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 September 30, 1997
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 October 31,
1997 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)
- ------------------------------------------------------------------------------
September 30, December 31, September 30,
1997 1996 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 40,941 $ 56,632 $ 60,637
Federal Funds Sold and securities
purchased under agreement to resell 6,505 - 4,005
Held-to-maturity 91,526 97,831 17,161
Available for sale 115,150 138,199 146,323
Trading - - -
Restricted investment securities 26,772 25,100 24,603
Loans held for sale 19,242 5,629 2,981
Gross loans 1,047,171 1,031,554 1,093,755
Less allowance for loan losses (17,789) (15,431) (15,619)
Net Loans 1,029,382 1,016,123 1,078,136
Premises and equipment 19,189 18,227 17,355
Other assets 28,500 29,002 28,280
Goodwill 9,788 10,426 10,639
- ------------------------------------------------------------------------------
Total assets $1,386,995 $1,397,169 $1,390,120
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 99,889 $ 113,043 $ 112,735
Interest bearing 862,890 838,867 845,531
- ------------------------------------------------------------------------------
Total deposits 962,779 951,910 958,266
Short-term borrowings 126,585 208,681 219,958
Other liabilities 22,414 22,342 21,714
Long-term debt 151,376 94,825 74,829
- ------------------------------------------------------------------------------
Total liabilities 1,263,154 1,277,758 1,274,767
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 54,055 49,878 46,743
Unrealized valuation adjustment 1,155 902 (21)
Total stockholders' equity 123,841 119,411 115,353
- ------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,386,995 $1,397,169 $1,390,120
==============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CB BANCSHARES, INC. AND SUBSIDIARIES (unaudited)
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data) Quarter ended Nine months ended
- ------------------------------------------------------------------------------------------------------------
September 30, September 30 September 30, September 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
Interest income
Interest and fees on loans $23,474 $24,779 $69,312 $73,110
Interest and dividends on investment securities
Taxable 3,912 2,269 12,083 7,613
Non-taxable 47 191 150 276
Dividends 513 506 1,424 1,377
Other interest income 236 499 938 1,434
- -------------------------------------------------------------------------------------------------------------
Total interest income 28,182 28,244 83,907 83,810
Interest Expense
Deposits 9,201 8,717 26,440 26,357
Short-term borrowings 1,632 2,387 8,174 8,464
Long-term debt 2,832 2,061 5,404 5,583
- -------------------------------------------------------------------------------------------------------------
Total interest expense 13,665 13,165 40,018 40,404
- -------------------------------------------------------------------------------------------------------------
Net interest income 14,517 15,079 43,889 43,406
Provision for loan losses 1,517 360 4,067 1,950
- -------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 13,000 14,719 39,822 41,456
Other income
Service charges and fees 973 1,377 3,064 4,124
Other 894 463 2,017 3,119
- -------------------------------------------------------------------------------------------------------------
Total other income 1,867 1,840 5,081 7,243
Other expenses
Salaries and employee benefits 4,659 3,856 13,492 17,843
Net occupancy and equipment expense 2,833 2,303 8,364 6,915
Other 4,071 7,069 13,260 17,430
- -------------------------------------------------------------------------------------------------------------
Total other expenses 11,563 13,228 35,116 42,188
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 3,304 3,331 9,787 6,511
Provision for income taxes 1,202 1,326 3,885 2,586
- -------------------------------------------------------------------------------------------------------------
Net income $ 2,102 $ 2,005 $ 5,902 $ 3,925
=============================================================================================================
Per common share:
Basic Earnings Per Share $ 0.59 $ 0.56 $ 1.66 $ 1.11
Diluted Earnings Per Share $ 0.56 $ 0.56 $ 1.66 $ 1.11
=============================================================================================================
</TABLE>
<PAGE>
CB BANCSHARES, INC. AND SUBSIDIARIES (unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands) Nine Months ended September 30,
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,902 $ 3,925
Net adjustments to reconcile net income to
cash used in operating activities (10,732) (1,174)
- ------------------------------------------------------------------------------
Net cash used in operating activities (4,830) 2,751
Cash flows from investing activities:
Net (increase) in federal funds sold and
securities under agreements to resell (6,505) (4,005)
Purchases of held-to-maturity securities (51,862) (60,230)
