servicing fees related to securitized credit
card loans due to the greater volume of loans securitized for the period ending March 31, 2001. The increase in securitization income of 45.1% includes a $2.7 million, or 33.3%, increase in securitization gains to $10.8 million from $8.1 million for
the same period last year.





The 57.1% increase in communications and supplies expense is largely due to increased credit card marketing
efforts and promotional costs related to the Companys expansion into new markets. The 54% decrease in loan servicing expense resulted primarily from the recognition of a rebate from a credit card association during the first quarter of
2001.





|                                  |  | Three Months Ended

March 31, |  | %

Increase

(Decrease)
|--------------------------------- |  | ----------------------------- |  | -----------------------
|
|
|Noninterest income:               |  |                               |  |                        
|Processing services               |  | 55,725                        |  | 40,900                 
|Credit card securitization income |  | 15,329                        |  | 10,567                 
|Deposit services                  |  | 8,216                         |  | 7,417                  
|Trust and investment services     |  | 5,738                         |  | 5,580                  
|Miscellaneous                     |  | 17,274                        |  | 18,629                 
|                                  |  |                               |  |                        
|Total noninterest
income          |  | 102,282                       |  | 83,093                 
|                                  |  |                               |  |                        




|
|

|                                                |  | Three Months Ended

March 31, |  | %

Increase

(Decrease)
|----------------------------------------------- |  | ----------------------------- |  | -----------------------
|
|
|Noninterest expense:                            |  |                               |  |                        
|Salaries and employee benefits                  |  | 69,702                        |  | 63,877                 
|Communication and supplies                      |  | 22,084                        |  | 14,059                 
|Professional services                           |  | 13,589                        |  | 6,401                  
|Equipment rentals, depreciation and maintenance |  | 13,018                        |  | 12,771                 
|Net occupancy expense of premises               |  | 12,275                        |  | 10,112                 
|Processing expense                              |  | 7,900                         |  | 7,760                  
|Goodwill and other intangibles amortization     |  | 5,327                         |  | 5,053                  
|Loan servicing expense                          |  | 2,508                         |  | 5,456                  
|Miscellaneous                                   |  | 6,340                         |  | 5,182                  
|                                                |  |                               |  |                        
|Total noninterest
expense                       |  | 152,743                       |  | 130,671                
|                                                |  |                               |  |                        




In an effort to improve earnings during this time of margin compaction, management is working to improve
the net interest margin and is reducing its level of marketing and expansion initiatives.





Loan Portfolio





The Company has been successful in expanding its lending activities. 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 and Texas. Non-credit card loans are generally secured by underlying real estate, business assets,
personal property and personal guarantees. The following table reflects the diversification of the Companys lending activities:





|                          |  | March 31,

2001 |  | December 31,

2000
|------------------------- |  | --------------- |  | ------------------
|
|Credit card               |  | $2,303,131      |  | $2,214,474        
|Real estatemortgage      |  | 1,543,821       |  | 1,516,400         
|Commercial and financial  |  | 1,230,170       |  | 1,159,850         
|Individual consumer       |  | 704,402         |  | 706,130           
|Agricultural              |  | 652,126         |  | 663,422           
|Real estateconstruction  |  | 646,080         |  | 546,405           
|Lease financing           |  | 93,566          |  | 101,988           
|Other                     |  | 26,594          |  | 17,530            
|                          |  |                 |  |                   
|Gross loans               |  | 7,199,890       |  | 6,926,199         
|Less:                     |  |                 |  |                   
|Allowance for loan losses |  | 103,198         |  | 105,304           
|Unearned income           |  | 21,739          |  | 20,591            
|                          |  |                 |  |                   
|Net loans                 |  | $7,074,953      |  | $6,800,304        
|                          |  |                 |  |                   




Credit Card





The Company securitizes credit card loans on a revolving basis as a funding vehicle to supplement its use of
core deposits as its primary source of funding. The amounts securitized and serviced for related parties result in differences in the amount of reported loans versus managed loans. The following table reflects the reconciliation of the loan
portfolio net of unearned income between reported and managed loans at March 31, 2001 and December 31, 2000.





|                                          |  | March 31, 2001 |  | December 31, 2000
|----------------------------------------- |  | -------------- |  | -----------------
|
|
|Managed Loan Data                         |  |                |  |                  
|As of Period End:                         |  |                |  |                  
|Total loans outstanding                   |  | $7,178,151     |  | $1,449,533       
|Total credit card loans

     outstanding |  | $2,303,131     |  | $1,449,533       
|Year-to-Date Average:                     |  |                |  |                  
|Total loans outstanding                   |  | $7,034,111     |  | $1,469,134       
|Total credit card loans

     outstanding |  | $2,266,568     |  | $1,469,134       




In addition to credit card securitization activities, the Company acquired credit card loan portfolios
totaling $45 million during the three months ended March 31, 2001.





