<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 March 31, 1999
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
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(907) 276-1132
- ------------------------------------------------------------------------
(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, $2.50 par value.
Number of shares outstanding as of May 5, 1999: 30,297,321
<PAGE> 2
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 1 Legal Proceedings.................................................13
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.................................................14
Item 6 Exhibits and Reports on Form 8-K..................................14
-2-
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands Except Statistics) Three Months Ended March 31
1999 1998
INTEREST INCOME:
Loans & Lease Financing Including Fee $36,747 $37,117
Balances with Banks - 8
Federal Funds Sold 464 1,398
Investment Securities Including Dividends
U.S. Government 2,226 2,814
U.S. Agencies 6,591 5,992
States & Political Subdivisions 198 113
Mortgage and Asset-Backed Securities 4,199 2,942
Other Securities 1,751 2,360
------------------
TOTAL INTEREST INCOME 52,176 52,744
INTEREST EXPENSE:
Deposits 13,713 14,040
Federal Funds Purchased & Securities Sold
Under Agreement to Repurchase 3,789 4,607
Other Purchased Funds 2 3
------------------
TOTAL INTEREST EXPENSE 17,504 18,650
------------------
NET INTEREST INCOME 34,672 34,094
Provision for Loan Losses 1,200 1,200
------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 33,472 32,894
OTHER INCOME:
Trust Department Income 712 672
Service Charges on Deposit Accounts 3,363 3,289
Loan Servicing Fees 2,491 2,404
Securities Transactions - -
Gains on limited partnership investments 331 368
Credit Card Service Fees 1,610 1,518
Other 4,546 4,157
------------------
TOTAL OTHER INCOME 13,053 12,408
OTHER EXPENSE:
Salaries 10,628 10,016
Profit Sharing & Other Employee Benefits 3,510 3,219
Net Occupancy Expense of Bank Premises 1,995 2,002
Furniture & Equipment Expense 2,156 2,140
Other 8,453 8,170
------------------
TOTAL OTHER EXPENSE 26,742 25,547
Income Before Income Taxes 19,783 19,755
Applicable Income Taxes 7,063 7,067
------------------
NET INCOME $12,720 $12,688
==================
Per Share Statistics
Net Income $ 0.42 $ 0.41
==================
Average Number of Shares Outstanding 30,560,760 31,045,456
(See note to consolidated statements.)
-3-
<PAGE> 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands Except Statistics) Three Months Ended March 31
1999 1998
Net income $12,720 $12,688
Other comprehensive income, net of taxes:
Unrealized losses securities:
Unrealized holding losses arising during period (642) (349)
Less: reclassification adjustment for gains
included in net income - -
----------------
Other comprehensive income (642) (349)
----------------
Comprehensive Income $12,078 $12,339
================
-4-
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
March 31 December 31
(In Thousands Except Statistics) 1999 1998 1998
<S> <C> <C> <C>
ASSETS:
Cash and Due from Banks $ 139,755 $ 170,568 $ 153,143
Interest-Bearing Balances with Banks 155 185 116
Federal Funds Sold 126,000 23,000 -
Investment Securities:
U. S. Agencies 326,421 352,040 382,748
States and Political Subdivisions 18,108 11,037 20,229
Mortgage and Asset-Backed Securities 237,104 164,579 262,431
Other Securities 60,110 115,605 109,755
---------------------------------
Total Investment Securities 641,743 643,261 775,163
(Market Value $644,347 in 1999)
Securities Available for Sale at Market 222,243 236,901 239,325
Loans and Lease Financing 1,502,589 1,476,024 1,487,263
Reserve for Loan Losses (25,690) (24,774) (24,678)
----------------------------------
Net Loans and Lease Financing 1,476,899 1,451,250 1,462,585
Loans Held for Sale 71,553 55,793 144,735
Net Premises and Equipment 71,415 70,279 70,302
Limited Partnership Investments 76,533 48,653 71,416
Other Assets 64,374 55,339 58,795
----------------------------------
Total Assets $2,890,670 $2,755,229 $2,975,580
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Demand Deposits $ 572,783 $ 550,539 $ 617,532
Interest-Bearing Deposits:
