UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-12396
CB BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Hawaii 99-0197163
(State of Incorporation) (IRS Employer Identification No.)
201 Merchant Street Honolulu, Hawaii 96813
(Address of principal executive offices)
(808) 546-2411
(Registrant's Telephone Number)
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 [ ]
The number of shares outstanding of registrant's common stock at April 30, 1996
was 3,551,228 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CB BANCSHARES, INC. AND SUBSIDIARIES (unaudited)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except shares and per share data)
- -------------------------------------------------------------------------------
March 31, December 31, March 31,
1996 1995 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 77,806 $ 75,119 $ 49,902
Federal Funds Sold and securities
purchased 605 0 5
Investment securities:
Held-to-maturity 8,626 9,244 223,052
Available for sale 180,312 231,495 42,563
Trading 82 96 1,039
Loans held for sale 2,309 14,350 -
Gross loans 1,110,275 1,121,186 1,104,711
Less allowance for loan losses (14,528) (14,576) (14,423)
Net Loans 1,095,747 1,106,610 1,090,288
Premises and equipment 16,660 16,960 17,619
Other assets 32,644 36,362 43,210
Goodwill 11,064 11,277 11,923
- -------------------------------------------------------------------------------
Total assets $1,425,855 $1,501,513 $1,479,601
===============================================================================
LIABILITIES AND STOCKHOLDERS EQUITY
Deposits
Non-interest bearing $ 117,727 $ 137,287 $ 124,078
Interest bearing 855,114 874,196 828,332
- -------------------------------------------------------------------------------
Total deposits 972,841 1,011,483 952,410
Short-term borrowings 197,984 239,360 283,673
Other liabilities 24,238 32,793 34,751
Long-term debt 115,975 101,371 96,232
- -------------------------------------------------------------------------------
Total liabilities 1,311,038 1,385,007 1,367,066
Contingencies (Note B)
Stockholders' equity
$1 par value, 50,000,000 shares
authorized, Issued and
outstanding - 3,551,228 shares 3,551 3,551 3,551
Additional paid-in capital 65,080 65,080 65,080
Retained earnings 45,699 46,279 44,068
Unrealized valuation adjustment 487 1,596 (164)
Total stockholders' equity 114,817 116,506 112,535
- -------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,425,855 $1,501,513 $1,479,601
===============================================================================
</TABLE>
2
<PAGE>
CB BANCSHARES, INC. AND SUBSIDIARIES (unaudited)
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(in thousands, except per share data) Quarter ended
- ------------------------------------------------------------------------------
March 31, March 31,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Interest income
Interest and fees on loans $23,816 $23,230
Interest and dividends on investment securities
Taxable 2,971 4,023
Non taxable 54 70
Dividends 421 162
Other interest income 507 118
- -------------------------------------------------------------------------------
Total interest income 27,769 27,603
Interest Expense
Deposits 9,038 7,815
Short-term borrowings 3,116 4,131
Long-term debt 1,837 1,716
- -------------------------------------------------------------------------------
Total interest expense 13,991 13,662
Net interest income 13,778 13,941
Provision for loan losses 310 120
- -------------------------------------------------------------------------------
Net interest income after provision
for loan losses 13,468 13,821
Other income
Service charges and fees 1,695 2,072
Other 1,265 112
- -------------------------------------------------------------------------------
Total other income 2,960 2,184
Other expenses
Salaries and employee benefits 8,690 5,074
Net occupancy and equipment expense 2,378 2,419
Other 4,409 4,776
- -------------------------------------------------------------------------------
Total other expenses 15,477 12,269
- -------------------------------------------------------------------------------
Income before income taxes 951 3,736
Provision for income taxes 377 1,400
- -------------------------------------------------------------------------------
Net income $ 574 $2,336
===============================================================================
Per common share:
Net income $ 0.16 $ 0.66
===============================================================================
</TABLE>
3
<PAGE>
CB BANCSHARES, INC. AND SUBSIDIARIES (unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
(in thousands, except per share data) Quarter ended March 31,
