<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-10769
National Bancorp of Alaska, Inc.
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 92-0087646
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Northern Lights Boulevard and C Street, Anchorage, AK 99503
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(Address of principal executive offices) (Zip Code)
(907) 276-1132
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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___
The registrant has one class of Common Stock, $10 par value.
Number of shares outstanding as of November 6, 1998: 30,769,964
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Table of Contents
Page
PART I
Item 1 Financial Statements..................................3
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................8
PART II
Item 2 Changes in Securities................................13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
PAGE 3
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<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
THREE MONTHS NINE MONTHS
(In Thousands Except Statistics) ENDED SEPTEMBER 30 ENDED
SEPTEMBER 30
<S> <C> <C> <C> <C>
INTEREST INCOME: 1998 1997 1998 1997
Loans & Lease Financing Including Fees $39,490 $38,442 $115,889 $111,574
Balances with Banks - 15 16 30
Federal Funds Sold and Securities
Purchased under Agreement to Resell 123 1,434 1,812 1,597
Investment Securities Including Dividends
U.S. Government 2,471 3,044 7,760 9,156
U. S. Agencies and Corporation 6,845 5,453 19,389 17,159
States & Political Subdivisions 216 154 485 481
Mortgage and Asset Backed Securities 3,301 2,408 9,342 7,421
Other Securities 2,179 2,421 6,840 7,380
----------------------------------------
TOTAL INTEREST INCOME 54,625 53,371 161,533 154,798
INTEREST EXPENSE:
Deposits 14,029 13,956 41,934 40,134
Federal Funds Purchased & Securities Sold
Under Agreement to Repurchase 4,708 4,511 14,012 13,420
Other Purchased Funds 3 2 8 11
----------------------------------------
TOTAL INTEREST EXPENSE 18,740 18,469 55,954 53,565
----------------------------------------
NET INTEREST INCOME 35,885 34,902 105,579 101,233
Provision for Loan Losses 1,200 900 3,600 2,700
NET INTEREST INCOME AFTER ----------------------------------------
PROVISION FOR LOAN LOSSES 34,685 34,002 101,979 98,533
OTHER INCOME:
Trust Department Income 676 688 2,089 1,865
Service Charges on Deposit Accounts 3,403 3,226 10,147 9,539
Loan Servicing Fees 2,250 2,060 7,022 6,124
Securities Transactions (19) (5) 371 314
Gains on Limited Partnership Investments 2,366 307 5,319 614
Credit Card Service Fees 1,947 2,151 5,201 5,337
Other 5,143 3,684 14,450 10,464
----------------------------------------
TOTAL OTHER INCOME 15,766 12,111 44,599 34,257
OTHER EXPENSE:
Salaries 10,393 9,757 30,801 28,832
Profit Sharing & Other Employee Benefits 3,355 3,186 9,941 9,370
Net Occupancy Expense of Bank Premises 1,792 1,870 5,698 5,583
Furniture & Equipment Expense 2,169 2,293 6,616 6,867
Other 8,482 7,757 25,703 22,547
----------------------------------------
TOTAL OTHER EXPENSE 26,191 24,863 78,759 73,199
Income Before Income Taxes 24,260 21,250 67,819 59,591
Applicable Income Taxes 8,916 7,726 24,775 21,063
----------------------------------------
NET INCOME $15,344 $13,524 $ 43,044 $ 38,528
========================================
Per Share Statistics
Net Income $0.50 $0.43 $1.39 $1.22
========================================
Average Number of Shares Outstanding 30,940,067 31,321,636 31,003,566 31,463,772
(See note to consolidated statements.)
