<PAGE> 1
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, 2000
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) 535-2500
(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, 2000 was:
Class Outstanding
----------------------------- ----------------
Common Stock, $1.00 Par Value 3,198,733 shares
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in thousands of dollars) 2000 1999 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 46,545 $ 66,918 $ 38,311
Interest-bearing deposits in other banks 123 76 20,128
Federal funds sold 3,640 5,700 475
Investment and mortgage-backed securities:
Available-for-sale 307,241 316,498 295,262
FHLB Stock 32,782 31,727 30,629
Loans held for sale 7,301 7,805 9,135
Loans:
Loans 1,240,835 1,144,926 1,034,507
Less allowance for credit losses 18,629 17,942 18,269
-------------------------------------------------------------------------------------------------------
Net loans 1,222,206 1,126,984 1,016,238
-------------------------------------------------------------------------------------------------------
Premises and equipment 18,167 18,008 20,163
Other real estate owned 6,002 6,385 8,370
Accrued interest receivable and other assets 40,738 39,448 44,482
-------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,684,745 $ 1,619,549 $ 1,483,193
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 120,401 $ 120,544 $ 104,001
Interest-bearing 1,050,919 985,601 951,496
-------------------------------------------------------------------------------------------------------
Total deposits 1,171,320 1,106,145 1,055,497
-------------------------------------------------------------------------------------------------------
Short-term borrowings 185,050 154,884 58,296
Accrued expenses and other liabilities 18,129 18,689 20,067
Long-term debt 192,348 225,140 220,277
-------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,566,847 1,504,858 1,354,137
-------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - - -
Common stock 3,199 3,255 3,474
Additional paid-in capital 54,852 56,219 62,597
Retained earnings 66,911 62,159 66,502
Accumulated other comprehensive loss,
net of tax (7,064) (6,942) (3,517)
-------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 117,898 114,691 129,056
-------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,684,745 $ 1,619,549 $ 1,483,193
=======================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
(in thousands of dollars, except per share data) 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 26,803 $ 21,661 $ 52,001 $ 44,342
Interest and dividends on investment and
mortgage-backed securities:
Taxable interest income 5,096 3,949 10,325 6,336
Nontaxable interest income 389 237 773 431
Dividends 528 553 1,055 1,148
Other interest income 214 410 362 978
--------------------------------------------------------------------------------------------------------------------------
Total interest income 33,030 26,810 64,516 53,235
--------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 11,269 8,933 21,597 18,226
FHLB advances and other short-term
borrowings 2,511 591 4,690 892
Long-term debt 3,373 2,485 6,814 4,909
--------------------------------------------------------------------------------------------------------------------------
Total interest expense 17,153 12,009 33,101 24,027
--------------------------------------------------------------------------------------------------------------------------
Net interest income 15,877 14,801 31,415 29,208
Provision for credit losses 1,875 1,090 3,781 2,265
--------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 14,002 13,711 27,634 26,943
--------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 694 530 1,340 926
Other service charges and fees 975 678 1,612 1,271
Net realized gains (losses) on sales
of securities 15 (153) (422) (104)
Net gains on sales of loans 124 966 264 2,054
Other 761 284 1,208 815
--------------------------------------------------------------------------------------------------------------------------
Total noninterest income 2,569 2,305 4,002 4,962
--------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 5,264 5,123 10,198 10,467
Net occupancy expense 1,873 2,019 3,718 4,067
Equipment expense 799 825 1,400 1,640
Other 4,190 4,493 7,978 8,904
--------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 12,126 12,460 23,294 25,078
--------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,445 3,556 8,342 6,827
Income tax expense 1,675 1,357 3,138 2,652
--------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,770 $ 2,199 $ 5,204 $ 4,175
==========================================================================================================================
PER SHARE DATA:
BASIC $ 0.86 $ 0.62 $ 1.61 $ 1.18
DILUTED $ 0.86 $ 0.62 $ 1.61 $ 1.18
==========================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
(in thousands of dollars) 2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,204 $ 4,175
Adjustments to reconcile net income to net
Cash provided by operating activities:
Provision for credit losses 3,781 2,265
Net gain on sale of investment and
