3
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 June 30, 1999
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 each of the registrant's classes of common
stock as of July 31, 1999 was:
Class Outstanding
Common Stock, $1.00 Par Value 3,474,228 shares
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C> <C>
June 30, December 31, June 30,
1999 1998 1998
------------------ -------------------- ------------------
(in thousands)
Assets
Cash and due from banks $ 38,311 $ 61,658 $ 34,974
Interest-bearing deposits in other banks 20,128 20,000 20,000
Federal funds sold 475 47,752 6,905
Investment securities:
Held-to-maturity - - 78,830
Available-for-sale 295,262 141,764 124,155
Restricted investment securities 30,629 29,481 28,409
Loans held for sale 9,135 99,602 39,784
Loans:
Loans 1,034,507 979,695 1,018,714
Less allowance for credit losses 18,269 17,771 17,742
------------------ -------------------- ------------------
Net loans 1,016,238 961,924 1,000,972
------------------ -------------------- ------------------
Premises and equipment 20,163 20,916 20,208
Other assets 52,852 45,341 42,886
================== ==================== ==================
Total assets $ 1,483,193 $1,428,438 $1,397,123
================== ==================== ==================
Liabilities and stockholders' equity
Deposits:
Noninterest-bearing $ 104,001 $ 119,649 $ 103,755
Interest-bearing 951,496 964,961 928,330
------------------ -------------------- ------------------
Total deposits 1,055,497 1,084,610 1,032,085
------------------ -------------------- ------------------
Short-term borrowings 58,296 27,926 56,443
Other liabilities 20,067 18,443 17,699
Long-term debt 220,277 165,087 162,316
------------------ -------------------- ------------------
Total liabilities 1,354,137 1,296,066 1,268,543
------------------ -------------------- ------------------
Stockholders' equity:
Preferred stock - - -
Common stock 3,552 3,552 3,552
Additional paid-in capital 65,108 65,108 65,108
Retained earnings 66,502 62,784 58,931
Accumulated other comprehensive (loss)
income, net of tax (3,517 ) 928 989
Treasury stock (2,589 ) - -
------------------ -------------------- ------------------
Total stockholders' equity 129,056 132,372 128,580
------------------ -------------------- ------------------
Total liabilities and stockholders' equity $1,483,193 $1,428,438 $1,397,123
================== ==================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Quarter ended June 30, Six months ended June 30,
(in thousands of dollars, except per share data) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 21,661 $ 23,771 $ 44,342 $ 47,123
Interest and dividends on investment securities:
Taxable interest income 3,949 3,560 6,336 7,215
Nontaxable interest income 237 93 431 181
Dividends 553 539 1,148 1,062
Other interest income 410 649 978 1,518
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 26,810 28,612 53,235 57,099
- ------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 8,933 10,047 18,226 19,765
Short-term borrowings 146 30 892 2,204
Long-term debt 2,930 3,717 4,909 5,761
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 12,009 13,794 24,027 27,730
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 14,801 14,818 29,208 29,369
Provision for credit losses 1,090 1,525 2,265 2,825
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 13,711 13,293 26,943 26,544
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 530 427 926 884
Other service charges and fees 678 600 1,507 1,238
Net realized losses on sales of securities (153) - (104) -
Net gains on sales of loans 966 714 2,054 835
Other 284 480 579 959
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 2,305 2,221 4,962 3,916
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 5,123 5,246 10,467 9,847
Net occupancy expense 2,019 2,444 4,067 4,612
Equipment expense 825 1,037 1,640 1,903
Other 4,493 3,293 8,904 7,326
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 12,460 12,020 25,078 23,688
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,556 3,494 6,827 6,772
Income tax expense 1,357 1,357 2,652 2,683
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 2,199 $ 2,137 $ 4,175 $ 4,089
====================================================================================================================================
Per share data:
Basic $ 0.62 $ 0.61 $ 1.18 $ 1.16
Diluted $ 0.62 $ 0.60 $ 1.18 $ 1.15
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C>
Six months ended June 30,
1999 1998
(in thousands)
Cash and due from banks at beginning of period $ 61,658 $ 45,150
-------------------- --------------------
Cash flows from operating activities:
Net income 4,175 4,089
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for credit losses 2,265 2,825
Gain on disposition of premises and equipment - 109
Depreciation and amortization 1,258 1,159
Increase in interest receivable (2,873) (82)
Decrease in interest payable (785) (246)
Increase in restricted investment securities (1,148) (1,061)
Net decrease (increase) in loans held for sale 36,391 (38,996)
Increase in other assets (5,277) (132)
Increase (decrease) in other liabilities 2,409 (2,210)
Other (576) 775
-------------------- --------------------
Net cash provided by (used in) operating activities 35,839 (33,770)
-------------------- --------------------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits in other banks (128) 10,000
Net decrease (increase) in federal funds sold 47,277 (2,200)
Proceeds from maturities of held-to-maturity securities - 9,556
Purchase of available-for-sale securities (140,836) (11,859)
Proceeds from sales of available-for-sale securities 20,977 17,442
Proceeds from maturities of available-for-sale securities 15,363 15,773
Net decrease (increase) in loans (59,326) 24,853
Proceeds from sales of premises and equipment - 533
Capital expenditures (505) (2,697)
Proceeds from sales of foreclosed assets 4,619 1,576
-------------------- --------------------
Net cash provided by (used in) investing activities (112,559) 62,977
-------------------- --------------------
Cash flows from financing activities:
Net increase (decrease) in deposits (29,113) 23,357
Net increase (decrease) in short-term borrowings 30,370 (80,769)
Proceeds from long-term debt 97,840 77,057
Principal payments on long-term debt (42,678) (58,666)
Stock options exercised - 29
Cash dividends paid (457) (391)
Purchase of treasury stock, net (2,589) -
-------------------- --------------------
Net cash provided by (used in) financing activities 53,373 (39,383)
-------------------- --------------------
Cash and due from banks at end of period $ 38,311 $ 34,974
==================== ====================
Supplemental schedule of non-cash investing activities:
Securitizations of loans into mortgage-backed
securities $ 54,897 $ 25,505
==================== ====================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accu-
mulated
Other
Additional Compre
Common Paid-In Retained hensive Treasury
Stock Capital Earnings Income Stock Total
--------------------------------------------------------------------------------------
(in thousands, except per share data)
Balance at December 31, 1998 $ 3,552 $ 65,108 $ 62,784 $ 928 $ - $ 132,372
Comprehensive income:
Net income - - 4,175 - - 4,175
Unrealized valuation adjustment - - - (4,445) - (4,445)
------------ -------------- --------------- -------------- --------------- -----------
Comprehensive income - - 4,175 (4,445) - (270)
Cash dividends ($0.13 per share) - - (457) - - (457)
Treasury Stock - - - - (2,589) (2,589)
============ ============== =============== ============== =============== ===========
Balance at June 30, 1999 $ 3,552 $ 65,108 $ 66,502 $ (3,517) $ (2,589) $ 129,056
============ ============== =============== ============== =============== ===========
Balance at December 31, 1997 $ 3,551 $ 65,080 $ 55,233 $ 1,201 $ - $ 125,065
Comprehensive income:
Net income - - 4,089 - - 4,089
Unrealized valuation adjustment - - - (212) - (212)
------------ -------------- --------------- -------------- --------------- -----------
Comprehensive income - - 4,089 (212) - 3,877
------------ -------------- --------------- -------------- --------------- -----------
Options exercised 1 28 - - - 29
Cash dividends ($0.11 per share) - - (391) - - (391)
============ ============== =============== ============== =============== ===========
Balance at June 30, 1998 $ 3,552 $ 65,108 $ 58,931 $ 989 $ - $ 128,580
============ ============== =============== ============== =============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
NOTE A - Summary of Significant Accounting Policies
CONSOLIDATION
The consolidated financial statements include the accounts of CB Bancshares,
Inc. (the "Parent Company") and its wholly-owned subsidiaries: City Bank and its
wholly-owned subsidiaries (the "Bank"); International Savings and Loan
Association, Limited and its wholly-owned subsidiaries (the "Association"); City
Finance and Mortgage, Inc.; and O.R.E., Inc. Significant intercompany
transactions and balances have been eliminated in consolidation. The
consolidated financial statements include all adjustments of a normal and
recurring nature which are, in the opinion of management, necessary for a fair
presentation of the financial results for the interim periods.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 1998 have been
reclassified to conform with the 1999 presentation. Such reclassifications had
no effect on the consolidated net income as previously reported.
