<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, 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, $10 par value.
Number of shares outstanding as of November 8, 1999: 30,220,152
<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 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
<TABLE>
<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: 1999 1998 1999 1998
Loans and lease financing including fees $39,108 $39,490 $113,493 $115,889
Balances with banks 2 - 4 16
Federal funds sold and securities
purchased under agreement to resell 263 123 1,467 1,812
Investment securities including dividends:
U.S. government 2,070 2,471 6,556 7,760
U. S. agencies 7,099 6,845 20,172 19,389
States and political subdivisions 200 216 581 485
Mortgage and asset backed securities 4,550 3,301 12,948 9,342
Other securities 1,765 2,179 5,025 6,840
----------------------------------------
TOTAL INTEREST INCOME 55,057 54,625 160,246 161,533
INTEREST EXPENSE:
Deposits 13,431 14,029 40,032 41,934
Federal funds purchased & securities
sold under agreement to repurchase 4,452 4,708 12,390 14,012
Other purchased funds 2 3 6 8
----------------------------------------
TOTAL INTEREST EXPENSE 17,885 18,740 52,428 55,954
----------------------------------------
NET INTEREST INCOME 37,172 35,885 107,818 105,579
Provision for loan losses 1,350 1,200 3,750 3,600
----------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 35,822 34,685 104,068 101,979
OTHER INCOME:
Trust department income 738 676 2,173 2,089
Service charges on deposit accounts 3,609 3,403 10,523 10,147
Loan servicing fees 2,595 2,250 7,771 7,022
Securities transactions - (19) - 371
Gains on limited partnership investments 5,761 2,366 15,182 5,319
Credit card service fees 2,569 1,947 6,496 5,201
Other 5,584 5,143 14,994 14,450
----------------------------------------
TOTAL OTHER INCOME 20,856 15,766 57,139 44,599
OTHER EXPENSE:
Salaries 10,944 10,393 32,203 30,801
Profit sharing and other employee benefits 3,941 3,355 11,312 9,941
Net occupancy expense of bank premises 1,998 1,792 5,905 5,698
Furniture and equipment expense 2,104 2,169 6,426 6,616
Other 9,215 8,482 26,715 25,703
----------------------------------------
TOTAL OTHER EXPENSE 28,202 26,191 82,561 78,759
Income before income taxes 28,476 24,260 78,646 67,819
Applicable income taxes 10,648 8,916 28,914 24,775
----------------------------------------
NET INCOME $17,828 $15,344 $49,732 $43,044
========================================
Per share statistics
Net Income $0.59 $0.50 $1.64 $1.39
========================================
Average number of shares outstanding 30,217,561 30,940,067 30,345,724 31,003,566
(See note to consolidated statements.)
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands Except Statistics)
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
Net income $17,828 $15,344 $49,732 $43,044
Other comprehensive income, net of taxes:
Unrealized losses securities:
Unrealized holding gains (losses)
arising during period (555) 1,460 (2,221) 1,299
Less: reclassification adjustment
for gains included in net income - - - (230)
-------------------------------
Other comprehensive income (555) 1,460 (2,221) 1,069
--------------------------------
Comprehensive Income $17,273 $16,804 $47,511 $44,113
================================
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CONDITION (Unaudited)
September 30 December 31
(In Thousands Except Statistics) 1999 1998 1998
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 165,553 $ 170,037 $ 153,143
Interest-bearing balances with banks 130 28 116
Investment securities:
U. S. agencies 401,855 396,246 382,748
States and political subdivisions 23,309 21,516 20,229
Mortgage and asset-backed securities 263,976 251,581 262,431
Other securities 63,118 109,376 109,755
----------------------------------
Total Investment Securities 752,258 778,719 775,163
(Market Value $746,990 in 1999)
Securities available for sale at market 242,882 229,850 239,325
Loans and lease financing 1,616,069 1,482,960 1,487,263
Reserve for loan losses (27,085) (24,200) (24,678)
----------------------------------
Net loans and lease financing 1,588,984 1,458,760 1,462,585
Loans held for sale 80,575 98,737 144,735
Net premises and equipment 71,092 70,576 70,302
Limited partnership investments 85,182 71,318 71,416
Other assets 73,773 57,755 58,795
----------------------------------
Total Assets $3,060,429 $2,935,780 $2,975,580
==================================
LIABILITIES AND SHAREHOLDERS EQUITY:
Demand deposits $ 629,772 $ 590,536 $ 617,532
Interest-bearing deposits:
NOW 226,624 202,778 237,245
Savings 296,675 283,550 308,924
Money market savings 312,962 290,543 291,587
Time 622,314 623,883 683,427
----------------------------------
Total Interest-Bearing Deposits 1,458,575 1,400,754 1,521,183
----------------------------------
Total Deposits 2,088,347 1,991,290 2,138,715
Federal funds purchased 125,870 123,069 41,315
Securities sold under agreement to repurchase 363,621 363,929 334,572
Other purchased funds 130 178 110
Other liabilities 37,603 34,388 35,223
----------------------------------
Total Liabilities 2,615,571 2,512,854 2,549,935
Shareholders Equity 1999 1998