mortgage-backed securities (422) (104)
Depreciation and amortization 1,636 1,684
Deferred income taxes 1,461 (1,149)
Increase in accrued interest receivable (1,690) (2,873)
Increase (decrease) in accrued interest payable 12 (785)
Loans originated for sale (27,592) (105,598)
Sale of loans held for sale 28,096 111,529
(Increase) decrease in other assets 647 (5,277)
Increase (decrease) in income taxes payable (2,071) 198
Increase (decrease) in other liabilities (956) 4,536
Other (156) 799
---------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,950 9,400
---------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in interest-bearing deposits in other
banks (47) (128)
Net decrease in federal funds sold 2,060 47,277
Purchase of available-for-sale securities (5,643) (140,836)
Proceeds from sales of available-for-sale securities 7,655 20,977
Proceeds from maturities of available-for-sale securities 7,139 15,363
Purchase of FHLB Stock (1,055) (1,148)
Net increase in loans (103,195) (31,739)
Proceeds from sales of premises and equipment 195 --
Capital expenditures (578) (505)
Proceeds from sales of foreclosed assets 4,329 4,619
---------------------------------------------------------------------------------------------
Net cash used in investing activities (89,140) (86,120)
---------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 65,318 (29,113)
Net increase in short-term borrowings 30,166 30,370
Proceeds from long-term debt 10,000 97,840
Principal payments on long-term debt (42,792) (42,678)
Cash dividends paid (452) (457)
Stock repurchase (1,423) (2,589)
---------------------------------------------------------------------------------------------
Net cash provided by financing activities 60,817 53,373
---------------------------------------------------------------------------------------------
Decrease in cash and due from banks (20,373) (23,347)
Cash and due from banks at beginning of period 66,918 61,658
=============================================================================================
Cash and due from banks at end of period $ 46,545 $ 38,311
=============================================================================================
Supplemental schedule of non-cash investing activities:
Securitization of loans into mortgage-backed
securities $ -- $ 54,897
Transfer of loans into other real estate owned 4,192 4,800
Transfer of loans classified as held-for-sale to
held-for-investment -- 47,935
=============================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Accu-
mulated
Other
Compre-
Additional hensive
(in thousands of dollars, Common Paid-In Retained Income
except per share data) Stock Capital Earnings (Loss) Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 $ 3,255 $ 56,219 $ 62,159 $ (6,942) $ 114,691
COMPREHENSIVE INCOME (LOSS):
NET INCOME -- -- 5,204 -- 5,204
UNREALIZED VALUATION ADJUSTMENT -- -- -- (122) (122)
------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS) -- -- 5,204 (122) 5,082
------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS ($0.14 PER SHARE) -- -- (452) -- (452)
REPURCHASED, CANCELLED AND RETIRED
SHARES (56) (1,367) -- -- (1,423)
------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 $ 3,199 $ 54,852 $ 66,911 $ (7,064) $ 117,898
==================================================================================================================
Balance at December 31, 1998 $ 3,552 $ 65,108 $ 62,784 $ 928 $ 132,372
Comprehensive income (loss):
Net income -- -- 4,175 -- 4,175
Unrealized valuation adjustment -- -- -- (4,445) (4,445)
------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) -- -- 4,175 (4,445) (270)
------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.13 per share) -- -- (457) -- (457)
Repurchased, cancelled and retired
shares (78) (2,511) -- -- (2,589)
------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 $ 3,474 $ 62,597 $ 66,502 $ (3,517) $ 129,056
==================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 6
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 (the "Company"):
City Bank and its wholly-owned subsidiary (the "Bank"); International Savings
and Loan Association, Limited and its wholly-owned subsidiaries (the
"Association"); and O.R.E., Inc. Significant intercompany transactions and
balances have been eliminated in consolidation. The Association owns 50% of
Pacific Access Mortgage, LLC, a mortgage brokerage company. The investment is
accounted for using the equity method. Effective July 1, 2000, the Association
was merged with and into the Bank. 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.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes normally included in financial statements prepared
in conformity with generally accepted accounting principles. Accordingly, these
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 1999.
Results of operations for interim periods are not necessarily indicative of
results for the full year.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 1999 have been
reclassified to conform with the 2000 presentation. Such reclassifications had
no effect on the consolidated net income as previously reported.
