<PAGE> Cover Form
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-10769
NATIONAL BANCORP OF ALASKA, INC.
(Exact name of registrant as specified in its charter)
Delaware 92-0087646
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 West Northern Lights Boulevard/P.O. Box 100600
Anchorage, Alaska 99510-0600
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (907) 276-1132
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $10 par value
(Title of Class)
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
Aggregate market value of common stock held by nonaffiliates of National
Bancorp of Alaska, Inc., based on the closing bid price of the stock at
February 24, 1998: $379,758,441
The registrant has one class of common stock, $10 par value. Numbers of shares
outstanding at February 24, 1998: 7,756,415.
Documents Incorporated By Reference
Documents Parts of Form 10-K into which incorporated
1997 Annual Report to Shareholders Part I and II
Proxy Statement for the March 17, 1998
Annual Meeting of Shareholders Part III
Form S-14, File No. 2-78795 for August 11, 1982 Part IV
<PAGE> 1
Table of Contents
Part I
Page
Item 1 Business................................................... 2
Item 2 Properties................................................. 8
Item 3 Legal Proceedings.......................................... 8
Item 4 Submission of Matters to a Vote of Security Holders........ 8
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters................................ 9
Item 6 Selected Financial Data.................................... 9
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.............. 9
Item 8 Financial Statements and Supplementary Data ...............11
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 12
Part III
Item 10 Directors and Executive Officers of the Registrant........ 13
Item 11 Executive Compensation.................................... 13
Item 12 Security Ownership of Certain Beneficial Owners
and Management............................................ 13
Item 13 Certain Relationships and Related Transactions............ 13
Part IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 14
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<PAGE> 2
PART I
ITEM 1. BUSINESS
National Bancorp of Alaska, Inc. (the Corporation) is a Delaware corporation
organized on June 21, 1982, and registered as a Bank holding company under the
Bank Holding Company Act of 1956.
The Corporation's principal asset is its investment in National Bank of Alaska
(the Bank), a wholly-owned subsidiary. Through its subsidiary, the Corporation
engages in commercial banking and trust activities.
For additional information concerning the business of National Bancorp of
Alaska, Inc. and its subsidiaries, see pages 2 through 18 of National Bancorp
of Alaska, Inc.'s 1997 Annual Report to Shareholders (Annual Report), which is
incorporated in this Item 1 by reference.
The Bank
The Bank was established as a state-chartered bank in 1916 and converted to a
national banking association in 1950.
General Banking Services
The Bank engages in general banking business offering checking accounts,
savings accounts, money market accounts, Time Certificates of Deposit,
securities sold under agreements to repurchase, Individual Retirement Accounts,
commercial loans, home equity loans, unsecured lines of credit, consumer loans,
construction and mortgage loans, lease financing, safe deposit services, night
depositories, Visa credit cards (Classic and Gold), walk-up and drive-in
banking with an international automated teller machine network and other
services incidental to serving the banking needs of individuals, corporations,
government and quasi-government bodies.
As of December 31, 1997, the Bank's banking operations are conducted from 53
banking offices, 3 loan offices and 64 electronic branches located throughout
the state of Alaska, including 15 banking offices and 26 electronic branches in
Anchorage.
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<PAGE> 3
Trust Services
The Bank's Trust Department offers services to individuals and corporations
throughout Alaska including estate planning, settlement of estates,
administration of living and testamentary trusts, management of investment
agency accounts, custodianships, and administration of employee benefit trusts.
The Bank had trust assets of approximately $1,974 million under its supervision
as of December 31, 1997.
International Banking
The Bank's International Department offers customer services in connection with
international business. The department maintains correspondent relationships
with banks located in certain world trade centers, including Tokyo and New
York. Transactions handled by this department include cable, wire, and mail
transfers of funds, negotiating and advancing funds under export Letters of
Credit, buying and selling foreign currencies, handling collection from foreign
banks, and financing imports and exports.
An Edge Act subsidiary, National Bank of Alaska International Banking, Corp.,
has a branch located in Seattle, Washington with its head office in Anchorage,
Alaska.
Competition
The Bank competes actively with national and state banks and other financial
institutions, including savings and loan associations, savings banks, brokerage
houses, money market funds, and credit unions located both in Alaska and other
states. The Bank maintains a competitive position by providing convenient
service in the branch network located throughout the state and by competitive
pricing of the products mentioned above.
Alaska allows out-of-state bank holding companies to acquire banks and domestic
bank holding companies located in Alaska. Management is of the opinion that to
the extent that out-of-state bank holding companies enter the Alaskan market,
the Corporation may encounter intensified competition.
Employment
The Bank employs approximately 1,103 people. Management considers employment
relations to be good. None of the Bank's employees are covered by a collective
bargaining agreement.
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<PAGE> 4
SUPERVISION AND REGULATION
National Bancorp of Alaska, Inc. is a bank holding company subject to
regulation under the Bank Holding Company Act of 1956. A bank holding company
is required to file with the Federal Reserve Board annual reports and other
information regarding the business operations of itself and its subsidiaries
and is also subject to examination by the Federal Reserve Board. A bank
holding company must obtain Federal Reserve Board approval prior to acquiring,
directly and indirectly, ownership or control of any voting shares of any bank
if, after such acquisition, it would own or control, directly or indirectly,
more than 5% of the voting stock of such bank unless it already owns a majority
of the voting stock of such bank. Furthermore, a bank holding company is, with
limited exceptions, prohibited from acquiring direct or indirect ownership or
control of any voting stock of any company which is not a bank or a bank
holding company, and must engage only in the business of banking or managing or
controlling banks or furnishing services to or performing services for its
subsidiary banks. One of the exceptions to this prohibition is the ownership
of shares of a company the activities of which the Federal Reserve Board has
determined to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
provision of any property or service. Thus, an affiliate may not extend
credit, lease, sell property or furnish any services or fix or vary the
consideration for these on the condition that (i) the customer must obtain or
provide some additional credit, property or service from or to its bank holding
company or subsidiaries thereof or (ii) the customer may not obtain some other
credit, property or services from a competitor, except to the extent reasonable
conditions are imposed to assure soundness of credit extended.
In approving acquisitions by bank holding companies of banks and companies
engaged in the banking-related activities, the Federal Reserve Board considers
a number of factors, including the benefit to the public such as greater
convenience, increased competition, conflicts of interest, or unsound banking
practices. The Federal Reserve Board is also empowered to differentiate
between new activities and activities commenced through acquisition of a going
concern.
The Bank is subject to regulation and supervision, of which regular bank
examinations are a part, by the Office of the Comptroller of the Currently
(OCC). The Bank is also a member of the Federal Deposit Insurance Corporation
(FDIC), which currently insures the deposits of each member bank to a maximum
of $100,000 per depositor. For this protection, each bank pays a semiannual
statutory assessment and is subject to the rules and regulations of the FDIC.
The Corporation is an "affiliate" of the Bank, which imposes restrictions on
loans by the Bank to the Corporation, on investments by the Bank in the stock
or securities of the Corporation and on the use of such stock or securities as
collateral security for loans by the Bank to any borrower. The Corporation is
also subject to certain restrictions with respect to engaging in the business
of issuing, flotation, underwriting, public sale and distribution of
securities.
The ability of the Corporation to pay dividends will largely depend upon the
amount of dividends declared by the Bank and any subsequently acquired
companies. Approval of the OCC will be required for any dividend to the
Corporation by the Bank, if the total of all dividends, including any proposed
dividend, declared by the Bank in any calendar year exceeds the total of its
net profits for that year combined with its retained net profits for the
preceding two years, less any required transfers to surplus. In the event that
the Bank were to experience either significant loan losses or rapid growth of
loans or deposits, the Corporation, as the sole shareholder, could be compelled
by bank regulatory authorities to invest additional capital.
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<PAGE> 5
Statistical Disclosure
The information as required by the Securities and Exchange Commission's Guide 3
- - Statistical Disclosure by Bank Holding Companies is incorporated herein by
reference to the Registrant's 1997 Annual Report to Shareholders.
Description Annual Report
Page Numbers
I. Distribution of Assets, Liabilities and Stockholders'
Equity; Interest Rate and Interest Differential:
A. and B. Average Balance Sheet Combined with an
Analysis of Net Interest Earnings.................. 44-45
C. Analysis of Changes in Net Interest
Income due to rate and volume...................... 45
II. Investment Portfolio:
A. Book Value of Investments.......................... 38
B. Weighted Average Yield............................. 38
III. Loan Portfolio:
A. Types of Loans for Each Reported Period............ 39
B. Maturities and Sensitivity to Changes in
Interest Rates..................................... 39
C. Risk Elements...................................... 40
IV. Summary of Loan Loss Experience:
A. Analysis of Allowances for Loan
Loss Experience.................................... 41
V. Deposits:
A. Average Balance by Type............................ 42
B. Large TCD Maturities - Over $100,000............... 39
VI. Return on Equity and Assets
Selected Ratios for Each Reported Period...................... 43
VII. Short-Term Borrowings......................................... 42
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<PAGE> 6
III. Loan Portfolio
C. Risk Elements.
Potential Problem Loans
At December 31, 1997, an additional $66,366,000 in loans are being closely
monitored by management. These loans are not included in any category of non-
performing loans. However, management has concern about the borrowers'
abilities to comply with their present loan repayment terms. These loans are
reviewed monthly to assess any change in collectability.
Foreign Outstandings
There were no foreign outstandings to individual countries as of December 31,
1997.
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<PAGE> 7
IV. Summary of Loan Loss Experience:
B. Allocation of the Allowance for Loan Losses:
Allocation of Reserves
To Loan Categories
_____________________________
Loan Category As a % % of Total Amount of
of Total Loans Reserves Reserves (000's)
December 31, 1997
Commercial and Industrial 37.1% 9.1% $2,235
Real Estate Construction 2.3 0.1 13
Real Estate Long-Term 33.5 1.4 350
Installment 22.7 31.4 7,707
Nontaxable 3.5 - -
Lease Financing 0.9 0.2 44
Unallocated - 57.8 14,181
------------------------------------------
100.0% 100.0% $24,530
December 31, 1996
Commercial and Industrial 34.8% 1.4% $329
Real Estate Construction 2.4 - 5
Real Estate Long-Term 32.0 0.7 150
Installment 26.3 24.8 5,708
Nontaxable 3.8 - -
Lease Financing 0.7 - -
Unallocated - 73.1 16,810
------------------------------------------
100.0% 100.0% $23,002
December 31, 1995
Commercial and Industrial 35.5% 2.2% $468
Real Estate Construction 1.9 - 3
Real Estate Long-Term 31.9 1.2 267
Installment 25.0 15.3 3,288
Nontaxable 4.8 0.4 81
Lease Financing 0.9 - -
Unallocated - 80.9 17,422
------------------------------------------
100.0% 100.0% $21,529
December 31, 1994
Commercial and Industrial 35.9% 5.4% $1,035
Real Estate Construction 1.8 0.9 165
Real Estate Long-Term 33.9 2.3 442
Installment 22.1 13.8 2,664
Nontaxable 5.5 0.8 152
Lease Financing 0.8 - -
Unallocated - 76.8 14,768
------------------------------------------
100.0% 100.0% $19,226
December 31, 1993
Commercial and Industrial 37.9% 21.3% $3,704
Real Estate Construction 2.6 0.2 35
Real Estate Long-Term 33.9 13.0 2,271
Installment 18.2 6.9 1,195
Nontaxable 6.5 3.4 587
Lease Financing 0.9 - -
Unallocated - 55.2 9,616
------------------------------------------
100.0% 100.0% $17,408
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<PAGE> 8
ITEM 2. PROPERTIES
The Bank's main banking office is at its headquarters building, which is
located at Northern Lights Boulevard and C Street, Anchorage, Alaska.
In addition to its headquarters building, the Bank owns 40 of its banking
offices (including four which are subject to ground leases) and leases 79 other
banking and loan offices under agreements expiring between 1997 and 2031.
ITEM 3. LEGAL PROCEEDINGS
For information concerning legal proceedings, see Note 10 of "Notes to
Financial Statements" at page 30 of the Annual Report, which is incorporated
herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1997.
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<PAGE> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
For information concerning market for the registrant's common equity and
related stockholder matters, reference is made to page 46 of the Annual Report,
which is incorporated herein by reference.
The above-referenced schedule shows the high and low bid quotations of the
Corporation's stock as reported by the National Association of Securities
Dealers Automated Quotations System (NASDAQ). National Bancorp of Alaska, Inc.
common stock is traded in the over-the-counter market. Such over-the-counter
market quotations reflect interdealer prices, without retail markup, markdown,
or commission and may not necessarily represent actual transactions.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data for the prior ten years is incorporated herein by
reference on pages 20-21 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For management's discussion and analysis of financial condition and results of
operations see "Management Discussion and Analysis" at pages 36 through 45, and
the Chairman's message to shareholders on page 2 of the Annual Report, which
are incorporated herein by reference.
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<PAGE> 10
Item 7A Interest Rate Sensitivity
December 31, 1997
The table below provides information about the Corporation's material financial
instruments that are sensitive to changes in interest rates, including earning
asset and deposit liabilities. For all non-amortizing financial instruments
other than variable rate instruments, cash flows and weighted average rates are
based on contractual maturity dates and rates. For investment securities
subject to prepayment, the table presents principal cash flows based on recent
prepayment rates. For variable rate financial instruments, cash flows and
weighted average rates are based on the earliest repricing opportunity. For
amortizing loans cash flows are based on scheduled amortization of principal
payments and contractual maturity dates. Interest bearing demand and saving
accounts with no stated maturity, which reprice at management's discretion, are
included in the first year category.
A discussion of the Corporation's exposure to interest rate sensitivity and how
the risk is managed is included in the annual report on page 38.
<TABLE>
<CAPTION>
(In Thousands) Expected Maturity/Repricing Date
1998 1999 2000 2001 2002 There- Total Fair
after Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Assets
Investment securities 144,906 178,952 99,113 61,362 57,024 68,105 609,462 615,784
Average interest rate 6.86% 6.68% 6.98% 6.94% 7.04% 7.38% 6.91%
Securities available for sale 35,047 76,994 45,510 10,253 35,671 25,264 228,739 228,739
Average interest rate 6.95% 7.15% 6.32% 6.74% 6.46% 6.25% 6.73%
Interest-bearing balances
with banks 150 - - - - 150 150
Average interest rate 5.03% - - - - - 5.03%
Federal funds sold and
securities purchased
under agreement to resell 100,000 - - - - - 100,000 100,000
Average interest rate 5.65% - - - - - 5.65%
Loans and leases 290,809 147,306 121,258 92,772 66,456 194,139 912,740 914,728
Average interest rate 8.80% 9.84% 10.07% 9.27% 9.20% 9.64% 9.39%
Loans held for sale 58,304 - - - - - 58,304 58,302
Average interest rate 7.57% - - - - - 7.57%
Variable Rate Assets
Loans and leases 499,134 30,875 15,753 2,540 3,062 7,357 558,721 558,721
Average interest rate 9.52% 9.02% 8.91% 9.13% 9.47% 8.69% 9.46%
--------------------------------------------------------------------------
Total Earning Assets 1,128,350 434,127 281,634 166,927 162,213 294,865 2,468,116 2,476,424
==========================================================================
Fixed Rate Liabilities
Time deposits 400,630 115,234 9,839 749 7,676 1,108 535,236 536,205
Average interest rate 5.28% 5.41% 5.60% 6.07% 6.14% 5.92% 5.33%
Other deposits 787,242 - - - - - 787,242 787,242
Average interest rate 3.05% - - - - - 3.05%
Purchased funds 362,512 250 - - - - 362,762 362,754
Average interest rate 4.79% 6.00% - - - - 4.79%
Variable Rate Liablilities
Time Deposits 75,679 - - - - - 75,679 75,679
Average interest rate 5.39% - - - - - 5.39%
--------------------------------------------------------------------------
Total Interest Bearing
Liabilities 1,626,063 115,484 9,839 749 7,676 1,108 1,760,919 1,761,880
==========================================================================
Interest Sensitivity Gap (497,713) 318,643 271,795 166,178 154,537 293,757 707,197
Cumulative Gap (179,070) 92,725 258,903 413,440 707,197
Ratio of Interest Sensitive
Assets to Interest
Sensitive Liabilities .69 3.76 28.62 222.87 21.13 266.12
Cumulative Ratio .69 .90 1.05 1.15 1.23 1.40
</TABLE>
-10-
<PAGE> 11
Nonperforming Assets
Other real estate owned decreased from $326,000 at December 31, 1996 to
$150,000 at December 31, 1997. Assets with a book value of $536,000 were sold.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and the consolidated financial statements
and notes to consolidated financial statements on pages 22 through 35 of the
Annual Report are incorporated herein by reference.
The quarterly financial data on page 46 of the Annual Report is incorporated
herein by reference.
ITEM 9. CHANGE IN ACCOUNTANTS
Not Applicable.
-11-
<PAGE> 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning directors and executive officers of National Bancorp
of Alaska, Inc., see "Election of Directors" at pages 1 through 5 of the Proxy
Statement for the March 17, 1998, Annual Meeting of Shareholders, which is
incorporated herein by reference.
The following table sets forth the executive officers of the Bank, all of whom
serve at the discretion of the Board, their ages and their positions with the
Bank:
Served as an
Positions and Offices Currently Executive Officer
Name Age Held with Bank Since
- ------------------------------------------------------------------------------
Donald L. Mellish 70 Chairman of the Executive Committee 1964
Edward B. Rasmuson 57 Chairman of the Board of Directors 1972
Richard Strutz 47 President 1985
Kathleen Soderberg 49 Executive Vice President and Treasurer 1982
Gary Dalton 43 Executive Vice President 1988
James Cloud 44 Executive Vice President 1997
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to pages 8 through 11 of the Proxy Statement for the March
17, 1998, Annual Meeting of Shareholders, which is incorporated herein by
reference for information concerning management remuneration and transactions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
For information concerning the Corporation's security ownership by certain
beneficial owners and management, reference is made to pages 1 through 10 of
the Proxy Statement, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning certain relationships and related transactions, see
page 11 of the Proxy Statement, which is incorporated herein by reference.
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<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
FORM 8-K
(a) The following documents are filed as part of the report:
1. Financial Statements
The following consolidated financial statements of National Bancorp
of Alaska, Inc. and its subsidiaries and report of independent
auditors are incorporated in Item 8 by reference from the 1997
Annual Report to Shareholders. Page number references are to the
Annual Report:
National Bancorp of Alaska and subsidiaries: Page
Consolidated Statements of Condition
December 31, 1997 and 1996.............................. 23
Consolidated Statements of Income
Years ended December 31, 1997, 1996, and 1995........... 22
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995........... 24
Consolidated Statements of Changes in Shareholders'
Equity Years ended December 31, 1997, 1996, and 1995.... 25
Notes to Consolidated Financial Statements.............. 25-35
Report of Independent Auditors.......................... 35
2. Financial Statement Schedules
All schedules are omitted because they are not applicable, not
material or because the information is included in the financial
statements or the notes thereto.
3. Exhibits
(3) Articles of incorporation and bylaws are incorporated herein
by reference to Exhibit (3) to Registration on Form S-14, File
No. 2-78795 dated August 11, 1982.
(4) Instruments defining the rights of security holders - specimen
of stock certificate to be issued by the Registrant (as
amended to date) is incorporated herein by reference to
Exhibit (4) to Registration on Form S-14, File No. 2-78795
dated August 11, 1982.
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<PAGE> 14
(13) Annual Report to shareholders for the year ended
December 31, 1997.
(21) Subsidiaries of the registrant are as follows:
Business Name State Incorporated
National Bank of Alaska and
subsidiaries Alaska
National Bank of Alaska
Leasing Corporation Alaska
NBA Advertising, Inc. Alaska
NBA International Banking Corporation Washington
Alaska Bankcard Center, Inc. Alaska
NBA Mortgage Corporation Delaware
Northland Credit Corporation Alaska
NB Aviation, Inc. Delaware
(22) There were no matters submitted to a vote of security holders
during the fourth quarter of 1997.
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were two 8-K reports filed during the quarter ended
December 31, 1997. They are as follows:
The October 3, 1997 8-K reported the increase of the
authorization to repurchase stock from 300,000 to 500,000
shares. No financial statements were included.
The October 24, 1997 8-K reported the revised intention to ask
the shareholders to amend National Bancorp of Alaska certificate
to 42 million shares to allow for a four-for-one stock split
rather than the two-for-one split previously announced. The
shareholders will be asked to vote at the annual meeting on
March 17, 1998. No financial statements were included.
(c) Exhibits - See list of exhibits set forth above at Item 14(a)3.
(d) Financial Statement Schedules
Schedules required to be filed in response to this portion of
Item 14 are listed above in Item 14(a)2.
Report of independent auditors for Form 10-K for the year ended December 31,
1997, is incorporated herein by reference in Item 14(a)1.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NATIONAL BANCORP OF ALASKA, INC.
March 17, 1998 By /s/Edward B. Rasmuson
Date Edward B. Rasmuson, Chairman of
the Board and Director (Principal
Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
March 17, 1998 /s/Edward B. Rasmuson
Date Edward B. Rasmuson, Chairman of
the Board and Director (Principal
Executive Officer)
March 17, 1998 /s/Richard Strutz
Date Richard Strutz, President and
Director (Principal Financial Officer)
March 17, 1998 /s/Gary Dalton
Date Gary Dalton, Senior Vice President
(Principal Accounting Officer)
March 17, 1998 /s/Donald B. Abel, Jr.
Date Donald B. Able, Director
March 17, 1998 /s/Gary M. Baugh
Date Gary M. Baugh, Director
March 17, 1998 /s/Carl F. Brady, Jr.