NOTE B - Segment Information
CB Bancshares, Inc. and Subsidiaries (the "Company") adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998. The Company's business segments are
organized around services, products provided and regulatory environments. The
two operating segments are a bank and a savings institution. The segment data
presented below was prepared on the same basis of accounting as the consolidated
financial statements described in Note A. Intersegment income and expense are
valued at prices comparable to those for unaffiliated companies.
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Parent Company
Bank Association and Other Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Six months ended June 30, 1999
Interest income $29,677 $ 23,558 $ 5 $ (5) $ 53,235
Interest expense 11,739 12,293 - (5) 24,027
Income before income taxes 5,114 2,732 3,738 (4,757) 6,827
Income tax expense (benefit) 1,951 1,138 (437) - 2,652
Total assets 825,615 657,616 129,749 (129,787) 1,483,193
- ---------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, 1998
Interest income $29,899 $ 27,208 $ 15 $ (23) $ 57,099
Interest expense 13,056 14,689 8 (23) 27,730
Income before income taxes 3,932 3,827 3,676 (4,663) 6,772
Income tax expense (benefit) 1,458 1,638 (413) - 2,683
Total assets 740,583 656,284 129,632 (129,376) 1,397,123
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
NOTE C - Earnings Per Share Calculation
<S> <C> <C> <C> <C> <C> <C>
Quarter ended June 30,
1999 1998
-----------------------------------------------------------------------------------------
Shares Per Shares Per
Income (Denom- Share Income (Denom- Share
(Numerator) inator) Amount (Numerator) inator) Amount
-----------------------------------------------------------------------------------------
(in thousands, except number of shares and per share data)
Basic:
Net income $2,199 3,535,821 $0.62 $2,137 3,551,865 $0.61
Effect of dilutive
securities -
Stock incentive
plan options - 140 - - 15,250 -
----------------- --------------- ----------- ---------------- --------------- ----------
Diluted:
Net income and
assumed conversions $2,199 3,535,961 $0.62 $2,137 3,567,115 $0.60
================= =============== =========== ================ =============== ==========
Six months ended June 30,
1999 1998
-----------------------------------------------------------------------------------------
Shares Per Shares Per
Income (Denom- Share Income (Denom- Share
(Numerator) inator) Amount (Numerator) inator) Amount
-----------------------------------------------------------------------------------------
(in thousands, except number of shares and per share data)
Basic:
Net income $4,175 3,543,979 $1.18 $4,089 3,551,548 $1.16
Effect of dilutive
securities -
Stock incentive
plan options - 140 - - 15,250 -
----------------- --------------- ----------- ---------------- --------------- ----------
Diluted:
Net income and
assumed conversions $4,175 3,544,119 $1.18 $4,089 3,566,798 $1.15
================= =============== =========== ================ =============== ==========
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion contains statements relating to future results of the Company
(including certain projections and business trends) that are considered
"forward-looking statements." Actual results may differ materially from those
projected as a result of certain risks and uncertainties including, but not
limited to, changes in political and economic conditions, interest rate
fluctuations, competitive product and pricing pressures within the Company's
market, equity and bond market fluctuations, personal and corporate customers'
financial performance, inflation, results of litigation, and unforeseen costs
and risks relating to Year 2000 issues. Accordingly, historical performance as
well as reasonably applied projections and assumptions may not be a reliable
indicator of future earnings due to such risks and uncertainties.
As circumstances, conditions or events change that affect the Company's
assumptions and projections on which any of the statements are based, the
Company disclaims any obligation to issue any update or revision to any
forward-looking statement contained herein.
NET INCOME
Consolidated net income for the quarter ended June 30, 1999, totaled $2.20
million, an increase of $62,000, or 2.9%, over the $2.14 million for the same
quarter last year. Consolidated net income for the six months ended June 30,
1999, totaled $4.18 million, an increase of $86,000, or 2.1%, over the $4.09
million for the same period last year. Basic and diluted earnings per share for
the second quarter of 1999 were $0.62 as compared to $0.61 and $0.60,
respectively, for the second quarter in 1998. For the six months ended June 30,
1999, basic and diluted earnings were $1.18 per share as compared to $1.16 and
$1.15, respectively, for the same period last year. The modest increase in
consolidated net income for the second quarter and first six months of 1999,
over the corresponding periods in 1998, was primarily due to a decrease in the
provision for credit losses (reflecting the reduction in nonperforming loans),
and an increase in net gains on sales of loans. This increase was partially
offset by an increase in costs related to certain nonperforming assets.
The Company's annualized return on average total assets for the six months ended
June 30, 1999 was 0.59% as compared to 0.57% for the same period last year. The
Company's annualized return on average stockholders' equity was 6.39% for the
six months ended June 30, 1999, as compared to 6.46% for the same period last
year.
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, was $29.5 million for the
first six months of 1999, a decrease of $211,000, or 0.7%, from the same period
in 1998. The decrease in net interest income was primarily due to a decrease in
average earning assets of $60.3 million, or 4.3%, partially offset by a $36.3
million, or 3.0%, decrease in average interest-bearing liabilities. For the six
months ended June 30, 1999, the Company's net interest margin was 4.47%, an
increase of 20 basis points (1% equals 100 basis points) over the same period in
1998. The increase in the net interest margin was primarily attributable to a 53
basis point decrease in the cost of funds, partially offset by a 28 basis point
decrease in the yield on average earning assets for the first six months of 1999
compared to the same period in 1998. The decrease in the yield on average
earning assets and the rate paid on funding sources was primarily due to the
declining interest rate environment experienced between June 30, 1998 and June
30, 1999. Specifically, the prime interest rate dropped 75 basis points from
8.50% at June 30, 1998 to 7.75% at June 30, 1999. As most of the loans in the
portfolio were originated during higher interest rate environments, the
unfavorable change in the yield on the Company's loan portfolio was not as
significant as the decrease in the prime rate and resulting decrease in the cost
of funds. In an effort to maintain or increase the net interest margin, the
Company reduced its cost of funds by a greater amount than the decrease
experienced in the yield of its interest-bearing assets.
For the second quarter of 1999, net interest income, on a taxable equivalent
basis, was $15.0 million, a decrease of $102,000, or 0.7%, over the same period
in 1998. The decrease in net interest income for the second quarter of 1999 over
the same period in 1998 was primarily due to a $66.7 million, or 4.7%, decrease
in average earning assets, partially offset by a $24.0 million, or 2.0%,
decrease in average interest-bearing liabilities. Net interest margin for the
second quarter of 1999 was 4.47%, an increase of 18 basis points over the same
period in 1998. The increase in net interest margin for the second quarter of
1999 was primarily attributable to a 47 basis point reduction in the cost of
funds, partially offset by a 16 basis point reduction in the yield on average
earning assets.
