UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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) 546-2500
(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, 1998
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,
1998 1997 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 60,130 $ 75,150 $ 55,960
Federal Funds Sold and securities
purchased 61,629 4,705 -
Investment securities:
Held-to-maturity 83,712 88,397 95,446
Available for sale 109,631 120,320 125,274
Trading - - -
Restricted investment securities 27,871 27,348 25,543
Loans held for sale 53,816 26,293 9,488
Gross loans 1,026,427 1,049,305 1,040,487
Less allowance for loan losses (17,239) (16,365) (16,094)
Net Loans 1,009,188 1,032,940 1,024,393
Premises and equipment 19,918 19,312 18,333
Other assets 31,032 31,186 35,687
Goodwill 9,362 9,575 10,213
- ------------------------------------------------------------------------------
Total assets $1,466,289 $1,435,226 $1,400,337
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 103,369 $ 110,577 $ 114,784
Interest bearing 920,530 898,151 831,269
- ------------------------------------------------------------------------------
Total deposits 1,023,899 1,008,728 946,053
Short-term borrowings 77,019 137,212 219,356
Contingencies (Note B) - - 446
Other liabilities 20,295 23,173 24,211
Long-term debt 218,106 141,048 91,102
- ------------------------------------------------------------------------------
Total liabilities 1,339,319 1,310,161 1,281,168
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 57,185 55,233 50,252
Accumulated other comprehensive
income, net of taxes 1,154 1,201 286
Total stockholders' equity 126,970 125,065 119,169
- ------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,466,289 $1,435,226 $1,400,337
==============================================================================
</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,
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Interest income
Interest and fees on loans $23,352 $22,565
Interest and dividends on investment securities
Taxable 3,655 4,148
Non-taxable 88 51
Dividends 523 444
Other interest income 869 448
- ----------------------------------------------------------------------------
Total interest income 28,487 27,656
Interest Expense
Deposits 9,718 8,510
Short-term borrowings 2,174 3,072
Long-term debt 2,044 1,341
- ----------------------------------------------------------------------------
Total interest expense 13,936 12,923
- ----------------------------------------------------------------------------
Net interest income 14,551 14,733
Provision for loan losses 1,300 1,050
- ----------------------------------------------------------------------------
Net interest income after provision
for loan losses 13,251 13,683
Other income
Service charges and fees 1,095 1,044
Other 600 398
- ----------------------------------------------------------------------------
Total other income 1,695 1,442
Other expenses
Salaries and employee benefits 4,601 4,821
Net occupancy and equipment expense 3,034 2,671
Other 4,033 4,565
- ----------------------------------------------------------------------------
Total other expenses 11,668 12,057
- ----------------------------------------------------------------------------
Income before income taxes 3,278 3,068
Provision for income taxes 1,326 1,218
- ----------------------------------------------------------------------------
Net income $1,952 $1,850
Other comprehensive income, net of taxes:
Unrealized holding gains(losses) on securities (47) (616)
- ----------------------------------------------------------------------------
Comprehensive income $1,905 $1,234
============================================================================
Per common share:
Basic Earnings Per Share $ 0.54 $ 0.35
Diluted Earnings Per Share $ 0.44 $ 0.35
============================================================================
</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,
- ------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,952 $ 1,850
Net adjustments to reconcile net income to
cash (used in) provided by operating activities (29,112) (8,242)
- ------------------------------------------------------------------------------
Net cash (used in) provided by operating
activities (27,160) (6,392)
Cash flows from investing activities:
Net increase in federal funds sold and
securities under resale agreements (56,924) -
Purchase of held-to-maturity securities (61,792) -
Proceeds from maturities of held-to-
maturity investment securities 66,477 2,385
Purchase of available-for-sale securities (11,460) (7,215)
Proceeds from sales of available-for-sale
securities 17,044 -
Proceeds from maturities of
available-for-sale securities 5,138 20,140
Net decrease (increase) in loans 22,878 (8,933)
Capital expenditures (1,620) (420)
Proceeds from sale of premises and
equipment 363 -
- ------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (19,896) 5,957
Cash flows from financing activities:
Net (decrease) increase in deposits 15,171 (5,857)
Net increase (decrease) in short-term borrowings (60,193) 10,675
Increase (decrease) in long-term debt 77,058 (3,723)
Cash dividends paid - (1,332)
- ------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities 32,036 (237)
DECREASE IN CASH (15,020) (672)
- ------------------------------------------------------------------------------
Cash and due from banks at beginning of period 75,150 56,632
- ------------------------------------------------------------------------------
Cash and due from banks at end of period $60,130 $55,960
==============================================================================
</TABLE>
4
<PAGE>
CB BANCSHARES, INC. AND SUBSIDIARIES
Note to consolidated Financial Statements
March 31, 1998
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 - COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130, effective for fiscal years beginning
after December 15, 1997, establishes standards for reporting and display of
comprehensive income and its components as all changes in equity, including net
income, except for those resulting from investment by and distributions to
owners.