Proceeds from maturities of held-to-maturity
securities 58,167 96
Purchases of available-for-sale securities (8,309) (51,466)
Proceeds from sales of available-for-sale
securities 12,864 40,394
Proceeds from maturities of
available-for-sale securities 18,672 123,858
Net (increase) decrease in loans (15,617) 38,800
Purchases of premises and equipment (3,733) (2,058)
Proceeds from sale of premises and equipment 1,825 -
- ------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 5,502 85,389
Cash flows from financing activities:
Net increase (decrease) in deposits 10,869 (53,217)
Net (decrease) in short-term borrowings (82,096) (19,401)
Proceeds from long-term debt 89,672 -
Principal payments on long-term debt (33,121) (26,542)
Cash dividends paid (1,687) (3,462)
- ------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (16,363) (102,622)
DECREASE IN CASH (15,691) (14,482)
- ------------------------------------------------------------------------------
Cash and due from banks at beginning of period 56,632 75,119
- -----------------------------------------------------------------------------
Cash and due from banks at end of period $40,941 $60,637
=============================================================================
</TABLE>
<PAGE>
CB BANCSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997
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 First Circuit Court of the
State of Hawaii by Hamamoto Corporation ("HC") and its president, Shinsuke
Hamamoto, against the Association, its subsidiaries, one of its officers as
well as the Company and other entities and individuals. The lawsuit is an
action by the plaintiffs, as purchasers of the International Savings Building
at 1111 Bishop Street in Honolulu, Hawaii, for recission, special, general and
punitive damages. The plaintiffs seek recission of sale of the ISL building
to them (made in May 1988 for $7,450,000), 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. The plaintiffs also allege failure to disclose land appraisals
concerning the property and the presence of toxic asbestos in the cooling
system, pipes, walls and ceiling tiles of the building and intentional or
negligent infliction of emotional distress in connection with the vacation of
the ISL Building by the Association as a substantial tenant of the building.
The Company and the Association defendants have answered plaintiffs' complaint
denying any liability in connection with plaintiffs' allegations. While the
Company and the Association defendants believe they have meritorious defenses
in this action, due to the uncertainties inherent in the early stages of
litigation, no assurance can be given as to the ultimate outcome of the
lawsuit at this time.
The Association vacated its leased portion of the 1111 Bishop Street building
at the end of March 1997. In March, the Company was informed by the
landowner, the Estate of James Steiner ("Steiner Trust"), that HC failed to
make timely payment of monthly rent and real property taxes. The Steiner
Trust subsequently sued the Association and HC. The landowner's 1988 consent
to the Association's assignment of the underlying ground lease did not release
the Association from ground lease obligations upon default by the assignee,
and thus the Association remains liable for the ground lease. The current
monthly ground lease payments of $65,333 are fixed until July 20, 2001, at
which time the monthly ground lease payments will be renegotiated to July 20,
2011. In 2011, the monthly ground lease payments will be renegotiated for a
final ten year period through July 20, 2021. In no event would the negotiated
lease rent for any period be less than $30,000 per year.
<PAGE>
In May 1997, HC reassigned the lease to the Association pursuant to an
agreement among the Steiner Trust, the Association, HC and its president, and
Steiner Trust's lawsuit was dismissed. As a result, the Association currently
controls the operation of the 1111 Bishop Street building. However, the
agreement did not release the Association from obligations under the lease, or
terminate the litigation between the Association and HC. The agreement also
established a $5 million cap on the amount of damages the Association can
recover from HC with respect to the assignment.
The Company is a defendant in other various legal proceedings arising from
normal business activities. In the opinion of management, after reviewing
these proceedings with counsel, the aggregate liability, if any, resulting
from these proceedings would not have a material effect on the Company's
financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
NET INCOME
Consolidated net income for the quarter ended September 30, 1997, totaled
$2.10 million, or $0.59 per share, as compared to $2.00 million, or $0.56 per
share for the same quarter last year. Consolidated net income for the nine
months ended September 30, 1997 totaled $5.90 million, or $1.66 per share, as
compared to $3.93 million, or $1.11 per share for the same period last year.