A comparison of net interest income for the quarter and six months ended June
30, 1999 and 1998 is set forth below on a taxable equivalent basis:
<TABLE>
<S> <C> <C> <C> <C>
Quarter ended June 30, Six months ended June 30,
1999 1998 1999 1998
(dollars in thousands)
Interest income $27,004 $28,891 $ 53,532 $ 57,446
Interest expense 12,009 13,794 24,027 27,730
---------------- ---------------- --------------- ----------------
Net interest income
and margin on
earning assets 14,995 4.47% 15,097 4.29% 29,505 4.47% 29,716 4.27%
Taxable equivalent ===== ===== ===== =====
adjustment 194 279 297 347
---------------- ---------------- --------------- ----------------
Net interest income $14,801 $14,818 $ 29,208 $ 29,369
================ ================ =============== ================
</TABLE>
<PAGE>
NONPERFORMING ASSETS
A summary of nonperforming assets at June 30, 1999, December 31, 1998 and June
30, 1998 follows:
<TABLE>
<S> <C> <C> <C>
June 30, December 31, June 30,
1999 1998 1998
------------------- ------------------- -----------------
(dollars in thousands)
Nonperforming assets:
Nonaccrual loans:
Commercial $ 522 $ 1,291 $ 388
Real estate:
Commercial 793 933 1,512
Residential 10,511 10,803 21,741
------------------- ------------------- -----------------
Total real estate loans 11,304 11,736 23,253
Consumer 106 77 229
------------------- ------------------- -----------------
Total nonaccrual loans 11,932 13,104 23,870
Other real estate owned 8,370 8,583 6,073
------------------- ------------------- -----------------
Total nonperforming assets $ 20,302 $ 21,687 $ 29,943
=================== =================== =================
Past due loans:
Commercial $ 1,715 $ 2,433 $ 527
Real estate 1,959 3,602 1,882
Consumer 762 544 620
------------------- ------------------- -----------------
Total past due loans (1) $ 4,436 $ 6,579 $ 3,029
=================== =================== =================
Restructured:
Real estate:
Commercial $ 1,255 $ 1,284 $ 1,284
Residential 11,489 11,108 636
------------------- ------------------- -----------------
Total restructured loans (2) $ 12,744 $ 12,392 $ 1,920
=================== =================== =================
Nonperforming assets to total loans
and other real estate owned (end of period):
Excluding 90 days past due accruing loans 1.95% 2.19% 2.92%
Including 90 days past due accruing loans 2.37% 2.86% 3.22%
Nonperforming assets to total assets
(end of period):
Excluding 90 days past due accruing loans 1.37% 1.52% 2.14%
Including 90 days past due accruing loans 1.67% 1.98% 2.36%
</TABLE>
(1) Represents loans which are past due 90 days or more as to principal and/or
interest, are still accruing interest and are in the process of collection.
(2) Represents loans which have been restructured, are current and still
accruing interest.
<PAGE>
Nonperforming loans at June 30, 1999 totaled $11.9 million, a decrease of $11.9
million, or 50.0%, from June 30, 1998. The decrease was primarily due to the
sale of $6.8 million of nonaccrual loans and the transfer of approximately $3
million of residential real estate restructured loans to other real estate
owned.
Other real estate owned increased $2.3 million, or 37.8%, from June 30, 1998 to
$8.4 million at June 30, 1999. The increase in other real estate owned reflects
the continued weakness in the Hawaii economy, and the related decline in real
estate values and increase in foreclosures. Additionally, the Company has been
more aggressive in its delinquent loan collection efforts, resulting in a higher
level of foreclosures and related other real estate owned balances.
Restructured loans, still accruing interest, increased $10.8 million from June
30, 1998 to $12.7 million at June 30, 1999. The increase was primarily due to
the restructuring of approximately $11 million in mortgage loans to a group of
investors in a condominium project located on the island of Maui. Since
restructuring, such loans have remained current and continue to accrue interest.
At June 30, 1999, the Company was not aware of any significant potential problem
loans (not otherwise classified as nonperforming, past due, or restructured in
the above table) where possible credit problems of the borrower caused
management to have serious concerns as to the ability of such borrower to comply
with the present scheduled repayment terms.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses is based upon management's judgment as to the
adequacy of the allowance for credit losses (the "Allowance") to absorb future
losses. The Company uses a systematic methodology to determine the adequacy of
the Allowance and related provision for credit losses to be reported for
financial statement purposes. The determination of the adequacy of the Allowance
is ultimately one of management judgment, which includes consideration of many
factors, including, among other things, the amount of problem and potential
problem loans, net charge-off experience, changes in the composition of the loan
portfolio by type and geographic location of loans and in overall loan risk
profile and quality, general economic factors and the fair value of collateral.
<PAGE>
The following table sets forth the activity in the allowance for credit losses
for the periods indicated:
<TABLE>
<S> <C> <C>
Six months ended June 30,
----------------------------------------------
1999 1998
--------------------- ---------------------
(dollars in thousands)
Loans outstanding (end of period) $ 1,034,507 $ 1,018,714
===================== =====================
Average loans outstanding $ 1,051,007 $ 1,076,057
===================== =====================
Balance at beginning of period $ 17,771 $ 16,365
--------------------- ---------------------
Loans charged off:
Commercial 260 351
Residential real estate 1,550 1,454
Consumer 283 318
--------------------- ---------------------
Total loans charged off 2,093 2,123
--------------------- ---------------------
Recoveries on loans charged off:
Commercial 46 49
Real estate:
Commercial 62 -
Residential 126 284
Consumer 92 342
--------------------- ---------------------
Total recoveries on loans
previously charged off 326 675
--------------------- ---------------------
Net charge-offs (1,767) (1,448)
Provision charged to expense 2,265 2,825
--------------------- ---------------------
Balance at end of period $ 18,269 $ 17,742
===================== =====================
Net loans charged off to average loans .34% (1) .27% (1)
Net loans charged off to allowance
for credit losses 19.50% (1) 16.46% (1)
Allowance for credit losses to total
loans (end of period) 1.77% 1.74%
Allowance for credit losses to nonperforming
loans (end of period):
Excluding 90 days past due
accruing loans 1.53x .74x
Including 90 days past due
accruing loans 1.12x .66x
(1) Annualized.
</TABLE>
The provision for credit losses was $1.1 million for the second quarter of 1999,
a decrease of $435,000, or 28.5% compared to the same quarter last year. For the
first six months of 1999, the provision for credit losses was $2.3 million, a
decrease of $560,000, or 19.8%, from the same period in 1998. The decrease in
the provision for credit losses for the second quarter and first six months of
1999 reflect the reduction in nonperforming loans for the corresponding periods
- - see section on "Nonperforming Loans."
The Allowance at June 30, 1999 was $18.3 million and represented 1.77% of total
loans. The corresponding ratios at December 31, 1998 and June 30, 1998 were
1.81% and 1.74%, respectively.
Net charge-offs were $1.8 million for the first six months of 1999, an increase
of $319,000, or 22.0%, compared to the same period in 1998. The increase was
primarily due to a decrease in consumer loan recoveries.
The Allowance increased to 1.53 times nonperforming loans (excluding 90 days
past due accruing loans) at June 30, 1999 from 0.74 times at June 30, 1998 as
a result of the corresponding 50.0% decrease in nonperforming loans.
In management's judgment, the Allowance was adequate to absorb potential losses
currently inherent in the loan portfolio at June 30, 1999. However, changes in
prevailing economic conditions in the Company's markets could result in changes
in the level of nonperforming assets and charge-offs in the future and,
accordingly, changes in the Allowance.
NONINTEREST INCOME
Noninterest income totaled $2.3 million for the second quarter of 1999, an
increase of $84,000, or 3.8%, over the second quarter of 1998. For the six
months ended June 30, 1999, noninterest income was $5.0 million, a $1.0 million,
or 26.7%, increase over the $3.9 million for the same period in 1998.
Net gains on sales of loans increased $252,000, or 35.3%, and $1,219,000, or
146.0%, for the second quarter and first six months of 1999, respectively, over
the same periods in 1998. The increase for the first six months of 1999 was
primarily due to the recognition of mortgage servicing release premiums in
connection with the sale of mortgage loans.
NONINTEREST EXPENSE
Noninterest expense totaled $12.5 million and $25.1 million for the second
quarter and six months ended June 30, 1999, respectively, an increase of
$440,000, or 3.7%, and $1,390,000, or 5.9%, respectively, over the same periods
in 1998.
Total salaries and employee benefits expense decreased $123,000, or 2.3%, for
the second quarter of 1999 compared to the same quarter last year. For the first
six months of 1999, salaries and employee benefits increased $620,000, or 6.3%,
compared to the same period in 1998. The increase for the first six months of
1999 was primarily due to higher commissions paid to loan officers and brokers
due to increased loan originations in the Company's mortgage banking business.
Origination activity has increased due to the lower interest rate environment
and declining real estate values.
Occupancy expense decreased $425,000, or 17.4%, and $545,000, or 11.8%, in the
second quarter and first six months of 1999, respectively, compared to the same
periods in 1998. This decrease was primarily attributable to a reduction in
occupancy costs of the Association.
Equipment expense decreased $212,000, or 20.4%, and $263,000, or 13.8%, for the
second quarter and first six months of 1999, respectively, as compared to the
same periods in 1998. The decrease was primarily due to reduced repairs and
maintenance costs.
