<PAGE> Cover
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, 1999
[ ] 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
incorporation or organization) Identification No.)
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 8, 2000: $342,205,605
The registrant has one class of common stock, $2.50 par value. Numbers of
shares outstanding at February 8, 2000: 30,224,177.
Documents Incorporated By Reference
Parts of Form 10-K
Documents into which incorporated
1999 Annual Report to Shareholders Part I and II
Form 10K, File No. 0-10769 for December 31, 1998 Part IV
Form S-14, File No. 2-78795 for August 11, 1982 Part IV
<PAGE> 2
Table of Contents
Part I
Page
Item 1 Business.......................................................... 3
Item 2 Properties....................................................... 10
Item 3 Legal Proceedings................................................ 10
Item 4 Submission of Matters to a Vote of Security Holders.............. 10
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters...................................... 11
Item 6 Selected Financial Data.......................................... 11
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 11
Item 8 Financial Statements and Supplementary Data...................... 13
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............................. 13
Part III
Item 10 Directors and Executive Officers of the Registrant.............. 14
Item 11 Executive Compensation.......................................... 19
Item 12 Security Ownership of Certain Beneficial Owners and Management...22
Item 13 Certain Relationships and Related Transactions.................. 24
Part IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................................. 25
<PAGE> 3
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 the Corporation and its
subsidiaries, see pages 2 through 17 of National Bancorp of Alaska, Inc.'s 1999
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, 1999, the Bank's banking operations are conducted from 55
banking offices, 3 loan offices and 71 electronic branches located throughout
the state of Alaska and in Seattle, Washington, including 16 banking offices
and 30 electronic branches in Anchorage. The Bank's subsidiaries operations
are conducted from 11 locations throughout the state of Alaska including 4
offices in Anchorage.
<PAGE> 4
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 $2.17 million under its supervision
as of December 31, 1999.
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 1,117 full time equivalent employees and Bank
subsidiaries has 101 full time equivalent employees. Management considers
employment relations to be good. None of the Bank's employees are covered by a
collective bargaining agreement.
<PAGE> 5
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.
Effective March 13, 2000, a bank holding company may elect to become a
financial holding company and thereby to engage in a broader range of financial
and other activities than are permissible for bank holding companies. In order
to qualify for the election, all of the depository institution subsidiaries of
the bank holding company must be well capitalized and well managed, as defined
by regulation, and all of its insured depository institution subsidiaries have
achieved a rating of "satisfactory" or better with respect to meeting community
credit needs. Pursuant to the Gramm-Leach-Bliley Act, financial holding
companies will be permitted to engage in activities which are "financial in
nature" or incidental or complementary thereto, as determined by the Federal
Reserve Board. The Gramm-Leach-Bliley Act identifies several activities as
"financial in nature", including, among others, insurance underwriting and
agency, investment advisory services, merchant banking and underwriting,
dealing or making a market in securities. National Bancorp of Alaska has not,
at this time, made any decision with respect to whether it will elect to become
a financial holding company under the Act.
<PAGE> 6
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.
Under the Gramm-Leach-Bliley Act, subject to limitations on investment, a
national bank which is well capitalized and well managed, as defined by
regulation, and has a satisfactory or better community reinvestment rating, may
through a financial subsidiary of the bank, engage in activities that are
financial in nature or incidental thereto, excluding , among others, insurance
underwriting, insurance company portfolio investment, real estate development
and real estate investment. No decision has, at this time, been made with
respect to the establishment of financial subsidiaries of the Bank.
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.
Various legislation, including proposals to substantially change the financial
institution regulatory system and to expand or contract the powers of banking
institutions and bank holding companies, is from time to time introduced in
Congress. This legislation may change banking statutes and the operating
environment of the National Bancorp of Alaska, Inc. and its subsidiaries in
substantial and unpredictable ways. If enacted, such legislation could
increase or decrease the cost of doing business, limit or expand permissible
activities or affect the competitive balance among banks, savings associations,
credit unions, and other financial institutions. National Bancorp of Alaska
can not accurately predict whether any of this potential legislation, will
ultimately be enacted, and, if enacted, the ultimate effect that it, or
impending regulations, would have upon the financial condition or results of
operations of the combined company or any of its subsidiaries.
<PAGE> 7
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 1999 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............... 46-47
C. Analysis of Changes in Net Interest
Income due to rate and volume................... 47
II. Investment Portfolio:
A. Book Value of Investments....................... 40
B. Weighted Average Yield.......................... 40
III. Loan Portfolio:
A. Types of Loans for Each Reported Period......... 41
B. Maturities and Sensitivity to Changes in
Interest Rates.................................. 41
C. Risk Elements................................... 42
IV. Summary of Loan Loss Experience:
A. Analysis of Allowances for Loan
Loss Experience................................. 43
V. Deposits:
A. Average Balance by Type......................... 44
B. Large TCD Maturities - Over $100,000............ 41
VI. Return on Equity and Assets
Selected Ratios for Each Reported Period................... 45
VII. Short-Term Borrowings...................................... 44
<PAGE> 8
III. Loan Portfolio
C. Risk Elements.
Potential Problem Loans
At December 31, 1999, an additional $51,428,000 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 outstanding loans to individuals or countries as of
December 31, 1999.
<PAGE> 9
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, 1999
Commercial and Industrial 39.1% 7.8% $2,148
Real Estate Construction 5.3 0.2 57
Real Estate Long-Term 29.3 1.1 312
Installment 21.8 33.4 9,194
Nontaxable 4.0 - -
Lease Financing 0.5 - -
Unallocated - 57.5 15,854
---------------------------------------
100.0% 100.0% $27,565
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
<PAGE> 10
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 41 of its banking
offices and subsidiary offices (including six which are subject to ground
leases) and leases 99 other banking and loan offices and subsidiary offices
under agreements expiring between 1999 and 2031.
ITEM 3. LEGAL PROCEEDINGS
For information concerning legal proceedings, see Note 15 of "Notes to
Financial Statements" at page 33 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 1999.
<PAGE> 11
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 48 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 38 through 47, and
the Chairman's message to shareholders on page 2 and 3 of the Annual Report,
which are incorporated herein by reference.
<PAGE> 12
Item 7A Interest Rate Sensitivity
December 31, 1999
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
2000 2001 2002 2003 2004 There- Total Fair
after Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Assets
Investment securities $ 219,911 $134,281 $ 94,748 $ 61,890 $ 46,638 $148,423 $ 705,891 $ 687,360
Average interest rate 6.38% 6.46% 6.66% 6.64% 6.68% 6.56% 6.52%
Securities available
for sale 51,100 19,332 44,865 22,250 70,205 50,407 258,159 258,159
Average interest rate 6.26% 6.52% 6.38% 6.60% 6.23% 4.49% 5.63%
Interest-bearing balances
with banks 253 - - - - - 253 253
Average interest rate 4.99% - - - - - 4.99%
Securities purchased un-
der agreement to resell 25,000 - - - - - 25,000 25,000
Average interest rate 5.90% - - - - - 5.90%
Loans and leases 358,064 175,628 155,002 112,473 83,738 235,712 1,120,617 1,121,342
Average interest rate 8.31% 9.34% 9.38% 8.75% 8.74% 8.91% 8.82%
Loans held for sale 66,478 - - - - - 66,478 66,553
Average interest rate 7.66% - - - - - 7.66%
Variable Rate Assets
Loans and leases 527,528 3,344 1,407 843 1,040 1,783 535,945 535,945
Average interest rate 9.41% 9.40% 9.41% 9.42% 9.41% 9.45% 9.41%
----------------------------------------------------------------------------
Total Earning Assets $1,248,334 $332,585 $296,022 $197,456 $201,621 $436,325 $2,712,343 $2,694,612
============================================================================
Fixed Rate Liabilities
Time deposits $ 487,916 $109,266 $ 11,664 $ 17,241 $ 6,951 $ - $ 633,038 $ 632,531
Average interest rate 4.83% 4.98% 4.59% 6.10% 5.61% - 4.85%
Other deposits 871,398 - - - - - 871,398 871,398
Average interest rate 2.83% - - - - - 2.83%
Purchased funds 404,587 1,061 250 - - - 405,898 405,978
Average interest rate 4.70% 5.23% 5.67% - - - 4.70%
Variable Rate Liabilities
Time Deposits 47,761 - - - - - 47,761 47,761
Average interest rate 5.43% - - - - - 5.43%
----------------------------------------------------------------------------
Total Interest
Bearing Liabilities $1,811,662 $110,327 $ 11,914 $ 17,241 $ 6,951 $ - $1,957,845 $1,957,668
============================================================================
Interest Sensitivity Gap (563,328) 222,258 284,108 180,215 194,670 436,325 754,248
Cumulative Gap (341,070) (56,962) 123,253 317,923 754,248
Ratio of Interest Sensitive
Assets to Interest
Sensitive Liabilities .68 3.01 24.85 11.45 29.01 N/A 1.39
Cumulative Ratio .68 .82 .97 1.06 1.16 1.39
</TABLE>
<PAGE> 13
Nonperforming Assets
Other real estate owned increased from $486,000 at December 31, 1998 to
$840,000 at December 31, 1999. Assets with a book value of $659,000 were
sold during 1999.
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 37 of the Annual Report are incorporated herein by reference.
The quarterly financial data on page 48 of the Annual Report is
incorporated herein by reference.
ITEM 9. CHANGE IN ACCOUNTANTS
Not Applicable.
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AND YEAR
FIRST BECAME A SHARES OF COMMON
DIRECTOR OF THE PRINCIPAL STOCK BENEFICIALLY
COMPANY OR A OCCUPATION OR OWNED AS OF
NAME PREDECESSOR EMPLOYMENT(6) JANUARY 31, 2000(2)
- ------------------------------------------------------------------------------
PERCENT
SHARES OF
HELD CLASS(5)
- ------------------------------------------------------------------------------
Donald B. 63 President, Don 7,720
Abel, Jr. 1976 Abel Building
Supplies, Inc.
(retail building
supplies)
Gary M. Baugh 61 President, Baugh 14,000
1983 Construction and
Engineering Company
(construction)
Carl F. Brady Jr. 56 Chairman and CEO, 33,890
1989 Brady & Co. Ins.
(insurance brokerage)
Alec W. Brindle 61 President, Wards 70,704
1977 Cove Packing
Company, Inc.
(salmon cannery)
James O. Campbell 67 Campbell & Campbell 17,088
1972 since 1997 (apartment
rentals); from 1994 to
1997 Commissioner,
Arctic Research
Commission (national
research needs and
objectives in the
Arctic)
Jeffry J. Cook 56 Vice President 2,684
1984 Administration,
MAPCO Alaska, Inc.
(oil refining and
product sales)
<PAGE> 15
AGE AND YEAR
FIRST BECAME A SHARES OF COMMON
DIRECTOR OF THE PRINCIPAL STOCK BENEFICIALLY
COMPANY OR A OCCUPATION OR OWNED AS OF
NAME PREDECESSOR EMPLOYMENT(6) JANUARY 31, 2000(2)
- ------------------------------------------------------------------------------
PERCENT
SHARES OF
HELD CLASS(5)
- ------------------------------------------------------------------------------
Patrick S. Cowan 60 Owner, Birch Ridge 3,882
1994 Golf Course (golf)
Sharon D. Gagnon 59 Civic Leader 3,030
1998
Roy Huhndorf 59 Management Consultant 400
1987 since 1998; Chairman
of the Board, Cook
Inlet Region, Inc.,
from 1996 to 1998
Alaska Native Regional
Corporation); Chairman
and CEO, Cook Inlet
Region, Inc., from
1992 to 1996
James H. Jansen 53 President & CEO of 40,400
1990 Lynden Incorporated
(trucking and
transportation)
Donald L. Mellish 72 Chairman of the 23,500
1964 Executive Committee
of the Bank
Emil Notti 66 Consultant 2,264
1973
Howard R. Nugent 55 President, Howdie 1,000
1996 Homes, Inc.,
(residential and
commercial
construction)
<PAGE> 16
AGE AND YEAR
FIRST BECAME A SHARES OF COMMON
DIRECTOR OF THE PRINCIPAL STOCK BENEFICIALLY
COMPANY OR A OCCUPATION OR OWNED AS OF
NAME PREDECESSOR EMPLOYMENT(6) JANUARY 31, 2000(2)
- ------------------------------------------------------------------------------
PERCENT
SHARES OF
HELD CLASS(5)
- ------------------------------------------------------------------------------
Tennys B. Owens 59 President, Artique Lt. 7,765
1991 Gallery (art retail
sales, marketing, and
publishing
Eugene A. Parrish,
Jr. 54 Vice President, 3,460
1982 Holland America
Cruise Lines since
1996 (travel);
President Westmark
Hotels, Inc. (hotel
and restaurant
management)
J. Michael Pate 52 President, Pate 4,720
1991 Insurance Agency,
Inc. (insurance)
Martin R. Pihl 65 Retired. 8,096
1972
Edward F. Randolph 40 President, Edward F. 400
1995 Randolph Ins.
Agency, Inc.
(insurance)
Edward B. Rasmuson 59 Chairman of the 1,364,150(1) 4.4
1974 Board of the
Corporation and
the Bank
Major General John
Schaeffer (Ret.) 60 Consulting, Arctic 533
1988 Slope Regional
Corporation (Alaska
Native Regional
Corporation)
<PAGE> 17
AGE AND YEAR
FIRST BECAME A SHARES OF COMMON
DIRECTOR OF THE PRINCIPAL STOCK BENEFICIALLY
COMPANY OR A OCCUPATION OR OWNED AS OF
NAME PREDECESSOR EMPLOYMENT(6) JANUARY 31, 2000(2)
- ------------------------------------------------------------------------------
PERCENT
SHARES OF
HELD CLASS(5)
- ------------------------------------------------------------------------------
Michael K. Snowden 54 President, Service 18,842(3)
1995 Transfer, Inc. (fuel
distribution and
transport services)
Richard Strutz 49 President of the 6,214
1992 Corporation and
the Bank
George S. Suddock 60 Chairman, Alaska 1,107,411(4) 3.6
1969 National Corpora-
tion (insurance)
Richard A. Wien(7) 64 Chairman & CEO, 3,764
1974 Florcraft (floor
coverings)
Sharon Wikan 51 Secretary-Treasurer 647
1994 Hammer & Wikan
since 1995 (retail
grocery and general
merchandise)
1. The reported holdings exclude 1,038,880 shares held in trust for Edward B.
Rasmuson, over which Mr. Rasmuson has no power to vote or dispose.
2. The reported holdings include securities with respect to which the director
has or shares the power to vote or dispose. Not included in the securities
reported are the following shares over which the indicated directors had no
power to vote or dispose: 49,692 shares held by the wife of Edward B.
Rasmuson. Director Rasmuson disclaims any beneficial ownership of these
shares held by his spouse.
3. The reported holdings include 8,448 shares held in a family trust of which
Mr. Snowden is a trustee. Mr. Snowden disclaims any beneficial interest of
those shares.
4. The reported holdings include 1,096,267 shares held by a corporation of
which Mr. Suddock is an officer, director, and stockholder. Mr. Suddock
disclaims beneficial ownership of those shares.
5. If no percent is shown, the percent of the nominee's beneficial ownership
is less than one percent.
<PAGE> 18
6. Each nominee has been engaged in the indicated occupation or employment, or
has held the indicated position or one of equivalent responsibility with
his present employer during the past five years, unless otherwise
indicated.
7. None of the nominees serve on the boards of directors of other companies
filing reports with the Securities and Exchange Commission, except that Mr.
Wien is a director of Alaska Air Group, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
officers and directors, and persons who own more than ten percent of the
Corporation's Common Stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors, and
greater than ten percent shareholders are required by SEC regulation to furnish
the Corporation with copies of all Section 16(a) reports they file. Based
solely on review of the copies of such forms furnished to the Corporation, or
written representations that no Form 5's were required, the Corporation believes
that during 1999 all Section 16(a) filing requirements applicable to its
officers, directors, and greater than ten percent beneficial owners were in
compliance.
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 Executive Officer
Name Age Currently Held with Bank Since
- -----------------------------------------------------------------------------
Donald L. Mellish 72 Chairman of the Executive Committee 1964
Edward B. Rasmuson 59 Chairman of the Board of Directors 1972
Richard Strutz 49 President 1985
Kathleen Soderberg 51 Executive Vice President and
Treasurer 1982
Gary Dalton 45 Executive Vice President 1988
James Cloud 46 Executive Vice President 1997
<PAGE> 19
ITEM 11. EXECUTIVE COMPENSATION
The following table shows all compensation paid for the calendar years ended
December 31, 1997, 1998, 1999, to the Chief Executive Officer (CEO) and the
four most highly compensated executive officers (other than the CEO) of the
Corporation and the Bank, and who were serving as executive officers as of
December 31, 1999.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITION YEAR SALARY COMPENSATION COMPENSATION
- ------------------------------------------------------------------------------
Edward B. Rasmuson, CEO, 1999 440,000 35,787 93,408
Chairman of the Board 1998 425,000 42,708 83,890
of Directors, and Director 1997 375,000 49,147 76,518
of the Corporation and
the Bank
Richard Strutz, 1999 400,000 9,925 85,497
President and Director 1998 375,000 18,105 74,585
of the Corporation and 1997 325,000 11,898 66,316
the Bank
Kathleen Soderberg, 1999 305,000 2,399 66,369
Executive Vice 1998 290,000 2,725 58,768
President of 1997 260,000 2,168 53,053
the Bank
Gary Dalton, Executive 1999 250,000 700 55,353
Vice President of 1998 235,000 3,659 48,533
the Bank 1997 205,000 1,943 41,830
James L. Cloud, 1999 200,000 187 45,338
Executive Vice 1998 180,000 244 38,297
President of the Bank 1997 130,000 0 27,641
Other Annual Compensation is the amount reimbursed during the fiscal year for
the payment of Federal Income Taxes arising from non-tax deductible business
use of a corporate aircraft.
All Other Compensation is cash compensation earned under a Profit Sharing Plan
and Trust available to all employees meeting certain age and service
requirements.
