Fitch Downgrades First National of Nebraska's IDR to 'BB+'; Outlook Negative

A complete list of rating actions is detailed at the end of this release. Approximately $13.9 billion of debt and deposits is affected by these actions.

The downgrade reflects weaker capitalization and liquidity relative to peer, higher credit exposure to the consumer and heavier reliance on the capital markets, given the sizeable credit card portfolio. While Fitch believes balance sheet contraction will generate capital in 2009, it will be partially offset by a challenging earnings environment. FNNI has traditionally operated with less of a regulatory capital cushion, but Fitch believes that cushion may need to increase going forward given the impact of unprecedented market conditions. Furthermore, regulatory capital ratios would be hurt by the potential amendment of SFAS 140 (or more specifically FIN46) in early 2010, which would move all off-balance sheet assets back on-balance sheet. Fitch will continue to assess the impact of bringing those assets on-balance sheet as legislative discussions continue and implementation nears.

The bank is heavily reliant on conduit and term securitization vehicles for the funding of its credit card portfolio, which have a significant amount of 2009 maturities. Fitch believes the company will take advantage of the Term Asset-Backed Securities Loan Facility (TALF) in order to refinance maturing obligations, but should scheduled issuances be delayed, FNNI may need to seek facility extensions.

The notching of the parent company below the bank reflects limited liquidity and relatively high double leverage. As of Dec. 31, 2008, the parent company had $1.9 million in cash and securities versus $31.5 million in dividends paid during 2008 and $175 million of outstanding borrowings maturing in 2009. According to Fitch's calculations, double leverage amounted to 126% at year-end 2008, which reflects the injection of parent debt into subsidiaries. As a result, the parent is highly reliant on dividend capacity from subsidiary banks to service debt obligations and shareholder dividend payments and Fitch believes stricter regulatory oversight across the financial institution space may prevent the up-streaming of dividends until consistent signs of profitability emerge. This funding profile is consistent with non-investment grade ratings. FNNI suspended its dividend after the payment of $8 million in early 2009, which Fitch views as a positive step in preserving capital and liquidity.

The Negative Outlook reflects the expectation for weakened profitability in 2009 as trends in the unemployment rate signal material deterioration in the credit card portfolio over the balance of the year; although Fitch believes provisioning levels will increase in both the bankcard and non-bankcard portfolios in response to the economic environment. The recognition of material operating losses, failure to refinance maturing credit card funding vehicles, and/or deterioration in capital and liquidity ratios could drive negative rating action. Conversely, rating stability will be driven by higher capital levels, improving asset quality trends, enhanced holding company liquidity, and consistent earnings performance.

Fitch has downgraded and revised the Outlook to Negative from Stable on the following ratings:

First National of Nebraska, Inc.

--Long-term IDR to 'BB+' from 'BBB';

--Short-term IDR to 'B' from 'F3', and

--Individual to 'C/D' from 'C'.

First National Bank of Omaha

--Long-term IDR to 'BBB-' from 'BBB';

--Short-term IDR to 'F3' from 'F2';

--Subordinated debt to 'BB+' from 'BBB-';

--Long-term deposits to 'BBB' from 'BBB+'; and

--Short-term deposits to 'F3' from 'F2'.

First National Bank (Fort Collins)

--Long-term IDR to 'BBB-' from 'BBB';

--Short-term IDR to 'F3' from 'F2';

--Long-term deposits to 'BBB' from 'BBB+'; and

--Short-term deposits to 'F3' from 'F2'.

First National Bank (North Platte)

--Long-term IDR to 'BBB-' from 'BBB';

--Short-term IDR to 'F3' from 'F2';

--Long-term deposits to 'BBB' from 'BBB+'; and

--Short-term deposits to 'F3' from 'F2'.

Fitch has affirmed and revised the Outlook to Negative from Stable on the following ratings:

First National of Nebraska, Inc.,

--Support at '5'; and

--Support floor at 'NF'.

First National Bank of Omaha,

First National Bank (Fort Collins), and

First National Bank (North Platte)

--Individual at 'C';

--Support at '5'; and

--Support floor at 'NF'.

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.

SOURCE: Fitch Ratings

Fitch Ratings 
Meghan Crowe, CFA, 212-908-9121, New York 
Doris Hoffmann, 312-368-2057, Chicago 
Peter Shimkus, 312-368-2063, Chicago 
or 
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Email: brian.bertsch@fitchratings.com