Other noninterest expense increased $1,200,000, or 36.4%, and $1,578,000, or
21.5%, for the second quarter and first six months of 1999, respectively, over
the same periods in 1998. The increase was the result of: (1) higher legal and
professional fees in connection with certain nonperforming assets; and (2)
increased provisions in the valuation of certain other real estate owned
property.
CAPITAL RESOURCES
In May 1999, the Company announced plans to repurchase up to 10% of common stock
outstanding over a one-year period. As of June 30, 1999, the Company repurchased
78,000 shares of common stock at an aggregate cost of $2.59 million.
At June 30, 1999, the Company had an unrealized valuation loss of $3.5 million
on available-for-sale securities. Securities available-for-sale are reported at
fair value with unrealized gains or losses, net of tax, included as other
comprehensive income in stockholders' equity. For the six months ended June 30,
1999, an unrealized valuation adjustment of $4.4 million was recorded,
reflecting the decline on fair value of securities available-for-sale. The
reduction in fair values of securities available-for-sale, was primarily
attributable to the increase in interest rates in the second quarter of 1999.
The Company and the Bank are subject to capital standards promulgated by the
Federal banking agencies and the Hawaii Division of Financial Institutions. The
Association is subject to the minimum capital standards established by the
Office of Thrift Supervision (the "OTS") for all savings associations.
Quantitative measures established by regulation to ensure capital adequacy
require the Company, the Bank, and the Association to maintain minimum amounts
and ratios (set forth in the following table at June 30, 1999 and 1998) of Tier
1 and Total capital to risk-weighted assets, and of Tier 1 capital to average
assets.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
To Be Well-
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
--------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
As of June 30, 1999
Tier 1 Capital to
Risk-Weighted
Assets:
Consolidated $ 123,960 12.74 % $ 38,922 4.00 % N/A
Bank 69,039 10.55 26,174 4.00 $39,261 6.00 %
Association 53,257 16.46 12,941 4.00 19,411 6.00
Total Capital to
Risk-Weighted
Assets:
Consolidated $ 136,230 14.00 % $ 77,845 8.00 % N/A
Bank 77,264 11.81 52,348 8.00 $65,435 10.00 %
Association 56,357 17.42 25,882 8.00 32,352 10.00
Tier 1 Capital to
Average Assets:
Consolidated $ 123,960 8.68 % $ 57,148 4.00 % N/A
Bank 69,039 8.62 32,042 4.00 $40,053 5.00 %
Association 53,257 8.27 25,762 4.00 32,202 5.00
As of June 30, 1998
Tier 1 Capital to
Risk-Weighted
Assets:
Consolidated $ 118,456 13.54 % $ 34,998 4.00 % N/A
Bank 63,871 11.05 23,121 4.00 $34,682 6.00 %
Association 53,925 16.20 13,315 4.00 19,972 6.00
Total Capital to
Risk-Weighted
Assets:
Consolidated $ 129,471 14.80 % $ 69,995 8.00 % N/A
Bank 71,132 12.31 46,242 8.00 $57,803 10.00 %
Association 56,992 17.12 26,629 8.00 33,287 10.00
Tier 1 Capital to
Average Assets:
Consolidated $ 118,456 7.68 % $ 62,095 4.00 % N/A
Bank 63,871 8.34 30,644 4.00 $38,305 5.00 %
Association 53,925 8.20 26,311 4.00 32,888 5.00
</TABLE>
<PAGE>
YEAR 2000
Background
Because computers frequently use only two digits to recognize years (instead of
four digits), many computer systems, as well as equipment using embedded
computer chips, may be unable to distinguish the year 2000. If not fixed,
software, computer systems and computer-related equipment may create erroneous
results or system failure in the year 2000 when the two-digit year becomes "00".
In 1997, the Company established a Year 2000 committee comprised of senior
managers from each major operational unit. The Year 2000 committee has prepared
a comprehensive program to address this problem and to ensure that the Company's
computer systems will function properly in the twenty-first century.
The Company's Year 2000 effort was divided in phases for awareness, assessment,
renovation, validation, and implementation.
Status of Year 2000 Program
The Company has already completed the awareness and assessment phase of its Year
2000 program and has already undertaken renovation and validation of its
"critical" systems. "Critical" systems is defined as the hardware and software
applications that are essential to the continuance of the main business
activities of the Company. Initial validation testing of critical systems
throughout the Company was substantially completed by the end of 1998.
The Company expects to successfully complete its Year 2000 program in a timely
and effective manner.
External Factors
Although the Company's efforts may adequately address our internal Year 2000
concerns, there can be no assurance that unforeseen difficulties will not arise.
Additionally, the Company may be impacted by the Year 2000 compliance issues of
governmental agencies, businesses and other entities who provide data to, or
receive data from the Company, customers and vendors whose operational
functionality is significant to the Company. The Company is also subject to
credit risk to the extent borrowers fail to adequately address their Year 2000
issues.
As a result, the Company's Year 2000 program also includes the identification of
third party service providers, customers and other external parties upon which
the Company relies, or with whom it must interface its critical systems or
applications. While the Company continues to discuss these matters with, obtain
written certifications from and evaluate such external parties' Year 2000
compliance efforts, there is no assurance that the failure of these parties to
resolve their Year 2000 issues will not have an adverse and/or material impact
on the Company.
To address this external risk, business resumption contingency plans were
developed to ensure that the Company is prepared to manage worst-case scenarios.
Contingency plans include identifying triggering events for the plan, assessing
"critical" system failures on core business processes, developing business
resumption alternatives and testing the effectiveness and viability of these
plans. As of June 30, 1999, the Company's business resumption contingency plans
have been completed and validated.
Budget
The Company has expended, and will continue to expend, the resources necessary
to address the Year 2000 issue in a timely manner. Through June 30, 1999,
cumulative incremental expenditures of $100,000 have been incurred out of a
total projected $500,000. The incremental expenditures exclude the cost incurred
in 1998 of $2.5 million to convert to the FiServ Comprehensive Banking System as
well as the cost of internal human resources expended for this effort. The
incremental expenditures consist primarily of the acquisition and the
implementation of new and enhanced systems and/or equipment, which will be
capitalized and amortized over their respective useful lives. Expenses related
to the Company's internal resources and direct Year 2000 remediation costs are
being expensed as incurred. The remaining budget is expected to be expended
throughout 1999, funded by operating cash flows. No assurance can be given,
however, that all aspects of the Company's operations will be Year 2000
compliant or that the Year 2000 problem will not have an adverse impact on the
Company's future earnings.
The above Year 2000 discussion contains forward-looking statements. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to substantially complete the various phases of the
remediation plan, are based on management's best current estimates. As a result,
the Year 2000 discussion should be read considering the disclaimers on pages 7
and 8 relating to such forward-looking statements.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company disclosed both quantitative and qualitative analyses of market risks
in its 1998 Form 10-K. No significant changes have occurred during the six
months ended June 30, 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on April 29, 1999, the stockholders
voted on the following matters:
(a) Election of four directors for a term of three years expiring in 2002, or
until their successors are elected:
<TABLE>
<S> <C> <C>
Name Shares Voted For Shares Withheld
Colbert M. Matsumoto 2,822,133 140,157
Caryn S. Morita 2,617,053 345,237
Yoshiki Takada 2,810,383 151,907
Lionel Y. Tokioka 2,818,045 144,245
</TABLE>
(b) Approval of the CB Bancshares, Inc. Directors Stock Option Plan; For -
2,495,663, Against - 315,901, Abstain - 91,234, Broker Non-Vote - 59,492.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10 Material contracts
Exhibit 10.1 Service Agreement effective April 30, 1999 between
CB Bancshares, Inc., and James H. Kamo
Exhibit 10.2 Service Agreement effective April 30, 1999 between
City Bank, and James H. Kamo
Exhibit 10.3 Service Agreement effective April 30, 1999 between
International Savings and Loan Association, Limited,
and James H. Kamo
Exhibit 10.4 Consulting Agreement effective June 1, 1999 between
CB Bancshares, Inc. and Lionel Y. Tokioka
Exhibit 27 Financial data schedule
(b) Reports on Form 8-K
Form 8-K, dated April 8, 1999, in which CB Bancshares, Inc.
announced a new Chief Financial Officer.
