<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, 1998
[ ] 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, $2.50 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 22, 1999: $359,321,921
The registrant has one class of common stock, $2.50 par value. Numbers of
shares outstanding at February 22, 1999: 30,522,598.
Documents Incorporated By Reference
Parts of Form 10-K
Documents into which incorporated
1998 Annual Report to Shareholders Part I and II
Proxy Statement for the March 16, 1999
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................................ 11
Part III
Item 10 Directors and Executive Officers of the Registrant................. 12
Item 11 Executive Compensation............................................. 12
Item 12 Security Ownership of Certain Beneficial Owners and Management..... 12
Item 13 Certain Relationships and Related Transactions..................... 12
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 13
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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 1998 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, various
telephone and electronic services, and other services incidental to serving the
banking needs of individuals, corporations, government and quasi-government
bodies.
As of December 31, 1998, the Bank's banking operations are conducted from 55
banking offices, 2 loan offices and 67 electronic branches located throughout
the state of Alaska and in Seattle, Washington, including 27 banking offices
and 26 electronic branches in Anchorage.
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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 $2.09 million under its supervision
as of December 31, 1998.
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.
National Bank of Alaska also operates an Edge Act subsidiary, National Bank of
Alaska International Banking, Corp.
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 has approximately 1,098 full time equivilant employees. Management
considers employment relations to be good. None of the Bank's employees are
covered by a collective bargaining agreement.
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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 Currency
(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 1998 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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III. Loan Portfolio
C. Risk Elements.
Potential Problem Loans
At December 31, 1998, an additional $72,375,000 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,
1998.
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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, 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
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
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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 five which are subject to ground leases) and leases 83 other
banking and loan offices under agreements expiring between 1998 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 1998.
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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 and 3 of the Annual Report,
which are incorporated herein by reference.
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Item 7A Interest Rate Sensitivity
December 31, 1998
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
1999 2000 2001 2002 2003 There Total Fair
after Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Assets
Investment securities 293,767 168,943 92,442 53,298 29,928 136,785 775,163 779,708
Average interest rate 5.94% 6.46% 6.27% 6.48% 6.59% 7.15% 6.37%
Securities available for sale 84,459 51,143 19,227 44,252 11,560 28,684 239,325 239,325
Average interest rate 7.03% 6.28% 6.55% 6.35% 5.75% 5.55% 6.43%
Interest-bearing balances
with banks 116 - - - - - 116 116
Average interest rate 5.26% - - - - - 5.26%
Loans and leases 292,528 172,090 140,052 107,917 73,147 212,561 998,295 1,005,514
Average interest rate 8.43% 9.51% 9.67% 8.93% 8.98% 9.05% 9.02%
Loans held for sale 144,735 - - - - - 144,735 144,990
Average interest rate 6.99% - - - - - 6.99%
Variable Rate Assets
Loans and leases 460,700 11,732 9,979 1,988 2,726 1,843 488,968 488,968
Average interest rate 8.87% 8.68% 8.59% 9.10% 8.56% 8.68% 8.86%
------------------------------------------------------------------------
Total Earning Assets 1,276,305 403,908 261,700 207,455 117,361 379,873 2,646,602 2,658,621
========================================================================
Fixed Rate Liabilities
Time deposits 498,799 43,403 69,451 9,022 17,581 - 638,256 641,794
Average interest rate 4.83% 4.98% 4.59% 6.10% 5.61% - 4.85%
Other deposits 837,756 - - - - - 837,756 837,756
Average interest rate 2.73% - - - - - 2.73%
Purchased funds 375,275 722 - - - - 375,997 375,970
Average interest rate 4.32% 5.20% - - - - 4.33%
Variable Rate Liabilities
Time Deposits 45,171 - - - - - 45,171 45,171
Average interest rate 4.49% - - - - - 4.49%
------------------------------------------------------------------------
Total Interest Bearing
Liabilities 1,757,001 44,125 69,451 9,022 17,581 - 1,897,180 1,900,691
========================================================================
Interest Sensitivity Gap (480,696) 359,783 192,249 198,433 99,780 379,873 749,422
Cumulative Gap (120,913) 71,336 269,769 369,549 749,422
Ratio of Interest Sensitive
Assets to Interest
Sensitive Liabilities .73 9.15 3.77 22.99 6.68 N/A 1.39
Cumulative Ratio .73 .93 1.04 1.14 1.19 1.39
</TABLE>
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Nonperforming Assets
Other real estate owned increased from $150,000 at December 31, 1997 to
$486,000 at December 31, 1998. Assets with a book value of $441,000 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.
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<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 16, 1999, 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 71 Chairman of the Executive Committee 1964
Edward B. Rasmuson 58 Chairman of the Board of Directors 1972
Richard Strutz 48 President 1985
Kathleen Soderberg 50 Executive Vice President and Treasurer 1982
Gary Dalton 44 Executive Vice President 1988
James Cloud 45 Executive Vice President 1997
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to pages 6 through 9 of the Proxy Statement for the March 16,
1999, 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 8 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 10 of the Proxy Statement, which is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 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 1998
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, 1998 and 1997........................... 23
Consolidated Statements of Income
Years ended December 31, 1998, 1997, and 1996........ 22
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996........ 24
Consolidated Statements of Comprehensive Income
Years ended December 31, 1998, 1997, and 1996........ 25
Consolidated Statements of Changes in Shareholders'
Equity Years ended December 31, 1998, 1997, and 1996. 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) (i) Articles of incorporation as amended for National Bancorp
of Alaska, Inc. filed herewith.
(3) (ii) Bylaws as amended for National Bancorp of Alaska, Inc.
filed herewith.
(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, 1998.
(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 International Banking
Corporation Washington
NBA Mortgage Corporation Delaware
Northland Credit Corporation Alaska
Northland Escrow Services
Corporation Alaska
NB Aviation, Inc. Delaware
(22) There were no matters submitted to a vote of security holders
during the fourth quarter of 1998.
(27) Financial Data Schedule
(b) Reports on Form 8-K
There was no 8-K reports filed during the quarter ended
December 31, 1998.
(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,
1998, is incorporated herein by reference in Item 14(a)1.
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<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 16, 1999 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 16, 1999 /s/Edward B. Rasmuson
Date Edward B. Rasmuson, Chairman of
the Board and Director (Principal
Executive Officer)
March 16, 1999 /s/Richard Strutz
Date Richard Strutz, President and
Director (Principal Financial Officer)
March 16, 1999 /s/Gary Dalton
Date Gary Dalton, Executive Vice President
(Principal Accounting Officer)
March 16, 1999 /s/Donald B. Abel, Jr.
Date Donald B. Able, Director
March 16, 1999 /s/Gary M. Baugh
Date Gary M. Baugh, Director
March 16, 1999 /s/Carl F. Brady, Jr.
Date Carl F. Brady, Jr., Director
March 16, 1999 /s/Alec W. Brindle
Date Alec W. Brindle, Director
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<PAGE> 16
March 16, 1999 /s/James O. Campbell
Date James O. Campbell, Director
March 16, 1999 /s/Patrick S. Cowan
Date Patrick S. Cowan, Director
March 16, 1999 /s/Sharon D. Gagnon
Date Sharon D. Gagnon, Director
March 16, 1999 /s/Roy Huhndorf
Date Roy Huhndorf, Director
March 16, 1999 /s/James H. Jansen
Date James H. Jansen, Director
March 16, 1999 /s/Donald L. Mellish
Date Donald L. Mellish, Director
March 16, 1999 /s/Howard R. Nugent
Date Howard R. Nugent, Director
March 16, 1999 /s/Tennys B. Owens
Date Tennys B. Owens, Director
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March 16, 1999 /s/Eugene A. Parrish
Date Eugene a. Parrish, Director
March 16, 1999 /s/Michael Pate
Date Michael Pate, Director
March 16, 1999 /s/Martin R. Pihl
Date Martin Pihl, Director
March 16, 1999 /s/Edward F. Randolph
Date Edward F. Randolph, Director
March 16, 1999 /s/Major General John Schaeffer
Date Major General John Schaefer(Ret.),
Director
March 16, 1999 /s/Michael K. Snowden
Date Michael K. Snowden, Director
March 16, 1999 /s/George S. Suddock
Date George S. Suddock, Director
March 16, 1999 /s/Richard A. Wien
Date Richard A. Wien, Director
March 16, 1999 /s/Sharon Wikan
Date Sharon Wikan, Director
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<PAGE> Cover
CERTIFICATE OF INCORPORATION
OF
NATIONAL BANCORP OF ALASKA, INC.
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
NATIONAL BANCORP OF ALASKA, INC.
FIRST: The name of the corporation (hereinafter called the
"Corporation") is NATIONAL BANCORP OF ALASKA, INC.
SECOND: The address of the registered office in the State of Delaware
is 229 South State Street, City of Dover, County of Kent. The name of the
registered agent of the Corporation at such address is The Prentice - Hall
Corporation System, Inc.
THIRD: The nature of the business and the purpose to be conducted and
promoted by the Corporation shall be to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: (A) The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is Forty Million
(40,000,000) shares of common stock, par value $2.50 per share (hereinafter
called "Common Stock").
Upon this amendment becoming effective (the "Effective Date"), each of the
issued and outstanding shares of Common Stock, par value $10.00 per share,
shall, without any action on the part of the holder thereof, be reclassified as
and changed into four (4) shares of Common Stock, par value $2.50 per share
(the "Stock Split"). The Stock Split shall be accomplished by mailing to each
stockholder of record as of the close of business on the Effective Date a
certificate representing three additional shares of Common Stock, par value
$2.50 per share, for each share of Common Stock, par value $10.00 per share,
held by the stockholder on that date; provided, however, that each person
holding of record a stock certificate or certificates representing shares of
Common Stock, par value $10.00 per share, shall receive, upon surrender of such
certificate or certificates, a new certificate or certificates evidencing and
representing the number of shares of Common Stock, par value $2.50 per share,
to which such person is entitled.
(B) Any amendment of the Certificate of Incorporation which shall
increase or decrease the authorized capital stock of the Corporation may be
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of stock of the Corporation entitled to vote.
(C) The registered holders of the shares of Common Stock shall have only
a preemptive right as set forth in this Article to purchase at such respective
equitable prices, terms and conditions as shall be fixed by the Board of
Directors, such of the shares of Common Stock of the Corporation or securities
convertible into or carrying options or warrants to purchase such shares of
Common Stock as may be issued for money from time to time. Unless eliminated,
restricted or modified in accordance with the last sentence of this paragraph
(C), such preemptive right shall apply to all shares issued after the first
<PAGE> 2
3,000,000 shares, whether the additional shares constitute a part of the shares
presently or subsequently authorized but shall not apply to shares held in the
treasury of the Corporation, except that the holders of Common Stock shall have
no preemptive right to purchase or subscribe for all or any part of 793,452
shares of presently authorized but unissued Common Stock. The preemptive right
of the holders of Common Stock to purchase or subscribe for additional shares
of Common Stock may be eliminated, restricted or modified by the amendment of
the Certificate of Incorporation in accordance with the applicable provisions
of the General Corporation Law of the State of Delaware.
(D) The holders of securities convertible into or carrying options or
warrants to purchase shares of Common Stock shall have no preemptive right, as
such holders, to acquire any shares or securities of any class that may at any
time be issued by the Corporation.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The name and the mailing address of the incorporator are as
follows:
NAME MAILING ADDRESS
Dennis C. Brady One Farragut Square South
Washington, D.C. 20006
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the General Corporation Law of the State of
Delaware or on the application of trustees in dissolution or of any receiver or
receivers appointed for this Corporation under the provisions of Section 279 of
the General Corporation Law of the State of Delaware, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement the said compro
mise or arrangement and the said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
A. The management of the business and the conduct
of the affairs of the Corporation shall be vested in its
Board of Directors. The number of directors shall be
<PAGE> 3
fixed by, or in the manner provided in, the By-Laws. The
phrase "whole Board" and the phrase "total number of
directors" shall be deemed to have the same meaning, to
wit, the total number of directors which the Corporation
would have if there were no vacancies. No election of
directors need be by written ballot.
B. After the original or other By-Laws of the
Corporation have been adopted, amended, or repealed, as
the case may be, in accordance with the provisions of
Section 109 of the General Corporation Law of the State
of Delaware, and after the Corporation has received any
payment for any of its stock, the power to adopt, amend,
or repeal the By-Laws of the Corporation may be exercised
by the Board of Directors of the Corporation; provided,
however, that any provision for the classification of
directors of the Corporation for staggered terms pursuant
to the provisions of paragraph (d) of Section 141 of the
General Corporation Law of the State of Delaware shall be
set forth in an initial By-Law or in a By-Law adopted by
the stockholders entitled to vote unless provisions for
such classification shall be set forth in this
Certificate of Incorporation.
C. Whenever the Corporation shall be authorized to
issue only one class of stock, each outstanding share
shall entitle the holder thereof to notice of, and the
right to vote at, any meeting of stockholders. Whenever
the Corporation shall be authorized to issue more than
one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions
of this Certificate of Incorporation shall entitle the
holder thereof to the right to vote at any meeting of
stockholders except as the provisions of paragraph (c)(2)
of Section 242 of the General Corporation Law of the
State of Delaware shall otherwise require; provided, that
no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized
shares of said class.
NINTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books and records of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-Laws of the Corporation.
TENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said Section 145 from and against any and
all of the expenses, liabilities or other matters referred to in or covered by
said Section 145, and the indemnification provided for herein shall not be
<PAGE> 4
deemed exclusive of any other rights to which those indemnified may be entitled
under any By-Law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in an
other capacity while holding such office, and shall continue as to a person who
has ceased to be director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
ELEVENTH: Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate
action by any provision of the General Corporation Law of the State of
Delaware, or of this Certificate of Incorporation or of the by-laws authorized
or permitted by said Law, the meeting and vote of stockholders may be dispensed
with if such action is taken with the unanimous written consent of the holders
of stock.
TWELFTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, all in the manner now or hereafter prescribed by the laws of
the State of Delaware, and all rights and powers at any time conferred upon the
stockholders and the directors of the Corporation by this Certificate of
Incorporation are granted subject to the provisions of this Article TWELFTH.
THIRTEENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
directors' duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware General Corporation Law. Any repeal or
modification of this paragraph by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification.
_ _ _ _ _
<PAGE> 1
BYLAWS OF
NATIONAL BANCORP OF ALASKA, INC.
(herein called the "Corporation")
ARTICLE I. OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be at:
Northern Lights Boulevard and C Street
Anchorage, Alaska 99503
SECTION 2. OTHER OFFICES. In addition to its principal office, the
Corporation may have offices at such other places as the Board of Directors may
from time to time appoint, or as the business of the Corporation may require.
ARTICLE II. STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the Stockholders of
the Corporation, for the purpose of electing Directors for the ensuing year and
for the transaction of such other business as may properly come before the
meeting, shall be held on a date and at a time designated by Resolution of the
Board of Directors.
SECTION 2. SPECIAL MEETINGS. A special meeting of the Stockholders may
be called at any time by the Chairman of the Board or by the Board of Directors
or by the holders of not less than one third of all the shares entitled to vote
at such meeting.
SECTION 3. PLACE OF MEETINGS. Each annual meeting of the Stockholders
shall be held at the principal office of the Corporation or at such other
place, within or without the State of Delaware, as the Board of Directors may
designate in calling such meeting.
SECTION 4. NOTICE OF MEETINGS. Written notice of each annual and each
special meeting of the Stockholders shall be given by or at the direction of
the Officer or other persons calling the meeting. Such notice shall state the
purpose or purposes for which the meeting is called, the time when and the
place where it is to be held, and such other information as may be required by
law. Except as otherwise required by law, a copy thereof shall be delivered
personally; mailed in a postage prepaid envelope; or transmitted by telegraph,
<PAGE> 2
cable, or wireless not less than ten (10) days, except if the purpose of the
meeting is to act on amendment of the Certificate of Incorporation or on a
reduction of stated capital or on a plan of merger or consolidation, in which
event such notice shall be mailed not less than fifteen (15) days nor more than
fifty (50) days before such meeting to each Stockholder of Record entitled to
vote at such meeting; and, if mailed, it shall be directed to such Stockholder
at his address as it appears on the stock transfer books of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices intended for him be mailed to the address designated in
such request. Notwithstanding the foregoing, a waiver of any notice herein or
by law required, if in writing and signed by the person entitled to such
notice, whether before or after the time of the event for which notice was
required to be given, shall be the equivalent of the giving of such notice. A
Stockholder who attends shall be deemed to have had timely and proper notice of
the meeting, unless he attends for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Notice of any adjourned or recessed meeting need not be given.
SECTION 5. QUORUM. Except as otherwise provided by law, at any meeting
of the Stockholders of the Corporation, the presence in person or by proxy of
the holders of a majority in number of the outstanding shares of stock entitled
to vote at such meeting shall constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in voting power of the
Stockholders present in person or represented by proxy and entitled to vote may
adjourn the meeting from time to time and from place to place until a quorum is
obtained. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 6. ORGANIZATION. At every meeting of the Stockholders, the
Chairman of the Board or some person appointed by him or, in the absence of the
Chairman of the Board, a person chosen by a majority vote of the Stockholders
present in person or by proxy and entitled to vote shall act as Chairman of the
meeting. The Secretary or an Assistant Secretary or, in the discretion of the
Chairman, any person designated by him shall act as Secretary of the meeting.
SECTION 7. INSPECTORS. The Directors, in advance of any meeting, may,
but need not, appoint one or more Inspectors of Election to act at the meeting
or any adjournment thereof. If an Inspector or Inspectors are not appointed,
the person presiding at the meeting may, but need not, appoint one or more
Inspectors. In case any person who may be appointed as an Inspector fails to
appear or act, the vacancy may be filled by appointment made by the Directors
in advance of the meeting or at the meeting by the person presiding thereat.
Each Inspector, if any, before entering upon discharge of his duties, shall
take and sign an oath faithfully to execute the duties of Inspector at such
<PAGE> 3
meeting with strict impartiality and according to the best of his ability. The
Inspector or Inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at
the meeting, the existence of a quorum, and the validity and effect of proxies;
and shall receive votes, ballots, or consents; hear and determine all
challenges and questions arising in connection with the right to vote; count
and tabulate all votes, ballots, or consents; determine the result; and do such
acts as are proper to conduct the election or vote with fairness to all
Stockholders. On request of the Chairman of the meeting, the Inspector or
Inspectors, if any, shall make a report in writing of any challenge, question,
or matter determined by him or them and execute a certificate of any fact found
by him or them.
SECTION 8. BUSINESS AND ORDER OF BUSINESS. At each meeting of the
Stockholders, such business may be transacted as may properly be brought before
such meeting, whether or not such business is stated in the notice of meeting
or in a waiver of notice thereof, except as expressly provided otherwise by law
or by these Bylaws. The order of business at all meetings of Stockholders
shall be as follows:
1. Call to order.
2. Selection of Secretary of the meeting.
3. Determination of quorum.
4. Appointment of Voting Inspectors.
5. Nomination and election of Directors.
6. Other business.
SECTION 9. VOTING. Except as otherwise provided by law or by the
Certificate of Incorporation, holders of common stock of the Corporation shall
be entitled to vote upon matters to be voted upon by the Stockholders. At each
meeting of Stockholders held for any purpose, each Stockholder of Record of
stock entitled to vote thereat shall be entitled to vote the shares of such
stock standing in his name on the books of the Corporation on the date
determined in accordance with Section 11 of this Article II, each such share
entitling him to one vote.
