FOCUS Report First National Capital Markets, Inc.

X-17A-5 [Paper] - FOCUS Report

Published: 2003-03-12 13:50:34
Submitted: 2003-02-25
Period Ending In: 2002-12-31
scanned.pdf Scanned paper document

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                                           €~.__      ANNUAL AUDITED REPORT
                                            / s                     FORM X—17A—5                                                  SEC FILE NUMBER
                                           /                            PART HI
                                       9                                                                                               8— 53514
                                                                     FACING PAGE
                            N nformatlon Required or Brokers and Dealers Pursuant to Section 17 of the

                                    Securities Exchange Act of 1934 and Rule 17a—5 Thereunder

REPORT FOR THE PERIOD BEGINNING                             Q1/01/02             AND ENDING                            12/31/02
                                                                   MM/DD/YY                                                            MM/DD/YY

                                                    A. REGISTRANT IDENTIFICATION
                                                                                                                                      OFFICIAL USE ONLY
First National Capital Markets, Inc.


1620 Dodge Street
                                                                       (No. and Street)

Omaha                                                                        Nebraska                                                   68197
                   (City)                                                   (State)                                                (Zip Code)


Mr. Todd Engle, President                                                                                                          (402) 633—7470
                                                                                                                              (Area Code — Telephone No.)

                                                   B. ACCOUNTANT IDENTIFICATION

INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*
Deloitte & Touche LLP                                                                                                                                             #
                                                     (Name — if individual, state last, first, middle name)

1601 Dodge Street, Suite 3100                             Omaha                                      Nebraska                              68102
                 (Address)                                (City)                                (State)                               (Zip Code)

CHECK ONE:                                                                                                            PRDPFQQ "B
  |e|       Certified Public Accountant                                                                           C
  L        Public Accountant                                                                                  (       MAR 13 2003
  J        Accountant not resident in United States or any of its possessions.                                         THOMSON

                                                              FOR OFFICIAL USE ONLY

*Claimsfor exemption from the requirement that the annual report be covered by the opinion ofan independent public accountant must be supported
by a statement offacts and circumstances relied on as the basisfor the exemption. See section 240.17a5(e)(2).

SEC 1410 (6—02)                                    Potential persons who are to respond to the collection of information
                                                   contained in this form are not required to respond unless the form displays
                                                   a currently valid OMB control number.

                                                                  OATH OR AFFIRMATION

         I, Todd Engle, swear (or affitm) that, to the best of my knowledge and belief the accompanying financial statement and
         supporting schedules pertaining to the firm of First National Capital Markets, Inc., as of December 31, 2002, are true and
        correct, I further swear (or affirm) that neither the company nor any partner, proprietor, principal officer or director has any
        proprietary interest in any account classified solely as that of a customer, except as follows:



                                                                                        M\ GENERAL NOTARY — State of Nebraska
                                                                                                    DIXIE L. MATHER
                                                                                   e2siAdatie   My Comm. Exp. June 21, 2006

       Notary Public                                  C

       This report** contains (check all applicable boxes):

                          (a) Facing page.

                          (b) Statement of Financial Condition.
                          (c) Statement of Operations.                                                                    |
                          (d) Statement of Cash Flows.                                                                                        H
                          (e) Statement of Changes in Stockholder‘s Equity.
                          (£) Statement of Changes in Liabilities Subordinated to Claims of Creditors.
                          (g) Computation of Net Capital.
                          (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3—3.
                          (i) Information Relating to the Possession or Control Requirements Under Rule 15c3—3.
                          (J) _A Reconciliation, including appropriate explanation, of the Computation of Net Capital Under Rule 15c3—1 and
                              the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3—3.
                          (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods
                              of consolidation.
                          (1)   An Oath or Affirmation.
                          (m) A copy of the SIPC Supplemental Report.
                          (n) Supplemental Report on Internal Control.