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands Except Statistics)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $15,344 $13,524 $43,044 $ 38,528
Other comprehensive income, net of taxes:
Unrealized losses securities:
Unrealized holding gains (losses) arising during period 1,460 307 1,459 389
Less: reclassification adjustment for gains
included in net income - 5 (390) (314)
-------------------------------------
Other comprehensive income 1,460 312 1,069 75
-------------------------------------
Comprehensive Income $16,804 $13,836 $44,113 $38,603
=====================================
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
September 30 December 31
(In Thousands Except Statistics) 1998 1997 1997
ASSETS:
<S> <C> <C> <C>
Cash and Due from Banks $ 170,037 $ 162,607 $ 155,849
Interest-Bearing Balances with Banks 28 199 150
Federal Funds Sold - 87,000 100,000
Investment Securities:
U. S. Agencies and Corporations 396,246 315,141 301,178
States and Political Subdivisions 21,516 13,215 11,864
Mortgage and Asset-Backed Securities 251,581 131,334 181,218
Other Securities 109,376 114,812 115,202
----------------------------------
Total Investment Securities 778,719 574,502 609,462
(Market Value $786,590 in 1998)
Securities Available for Sale 229,850 229,849 228,739
Loans and Lease Financing 1,500,541 1,456,076 1,471,461
Reserve for Loan Losses (24,200) (22,709) (24,530)
----------------------------------
Net loans and Lease Financing Less Reserves 1,476,341 1,433,367 1,446,931
Loans Held for Sale 81,156 90,804 58,304
Net Premises and Equipment 70,576 70,486 71,037
Limited Partnership Investments 71,318 46,444 50,408
Other Assets 57,755 52,979 56,186
----------------------------------
Total Assets $2,935,780 $2,748,237 $2,777,066
==================================
LIABILITIES AND SHAREHOLDERS EQUITY:
Demand Deposits $ 590,536 $ 571,739 $ 583,184
Interest-Bearing Deposits:
NOW 202,778 185,889 193,474
Savings 283,550 283,645 298,680
Money Market Savings 290,543 301,360 295,088
Time 623,883 595,231 610,915
----------------------------------
Total Interest-Bearing Deposits 1,400,754 1,366,125 1,398,157
----------------------------------
Total Deposits 1,991,290 1,937,864 1,981,341
Federal Funds Purchased 123,069 1,673 2,761
Securities Sold Under Agreement to Repurchase 363,929 382,467 359,865
Other Purchased Funds 178 175 136
Other Liabilities 34,388 34,076 34,082
----------------------------------
Total Liabilities 2,512,854 2,356,255 2,378,185
Shareholders Equity 1998 1997
Common Stock-Par Value $2.50 $10.00 80,000 80,000 80,000
Shares Authorized 40,000,000 10,500,000
Shares Outstanding 32,000,000 8,000,000
Capital Surplus 63,094 63,000 63,000
Retained Earnings 299,796 261,061 269,909
Net Unrealized Gains on Securities Available
for Sale, Net of Tax 4,118 2,480 3,049 Less Treasury Stock at Cost
1,178,076 Shares on September 30, 1998
and 215,467 Shares on September 30, 1997 (24,082) (14,559) (17,077)
----------------------------------
Total Shareholders Equity 422,926 391,982 398,881
----------------------------------
Total Liabilities and Shareholders Equity $2,935,780 $2,748,237 $2,777,066
==================================
Per Share Statistics
Net Book Value $13.72 $12.59 $12.85
See note to consolidated statements.) ==================================
</TABLE>
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands) Nine Months Ended September 30 1998 1997
OPERATING ACTIVITIES:
Net Income $ 43,044 $ 8,528
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 3,600 2,700
Deferred Taxes Expense (Credit) (2,259) 942
Depreciation and Amortization 5,916 5,734
Net Amortization of Premium or Discount on Securities (380) (610)
Gain on Security and Limited Partnership Transactions (5,690) (948)
Gain on Loan Sales (704) (230)
Loss (Gain) on Disposal of Premises and Equipment (360) 9
Gain on Disposal of Other Assets (301) (10)
Net Increase in Loans Held for Sale (22,148) (59,011)
Decrease (Increase) in Interest Receivable, Prepaid
Expense, and Other Assets 124 (271)
Increase (Decrease) in Interest Payable, Accrued
Expenses and Other Liabilities (435) 444
----------------
Net cash Provided by (Used in) Operating Activities 20,407 (12,723)
INVESTING ACTIVITIES:
Net Decrease (Increase) in Federal Funds Sold and Interest
Bearing Deposits with Other Banks 100,122 (66,966)
Proceeds from Maturities of Securities Held to Maturity 177,474 112,083
Proceeds from Maturities of Securities Available for Sale 28,612 37,129
Proceeds from Sales of Securities Available for Sale 2,885 25,148
Purchases of Securities Held to Maturity (346,662) (87,293)
Purchase of Securities Available For Sale (30,130) (40,344)
Net Increase in Lending Activities (33,472) (12,301)
Proceeds from Sale of Premises and Equipment 1,090 41
Proceeds from Sale of Other Assets 15,569 2,256
Purchases of Premises, Equipment, and Other Assets (36,743) (23,824)
----------------
Net Cash Used in Investing Activities (121,255) (54,071)
FINANCING ACTIVITIES:
Net Increase in Total Deposit 9,949 67,883
Net Increase in Short-Term Borrowings 124,414 18,848
Acquisition of Treasury Stock (9,042) (12,254)
Sale of Treasury Stock 2,131 -
Cash Dividends (12,416) (11,847)
----------------
Net Cash Provided by Financing Activities 115,036 62,630
----------------
Increase (Decrease) in Cash and Cash Equivalents 14,188 (4,164)
Cash and Cash Equivalents at Beginning of Year 155,849 166,771
----------------
Cash and Cash Equivalents at End of September $170,037 $162,607
================
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National Bancorp of Alaska
Notes to the Consolidated Financial Statements
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statement have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions and regulations for filing Form
10-Q. Operating results for the nine-month period ended September 30, 1998,
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
The statements should be read in conjunction with the summary of accounting
policies and notes to the financial statements included in the Registrant's
annual report for the year ended December 31, 1997. In the opinion of
management, all adjustments (consisting of normal recurring accruals necessary
for a fair presentation) have been included.