- -------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 574 $2,336
Net adjustments to reconcile net income to cash
(used in) provided by operating activities (5,233) 1,400
- -------------------------------------------------------------------------------
Net cash provided by operating activities (4,659) 3,736
Cash flows from investing activities:
Net increase in federal funds sold and
securities under resale agreements (605) 0
Purchase of investment securities (43,697) (6,171)
Proceeds from maturities/ sales of
investment securities 95,512 7,546
Net decrease (increase) in loans 22,952 (29,287)
Capital expenditures (248) (634)
- -------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 73,914 (28,546)
Cash flows from financing activities:
Net (decrease) increase in deposits (38,642) 28,966
Net (decrease) increase in short-term borrowings (41,376) 8,770
Increase (decrease) in long-term debt 14,604 (10,618)
Cash dividends paid (1,154) (1,154)
- -------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (66,568) 25,964
INCREASE IN CASH 2,687 1,154
- -------------------------------------------------------------------------------
Cash and due from banks at beginning of period 75,119 48,748
- -------------------------------------------------------------------------------
Cash and due from banks at end of period $77,806 $49,902
===============================================================================
</TABLE>
4
<PAGE>
CB BANCSHARES, INC. AND SUBSIDIARIES
Note to consolidated Financial Statements
March 31, 1996
NOTE A - BASIS FOR PRESENTATION
The unaudited financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all information and footnotes
necessary for a fair presentation of the financial condition, results of
operations, and cash flows of CB Bancshares, Inc., and subsidiaries, in
conformity with generally accepted accounting principles.
The financial statements reflect all adjustments of a normal and recurring
nature which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods.
NOTE B - CONTINGENCIES
On January 30, 1996, a lawsuit was filed in the Circuit Court of the First
Circuit, State of Hawaii, by Hamamoto Corporation and Shinsuke Hamamoto
("Plaintiffs") against International Savings and Loan Association, Limited
("ISL"), ISL Services, Inc., DRI Realty, Inc., Richard C Lim, as an officer
and
director of ISL (the foregoing defendants are referred to herein as the "ISL
defendants", as well as CB Bancshares, Inc. (The "Company") and other
entities and individuals. The lawsuit is an action by Plaintiffs, as
purchasers of the International Savings Building at 1111 Bishop Street in
Honolulu, Hawaii, for recission, special, general and punitive damages.
Plaintiff seek recission of a $7.45 million sale, made in May 1988, based on
allegations that various parties negligently or intentionally misrepresented
and/or fraudulently failed to disclose unsuccessful negotiations for a new
ground lease with the fee simple landowner and the alleged unreasonableness of
demands by the fee simple owner. Plaintiffs also allege failure to disclose
land appraisals concerning the property and presence of toxic asbestos in the
cooling system, pipes, walls
and ceiling tiles of the building. On March 1, 1996, the Company and the ISL
Defendants filed an Answer to Plaintiffs' Complaint denying any liability in
connection with the matters alleged in Plaintiffs' Complaint, and a
Counterclaim against Plaintiffs alleging breach of contract, abuse of process
and related claims. While the Company and the ISL Defendants believe they have
meritorious defenses in this action, due to the uncertainties inherent in the
early stages of litigation, no assurances can be given as to the ultimate
outcome of the lawsuit at this time. Accordingly, no provision for any loss or
recovery that may result upon resolution of the lawsuit has been made in the
Company's Consolidated Financial Statements.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
NET INCOME
Consolidated net income for the quarter ended March 31, 1996, totaled $0.57
million, or $0.16 per share, as compared to $2.34 million, or $0.66 per share
for the same quarter last year. The decrease in 1996 first quarter earnings
was due primarily to the accrual of expenses related to the Voluntary
Separation Program ("VSP"), which the Company announced in January 1996,
amounting to $3.3 million ($2.0 million after tax) - See further discussion in
the section titled "Other Expenses". Excluding the $2.0 million after tax
effect of the VSP, the Company's net earnings for the first quarter of 1996
would have been approximately $2.6 million .