6
<PAGE> 7
NOTE B - LOANS
THE LOAN PORTFOLIO CONSISTED OF THE FOLLOWING AT THE DATES INDICATED:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in thousands of dollars) 2000 1999 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial $ 232,073 $ 224,660 $ 202,455
Real estate:
Construction 22,143 15,096 13,133
Commercial 201,779 196,810 174,586
Residential 692,368 621,200 561,745
Installment and consumer 97,685 91,647 87,510
--------------------------------------------------------------------------------
Gross loans 1,246,048 1,149,413 1,039,429
Less:
Unearned discount 5 4 5
Net deferred loan fees 5,208 4,483 4,917
Allowance for credit losses 18,629 17,942 18,269
--------------------------------------------------------------------------------
Loans, net $1,222,206 $1,126,984 $1,016,238
================================================================================
</TABLE>
NOTE C - SEGMENT INFORMATION
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>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Parent
Company
(in thousands of dollars) Bank Association and Other Eliminations Consolidated
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
INTEREST INCOME $ 34,970 $ 29,546 $ 4 $ (4) $ 64,516
INTEREST EXPENSE 15,351 17,754 -- (4) 33,101
NONINTEREST INCOME 2,572 1,554 3,024 (3,148) 4,002
INCOME (LOSS) BEFORE INCOME TAXES
6,290 3,213 (1,161) -- 8,342
INCOME TAX EXPENSE (BENEFIT) 2,327 1,252 (441) -- 3,138
TOTAL ASSETS 891,936 796,852 117,545 (121,588) 1,684,745
--------------------------------------------------------------------------------------------------------------------
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
Noninterest income 1,920 3,081 3,709 (3,748) 4,962
Income (loss) before income taxes 5,114 2,732 (1,019) -- 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
--------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
NOTE D - EARNINGS PER SHARE CALCULATION
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
QUARTER ENDED JUNE 30,
2000 1999
--------------------------------------------------------------------------------------------------------------------
SHARES PER Shares Per
(in thousands, except number INCOME (DENOM- SHARE Income (Denom- Share
of shares and per share data) (NUMERATOR) INATOR) AMOUNT (Numerator) inator) Amount
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income $ 2,770 3,225,197 $ 0.86 $ 2,199 3,536,096 $ 0.62
Effect of dilutive securities -
Stock incentive plan options -- -- -- -- 140 --
Diluted:
Net income and
assumed conversions $ 2,770 3,225,197 $ 0.86 $ 2,199 3,536,236 $ 0.62
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
2000 1999
---------------------------------------------------------------------------------------------------------------------
SHARES PER Shares Per
(in thousands, except number INCOME (DENOM- SHARE Income (Denom- Share
of shares and per share data) (NUMERATOR) INATOR) AMOUNT (Numerator) inator) Amount
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income $ 5,204 3,238,467 $ 1.61 $ 4,175 3,544,118 $ 1.18
Effect of dilutive securities
Stock incentive plan options -- -- -- -- 140 --
Diluted:
Net income and
assumed conversions $ 5,204 3,238,467 $ 1.61 $ 4,175 3,544,258 $ 1.18
=====================================================================================================================
</TABLE>
At June 30, 2000 there were no securities that could potentially dilute basic
earnings per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain 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'
bankruptcies and financial condition, inflation and results of litigation.
8
<PAGE> 9
Accordingly, historical performance, as well as reasonably applied projections
and assumptions, may not be a reliable indicator of future earnings due to 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, 2000, totaled $2.8
million, an increase of $571,000, or 26.0%, over the same quarter last year.
Consolidated net income for the six months ended June 30, 2000, totaled $5.2
million, an increase of $1.0 million, or 24.6%, over the same period last year.
Basic and diluted earnings per share for the second quarter of 2000 were $0.86
as compared to $0.62 for the same period in 1999, an increase of $0.24, or
38.7%. For the six months ended June 30, 2000, basic and diluted earnings per
share were $1.61, an increase of $0.43, or 36.4% over the same period last year.
The increase in consolidated net income for the second quarter and the first six
months of 2000, over the corresponding periods in 1999, was primarily due to an
increase in the outstanding loans, an interest recovery on a certain
nonperforming commercial loan, and a reduction in goodwill amortization as a
result of the write-off of goodwill recorded in the fourth quarter of 1999.
These increases were offset by a decrease in the net interest margin, an
increase in the provision for credit losses and a decrease in gains on sales of
loans.
The Company's annualized return on average total assets for the six months ended
June 30, 2000 was 0.64% as compared to 0.59% for the same period last year. The
Company's annualized return on average stockholders' equity was 8.99% for the
six months ended June 30, 2000, as compared to 6.39% for the same period last
year.