      **For conditions ofconfidential treatment ofcertain portions ofthis filing, see section 240.17a—5(e)(3).

(A Wholly—Owned Subsidiary of
First National of Nebraska, Inc.)
(Sed |.D. No. 8—53514)

Statement of Financial Condition and Supplemental
Report on Internal Control as of December 31, 2002
and Independent Auditors‘ Report

Filed in accordance with Rule 17a—5(e)(3) as a

Deloitte & Touche LLP
First National Tower
1601 Dodge Street, Ste. 3100
Omaha, Nebraska 68102—9706

Tel: {402) 346—7788
Fax: (402) 342—1820
                                                                                   & Touche


    To the Board of Directors and Stockholder of
    First National Capital Markets, Inc.
    Omaha, Nebraska

    We have audited the accompanying statement of financial condition of First National Capital Markets,
    Inc. (the "Company"), a wholly—owned subsidiary of First National of Nebraska, Inc., as of
    December 31, 2002 that you are filing pursuant to Rule 17a—5 under the Securities Exchange Act of
    1934. This statement of financial condition is the responsibility of the Company‘s management. Our
    responsibility is to express an opinion on this statement of financial condition based on our audit.

    We conducted our audit in accordance with auditing standards generally accepted in the United States
    of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
    about whether the statement of financial condition is free of material misstatement. An audit includes
    examining, on a test basis, evidence supporting the amounts and disclosures in the statement of
    financial condition. An audit also includes assessing the accounting principles used and significant
    estimates made by management, as well as evaluating the overall statement of financial condition
    presentation. We believe that our audit provides a reasonable basis for our opinion.

    In our opinion, such statement of financial condition presents fairly, in all material respects, the
    financial position of the Company as of December 31, 2002, in conformity with accounting principles
    generally accepted in the United States of America.

     &mwt»j Fucht c
    February 14, 2003



DECEMBER 31, 2002


Cash and cash equivalents                                                              $    925,656
 Commissions                                                                                 53,032
 Affiliate (Note D)                                                                          95,309
 Other                                                                                       14,595
      Total Receivables                                                                     162,936

Prepaid expenses and other assets                                                            15,881
Property and equipment, net (Note C)                                                        115,309

      Total Assets                                                                     $1,219,782


 Accrued expenses and other liabilities                                                $    103,270
 Affiliate accounts payable (Note D)                                                         68,508
 Income taxes payable                                                                        19,775

      Total Liabilities                                                                     191,553


 Common stock, $1.00 par value; 10,000 shares authorized, issued and
  outstanding                                                                                10,000
 Additional paid—in capital                                                                 640,000
 Retained earnings                                                                          378,229

      Total Stockholder‘s Equity                                                           1,028,229

      Total Liabilities and Stockholder‘s Equity                                       $1,219,782
The accompanying notes are an integral part of the statement of financial condition.




     First National Capital Markets, Inc. (the "Company") is a wholly—owned subsidiary of First National of
     Nebraska, Inc. (the "Parent Company"). The Company is engaged in the purchase and sale of an array
     of financial products including fixed income and money market securities primarily to institutional
     clientele. In addition, the Company offers services including bond accounting, portfolio analysis,
     financial reporting, and safekeeping. Service fees result from amounts collected from independent
     contract brokers for processing securities trades and from amounts collected for administrative and
     compliance services. The Company executes and clears trades through the First National Bank of
     Omaha Wealth Management Group, a majority—owned subsidiary of the Parent Company.

     The Company had various start—up activities during 2001 through February 2002. Effective March 1,
     2002, the Company commenced operations as a separate entity as a registered member of the National
     Association of Securities Dealers ("NASD").

     The Company is exempt (under paragraph (k)(2)(ii)) from the provisions of Rule 15¢c3—3 under the
     Securities Exchange Act of 1934.

     Use ofEstimates — The preparation of financial statements in conformity with accounting principles
     generally accepted in the United States of America requires management to make estimates and
     assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
     and liabilities at 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.

     Cash and Cash Equivalents — The Company considers all highly liquid investments with a maturity of
     three months or less when acquired to be cash equivalents.