NOW 222,792 204,111 237,245
Savings 297,912 285,898 308,924
Money Market Savings 305,823 290,817 291,587
Time 674,214 614,663 683,427
----------------------------------
Total Interest-Bearing Deposits 1,500,741 1,395,489 1,521,183
----------------------------------
Total Deposits 2,073,524 1,946,028 2,138,715
Federal Funds Purchased 242 5,935 41,315
Securities Sold Under Agreement to Repurchase 350,637 353,245 334,572
Other Purchased Funds 165 116 110
Other Liabilities 45,270 43,332 35,223
----------------------------------
Total Liabilities 2,469,838 2,348,656 2,549,935
Shareholders' Equity 1999 1998
Common Stock-$2.50 Par Value 80,000 80,000 80,000
Shares Authorized 40,000,000 40,000,000
Shares Outstanding 32,000,000 32,000,000
Capital Surplus 63,099 63,039 63,095
Retained Earning 315,707 278,718 307,550
Net Unrealized Gains on
Available-for-Sale Securities, Net of Tax 1,992 2,700 2,634
Treasury Stock at Cost
(1,691,817 shares on March 31, 1999 and
974,340 Shares on March 31, 1998) (39,966) (17,884) (27,634)
----------------------------------
Total Shareholders' Equity 420,832 406,573 425,645
----------------------------------
Total Liabilities and Shareholders Equity $2,890,670 $2,755,229 $2,975,580
==================================
Per Share Statistics
Net Book Value $13.89 $13.10 $13.86
(See note to consolidated statements.) ==================================
</TABLE>
-5-
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands) Three Months Ended March 31 1999 1998
OPERATING ACTIVITIES:
Net Income $ 12,720 $ 12,688
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses 1,200 1,200
Deferred Taxes Credit (201) (1,584)
Depreciation and Amortization 2,112 1,979
Net amortization on Securities 88 (144)
Gain on Security and Limited Partnership Transactions (331) (2,422)
Loss on Security and Limited Partnership Transactions - 2,054
Gain on Loan Sales (483) (287)
Loss on Sales of Premises and Equipment 1 -
Gain on Sale of Other Assets - (5)
Net Decrease in Loans Held for Sale 73,665 2,798
Decrease in Interest Receivable, Prepaid Expense,
and Other Assets 194 1,541
Increase in Interest Payable, Accrued
Expenses and Other Liabilities 4,667 6,108
-----------------
Net Cash Provided by Operating Activities 93,632 23,926
INVESTING ACTIVITIES:
Net Decrease (Increase) in Federal Funds Sold, and
Interest Bearing Deposits with Other Banks (126,039) 76,965
Proceeds from Maturities of Securities Held to Maturity 141,327 47,261
Purchases of Securities Held to Maturity (8,080) (80,927)
Proceeds from Maturities of Securities Available for Sale 26,394 16,336
Purchases of Securities Available for Sale (10,315) (25,075)
Net Increase in Loans and Lease Financing (15,750) (5,597)
Proceeds from Sales of Premises and Equipment 2 -
Purchases of Premises and Equipment (2,921) (1,042)
Proceeds from Sale of Limited Partnership Investments 367 8,003
Purchases of Limited Partnership Investments (5,153) (3,680)
Acquisition of NBA Insurance Services LLP (3,500) -
Proceeds from Sale of Other Assets - 25
Purchases of Other Assets (1,309) (1,192)
------------------
Net Cash Provided by (Used in) Investing Activities (4,977) 31,077
FINANCING ACTIVITIES:
Net Decrease in Total Deposit (63,432) (32,167)
Net Decrease in Short-Term Borrowings (24,953) (3,466)
Acquisition of Treasury Stock (9,167) (2,262)
Proceed from Sale of Treasury Stock 116 1,493
Cash Dividends Paid (4,607) (3,882)
-----------------
Net Cash Used in Financing Activities (102,043) (40,284)
-----------------
Increase (Decrease) in Cash and Cash Equivalents (13,388) 14,719
Cash and Cash Equivalents at Beginning of Year 153,143 155,849
-----------------
Cash and Cash Equivalents at End of March $139,755 $170,568
=================
-6-
<PAGE> 7
National Bancorp of Alaska
Notes to the Consolidated Financial Statements
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements 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 three-month period ended
March 31, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
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, 1998. In the
opinion of management, all adjustments (consisting of normal recurring
accruals necessary for a fair presentation) have been included.