Any Stockholder entitled to vote may vote either in person, by any
electronic or telephonic means that provides for Stockholder identification, or
by proxy duly appointed by an instrument in writing subscribed by such
Stockholder (or by his attorney thereunto duly authorized) and delivered to the
Secretary of the meeting; provided, however, that no proxy shall be voted or
acted upon after eleven (11) months from its date, unless said proxy provides
for a longer period.
<PAGE> 4
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the Stockholders, unless the vote of a greater number is required by
law or the Certificate of Incorporation.
The voting shall be by voice or by ballot as the Chairman may decide,
except that upon demand for a vote by ballot on any question or election, made
by any Stockholder or his proxy present and entitled to vote on such question
or election, such vote by ballot shall immediately be taken.
SECTION 10. VOTING LIST. The Secretary of the Corporation shall make, at
least ten (10) days before each meeting of Stockholders, a complete list of the
Stockholders entitled to vote at any such meeting or any adjournment thereof,
with the address of and the number of shares held by each Stockholder. Such
list shall also be produced and kept open at the time and place of the meeting,
and shall be subject to inspection by any Stockholder during the whole time of
the meeting. The original stock transfer books shall be prima facie evidence
as to who are the Stockholders entitled to examine such list or transfer books,
or to vote at any meeting of Stockholders.
SECTION 11. RECORD DATE. The Board of Directors may fix in advance a
date which shall not be more than fifty (50) nor less than ten (10) days prior
to the date of any meeting of Stockholders; or the date for payment of any
dividend; or the date when any change or conversion or exchange of capital
stock shall go into effect; or in connection with obtaining the consent of
Stockholders for any purpose, as a record date for the determination of the
Stockholders entitled to notice of, and to vote at, any such meeting and any
adjournment thereof; or entitled to receive payment or any such dividend; or to
any such allotment of rights; or to exercise the rights in respect of any such
change, conversion, or exchange of capital stock; or to give such consent; and
in such case, such Stockholders and only such Stockholders as shall be
Stockholders of Record on the date so fixed shall be entitled to such notice
of, and to vote at, such meeting and any adjournment thereof; or to receive
payment of such dividend; or to receive such allotment of rights; or to
exercise such rights; or give such consent, as the case may be, notwithstanding
any transfer of any stock on the books of the Corporation after such record
date fixed as aforesaid.
If no record date is fixed for the determination of Stockholders entitled
to notice of or to vote at a meeting of Stockholders, or Stockholders entitled
to receive payment of a dividend, the date on which notice of the meeting is
mailed or the date on which the Resolution of the Board of Directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of Stockholders. When a determination of Stockholders entitled
to vote at any meeting of Stockholders has been made as herein provided, such
determination shall apply to any adjournment thereof.
<PAGE> 5
SECTION 12. CERTIFICATION OF STOCK. Every Stockholder of the Corporation
shall be entitled to a certificate or certificates, certifying the number and
class of shares of the stock of the Corporation owned by him. The President or
any Vice President, and either the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, or any two Officers of the Corporation
designated by the Board of Directors, shall sign such certificates. The
signatures of the Officers of the Corporation may be facsimiles. In case any
Officer who has signed, or whose facsimile signature has been placed upon a
certificate, shall have ceased to be such Officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such Officer at the date of issue.
Whenever the Corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing paid stock shall set forth thereon the statements
prescribed by the General Corporation Law. Any restrictions on the transfer or
registration of transfer of any shares of stock of any class or series shall be
noted conspicuously on the certificate representing such shares.
SECTION 13. LOST CERTIFICATES. The Trust Department of the Corporation
or its successor as Registrar and Transfer Agent may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen, or destroyed. When authorizing
such issue of a new certificate or certificates, the Trust Department of the
Corporation or its successor as Registrar and Transfer Agent may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representatives, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen, or destroyed.
SECTION 14. TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction upon its books.
<PAGE> 6
ARTICLE III. DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by the Board of Directors; and all corporate powers shall be
exercised by the Board of Directors, except as otherwise expressly required by
these Bylaws, by the Certificate of Incorporation, or by law.
SECTION 2. QUALIFICATION, NUMBER, AND TERM OF OFFICE. A Director must be
a stockholder of the Corporation. A Director need not be a citizen of the
United States or a resident of the State of Alaska. The number of Directors
shall be fixed and determined from time to time by resolution of the Board.
Whenever the authorized number of Directors is increased between annual
meetings of the stockholders, a majority of the Directors then in office shall
have the power to elect such new Directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of Directors shall not become effective until the expiration of the term
of the Directors then in office unless, at the time of such decrease, there
shall be vacancies on the Board which are being eliminated by the decrease.
A Board of Directors shall be elected annually in the manner provided in
these Bylaws; and each Director shall hold office until the annual meeting next
following his election, and until his successor shall have been elected and
qualified; or until his death, resignation, or removal.
SECTION 3. ELECTION OF DIRECTORS. At such meeting of the Stockholders
for the election of Directors, a quorum being present, the election shall be as
provided in the Certificate of Incorporation.
If the election of Directors shall not be held on the day designated for
any annual meeting or at any adjournment of such meeting, the Board of
Directors shall cause the election to be held at a special meeting of the
Stockholders as soon thereafter as may be convenient.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any Stockholder of any outstanding class of capital
stock of the Corporation entitled to vote for election of Directors.
Nominations, other than those made by or on behalf of the existing
management of the Corporation, shall be made in writing and shall be
delivered or mailed to the President of the Corporation not less than
fourteen (14) days nor more than fifty (50) days prior to any meeting of
Stockholders called for the election of Directors; provided, however, that
if less than twenty-one (21) days' notice of the meeting is given to
Shareholders, such nomination shall be mailed or delivered to the President
of the Corporation not later than the close of business on the seventh (7th)
day following the day on which the notice of meeting was mailed.
<PAGE> 7
Such notification shall contain the following information to the extent known
to the notifying Shareholder: (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the total
number of shares of capital stock of the Corporation that will be voted for
each proposed nominee; (d) the name and residence address of the notifying
Shareholder; and (e) the number of shares of capital stock of the Corporation
owned by the notifying Shareholder. Nominations not made in accordance
herewith may, in his discretion, be disregarded by the Chairman of the meeting;
and upon his instructions, the vote tellers may disregard all votes cast for
each such nominee.
SECTION 4. REMOVAL OF DIRECTORS. Any Director may be removed at any
time, either with or without cause, by the affirmative vote of a majority in
voting power of the Stockholders of Record of the Corporation entitled to elect
a successor, given in person or by proxy at a special meeting of such
Stockholders called expressly for that purpose at which a quorum shall be
present.
SECTION 5. PLACE OF MEETING, ETC. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board of Directors may from time to time by Resolution determine, or (unless
contrary to Resolution of the Board of Directors) at such place as shall be
specified in the respective notices or waivers of notice thereof. Unless
otherwise restricted by law or by the Certificate of Incorporation, members of
the Board of Directors or any committee thereof may participate in a meeting of
the Board or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other; and participation in a meeting pursuant to this
Section 5 shall constitute presence at such meeting. The Chairman or any
person appointed by him shall act as Secretary of the meeting.
SECTION 6. ANNUAL MEETING. The Board of Directors may meet, without
notice of such meeting, for the purpose of organization, the election of
Officers, and the transaction of other business on the same day as, at the
place at which, and as soon as practicable after each annual meeting of
Stockholders is held. Such annual meeting of Directors may be held at any
other time or place specified in a notice given, as hereinafter provided, for
special meetings of the Board of Directors or in a waiver of notice thereof.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such times and places as may be fixed from time to time by
action of the Board of Directors. Unless required by Resolution of the Board
of Directors, notice of any such meeting need not be given.
SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board; or by any
<PAGE> 8
three (3) or more Directors; or at the direction of any of the foregoing, by
the Secretary. Notice of each such meeting shall be mailed to each Director,
addressed to him at his residence or usual place of business, not less than
three (3) days before the date on which the meeting is to be held; or such
notice shall be sent to each Director at such place by telegraph, cable, or
wireless not less than twenty-four (24) hours before the time at which the
meeting is to be held. Every such notice shall state the time and place of the
meeting. Notice of any adjourned or recessed meeting of the Directors need not
be given.
SECTION 9. WAIVERS OF NOTICE OF MEETINGS. Anything in these Bylaws or in
any Resolution adopted by the Board of Directors to the contrary
notwithstanding, proper notice of any meeting of the Board of Directors shall
be deemed to have been given to any Director if such notice shall be waived by
him in writing (including telegraph, cable, or wireless) before or after the
meeting. A Director who attends a meeting shall be deemed to have had timely
and proper notice thereof, unless he attends for the express purpose of
objecting to the transaction of any business because the meeting is not
lawfully called.
SECTION 10. QUORUM AND MANNER OF ACTING. A majority of the number of
Directors at the time fixed in accordance with these Bylaws shall constitute a
quorum for the transaction of business. The act of a majority of the Directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. In the absence of a quorum, a majority of the Directors
present may adjourn the meeting from time to time until a quorum be had. The
Directors shall act only as a Board, and the individual Directors shall have no
power as such.
SECTION 11. RESIGNATIONS. Any Director of the Corporation may resign at
any time, in writing, by notifying the Chairman of the Board or the President
or the Secretary of the Corporation. Such resignation shall take effect at the
time therein specified; and unless otherwise specified, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 12. VACANCIES. Any vacancy in the Board of Directors caused by
death, resignation, removal, disqualification, or any other cause may be filled
for the unexpired term by the majority vote of the remaining Directors then in
office, though less than a quorum, at any regular meeting of the Board of
Directors.
SECTION 13. DIRECTORS' ACTION WITHOUT A MEETING. Unless otherwise
provided by the Certificate of Incorporation, any action required to be taken
at a meeting of the Directors, or any action which may be taken at a meeting of
the Directors or of a committee, may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed before such action
by all the Directors or all the members of the committee, as the case may be.
Such consent shall have the same force and effect as a unanimous vote.
<PAGE> 9
ARTICLE IV. COMMITTEES
SECTION 1. COMMITTEES. The Board of Directors may, by Resolution adopted
by a vote of a majority of the number of Directors at the time fixed in
accordance with these Bylaws, designate a number of Directors deemed
appropriate in the aforesaid Resolution to be a committee of limited authority.
Regular meetings of any such committee, of which no notice shall be
necessary, may be held at such times and in such places as shall be fixed by a
majority of the committee. Special meetings of any such committee may be
called at the request of the Chairman of the committee or any two (2) members
of the committee. Notice of each special meeting of such a committee shall be
given by the person or persons calling the same, as provided by these Bylaws
for special meetings of the full Board.
A majority of any such committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of the committee.
Members of any such committee shall act only as a committee, and the individual
members shall have no power as such.
The Board of Directors shall have the power at any time to change the
members of, fill vacancies in, and discharge any such committee, either with or
without cause. The appointment of any Director to any such committee, if not
sooner terminated, shall automatically terminate upon the expiration of his
term as a Director or upon the earlier cessation of his membership on the Board
of Directors.
SECTION 2. EXECUTIVE COMMITTEE. There shall be a Committee known as the
Executive Committee consisting of not less than five (5) members but not more
than nine (9) members, each of whom shall be a Director of the Corporation, and
including ex-officio the Chairman of the Board and President, and shall be
appointed by the Board each year; and such members shall (unless they,
respectively, shall resign, be retired, become disqualified, or be removed)
serve throughout the year in which appointed and thereafter until their
successors are appointed.
The Committee, subject to the approval of the Board of Directors, shall
have general supervision and direction of the finances and business of the
Corporation, except such duties as by these Bylaws or by Resolution of the
Board of Directors are specifically assigned to other committees.
The Executive Committee shall have and may exercise, so far as may be
permitted by law, all the powers of the Board of Directors during intervals
between meetings thereof. All acts done and powers and authority conferred by
<PAGE> 10
the Executive Committee from time to time shall be deemed to be, and may be
certified as being, done or conferred under authority of the Board of
Directors.
The Committee shall hold regular meetings, and special meetings of the
Committee may be called upon one (1) day's notice by the Chairman of the Board
or the Chairman of the Executive Committee or the President of the Corporation
or any three (3) members of the Committee.
Reports of the Executive Committee shall be submitted at each regular
meeting of the Board of Directors. The Board of Directors shall approve or
disapprove the reports of the Executive Committee, and such action shall be
recorded in the minutes of the meeting of the Board.
In the absence at any meeting of the Committee of any regular member
thereof, the Chairman of the Board or the Chairman of the Executive Committee
or the President of the Corporation may call in any other Director to sit and
vote at such meeting of the Executive Committee in place of the absent regular
member; but unless three (3) of the regular members of the Executive Committee
are present at a meeting, any action taken at such meeting shall be limited to
the current business of the Corporation; and no action shall be taken thereat
in regard to the salaries or general policies of the Corporation. The
Executive Committee, subject to the above limitations, shall have power to fix
the salaries of all Officers and Employees of the Corporation; and to prescribe
the powers and duties, subject to the approval of the Board of Directors, of
all other Officers of the Corporation, except insofar as such powers and duties
may be prescribed by the Bylaws of the Corporation.
ARTICLE V. OFFICERS
SECTION 1. OFFICERS. The Officers of the Corporation shall be a Chairman
of the Board, a Chairman of the Executive Committee, a President, a Treasurer,
and a Secretary; and, where elected, one (1) or more Vice Presidents and the
holders of such other offices as may be established in accordance with the
provisions of Section 3 of this Article. Any two (2) or more offices may be
held by the same person, provided only that the same person shall not hold the
offices of President and Secretary.
SECTION 2. ELECTION, TERM OF OFFICE, AND QUALIFICATIONS. The Officers
shall be elected annually by the Board of Directors as soon as practicable
after the annual election of Directors in each year. Each Officer shall hold
office until his successor shall have been duly chosen and shall qualify; or
until his death, resignation, or removal in the manner hereinafter provided.
<PAGE> 11
SECTION 3. ADDITIONAL OFFICERS. The Board of Directors may from time to
time establish offices in addition to those designated in Section 1 of this
Article with such duties as are provided in these Bylaws, or as they may from
time to time determine.
SECTION 4. REMOVAL. Any Officer may be removed, either with or without
cause, by Resolution declaring such removal to be in the best interests of the
Corporation and adopted at any regular or special meeting of the Board of
Directors by a majority of the Directors then in office. Any such removal
shall be without prejudice to the recovery of damages for breach of contract
rights, if any, of the person removed. Election or appointment of an Officer
or Agent shall not of itself, however, create contract rights.
SECTION 5. RESIGNATIONS. Any Officer may resign at any time by giving
written notice to the Board of Directors or the Chairman of the Board or the
President or the Secretary of the Corporation. Any such resignation shall take
effect at the date of receipt of such notice or at any later time therein
specified; and unless otherwise specified, the acceptance of such resignation
shall not be necessary to make it effective. However, no resignation
hereunder, or the acceptance thereof by the Board of Directors, shall prejudice
the contract or other rights, if any, of the Corporation with respect to the
person resigning.
SECTION 6. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled for
the unexpired portion of the term by the Board of Directors.
SECTION 7. COMPENSATION. Salaries or other compensation of the Officers
may be fixed from time to time by the Board of Directors or in such manner as
it shall determine. No Officer shall be prevented from receiving his salary by
reason of the fact that he is also a Director of the Corporation.
SECTION 8. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall hold his office for the current year for which the Board of Directors, of
which he shall be a member, was elected, and until his successor is elected,
unless he shall resign, become disqualified, or be removed by the Board. He
shall preside over the meetings of the Board of Directors and shall supervise
the carrying out of the policies adopted or approved by the Board. He shall
also be the Chief Executive Officer of the Corporation, and shall exercise
general supervision over the business and affairs and personnel of the
Corporation. He shall exercise such other powers and duties as shall from time
to time be prescribed by the Board of Directors. He shall preside at all
meetings of Stockholders and may appoint Inspectors to oversee the voting of
Stockholders.
SECTION 9. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the
Executive Committee shall hold his office for the current year for
<PAGE> 12
which the Board of Directors, of which he shall be a member, was elected, and
until his successor is elected, unless he shall resign, become disqualified, or
be removed by the Board. He shall preside at all meetings of the Executive
Committee and shall have general executive powers, as well as the specific
powers conferred by these Bylaws. He shall, subject to the authority granted to
the Chairman of the Board, have general supervision over the business and
affairs of the Corporation; and in the absence of the Chairman of the Board,
the powers of the Chairman of the Board shall be vested in the Chairman of the
Executive Committee. He shall exercise such other powers and duties as shall
from time to time be prescribed by the Board of Directors.
SECTION 10. PRESIDENT. The President shall hold his office for the
current year for which the Board of Directors, of which he shall be a member,
was elected, and until his successor is elected, unless he shall resign, become
disqualified, or be removed by the Board. He shall, subject to the authority
granted to the Chairman of the Board and the Chairman of the Executive
Committee, have general supervision over the business and affairs of the
Corporation, and have such powers as are usually incident to the office of
President. He shall exercise such other powers and duties as shall from time
to time be prescribed by the Board of Directors.
SECTION 11. THE VICE PRESIDENTS. The Vice Presidents shall perform such
duties as from time to time may be assigned to them by the Board of Directors
or by any duly authorized committee of Directors or by the Chairman of the
Board, and shall have such other powers and authorities as are conferred upon
them elsewhere in these Bylaws.
SECTION 12. TREASURER. Except as may otherwise be specifically provided
by the Board of Directors or any duly authorized committee thereof, the
Treasurer shall have the custody of and be responsible for all funds and
securities of the Corporation; receive and receipt for money paid to the
Corporation from any source whatsoever; deposit all such monies in the name of
the Corporation in such banks, trust companies, or other depositaries as shall
be selected in accordance with the provisions of these Bylaws; against proper
vouchers, cause such funds to be disbursed by check or draft on the authorized
depositaries of the Corporation, signed in such manner as shall be determined
in accordance with the provisions of these Bylaws; regularly enter or cause to
be entered in books to be kept by him or under his direction, full and adequate
accounts of all money received and paid by him for account of the Corporation;
in general, perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Board of
Directors or by any duly authorized committee of Directors or by the Chairman
of the Board; and have such powers and authorities as are conferred upon him
elsewhere in these Bylaws.
<PAGE> 13
SECTION 13. SECRETARY. The Secretary shall act as Secretary of all
meetings of the Stockholders and of the Board of Directors of the Corporation;
shall keep the minutes thereof in the proper books to be provided for that
purpose; shall see that all notices required to be given by the Corporation are
duly given and served; shall be the custodian of the seal of the Corporation,
and shall affix the seal or cause it to be affixed to all documents, the
execution of which on behalf of the Corporation under its corporate seal is
duly authorized in accordance with the provisions of these Bylaws; shall have
charge of the books, records, and papers of the Corporation relating to its
organization and management as a corporation; and shall see that any reports or
statements relating thereto, required by law or otherwise, are properly kept
and filed; shall, in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or by any duly authorized committee of Directors or by
the Chairman of the Board; and shall have such other powers and authorities as
are conferred upon him elsewhere in these Bylaws.
SECTION 14. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Treasurer and by the Secretary, respectively,
or by the Board of Directors or by any duly authorized committee of Directors
or by the Chairman of the Board; and shall have such other powers and
authorities as are conferred upon them elsewhere in these Bylaws.
SECTION 15. CERTAIN OFFICERS TO GIVE BONDS. Every Officer, Agent, or
Employee of the Corporation who may receive, handle, or disburse money for its
account; or who may have any of the Corporation's property in his custody, or
be responsible for its safety or preservation, may be required in the
discretion of the Board of Directors to give bond in such sum and with such
sureties and in such form as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the
restoration to the Corporation, in the event of his death, resignation, or
removal from office, of all books, papers, vouchers, monies, and other property
of whatsoever kind in his custody belonging to the Corporation.
