First National Bank Alaska : 2023 Audited Financial Statements

FIRST NATIONAL BANK ALASKA

Anchorage, Alaska

FINANCIAL STATEMENTS

December 31, 2023 and 2022

FIRST NATIONAL BANK ALASKA

Anchorage, Alaska

FINANCIAL STATEMENTS

December 31, 2023 and 2022

CONTENTS

INDEPENDENT AUDITOR'S REPORT	1
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL CONDITION	3
STATEMENTS OF INCOME	4
STATEMENTS OF COMPREHENSIVE INCOME	5
STATEMENTS OF CASH FLOWS	6
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY	8
NOTES TO FINANCIAL STATEMENTS	9

Crowe LLP

Independent Member Crowe Global

INDEPENDENT AUDITOR'S REPORT

The Board of Directors and Shareholders

First National Bank Alaska

Anchorage, Alaska

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of First National Bank Alaska, which comprise the statements of financial condition as of December 31, 2023 and 2022, and the related statements of income, comprehensive income, changes in shareholders' equity, and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of First National Bank Alaska as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with auditing standards generally accepted in the United States of America, First National Bank Alaska's internal control over financial reporting as of December 31, 2023, based on criteria established in the Internal Control-IntegratedFramework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) relevant to reporting objectives for the express purpose of meeting the regulatory requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) and our report dated March 12, 2024 expressed an unmodified opinion.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of First National Bank Alaska and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, First National Bank Alaska changed its method for accounting for credit losses effective January 1, 2023, due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments - Credit Losses (ASC 326). Our opinion is not modified with respect to this matter.

(Continued)

1.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about First National Bank Alaska's ability to continue as a going concern for one year from the date the financial statements are available to be issued.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about First National Bank Alaska's ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

Crowe LLP

Oak Brook, Illinois

March 12, 2024

2.

FIRST NATIONAL BANK ALASKA

STATEMENTS OF FINANCIAL CONDITION

December 31, 2023 and 2022

(Dollars in thousands, except per share data)

ASSETS			2023				2022
Cash and cash equivalents	$	923,414		$	93,547
Securities available-for-sale, at fair value			2,384,951				2,815,357
Real estate loans to be sold			6,193				1,728
Loans, net of allowance for credit losses of $17,750 and
$18,800 as of December 31, 2023 and 2022, respectively			2,255,561				2,208,247
Premises and equipment, net			50,532				52,335
Due from brokers			-				45,000
Deferred taxes, net			39,538				60,825
Other assets			70,646				60,698
Total assets	$	5,730,835		$	5,337,737
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing	$	1,932,290	$	2,368,659
Interest bearing:
Savings			738,785			1,023,024
Business interest checking			97,671			124,357
Business interest sweep			451,495				278,553
NOW			140,661				159,929
Money market			107,033				147,026
Time			312,083				123,309
Total interest bearing			1,847,728				1,856,198
Total deposits			3,780,018				4,224,857
Securities sold under agreements to repurchase			629,280				670,974
Federal Reserve Bank advances			780,000				-
Federal Home Loan Bank advances			15,000				-
Other liabilities			61,746				34,356
Total liabilities			5,266,044				4,930,187
Shareholders' equity:
Common stock, $10 par value
(authorized: 4,000,000 shares)
(issued and outstanding: 2023 and 2022 - 3,166,885)			31,669			31,669
Surplus			40,000			40,000
Retained earnings			491,500			482,160
Accumulated other comprehensive loss			(98,378)			(146,279)
Total shareholders' equity			464,791				407,550
Total liabilities and shareholders' equity	$	5,730,835		$	5,337,737

See accompanying notes to financial statements.

3.

FIRST NATIONAL BANK ALASKA

STATEMENTS OF INCOME

Years ended December 31, 2023 and 2022 (Dollars in thousands, except per share data)

			2023				2022
Interest income and loan fees:
Interest and fees on loans:	$	142,418		$	111,692
Taxable
Nontaxable			606				867
Total interest and fees on loans			143,024				112,559
Interest and dividends on investment securities:			40,994				38,431
Taxable
Nontaxable			3,677				3,800
Total interest and dividends on investment securities:			44,671				42,231
Interest on cash and cash equivalents			26,823				5,232
Total interest and loan fee income			214,518				160,022
Interest expense:
Deposits			18,850				3,892
Federal fund purchased and securities sold under agreements to repurchase			22,350				8,141
FHLB advances and other borrowed funds			18,839				2,619
Total interest expense			60,039				14,652
Net interest and loan fee income			154,479				145,370
Credit loss expense - loans			(855)			(1,249)
Credit loss expense - off-balance sheet credit exposures			(75)			-
Credit loss expense
		(930)			(1,249)
Net interest and loan fee income after provision for credit loss expense
		155,409				146,619
Noninterest income:			10,693				10,391
Bankcard fees
Service charges on deposit accounts			5,487				5,056
Gain on sale of mortgage loans			757			1,417
Mortgage loan servicing income			2,107				1,872
Other noninterest income			6,682				5,936
Total noninterest income			25,726				24,672
Noninterest expense:			63,652				60,741
Salaries and employee benefits
Occupancy expense, net			7,323				7,006
Furniture and equipment expense			2,909				2,664
Bankcard expenses			2,839				2,656
Losses on investment securities, net			300			64
Other noninterest expense			21,445				20,008
Total noninterest expense
		98,468				93,139
Income before taxes			82,667				78,152
Provision for income taxes			22,657				19,917
Net income
$	60,010		$	58,235
Earnings per common share	$	18.95		$	18.39

See accompanying notes to financial statements.