The increase in net earnings for the nine months ended September 30, 1997 was
due primarily to the accrual of salaries and benefit expenses related to the
Voluntary Separation Program (VSP) in the first quarter of 1996. These
expenses amounted to $3.3 million, or $2.0 million on an after-tax basis.
Excluding the $2.0 million after tax effect for the VSP, the Company's net
earnings for the first nine months of 1996 would have been approximately $5.9
million. See further discussion of the VSP in the section titled, "Other
Expenses." Somewhat offsetting the increase in earnings due to 1996's VSP
accrual was a $2.1 million increase in the provision for loan losses, and a
$350,000 accrual for a special recognition award granted to Mr. Morita,
Chairman and Chief Executive Officer under the Retirement Agreement dated
March 6, 1997.
The Company's annualized return on average assets (ROA) for the third quarter
and nine months ended September 30, 1997 was 0.60% and 0.57%, respectively, as
compared to 0.58% and 0.37% for the respective 1996 periods. The Company's
annualized return on average stockholder's equity (ROE) for the third quarter
and nine months ended September 30, 1997 was 6.84% and 6.50%, respectively, as
compared to 6.99% and 4.54% for the respective 1996 periods. Excluding the
aforementioned $2.0 million effect of the VSP discussed above, ROA and ROE
would have been 0.55% and 6.88%, respectively, for the first nine months of
1996.
<PAGE>
NET INTEREST INCOME
A comparison of net interest income for the nine months ended September 30,
1997 and 1996 is set forth below on a taxable basis:
Nine months ended September 30,
1997 1996
(dollars in thousands)
Interest income $84,056 $83,952
Interest Expense 40,018 40,404
------- -------
Net interest income $44,038 $43,548
======= =======
Net interest margin 4.47% 4.33%
======= =======
Interest income for the nine months ended September 30, 1997 remained
relatively flat at $84.06 million, an increase of $104,000 from the $83.95
million for the same period in 1996. Interest expense decreased by $386,000
from $40.40 million to $40.02 million. Net interest income increased by
$490,000 for the nine months ended September 30, 1997 versus the same period
in 1996.
The weighted average yield on interest-earning assets increased by 20 basis
points to 8.54% for the nine months ended September 30, 1997, as compared to
8.34% for the respective 1996 period. The weighted average cost of interest-
bearing liabilities increased by 9 basis points to 4.76% for the nine months
ended September 30, 1997, in comparison to 4.67% for the respective 1996
period. As a result of the foregoing, the Company's net interest margin
increased by 14 basis points to 4.47% for the nine months ended September 30,
1997.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at September 30, 1997 was $17.79 million, and
represented 1.70% of total loans. The ratio at December 31, 1996 and
September 30, 1996, was 1.49% and 1.43%, respectively. As shown in the table
below, there has been a slight increase in the level of non-performing loans
from December 31, 1996, from $27.61 million to $30.34 million as of September
30, 1997. The continued weakness in the Hawaiian real estate market and
continued concerns of the State's economic health led to an increase in the
provision for loan losses to $4.07 million for the six months ended June 30,
1997, as compared to $1.95 million for the same period in 1996 - see further
discussion below.
<PAGE>
Changes in the allowances for loan losses were as follows:
<TABLE>
<CAPTION>
Quarter ended Nine Months ended
September 30, September 30,
1997 1996 1997 1996
(dollars in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period $16,967 $15,498 $15,431 $14,576
Provision charged to expense 1,517 360 4,067 1,950
Net recoveries(charge-offs) (695) (239) (1,709) (907)
-------- -------- ------- -------
Balance at end of period $ 17,789 $15,619 $17,789 $15,619
</TABLE>
NON-PERFORMING ASSETS
A summary of non-performing assets follows:
<TABLE>
<CAPTION>
9/30/97 12/31/96 9/30/96
---------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Loan accounted for on a
non-accrual basis $25,708 $23,385 $20,349
Loan contractually past due
ninety days or more as to
interest or principal payments 2,259 2,379 6,125
----------------------------------
Total non-performing loans 27,967 25,764 26,474
Other Real Estate Owned 2,369 1,844 1,215
----------------------------------
Total non-performing assets $30,336 $27,608 $27,689
===================================
</TABLE>
Non-performing assets at September 30, 1997 totaled $30.34 million, an
increase of $2.73 million from December 31, 1996, and an increase of $2.65
million from September 30, 1996. The increase from September 30, 1996 was
mainly due to increases in non-accruing real estate (1-4 family type) loans.