ARTICLE VI. INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHERS
SECTION 1. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the Corporation), by reason of the fact that he is or was a Director, Officer,
Employee, or Agent of the Corporation; or is or was serving at the request of
the Corporation as a Director,
<PAGE> 14
Officer, Employee, or Agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation; and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Corporation; or
with respect to any criminal action or proceeding, the person had reasonable
cause to believe that his conduct was unlawful.
SECTION 2. The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
Director, Officer, Employee, or Agent of the Corporation; or is or was serving
at the request of the Corporation as a Director, Officer, Employee, or Agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation; and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for willful
misfeasance, bad faith, gross negligence, or reckless disregard in the
performance of his duty to the Corporation, unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
SECTION 3. To the extent that a Director, Officer, Employee, or Agent of
the Corporation has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in Sections 1 and 2 of this
Article; or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 4. Any indemnification under Sections 1 and 2 of this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the Director,
Officer, Employee, or Agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Sections 1 and 2 of this
<PAGE> 15
Article. Such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to such
action, suit, or proceeding; or (2) if such a quorum is not obtainable, or even
if obtainable, a quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion; or (3) by the Stockholders.
SECTION 5. Expenses incurred in defending a civil or criminal action,
suit, or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit, or proceeding as authorized by the Board of
Directors in the specific case, upon receipt of an undertaking by or on behalf
of the Director, Officer, Employee, or Agent to repay such amount, unless it
shall ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in this Article.
SECTION 6. The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any Statutes, Bylaws, Agreement, vote of Stockholders or
disinterested Directors, or otherwise, both as to action in his official
capacity and as to action in other capacity while holding such office. The
indemnification provided by this Article shall continue as to a person who has
ceased to be a Director, Officer, Employee, or Agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
SECTION 7. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, Officer, Employee,
or Agent of the Corporation; or is or was serving at the request of the
Corporation as a Director, Officer, Employee, or Agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of the General
Corporation Law of the State of Delaware or of these Bylaws.
ARTICLE VII. MISCELLANEOUS
SECTION 1. SEAL. The corporate seal of the Corporation shall contain the
name of the Corporation, the year of its creation, and shall be in such form as
may be approved by the Board of Directors.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall begin
on January 1 and end on December 31.
SECTION 3. VOTING OF STOCK OR OTHER SECURITIES HELD.
Unless otherwise provided by Resolution of the Board of Directors, the Chairman
<PAGE> 16
of the Board and the President, in the name and on behalf of this Corporation,
shall each be empowered to cast the votes which this Corporation may be
entitled to cast as a Stockholder or otherwise in any other corporation, any of
whose stock or securities may be held by this Corporation, at meetings of the
holders of the stock or other securities of such corporation; to consent in
writing to any action by any such other corporation; and to execute on behalf
of this Corporation and under its corporate seal, or otherwise, such written
proxies, consents, waivers, or other instruments that he may deem necessary or
proper in the premises.
SECTION 4. CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange, and other orders or obligations for the payment
of money shall be signed by such Officer or Officers, or person or persons, as
the Board by Resolution shall from time to time designate.
ARTICLE VIII. AMENDMENTS
SECTION 1. BY THE DIRECTORS. The Board of Directors by a majority vote
thereof shall have the power to make, alter, amend, or repeal the Bylaws of the
Corporation at any regular or special meeting of the Board. This power shall
not be exercised by the Executive Committee or any other committee.
SECTION 2. BY THE STOCKHOLDERS. All Bylaws shall be subject to
amendment, alteration, or repeal by the Stockholders entitled to vote at any
annual or special meeting. The Stockholders, at any annual or special meeting,
may provide that certain Bylaws by them adopted, approved, or designated may
not be amended, altered, or repealed except by a certain specified percentage
in interest of the Stockholders, or by a certain specified percentage in
interest of a particular class of Stockholders.
1998 Annual Report
National Bancorp of Alaska, Inc.
<PAGE> Cover
National Bancorp of Alaska
1998 Annual Report
Investing In Your Life
(Photo of man at store checkout, handing woman a Visa Check Card to pay for
purchase.)
(Photo of man and woman in front of Cups Cafe, holding coffee mugs in their
hands.)
(Photo of two young girls in Alaska Native dance garments.)
(Photo of Man using mining equipment.)
<PAGE> Inside Cover
Investing In Your Life
Throughout the bank, we continue to focus on being Alaska's premier financial
services company. We believe that we can maintain this position by delivering
value, convenience and a customer experience that helps Alaskans to reach their
financial goals. To illustrate our commitment to these concepts, this year's
annual report features our new advertising theme line, "Investing in Your
Life."
Each day, we invest in the lives of Alaskans by delivering products and
services that meet the needs of individuals in every life stage and businesses
in all industries. We meet these needs by providing the option for customers
to access services by phone and computer as well as through the most extensive
branch and ATM network in the state. We continually evaluate our products and
services to ensure that we are offering the best.
Through employee involvement and an active contribution program, we invest in
Alaska's economy, heritage, education, families and more. In 1998 we
contributed nearly $1.5 million to nonprofit programs and activities around the
state. NBA staff at every level are encouraged to volunteer their time and
energy to similar organizations.
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.
(Caption for decorative design on top of inside cover through pages 19 and
pages 47 through back inside cover)
The drawing used throughout this report depicts the front of Chief Annahoots
Clan House in Sitka, by Francis Wieser from a photograph by Edward Curtis taken
during the 1898 Harriman Expedition. The artwork is from the collection of
National Bank of Alaska's Heritage Library Museum.
(Photo of dog mushing team and mountains.)
(Photo of boy and girl with woman at kids voting table.)
(Photo of older couple at airport with airline tickets in hand.)
<PAGE> 1
Contents
National Bancorp of Alaska
1998 Annual Report
2 Message to Our Shareholders
It was another strong year for National Bank of Alaska, with record earnings
for the 10th straight year. In the message to our shareholders, Chairman Ed
Rasmuson and President Richard Strutz share financial and operational
highlights.
4 Investing in Your Life
Each day National Bank of Alaska invests in the lives of Alaskans by delivering
products and services that meet the needs of individuals in every life stage
and businesses in all industries. Our employees are involved in their
communities and we have an active contribution program. This section provides
an overview of the bank's many efforts in these areas.
9 Alaska Industry Reviews
With branch offices throughout the state, National Bank of Alaska meets the
financial needs of customers in Alaska's many diverse industries. In this
section, our team of expert bankers provides highlights for each industry and a
look at what's in store for the coming year.
19 Financial Highlights
In this section, National Bank of Alaska's financial experts outline details of
the bank's 1998 performance.
47 Listing of Officers
A complete listing of National Bank of Alaska's board of directors, officers
and its statewide advisory boards.
(Photo of mother in sports utility vehicle with son and daughter wearing hockey
equipment.)
(Photo of man and woman giving presentation about Year 2000 to audience.)
(Photo of construction inside the Elmendorf Air Force Base Medical Center.)
<PAGE> 2
To Our Shareholders, Customers and Friends:
We are pleased to report that 1998 was another outstanding year for National
Bank of Alaska. For the 10th year in a row, we posted record earnings. Net
income for the year was $55.4 million, an increase of 8% over 1997. Deposits
are at $2.1 billion, more than 8% above last year. Low interest rates have
provided a good environment for lending and many customers have taken advantage
of this opportunity for business loans, personal loans and home loans
(particularly home loan refinancing).
We believe our opportunities to add new bank services for our customers and
support growth in our current banking products will not require significant
additional capital investment. With strong equity position and our history of
solid profitability, we felt comfortable this year increasing cash dividends to
shareholders by 10%. In addition, we continued our stock buyback program.
During 1998, we repurchased 415,572 shares, bringing our total repurchase
shares to 1,287,763.
During 1998, we continued investing through a variety of limited
partnerships with sophisticated investment management firms who focus on making
equity investments in companies outside the banking industry. At present, our
investments in these limited partnerships total $71.4 million. These limited
partnerships have terms of five to 10 years, with prospective returns that we
could not achieve through our daily banking practices. Profits realized from
these investments, being capital gains, come at irregular intervals. The
results during 1998 are summarized in the Financial Highlights section on pages
36 and 43.
Throughout the bank, we continue to focus on being Alaska's premier
financial services company. We are committed to maintaining this position by
delivering value and convenience to our customers as we help them meet their
financial goals. Our annual report theme, "Investing In Your Life,"
illustrates this commitment.
In 1998, we invested in our customers by focusing on "convenience" products
such as PC Banking, Visa Check Card, Loan by Phone and Telephone Teller. In
June, we moved our flagship Fourth Avenue Branch to the more conveniently-
located Anchorage 5th Avenue Mall, and in September we opened a second in-store
branch in Anchorage's midtown Wal-Mart. We continually talk to customers and
evaluate our products and services to ensure that we are offering the best.
Please take a few minutes to read about these and other efforts in the
following pages.
National Bank of Alaska and our customers continued to benefit from a
relatively stable Alaskan economy. Overall employment growth for the state was
about 2% in 1998. Construction, tourism, mining and the support industries
were the bright spots this year. The
(Photo of Chairman of the Board Ed Rasmuson and President Richard Strutz.)
(Caption for above photo)
Ed Rasmuson, Chairman of the Board(right), and Richard Strutz, President(left)
<PAGE> 3
petroleum industry suffered from prices that reached a 12-year low at year-end.
And the financial crisis in Asia severely impacted several industries,
particularly international trade, forest products and fishing. (For a complete
overview of each of these industries, please refer to the industry review
pages.) The forecast for 1999 is continued growth, although somewhat slower
than 1998.
With the year 2000 fast approaching, we have ensured that our computer
systems will properly recognize date-sensitive information when the year
changes to 2000. Through the coordination efforts of a bank "Y2K" team, we
have aggressively replaced and retired systems that are not year 2000 compliant
and have worked with all vendors to ensure that outsourced and supplied
services are compliant. We are confident that NBA systems will successfully
handle the millennium date change.
We are proud of the many accomplishments throughout the bank and thank our
employees who have made them possible. We look forward to 1999 and, as always,
we thank you, our shareholders and customers, for your ongoing support.
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 represented in graphs)
(In thousands except per share statistics)
1994 1995 1996 1997 1998
Total Assets $2,344,678 $2,450,921 $2,648,484 $2,777,066 $2,975,580
Shareholders' Equity 312,772 350,320 377,403 398,881 425,645
Net Income 37,520 41,280 46,516 51,257 55,405
Net Income per Share 1.18 1.30 1.46 1.63 1.79
(Side caption to above graphs)
1-Year 5-Year
1998 1997 1994 Change Change
Total Assets $2,975,580 $2,777,066 $2,334,678 7.1% 26.9%
Shareholders' Equity 425,645 398,881 312,772 6.7% 36.1%
Net Income 55,405 51,257 37,520 8.1% 47.7%
Net Income per Share 1.79 1.63 1.18 9.8% 51.7%
<PAGE> 4
Investing in Your Life
Investing in Personal Finances
At NBA, we provide comprehensive, one-stop financial services. We offer a
variety of products and services to meet the needs of our diverse customers
throughout the state. We recognize that individuals in different life stages
have unique financial needs and we are committed to providing the services they
need -- along with service second to none. The following are some examples of
our investment in the financial lives of individuals:
* We offer the most extensive branch and automated teller machine (ATM)
network in the state, with more than 50 branches and 120 ATMs.
* Personal Bankers in all our branches are trained to meet with customers,
identify their financial needs and offer personalized solutions. A Personal
Banker can help customers open deposit accounts, obtain a personal or home
loan, access money through an automated teller machine (ATM) or debit card,
invest funds for education or retirement, or assist with estate planning.
* When the banker cannot provide specific assistance in an area, such as
investment or trust services, he or she serves as a liaison between the
customer and a department of experts.
* For those who prefer the convenience of automated services, we offer
Telephone Teller (customers can get information on their checking and savings
accounts, transfer funds between NBA accounts and obtain deposit rate
information), Loan by Phone and PC Banking/PC Bill Pay. Automated information
is also available for home loans and Visa credit cards. We also have a website
(www.nationalbankofalaska.com), with information on all bank products and
services.
We continually evaluate our product offerings to ensure that we provide the
services our customers need and want. In 1999, we will offer check imaging and
an Internet-based home banking product. We also plan to offer insurance
products through the acquisition of two insurance companies.
Investing in Business
National Bank of Alaska provides a package of services to meet the financial
needs of every business -- small or large, in rural Alaska or a center of
commerce, new or well-established. Our experienced staff is dedicated to
working with each customer to determine their needs and offer cost-effective
financial solutions.
(Photo of mother in sports utility vehicle with son and daughter wearing hockey
equipment.)
(Photo of man at store checkout, handing woman a Visa Check Card to pay for
purchase.)
(Photo of teenage girl on telephone.)
(Photo of older couple at airport with airline tickets in hand.)
(Caption for above photos)
Alaskans have unique lifestyles. At NBA, we believe financial services should
be available to meet individual needs.
<PAGE> 5
Our investment in Alaska's businesses includes the following:
* Business Bankers provide assistance with checking and savings accounts,
business loans and lines of credit, credit cards, debit cards and more. They
work closely with each customer to determine their needs and rely on experts in
several specialized departments as needed.
* For customers with sophisticated financial needs, Business Bankers can
connect them to department experts or serve as a liaison with these staff
members. Our customers benefit from specialized areas including Cash
Management Services to help concentrate or transfer funds 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.
* For the small business owner, staff at our Small Business Center in
Anchorage serve as an excellent resource and sounding board. Department staff
members are lending experts who work closely with local community resources
such as the U.S. Small Business Administration, Small Business Development
Center and others.
* We continually review our loan application and approval process to ensure
that it effectively and efficiently meets the needs of customers.
Investing in Education
NBA strongly supports education throughout the state. Financial education
is a top priority and NBA employees participate in outreach in a variety of
ways. We also support organizations and activities that encourage individuals
to develop lifelong learning habits, as well as leadership skills. The bank's
investment in education includes the following:
* NBA contributes to scholarship funds at each of Alaska's universities,
including Alaska Pacific University, Sheldon Jackson College and the University
of Alaska Anchorage, Fairbanks and Southeast. We also support several
scholarships through Native corporations and local high schools.
* NBA's Bank on U program is a unique partnership where financially
disadvantaged students have the opportunity to work in a business setting with
banking professionals. In addition to their supervisor, they are paired with
an NBA mentor who meets with them weekly to discuss their progress at school
and work. Students who successfully complete the program receive scholarship
money to attend the university or vocational school of their choice.
(Photo of man working at computer in a paint store.)
(Photo of man standing next to propeller of airplane.)
(Photo of man and woman in front of Cups Cafe, holding coffee mugs in their
hands.)
(Photo of woman helping boy at computer.)
(Caption for above photos)
Businesses around the state have benefited from the expertise of NBA bank
officers. Above, a Bank on U student meets with his NBA advisor.
<PAGE> 6
* The bank has 14 school-business partnerships in Anchorage where specific
branches partner with a school. Partnership agreements are written based on
branch resources and school needs. They include activities such as tours of
the branches and teaching "Basic Banking" seminars on topics ranging from an
introduction to banking, saving and budgeting principles, managing a checking
account, principles of credit or buying a home. Branches also display school
work, mentor students or read with kids.
* Last fall, NBA's Russian Jack Branch piloted a student-run bank at East
High School. Called Bank Within East, the program includes extensive training
on bank products and services, application and interviewing skills, and sales
and service techniques. Students selected for positions in the branch receive
job skills training as well.
* The Sand Lake Branch in Anchorage continues to support a School Savings
Program at Sand Lake Elementary School. Students participate in the program by
opening a bank account and making deposits weekly at the school. Through the
Sand Lake Community School, parent volunteers collect the deposits, log them
onto a tracking program provided by a nonprofit organization "Save for
America," and initiate an electronic deposit to the students' accounts. The
Sand Lake teachers and NBA staff supplement the program with information about
healthy saving and budgeting habits.
* NBA employees throughout the state participate extensively in Junior
Achievement's school education programs.
* NBA's Heritage Library and Museum is a frequent site for student field
trips. Visitors to the bank may notice students scattered around the library,
engrossed in a culturally enlightening activity.
* We also sponsor numerous educational activities and organizations such as
Kids Voting, Prince William Sound Science Center and the Alaska SeaLife Center.
Investing in Families
National Bank of Alaska supports organizations and activities that focus on
the well-being of families and individual Alaskans at every stage of their
lives. We support programs that provide basic health, preventative and safety
services, as well as programs that improve neighborhoods and help families
achieve the dream of safe housing.
Whenever possible, we look for opportunities where our funds can be
leveraged to attract additional community and financial support. NBA's
investment in families includes the following:
* The bank matches $.50 for each $1.00 an employee contributes to the United
Way.
(Photo of teenage boy and girl outside of Bank Within East branch.)
(Photo of two girls and woman at table accepting a deposit from a girl at Sand
Lake Elementary School.)
(Photo of boy and girl with woman at kids voting table.)
(Caption for above photos)
NBA's educational outreach efforts include school banking programs as well as
support for educational activities and associations.
<PAGE> 7
Through employee fundraising efforts and this matching program, we gave more
than $100,000 to United Way agencies in Anchorage, Fairbanks, Mat-Su,
Kenai/Soldotna, Southeast, Valdez and Seattle. In 1998, we gave an additional
$100,000 to United Way of Anchorage to match new dollars in the Leadership
Giving campaign. This generated nearly $300,000 in new contributions for the
campaign.
* We actively support organizations dedicated to providing affordable and
safe housing for low-income Alaskans. In addition to monetary contributions,
employees participate in building or renovating homes for organizations such as
Habitat for Humanity and Christmas in May.
* We fund a variety of health-related organizations, including chapters of
the American Lung Association, American Cancer Society, American Red Cross,
Alzheimer's Association, Blood Bank, Diabetes Association, Hospice, March of
Dimes, etc.
* We work closely with organizations that provide for basic needs such as
shelter, food, clothing or crisis response. Some of these agencies include
Catholic Social Services, Food Bank of Alaska, Anchorage Gospel Rescue Mission
and Women's Resource and Crisis Centers.
* We sponsor events and activities through service organizations such as
Rotary Clubs, Lions Clubs, Soroptimists Clubs, Elks Clubs and American Legion.
* We support programs for youth, such as Boy Scouts, Girl Scouts, Camp Fire
Boys and Girls, and Big Brothers and Sisters. We also sponsor various youth
athletic teams, including hockey, softball, soccer, basketball, etc.
Investing In Alaska's Heritage
National Bank of Alaska believes that arts and culture experiences are basic
to one's life. The focus of our support is to make arts experiences accessible
and meaningful to more people, and to promote intercultural relationships among
and within communities. NBA also supports outreach efforts that offer exposure
to the arts and cultural experiences for underserved groups and activities that
nourish the traditions and spirit of the Native people of Alaska.
NBA invests in a variety of arts organizations each year:
* We support the performing arts, including symphony orchestras, non-
commercial theatre and dance groups, concert associations, choruses and more.
* We support cultural events and exhibits, including local and state fairs,
community festivals, local libraries and the Alaska Zoo.
* We participate in events that encourage multicultural appreciation,
including activities sponsored by groups such as the African American
Historical Society, Alaska
(Photo of grandmother reading to granddaughter by fireplace.)
(Photo of woman taking man's blood pressure at a table during the Alaska Health
Fair.)
(Photo of dog mushing team and mountains.)
(Caption for above photos)
NBA contributes to numerous organizations and activities that are dedicated to
the well-being of Alaskan families. Above, dog mushing is a long-standing
Alaskan tradition supported by NBA.