The above named officers receive no compensation other than as shown in the
foregoing table, and the Corporation and the Bank have no other existing plans
or arrangements other than as follows:
In 1994, the Board of Directors of the Bank approved a plan whereby any officer
holding a title of Senior Vice President or above (which includes the named
officers) can elect to defer receipt of up to a total of 15% of his/her annual
compensation. This 15% includes any amounts deferred under the 401(k) portion
of the existing profit sharing program. Amounts deferred are not additional
compensation, only deferral of receipt of a portion of regular annual
compensation. Amounts deferred in excess on the 401(k) portion become an
<PAGE> 20
unsecured obligation of the Bank and become payable at termination of
employment. Amounts in excess of the 401(k) portion are annually credited with
interest at a percentage equivalent to the Bank's overall return on average
earning assets. In 1996, the Board increased the maximum allowable percentage
of deferral from 15% to 20%. In 1997, the Board increased the maximum
allowable percentage of deferral to 100%.
COMPENSATION OF DIRECTORS
The directors of the Corporation are also directors of the Bank. Directors of
the Corporation receive no compensation for attendance at meetings of the
Corporation's Board of Directors, or for committee meetings.
Bank directors who are not officers of the Bank receive $1,000 for each Bank
Board of Directors meeting attended. Bank directors who are officers of the
Bank receive no compensation other than that received as an officer. Each Bank
director (who is not otherwise an employee of the Bank) also receives $1,000
for attendance at each committee meeting of the Bank.
No director received compensation for services as a director during 1999 in
addition to or in lieu of the standard arrangement that is described above.
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
There are no employment contracts between the Corportion or the Bank and the
named executive officers. There are no plans or arrangements for compensation of
named executive officers resulting from a change in control of the Corporation
or the Bank.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1992, the Bank formed a standing Compensation Committee composed of
Directors Campbell, Jansen, and Pihl. None of the Compensation Committee
members: a) has ever been an officer or employee of either the Bank or the
Corportion; or b) has any relationship with the Corporation or the Bank that
requires disclosure other than as discussed under "Transactions with Directors,
Executive Officers, and Associates" in this report.
During the fiscal year ending December 31, 1999 no executive officer of the
Bank or the Corporation: a) served as a member of the Compensation Committee of
another entity, one of whose executive officers served on the Compensation
Committee of the Bank; or b) served as a director of another entity, one of
whose executive officers served on the Compensation Committee of the Bank; or
c) served as a member of the Compensation Committee of another entity, one of
whose executive officers served as a director of the Corporation.
EXECUTIVE COMPENSATION
In October 1992, the Securities and Exchange Commission adopted new rules
regarding the disclosure of compensation of named executive officers. The goal
of these rules is to clarify disclosure and the rationale and basis for such
compensation. In response to the new rules, a Compensation Committee of three
"outside" directors was formed. The Committee met once in 1998.
<PAGE> 21
COMPENSATION COMMITTEE REPORT
The Bank's compensation of executive officers is based on evaluation of many
factors, including financial performance, information on industry compensation
practices and levels, the ability to retain senior management, and an objective
to have salaries at levels that can be maintained in the future.
Compensation of all employees, including executive officers, is based on direct
salary and participation in the Bank's Profit Sharing Plan. The Bank does not
grant executive employees stock options, stock appreciation rights, or other
forms of long-term incentive compensation which are a significant portion of
most peer bank compensation programs.
Independent consultants are periodically engaged to report on comparisons of
the Bank's performance and the compensation of the Bank's highest paid
executive officers with similar size banks. In recent years, the Bank has
experienced substantial growth in assets and the Bank's earnings as a return on
assets have been outstanding.
The Chairman of the Board's recommendations of salaries for the five highest
paid officers of the Bank for 1999, which are approved by the Compensation
Committee on behalf of the Board of Directors, are as follows:
Chairman of the Board and CEO Edward B. Rasmuson $440,000
President Richard Strutz $400,000
Executive Vice President Kathleen Soderberg $305,000
Executive Vice President Gary Dalton $250,000
Executive Vice President James L. Cloud $200,000
The Compensation Committee has consistently found that salaries of the Bank
executive officers are well within comparisons with other banks of similar size
and consistent with the compensation plan objectives of the Bank.
COMPENSATION COMMITTEE
James O. Campbell
James H. Jansen
Martin R. Pihl
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table presents certain information with respect to the only
person who is known by the Corporation to be the beneficial owner of more than
five percent of the Corporation's Common Stock as of January 31, 2000.
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- ----------------------------------------------------------------------------
Common Stock Elmer R. Rasmuson 15,764,564* 52.3%
Par Value $2.50 P.O. Box 100600
Anchorage, AK 99510-0600
*Included among the shares of Common Stock reported as beneficially owned by
Mr. Rasmuson, over which he has sole voting and dispositive powers, are the
following:
(a) Mr. Rasmuson has sole voting and dispositive powers over 3,116,640 shares
(10.3% of the outstanding shares) which he holds as trustee under three
trusts for the benefit of each of his children.
The foregoing is not to be construed as an admission by Mr. Rasmuson that he is
the beneficial owner of the shares identified in (a) above, and Mr. Rasmuson
expressly disclaims beneficial ownership of those shares.
The directors and executive officers of the Corporation and the Bank own
beneficially 2,760,276 shares or 9.0% of the Corporation's outstanding Common
Stock. Not included in these shares are 49,692 shares held of record and owned
beneficially solely by spouses and minor children of members of this group.
<PAGE> 23
SECURITY OWNERSHIP OF MANAGEMENT AS OF 1-31-2000
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP CLASS(2)
- ------------------------------------------------------------------------------
Common Stock Edward B. Rasmuson 1,364,150(1) 4.4
Par Value $2.50
Common Stock Richard Strutz 6,214
Par Value $2.50
Common Stock Kathleen Soderberg 7,215
Par Value $2.50
Common Stock Gary Dalton 3,536
Par Value $2.50
Common Stock James L. Cloud 2,961
Par Value $2.50
1. Reported holdings exclude 1,038,880 shares held in trust for Edward B.
Rasmuson on which Mr. Rasmuson has no power to vote or dispose. Also
excluded are 49,692 shares held by the wife of Edward B. Rasmuson. Mr.
Rasmuson has no power to vote or dispose of these share and disclaims any
beneficial ownership.
2. If no percent is shown, the percent of the nominee's beneficial ownership
is less than one percent.
CHANGES IN CONTROL
On January 12, 2000, the National Bancorp of Alaska, Inc. (the Corporation)
executed an Agreement and Plan of Reorganization (the Reorganization Agreement)
which calls for the merger of the Corporation into a wholly-owned subsidiary of
Wells Fargo & Company (Wells Fargo), in which all of the outstanding shares of
capital stock of the Corporation will be exchanged for the shares of common
stock of Wells Fargo. To induce Wells Fargo to enter into the Reorganization
Agreement, Elmer E. Rasmuson and Edward B. Rasmuson each signed a letter of
agreement that, in part, requires them to vote their shares of stock in favor
of the merger at the shareholders meeting that will be held to vote on the
merger.
<PAGE> 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS, AND ASSOCIATES
Certain directors and officers of the Bank and persons associated with them are
customers of and have had transactions, including credit transactions, with the
Bank from time to time in the ordinary course of business. Additional
transactions may be expected to take place in the ordinary course of business
in the future. All loans and commitments included in transactions with such
persons were made in the ordinary course of business, and were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions which the Bank had with
other persons, and did not involve more than the normal risk of collectibility
or present other unfavorable features.
<PAGE> 25
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 1999
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, 1999 and 1998............................23
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997.........22
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997.........24
Consolidated Statements of Comprehensive Income
Years ended December 31, 1999, 1998, and 1997.........25
Consolidated Statements of Changes in Shareholders'
Equity Years ended December 31, 1999, 1998, and 1997..25
Notes to Consolidated Financial Statements............26-36
Report of Independent Auditors........................37
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. are incorporated by reference to exhibit
(3)(i) to annual reporting on Form 10K, File 0-10769 dated
December 31, 1998.
(3) (ii) Bylaws as amended for National Bancorp of Alaska, Inc. are
incorporated by reference to exhibit (3)(ii) to annual
reporting on Form 10K, File 0-10769 dated December 31,
1998.
<PAGE> 26
(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.
(13) Annual Report to shareholders for the year ended
December 31, 1999.
(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
Northland Mortgage Company Delaware
Northland Credit Corporation Alaska
Northland Escrow Services
Corporation Alaska
National Bank of Alaska
Insurance Services, LLC Alaska
Gwaltney & Gwaltney, Inc. Alaska
NB Aviation, Inc. Delaware
(22) There were no matters submitted to a vote of security holders
during the fourth quarter of 1999.
(27) Financial Data Schedule
(b) Reports on Form 8-K
There was one 8-K reports filed during the quarter ended December 31,
1999. It is as follows:
The 8-K dated December 21, 1999, reported a press release announcing the
signing a letter of intent for the merger of National Bank of Alaska and
Wells Fargo. No Financial statement were included.
(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,
1999, is incorporated herein by reference in Item 14(a)1.
<PAGE> 27
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.
February 10, 2000 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:
February 15, 2000 /s/Edward B. Rasmuson
Date Edward B. Rasmuson, Chairman of
the Board and Director (Principal
Executive Officer)
February 15, 2000 /s/Richard Strutz
Date Richard Strutz, President and
Director (Principal Financial Officer)
February 15, 2000 /s/Gary Dalton
Date Gary Dalton, Executive Vice President
(Principal Accounting Officer)
February 15, 2000 /s/Donald B. Abel, Jr.
Date Donald B. Able, Director
February 15, 2000 /s/Gary M. Baugh
Date Gary M. Baugh, Director
February 15, 2000 /s/Carl F. Brady, Jr.
Date Carl F. Brady, Jr., Director
<PAGE> 28
February 15, 2000 /s/James O. Campbell
Date James O. Campbell, Director
February 15, 2000 /s/Jeffry J. Cook
Date Jeffry J. Cook, Director
February 15, 2000 /s/Patrick S. Cowan
Date Patrick S. Cowan, Director
February 15, 2000 /s/Sharon D. Gagnon
Date Sharon D. Gagnon, Director
February 15, 2000 /s/James H. Jansen
Date James H. Jansen, Director
February 15, 2000 /s/Emil Notti
Date Emil Notti, Director
February 15, 2000 /s/Howard R. Nugent
Date Howard R. Nugent, Director
February 15, 2000 /s/Tennys B. Owens
Date Tennys B. Owens, Director
<PAGE> 29
February 15, 2000 /s/Eugene A. Parrish
Date Eugene a. Parrish, Director
February 15, 2000 /s/Michael Pate,
Date Michael Pate, Director
February 15, 2000 /s/Martin R. Pihl,
Date Martin R. Pihl, Director
February 15, 2000 /s/Edward F. Randolph
Date Edward F. Randolph, Director
February 15, 2000 /s/Major General John Schaeffer
Date Major General John Schaeffer(Ret.)
Director
February 15, 2000 /s/Michael K. Snowden
Date Michael K. Snowden, Director
February 15, 2000 /s/George S. Suddock
Date George S. Suddock, Director
February 15, 2000 /s/Richard A. Wien
Date Richard A. Wien, Director
February 15, 2000 /s/Sharon Wikan
Date Sharon Wikan, Director
1999 Annual Report
National Bancorp of Alaska, Inc.
<PAGE> Cover
1999 Annual Report
National Bancorp of Alaska
Relationships
(Photo of man and woman with salmon being prepared for canning process)
(Photo of NBA employee helping in the community at Kids Kitchen)
(Photo of parent and child enjoying a toboggan ride)
<PAGE> Inside Cover
(Photo of couple with child running in field of lupine flowers with mountains in
the background)
Enhancing and Building Strong Relationships
National Bank of Alaska first opened its doors for business in 1916 in the small
town of Skagway, Alaska. We've come a long way since then, with more than 50
branches throughout Alaska and the largest asset base of any financial
institution in the state. We've also expanded to include a full-service branch
in Seattle, Washington.
We have undergone many changes during the decades, but the one key element in
the bank's success has been the relationships we've established along the way.
National Bank of Alaska prides itself on a tradition of strong long-term
relationships with its customers, employees and the communities in which we
serve.
We have always been committed to providing our customers financial products and
services that help them operate more efficiently and enhance their personal and
business lives. Our employees, now topping 1,300, share this vision and are
dedicated to remaining the premier financial services provider in
<PAGE> 1
Alaska in 2000 and beyond as we transition to become part of Wells Fargo &
Company. There will be many positive changes that accompany this transition
during the next two years. Our primary goal is to continue providing the same
great management, the same great people and the same commitment to you, our
shareholders and customers.
Please join us as we review the highlights of 1999. You will find many examples
throughout this report of the partnerships we've developed throughout the years
and how these relationships have helped to make National Bank of Alaska what it
is today.
Contents
2 Letter to Our Shareholders, Customers and Friends
4 Alaska Industry Reviews
4 Construction
5 Fishing
7 Forest Products
8 Government
9 International Trade
11 Mining
12 Petroleum
13 Support Industries
15 Tourism
16 Puget Sound Industry Review
18 Financial Highlights
49 Officer and Board Member Listings
<PAGE> 2
To Our Customer, Shareholders and Friends:
As we begin a new century, we hope you will join us in celebrating the many
accomplishments of National Bancorp of Alaska's past and in looking forward to
the exciting opportunities ahead. It has been an eventful year for us and 2000
promises more of the same. We would like to take a few moments to share some
highlights with you.
We are pleased to report that net income for the year ending December 31, 1999,
was $62.1 million, compared to $55.4 million for 1998. The earnings per share
for the year were $2.05, up 14.5% compared to $1.79 for 1998.
We continue to benefit from a relatively stable Alaskan economy. (For a
complete overview of each of these industries, please refer to the industry
review pages.) We had solid deposit and loan growth in 1999, as well as
significant gains from a diverse portfolio of limited partnership investments.
Throughout the bank, we continued to focus on being Alaska's premier financial
services company. We demonstrated our commitment to delivering value and
convenience to our customers by introducing image statements, Internet banking
and a new insurance subsidiary. We successfully made it to the year 2000
without incident and are happy to report all systems are up and running.
Throughout our annual report, you will find highlights of other important events
and activities.
Of course, the news that dominated 1999 was our decision to merge with Wells
Fargo & Company. During the past few years, National Bank of Alaska has
considered the possibility of partnering with another financial institution.
After long and careful analysis, we found the right investor and partner. In
December, we announced our intent to merge with Wells Fargo & Company and on
January 12, 2000 we signed a definitive agreement.
At this time, the agreement to merge is still subject to regulatory approval and
shareholder approval. At the appropriate time, we will call a shareholders'
meeting to consider the merger proposal and any other matters that may be
necessary. We anticipate that the proposed merger will be completed in the
second quarter of 2000.
We believe that Wells Fargo is the ideal partner for us as we prepare for the
challenges and opportunities of the new century. The new Wells Fargo has
developed a nationwide reputation for its customer and community focus,
innovative technology, diversity of businesses and financial strength. They are
truly a national bank with a local touch. By partnering with Wells Fargo, we
will be able to offer customers more convenience and a broader array of
services.
(Photo of President Richard Strutz and Chairman of the Board Ed Rasmuson)
(Caption for above photo)
Richard Strutz, President (left) and Edward Rasmuson, Chairman of the Board
Over time NBA will assume the identity and brand of Wells Fargo. We anticipate
that this will take place during the next two years. In the meantime, it will
be "business as usual" at NBA. We want to reinforce that we remain committed to
Alaska:
* Loan decisions will continue to be made in Alaska. Like NBA, Wells Fargo
believes that loan decisions are best made by individuals that live and work in
the communities they serve.
* Our customers will continue to do business with the same people, with the
same emphasis on local
<PAGE> 3
decision-making. Like NBA, Wells Fargo values the talents of their employees
and has a company-wide objective of delivering a positive customer experience
every time.
* We will not reduce our corporate donations to the state and contribution
decisions will continue to be made locally. Wells Fargo encourages our
employees' participation within the communities that we serve as well as the
corporate giving for which we are known.
We hope that in the long run you will agree that this decision will not only be
in your best interests, but in the best interest of the communities of Alaska.
We look forward to providing our customers throughout the state with the same
personalized service they have come to expect.
We are proud of the many accomplishments throughout the bank and thank our
employees who have made them possible. We know that the coming year will bring
challenges and changes, as well as opportunities. We are sure that the bank will
enjoy further success in the new millennium as an even greater financial
institution.
We look forward to 2000 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)
1995 1996 1997 1998 1999
Total Assets $2,450,921 $2,648,484 $2,777,066 $2,975,580 $3,053,505
Shareholders' Equity 350,320 377,403 398,881 425,645 451,372
Net Income 41,280 46,516 51,257 55,405 62,109
Net Income Per Share 1.30 1.46 1.63 1.79 2.05
(Side captions to above graphs
1-Year 5-Year
1999 1998 1995 Change Change
Total Assets $3,053,505 $2,975,580 $2,450,921 2.6% 24.6%
Shareholders' Equity 451,372 425,645 350,320 6.0% 28.9%
Net Income 62,109 55,405 41,280 12.1% 50.5%
Net Income Per Share 2.05 1.79 1.30 14.5% 57.7%
<PAGE> 4
Construction Becomes More Stable
By Jim McCormack, Vice President
In the 1990s, Alaska's economy grew more stable and diverse compared to past
cyclical swings -- and construction followed that trend. In 1999, consolidation
and downsizing in the oil industry were offset by gains in tourism and air
cargo. And, Alaska's importance as a strategic military location shows signs of
increased spending for construction in the years ahead. Total construction
employment in Alaska was 17,100 in August 1999, compared to 17,000 in 1998 and
more than 30,000 at the peak of the pipeline construction.
Federal Government
* With $2 billion in recently completed and planned projects, the Army Corp of
Engineers estimates they are the third largest engine of growth in the economy
(after the oil industry and state government). Spending in 1999 for both
military and civilian projects was $269 million.
* $70 million is currently earmarked for environmental cleanup of military
sites polluted during World War II and the early part of the Cold War.
* $45 million was recently spent upgrading Clear Air Force Station's radar to a
digital early warning system that may one day be part of the proposed National
Missile Defense System.
* The Corp awarded a $10-million contract to dredge St. Paul Harbor and create
three submerged breakwaters as the first phase of a $21-million upgrade.