In consideration of this, the provision for loan losses for 1997 reflects an
increase of $2.1 million over the comparable nine month period in 1996.
OTHER OPERATING INCOME
Other operating income totaled $5.08 million for the nine month period ended
September 30, 1997, which compares to $7.24 million for the comparable period
in 1996. This decline was primarily attributable to the loss of commissions
and fees, and the related gain from the sale of the Bank's credit card
portfolio, which was sold to an unrelated third party in 1996.
<PAGE>
OTHER OPERATING EXPENSES
Other operating expenses totaled $35.12 million for the nine months ended
September 30, 1997, a decrease of $7.07 million over the same period in 1996.
The decline in other operating expenses was due primarily to the accrual of
$3.29 million in salary and benefit expenses related to the Voluntary
Separation Program(VSP)in the first quarter of 1996, and a $2.2 million
accrual for a one-time SAIF insurance assessment in the third quarter of 1996.
MERGER OF SUBSIDIARIES AND MEMORANDUM OF UNDERSTANDING
On October 16, 1997, the Company announced that it will not merge its two
principal subsidiaries, City Bank and International Savings and Loan
Association, Ltd. The two subsidiaries are key players in Hawaii's financial
marketplace who have established themselves successfully in serving the needs
of important targeted market niches. The Company will, however, continue to
integrate and consolidate internal operations and support functions.
On September 11, 1997, City Bank entered into an informal agreement (commonly
known as a Memorandum of Understanding) with the Federal Deposit Insurance
Corporation (FDIC). The agreement requires, among other things, that City Bank
obtain prior FDIC approval for payment of cash dividends, and requires City
Bank to reduce certain categories of classified assets to specified levels
within time frames set forth in the agreement. The Company does not expect the
agreement to result in significant changes from present practices.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note B to the consolidated Financial Statements included herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 10 Federal Deposit Insurance Corporation Memorandum of Understanding,
dated September 11, 1997
MEMORANDUM OF UNDERSTANDING
The board of directors of City Bank, Honolulu, Hawaii ("Bank"), agrees to take
the actions outlined below to correct unsatisfactory conditions disclosed in
the joint examination report of the Bank as of the close of business April 1,
1997 ("Report of Examination"), prepared by the Federal Deposit Insurance
Corporation and the State of Hawaii, Department of Commerce and Consumer
Affairs, Division of Financial Institutions.
1. (a) During the life of this MEMORANDUM, the Bank shall retain management
acceptable to the Regional Director of the FDIC San Francisco Regional Office
("Regional Director") and the Commissioner of Financial Institutions of the
State of Hawaii ("Commissioner"). Such management shall include a chief
executive officer and a senior lending officer qualified to restore the Bank to
a sound condition. The chief executive officer shall be given specific written
authority by the board of directors. Such written authority shall include the
responsibility of implementing and maintaining lending policies and other Bank
policies in accordance with sound banking practices.
(b) Within thirty (30) days from the effective date of this MEMORANDUM,
the board of directors shall develop and adopt a management succession plan.
Such plan should, at a minimum, designate appropriate replacements for the
Chief Executive Officer, the President, and the Executive Vice President in
case they are not able to fulfill their duties. A copy of such plan shall be
submitted to the Regional Director and the Commissioner for review.
2. Within thirty (30) days of the effective date of this MEMORANDUM, the
board of directors shall adopt a formal board resolution to re-affirm its
responsibility for formulating sound policies and objectives for the Bank,
effectively supervising the Bank's affairs, and actively promoting the Bank's
welfare. The board shall further resolve to independently review all matters
impacting the Bank, and strive to ensure that all actions are well justified
and unequivocally for the benefit of the Bank.