Asset Quality





The Companys loan delinquency rates and net charge-off activity reflect, among other factors, general
economic conditions, the quality of the loans, the average seasoning of the loans and the success of the Companys collection efforts. The Companys objective in managing its loan portfolio is to balance and optimize the profitability of
the loans within the context of acceptable risk characteristics. The Company continually monitors the risks embedded in the credit card loan portfolio with the use of statistically-based simulation models which incorporate historical net charge-off
trends on past due accounts and net charge-off trends related to bankruptcies, deceased credit card holders and account settlements.





The level of loan delinquencies and charge-offs has remained relatively stable as of March 31, 2001 compared
to December 31, 2000 levels. Delinquencies in non-credit card loans remain at low levels which helps the overall delinquency rate for the Company. Although the level of nonaccrual loans has increased for non-credit card loans, management believes it
has provided sufficient loan loss allowances for these loans. With the direction of the economy uncertain, it is difficult to predict what will occur with loan charge-off volumes and the resulting effect on the Companys provision for loan
losses in the future.





The following table reflects the delinquency rates for the Companys overall loan portfolio, credit
card portfolio and non-credit card portfolio. An account is contractually delinquent if the minimum payment is not received by the specified due date. The overall delinquency rate as a percentage of total loans was 2.70% at March 31, 2001 compared
with 2.53% at December 31, 2000.





Delinquent Loans:





|                                 |  | March 31, 2001 |  | December 31, 2000
|-------------------------------- |  | -------------- |  | -----------------
|
|
|Total Loans                      |  |                |  |                  
|Loans outstanding                |  | $7,178,151     |  |                  
|Loans delinquent:                |  |                |  |                  
|3089 days                       |  | $    134,078   |  | 1.87%            
|90 days or more & still accruing |  | 59,476         |  | .83%             
|                                 |  |                |  |                  
|Total delinquent
loans           |  | $    193,554   |  | 2.70%            
|                                 |  |                |  |                  
|Nonaccrual loans                 |  | $      20,944  |  | .29%             
|                                 |  |                |  |                  
|Credit Cards Loans               |  |                |  |                  
|Loans outstanding                |  | $2,303,131     |  |                  
|Loans delinquent:                |  |                |  |                  
|3089 days                       |  | $      60,620  |  | 2.63%            
|90 days or more & still accruing |  | 50,476         |  | 2.19%            
|                                 |  |                |  |                  
|Total delinquent
loans           |  | $    111,096   |  | 4.82%            
|                                 |  |                |  |                  
|Nonaccrual loans                 |  |               |  |                 
|                                 |  |                |  |                  
|Non-Credit Card Loans            |  |                |  |                  
|Loans outstanding                |  | $4,875,020     |  |                  
|Loans delinquent:                |  |                |  |                  
|3089 days                       |  | $      73,458  |  | 1.51%            
|90 days or more & still accruing |  | 9,000          |  | .18%             
|                                 |  |                |  |                  
|Total delinquent loans           |  | $      82,458  |  | 1.69%            
|                                 |  |                |  |                  
|Nonaccrual loans                 |  | $      20,944  |  | .43%             
|                                 |  |                |  |                  




The Companys policy is to charge off credit card loans and consumer lines of credit when they become
180 days contractually past due. Generally, other consumer loans are charged off when they become 120 days contractually past due. Net loan charge-offs include the principal amount of losses resulting from borrowers unwillingness or inability
to pay, in addition to bankruptcies, deceased borrowers and account settlements less current period recoveries of previously charged off loans. The allowance for loan losses is intended to cover losses inherent in the Companys loan portfolio
as of the reporting date. The provision for loan losses is charged against earnings to cover both current period net charge-offs and to maintain the allowance at an acceptable level to cover losses inherent in the portfolio as of the reporting date.
Net charge-offs for the Companys overall portfolio were $32.3 million for the three months ended March 31, 2001 compared to $32.2 million for the same period in 2000. Net charge-offs as a percentage of average loans were .46% for the three
months ended March 31, 2001 compared to .53% for the same period last year. The allowance as a percentage of loans was 1.47% as of March 31, 2001 compared to 1.62% as of March 31, 2000.





The following table presents the activity in the Companys allowance for loan losses with a breakdown
of charge-off and recovery activity related to credit card loans.