State Government
* The Department of Transportation and Public Facilities funded $358 million in
FY1999.
* The $14.8-million Alaska Native Heritage Center was completed in May. This
showcase of Native culture will employ more than 120 people. It was partially
funded with $3 million from the private sector.
* The $18-million Minnesota Drive/International Airport Road interchange was
95% complete by October.
* Construction began on the $18-million State Courthouse in downtown Fairbanks.
* A $10-million, two-season reconstruction of 15 miles of the Sterling Highway
began.
Local Communities
* The $4.3-million Challenger Learning Center, geared to students in grades 1
through 12, was started in Kenai. It will be the 49th center in the nation when
it opens in April 2000.
* Officials broke ground on the 60,000-square-foot Municipality of Anchorage
One-Stop Permit and Development Center which is funded by NBA.
* The $6.1-million Anchorage Mountain View Community Center was completed in
April.
Private Sector
* Hotel construction is winding down this year in Anchorage with the completion
of the 350-room, 20-story Marriott Hotel; the 112-room Hawthorne Suites Hotel;
the 148-unit NANA/Marriott Residence Inn financed by NBA; and the 78-room
Holiday Inn Express.
* Other hotel projects around the state include the 100-room Talkeetna Lodge
owned by Cook Inlet Regional Native Corporation and Princess Tours' 76-room
expansion of its three-year-old Mt. McKinley Princess Wilderness Lodge (bringing
the total number of rooms to 238).
* Two Office Depot stores opened this fall in Anchorage; and the $32-million
Wasilla Fred Meyer opened its doors in the state's fastest growing region,
breaking the retail chain's sales records.
* A $10-million Anchorage Port to airport fuel pipeline was completed this
summer, crossing 3.5 miles of mud flats from the small boat harbor to Point
Woronzof.
* Residential building permits for 1999 were: 781 in Anchorage, 146 in
Fairbanks, 102 in Juneau and 46 in Ketchikan.
(Photo of two men shoveling concrete at the construction site, with framed
structure in the background.)
(Caption for above photo)
One of many construction projects throughout Alaska in 1999, the $6.5-million
Ketchikan Indian Corporation Health Clinic is scheduled to be completed in April
2000.
<PAGE> 5
(Photo of two men and one woman with salmon being prepared for processing)
(Caption to above photo)
Tonka Seafood owners Wendel Gilbert and Shari Otness visit with Petersburg
Branch Manager, Pierre Kaptanian, while preparing salmon for the canning
process.
Commercial Fishing Faces New Challenges
By Jim Brenner, Senior Vice President and
Rich Monroe, Vice President
Alaska, overall, enjoys the healthiest of the major commercial fisheries in the
world. Still, the fishing industry will continue to face challenges in the form
of unpredictable biological cycles, commodity prices and political/regulatory
issues. Commercial fishing continues to be the state's largest private sector
employer. Some highlights of the fishing year follow:
* The 1999 statewide salmon harvest of more than 212 million fish was the
second largest on record. Pink salmon, a lower-value fish used mostly for
canning, comprised almost 68% of the statewide catch. The sockeye salmon catch
in Bristol Bay was less than average at 25 million fish, but well above the 1997
and 1998 harvests of 12 million and 10 million fish respectively. Prices for
sockeye, typically a higher-value product mainly destined for export to Japan,
have in some years suffered because of quality issues resulting from
insufficient capacity to process the run during the very short season, as well
as the gain in marketshare achieved by the farmed salmon producers.
* The Alaska pollock quota was reduced from 1998 and less product is coming
from Russia. Roe prices were up substantially and fillets slightly. Surimi
prices were flat.
* Fishermen and processors enjoyed a strong opilio crab season, both in terms
of price and harvest. However, the 2000 quota has been sharply reduced and a
2001 opilio season is questionable. King crab prices were very strong due to
increased demand and reduced Russian supply.
* Traditional supply levels of cod from the North Atlantic have not rebounded.
Consequently, Alaska fishermen have enjoyed strong prices throughout the year, a
trend that is expected to carry into 2000.
* Halibut prices held firm and increased throughout the year on a slightly
higher quota than in 1998.
Regulatory Developments
* The American Fisheries Act (AFA) enacted in 1999 has significantly changed
how Bering Sea groundfish is harvested. In exchange for an increase in the
harvest that must be processed on-shore, the off-shore sector was permitted to
form co-ops. This provided agreed-upon quotas for the participants and a more
efficient fishery. In order to "Americanize" this fishery, AFA also required 75%
American ownership of any vessel participating in the fishery, which has
necessitated the pending sale of American Seafood Company, the largest single
entity participating in this fishery.
* The endangered listing of the steller sea lion under the Endangered Species
Act continues to pose uncertainty for the trawl industry. The scientific
understanding for the decline is limited.
* All federal groundfish and crab fisheries in both the Gulf of Alaska and the
Bering Sea / Aleutian Islands will become restricted access fisheries in 2000.
Under the License Limitation Program (LLP), only those fishermen with specific
fishing history in these fisheries will be permitted to continue to participate.
* In 1999, the federal government took control of fish and game management in
federal waterways and lands located in Alaska. It is unknown what impact, if
any, this will have on the commercial fishing industry.
(Sidebar)
Reaching Out to All Alaskans
* NBA is the largest bank in Alaska with a network of 54 branches in 29
communities and more than 130 ATMs.
* Our community agent program allows us to provide financial education and
assistance with banking services to people living in five small rural villages
from Kake to Unalakleet.
* NBA participates in outreach efforts for minorities, women and under-served
groups seeking information about business opportunities. For example, each year
NBA sponsors a Rural Small Business Conference that is attended by more than 140
Alaskan business owners.
* NBA has been a major sponsor of the Alaska Federation of Natives Convention
for many years.
<PAGE> 6
(Full page photo of two men outside at lumber yard with logs in the background.)
(Caption of the photo)
Joe Everhart, Ketchikan Branch Manager, and Frank Age of Pacific Log and Lumber
discuss current trends in the forest products industry.
<PAGE> 7
(Photo of heavy equipment outside moving logs to shredder.)
(Caption for above photo)
Southeast Alaska timber is chipped for export to Canada.
Forest Products Industry is Upbeat and Working Hard
By John Scoblic, Vice President
The reduced demand from Pacific Rim countries for Alaska timber and timber
products continues. There also has been no positive move by the U.S. Forest
Service to increase economical timber sales. Despite these trends, the timber
industry is upbeat and working hard to preserve a viable industry and Alaskan
jobs. Here are some 1999 highlights:
* An ongoing lawsuit filed by the Alaska Forest Association and Southeast
Alaska communities challenging the Tongass Land Management Plan continues to
have positive momentum. The suit seeks to reverse aspects of the plan that were
added by the government without required public comment. The goal is to increase
timber available for harvest.
* The sale of Ketchikan Pulp Company assets in Ketchikan to a group known as
Gateway Forest Products is complete. Gateway will continue to operate the
Ketchikan sawmill and is building a veneer plant which they hope will begin
producing veneer for market in August 2000.
* Southeast sawmills continue to operate despite challenges. Demand remains
good for their product; Pacific Northwest markets continue to value Alaska
lumber products as do Pacific Rim buyers, and product is still being moved to
those markets.
* The forecast of timber available for sale from the State of Alaska Mental
Health Trust and University of Alaska lands is much higher than that available
from Federal land -- an opportunity not lost on the industry. The challenge will
be to perform some primary manufacturing of that wood in Alaska rather than
continuing to export round logs.
* The spruce bark beetle infestation has almost run its course through
Southcentral Alaska. Only a few years of marketable wood remains.
* Alaska Spruce Products, Inc., owned by Gates Construction, is in full
operation south of Ninilchik and is currently supplying kiln-dried lumber to The
Home Depot and Arctic Builders Supply in Anchorage, and Spenard Builders Supply
in Homer. Gates Construction has also purchased the Homer chip facility formerly
owned by Circle DE Pacific and is now fully integrated, controlling the timber
it has purchased from logging to market.
* Interior forest activity is slow although lumber is being produced for local
consumption.
(Sidebar)
Enhancing Business Relationships
* NBA has in-house industry experts on staff to better serve the various
business segments among our customer base.
* NBA was ranked the top small business-friendly microlender in Alaska by the
U.S. Small Business Administration with 3,809 microloans (loans of $100,000 or
less) valued at $51.74 million given between June 1997 and June 1998.
* NBA has 14 school-business partnerships in Anchorage where specific branches
partner with a school. These partnership agreements include offering tours of
the branches, teaching "Basic Banking" seminars, and displaying student artwork
in branch lobbies.
<PAGE> 8
Gap Between Government Spending and Revenue Widens
By Pete Crandall, Senior Vice President
The September advisory vote on using a portion of the Alaska Permanent Fund
income for government services was overwhelmingly rejected by voters and left
lawmakers and the executive branch with tough decisions on how to fill the gap
between government spending and revenue. The $2.2-billion state operating budget
was projected to have a shortfall of $1.1 billion, but higher-than-anticipated
oil prices brought the FY2000 shortfall to about $630 million.
With the Alaska Permanent Fund earnings off the table as a source of revenue,
lawmakers have the options of cutting government spending, raising taxes or
continuing to draw down on the $2.2-billion Constitutional Budget Reserve
Account. Along with the FY2000 operating budget, lawmakers enacted a $98.5-
million maintenance level capital budget that was slightly higher than FY1999.
With the defeat of one financial plan for dealing with the state's budget
dilemma, Alaskans are again postponing long range solutions to fill the gap
between state revenues and spending. Some of the major contributors to the
government sector are:
Alaska Permanent Fund Corporation
* The fund ended the final year of the decade with a balance of $26.4 billion
and investment earnings more than double state oil revenues.
* The fund earned $2.5 billion in realized net income, an increase of $1.4
billion in value to Alaskans after dividend payments -- which topped $1 billion
in 1999.
* National Bank of Alaska accepted more than 83,000 electronically-deposited
dividends totaling $146 million.
Alaska Housing Finance Corporation (AHFC)
* With assets of more than $4.4 billion, the self-supporting, non-stock, public
housing corporation provided $503 million for 3,889 Alaskans to purchase homes
in 1999, an increase of 19%.
* The corporation contributed more than $41 million to the State of Alaska
treasury and funded nearly $30 million of state capital projects during the
year.
* In partnership with National Bank of Alaska and other lenders, AHFC funded a
record 874 rural housing loans totaling $128.6 million during the year.
* NBA was again the largest seller/servicer of AHFC home loans with more than
14,000 loans totaling $1.4 billion.
Alaska Industrial Development and Export Authority (AIDEA)
* The state-established lending authority with assets of $1.2 billion earned
more than $37 million in 1999.
* AIDEA issued $100 million of project bonds in 1999 to purchase the Snettisham
Hydro Electric Project in Southeast Alaska and provided $50 million for the
construction and purchase of the Alaska Seafood Center in Anchorage.
* In FY1999, AIDEA made 879 loans to Alaskan businesses totaling more than $235
million.
* NBA led all other lenders in using the loan participation program, with 106
loans totaling $93.7 million, and in dollars funded under the agency's
guaranteed loan program, with $1.8 million in loans.
Federal Government Spending
* In what was described as the most significant appropriations bill enacted for
Alaska since the days of the 1964 earthquake, Alaskans were the recipients of
more than $60 million in federal appropriations in 1999. This money was spread
from the North Slope's $1 million for gas-to-liquid research to $22 million for
Southeast Alaska communities hit hard by the economic downturn in the timber
industry.
(Photo of capital building in Juneau on sunny day with flowers in foreground.)
(Caption for above photo)
The state's lawmakers and the executive branch face tough decisions on how to
fill the gap between government spending and revenue.
<PAGE> 9
(Photo of construction workers at work near overpass at Anchorage International
Airport.)
( Caption for above photo)
Construction at the Anchorage International Airport continued in 1999, as part
of the $350-million "Gateway Alaska" capital improvements plan. Anchorage's air
transportation revenues are seven times the national average.
International Trade On The Rise
By Seung Choi, Vice President
Alaska's major commodities exports for the first nine months of 1999 were 26%
higher in value than the same period in 1998. The increase is the result of
renewed demand for Alaskan products such as fish, mineral fuel, oil and forest
products from our major trading partners, Japan and Korea, and the steady
appreciation of their currencies from the deep devaluation during that time.
During the past several years, exports have remained fairly steady except for
1998 when the "Asian flu" hit our major export market. The total export value
during the first nine months of 1999 was $1.95 billion -- almost at the level of
pre-Asian flu years. The total Alaska export volume in 1999 is expected to be
about $2.7 billion.
Seafood continues to be the top export commodity, accounting for 43% of Alaska
exports. During the first nine months of 1999, Alaska companies exported $842
million of seafood, up more than 50% compared to the same period in 1998. A
strong salmon harvest, along with the economic recovery of Asian countries,
contributed to the increase. Crude oil and other mineral fuel exports increased
by 31%, reaching $492 million due to substantial increases in demand from Japan
and Korea. Mineral ores, slag and ash exports dropped by 3% from $248 million to
$241 million. Forest product exports jumped 39%, from $121 million to $169
million.
Japan continues to be Alaska's top export destination with more than 55.3% of
Alaska's total exports. Exports to Japan increased by 57%, to $1.08 billion,
during the first nine months of 1999.
South Korea remained Alaska's second biggest export market with $341 million, or
17.5%, of Alaska's exports. Alaska's exports to South Korea were up 43% compared
to the first nine months of 1998. Canada ranked third with $100 million, or 5.1%
of Alaska's exports (a decrease of 28% compared to 1998, due to substantial
reduction in export of metallic ores). Belgium was the fourth largest market,
taking $92 million. Imports of Alaska goods were up 63% from the previous year
due to increased export of mineral ores to the country. China and Taiwan scored
fifth and sixth largest, with $84 million and $46 million respectively. Alaska's
exports to these two countries declined by about 25% due to the decrease in
crude oil export.
As the Asian economy picks up, demand for Alaskan products will continue this
upward trend. Japan is technically out of a recession and we expect the Japanese
economy will expand slightly in 2000. In 1999, we saw the economies of many
other Asian countries recover from the bottom and we expect that these economies
will continue to expand in 2000. Our exports to those regions should remain
stable in 2000.
(Pie Chart Caption) Alaska's Exports by Country (In millions, for first nine
months of 1999.)
(Pie Chart of Alaska's Exports, See below table of figures and labels
represented in pie chart.)
Japan $1,079 55.3%
South Korea $341 17.5%
Canada $100 5.1%
Belgium $92 4.7%
China $84 4.3%
Taiwan $46 2.4%
Other Countries $209 10.7%
(Sidebar)
Taking a Global Perspective
* NBA was the first financial institution in Alaska, and one of few in the
nation, to be approved as a "Confirming Bank" by the European Bank for
Reconstruction and Development (EBRD) for their Trade Facilitation Program.
Under this program, EBRD will issue guarantees in favor of NBA, to cover up to
100% of obligations of Russian banks accepted into the program.
* NBA was the first U.S. bank approved for a loan guarantee program through the
"Development Credit Authority" to assist in making loans to U.S. companies
involved in the Russian Far East sector.
* NBA is also approved to participate in U.S. Error! Bookmark not defined.EX-IM
Bank programs, helping companies obtain pre-export working capital to procure
products for export, and provide post-export protection to U.S. exporters for
risk due to either commercial or political reasons. The EX-IM Bank also
supports U.S. environmental exporters with insurance, loans and guarantees.
<PAGE> 10
(Full-page photo of Lai Leng Tan serving food at kitchen counter to two kids,
with kitchen workers in the background.)
(Caption for photo)
NBA employees are involved in community activities throughout the state. Here,
Lai Leng Tan, a Central Customer Service Representative, helps out at Elgin
Jones' Kids Kitchen in the Mt. View area of Anchorage.
<PAGE> 11
(Diagram depicts state of Alaska and part of Canada, with Tintina Gold Belt
highlighted in pink.)
(Caption for diagram)
The Tintina Gold Belt spans the Interior of Alaska and part of Canada. It
includes precious metal deposits such as Pogo, Donlin Creek and Fort Knox.
Outlook for Mining Guardedly Optimistic
By James L. Cloud, Executive Vice President
The value of Alaskan metal and coal produced reached nearly $1.1 billion in
1999, the second highest level ever. This is largely due to increased zinc and
lead production at the Red Dog mine and higher zinc prices throughout much of
the year.
Exploration expenditures backed off to about $48 million during 1999 as lower
gold prices continued to lead to reduced investment by mining companies.
Nevertheless, strong investment in exploration continued on promising prospects
such as Pogo, near Delta Junction, and Red Dog, near Kotzebue. Development
spending for expansion of existing mines and for construction of new projects
was just $26 million. The lower development spending is largely because the Red
Dog Production Rate Increase project was completed and Pogo has not yet received
a go-ahead for mine development.
Drilling to determine mine feasibility continues at Pogo and Donlin Creek near
Flat, Alaska. Pogo, held by Sumitomo Metal Mining Company and Teck Exploration,
is the brightest gold property prospect since Fort Knox. Teck has identified
more than 5.2 million ounces of gold in the Pogo deposit. All of these precious
metal deposits are located along the Tintina Gold Belt.
While gold prices firmed with the announcement of a more rational plan for sale
of gold bullion held by European central banks, the price needs to improve
further for smaller mining firms to resume mining and exploration. Lower gold
prices and improving economies in East Asia have led to improved demand for
fabrication.
Most mine production in 1999 centered around four mines: the Red Dog zinc mine,
the Greens Creek silver mine, the Fort Knox gold mine and Usibelli Coal Mine.
Red Dog, owned by Cominco, Ltd. and NANA Regional Corporation, is the largest
zinc producer in the world with 10% of the world's mine production and 75% of
the zinc mined in the United States. Greens Creek is the largest producer of
silver in the United States and also produces zinc, lead and gold.
The outlook for the mining industry in Alaska is guardedly optimistic. Low gold
prices limit investment in exploration to only very large deposits with good
grades. The more remote the prospect, the richer it needs to be to attract
continued interest from miners and investors. Zinc demand continues to be strong
for industrial and medical uses worldwide. Zinc producers in Alaska continue to
work to lower production costs and improve productivity and efficiency.