3. (a) Within ten (10) days from the effective date of this MEMORANDUM, the
Bank shall eliminate from its books, by charge-off or collection, all assets
classified "Loss" as of April 1, 1997, that have not been previously collected
or charged-off. Reduction of these assets through proceeds of other loans made
by the Bank is not considered collection for the purposes of this paragraph.
(b) Within ninety (90) days from the effective date of this MEMORANDUM,
the Bank shall have reduced the items classified "Substandard" and those items
<PAGE>
classified "Doubtful" that have not previously been charged-off as of April 1,
1997, to not more than $34,000,000.
(c) Within one hundred eighty (180) days from the effective date of this
MEMORANDUM, the Bank shall have reduced the items classified "Substandard" and
those items classified "Doubtful" that have not previously been charged-off as
of April 1, 1997, to not more than $31,000,000.
(d) Within three hundred sixty (360) days from the effective date of
this MEMORANDUM, the Bank shall have reduced the items classified "Substandard"
and those items classified "Doubtful" that have not previously been charged-off
as of April 1, 1997, to not more than $25,000,000.
(e) The requirements of subparagraphs 3(a), 3(b), 3(c) and 3(d) above
shall not to be construed as standards for future operations and, in addition
to the foregoing, the Bank shall eventually reduce the total of all adversely
classified assets. As used in subparagraphs 3(b) and 3(c), the word "reduce"
means, (1) to collect, (2) to charge-off, or (3) to sufficiently improve the
quality of assets adversely classified to warrant removing any adverse
classification, as determined by the Regional Director and the Commissioner.
4. Within thirty (30) days from the effective date of this MEMORANDUM the
Bank shall develop or revise, adopt, and implement written credit
administration policies and procedures incorporating recommendations outlined
on pages 8.3 to 8.6 in the Report of Examination of the Bank as of April 1,
1997. Such policies and their implementation shall be in a form and manner
acceptable to the Regional Director and the Commissioner as determined at
subsequent examinations and/or visitations.
5. (a) During the life of this MEMORANDUM, the Bank shall maintain Tier 1
capital in such an amount as to equal or exceed seven and one-half (7.5)
percent of the Bank's adjusted Part 325 total assets. Tier 1 capital and Part
325 total assets utilized shall be calculated in accordance with prevailing
instructions for the preparation of Reports of Condition.
(b) The level of Tier 1 capital to be maintained during the life of this
MEMORANDUM pursuant to subparagraph 5(a) shall be in addition to a fully funded
loan loss reserve, the adequacy of which shall be satisfactory to the Regional
Director and the Commissioner as determined at subsequent examinations and/or
visitations.
6. (a) Within thirty (30) days of the effective date of this MEMORANDUM, the
board of directors shall develop and implement a written dividend policy which
is satisfactory to the Regional Director and the Commissioner. Such policy
shall consider the Bank's overall condition and growth prospects; define terms
such as core and non-core earnings; establish limits on special dividends;
provide a mechanism for monitoring capital adequacy; and target an appropriate
dividend payout ratio.
(b) During the life of this MEMORANDUM, the Bank shall not pay cash
dividends without the prior written consent of the Regional Director and the
Commissioner.
7. Within ninety (90) days of the effective date of this MEMORANDUM, the Bank
shall develop and submit to the Regional Director and the Commissioner a
viable, written, three-year strategic plan. Such plan shall address both the
proposed consolidation of the Bank and International Savings and Loan, as well
<PAGE>
as the scenario if the two institutions are not merged, including an in-depth
cost/benefit analysis; time frames for specific action plans; and proposed
organizational and management requirements. The board must establish specific
goals, strategies, and priorities for the Bank, and clearly communicate such
directives to Bank management.
Such plan shall include specific goals for the dollar volume of total loans,
total investment securities, and total deposits as of year end (December 31)
1997, 1998, and 1999. For each time frame, the plan will also specify the
anticipated average maturity and average yield on loans and securities; the
average maturity and average cost of deposits; the level of earning assets as a
percentage of total assets; and the ratio of net interest income to average
earning assets. All plan assumptions shall be consistent and clearly defined.