-7-
<PAGE> 8
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
National Bancorp of Alaska (the Corporation) recorded earnings of $12.72
million in the first quarter of 1999 compared to $12.69 million for the first
quarter of 1998. Earnings per share were $0.42 as of March 31, 1999 up 2% from
the $0.41 earned through March 31, 1998.
Return on average assets using annualized income from operations plus year-to-
date net security gains and nonrecurring loan loss recoveries was 1.78% for the
three-month period ended March 31, 1999, compared to 1.86% for the three-month
period ended March 31, 1998. The annualized return on average stockholders'
equity was 12.04% for the first three months of 1999.
Net interest income increased $578,000 after the provision for loan losses
during the first three months of 1999 compared to the same period during the
previous year. The increase is due to decreased cost of funds. Interest on
earning assets decreased $568,000 from the first quarter of 1998 to the first
quarter of 1999, while interest expense decreased $1,146,000.
The provision for loan loss was $1,200,000 at March 31, 1999, compared to a
provision for loan losses $1,200,000 at March 31, 1998. The reserve for loan
loss was 1.71% of outstanding loans at March 31, 1999 and 1.68% at March 31,
1998 and 1.66% at December 31, 1998. 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 0.70% at March 31, 1999 from 1.01% at March 31, 1998, and
increased from 0.68% at December 31, 1998.
Non-interest income increased $645,000 for the first quarter from the same
period in 1998. Non-interest expense increased by $1,195,000 over the first
quarter one year ago. Increases include $903,000 in personnel and benefits
expenses and $283,000 in other expense.
On April 16, 1999, a pre-tax gain of $9 million was received from a limited
partnership investment. This gain was previously reported on a Form 8K dated
March 17, 1999. Investments in limited partnership totaled $76 million as of
March 31, 1999.
Material Changes in Financial Condition
Total assets at March 31, 1999, were $2,890,670,000 an increase of 4.9% or $135
million from the same period one year earlier, and an decrease of $85 million
or 2.9% from December 31, 1998. Investment securities and securities available
for sale have decreased by $16 million over the first quarter of 1998. Loans
and leases and loans held for sale have increased $42 million over the same
period in 1998. Limited partnership investments increased $28 million over the
first quarter of 1998. Total deposits have increased by $127 million from March
31, 1998, and decreased by $65 million from December 31, 1998.
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.
-8-
<PAGE> 9
Capital Resources
Shareholders' equity decreased by $4.8 million from December 31, 1998, to
$420.8 million at March 31, 1999. This decrease is primarily due to purchases
of treasury stock. Federal regulatory agencies have established capital
adequacy guidelines setting a minimum for Tier 1, total capital and leverage
ratios which were 4%, 8% and 3%, respectively. The Corporation's and National
Bank of Alaska's ratios are as follows:
March 31 December 31
1999 1998 1998
Tier 1 Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 18.29% 18.73% 18.08%
National Bank of Alaska 11.86 12.52 11.90
Total Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 19.43% 19.88% 19.14%
National Bank of Alaska 13.09 13.75 13.05
Leverage Ratio
National Bancorp of Alaska 14.51% 14.80% 14.24%
National Bank of Alaska 9.04 9.57 9.01
Impact of the Year 2000 Issue
The Bank began formally addressing the year 2000 issue in 1996 with a
comprehensive project plan. The plan remains dynamic and has full senior
management support. It provides for a periodic review of the project's status
by the Corporation's board.