Alaska continues to be a friendly place to develop mines with the enormous
private land holdings of Alaska Natives and the State of Alaska-owned lands open
for mining. Only the federal lands are off limits to mining. The new century is
likely to see an increase in mining employment and investment in Alaska that
will improve the lives of Alaskans throughout the state, making available our
precious, strategic and industrial metals to people around the world.
Economic Value of
the Alaska Mining Industry
(In millions) `95 `96 `97 `98 Est. `99
- --------------------------------------------------------------------
Exploration $34 $45 $58 $56 $48
Development $149 $394 $168 $52 $26
Production $537 $590 $936 $920 $1,014
- --------------------------------------------------------------------
Total $720 $1,029 $1,162 $1,028 $1,088
Source: State of Alaska, Division of Mining
Year-Round
Equivalents `95 `96 `97 `98 `99
- --------------------------------------------------------------------
Employment 3,406 3,737 3,862 3,900 3,700
(Sidebar)
Giving Back to the Community
* NBA has a strong tradition of support for community needs throughout the
state. For the past three years, our partnerships with non-profit organizations
have averaged more than $1.5 million per year.
* NBA was awarded its third consecutive "outstanding" rating by federal
examiners for its efforts in meeting the credit needs of low- and moderate-
income people and communities under the Community Reinvestment Act (CRA).
* NBA matches $.50 for each $1.00 employee contribution to the United Way.
Through employee fundraising efforts and this matching program, we committed
more than $100,000 in 1999 to United Way agencies in Anchorage, Fairbanks, Mat-
Su, Kenai Peninsula, Southeast, Valdez and Seattle.
* 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.
<PAGE> 12
Petroleum Industry Sees Big Changes
By Pita Jelley Benz, Vice President
When the year started, oil prices were at historic lows with major adverse
impact on activity and employment in the oil industry in Alaska and worldwide.
In April, before the prices rebounded, BP-Amoco and ARCO announced a planned
$27-billion merger. At year-end, the deal was still awaiting approval from the
Federal Trade Commission. The proposed merger added a high level of uncertainty
to the oil patch, leading to minimal exploration and development activities
despite a fourth-quarter swing to prices in excess of $24 per barrel for Alaska
North Slope crude. BP-Amoco and the State of Alaska reached an agreement
covering the state's conditions for supporting the merger that calls for BP-
Amoco to divest itself of some of its oil interests on the North Slope, as well
as provisions for environmental clean-up, charitable contributions and a
commitment to make sufficient North Slope gas available for sale to support
qualified gas development projects.
In other merger news, Exxon completed its merger with Mobil in December 1999.
One condition of the regulatory approval requires Mobil to sell its 3% interests
in the TransAlaska Pipeline System.
In a milestone for the oilfield support industry, nine modules destined for the
Alpine field were shipped to the North Slope during the summer. These are the
first large-scale production modules fabricated in Alaska for use on the North
Slope. Work on the Alpine field is one of two key projects on tap for the winter
1999/2000 season; the field is estimated to contain 429 million barrels of
recoverable oil.
The other major center of winter activity will be the Northstar project. Work is
scheduled to build the drilling and production island and pipelines from the
offshore field to onshore facilities. Modules for Northstar are being fabricated
in Alaska and are scheduled to be sealifted to the project in the summers of
2000 and 2001.
Discovery of two new satellite fields was also announced in 1999. The Aurora
field, northwest of Deadhorse, has approximately 20 million to 30 million
barrels of recoverable oil. The Fiord field is the first satellite of the new
Alpine field.
Leasing resumed in the National Petroleum Reserve-Alaska in May 1999. High bids
in excess of $104 million were received on 133 tracts covering 867,450 acres.
The federal government and the State of Alaska will share the proceeds of the
sale on a 50/50 basis.
There was a renewed focus on the vast North Slope natural gas reserves in 1999.
Several groups are working to design commercially feasible projects and
technologies. ARCO, BP-Amoco and EXXON all have projects in various stages of
development. Voters in the North Slope Borough, the Fairbanks Northstar Borough
and Valdez approved formation of a port authority to pursue construction of a
gas pipeline from the North Slope and a liquefaction plant in Valdez to convert
the gas to liquefied form for commercial sale.
In Cook Inlet, installation of Forcenergy's new Osprey Platform, originally
planned for 1999, was delayed a year due to the parent company's financial
problems.
(Photo large-scale module on barge)
(Caption for above photo)
Large-scale modules are transported to the North Slope field by barge from the
Port of Anchorage.
<PAGE> 13
(Photo of customer and retail cashier)
(Caption for above photo)
The labor market in service sectors such as retail is expected to remain tight
in 2000, with fewer job seekers coming to Alaska.
Service Industry Leads Growth
By Margaret Richmond, Vice President
Uncertainty surrounding the oil industry trickled into Alaska's business sectors
this year. Overall job growth was slower than expected at approximately 0.8%. As
it has throughout the decade, the service industry continues to lead growth at
just under 2%, with the retail, healthcare, telecommunications and air cargo
transportation sectors being the driving forces.
The labor market is expected to remain tight next year. Fewer job seekers are
coming to Alaska due to a healthy national economy and there is more migration
from Alaska than into it. The outlook for 2000 is diminishing growth with
expectations around 0.5%. Current and planned developments include:
Service Sector
* The Holiday Inn Express, NANA-Marriott Residence Inn and Hawthorne Inn opened
in Anchorage. Expect to see three times the growth next year with completion of
the 370-room Columbia Sussex Inn. Anchorage residents also welcomed two new
national restaurant chains, Benihana's and Applebee's.
* Healthcare expanded with increased ancillary services and medical facilities.
Providence Hospital completed phase 1 of its 3-phase master site facility plan
and will break ground on its $45-million ER/surgical rooms and medical office
building in April 2000. Alaska Regional budgeted $27 million to renovate
existing facilities and is building new medical offices. Alaska Native Tribal
Health Consortium is gradually privatizing, with about 150 jobs transferred from
the government sector.
* The professional services of engineers, architects and accountants flourished
through construction. Data processing and computer services were healthy in
anticipation of the year 2000.
Retail Trade Sector
* Clothing retail is changing in Anchorage with the opening of three Gap
stores, a Banana Republic and an Old Navy, along with the closing of 10 Jay
Jacobs stores.
* Pier 1 opened a store this fall and Office Depot has two new locations in
Anchorage.
The Carrs/Safeway merger concluded with six former Safeway locations purchased
by Northwest Retail Ventures, dba Alaska Marketplace.
* Wal-Mart is building a new location in Eagle River and expanding its Wasilla
store in 2000.
Transportation/Communication
* With Asia rebounding economically, the transportation industry showed double-
digit growth. A U.S./Chinese agreement in early 1999 allowed expansion of air
service to China with 12 new cargo flights in 1999 and 10 more available in
April 2000.
* During the next decade, a 6% annual growth rate is predicted for
international cargo in the North Pacific Corridor. Anchorage air transportation
revenues are seven times the national average.
* The Alaska Railroad is enhancing its infrastructure and adding services with
the infusion of $65.5 million from the federal government.
* The Anchorage International Airport continues its $350-million "Gateway
Alaska" capital improvements plan.
* William/Lynx completed five of eight hangars for their transcargo facility.
More private sector development is expected, including a new cargo facility
south of the Anchorage International Airport.
* The communications industry continues to be dynamic and competitive, with
more growth expected. Privatization of ATU by Alaska Communications Systems was
completed in early 1999. Recent regulatory decisions for rural exemptions will
open new phone markets.
(Sidebar)
Helping People Achieve Their Financial Goals
NBA provides the most comprehensive product offering of any financial
institution in Alaska. We strive to provide customers with convenient financial
solutions. We deliver services when, how and where our customers want them:
* NBA's Central Customer Service staff is available seven days a week, 8 a.m.
to 8 p.m.
* Our Loan by Phone area provides personal loans six days a week, offering
customers the opportunity to close their loan at any convenient branch
* NBA's Home Loan by Phone area extended its hours and added additional staff.
Customers are also able to view information about their existing mortgage loan
via the Internet.
* Our PC Banking and new Internet Banking services provide 24-hour access to
account information and services.
<PAGE> 14
(Full-page photo of Elena Shawbeck with branch in the background.)
(Caption for photo)
Elena Shawback, Cottonwood Creek Branch, was the top seller in our three-month
long summer sales contest. She and four other personal bankers enjoyed a trip
to Disneyland for their efforts.
<PAGE> 15
(Photo of NANA-Marriott Residence Inn building in wintertime with sun shining.)
(Caption for above photo)
The NANA-Marriott Residence Inn is one of many new hotels built in Anchorage in
1999. The number of Anchorage-area hotel rooms has doubled during the last four
years.
Challenges Lie Ahead for Alaska Tourism
By Ben Barrera, Vice President
Alaska, as a travel destination, continues to face stiff competition from other
exotic world destinations. For that reason and a variety of others, total 1999
visitor numbers were about the same as in 1998 (1.35 million) -- the first flat
year this decade. Additionally, although the first two months of the season were
active for independent small tourism businesses, unseasonably wet and cold
weather caused a lot of cancellations from the Panhandle to the Kenai Peninsula,
bringing the numbers and profits down for that part of the state.
Fortunately, the bad news ends there. Pre-2000 sales are up for the industry as
a whole and indicators show a 3% to 5% growth for 2000 is within reach.
Industry Challenges For The Next Decade
* The organization of a new tourism marketing entity, the Alaska Tourism
Industry Association (ATIA), will combine marketing efforts of the Alaska
Tourism Marketing Council and the State's Division of Tourism. ATIA will receive
less state funding with its primary focus being to increase the industry's
contribution to marketing Alaska tourism.
* The Chugach National Forest's new management plan is expected to have many
impacts on the Prince William Sound region and its diverse interests including
timber, eco-tourism, cruise lines, hunters, fishermen and boaters. In addition,
the new road access to Whittier will bring more visitors to this area than ever
before and increase the potential for new tourism opportunities in the area.
* Deferred maintenance in the Alaska State Parks must be addressed to guarantee
a better experience for visitors. The possible passage of Rep. Don Young's
Conservation Reinvestment Act would bring approximately $19 million to Alaska
for parks and wildlife viewing facilities which would be a welcome sight for the
industry.
* The doubling in Anchorage-area hotel room capacity in the last four years
will mean increased competition in the years ahead and hopefully welcome changes
to visitors in availability and pricing.
* Winter tourism in Alaska remains a challenge, however, the Southcentral
region, with the increase of hotel rooms, new lodges and the possibility of a
new convention center in Anchorage, is making great strides to increase business
during this off-season.
* Continued interest in tourism by Native Corporations around the state, as
major owners of Alaska property, will continue to be a positive influence for
the development of Alaska as a recreational area destination.
(Sidebar)
Connecting with Employees
* NBA is the seventh largest private employer in Alaska with more than 1,300
employees.
* Employees are our #1 resource and we are dedicated to a strong retention
program. Our employees have an average tenure of six years, well above the
industry norm.
* In order to keep our outlying branches connected, a managers' meeting is held
annually in Anchorage to discuss the bank's strategies and coordinate efforts
for the year.
* We continue to focus on sales and training among branch employees. This year,
we sent five of our top sellers to Disneyland after a three-month long sales
contest.
<PAGE> 16
Puget Sound Economy Experiences Slower Growth
By James Cullen, Senior Vice President
There are no more important and enduring economic linkages in the United States
than those between Alaska and Washington's Puget Sound Region. The Puget Sound
connection is a unique feature and special strength for Alaska. The region
offers diversification of markets and economies of scale to Alaskan businesses,
serving as an efficient provider of the goods and services needed to support
Alaska's development.
Washington's economy is slowing from the growth rates of the past three years,
but still remains among the healthier economies in the United States. Puget
Sound is the focal point of the state of Washington's economy. While the best of
times for the region may be over, the area is far from the worst of times, as
shown below:
* Following a rise of 1.9% in 1999, Puget Sound employment is expected to
increase 1.3% in 2000 and 1.5% in 2001 (growth rates more similar to the 1.2%
average experienced from 1990 to 1995 than the 4.2% pace between 1995 to 1998).
* Regional unemployment, at 3.5% in 1999, was up slightly from the prior year,
but remains very low from a historical perspective.
* Current personal income growth is expected to slow from 6.8% in 1999 to 5.5%
in 2000 and 5.3% in 2001.
* The local inflation rate will remain between 2.5% and 3%.
* Puget Sound population growth, which topped out at 1.9% in 1998, is expected
to average 1.2% during the next two years, contributing to weaker housing
activity. Slowing population growth is a result of a reduced net migration to
the region due to a lower rate of job creation.
* The region's retail sales are forecast to increase 3.2% in 2000 and 3.6% in
2001 following gains of 8.7% and 6.5% in 1998 and 1999 respectively.
* Overlaid on these statistics are the economic uncertainties Washington has
experienced in recent months. Competitive challenges and a worldwide downturn in
orders in the aerospace industry have resulted in Boeing's Washington employment
dropping from 101,400 in 1998 to 82,400 at a similar time in 1999. In addition,
last November's ruling that Microsoft has a monopoly in personal computer
operating systems is causing a stir. And, the approval of Initiative 695 by
state voters lowered car license
(Photo of three men standing in front of TOTE ship docked at Tacoma terminal.)
(Caption for the above photo)
Totem Ocean Trailer Express (TOTE) is one of many businesses linking Alaska and
the Northwest. Below, TOTE's Richard Griffith gives NBA's Jim Cullen (left) and
Tim Antilla (right) a tour of TOTE's Tacoma terminal.
<PAGE> 17
(Photo of the exterior of Seattle branch with customer at ATM.)
(Caption for the above photo)
In 1999, National Bank of Alaska converted its Seattle loan production office
into a full-service, ground-floor branch in downtown Seattle, with a commercial
banking center located on the 15th floor.
fees to $30, thus reducing tax collections by more than $1 billion every two
years and resulting in a potential loss of up to 70,000 jobs statewide.
* The Washington state economy is highly dependent on international trade. One-
in-every-four (25%) jobs depend on international trade. While the population of
the state represents 2% of the United States, it ranks fourth nationally in
exports and first in exports per capita. Seven of Washington's top 10 trading
partners are in the Pacific Rim. Despite the economic slump in Asia, Seattle-
area exports in 1998 were a record $34 billion, earning Seattle the distinction
of being the nation's top exporting metropolitan area ahead of Detroit, New York
and San Jose.
* Sea-Tac air freight was up 9.5% and air passenger volume increased 7.6% in
1999, however marine freight was down 16%.
* Pending housing sales in the Puget Sound area dipped slightly below 5,000 per
month in late 1999, however, assessed values rose 6.9% with taxes increasing
7.6% to $5 billion (60% from increasing values and 40% from new construction).
In King County, the median single family house price increased 12.3% to
$242,250, whereas the broader region median price was $185,000, up 4.2%.
* While the Puget Sound region remains highly influenced by its principal
employer, the aerospace industry, the economy continues to diversify and grow in
many ways. Compared to other parts of the nation, the Puget Sound region has a
lot going for it: a reputation as a good place to live and start or expand a
business; a sizable high technology sector centered around software and
biotechnology; significant education and research institutions; airports and
harbor facilities that serve the world; and a strategic location on the Pacific
Rim. As such, while the region's growth has slowed from the peaks of recent
years, it still holds outstanding opportunities for growth and diversification
for National Bank of Alaska and its customer base.
(Sidebar)
Providing the Total Financial Package
* NBA is dedicated to the well-being of people in the communities we serve...
delivering value, convenience and a customer experience that helps customers
reach financial goals for a lifetime.
* We provide more flexibility than ever with our new Internet Banking.
Customers can now go on-line at www.nbak.com to view account history and
transfer money between their NBA accounts.
* In addition to traditional banking products, NBA provides a full range of
investment and retirement options through our Investment Services and Trust
departments.
* National Bank of Alaska Insurance Services, a newly formed subsidiary in
1999, provides customers with all types of property and casualty insurance with
a focus on individuals and small business clients.
<PAGE> 18
(Photo of couple with child running in field of lupine flowers with mountains in
the background.