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, was $31.8 million for the
six months ended June 30, 2000, an increase of $2.3 million, or 7.9% over the
same period in 1999. The increase was primarily due to an increase in
outstanding loans of $206.3 million, or 19.9% and an interest recovery of
$480,000 on a certain nonperforming commercial loan in the first quarter of
2000, partially offset by a decrease in the net interest margin. For the six
months ended June 30, 2000, the Company's net interest margin was 4.13%, a
decrease of 34 basis points (1% equals 100 basis points) from the same period in
2000. The decrease in the net interest margin for the first six months of 2000
over the same period in 1999 was primarily due to the 65 basis point increase in
the cost of funds, partially offset by a 31 basis point increase in the yield on
average earning assets. The increase in the yield on average earning assets and
the rate paid on funding sources was primarily due to the rising interest rate
environment experienced between June 30, 1999 and June 30, 2000. Specifically,
the Bank's prime interest rate increased by 175 basis points from 7.75% at June
30, 1999 to 9.50% at June 30, 2000.
For the second quarter of 2000, net interest income, on a taxable equivalent
basis, was $16.1 million, an increase of $1.1 million, or 7.3%. The increase in
net interest income for the second quarter of 2000 over the same period in 1999
was primarily due to a $230.7 million, or 17.1% increase in average earning
assets and the 43 basis point increase on yields on those assets, partially
offset by a $233.7 million, or 19.9%, increase in average interest-bearing
liabilities and
9
<PAGE> 10
the 75 basis point increase in the related rate. For the quarter ended June 30,
2000, the Company's net interest margin was 4.10%, a decrease of 37 basis points
from the same period in 1999. The decrease in the net interest margin was
primarily attributable to an 80 basis point increase in the cost of funds,
partially offset by a 43 basis point increase in the yield on average earning
assets for the second quarter of 2000 compared to the same period in 1999.
10
<PAGE> 11
A comparison of net interest income for the quarter and six months ended June
30, 2000 and 1999 is set forth below on a taxable equivalent basis:
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30,
--------------------------------------------------------------------------------------
2000 1999
----------------------------------------- -----------------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(in thousands of dollars) BALANCE EXPENSE RATE Balance Expense Rate
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Interest-bearing deposits in
other banks $ 118 $ 2 6.82% $ 21,535 $ 345 6.43%
Federal funds sold and
securities purchased under
agreement to resell 13,484 212 6.32 4,755 65 5.48
Taxable investment and
mortgage-backed securities 308,059 5,624 7.34 276,133 4,502 6.54
Nontaxable investment
securities 30,971 598 7.77 16,628 365 8.80
Loans (1) 1,223,566 26,804 8.81 1,026,479 21,728 8.49
-------------------------- --------------------------
Total earning assets 1,576,198 33,240 8.48 1,345,530 27,005 8.05
-------------------------- --------------------------
Nonearning assets:
Cash and due from banks 35,735 43,816
Premises and equipment 24,621 13,580
Other assets 40,585 62,511
Less allowance for credit
Losses (18,625) (18,464)
----------- -----------
Total assets $ 1,658,514 $ 1,446,973
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $ 374,713 $ 2,486 2.67% $ 368,693 $ 2,230 2.43%
Time deposits 660,193 8,783 5.35 579,871 6,703 4.64
Short-term borrowings 157,155 2,511 6.43 38,485 591 6.16
Long-term debt 218,116 3,373 6.22 189,441 2,485 5.26
-------------------------- --------------------------
Total interest-bearing
Deposits and liabilities 1,410,177 17,153 4.89 1,176,490 12,009 4.14
-------------------------- --------------------------
Noninterest-bearing liabilities:
Demand deposits 108,028 127,791
Other liabilities 23,136 12,464
----------- -----------
Total liabilities 1,541,341 1,316,745
Stockholders' equity 117,173 130,228
----------- -----------
Total liabilities and
Stockholders' equity $ 1,658,514 $ 1,446,973
=========== ===========
Net interest income and
margin on total earning
assets 16,087 4.10% 14,996 4.47%
=========== ===========
Taxable equivalent adjustment (210) (195)
----------- -----------
Net interest income $ 15,877 $ 14,801
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------------
2000 1999
----------------------------------------- -----------------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(in thousands of dollars) BALANCE EXPENSE RATE Balance Expense Rate