<PAGE> 8
Chinese Association, Filipino American National Historical Society, Latino
Lions Club, Sons of Norway, etc.
* We help preserve Alaska and Native history and culture by contributing to
organizations and events such as local museums and historical societies, the
Alaska Native Heritage Center, Eskimo Indian Olympics and the Iditarod Trail
Sled Dog Race.
* The Heritage Library and Museum, which opened in 1968, was created as a
way for NBA to share some of the arts of Alaska's past that the bank has
accumulated through the years and to express an ongoing commitment to the state
and its people. The museum is open weekdays, noon to 4:00 p.m., with exhibits
by Alaskan artists, and Native artifacts including clothing, hunting gear,
cooking utensils, tools and toys. The museum curator is available to conduct
educational tours of the library for school-age students throughout the year,
and the museum receives many visitors from Alaska and outside of the state.
Investing in a Healthy Economy
The health and strength of NBA depend on the vitality of the communities we
serve. To this end, we focus our development efforts on educating and
nurturing the business efforts of our partners in Alaska.
We invest in a healthy economy in numerous ways, including the following:
* NBA participates in outreach efforts for minorities, low-income and rural
organizations and individuals interested in pursuing business goals. We support
organizations seeking to empower underserved groups in the business community.
* We sponsor seminars and loan funds for minorities, women and underserved
groups seeking information about business opportunities (such as the Rural
Small Business Conference).
* We work closely with nonprofit economic development corporations and
programs throughout the state.
* NBA supports a variety of organizations that help preserve our diverse
natural environment. We particularly sponsor efforts that help provide
interactive educational opportunities.
* We participate in and support local and state Chambers of Commerce and
industry associations, such as the Alaska Visitors Association, Alaska Forest
Association, Alaska Miners Association, etc.
* Bank staff members work closely with our customers and the general public
on issues such as the year 2000 date change. In 1998, NBA partnered with the
U.S. Small Business Administration and conducted Y2K presentations throughout
the state.
(Photo of man kicking hanging ball in a gym at the Eskimo Indian Olympics.)
(Photo of woman seated with books in the Heritage Library.)
(Photo of man and woman giving presentation about Year 2000 to audience.)
(Photo of three men and a woman holding award plaques at the Alaska Federation
of Natives Convention.)
(Caption for above photos)
The bank helps preserve Alaska and Native history and strives to make arts
experiences accessible to all. We invest in a healthy economy by fostering
discussions on topics such as the Year 2000 or business in rural Alaska.
<PAGE> 9
ALASKA INDUSTRY REVIEWS
CONSTRUCTION LEADS ECONOMIC GROWTH
By Jim McCormack, Vice President
Construction continued to play a stable role in the state's economy.
Following the trend of the past decade, the construction industry now has a
broad base that supports the increasing economic diversity of Alaska (a shift
from the "boom and bust" construction cycles of prior years). Statewide
construction employment peaked at 17,000 persons in August. Here, we've
outlined highlights of 1998.
Federal Government:
* Federal funding through the U.S. Army Corps of Engineers was $235 million
in 1998 (includes new construction on military bases, environmental cleanup at
statewide installations and civilian boat harbor construction).
* In April, construction started on a $32-million commissary and AAFES store
on Elmendorf Air Force Base. (It will be the largest military commissary in the
world.)
* A $106.5-million ICBM radar warning system is underway at Clear Air
Station.
* $16.8 million was awarded for a hangar and $11 million for a hydrant fuel
system at Elmendorf Air Force Base.
* Family housing revitalization projects are underway at Fort Richardson
($7.2 million) and Fort Wainwright ( $6.3 million).
* King Cove started a $9-million boat harbor, to double the size of existing
moorage.
State Government:
* The State Department of Transportation and Public Facilities funded $238
million in 1998. The DOT budget includes capital budget funding and federal
matching on highway construction projects; in addition the state leverages
capital construction projects through the Alaska Industrial Development and
Export Authority (AIDEA) and the Alaska Housing Finance Corporation (AHFC).
* The $56-million Alaska SeaLife Center opened in Seward (employing up to 55
full-time employees and attracting 275,000 people annually).
* To accommodate the increased population of the Palmer/Wasilla area, the
state began a four-year, $39-million series of road-widening projects on the
Parks Highway.
* $13 million is being spent to reconstruct and extend Ketchikan's Third
Avenue.
Local Government:
* The $15.6-million Kodiak Fisheries Research Center was completed.
* Unalaska funded $11 million for construction of a public works building,
museum and library.
(Photo of Alaska SeaLife Center.)
(Photo of construction inside the Elmendorf Air Force Base Medical Center.)
(Captions for the above photos)
The $56-million Alaska SeaLife Center opened its doors in Seward in April of
1998.
The main construction contract for the new medical facility at Elmendorf Air
Force Base was completed in December of 1998.
<PAGE> 10
Private Sector
* The Alaska Seafood Center started construction on a $125-million facility
in Anchorage. (The state, through AIDEA, will have a $50-million equity
investment.)
* The Alaska Native Heritage Center entered the second phase of construction
on its 28,000-square-foot facility in east Anchorage.
* Three hotel projects were underway in Anchorage: the 20-story, 350-room
Marriott Hotel; a 112-room Hawthorne Suites with adjoining Benihana of Tokyo
Restaurant; and a 148-unit NANA/Marriott Residence Inn.
* The 142,000-square-foot Anchorage Home Depot opened in April.
* Residential building permits for 1998 were: 1,164 in Anchorage, 149 in
Fairbanks, 75 in Juneau and 36 in Ketchikan.
FISHING HARVEST UP, VALUE DOWN
By Fred Richard, Senior Vice President
The 1998 salmon harvest was the eighth largest in history and 20% higher
than 1997. Even so, the ex-vessel value was only slightly higher than 1997.
Pinks and chums accounted for 75% of the 1998 harvest poundage, the highest
percentage ever. Both the Bristol Bay king crab and the statewide halibut
quotas increased significantly this year.
The fishing industry continues to experience difficult times. Increasing
competition from farmed salmon, higher production of salmon, crab and herring
from Russia and economic concerns in Asian countries are creating price
pressures on Alaska-produced products. The following are some highlights of the
1998 fishing season.
Prices
* The ex-vessel value of the salmon harvest was $280 million in 1998, well
below the prior four-year average of $390 million.
* Halibut prices were low most of the season due to a higher quota and a
large carryover of inventory. Prices showed increasing strength as inventory
dropped.
* The herring fishery experienced its second year of low ex-vessel prices.
The market price for herring roe dropped significantly with fairly good
production and diminished Japanese demand.
* Due to poor harvest levels of cod on the east coast, Alaskan cod fishermen
enjoyed gradually increasing cod prices during 1998. The outlook for cod
prices and markets in Alaska remains strong.
* With an increased king crab quota in Bristol Bay, the price per pound
dropped significantly, although the total value of the harvest was higher than
1997.
Production
* The Bristol Bay sockeye fishery experienced its second failure in a row.
The forecast for 1999 is slightly better, although still less than half of the
29-million-fish-average harvest for the last decade.
(Photo of two workers on a crab boat.)
(Photo of a worker with halibut in a net.)
(Captions for the above photos)
With an increased king crab quota in Bristol Bay, the price per pound dropped
significantly, although the value of the harvest was higher than 1997.
Halibut prices were also lower, due to a higher quota and a large carryover of
inventory.
<PAGE> 11
* The Kodiak harvest of 22 million of all species was much higher than
forecast.
* The Yukon River king salmon run was the worst in history and its chum run
was the lowest in five years.
* The statewide halibut quota of 58 million pounds was the second-largest
ever established by the International Pacific Halibut Commission.
* Pollock production focused on fillets rather than surimi due to weak
market conditions in Asia and the worldwide lack of whitefish.
* Most of the market for crab was domestic. The opilio crab harvest was
relatively strong and the 1999 harvest should also be good. Bairdi crab
fishing remained closed. (The population is at the lowest historical level
recorded by the National Marine Fisheries Service surveys.)
Current Developments
* In December, National Marine Fishery Service (NMFS) biologists concluded
that the commercial harvest of pollock jeopardizes the viability of the Stellar
Sea Lion, an endangered species. Historically, the majority of the pollock
harvest, both in the Bering Sea and the Gulf of Alaska, is realized within
areas newly identified as Critical Stellar Sea Lion Habitat. In an effort to
reverse the decline of the Stellar Sea Lion, NMFS significantly reduced
allowable pollock harvest in these traditional fishing grounds.
* The American Fisheries Act will dramatically change the structure of the
Bering Sea bottom fishery, allocating more fishing rights to shore-based
operations that process in Alaska and barring nine foreign-built vessels from
Alaska waters. The Bering Sea pollock fishery was reallocated with 50% of the
harvest going to shore plants, 40% to factory trawlers and 10% to offshore
processors.
FOREST PRODUCTS INDUSTRY FACES CHALLENGES
By Larry Cooper, Vice President
The sharp economic decline in Asian Pacific countries, primarily Japan and
South Korea, has directly affected the forest products industry in Alaska
through drastically reduced prices. At the same time, the amount of timber
available for harvest in Alaska remains low. The industry continues to push
the federal government to increase timber sales, particularly in the Tongass
National Forest.
Despite the challenges, industry experts see hope for the future through new
markets and by manufacturing "value-added" products. Here are some 1998
highlights.
* A lawsuit has been filed by Southeast communities and industry advocates
to pursue corrections to the Tongass Land Management Plan. The goal is to
ensure a timber sales program allowing operators to transition from a pulp-
based industry to a saw- and manufactured-product industry.
* Ketchikan Pulp Company continues to operate two sawmills, one on Annette
Island and the other at Ward Cove. They are also considering construction of a
veneer plant on the former pulpmill site in Ketchikan using lower grades of
Western hemlock.
(Photo of man in hardhat with large log.)
(Photo of sawmill in Wrangell.)
(Captions for above photos)
Forest products industry officials see hope for the future with new markets and
manufacturing of value-added products.
In 1998, Silver Bay Logging, Inc. acquired the Wrangell Sawmill and re-opened
the mill, which was formerly the largest employer in the community.
<PAGE> 12
* Silver Bay Logging Inc. acquired the Wrangell Sawmill and re-opened the
mill, which was formerly the largest employer in that community. They are now
manufacturing rail ties and lumber for West Coast markets.
* Viking Lumber in Klawock expanded and is producing window and door stock
and other grades of shop lumber for re-manufacture in the Lower 48. They are
also selling lumber to European markets -- a first for an Alaskan sawmill.
* The University of Alaska awarded the Gulf II sale in the Cape Yakataga
area. It is expected that University and Mental Health Trust lands will be key
providers of timber supply in the future as federal sources continue to shrink.
* The spruce bark beetle infestation continues to rapidly expand through
Southcentral. Land owners are realizing the danger and removing dead and dying
trees to reduce the threat of fire and initiate the renewal of the forest.
* Gates Construction Company is completing construction of a dimensional
band sawmill and a studmill south of Ninilchik. They will add a dry kiln and
planer to sell spruce lumber to the Anchorage market.
* Interior sawmills continue to supply lumber to local markets. Several
mills have recently begun producing graded lumber for commercial and government
construction projects.
GOVERNMENT SPENDING PLAYS MAJOR ROLE
By Pete Crandall, Senior Vice President
State government spending continued to play a major role in the Alaska
economy. The Alaska Legislature passed a $2.2-billion state operating budget
for Fiscal Year (FY) 99 that kept state government funding levels about the
same as last year. This was despite concerns over falling oil prices and a
legislative majority that had a five-year plan to cut general fund spending by
$250 million.
In addition, lawmakers approved a plan that increased the state's capital
budget to more than $1 billion in FY99. Legislators planned to use
approximately $700 million from the Constitutional Budget Reserve fund to
balance the budget.
Fiscal Year 1998 was a strong year for the Alaska Permanent Fund, a major
economic factor in the state's economy. The fund's assets grew to a record $25
billion and the fund directly infused $893 million into the state's economy
through the dividend program.
If oil prices continue to remain low and budget short falls continue to be
funded through a declining Constitutional Budget Reserve account, Alaskans will
be faced with decisions on how to manage and fund future state government
budgets. We've highlighted some of the major contributors to the government
sector below.
Alaska Permanent Fund Corporation
* The fund earned $2.6 billion in realized income during the year. For the
first time ever, the state earned more from the Alaska Permanent Fund
investments than it collected in oil revenue.
(Photo of Lael Venta, a resident in the Adelaide Apartments in Anchorage.)
(Photo of C130 plane at Elmendorf Air Force Base.)
(Captions for the above phots)
Alaska Housing Finance Corporation provided loan commitments of nearly $19
million for 515 residential housing units such as the Adelaide Apartments in
Anchorage, which provides special needs housing for tenants like Lael Venta.
The military bases such as Elmendorf Air Force Base in Anchorage are
significant contributors to the state's economy. Elemendorf is home to the Air
Force's largest C130 squadron.
<PAGE> 13
* National Bank of Alaska accepted more than 85,000 electronically-deposited
dividends.
Alaska Industrial Development and Export Authority
* The $976-million state-established lending authority made 1,025 loans to
Alaskan businesses, totalling more than $250 million. The agency's net income
grew to $52.3 million on assets totalling more than $1.3 billion.
* National Bank of Alaska led all other lenders in utilizing the loan
participation program, with 120 loans totalling $93.3 million.
Alaska Housing Finance Corporation
* The self-supporting, non-stock public corporation with assets in excess of
$4.4 billion provided loan commitments of nearly $19 million for 515
residential housing units statewide during 1998.
* AHFC has been authorized to provide funding for maintenance on state-owned
buildings by issuing $200 million in bonds to pay for the improvements.
* National Bank of Alaska was the largest seller/servicer of AHFC home loans
with more than 13,000 loans totalling $1.2 billion.
U.S. Military in Alaska
* With five major bases and more than 18,000 active military personnel, the
military is still a significant contributor to the state's economy. The
Elmendorf Air Force Base's C130 squadron is now the largest in the Air Force.
* Under a military contract with the Alaska Aerospace Development
Corporation in Kodiak, the first missile test launch was performed in Alaska
this year.
INTERNATIONAL TRADE DECLINES
By Seung Choi, Vice President
The Asian economic crisis and the prolonged recession in Japan significantly
dampened Alaska exports in 1998. During the first nine months of 1998, Alaskan
commodities exports decreased in value by an average of 28%. With curtailed
imports from major trading partners, Alaska's total 1998 export value will be
substantially reduced.
Alaska's exports will continue to be affected by the economy in Asian
countries and by the price and supply of world commodities. But many economic
analysts in Asia indicate that their downturn will end in the first quarter of
1999. As their economy improves, the export volume of Alaska will also
improve. International trade and air freight moving to international
destinations through Alaska should continue to benefit the economy of Alaska.
The following overview of Alaska's 1998 exports includes figures for the first
nine months unless otherwise noted.
(Photo of whole salmon and salmon fillets.)
(Pie chart of Alaska's Exports By Country in millions, for first nine months of
1998. See below table of figures represented in chart.)
(In Millions)
Japan $686 44.5%
Korea $239 15.5%
European Countries $206 13.4%
Canada $139 9.0%
China $114 7.4%
Other Countries $99 6.4%
Taiwan $60 3.8%
(Caption for above photo)
The state's leading export continues to be fish products, with sales of $534
million for the first nine months of 1998. Japan was once again Alaska's
leading trading partner, despite a 37% drop in export value.
<PAGE> 14
Exports by Country
* Asian countries are still the biggest market for Alaska exports (72% of
total Alaskan export value). Japan remains Alaska's leading trading partner,
despite a 37% drop in export value. In addition to commodities exports, most
of the international air freight shipped through Alaska goes to Asian
countries. (Please see chart on previous page for breakdown of exports by
country.)
* Alaska's exports to Europe were up 13%, largely due to exports of metal
mining-related products.
Exports by Major Products
* The state's leading export continues to be fish products, with sales of
$534 million for the first nine months of the year. Compared to the value of
fish exports during the same period in 1997 of $690 million, this was a 23%
drop. However, the share of fish products in relation to total exports
increased to 35% compared to 32% in 1997.
* Timber exports also declined, by 61% to $122 million compared to $313
million for the first nine months of 1997.
* Crude oil and other petroleum-related product exports also dropped, by 22%
to $494 million compared to $635 million during the same period in 1997. Most
of the petroleum exports go to Japan, South Korea, China and Taiwan.
* Exports of minerals, mostly zinc and lead ores, dropped by 21%, from $316
million to $249 million.
MINING EXPLORATION AND PRODUCTION UP
By James L. Cloud, Executive Vice President
Despite low metal prices, the overall economic value of mining in Alaska
topped $1 billion for the second year in a row. Year-round-equivalent
employment is estimated at more than 3,900 jobs.
For the second year in a row, exploration expenditures exceeded $55 million.
Development spending tapered off to about $52 million with completion of the
Red Dog mine expansion. The value of metal produced in Alaska dropped
slightly, to about $920 million from $936 million in 1997. The plunge in metal
prices experienced throughout the year was offset by increased production.
Alaska Native landowners continue to enter into exploration and development
agreements with mining firms. Although the majority of land in Alaska is owned
and controlled by the federal government, Alaska still has vast areas open for
mineral exploration. A stable political environment and reported success in
exploration make Alaska a good bet for larger shares of mining exploration
budgets in the future. The following are some of the highlights from the
mining industry in 1998.
Exploration
* Despite lower gold prices, Alaska received a larger share of global
exploration
ECONOMIC VALUE OF THE ALASKA MINING INDUSTRY
(in millions)
1994 1995 1996 1997 Est.1998
Exploration $31 $34 $45 $58 $56
Development $45 $149 $394 $168 $52
Production $508 $537 $590 $936 $920
Total $584 $720 $1,029 $1,162 $1,028
Source: State of Alaska, Division of Mining
Year-Round
Equivalents
1994 1995 1996 1997 Est 1998
Employment 3,083 3,406 3,737 3,862 3,900
(Photo of Man using mining equipment.)
(Caption for Photo and table)
Despite low metal prices, the overall economic value of mining in Alaska topped
$1 billion for the second year in a row.
<PAGE> 15
spending than in the past. International mining companies found increased gold
reserves at prospects such as Sumitomo's Pogo deposit north of Delta Junction,
Placer Dome's Donlin Creek deposit in the Kuskokwim drainage, La Teko
Resources, Ltd.'s True North deposit west of Fort Knox and Novagold Resources'
discovery in the Shotgun Hills south of Donlin.
* Exploration at the Nixon Fork Mine near Flat replaced about a year's
reserves.
* Cominco American resumed exploration at the Pebble Beach gold and copper
project near Illiamna.
* Kinross Gold announced it was buying La Teko Resources, increasing Fort
Knox's possible reserves.
* The State of Alaska continued to fund airborne geophysical studies around
the state. This rather inexpensive effort improved the interest in mine claim
leasing (approximately 21,200 new mining claims staked as of October).
Production
* The economic turmoil in Asia and Russia took its toll on commodity prices,
causing many gold mining firms to cut costs or redirect exploration budgets.
* The Red Dog zinc, lead and silver mine increased production by about 35%.
* Kinross Gold Corporation merged with Amax Gold and acquired the Fort Knox
mine near Fairbanks (which also posted production increases in 1998).
* In Southeast Alaska, Kennecott's Greens Creek Mine on Admiralty Island
increased its silver, zinc and lead reserves through exploration and Sealaska
Corporation put its high-quality calcium carbonate (marble) mine on Prince of
Wales Island into production. Couer d' Alene Mining halted further investment
at its Kensington Mine north of Juneau until gold prices improve significantly.