Allowance for Loan Losses:





|                                                       |  | For the Three Months

Ended March 31,
|------------------------------------------------------ |  | -------------------------------------
|
|
|Balance at January 1                                   |  | $105,304                             
|Provision for loan losses                              |  | 29,447                               
|Addition due to acquisitions of loans                  |  | 745                                  
|Reduction due to sales of loans                        |  |                                     
|Loans charged off:                                    
|                                                      
|Credit card loans                                      |  | (32,289                              
|All other loans                                        |  | (5,480                               
|Loans recovered:                                      
|Credit card loans                                      |  | 4,559                                
|All other loans                                        |  | 912                                  
|                                                       |  |                                      
|Total net
charge-offs                                  |  | (32,298                              
|                                                       |  |                                      
|Balance at March 31                                    |  | $103,198                             
|                                                       |  |                                      
|Allowance as a percentage of loans                     |  | 1.47                                 
|Total net charge-offs as a
percentage of average loans |  | 0.46                                 




Capital Resources





The Companys primary source of capital is its retained earnings. The Company has historically retained
approximately 85% of net income in capital to fund growth of future operations and to maintain minimum capital standards.





The Company and its banking subsidiaries are required to maintain minimum capital in accordance with
regulatory guidelines. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and its banking subsidiaries must meet specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. These quantitative measures require the Company and its banking subsidiaries to maintain minimum amounts and ratios of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). The Company and its banking subsidiaries capital amounts and classifications are also subject to qualitative
judgements by the regulators about components, risk weightings and other factors.





As of March 31, 2001, the most recent notification from the bank regulators categorized the Companys
banking subsidiaries as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed these categories. To be categorized as well
capitalized, the Companys banking subsidiaries must maintain minimum total risk-based capital of 10%, Tier I risk-based capital of 6% and Tier I leverage capital of 5%. The Company intends to maintain sufficient capital in each of its banking
subsidiaries for them to remain in the well capitalized category.





The Company monitors its capital on a regular basis and performs necessary forecasts of capital needs based
upon anticipated growth in loans and earnings. The Company and its banking subsidiaries have potential under current capital rules to increase their capital by the issuance of debt instruments including trust preferred securities and subordinate
debt.





In 1995, First National Bank of Omaha issued $75 million in 15 year subordinated capital notes. In 1999,
another banking subsidiary of the Company issued $2.3 million in capital notes related to the acquisition and merger of a bank. These capital notes, along with the parent companys $15.9 million in capital notes outstanding as of March 31, 2001
issued in connection with the Companys previous acquisitions, count towards meeting the required capital standards, subject to certain limitations.





Liquidity Management





Adequate liquidity levels are necessary to ensure that sufficient funds are available for loan growth and
deposit withdrawals. These funding needs are offset by funds generated from loan repayments, investment maturities, and core deposit growth. The Companys Asset and Liability Committee is responsible for monitoring the current and forecasted
balance sheet structure to ensure anticipated funding needs can be met at a reasonable cost. Contingency plans are in place to meet unanticipated funding needs or loss of funding sources. The parent companys cash flows are dependent upon the
receipt of dividends from its banking subsidiaries which are subject to regulatoryrestrictions.





The Company continues to place a priority on obtaining retail consumer deposits as its primary source of
funding. This strategy is being supported by the Companys entry into the Dallas, Texas, and Denver, Colorado market places. The Company holds the largest market share for total deposits in many of the Nebraska communities which it serves
including Omaha, Fremont, Columbus, Kearney, David City, North Platte and Chadron. It also holds the largest market share in Fort Collins, Colorado and most communities which it serves in South Dakota. The Company places in the top three for market
share for deposit volume generated in Overland Park, Kansas, Greeley and Boulder, Colorado and Bellevue, Alliance, Beatrice and Scottsbluff, Nebraska.





The Company has access to a variety of other funding sources to augment the total funding needs of the
Company. These other sources include securities sold under repurchase agreements, federal funds purchased, credit card-backed securitizations, Federal Home Loan Bank advances, other debt agreements and subordinated capital notes.





The Company utilizes credit card-backed securitization vehicles to assist in its management of liquidity,
interest rate risk and capital. At March 31, 2001 and December 31, 2000, $1.4 billion, of the Companys managed credit card portfolio was securitized with an additional $195 million and $130 million, respectively, in unused securitization lines
available. Additionally, the Company had Federal Home Loan Bank advances of $294 million as of March 31, 2001 and $189.3 million as of December 31, 2000. At March 31, 2001 and December 31, 2000, the parent company had $46 million and $23 million,
respectively, outstanding under a $125 million syndicated revolving credit facility.