<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.
(Registrant)
Date August 6, 1999 By /s/ Dean K. Hirata
----------------- -----------------------------
Dean K. Hirata
Senior Vice President and
Chief Financial Officer
(principal financial officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
10 Material contracts
10.1 Service Agreement effective April 30, 1999 between CB Bancshares, Inc.,
and James H. Kamo
10.2 Service Agreement effective April 30, 1999 between City Bank, and
James H. Kamo
10.3 Service Agreement effective April 30, 1999 between International
Savings and Loan Association, Limited, and James H. Kamo
10.4 Consulting Agreement effective June 1, 1999 between CB Bancshares, Inc.
and Lionel Y. Tokioka
27 Financial data schedule
<PAGE>
Exhibit 10.1
SERVICE AGREEMENT
This Agreement is effective this 30th day of April, 1999, and is entered into by
and between CB Bancshares, Inc., a Hawaii Corporation (Company) and James H.
Kamo (Kamo) a resident of Honolulu, Hawaii.
Relationship to Company
1.01 The parties expressly agree hereto that Kamo is not an employee of the
Company for any purpose whatsoever.
1.02 Company shall request and/or direct Kamo to furnish certain services and
advice; however, Company will not exercise any dominion or control over the
specific manner in which Kamo performs his services so long as the overall
performance by Kamo of his services hereunder are satisfactory and in full
conformity with the requirements of this Agreement, as well as the Articles and
bylaws of Company, and applicable law.
2. Term of Agreement
2.0l The term of this Agreement shall commence on the effective date and shall
continue until the earlier of: (1) the date Kamo no longer desires to serve as
Corporate Secretary on the Board of Directors (Board) (2) the Board determines
that Kamo is no longer able to function in the capacity of Corporate Secretary,
or (3) the expiration of three years from the effective date of the Agreement.
3. Duties
3.01 During the term of this Agreement, Kamo shall act as Corporate Secretary
and render services as follows:
(a) attend and keep the minutes of all meetings of stockholders and, when
requested, shall attend and keep the minutes of the Board of Directors, in books
provided for that purpose;
(b) have charge and custody of the records for the issue and transfer of shares
of capital stock;
(c) attend to the giving of all notices as provided in these
by-laws, the Articles of Incorporation, or law;
(d) have custody of the seal and affix the same as required; and
(e) have such other powers and duties as may be
incidental to the office of secretary or elsewhere given to him in the by-laws,
the Articles of Incorporation or law and as may be assigned to him from time to
time by the Board of Directors.
<PAGE>
4. Fee for Services
4.01 Company will pay Kamo the following fee for the services provided
hereunder: Two thousand six hundred sixty-six and 67/l00 dollars ($2666.67) a
month. Such fee will be payable on the first day of each month during the term
of this Agreement
4.02 Company shall provide necessary secretarial services for Kamo.
4.03 Kamo shall be responsible for office space, automobile expenses, parking
charges, and facilities necessary for services to be performed.
5. Responsibility for Acts
5.01 Kamo agrees to accept full and exclusive responsibility for his acts and to
indemnify and hold Company harmless from, and reimburse it for, any liabilities,
claims, demands, costs and expenses incident to any claim, loss, damage or
injury of any kind, including attorney's fees and court costs incurred in
connection with any legal claim of any kind, to any person or property because
of or due to any act or conduct of Kamo, which is illegal, in breach of this
Agreement, or in violation of the Company's Articles, Bylaws, or applicable law.
6. Liability for Taxes and other Statutory Requirements
6.01 Kamo agrees that all state and federal withholding taxes, social security
taxes, general excise tax, self-employment taxes, and any and all other taxes,
fees, assessments or contributions, relating to payments received shall be the
sole responsibility of Kamo.
7. Evidence of Compliance
7.01 Kamo agrees to observe and comply with policies, rules and regulations of
Company in the performance of his duties.
7.02 Kamo agrees that he shall, upon request, and at such times and in and in
such frequency as Company may desire, provide Company with evidence to establish
that Kamo has complied fully with his contractual obligations as set forth in
this Agreement, including, in particular, the obligation to obtain proper
insurance coverage and the obligation to timely pay all taxes and other
statutory assessments and requirements as may be legally required.
8. Confidential Information
8.01 Duties outlined in this Agreement involve confidential information and very
sensitive issues. Kamo agrees that the knowledge and information described below
in subparagraphs 8.01 (a) and (b) shall for all time and for all purposes be
regarded by Kamo as strictly confidential and hold by Kamo in confidence, and
solely for Company's benefit and use, and shall neither be used by Kamo nor
directly or indirectly disclosed by Kamo to any person except to Company or to
others with Company's prior permission.
(a) All information that Kamo may receive from Company, or by virtue of
performance of services under and pursuant to this Agreement, or other
information that belong to Company or to those with whom Company has contracted
regarding such information; and
(b) All information provided by Kamo to Company in oral or written reports of
work done, together with any other information acquired by or as a result of the
work performed by Kamo for Company and during the term of this Agreement, unless
such information his become common knowledge or is already in the public domain.
(c) The obligations and promises contained in this paragraph 8.01 and its
subparagraphs shall be binding on Kamo during the term of this Agreement and
shall also survive the termination of this Agreement.
8.02 Upon the termination of this Agreement, Kamo shall not be entitled to the
records and files of Company, unless Company, in its sole discretion, grants
such permission in writing.
9. Conflict of Interest
9.01 During the term of this Agreement Kamo shall not, directly or indirectly,
without the prior written consent of Company engage in any activity that is
competitive with or adverse to Company's business interest.
9.02 Kamo may, however, passively invest his assets in other noncompetitive
business enterprises.
10. Arbitration
10.1 Company and Kamo hereby consent in advance, that, at the election of either
party, any dispute arising out of or connected with this Agreement, or any
alleged breach hereof, including any dispute as to any amount owned under this
Agreement, shall be settled by arbitration in accordance with the rules then
prevailing of the American Arbitration Association for Commercial Disputes. The
results of any arbitration shall be final and binding upon the parties and
judgement thereon may be entered in any court of competent jurisdiction.
10.02 In arbitrations under this Agreement, each party shall bear its respective
costs, fees and expenses of presenting its own case, and half of the
arbitrator's fees and administration expenses, unless otherwise ordered by the
arbitrator.
11. Miscellaneous Provisions
11.01 Entire Agreement. This Agreement embodies the entire agreement of the
parties and supersedes any other agreements or understandings with respect
hereto that may ever have existed between the parties.
11.02 Applicable Law. This Agreement shall be governed by laws of the State of
Hawaii both as to interpretation and performance.
IN WITNESS WHEREOF, THE PARTIES HAVE SIGNED THIS Agreement on the 19th day of
May, 1999.
CB Bancshares, Inc.
By /s/ Ronald K. Migita /s/ James H. Kamo
------------------------- ------------------
Its President and Chief Executive Officer James H. Kamo
Company Kamo
<PAGE>
Exhibit 10.2
SERVICE AGREEMENT
This Agreement is effective this 30th day of April, 1999, and is entered into by
and between City Bank, a Hawaii Corporation (Company) and James H. Kamo (Kamo) a
resident of Honolulu, Hawaii.
1. Relationship to Company
1.01 The parties expressly agree hereto that Kamo is not an employee of the
Company for any purpose whatsoever.
1.02 Company shall request and/or direct Kamo to furnish certain services and
advice; however, Company will not exercise any dominion or control over the
specific manner in which Kamo performs his services so long as the overall
performance by Kamo of his services hereunder are satisfactory and in full
conformity with the requirements of this Agreement, as well as the Articles and
bylaws of Company, and applicable law.
2. Term of Agreement
2.0l The term of this Agreement shall commence on the effective date and shall
continue until the earlier of: (1) the date Kamo no longer desires to serve as
Corporate Secretary on the Board of Directors (Board) (2) the Board determines
that Kamo is no longer able to function in the capacity of Corporate Secretary,
or (3) the expiration of three years from the effective date of the Agreement.