PETROLEUM INDUSTRY FORECAST IS SOBERING
By Pita Jelley Benz, Vice President
Oil prices dropped to a 12-year low at year-end, casting a pall on Alaska's
oil industry. Prices fell steadily all year due to a combination of an
inventory glut worldwide and decreased demand in developing countries. In the
U.S., demand has also been lower due to warmer-than-average weather.
Forecasters are not predicting any substantive rise in prices in 1999, although
the industry is historically volatile.
Mergers were key news items in 1998. The big story for Alaska is the merger
of British Petroleum and Amoco Corp. Another Alaska player, Exxon, announced
plans to merge with Mobil in 1999. In other acquisition news, Cross Timbers
Oil Co. of Texas purchased Shell's Cook Inlet properties. ARCO merged with
Union Texas Petroleum Corp., its partner in the new Alpine field.
While the short-term outlook for the petroleum industry is bleak, the long-
term prospects are still encouraging. Here are some highlights.
(Photo of mining production equipment.)
(Photo of fabrication construction facility in Anchorage.)
(Captions for the above photos)
The plunge in metal prices experienced throughout 1998 was offset by increased
production.
In the petroleum industry, fabrication and construction of large-scale modules
for the Northstar and Alpine fields continued in Anchorage and Nikiski.
<PAGE> 16
Short-Term Outlook
* Due to prolonged low prices, oil companies and several contractors have
announced layoffs beginning in early 1999. A large percentage of the drilling
rigs are scheduled to be shut down.
* The new Badami Field has produced substantially less oil than planned due
to reservoir problems.
* A number of projects involving smaller satellite fields are being
postponed until prices improve.
Long-Term Outlook
* Alaska remains an industry leader in using technology such as designer
wells, horizontal drilling, multi-lateral completions, extended reach drilling
and drilling through tubing to reduce drilling costs.
* Area-wide leasing, approved in 1997, will add an important degree of
certainty and flexibility to the lease sales program. Under this program, all
the available acreage in an area will come up for sale on a set schedule.
* The Interior Department will reopen a portion of the National Petroleum
Reserve-Alaska to oil and gas leasing beginning in the spring of 1999.
* Fabrication and construction of large-scale modules for the Northstar and
Alpine fields continued in Nikiski and Anchorage. This is the first time
production units on this scale have been constructed in Alaska. Production
schedules are being slowed in the short-run however.
* Forcenergy announced plans to build a new platform for Cook Inlet oil
production (scheduled to be drilling by Fall 1999).
* Anadarko Petroleum Corporation announced that Arctic Slope Regional
Corporation will give Anadarko rights to hunt for oil in the foothills of the
Brooks Range.
* The 1,000th cargo of liquidified natural gas (LNG) was shipped to Japan
from the Kenai Peninsula facility of Phillips Petroleum and Marathon Oil. LNG
has been exported safely since 1969.
SUPPORT INDUSTRY SEES CONTINUED GROWTH
By Margaret Richmond, Vice President
The service sector continues to carry the momentum for employment growth in
Alaska. The State Department of Labor anticipates nearly 10,000 jobs will be
created in the next two years through the service, visitor, transportation,
trade and oil and gas sectors. Employment growth for 1998 was 2.1%.
Although a slower growth rate of 1.5% is expected in 1999, the support
industry will again be the growth catalyst. The service sector anticipates
growth of 3.6% with continued business outsourcing, hotel construction, and
health care projects. The retail trade and transportation sectors will have
overall growth also. The Asian financial crisis
(Photo of ice road construction truck.)
(Photo of man operating off-shore drill.)
(Photo of NANA/Marriott Fairfield Suites hotel under construction.)
(Captions for above photos)
Ice road construction and offshore drilling are just a couple of the innovative
methods that the petroleum industry uses for production.
Construction of the NANA/Marriott Fairfield Suites in Anchorage was completed
in early 1998, adding to a long list of hotels that have recently joined the
support industry.
<PAGE> 17
and low oil prices continue to loom on the horizon; however, Alaska's economy
will remain stable with modest growth. The following are some of the current
and planned developments in the support industry.
Service Sector
* Several mid-priced hotel establishments were built or are under
construction (see Construction Industry overview for details).
* Health care has been stimulated by Alaska's aging population; improving
medical technology; a continued influx of medical professionals to the state;
privatization and ownership changes. HealthSouth, of Alabama, purchased First
Care and Northcare clinics and facilities in Alaska; the Alaska Native Tribal
Health Consortium will complete privatization of the federally-funded Alaska
Native Hospital in January; Providence Alaska Medical Center began a five-year,
$90-million improvement project; and Alaska Regional Hospital completed an $8-
million renovation.
* Personnel and computer services continued to grow, with outsourcing.
* Engineering, architecture and accounting flourished through construction
and oil development projects.
Trade Sector
* Several new businesses opened, including Sullivans Steak House in the
Anchorage 5th Avenue Mall, Home Depot, The GAP, Inc. and Century Theatres.
* Wal-Mart built a new store in Kodiak. In 1999, Wal-Mart will open a store
in Ketchikan and expand to a new location in Wasilla. Fred Meyer will open a
store in Wasilla and has plans for a second store in south Anchorage.
* Carrs and Safeway announced their planned merger, offering a combined 61
locations throughout Alaska.
* At least 20 auto parts locations will open or be acquired by the end of
1999 (players include NAPA Auto Parts, Grand Auto and Shucks' Auto Supply).
Transportation and Communication
* Anchorage International Airport is the top cargo airport in the U.S.,
leading other locations by 30% based on landed weight. Continued growth is
expected at 8% to 12% per year.
* Federal Express opened its $38-million sorting facility addition in
September and private developers are considering additional cargo facilities.
* Anchorage International Airport continues its four-year, $350-million
"Gateway Alaska" plan (for terminal and concourse redevelopment and roads).
* Construction began on a $25-million MAPCO/Lynx cargoport.
* The privatization of ATU Telecommunications will shift 700 employees from
local government to the telecommunications sector.
* Increased use of cell phones and the Internet have ensured that the
communications sector remains a dynamic economic force.
(Photo of airplane being loaded at Federal Express' airport facility.)
(Photo of Alaska Railroad train in operation.)
(Captions for the above photos)
Federal Express opened its $38-million sorting facility addition in September.
The Alaska Railroad celebrated its 75th anniversary in 1998.
<PAGE> 18
TOURISM TRAFFIC CONTINUES TO GROW
By Ben Barrera, Vice President, and Natasha Von Imhof, Assistant Vice President
Although the official 1998 figures from the Department of Tourism are not
available, early estimates are that it was another stellar year, with an 8% to
10% increase over 1997 figures (approximately 1.4 million visitors). However,
it is anticipated that 1999 will mark the first year in a decade that annual
growth will remain flat. Early bookings for the major cruise companies are down
20% to 30% from 1998 figures. It is possible that consumer confidence may have
dropped due to the volatility of the stock market. On the positive side, the
drastic drop in oil prices will benefit the cruise and airline companies by
providing flexibility to reduce their prices if necessary. Below, we've noted
some of the tourism industry issues for 1998 and beyond.
* Visitor satisfaction surveys indicate room for improvement in the wildlife
viewing arena. Approximately 53% of visitors surveyed were not satisfied with
their experience viewing large land mammals. In part, Alaska advertisements
create great expectations in visitors' minds. However, Alaska also lacks
sufficient accessible wildlife viewing areas. Denali, the state's premier
wildlife viewing area, is at capacity. Other quality viewing areas cannot
accommodate large visitor numbers.
* Members of the Alaska Visitors Association are establishing a new
cooperative tourism marketing program using public and private funds and
industry marketing leaders. The program will address the declining state
tourism marketing budget and identify ways to increase private-sector
contributions to improve Alaska's tourism marketing efforts.
* Another developing issue is the influx of hotel rooms in Southcentral
Alaska, especially in Anchorage. By the summer of 1999, hotel capacity will
increase by 1,100 rooms compared to 1997. To match prior occupancy figures, an
additional 250,000 visitors per year are required. Summer occupancy is not a
problem; however, we will see an increase in promoting winter activities.
* The Anchorage Convention and Visitors Bureau (ACVB) and the Anchorage
Economic Development Corporation (AEDC) recognize the value that winter
activities can bring to the state. For instance, snowmobiling brings an
average of $1 billion to states such as Minnesota, Wisconsin and Montana. The
ACVB and AEDC are working aggressively to blend winter activities into the
region's tourism packages. Several long-range snowmobile touring paths are
being considered (i.e. Anchorage to Talkeetna or Kenai), although trails need
to be identified and easements obtained before this can become a reality. The
economic necessity to fill hotel rooms may inspire everyone to work together to
find solutions that will benefit residents as well as guarantee a winter
economic stimulator.
(Photo of cruise ships at port.)
(Photo of snowmobile rider and mountains.)
(Captions for the above photos)
The tourism industry welcomed more than 1.4 million visitors to the state in
1998.
Recognizing the value that winter activities can bring to Alaska, tourism
officials are aggressively working to blend such activities as snowmobiling
into tourism packages.
<PAGE> 19
1998 Financial Highlights
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 Comprehensive Income Page 25
Consolidated Statements of Changes in Shareholders' Equity Page 25
Notes to Consolidated Financial Statements Page 25
Report of Independent Auditors Page 35
Management Discussion of 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 Year 2000 Issue 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)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating Results
Net interest income $142,985 $136,242 $130,413 $120,547 $113,471
Provision for loan losses 4,800 5,400 6,650 (3,100) 2,200
Other income 55,382 48,968 50,627 33,992 35,538
Other expenses 106,545 100,352 102,361 94,688 89,072
- ----------------------------------------------------------------------------------------------------
Income before income taxes 87,022 79,458 72,029 62,951 57,737
Income taxes 31,617 28,201 25,513 21,671 20,217
- ----------------------------------------------------------------------------------------------------
Net income 55,405 51,257 46,516 41,280 37,520
Cash dividends declared $ 17,764 $ 15,651 $ 15,915 $ 13,547 $ 11,953
Per Share Statistics
Net income $1.79 $1.63 $1.46 $1.30 $1.18
Cash dividends declared 0.575 0.50 0.50 0.43 0.38
Stock dividends/split -
declared percent 4-for-1 - - - -
Book value at year-end $13.86 $12.85 $11.89 $10.99 $9.81
Year End Totals
Demand deposits $ 617,532 $ 583,184 $ 539,309 $ 539,714 $ 522,285
Interest-bearing deposits:
NOW 237,245 193,474 174,470 148,896 163,088
Money market savings 291,587 295,088 304,000 291,325 326,386
Time and savings 992,351 909,595 849,274 760,546 735,862
- ----------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,521,183 1,398,157 1,327,744 1,200,767 1,225,336
Total Deposits 2,138,715 1,981,341 1,867,053 1,740,481 1,747,621
Federal funds purchased and securities
sold under agreement to repurchase 375,887 362,626 364,569 325,859 259,983
Loans and lease financing 1,487,263 1,471,461 1,446,978 1,326,840 1,226,164
Investment securities:
U.S. government and agencies 382,748 301,178 317,145 303,304 345,319
State and political subdivisions 20,229 11,864 15,878 9,008 20,239
Other 372,186 296,420 263,450 241,089 213,174
- ----------------------------------------------------------------------------------------------------
Total Investment Securities 775,163 609,462 596,473 553,401 578,732
Securities available for sale 239,325 228,739 253,552 273,391 273,723
Shareholders' equity account 425,645 398,881 377,403 350,320 312,772
Total assets $2,975,580 $2,777,066 $2,648,484 $2,450,921 $2,344,678
- ----------------------------------------------------------------------------------------------------
Other year end statistics:
Number of shares outstanding 30,712,237 7,763,015 7,938,800 7,968,800 7,968,800
Number of shareholders 1,239 1,196 1,199 1,224 1,243
Number of employees 1,098 1,103 1,110 1,101 1,130
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
Ten Year Record-Continued
(For the Years Ended December 31) (In thousands except per share amounts and statistics)
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Operating Results
Net interest income $112,820 $100,763 $93,739 $85,384 $73,411
Provision for loan losses 7,700 4,000 3,000 9,562 14,112
Other income 38,517 38,284 32,875 30,847 37,043
Other expenses 89,571 83,704 82,062 74,889 70,427
- ----------------------------------------------------------------------------------------------------
Income before income taxes 54,066 51,343 41,552 31,780 25,915
Income taxes 18,440 17,316 13,149 6,268 3,199
- ----------------------------------------------------------------------------------------------------
Net income 35,626 34,027 28,403 25,512 22,716
Cash dividends declared $ 11,953 $ 6,774 $ 3,984 $ 3,984 $ 2,988
Per Share Statistics
Net income $1.12 $1.07 $0.89 $0.80 $0.71
Cash dividends declared 0.38 0.21 0.13 0.13 0.10
Stock dividends/split - declared percent - - - 33.33% -
Book value at year-end $9.19 $8.45 $7.59 $6.83 $6.15
Year End Totals
Demand deposits $ 514,667 $ 468,077 $ 415,584 $ 444,761 $ 484,177
Interest-bearing deposits:
NOW 145,057 126,481 122,376 104,106 106,310
Money market savings 266,949 261,134 248,852 216,284 222,601
Time and savings 679,474 680,578 738,178 799,251 868,287
- ----------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits 1,091,480 1,068,193 1,109,406 1,119,641 1,197,198
Total Deposits 1,606,147 1,536,270 1,524,990 1,564,402 1,681,375
Federal funds purchased and securities
sold under agreement to repurchase 283,665 300,335 271,625 245,660 224,005
Loans and lease financing 1,122,570 928,999 874,118 922,505 892,634
Investment securities:
U.S. government and agencies 282,110 382,460 395,401 516,867 588,496
State and political subdivisions 6,773 10,605 4,639 7,257 12,488
Other 215,386 298,322 266,657 262,760 221,954
- ----------------------------------------------------------------------------------------------------
Total Investment Securities 504,269 691,387 666,697 786,884 822,938
Securities available for sale 186,209 154,514 176,341 - -
Shareholders' equity account 292,976 269,303 242,050 217,631 196,103
Total assets $2,207,280 $2,129,965 $2,077,243 $2,063,258 $2,139,923
- ----------------------------------------------------------------------------------------------------
Other year end statistics:
Number of shares outstanding 7,968,800 7,968,800 7,968,800 7,968,800 5,976,600
Number of shareholders 1,279 1,826 1,332 1,351 1,352
Number of employees 1,202 1,137 1,138 1,132 1,146
</TABLE>
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
(For the Years Ended December 31) (In thousands except per share amounts)
1998 1997 1996
Interest Income:
Loans and lease financing including fees $155,113 $149,554 $141,178
Balances with banks 17 38 46
Federal funds sold and securities purchased
under agreement to resell 1,848 3,868 2,265
Investment securities including dividends:
U.S. government 10,245 12,267 12,339
U.S. agencies 27,007 22,841 22,467
States and political subdivisions 706 619 422
Other securities 22,764 19,904 18,814
- ------------------------------------------------------------------------------
Total Interest Income 217,700 209,091 197,531
Interest Expense:
Deposits 56,353 54,649 50,205
Federal funds purchased and securities
sold under agreement to repurchase 18,352 18,188 16,894
Other purchased funds 10 12 19
- ------------------------------------------------------------------------------
Total Interest Expense 74,715 72,849 67,118
- ------------------------------------------------------------------------------
Net Interest Income 142,985 136,242 130,413
Provision for loan losses 4,800 5,400 6,650
- ------------------------------------------------------------------------------
Net Interest Income after Provision
for Loan Losses 138,185 130,842 123,763
Other Income:
Trust department income 2,827 2,534 2,238
Service charges on deposit accounts 13,221 12,496 12,292
Loan servicing fees 9,433 8,175 8,112
Securities transactions 371 345 58
Gains on limited partnership investments 3,475 4,174 6,063
Credit card service fees 6,941 6,968 6,178
Other 19,114 14,276 15,686
- ------------------------------------------------------------------------------
Total Other Income 55,382 48,968 50,627
Other Expense:
Salaries 41,512 38,539 38,251
Profit sharing and other employee benefits 13,135 12,644 11,427
Net occupancy expense of bank premises 7,601 7,540 7,394
Furniture and equipment expense 8,975 9,113 9,267
Other 35,322 32,516 36,022
- ------------------------------------------------------------------------------
Total Other Expense 106,545 100,352 102,361
Income before income taxes 87,022 79,458 72,029
Income taxes 31,617 28,201 25,513
- ------------------------------------------------------------------------------
Net Income $ 55,405 $ 51,257 $ 46,516
==============================================================================
Net income per share $1.79 $1.63 $1.46
==============================================================================
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)
1998 1997
Assets:
Cash and due from banks $ 153,143 $ 155,849
Interest-bearing balances with banks 116 150
Federal funds sold - 100,000
Investment securities:
U.S. agencies 382,748 301,178
State and political subdivisions 20,229 11,864
Other securities 372,186 296,420
- ------------------------------------------------------------------------------
Total Investment Securities 775,163 609,462
(Market value $779,708 at December 31, 1998
and $615,784 at December 31, 1997)
Securities available for sale at market (Cost
$234,854 at December 31, 1998 and $223,614
at December 31, 1997) 239,325 228,739
Loans and lease financing 1,487,263 1,471,461
Reserve for loan losses (24,678) (24,530)
- ------------------------------------------------------------------------------
Net Loans and Lease Financing 1,462,585 1,446,931
Loans held for sale 144,735 58,304
Net premises and equipment 70,302 71,037
Limited partnership investments 71,416 50,408
Other assets 58,795 56,186
- ------------------------------------------------------------------------------
Total Assets $2,975,580 $2,777,066
==============================================================================
Liabilities and Shareholders' Equity:
Demand deposits $ 617,532 $ 583,184
Interest-bearing deposits:
NOW 237,245 193,474
Savings 308,924 298,680
Money market savings 291,587 295,088
Time 683,427 610,915
- ------------------------------------------------------------------------------
Total Interest-Bearing Deposits 1,521,183 1,398,157
- ------------------------------------------------------------------------------
Total Deposits 2,138,715 1,981,341
Federal funds purchased 41,315 2,761
Securities sold under agreement to repurchase 334,572 359,865
Other purchased funds 110 136
Other liabilities 35,223 34,082
- ------------------------------------------------------------------------------
Total Liabilities 2,549,935 2,378,185
- ------------------------------------------------------------------------------
Shareholders' Equity: 1998 1997
Common stock par value $2.50 $10.00 80,000 80,000
Shares authorized 40,000,000 10,500,000
Shares issued 32,000,000 8,000,000
Capital surplus 63,095 63,000
Retained earnings 307,550 269,909
Net unrealized gains on securities
available for sale, net of taxes 2,634 3,049
Treasury stock at cost (1,287,763 shares
in 1998 and 236,985 shares in 1997) (27,634) (17,077)
- ------------------------------------------------------------------------------
Total Shareholders' Equity 425,645 398,881
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,975,580 $2,777,066
==============================================================================
Net book value per share (based on 30,712,237 shares
in 1998 and 31,052,060 shares in 1997 outstanding) $13.86 $12.85
==============================================================================
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)
1998 1997 1996
<S> <C> <C> <C>
Operating Activities
Net Income $ 55,405 $ 51,257 $ 46,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,800 5,400 6,650
Deferred tax expense (credit) 1,030 2,183 (1,893)
Depreciation and amortization 8,137 7,857 8,628
Net amortization of premium or discount on securities (315) (1,025) (1,959)
Gain on security and limited partnership transactions (8,138) (4,811) (6,121)
Loss on security and limited partnership transactions 4,292 292 -
Gain on loan sales (1,095) (444) (1,140)
Loss (gain) on sales of premises and equipment (377) 74 (177)
Gains on sales of other assets (322) (10) (3,375)
Net decrease (increase) in loans held for sale (85,336) (26,297) 2,676
Decrease (increase) in interest receivable, prepaid
expenses, and other assets (2,100) (2,043) 1,604
Increase (decrease) in interest payable, accrued
expenses, and other liabilities 416 (1,058) 1,144
- ----------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities (23,603) 31,375 52,553
Investing Activities
Net decrease (increase) in federal funds sold and
interest-bearing balances with other banks 100,034 (79,917) (18,940)
Proceeds from maturities of securities held to maturity 253,397 149,085 126,379
Purchases of securities held to maturity (419,897) (161,202) (166,996)
Proceeds from maturities of securities available for sale 33,665 40,648 35,000
Proceeds from sales of securities available for sale 2,885 41,090 25,558
Purchases of securities available for sale (46,305) (55,344) (43,911)
Net increase in loans and lease financing (21,230) (28,715) (125,603)
Proceeds from sales of premises and equipment 1,108 53 310
Purchases of premises and equipment (7,296) (7,348) (15,884)
Proceeds from sales of limited partnership investments 17,696 3,637 8,384
Purchases of limited partnership investments (33,029) (19,874) (12,600)
Proceeds from sales of other assets 762 546 6,466
Purchases of other assets (4,001) (4,619) (2,870)
- ----------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (122,211) (121,960) (184,707)
Financing Activities
Net increase in total deposits 157,374 112,868 129,500
Net increase (decrease) in short-term borrowings 13,235 (2,705) 37,927
Acquisition of treasury stock (12,806) (14,772) (1,879)
Proceeds from sale of treasury stock 2,344 - -
Cash dividends paid (17,039) (15,728) (15,930)
- ----------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 143,108 79,663 149,618
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (2,706) (10,922) 17,464
Cash and cash equivalents at beginning of year 155,849 166,771 149,307
- ----------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $153,143 $155,849 $166,771
====================================================================================================
</TABLE>
Total interest payments on deposits and purchased funds were $75,108,000 in
1998, $71,286,000 in 1997, and $67,303,000 in 1996. Income tax payments made
during the calendar years of 1998, 1997, and 1996 were $30,381,000, $25,503,000,
and $26,096,000, respectively. An adjustment for the net change in unrealized
gains on securities available for sale of $(415,000), $644,000, and
$(1,639,000), net of tax, has been reflected in shareholders' equity in
1998, 1997 and 1996, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 25
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(For the Years Ended December 31) (In thousands) 1998 1997 1996
<S> <C> <C> <C>
Net income $55,405 $51,257 $46,516
Other comprehensive income, net of taxes:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period (185) 847 (1,605)
Less: reclassification adjustment for gains included in net income 230 203 34
- ----------------------------------------------------------------------------------------------------
Other comprehensive income (415) 644 (1,639)
- ----------------------------------------------------------------------------------------------------
Comprehensive Income $54,990 $51,901 $44,877
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Net Unrealized Total
Common Capital Retained Gains Treasury Shareholders'
(In thousands) Stock Surplus Earnings on Securities Stock Equity
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1996 $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
Net income - - 55,405 - - 55,405
Cash dividend declared - - (17,764) - - (17,764)
Purchase of treasury stock - - - - (12,806) (12,806)
Sale of treasury stock - 95 - - 2,249 2,344
Net unrealized loss on
securities available for sale - - - (415) - (415)
- ---------------------------------------------------------------------------------------------------
Balance December 31, 1998 $80,000 $63,095 $307,550 $2,634 $(27,634) $425,645
===================================================================================================
</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) provide banking services to Alaskan
customers from operating offices located throughout the state of Alaska and in
Seattle, Washington, and also engage 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.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents consist of cash and due
from banks.