Date Carl F. Brady, Jr., Director
March 17, 1998 /s/Alec W. Brindle
Date Alec W. Brindle, Director
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<PAGE> 16
March 17, 1998 /s/James O. Campbell
Date James O. Campbell, Director
March 17, 1998 /s/Patrick S. Cowan
Date Patrick S. Cowan, Director
March 17, 1998 /s/Roy Huhndorf
Date Roy Huhndorf, Director
March 17, 1998 /s/James H. Jansen
Date James H. Jansen, Director
March 17, 1998 /s/Donald L. Mellish
Date Donald L. Mellish, Director
March 17, 1998 /s/Emil Notti
Date Emil Notti, Director
March 17, 1998 /s/Howard R. Nugent
Date Howard R. Nugent, Director
March 17, 1998 /s/Tennys B. Owens
Date Tennys B. Owens, Director
-16-
<PAGE> 17
March 17, 1998 /s/Eugene A. Parrish
Date Eugene a. Parrish, Director
March 17, 1998 /s/Michael Pate,
Date Michael Pate, Director
March 17, 1998 /s/Martin R. Pihl,
Date Michael Pate, Director
March 17, 1998 /s/Edward F. Randolph
Date Edward F. Randolph, Director
March 17, 1998 /s/Major General John Schaeffer
Date Major General John Schaefer(Ret.)
Director
March 17, 1998 /s/Michael K. Snowden
Date Michael K. Snowden, Director
March 17, 1998 /s/George S. Suddock
Date George S. Suddock, Director
March 17, 1998 /s/Richard A. Wien
Date Richard A. Wien, Director
March 17, 1998 /s/Sharon Wikan
Date Sharon Wikan, Director
-17-
1997 Annual Report
National Bancorp of Alaska, Inc.
<PAGE> Cover
Strategy, Excellence, Resources, Variety, Incentives, Convenience, Earnings
National Bancorp of Alaska (company logo)
1997 Annual Report
(Photo of business man at teller window making a deposit)
(Photo of NBA Community Agent, Evelyn Stanger discussing business with male
customer)
(Photo of woman seated in chair by fireplace with a lap-top computer)
<PAGE> Inside Cover
SERVICE -- Strategy, Excellence, Resources, Variety, Incentives, Convenience,
Earnings
At National Bank of Alaska, we continually focus on providing excellent
service to our customers and shareholders. Successful service has many
elements. In this report, we've used SERVICE as an acronym to highlight how the
bank is focusing our efforts to provide the best we can offer to our customers,
employees and shareholders.
Strategy - knowing who we are, what we're doing and where we're going
Excellence - providing excellent service and measuring it
Resources - ensuring that we have what we need to be the best
Variety - offering a wide range of products and services
Incentives - rewarding employees for meeting their customers' needs
Convenience - offering easy access to financial services
Earnings - providing value to investors
We understand how important service is to maintaining our leadership position
in the Alaska financial services industry. Please join us for a review of NBA's
operational and financial position, as well as a look at the Alaska economy.
<PAGE> 1 Contents
(Photo of Ed Rasmuson and Richards Strutz)
2 Message to the Shareholders
It was another strong year for NBA. The bank posted record earnings for the
ninth straight year. In the annual shareholders' message, Chairman Ed
Rasmuson and President Richard Strutz share financial and operational
highlights and discuss the annual report theme of "Service."
4 The NBA Strategy
(Photo of senior officers gathered around a table)
The basis of providing service to our customers, employees and shareholders
is a strong strategic plan and a service mission statement.
6 Variety of Products
(Photo of two women holding a banana split ice cream sundae.)
With ample technology and training resources, NBA offers a variety of
products and services to our diverse customer base. Sales and service
incentives inspire employees to listen carefully to customers to determine
their financial needs.
8 Convenience to Customers
(Photo of customers and employees conducting business inside the Wal-Mart
branch.)
Customers from the tip of Southeast to the top of the world can access the
bank through our extensive branch and ATM network or from the convenience of
their telephone, computer or debit/credit cards.
10 Alaska Industry Reviews
As a statewide bank, NBA meets the financial needs of customers in Alaska's
diverse industries. Through the years, we've developed a team of experts
who have a keen sense of what's happening in each of the state's major
industries. In our industry review, these bankers provide a comprehensive
overview of each of the industries.
(Photo of Kenai Fjords Tour boat.)
19 Financial Highlights
In this section, NBA's financial experts outline details of the bank's
performance in 1997.
47 Officers, Board of Directors, Advisory Boards
NBA benefits from a strong management team, as well as the experience and
support of a corporate board of directors and advisory board members
throughout the state.
<PAGE> 2
Our 1997 Performance
To Our Shareholders, Customers and Friends:
As we enter 1998, we are pleased to present this report highlighting the
bank's performance. Last year, we commemorated 80 years of service to Alaskans
with a host of milestones. This year, we exceeded many of those milestones and
achieved new records.
This is the ninth year of record earnings for our bank. Net income for the
year was $51.3 million, an increase of 10.2% over 1996. Deposits are at $1.98
billion, more than 6% above last year. Our loan portfolio is also strong, with
increases in both consumer and commercial loans.
(Photo of Ed Rasmuson and Richards Strutz)
Ed Rasmuson, Chairman of the Board, and Richard Strutz, President
As we mentioned last year, we have continued to accumulate capital in excess
of what is needed to run the bank. In 1996, we concluded that we could achieve
higher returns by investing this excess capital with sophisticated investment
management companies.
At present, the bank holding company has approximately $50 million invested
in these types of funds. The funds have a term of five to ten years, with
prospective returns that we could not achieve through our daily banking
practices. We currently have unrealized profits in these funds which should
help the non-core profits of the bank in future years. Profits realized from
the investment management companies, being capital gains, come at irregular
intervals. The results during 1997 are summarized in the Financial Highlights
on pages 36 and 43.
All of our efforts are designed within the mission of being Alaska's premier
financial services company. We continue to evaluate and improve our service to
achieve this goal. Our report this year focuses on service and the many factors
that go into achieving excellence in this area.
<PAGE> 3
From setting a comprehensive strategy for the bank to providing the resources
and training to enable employees to effectively meet their customers' needs to
enhancing shareholder value _ NBA is committed to outstanding service. In 1997,
we introduced several new products and services and enhanced others to ensure
that we are offering the best. Please take a few minutes to read about our
efforts in the following pages.
Another factor contributing to a successful year was a relatively stable
Alaska economy. This year was the 10th consecutive year of employment growth
for Alaska, with a growth rate of 1% to 1 1/2%. There were no major booms
contributing to the growth, but many small positive factors and an underlying
confidence in the economy.
Several industries experienced growth in 1997, including mining, petroleum,
tourism and international trade. Two major resource industries, fishing and
forest products, however, experienced substantial setbacks. (For a complete
overview of each of these industries, please refer to the industry review
pages.) Overall, we experienced very slight economic growth and the forecast
for 1998 is basically the same.
It was another year of accomplishments for the bank and we are proud of our
efforts. We look forward to another successful year in 1998 and we thank you,
our shareholders and customers, for your business.(NBA's symbol)
Sincerely,
/s/Edward B. Rasmuson
Edward B. Rasmuson, Chairman of the Board
/s/Richard Strutz
Richard Strutz, President
(Four Graphs)
(See below table of items reprsented in graphs)
(In thousands except per share statistics)
1993 1994 1995 1996 1997
Total Assets $2,207,280 $2,344,678 $2,450,921 $2,648,484 $2,777,066
Shareholders' Equity 292,976 312,772 350,320 377,403 398,881
Net Income 35,626 37,520 41,280 46,516 51,257
Net Income per Share 4.47 4.71 5.18 5.84 6.53
(Side captions to the above Graphs)
1-Year 5-Year
1997 1996 1993 Change Change
Total Assets $2,777,066 $2,648,484 $2,207,280 4.9% 25.8%
Shareholders' Equity 398,881 377,403 292,976 5.7 36.1
Net Income 51,257 46,516 35,626 10.2 43.9
Net Income per Share 6.53 5.84 4.47 11.8 46.1
<PAGE> 4
Strategy Leads to Performance
Any good loan officer will tell you that the key to running a successful
business is having a solid plan, with actionable goals for the future. In an
industry as competitive as financial services, it's more important than ever to
know who we are as a company and where we want to be in the long-term.
NBA originated on a strong foundation of providing financial services to the
Alaskan frontier. As the state grew, management's vision became to provide this
service through a statewide network of branches.
As we near the turn of the century, we have an extensive branch and ATM
network in place and a guiding principle of continuing to be "recognized as
Alaska's premier financial services company by listening and responding to the
needs of our customers, enhancing shareholder value, providing meaningful
employment opportunities and acting as a community partner to promote economic
growth and well-being."
This mission statement provides the foundation and the framework for the
bank's strategic plan which incorporates organizational strategies and goals, as
well as specific goals for each business unit.(NBA's symbol)
(Photo of senior officers gathered around a table)
(Caption for photo)
NBA senior officers lay the framework for NBA's strategic plan. Pictured left
to right are Kathy Soderberg, Richard Strutz, Cathie Keyes, Don Mellish, Jim
Cloud and Gary Dalton.
(Photo of woman with baby at teller window with teller)
(Caption for photo)
Branch staff like Aurora Hoffman of the Kotzebue Branch strive each day to
provide a positive banking experience for customers like Helen and Austin Brown.
Exellenct Service Plays an Important Role
Perhaps the single most important factor in achieving the bank's strategic
goals is listening to our customers and providing the services that meet their
needs. Giving our customers exceptional service is expected of every National
Bank of Alaska employee. NBA's service mission statement is, "We will exceed
the expectations of our customers."
Throughout the bank, we face challenges in meeting our customers' needs
through the right sales and referrals, but without consistently good service we
recognize that our efforts will fall short. The bottom line is that customers
appreciate and respond to a positive service experience.
We believe that it doesn't matter how we measure customer service _ what is
important is how our customers set the standard. If we set out to exceed each
customer's expectations, we'll walk away winners almost every time.
NBA employees strive to provide that positive experience in customer
transactions every day. In each sales training course that the bank offers,
service is a hot topic - employees are encouraged to "shop" other financial
institutions and use their experiences to improve the service they provide to
our customers.
<PAGE> 5
And, most importantly, we ask customers to comment on the service that we
provide. In 1997, we introduced a program to evaluate our service, hiring NBA
customers to "shop" and rate the service they receive as they conduct their
normal banking transactions. Their input is used to assist us in identifying
training needs and to highlight our successes. To provide the most unbiased
reporting, we coordinate this research through an independent firm. Since its
introduction in April, NBA employees have consistently performed above
expectations and many individual employees have received a $20 bill as a reward
for a "perfect shop."
Employees who provide exceptional service are also recognized through
internal programs such as a monthly "Service Star" award and thank you cards
that are used to reward good service from one employee to another or when a
supervisor notes a specific instance of service to a customer. Support
departments have negotiated agreements with branches and front-line service
departments outlining key service factors. Branches, and other front-line
service departments rate support departments twice a year to provide feedback
and identify areas that need improvement.
Our record of providing excellent service was reinforced when bank examiners
again awarded NBA an "outstanding" rating on the Community Reinvestment Exam.
The rating is the highest of four possible ratings given to national banks by
the Office of Comptroller of the Currency. In awarding the rating, examiners
noted NBA's exceptional lending efforts, participation in the Low-Income Housing
Tax Credit program, extensive donations to community groups and the many
services that NBA provides to customers and communities through innovative
programs.
To have a reputation as an excellent service provider gives us twofold
benefit - we keep the customers we already have and we attract new customers.
(NBA's symbol)
(Photo of elderly woman with man seated, reviewing sales materials.)
(Caption for photo)
Residents of the Pioneers Home in Anchorage benefit from visits by NBA employees
who donate their time to assist residents with their financial matters. Above,
NBA Personal Banker Sam Medina assists Mabel Spencer.
The Right Resouces Provide the Tools
All the best plans in the world are not enough if you don't have the
technology and training to put them to work to meet your goals. NBA's senior
management made the commitment to significantly upgrade our operating systems in
1996 and 1997. With the bulk of our back-end processing now handled by M&I Data
Services and telecommunications support provided by General Communications, Inc.
(GCI), we have a strong foundation of technology.
Today, NBA staff operate with more than 1,100 personal computers, 66 local
area networks and 70 file servers. This system provides employees easy access
to customer accounts and operating systems.
In 1998, the bank plans to increase its technological base further by
converting to Windows 95 and upgrading to an imaging system to enhance customer
statements and streamline processing. These improvements will provide state-of-
the-art processing for NBA employees and convenient new services for customers.
(Photo of woman on the telephone using a personal computer with other computers
in the background.)
(Caption for photo)
Kassie Tadsen, NBA PC Analyst, performs some behind-the-scenes maintenance to
keep the bank's 66 personal computer networks running smoothly.
<PAGE> 6
Another important resource for NBA staff is training. NBA offers a wide
variety of training support, including computer-based training, videos and
tuition for employees to attend seminars, university courses and American
Institute of Banking classes.
The bank's training department offers sales and service training for front-
line staff, supervisors and managers through a series of courses. In addition,
they offer supervisory training, compliance training and teller training.
In 1998, branch managers will attend their annual conference and, for the
first time, a two-day department managers conference is scheduled. In addition,
a branch operations supervisors conference will be held. Sales coaching and
training techniques will be an important part of these meetings.
Bank management is committed to ensuring that employees have the resources
they need to provide the services our customers expect and deserve. (NBA's
symbol)
(Photo of training session with men and women gathered at tables with woman
instructing them.)
(Caption for photo)
NBA Training Officer Becky Walters conducts a sales training session for
department employees in Anchorage.
(Photo of two women holding a banana split ice cream sundae.)
(Caption for photo)
Brenda Bigalke was able to open her Cold Stone Creamery and watch it grow with
the help of NBA and Huffman Branch Manager Mary Webb.
Customers Like Variety of Services
At NBA, we pride ourselves on providing comprehensive, one-stop financial
services. We offer a wide range of products and services to meet the needs of a
diverse group of individuals and businesses throughout the state. Personal and
Business Bankers are trained to meet with customers, identify their financial
needs and offer personalized solutions.
Our theme, "We Specialize in You," demonstrates our commitment to providing
the products and services our customers need along with fast, accurate and
friendly service. Over the past few years, we have offered new and enhanced
products and services as part of our plan to transform the bank into a service-
and sales-oriented bank.
<PAGE> 7
Not so long ago, banking consisted of providing a safe repository for a
customer's personal and business funds and lending money to help them further
their financial goals. Today, banking encompasses these needs and much more.
At NBA, a Personal Banker can assist individuals with opening deposit
accounts, obtaining a personal or home loan, accessing money through an
automated teller machine (ATM) or debit card, investing funds for education or
retirement, or estate planning. When the banker cannot provide specific
assistance in an area, such as estate planning, he or she serves as a liaison
between the customer and a department of experts (in this case the Trust
Department).
Likewise Business Bankers meet the needs of small and large commercial
customers. The banker provides advice and expertise in deposit accounts and
business loans, referring the customer to experts in specific departments as
needed. Experts often called on include Cash Management Services for meeting
the need to move money from one account or bank to another, Commercial Real
Estate for the purchase or expansion of business properties, Investment and
Trust Services for maximizing the return on available dollars or preparing
retirement plans for employees, and Electronic Services for providing for
merchant needs.
Whether a customer is an individual or a business, in rural Alaska or at the
center of commerce, new or well-established - National Bank of Alaska offers a
package of services to meet the financial needs. We're dedicated to working
with each customer to determine their needs and offer cost-effective financial
solutions.(NBA's symbol)
(Photo of man at brochure rack in branch.)
(Caption for photo)
Customers like Kent Logan enjoy the variety of new and enhanced services
provided by NBA.
Incentives Help Boost Sales
(Photo of woman standing in branch wearing a baseball cap and holding five $100
bills.)
(Caption for photo)
Eileen Lyse, a Personal Banker at NBA's Sitka Branch, came out on top in the
Emerald City Sales Contest, winning a trip for two to Seattle with
accommodations, Mariners' tickets and $500.
What do a movie pass, a $20 bill and a jet ticket have in common? All three
are incentives that NBA employees have earned for successfully selling services
to customers. At NBA, the emphasis is on knowing bank products, listening to
customers and offering the services they need.
A variety of incentive programs provide rewards for successful sales. At the
branch level, employees participate in sales and referral contests, often tied
to a new product or to a monthly Product Spotlight. Through creative teamwork,
employees throughout the state have developed custom reward programs that are as
diverse as the customers we serve.
Each month, branches compete against each other for the most sales of the
spotlighted product. While the prize is not large, competition is often
intense.
Typically, once a year there is a bankwide sales contest. This year's
contest, the "Emerald City Sales Contest," established a point system for
certain products. Sales were tracked by Personal/Business Banker and prizes
were awarded monthly. At the end of the three-month contest, the top 30 bankers
traveled to Anchorage to learn their final standing and accept their prizes.
The top five bankers were treated to a trip to Seattle, the "Emerald City."
Often, however, the best incentive is a warm word of thanks from a customer.
Customer comments are well-received within the bank and letters are collected
and distributed regularly.(NBA's symbol)
<PAGE> 8
Convenience
Banking Any Time, Anywhere.
NBA remains committed to an extensive branch and automated teller machine
(ATM) network. With more than 50 branches and 100 ATMs throughout the state,
our network is a testimony to this ongoing convenience commitment. In 1997, we
opened our first in-store branch, in Wasilla's Wal-Mart. We also built a new
Homer branch, combining two branches into one larger location to better serve
our customers.
(Photo of customers and employees conducting business inside the Wal-Mart
branch.)
(Caption for photo)
NBA's Wasilla Wal-Mart Branch opened for business in July, providing a full line
of NBA products and services along with extended hours and two ATMs.
Our customers live in communities from Barrow to Metlakatla and just about
everywhere in between. For some, accessing bank services isn't as easy as
walking into a branch - they live miles from a branch, in an area accessible
only by boat, airplane or snow machine. Others simply prefer the convenience of
banking electronically.
That's one reason we offer services our customers can use from a phone in
their home or office, at store counters and automated teller machines, as well
as in our branches. By dialing a number on their phone, NBA customers can
access account information, apply for a loan, determine their Visa balance or
payment due, pay bills and transfer funds between accounts.
We introduced or enhanced many convenience services in 1997. Early in the
year, we offered two packaged checking accounts for individuals: Carefree Plus
Checking and new Gold Account Checking. Each offers a convenient grouping of
services combined with a checking account. Featured services include a Visa
Check Card with no monthly fee, a Visa Credit Card with no annual fee, loan
discounts, overdraft protection and more.
Also in 1997, NBA introduced PC Banking and Bill Pay for individuals and
businesses. From the convenience of their home or office computer, customers
can view deposit account balances and transactions, transfer funds between NBA
accounts, initiate bill payments and communicate with the bank via Email.
For medium- and large-sized businesses, NBA Online is a helpful cash
management tool. Business customers can use their personal computer to check
balance and transaction activity, originate wire transfers, transfer funds
between NBA accounts, place a stop payment on a check and get bank deposit and
account analysis
<PAGE> 9
statements. NBA's Easy Pay service enables corporate customers to receive and
send funds electronically through the Automated Clearing House (ACH).
And in late 1997, NBA debuted its site on the World Wide Web
(www.nationalbankofalaska.com). With a theme of "It's Amazing What a Bank Can
Do For You," the site offers valuable financial planning information, product
highlights and information, loan calculators and current interest rates.
Through Email, customers can now communicate directly with NBA's Central
Customer Service department via computer.
In 1998, the bank will continue to evaluate customer needs and introduce new
products and services, or enhance existing ones, to ensure that we offer the
very best to our customers.(NBA's symbol)
(Photo of NBA's Internet Home Page.)
(Caption for photo)
NBA's website is packed with valuable financial planning tools, and also
provides information on products and services available at NBA.
Earnings Provide Value to Investors
No corporate overview of service would be complete without a reference to its
shareholders. It is through shareholder investment in National Bank of Alaska
that the bank can offer the products and services that our customers need. NBA
management is committed to providing a strong return on investment to its
shareholders.
This is accomplished through responsible management of the bank's resources,
aggressive pursuit of sales, and operating efficiencies. Employees throughout
the bank participate in the bank's success through one of the state's best
profit sharing programs. In 1998, for the first time, NBA employees will have
the option of investing retirement funds in NBA stock to further share in the
company's success.
We believe that all of these factors combined - strategy, excellence in
service, resources, variety of products, incentives, convenience and earnings -
contribute to the bank's ability to serve our customers and communities well.
From the top down, we're committed to doing what it takes to continue to be
Alaska's premier financial institution.(NBA's symbol)
(Photo of woman seated in a chair, using a lap-top computer.)
(Caption for photo)
PC Banking customer Susan Pettis relaxes in her living room at home while
dialing in via modem to do her NBA banking with her personal computer.
<PAGE> 10
INDUSTRY REVIEWS
(Photo of two men reviewing construction plans outside of the Homer branch.)
(Caption for photo)
Branch Manager Joe Everhart (left) discusses finishing details with Sam Beachy
of Beachy Construction (right) for completion of the new NBA branch in Homer.
Construction Remains Strong
Statewide construction employment at the peak of the season in July was
15,300 persons, approximately the same as 1996. This year was marked by an
impressive amount of hotel construction throughout the state. In Anchorage, the
$14-million, 154-room NANA-Marriott Courtyard Hotel, financed by NBA, opened in
June near the Anchorage International Airport. NBA also financed a 102-room
NANA-Marriott Fairfield Suites Hotel in midtown Anchorage. Other hotel projects
underway or completed in Anchorage were the 101-room Hampton Inn, the 48-room
Ramada Limited, the 77-room Microtel and the 111-suite Clarion Hotel.