3. Duties
3.01 During the term of this Agreement, Kamo shall act as Corporate Secretary
and render services as follows:
(a) attend and keep the minutes of all meetings of stockholders and, when
requested, shall attend and keep the minutes of the Board of Directors, in books
provided for that purpose;
(b) have charge and custody of the records for the
issue and transfer of shares of capital stock;
(c) attend to the giving of all notices as provided in these by-laws, the
Articles of Incorporation, or law;
(d) have custody of the seal and affix the same as required; and
(e) have such other powers and duties as may be incidental to the office of
secretary or elsewhere given to him in the by-laws, the Articles of
Incorporation or law and as may be assigned to him from time to time by the
Board of Directors.
<PAGE>
4. Fee for Services
4.01 Company will pay Kamo the following fee for the services provided
hereunder: Two thousand six hundred sixty-six and 67/l00 dollars ($2666.67) a
month. Such fee will be payable on the first day of each month during the term
of this Agreement
4.02 Company shall provide necessary secretarial services for Kamo.
4.03 Kamo shall be responsible for office space, automobile expenses, parking
charges, and facilities necessary for services to be performed.
5. Responsibility for Acts
5.01 Kamo agrees to accept full and exclusive responsibility for his acts and to
indemnify and hold Company harmless from, and reimburse it for, any liabilities,
claims, demands, costs and expenses incident to any claim, loss, damage or
injury of any kind, including attorney's fees and court costs incurred in
connection with any legal claim of any kind, to any person or property because
of or due to any act or conduct of Kamo, which is illegal, in breach of this
Agreement, or in violation of the Company's Articles, Bylaws, or applicable law.
6. Liability for Taxes and other Statutory Requirements
6.01 Kamo agrees that all state and federal withholding taxes, social security
taxes, general excise tax, self-employment taxes, and any and all other taxes,
fees, assessments or contributions, relating to payments received shall be the
sole responsibility of Kamo.
7. Evidence of Compliance
7.01 Kamo agrees to observe and comply with policies, rules and regulations of
Company in the performance of his duties.
7.03 Kamo agrees that he shall, upon request, and at such times and in and in
such frequency as Company may desire, provide Company with evidence to establish
that Kamo has complied fully with his contractual obligations as set forth in
this Agreement, including, in particular, the obligation to obtain proper
insurance coverage and the obligation to timely pay all taxes and other
statutory assessments and requirements as may be legally required.
8. Confidential Information
8.01 Duties outlined in this Agreement involve confidential information and very
sensitive issues. Kamo agrees that the knowledge and information described below
in subparagraphs 8.01 (a) and (b) shall for all time and for all purposes be
regarded by Kamo as strictly confidential and hold by Kamo in confidence, and
solely for Company's benefit and use, and shall neither be used by Kamo nor
directly or indirectly disclosed by Kamo to any person except to Company or to
others with Company's prior permission.
(a) All information that Kamo may receive from Company, or by virtue of
performance of services under and pursuant to this Agreement, or other
information that belong to Company or to those with whom Company has contracted
regarding such information; and
(b) All information provided by Kamo to Company in oral or written reports of
work done, together with any other information acquired by or as a result of the
work performed by Kamo for Company and during the term of this Agreement, unless
such information his become common knowledge or is already in the public domain.
(c) The obligations and promises contained in this paragraph 8.01 and its
subparagraphs shall be binding on Kamo during the term of this Agreement and
shall also survive the termination of this Agreement.
8.02 Upon the termination of this Agreement, Kamo shall not be entitled to the
records and files of Company, unless Company, in its sole discretion, grants
such permission in writing.
9. Conflict of Interest
9.01 During the term of this Agreement Kamo shall not, directly or indirectly,
without the prior written consent of Company engage in any activity that is
competitive with or adverse to Company's business interest.
9.02 Kamo may, however, passively invest his assets in other noncompetitive
business enterprises.
10. Arbitration
10.1 Company and Kamo hereby consent in advance, that, at the election of either
party, any dispute arising out of or connected with this Agreement, or any
alleged breach hereof, including any dispute as to any amount owned under this
Agreement, shall be settled by arbitration in accordance with the rules then
prevailing of the American Arbitration Association for Commercial Disputes. The
results of any arbitration shall be final and binding upon the parties and
judgement thereon may be entered in any court of competent jurisdiction.
10.02 In arbitrations under this Agreement, each party shall bear its respective
costs, fees and expenses of presenting its own case, and half of the
arbitrator's fees and administration expenses, unless otherwise ordered by the
arbitrator.
11. Miscellaneous Provisions
11.01 Entire Agreement. This Agreement embodies the entire agreement of the
parties and supersedes any other agreements or understandings with respect
hereto that may ever have existed between the parties.
11.02 Applicable Law. This Agreement shall be governed by laws of the State of
Hawaii both as to interpretation and performance.
IN WITNESS WHEREOF, THE PARTIES HAVE SIGNED THIS Agreement on the 19th day of
May, 1999.
City Bank
By /s/ Ronald K. Migita /s/ James H. Kamo
------------------------- --------------------
Its President and Chief Executive Officer James H. Kamo
Company Kamo
<PAGE>
Exhibit 10.3
SERVICE AGREEMENT
This Agreement is effective this 30th day of April, 1999, and is entered into by
and between International Savings and Loan Association, Limited, a Hawaii
Corporation (Company) and James H. Kamo (Kamo) a resident of Honolulu, Hawaii.
10 Relationship to Company
1.01 The parties expressly agree hereto that Kamo is not an employee of the
Company for any purpose whatsoever.
1.02 Company shall request and/or direct Kamo to furnish certain services and
advice; however, Company will not exercise any dominion or control over the
specific manner in which Kamo performs his services so long as the overall
performance by Kamo of his services hereunder are satisfactory and in full
conformity with the requirements of this Agreement, as well as the Articles and
bylaws of Company, and applicable law.
2. Term of Agreement
2.0l The term of this Agreement shall commence on the effective date and shall
continue until the earlier of: (1) the date Kamo no longer desires to serve as
Corporate Secretary on the Board of Directors (Board) (2) the Board determines
that Kamo is no longer able to function in the capacity of Corporate Secretary,
or (3) the expiration of three years from the effective date of the Agreement.
3. Duties
3.01 During the term of this Agreement, Kamo shall act as Corporate Secretary
and render services as follows:
(a) attend and keep the minutes of all meetings of stockholders and, when
requested, shall attend and keep the minutes of the Board of Directors, in books
provided for that purpose;
(b) have charge and custody of the records for the issue and transfer of shares
of capital stock;
(c) attend to the giving of all notices as provided in these by-laws, the
Articles of Incorporation, or law;
(d) have custody of the seal and affix the same as required; and
(e) have such other powers and duties as may be incidental to the office of
secretary or elsewhere given to him in the by-laws, the Articles of
Incorporation or law and as may be assigned to him from time to time by the
Board of Directors.
<PAGE>
4. Fee for Services
4.01 Company will pay Kamo the following fee for the services provided
hereunder: Two thousand six hundred sixty-six and 67/l00 dollars ($2666.67) a
month. Such fee will be payable on the first day of each month during the term
of this Agreement
4.02 Company shall provide necessary secretarial services for Kamo.
4.03 Kamo shall be responsible for office space, automobile expenses, parking
charges, and facilities necessary for services to be performed.
5. Responsibility for Acts
5.01 Kamo agrees to accept full and exclusive responsibility for his acts and to
indemnify and hold Company harmless from, and reimburse it for, any liabilities,
claims, demands, costs and expenses incident to any claim, loss, damage or
injury of any kind, including attorney's fees and court costs incurred in
connection with any legal claim of any kind, to any person or property because
of or due to any act or conduct of Kamo, which is illegal, in breach of this
Agreement, or in violation of the Company's Articles, Bylaws, or applicable law.
6. Liability for Taxes and other Statutory Requirements
6.01 Kamo agrees that all state and federal withholding taxes, social security
taxes, general excise tax, self-employment taxes, and any and all other taxes,
fees, assessments or contributions, relating to payments received shall be the
sole responsibility of Kamo.
7. Evidence of Compliance
7.01 Kamo agrees to observe and comply with policies, rules and regulations of
Company in the performance of his duties.