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Interest-bearing deposits in
other banks $ 132 $ 4 6.09% $ 29,129 $ 772 5.34%
Federal funds sold and
securities purchased under
agreement to resell 11,799 358 6.10 8,038 206 5.17
Taxable investment and
mortgage-backed securities 311,017 11,380 7.36 228,130 7,484 6.62
Nontaxable investment
securities 30,731 1,189 7.78 15,591 663 8.58
Loans (1) 1,196,848 52,007 8.74 1,051,007 44,409 8.52
-------------------------- --------------------------
Total earning assets 1,550,527 64,938 8.42 1,331,895 53,534 8.11
-------------------------- --------------------------
Nonearning assets:
Cash and due from banks 37,629 43,754
Premises and equipment 17,960 13,724
Other assets 50,900 57,500
Less allowance for credit
Losses (18,431) (18,181)
----------- -----------
Total assets $ 1,638,585 $ 1,428,692
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $ 367,096 $ 4,796 2.63% $ 368,346 $ 4,475 2.45%
Time deposits 650,225 16,801 5.20 584,550 13,751 4.74
Short-term borrowings 150,417 4,690 6.27 30,254 892 5.95
Long-term debt 222,573 6,814 6.16 179,839 4,909 5.50
-------------------------- --------------------------
Total interest-bearing
Deposits and liabilities 1,390,311 33,101 4.79 1,162,989 24,027 4.17
-------------------------- --------------------------
Noninterest-bearing liabilities:
Demand deposits 113,547 118,160
Other liabilities 18,280 15,797
----------- -----------
Total liabilities 1,522,138 1,296,946
Stockholders' equity 116,447 131,746
----------- -----------
Total liabilities and
Stockholders' equity $ 1,638,585 $ 1,428,692
=========== ===========
Net interest income and
margin on total earning
assets 31,837 4.13% 29,507 4.47%
=========== ===========
Taxable equivalent adjustment (422) (299)
----------- -----------
Net interest income $ 31,415 $ 29,208
=========== ===========
</TABLE>
(1) Yields and amounts earned include loan fees. Nonaccrual loans have been
included in earning assets for purposes of these computations.
11
<PAGE> 12
NONPERFORMING ASSETS
A summary of nonperforming assets at June 30, 2000, December 31, 1999 and June
30, 1999 follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
JUNE 30, December 31, June 30,
(in thousands of dollars) 2000 1999 1999
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonperforming loans:
Commercial $ 1,676 $ 1,831 $ 522
Real estate:
Commercial 3,381 518 793
Residential 6,004 8,992 10,511
----------------------------------------------------------------------------------------
Total real estate loans 9,385 9,510 11,304
Consumer 31 441 106
----------------------------------------------------------------------------------------
Total nonperforming loans 11,092 11,782 11,932
----------------------------------------------------------------------------------------
Other real estate owned 6,002 6,385 8,370
----------------------------------------------------------------------------------------
Total nonperforming assets $17,094 $18,167 $20,302
========================================================================================
Past due loans:
Commercial $ 1,024 $ 96 $ 1,715
Real estate 1,119 3,481 1,959
Consumer 887 592 762
----------------------------------------------------------------------------------------
Total past due loans (1) $ 3,030 $ 4,169 $ 4,436
========================================================================================
Restructured:
Commercial $ 4,662 $ 4,440 $ 5,760
Real estate:
Commercial -- 1,231 1,255
Residential 11,971 11,280 11,489
----------------------------------------------------------------------------------------
Total restructured loans (2) $16,633 $16,951 $18,504
========================================================================================
Nonperforming assets to total loans
and other real estate owned (end of period):
Excluding 90 days past due accruing loans 1.37% 1.57% 1.95%
Including 90 days past due accruing loans 1.61% 1.93% 2.37%
Nonperforming assets to total assets
(end of period):
Excluding 90 days past due accruing loans 1.01% 1.12% 1.37%
Including 90 days past due accruing loans 1.19% 1.38% 1.67%
</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.
12
<PAGE> 13
Nonperforming loans at June 30, 2000 totaled $11.1 million, a decrease of
$840,000, or 7.0%, from June 30, 1999.
Other real estate owned was $6.0 million at June 30, 2000 a decrease of $2.4
million, or 28.3%, from June 30, 1999. The decrease in other real estate owned
was consistent with the decrease in nonperforming real estate loans and the
increase in real estate sales activity in Hawaii.