SECURITIES: Investment securities are stated at cost with adjustments 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 comprehensive income and 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
<PAGE> 26
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 and
consumer auto 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.
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
three 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
write down 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
share in any limited partnership is less than 10%. Other than temporary
impairments of value are recognized by a charge to income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: During June, 1998, the Financial
Accounting Stardards Board (FASB) issued Statement of Financial Accounting
Standards, (SFAS) 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement standardizes the accounting for derivative
instruments, including those embedded in other contracts, and hedging
activities. The statement is effective for years beginning after 1999. The
Corporation plans on adopting this accounting pronouncement in the year 2000.
It is not expected to have a material effect on the financial statements.
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.
EARNINGS PER SHARE: Earnings per share are computed based on the weighted
average number of shares outstanding during the year (30,942,500 in 1998,
31,376,732 in 1997, and 31,837,004 shares in 1996). Earnings per share have
been restated for a stock split in 1998.
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 of 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 1998 and 1997, the average balance in this
account was $10,845,000 and $12,746,000, 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, 1998 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. agencies and corporations $382,748 $2,784 $ (19) $385,513
State and political subdivisions 20,229 164 - 20,393
Corporate notes 82,947 655 (72) 83,530
Mortgage and asset backed securities 262,431 1,633 (600) 263,464
Other securities 26,808 - - 26,808
- ------------------------------------------------------------------------------
Total $775,163 $5,236 $(691) $779,708
==============================================================================
Securities available for sale
December 31, 1998 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. Treasury $144,577 $3,818 $ - $148,395
U.S. agencies and corporations 64,079 713 (7) 64,785
Corporate notes 5,061 34 - 5,095
Preferred stock 21,137 741 (828) 21,050
- ------------------------------------------------------------------------------
Total $234,854 $5,306 $(835) $239,325
==============================================================================
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
==============================================================================
Maturities Distribution of Debt Securities
Securities Available
Investment Securities for Sale
December 31, 1998 Amortized Market Amortized Market
(In thousands) Cost Value Cost Value
Due in 1 year or less $237,914 $238,744 $ 87,978 $ 88,670
Due after 1 year through 5 years 501,811 505,510 125,739 129,605
Due after 5 years through 10 years 8,630 8,646 - -
- ------------------------------------------------------------------------------
Total $748,355 $752,900 $213,717 $218,275
==============================================================================
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 $524,475,000 of its U.S. Treasury and U.S. agencies and
corporations securities as of December 31, 1998, to secure public deposits,
trust funds, securities sold under repurchase agreements and for other
purposes. In 1997, $492,783,000 of its U.S. Treasury and U.S. agencies and
corporations securities and $696,000 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 summarizes the loans and lease financing portfolio at
December 31:
(In thousands) 1998 1997
Commercial and industrial $ 568,591 $ 546,143
Real estate construction 55,047 35,120
Real estate long-term 477,892 492,325
Consumer installment 319,103 333,872
Nontaxable 56,542 51,245
Lease financing 10,088 12,756
- ------------------------------------------------------------------------------
Loans and Lease Financing $1,487,263 $1,471,461
==============================================================================
The carrying amount and fair value of the loan portfolio, excluding leases,
consist of the following at December 31:
1998 1997
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Commercial and industrial $ 568,591 $ 570,514 $ 546,143 $ 548,740
Real estate construction 55,047 55,064 35,120 35,144
Real estate long-term 477,892 479,984 492,325 492,110
Consumer installment 319,103 321,542 333,872 333,517
Nontaxable 56,542 57,290 51,245 51,182
- ------------------------------------------------------------------------------
Loans $1,477,175 $1,484,394 $1,458,705 $1,460,693
==============================================================================
At December 31, 1998 and 1997 loans held for sale were $144,735,000 and
58,304,000, respectively. Consumer loans totaling $50,000,000 were sold in 1997
under a revolving securitization agreement. Mortgage loans sold in 1998 and
1997 totaled $546,741,000 and $249,371,000, respectively.
The amount of servicing assets recognized during 1998 was $4,009,000, and
amortization was $837,000 for the year. The amount of servicing asset
recognized in 1997 was $3,057,000 and amoritization 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 was $16,070,000 at December 31, 1998 and $10,586,000 at
December 31, 1997. 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 LOAN LOSSES
The following is a reconciliation of the loan loss reserve for the years ended
December 31:
(In thousands) 1998 1997 1996
Balance at beginning of year $24,530 $23,002 $21,529
Loans charged off (10,000) (7,205) (7,737)
Recoveries of loans charged off 5,348 3,333 2,560
- ------------------------------------------------------------------------------
Net charge offs (4,652) (3,872) (5,177)
Provision charged to operating expense 4,800 5,400 6,650
- ------------------------------------------------------------------------------
Balance at End of Year $24,678 $24,530 $23,002
==============================================================================
The total investment in impaired loans was $6,582,000 and $10,039,000 at
December 31, 1998 and 1997, respectively. Interest income on impaired loans is
recorded on the cash basis and totaled $89,000 for 1998, $105,000 in 1997, and
$54, for 1996. The Average balance of impaired loans was $9,849,000 for 1998
and $9,108,000 for 1997.
<PAGE> 29
6. PREMISES AND EQUIPMENT
The following table summarizes the components of premises and equipment at
December 31:
(In thousands) 1998 1997
Buildings $71,249 $70,475
Land 14,490 14,479
Leasehold improvements 5,639 5,061
Equipment, furniture and fixtures 54,463 51,673
- ------------------------------------------------------------------------------
Total Cost 145,841 141,688
Less accumulated depreciation (75,539) (70,651)
- ------------------------------------------------------------------------------
Net Book Value $70,302 $71,037
==============================================================================
Depreciation expense was $7,301,049 in 1998, $7,398,000 in 1997, and $6,756,000
in 1996.
7. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Information related to the Corporation's securities sold under agreement to
repurchase at December 31, 1998, 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 $ 36,926 $ 1,824 $ 4,217 $13,698 $ 56,665
Market value 38,167 1,882 4,223 13,940 58,212
Repurchase agreements 32,817 1,231 263 5,752 40,063
Interest rate 4.34% 5.14% 4.43% 4.48% 4.39%
- ------------------------------------------------------------------------------
U.S. agencies
Carrying value $258,535 $10,218 $ 7,097 $27,168 $303,018
Market value 259,354 10,317 7,167 27,378 304,216
Repurchase agreements 255,941 8,687 6,637 23,244 294,509
Interest rate 4.07% 4.80% 4.63% 4.57% 4.15%
- ------------------------------------------------------------------------------
Total
Carrying value $295,461 $12,042 $11,314 $40,866 $359,683
Market value 297,521 12,199 11,390 41,318 362,428
Repurchase agreements 288,758 9,918 6,900 28,996 334,572
Interest rate 4.10% 4.84% 4.62% 4.55% 4.17%
==============================================================================
Carrying value and market value of the securities include accrued interest.
8. SHAREHOLDERS' EQUITY
Dividends: The Corporation declared cash dividends of $0.575 per share in 1998
and $0.50 per share in 1997.
Stock Split: On March 17, 1998, the Corporation declared a four-for-one stock
split. The stock split was effective on April 27, 1998.
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 1999, the Bank may declare dividends of
$10,084,000 plus 1999 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, 1998, 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, 1998, 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:
1998 1997
(As of December 31) (In thousands) Amount Ratio Amount Ratio
Total Capital
National Bancorp of Alaska, Inc. $447,156 19.14% $419,382 19.73%
National Bank of Alaska 281,279 13.05 272,020 13.60
Tier 1 Capital
National Bancorp of Alaska, Inc. $422,478 18.08% $394,852 18.58%
National Bank of Alaska 256,601 11.90 247,490 12.37
Leverage
National Bancorp of Alaska, Inc. $442,478 14.24% $394,852 14.12%
National Bank of Alaska 256,601 9.01 247,490 9.18
9. COMPREHENSIVE INCOME
Comprehensive income includes the change in unrealized gains on securities that
are classified as available for sale. These gains arise from changes in
interest rates. They are reported as a component of equity and not included in
net income. It is management's intent to hold these securities for purposes of
liquidity and asset/liability management and not for the generation of trading
gains.
The following table summarizes the change in comprehensive income:
Unrealized Gains Tax Expense Net of Tax
on Securities (Benefit) Amount
Balance January 1, 1996 $6,796 $2,752 $4,044
Other comprehensive income (2,754) (1,115) (1,639)
- ------------------------------------------------------------------------------
Balance December 31, 1996 4,042 1,637 2,405
Other comprehensive income 1,083 439 644
- ------------------------------------------------------------------------------
Balance December 31, 1997 5,125 2,076 3,049
Other comprehensive income (654) (239) (415)
- ------------------------------------------------------------------------------
Balance December 31, 1998 $4,471 $1,837 $2,634
==============================================================================
10. COMMITMENTS 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 $17,381,000 at December 31, 1998
and $20,305,000 at December 31, 1997. Commitments for loans and investments
approximated $542,175,000 at December 31, 1998 and $444,716,000 at December 31,
1997. 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, 1998 and 1997 were $64,123,000 and $32,340,000, 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, results of operations
and liquidity 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 $35,331,000 and $37,665,000 at
December 31, 1998 and 1997, respectively. During 1998, $85,930,000 of new loans
were made and repayments totaled $88,264,000. 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 expensed to operations for
profit sharing were $6,649,000 in 1998, $6,151,000 in 1997, and $5,582,000 in
1996. 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 7.5%
in 1996, 1997 and 1998, and an assumed health care cost trend rate of 5.5% for
1996, 1997 and 1998. 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.
The effect on the present value of a one percent increase in the health care
cost trend rate would result in an increase of $82,000 in the obligation and a
corresponding increase of $13,000 in the 1998 aggregate service and interest
components of expense.
(In thousands) 1998 1997 1996
Change in Benefit Obligation:
Beginning Benefit Obligation $1,543 $ 2,873 $3,166
Service Cost 38 116 105
Interest Cost 112 211 248
Benefits Paid (102) (121) (133)
Amendments - (1,536) (513)
- ------------------------------------------------------------------------------
Ending Benefit Obligation 1,591 1,543 2,873
Unrecognized Transition
Obligation (245) (264) (1,929)
Unrecognized Net
Gain 891 988 1,081
- ------------------------------------------------------------------------------
Accrued Postretirement
Benefit Cost $2,237 $2,267 $2,025
- ------------------------------------------------------------------------------
Net Periodic Cost:
Service Cost $ 38 $ 116 $ 105
Interest Cost 112 211 248
Amortization of unrecognized
transition obligation 19 129 129
Amortization of net gain (97) (93) (34)
- ------------------------------------------------------------------------------
Total Expense $ 72 $ 363 $ 448
- ------------------------------------------------------------------------------
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes carrying amounts and fair values of financial
instruments at December 31:
1998 1997
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Assets
Cash and due from banks $153,143 $153,143 $155,849 $155,849
Interest-bearing balances with banks 116 116 150 150
Federal funds sold - - 100,000 100,000
Investment securities 775,163 779,708 609,462 615,784
Securities available for sale 234,854 239,325 228,739 228,739
Loans (excluding lease financing) 1,477,175 1,484,394 1,458,705 1,460,693
Loans held for sale 144,735 144,990 58,304 58,302
Liabilities
Demand deposits 671,532 671,532 $583,184 $583,184
NOW 237,245 237,245 193,474 193,474
Savings 308,924 308,924 298,680 298,680
Money market savings 291,587 291,587 295,088 295,088
Time 683,427 686,965 610,915 611,884
Federal funds purchased 41,315 41,315 2,761 2,761
Securities sold under agreement
to repurchase 334,572 334,545 359,865 359,857
Other purchased funds 110 110 136 136
Off-Balance Sheet Assets (Liabilities)
Loan commitments and letters of credit - 7,084 - 6,369
Forward contracts - 634 - 146
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) 1998 1997 1996
Current tax expense
Federal income taxes $24,188 $21,299 $21,733
State income taxes 6,399 4,719 5,673
- ------------------------------------------------------------------------------
Total Current Tax Expense 30,587 26,018 27,406
Deferred tax expense (credit) 1,030 2,183 (1,893)
- ------------------------------------------------------------------------------
Total Income Taxes $31,617 $28,201 $25,513
==============================================================================
Applicable to operating income $30,036 $26,344 $23,345
Applicable to securities transactions 1,581 1,857 2,168
- ------------------------------------------------------------------------------
Total Income Taxes $31,617 $28,201 $25,513
==============================================================================
A reconciliation between the statutory federal income tax rate and the
effective income tax rate follows:
1998 1997 1996
Percent Percent Percent
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-exempt interest income (1.5) (2.0) (2.2)
State income tax, net of federal tax benefit 4.7 4.0 5.1
Other (2.8) (0.4) (2.5)
- -----------------------------------------------------------------------------
Total Effective Income Tax Rate 35.4% 36.6% 35.4%
=============================================================================
The Corporation had net deferred tax assets of $6,309,000 at December 31, 1998,
and $3,183,000 at December 31, 1997. Temporary differences which gave rise to a
significant portion of deferred tax assets and liabilities were as follows:
1998 1997
Deferred Tax Deferred Tax
(In thousands) Assets Liabilities Assets Liabilities
Provision for loan losses $10,957 $ - $ 9,887 $ -
Alaska state taxes 1,055 - 1,433 -
Postretirement benefits 1,040 - 1,018 -
Limited partnerships 1,116 - 115 -
Loan servicing 912 - 1,248 -
Depreciation and amortization - 4,244 - 4,295
Net unrealized security gains - 1,837 - 2,076
Leases - 1,444 - 1,527
Other 1,140 1,444 1,068 2,408
- --------------------------------------------------------------------------------
Subtotal 16,220 8,969 14,769 10,306
Valuation Allowance (942) - (1,280) -
- --------------------------------------------------------------------------------
Total Deferred Taxes $15,278 $8,969 $13,489 $10,306
==============================================================================
The Corporation has a valuation allowance of $942,000 in 1998 and $1,280,000 in
1997 against deferred tax assets. 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) 1998 1997 1996
Income:
Dividends from National Bank of Alaska $41,200 $43,920 $36,400
Interest on balances with banks 2,571 1,798 1,412
Dividends from securities 1,276 1,659 1,683
Interest on loans 1,275 1,496 1,617
Security transactions 390 - -
Gains on limited partnership investments 3,475 4,174 6,063
Other 517 331 160
- ------------------------------------------------------------------------------
Total Income 50,704 53,378 47,335
Expenses 1,202 923 2,102
- ------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 49,502 52,455 45,233
Income taxes 2,486 2,416 2,225
- ------------------------------------------------------------------------------
47,016 50,039 43,008
Equity in undistributed net income of subsidiaries 8,389 1,218 3,508
- ------------------------------------------------------------------------------
Net Income $55,405 $51,257 $46,516
==============================================================================
Statements of Condition
(As of December 31) (In thousands) 1998 1997
Assets:
Interest-bearing balances with banks $ 51,418 $ 45,430
Loans 16,167 20,086
Securities 21,050 25,264
Investment in subsidiaries 266,260 257,264
Limited partnership investments 71,416 50,408
Other assets 4,017 4,896
- ------------------------------------------------------------------------------
Total Assets $430,328 $403,348
==============================================================================
Liabilities and Shareholders' Equity:
Dividends payable $ 4,607 $ 3,882
Other liabilities 76 585
- ------------------------------------------------------------------------------
Total Liabilities 4,683 4,467
Total Shareholders' Equity 425,645 398,881
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $430,328 $403,348
==============================================================================
<PAGE> 34
Statements of Cash Flows
(For the Years Ended December 31) (In thousands) 1998 1997 1996
Operating Activities
Net Income $55,405 $51,257 $46,516
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income from subsidiaries (8,389) (1,218) (3,508)
Gains on securities and limited
partnership transactions (3,865) (4,304) (6,063)
Decrease (increase) in receivables (821) (1,377) 780
Increase (decrease) in other liabilities 187 (1,224) 1,079
- ------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 42,517 43,134 38,804
Investing Activities
Net increase in balances with banks (5,988) (3,578) (7,340)
Net decrease (increase) in loans 3,920 4,191 (30)
Investment in subsidiary - - (5,000)
Advances to subsidiary (500) - (500)
Proceeds from sales of assets 20,581 11,637 8,386
Purchases of limited partnership investments (33,029) (19,874) (12,600)
Purchases of other assets - (5,000) (3,911)
- ------------------------------------------------------------------------------
Net Cash Used in Investing Activities (15,016) (12,624) (20,995)
Financing Activities
Cash dividends (17,039) (15,738) (15,930)
Acquisition of treasury stock (12,806) (14,772) (1,879)
Sale of treasury stock 2,344 - -
- ------------------------------------------------------------------------------
Net Cash Used in Financing Activities (27,501) (30,510) (17,809)
- ------------------------------------------------------------------------------
Increase (decrease) in cash - - -
Cash at beginning of year - - -
- ------------------------------------------------------------------------------
Cash at End of Year $ - $ - $ -
==============================================================================
16. OPERATING LEASES
The Corporation, under various noncancelable agreements, leases certain real
and personal properties with terms ranging from one to 10 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, 1998, are as
follows:
Minimum Lease
(In thousands) Payments
1999 $1,909
2000 1,343
2001 884
2002 624
2003 385
Later Years 3,825
- ------------------------------------------------------------------------------
Total Minimum Lease Payments $8,970
==============================================================================
Rental expense for all operating leases was $2,534,000, $2,430,000, and
$2,891,000 for the years ended 1998, 1997 and 1996, respectively.