Components of other comprehensive income for the three months ended March 31,
1998 and 1997 were comprised solely of unrealized holding gains (losses) on
available-for-sale investment securities.
NOTE C - COMMITMENTS AND CONTINGENCIES
On January 30, 1996, a lawsuit was filed 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 (ISL 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.
The Association, which previously leased approximately 56% of the building,
terminated its lease in March 1997. Prior to the Association terminating its
sublease, the plaintiffs became delinquent in their lease rent to the fee
owner and in their real property tax payments despite having collected
sublease rents and real property tax assessments in advance from the
Association and other tenants. The consent of the landowner given in 1988 to
the assignment by the Association of the underlying ground lease to plaintiffs
did not release the Association from ground lease obligations upon default by
the assignee. The Association had a liability to the landowner for the
underlying ground lease at a rate of $144,750 per annum ($12,062.50 per
month). The plaintiff negotiated and arbitrated the lease rent commencing
July 21, 1991 for a total of $783,996 per annum ($65,333 per month). As a
result, the Association had a liability to the landowner for the underlying
ground lease of $65,333 per month in connection with any default by plaintiffs
in lease payments to the landowner, even though the Association no longer
occupied such leased space. The monthly rental payments of $65,333 required by
the ground lease were substantially in excess of current rental market values,
which restricted the ability of the Association to mitigate potential losses.
The landowner subsequently sued the Association and the plaintiff. The action
was never served on the Association and was settled and dismissed after the
filing of a motion for the appointment of a receiver. Effective June 1, 1997,
the plaintiffs reassigned the lease and legal title of the ISL Building to the
Association pursuant to an agreement among the landowner, the Association and
the plaintiff. 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 the plaintiff. The agreement also established a
$5,000,000 cap on the amount of damages the Association can recover from the
plaintiff with respect to the assignment. The ground lease rent is fixed until
2002, at which time the rent will be renegotiated for two subsequent ten-year
periods. The ground lease term expires in 2021. In no event would the
negotiated lease rent for any period be less than $30,000 per year. 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. 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.
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.
NET INCOME
Consolidated net income for the quarter ended March 31, 1998, totaled
$1.95 million, or $0.55 per share, a slight increase over the $1.85 million,
or $0.52 per share for the same quarter last year.
The Company's annualized return on average assets (ROA) for the quarter ended
March 31, 1998 was 0.54%, unchanged from the same quarter in 1997. The
Company's annualized return on average stockholder's equity (ROE) was 6.26%
for the quarter ended March 31, 1998, as compared to 6.30% for the same
quarter last year.
6
<PAGE>
NET INTEREST INCOME
A comparison of net interest income for the three months ended March 31, 1998
and 1997 is set forth below on a taxable basis:
<TABLE>
<CAPTION>
Quarter ended March 31,
1998 1997
(dollars in thousands)
<S> <C> <C>
Interest income $28,555 $27,758
Interest Expense 13,936 12,923
------- -------
Net interest income $14,619 $14,835
======= =======
Net interest margin 4.32% 4.59%
======= =======
</TABLE>
Interest income for the three months ended March 31, 1998 of $28.6 million
increased by $0.8 million from the same period in 1997. Similarly, interest
expense increased by $1.0 million to $13.9 million for the quarter ended March
31, 1998. As a result, net interest income declined by $216,000, when
compared to the first quarter of 1997.