Financial Highlights
<PAGE> 19
CONTENTS
20 Ten Year Record
22 Financial Statements
22 Consolidated Statements of Income
23 Consolidated Statements of Condition
24 Consolidated Statements of Cash Flows
25 Consolidated Statements of Comprehensive Income
25 Consolidated Statements of Changes in Shareholders' Equity
26 Notes to Consolidated Financial Statements
37 Report of Independent Auditors
38 Management Discussion and Analysis
38 Highlights
38 Net Interest Income
39 Noninterest Income
39 Noninterest Expense
40 Investment Securities, Securities Available for Sale and
Short-Term Investments
40 Liquidity and Interest Rate Sensitivity
41 Loans and Lease Financing
43 Reserve for Loan Losses and Provision for Loan Losses
44 Deposits and Short-Term Borrowings
45 Limited Partnership Investments
45 Shareholders' Equity and Capital Resources
45 Impact of the Year 2000 Issue
46 Consolidated Average Balance Sheets/ Interest Income and Expense/Rates
47 Analysis of Changes in Net Interest Margin
48 Quarterly Financial Data
48 Market for Common Stock
<PAGE> 20
<TABLE>
<CAPTION>
TEN YEAR RECORD
(For the Years Ended December 31) (In thousands except per share amounts and statistics)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Operating Results
Net interest income $ 145,471 $ 142,985 $ 136,242 $ 130,413 $ 120,547
Provision for loan losses 4,950 4,800 5,400 6,650 (3,100)
Noninterest income 70,465 55,382 48,968 50,627 33,992
Noninterest expenses 113,388 106,545 100,352 102,361 94,688
- ----------------------------------------------------------------------------------------------------
Income before income taxes 97,598 87,022 79,458 72,029 62,951
Income taxes 35,489 31,617 28,201 25,513 21,671
- ----------------------------------------------------------------------------------------------------
Net income 62,109 55,405 51,257 46,516 41,280
Cash dividends declared $ 18,162 $ 17,764 $ 15,651 $ 15,915 $ 13,547
Per Share Statistics
Net income $ 2.05 $ 1.79 $ 1.63 $ 1.46 $ 1.30
Cash dividends declared 0.60 0.575 0.50 0.50 0.43
Stock dividends/split -
declared percent - 4-for-1 - - -
Book value at year-end $14.93 $13.86 $12.85 $11.89 $10.99
Year End Totals
Demand deposits $ 605,620 $ 617,532 $ 583,184 $ 539,309 $ 539,714
Interest-bearing deposits:
NOW 236,252 237,245 193,474 174,470 148,896
Money market savings 321,749 291,587 295,088 304,000 291,325
Time and savings 994,196 992,351 909,595 849,274 760,546
- ----------------------------------------------------------------------------------------------------
Total Interest-bearing deposits 1,552,197 1,521,183 1,398,157 1,327,744 1,200,767
Total Deposits 2,157,817 2,138,715 1,981,341 1,867,053 1,740,481
Federal funds purchased and securities
sold under agreement to repurchase 405,788 375,887 362,626 364,569 325,859
Loans and lease financing 1,656,562 1,487,263 1,471,461 1,446,978 1,326,840
Securities held to maturity and
other securities:
U.S. government and agencies 376,652 382,748 301,178 317,145 303,304
State and political subdivisions 22,558 20,229 11,864 15,878 9,008
Other 306,681 372,186 296,420 263,450 241,089
- ----------------------------------------------------------------------------------------------------
Total Investment Securities 705,891 775,163 609,462 596,473 553,401
Securities available for sale 258,159 239,325 228,739 253,552 273,391
Shareholders' equity account 451,372 425,645 398,881 377,403 350,320
Total assets $3,053,505 $2,975,580 $2,777,066 $2,648,484 $2,450,921
- ----------------------------------------------------------------------------------------------------
Other year end statistics:
Number of shares outstanding 30,224,177 30,712,237 7,763,015 7,938,800 7,968,800
Number of shareholders 1,229 1,239 1,196 1,199 1,224
Number of employees (full-time
equivalents) 1,218 1,153 1,160 1,162 1,149
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
TEN YEAR RECORD-Continued
(For the Years Ended December 31 (In thousands except per share amounts and statistics)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating Results
Net interest income $113,471 $112,820 $100,763 $93,739 $85,384
Provision for loan losses 2,200 7,700 4,000 3,000 9,562
Noninterest income 35,538 38,517 38,284 32,875 30,847
Noninterest expenses 89,072 89,571 83,704 82,062 74,889
- ----------------------------------------------------------------------------------------------------
Income before income taxes 57,737 54,066 51,343 41,552 31,780
Income taxes 20,217 18,440 17,316 13,149 6,268
- ----------------------------------------------------------------------------------------------------
Net income 37,520 35,626 34,027 28,403 25,512
Cash dividends declared $ 11,953 $ 11,953 $ 6,774 $ 3,984 $ 3,984
Per Share Statistics
Net income $1.18 $1.12 $1.07 $0.89 $0.80
Cash dividends declared 0.38 0.38 0.21 0.13 0.13
Stock dividends/split -
declared percent - - - - 33.33%
Book value at year-end $9.81 $9.19 $8.45 $7.59 $6.83
Year End Totals
Demand deposits $ 522,285 $ 514,667 $ 468,077 $ 415,584 $ 444,761
Interest-bearing deposits:
NOW 163,088 145,057 126,481 122,376 104,106
Money market savings 326,386 266,949 261,134 248,852 216,284
Time and savings 735,862 679,474 680,578 738,178 799,251
- ----------------------------------------------------------------------------------------------------
Total Interest-bearing deposits 1,225,336 1,091,480 1,068,193 1,109,406 1,119,641
Total Deposits 1,747,621 1,606,147 1,536,270 1,524,990 1,564,402
Federal funds purchased and securities
sold under agreement to repurchase 259,983 283,665 300,335 271,625 245,660
Loans and lease financing 1,226,164 1,122,570 928,999 874,118 922,505
Securities held to maturity and
other securities:
U.S. government and agencies 345,319 282,110 382,460 395,401 516,867
State and political subdivisions 20,239 6,773 10,605 4,639 7,257
Other 213,174 215,386 298,322 266,657 262,760
- ----------------------------------------------------------------------------------------------------
Total Investment Securities 578,732 504,269 691,387 666,697 786,884
Securities available for sale 273,723 186,209 154,514 176,341 -
Shareholders' equity account 312,772 292,976 269,303 242,050 217,631
Total assets $2,344,678 $2,207,280 $2,129,965 $2,077,243 $2,063,258
- ----------------------------------------------------------------------------------------------------
Other year end statistics:
Number of shares outstanding 7,968,800 7,968,800 7,968,800 7,968,800 7,968,800
Number of shareholders 1,243 1,279 1,826 1,332 1,351
Number of employees (full-time
equivalents) 1,176 1,256 1,178 1,173 1,167
</TABLE>
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
(For the Years Ended December 31) (In thousands except per share amounts)
1999 1998 1997
Interest Income:
Loans and lease financing including fees $153,722 $155,113 $149,554
Balances with banks 6 17 38
Federal funds sold and securities purchased
under agreement to resell 2,426 1,848 3,868
Investment securities including dividends:
U.S. government 8,648 10,245 12,267
U.S. agencies 27,396 27,007 22,841
States and political subdivisions 811 706 619
Other securities 24,337 22,764 19,904
- ------------------------------------------------------------------------------
Total Interest Income 217,346 217,700 209,091
Interest Expense:
Deposits 54,749 56,353 54,649
Federal funds purchased and securities
sold under agreement to repurchase 17,119 18,352 18,188
Other purchased funds 7 10 12
- ------------------------------------------------------------------------------
Total Interest Expense 71,875 74,715 72,849
- ------------------------------------------------------------------------------
Net Interest Income 145,471 142,985 136,242
Provision for loan losses 4,950 4,800 5,400
- ------------------------------------------------------------------------------
Net Interest Income after Provision
for Loan Losses 140,521 138,185 130,842
Noninterest Income:
Trust department income 2,959 2,827 2,534
Service charges on deposit accounts 13,843 13,221 12,496
Loan servicing fees 10,430 9,433 8,175
Securities transactions (490) 371 345
Net gains on limited partnership investments 15,182 3,475 4,174
Credit card service fees 8,740 6,941 6,968
Other 19,801 19,114 14,276
- ------------------------------------------------------------------------------
Total Noninterest Income 70,465 55,382 48,968
Noninterest Expense:
Salaries 43,274 41,512 38,539
Profit sharing and other employee benefits 15,191 13,135 12,644
Net occupancy expense of bank premises 8,041 7,601 7,540
Furniture and equipment expense 8,399 8,975 9,113
Other 38,483 35,322 32,516
- ------------------------------------------------------------------------------
Total Noninterest Expense 113,388 106,545 100,352
Income before income taxes 97,598 87,022 79,458
Income taxes 35,489 31,617 28,201
- ------------------------------------------------------------------------------
Net Income $ 62,109 $ 55,405 $ 51,257
==============================================================================
Net income per share $2.05 $1.79 $1.63
==============================================================================
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)
1999 1998
Assets:
Cash and due from banks $ 151,703 $ 153,143
Interest-bearing balances with banks 253 116
Securities purchased under agreement to resell 25,000 -
Securities held to maturity
(Market value $658,917 at December 31, 1999 and
$752,900 at December 31, 1998) 677,448 748,355
Securities available for sale at market
(Cost $259,982 at December 31, 1999 and
$234,854 at December 31, 1998) 258,159 239,325
Other securities at cost 28,443 26,808
Loans and lease financing 1,656,562 1,487,263
Reserve for loan losses (27,565) (24,678)
- ------------------------------------------------------------------------------
Net Loans and Lease Financing 1,628,997 1,462,585
Loans held for sale 66,478 144,735
Net premises and equipment 69,392 70,302
Limited partnership investments 69,658 71,416
Other assets 77,974 58,795
- ------------------------------------------------------------------------------
Total Assets $3,053,505 $2,975,580
==============================================================================
Liabilities and Shareholders' Equity:
Demand deposits $ 605,620 $ 617,532
Interest-bearing deposits:
NOW 236,252 237,245
Savings 313,397 308,924
Money market savings 321,749 291,587
Time 680,799 683,427
- ------------------------------------------------------------------------------
Total Interest-Bearing Deposits 1,552,197 1,521,183
- ------------------------------------------------------------------------------
Total Deposits 2,157,817 2,138,715
Federal funds purchased 1,332 41,315
Securities sold under agreement to repurchase 404,456 334,572
Other purchased funds 110 110
Other liabilities 38,418 35,223
- ------------------------------------------------------------------------------
Total Liabilities 2,602,133 2,549,935
- ------------------------------------------------------------------------------
Shareholders' Equity: 1999 1998
Common stock par value $2.50 $2.50 80,000 80,000
Shares authorized 40,000,000 40,000,000
Shares issued 32,000,000 32,000,000
Capital surplus 63,106 63,095
Retained earnings 351,497 307,550
Accumulated other comprehensive income (1,074) 2,634
Treasury stock at cost (1,775,823 shares
in 1999 and 1,287,763 shares in 1998) (42,157) (27,634)
- ------------------------------------------------------------------------------
Total Shareholders' Equity 451,372 425,645
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $3,053,505 $2,975,580
==============================================================================
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)
1999 1998 1997
<S> <C> <C> <C>
Operating Activities
Net Income $ 62,109 $ 55,405 $ 51,257
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,950 4,800 5,400
Deferred tax expense (credit) (2,670) 1,030 2,183
Depreciation and amortization 8,110 8,137 7,857
Net amortization of premium or discount on securities 927 (315) (1,025)
Gain on security available for sale - (390) (449)
Loss on security available for sale 490 19 104
Gain on limited partnerships (18,497) (7,946) (4,362)
Loss on limited partnerships 3,315 4,471 188
Gain on loan sales (586) (1,095) (444)
Loss (gain) on sales of premises and equipment (119) (377) 74
Gain on sales of other assets (14) (322) (10)
Net decrease (increase) in loans held for sale 78,843 (85,336) (26,297)
Increase in interest receivable, prepaid
expenses, and other assets (2,324) (2,100) (2,043)
Increase (decrease) in interest payable, accrued
expenses, and other liabilities 2,853 416 (1,058)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Operating Activities 137,387 (23,603) 31,375
Investing Activities
Net decrease (increase) in federal funds sold and
interest-bearing balances with banks (25,137) 100,034 (79,917)
Proceeds from maturities of securities held to maturity 317,187 253,397 149,085
Purchases of securities held to maturity (250,779) (419,897) (161,202)
Proceeds from maturities of securities available for sale 77,544 33,665 40,648
Proceeds from sales of securities available for sale 44,952 2,885 41,090
Purchases of securities available for sale (133,890) (46,305) (55,344)
Net increase in loans and lease financing (172,775) (21,230) (28,715)
Net purchases of premises and equipment (5,931) (6,188) (7,295)
Proceeds from sales of limited partnership investments 41,196 17,696 3,637
Purchases of limited partnership investments (36,543) (33,029) (19,874)
Net purchases of other assets (10,907) (3,239) (4,073)
- -----------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (155,083) (122,211) (121,960)
Financing Activities
Net increase in total deposits 19,102 157,374 112,868
Net increase (decrease) in short-term borrowings 29,901 13,235 (2,705)
Acquisition of treasury stock (15,110) (12,806) (14,772)
Proceeds from sale of treasury stock 598 2,344 -
Cash dividends paid (18,235) (17,039) (15,728)
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 16,256 143,108 79,663
- -----------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (1,440) (2,706) (10,922)
Cash and cash equivalents at beginning of year 153,143 155,849 166,771
- -----------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $151,703 $153,143 $155,849
===============================================================================================
</TABLE>
Total interest payments on deposits and purchased funds were $71,859,000 in
1999, $75,108,000 in 1998, and $71,286,000 in 1997. Income tax payments made
during the calendar years of 1999, 1998, and 1997 were $36,407,000, $30,381,000,
and $25,503,000, respectively. Dividends declared and unpaid as of year end
1999, 1998, and 1997 were $4,533,000, $4,607,000, and $3,882,000, respectively.
Limited partnerships with a cost and market value of $12,287,000 were
transferred to securities available for sale in 1999.
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) 1999 1998 1997
<S> <C> <C> <C>
Net income $62,109 $55,405 $51,257
Other comprehensive income, net of taxes:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period (3,909) (185) 847
Less: reclassification adjustment for gains
(losses) included in net income (201) 230 203
- ----------------------------------------------------------------------------------------------------
Other comprehensive income (3,708) (415) 644
- ----------------------------------------------------------------------------------------------------
Comprehensive Income $58,401 $54,990 $51,901
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Other Total
Number Common Capital Retained Comprehensive Treasury Shareholders'
(In thousands) of Shares Stock Surplus Earnings Income Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 31,755 $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 (703) - - - - (14,772) (14,772)
Net unrealized gain on
securities available for sale - - - 644 - 644
- -------------------------------------------------------------------------------------------------------
Balance December 31, 1997 31,052 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 (416) - - - - (12,806) (12,806)
Sale of treasury stock 76 - 95 - - 2,249 2,344
Net unrealized loss on
securities available for sale - - - (415) - (415)
- -------------------------------------------------------------------------------------------------------
Balance December 31, 1998 30,712 80,000 63,095 307,550 2,634 (27,634) 425,645
Net income - - 62,109 - - 62,109
Cash dividend declared - - (18,162) - - (18,162)
Purchase of treasury stock (509) - - - - (15,110) (15,110)
Sale of treasury stock 21 - 11 - - 587 598
Net unrealized loss on
securities available for sale - - - (3,708) - (3,708)
- -------------------------------------------------------------------------------------------------------
Balance December 31, 1999 30,224 $80,000 $63,106 $351,497 $(1,074) $(42,157) $451,372
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 26
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.
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: Securities held to maturity 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 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.
Other securities are comprised of restricted equity stock in federal agencies,
primarily the Federal Home Loan Bank.
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 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.
<PAGE> 27
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 Standards 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
June 15, 1999.
During June 1999, FASB issued SFAS 137, "Deferral of the Effective Date of FASB
Statement No. 133." This statement defers to implementation of SFAS 133 for one
year. Prospective adoption of the provisions of these statements as they become
effective is not expected to have a material effect on current financial
statements.
SEGMENT REPORTING: The Corporation has adopted provisions of SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." In
accordance with this standard, the Corporation has identified a single segment
at the entity wide level used by senior management to make operating decisions.
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
(30,314,285 in 1999, 30,942,500 in 1998, and 31,376,732 shares in 1997).
Earnings per share have been restated for a stock split in 1998. There are no
common stock equivalents.
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 1999 and 1998, the average balance in this
account was $3,719,000 and $10,845,000, respectively.
<PAGE> 28
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.
Securities held to maturity
December 31, 1999 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. agencies and corporations $376,652 $211 $(9,889) $366,974
State and political subdivisions 22,558 16 (59) 22,515
Corporate notes 30,050 71 (23) 30,098
Mortgage and asset backed securities 248,188 243 (9,101) 239,330
- ------------------------------------------------------------------------------
Total $677,448 $541 $(19,072) $658,917
==============================================================================
Securities available for sale
December 31, 1999 Amortized Unrealized Unrealized Market
(In thousands) Cost Gains Losses Value
U.S. Treasury $132,275 $366 $ (680) $131,961
U.S. agencies and corporations 56,831 - (923) 55,908
Corporate notes 29,088 - (247) 28,841
Other equity securities 41,788 437 (776) 41,449
- ------------------------------------------------------------------------------
Total $259,982 $803 $(2,626) $258,159
==============================================================================
Securities held to maturity
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
- ------------------------------------------------------------------------------
Total $748,355 $5,236 $(691) $752,900
==============================================================================
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
Other equity securities 21,137 741 (828) 21,050
- ------------------------------------------------------------------------------
Total $234,854 $5,306 $(835) $239,325
==============================================================================
Maturities Distribution of Debt Securities
Securities Held Securities Available
to Maturity for Sale
December 31, 1999 Amortized Market Amortized Market
(In thousands) Cost Value Cost Value
Due in 1 year or less $ 76,012 $ 75,852 $ 45,820 $ 45,901
Due after 1 year through 5 years 504,732 492,616 172,374 170,809
Due after 5 years through 10 years 93,009 86,768 - -
Due after 10 years 3,695 3,681 - -
- ------------------------------------------------------------------------------
Total $677,448 $658,917 $218,194 $216,710
==============================================================================
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 $557,574,000 of its U.S. Treasury and U.S.
agencies and corporations securities as of December 31, 1999, to secure public
deposits, trust funds, securities sold under repurchase agreements and for
other purposes. In 1998, $524,475,000 of its U.S. Treasury and U.S. agencies
and corporations securities were pledged. The Corporation does not have a
trading security portfolio.
Gross realized gains and gross realized losses on sales of available for sale
securities were none and $490,000, respectively, in 1999, $390,000 and $19,000,
respectively, in 1998 and $449,000 and $104,000, respectively, in 1997.
<PAGE> 29
4. LOANS AND LEASE FINANCING
The Bank grants commercial, real estate and consumer loans to customers
throughout the state of Alaska and in the Seattle market area. 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) 1999 1998
Commercial and industrial $ 648,374 $ 568,591
Real estate construction 88,264 55,047
Real estate long-term 484,770 477,892
Consumer installment 361,050 319,103
Nontaxable 65,784 56,542
Lease financing 8,320 10,088
- ------------------------------------------------------------------------------
Loans and Lease Financing $1,656,562 $1,487,263
==============================================================================
The carrying amount and fair value of the loan portfolio, excluding leases,
consist of the following at December 31:
1999 1998
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Commercial and industrial $ 648,374 $ 647,130 $ 568,591 $ 570,514
Real estate construction 88,264 88,199 55,047 55,064
Real estate long-term 484,770 486,579 477,892 479,984
Consumer installment 361,050 361,539 319,103 321,542
Nontaxable 65,784 65,520 56,542 57,290
- ------------------------------------------------------------------------------
Loans $1,648,242 $1,648,967 $1,477,175 $1,484,394
==============================================================================
At December 31, 1999 and 1998 loans held for sale were $66,478,000 and
$144,735,000, respectively. Consumer loans totaling $21,000,000 were sold in
1999 under a revolving securitization agreement. Mortgage loans sold in 1999
and 1998 totaled $403,211,000 and $546,741,000, respectively.