Elsewhere in the state, Princess Tours opened its $25-million, 162-room Mt.
McKinley Princess Lodge north of Talkeetna and the Westmark Hotel in Fairbanks
is adding 133 rooms and a health club. In Barrow, an NBA-financed, 18-room King
Eider Inn is under way. In Ketchikan, the 44-room Narrows Inn, with a
restaurant and 28-boat marina, is nearly complete.
Other private construction projects around the state included the 100,000-
square-foot Home Depot in Anchorage, the $70-million Mapco refinery expansion in
Fairbanks and the 45,000-square-foot addition to the North Star Terminal
Building for Doyon, Ltd. in Fairbanks (financed by NBA). Doyon intends to lease
the space to Alyeska Pipeline Service Company.
State funding for construction projects in 1997 was an estimated $220
million, a decrease from the previous year's $235 million. The State Department
of Transportation and Public Facilities is uncertain what the total spending
will be for 1998 because the federal funding bill, which the state is largely
dependent on, has not yet passed. State officials indicate that 1998 funding
could be as much as $250 million.
One notable state project in 1997 is the Portage to Whittier road that was
temporarily blocked by an environmental group, but cleared by the 9th Circuit
Court of Appeals. Phase I of the project is the construction of a 2.5-mile
access road and staging area on the Portage side. When complete, officials
expect visitors to Whittier to climb from the current 200,000 per year to more
than 1.4 million.
Other state projects in 1997 included a $22-million remodel and addition on
the Tri-Valley School in Healy; a $15.2-million
(Photo of two men standing inside home under construction.)
(Caption for photo)
Below, Chuck Spinelli (right), owner of Spinell Homes, with the help of
construction manager Todd Schroder (left), continues to lead the state's
residential construction efforts.
<PAGE> 11
addition to Lathrop High School in Fairbanks; initial site preparation for the
$20-million launch complex at Narrow Cape on Kodiak Island; and ground breaking
for a $10-million Alaska Regional Aircraft Fire Training Center in Kenai.
(Photo of Anchorage Primary Care Facility.)
(Caption for photo)
Pictured at right is the Anchorage Primary Care Facility. Financed by NBA, the
facility opened in June, providing outpatient care to support the Alaska Native
Medical Center.
In June, construction began on the $32-million International Arctic Research
Center on the University of Alaska Fairbanks campus. This project is a
cooperative funding effort between the Japanese government, U.S. federal
government and the State of Alaska. On the University of Alaska Anchorage
campus, work began on a $26.7-million student housing and dining complex.
Federal funding for construction in 1997 was $241 million, a $62-million
increase compared to $179 million in civilian and military projects in 1996.
They expect $332 million in project funding for Fiscal Year 1998. The two
biggest federal construction projects, the $167-million Alaska Native Medical
Hospital and the $157-million Elmendorf Air Force Base Composite Medical
Facility, are largely completed. At Eielson Air Force Base, there were several
$5- to $10-million projects, including renovation of the Ben Eielson High School
and construction of an A-10 hangar and a squadron operations and aircraft
maintenance facility. Other federal projects included the dredging of the
Anchorage Harbor, renovation of family housing at Fort Richardson and Orion
Elementary School on Elmendorf AFB and construction of a fuel hydrant system on
Elmendorf.
Throughout the state, residential construction continues to grow. Anchorage
had its best year since 1985, with 1,043 permits compared to 859 permits in
1996. Fairbanks had 144 new homes, Juneau 105 permits, and Ketchikan 29
permits. Vacancies are low in the major cities: 5% in Anchorage, 6.1% in
Fairbanks, and 2.65% in Juneau. The Alaska Housing Finance Corporation reported
36 average foreclosed inventory in September 1997 in comparison with 56 units at
the same time last year. Delinquencies were 4.38% in September compared with
4.2% in September 1996.(NBA' Symbol)
By Jim McCormack, Vice President
Fishing Industry Faces Challenges
The Alaska fishing industry continues to experience substantial challenges.
arvests in 1997 were, for the most part, lower than forecast.
The harvest of 121 million salmon was the smallest Alaska salmon harvest
since 1988. It was below the 1996 harvest of 174 million fish and the forecast
of 171 million. Low ex-vessel prices further reduced the value, netting
fishermen approximately $270 million (the lowest value since $254 million in
1980).
Statewide, Alaska sockeye production was 41% below the previous three-year
average harvest. The Bristol Bay region was particularly hard hit. Bristol Bay
fishermen produced 12.3 million sockeye, half the pre-season forecast. On a
positive note Cook Inlet, Prince William Sound and the Yukon River had higher
ex-vessel values in 1997 than 1996.
Perhaps the greatest challenge for the salmon fishing industry is the growth
of the worldwide aquaculture industry. Exports of farm-raised salmon,
particularly from Norway and Chile, are significantly impacting Alaska's salmon
markets. In 1997, Norwegian production of farmed salmon exceeded the production
of Alaska wild salmon for the first time. Also in 1997, Alaska sockeye will
account for less than 20% of Japan's salmon and trout imports compared with 47%
just three years ago.
Alaska salmon harvests are no longer the primary factor determining world
salmon prices. Despite the state's low Alaska salmon harvest, market prices
remained low due to a broader supply, largely from farmed salmon. On a positive
note, the low Alaska harvests impacted canned salmon prices favorably. With
little carryover of canned salmon inventory and the reduced harvest, prices of
canned pink and sockeye salmon have strengthened.
The 1997 herring harvest of 53.7 million metric tons was slightly larger than
the 1996 harvest. The Togiak area harvest of 23.6 tons was particularly strong
and the Prince William Sound had a herring fishery for the first time in several
years. On the down side, the ex-vessel value was just $14.9 million, compared
to $53.6 million in 1996. The reduced value reflects the depressed price for
herring roe in the Japanese market.
The 1997 king crab harvests continued at a low level. The Bering Sea quota
of 7 million pounds was harvested in four days, the second shortest
(Photo of three crab fishermen emptying basket of crab on deck of fishing
vessel.)
(Caption)
In 1997, the opilio crab harvest was strong, rising to 120 million pounds.
<PAGE> 12
season on record. On a positive note, the opilio crab harvest increased to 120
million pounds, well over the 1996 harvest, and the 1998 quota is 225 million
pounds. The Bering Sea bairdi crab fishery was closed for the first time in a
decade when regulators determined there was a significant decrease in the bairdi
crab on the fishing grounds.
The International Pacific Halibut Commission established a 1997 Alaska
halibut harvest level of 53 million pounds, up substantially from the 38.6
million pounds quota in 1996. The final harvest was slightly more than 51
million pounds. The individual quota system established three years ago enhanced
the value of the fish, provided a better product to the public and is less
hazardous to vessel operators. The sablefish quota of 30.2 million pounds was
essentially met.
The North Pacific Fishery Management Council set 1998 groundfish allocations
in the Bering Sea/Aleutian Island area at levels very similar to 1997. The
Bering Sea allocation is slightly less than 2 million metric tons of groundfish.
The Gulf of Alaska allocation is 325,000 metric tons. Major issues before the
bottomfish industry include a review of the onshore/offshore allocation in the
Bering Sea and the introduction of federal reflagging legislation that could
affect certain vessels' participation in the fishery.(NBA's symbol)
By Fred Richard, Senior Vice President
(Photo of woman working at personal computer with man looking on.)
(Caption for photo)
The Prince William Sound Science Center is an independent research and education
facility located in Cordova. Researchers Kathy Hough and Vincent Patrick
analyze data collected by the center to gain a better understanding of the
area's ecology, including fish populations.
(Photo of Tesoro Alaska's hydrocracker unit in Kenai.)
(Caption for photo)
Tesoro Alaska's $18.7-million expansion included modifications to its
hydrocracker unit, used to produce jet fuel at its refinery in Kenai.
Petroleum Industry Sees Growth
The outlook in the petroleum industry for the next three- to five-year period
is very positive. In 1997 the industry celebrated the 20th anniversary of the
startup of Prudhoe Bay and the first transportation of oil down the pipeline to
Valdez. Since then, total North Slope production has exceeded 11.7 billion
barrels.
During the first nine months of 1997 North Slope production averaged 1.3
million barrels per day. This compares with just over 2 million barrels per day
average production at the peak in 1988. Alaska has become a worldwide leader of
high technology "designer" drilling techniques such as horizontal and extended
reach drilling, multilateral completions and "through-the-tube" drilling.
Activity levels were up in 1997 and the forecast is good. However, a
possible labor shortage coupled with low oil prices may cause marginal projects
to be delayed or canceled. Construction of the Badami project is progressing at
full pace. Drilling began on the heavy oil projects at Schrader Bluff and West
Sak. Arco Alaska and BP Exploration (Alaska) also announced plans to proceed
with development of the 50-million-barrel Tarn field 10 miles west of Kuparuk
and the 120-million-barrel Liberty field in the Beaufort Sea. An estimated $160
million will be spent on a miscible injection expansion project at Prudhoe Bay.
This project will require a sea lift in 1999 and will boost production at the
aging field by 20,000 barrels per day. An enhanced oil recovery project is also
planned for the Point McIntyre field.
As a further sign of the future prospects for the industry, Arco and BP are
awarding contracts for a number of new or modified drilling rigs to meet the
aggressive drilling programs planned for the next three to five years. Arco
boosted
<PAGE> 13
the estimate of reserves in its Alpine Field to 365 million barrels. In the
fall of 1997 Arco announced contracts worth more than $850 million for
engineering services, module fabrication and installation, field construction,
drilling and materials procurement.
In a welcome change for the industry, several new projects include
fabrication and construction of huge oil field modules in Alaska. Previously
this work has all been done out of state. As part of the Alpine Field, a sea-
lift-capable module fabrication facility is being developed in Nikiski on the
Kenai Peninsula. This will support 250 temporary jobs. It will be the first
plant in Alaska large enough to build the four-story North Slope production
modules.
The Cook Inlet basin continued to experience renewed industry interest.
Miami-based Forcenergy, Inc. expanded its operation in the inlet with its
purchase of the West MacArthur Field and other leases from Stewart Petroleum.
Forcenergy had previously completed transactions with Marathon and Unocal for
various Alaska properties. The company plans an aggressive drilling program
both onshore and offshore. Unocal, Phillips and Marathon also had drilling
programs in 1997.
Tesoro Alaska Petroleum Company successfully completed a modification to its
hydrocracker unit at its refinery in Kenai. The modification will allow for
increased production of jet fuel. It was financed by NBA in participation with
the Alaska Industrial Development and Export Authority. In November, 1997 the
Tulsa-based Williams Companies, Inc. announced plans to acquire Mapco, Inc. The
transaction will include Mapco's refinery in North Pole, Alaska and an extensive
retail network in the state.(NBA's symbol)
By Pita Jelley Benz, Vice President
(Photo of oil rig in wintertime on North Slope.)
(Caption for photo)
Since 1977, total North Slope production has exceeded 11.7 billion barrels.
(Photo of three men in the New York Stock Exchange.)
(Caption for photo)
The Alaska Permanent Fund benefited from high returns on stock holdings in 1997
with the help of (left to right) Eric Wohlforth, the 1997-98 chair of the Alaska
Permanent Fund's Board of Trustees; Carl Fazio, Vice President, Bank of New
York, and the Fund's global custodian; and Peter A. Bushre, Chief Financial
Officer for the APFC.
State Government in Solid Fiscal Condition
The state of Alaska, which depends largely on oil revenues for income, ended
Fiscal Year (FY) 1997 with a general fund surplus due primarily to higher oil
prices. The $2.3 billion FY98 budget passed by the legislature reflected a $60-
million reduction in state spending and was the target goal for the second year
of a five-year plan to reduce the state's operating budget.
Although concerns about general fund operating deficits for FY98 and beyond
exist, the state of Alaska enters 1998 in solid fiscal condition, with over $3.2
billion in the Constitutional Budget Reserve Fund. In addition, the state has
the ability to use a portion of the earnings from the Alaska Housing Finance
Corporation (AHFC) and Alaska Industrial Development and Export Authority
(AIDEA) to balance budgets.
AHFC, with equity of more than $1.8 billion, provided $37 million to the
state's general fund for the FY98 budget. AIDEA, with more than $1.2 billion in
assets, also provided $15 million to help meet the state's budget objectives.
With earnings of $2.1 billion in FY97, the Alaska Permanent Fund brought more
outside money into Alaska than any business except oil. In FY97, the Permanent
Fund celebrated its 20th anniversary. Driven by extraordinary returns from the
stock portfolio, the value of the Permanent Fund increased more than $3 billion,
to a market value of $22.1 billion by year-end. The fund's largest contribution
to the state's economy is the Alaska Permanent Fund Dividend Program, which
distributed a record total of $747 million to Alaskans. More than 80,000 of the
$1,296.54 dividend payments were electronically deposited into National Bank of
Alaska accounts in 1997, up 10% from 1996. (NBA's symbol)
By Pete Crandall, Senior Vice President
<PAGE> 14
Forest Products Suffer Decline
The Alaska forest products industry suffered a significant decline in 1997
due to instability in Pacific Rim economies and continued shrinkage of public
timber supplies. Louisiana Pacific's Ketchikan Pulp Corporation closed its
Ketchikan pulp mill early in 1997, resulting in the loss of over 400 jobs. The
U.S. Forest Service completed the Tongass Land Management Plan and drastically
reduced the allowable sale quantity to 267 million board feet annually, or half
of prior harvest levels. What is available is on land with lower volumes per
acre and tougher access. While the government indicates it wishes to rely on
small value-added operators to take up the slack and retain jobs, this will take
time to establish and may never replace the volume of jobs lost.
Harvests on private land, mostly from ANCSA Native corporations, declined
moderately to 394 million board feet out of a sharply reduced total Alaska
harvest of 464 million board feet. This volume is 25% less than in 1996. The
vast majority of timber continues to come from Southeast Alaska, where 282
million board feet, or 27% less than last year was harvested. Over 80% of the
Southeast harvest came from Native lands as activity in the Tongass dropped to
its lowest level in generations.
(Photo of helicopter moving logs onto a barge in southeast Alaska.)
(Caption for photo)
Despite further declines in the timber industry during 1997, companies such as
Silver Bay Logging Company of Sitka are making use of new technology like the
skycrane helicopters for more efficient transportation of high-value timber in
difficult terrain.
With over 65% of Alaska's timber harvest exported to Japan, the fortunes of
the industry are tied to that nation's economy. With the initiation of a
consumption tax in April 1997, Japanese housing starts declined 20% for the year
resulting in a 25% to 50% drop in log prices compared to the start of the year.
On the positive side for the long term, North American lumber exports to Japan
now exceed log exports, and over the past 5 years the average floor space of
Japanese homes has increased by 10%.
Despite the difficulties of the past year, there is optimism in the industry,
and those operators remaining are lean, efficient, and looking for creative ways
to utilize Alaska's bountiful forest resources. There are several bright spots
for the future of the industry. The University of Alaska and the Alaska Mental
Health Trust own significant tracts of timber and are working to make stumpage
available, and a number of plans to launch custom sawmills or specialty
processing plants are in process.
In Southeast Alaska, Seley Log & Lumber has constructed a value-added sawmill
on Lewis Reef near Ketchikan with a dry kiln and planer to produce dimensional
lumber. Sealaska Timber Corporation and Louisiana Pacific Corporation are
considering converting the closed Ketchikan pulp mill site into a laminated
veneer lumber mill which could utilize low-value hemlock to meet strong and
growing market demand for such engineered wood products. In Wrangell, Silver
Bay Logging is negotiating for Alaska Pulp Company's closed sawmill site for use
as a log sorting and wood chip plant which would make space for related wood
product manufacturing activities. These are good examples of the new emphasis
on value-added wood products in this shrinking market.
The spruce bark beetle epidemic on the Kenai Peninsula and throughout
Southcentral continues to spread. Private land owners are harvesting their
timber to maximize value and accelerate the regrowth of the forest. Total
timber volumes harvested in the region dropped from last year's record to 174
million board feet. The Chugach National Forest, which has been a minor supply
source, has begun the initial phase of its Land Management Plan which will
control timber use. The region's primary volume product remains white spruce
chipped and shipped to Japan where demand is firming after the market bottom of
the past two years. In addition, several new sawmills are in development on the
Kenai in an attempt to retain better operating margins for Alaska operators.
Interior harvests were down from 40 million board feet in 1996 to only 6.8
million for 1997. Efforts are being made to establish value-added processing,
but it is not expected that significant results will occur until price recovery
makes shipping pulp to Southcentral ports feasible.
While 1997 was a difficult year, long-term increases in demand for fiber and
manufactured wood products bode well for the Alaska timber industry and our
transition to value-added processing. It will take time to recover the jobs
lost in the recent structural changes, but the industry is resilient and
responding aggressively to the challenge.(NBA's symbol)
By Larry Cooper, Vice President
<PAGE> 15
International Trade Continues to Rise
(Photo of oil barges at port in Valdez)
(Caption for photo)
In 1997, petroleum-based exports rose 36%, reaching $632 million. Much of this
oil is transported down the pipeline from Prudhoe Bay to Valdez.
Alaska exports were up 7% during the first nine months of the year, compared
to the same period in 1996. The increased sales of Alaska petroleum and mineral
products are attributed to strong prices and increased marketability. Sales of
fish, minerals, petroleum and other Alaska-based commodities reached $2.11
billion for the first nine months of 1997, up moderately from $1.98 billion
during the same period in 1996. The value of international air freight passing
through Alaska increased sharply, up 32% to $3.1 billion compared to $2.4
billion during the same period in 1996. The types of freight passing through the
international airports included computer components, airplane parts, radio and
TV transmission equipment, etc. About 96% of the total freight goes to Asian
countries.
The state's leading export continues to be seafood products, with sales of
$818 million for the first nine months of the year. Compared to the same period
in 1996, the value of fish exports dropped 20%, from $1 billion. The percentage
of fish exports in relation to total exports also shrank, to 39% from 52% in
1996. This drastic decline of fish exports is due to a combination of factors:
the lowest salmon catch since 1988 (32% lower than the average from the past
three years) and increased availability of Alaska salmon alternatives such as
Chilean coho and Atlantic salmon.
Timber exports also declined by 7% compared to the same period in 1996. The
decline was due to the lack of available timber.
Declines in timber and fish exports were more than offset by an increase in
mineral and petroleum exports. Mineral exports, mostly zinc and lead ores,
increased 157%, from $120 million to $309 million. Petroleum-product exports
rose 36%, reaching $632 million compared to $453 million during the same period
in 1996. As anticipated, the petroleum exports surged due to the lifting of the
federal law in 1996 that banned the export of North Slope oil to foreign
countries. Most of Alaska's petroleum exports go to South Korea and China.
Asian countries are the biggest market for Alaska exports, accounting for
$1.77 billion in commodities exports (84% of total commodities exports) and
$2.96 billion in air freight exports (96% of total international air freight
exports). Japan remains Alaska's top trading partner, despite the reduction in
their purchase of fish products this year. Alaska's commodities exports to
Japan dropped by 12% this year, to $1.16 billion or 55% of total Alaskan
exports. Japan received $1.26 billion in air freight exports, or 41% of the
total air freight shipped through Alaska.
Exports to Korea and China increased noticeably during the first nine months
of the year due to a dramatic increase in shipment of North Slope oil to these
countries. Commodities exports to Korea were up 52%, reaching $367 million or
17% of total Alaska exports. Air freight to Korea was up 9%, to $174 million.
Commodities sales to China rose 84%, to $156 million, and air freight was up to
$122 million. Taiwan imported $55 million of Alaska commodities and $147
million in air freight.
Exports to Canada surged by 119%, to $143 million. The growth was due to a
huge increase in zinc sales combined with the high price of zinc in 1997. Air
freight shipped to Canada reached $51 million, up 246% from the same period in
1996.
Alaskan exports to Europe were up 68%, reaching $168 million during the first
nine months of 1997. The notable increase in exports to Europe was primarily
due to rising exports of minerals, especially zinc.
Alaska's exports were stable through the end of 1997 and will likely exceed
1996 volume. Total exports in 1998 are expected to stay comparable to 1997
volume. The current turmoil in Asia is a concern for Alaskan exports, but no
significant impact on export value is expected at this time. It is, however,
difficult to predict what is in store for the entire year. (NBA's symbol)
By Seung Choi, Vice President
<PAGE> 16
(Photo of Red Dog Mine in Kotzebue.)
(Caption for photo)
In 1997, Red Dog Mine continued with the expansion of its mill and port facility
at the $200-million mine located north of Kotzebue.
Mining Production Up Substantially
Overall, 1997 was a very good year for Alaska's mining industry. The
industry employed approximately 3,900 workers. Mining expenditures are
typically divided into those for exploration, development and production (see
charts at right). Exploration and production expenditures increased for 1997,
while development spending declined due to the completion of the Fort Knox gold
mine in 1996.
Alaska continues to produce increasing quantities of zinc, lead, gold and
silver. The pricing of these metals substantially impacts the value of Alaska
production each year as well as mining companies' investments in exploration and
development.
Zinc, used widely to create galvanized steel, is a key raw material used in
automobiles and construction materials. Zinc prices increased throughout the
first half of the year, but corrected slightly with higher worldwide inventories
and foriegn currency devaluations. Lead prices were flat for most of the year,
with stable inventories. The primary use of lead is in the manufacturing of
lead-acid batteries. Silver prices remained fairly steady throughout the year.
