First National chief says regulatory costs mounting

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Posted: Thursday, June 20, 2013 12:00 am

The president of First National of Nebraska, the nation's largest privately held banking firm, said new federal regulatory and compliance efforts stand to cost the company as much as $30 million this year.

“It is a big uncertainty in the banking world,” said Dan O'Neill, speaking Wednesday at the company's annual meeting in Omaha. “They are not operating off of concrete rules. A lot of it is their interpretation.”

The federal Consumer Financial Protection Bureau was formed as a result of the federal Dodd-Frank laws passed in 2010 after widespread bank failures and bailouts using taxpayer money. The bureau is designed to regulate banks for “fairness and transparency for mortgages, credit cards and other consumer financial products and services.”

O'Neill said technology and compliance costs for the bureau, other Dodd-Frank provisions and lost revenue from debit card swipes that were slashed by another federal law will add up to about $30 million this year. Not all of the costs will be incurred in future years, he said.

The bureau, he said, worries banks because there is not a “clear body of rules” from which the regulator is operating in evaluating the fairness of a bank's business practices. He said the agency's regulators have a lot of leeway in deciding what to do after examining a bank; penalties for running afoul include fines.

“So it is a bit of a wild card,” he said.

O'Neill spoke to about 100 people at the company's 1601 Dodge St. building, an audience made up of employees and some of the shareholders who own the lightly traded stock. Most shares of the company that traces its history to 1857 are controlled by the Lauritzen family. First National, with $17 billion in assets, is the largest bank holding company in the nation that is not actively traded on a major stock exchange.

About 2,500 people work for First National in the metro area. The company's First National Bank of Omaha is the metro area deposit-share leader, with 27 percent. The Omaha bank accounts for about $14 billion of First National of Nebraska's assets.

Most of the day's business was greeted with far more enthusiasm than hearing about the tab for new regulations.

First National, which operates 106 branches in seven states under a variety of names, had a profit of $167 million last year, a 5 percent increase from 2011. Revenue rose about 10 percent to $1.2 billion.

Other 2012 financial highlights for the company included:

»Restoration of the dividend, suspended in 2010 and 2011, with $130 paid out last year. Regular dividends are expected to continue, at the rate of $25 per quarter.

»$10.5 billion in credit card usage by customers, including the company's first billion-dollar month, in December.

»Return on assets of 1.1 percent, versus 0.9 percent for a peer group.

»Return on equity of 11.4 percent, versus 9 percent for peers.

There are about 312,000 shares outstanding at First National of Nebraska; enough are owned by the family-controlled Lauritzen Corp. that it is considered the parent company. The shares trade sporadically on the OTC Bulletin Board system and were recently quoted at $4,980 each. The company spent about $6 million last year to buy about 1,450 shares from stockholders wanting to cash out, Chief Financial Officer Michael Summers said at the meeting.

He said that the company plans to continue buying shares back and that he would not be surprised if the volume increased to about $10 million this year.

First National's status as operator of the largest privately owned bank in the country is enviable but probably not attracting many suitors, said Eric Lohmeier, managing director of Des Moines-based merger-and-acquisition investment bank NCP Inc.

“I view any change in ownership as highly unlikely,” he said. “It has been in the same family for generations, and the pool of potential acquirers is really small.”

Lohmeier said some of the banks that can afford First National are already among the nation's biggest — companies such as Wells Fargo and Bank of America — and it's unlikely regulators would allow a combination with any geographic overlap as it would concentrate more assets, deposits and branches in fewer hands.

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