<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 June 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
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(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, $2.50 par value.
Number of shares outstanding as of August 5, 1999: 30,215,812
<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.....................................13
Item 6 Exhibits and Reports on Form 8-K......................13
2
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<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS SIX MONTHS
(In Thousands Except Statistics) ENDED JUNE 30 ENDED JUNE 30
<S> <C> <C> <C> <C>
INTEREST INCOME: 1999 1998 1999 1998
Loans and lease financing including fees $37,638 $39,282 $74,385 $76,399
Balances with banks 2 8 2 16
Federal funds sold and securities purchased
under agreement to resell 740 291 1,204 1,689
Investment securities including dividends:
U.S. government 2,260 2,475 4,486 5,289
U.S. agencies 6,482 6,552 13,073 12,544
States and political subdivisions 183 156 381 269
Mortgage and asset backed securities 4,199 3,099 8,398 6,041
Other securities 1,509 2,301 3,260 4,661
----------------------------------------
TOTAL INTEREST INCOME 53,013 54,164 105,189 106,908
INTEREST EXPENSE:
Deposits 12,888 13,865 26,601 27,905
Federal funds purchased and securities sold
under agreement to repurchase 4,149 4,697 7,938 9,304
Other purchased funds 2 2 4 5
----------------------------------------
TOTAL INTEREST EXPENSE 17,039 18,564 34,543 37,214
----------------------------------------
NET INTEREST INCOME 35,974 35,600 70,646 69,694
Provision for Loan Losses 1,200 1,200 2,400 2,400
----------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 34,774 34,400 68,246 67,294
OTHER INCOME:
Trust department income 723 741 1,435 1,413
Service charges on deposit accounts 3,551 3,455 6,914 6,744
Loan servicing fees 2,685 2,368 5,176 4,772
Securities transactions - 390 - 390
Gains on limited partnership investments 9,090 2,585 9,421 2,953
Credit card service fees 2,317 1,736 3,927 3,254
Other 4,864 5,150 9,410 9,307
----------------------------------------
TOTAL OTHER INCOME 23,230 16,425 36,283 28,833
OTHER EXPENSE:
Salaries 10,631 10,392 21,259 20,408
Profit sharing and other employee benefits 3,861 3,367 7,371 6,586
Net occupancy expense of bank premises 1,912 1,904 3,907 3,906
Furniture and equipment expense 2,166 2,307 4,322 4,447
Other 9,047 9,051 17,500 17,221
----------------------------------------
TOTAL OTHER EXPENSE 27,617 27,021 54,359 52,568
Income before income taxes 30,387 23,804 50,170 43,559
Income taxes 11,203 8,792 18,266 15,859
----------------------------------------
NET INCOME $19,184 $15,012 $31,904 $27,700
========================================
Net Income per share $0.63 $0.48 $1.05 $0.89
========================================
Average Number of Shares Outstanding 30,262,622 31,033,075 30,410,868 31,035,841
(See note to consolidated statements.)