Note B - Stock Split
On March 17, 1998, the Corporation declared a four-for-one stock split. The
stock split was effective on April 27, 1998. Prior year earnings and net book
value are restated for subsequent stock splits.
<PAGE> 8
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
National Bancorp of Alaska (the Corporation) recorded earnings of $15.3 million
in the third quarter of 1998 compared to $13.5 million for the third quarter of
1997. Earnings per share were $0.50 for the third quarter 1998 as of September
30, 1998, up 16.3% from the $0.43 earned in the third quarter as of September
30, 1997.
Return on average assets using annualized income from operations plus year-to-
date net security gains was 2.04% for the nine-month period ended September 30,
1998, compared to 1.94% for the nine-month period ended September 30, 1997.
The annualized return on average stockholders' equity was 13.76% for the first
nine months of 1998.
Net interest income increased $3,446,000 after the provision for loan losses
during the first nine months of 1998 compared to the same period during the
previous year. Interest on earning assets increased $6.7 million from the
first nine months of 1997 to the first nine months in 1998, while interest
expense increased $2.4 million.
The provision for loan loss was $3,600,000 through September 30, 1998, compared
to a provision for loan loss of $2,700,000 through September 30, 1997. The
reserve for loan loss was 1.61% of outstanding loans at September 30, 1998 and
1.56% at September 30, 1997 and 1.67% at December 31, 1997 Nonperforming
assets, defined as other real estate owned, nonaccrual loans, restructured
loans, and loans past due 90 days and still accruing, as a percentage of total
loans and other real estate owned decreased to 0.61% at September 30, 1998
from 0.85% at September 30, 1997, and decreased from 1.08% at December 31,
1997.
Non-interest income increased $10,342,000 for the first nine months of 1998
over the same period in 1997, mainly due to increase investment gains and
income from loan servicing fees. Non-interest expense increased by $5,560,000
over the first nine months of 1997. Increases include $2,540,000 in personnel
and benefits expenses due to increased mortgage lending activity and increased
profit sharing, a result of increased earnings.
<PAGE> 9
Material Changes in Financial Condition
Total assets at September 30, 1998, were $2,935,780,000, an increase of 6.8% or
$187,543,000 from the same period one year earlier, and an increase of
$158,714,000 or 5.7% from December 31, 1997. Investment securities have
increased by $204 million from the third quarter of 1997. Loans, leases and
loans held for sale have increased $35 million over the same period in 1997.
Total deposits have increased by $53 million from September 30, 1997 and $10
million from December 31, 1997.
Liquidity
The Corporation maintains sufficient excess liquidity to satisfy contractual
liabilities, meet withdrawal requirements of depositors, fund operations, and
provide for customers' credit needs. Management knows of no demand,
commitments, or events that would result in liquidity changing in a material
amount.
Capital Resources
Shareholders' equity increased by $24.0 million from December 31, 1997, to $423
million at September 30, 1998. Federal regulatory agencies have established
capital adequacy guidelines setting a minimum for leverage and risk based
capital ratios. These minimum and the Corporation's ratios are as follows:
September 30 December 31
1998 1997 1997
Tier 1 Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 18.27% 18.62% 18.58%
National Bank of Alaska 11.90 13.36 12.37
Total Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 19.33% 19.70% 19.73%
National Bank of Alaska 13.04 14.32 13.60
Leverage Ratio
National Bancorp of Alaska 14.90% 14.71% 14.12%
National Bank of Alaska 9.37 10.06 9.18
Year 2000 Computer Issue
The common practice in computer programming of using two digits to identify a
year has resulted in a year 2000 issue. National Bank of Alaska and all
computer reliant businesses are being challenged to ensure that our computer
systems will continue to function properly when the calendar rolls over to
January 1, 2000.
The bank has developed and implemented a comprehensive project plan addressing
this issue. During the assessment phase of the plan, all hardware, software,
network, ATM, customer and vendor impacts were identified. Renovation and
testing phases are underway with completion scheduled for December 31, 1998 for
in-house systems and March 31, 1999 for third party systems.
The financial consequences of addressing the year 2000 issue are not expected
to be material to the results of operations or financial condition of the
company.
