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
None.
(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 4, 1997 By /s/ Daniel Motohiro
Daniel Motohiro, Treasurer
and Principal Financial Officer
12
Confidential US Comb 05/15/96 6
___________
Initials
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 40,941
<INT-BEARING-DEPOSITS> 862,890
<FED-FUNDS-SOLD> 6,505
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 115,150
<INVESTMENTS-CARRYING> 91,526
<INVESTMENTS-MARKET> 95,775
<LOANS> 1,047,171
<ALLOWANCE> 17,789
<TOTAL-ASSETS> 1,386,995
<DEPOSITS> 962,779
<SHORT-TERM> 126,585
<LIABILITIES-OTHER> 22,414
<LONG-TERM> 151,376
<COMMON> 3,551
0
0
<OTHER-SE> 120,290
<TOTAL-LIABILITIES-AND-EQUITY> 1,386,995
<INTEREST-LOAN> 69,312
<INTEREST-INVEST> 13,657
<INTEREST-OTHER> 938
<INTEREST-TOTAL> 83,907
<INTEREST-DEPOSIT> 26,440
<INTEREST-EXPENSE> 40,018
<INTEREST-INCOME-NET> 43,889
<LOAN-LOSSES> 4,067
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 35,116
<INCOME-PRETAX> 9,787
<INCOME-PRE-EXTRAORDINARY> 9,787
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,902
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<YIELD-ACTUAL> 8.54
<LOANS-NON> 25,708
<LOANS-PAST> 2,259
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,431
<CHARGE-OFFS> 2,235
<RECOVERIES> 526
<ALLOWANCE-CLOSE> 17,789
<ALLOWANCE-DOMESTIC> 17,289
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 500
</TABLE>