4.

FIRST NATIONAL BANK ALASKA

STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31, 2023 and 2022

(Dollars in thousands)

			2023			2022
Net income	$	60,010	$	58,235
Other comprehensive income (loss) -
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the period,
net of tax effect of ($18,939) and $61,397 in 2023 and 2022,			47,686			(154,591)
respectively
Reclassification adjustment for losses included in net income,
net of tax effect of ($85) and ($18) in 2023 and 2022,
respectively			215			46
Other comprehensive income (loss)			47,901			(154,545)
Comprehensive income (loss)	$	107,911	$	(96,310)

See accompanying notes to financial statements.

5.

FIRST NATIONAL BANK ALASKA STATEMENTS OF CASH FLOWS

Years ended December 31, 2023 and 2022

(Dollars in thousands)

			2023				2022
Cash flows from operating activities
Net Income	$	60,010	$	58,235
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of premium on investment securities, net			5,337			10,950
(Gain) loss from equity method investments			(155)			467
Loss on mortgage servicing rights			297				316
Depreciation, accretion, and amortization			5,174				5,156
Credit loss expense			(930)			(1,249)
Deferred taxes			2,263			3,910
Gain on sale of mortgage loans			(757)			(1,417)
Net loss on the sale of premises and equipment			3			142
Net loss on investment securities			300			64
Real estate loans to be sold-originated			(66,900)			(84,330)
Real estate loans to be sold-shipped			62,692				91,502
Net increase in other assets			(1,305)			(2,425)
Net decrease (increase) in other liabilities			21,230				(790)
Net cash provided by operating activities			87,259				80,531
Cash flows from investing activities
Proceeds from calls or maturities of securities, available-for-sale			496,355				243,804
Proceeds from sales of securities, available-for-sale			187,736				235,335
Purchase of securities, available-for-sale			(147,422)			(723,486)
Net sale (purchase) of Federal Home Loan Bank stock			2,820			(1,063)
Net decrease in loans			285,144			100,777
Purchase of participation loans			(335,386)			(211,599)
Proceeds from sales of premises and equipment			-				11
Purchase of land, premises and equipment			(2,417)			(8,236)
Net cash provided (used) by investing activities			486,830				(364,457)

(Continued)

6.

FIRST NATIONAL BANK ALASKA

STATEMENTS OF CASH FLOWS

Years ended December 31, 2023 and 2022

(Dollars in thousands)

____________________________________________________________________________________

Cash flows from financing activities			2023				2022
Net (decrease) increase in total deposits	$	(444,839)	$	7,933
Net decrease in securities sold under agreement to repurchase			(41,694)			(110,726)
Proceeds from Federal Home Loan Bank advances			215,000			2,400,000
Repayments on Federal Home Loan Bank advances			(200,000)			(2,400,000)
Proceeds from Federal Reserve Bank advances			780,000			-
Payments on notes payable and finance lease			(2,019)			(1,020)
Dividends paid			(50,670)			(50,670)
Net cash provided (used) by financing activities			255,778				(154,483)
Increase (decrease) in cash and cash equivalents			829,867				(438,409)
Cash and cash equivalents, January 1			93,547			531,956
Cash and cash equivalents, December 31
	$	923,414		$	93,547
Supplemental disclosures of cash flow information:
Cash paid during the year for interest	$	38,440		$	14,596
Cash paid during the year for income taxes			21,280				11,551
Noncash investing and financing activities:
Bank financed sales of other real estate owned	$	-		$	29
Purchase of copier equipment under finance lease obligation			-				1,164
Commitments for investments in qualified affordable housing
projects			12,000				15,000
Settlement of purchased loans and securities via
short-term payable			(4,133)			(8,225)
Due from brokers for security maturities			-				(45,000)

See accompanying notes to financial statements

7.

FIRST NATIONAL BANK ALASKA

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Years ended December 31, 2023 and 2022 (Dollars in thousands, except per share data)

		Common							Accumulated		Total
				Retained			Other
	Stock ($10			Comprehensive Shareholders'
	Par Value)	Surplus	Earnings	Income (Loss)		Equity
Balance, January 1, 2022	$	31,669	$ 40,000	$	474,595	$	8,266	$	554,530
Net income			-		-			58,235			-			58,235
Other comprehensive loss,
net of tax			-		-			-				(154,545)		(154,545)
Dividends declared -
$16.00 per share			-		-			(50,670)			-			(50,670)
Balance, December 31, 2022			31,669	40,000		482,160			(146,279)		407,550
Net income			-		-			60,010			-			60,010
Other comprehensive gain,
net of tax			-		-			-				47,901		47,901
Dividends declared -
$16.00 per share			-		-			(50,670)			-			(50,670)
Balance, December 31, 2023	$	31,669	$ 40,000	$	491,500	$	(98,378)	$	464,791

See accompanying notes to financial statements

8.