The weighted average yield on interest-earning assets declined to 8.44% for
the three months ended March 31, 1998, as compared to 8.59% for the respective
1997 period. The weighted average cost of interest-bearing liabilities, on
the other hand, increased to 4.72% for the quarter ended March 31, 1998, in
comparison to 4.61% for the respective 1997 period. As a result of the
foregoing, the Company's net interest margin declined by 27 basis points to
4.32% for the three months ended March 31, 1998.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses at March 31, 1998 was $17.2 million, and
represented 1.68% of total loans. The ratio at December 31, 1997 and March
31, 1997, was 1.55% for both periods. As reflected in the increase in the
level of non-performing loans from December 31, 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 $1.3
million for the quarter ended March 31, 1998 - see further discussion below.
Changes in the allowances for loan losses were as follows:
<TABLE>
<CAPTION>
Quarter ended
March 31,
1998 1997
(dollars in thousands)
<S> <C> <C>
Balance at beginning of period $16,365 $15,431
Provision charged to expense 1,300 1,050
Net recoveries(charge-offs) (426) (387)
-------- --------
Balance at end of period $ 17,239 $16,094
</TABLE>
7
<PAGE>
NON-PERFORMING ASSETS
A summary of non-performing assets follows:
<TABLE>
<CAPTION>
3/31/98 12/31/97 3/31/97
---------------------------------
<S> <C> (dollars in thousands) <C>
Loan accounted for on a
non-accrual basis $30,975 $24,476 $21,660
Loan contractually past due
ninety days or more as to
interest or principal payments 2,828 3,913 2,852
----------------------------------
Total non-performing loans 33,803 28,389 24,512
Other Real Estate Owned 3,158 3,686 1,894
----------------------------------
Total non-performing assets $36,961 $32,075 $26,406
===================================
</TABLE>
Non-performing assets at March 31, 1998 totaled $36.9 million, an increase of
$4.9 million from December 31, 1997, and an increase of $10.6 million from
March 31, 1997. The increase was primarily attributable to non-accruing real
estate loans. These loans consist primarily of mortgages made by ISL on 1-4
family residential property. In consideration of the above, a $1.3 million
provision for loan losses was made in the first quarter of 1998.
OTHER OPERATING INCOME
Other operating income totaled $1.7 million for the three month period ended
March 31, 1998, a slight increase over the $1.4 million for the comparable
period in 1997.
OTHER OPERATING EXPENSES
Other operating expenses totaled $11.7 million for the three months ended
March 31, 1998, a decrease of $0.4 million over the same period in 1997. The
decline in other operating expenses was due primarily to the accrual of a
$446,000 loss on the assignment of the lease on the Association's headquarters
in March 1997--See Note B--Contingencies for further discussion.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See note C 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
March 31, 1998.
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
July 30, 1998 By /s/ Daniel Motohiro
Daniel Motohiro, Treasurer
and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 60,130
<INT-BEARING-DEPOSITS> 920,530
<FED-FUNDS-SOLD> 61,629
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,631
<INVESTMENTS-CARRYING> 83,712
<INVESTMENTS-MARKET> 87,541
<LOANS> 1,026,427
<ALLOWANCE> 17,239
<TOTAL-ASSETS> 1,466,289
<DEPOSITS> 1,023,899
<SHORT-TERM> 77,019
<LIABILITIES-OTHER> 20,295
<LONG-TERM> 218,106
0
0
<COMMON> 3,551
<OTHER-SE> 123,419
<TOTAL-LIABILITIES-AND-EQUITY> 1,466,289
<INTEREST-LOAN> 23,352
<INTEREST-INVEST> 4,266
<INTEREST-OTHER> 869
<INTEREST-TOTAL> 28,487
<INTEREST-DEPOSIT> 9,718
<INTEREST-EXPENSE> 13,936
<INTEREST-INCOME-NET> 14,551
<LOAN-LOSSES> 1,300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 11,668
<INCOME-PRETAX> 3,278
<INCOME-PRE-EXTRAORDINARY> 3,278
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,952
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> 8.44
<LOANS-NON> 30,975
<LOANS-PAST> 2,828
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,365
<CHARGE-OFFS> 683
<RECOVERIES> 257
<ALLOWANCE-CLOSE> 17,239
<ALLOWANCE-DOMESTIC> 16,993
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 246
</TABLE>