Common Stock-par value $2.50 $2.50 80,000 80,000 80,000
Shares Authorized 40,000,000 40,000,000
Shares Issued 32,000,000 32,000,000
Capital surplus 63,102 63,094 63,095
Retained earnings 343,654 299,796 307,550
Net unrealized gains on securities
available for sale, net of tax 413 4,118 2,634
Less treasury stock at cost
1,781,801 shares on September 30, 1999
and 1,178,076 shares on September 30, 1998 (42,311) (24,082) (27,634)
----------------------------------
Total Shareholders Equity 444,858 422,926 425,645
----------------------------------
Total Liabilities and Shareholders Equity $3,060,429 $2,935,780 $2,975,580
==================================
Per share statistics
Net book value $14.72 $13.72 $13.86
(See note to consolidated statements.) ==================================
</TABLE>
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands) Nine Months Ended September 30 1999 1998
OPERATING ACTIVITIES:
Net income $ 49,732 $ 43,044
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,750 3,600
Deferred tax expense (credit) (2,783) (2,259)
Depreciation and amortization 6,175 5,916
Net amortization of premium or discount on securities 656 (380)
Gain on security and limited partnership transactions (16,297) (7,763)
Loss on security and limited partnership transactions 1,115 2,073
Gain on loan sales (561) (704)
Loss (gain) on sale of premises and equipment 4 (360)
Gain on sale of other assets (14 ) (301)
Net decrease (increase) in loans held for sale 64,721 (22,148)
Decrease (increase) in interest receivable, prepaid
expense, and other assets (1,440) 124
Increase (decrease) in interest payable, accrued
expenses and other liabilities 2,039 (435)
-----------------
Net Cash Provided by (Used in) Operating Activities 107,097 20,407
INVESTING ACTIVITIES:
Net decrease (increase) in federal funds sold and
interest bearing deposits with other banks (14) 100,122
Proceeds from maturities of securities held to maturity 269,948 177,474
Purchases of securities held to maturity (249,705) (346,662)
Proceeds from maturities of securities available for sale 77,387 28,612
Proceeds from sales of securities available for sale - 2,885
Purchase of securities available for sale (82,708) (30,130)
Net decrease (increase) in loans and lease financing (131,073) (33,472)
Proceeds from sale of premises and equipment 45 1,090
Purchases of premises and equipment (5,976) (5,646)
Proceeds from sales of limited partnership investments 27,947 14,997
Purchases of limited partnership investments (26,531) (28,388)
Acquisition of NBA Insurance Services LLC (5,617) --
Proceeds from sale of other assets 496 572
Purchases other assets (3,770) (2,709)
-----------------
Net Cash Provided by (Used in) Investing Activities (129,571) (121,255)
FINANCING ACTIVITIES:
Net decrease in total deposit (50,368) 9,949
Net increase in short-term borrowings 113,624 124,414
Acquisition of treasury stock (15,110) (9,042)
Proceed from sale of treasury stock 440 2,131
Cash dividends paid (13,702) (12,416)
-----------------
Net Cash Provided by (Used in) Financing Activities 34,884 115,036
-----------------
Increase (decrease) in cash and cash equivalents 12,410 14,188
Cash and cash equivalents at beginning of year 153,143 155,849
-----------------
Cash and Cash Equivalents at End of September $165,553 $170,037
=================
<PAGE> 7
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, 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.
<PAGE> 8
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
National Bancorp of Alaska (the Corporation) recorded earnings of $17.8 million
in the third quarter of 1999 compared to $15.3 million for the third quarter of
1998. Quarterly earnings per share were $0.59 as of September 30, 1999, up
18.0% from the $0.50 earned as of September 30, 1998.
Return on average assets using annualized income from operations plus year-to-
date net gains on securities and limited partnership investments was 2.18% for
the nine-month period ended September 30, 1999, compared to 2.04% for the nine-
month period ended September 30, 1998. The annualized return on average
stockholders' equity was 14.75% for the first nine months of 1999.
Net interest income increased $2,089,000 after the provision for loan losses
during the first nine months of 1999 compared to the same period during the
previous year. Interest on earning assets decreased $1.3 million from the
first nine months of 1998 to the first nine months in 1999, while interest
expense decreased $3.5 million.
The provision for loan loss was $3,750,000 through September 30, 1999, compared
to a provision for loan loss of $3,600,000 through September 30, 1998. The
reserve for loan loss was 1.68% of outstanding loans at September 30, 1999 and
1.63% at September 30, 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 increased to 0.65% at September 30, 1999
from 0.62% at September 30, 1998, and decreased from 0.68% at December 31,
1998.
Non-interest income increased $12,540,000 for the first nine months of 1999
over the same period in 1998, mainly due to increase gains on limited
partnership investments. Non-interest expense increased by $3,802,000 over the
first nine months of 1998. Increases include $2,773,000 in personnel and
benefits expenses.