Restructured loans were $16.6 million at June 30, 2000, a decrease of $1.9
million, or 10.1%, from June 30, 1999. The decrease was primarily due to the
restructuring of a certain commercial real estate loan to a market interest rate
in the second quarter of 2000.
At June 30, 2000, 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.
13
<PAGE> 14
The following table sets forth the activity in the allowance for credit losses
for the periods indicated:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
(in thousands of dollars) 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Loans outstanding (end of period) $ 1,240,835 $ 1,034,507
===================================================================================
Average loans outstanding $ 1,196,848 $ 1,051,007
===================================================================================
Balance at beginning of period $ 17,942 $ 17,771
-----------------------------------------------------------------------------------
Loans charged off:
Commercial 497 260
Real estate - residential 2,222 1,550
Consumer 821 283
-----------------------------------------------------------------------------------
Total loans charged off 3,540 2,093
-----------------------------------------------------------------------------------
Recoveries on loans charged off:
Commercial 81 46
Real estate:
Commercial 15 62
Residential 235 126
Consumer 115 92
-----------------------------------------------------------------------------------
Total recoveries on loans
previously charged off 446 326
-----------------------------------------------------------------------------------
Net charge-offs (3,094) (1,767)
-----------------------------------------------------------------------------------
Provision charged to expense 3,781 2,265
-----------------------------------------------------------------------------------
Balance at end of period $ 18,629 $ 18,269
===================================================================================
Net loans charged off to average loans 0.52%(1) 0.34%(1)
Net loans charged off to allowance
for credit losses 33.40%(1) 19.50%(1)
Allowance for credit losses to total
loans (end of period) 1.50% 1.77%
Allowance for credit losses to nonperforming
loans (end of period):
Excluding 90 days past due
accruing loans 1.68X 1.53x
Including 90 days past due
accruing loans 1.32X 1.12x
</TABLE>
(1) Annualized
14
<PAGE> 15
The provision for credit losses was $1.9 million for the second quarter of 2000,
an increase of $785,000, or 72.0%, over the same quarter last year. For the six
months ended June 30, 2000, the provision for credit losses was $3.8 million, an
increase of $1.5 million, or 66.9% over the same period last year. The increase
in the provision for credit losses was consistent with the increase in the loan
portfolio of 19.9% and the $1.3 million increase in the net charge-offs from the
six months ended June 30, 1999 to the six months ended June 30, 2000.
The Allowance at June 30, 2000 was $18.6 million and represented 1.50% of total
loans. The corresponding ratios at December 31, 1999 and June 30, 1999 were
1.56% and 1.77%, respectively.
Net charge-offs were $3.1 million for the first six months of 2000, an increase
of $1.3 million, or 75.1%, over the same period in 1999. The increase was
primarily due to higher charge-offs in commercial, residential real estate and
consumer loan categories.
The Allowance increased to 1.68 times nonperforming loans (excluding 90 days
past due accruing loans) at June 30, 2000 from 1.53 times at June 30, 1999 as a
result of the 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, 2000. However, changes in
prevailing economic conditions in the Company's markets or those of its
customers could result in changes in the level of nonperforming assets and
charge-offs in the future and, accordingly, changes in the Allowance.
NONINTEREST INCOME
For the six months ended June 30, 2000, noninterest income was $4.0 million, a
decrease of $960,000, or 19.3%, from the $5.0 million for the same period in
1999. Noninterest income totaled $2.6 million for the second quarter of 2000, an
increase of $264,000, or 11.5%, over the second quarter of 1999.
Service charges on deposit accounts increased $414,000 and $164,000, or 44.7%
and 30.9%, for the first six months and second quarter of 2000, respectively,
over the same periods in 1999. These increases resulted from an increase in
deposit accounts.
Other service charges and fees increased $341,000 and $297,000, or 26.8% and
43.8%, for the first six months and second quarter of 2000, respectively, over
the same periods in 1999. These increases were primarily due to higher ATM fee
income recorded during the six months ended June 30, 2000.
Net realized losses on sales of securities was $422,000 for the six months ended
June 30, 2000, as compared to net realized losses of $104,000 in the same period
in 1999. The increase was primarily due to a realized loss of $394,000 related
to the sale of $5.0 million of mortgage-backed securities. The sale was made to
reposition the securities portfolio into higher-yielding securities.