The largest use of silver is in the making of photographic film products.
The most volatile metal price was gold. Gold prices sank from a high of $360
per ounce to a low of $285 before ending the year at just under $300. While
demand was strong for jewelry fabrication, the inventory was high due to central
bank sales and the impact of speculative short-selling.
Overall, the value of mine production increased significantly in 1997. Fort
Knox completed its first year of operation and Illinois Creek started
production. Greens Creek also experienced a full year of silver, zinc, gold and
lead production after restarting in 1996.
Usibelli Coal Mine produced 1.45 million tons of coal in 1996 and exported
about half of it to Korea. The Healy Clean Coal Project was completed during
1997 and will be operational by mid-1998. This state-of-the-art coal-fired
plant will generate an additional 53 megawatts of electricity for the Fairbanks
region, consuming about 300,000 tons of waste coal.
During 1997, Sealaska Corporation began producing limestone from its Calder
quarry on Prince of Wales Island. The high-quality crushed and screened calcium
carbonate will be exported for use in horticulture, construction materials and
the manufacture of animal feed.
Development construction continued at a slower pace than in prior years,
reduced by the completion of the Fort Knox gold mine in 1996 and Echo Bay Mine's
abandonment of A-J Mine development. The most significant project underway was
the continued expansion of the
Economic Value of Alaska Mining Industry
In Millions `93 `94 `95 `96 Est'97
Exploration $30 $31 $34 $45 $51
Development $28 $45 $149 $394 $152
Production $449 $508 $537 $590 $885
Total $507 $584 $720 $1,029 $1,088
Source: State of Alaska, Division of Mining
Employment
Year-Round Equivalents
`93 `94 `95 `96 Est'97
3,130 3,083 3,406 3,737 3,900
<PAGE> 17
$200-million mine, mill and port facility at the Red Dog zinc mine, north of
Kotzebue. In 1998, the mill will increase concentrate production by 40%,
solidifying it as the largest and lowest-cost zinc mine in the world. The
Illinois Creek gold mine started production in 1997 after experiencing weather
delays in its heap-leach recovery operation.
Exploration expenditures in 1997 were the highest this decade. Despite the
disappointing drop in gold prices, exploration investment continued at a record
pace.
Placer Dome continued to drill and evaluate the hard rock gold-bearing
deposit at Donlin Creek in the Kuskokwim drainage (on Calista Region Corporation
land). Sumitomo Metal Mining Canada, Ltd. and the Teck Corporation continued
their investment in the Pogo hard rock gold prospect north of Delta Junction,
announcing a resource base containing 4.5 million ounces of gold at grades much
richer than those of Fort Knox. Closer to Fairbanks, Newmont Exploration and La
Teko Resources Ltd. continued drilling at the True North prospect near Cleary
Summit.
On Prince of Wales Island, Teck Corporation continued to work with Abacus
Minerals on the Niblack copper, zinc, silver and gold property. Other notable
mining interests such as Kennecott Exploration and American Copper & Nickel Co.,
a subsidiary of Inco, Ltd., continued to invest aggressively in properties
throughout the state. Exploration for 1998 will depend largely on gold prices.
If prices do not stabilize at a higher level, exploration will likely be
curtailed. On a positive note, a recent State of Alaska airborne geophysical
survey of land open to exploration is now available to the public and has
sparked much interest.
The outlook for the Alaska mining industry remains positive. The number of
large mining concerns investing in exploration attests to the strong message
sent by the State of Alaska and Native landowners: Alaska is open for mining on
nearly 150 million acres of state and private lands. Although Alaska's
environmental laws and regulations are among the most stringent in the nation,
large well-financed projects find the rules workable. Over the next decade,
mining should continue to positively impact our economy and environment.(NBA's
symbol)
By James Cloud, Executive Vice President
Tourism Going Strong
A record number of visitors traveled to Alaska in 1997. The State Department
of Tourism estimates the number of travelers at 1.3 million, approximately 15%
more than 1996.
While the number of tourists continued the strong upward trend, in-state
tourism-related revenues declined. Although visitors spent well over $50
million in 1997, this is a decline from prior years. Many industry experts
believe that declining per capita spending is due to an increasing proportion
of cruise line passengers in comparison to independent travelers (who tour the
state by land and marine highways or by air). Cruise line passengers typically
spend less per person in the state compared to independent travelers.
(Photo of Kenai Fjords Tour boat.)
(Caption for photo)
Cook Inlet Region, Inc. (CIRI) assumed a role in the state's tourism industry
when it purchased Kenai Fjords Tours earlier in the year.
Industry experts attribute this changing visitor profile to reduced spending
on general image advertising of the state. In 1998, the industry will work to
develop a more independent approach to marketing its product. One option under
consideration is the consolidation of the State Department of Tourism and the
Alaska Tourism and Marketing Council into the Alaska Visitors Association. This
initial plan needs work before all the tourism interests in the state accept it.
In the meantime, many operators are focusing on attracting independent
travelers. During their Alaska visit, these individuals may drive, fly or even
cruise part of the way. They typically contract directly with Alaskan-based
businesses for higher-priced services such as fishing or hunting lodge visits,
float and sightseeing trips or kayaking and bird watching.
These businesses are generally unable to afford traditional world marketing
techniques such as those used by the cruise lines. Many have recently turned to
the Internet as an alternative means of reaching potential visitors. It is too
early to measure the effect of this new-age, cost-effective method of promoting
a travel product, but it may be an optimum means of attracting a potentially
lucrative market.
Baby boomer travelers are a major focus for the Alaskan market. They tend to
be independent and adventurous, the perfect client for Alaska's growing
eco-tourism industry. The potential in this area is reflected in the increasing
number of small business memberships in the Alaska Wilderness Recreation &
Tourism Association (AWRTA) and the Alaska Visitors Association (AVA). Eco-
tourism businesses typically attract a summer client base of less than 200, but
offer innovative and personalized alternatives such as a working "research
cruise" in Southeast Alaska, kayaking with whales in Prince William Sound and an
archeological dig site in Kodiak.
<PAGE> 18
Throughout the tourism industry, marketing continues to be the media that
stimulates the imagination and desire of the potential client. Without
effective marketing programs, it is doubtful that vacationers will consider
Alaska a destination. The challenge for this industry in 1998 and the coming
years will be to develop an effective means of continuing to attract a variety
of tourists to the state.(NBA's symbol)
By Ben Barrera, Vice President
Support Industries Contribute to Overall Growth
Overall, Alaska's industries produced stronger than expected growth in 1997,
registering between 1% and 1 1/2%. Alaska's largest private sector employer,
services, again was the catalyst for these positive figures. The pacesetters for
service growth were hotels and lodging, health care, business services, social
services and amusement and recreation services.
The hotel industry experienced 3% employment growth and is expected to show
more growth in 1998 with expansions underway. Summertime growth included many
new bed & breakfast outlets, as well as the opening of the NANA-Marriott
Courtyard Hotel in Anchorage and the Mt. McKinley Princess Lodge near Talkeetna.
The Westmark in Fairbanks also expanded and numerous other hotel projects are
underway or recently opened in Anchorage.
The growth of air cargo transportation has been sizable over the past three
years with 90% of all Asian-North American air cargo now coming through
Anchorage. This growth is driven by the "hubbing" operations of U.S. carriers
such as UPS, Federal Express, Polar, United and Northwest. MAPCO and Lynxs'
joint-venture to build a cargo transfer building at North Airpark will likely
encourage foreign companies to establish hubs in Anchorage as well.
In 1997, United Airlines' decision to hub in Anchorage brought along 100
ground crew
(Photo of exterior and interior of hospital in Kodiak.)
The Kodiak Island Medical Center became part of Providence Health System of
Alaska (PHSA) in April. PHSA manages and operates the hospital through its
partnership agreement with the Kodiak Island Borough.
personnel and about 125 Anchorage-based pilots. Federal Express has 200 pilots
based in Anchorage. A proposed $191-million airport renovation for airfield,
road and concourse improvements is awaiting legislative approval.
Health care services showed robust growth of more than 5% in 1997. The
reason for this growth is hard to pinpoint. It is not due to population growth.
More likely factors are an increasingly aging population, a rise in home health
care, an increase in outsourcing public health care to the private sector and
the continued migration of health care professionals from managed care in the
Lower 48.
Professional service providers such as engineers, surveyors and architects
experienced a good year due to construction, hard rock mining and environmental
clean-up of Alaska's military installations. The legal profession, however,
again experienced a decline in employment.
Business services expanded, with continued outsourcing by both private and
public entities to temporary help. The communications industry is healthy and
competitive, with about 5% growth.
Although the retail sector has seen a slowdown, growth was better than
expected. Fred Meyer expanded their original Fairbanks store to include a
grocery section; Safeway remodeled in Anchorage; Home Depot nearly completed its
building project; and Mapco and Tesoro Alaska upgraded and built several new gas
stations and retail facilities.
The financial sector is very strong, however little growth has occurred due
to competitive pressures and technological changes. Denali and Alaska Federal
Credit Union merged in February. More changes can be expected if Congress
removes the non-profit status of credit unions.
In 1998, we should continue to see confident, steady growth in the services
industry.
By Margaret Richmond, Vice President
<PAGE> 19
1997 Financial Highlights
National Bancorp of Alaska
Ten-Year Record Page 20
Financial Statements
Consolidated Statements of Income Page 22
Consolidated Statements of Condition Page 23
Consolidated Statements of Cash Flows Page 24
Consolidated Statements of Changes in Shareholders' Equity Page 25
Notes to Consolidated Financial Statements Page 25
Report of Independent Auditors Page 35
Management Discussion and Analysis
Highlights Page 36
Net Interest Income Page 36
Noninterest Income Page 37
Noninterest Expense Page 37
Investment Securities, Securities Available for Sale
and Short-Term Investments Page 38
Liquidity and Interest Rate Sensitivity Page 38
Loans and Lease Financing Page 39
Reserve for Loan Losses and Provision for Loan Losses Page 41
Deposits and Short-Term Borrowings Page 42
Limited Partnership Investments Page 43
Shareholders' Equity and Capital Resources Page 43
Impact of the Year 2000 Issue Page 43
Impact of Inflation Page 43
Consolidated Average Balance Sheets/Interest
Income and Expense/Rates Page 44
Analysis of Changes in Net Interest Margin Page 45
Quarterly Financial Data Page 46
Market for Common Stock Page 46
<PAGE> 20
<TABLE>
<CAPTION>
TEN YEAR RECORD
(For the Years Ended December 31) (In thousands except per share amounts and statistics)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating Results
Net interest income $136,242 $130,413 $120,547 $113,471 $112,820
Provision for loan losses 5,400 6,650 (3,100) 2,200 7,700
Other income 48,968 50,627 33,992 35,538 38,517
Other expenses 100,352 102,361 94,688 89,072 89,571
- ----------------------------------------------------------------------------------------------------
Income before income taxes 79,458 72,029 62,951 57,737 54,066
Income taxes 28,201 25,513 21,671 20,217 18,440
- ----------------------------------------------------------------------------------------------------
Net income 51,257 46,516 41,280 37,520 35,626
Cash dividends declared $ 15,651 $ 15,915 $ 13,547 $ 11,953 $ 11,953
Per Share Statistics
Net income $6.53 $5.84 $5.18 $4.71 $4.47
Cash dividends declared 2.00 2.00 1.70 1.50 1.50
Stock dividends - declared percent - - - - -
Book value at year-end $51.38 $47.54 $43.96 $39.25 $36.77
Year-End Totals
Demand deposits $ 583,184 $ 539,309 $ 539,714 $ 522,285 $ 514,667
Interest-bearing deposits:
NOW 193,474 174,470 148,896 163,088 145,057
Money market savings 295,088 304,000 291,325 326,386 266,949
Time and savings 909,595 849,274 760,546 735,862 679,474
- ----------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,398,157 1,327,744 1,200,767 1,225,336 1,091,480
Total Deposits 1,981,341 1,867,053 1,740,481 1,747,621 1,606,147
Federal funds purchased and securities
sold under agreement to repurchase 362,626 364,569 325,859 259,983 283,665
Loans and lease financing 1,471,461 1,446,978 1,326,840 1,226,164 1,122,570
Investment securities:
U.S. government and agencies 301,178 317,145 303,304 345,319 282,110
State and political subdivisions 11,864 15,878 9,008 20,239 6,773
Other 296,420 263,450 241,089 213,174 215,386
- ----------------------------------------------------------------------------------------------------
Total Investment Securities 609,462 596,473 553,401 578,732 504,269
Securities available for sale 228,739 253,552 273,391 273,723 186,209
Shareholders' equity account 398,881 377,403 350,320 312,772 292,976
Total assets $2,777,066 $2,648,484 $2,450,921 $2,344,678 $2,207,280
- ----------------------------------------------------------------------------------------------------
Other year-end statistics:
Number of shares outstanding 7,763,015 7,938,800 7,968,800 7,968,800 7,968,800
Number of shareholders 1,196 1,199 1,224 1,243 1,279
Number of employees 1,103 1,110 1,101 1,130 1,202
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
TEN YEAR RECORD-Continued
(For the Years Ended December 31)
(In thousands except per share amounts and statistics)
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
Operating Results
Net interest income $100,763 $93,739 $85,384 $73,411 $59,870
Provision for loan losses 4,000 3,000 9,562 14,112 22,100
Other income 38,284 32,875 30,847 37,043 26,768
Other expenses 83,704 82,062 74,889 70,427 59,275
- ----------------------------------------------------------------------------------------------------
Income before income taxes 51,343 41,552 31,780 25,915 5,263
Income taxes 17,316 13,149 6,268 3,199 (972)
- ----------------------------------------------------------------------------------------------------
Net income 34,027 28,403 25,512 22,716 6,235
Cash dividends declared $ 6,774 $ 3,984 $ 3,984 $ 2,988 $ 2,988
Per Share Statistics
Net income $4.27 $3.56 $3.20 $2.85 $0.78
Cash dividends declared 0.85 0.50 0.50 0.38 0.38
Stock dividends - declared percent - - 33.33% - -
Book value at year-end $33.79 $30.37 $27.31 $24.61 $22.13
Year-End Totals
Demand deposits $ 468,077 $ 415,584 $ 444,761 $ 484,177 $ 361,349
Interest-bearing deposits:
NOW 126,481 122,376 104,106 106,310 93,605
Money market savings 261,134 248,852 216,284 222,601 253,597
Time and savings 680,578 738,178 799,251 868,287 565,459
- ----------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,068,193 1,109,406 1,119,641 1,197,198 912,661
Total Deposits 1,536,270 1,524,990 1,564,402 1,681,375 1,274,010
Federal funds purchased and securities
sold under agreement to repurchase 300,335 271,625 245,660 224,005 172,592
Loans and lease financing 928,999 874,118 922,505 892,634 787,900
Investment securities:
U.S. government and agencies 382,460 395,401 516,867 588,496 455,788
State and political subdivisions 10,605 4,639 7,257 12,488 19,330
Other 298,322 266,657 262,760 221,954 37,761
- ----------------------------------------------------------------------------------------------------
Total Investment Securities 691,387 666,697 786,884 822,938 512,879
Securities available for sale 154,514 176,341 - - -
Shareholders' equity account 269,303 242,050 217,631 196,103 176,375
Total assets $2,129,965 $2,077,243 $2,063,258 $2,139,923 $1,652,505
- ----------------------------------------------------------------------------------------------------
Other year-end statistics:
Number of shares outstanding 7,968,800 7,968,800 7,968,800 5,976,600 5,976,600
Number of shareholders 1,826 1,332 1,351 1,352 1,405
Number of employees 1,137 1,138 1,132 1,146 921
</TABLE>
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
(For the Years Ended December 31) (In thousands except per share amounts)
1997 1996 1995
Interest Income:
Loans and lease financing including fees $149,554 $141,178 $132,336
Balances with banks 38 46 41
Federal funds sold and securities purchased
under agreement to resell 3,868 2,265 806
Investment securities including dividends:
U.S. government 12,267 12,339 13,920
U.S. agencies 22,841 22,467 22,753
States and political subdivisions 619 422 812
Other securities 19,904 18,814 18,588
- ---------------------------------------------------------------------------
Total Interest Income 209,091 197,531 189,256
Interest Expense:
Deposits 54,649 50,205 50,413
Federal funds purchased and securities
sold under agreement to repurchase 18,188 16,894 18,273
Other purchased funds 12 19 23
- ---------------------------------------------------------------------------
Total Interest Expense 72,849 67,118 68,709
- ---------------------------------------------------------------------------
Net Interest Income 136,242 130,413 120,547
Provision for loan losses 5,400 6,650 (3,100)
- ---------------------------------------------------------------------------
Net Interest Income after Provision
for Loan Losses 130,842 123,763 123,647
Other Income:
Trust department income 2,534 2,238 2,114
Service charges on deposit accounts 12,496 12,292 11,867
Mortgage loan servicing fees 8,175 8,112 7,936
Securities transactions 345 58 (3,959)
Gains on limited partnership investments 4,174 6,063 127
Credit card service fees 6,968 6,178 5,849
Other 14,276 15,686 10,058
- ---------------------------------------------------------------------------
Total Other Income 48,968 50,627 33,992
Other Expense:
Salaries 38,539 38,251 36,802
Profit sharing and other employee benefits 12,644 11,427 10,415
Net occupancy expense of bank premises 7,540 7,394 7,135
Furniture and equipment expense 9,113 9,267 8,267
Other 32,516 36,022 32,069
- ---------------------------------------------------------------------------
Total Other Expense 100,352 102,361 94,688
Income before income taxes 79,458 72,029 62,951
Income taxes 28,201 25,513 21,671
- ---------------------------------------------------------------------------
Net Income $ 51,257 $ 46,516 $ 41,280
===========================================================================
Net income per share $6.53 $5.84 $5.18
===========================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 23
CONSOLIDATED STATEMENTS OF CONDITION
(As of December 31) (In thousands except per share amounts)
1997 1996
Assets:
Cash and due from banks $ 155,849 $ 166,771
Interest-bearing balances with banks 150 233
Federal funds sold 100,000 20,000
Investment securities:
U.S. agencies 301,178 317,145
State and political subdivisions 11,864 15,878
Other securities 296,420 263,450
- -----------------------------------------------------------------------------
Total Investment Securities 609,462 596,473
(Market value $615,784 in 1997
and $599,687 in 1996)
Securities available for sale at market
(Cost $223,614 in 1997 and $249,509 in 1996) 228,739 253,552
Loans and lease financing 1,471,461 1,446,978
Reserve for loan losses (24,530) (23,002)
- -----------------------------------------------------------------------------
Net Loans and Lease Financing 1,446,931 1,423,976
Loans held for sale 58,304 31,563
Net premises and equipment 71,037 71,212
Limited partnership investments 50,408 32,197
Other assets 56,186 52,507
- -----------------------------------------------------------------------------
Total Assets $2,777,066 $2,648,484
=============================================================================
Liabilities and Shareholders' Equity:
Demand deposits $ 583,184 $ 539,309
Interest-bearing deposits:
NOW 193,474 174,470
Savings 298,680 297,058
Money market savings 295,088 304,000
Time 610,915 552,216
- -----------------------------------------------------------------------------
Total Interest-Bearing Deposits 1,398,157 1,327,744
- -----------------------------------------------------------------------------
Total Deposits 1,981,341 1,867,053
Federal funds purchased 2,761 7,655
Securities sold under agreement to repurchase 359,865 356,914
Other purchased funds 136 898
Other liabilities 34,082 38,561
Total Liabilities 2,378,185 2,271,081
Shareholders' Equity:
Common stock - $10 par value 1997 1996 80,000 80,000
Shares authorized 10,500,000 10,500,000
Shares issued 8,000,000 8,000,000
Capital surplus 63,000 63,000
Retained earnings 269,909 234,303
Net unrealized gains on securities
available for sale, net of taxes 3,049 2,405
Treasury stock at cost (236,985 shares
in 1997 and 61,200 shares in 1996) (17,077) (2,305)
- -----------------------------------------------------------------------------
Total Shareholders' Equity 398,881 377,403
- -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,777,066 $2,648,484
=============================================================================
Net book value per share (Based on 7,763,015 shares
in 1997 and 7,938,800 shares in 1996 outstanding) $51.38 $47.54
=============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 24
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the Years Ended December 31) (In thousands) 1997 1996 1995
<S> <C> <C> <C>
Operating Activities
Net Income $ 51,257 $ 46,516 $ 41,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 5,400 6,650 (3,100)
Deferred tax expense (credit) 2,183 (1,893) (124)
Provision for depreciation and amortization 7,857 8,628 6,995
Net amortization of premium or discount on securities (1,025) (1,959) 606
Gain on security and limited partnership transactions (4,811) (6,121) (127)
Loss on security and limited partnership transactions 292 - 3,959
Gain on loan sales (444) (1,140) (405)
Loss (gain) on sales of premises and equipment 74 (177) (4)
Loss (gain) on sales of other assets (10) (3,375) 50
Net decrease (increase) in loans held for sale (26,297) 2,676 (13,022)
Decrease (increase) in interest receivable, prepaid
expenses, and other assets (2,043) 1,604 (1,688)
Increase (decrease) in interest payable, accrued
expenses, and other liabilities (1,058) 1,144 7,177
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 31,375 52,553 41,597
Investing Activities
Net decrease (increase) in federal funds sold and
interest-bearing balances with other banks (79,917) (18,940) 8,902
Proceeds from maturities of securities held to maturity 149,085 126,379 99,193
Purchases of securities held to maturity (161,202) (166,996) (74,456)
Proceeds from maturities of securities available for sale 40,648 35,000 _
Proceeds from sales of securities available for sale 41,090 25,558 183,626
Purchases of securities available for sale (55,344) (43,911) (170,759)
Net increase in loans and lease financing (28,715) (125,603) (96,574)
Proceeds from sales of premises and equipment 53 310 28
Proceeds from sales of other assets 4,183 14,850 6,731
Purchases of premises and equipment (7,348) (15,884) (9,534)
Purchase of other assets (24,493) (15,470) (20,985)
Acquisition of banks - - (100)
- -----------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (121,960) (184,707) (73,928)
Financing Activities
Net increase (decrease) in total deposits 112,868 129,500 (7,040)
Net increase (decrease) in short-term borrowings (2,705) 37,927 65,854
Acquisition of treasury stock (14,772) (1,879) -
Cash dividends paid (15,728) (15,930) (11,555)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 79,663 149,618 47,259
- -----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (10,922) 17,464 14,928
Cash and cash equivalents at beginning of year 166,771 149,307 134,379
- -----------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $155,849 $166,771 $149,307
===============================================================================================
</TABLE>
Total interest payments on deposits and purchased funds were $71,286,000 in
1997, $67,303,000 in 1996, and $65,872,000 in 1995. Income tax payments made
during the calendar years of 1997, 1996, and 1995 were $25,503,000, $26,096,000,
and $21,129,000, respectively. An adjustment for the net change in unrealized
gains on securities available for sale of $644,000, $(1,639,000) and $9,815,000,
net of tax, has been reflected in shareholders' equity in 1997, 1996 and 1995,
respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 25
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF ChANGE IN SHAREHOLDERS' EQUITY
Common Net Unrealized Total
Stock $10 Capital Retained Gains (Losses) Treasury Shareholders'
(In thousands) Par Value Surplus Earnings on Securities Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1995 $80,000 $63,000 $175,969 $(5,771) $ (426) $312,772
Net income - - 41,280 - - 41,280
Cash dividend declared - - (13,547) - - (13,547)
Net unrealized gain on
securities available for sale - - 9,815 - 9,815
- -------------------------------------------------------------------------------------------------
Balance December 31, 1995 80,000 63,000 203,702 4,044 (426) 350,320
Net income - - 46,516 - - 46,516
Cash dividend declared - - (15,915) - - (15,915)
Purchase of treasury stock - - - - (1,879) (1,879)
Net unrealized loss on
securities available for sale - - - (1,639) - (1,639)
- -------------------------------------------------------------------------------------------------
Balance December 31, 1996 80,000 63,000 234,303 2,405 (2,305) 377,403
Net income - - 51,257 - - 51,257
Cash dividend declared - - (15,651) - - (15,651)
Purchase of treasury stock - - - - (14,772) (14,772)
Net unrealized gain on
securities available for sale - - 644 - - 644
- -------------------------------------------------------------------------------------------------
Balance December 31, 1997 $80,000 $63,000 $269,909 $3,049 $(17,077) $398,881
=================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The National Bancorp of Alaska, Inc. is the largest bank holding company in
Alaska providing a full range of financial services through its principal
subsidiary, National Bank of Alaska (the Bank). National Bancorp of Alaska,
Inc. and its subsidiaries (the Corporation) provides banking services to
Alaskan customers from operating offices located throughout the state of
Alaska and in Seattle, Washington, and also engages in trust and investment
banking, mortgage banking, consumer finance, credit card and merchant
processing and investments in limited partnerships.