The Company's annualized return on average assets (ROA) for the quarter ended
March 31, 1996 was 0.16%, as compared to 0.65% for the same quarter last
year. The Company's annualized return on average stockholder's equity (ROE)
was 1.98% for the quarter ended March 31, 1996, as compared to 8.47% for the
same quarter last year.
Excluding the aforementioned $2.0 million effect of the VSP discussed above,
ROA and ROE would have been 0.71% and 8.99%, respectively.
NET INTEREST INCOME
A comparison of net interest income for the three months ended March 31, 1996,
and 1995 is set forth below on a taxable basis:
<TABLE>
<CAPTION>
Quarter Ended March 31,
1996 1995
(dollars in thousands)
<S> <C> <C>
Interest income $27,805 $27,639
Interest Expense 13,991 13,662
------- -------
Net interest income $13,814 $13,977
======= =======
Net interest margin 4.08% 4.15%
======= =======
</TABLE>
Interest income in the first quarter of 1996 increased to $27.8 million from
$27.6 million during the same quarter in 1995. The increase in interest income
reflects an increase of $8.7 million in average earning assets, which
increased to $1,372.1 million. Interest expense increased by $0.33 million as
the average balance of interest bearing liabilities increased by $39.4 million
during the three months ended March 31, 1996 to $1.385.6 million.
The weighted average yield on interest-earning assets was 8.09% for the first
quarter of 1996 compared to 8.22% for the respective 1995 period. The weighted
average cost of interest-bearing liabilities decreased to 4.76% for the three
month periods ended March 31, 1996, as compared to 4.80% for the respective
1995 period. As a result of the foregoing, the Company's net interest margin
decreased by 7 basis points to 4.08% for the three months ended March 31, 1996.
6
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at March 31, 1996 was $14.5 million, and
represented 1.31% of total loans. The ratio at December 31, 1995 and March 31,
1995, was 1.29% and 1.31%, respectively
Changes in the allowances for loan losses were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31,
1996 1995
(dollars in thousands)
<S> <C> <C>
Balance at beginning of period $14,576 $14,426
Provision charged to expense 310 120
Net recoveries(charge-offs) (358) (123)
-------- --------
Balance at end of period $14,528 $14,423
</TABLE>
NON-PERFORMING ASSETS
A summary of non-performing assets follows:
<TABLE>
<CAPTION>
3/31/96 12/31/95 3/31/95
---------------------------------
(in thousands)
<S> <C> <C>
Loan accounted for on a
non-accrual basis $15,295 $14,338 $8,305
Loan contractually past due
ninety days or more as to
interest or principal payments 4,495 3,113 8,530
----------------------------------
Total non-performing loans 19,790 17,451 16,835
Other Real Estate Owned 985 1,715 1,882
----------------------------------
Total non-performing assets $20,775 $19,166 $18,717
===================================
</TABLE>
The increase in non-accrual loans at March 31, 1996 was due primarily to an
increase in ISL's delinquent mortgage loans, consisting primarily of loans on
1-4 family residential property, which increased from $4.4 million at March 31,
1995 to $11.2 million at March 31, 1996.
Loans past due 90 days or more and still accruing decreased by $4.1 million to
$4.5 million at March 31, 1996 when compared to the same time last year. The
decrease was due primarily to a decrease in ISL's loans past due 90 days and
still accruing loans.
. 7
<PAGE>
OTHER OPERATING INCOME
Other operating income totaled $2.96 million for the three month periods ended
March 31, 1996, which compares to $2.18 million for the comparable period in
1995. The increase was due primarily to a $1.15 million increase in other
income, which increased to $1.27 million compared to $0.11 million in the first
quarter of 1995.