Net gains on sales of loans decreased $1.8 million and $842,000, or 87.1% and
87.2%, for the first six months and second quarter of 2000, respectively, from
the same periods in 1999. The decrease in net gains on sales of loans resulted
from the decrease in loan sale activity as a result of the rising interest rate
environment.
15
<PAGE> 16
Other noninterest income increased $393,000 and $477,000, or 48.2% and 168.0%,
for the first six months and second quarter of 2000, respectively, over the same
periods in 1999. The increase for the six months ended June 30, 2000 over the
same period in 1999 was primarily due to a gain of $231,000 on the sale of a
certain real estate owned property in the second quarter of 2000 and $327,000 of
additional earnings on bank owned life insurance in the first six months of
2000, offset by option fees of $236,000 recorded in the first quarter of 1999.
NONINTEREST EXPENSE
For the six months ended June 30, 2000, noninterest expense was $23.3 million, a
decrease of $1.8 million, or 7.1%, as compared to the same period in 1999.
Noninterest expense totaled $12.1 million for the second quarter of 2000, a
decrease of $334,000, or 2.7%, from the same period in 1999. The decrease in
noninterest expense in most categories reflects management's efforts to
streamline as well as increase the productivity and efficiency of the Company's
operations. As a result of the decrease in noninterest expense, the efficiency
ratio (exclusive of the amortization of goodwill and other intangibles) improved
from 71.9% for the six months ended June 30, 1999 to 64.9% for the six months
ended June 30, 2000.
Net occupancy expense decreased $349,000 and $146,000, or 8.6% and 7.2%, for the
first six months and quarter ended June 30, 2000, respectively, from the same
period in 1999. These decreases were primarily due to a reduction in the net
expenses related to rental property.
Equipment expense decreased $240,000 and $26,000, or 14.6% and 3.2%, for the
first six months and second quarter of 2000, respectively, from the same period
in 1999. The decrease for the six months ended June 30, 2000 compared to the
same period in 1999 was primarily due to a $300,000 refund of certain software
lease payments received in the first quarter of 2000.
Other noninterest expense decreased $926,000 and $303,000, or 10.4% and 6.7%,
for the first six months and second quarter of 2000, respectively, from the same
periods in 1999. These decreases were primarily due to a reduction in goodwill
amortization resulting from the write-off of goodwill recorded in the fourth
quarter of 1999 and lower legal and professional fees.
MERGER OF THE BANK AND THE ASSOCIATION
In December 1999, the Boards of Directors of the Company, the Bank and the
Association approved the Agreement and Plan of Merger by and between the Bank
and the Association (the "Merger"). The Association and the Bank merged on July
1, 2000, with the Bank being the surviving corporation. The Bank, by operation
of law, now possesses all of the rights, privileges, immunities and franchises
of the Association and is responsible and liable for all liabilities and
obligations of the Association, which ceased to exist as a separate legal
entity. In connection with the Merger, all Association branches became Bank
branches. Two Association branches, which were already housed in the same
location with Bank branches, were merged into the respective Bank branch. With
the merger, all Association loan and deposit accounts became Bank accounts. The
loan and deposit accounts of these two branches were transferred to the
respective Bank branches.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 2000, the Company increased its deposits to fund
its asset growth. At June 30, 2000, deposits totaled $1.2 billion, an increase
of $65.2 million, or 5.9% over December 31, 1999. The increase in deposits was
used to fund the growth in investments and loans, which increased by an
aggregate of $87.2 million during the six months ended June 30, 2000.
In the first six months of 1999, the Company originated $105.6 million of loans
for sale and subsequently sold them as compared to $27.6 million in the first
six months of 2000. In the current year, the Company has continued to originate
similar volumes of loans, but due to the rising interest rate environment the
Company has maintained a larger proportion of the originated loans in its
portfolio. The originations were funded through an increase in deposits and
short-term borrowings.
At June 30, 2000, short-term borrowings and long-term debt were $185.0 million
and $192.3 million, respectively, an increase of $30.2 million, or 19.5%, and a
decrease of $32.8 million, or 14.6%, respectively, as compared to December 31,
1999.
During the second quarter of 1999, the Company announced a stock repurchase
program to repurchase up to 10%, or approximately 360,000 shares, of its 3.6
million shares of common stock outstanding. During the second quarter of 2000,
the Company completed this stock repurchase program.