PRESENTATION AND CONSOLIDATION: The consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
and prevailing practices of the banking industry, which require management
to make estimates and assumptions that affect the amounts reported in the
financial statements. Actual results could differ from those estimates.
Estimates that could differ significantly relate to the determination of
the reserve for loan losses.
The consolidated financial statements include the accounts of National
Bancorp of Alaska, Inc., and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
prior year balances have been reclassified to conform to the current year
presentation.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of cash and due
from banks.
SECURITIES: Investment securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Management believes the
Corporation has the ability and intent to hold such securities until maturity.
Securities available for sale, which are primarily U.S. Treasury securities,
are valued in the aggregate at market with unrealized gains or losses
recognized as a component of shareholders' equity. Although the Corporation
has the ability to hold such securities until maturity, these securities may
be sold in response to foreseeable events and conditions related to interest
rate changes. Gains and losses from the sale of securities are computed under
the specific identification method.
LOANS AND LEASE FINANCING: Loans are carried at their principal amounts
outstanding. Interest income on loans is accrued and recognized on the
principal amount outstanding except for those loans in a nonaccrual status.
Interest is accrued on loans past due 90 days or more only when management
has ascertained that collection of the interest is assured and imminent.
Loans are placed in nonaccrual status, and related accrued interest reversed
to income, when principal or interest is in default for 90 days or more,
unless a loan is well secured and in the process of collection. Income from
nonaccrual loans is recorded only when interest payments are received. The
financing method of accounting is used for direct lease contracts receivable.
Under this method, income is recognized during the term of the lease in
proportion to the unrecovered investment.
LOAN FEES AND COSTS: Loan interest income is adjusted for amortization of
deferred loan origination and commitment fees to approximate the level
yield method of accounting.
LOANS HELD FOR SALE: Loans held for sale are primarily residential mortgage
loans and are valued in the aggregate at the lower of cost or market value.
RESERVE FOR LOAN LOSSES: Loan losses are accounted for under the reserve
method. Losses and recoveries are charged or credited directly
to the reserve. The provision for loan losses is charged to operating expense
and is based on management's evaluation of the loan portfolio, past loan loss
experience, anticipated loan losses, growth in the loan portfolio and other
factors including economic conditions that deserve consideration in
estimating existing and inherent loan losses in the portfolio. For the
purpose of computing income tax, the Corporation provides the maximum expense
allowable under applicable income tax laws.
Loans are deemed to be impaired when it is probable that all amounts due under
the contractual terms of the loan agreements will not be collectable.
Impairment is measured by comparing the fair value of the collateral or
present value of future cash flows to the recorded investment in the loan.
Impairment is recognized by establishing an allowance for impaired loan losses
with a charge to the provision for loan losses.
<PAGE> 26
TRUST ASSETS: Assets held in a fiduciary or agency capacity by the Bank's
Trust Department for its customers are not included in these statements. The
cash deposits of the Trust Department held by the Bank in the normal course of
business are reported in the applicable deposit category of these statements.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization
expense for financial reporting purposes is computed using the straight-
line method based upon the estimated useful lives of the assets, ranging from
five to 40 years. Maintenance and repairs are charged to current operations,
while renewals and betterments are capitalized.
OTHER REAL ESTATE OWNED: Other real estate owned comprises properties acquired
through a foreclosure proceeding or acceptance of a deed in lieu of
foreclosure. These amounts are recorded at the lower of cost or fair value. Any
writedown from the cost to fair value required at the time of foreclosure is
charged to the reserve for loan losses. Subsequent write-downs and gains or
losses recognized on the sale of these properties are
included in other expense or other income.
MORTGAGE SERVICING RIGHTS: Mortgage servicing rights are recognized for
purchased mortgage servicing and mortgage loans originated and sold. Mortgage
servicing rights are recorded based on the relative fair values of the
servicing rights and the loan without the servicing rights. Impairment of
servicing rights is evaluated using fair value and recognized through a
valuation allowance.
LIMITED PARTNERSHIP INVESTMENTS: Investments in limited partnerships are
recorded at cost and income is recognized when realized. The Corporation's
percentage share of any individual company does not exceed 10%. Other than
temporary impairments of value are recognized by a valuation allowance and a
charge to income.
NEW ACCOUNTING PRONOUNCEMENTS: Beginning in fiscal year 1998, the Corporation
plans to adopt the following accounting pronouncements, which will not have a
material effect on the financial statements:
In December 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." This statement
deferred certain portions of SFAS 125 "Accounting for Transfers and Servicing
of Financial Assets" concerning repurchase agreements, dollar-roll, security
lending and similar transactions to years beginning after December 31, 1997.
In June 1997, FASB issued SFAS 130, "Reporting Comprehensive Income." This
statement provides guidance in reporting changes to components of shareholders'
equity otherwise not included in the earning statement as components of
comprehensive income. The statement is effective for years beginning after
December 15, 1997.
In June 1997, FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement provides guidance in
reporting financial and descriptive information on reportable segments of a
business. Reportable segments include those whose net profit, revenues or
assets make up 10% or more of the consolidated amounts or those whose results
are reviewed by the chief operating decision maker to assess performance or
allocate resources. The statement is effective for years beginning after
December 15, 1997.
INCOME TAXES: A current income tax asset or liability is recognized for
estimated taxes payable or refundable on current year tax returns. A deferred
tax asset or liability is recognized for future tax effects attributable to
temporary differences arising between the amount of taxable income and pretax
financial income for the year and the tax bases of assets or liabilities and
their reported amounts in the financial statements. The measurement of current
and deferred tax assets and liabilities is based on provisions of enacted tax
law. The effect of a change in tax rates on deferred taxes is recognized in
income in the period that includes the enactment date. Deferred tax assets are
reduced by the amount of tax benefits that are not expected to be realized.
EARNING PER SHARE: Earnings per share are computed based on the weighted
average number of shares outstanding during the year (7,844,183 in 1997,
7,959,251 shares in 1996 and 7,968,800 in 1995).
FAIR VALUE OF FINANCIAL INSTRUMENTS: A table of fair value of financial
instruments is included in note 13. The following methods and assumptions were
used to estimate fair value disclosures as defined under SFAS 107, "Disclosures
about Fair Value of Financial Instruments":
Cash and cash equivalents, federal funds sold and securities purchased under
agreement to resell: The carrying amounts reported in the balance sheet
represent their fair values.
Interest-bearing balances with banks: The carrying amounts of investments with
maturities less than 90 days represent their fair value. For short-term
investments with maturities longer than 90 days, fair values are based on
quoted market prices.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently, fair values are based
on carrying amounts. An estimate of the fair value of the remaining portfolio
is based on discounted cash flow analyses applied to pools of similar loans,
using weighted average coupon rates, weighted average maturities, and interest
rates currently being offered for similar loans. Fair values for nonaccrual
loans are based on the value of the collateral or the present value of the
expected cash flow related to the loans.
Loan commitments and letters of credit: Fair values for loan commitments and
guarantees are based on the fees currently charged to enter into similar
agreements.
Loans held for sale: Fair values of residential mortgages with commitments to
sell within 90 days are based upon the amounts receivable under the
commitments. Fair values for other mortgages are based on the value of loans
with similar characteristics.
Deposit liabilities: The fair values of demand, NOW, savings and money market
savings deposits are equal to the carrying amount at the reporting date. The
carrying amount for variable rate time deposits approximate their fair value.
Fair values for fixed rate time deposits are estimated using a discounted cash
flow calculation that applies currently offered interest rates to a schedule of
aggregate expected monthly maturities of time deposits.
Short-term borrowings: For federal funds purchased, securities sold under
agreement to repurchase and other purchased funds with maturities less than 90
days, the carrying amount represents their fair value. For securities sold
under agreement to repurchase with maturities longer than 90 days, fair values
are estimated using a discounted cash flow calculation using current interest
rates for similar borrowings.
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to meet statutory reserve requirements. In part, these
requirements are met by maintaining balances in a noninterest-bearing account
at a Federal Reserve Bank. During 1997 and 1996, the average balance in this
account totaled $12,746,000 and $12,548,000, respectively.
<PAGE> 27
3. SECURITIES
The following table shows the major components of the securities portfolio, the
maturity distribution of debt securities and a comparison of book and market
value.
Investment Securities
December 31, 1997 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. agencies and corporations $301,178 $3,780 $ (39) $304,919
State and political subdivisions 11,864 57 - 11,921
Corporate notes 90,016 1,116 (9) 91,123
Mortgage and asset backed securities 181,218 1,627 (210) 182,635
Other securities 25,186 - - 25,186
- ------------------------------------------------------------------------------
Total $609,462 $6,580 $(258) $615,784
==============================================================================
Securities available for sale
December 31, 1997 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. Treasury $169,203 $3,292 $ - $172,495
U.S. agencies and corporations 30,779 201 - 30,980
Preferred stock 23,632 1,651 (19) 25,264
- ------------------------------------------------------------------------------
Total $223,614 $5,144 $(19) $228,739
==============================================================================
Investment Securities
December 31, 1996 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. agencies and corporations $317,145 $2,096 $(1,385) $317,856
State and political subdivisions 15,878 33 (3) 15,908
Corporate notes 95,082 1,418 (28) 96,472
Mortgage and asset backed securities 144,738 1,545 (462) 145,821
Other securities 23,630 - - 23,630
- ------------------------------------------------------------------------------
Total $596,473 $5,092 $(1,878) $599,687
==============================================================================
Securities available for sale
December 31, 1996 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. Treasury $188,933 $3,226 $ - $192,159
U.S. agencies and corporations 34,074 279 - 34,353
Preferred stock 26,502 797 (259) 27,040
- ------------------------------------------------------------------------------
Total $249,509 $4,302 $(259) $253,552
==============================================================================
Maturities Distribution of Debt Securities
Securities Available
Investment Securities for Sale
December 31, 1997 Amortized Market Amortized Market
(In thousands) Cost Value Cost Value
Due in 1 year or less $113,788 $114,418 $ 34,887 $ 35,047
Due after 1 year through 5 years 448,342 453,476 165,095 168,428
Due after 5 years through 10 years 22,146 22,704 - -
- ------------------------------------------------------------------------------
Total $584,276 $590,598 $199,982 $203,475
==============================================================================
Maturities of mortgage and asset backed securities are classified based on
their anticipated repayment schedules. Actual repayments may vary due to
prepayment of the underlying loans.
The Corporation pledged $492,783,000 of its U.S. Treasury and U.S. agencies and
corporations securities and $696,000 of its state and political subdivisions
securities as of December 31, 1997, to secure public deposits, trust funds,
securities sold under repurchase agreements and for other purposes. In 1996,
$477,295,000 of its U.S. Treasury and U.S. agencies and corporations securities
and $1,350,000 of its state and political subdivision were pledged. The
Corporation does not have a trading security portfolio.
<PAGE> 28
4. LOANS AND LEASE FINANCING
The Bank grants commercial, real estate and consumer loans to customers
throughout the state. Collateral accepted against the commercial loan
portfolio includes accounts receivable, inventory and equipment. Autos, second
deeds of trust and boats are accepted as collateral for the installment
portfolio.
The following table represents an analysis of the loans and lease financing
portfolio at December 31:
(In thousands) 1997 1996
Commercial and industrial $ 546,143 $ 503,309
Real estate construction 35,120 34,767
Real estate long-term 492,325 462,958
Consumer installment 333,872 379,898
Nontaxable 51,245 55,372
Lease financing 12,756 10,674
- ------------------------------------------------------------------------------
Loans and Lease Financing $1,471,461 $1,446,978
==============================================================================
The carrying amount and fair value of the loan portfolio, excluding leases,
consists of the following at December 31:
1997 1996
(In thousands) Carrying Fair Carrying Fair
Amount Value Amount Value
Commercial and industrial $ 546,143 $ 548,740 $ 503,309 $ 501,789
Real estate construction 35,120 35,144 34,767 34,774
Real estate long-term 492,325 492,110 462,958 460,603
Consumer installment 333,872 333,517 379,898 379,503
Nontaxable 51,245 51,182 55,372 55,568
- ------------------------------------------------------------------------------
Loans $1,458,705 $1,460,693 $1,436,304 $1,432,237
==============================================================================
At December 31, 1997 and 1996 loans held for sale were $58,304,000 and
$31,563,000. Consumer loans totaling $50,000,000 were sold in 1997 under a
revolving securitization agreement. Mortgage loans sold in 1997, 1996 and 1995
totaled $249,371,000, $300,706,000, and $201,999,000, respectively.
In 1997, SFAS 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" was adopted prospectively. This statement
provides guidance for identifying and recording transfers of financial assets
and accounting for servicing assets or liabilities.
The amount of servicing assets recognized during 1997 was $3,057,000, and
amortization was $461,000 for the year. Fair value of servicing assets is
measured using net present value of future expected net servicing revenues over
servicing costs. The fair value of servicing assets at December 31, 1997 was
$10,586,000. Servicing assets are stratified by interest rate in determining if
a valuation allowance for impairment is required. It has been determined that a
valuation allowance for impairment is not required.
5. RESERVE FOR LAON LOSSES
The following is a reconciliation of the loan loss reserve for the years ended
December 31:
(In thousands) 1997 1996 1995
Balance at beginning of year $23,002 $21,529 $19,226
Loans charged off (7,205) (7,737) (4,544)
Recoveries of loans charged off 3,333 2,560 9,947
- -----------------------------------------------------------------------------
Net (charge offs) recoveries (3,872) (5,177) 5,403
Provision charged to operating expense 5,400 6,650 (3,100)
- ----------------------------------------------------------------------------
Balance at End of Year $24,530 $23,002 $21,529
=============================================================================
The total investment in impaired loans was $10,039,000 and $5,493,000 at
December 31, 1997 and 1996, respectively. Interest income on impaired loans is
recorded on the cash basis and totaled $105,000 for 1997 and $54,000 for 1996.
The average balance of impaired loans was $9,108,000 for 1997 and $6,466,000
for 1996.
<PAGE> 29
6. PREMISES AND EQUIPMENT
The following table summarizes the components of premises and equipment at
December 31:
(In thousands) 1997 1996
Buildings $70,475 $66,054
Land 14,479 14,191
Leasehold improvements 5,061 4,885
Equipment, furniture and fixtures 51,673 50,830
- ---------------------------------------------------------------------------
Total Cost 141,688 135,960
Less accumulated depreciation (70,651) (64,748)
- ---------------------------------------------------------------------------
Net Book Value $71,037 $71,212
===========================================================================
Depreciation expense was $7,398,000 in 1997, $6,756,000 in 1996 and $5,535,000
in 1995.
7. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Information related to the Corporation's securities sold under agreement to
repurchase at December 31, 1997, is segregated below by due date and by the
type of securities sold:
Less
Than 30-90 After
(In thousands) Overnight 30 Days Days 90 Days Total
U.S. Treasury
Carrying value $63,455 $2,957 $3,129 $24,063 $93,604
Market value 64,735 3,058 3,198 24,693 95,684
Repurchase agreements 61,807 1,168 1,968 17,842 82,785
Interest rate 4.82% 4.71% 4.51% 5.63% 4.98%
- ------------------------------------------------------------------------------
U.S. agencies
Carrying value $230,736 $10,649 $17,941 $32,394 $291,720
Market value 231,550 10,693 18,020 32,611 292,874
Repurchase agreements 230,028 5,693 14,668 26,691 277,080
Interest rate 4.61% 4.80% 5.13% 5.40% 4.72%
- ------------------------------------------------------------------------------
Total
Carrying value $294,191 $13,606 $21,070 $56,457 $385,324
Market value 296,285 13,751 21,218 57,304 388,558
Repurchase agreements 291,835 6,861 16,636 44,533 359,865
Interest rate 4.66% 4.78% 5.06% 5.49% 4.78%
==============================================================================
Carrying value and market value of the securities include accrued interest.
8. SHAREHOLDERS' EQUITY
Dividends: The Corporation declared cash dividends of $2.00 per share in 1997.
Regulatory Restrictions: Federal banking regulations restrict dividends
declared by the Bank to current year net income combined with retained earnings
from the prior two years. In 1998, the Bank may declare dividends of $949,000
plus 1998 net profits without receiving approval from the Comptroller of the
Currency.
The Bank is also limited in making loans to affiliates, including the
Corporation, unless the loans are collateralized by specific obligations.
Under capital adequacy guidelines and regulatory framework for prompt
corrective action, the Bank must meet specific ratios of capital to assets as
defined to avoid regulatory action. At December 31, 1997, the minimum Tier I,
total capital and leverage ratio requirements were 4%, 8%, and 3%,
respectively. The Bank must also meet certain Tier I, total capital and
leverage ratios to be categorized as well capitalized. As of December 31, 1997,
these ratios were 6%, 10%, and 5%, respectively. The Bank was categorized as
well capitalized in the most recent notification by the Comptroller of the
Currency. There have been no events or conditions since that notification that
management believes would change the Bank's capital category.
<PAGE> 30
The risk-based capital and leverage capital ratios for the Corporation and the
Bank are presented below:
1997 1996
(As of December 31) (In thousands) Amount Ratio Amount Ratio
Total Capital
National Bancorp of Alaska, Inc. $419,382 19.73% $398,000 19.58%
National Bank of Alaska 272,020 13.60 $270,002 14.10
Tier 1 Capital
National Bancorp of Alaska, Inc. $394,852 18.58% $374,998 18.45%
National Bank of Alaska 247,490 12.37 247,000 12.90
Leverage
National Bancorp of Alaska, Inc. $394,852 14.12% $374,998 14.13%
National Bank of Alaska 247,490 9.18 247,000 9.64
9. OPERATING LEASES
The Corporation, under various noncancelable agreements, leases certain real
and personal properties with terms ranging from one to ten years. Most leases
contain renewal options and some contain provisions for increased rentals under
certain conditions. Future minimum payments under noncancelable operating
leases with terms in excess of one year as of December 31, 1997, are as
follows:
Minimum Lease
(In thousands) Payments
1998 $1,635
1999 1,301
2000 889
2001 445
2002 243
Later Years 3,553
- -------------------------------------------------------------------
Total Minimum Lease Payments $8,066
===================================================================
Rental expense for all operating leases was $2,430,364, $2,891,000, and
$3,316,000 for the years ended 1997, 1996 and 1995, respectively.
10. COMMITTMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Corporation offers certain financial
products to its customers, including commitments for the extension of credit,
letters of credit and guarantees, which are properly not reflected in the
financial statements. The exposure to credit loss in the event of
nonperformance by the other party to these financial instruments is represented
by the contractual notional amount of those instruments. The Corporation had
outstanding standby letters of credit totaling $20,305,000 at December 31, 1997
and $17,174,000 at December 31, 1996. Commitments for loans and investments
approximated $444,716,000 at December 31, 1997 and $568,937,000 at December 31,
1996. There are no recourse obligations regarding the servicing of loans.
Forward contracts are agreements for delayed delivery of loans at a specified
future date of a specified instrument, at a specified price or yield. Risks
arise from the possible inability of counterparties to meet the terms of their
contracts and from movements in interest rates. Forward contracts outstanding
at December 31, 1997 and 1996 were $32,340,000 and $15,500,000, respectively.
The Corporation uses the same loan credit and collateral policies in making
commitments and conditional obligations as it does for other lending
operations. The Corporation has a diversified loan portfolio with no
concentrations of credit risk by industry deemed significant. Most of the
lending activity is with customers located within the state.
The Corporation from time to time may be a defendant in legal proceedings
related to the conduct of its businesses. In the opinion of management after
consultation with legal counsel, the financial position of the Corporation will
not be affected materially by the outcome of any current legal proceedings.
11. RELATED PARTY TRANSACTIONS
In the ordinary course of business, executive officers and directors of the
Corporation and companies in which certain directors are principal owners, were
loan customers of, and had other transactions with the Corporation and its
subsidiaries. The aggregate indebtedness to the Corporation and its
subsidiaries of these parties approximated $37,628,000 and $38,092,000 at
December 31, 1997 and 1996, respectively. During 1997, $24,434,000 of new loans
were made and repayments totaled $24,898,000. It is the policy of the
Corporation and its subsidiaries that such loans be made on substantially the
same terms as those prevailing at the time for comparable loans to other
parties.
<PAGE> 31
12. EMPLOYEE BENEFIT PLANS
The Corporation has a noncontributory, qualified profit sharing plan for its
salaried employees. Contributions to the plan are based on Bank performance and
approved by the Board of Directors. Contributions to the plan charged to
operations were $6,151,000 in 1997, $5,582,000 in 1996, and $4,954,000 in 1995.
The plan provides a voluntary deferred compensation program, which permits
participants to defer up to 15% of their salaries. The Corporation will provide
a matching contribution of 50% of each participant's deferral, limited to 3% of
the participant's total salary. The employee's deferred salary account, which
is immediately vested and nonforfeitable at all times, is generally
distributable in the same manner as other benefits under this plan.
The Corporation currently offers continued enrollment in the medical insurance
program to qualified retiring employees and directors. This postretirement
benefit becomes available to participants in the medical insurance program if
they meet minimum age and service requirements and if they agree to contribute
a portion of the cost. Postretirement benefits accrue during the years of
service prior to the vestment of the benefits. The Corporation has the right to
modify or terminate these benefits for current and future retirees at any time.
The accumulated benefit obligation was determined using a discount rate of 8.0%
in 1995 and 7.5% in 1996 and 1997 and an assumed health care cost trend rate of
8.0% for 1995 and 5.5% for 1996 and 1997. The actuarial and recorded
liabilities, none of which are funded, and components of periodic cost for
these postretirement benefits at December 31 are presented in the following
table.
(In thousands) 1997 1996 1995
Accumulated Benefit Obligation:
Actives - fully eligible $ 115 $ 263 $ 172
Actives - other 471 1,190 1,170
Retirees 957 1,420 1,824
- -------------------------------------------------------------------------
Total $1,543 $ 2,873 $ 3,166
Unrecognized Transition
Obligation $(264) $(1,929) $(2,058)
Unrecognized Net
Gain 988 1,081 602
- -------------------------------------------------------------------------
Accrued Postretirement
Benefit Cost $2,267 $ 2,025 $ 1,710
- -------------------------------------------------------------------------
Net Periodic Cost:
Service Cost $ 116 $ 105 $ 105
Interest Cost 211 248 232
Amortization of unrecognized
transition obligation 129 129 129
Amortization of net gain (93) (34) (41)
- -------------------------------------------------------------------------
Total Expense $ 363 $ 448 $ 425
- -------------------------------------------------------------------------
The effect on the present value of a one percent increase in the health care
cost trend rate, would result in an increase of $80,000 in the obligation and a
corresponding increase of $71,000 in the 1997 aggregate service and interest
components of expense.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes carrying amounts and fair values of financial
instruments at December 31:
1997 1996
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Assets
Cash and due from banks $155,849 $155,849 $166,771 $166,771
Interest-bearing balances with banks 150 150 233 233
Federal funds sold 100,000 100,000 20,000 20,000
Investment securities 609,462 615,784 596,473 599,687
Securities available for sale 228,739 228,739 253,552 253,552
Loans (excluding lease financing) 1,458,705 1,460,693 1,436,304 1,432,237
Loans held for sale 58,304 58,302 31,563 31,593
Liabilities
Demand deposits $583,184 $583,184 $539,309 $539,309
NOW 193,474 193,474 174,470 174,470
Savings 298,680 298,680 297,058 297,058
Money market savings 295,088 295,088 304,000 304,000
Time 610,915 611,884 552,216 552,606
Federal funds purchased 2,761 2,761 7,655 7,655
Securities sold under agreement
to repurchase 359,865 359,857 356,914 356,978
Other purchased funds 136 136 898 898
Off-Balance Sheet Assets (Liabilities)
Loan commitments and letters of credit - 6,369 - 8,014
Forward contracts - 146 - (2)
Methods and assumptions used to determine fair values of financial instruments
are included in note 1. Additional details on fair value of securities are
included in note 3. Additional details on fair value of loans are included in
note 4.
<PAGE> 32
14. INCOME TAXES
The provision for income taxes, including the tax effect of securities
transactions for the year ended December 31, consists of the following:
(In thousands) 1997 1996 1995
Current tax expense
Federal income taxes $21,299 $21,733 $17,626
State income taxes 4,719 5,673 4,169
- -----------------------------------------------------------------------------
Total Current Tax Expense 26,018 27,406 21,795
Deferred tax expense (credit) 2,183 (1,893) (124)
- -----------------------------------------------------------------------------
Total Income Taxes $28,201 $25,513 $21,671
=============================================================================
Applicable to operating income $26,344 $23,345 $22,987
Applicable to securities transactions 1,857 2,168 (1,316)
- -----------------------------------------------------------------------------
Total Income Taxes $28,201 $25,513 $21,671
=============================================================================
A reconciliation between the statutory federal income tax rate and the
effective income tax rate follows:
1997 1996 1995
Percent Percent Percent
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-exempt interest income (2.0) (2.2) (3.3)
State income tax, net of federal tax benefit 4.0 5.1 4.3
Other (0.4) (2.5) (1.7)
- ----------------------------------------------------------------------------
Total Effective Income Tax Rate 36.6% 35.4% 34.3%
============================================================================
The Corporation had net deferred tax assets of $3,183,000 at December 31, 1997,
and $7,634,000 at December 31, 1996. Temporary differences which gave rise to a
significant portion of deferred tax assets and liabilities were as follows:
1997 1996
Deferred Tax Deferred Tax
(In thousands) Assets Liabilities Assets Liabilities
Provision for loan losses $ 9,887 $ - $10,135 $ -
Alaska state taxes 1,433 - 1,279 -
Post retirement benefits 1,018 - 990 -
Mortgage loan servicing 1,248 - 293 -
Depreciation and amortization - 4,295 - 2,418
Net unrealized security gains - 2,076 - 1,637
Other 1,183 3,935 890 320
- ----------------------------------------------------------------------------
Subtotal 14,769 10,306 13,587 4,375
Valuation Allowance (1,280) - (1,578) -
- ----------------------------------------------------------------------------
Total Deferred Taxes $13,489 $10,306 $12,009 $4,375
============================================================================
The Corporation has established a valuation allowance of $1,280,000 in 1997 and
$1,578,000 in 1996 against deferred tax assets, and it has not changed
materially during the year. In order for the net deferred tax assets to be
fully realized, it would require sufficient taxable income of the appropriate
character.
<PAGE> 33
15. NATIONAL BANCORP OF ALASKA, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
STATEMENTS OF INCOME
(For the Years-Ended December 31) (In thousands) 1997 1996 1995
Income:
Dividends from National Bank of Alaska $43,920 $36,400 $33,200
Interest on balances with banks 1,798 1,412 1,089
Dividends from securities 1,659 1,683 1,527
Interest on loans 1,496 1,617 1,424
Gains on limited partnership investments 4,174 6,063 127
Other 331 160 120
- ------------------------------------------------------------------------------
Total Income 53,378 47,335 37,487
Expenses 923 2,102 699
- ------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 52,455 45,233 36,788
Income taxes 2,416 2,225 444
- ------------------------------------------------------------------------------
50,039 43,008 36,344
Equity in undistributed net income of subsidiaries 1,218 3,508 4,936
- ------------------------------------------------------------------------------
Net Income $51,257 $46,516 $41,280
==============================================================================
STATEMENTS OF CONDITION
(As of December 31) (In thousands) 1997 1996
Assets:
Interest-bearing balances with banks $ 45,430 $ 41,852
Loans 20,086 24,278
Securities 25,264 27,039
Investment in subsidiaries 257,264 256,053
Limited partnership investments 50,408 32,197
Other assets 4,896 1,319
- -----------------------------------------------------------------------------
Total Assets $403,348 $382,738
=============================================================================
Liabilities and Shareholders' Equity:
Dividends payable $ 3,882 $ 3,969
Other liabilities 585 1,366
- -----------------------------------------------------------------------------
Total Liabilities 4,467 5,335
Total Shareholders' Equity 398,881 377,403
- -----------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $403,348 $382,738
=============================================================================
<PAGE> 34
STATEMENTS OF CASH FLOWS
(For the Years-Ended December 31) (In thousands) 1997 1996 1995
Operating Activities
Net Income $51,257 $46,516 $41,280
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed net income from subsidiaries (1,218) (3,508) (4,936)
Gains on securities and limited
partnership transactions (4,304) (6,063) (127)
Decrease (increase) in receivables (1,377) 780 257
Increase (decrease) in other liabilities (1,224) 1,079 152
- -----------------------------------------------------------------------------
Net Cash Provided by Operating Activities 43,134 38,804 36,626
Investing Activities
Net increase in balances with banks (3,578) (7,340) (4,575)
Net increase (decrease) in loans 4,191 (30) (4,621)
Investment in subsidiary - (5,000) -
Advances to subsidiary - (500) -
Proceeds from sales of assets 11,637 8,386 4,320
Purchases of limited partnership investments (19,874) (12,600) (18,010)
Purchases of other assets (5,000) (3,911) (2,185)
- -----------------------------------------------------------------------------
Net Cash Used in Investing Activities (12,624) (20,995) (25,071)
Financing Activities
Cash dividends (15,738) (15,930) (11,555)
Acquisition of treasury stock (14,772) (1,879) -
- -----------------------------------------------------------------------------
Net Cash Used in Financing Activities (30,510) (17,809) (11,555)
- -----------------------------------------------------------------------------
Increase (decrease) in cash - - -
Cash at beginning of year - - -
- -----------------------------------------------------------------------------
Cash at End of Year $ - $ - $ -
=============================================================================
<PAGE> 35
16. OTHER INCOME AND EXPENSE
The following tables summarize the components of other income and expense:
Other Income
(In thousands) 1997 1996 1995
Trust department income $ 2,534 $ 2,238 $ 2,114
Service charges on deposit accounts 12,496 12,292 11,867
Mortgage servicing fees 8,175 8,112 7,936
Credit card service fees 6,968 6,178 5,849
Securities transactions 345 58 (3,959)
Gains on limited partnership investments 4,174 6,063 127
Net gain on sale of other real estate owned 10 3,375 82
Other 14,266 12,311 9,976
- -----------------------------------------------------------------------------
Total Other Income $48,968 $50,627 $33,992
=============================================================================
Other Expense
(In thousands) 1997 1996 1995
Salaries $ 38,539 $ 38,251 $36,802
Profit sharing and other employee benefits 12,644 11,427 10,415
Net occupancy expense of bank premises 7,540 7,394 7,135
Furniture and equipment expense 9,113 9,267 8,267
Stationery/printing 2,836 2,785 2,676
Telecommunications 4,135 4,066 2,469
Computer program and processing 6,058 5,414 7,050
Other 19,487 23,757 19,874
- -----------------------------------------------------------------------------
Total Other Expense $100,352 $102,361 $94,688
=============================================================================
REPORT OF DELOITTE & TOUCH LLP, INDEPENDENT AUDITORS
Board of Directors
National Bancorp of Alaska, Inc.
We have audited the accompanying consolidated statements of condition of
National Bancorp of Alaska, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provided a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of National Bancorp of Alaska, Inc.,
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Anchorage, Alaska
January 23, 1998
<PAGE> 36
MANAGEMENT DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
HIGHLIGHTS
Net income for 1997 was $51,257,000 or 10% higher than 1996 net income of
$46,516,000. The increase in earnings was due to an increase in net interest
income to $136,242,000, or $5,829,000 over 1996. Earnings per share were $6.53
in 1997 compared to $5.84 in 1996, a 12% increase. The return to shareholders
was enhanced through a treasury stock purchase program reducing the number of
outstanding shares by 175,785 during 1997.
Return on average assets was 1.91% in 1997 compared to 1.83% in 1996. Return on
average equity in 1997 was 13.21% and 12.78% in 1996. The ratio of equity to
total assets at December 31, 1997 was 14.36% compared to 14.25% at the end of
1996.
There were two significant factors affecting income for the fourth quarter of
1997. Limited partnership investments provided capital gains of $3,560,000
bringing gains from those investments to $4,174,000 for the year. In addition,
a fourth quarter loan loss provision of $2,700,000 was recorded to reflect
continued growth in the loan portfolio.
During the fourth quarter of 1996 several significant transactions occurred. A
capital gain from limited partnership investments of $4,923,000 was realized
and a foreclosed property was sold for a gain of $3,305,000. Several large
expenses in the fourth quarter had the effect of offsetting these nonrecurring
gains. The reserve for possible loan loss was increased to $23,002,000 with a
fourth quarter provision for loan losses of $4,400,000 in
recognition of significant growth in the loan portfolio. In addition, charges
against income of $1,766,000 and $1,102,000 were taken to record write downs of
intangible assets related to purchases of assets and liabilities in previous
years, and a charge of $1,309,000 was made to reflect an other than temporary
decline in value of specific limited partnership investments.
NET INTEREST INCOME
The most significant component of the Corporation's net income is net interest
income which is the difference between interest and fee income earned on assets
and interest expense on liabilities.
Net interest income on a fully taxable basis increased $5,582,000 in 1997 over
the prior year. The net interest margin decreased to $5.82% in 1997 compared to
$5.89% in 1996. Growth in the loan portfolio was the most significant factor
behind the increase in net interest income. Commercial and consumer real estate
lending generated the largest increases bringing loans to $1,471,461,000 at
December 31, 1997 compared to $1,446,978,000 at December 31, 1996. Consumer
installment loans declined $46,025,000 in the same time period due to a fourth
quarter sale of $50,000,000 in auto loans.
Despite stable interest rates for most of the year, cost of funds increased
slightly resulting in the reduction in net interest margin. Time deposit
balances increased by $58,699,000 over 1996 to $610,915,000 at December 31,
1997. In 1997, demand deposits averaged $6,396,000 higher than in 1996. A
fourth quarter increase brought the December 31, 1997 demand deposit balance to
$583,184,000, a $43,875,000 increase over December 31, 1996.
In 1996, fully taxable net interest income increased $9,430,000 over 1995. The
net interest margin increased from 5.70% in 1995 to 5.89% in 1996. The increase
in net interest income was a result of continued loan growth. Loans grew
$120,138,000 from December 31, 1995 to $1,446,978,000 at December 31, 1996.
Consumer and commercial loans continued a growth pattern from the prior year
spurred by activity in the branch network. Consumer real estate and
construction lending resulted in a growth in real estate loans.
Interest rates leveled off and remained stable for much of the year providing a
slight reduction in the cost of interest bearing funds from 4.42% in 1995 to
4.16%. The yield of earning assets was 8.83% in 1996 compared to 8.84% in 1995,
with yields on loans dropping slightly from the prior year.
Table 1 - Analysis of Net Interest Income
(In thousands) 1997 1996 1995 1994 1993
Interest income* $ 209,091 $ 197,531 $ 189,256 $ 162,607 $ 156,040
Interest expense 72,849 67,118 68,709 49,136 43,220
- -------------------------------------------------------------------------------
Net interest income 136,242 130,413 120,547 113,471 112,820
Tax equivalent adjustment
to interest income* 3,806 4,053 4,489 4,262 4,499
- -------------------------------------------------------------------------------
Net interest income
(fully taxable
equivalent) $ 140,048 $ 134,466 $ 125,036 $ 117,733 $ 117,319
Average earning assets $2,408,338 $2,283,157 $2,192,711 $2,035,844 $1,994,445
- -------------------------------------------------------------------------------
Net Interest Margin 5.82% 5.89% 5.70% 5.78% 5.88%
- -------------------------------------------------------------------------------
*Interest income includes loan fees of $7,863,000 in 1997, $7,221,000 in 1996,
$6,095,000 in 1995, $8,429,000 in 1994 and $10,850,000 in 1993. The adjustment
to convert nontaxable income to fully taxable equivalent basis is based on a
marginal income tax rate of 40.5% in 1997 through 1993.
<PAGE> 37
NONINTEREST INCOME
Noninterest income decreased 3% from 1996 to $48,968,000 in 1997. Gains on
securities and limited partnership investments decreased $1,889,000 from 1996.
Gains on other real estate owned declined by $3,365,000. Other income increased
by $1,955,000 over 1996, which includes $1,477,000 in income from low-income
housing investments.
Noninterest income in 1996 was 49% or $16,635,000 greater than in 1995. Gains
on securities were $58,000 compared to security losses in 1995 of $3,959,000.
Capital gains from limited partnership investments were $6,063,000 and $127,000
in 1996 and 1995, respectively. Gains on sales of other real estate owned were
$3,375,000 compared to $82,000 in 1995. Gains and fees related to lending
activity included in other income grew by $1,315,000 over 1995.
Table 2 - Analysis of Noninterest Income
Increase Increase
(Decrease) (Decrease)
(In thousands) 1997 % 1996 % 1995
Trust department income $ 2,534 13% $ 2,238 6% $ 2,114
Service charges on deposit accounts 12,496 2 12,292 4 11,867
Mortgage servicing fees 8,175 1 8,112 2 7,936
Credit card service fees 6,968 13 6,178 6 5,849
Securities transactions 345 N/A 58 N/A (3,959)
Gain on limited partnership 4,174 (31) 6,063 N/A 127
Net gain on sale of other real
estate owned 10 N/A 3,375 N/A 82
Other 14,266 16 12,311 23 9,976
- ------------------------------------------------------------------------------
Total Noninterest Income $48,968 (3)% $50,627 49% $33,992
==============================================================================
NONINTEREST EXPENSE
Noninterest expense for 1997 decreased $2,009,000 or 2% over 1996. Other
expense declined by $4,270,000 from 1996 due to nonrecurring charges taken in
the fourth quarter of 1996. Employee benefits increased by $1,217,000 due to an
increase in the profit sharing contribution and increased medical plan
expenses.
In 1996, noninterest expense increased $7,673,000 to $102,361,000. Other
expense in noninterest expense include charges of $1,766,000 and $1,102,000 to
record write downs of intangible assets related to purchases of assets and
liabilities in previous years and a charge of $1,100,000 which
was made to reflect an other than temporary decline in value of limited
partnership investments. Computer program and processing expense was down due
to the one time charge taken in 1995 associated with the contract with M&I Data
Services. The telecommunications expense increase in 1996 resulted from a
contract executed with General Communications, Inc. to provide
telecommunication and distributed processing services, some of which were
previously provided internally and reflected in other expense categories. FDIC
insurance premiums were lowered to the minimum level in 1996.
Table 3 - Analysis of Noninterest Expense
Increase Increase
(Decrease) (Decrease)
(In thousands) 1997 % 1996 % 1995
Salaries $ 38,539 1% $ 38,251 4% $36,802
Profit sharing and other
employee benefits 12,644 11 11,427 10 10,415
Net occupancy expense of bank premises 7,540 2 7,394 4 7,135
Furniture and equipment expense 9,113 (2) 9,267 12 8,267
Stationery/printing 2,836 2 2,785 4 2,676
Telecommunications 4,135 2 4,066 65 2,469
Computer program and processing 6,058 12 5,414 (23) 7,050
Other 19,487 (18) 23,757 20 19,874
- -------------------------------------------------------------------------------
Total Noninterest Expense $100,352 (2)% $102,361 8% $94,688
===============================================================================
<PAGE> 38
INVESTMENT SECURITIES, SECURITIES AVAILABLE FOR SALE AND SHORT-TERM INVESTMENTS
In 1997, investment securities increased 2% or $12,989,000 from the prior year.
Securities issued by U.S. Treasury, U.S. agencies and corporations decreased by
$15,967,000 and mortgage and asset backed securities increased by $36,480,000.
Mortgage and asset backed securities are collateralized with U.S. government
and agency securities, residential mortgage loans or consumer loans. All are
investment grade with the majority having Aaa Moody credit rating. These
securities are paid down as the underlying collateral is paid.
The Corporation prudently manages the security portfolio to provide long term
financial stability, growth and profitability. The portfolio consists of high
credit quality securities with primarily short and medium term maturities. The
Corporation does not maintain a trading portfolio. Securities which may be
sold for purposes of liquidity or asset/liability management are classified as
securities available for sale and carried at market value.