OTHER OPERATING EXPENSES
Other operating expenses totaled $15.48 million for the three months ended
March 31, 1996, an increase of $3.21 million over the same period in 1995. The
increase in other operating expenses was due primarily to the accrual of $3.29
million of voluntary separation expenses included in salary and benefit
expenses recorded in the first quarter of 1996.
On January 31, 1996, the Company announced a major initiative to further
improve operating efficiency and decrease expenses by offering a Voluntary
Separation Program ("VSP") to all employees. The program offered all eligible
employees the opportunity of electing to terminate their employment. To date
87 employees have executed binding voluntary separation agreements and 9
employees have indicated an interest in the VSP and have until June 10, 1996 to
make a final decision on the VSP offer. During the first quarter of 1996, the
Company accrued VSP expenses of $3.29 million for estimated separation
payments. As of March 31, 1996, 22 employees have left the Company under the
VSP for which related termination benefits paid amounted to $0.74 million. The
balance of termination payments are expected to be paid in the second and third
quarter of 1996. Of the total 96 employees currently expected to be separated
in accordance with the VSP, approximately 43 positions are currently expected
to be refilled and the remaining positions are expected to be eliminated. The
positions not replaced are currently anticipated to result in an estimated
annual savings of $2 million in salaries and employee benefits.
The above discussion of projected annual savings from the VSP are forward
looking statements, and as such, the actual results could differ materially
from those projected in such statements. While management of the Company
believes the projected savings described above are reasonable based on current
information, some assumptions may not materialize and unanticipated events and
circumstances may occur, causing actual results to differ from the projections
described above. Factors which could cause the actual results to differ from
those described above include: unanticipated legal actions taken by employees
(or third parties) in response to the Company's program; material and
unforeseen changes in the Company's current operational needs; material changes
in the Hawaii economy impacting the Company's current operational needs; or
other unanticipated external developments materially impacting the Company's
operational and financial performance
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
March 31, 1996.
ITEM REPORTED DATE FILED
------------------------------- --------------
Announcement of Voluntary Separation Program 2\6\96
Adoption of Change in Control Agreements 3\28\96
SIGNATURES
Pursuant to the requirements 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.
CB BANCSHARES, INC. AND SUBSIDIARIES
May 15, 1996 By /s/ Daniel Motohiro
Daniel Motohiro, Treasurer
and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 77806
<INT-BEARING-DEPOSITS> 852826
<FED-FUNDS-SOLD> 605
<TRADING-ASSETS> 82
<INVESTMENTS-HELD-FOR-SALE> 180312
<INVESTMENTS-CARRYING> 8626
<INVESTMENTS-MARKET> 8757
<LOANS> 1110275
<ALLOWANCE> 12528
<TOTAL-ASSETS> 1425855
<DEPOSITS> 972841
<SHORT-TERM> 197984
<LIABILITIES-OTHER> 24238
<LONG-TERM> 115975
<COMMON> 3551
0
0
<OTHER-SE> 111266
<TOTAL-LIABILITIES-AND-EQUITY> 1425855
<INTEREST-LOAN> 23816
<INTEREST-INVEST> 3446
<INTEREST-OTHER> 507
<INTEREST-TOTAL> 27769
<INTEREST-DEPOSIT> 9038
<INTEREST-EXPENSE> 13991
<INTEREST-INCOME-NET> 13778
<LOAN-LOSSES> 310
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15477
<INCOME-PRETAX> 951
<INCOME-PRE-EXTRAORDINARY> 951
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 574
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<YIELD-ACTUAL> 8.22
<LOANS-NON> 15295
<LOANS-PAST> 4495
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14576
<CHARGE-OFFS> 449
<RECOVERIES> 90
<ALLOWANCE-CLOSE> 14528
<ALLOWANCE-DOMESTIC> 13193
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1335
</TABLE>