7.02 Kamo agrees that he shall, upon request, and at such times and in and in
such frequency as Company may desire, provide Company with evidence to establish
that Kamo has complied fully with his contractual obligations as set forth in
this Agreement, including, in particular, the obligation to obtain proper
insurance coverage and the obligation to timely pay all taxes and other
statutory assessments and requirements as may be legally required.
8. Confidential Information
8.01 Duties outlined in this Agreement involve confidential information and very
sensitive issues. Kamo agrees that the knowledge and information described below
in subparagraphs 8.01 (a) and (b) shall for all time and for all purposes be
regarded by Kamo as strictly confidential and hold by Kamo in confidence, and
solely for Company's benefit and use, and shall neither be used by Kamo nor
directly or indirectly disclosed by Kamo to any person except to Company or to
others with Company's prior permission.
(a) All information that Kamo may receive from Company, or by virtue of
performance of services under and pursuant to this Agreement, or other
information that belong to Company or to those with whom Company has contracted
regarding such information; and
(b) All information provided by Kamo to Company in oral or written reports of
work done, together with any other information acquired by or as a result of the
work performed by Kamo for Company and during the term of this Agreement, unless
such information his become common knowledge or is already in the public domain.
(c) The obligations and promises contained in this paragraph 8.01 and its
subparagraphs shall be binding on Kamo during the term of this Agreement and
shall also survive the termination of this Agreement.
8.01 Upon the termination of this Agreement, Kamo shall not be entitled to the
records and files of Company, unless Company, in its sole discretion, grants
such permission in writing.
9. Conflict of Interest
9.01 During the term of this Agreement Kamo shall not, directly or indirectly,
without the prior written consent of Company engage in any activity that is
competitive with or adverse to Company's business interest.
9.02 Kamo may, however, passively invest his assets in other noncompetitive
business enterprises.
10. Arbitration
10.1 Company and Kamo hereby consent in advance, that, at the election of either
party, any dispute arising out of or connected with this Agreement, or any
alleged breach hereof, including any dispute as to any amount owned under this
Agreement, shall be settled by arbitration in accordance with the rules then
prevailing of the American Arbitration Association for Commercial Disputes. The
results of any arbitration shall be final and binding upon the parties and
judgement thereon may be entered in any court of competent jurisdiction.
10.02 In arbitrations under this Agreement, each party shall bear its respective
costs, fees and expenses of presenting its own case, and half of the
arbitrator's fees and administration expenses, unless otherwise ordered by the
arbitrator.
11. Miscellaneous Provisions
11.01 Entire Agreement. This Agreement embodies the entire agreement of the
parties and supersedes any other agreements or understandings with respect
hereto that may ever have existed between the parties.
11.02 Applicable Law. This Agreement shall be governed by laws of the State of
Hawaii both as to interpretation and performance.
IN WITNESS WHEREOF, THE PARTIES HAVE SIGNED THIS Agreement on the 19th day of
May, 1999.
International Savings and Loan Association, Limited
By /s/ Richard Lim /s/ James H. Kamo
-------------------- ------------------
Its President and Chief Operating Officer James H. Kamo
Company Kamo
<PAGE>
Exhibit 10.4
CB BANCSHARES, INC.
CONSULTING AGREEMENT
THIS AGREEMENT is made this 1st day of June, 1999, effective June 1, 1999,
between CB BANCSHARES, INC., (Company), a Hawaii corporation, of 201 Merchant
Street, Honolulu, Hawaii 96813, and LIONEL Y. TOKIOKA, of 918 Waiiki Street,
Honolulu, Hawaii 96821.
W I T N E S S E T H :
WHEREAS, Company is engaged in the business of finance (commercial bank, savings
and loan); and
WHEREAS, Company desires to contract with Tokioka, as a consultant, for certain
services necessary for the operation of Company's business; and
WHEREAS, Tokioka has the skill and expertise necessary to provide such services
to Company;
NOW, THEREFORE, the parties do hereby mutually agree as follows:
I
RELATIONSHIP OF INDEPENDENT CONTRACTOR CREATED
1.01 It is expressly agreed by the parties hereto that Tokioka is not an
employee Company for any purpose whatsoever, but is an independent contractor.
Furthermore, no relationship of joint venture or partnership of any form is
created by this Agreement.
1.02 Company shall request and/or direct Tokioka to furnish certain services and
advice, however, will not exercise any dominion or control over the specific
manner in which Tokioka performs his services so long as the overall performance
by Tokioka of his services hereunder are satisfactory and in full conformity
with the requirements of this Agreement.
II
TERM OF AGREEMENT
2.01 The term of this Agreement shall commence on the effective date and shall
continue for a period of twelve (12) months. This Agreement will be renewed for
an additional 12-month period, unless the Company gives Tokioka three (3) months
prior written notice that it will not renew this Agreement.
<PAGE>
III
DUTIES
3.01 During the term of this Agreement, Tokioka shall act as and render services
on matters involving the following:
o Company regulatory issues
o Company merger and integration
o Shareholder relations
o Public and community relations
o Business development
o Other consultant services as requested
Such services shall be performed at the request of the Chief Executive Officer
of CBBI.
3.02 Tokioka shall spend not less than fifty percent (50%) of his work time and
devote his best efforts, energies, abilities and attention to Company's
business.
IV
CONTRACT FEE
4.01 Company will pay Tokioka the following fee for the services provided
hereunder: ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($150,000.00) a year
for a period of one (1) year. Such fee will be payable as follows: twelve (12)
equal installments of TWELVE THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($12,500.00) on the last day of each month during the term of this Agreement.
4.02 Company will reimburse Tokioka for all necessary expenses incurred by
Tokioka in connection with the furnishing of services under this Agreement,
including the following:
(a) Company shall provide parking, office space, and other facilities necessary
for services to be performed by Tokioka, or shall reimburse Tokioka for such
charges.
(b) Company shall reimburse Tokioka for incidental dining, recreation,
entertainment and like expenses relating to Tokioka's services.
4.03 Company will allow Tokioka to participate in the company's medical and
dental plans. Such participation may include his dependent, and shall be at his
expense. Said participation shall be until the earlier of the following events:
a) Tokioka reaches the age of 65; or b) until such time as his contract is
terminated.
<PAGE>
V
LIABILITY FOR TAXES AND OTHER STATUTORY REQUIREMENTS
5.01 Tokioka agrees that all state and federal withholding taxes, social
security taxes, general excise tax, self-employment taxes, and any and all other
taxes, fees, assessments or contributions, relating to fees received or expenses
reimbursed, if any, shall be the sole responsibility of Tokioka.
VI
EVIDENCE OF COMPLIANCE
6.01 Tokioka agrees to observe and comply with policies, rules and regulations
of Company in the performance of his duties.
6.02 Tokioka agrees that he shall, upon request, and at such times and in such
frequency as Company may desire, provide Company with evidence to establish that
Tokioka has complied fully with his contractual obligations as set forth in this
Agreement.
VII
CONFIDENTIAL INFORMATION
7.01 Company's project involves confidential information and very sensitive
issues. Tokioka agrees that the knowledge and information described below in
subparagraphs 7.01(a) and (b) (information) shall for all times and for all
purposes be regarded by Tokioka as strictly confidential and held by Tokioka in
confidence, and solely for Company's benefit and use, and shall neither be used
by Tokioka nor directly or indirectly disclosed by Tokioka to any person except
to Company, or to others with Company's prior permission.
(a) All information that Tokioka may receive from Company, or from its employees
or by virtue of performance of services rendered under and pursuant to this
Agreement, or other information that belong to Company or to those with whom
Company has contracted regarding such information; and
(b) All information provided by Tokioka to Company in oral or written reports of
work done, together with any other information acquired by or as a result of the
work performed by Tokioka for Company and during the term of this Agreement,
unless such information has become common knowledge or is already in the public
domain.
(c) The obligations and promises contained in this paragraph 7.01 and its
subparagraphs shall be binding on Tokioka during the term of this Agreement and
shall also survive the termination of this Agreement.
7.02 Upon the termination of this Agreement, Tokioka shall not be entitled to
the records and files of Company, unless Company, in its sole discretion, grants
such permission in writing.