</TABLE>
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands Except Statistics)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income $19,184 $15,012 $31,904 $27,700
Other comprehensive income, net of taxes:
Unrealized gain (losses) on securities:
Unrealized holding gains (losses) arising during period (1,006) 188 (1,648) (161)
Less: reclassification adjustment for gains
included in net income - (230) - (230)
------------------------------------
Other comprehensive income (1,006) (42) (1,648) (391)
------------------------------------
Comprehensive Income $18,178 $14,970 $30,256 $27,309
====================================
</TABLE>
4
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
June 30 December 31
(In Thousands Except Statistics) 1999 1998 1998
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 147,402 $ 176,242 $ 153,143
Interest-bearing balances with banks 134 22 116
Investment securities:
U.S. agencies 389,119 338,699 382,748
States and political subdivisions 19,133 19,165 20,229
Mortgage and asset backed securities 277,417 184,836 262,431
Other securities 64,831 113,987 109,755
----------------------------------
Total Investment Securities 750,500 656,687 775,163
(Market Value $750,497 in 1999)
Securities available for sale at market 229,792 222,602 239,325
Loans and lease financing 1,545,119 1,501,921 1,487,263
Reserve for loan losses (26,439) (25,758) (24,678)
----------------------------------
Net Loans and Lease Financing 1,518,680 1,476,163 1,462,585
Loans held for sale 74,442 112,230 144,735
Net premises and equipment 71,343 69,753 70,302
Limited partnership investments 71,984 56,204 71,416
Other assets 71,175 55,941 58,795
----------------------------------
Total Assets $2,935,452 $2,825,844 $2,975,580
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Demand deposits $ 618,006 $ 585,627 $ 617,532
Interest-bearing deposits:
NOW 228,885 187,932 237,245
Savings 288,843 278,978 308,924
Money market savings 307,229 279,071 291,587
Time 611,223 606,297 683,427
----------------------------------
Total Interest-Bearing Deposits 1,436,180 1,352,278 1,521,183
----------------------------------
Total Deposits 2,054,186 1,937,905 2,138,715
Federal funds purchased 38,747 44,609 41,315
Securities sold under agreement to repurchase 371,594 388,465 334,572
Other purchased funds 123 79 110
Other liabilities 38,732 37,755 35,223
----------------------------------
Total Liabilities 2,503,382 2,408,813 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 63,098 63,082 63,095
Retained earnings 330,358 289,074 307,550
Net unrealized gains on securities
available for sale, net of tax 986 2,658 2,634
Treasury stock at cost
(1,784,188 shares on June 30, 1999
and 970,722 shares on June 30, 1998) (42,372) (17,783) (27,634)
----------------------------------
Total Shareholders' Equity 432,070 417,031 425,645
----------------------------------
Total Liabilities and Shareholders' Equity $2,935,452 $2,825,844 $2,975,580
==================================
Per share statistics
Net book value $14.30 $13.44 $13.86
==================================
(See note to consolidated statements.)
</TABLE>
5
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In Thousands) Six Months Ended June 30 1999 1998
OPERATING ACTIVITIES:
Net Income $ 31,904 $ 27,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,400 2,400
Deferred tax expense (credit) (2,595) (1,073)
Depreciation and amortization 4,142 3,969
Net amortization of premium or discount on securities 376 (316)
Gain on security and limited partnership transactions (9,536) (5,397)
Loss on security and limited partnership transactions 115 2,054
Gain on loan sales (491) (484)
Loss (gain) on sale of premises and equipment - (379)
Gain on sale of other assets - (17)
Net decrease (increase) in loans held for sale 70,784 (53,442)
Decrease (increase) in interest receivable,
prepaid expense, and other assets (2,102) 1,081
Increase (decrease) in interest payable, accrued
expenses and other liabilities (667) 133
-----------------
Net Cash Provided by (Used in) Operating Activities 94,330 (23,771)
INVESTING ACTIVITIES:
Net decrease (increase) in federal funds sold and interest
bearing deposits with other banks (18) 100,128
Proceeds from maturities of securities held to maturity 221,974 113,512
Purchases of securities held to maturity (198,048) (160,572)
Proceeds from maturities of securities available for sale 57,030 28,210
Proceeds from sales of securities available for sale - 2,885
Purchase of securities available for sale (49,933) (25,075)
Net decrease (increase) in loans and lease financing (55,033) (31,962)
Proceeds from sale of premises and equipment 5 1,103
Purchases of premises and equipment (4,589) (2,734)
Proceeds from sales of limited partnership investments 16,710 12,318
Purchases of limited partnership investments (7,857) (12,961)
Acquisition of NBA Insurance Services LLC (3,870) -
Proceeds from sale of other assets 169 37
Purchases other assets (2,643) (1,754)
-----------------
Net Cash Provided by (Used in) Investing Activities (26,103) 23,135
FINANCING ACTIVITIES:
Net decrease in total deposit (84,529) (40,975)
Net increase in short-term borrowings 34,467 70,391
Acquisition of treasury stock (15,110) (2,457)
Proceed from sale of treasury stock 374 1,832
Cash dividends paid (9,170) (7,762)
-----------------
Net Cash Provided by (Used in) Financing Activities (73,968) 21,029
-----------------
Increase (decrease) in cash and cash equivalents (5,741) 20,393
Cash and cash equivalents at beginning of year 153,143 155,849
-----------------
Cash and Cash Equivalents at End of June $147,402 $176,242
=================
6
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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 six-month period ended June 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.