<PAGE> 10
Statistical Disclosures
Selected Guide 3-Statistical Disclosure by Bank Holding Companies
III. Loan Portfolio
C. Risk Elements
Nonperforming Assets
September 30 December 31
(In Thousands) 1998 1997 1997
Nonaccrual
Commercial and industrial $2,221 $ 4,198 $ 5,342
Real estate construction 231 222 323
Real estate long-term 4,686 4,412 4,298
Other - 284 76
-------------------------
Total 7,138 9,116 10,039
-------------------------
Restructured Loans
Real estate construction - 75 -
Real estate long-term - 92 90
-------------------------
Total - 167 90
-------------------------
Accruing loans past due 90 days or more 1,662 3,124 5,627
-------------------------
Other real estate owned 341 -- 150
-------------------------
Total nonperforming assets $9,141 $12,407 $15,906
Nonperforming assets as a percentage
of loans and leases and other real
estate owned at end of period 0.61% 0.85% 1.08%
Potential Problem Loans
At September 30, 1997, an additional $65,163,000 in loans are being closely
monitored by management. These loans are not include in any category of non-
performing loans. However, management has concern about the borrower's
abilities to comply with their present loan repayment terms. These loans are
reviewed monthly to assess any change in collectability.
<PAGE> 11
IV. Summary of Loan Loss Experience
A: Analysis of Allowance for Loan Loss
(In Thousands) September 30, 1998 December 31, 1997
Balance January 1 $24,530 $23,002
Provision charged to operations 3,600 5,400
Recoveries on loans previously charged off 4,577 3,333
Less loans charged off (8,507) (7,205)
------------------------
Balance at end of period $24,200 $24,530
========================
Composition of Loan Charge Off and Recoveries
Loans Charged Off:
Commercial loans and leases $4,558 $ 2,063
Real estate construction - -
Real estate long-term 143 97
Consumer 3,022 4,047
Visa 784 998
------------------------
Total Charge Offs 8,507 7,205
------------------------
Recoveries:
Commercial loans and leases 2,391 793
Real estate construction 4 131
Real estate long-term 499 364
Consumer 1,507 1,851
Visa 176 194
------------------------
Total Recoveries 4,577 3,333
------------------------
Net Charge Offs $ 3,930 $ 3,872
========================
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B. Allocation of the Allowance for Loan Loss
Allocation of Reserves
To Loan Categories
Loan Category As a % % of Total Amount of
of Total Loans Reserve Reserves(000's)
September 30, 1998
Commercial and Industrial 38.0% 11.6% $ 2,818
Real Estate Construction 3.6 0.1 36
Real Estate Long Term 32.1 1.3 320
Installment 22.5 32.8 7,942
Nontaxable 3.1 0.1 14
Lease Financing 0.7 - 3
Unallocated - 54.1 13,067
---------------------------------
100.0% 100.0% $24,200
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
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Part II - OTHER INFORMATION
Item 1: Legal Proceedings
Not applicable.
Item 2: Changes in Securities
Not applicable.
Item 3: Defaults Upon Senior Securities
Not applicable.
Item 4: Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5: Other Information
Not applicable.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27. Financial Data Schedule
(b) Not applicable.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Sections 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.
November 9, 1998 /s/Richard Strutz
Date Richard Strutz, President
November 12, 1998 /s/Gary Dalton
Date Gary Dalton, Executive Vice President
and Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 170,037
<INT-BEARING-DEPOSITS> 28
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 229,850
<INVESTMENTS-CARRYING> 778,719
<INVESTMENTS-MARKET> 786,590
<LOANS> 1,500,541
<ALLOWANCE> 24,200
<TOTAL-ASSETS> 2,935,780
<DEPOSITS> 1,991,290
<SHORT-TERM> 487,176
<LIABILITIES-OTHER> 34,388
<LONG-TERM> 0
<COMMON> 422,926
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 2,935,780
<INTEREST-LOAN> 115,889
<INTEREST-INVEST> 43,816
<INTEREST-OTHER> 1,828
<INTEREST-TOTAL> 161,533
<INTEREST-DEPOSIT> 41,934
<INTEREST-EXPENSE> 55,954
<INTEREST-INCOME-NET> 105,579
<LOAN-LOSSES> 3,600
<SECURITIES-GAINS> 371
<EXPENSE-OTHER> 78,759
<INCOME-PRETAX> 67,819
<INCOME-PRE-EXTRAORDINARY> 67,819
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,044
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 0
<LOANS-NON> 7,138
<LOANS-PAST> 1,662
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 65,163
<ALLOWANCE-OPEN> 24,530
<CHARGE-OFFS> 8,507
<RECOVERIES> 4,577
<ALLOWANCE-CLOSE> 24,200
<ALLOWANCE-DOMESTIC> 11,133
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,067
</TABLE>