Mortgage and consumer loans serviced for others are not included in the
accompanying consolidated statement of financial condition. The unpaid
principle balances of loans serviced for others was $2,823,032,000 and
$2,482,178,000 at December 31, 1999 and 1998, respectively.
The amount of servicing assets recognized during 1999 was $4,566,000, and
amortization was $1,064,000 for the year. The amount of servicing asset
recognized in 1998 was $3,349,000 and amortization was $837,000 for the year.
Fair value of servicing assets is measured using net present value of future
expected net servicing revenues over servicing costs. The carrying value of
servicing assets was $10,041,000 at December 31, 1999 and $6,539,000 at
December 31, 1998. The fair value of servicing assets was $26,364,000 at
December 31, 1999 and $16,070,000 at December 31, 1998. 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) 1999 1998 1997
Balance at beginning of year $24,678 $24,530 $23,002
Loans charged off (6,228) (10,000) (7,205)
Recoveries of loans charged off 4,165 5,348 3,333
- ------------------------------------------------------------------------------
Net charge offs (2,063) (4,652) (3,872)
Provision charged to operating expense 4,950 4,800 5,400
- ------------------------------------------------------------------------------
Balance at End of Year $27,565 $24,678 $24,530
==============================================================================
The total investment in impaired loans was $10,259,000 and $6,582,000 at
December 31, 1999 and 1998, respectively. Interest income on impaired loans is
recorded on the cash basis and totaled $34,000 for 1999, $89,000 for 1998, and
$105,000 for 1997. The average balance of impaired loans was $7,582,000 for
1999, $9,849,000 for 1998, and $9,108,000 for 1997. The total reserve for loan
losses related to these loans was $597,000 and $82,000 on December 31, 1999 and
1998, respectively.
<PAGE> 30
6. PREMISES AND EQUIPMENT
The following table summarizes the components of premises and equipment at
December 31:
(In thousands) 1999 1998
Buildings $73,367 $71,249
Land 14,672 14,490
Leasehold improvements 5,799 5,639
Equipment, furniture and fixtures 55,478 54,463
- ------------------------------------------------------------------------------
Total Cost 149,316 145,841
Less accumulated depreciation (79,924) (75,539)
- ------------------------------------------------------------------------------
Net Book Value $69,392 $70,302
==============================================================================
Depreciation expense was $6,828,000 in 1999, $7,301,000 in 1998, and $7,398,000
in 1997.
7. DEPOSITS
The total amount of time deposit in denominations of $100,000 or more at
December 31, 1999 and 1998 was $361,249,000 and $375,647,000 respectively.
The following table is the scheduled maturities of time deposit at December 31,
1999:
(In thousands)
2000 $524,423
2001 119,997
2002 11,672
2003 17,527
2004 7,180
- ------------------------------------------------------------------------------
Total Time Deposits $680,799
==============================================================================
8. SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Information related to the Corporation's securities sold under agreement to
repurchase at December 31, 1999, 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 $ 37,046 $ 4,570 $ 5,025 $ 5,849 $ 52,490
Market value 36,721 4,577 5,046 5,850 52,194
Repurchase agreements 35,696 1,866 819 4,423 42,804
Interest rate 4.40% 4.81% 4.36% 5.30% 4.51%
- ------------------------------------------------------------------------------
U.S. agencies
Carrying value $325,121 $15,064 $16,427 $38,912 $395,524
Market value 320,371 14,742 15,619 37,529 388,261
Repurchase agreements 313,005 8,168 13,498 26,981 361,652
Interest rate 4.62% 4.63% 4.77% 5.16% 4.66%
- ------------------------------------------------------------------------------
Total
Carrying value $362,167 $19,634 $21,452 $44,761 $448,014
Market value 357,092 19,319 20,665 43,379 440,455
Repurchase agreements 348,701 10,034 14,317 31,404 404,456
Interest rate 4.60% 4.67% 4.74% 5.18% 4.65%
==============================================================================
Carrying value and market value of the securities include accrued interest.
<PAGE> 31
9. SHAREHOLDERS' EQUITY
Dividends: The Corporation declared cash dividends of $0.60 per share in 1999
and $0.575 per share in 1998.
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 2000, the Bank may declare dividends of
$23,156,000 plus 2000 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, 1999, 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, 1999, 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.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
(in Thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital
National Bancorp of Alaska, Inc. $474,762 19.14% $198,438 8.00% $248,047 10.00%
National Bank of Alaska 293,992 12.85 183,030 8.00 228,788 10.00
Tier 1 Capital
National Bancorp of Alaska, Inc. $447,197 18.02% $ 99,267 4.00% $148,900 6.00%
National Bank of Alaska 266,577 11.66 91,450 4.00 137,175 6.00
Leverage
National Bancorp of Alaska, Inc. $447,197 14.46% $ 92,779 3.00% $154,632 5.00%
National Bank of Alaska 266,577 9.01 88,760 3.00 147,934 5.00
As of December 31, 1998:
Total Capital
National Bancorp of Alaska, Inc. $447,156 19.14% $186,899 8.00% $233,624 10.00%
National Bank of Alaska 281,279 13.05 172,432 8.00 215,539 10.00
Tier 1 Capital
National Bancorp of Alaska, Inc. $422,478 18.08% $ 93,469 4.00% $140,203 6.00%
National Bank of Alaska 256,601 11.90 86,252 4.00 129,379 6.00
Leverage
National Bancorp of Alaska, Inc. $422,478 14.24% $ 89,005 3.00% $148,342 5.00%
National Bank of Alaska 256,601 9.01 85,439 3.00 142,398 5.00
</TABLE>
10. COMPREHENSIVE INCOME
Comprehensive income includes the change in unrealized gains on securities that
are classified as available for sale. 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:
Before-Tax Tax Expense Net of Tax
(in thousands) Amount (Benefit) Amount
Balance January 1, 1997 $ 4,042 $1,637 $ 2,405
Unrealized gains on securities 1,083 439 644
- ------------------------------------------------------------------------------
Balance December 31, 1997 5,125 2,076 3,049
Unrealized losses on securities (654) (239) (415)
- ------------------------------------------------------------------------------
Balance December 31, 1998 4,471 1,837 2,634
Unrealized losses on securities (6,294) (2,586) (3,708)
- ------------------------------------------------------------------------------
Balance December 31, 1999 $(1,823) $ (749) $(1,074)
==============================================================================
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 $35,441,000 and $35,331,000 at
December 31, 1999 and 1998, respectively. During 1999, $65,087,000 of new loans
were made and repayments totaled $64,977,000. 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> 32
12. EMPLOYEE BENEFIT PLANS
The Corporation has a noncontributory, qualified profit sharing plan for its
salaried employees. Contributions to the plan are based on the Corporation's
performance and approved by the Board of Directors. Contributions expensed to
operations for profit sharing were $7,453,000 in 1999, $6,649,000 in 1998, and
$6,151,000 in 1997. 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 1999, 1998 and 1997, and an assumed health care cost trend rate of 5.5% for
1999, 1998 and 1997. 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 of a one percent increase in the health care cost trend rate would
result in an increase of $48,000 in the benefit obligation and a corresponding
increase of $7,000 in the 1999 aggregate service and interest components of
expense.
The effect of a one percent decrease in the health cost trend rate would result
in a decrease of $42,000 in the benefit obligation and a decrease of $6,000 in
the aggregate service and interest component of expense.
(In thousands) 1999 1998 1997
Change in benefit obligation:
Beginning benefit obligation $1,591 $1,543 $ 2,873
Service cost 38 38 116
Interest cost 116 112 211
Benefits paid (100) (102) (121)
Amendments (17) - (1,536)
- ---------------------------------------------------------------------------
Ending benefit obligation 1,628 1,591 1,543
Unrecognized transition
obligation (226) (245) (264)
Unrecognized net
gain 823 891 988
- ---------------------------------------------------------------------------
Accrued postretirement
benefit cost $2,225 $2,237 $2,267
- ---------------------------------------------------------------------------
Net periodic cost:
Service cost $ 38 $ 38 $ 116
Interest cost 116 112 211
Amortization of unrecognized
transition obligation 19 19 129
Amortization of net gain (85) (97) (93)
- ---------------------------------------------------------------------------
Total expense $ 88 $ 72 $ 363
- ---------------------------------------------------------------------------
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table summarizes carrying amounts and fair values of financial
instruments at December 31:
1999 1998
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
Assets
Cash and due from banks $151,703 $151,703 $153,143 $153,143
Interest-bearing balances with banks 253 253 116 116
Federal funds sold 25,000 25,000 - -
Securities held to maturity and
other securities 705,891 687,360 775,163 779,708
Securities available for sale 259,982 258,159 234,854 239,325
Loans (excluding lease financing) 1,648,242 1,648,967 1,477,175 1,484,394
Loans held for sale 66,478 66,553 144,735 144,990
Liabilities
Demand deposits 605,620 605,620 617,532 617,532
NOW 236,252 236,252 237,245 237,245
Savings 313,397 313,397 308,924 308,924
Money market savings 321,749 321,749 291,587 291,587
Time 680,799 680,292 683,427 686,965
Federal funds purchased 1,332 1,332 41,315 41,315
Securities sold under agreement to
repurchase 404,456 404,536 334,572 334,545
Other purchased funds 110 110 110 110
Off-Balance Sheet Assets (Liabilities)
Loan commitments and letters of credit - 7,384 - 7,084
Forward contracts - (20) - 634
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> 33
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) 1999 1998 1997
Current tax expense
Federal income taxes $31,240 $24,188 $21,299
State income taxes 6,919 6,399 4,719
- ------------------------------------------------------------------------------
Total Current Tax Expense 38,159 30,587 26,018
Deferred tax expense (credit) (2,670) 1,030 2,183
- ------------------------------------------------------------------------------
Total Income Taxes $35,489 $31,617 $28,201
==============================================================================
Applicable to operating income $29,449 $30,036 $26,344
Applicable to securities transactions 6,040 1,581 1,857
- ------------------------------------------------------------------------------
Total Income Taxes $35,489 $31,617 $28,201
==============================================================================
A reconciliation between the statutory federal income tax rate and the
effective income tax rate follows:
1999 1998 1997
Percent Percent Percent
Statutory federal income tax rate 35.0% 35.0% 35.0%
Tax-exempt interest income (1.7) (1.5) (2.0)
State income tax, net of federal tax benefit 4.6 4.7 4.0
Other (1.6) (2.8) (0.4)
- -----------------------------------------------------------------------------
Total Effective Income Tax Rate 36.3% 35.4% 36.6%
=============================================================================
The Corporation had net deferred tax assets of $11,730,000 at December 31,
1999, and $6,309,000 at December 31, 1998. Temporary differences which gave
rise to a significant portion of deferred tax assets and liabilities were as
follows:
1999 1998
Deferred Tax Deferred Tax
(In thousands) Assets Liabilities Assets Liabilities
Provision for loan losses $11,309 $ - $10,957 $ -
Postretirement benefits 974 - 1,040 -
Limited partnerships 3,133 - 1,116 -
Loan servicing 677 - 912 -
Depreciation and amortization - 3,922 - 4,244
Net unrealized security gains 749 - - 1,837
Leases - 1,250 - 1,444
Other 2,082 2,022 1,253 1,444
- ------------------------------------------------------------------------------
Total Deferred Taxes $18,924 $7,194 $15,278 $8,969
==============================================================================
15. 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 $14,370,000 at December 31, 1999
and $17,381,000 at December 31, 1998. Commitments for loans and investments
approximated $559,231,000 at December 31, 1999 and $542,175,000 at December 31,
1998. 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, 1999 and 1998 were $2,000,000 and $64,123,000, 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.
<PAGE> 34
16. NATIONAL BANCORP OF ALASKA, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
Statements of Income
(For the Years Ended December 31) (In thousands) 1999 1998 1997
Income:
Dividends from National Bank of Alaska $36,800 $41,200 $43,920
Interest on balances with banks 2,182 2,571 1,798
Dividends from securities 1,387 1,276 1,659
Interest on loans 1,088 1,275 1,496
Security transactions - 390 -
Net gains on limited partnership investments 15,182 3,475 4,174
Other 401 517 331
- ------------------------------------------------------------------------------
Total Income 57,040 50,704 53,378
Expenses 3,646 1,202 923
- ------------------------------------------------------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 53,394 49,502 52,455
Income taxes 5,521 2,486 2,416
- ------------------------------------------------------------------------------
47,873 47,016 50,039
Equity in undistributed net income of subsidiaries 14,236 8,389 1,218
- ------------------------------------------------------------------------------
Net Income $62,109 $55,405 $51,257
==============================================================================
Statements of Condition
(As of December 31) (In thousands) 1999 1998
Assets:
Interest-bearing balances with banks $ 50,851 $ 51,418
Net loans 14,675 16,167
Securities 41,449 21,050
Investment in subsidiaries 276,937 266,260
Limited partnership investments 69,658 71,416
Other assets 3,735 4,017
- ------------------------------------------------------------------------------
Total Assets $457,305 $430,328
==============================================================================
Liabilities and Shareholders' Equity:
Dividends payable $ 4,533 $ 4,607
Other liabilities 1,400 76
- ------------------------------------------------------------------------------
Total Liabilities 5,933 4,683
Total Shareholders' Equity 451,372 425,645
- ------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $457,305 $430,328
==============================================================================
<PAGE> 35
Statements of Cash Flows
(For the Years Ended December 31) (In thousands) 1999 1998 1997
Operating Activities
Net Income $62,109 $55,405 $51,257
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income from subsidiaries (14,236) (8,389) (1,218)
Provision for loan loss 150 - -
Net gains on securities and limited
partnership transactions (15,182) (3,865) (4,304)
Decrease (increase) in receivables 1,782 (821) (1,377)
Increase (decrease) in other liabilities 1,426 187 (1,224)
- ------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 36,049 42,517 43,134
Investing Activities
Net (increase) decrease in balances with banks 567 (5,988) (3,578)
Net decrease in loans 1,342 3,920 4,191
Advances to subsidiary (1,500) (500) -
Proceeds from sales of assets 41,196 20,581 11,637
Purchases of limited partnership investments (36,543) (33,029) (19,874)
Purchases of other assets (8,364) - (5,000)
- ------------------------------------------------------------------------------
Net Cash Used in Investing Activities (3,302) (15,016) (12,624)
Financing Activities
Cash dividends (18,235) (17,039) (15,738)
Acquisition of treasury stock (15,110) (12,806) (14,772)
Sale of treasury stock 598 2,344 -
- ------------------------------------------------------------------------------
Net Cash Used in Financing Activities (32,747) (27,501) (30,510)
- ------------------------------------------------------------------------------
Increase (decrease) in cash - - -
Cash at beginning of year - - -
- ------------------------------------------------------------------------------
Cash at End of Year $ - $ - $ -
==============================================================================
17. 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, 1999, are as
follows:
Minimum Lease
(In thousands) Payments
2000 $1,873
2001 1,212
2002 949
2003 710
2004 427
Later Years 3,572
- ------------------------------------------------------------------------------
Total Minimum Lease Payments $8,743
==============================================================================
Rental expense for all operating leases was $2,714,000, $2,534,000, and
$2,430,000 for the years ended 1999, 1998, and 1997, respectively.
<PAGE> 36
18. NONINTEREST INCOME AND EXPENSE
The following tables summarize the components of other income and expense:
Noninterest Income
(In thousands) 1999 1998 1997
Trust department income $ 2,959 $ 2,827 $ 2,534
Service charges on deposit accounts 13,843 13,221 12,496
Loan servicing fees 10,430 9,433 8,175
Credit card service fees 8,740 6,941 6,968
Securities transactions (490) 371 345
Net gains on limited partnership investments 15,182 3,475 4,174
ATM fee income 3,003 2,723 1,792
Other 16,798 16,391 12,484
- ------------------------------------------------------------------------------
Total Noninterest Income $70,465 $55,382 $48,968
==============================================================================
Noninterest Expense
(In thousands) 1999 1998 1997
Salaries $ 43,274 $ 41,512 $ 38,539
Profit sharing and other employee benefits 15,191 13,135 12,644
Net occupancy expense of bank premises 8,041 7,601 7,540
Furniture and equipment expense 8,399 8,975 9,113
Stationery/printing 3,170 3,013 2,836
Telecommunications 4,007 3,916 4,135
Computer program and processing 7,123 6,845 6,058
Other 24,183 21,548 19,487
- ------------------------------------------------------------------------------
Total Noninterest Expense $113,388 $106,545 $100,352
==============================================================================
19. SUBSEQUENT EVENT: MERGER WITH WELLS FARGO & COMPANY
On January 12, 2000, the Corporation entered into a Definitive Agreement with
Wells Fargo & Company (Wells Fargo), a bank holding company based in San
Francisco, pursuant to which the Corporation will merge with Wells Fargo. On
the closing date of the merger, each outstanding share of common stock of the
Corporation will be purchased for $30 and exchanged for equivalent shares of
Wells Fargo's common stock. The merger is expected to be accounted for as a
purchase. The Corporation expects to complete the merger, which was approved by
the Board of Directors on January 12, 2000, in the second quarter of 2000,
pending regulatory and shareholder approval.
<PAGE> 37
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, 1999 and
1998, 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, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
Anchorage, Alaska
January 21, 2000
<PAGE> 38
MANAGEMENT DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HIGHLIGHTS
Net income for 1999 was $62,109,000, or 12% higher than 1998 net income of
$55,405,000. The increase in earnings was primarily due to gains in limited
partnership investments of $15,182,000, compared to $3,475,000 in 1998.
Earnings per share were $2.05 in 1999 compared to $1.79 in 1998, a 15%
increase. The earnings per share to shareholders reflects a four-for-one stock
split in 1998.
Return on average assets was 2.10% in 1999, compared to 1.97% in 1998. Return
on average equity in 1999 was 14.22% and 13.38% in 1998. The ratio of equity to
total assets at December 31, 1999, was 14.77% compared to 14.72% at the end of
1998.