Securities with a cost of $223,614,000 and a market value of $228,739,000
have been classified as securities available for sale at December 31, 1997.
These securities are held for long-term liquidity and by definition may be sold
prior to maturity.
In 1996, investment securities increased $43,072,000 to $596,473,000, funded by
a growth in time deposits and securities sold under an agreement to repurchase.
U.S. Government and agency securities increased by $13,841,000 and other
securities increased by $10,964,000 due primarily to acquisition of restricted
stock of Federal Home Loan Bank.
Table 4 - Investment Portfolio
Book Value December 31
(In thousands) 1997 1996 1995
U.S. Government and agencies $301,178 $317,145 $303,304
State and political subdivisions 11,864 15,878 9,008
Corporate notes 90,016 95,082 89,925
Mortgage and asset backed securities 181,218 144,738 138,498
Other securities 25,186 23,630 12,666
- -----------------------------------------------------------------------------
Total Investment Portfolio $609,462 $596,473 $553,401
=============================================================================
LIQUIDITY AND INTEREST RATE SENSITIVITY
A fundamental objective of management is to ensure that adequate
liquidity is maintained to meet cash flow requirements without adverse
liquidation of longer term assets. Long-term liquidity is provided from the
short-term maturity structure of the security portfolio and continuous
receipt of loan payments from bank customers. Other sources of long-term
liquidity include a substantial core deposit base and the growth of capital.
The Corporation has various external sources of short-term liquidity,
including federal funds lines and repurchase agreement lines for the sale
and repurchase of investment securities.
Interest rate sensitivity is related to liquidity because each is affected by
the maturity structure of the balance sheet and sources of funds. Interest rate
sensitivity, however, is concerned with the timing and the magnitude
of repricing assets compared to repricing liabilities in a changing interest
rate environment.
The potential for earnings to be affected by changes in interest rates is
inherent in a financial institution's business activities. Changing interest
rates create exposures to loss as well as opportunities for improving
profitability through management of the balance sheet position.
Management monitors the asset and liability position closely. As market
and business conditions change, asset and liability positions and pricing
structures are adjusted to control the risks associated with interest rate
movement and to generate a stable growth in net interest income.
Management believes that the Corporation is reasonably well positioned for
subsequent interest rate movements.
<TABLE>
<CAPTION>
Securities Portfolio Weighted Average Yield (Fully Taxable Equivalent)
December 31, 1997 Within 1 Year 1 - 5 Years 5 - 10Years Over 10 Years
(In thousands) Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agencies $47,456 6.90% $238,596 6.95% $15,126 7.06% $ - -%
State and political subdivisions 6,345 7.25 5,519 7.57 - - - -
Corporate notes 6,972 8.04 83,044 6.77 - - - -
Mortgage and asset backed securities 53,015 7.23 121,183 7.20 7,020 6.60 - -
Other securities - - - - - - 25,186 7.61
Securities available for sale 35,047 6.95 168,428 6.76 - - 25,264 9.19
</TABLE>
<PAGE> 39
Loan Maturity and Interest Sensitivity (Selected Loans)
December 31, 1997
Maturity
Within 1 - 5 Over 5
(In thousands) 1 Year Years Years Total
Commercial and industrial $255,540 $154,086 $136,517 $546,143
Real estate construction 31,177 3,943 D 35,120
Nontaxable 4,527 20,013 26,705 51,245
- -----------------------------------------------------------------------------
Total Selected Loans $291,244 $178,042 $163,222 $632,508
=============================================================================
Predetermined interest rate $112,947 $74,126 $66,337 $253,410
Floating interest rate 178,297 103,916 96,885 379,098
- -----------------------------------------------------------------------------
Total Selected Loans $291,244 $178,042 $163,222 $632,508
=============================================================================
Maturity Distribution of Time Deposits over $100,000 (In Thousands)
Maturity in: December 31
(In thousands) 1997 1996
Within 3 months $123,981 $69,533
3 to 6 months 57,048 27,899
6 to 12 months 33,683 51,095
Over 12 months 95,595 127,874
- ---------------------------------------------------------------------------
Total Time Deposits over $100,000 $310,307 $276,401
===========================================================================
LOANS AND LEASE FINANCING
One of the Corporation's most significant business activities is lending. The
Bank grants commercial, real estate and consumer loans to customers throughout
the state. The composition of the loan portfolio reflects the Bank's commitment
to our customers and an assessment of the associated risks and opportunities of
meeting their credit needs. The Bank's lending policies assure that collateral
lending of all types is approached conservatively and is consistent with safe
and sound standards. Collateral accepted against the commercial loan portfolio
includes accounts receivable, inventory and equipment. Autos, second deeds of
trust and boats are accepted as collateral for the installment portfolio.
Loans and leases were $1,471,461 at December 31, 1997, an increase of 2% or
$24,483,000 from December 31, 1996. Installment loans decreased by $46,026,000
or 12% over the prior year from the sale of $50,000,000 in auto loans through a
revolving loan securitization. Commercial and industrial loans increased by
$42,834,000 from loans generated throughout the statewide branch system. Long
term real estate loans increased by $29,367,000 from 1996 due to consumer real
estate lending activity. Nontaxable loans decreased $4,127,000 while other loan
categories experienced moderate growth during the year.
The Bank had no debt outstanding to developing countries at December 31, 1997.
At December 31, 1996, loans and leases were $1,446,978,000, an increase of 9%
over December 31, 1995. Installment loans increased by 15% or $48,367,000 over
the prior year from a continued emphasis on consumer lending. The long term
real estate portfolio grew by $39,086,000 or 9% over 1995 with growth in
consumer lending secured by real estate. The commercial loan portfolio posted a
7% increase or $32,829,000. Real estate construction increased by $9,768,000
over 1995. Nontaxable and lease financing categories ended with lower balances
than the previous year end.
Loans held for sale increased to $58,304,000 at December 31, 1997 from
$31,563,000 at December 31, 1996. The increase is due to increased mortgage
lending with the declining interest rate environment at the
end of 1997.
Table 5 - Loans and Lease Portfolio
December 31
(In thousands) 1997 1996 1995 1994 1993
Commercial and
industrial $ 546,143 $ 503,309 $ 470,480 $ 439,866 $ 425,187
Real estate construction 35,120 34,767 24,999 21,845 28,971
Real estate long-term 492,325 462,958 423,872 415,017 380,240
Consumer installment 333,872 379,898 331,531 271,294 204,744
Nontaxable 51,245 55,372 64,356 68,049 72,719
Lease financing 12,756 10,674 11,602 10,093 10,709
- ------------------------------------------------------------------------------
Loans and Lease
Financing $1,471,461 $1,446,978 $1,326,840 $1,226,164 $1,122,570
==============================================================================
Loans Held for Sale $ 58,304 $ 31,563 $ 33,099 $ 19,627 $ 164,181
==============================================================================
<PAGE> 40
Nonperforming Assets
The quality of the loan portfolio is maintained with an effective loan
administration program combined with periodic credit reviews. Management is
actively involved in reviewing and evaluating the credit quality of the loan
portfolio. Also, an internal loan review staff conducts periodic examinations
of the portfolio's credit quality, documentation and administration. Results of
these examinations are reported to the Chairman of the Board and the Audit
Committee of the Board of Directors.
A primary measure of the loan quality is the percentage of the loan port-folio
that is classified as nonperforming. Nonperforming assets are defined as the
sum of nonaccrual loans, restructured loans, loans past due 90 days or more and
other real estate owned. As shown in Table 6, the ratio of nonperforming assets
to total loans and other real estate owned decreased to 1.08% at December 31,
1997, compared to 1.10% at December 31, 1996. Total nonperforming assets
decreased $38,000 in 1997. The low level of nonperforming assets is a result of
continued active monitoring and management of troubled credits and management's
emphasis on the recognition of losses as they are identified, together with a
continued stable economy.
A loan is classified as nonaccrual when principal or interest are in default
for 90 days or more, unless the loan is well secured and in the process of
collection. Accrual of interest is discontinued for nonaccrual loans, and
interest previously recorded as earned and not collected is reversed. Interest
income on nonaccrual loans which would have been recorded if these loans had
been current in accordance with their original terms was $1,014,000 in 1997 and
$744,000 in 1996. Actual interest income recorded for these loans was $105,000
in 1997 and $54,000 in 1996.
Certain loans are restructured to provide a reduction or deferral of interest
or principal because of deterioration in the financial condition of the
respective borrowers. Once a loan is placed in this category, it remains until
the terms are no longer more favorable than those of other customers. Interest
income on restructured loans which would have been recorded under their
original terms was $9,000 in 1997 and $183,000 in 1996. Actual interest income
recorded for those loans was $6,000 in 1997 and $109,000 in 1996. At December
31, 1997, the Bank had no commitments to lend additional funds to borrowers
with restructured loans.
Table 6
(In thousands) 1997 1996 1995 1994 1993
Nonaccrual loans
Commercial and industrial $ 5,342 $ 1,451 $ 700 $ 1,763 $ 2,687
Real estate construction 323 166 166 63 163
Real estate long-term 4,298 3,841 1,162 1,528 687
Other 76 35 45 - -
- -------------------------------------------------------------------------------
Total $10,039 $ 5,493 $ 2,073 $ 3,354 $ 3,537
Restructured loans
Commercial and industrial $ - $ - $ - $ - $ 143
Real estate construction - 85 94 102 116
Real estate long-term 90 95 242 1,612 103
- -------------------------------------------------------------------------------
Total $ 90 $ 180 $ 336 $ 1,714 $ 362
- -------------------------------------------------------------------------------
Accruing loans past due 90 days or more $ 5,627 $ 9,945 $ 5,459 $ 5,539 $ 2,098
- -------------------------------------------------------------------------------
Other real estate owned $ 150 $ 326 $ 3,127 $ 4,344 $11,259
- -------------------------------------------------------------------------------
Total nonperforming assets $15,906 $15,944 $10,995 $14,951 $17,256
- -------------------------------------------------------------------------------
Nonaccrual loans as a percentage
of loans and leases at year-end 0.68% 0.38% 0.16% 0.27% 0.32%
Restructured loans as a percentage
of loans and leases at year-end 0.01% 0.01% 0.03% 0.14% 0.03%
Nonperforming assets as a percentage
of loans and leases and other real
estate owned at year-end 1.08% 1.10% 0.83% 1.22% 1.52%
- ------------------------------------------------------------------------------
<PAGE> 41
RESERVE FOR LOAN LOSSES AND PROVISION FOR LOAN LOSSES
Although the Bank maintains sound credit policies and procedures, credits may
deteriorate and are charged off as losses when identified. The reserve for loan
losses is maintained to absorb anticipated losses. Management views this
reserve as a source of financial strength. The reserve for loan losses was
$24,530,000 at December 31, 1997. This maintains a reserve of 1.67% of
outstanding loans reflecting management's commitment to maintain an adequate
reserve against anticipated losses.
The provision for loan losses charged to income was $5,400,000 in 1997,
compared to a provision for loan loss of $6,650,000 in 1996. Net charge offs
were $3,872,000 in 1997 compared to net charge offs of $5,177,000 in 1996.
Management evaluates the adequacy of the Bank's reserve for loan loss on at
least a quarterly basis. This evaluation takes into consideration current
economic conditions, with particular emphasis on Alaska's economy, historical
loss experience, review of portfolio credit quality and management's monthly
evaluation of specific, identified nonperforming loans. Management believes the
reserve for loan losses is adequate to absorb anticipated losses and intends to
maintain the reserve at a prudent level.
<TABLE>
<CAPTION>
Table 7
(In thousands) 1997 1996 1995 1994 1993
Analysis of Reserve for Loan Losses
<S> <C> <C> <C> <C> <C>
Balance January 1 $23,002 $21,529 $19,226 $17,408 $21,338
Provision charged to operations 5,400 6,650 (3,100) 2,200 7,700
Recoveries on loans previously
charged off 3,333 2,560 9,947 2,502 2,674
Less loans charged off (7,205) (7,737) (4,544) (2,884) (14,304)
- -------------------------------------------------------------------------------------------------
Balance December 31 $24,530 $23,002 $21,529 $19,226 $17,408
==================================================================================================
Composition of Loan Charge Off and Recoveries
Loans Charged Off:
Commercial loans and leases $ 2,063 $ 1,867 $ 954 $ 265 $12,064
Real estate construction - 6 113 50 115
Real estate long-term 97 1,574 116 86 123
Consumer 4,047 3,232 2,644 1,804 1,438
Visa 998 1,058 717 679 564
- -------------------------------------------------------------------------------------------------
Total Charge Offs 7,205 7,737 4,544 2,884 14,304
- -------------------------------------------------------------------------------------------------
Recoveries:
Commercial loans and leases 793 403 7,643 514 920
Real estate construction 131 5 16 122 175
Real estate long-term 364 286 657 495 621
Consumer 1,851 1,633 1,445 1,204 787
Visa 194 233 167 153 155
Nontaxable - - 19 14 16
- -------------------------------------------------------------------------------------------------
Total Recoveries 3,333 2,560 9,947 2,502 2,674
- -------------------------------------------------------------------------------------------------
Net Charge Offs $ 3,872 $ 5,177 $(5,403) $ 382 $11,630
=================================================================================================
Loan and Lease Statistics
Average loans and leases $1,468,146 $1,405,194 $1,306,685 $1,202,249 $1,052,326
Loans and leases at year-end 1,471,461 1,446,978 1,326,840 1,226,164 1,122,570
Reserve for loan losses
as a percentage of:
Average loans and leases 1.67% 1.64% 1.65% 1.60% 1.65%
Loans and leases at year-end 1.67 1.59 1.62 1.57 1.55
Net charge offs as a percentage of:
Average loans and leases 0.26 0.37 (0.41) 0.03 1.11
Loans and leases at year-end 0.26 0.36 (0.41) 0.03 1.04
</TABLE>
<PAGE> 42
DEPOSITS AND SHORT-TERM BORROWINGS
Total deposits increased 6% or $114,288,000 to $1,981,341,000 at December 31,
1997. Time deposits reflect an 11% or $58,699,000 growth at December 31, 1997.
Demand deposits increased 8% or $43,875,000 over 1996. Other deposit categories
including NOW, savings and money market savings increased $11,714,000 or 2%
compared to December 31, 1996.
In 1996, total deposits increased $126,572,000 or 7% from December 31, 1995.
At December 31, 1996, NOW, savings and money market savings increased
$31,875,000 or 4% over 1995, with most of the growth in a competitively priced
business NOW product. Time deposits increased $95,102,000 or 21% from the prior
year's balance. Time deposits from the Alaska Permanent Fund Corporation
increased $75,000,000 to $125,000,000 during 1996. Demand deposits did not
change compared to the same period in 1995.
Short-term borrowings include Federal funds purchased and repurchase agreements
in the amount of $362,626,000 and other borrowings of
$136,000 at December 31, 1997.
Table 8 - Deposit Structure
Average for Year Ended December 31
(In thousands) 1997 1996 1995 1994 1993
Demand $ 535,623 $ 529,227 $ 512,401 $ 506,669 $ 474,226
NOW 175,879 156,695 150,401 151,276 133,987
Savings 289,188 294,374 296,784 302,566 265,452
Money Market Savings 298,714 295,932 296,735 299,948 265,422
Time 580,920 511,696 460,613 399,159 404,351
- -------------------------------------------------------------------------------
Total Deposits $1,880,324 $1,787,924 $1,716,934 $1,659,618 $1,543,438
===============================================================================
Deposits by Type of Depositor at December 31
(In thousands) 1997 1996 1995 1994 1993
Individuals, partner-
ships and corporations $1,794,623 $1,682,900 $1,632,547 $1,630,233 $1,490,039
United States government 2,377 5,035 5,543 6,814 4,466
State and political
subdivisions 165,877 164,171 86,855 90,270 91,985
Other 18,464 14,947 15,536 20,304 19,657
- -------------------------------------------------------------------------------
Total $1,981,341 $1,867,053 $1,740,481 $1,747,621 $1,606,147
===============================================================================
Time deposits include $100,000 in 1994 and $10,140,000 in 1993 in brokered
deposits assumed through bank acquisitions. The Bank did not renew maturing
brokered deposits.
<TABLE>
<CAPTION>
Table 9 - Funds Purchased
The following table provides an analysis of funds purchased:
Federal Funds Purchased and
Securities Sold Under Total
Agreement to Repurchase Purchased Funds
(In thousands) 1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31 $362,626 $364,569 $325,859 $362,762 $365,467 $327,540
Average for the year 380,978 354,613 348,261 381,226 356,266 349,622
Maximum month-end balance 420,250 385,275 407,675 420,522 386,399 408,789
Average rate for the year* 4.77% 4.76% 5.25% 4.77% 4.75% 5.23%
Average rate at year-end 4.79 4.67 4.86 4.79 4.67 4.84
*The average interest rate is computed by dividing the respective interest
expense by the average daily balance.
</TABLE>
<PAGE> 43
LIMITED PARTNERSHIP INVESTMENTS
The Corporation has a relatively large amount of capital as a percentage of
assets. In an effort to improve shareholder returns, the Corporation has
invested in limited partnerships with ten investment firms who in turn make
various equity investments. These investments provide higher returns than those
available from traditional bank investments and have a higher risk associated
with them. Each firm has invested from $1,000 to $3,300,000 in 1 to 34
individual companies. The Corporation's percentage share of any individual
company does not exceed 10%.
At December 31, 1997, the Corporation had limited partnership investments
totaling $50,408,000 compared to $32,197,000 at December 31, 1996. The
Corporation had commitments to invest an additional $38,812,000 at December 31,
1997.
Capital gains from these investments were $4,174,000 in 1997, $6,063,000 in
1996 and $127,000 in 1995. Write offs and net expenses from limited partnership
investments were $352,000 in 1997, $1,604,000 in 1996, and $231,000 in 1995.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
The Corporation is a strongly capitalized bank holding company. Shareholders'
equity increased by $21,478,000 from December 31, 1996 to $398,881,000 at
December 31, 1997.
The ratio of equity to total assets was 14.47% for 1997 compared to 14.33% for
1996. The Corporation's level of capitalization exceeds current and proposed
regulatory guidelines. The current quarterly dividend rate is $0.50 per share.
Table 10 - Analysis of Shareholders' Equity
(In thousands) 1997 1996 1995 1994 1993
Balance January 1 $377,403 $350,320 $312,772 $292,976 $269,303
Net income 51,257 46,516 41,280 37,520 35,626
Cash dividends declared (15,651) (15,915) (13,547) (11,953) (11,953)
Purchase of treasury stock (14,772) (1,879) - - -
Net unrealized gains (losses)
on securities 644 (1,639) 9,815 (5,771) -
- -------------------------------------------------------------------------------
Balance December 31 $398,881 $377,403 $350,320 $312,772 $292,976
===============================================================================
Per Share Statistics
Net income $ 6.53 $ 5.84 $ 5.18 $ 4.71 $ 4.47
Cash dividends declared 2.00 2.00 1.70 1.50 1.50
Book value at year-end $51.38 $47.54 $43.96 $39.25 $36.77
- -------------------------------------------------------------------------------
Ratios (Based on Average Balances)
Return on assets 1.91% 1.83% 1.70% 1.66% 1.61%
Equity to total assets 14.47 14.33 13.71 13.56 12.83
Dividend payout ratio 30.53 34.21 32.82 31.86 33.56
Return on equity 13.21 12.78 12.41 12.25 12.52
Equity to total deposits 20.64 20.35 19.38 18.46 18.43
IMPACT OF THE YEAR 2000 ISSUE
Computer technology is an integral part of the Bank's operations and the
processing of customer accounts. The Year 2000 issue has arisen from computer
programs being written with the year field defined as two digits versus four,
which may result in a disruption of operations after December 31, 1999.
The Corporation has completed an assessment of all systems including those of
M&I Data Services which provides a significant portion of the Corporation's
data processing services. A plan has been implemented to modify, test and
replace any system deemed not compliant. All critical systems are planned to be
compliant by the end of 1998. The costs associated with this process will not
be material to the financial results of the Corporation.
IMPACT OF INFLATION
The banking industry's exposure to inflation differs from that of most
industries. For industrial companies, the interplay between inflationary
trends and methods of inventory valuation and depreciation accounting can
significantly affect earnings. However, virtually all of the Bank's assets and
liabilities are monetary in nature. Therefore, while changes in interest
rates may significantly impact a bank's earnings, interest rates do not
necessarily move in the same direction or with the same magnitude as do
the prices of other goods and services.
It is clear that inflationary trends are reflected in the Bank's noninterest
expense. Consequently, adjustments to service charge schedules are made from
time to time to recover costs where possible. The effect of these adjustments
is reflected in noninterest income.