<PAGE> 35
17. OTHER INCOME AND EXPENSE
The following tables summarize the components of other income and expense:
Other Income
(In thousands) 1998 1997 1996
Trust department income $ 2,827 $ 2,534 $ 2,238
Service charges on deposit accounts 13,221 12,496 12,292
Loan servicing fees 9,433 8,175 8,112
Credit card service fees 6,941 6,968 6,178
Securities transactions 371 345 58
Gains on limited partnership investments 3,475 4,174 6,063
Net gain on sale of other real estate owned 321 10 3,375
Other 18,793 14,266 12,311
- ------------------------------------------------------------------------------
Total Other Income $55,382 $48,968 $50,627
==============================================================================
Other Expense
(In thousands) 1998 1997 1996
Salaries $ 41,512 $ 38,539 $ 38,251
Profit sharing and other employee benefits 13,135 12,644 11,427
Net occupancy expense of bank premises 7,601 7,540 7,394
Furniture and equipment expense 8,975 9,113 9,267
Stationery/printing 3,013 2,836 2,785
Telecommunications 3,916 4,135 4,066
Computer program and processing 6,845 6,058 5,414
Other 21,548 19,487 23,757
- ------------------------------------------------------------------------------
Total Other Expense $106,545 $100,352 $102,361
==============================================================================
Report of Deloitte & Touche 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, 1998 and
1997, and the related consolidated statements of income, consolidated
statements of comprehensive income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Anchorage, Alaska
January 22, 1999
<PAGE> 36
MANAGEMENT DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HIGHLIGHTS
Net income for 1998 was $55,405,000, or 8% higher than 1997 net income of
$51,257,000. The increase in earnings was primarily due to an increase in net
interest income to $142,985,000, or $6,743,000 over 1997. Earnings per share
were $1.79 in 1998 compared to $1.63 in 1997, a 10% increase. The earnings per
share to shareholders reflects a four-for-one stock split in 1998.
Return on average assets was 1.97% in 1998, compared to 1.91% in 1997. Return
on average equity in 1998 was 13.38% and 13.21% in 1997. The ratio of equity
to total assets at December 31, 1998, was 14.72% compared to 14.47% at the end
of 1997.
The only significant factor affecting income for the fourth quarter of 1998 was
$1,844,000 in limited partnership investment losses. Total gains for the year
for this investment category were $3,475,000, or 17% below 1997.
During the fourth quarter of 1997, capital gains from limited partnership
investments amounted to $3,560,000, with total annual gains of $4,174,000. Also
during the same quarter, $2,700,000 was added to the provision for loan losses
in recognition of significant growth in the portfolio.
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 $6,418,000 in 1998 over
the prior year. The net interest margin decreased to 5.81% in 1998, compared
to 5.82% in 1997. Growth in the loan portfolio was the most significant
factor behind the increase in net interest income. Commercial and real
estate lending generated the largest increases, bringing loans to
$1,487,263,000 and loans held for sale to $144,135,000 at December 31,1998,
compared to $1,471,461,000 and $58,304,000 at December 31, 1997.
Interest rates fell during the year reducing cost of funds. Time deposit
balances increased by $72,512,000 over 1997 to $683,427,000 at December 31,
1998. In 1998, demand deposits averaged $25,579,000 higher than in 1997, with
year-end balances totaling $617,532,000.
In 1997, fully taxable net interest income increased $5,582,000 over 1996. The
net interest margin decreased from 5.89% in 1996 to 5.82% in 1997. The
increase in net interest income was a result of continued loan growth. Loans
grew $24,483,000 from December 31, 1996, to $1,471,461,000 at December 31,
1997. 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 1997, providing a
small increase in the cost of interest bearing funds from 4.16% in 1996 to
4.22% in 1997. The yield of earnings assets was 8.84% in 1997, compared to
8.83% in 1996, with yields on loans increasing slightly from the prior year.
Table 1 - Analysis of Net Interest Income
(In thousands) 1998 1997 1996 1995 1994
Interest income* $ 217,700 $ 209,091 $ 197,531 $ 189,256 $ 162,607
Interest expense 74,715 72,849 67,118 68,709 49,136
- ------------------------------------------------------------------------------
Net interest income 142,985 136,242 130,413 120,547 113,471
Tax equivalent adjustment
to interest income* 3,481 3,806 4,053 4,489 4,262
- ------------------------------------------------------------------------------
Net interest income
(fully taxable
equivalent) $ 146,466 $ 140,048 $ 134,466 $ 125,036 $ 117,733
Average earning assets $2,518,983 $2,408,338 $2,283,157 $2,192,711 $2,035,844
- ------------------------------------------------------------------------------
Net Interest Margin 5.81% 5.82% 5.89% 5.70% 5.78%
- ------------------------------------------------------------------------------
*Interest income includes loan fees of $11,261,000 in 1998, $7,863,000 in 1997,
$7,221,000 in 1996, $6,095,000 in 1995, and $8,429,000 in 1994. The adjustment
to convert nontaxable income to fully taxable equivalent basis is based on a
marginal income tax rate of 41% in 1998 through 1994.
<PAGE> 37
NONINTEREST INCOME
Noninterest income increased 13% from 1997 to $55,382,000 in 1998. Loan
servicing fees increased by 15% to $9,433,000, reflecting high levels of
mortgage lending spurred by lower interest rates. Gains on securities and
limited partnership investments decreased $673,000 from 1997. Gains on other
real estate owned increased by $311,000. Other income increased by 32% over
1997, to $18,793,000. Components of other income's overall increase included
increases in other loan fees of $1,659,000 and increases in ATM and point-of-
sale related fees of $932,000.
Noninterest income in 1997 decreased by 3%, or $1,659,000 over 1996. Gains on
limited partnership investments decreased by 31% or $1,889,000, compared to
1996's levels. Gains on sales of other real estate owned also decreased by
$3,365,000 compared to 1996. Other income increased by $1,955,000 over 1996,
including an increase of $2,469,000 in income from low-income housing
investments.
Table 2 - Analysis of Noninterest Income
Increase Increase
(Decrease) (Decrease)
(In thousands) 1998 % 1997 % 1996
Trust department income $ 2,827 12% $ 2,534 13% $ 2,238
Service charges on deposit accounts 13,221 6 12,496 2 12,292
Loan servicing fees 9,433 15 8,175 1 8,112
Credit card service fees 6,941 - 6,968 13 6,178
Securities transactions 371 8 345 N/A 58
Gain on limited partnership 3,475 (17) 4,174 (31) 6,063
Net gain on sale of other real
estate owned 321 N/A 10 N/A 3,375
Other 18,793 32 14,266 16 12,311
- ------------------------------------------------------------------------------
Total Noninterest Income $55,382 13% $48,968 (3)% $50,627
==============================================================================
NONINTEREST EXPENSE
Noninterest expense for 1998 increased $6,193,000 or 6% over 1997. Other
expense increased by $2,061,000 from 1997, with lending related expenses
accounting for $863,000 of the total increase. Salaries increased by
$2,973,000, due mostly to increased mortgage lending activity.
In 1997, noninterest expense decreased $2,009,000 to $100,352,000 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.
Table 3 - Analysis of Noninterest Expense
Increase Increase
(Decrease) (Decrease)
(In thousands) 1998 % 1997 % 1996
Salaries $ 41,512 8% $ 38,539 1% $ 38,251
Profit sharing and other
employee benefits 13,135 4 12,644 11 11,427
Net occupancy expense of bank premises 7,601 1 7,540 2 7,394
Furniture and equipment expense 8,975 (2) 9,113 (2) 9,267
Stationery/printing 3,013 6 2,836 2 2,785
Telecommunications 3,916 (5) 4,135 2 4,066
Computer program and processing 6,845 13 6,058 12 5,414
Other 21,548 11 19,487 (18) 23,757
- ------------------------------------------------------------------------------
Total Noninterest Expense $106,545 6% $100,352 (2)% $102,361
==============================================================================
<PAGE> 38
INVESTMENT SECURITIES, SECURITIES AVAILABLE FOR SALE AND SHORT-TERM INVESTMENTS
In 1998, investment securities increased 27% or $165,701,000 from the prior
year. Securities issued by U.S. Treasury, U.S. agencies, and corporations
increased by $81,570,000, and mortgage and asset-backed securities increased by
$81,213,000.
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 $234,854,000 and a market value of $239,325,000 have
been classified as securities available for sale at December 31, 1998. These
securities are held for long-term liquidity and, by definition, may be sold
prior to maturity.
In 1997, investment securities increased by $12,989,000 to $609,462,000. U.S.
government and agency securities decreased by $15,967,000, and mortgaged and
asset backed securities increased by $36,480,000 from
the prior year.
Table 4 - Investment Portfolio
Book Value December 31
(In thousands) 1998 1997 1996
U.S. Government and agencies $382,748 $301,178 $317,145
State and political subdivisions 20,229 11,864 15,878
Corporate notes 82,947 90,016 95,082
Mortgage and asset backed securities 262,431 181,218 144,738
Other securities 26,808 25,186 23,630
- ------------------------------------------------------------------------------
Total Investment Portfolio $775,163 $609,462 $596,473
==============================================================================
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 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 fund 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 timing and 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, 1998 Within 1 Year 1 - 5 Years 5 - 10 Years 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 $105,222 6.84% $277,526 6.47% - - - -
State and political subdivisions 4,140 7.45 16,089 6.91 - - - -
Corporate notes 62,712 5.97 20,235 8.00 - - - -
Mortgage and asset backed securities 65,841 6.83 187,960 6.67 8,630 7.60 - -
Other securities - - - - - - 26,808 7.22
Securities available for sale 88,670 7.02 129,605 6.24 - - 21,050 5.39
</TABLE>
<PAGE> 39
Loan Maturity and Interest Sensitivity (Selected Loans)
December 31, 1998
Maturity
Within 1 - 5 Over 5
(In thousands) 1 Year Years Years Total
Commercial and industrial $253,620 $145,834 $169,137 $568,591
Real estate construction 36,586 18,461 - 55,047
Nontaxable 6,651 16,985 32,906 56,542
- ------------------------------------------------------------------------------
Total Selected Loans $296,857 $181,280 $202,043 $680,180
==============================================================================
Predetermined interest rate $115,800 $ 76,038 $ 97,866 $289,704
Floating interest rate 181,057 105,242 104,177 390,476
- ------------------------------------------------------------------------------
Total Selected Loans $296,857 $181,280 $202,043 $680,180
==============================================================================
Maturity Distribution of Time Deposits over $100,000 (In Thousands)
Maturity: December 31
(In thousands) 1998 1997
Within 3 months $118,063 $123,981
3 to 6 months 122,569 57,048
6 to 12 months 38,554 33,683
Over 12 months 96,461 95,595
- ------------------------------------------------------------------------------
Total Time Deposits over $100,000 $375,647 $310,307
==============================================================================
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, as well as 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 $1,487,263,000 at December 31, 1998, an increase of 1%,
or $15,802,000 from December 31, 1997. Commercial and industrial loans
increased by 4% to a total of $568,591,000. Real estate construction grew by
57% or $19,927,000 from the prior year, to a total of $55,047,000 in 1998.
Nontaxable increased by $5,297,000 and lease financing decreased by 21% to
$10,088,000.
Installment loans decreased by $14,769,000 or 4% over the prior year,
reflecting a revolving loan securitization program.
The Bank had no loans outstanding to foreign countries at December 31, 1998.
At December 31, 1997, loans and leases were $1,471,461,000, an increase of 2%
over 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.
Loans held for sale increased to $144,734,000 at December 31, 1998, from
$58,304,000 at December 31, 1997. The increase is due to increased mortgage
lending with the declining interest rate environment at the end of 1998.
Table 5 - Loans and Lease Portfolio
December 31
(In thousands) 1998 1997 1996 1995 1994
Commercial and
industrial $ 568,591 $ 546,143 $ 503,309 $ 470,480 $ 439,866
Real estate construction 55,047 35,120 34,767 24,999 21,845
Real estate long-term 477,892 492,325 462,958 423,872 415,017
Consumer installment 319,103 333,872 379,898 331,531 271,294
Nontaxable 56,542 51,245 55,372 64,356 68,049
Lease financing 10,088 12,756 10,674 11,602 10,093
- ------------------------------------------------------------------------------
Loans and Lease
Financing $1,487,263 $1,471,461 $1,446,978 $1,326,840 $1,226,164
==============================================================================
Loans Held for Sale $ 144,735 $ 58,304 $ 31,563 $ 33,099 $ 19,627
==============================================================================
<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 portfolio
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 .68% at December
31, 1998, compared to 1.08% at December 31, 1997. Total nonperforming assets
decreased $5,737,000 in 1998. The low level of nonperforming assets is a
result of continued active monitoring and management of troubled credits, as
well as 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 is 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 $604,000 in 1998 and
$1,014,000 in 1997. Actual interest income recorded for these loans was
$89,000 in 1998 and $105,000 in 1997.
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. There
were no restructured loans on December 31, 1998. Interest income on
restructured loans, which would have been recorded under their original terms,
was $9,000 in 1997. Actual interest income recorded for those loans was $6,000
in 1997. At December 31, 1998, the Bank had no commitments to lend additional
funds to borrowers with restructured loans.
Table 6
December 31
(In thousands) 1998 1997 1996 1995 1994
Nonaccrual loans
Commercial and industrial $ 2,153 $ 5,342 $ 1,451 $ 700 $ 1,763
Real estate construction 166 323 166 166 63
Real estate long-term 4,196 4,298 3,841 1,162 1,528
Other 67 76 35 45 -
- ------------------------------------------------------------------------------
Total $ 6,582 $10,039 $ 5,493 $ 2,073 $ 3,354
- ------------------------------------------------------------------------------
Restructured loans
Commercial and industrial $ - $ - $ - $ - $ -
Real estate construction - - 85 94 102
Real estate long-term - 90 95 242 1,612
- ------------------------------------------------------------------------------
Total $ - $ 90 $ 180 $ 336 $ 1,714
- ------------------------------------------------------------------------------
Accruing loans past due 90 days or more$ 3,101 $ 5,627 $ 9,945 $ 5,459 $ 5,539
- ------------------------------------------------------------------------------
Other real estate owned $ 486 $ 150 $ 326 $ 3,127 $ 4,344
- ------------------------------------------------------------------------------
Total nonperforming assets $10,169 $15,906 $15,944 $10,995 $14,951
- ------------------------------------------------------------------------------
Nonaccrual loans as a percentage
of loans and leases at year end 0.44% 0.68% 0.38% 0.16% 0.27%
Restructured loans as a percentage
of loans and leases at year end -% 0.01% 0.01% 0.03% 0.14%
Nonperforming assets as a percentage
of loans and leases and other real
estate owned at year end 0.68% 1.08% 1.10% 0.83% 1.22%
- ------------------------------------------------------------------------------
<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
$24,678,000 at December 31, 1998. This maintains a reserve of 1.66% of
outstanding loans, reflecting management's commitment to maintain an adequate
reserve against anticipated losses.
The provision for loan losses charged to income was $4,800,000 in 1998,
compared to provision for loan losses of $5,400,000 in 1997. Net charge offs
were $4,652,000 in 1998, compared to net charge offs of $3,872,000 in 1997.
Management evaluates the adequacy of the Bank's reserve for loan losses 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) 1998 1997 1996 1995 1994
Analysis of Reserve for Loan Losses
<S> <C> <C> <C> <C> <C>
Balance January 1 $24,530 $23,002 $21,529 $19,226 $17,408
Provision charged to operations 4,800 5,400 6,650 (3,100) 2,200
Recoveries on loans previously
charged off 5,348 3,333 2,560 9,947 2,502
Less loans charged off (10,000) (7,205) (7,737) (4,544) (2,884)
- ----------------------------------------------------------------------------------------------------
Balance December 31 $24,678 $24,530 $23,002 $21,529 $19,226
====================================================================================================
Composition of Loan Charge Off and Recoveries
Loans Charged Off:
Commercial loans and leases $ 4,805 $ 2,063 $ 1,867 $ 954 $ 265
Real estate construction - - 6 113 50
Real estate long-term 175 97 1,574 116 86
Consumer 3,963 4,047 3,232 2,644 1,804
Visa 1,057 998 1,058 717 679
- ----------------------------------------------------------------------------------------------------
Total Charge Offs 10,000 7,205 7,737 4,544 2,884
- ----------------------------------------------------------------------------------------------------
Recoveries:
Commercial loans and leases 2,428 793 403 7,643 514
Real estate construction 4 131 5 16 122
Real estate long-term 502 364 286 657 495
Consumer 2,146 1,851 1,633 1,445 1,204
Visa 268 194 233 167 153
Nontaxable - - - 19 14
- ----------------------------------------------------------------------------------------------------
Total Recoveries 5,348 3,333 2,560 9,947 2,502
- ----------------------------------------------------------------------------------------------------
Net Charge Offs (Recoveries) $ 4,652 $ 3,872 $ 5,177 $(5,403) $ 382
====================================================================================================
Loan and Lease Statistics
Average loans and leases $1,487,415 $1,468,146 $1,405,194 $1,306,685 $1,202,249
Loans and leases at year end 1,487,263 1,471,461 1,446,978 1,326,840 1,226,164
Reserve for loan losses as a
percentage of:
Average loans and leases 1.66% 1.67% 1.64% 1.65% 1.60%
Loans and leases at year end 1.66 1.67 1.59 1.62 1.57
Net charge offs as a percentage of:
Average loans and leases 0.31 0.26 0.37 (0.41) 0.03
Loans and leases at year end 0.31 0.26 0.36 (0.41) 0.03
</TABLE>
<PAGE> 42
DEPOSITS AND SHORT-TERM BORROWINGS
Total deposits increased 8%, or $157,374,000, to $2,138,715,000 at December 31,
1998. Time deposits reflect a 12% or $72,512,000 growth at December 31, 1998.
Demand deposits increased 6% or $34,348,000 over 1997. NOW and savings
increased $54,015,000 or 11% compared to December 31, 1997. Money market
savings decreased by 1% to $291,587,000 from the prior year.
In 1997, total deposits increased $114,288,000 or 6% from December 31, 1996.
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.
Short-term borrowings include Federal funds purchased and repurchase agreements
in the amount of $375,887,000, and other borrowings of $110,000 at December 31,
1998.