Material Changes in Financial Condition
Total assets at September 30, 1999, were $3,060,429,000, an increase of 4.2% or
$124,649,000 from the same period one year earlier, and an increase of
$84,849,000 or 2.9% from December 31, 1998. Investment securities and
securities available for sale have decreased by $13 million from the third
quarter of 1998. Loans, leases and loans held for sale have increased $115
million over the same period in 1998. Limited partnership investments
increased $14 million over he first nine months of 1998. Total deposits have
increased by $97 million from September 30, 1998 and decreased by $50 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.
<PAGE> 9
Capital Resources
Shareholders' equity increased by $19.2 million from December 31, 1998, to $445
million at September 30, 1999. 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
1999 1998 1998
Tier 1 Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 17.92% 18.27% 18.08%
National Bank of Alaska 11.54 11.90 11.90
Total Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 19.02% 19.33% 19.14%
National Bank of Alaska 12.73 13.04 13.05
Leverage Ratio
National Bancorp of Alaska 14.76% 14.90% 14.24%
National Bank of Alaska 9.17 9.37 9.01
Year 2000 Computer 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.
The Bank retired systems that will not function in the year 2000, and installed
replacement systems. The Bank had all internal mission critical systems and
third party provided systems year 2000 capable and operating by June 30, 1999.
The costs associated with this process did 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 was completed by June 30, 1999.
<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) 1999 1998 1998
Nonaccrual
Commercial and industrial $ 6,560 $2,221 $ 2,153
Real estate construction 140 231 166
Real estate long-term 1,108 4,686 4,196
Other 16 - 67
--------------------------
Total 7,824 7,138 6,582
--------------------------
Restructured Loans
Total - - -
--------------------------
Accruing loans past due 90 days or more 1,745 1,662 3,101
--------------------------
Other foreclosed property 400 - -
--------------------------
Other real estate owned 528 341 486
--------------------------
Total nonperforming assets $10,497 $9,141 $10,169
Nonperforming assets as a percentage
of loans and leases and other real
estate owned at end of period 0.65% 0.62% 0.68%
Potential Problem Loans
At September 30, 1999, an additional $81,575,000 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, 1999 December 31, 1998
Balance January 1 $24,678 $24,530
Provision charged to operations 3,750 4,800
Recoveries on loans previously charged off 3,476 5,348
Less loans charged off (4,819) (10,000)
-------------------------
Balance at end of period $27,085 $24,678
=========================
Composition of Loan Charge Off and Recoveries
Loans Charged Off:
Commercial loans and leases $ 1,631 $ 4,805
Real estate construction - -
Real estate long-term 16 175
Consumer 2,479 3,963
Visa 693 1,057
-------------------------
Total Charge Offs 4,819 10,000
Recoveries:
Commercial loans and leases 695 2,428
Real estate construction 184 4
Real estate long-term 789 502
Consumer 1,436 2,146
Visa 184 268
Other 188 -
-------------------------
Total Recoveries 3,476 5,348
-------------------------
Net Charge Offs $ 1,343 $ 4,652
=========================
<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)
September 30, 1999
Commercial and Industrial 38.9% 9.2% $ 2,499
Real Estate Construction 4.8 0.1 20
Real Estate Long Term 29.9 0.8 220
Installment 22.0 32.0 8,660
Nontaxable 3.8 - 3
Lease Financing 0.6 - -
Unallocated - 57.9 15,683
-----------------------------------
100.0% 100.0% $27,085
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
<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
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 11, 1999 /s/Richard Strutz
Date Richard Strutz, President
November 11, 1999 /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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 165,553
<INT-BEARING-DEPOSITS> 130
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 242,882
<INVESTMENTS-CARRYING> 752,258
<INVESTMENTS-MARKET> 746,990
<LOANS> 1,616,069
<ALLOWANCE> 27,085
<TOTAL-ASSETS> 3,060,429
<DEPOSITS> 2,088,347
<SHORT-TERM> 489,621
<LIABILITIES-OTHER> 37,603
<LONG-TERM> 0
<COMMON> 444,858
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 3,060,429
<INTEREST-LOAN> 113,493
<INTEREST-INVEST> 45,282
<INTEREST-OTHER> 1,471
<INTEREST-TOTAL> 160,246
<INTEREST-DEPOSIT> 40,032
<INTEREST-EXPENSE> 52,428
<INTEREST-INCOME-NET> 107,818
<LOAN-LOSSES> 3,750
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 82,561
<INCOME-PRETAX> 78,646
<INCOME-PRE-EXTRAORDINARY> 78,646
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,732
<EPS-BASIC> 1.64
<EPS-DILUTED> 1.64
<YIELD-ACTUAL> 0
<LOANS-NON> 7,824
<LOANS-PAST> 1,745
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 81,575
<ALLOWANCE-OPEN> 24,678
<CHARGE-OFFS> 4,819
<RECOVERIES> 3,476
<ALLOWANCE-CLOSE> 27,085
<ALLOWANCE-DOMESTIC> 11,402
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,683
</TABLE>