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 $19.2 million
in the second quarter of 1999 compared to $15.0 million for the second quarter
of 1998. Earnings per share were $0.63 as of June 30, 1999 up nearly 7% from
the $0.48 earned through June 30, 1998.
Return on average assets using annualized income from operations plus year-to-
date net gains on security and limited partnership investments was 2.04% for
the six-month period ended June 30, 1999, compared to 1.97% for the six-month
period ended June 30, 1998. The annualized return on average stockholders'
equity was 13.79% for the first six months of 1999.
Net interest income increased $952,000 after the provision for loan loss
recoveries during the first six months of 1999 compared to the same period
during the previous year. Interest on earning assets decreased $1.7 million
from the first six months of 1998 to the first six months of 1999, while
interest expense decreased $2.7 million.
The provision for loan loss was $2,400,000 through June 30, 1999, compared to a
provision for loan loss of $2,400,000 at June 30, 1998. The reserve for loan
loss was 1.71% of outstanding loans at June 30, 1999 and 1.71% at June 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
decreased to 0.61% at June 30, 1999 from 0.85% at June 30, 1998, and decreased
from 0.68% at December 31, 1998.
Non-interest income increased $7,450,000 for the first six months of 1999 over
the same period in 1998 mainly due to increased gains on limited partnership
investments. On April 16, 1999, a pretax gain of 9 million was received from a
limited partnership investment contributing to the $9,421,000 gain for the
first six months of 1999 compared to the $2,953,000 gain over the same period
of 1998. Non-interest expense increased by $1,791,000 over the first six
months of 1998. Increases include $1,636,000 in personnel and benefits
expenses.
Material Changes in Financial Condition
Total assets at June 30, 1998, were $2,935,452,000 an increase of 3.9% or
$109,608,000 from the same period one year earlier, and an decrease of
$40,128,000 or 1.3% from December 31, 1998. Investment securities and
securities available for sale have increased by $101 million over the second
quarter of 1998. Loans, leases and loans held for sale have increased $5.4
million over the same period in 1998. Limited partnership investments
increased $15.8 million over the first six months of 1998. Total deposits have
increased by $116.3 million from June 30, 1998, and decreased by $84.5 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 increased by $6.4 million from December 31, 1998, to $432
million at June 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:
June 30 December 31
1999 1998 1998
Tier 1 Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 18.05% 18.93% 18.08%
National Bank of Alaska 11.63 12.42 11.90
Total Risk Based Capital Ratio
National Bancorp of Alaska, Inc. 19.16% 20.11% 19.14%
National Bank of Alaska 12.85 13.66 13.05
Leverage Ratio
National Bancorp of Alaska 14.84% 15.07% 14.24%
National Bank of Alaska 9.20 9.52 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.
The Bank has already 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.