<PAGE> 44
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS/INTEREST INCOME AND EXPENSE/RATES
Year-Ended December 31 1997 1996
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Cost Balance Expense Cost
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing balances
with banks $ 537 $ 38 7.08% $ 884 $ 46 5.20%
Federal funds sold and
securities purchased
under agreement to resell 73,832 3,868 5.24 43,036 2,265 5.26
- ---------------------------------------------------------------------------------------------------
Securities* 812,692 56,843 6.99 794,002 55,131 6.94
- ---------------------------------------------------------------------------------------------------
Loans and lease financing* 1,521,277 152,148 10.00 1,445,235 144,142 9.97
- ---------------------------------------------------------------------------------------------------
Total Earning Assets $2,408,338 $212,897 8.84% $2,283,157 $201,584 8.83%
- ---------------------------------------------------------------------------------------------------
Reserve for possible loan losses (23,225) (21,453)
Cash and due from banks 131,154 128,065
Bank premises and equipment 70,478 68,424
Other assets 94,860 80,420
- ---------------------------------------------------------------------------------------------------
Total Assets $2,681,605 $2,538,613
===================================================================================================
Liabilities and Shareholders' Equity:
NOW $ 175,879 $ 4,765 2.71% $ 156,695 $ 4,177 2.67%
Savings deposits 289,188 9,352 3.23 294,374 9,599 3.26
Money market savings 298,714 9,518 3.19 295,932 9,830 3.32
Time deposits 580,920 31,014 5.34 511,696 26,599 5.20
- ---------------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,344,701 54,649 4.06 1,258,697 50,205 3.99
Federal funds purchased and
securities sold under
agreement to repurchase 380,978 18,188 4.77 354,613 16,894 4.76
Other purchased funds 248 12 4.84 1,653 19 1.15
- ---------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 1,725,927 72,849 4.22 1,614,963 67,118 4.16
- ---------------------------------------------------------------------------------------------------
Demand deposits 535,623 529,227
Other liabilities 31,931 30,570
- ---------------------------------------------------------------------------------------------------
Total Liabilities 2,293,481 2,174,760
Shareholders' Equity 388,124 363,853
- ---------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,681,605 $2,538,613
===================================================================================================
Net Interest Margin $140,048 5.82% $134,466 5.89%
===================================================================================================
The above tables are presented on a fully taxable equivalent basis assuming a
40.5% income tax. Income and yield on loans include loan fees. Nonaccrual
loans are included in the average balance computations. Changes in net
interest income that are not due to volume or rate have been allocated on a
prorated basis.
*The average balances include securities available for sale and loans held for
sale.
</TABLE>
<PAGE> 45
CONSOLIDATED AVERAGE BALANCE SHEETS/INTEREST INCOME AND EXPENSE/RATES-Continued
Year-Ended December 31 1995
Interest Average
Average Income/ Yield/
(In thousands) Balance Expense Cost
Assets:
Interest-bearing balances
with banks $ 645 $ 41 6.36%
Federal funds sold and
securities purchased
under agreement to resell 14,184 806 5.68
- ----------------------------------------------------------------------------
Securities* 842,517 57,353 6.81
- ----------------------------------------------------------------------------
Loans and lease financing* 1,335,365 135,545 10.15
- ----------------------------------------------------------------------------
Total Earning Assets $2,192,711 $193,745 8.84%
- ----------------------------------------------------------------------------
Reserve for possible loan losses (20,578)
Cash and due from banks 127,299
Bank premises and equipment 61,306
Other assets 66,445
- ----------------------------------------------------------------------------
Total Assets $2,427,183
============================================================================
Liabilities and Shareholders' Equity:
NOW $ 150,401 $ 4,245 2.82%
Savings deposits 296,784 10,847 3.65
Money market savings 296,735 10,172 3.43
Time deposits 460,613 25,149 5.46
- ----------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,204,533 50,413 4.19
- ----------------------------------------------------------------------------
Federal funds purchased and
securities sold under
agreement to repurchase 348,261 18,273 5.25
Other purchased funds 1,361 23 1.69
- ----------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 1,554,155 68,709 4.42
- ----------------------------------------------------------------------------
Demand deposits 512,401
Other liabilities 27,947
- ----------------------------------------------------------------------------
Total Liabilities 2,094,503
Shareholders' Equity 332,680
- ----------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,427,183
============================================================================
Net Interest Margin $125,036 5.70%
============================================================================
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST MARGIN
(In thousands) 1997 vs. 1996 1996 vs. 1995
Due to Due to Total Due to Due to Total
Rate Volume Change Rate Volume Change
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest Bearing Balances
with banks $ 13 $ (21) $ (8) $ (8) $ 13 $ 5
Federal funds sold and
securities purchased
under agreement to resell (10) 1,613 1,603 (64) 1,523 1,459
- ---------------------------------------------------------------------------------------------
Securities* 407 1,305 1,712 1,130 (3,352) (2,222)
- ---------------------------------------------------------------------------------------------
Loans and lease financing* 402 7,604 8,006 (2,395) 10,992 8,597
- ---------------------------------------------------------------------------------------------
Total Earning Assets $812 $10,501 $11,313 $(1,337) $ 9,176 $7,839
- ---------------------------------------------------------------------------------------------
Reserve for possible loan losses
Cash and due from banks
Bank premises and equipment
Other assets
Total Assets
Liabilities and Shareholders' Equity:
NOW $ 69 $ 519 $ 588 $ (241) $ 173 $ (68)
Savings deposits (79) (168) (247) (1,161) (87) (1,248)
Money market savings (404) 92 (312) (315) (27) (342)
Time deposits 735 3,680 4,415 (1,246) 2,696 1,450
- ---------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 321 4,123 4,444 (2,963) 2,755 (208)
Federal funds purchased and
securities sold under
agreement to repurchase 35 1,259 1,294 (1,707) 328 (1,379)
Other purchased funds 20 (27) (7) (8) 4 (4)
- ---------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 376 5,355 5,731 (4,678) 3,087 (1,591)
Demand deposits
Other liabilities
Total Liabilities
Shareholders' Equity
- ---------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity
Net Interest Margin $436 $ 5,146 $ 5,582 $ 3,341 $6,089 $9,430
=============================================================================================
</TABLE>
<PAGE> 46
QUARTERLY FINANCIAL DATE
1997
(in thousands except per share amounts) First Second Third Fourth
Total interest income $49,567 $51,860 $53,371 $54,293
Total interest expense 17,122 17,974 18,469 19,284
Net interest income 32,445 33,886 34,902 35,009
Provision for loan losses 900 900 900 2,700
Securities transactions 148 171 (5) 31
Limited partnership gains 68 239 307 3,560
Other income 10,299 11,221 11,809 11,120
Other expense 23,720 24,616 24,863 27,153
- ------------------------------------------------------------------------------
Income before taxes 18,340 20,001 21,250 19,867
Applicable income taxes 6,338 6,999 7,726 7,138
- ------------------------------------------------------------------------------
Net Income $12,002 $13,002 $13,524 $12,729
==============================================================================
Net Income Per Share $1.52 $1.65 $1.73 $1.63
==============================================================================
1996
(in thousands except per share amounts) First Second Third Fourth
Total interest income $46,962 $49,456 $50,072 $51,041
Total interest expense 15,930 16,677 16,788 17,723
Net interest income 31,032 32,779 33,284 33,318
Provision for loan losses 750 750 750 4,400
Securities transactions - - 24 34
Limited partnership - - 1,012 5,051
Other income 9,248 9,354 11,671 14,233
Other expense 23,104 23,525 26,013 29,719
- ------------------------------------------------------------------------------
Income before taxes 16,426 17,858 19,228 18,517
Applicable income taxes 5,801 6,413 6,911 6,388
- ------------------------------------------------------------------------------
Net Income $10,625 $11,445 $12,317 $12,129
==============================================================================
Net Income Per Share $1.33 $1.44 $1.55 $1.52
==============================================================================
MARKET FOR COMMON STOCK (BID QUOTATIONS)
First Second Third Fourth
1997
High 75 84 94 124
Low 68 72 84 95
1996
High 68 63 65 71
Low 60 59 61 63
Cash Dividend Declared
Per Share
1997 0.50 0.50 0.50 0.50
1996 0.50 0.50 0.50 0.50
- ------------------------------------------------------------------------------
The above schedule shows the high and low bid quotations of the Corporation's
stock as reported by the National Association of Securities Dealers
Automated Quotations System (NASDAQ). National Bancorp of Alaska, Inc.'s common
stock is traded in the over-the-counter market.
<PAGE> 47
National Bancorp of Alaska Directors/Officers
Board of Directors
(Directors are the same for the holding company and the bank.)
Donald B. Abel, Jr.
President, Don Abel Building Supplies, Inc., Juneau
Gary M. Baugh
President, Baugh Construction and Engineering Company, Anchorage
Carl F. Brady, Jr.
Chairman and CEO, Brady & Company, Anchorage
Alec W. Brindle
President, Wards Cove Packing Co., Inc., Seattle
James O. Campbell
Campbell & Campbell Apartment Rentals, Anchorage
Jeffry J. Cook
Vice President Administration, Mapco Alaska, Inc., Fairbanks
Patrick S. Cowan
Owner, Birch Ridge Golf Course, Soldotna
Roy Huhndorf
Chairman of the Board,
Cook Inlet Region, Inc., Anchorage
James H. Jansen
President and CEO,
Lynden, Inc., Anchorage
Donald L. Mellish
Chairman, Executive Committee
Emil Notti
Consultant, Juneau
Howard R. Nugent
President, Howdie Homes, Inc., Wasilla
Tennys B. Owens
Owner and President, Artique Ltd., Anchorage
Eugene A. Parrish, Jr.
Vice President, Holland America Lines, Anchorage
J. Michael Pate
Owner, Pate Insurance Agency, Inc., Homer
Martin R. Pihl
Retired, Forest Product Executive, Ketchikan
Edward F. Randolph
President, Edward F. Randolph Insurance Agency, Inc., Kodiak
Edward B. Rasmuson
Chairman, Board of Directors
Major General John Schaeffer (Retired)
Owner, Schaeffer & Associates, Kotzebue
Michael K. Snowden
President, Service Transfer, Inc., Sitka
Richard Strutz
President
George S. Suddock
Chairman, Alaska National Corp., Anchorage
Richard A. Wien
Chairman and CEO, Florcraft, Inc., Fairbanks
Sharon Wikan
Secretary-Treasurer,
Hammer & Wikan, Petersburg
Directors Emeriti
Elmer E. Rasmuson, Chairman
J.A. Columbus
J.J. Conway
Gordon Hartlieb
John A. Holmberg
Leo Rhode
Executive Committee
Donald L. Mellish, Chairman
Patrick S. Cowan
Tennys B. Owens
J. Michael Pate
Edward B. Rasmuson
Richard Strutz
National Bancorp of Alaska Officers
Edward B. Rasmuson, Chairman of the Board
Richard Strutz, President
Terry S. Kipp, Secretary
Kathleen Soderberg, Treasurer
Gary Dalton, Controller
National Bank of Alaska Officers
Senior Administration
Donald L. Mellish, Chairman, Executive Committee
Edward B. Rasmuson, Chairman of the Board
Richard Strutz, President
James L. Cloud, EVP
Gary Dalton, EVP
Kathleen Soderberg, EVP
Terry S. Kipp, SVP
Branch Administration
Nancy Ashwill, SVP
James Brenner, SVP
Peter Crandall, SVP
James Lund, SVP
Michael McCormack, SVP
Loan Supervision
William Granger,
SVP/Loan Administration
Paul Harris,
SVP/Consumer Lending
James G. O'Connell,
SVP/Commercial Lending
(Retired 12/97)
Jim C. Payne,
SVP/Branch Lending
Accounting
Thomas Mason, VP/Controller
Auditing
James Kemp, SVP/Auditor
Debra E. Shannon,
VP/Auditing Manager
Rick McCrorie,
VP/Compliance Officer
Debbie Dahl-Amundson,
VP/Loan Review Manager
Branch Support
Judith Panke, VP/Manager
Buildings and Properties
Arvin Miller, VP/Manager
Central Customer Service
Catherine Karr, VP/Manager
Kate Kraft, VP
Central Loan Servicing
Judith Crotty, VP/Manager
Commercial Loans
Jerry K. Weaver, SVP/Manager
Pita Benz, VP
Lawrence J. Cooper, VP
Jack Moad, VP
Richard Monroe, VP
Jo-Li Sellin, VP
David Swalling, VP
R. Brent Ulmer, VP
David Hamilton, VP/Small Business Center Manager
Commercial Real Estate
Jan K. Sieberts, SVP/Manager
Jan Hood, VP
Jim Pefanis, VP
Commercial Credit Services
James Brinker, VP/Manager
Gerard Diemer, VP
Linda Lester, VP
Community Development
Janie Leask, VP/Manager
Consumer Loans
Sharon Engle, VP/Manager
Joyce Haney, VP
Consumer Special Credit Services
Bev Gunson, VP/Manager
<PAGE> 48
National Bancorp of Alaska Directors/Officers (Continued)
Corporate Relations
Benjamin A. Barrera, VP/Manager
Margaret Richmond, VP
Electronic Services
John Hoyt, VP/Manager
Anne Habza, VP
Robert Tannahill, VP
Escrow Services
Jackie Zuspan, AVP/Manager
Fairbanks Loans
Bart LeBon, VP
Michael A. Smith, VP
Human Resources
Catherine Richter, VP/Manager
Investments
Mary Wladkowski, VP/Manager
Investment Services
JoEllen Weatherholt, VP/Manager
Marketing
Cathleen J. Keyes, SVP/Manager
Jeri L. Walters, VP
Mortgage Loan Production
Judy Kemplen, VP/Manager
Lorna Gleason, VP
Mortgage Loans - Fairbanks
Jim Matherly, Manager
Mortgage Loans - Kenai Peninsula
Darby Hobson, AVP/Manager
Mortgage Loans - Ketchikan
Gwennyth Byrd, VP
Mortgage Loans - Southeast
Karen King, VP/Manager
Mortgage Loan Servicing
Amber Hutchens, VP/Manager
NBA Leasing Corporation
Ken Oato, VP/Manager
NBA International Banking Corporation
Seung Choi, VP/Manager
Operations
Anna Rice, SVP
Patricia Shipley, VP/Cashier
Louise Bourcier, VP
Vivian Cloud, VP
Susan Ferrell, VP
Debra Scheele, VP
JoAnn Shore, VP
Residential Construction
James McCormack, VP/Manager
Trust
Roderick R. Shipley,
SVP/Manager
Sharyn Andel, VP
David Dobbs, VP
Robert Whittenberg, VP
Michael Walton, VP
Anchorage Branches
Commercial Branch
Kristi Schafer, AC/Manager
Dimond Branch
Sarah Perkins, AVP/Manager
Dimond Mall Branch
Chris Toomer, AC/Manager
Eagle River Branch
Pam Sievers, AVP/Manager
Fifth Avenue Branch
Judy L. Ferguson, VP/Manager
510 L Street Branch
(Under jurisdiction of Fourth Avenue Branch)
Fourth Avenue Branch
Matthew Fitzgerald, AVP/Manager
Frontier Branch
(Under jurisdiction of Russian Jack Branch)
Huffman Branch
Mary Webb, VP/Manager
Main Branch
Daniel Keyes, VP/Manager
Minnesota-Benson Branch
Jennifer McClure, AVP/Manager
Northway Mall Branch
Michelle Busing, AC/Manager
Russian Jack Branch
Nancy Gillies, VP/Manager
Sand Lake Branch
Launi Lee, AVP/Manager
Sears Mall Branch
Kathy Hagedorn, AVP/Manager
Spenard Branch
Amelia Penrose, AVP/Manager
Mat-Su Valley Branches
Palmer Branch
Deborah Retherford,
AVP/Manager
Cottonwood Creek Branch, Wasilla
Michelle Rodekohr, AC/Manager
Wasilla Branch
Annette Olejniczak, VP/Manager
Wasilla Wal-Mart Branch
Tracey Faulkner, AC/Manager
Fairbanks Branches
Bentley Mall Branch
Jami Spears, AC/Manager
College Branch
William J. Green, VP/Business Development
Vicki Kennebec, AVP/Manager
Cushman Branch
Deborah Kimmell, AVP/Manager
Gaffney Branch
Linda Winters, VP/Manager
North Pole Branch
R. Oscar Calvillo, AVP/Manager
Kenai Peninsula Branches
Homer Branch
Joe Everhart, VP/Manager
Kenai Branch
J. Bond Stewart, VP/Manager
Seward Branch
Lori A. Draper, AVP/Manager
Soldotna Branch
Kurt R. Eriksson, VP/Manager
Southeast Branches
Glacier Valley Branch, Juneau
Deborah K. Zenger, VP/Manager
Juneau Branch
Roy L. Kyle, VP/Manager
Ketchikan Branch
John Scoblic, VP/Manager
Lemon Creek Branch, Juneau
Gaylene Flannagan,
AC/Manager
Metlakatla Branch
Charlene M. Brendible,
AC/Manager
Petersburg Branch
Pierre Kaptanian, AVP/Manager
Prince of Wales Branch
Sean Riggan, AC/Manager
Shoreline Branch, Ketchikan
Linda Hoefer, AC/Manager
Sitka Branch
Gregory West, AVP/Manager
Skagway Branch
Anthony Alvarado, AC/Manager
Tongass Branch, Ketchikan
Greg Deal, AC/Manager
Wrangell Branch
Thomas Saville, AVP/Manager
<PAGE> Inside Back Cover
National Bancorp of Alaska Directors/Officers (Continued)
Other Statewide Branches
Barrow Branch
Robin Danner, VP/Manager
Bethel Branch
Mark Renner, AC/Manager
Cordova Branch
Jon K. Stavig, AVP/Manager
Delta Junction Branch
Dave Durham, AC/Manager
Dillingham Branch
Julie Woodworth, VP/Manager
Glennallen Branch
Ken Olmstead, AC/Manager
King Salmon Branch
Charles Munk, AVP/Manager
Kotzebue Branch
Andrew Concepcion, AC/Manager
Kodiak Branch
Darren Franz, VP/Manager
Mill Bay Branch, Kodiak
Josefina Barber, AVP/Manager
Nome Branch
Scot Henderson, AVP/Manager
Valdez Branch
Jacquelyn K. Robb, AVP/Manager
Community Agents
Connie Demientieff, Holy Cross
Evelyn Anderson Stanger, Kake
Bay Johnson, St. Mary's
Zoe Ivanoff, Unalakleet
Northland Credit
John Higgins, President/General Manager
Northland Mortgage Company
Lynn Berry, President
NBA International Banking Corp.
Loan Production Office
Frederick S. Richard, SVP/Manager
Advisory Boards
Terry S. Kipp, Chairman
Barrow
Ronald Brower, Nate Olemaun, Cora Sakeagak
Bethel
Christopher R. Cooke, Robert Nick (Nunapitchuk), Gene Peltola
Cordova
Richard Borer, Bill Webber, John Wilson
Delta
Adrian Frederick, Lawrence Gilbertson, Scott Miller, Loretta Schooley
Dillingham
Robert Kallstrom, Robert Nanalook (Togiak), Harvey Samuelson, Sally Smith
Eagle River
Lee Jordan, Charles McAlpine, Larry Thomas, Henry Warren
Fairbanks
Sam Brice, Jeffry J. Cook, Barbara Schuhmann, Richard Wien
Glennallen
Donald R. Horrell, Ken P. Johns (Copper Center), Douglas Neeley, Herman
Schliesing
Homer
Mary Ann Fell, Richard Inglima, J. Mike Pate, Leo Rhode, Bruce Turkington
Juneau
Donald B. Abel, Jr., Anne Kaill, Robert Martin, Jr., Malcolm A. Menzies
Kenai
Dr. Charles A. Bailie, Craig Lofstedt, Ron Malston, Valerie Morin, Curt Morris
Ketchikan
Bob Berto, Ken Dole, Bob Elliot (Wards Cove), Mike Erickson, Martin Pihl, Gail
Porter, Leif Stenfjord
King Salmon
Dan O'Hara (Naknek), Dave Lax, Faye Yoas
Kodiak
Ben Ardinger, Alvin Burch, Peter Ramaglia, Edward Randolph, Dick Rohrer, Pete
Squartsoff (Port Lions)
Kotzebue
Levi Cleveland (Shungnak), Marie Greene, Ron Hogan, Doug Neal, Roswell
Schaeffer
Nome
Dave Cunningham (Unalakleet), Charles Fagerstrom, Mary Knodel, Wiley Scott
Palmer
Charles R. Griffin, Sara Jansen, A. Max Olson, Mimi J. Pippel
Petersburg
John Enge, Art Hammer, Alan Otness, Glenn Reid, Sharon Wikan, Max Worhatch
Seattle
Dr.Dayton L. Alverson, Alec Brindle, James Ferguson, Norman Kaelber, John Sacia
Seward
Sharon Anderson, Blaine Bardarson, Dave Crane, Pat Marrs
Sitka
Robert Allen, Frank Calvin, J. J. Conway, Carolyn Hammack, Cecil McClain, Mike
Snowden, Harold Thompson
Soldotna
Irving Carlisle, Roger Covey (Ninilchik), Pat Cowan, Darell Jelsma, Jan Stenga
Valdez
Mary Jo Evans, Lyle Von Bargen, Ann Derifield
Wasilla
Gordon Akelstad, Ernie Brannon, Charles Bruno, Dale Conover, Howard Nugent, Jim
Reaves
Wrangell
Barbara Angerman, Leonard Campbell, Olaf Hansen, Bill Privett and Frank Warfel
<PAGE> Outside Back Cover
National Bancorp of Alaska, Inc.
P.O. Box 100600
Anchorage, Alaska 99510-0600
(907) 522-8888
Annual Shareholders' Meeting
Tuesday, March 17, 1998, 10:00 a.m.
National Bank of Alaska
301 W. Northern Lights Blvd.
Anchorage, Alaska 99503
Transfer Agent & Registrar
National Bank of Alaska
Auditors
Deloitte & Touche LLP
NASDAQ Symbol
NBAK
Form 10-K Annual Report
Copies of National Bancorp of Alaska, Inc.'s
1997 Annual Report to the
Securities and Exchange Commission,
Form 10-K, are available upon request from:
Controller, National Bank of Alaska, P.O. Box 100600,
Anchorage, Alaska 99510-0600
National Bancorp of Alaska (company logo)
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 155,849
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