     Securities Transactions — Securities transactions are recorded on a trade—date basis.

     Depreciation and Amortization — Depreciation and amortization on property and equipment is computed
     on a straight—line basis over the estimated useful lives of the assets ranging from 3—7 years.

     Income Taxes —The Company is included in the consolidated income tax return of the Parent Company.
     Under the liability method used to calculate income taxes, the Parent Company provides deferred taxes
     for differences between the financial statement carrying amounts and tax basis of existing assets and
     liabilities by applying currently enacted statutory rates which are applicable to future periods.
     The Company‘s financial statements reflect income taxes allocated as if the Company filed separate
     income tax returns. Payments are made by the Company to its parent based upon the amount of income
     tax expense as if the Company were a separate tax—paying entity.


Pursuant to the net capital provisions of Rule 15c3—1 of the Securities Exchange Act of 1934, the
Company is required to maintain minimum net capital, as defined under such provisions. Although
nonclearing broker—dealers generally have a minimum net capital requirement of $100,000, the NASD
has informed the Company that it must maintain minimum net capital of $250,000 due to the Company‘s
close relationship with its clearing agent (see Note A). Net capital, net capital requirement, and net
capital ratio may fluctuate on a daily basis. At December 31, 2002, the Company had net capital and a
net capital requirement of $769,898 and $250,000, respectively. The Company‘s ratio of aggregate
indebtedness to net capital was 0.25 to 1.


The Company‘s property and equipment consisted of the following as of December 31, 2002:

  Furniture and equipment                                                                    $      5,906
  Computer equipment                                                                              47,068
  Software                                                                                       309,932
  Accumulated depreciation and amortization                                                      (247,597)

  Net property and equipment                                                                 $ 115,309


The Company provides services to other affiliates of the Parent Company, including First National Bank
of Omaha ("FNBO"). These services include federal funds transfers, bond accounting, portfolio trades,
repurchase agreements and negotiable certificates of deposit dealer services, and commercial paper
management. Fees paid to and commuissions earned by the Company as a result of these services
amounted to approximately $940,000 in 2002. At December 31, 2002, $95,309 was due to the
Company from affiliates for services provided.

In addition, the Company has a services agreement with the Parent Company and FNBO in which
FNBO provides the Company with certain services including trade execution and clearing, purchasing,
personnel, general ledger, website development, financial services, executive support, financial,
operational and information systems audit services, compliance audit and consulting services,
independent review of the Company‘s loan portfolio on a continuing basis, branding/trademark
modifications and miscellaneous other corporate services. The Company is billed for such services
based on various allocation methods. Operating expenses for services provided by affiliated companies
totaled approximately $630,000 in 2002. At December 31, 2002, the Company owed its affiliates
$68,508 for services provided.

Transaction terms with related parties are not necessarily indicative of the terms that would be present if
the parties were unrelated.


Employees of the Company participate in employee benefit plans sponsored by the Parent Company.
Among them is a noncontributory defined benefit pension plan. The Company is allocated its share of
the cost of this plan, which totaled approximately $17,000 in 2002. As of December 31, 2002, the
Company had remitted all amounts related to its share of the benefit obligation to the Parent Company;
therefore, no liability existed.

In addition to providing pension benefits, the Parent Company also sponsors postretirement medical and
death benefits to retired employees meeting certain eligibility requirements. The medical plan is
contributory, whereby the retired employee pays a portion of the health insurance premium, and contains
other cost—sharing features such as deductibles and coinsurance. Costs allocated to the Company for the
postretirement benefit plan totaled approximately $4,000 in 2002. At December 31, 2002, the
Company‘s share of the benefit obligation was approximately $3,700, which is recorded as a liability on
the statement of financial condition.

In addition to the pension and postretirement benefit plans, the Parent Company also has a contributory
defined contribution plan which covers substantially all employees. Costs allocated to the Company for
the defined contribution plan was approximately $18,000 in 2002.