Table 8 - Deposit Structure
Average for Year Ended December 31
(In thousands) 1998 1997 1996 1995 1994
Demand $ 561,202 $ 535,623 $ 529,227 $ 512,401 $ 506,669
NOW 200,443 175,879 156,695 150,401 151,276
Savings 292,266 289,188 294,374 296,784 302,566
Money Market Savings 293,751 298,714 295,932 296,735 299,948
Time 627,116 580,920 511,696 460,613 399,159
- -------------------------------------------------------------------------------
Total Deposits $1,974,778 $1,880,324 $1,787,924 $1,716,934 $1,659,618
===============================================================================
Deposits by Type of Depositor at December 31
(In thousands) 1998 1997 1996 1995 1994
Individuals, partner-
ships and corporations $1,866,767 $1,794,623 $1,682,900 $1,632,547 $1,630,233
United States government 2,235 2,377 5,035 5,543 6,814
State and political
subdivisions 251,594 165,877 164,171 86,855 90,270
Other 18,119 18,464 14,947 15,536 20,304
- -------------------------------------------------------------------------------
Total $2,138,715 $1,981,341 $1,867,053 $1,740,481 $1,747,621
===============================================================================
Time deposits include $100,000 in 1994 in brokered deposits assumed through
bank acquisitions. The Bank did not renew maturing brokered deposits.
Table 9 - Funds Purchased
The following table provides an analysis of funds purchased:
Total
Purchased Funds
(In thousands) 1998 1997 1996
Balance at December 31 $375,997 $362,762 365,467
Average for the year 392,759 381,226 356,266
Maximum month end balance 487,174 420,522 386,399
Average rate for the year* 4.67% 4.77% 4.75%
Average rate at year end 4.19 4.79 4.67
*The average interest rate is computed by dividing the respective interest
expense by the average daily balance.
<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 18 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 $5,047,000 in one
to 33 individual companies. The Corporation's percentage share of any
individual company does not exceed 10%.
At December 31, 1998, the Corporation had limited partnership investments
totaling $71,416,000, compared to $50,408,000 at December 31, 1997. The
Corporation had commitments to invest an additional $86,082,000 at December 31,
1998.
Capital gains from these investments were $3,475,000 in 1998, $4,174,000 in
1997, and $6,063,000 in 1996. Net expenses from limited partnership
investments were $342,000 in 1998, $370,000 in 1997, and $545,000 in 1996.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
The Corporation is a strongly-capitalized bank holding company. Shareholders'
equity increased by $26,764,000 from $398,881,000 on December 31, 1997 to
$425,645,000 at December 31, 1998.
The ratio of equity to total assets was 14.72% for 1998 compared to 14.47% for
1997. The Corporation's level of capitalization exceeds current and proposed
regulatory guidelines. The current quarterly dividend rate is $.15 per share.
Table 10 - Analysis of Shareholders' Equity
(In thousands) 1998 1997 1996 1995 1994
Balance January 1 $398,881 $377,403 $350,320 $312,772 $292,976
Net income 55,405 51,257 46,516 41,280 37,520
Cash dividends declared (17,764) (15,651) (15,915) (13,547) (11,953)
Purchase of treasury stock (12,806) (14,772) (1,879) - -
Sale of treasury stock 2,344 - - - -
Net unrealized gains (losses)
on securities (415) 644 (1,639) 9,815 (5,771)
- -----------------------------------------------------------------------------
Balance December 31 $425,645 $398,881 $377,403 $350,320 $312,772
=============================================================================
Per Share Statistics
Net income $ 1.79 $ 1.63 $ 1.46 $ 1.30 $1.18
Cash dividends declared 0.57 0.50 0.50 0.43 0.38
Book value at year end $13.86 $12.85 $11.89 $10.99 $9.81
- -----------------------------------------------------------------------------
Ratios (based on average balances)
Return on assets 1.97% 1.91% 1.83% 1.70% 1.66%
Equity to total assets 14.72 14.47 14.33 13.71 13.56
Dividend payout ratio 32.06 30.53 34.21 32.82 31.86
Return on equity 13.38 13.21 12.78 12.41 12.25
Equity to total deposits 20.98 20.64 20.35 19.38 18.46
IMPACT OF THE YEAR 2000 ISSUE
National Bank of Alaska and all computer reliant businesses face the challenge
of ensuring that critical computer systems will continue to function when the
calendar year rolls over to January 1, 2000. If a computer system cannot
distinguish between the year 1900 and the year 2000, system failures or other
computer errors could result. The Bank recognizes the potential for failures or
errors, and appreciates the dependence on computer reliability for virtually
every service that the Bank provides. Addressing this issue extends beyond just
bank computer systems, but includes our suppliers and major customers.
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 is scheduled to complete testing of 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.
<PAGE> 44
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS/INTEREST INCOME AND EXPENSE/RATES
Year Ended December 31 1998 1997
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 $ 307 $ 17 5.54% $ 537 $ 38 7.08%
Federal funds sold and
securities purchased
under agreement to resell 30,311 1,848 6.10 73,832 3,868 5.24
- ---------------------------------------------------------------------------------------------------
Securities* 916,343 61,838 6.75 812,692 56,843 6.99
- ---------------------------------------------------------------------------------------------------
Loans and lease financing* 1,572,022 157,478 10.02 1,521,277 152,148 10.00
- ---------------------------------------------------------------------------------------------------
Total Earning Assets $2,518,983 $221,181 8.78% $2,408,338 $212,897 8.84%
- ---------------------------------------------------------------------------------------------------
Reserve for possible loan losses (24,648) (23,225)
Cash and due from banks 132,093 131,154
Bank premises and equipment 70,646 70,478
Other assets 116,474 94,860
- ---------------------------------------------------------------------------------------------------
Total Assets $2,813,548 $2,681,605
===================================================================================================
Liabilities and Shareholders' Equity:
NOW $ 200,443 $ 5,216 2.60% $ 175,879 $ 4,765 2.71%
Savings deposits 292,266 9,237 3.16 289,188 9,352 3.23
Money market savings 293,751 9,082 3.09 298,714 9,518 3.19
Time deposits 627,116 32,818 5.23 580,920 31,014 5.34
- ---------------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,413,576 56,353 3.99 1,344,701 54,649 4.06
Purchased funds 392,759 18,362 4.67 381,226 18,200 4.77
- ---------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 1,806,335 74,715 4.14 1,725,927 72,849 4.22
- ---------------------------------------------------------------------------------------------------
Demand deposits 561,202 535,623
Other liabilities 31,791 31,931
- ---------------------------------------------------------------------------------------------------
Total Liabilities 2,399,328 2,293,481
Shareholders' Equity 414,220 388,124
- ---------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,813,548 $2,681,605
===================================================================================================
Net Interest Margin $146,466 5.81% $140,048 5.82%
===================================================================================================
</TABLE>
The above tables are presented on a fully taxable equivalent basis assuming a
41% 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.
<PAGE> 45
CONSOLIDATED AVERAGE BALANCE SHEETS/INTEREST INCOME AND EXPENSE/RATES-Continued
1996
Year Ended December 31 Interest Average
Average Income/ Yield/
Balance Expense Cost
(In thousands)
Assets:
Interest-bearing balances
with banks $ 884 $ 46 5.20%
Federal funds sold and
securities purchased
under agreement to resell 43,036 2,265 5.26
- ------------------------------------------------------------------------------
Securities* 794,002 55,131 6.94
- ------------------------------------------------------------------------------
Loans and lease financing* 1,445,235 144,142 9.97
- ------------------------------------------------------------------------------
Total Earning Assets $2,283,157 $201,584 8.83%
- ------------------------------------------------------------------------------
Reserve for possible loan losses (21,453)
Cash and due from banks 128,065
Bank premises and equipment 68,424
Other assets 80,420
- ------------------------------------------------------------------------------
Total Assets $2,538,613
==============================================================================
Liabilities and Shareholders' Equity:
NOW $ 156,695 $ 4,177 2.67%
Savings deposits 294,374 9,599 3.26
Money market savings 295,932 9,830 3.32
Time deposits 511,696 26,599 5.20
- ------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,258,697 50,205 3.99
Purchased funds 356,266 16,913 4.75
- ------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 1,614,963 67,118 4.16
- ------------------------------------------------------------------------------
Demand deposits 529,227
Other liabilities 30,570
- ------------------------------------------------------------------------------
Total Liabilities 2,174,760
Shareholders' Equity 363,853
- ------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,538,613
==============================================================================
Net Interest Margin $134,466 5.89%
==============================================================================
<TABLE>
<CAPTION>
ANALYSIS OF CHANGES IN NET INTEREST MARGIN
Year Ended December 31 1998 vs. 1997 1997 vs. 1996
Due to Due to Total Due to Due to Total
Rate Volume Change Rate Volume Change
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing balances
with banks $ (7) $ (14) $ (21) $ 13 $ (21) $ (8)
Federal funds sold and
securities purchased
under agreement to resell 552 (2,572) (2,020) (10) 1,613 1,603
- ----------------------------------------------------------------------------------------------------
Securities* (2,055) 7,050 4,995 407 1,305 1,712
- ----------------------------------------------------------------------------------------------------
Loans and lease financing* 247 5,083 5,330 402 7,604 8,006
- ----------------------------------------------------------------------------------------------------
Total Earning Assets $(1,263) $9,547 $8,284 $812 $10,501 $11,313
- ----------------------------------------------------------------------------------------------------
Reserve for possible loan losses
Cash and due from banks
Bank premises and equipment
Other assets
Total Assets
Liabilities and Shareholders' Equity:
NOW $ (194) $ 645 $ 451 $ 69 $ 519 $ 588
Savings deposits (214) 99 (115) (79) (168) (247)
Money market savings (280) (156) (436) (404) 92 (312)
Time deposits (623) 2,427 1,804 735 3,680 4,415
- ----------------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits (1,311) 3,015 1,704 321 4,123 4,444
Purchased funds (380) 542 162 55 1,232 1,287
- ----------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities (1,691) 3,557 1,866 376 5,355 5,731
Demand deposits
Other liabilities
Total Liabilities
Shareholders' Equity
Total Liabilities and
Shareholders' Equity
====================================================================================================
Net Interest Margin $ 428 $5,990 $6,418 $436 $ 5,146 $ 5,582
====================================================================================================
</TABLE>
<PAGE> 46
QUARTERLY FINANCIAL DATA
1998
(in thousands except per share amounts) First Second Third Fourth
Total interest income $52,744 $54,164 $54,625 $56,167
Total interest expense 18,650 18,564 18,740 18,761
Net interest income 34,094 35,600 35,885 37,406
Provision for loan losses 1,200 1,200 1,200 1,200
Securities transactions - 390 (19) -
Limited partnership gains (losses) 368 2,585 2,366 (1,844)
Other income 12,040 13,450 13,419 12,627
Other expense 25,547 27,021 26,191 27,786
- -------------------------------------------------------------------------------
Income before taxes 19,755 23,804 24,260 19,203
Applicable income taxes 7,067 8,792 8,916 6,842
- -------------------------------------------------------------------------------
Net Income $12,688 $15,012 $15,344 $12,361
===============================================================================
Net Income Per Share $0.41 $0.48 $0.50 $0.40
===============================================================================
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 $0.38 $0.41 $0.43 $0.41
===============================================================================
Market for Common Stock (Bid Quotations)
First Second Third Fourth
1998
High 38 39 32 39
Low 27 30 28 30
1997
High 19 21 24 31
Low 17 18 21 24
Cash Dividend Declared
Per Share
1998 0.125 0.15 0.15 0.15
1997 0.125 0.125 0.125 0.125
- -------------------------------------------------------------------------------
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. All of the above per share information
has been adjusted for the 1998 stock split of four for one.
<PAGE> 47
NATIONAL BANCORP OF ALASKA DIRECTORS/OFFICER
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
Sharon D. Gagnon
Board of Overseers, Harvard University, Anchorage
Roy Huhndorf
Chairman Emeritus,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
John A. Holmberg
Leo Rhode
Executive Committee
Donald L. Mellish, Chairman
Patrick S. Cowan
Howard R. Nugent
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
Jim Cullen, SVP
James Lund, SVP
Michael McCormack, SVP
Loan Supervision
William Granger, SVP/Loan Administration
Paul Harris, SVP/Consumer Lending
Jim C. Payne, SVP/Branch Lending
Accounting
Thomas Mason, SVP/Controller
Auditing
James Kemp, SVP/Auditor
Debra E. Shannon, VP/Auditing Manager
Rick McCrorie, VP/Compliance Officer
Debbie Dahl-Amundson, VP/Loan Review Manager
Buildings and Properties
Arvin Miller, VP/Manager
Central Customer Service
Catherine Karr, VP/Manager
Central Loan Servicing
Judith Crotty, VP/Manager
Commercial Loans
Jerry K. Weaver, SVP/Manager
Pita Jelley Benz, VP
Lawrence J. Cooper, VP
Richard Monroe, VP
Jo-Li Sellin, VP
David Swalling, VP
R. Brent Ulmer, VP
Matthew Fitzgerald, VP/Small Business Center Manager
Commercial Real Estate
Jan K. Sieberts, SVP/Manager
Jan Hood, VP
Earl Carson, VP
Commercial Credit Services
James Brinker, VP
Gerard Diemer, VP
Linda Lester, VP
Rick Owen, VP
William Phelan, VP
Community Development
Janie Leask, VP/Manager
Consumer Loans
Sharon Engle, VP/Manager
Joyce Haney, VP
Consumer Special Credit Services
Bev Gunson, VP/Manager
Corporate Relations
Benjamin A. Barrera, VP/Manager
Margaret Richmond, VP
<PAGE> 48
Electronic Services
John Hoyt, VP/Manager
Anne Habza, VP
Judith Panke, VP
Takao Tsukada, 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, SVP/Manager
Michelle Carufel, VP
Lorna Gleason, VP
Mortgage Loans - Fairbanks
Jim Matherly, AVP/Manager
Mortgage Loans - Kenai Peninsula
Aaron Swanson, AC/Manager
Mortgage Loans - Ketchikan
Gwennyth Byrd, VP
Mortgage Loans - Southeast
Karen King, VP/Manager
Mortgage Loan Servicing
Amber Hutchens, VP/Manager
NBA Leasing Corporation
Pita Jelley Benz, VP/Manager
NBA International Banking Corporation
Seung Choi, VP/Manager
Operations
Anna Rice, SVP
Patricia Shipley, VP/Cashier and Manager
Louise Bourcier, VP
Vivian Cloud, 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
Meri Stewart, AVP/Manager
Dimond Branch
Donald Cochrane, AVP/Manager
Dimond Mall Branch
Chris Toomer, AVP/Manager
Eagle River Branch
Pam Sievers, VP/Manager
5th Avenue Mall Branch
Darby Hobson, AVP/Manager
Fifth Avenue Branch
Judy L. Ferguson, VP/Manager
510 L Street Branch
(Under jurisdiction of 5th Avenue Mall Branch)
Frontier Branch
(Under jurisdiction of Russian Jack Branch)
Huffman Branch
Mary Webb, VP/Manager
Main Branch
Daniel Keyes, VP/Manager
Midtown Wal-Mart Branch
Scott Schafer, AC/Manager
Minnesota-Benson Branch
Jennifer McClure, AVP/Manager
Northway Mall Branch
Judy Butchart, AC/Manager
Russian Jack Branch
Nancy Gillies, VP/Manager
Sand Lake Branch
Linda Winters, VP/Manager
Sears Mall Branch
Jill Kerich, AVP/Manager
Spenard Branch
Amelia Penrose, AVP/Manager
Mat-Su Valley Branches
Palmer Branch
Deborah Retherford, AVP/Manager
Cottonwood Creek Branch, Wasilla
Eileen Lyse, 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
Charles Hardy, AC/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
Seattle Branch
Frederick S. Richard, SVP (Retired 1/99)
James Cullen, SVP
Shoreline Branch, Ketchikan
Linda Hoefer, AC/Manager
Sitka Branch
Gregory West, AVP/Manager
<PAGE> Inside Back Cover
Skagway Branch
Anthony Alvarado, AC/Manager
Tongass Branch, Ketchikan
Greg Deal, AC/Manager
Wrangell Branch
James Culley, AC/Manager
Other Statewide Branches
Barrow Branch
Wes Osowski, AVP/Manager
Bethel Branch
Mark Renner, AVP/Manager
Cordova Branch
Jon K. Stavig, AVP/Manager
Delta Junction Branch
Dave Durham, AC/Manager
Dillingham Branch
Julie Woodworth, VP/Manager
Glennallen Branch
Daryl Lowe, AC/Manager
King Salmon Branch
Charles Munk, AVP/Manager
Kotzebue Branch
Jo Oxentenko, AVP/Manager
Kodiak Branch
Darren Franz, VP/Manager
Mill Bay Branch, Kodiak
Laura Ash, AVP/Manager
Nome Branch
Scot Henderson, AVP/Manager
Valdez Branch
Jacquelyn K. Robb, AVP/Manager
Community Agents
Carrie Davis, Kake
Arlene Gundersen, Sand Point
Jennifer Hausmann, Galena
Zoe Ivanoff, Unalakleet
Bay Johnson, St. Mary's
Northland Credit
James Carter, General Manager
Northland Mortgage Company
Lynn Berry, President
Advisory Boards
Terry S. Kipp, Chairman
Barrow
Ronald Brower, Forrest "Deano" Olemann, Nate Olemann, Cora Sakeagak
Bethel
Cindy Andrecheck, Christopher R. Cooke, Michael Langlie, Robert Nick
(Nunapitchuk), Gene Peltola
Cordova
Richard Borer, Bill Fisher, Bill Webber, John Wilson
Delta
Adrian Frederick, Lawrence Gilbertson, Scott Miller, Loretta Schooley
Dillingham
Robert Kallstrom, Robert Nanalook (Togiak), Harvey Samuelson, Sally Smith,
Henry Strub
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, Dennis Niedermeyer, 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,
James Stimpfle
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> Back Cover
National Bancorp of Alaska, Inc.
Anchorage, Alaska 99510-0600
(907) 522-8888
www.nationalbankofalaska.com
Annual Shareholders' Meeting
Tuesday, March 16, 1999, 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
1998 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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 153,143
<INT-BEARING-DEPOSITS> 116
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 239,325
<INVESTMENTS-CARRYING> 775,163
<INVESTMENTS-MARKET> 779,708
<LOANS> 1,487,263
<ALLOWANCE> 24,678
<TOTAL-ASSETS> 2,975,580
<DEPOSITS> 2,138,715
<SHORT-TERM> 375,997
<LIABILITIES-OTHER> 35,223
<LONG-TERM> 0
<COMMON> 425,645
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 2,975,580
<INTEREST-LOAN> 155,113
<INTEREST-INVEST> 60,722
<INTEREST-OTHER> 1,865
<INTEREST-TOTAL> 217,700
<INTEREST-DEPOSIT> 56,353
<INTEREST-EXPENSE> 74,715
<INTEREST-INCOME-NET> 142,985
<LOAN-LOSSES> 4,800
<SECURITIES-GAINS> 371
<EXPENSE-OTHER> 106,545
<INCOME-PRETAX> 87,022
<INCOME-PRE-EXTRAORDINARY> 87,022
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,405
<EPS-PRIMARY> 1.79
<EPS-DILUTED> 1.79
<YIELD-ACTUAL> 5.81
<LOANS-NON> 6,582
<LOANS-PAST> 3,101
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 72,375
<ALLOWANCE-OPEN> 24,530
<CHARGE-OFFS> 10,000
<RECOVERIES> 5,348
<ALLOWANCE-CLOSE> 24,678
<ALLOWANCE-DOMESTIC> 11,114
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,564
</TABLE>