The Bank's year 2000 strategy includes building awareness throughout the
organization and with suppliers and major customers. The plan also includes
assessing all hardware, software, network and customer impacts. The Bank relies
on several third party providers for data processing. M&I Data Services
operates and provides systems to process the Bank's key deposit, loan, trust,
financial control, teller operation, electronic fund transfer system, and
merchant credit card transactions. Alltel Information Services, Inc., provides
a similar service for the Bank's mortgage loan processing, and Norwest
Financial Information provides processing for our consumer loan company. All
these service providers have renovated and implemented programming to correct
the year 2000 problem. The Bank has completed testing of mission critical third
party software and systems by March 31, 1999.
The Bank has already retired systems that will not function in the year 2000,
and installed replacement systems. The Bank intends to have all internal
systems and third party provided systems year 2000 capable and operating by
June 30, 1999. The costs associated with this process will not have a material
impact on the Bank's financial results.
Even with extensive testing to ensure readiness, disruptions may occur from
unforeseen conditions or other events outside of management's control. To
prevent these disruptions from interfering with meeting customer needs, a
contingency plan has been developed for each core business function. The
contingency plan will be completed and tested by June 30, 1999.
-9-
<PAGE> 10
Statistical Disclosures
Selected Guide 3-Statistical Disclosure by Bank Holding Companies
III. Loan Portfolio
C. Risk Elements
Nonperforming Assets
March 31 December 31
(In Thousands) 1999 1998 1998
Nonaccrual
Commercial and industrial $ 2,321 $ 6,616 $ 2,153
Real estate construction - 323 166
Real estate long-term 4,465 4,763 4,196
Other - 651 67
-----------------------------
Total 6,786 12,353 6,582
-----------------------------
Restructured Loans
Real estate long-term - 89 -
-----------------------------
Total - 89 -
-----------------------------
Accruing loans past due 90 days or more 3,039 2,201 3,101
-----------------------------
Other real estate owned 723 208 486
-----------------------------
Total nonperforming assets $10,548 $14,851 $10,169
=============================
Nonperforming assets as a percentage
of loans and leases and other real
estate owned at end of period 0.70% 1.01% 0.68%
Potential Problem Loans
At March 31, 1999, an additional $79,353,000 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.
-10-
<PAGE> 11
IV. Summary of Loan Loss Experience
A: Analysis of Reserve for Loan Loss
(In Thousands) March 31, 1999 December 31, 1998
Balance January 1 $24,678 $24,530
Provision charged to operations 1,200 4,800
Recoveries on loans previously charged off 1,075 5,348
Less loans charged off (1,263) (10,000)
------------------------
Balance at end of period $25,690 $24,678
========================
Composition of Loan Charge Off and Recoveries
Loans Charged Off:
Commercial loans and leases $ 200 $ 4,805
Real estate long-term 10 175
Consumer 813 3,963
Visa 240 1,057
------------------------
Total Charge Offs 1,263 10,000
Recoveries:
Commercial loans and leases 420 2,428
Real estate construction 7 4
Real estate long-term 46 502
Consumer 533 2,146
Visa 69 268
------------------------
Total Recoveries 1,075 5,348
------------------------
Net Charge Offs $ 188 $ 4,652
========================
-11-
<PAGE> 12
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)
March 31, 1999
Commercial and Industrial 38.7% 8.9% $ 2,283
Real Estate Construction 3.3 - -
Real Estate Long Term 31.9 1.0 262
Installment 21.6 32.8 8416
Nontaxable 3.9 - 6
Lease Financing 0.6 - -
Unallocated - 57.3 14,723
---------------------------------
100.0% 100.0% $25,690
December 31, 1998
Commercial and Industrial 38.2% 9.6% $ 2,357
Real Estate Construction 3.7 - 12
Real Estate Long Term 32.1 1.4 343
Installment 21.5 34.0 8,387
Nontaxable 3.8 - 12
Lease Financing 0.7 - 3
Unallocated - 55.0 13,564
---------------------------------
100.0% 100.0% $24,678
-12-
<PAGE> 13
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
The Annual Meeting of Shareholders was held in Anchorage on March 16,
1999. At that time shareholders elected 25 Directors to the Board.
All Directors stand for election annually.