Item 3. Market Risk





The Companys primary component of market risk is interest rate volatility. It is the goal of the
Company to maximize profits while effectively managing rather than eliminating interest rate risk. Two primary measures are used to measure and manage interest rate risk: Net Interest Income Simulation Modeling and Interest Rate Sensitivity Gap
Analysis.





| | Net Interest Income Simulation:
| | -------------------------------




The Company uses a simulation model to analyze net interest income sensitivity to movements in interest
rates. The simulation model projects net interest income based on both upward and downward interest rate shifts over a twelve month period. Because of the significant decrease in short-term interest rates, such as the changes in the targeted Federal
Funds rates, in the first quarter of 2001, management intends to enhance its modeling simulations to consider the short-term effects of rate shocks in addition to the traditional analysis covering a
twelve-month period. In addition to modifying the Companys modeling techniques, management has taken actions to reduce interest rate risk including shortening the maturities of new and renewed certificates of deposit, eliminating the
dependency on external interest rate indices in the pricing of money market deposit products and increasing the use of LIBOR-based floating sources of wholesale funding. Additionally, future sensitivity to further interest rate reductions will be
lessened since the majority of the Companys credit card receivables have reached their minimum interest rate floor.





| | Interest Rate Sensitivity Gap Analysis:
| | ---------------------------------------




The Company uses interest rate sensitivity gap analysis to monitor the relationship between the maturity and
repricing of its interest-earning assets and interest-bearing liabilities, while maintaining an acceptable interest rate spread. Interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that time period. A gap is considered positive when the amount of interest-rate-sensitive assets exceeds the amount of
interest-rate-sensitive liabilities, and is considered negative when the amount of interest-rate-sensitive liabilities exceeds the amount of interest-rate-sensitive assets. Generally, during a period of rising interest rates, a negative gap would
adversely affect net interest income, while a positive gap would result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would result in an increase in net interest income, while a positive
gap would negatively affect net interest income.





Part II. OTHER INFORMATION





Items 1, 2, 3, 4 and 5:Not applicable or negative response.





Item 6: Exhibits and Reports on Form 8-K





|(a) Exhibits            |  | 3(i)  |  | Amended and Restated Articles of Incorporation of the parent company,

incorporated by reference to Exhibit 3(I) to the Companys Report on

Form 10-Q for the fiscal quarter ended June 30, 1997.                                                                                                                                                              
|----------------------- |  | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       
|                       
|                       
|                        |  | 3(ii) |  | Amended and Restated Bylaws of the parent company, incorporated by

reference to Exhibit 3(I) to the Companys Report on Form 10-Q for the

fiscal quarter ended June 30, 1997.                                                                                                                                                                                 
|                       
|                       
|                       
|                        |  | 4     |  | Fiscal and Paying Agency Agreement entered into in connection with the

issuance of $75 million of Subordinated Notes by First National Bank of

Omaha (the Bank) dated December 7, 1995 between the Bank as

Issuer and the Bank as Fiscal and Paying Agent incorporated by

reference to the Companys Report on Form 8-K, filed December 12,

1995.    
|                       
|                       
|                       
|                        |  | 10(a) |  | Deferred Compensation and Consultative Services Agreement between the

Bank and F. Phillips Giltner and Amendment to Deferred Compensation

and Consultative Services Agreement between the Bank and F. Phillips

Giltner, incorporated by reference to Exhibit 10(b) of the Companys

Annual Report on Form 10-K for the fiscal year ended December 31,

1992.
|                       
|                       
|                       
|                        |  | 10(b) |  | Management Incentive Plan, incorporated by reference to Exhibit 10(d) of

the Companys Annual Report on Form 10-K for the fiscal year ended

December 31, 1992.                                                                                                                                                                                                
|                       
|                       
|                       
|                        |  | 10(c) |  | Employment Contract between the parent company and Bruce R.

Lauritzen, incorporated by reference to Exhibit 10(i) of the Companys

Annual Report on Form 10-K for the fiscal year ended December 31,

1992.                                                                                                                                                   
|                       
|                       
|                       
|                        |  | 10(d) |  | First National Bank of Omaha Senior Management Stock Option Plan,

incorporated by reference to Exhibit 10(d) of the Companys Annual

Report on Form 10-K for the fiscal year ended December 31, 2000.                                                                                                                                                         
|                       
|                       
|                       
|                        |  | 10(e) |  | First National Bank of Omaha Senior Management Option Plan,

incorporated by reference to Exhibit 10(e) of the Companys Annual

Report on Form 10-K for the fiscal year ended December 31, 2000.                                                                                                                                                               
|                       
|                       
|                       
|(b) Reports on Form 8-K |  |       |  | On January 22, 2001, the registrant filed a current report on Form 8-K,

Item 5, reporting a press release issued by First National of Nebraska, Inc.

regarding the earnings of and other information with respect to FNNI.                                                                                                                                    




SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.





| | FIRST
NATIONAL OF
NEBRASKA
, INC
 .
| | -----------------------------------




| | /S
/    TIMOTHY
D. HART
| | -----------------------

| | By:
| | ---

| | Timothy D. Hart
| | ---------------

| | Secretary and Treasurer,
| | ------------------------

| | Principal Accounting and Financial Officer
| | ------------------------------------------




Date: May 7, 2001