9
<PAGE> 10
Statistical Disclosures
Selected Guide 3-Statistical Disclosure by Bank Holding Companies
III. Loan Portfolio
C. Risk Elements
Nonperforming Assets
June 30 December 31
(In Thousands) 1999 1998 1998
Nonaccrual
Commercial and industrial $5,929 $ 4,753 $ 2,153
Real estate construction 151 323 166
Real estate long-term 1,009 4,713 4,196
Other - 583 67
-----------------------
Total 7,089 10,372 6,582
-----------------------
Restructured Loans
-----------------------
Total - - -
-----------------------
Accruing loans past due 90 days or more 1,584 1,985 3,101
-----------------------
Other real estate owned 718 461 486
-----------------------
Total nonperforming assets $9,391 $12,818 $10,169
=======================
Nonperforming assets as a percentage
of loans and leases and other real
estate owned at end of period 0.61% 0.85% 0.68%
Potential Problem Loans
At June 30, 1999, an additional $85,519,000 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 borrow's abilities
to comply with their present loan repayment terms. These loans are reviewed
monthly to assess any change in collectability.
10
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IV. Summary of Loan Loss Experience
A: Analysis of Reserve for Loan Loss
(In Thousands) June 30, 1999 December 31, 1998
Balance January 1 $24,678 $24,530
Provision charged to operations 2,400 4,800
Recoveries on loans previously charged off 2,054 5,348
Less loans charged off (2,693) (10,000)
----------------------
Balance at end of period $26,439 $24,678
======================
Composition of Loan Charge Off and Recoveries
Loans Charged Off:
Commercial loans and leases $ 534 $ 4,805
Real estate construction - -
Real estate long-term 16 175
Consumer 1,670 3,963
Visa 473 1,057
----------------------
Total Charge Offs 2,693 10,000
Recoveries:
Commercial loans and leases 595 2,428
Real estate construction 33 4
Real estate long-term 121 502
Consumer 994 2,146
Visa 123 268
Other 188 -
----------------------
Total Recoveries 2,054 5,348
----------------------
Net Charge Offs $ 639 $ 4,652
======================
11
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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
June 30, 1999 of Total Loans Reserve Reserves(000's)
Commercial and Industrial 38.8% 9.6% $ 2,541
Real Estate Construction 3.5 - 6
Real Estate Long Term 30.9 0.5 133
Installment 22.4 31.5 8,332
Nontaxable 3.8 - 4
Lease Financing 0.6 - -
Unallocated - 58.4 15,423
----------------------------------
100.0% 100.0% $26,439
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
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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
13
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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.
August 5, 1999 /s/Edward B. Rasmuson
- ----------------- ------------------------------
Date Edward B. Rasmuson, Chairman
of the Board
August 5, 1999 /s/Richard Strutz
- ----------------- ------------------------------
Date Richard Strutz, President
August 9, 1999 /s/Gary Dalton
- ------------------ ------------------------------
Date Gary Dalton, Executive Vice
President and Controller
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 147,402
<INT-BEARING-DEPOSITS> 134
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 229,792
<INVESTMENTS-CARRYING> 750,500
<INVESTMENTS-MARKET> 750,497
<LOANS> 1,545,119
<ALLOWANCE> 26,439
<TOTAL-ASSETS> 2,935,452
<DEPOSITS> 2,054,186
<SHORT-TERM> 410,464
<LIABILITIES-OTHER> 38,732
<LONG-TERM> 0
<COMMON> 432,070
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 2,935,452
<INTEREST-LOAN> 74,385
<INTEREST-INVEST> 29,598
<INTEREST-OTHER> 1,206
<INTEREST-TOTAL> 105,189
<INTEREST-DEPOSIT> 26,601
<INTEREST-EXPENSE> 34,543
<INTEREST-INCOME-NET> 70,646
<LOAN-LOSSES> 2,400
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 54,359
<INCOME-PRETAX> 50,170
<INCOME-PRE-EXTRAORDINARY> 50,170
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,904
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 0
<LOANS-NON> 7,089
<LOANS-PAST> 1,584
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 85,519
<ALLOWANCE-OPEN> 24,678
<CHARGE-OFFS> 2,693
<RECOVERIES> 2,054
<ALLOWANCE-CLOSE> 26,439
<ALLOWANCE-DOMESTIC> 11,016
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,423
</TABLE>