The plan and its implementation shall be in a form and manner acceptable to the
Regional Director and the Commissioner as determined at subsequent examinations
and/or visitations.
8. Within ninety (90) days from the effective date of this MEMORANDUM, the
board of directors shall develop a viable deposit program to attempt to
increase the core deposit base and reduce reliance on volatile funds such as
large certificates of deposits and borrowings. The program shall outline
specific strategies, action steps, and time frames. The Bank shall establish
acceptable parameters for and effectively manage the use of volatile funds in
its asset/liability structure. The program and its implementation shall be in
a form and manner acceptable to the Regional Director and the Commissioner as
determined at subsequent examinations and/or visitations.
9. Within thirty (30) days from the effective date of this MEMORANDUM, the
Bank shall eliminate and/or correct all violations of law which are more fully
set out on pages 8.20 to 8.22 of the Report of Examination of the bank as of
April 1, 1997. In addition, the Bank shall take all necessary steps to ensure
future compliance with all applicable laws and regulations, including such
regulations related to intercompany and affiliated transactions.
10. (a) Within thirty (30) days from the effective date of this MEMORANDUM,
the Bank shall develop an internal audit program that establishes procedures to
protect the integrity of the Bank's operational and accounting systems. The
program shall address the deficiencies outlined on pages 8.9 to 8.10 of the
Report of Examination of the Bank as of April 1, 1997. The program shall be in
a form and manner acceptable to the Regional Director and the Commissioner as
determined at subsequent examinations and/or visitations.
(b) Within thirty (30) days from the effective date of this MEMORANDUM,
the Bank shall adopt and implement an internal control program and procedures
consistent with safe and sound banking practices. At a minimum, such program
shall provide for adequate oversight over intercompany transactions, Bank
Secrecy Act compliance, and internal routine and controls, as explained on
pages 8.12 to 8.13 and 8.18 to 8.19 of the Report of Examination as of April 1,
1997. Such program, procedures, and their implementation shall be satisfactory
to the Regional Director and the Commissioner as determined at subsequent
examinations and/or visitations.
(c) Within sixty (60) days from the effective date of this MEMORANDUM,
the Bank shall formulate a plan for implementing the information systems
recommendations outlined on pages 8.14 to 8.18 of the Report of Examination.
The Bank shall submit to the Regional Director and the Commissioner a copy of
the implementation plan to make the organization Year 2000 compliant.
<PAGE>
11. Within forty five (45) days of the end of the first quarter following the
effective date of this MEMORANDUM, and within forty five (45) days of the end
of each quarter thereafter, the Bank shall furnish written progress reports to
the Regional Director and the Commissioner detailing the form and manner of any
actions taken to secure compliance with this MEMORANDUM and the results
thereof. Such reports shall include a copy of the Bank's Report of Condition
and the Bank's Report of Income. Such reports may be discontinued when the
corrections required by this MEMORANDUM have been accomplished and the Regional
Director and the Commissioner have released the Bank in writing from making
further reports.
The provisions of this MEMORANDUM shall be binding upon the Bank, and any
institution-affiliated party as such term is defined in section 3(u) of the
Act, 12 U.S.C. 1813(u), to include, its directors, officers, employees, agents,
successors, assigns, and other persons participating in the conduct of the
affairs of the Bank.
This MEMORANDUM shall remain effective and enforceable except to the extent
that, and until such time as, any provisions of this MEMORANDUM shall have been
modified, terminated, suspended, or set aside by the FDIC and the Commissioner.
Dated at San Francisco, California, this day of , 1997.
FEDERAL DEPOSIT INSURANCE CORPORATION
By:
George J. Masa
Regional Director
HAWAII DIVISION OF FINANCIAL INSTITUTIONS
By:
Lynn Y. Wakatsuki
Commissioner of Financial Institutions
CITY BANK
By Its Board of Directors
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
<PAGE>
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
November 7, 1997 By /s/ Daniel Motohiro
Daniel Motohiro, Treasurer
and Principal Financial Officer
16
Confidential US Comb 05/15/96 6
___________
Initials
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
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