On January 12, 2000, the Corporation and Wells Fargo & Company (Wells Fargo)
signed an Agreement and Plan of Reorganization. Under the terms of the
agreement each outstanding share of the Corporation's common stock will be
exchanged for the common stock of Wells Fargo. The transaction will qualify as
a tax-free reorganization under the Internal Revenue Code. The number of Wells
Fargo shares to be exchanged will be determined by dividing $30 by the Wells
Fargo Measurement Price. The "Wells Fargo Measurement Price" is defined as the
average of the closing prices of a share of Wells Fargo common stock during the
period 15 trading days ending March 15, 2000. The transaction requires
shareholder and regulatory approval. The transaction should be complete in
second quarter of 2000.
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.
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 $3,106,000 in 1999 over
the prior year. A decrease of $2,840,000 in interest expense on deposits and
purchased funds due to lower interest rates in the first half of 1999 was the
most significant factor behind the increase in net interest income. Interest
income decreased slightly to $217,346,000 in 1999, reflecting a decrease in
loan origination fees of $1,408,000 as residential mortgage refinance activity
declined, but partially mitigated by an increase in the loan portfolio.
Commercial lending generated the largest increase, followed by consumer
installment and real estate lending, bringing loans to $1,656,562,000 at
December 31, 1999, compared to $1,487,263,000 at December 31, 1998.
Net interest margin decreased to 5.69% in 1999, compared to 5.81% in 1998,
partially reflecting higher interest rates in the later part of 1999. Time
deposit balances decreased by $2,628,000 over 1998, to $680,799,000 at December
31, 1999. In 1999, demand deposits averaged $40,128,000 higher than in 1998,
with year-end balances totaling $605,620,000
In 1998, fully taxable net interest income increased $6,418,000 over 1997. The
net interest margin decreased from 5.82% in 1997 to 5.81% in 1998. Loans grew
$15,802,000 from December 31, 1997, to $1,487,263,000 at December 31, 1998.
Consumer and commercial loans continued a growth pattern from the prior year
spurred by activity in the branch network.
Interest rates fell reducing cost of funds, from 4.22% in 1997 to 4.14% in
1998. The yield of earnings assets was 8.78% in 1998, compared to 8.84% in
1997, with yields on loans increasing slightly from prior year.
Table 1 - Analysis of Net Interest Income
(In thousands) 1999 1998 1997 1996 1995
Interest income* $ 217,346 $ 217,700 $ 209,091 $ 197,531 $ 189,256
Interest expense 71,875 74,715 72,849 67,118 68,709
- --------------------------------------------------------------------------------
Net interest income 145,471 142,985 136,242 130,413 120,547
Tax equivalent adjustment
to interest income* 4,101 3,481 3,806 4,053 4,489
- --------------------------------------------------------------------------------
Net interest income
(fully taxable
equivalent) $ 149,572 $ 146,466 $ 140,048 $ 134,466 $ 125,036
Average earning assets $2,629,306 $2,518,983 $2,408,338 $2,283,157 $2,192,711
- --------------------------------------------------------------------------------
Net Interest Margin 5.69% 5.81% 5.82% 5.89% 5.70%
- --------------------------------------------------------------------------------
*Interest income includes loan fees of $9,853,000 in 1999, $11,261,000 in 1998,
$7,863,000 in 1997, $7,221,000 in 1996, and $6,095,000 in 1995. The adjustment
to convert nontaxable income to fully taxable equivalent basis is based on a
marginal income tax rate of 41% in 1999 through 1995.
<PAGE> 39
NONINTEREST INCOME
Noninterest income in 1999 increased by 27%, or $15,083,000 over 1998. Gains on
limited partnership investments increased by $11,707,000, compared to 1998's
levels. Capital gains from our investment in various limited partnerships with
Kolberg, Kravis & Roberts produced most of the income from this category. This
year's 26% growth in revenue from credit card processing directly results from
our success selling business Visa accounts. Loan servicing fees increased by
11% as a result of a larger loan servicing portfolio. Included in other income
are insurance commissions totaling $2,545,000 from the Bank's new subsidiary,
National Bank of Alaska Insurance Service, LLC and decreases of $712,000 in
consumer loan filing fees and $509,000 in net loan marketing gains.
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. ATM fee income
increased by $931,000 over 1997. Other income increased by 31% over 1997, to
$16,391,000. Components of other income's overall increase included increases
in other loan fees of $1,659,000 and gains on other real estate owned of
$311,000.
Table 2 - Analysis of Noninterest Income
Increase Increase
(Decrease) (Decrease)
(In thousands) 1999 % 1998 % 1997
Trust department income $ 2,959 5% $ 2,827 12% $ 2,534
Service charges on deposit accounts 13,843 5 13,221 6 12,496
Loan servicing fees 10,430 11 9,433 15 8,175
Credit card service fees 8,740 26 6,941 - 6,968
Securities transactions (490) N/A 371 8 345
Gain on limited partnership 15,182 N/A 3,475 (17) 4,174
ATM fee income 3,003 10 2,723 52 1,792
Other 16,798 2 16,391 31 12,484
- ------------------------------------------------------------------------------
Total Noninterest Income $70,465 27% $55,382 13% $48,968
==============================================================================
NONINTEREST EXPENSE
In 1999, noninterest expense increased by $6,843,000 to $113,388,000. Employee
benefits showed the highest increase, with $2,056,000 or 16% over 1998, due
mostly to an increase in profit sharing contribution. Salaries had a modest
increase of 4%, or $1,762,000 over 1998, while other expense increased by
$2,635,000 or 12%, with most of the increase related to expenses associated
with our merger with Wells.
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.
Table 3 - Analysis of Noninterest Expense
Increase Increase
(Decrease) (Decrease)
(In thousands) 1999 % 1998 % 1997
Salaries $ 43,274 4% $ 41,512 8% $ 38,539
Profit sharing and other
employee benefits 15,191 16 13,135 4 12,644
Net occupancy expense of bank premises 8,041 6 7,601 1 7,540
Furniture and equipment expense 8,399 (6) 8,975 (2) 9,113
Stationery/printing 3,170 5 3,013 6 2,836
Telecommunications 4,007 2 3,916 (5) 4,135
Computer program and processing 7,123 4 6,845 13 6,058
Other 24,183 12 21,548 11 19,487
- ------------------------------------------------------------------------------
Total Noninterest Expense $113,388 6% $106,545 6% $100,352
==============================================================================
<PAGE> 40
INVESTMENT SECURITIES, SECURITIES AVAILABLE FOR SALE AND SHORT-TERM INVESTMENTS
In 1999, investment securities decreased by 9%, or $70,907,000 from the prior
year. Securities issued by U.S. agencies and corporations decreased by
$6,096,000, and mortgage and asset-backed securities decreased by $14,243,000.
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 $259,982,000 and a market value of $258,159,000 have
been classified as securities available for sale at December 31, 1999. These
securities are held for long-term liquidity and, by definition, may be sold
prior to maturity.
In 1998, investment securities increased by $164,079,000 to $748,355,000 U.S.
government and agency securities increased by $81,570,000, and mortgage and
asset backed securities increased by $81,213,000 from prior year.
Table 4 - Investment Portfolio
Book Value December 31
(In thousands) 1999 1998 1997
U.S. Government and agencies $376,652 $382,748 $301,178
State and political subdivisions 22,558 20,229 11,864
Corporate notes 30,050 82,947 90,016
Mortgage and asset backed securities 248,188 262,431 181,218
- ------------------------------------------------------------------------------
Total Investment Portfolio $677,448 $748,355 $584,276
==============================================================================
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, 1999 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 $27,545 6.66% $314,588 6.61% $34,519 6.29% $ - -%
State and political subdivisions 8,102 6.92 9,967 6.91 794 6.96 3,695 7.08
Corporate notes 20,050 7.96 10,000 6.97 - - - -
Mortgage and asset backed securities 20,315 6.45 170,177 6.69 57,696 6.57 - -
Other securities - - - - - - 28,443 7.04
Securities available for sale 45,901 6.31 170,809 6.32 - - 41,449 4.20
</TABLE>
<PAGE> 41
Loan Maturity and Interest Sensitivity (Selected Loans)
December 31, 1999
Maturity
Within 1 - 5 Over 5
(In thousands) 1 Year Years Years Total
Commercial and industrial $311,362 $167,041 $169,971 $648,374
Real estate construction 77,502 10,762 - 88,264
Nontaxable 17,742 12,018 36,024 65,784
- ------------------------------------------------------------------------------
Total Selected Loans $406,606 $189,821 $205,995 $802,422
==============================================================================
Predetermined interest rate $176,875 $ 83,959 $109,942 $370,776
Floating interest rate 229,731 105,862 96,053 431,646
- ------------------------------------------------------------------------------
Total Selected Loans $406,606 $189,821 $205,995 $802,422
==============================================================================
Maturity Distribution of Time Deposits over $100,000 (In thousands)
Maturity: December 31
(In thousands) 1999 1998
Within 3 months $161,053 $118,063
3 to 6 months 59,839 122,569
6 to 12 months 50,764 38,554
Over 12 months 89,593 96,461
- -----------------------------------------------------------------------------
Total Time Deposits over $100,000 $361,249 $375,647
=============================================================================
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 of Alaska and in the Seattle marketing area. 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 $1,656,562,000 at December 31, 1999, an increase of 11%,
or $169,299,000 from December 31, 1998. Commercial and industrial loans
increased by 14% to a total of $648,374,000. Real estate construction grew by
60%, or $33,217,000 from prior year, to a total of $88,264,000 in 1999.
Nontaxable increased by $9,242,000 and lease financing decreased by 18%, to
$8,320,000. Installment loans increased by $41,947,000 or 13% over the prior
year.
The Bank had no debt outstanding to foreign countries at December 31, 1999.
At December 31, 1998, loans and leases were $1,487,263,000, an increase of 1%
over December 31, 1997. Installment loans decreased by $14,769,000, or 4% over
the prior year, reflecting a revolving loan securitization program. Commercial
and industrial loans increased by $22,448,000 from loans generated throughout
the statewide branch system. Long-term real estate loans decreased by
$14,433,000 from 1997 due to customer real estate lending activity. Nontaxable
loans increased by $5,297,000 while other loan categories experienced moderate
growth during the year.
Loans held for sale decreased to $66,478,000 at December 31, 1999, from
$144,735,000 at December 31, 1998. The decrease is due to a declining
residential mortgage refinance activity and rising interest rates at the end of
1999, compared to declining interest rates and higher levels of lending
activity at the end of the previous year.
Table 5 - Loans and Lease Portfolio
December 31
(In thousands) 1999 1998 1997 1996 1995
Commercial and industrial $ 648,374 $ 568,591 $ 546,143 $ 503,309 $ 470,480
Real estate construction 88,264 55,047 35,120 34,767 24,999
Real estate long-term 484,770 477,892 492,325 462,958 423,872
Consumer installment 361,050 319,103 333,872 379,898 331,531
Nontaxable 65,784 56,542 51,245 55,372 64,356
Lease financing 8,320 10,088 12,756 10,674 11,602
- --------------------------------------------------------------------------------
Loans and Lease
Financing $1,656,562 $1,487,263 $1,471,461 $1,446,978 $1,326,840
================================================================================
Loans Held for Sale $ 66,478 $ 144,735 $ 58,304 $ 31,563 $ 33,099
================================================================================
<PAGE> 42
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, loan 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 increased to 0.77% at
December 31, 1999, compared to 0.68% at December 31, 1998. Total nonperforming
assets increased $2,517,000 in 1999. The continued low level of nonperforming
assets is a result of 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 $1,165,000 in 1999
and $604,000 in 1998. Actual interest income recorded for these loans was
$34,000 in 1999 and $89,000 in 1998.
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, 1999 and 1998. At December 31, 1999,
the Bank had no commitments to lend additional funds to borrowers with
restructured loans.
Table 6
December 31
(In thousands) 1999 1998 1997 1996 1995
Nonaccrual loans
Commercial and industrial $ 8,996 $ 2,153 $ 5,342 $ 1,451 $ 700
Real estate construction 140 166 323 166 166
Real estate long-term 826 4,196 4,298 3,841 1,162
Other - 67 76 35 45
- -------------------------------------------------------------------------------
Total $ 9,962 $ 6,582 $10,039 $ 5,493 $ 2,073
- -------------------------------------------------------------------------------
Restructured loans
Real estate construction $ - $ - $ - $ 85 $ 94
Real estate long-term - - 90 95 242
- -------------------------------------------------------------------------------
Total $ - $ - $ 90 $ 180 $ 336
- -------------------------------------------------------------------------------
Accruing loans past due 90 days or more $ 1,884 $ 3,101 $ 5,627 $ 9,945 $ 5,459
- -------------------------------------------------------------------------------
Other real estate owned $ 840 $ 486 $ 150 $ 326 $ 3,127
- -------------------------------------------------------------------------------
Total nonperforming assets $12,686 $10,169 $15,906 $15,944 $10,995
- -------------------------------------------------------------------------------
Nonaccrual loans as a percentage
of loans and leases at year end 0.60% 0.44% 0.68% 0.38% 0.16%
Restructured loans as a percentage
of loans and leases at year end -% -% 0.01% 0.01% 0.03%
Nonperforming assets as a percentage
of loans and leases and other real
estate owned at year end 0.77% 0.68% 1.08% 1.10% 0.83%
- -------------------------------------------------------------------------------
<PAGE> 43
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
$27,565,000 at December 31, 1999. 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 $4,950,000 in 1999,
compared to provision for loan losses of $4,800,000 in 1998. Net charge offs
were $2,063,000 in 1999, compared to net charge-offs of $4,652,000 in 1998.
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) 1999 1998 1997 1996 1995
Analysis of Reserve for Loan Losses
<S> <C> <C> <C> <C> <C>
Balance January 1 $24,678 $24,530 $23,002 $21,529 $19,226
Provision charged to operations 4,950 4,800 5,400 6,650 (3,100)
Recoveries on loans previously charged off 4,165 5,348 3,333 2,560 9,947
Less loans charged off (6,228) (10,000) (7,205) (7,737) (4,544)
- --------------------------------------------------------------------------------------------------
Balance December 31 $27,565 $24,678 $24,530 $23,002 $21,529
==================================================================================================
Composition of Loan Charge Off and Recoveries
Loans Charged Off:
Commercial loans and leases $ 1,880 $ 4,805 $ 2,063 $ 1,867 $ 954
Real estate construction - - - 6 113
Real estate long-term 41 175 97 1,574 116
Consumer 3,383 3,963 4,047 3,232 2,644
Visa 924 1,057 998 1,058 717
- --------------------------------------------------------------------------------------------------
Total Charge Offs 6,228 10,000 7,205 7,737 4,544
- --------------------------------------------------------------------------------------------------
Recoveries:
Commercial loans and leases 792 2,428 793 403 7,643
Real estate construction 194 4 131 5 16
Real estate long-term 794 502 364 286 657
Consumer 1,972 2,146 1,851 1,633 1,445
Visa 224 268 194 233 167
Nontaxable 189 - - - 19
- --------------------------------------------------------------------------------------------------
Total Recoveries 4,165 5,348 3,333 2,560 9,947
- --------------------------------------------------------------------------------------------------
Net Charge Offs (Recoveries) $ 2,063 $ 4,652 $ 3,872 $ 5,177 $(5,403)
==================================================================================================
Loan and Lease Statistics
Average loans and leases $1,555,437 $1,487,415 $1,468,146 $1,405,194 $1,306,685
Loans and leases at year end 1,656,562 1,487,263 1,471,461 1,446,978 1,326,840
Reserve for loan losses as a
percentage of:
Average loans and leases 1.77% 1.66% 1.67% 1.64% 1.65%
Loans and leases at year end 1.66 1.66 1.67 1.59 1.62
Net charge offs as a percentage of:
Average loans and leases 0.13 0.31 0.26 0.37 (0.41)
Loans and leases at year end 0.12 0.31 0.26 0.36 (0.41)
</TABLE>
<PAGE> 44
DEPOSITS AND SHORT-TERM BORROWINGS
Total deposits increased 0.9%, or $19,102,000, to $2,157,817,000 at December
31, 1999. Time deposits reflect a 0.4%, or $2,628,000 decrease at December 31,
1999. Demand deposits decreased 2%, or $11,912,000 over 1998. NOW showed a
small decrease of 0.4%, to $236,252,000 while savings increased $4,473,000, or
1% compared to December 31, 1998. Money market savings increased by 10%, to
$321,749,000 from prior year.
In 1998, total deposits increased $157,374,000, or 8% from December 31, 1997.
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 prior year.
Short-term borrowings include Federal funds purchased and repurchase agreements
in the amount of $405,788,000, and other borrowings of $110,000 at December 31,
1999.
Table 8 - Deposit Structure Average for Year Ended December 31
(In thousands) 1999 1998 1997 1996 1995
Demand $ 601,330 $ 561,202 $ 535,623 $ 529,227 $ 512,401
NOW 230,863 200,443 175,879 156,695 150,401
Savings 304,422 292,266 289,188 294,374 296,784
Money market savings 314,468 293,751 298,714 295,932 296,735
Time 647,492 627,116 580,920 511,696 460,613
- --------------------------------------------------------------------------------
Total Deposits $2,098,575 $1,974,778 $1,880,324 $1,787,924 $1,716,934
================================================================================
Deposits by Type of Depositor at December 31
(In thousands) 1999 1998 1997 1996 1995
Individuals, partnerships
and corporations $1,903,967 $1,866,767 $1,794,623 $1,682,900 $1,632,547
United States government 646 2,235 2,377 5,035 5,543
State and political
subdivisions 233,053 251,594 165,877 164,171 86,855
Other 20,151 18,119 18,464 14,947 15,536
- --------------------------------------------------------------------------------
Total $2,157,817 $2,138,715 $1,981,341 $1,867,053 $1,740,481
================================================================================
Table 9 - Purchased Funds
The following table provides an analysis of funds purchased:
Total
Purchased Funds
(In thousands) 1999 1998 1997
Balance at December 31 $405,898 $375,997 $362,762
Average for the year 389,279 392,759 381,226
Maximum month end balance 489,621 487,174 420,522
Average rate for the year* 4.40% 4.67% 4.77%
Average rate at year end 4.65 4.19 4.79
*The average interest rate is computed by dividing the respective interest
expense by the average daily balance.
<PAGE> 45
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 25 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 $4,932,000 in one to 63
individual companies. The Corporation's percentage share of any individual
company does not exceed 10%.