The Company may be involved in various legal matters in the normal course ofits business. At
December 31, 2002, management does not believe that any such matters, either individually or in the
aggregate, will materially affect the Company‘s results of operations or its financial position.


To the Board of Directors and Stockholder of
First National Capital Markets, Inc.
Omaha, Nebraska

In planning and performing our audit of the statement of financial condition of First National Capital
Markets, Inc. (the "Company"), a wholly—owned subsidiary of First National of Nebraska, Inc., as of
December 31, 2002, (on which we have issued our report dated February 14, 2003) we considered its
internal control, including control activities for safeguarding securities, in order to determine our
auditing procedures for the purpose of expressing our opinion on the statement of financial condition
and not to provide assurance on the Company‘s internal control.

Also, as required by Rule 17a—5(g)(1) under the Securities Exchange Act of 1934, we have made a
study of the practices and procedures (including tests of compliance with such practices and
procedures) followed by the Company that we considered relevant to the objectives stated in Rule 17a—
5(g), in making the periodic computations of aggregate indebtedness and net capital under Rule 17a—
3(a)(11) and for determining compliance with the exemptive provisions of Rule 15¢c3—3. We did not
review the practices and procedures followed by the Company in making the quarterly securities
examinations, counts, verifications, and comparisons, and the recordation of differences required by
Rule 17a—13 or in complying with the requirements for prompt payment for securities under section 8
of Regulation T of the Board of Governors of the Federal Reserve System, because the Company does
not carry securities accounts for customers or perform custodial functions relating to customer

The management of the Company is responsible for establishing and maintaining internal control and
the practices and procedures referred to in the preceding paragraph. In fulfilling this responsibility,
estimates and judgments by management are required to assess the expected benefits and related costs
of internal control and of practices and procedures, and to assess whether those practices and
procedures can be expected to achieve the Securities and Exchange Commission‘s (the "Commission")
above—mentioned objectives. Two of the objectives of an internal control and the practices and
procedures are to provide management with reasonable, but not absolute, assurance that assets for
which the Company has responsibility are safeguarded against loss from unauthorized acquisition, use
or disposition, and that transactions are executed in accordance with management‘s authorization and
recorded properly to permit preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America. Rule 17a—5(g) lists additional objectives
of the practices and procedures listed in the preceding paragraph.

Because of inherent limitations in any internal control or the practices and procedures referred to
above, misstatements due to error or fraud may occur and not be detected. Also, projections of any
evaluations of the internal control or of such practices and procedures to future periods are subject to
the risk that they may become inadequate because of changes in conditions or that the degree of
compliance with the practices or procedures may deteriorate.

Our consideration of the Company‘s internal control would not necessarily disclose all matters in the
Company‘s internal control that might be material weaknesses under standards established by the
American Institute of Certified Public Accountants. A material weakness is a condition in which the
design or operation of one or more internal control components does not reduce to a relatively low
level the risk that misstatements caused by error or fraud in amounts that would be material in relation
to the financial statements being audited may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. However, we noted no matters
involving the Company‘s internal control and its operation (including control activities for
safeguarding securities) that we consider to be material weaknesses as defined above.

We understand that practices and procedures that accomplish the objectives referred to in the second
paragraph of this report are considered by the Commission to be adequate for its purposes in
accordance with the Securities Exchange Act of 1934 and related regulations, and that practices and
procedures that do not accomplish such objectives in all material respects indicate a material
inadequacy for such purposes. Based on this understanding and on our study, we believe that the
Company‘s practices and procedures were adequate at December 31, 2002, to meet the Commission‘s

This report is intended solely for the information and use of the Board of Directors, management, the
Securities and Exchange Commission, and other regulatory agencies which rely on Rule 17a—5(g)
under the Securities Exchange Act of 1934 in their regulation of registered brokers and dealers, and is
not intended to be and should not be used by anyone other than these specified parties.

,\Qdumfi CFaht um
Omaha, Nebraska
February 14, 2003

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