Votes for Votes Withheld
Director Director from Director
Donald B. Abel, Jr. 28,925,183 19,743
Gary M. Baugh 28,925,484 19,442
Carl F. Brady, Jr. 28,925,240 19,686
Alec W. Brindle 28,782,900 162,026
James O. Campbell 28,925,344 19,582
Jeffry J. Cook 28,925,484 19,442
Patrick S. Cowan 28,925,484 19,442
Sharon D. Gagnon 28,923,264 21,662
Roy Huhndorf 28,919,371 25,555
James H. Jansen 28,925,484 19,442
Donald L. Mellish 28,925,484 19,442
Emil R. Notti 28,924,684 20,242
Howard R. Nugent 28,923,564 21,362
Tennys B. Owens 28,925,344 19,582
Eugene A. Parrish, Jr. 28,925,484 19,442
J. Michael Pate 28,925,484 19,442
Martin R. Pihl 28,925,484 19,442
Edward F. Randolph 28,920,511 24,415
Edward B. Rasmuson 28,925,076 19,850
Maj. Gen. John Schaeffer (Ret.) 28,643,727 301,199
Michael K. Snowden 28,917,688 27,238
Richard J. Strutz 28,925,076 19,850
George S. Suddock 28,924,684 20,242
Richard A. Wien 28,925,484 19,442
Sharon Wikan 28,920,831 24,095
A total of 28,944,926 votes were presented in proxy and in
person. Absent or no proxy votes amounted to 1,626,224.
-13-
<PAGE> 14
Item 5: Other Information
Not applicable.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K
There was two Form 8-K during the quarter ended March 31, 1999.
On February 17, 1999, a Form 8-K reported the donation of $90
million of National Bancorp of Alaska stock to charitable
entities by its majority shareholder.
On March 17, 1999, a Form 8-K reported an anticipated $9 million
pre-tax gain from a limited partnership investment during the
second quarter of 1999 and reported the quarterly cash dividend
of $0.15 per share payable on April 9, 1999.
-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.
May 10, 1999 /s/Edward B. Rasmuson
- ---------------------- ------------------------------
Date Edward B. Rasmuson, Chairman
of the Board
May 10, 1999 /s/Richard Strutz
- ---------------------- ------------------------------
Date Richard Strutz, President
May 7, 1999 /s/Gary Dalton
- ---------------------- ------------------------------
Date Gary Dalton, Executive Vice
President and Controller
(Principal Accounting Officer)
-15-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 139,755
<INT-BEARING-DEPOSITS> 155
<FED-FUNDS-SOLD> 126,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 222,243
<INVESTMENTS-CARRYING> 641,743
<INVESTMENTS-MARKET> 644,347
<LOANS> 1,502,589
<ALLOWANCE> 25,690
<TOTAL-ASSETS> 2,890,670
<DEPOSITS> 2,073,524
<SHORT-TERM> 351,044
<LIABILITIES-OTHER> 45,270
<LONG-TERM> 0
<COMMON> 420,832
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 2,890,670
<INTEREST-LOAN> 36,747
<INTEREST-INVEST> 14,965
<INTEREST-OTHER> 464
<INTEREST-TOTAL> 52,176
<INTEREST-DEPOSIT> 13,713
<INTEREST-EXPENSE> 17,504
<INTEREST-INCOME-NET> 34,672
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 26,742
<INCOME-PRETAX> 19,783
<INCOME-PRE-EXTRAORDINARY> 19,783
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,720
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
<YIELD-ACTUAL> 0
<LOANS-NON> 6,786
<LOANS-PAST> 3,039
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 79,353
<ALLOWANCE-OPEN> 24,678
<CHARGE-OFFS> 1,263
<RECOVERIES> 1,075
<ALLOWANCE-CLOSE> 25,690
<ALLOWANCE-DOMESTIC> 10,967
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,723
</TABLE>