<PAGE>
VIII
ARBITRATION
8.01 Company and Tokioka hereby consent in advance that, at the election of
either party, any dispute arising out of or connected with this Agreement, or
any alleged breach hereof, including any dispute as to any amount owed under
this Agreement, shall be settled by arbitration in accordance with the rules
then prevailing of the American Arbitration Association for Commercial Disputes.
The results of any arbitration shall be final and binding upon the parties and
judgment thereof may be entered in any court of competent jurisdiction.
8.02 Nothing herein contained shall be deemed to give the arbitrator any
authority, power, or right to alter, change, amend, modify, add to or subtract
from any of the provisions of this Agreement, except that the arbitrator shall
have the authority to reasonably interpret any of the provisions of this
Agreement.
8.03 The arbitrator shall be required to abide by the provisions of this
agreement under the lawfully adopted policies of the State of Hawaii, and the
arbitrator shall not modify or alter same.
8.04 These arbitration provisions shall, with respect to any controversy or
dispute, survive the termination or expiration of this Agreement.
8.05 In arbitrations under this Agreement, each party shall bear its respective
costs, fees and expenses of presenting its own case, and half of the
arbitrator's fees and administration expenses, unless otherwise ordered by the
arbitrator, in which case the prevailing party may be awarded all costs, fees
and expenses.
8.06 Notwithstanding the provisions of this Section VIII, either party shall
have the right to seek injunctive relief in relation to threatened conduct,
which is permitted by applicable law.
IX
TERMINATION
9.01 Notwithstanding any other provision of this Agreement, Tokioka's services
under this Agreement may be terminated:
(a) Whenever Company and Tokioka shall mutually agree to termination in writing;
(b) Upon insolvency of either party or the filing of any petition in bankruptcy
by or against either party;
<PAGE>
(c) At Tokioka's option, if Tokioka shall suffer a permanent disability. For
purposes of this Agreement, "permanent disability" shall mean Tokioka's
inability to substantially render the services required hereunder for a period
of three (3) months, or for a total of three (3) months in any consecutive
twelve-month period because of a physical or mental condition. If Tokioka
suffers from a permanent disability within the meaning of this subsection 9.03
(c), then Tokioka's right to receive a fee described in Section IV above shall
cease and become null and void;
(d) Upon death of Tokioka; or
(e) Notwithstanding the provisions of subparagraphs 9.01 (a) through 9.01(d)
above, services may be terminated for just cause by company upon fifteen (15)
days prior written notice to Tokioka. The term "just cause," as used in this
agreement, shall mean Tokioka's acts or omissions that in the reasonable opinion
of Company, demonstrate Tokioka's dishonesty, malfeasance, or negligence in the
course of performing his services under this Agreement. The term "just cause"
shall also include, but not be limited to, Tokioka's breach of the terms of this
Agreement, by, among other things, non-performance of professional
responsibilities, as a result of incompetence, lack of judgment,
insubordination, substance abuse, or otherwise, which is not cured by Tokioka
within fifteen (15) days of receipt of written notification of such breach from
Company.
9.02 Upon termination for any of the reasons above mentioned, excluding death,
Tokioka shall be entitled to receive accrued but unpaid fee that is provided for
in Section IV above.
X
ASSIGNMENT
10.01 Neither party may assign this Agreement without the other party's prior
written consent.
XI
CONFLICT OF INTEREST
11.01 During the term of this Agreement or any extension thereof, Tokioka shall
not, directly or indirectly, without the prior written consent of Company:
(a) Render services of alike nature to any other person, partnership,
corporation or entity, whether for compensation or otherwise; or
(b) Engage in any activity that is competitive with or adverse to Company's
business interest. Tokioka shall not engage in such activity as an individual,
as a partner in a partnership, as an officer or director of a corporation, or as
a principal of any other similar entity.
<PAGE>
11.02 Tokioka may, however, passively invest his assets in other noncompetitive
business enterprises provided such investment does not require Tokioka's
services in any manner whatsoever.
XII
FACILITIES AND SERVICES
12.01 Except as provided otherwise herein, Company shall provide supplemental
information, materials, supplies and support reasonably necessary or proper for
Tokioka's performance of his duties under this Agreement.
XIII
REMEDIES
13.01 Breach by either party of any of the terms and conditions contained herein
will be deemed to constitute a material breach of this Agreement after taking
into consideration the notice requirement and opportunity to cure a failure
contained in subsection 13.02 below. This Agreement may be enforced by all legal
and equitable remedies available to a party to a contract which is materially
breached by the other party. As used in this Agreement, "material breach" is a
violation of a right or duty which has more than a trivial result and has a
substantial detrimental effect upon the party alleging the breach.
13.02 In the event either party shall fail to perform their obligations under
this Agreement, either party shall notify the party failing to perform in
writing of such failure, specifying the defaults alleged. Unless such default
shall be corrected within fifteen (15) days of the date of such written notice,
the party providing the notice shall be entitled to declare this Agreement
breached and to suspend payments under this Agreement, unless and until a court
of competent jurisdiction shall issue an order directing Company to do
otherwise.
XIV
MISCELLANEOUS PROVISIONS
14.01 Section and Paragraph Headings. Section and paragraph headings are
inserted only for convenience and reference and in no way define, limit, extend
or describe the scope or intent of this Agreement or any provision hereof.
14.02 Entire Agreement. This Agreement embodies the entire agreement of the
parties and supersedes any other agreements or understandings with respect
hereto that may ever have existed between the party.
14.03 Notices. All notices, requests, demands, consents and other communications
which are required to be given in writing shall be given or served for all
purposes by being sent as registered or certified mail, return receipt
requested, postage prepaid, addressed to Company or Tokioka, as the case may be,
at the address set forth above or at such other post office address as either
may from time to time designate by writing given to or served on the party in
the manner set forth in this paragraph, or by being delivered personally to the
other party, provided
<PAGE>
that the other party acknowledges receipt thereof in writing. Any such notice,
request, demand, consent or other communication shall be deemed conclusively to
have been given or served on the date of such mailing or personal delivery.
14.04 Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provision to
other persons or circumstances shall not be affected thereby.
14.05 Waiver. The failure of any party to enforce at any time any provisions of
this Agreement shall not constitute a waiver of the right thereafter to enforce
the same or any other provision hereof.
14.06 Amendment. This Agreement may be amended only by an instrument in writing
signed by the party against whom enforcement of the amendment is sought.
14.07 Applicable Law. This Agreement shall be governed by laws of the State of
Hawaii both as to interpretation and performance.
IN WITNESS WHEREOF, the parties have signed this Agreement on the day and year
first above written.
CB BANCSHARES, INC.
By /s/ James Kamo /s/ Lionel Y. Tokioka
---------------- -------------------------
Its Secretary LIONEL Y. TOKIOKA
By /s/ Ronald K. Migita
-------------------------
Its President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
</LEGEND>
<CIK> 0000316312
<NAME> CB BANCSHARES, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 38,311
<INT-BEARING-DEPOSITS> 20,128
<FED-FUNDS-SOLD> 475
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 295,262
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,034,507
<ALLOWANCE> 18,269
<TOTAL-ASSETS> 1,483,193
<DEPOSITS> 1,055,497
<SHORT-TERM> 58,296
<LIABILITIES-OTHER> 20,067
<LONG-TERM> 220,277
0
0
<COMMON> 3,552
<OTHER-SE> 125,504
<TOTAL-LIABILITIES-AND-EQUITY> 1,483,193
<INTEREST-LOAN> 44,342
<INTEREST-INVEST> 7,915
<INTEREST-OTHER> 978
<INTEREST-TOTAL> 53,235
<INTEREST-DEPOSIT> 18,226
<INTEREST-EXPENSE> 24,027
<INTEREST-INCOME-NET> 29,208
<LOAN-LOSSES> 2,265
<SECURITIES-GAINS> (104)
<EXPENSE-OTHER> 25,078
<INCOME-PRETAX> 6,827
<INCOME-PRE-EXTRAORDINARY> 2,652
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,652
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 4.47
<LOANS-NON> 11,932
<LOANS-PAST> 4,436
<LOANS-TROUBLED> 12,744
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,771
<CHARGE-OFFS> 2,093
<RECOVERIES> 326
<ALLOWANCE-CLOSE> 18,269
<ALLOWANCE-DOMESTIC> 13,104
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,165
</TABLE>