At December 31, 1999, the Corporation had limited partnership investments
totaling $69,658,000, compared to $71,416,000 at December 31, 1998. The
Corporation had commitments to invest an additional $80,444,000 at December 31,
1999.
Net capital gains from these investments were $15,182,000 in 1999, $3,475,000
in 1998, and $4,174,000 in 1997. Net expenses from limited partnership
investments were $1,201,000 in 1999, $342,000 in 1998, and $370,000 in 1997.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
The Corporation is a strongly-capitalized bank holding company. Shareholder's
equity increased by $25,727,000, from $425,645,000 on December 31, 1998, to
$451,372,000 at December 31, 1999.
The ratio of equity to total assets was 14.77% for 1999 compared to 14.72% for
1998. 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) 1999 1998 1997 1996 1995
Balance January 1 $425,645 $398,881 $377,403 $350,320 $312,772
Net income 62,109 55,405 51,257 46,516 41,280
Cash dividends declared (18,162) (17,764) (15,651) (15,915) (13,547)
Purchase of treasury stock (15,110) (12,806) (14,772) (1,879) -
Sale of treasury stock 598 2,344 - - -
Other comprehensive income (3,708) (415) 644 (1,639) 9,815
- -------------------------------------------------------------------------------
Balance December 31 $451,372 $425,645 $398,881 $377,403 $350,320
===============================================================================
Per Share Statistics
Net income $ 2.05 $ 1.79 $ 1.63 $ 1.46 $ 1.30
Cash dividends declared 0.60 0.57 0.50 0.50 0.43
Book value at year end $14.93 $13.86 $12.85 $11.89 $10.99
- -------------------------------------------------------------------------------
Ratios (based on average balances)
Return on assets 2.10% 1.97% 1.91% 1.83% 1.70%
Equity to total assets 14.77 14.72 14.47 14.33 13.71
Dividend payout ratio 29.24 32.06 30.53 34.21 32.82
Return on equity 14.22 13.38 13.21 12.78 12.41
Equity to total deposits 20.81 20.98 20.64 20.35 19.38
IMPACT OF THE YEAR 2000 ISSUE
The Corporation's testing and assessment of its systems as of January 2000
indicate that there have been no significant issues related to year 2000. All
critical systems are fully operational and performing as expected.
The Corporation had no material expenses relating to year 2000 due to
outsourcing of the data processing and telecommunications systems.
<PAGE> 46
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEETS/INTEREST INCOME AND EXPENSE/RATES
Year Ended December 31 1999 1998
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 $ 143 $ 6 4.20% $ 307 $ 17 5.54%
Federal funds sold and
securities purchased
under agreement to resell 48,914 2,426 4.96 30,311 1,848 6.10
- ----------------------------------------------------------------------------------------------------
Securities* 949,154 62,436 6.58 916,343 61,838 6.75
- ----------------------------------------------------------------------------------------------------
Loans and lease financing* 1,631,095 156,579 9.60 1,572,022 157,478 10.02
- ----------------------------------------------------------------------------------------------------
Total Earning Assets $2,629,306 $221,447 8.42% $2,518,983 $221,181 8.78%
- ----------------------------------------------------------------------------------------------------
Reserve for possible loan losses (26,385) (24,648)
Cash and due from banks 138,041 132,093
Bank premises and equipment 71,101 70,646
Other assets 146,338 116,474
- ----------------------------------------------------------------------------------------------------
Total Assets $2,958,401 $2,813,548
====================================================================================================
Liabilities and Shareholders' Equity:
NOW $ 230,863 $ 5,340 2.31% $ 200,443 $ 5,216 2.60%
Savings deposits 304,422 8,938 2.94 292,266 9,237 3.16
Money market savings 314,468 9,106 2.90 293,751 9,082 3.09
Time deposits 647,492 31,365 4.84 627,116 32,818 5.23
- ----------------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,497,245 54,749 3.66 1,413,576 56,353 3.99
Purchased funds 389,279 17,126 4.40 392,759 18,362 4.67
- ----------------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 1,886,524 71,875 3.81 1,806,335 74,715 4.14
- ----------------------------------------------------------------------------------------------------
Demand deposits 601,330 561,202
Other liabilities 33,730 31,791
- ----------------------------------------------------------------------------------------------------
Total Liabilities 2,521,584 2,399,328
Shareholders' Equity 436,817 414,220
- ----------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,958,401 $2,813,548
====================================================================================================
Net Interest Margin $149,572 5.69% $146,466 5.81%
====================================================================================================
</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> 47
CONSOLIDATED AVERAGE BALANCE SHEETS/INTEREST INCOME AND EXPENSE/RATES-Continued
Year Ended December 31 1997
Interest Average
Average Income/ Yield/
(In thousands) Balance Expense Cost
Assets:
Interest-bearing balances
with banks $ 537 $ 38 7.08%
Federal funds sold and
securities purchased
under agreement to resell 73,832 3,868 5.24
- ----------------------------------------------------------------------------
Securities* 812,692 56,843 6.99
- ----------------------------------------------------------------------------
Loans and lease financing* 1,521,277 152,148 10.00
- ----------------------------------------------------------------------------
Total Earning Assets $2,408,338 $212,897 8.84%
- ----------------------------------------------------------------------------
Reserve for possible loan losses (23,225)
Cash and due from banks 131,154
Bank premises and equipment 70,478
Other assets 94,860
- ----------------------------------------------------------------------------
Total Assets $2,681,605
============================================================================
Liabilities and Shareholders' Equity:
NOW $ 175,879$ 4,765 2.71%
Savings deposits 289,188 9,352 3.23
Money market savings 298,714 9,518 3.19
Time deposits 580,920 31,014 5.34
- ----------------------------------------------------------------------------
Total Interest-Bearing
Deposits 1,344,701 54,649 4.06
Purchased funds 381,226 18,200 4.77
- ----------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 1,725,927 72,849 4.22
- ----------------------------------------------------------------------------
Demand deposits 535,623
Other liabilities 31,931
- ----------------------------------------------------------------------------
Total Liabilities 2,293,481
Shareholders' Equity 388,124
- ----------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $2,681,605
============================================================================
Net Interest Margin $140,048 5.82%
============================================================================
<PAGE> 47 (continued)
<TABLE>
<CAPTION>
Analysis of Changes in Net Interest Margin
1999 vs. 1998 1998 vs. 1997
Due to Due to Total Due to Due to Total
(In thousands) Rate Volume Change Rate Volume Change
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing balances
with banks $ (3) $ (8) $ (11) $ (7) $ (14) $ (21)
Federal funds sold and
securities purchased
under agreement to resell (394) 972 578 552 (2,572) (2,020)
- ---------------------------------------------------------------------------------------------
Securities* (1,583) 2,181 598 (2,055) 7,050 4,995
- ---------------------------------------------------------------------------------------------
Loans and lease financing* (6,700) 5,801 (899) 247 5,083 5,330
- ---------------------------------------------------------------------------------------------
Total Earning Assets $(8,680) $8,946 $266 $(1,263) $9,547 $8,284
- ---------------------------------------------------------------------------------------------
Reserve for possible loan losses
Cash and due from banks
Bank premises and equipment
Other assets
Total Assets
Liabilities and Shareholders' Equity:
NOW $ (617) $ 741 $ 124 $ (194) $ 645 $ 451
Savings deposits (673) 374 (299) (214) 99 (115)
Money market savings (595) 619 24 (280) (156) (436)
Time deposits (2,495) 1,042 (1,453) (623) 2,427 1,804
- ---------------------------------------------------------------------------------------------
Total Interest-Bearing
Deposits (4,380) 2,776 (1,604) (1,311) 3,015 1,704
Purchased funds (1,075) (161) (1,236) (380) 542 162
- ---------------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities (5,455) 2,615 (2,840) (1,691) 3,557 1,866
Demand deposits
Other liabilities
Total Liabilities
Shareholders' Equity
Total Liabilities and
Shareholders' Equity
=============================================================================================
Net Interest Margin $(3,225) $6,331 $3,106 $ 428 $5,990 $6,418
=============================================================================================
</TABLE>
<PAGE> 48
Quarterly Financial Data
1999
(In thousands except per share amounts) First Second Third Fourth
Total interest income $52,176 $53,013 $55,057 $57,100
Total interest expense 17,504 17,039 17,885 19,447
Net interest income 34,672 35,974 37,172 37,653
Provision for loan losses 1,200 1,200 1,350 1,200
Securities transactions - - - (490)
Net gains limited partnership 331 9,090 5,761 -
Noninterest income 12,722 14,140 15,095 13,816
Noninterest expense 26,742 27,617 28,202 30,827
- ------------------------------------------------------------------------------
Income before taxes 19,783 30,387 28,476 18,952
Applicable income taxes 7,063 11,203 10,648 6,575
- ------------------------------------------------------------------------------
Net Income $12,720 $19,184 $17,828 $12,377
==============================================================================
Net Income Per Share $0.42 $0.63 $0.59 $0.41
==============================================================================
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) -
Net gains (losses) limited partnership 368 2,585 2,366 (1,844)
Noninterest income 12,040 13,450 13,419 12,627
Noninterest 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
==============================================================================
Market for Common Stock (Bid Quotations)
First Second Third Fourth
1999
High 34 30 29 40
Low 28 23 25 25
1998
High 38 39 32 39
Low 27 30 28 30
Cash Dividend Declared
Per Share
1999 0.15 0.15 0.15 0.15
1998 0.125 0.15 0.15 0.15
- ------------------------------------------------------------------------------
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> 49
NATIONAL BANCORP OF ALASKA DIRECTORS/OFFICERS
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, Williams Express Petroleum,
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, President, National Bank of Alaska Insurance Services, LLC,
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
John Schaeffer
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
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
Angela Dirks, VP
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 CREDIT SERVICES
Rick Owen, VP/Manager
John Delano, VP
Gerard Diemer, VP
Linda Lester, VP
William Phelan, VP
COMMERCIAL LOANS
Jerry K. Weaver, SVP/Manager
Pita Jelley Benz, VP
Lawrence J. Cooper, VP
Richard Monroe, VP
John Scoblic, 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
COMMUNITY DEVELOPMENT
Jeri Walters, VP/Manager
CONSUMER LOANS
Sharon Engle, VP/Manager
Scott Hansen, VP
CONSUMER SPECIAL CREDIT SERVICES
Bev Gunson, VP/Manager
CORPORATE RELATIONS
Benjamin A. Barrera, VP/Manager
Margaret Richmond, VP
ELECTRONIC SERVICES
John Hoyt, VP/Manager
Anne Habza, VP
Judith Panke, VP
Takao Tsukada, VP
<PAGE> 50
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
Elaine Junge, VP/Manager
MORTGAGE LOAN PRODUCTION
Judy Kemplen, SVP
Michelle Carufel, VP/Manager
Lorna Gleason, VP
Hilde Stapgens, VP
MORTGAGE LOANS -FAIRBANKS
Jim Matherly, Jr., AVP/Manager
MORTGAGE LOANS - KENAI PENINSULA
Stephen Horn, AVP/Manager
MORTGAGE LOANS - KETCHIKAN
Gwennyth Byrd, VP/Manager
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
Chris Clifford, VP
SEATTLE COMMERCIAL BANKING CENTER
James Cullen, SVP
Tim Antilla, VP
Carol Wilbur, VP
TRUST SERVICES
Roderick R. Shipley, SVP/Manager
Sharyn Andel, VP
David Dobbs, VP
Robert Whittenberg, VP
Michael Walton, VP
Anchorage Branches
Meri Stewart, AVP/Manager, Commercial Branch
Donald Cochrane, VP/Manager, Dimond
Chris Toomer, AVP/Manager, Dimond Mall
Pam Sievers, VP/Manager, Eagle River
Darby Hobson, AVP/Manager, 5th Avenue Mall and 510 L Steet
Judy L. Ferguson, VP/Manager, Fifth Avenue
Mary Webb, VP/Manager, Huffman
Daniel Keyes, VP/Manager, Main Office
Scott Schafer, AC/Manager, Midtown Wal-Mart
Jennifer McClure, AVP/Manager, Minnesota-Benson
Judy Butchart, AC/Manager, Northway Mall
Nancy Gillies, VP/Manager, Russian Jack and Frontier
Heather Reier, AC/Manager, Sand Lake
Jill Kerich, AVP/Manager, Sears Mall
Leilauni Lee, AVP/Manager, Spenard
Mat-Su Valley Branches
Deborah Retherford, AVP/Manager, Palmer
Eileen Lyse, AC/Manager, Cottonwood Creek, Wasilla
Annette DeLong, VP/Manager, Wasilla
Tracey Faulkner, AC/Manager, Wasilla Wal-Mart
Fairbanks Branches
Jami Spears, AC/Manager, Bentley Mall
William J. Green, VP/Business Development, College
Vicki Kennebec, AVP/Manager, College
Linda Winters, VP, College
Deborah Kimmell, AVP/Manager, Cushman
Charles Hardy, AC/Manager, Gaffney
R. Oscar Calvillo, AVP/Manager, North Pole
Kenai Peninsula Branches
Julie Woodworth, VP/Manager, Homer
J. Bond Stewart, VP/Manager, Kenai
Lori A. Draper, AVP/Manager, Seward
Kurt R. Eriksson, VP/Manager, Soldotna
Southeast Branches
Deborah K. Zenger, VP/Manager, Glacier Valley, Juneau
Roy L. Kyle, VP/Manager, Juneau
Joe Everhart, VP/Manager, Ketchikan
Gaylene Flannagan, AVP/Manager, Lemon Creek, Juneau
Charlene M. Jimenez, AC/Manager, Metlakatla
Pierre Kaptanian, AVP/Manager, Petersburg
Darin Floyd, AC/Manager, Prince of Wales
Linda Hoefer, AVP/Manager, Shoreline, Ketchikan
Lori Konoske, AVP/Manager, Sitka
Anthony Alvarado, AVP/Manager, Skagway
Greg Deal, AVP/Manager, Tongass, Ketchikan
James Culley, AC/Manager, Wrangell
Other Branches
Wes Osowski, AVP/Manager, Barrow
Mark Renner, AVP/Manager, Bethel
Jon K. Stavig, AVP/Manager, Cordova
Dave Durham, AVP/Manager, Delta
Sean Riggan, AVP/Manager, Dillingham
Daryl Lowe, AC/Manager, Glennallen
Charles Munk, AVP/Manager, King Salmon
Jo Oxentenko, AVP/Manager, Kotzebue
Darren Franz, VP/Manager, Kodiak
Kris Smythe-George, AC/Manager, Mill Bay, Kodiak
Scot Henderson, VP/Manager, Nome
Jennifer Frederick, AC/Manager, Seattle
Jacquelyn K. Robb, AVP/Manager, Valdez
Community Agents
Carrie Davis, Kake
Arlene Gundersen, Sand Point
Jennifer Hausmann, Galena
Zoe Ivanoff, Unalakleet
Bay Johnson, St. Mary's
<PAGE> 51
National Bank of Alaska 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, Fred Nishimura, 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., James Calvin, 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), Wayne Stevens
KOTZEBUE
Levi Cleveland, 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, Todd Brennon, Charles Bruno, Dale Conover, Howard Nugent, Jim
Reaves
WRANGELL
Barbara Angerman, Leonard Campbell, Olaf Hansen, Bill Privett, Frank Warfel
National Bank of Alaska
Subsidiaries
J. Michael Pate, President, National Bank of Alaska Insurance Services
James Carter, General Manager, Northland Credit Corporation
Judy Kemplen, President, Northland Escrow Services
Lynn Berry, President, Northland Mortgage Company
<PAGE> 52
A Special Thanks to:
Debbie Klinkhart, Marketing Officer, for the report's layout, design and
photography coordination.
Elaine Junge, Marketing Manager, and Michelle Nelson, Marketing Officer, for
editing.
Terry Kipp, Senior Vice President and Cathy Richter, Human Resources Manager,
for preparing the officer, board of director and advisory board listings.
Tom Mason, Senior Vice President, Marjorie Williams, Financial Analyst and
Angela Dirks, Accounting Supervisor, for preparing the financial section.
Chris Arend Photography for art direction and photography.
Jeff Shultz, for the photo on the lower front cover.
Alan Prier, for the photo on page 8.
Diana Foreman, Rise Alaska, for the photo on page 9.
Teck Resources, Inc. for the illustration on page 11.
VECO Services, Inc. for the photo on page 12.
Don Wilson Photography, for the photos on pages 16 and 17.
Numerous state agencies, corporations and associations
for statistical data and information.
<PAGE> Back Cover
National Bancorp of Alaska, Inc.
301 W. Northern Lights Blvd.
Anchorage, Alaska 99503
(907) 522-8888
http://www.nbak.com
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 1999 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
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 151,703
<INT-BEARING-DEPOSITS> 253
<FED-FUNDS-SOLD> 25,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 258,159
<INVESTMENTS-CARRYING> 677,448
<INVESTMENTS-MARKET> 658,917
<LOANS> 1,656,562
<ALLOWANCE> 27,565
<TOTAL-ASSETS> 3,053,505
<DEPOSITS> 2,157,817
<SHORT-TERM> 405,898
<LIABILITIES-OTHER> 38,418
<LONG-TERM> 0
<COMMON> 451,372
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 3,053,505
<INTEREST-LOAN> 153,722
<INTEREST-INVEST> 61,192
<INTEREST-OTHER> 2,432
<INTEREST-TOTAL> 217,346
<INTEREST-DEPOSIT> 54,749
<INTEREST-EXPENSE> 71,875
<INTEREST-INCOME-NET> 145,471
<LOAN-LOSSES> 4,950
<SECURITIES-GAINS> (490)
<EXPENSE-OTHER> 113,388
<INCOME-PRETAX> 97,598
<INCOME-PRE-EXTRAORDINARY> 97,598
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,109
<EPS-BASIC> 2.05
<EPS-DILUTED> 2.05
<YIELD-ACTUAL> 5.69
<LOANS-NON> 9,962
<LOANS-PAST> 1,884
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 51,428
<ALLOWANCE-OPEN> 24,678
<CHARGE-OFFS> 6,228
<RECOVERIES> 4,165
<ALLOWANCE-CLOSE> 27,565
<ALLOWANCE-DOMESTIC> 11,711
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,854
</TABLE>