At June 30, 2000, the Company had a net unrealized valuation loss of $7.1
million on available-for-sale securities. Available-for-sale securities are
reported at fair value with unrealized gains or losses, net of tax, included as
other comprehensive income (loss) in stockholders' equity. For the six months
ended June 30, 2000, a net unrealized valuation loss of $122,000 was recorded.
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, 2000 and 1999) of Tier
1 and Total capital to risk-weighted assets, and of Tier 1 capital to average
assets.
17
<PAGE> 18
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
TO BE WELL-
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
---------------------------------------------------------------------------------------------------------
(dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF JUNE 30, 2000
TIER 1 CAPITAL TO
RISK-WEIGHTED
ASSETS:
CONSOLIDATED $124,703 11.45% $ 43,575 4.00% N/A
BANK 73,513 10.24 28,710 4.00 $ 43,065 6.00%
ASSOCIATION 49,758 12.10 16,452 4.00 24,679 6.00
TOTAL CAPITAL TO
RISK-WEIGHTED
ASSETS:
CONSOLIDATED $138,406 12.71% $ 87,150 8.00% N/A
BANK 82,544 11.50 57,420 8.00 $ 71,776 10.00%
ASSOCIATION 52,488 12.76 32,905 8.00 41,131 10.00
TIER 1 CAPITAL TO
AVERAGE ASSETS:
CONSOLIDATED $124,703 7.52% $ 66,330 4.00% N/A
BANK 73,513 8.22 35,780 4.00 $ 44,725 5.00%
ASSOCIATION 49,758 6.58 30,229 4.00 37,787 5.00
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
</TABLE>
18
<PAGE> 19
YEAR 2000
The "Year 2000" problem was a significant issue facing financial institutions.
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, could have been unable to distinguish the year 2000. This would
have produced erroneous results or systems may have failed in the year 2000 when
the two digit year became "00".
The Company successfully completed its Year 2000 program in a timely and
effective manner. The Company did not experience any significant disruptions to
the financial or operating activities caused by failure of the computerized
systems resulting from Year 2000 issues.
Although there has been no impact to date, the Company may be affected by the
Year 2000 effects of governmental agencies, businesses and other entities who
provide data to, or received data from, the Company, and by entities, such as
borrowers, vendors and customers, whose financial condition or operational
capability is significant to the Company. The Company is also subject to credit
risk to the extent borrowers failed to adequately address their Year 2000
issues. The Company either continued discussions with, obtained written
certification from, or tested such external parties' Year 2000 compliance
efforts, and has not experienced to date any adverse impact as a result of the
failure of these companies to resolve their Year 2000 issues. However, there is
no assurance that there will be no future adverse impact on the Company as a
result of unresolved Year 2000 issues of third parties.
The Company has expended, and will continue to expend, the resources necessary
to address future issues in a timely manner. Through June 30, 2000, cumulative
incremental expenditures of less than $0.3 million have been incurred out of a
total projected $0.5 million. The incremental expenditures exclude internal
costs and the approximately $2.50 million cost incurred in converting to the
FiServ Comprehensive Banking System. Most of these incremental expenditures
related to the acquisition and implementation of new and enhanced systems and
were capitalized and amortized over their respective useful lives. Expenses
related to the Company's internal resources and Year 2000 remediation costs were
expensed as incurred. Minimal future expenditures are expected to take place
over the next year, funded by operating cash flows, and are not expected to have
a material impact on the Company's financial condition or results of operations.
No assurance, however, can be given that the Year 2000 problem will not have an
adverse impact on the Company's future earnings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company disclosed both quantitative and qualitative analyses of market risks
in its 1999 Form 10-K. No significant changes have occurred during the six
months ended June 30, 2000.
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on April 27, 2000, the stockholders
voted on the election of four directors for a term of three years expiring in
2003, or until their successors are elected:
<TABLE>
<CAPTION>
Name Shares Voted For Shares Withheld
---- ---------------- ---------------
<S> <C> <C>
Donald J. Andres 2,154,395 451,148
Ronald K. Migita 2,159,539 446,004
Calvin K.Y. Say 2,155,513 450,030
Dwight L. Yoshimura 2,157,597 447,946
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial data schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the second quarter of 2000.
20
<PAGE> 21
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 10, 2000 By /s/ Dean K. Hirata
-------------- -----------------------------
Dean K. Hirata
Senior Vice President and
Chief Financial Officer
(principal financial officer)
21
<PAGE> 22
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27 Financial data schedule
22
