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 March 31, 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) 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 April 30, 2000 was:
Class Outstanding
Common Stock, $1.00 Par Value 3,235,782 shares
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
(in thousands of dollars) 2000 1999 1999
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks $ 43,111 $ 66,918 $ 50,260
Interest-bearing deposits in other banks 81 76 20,000
Federal funds sold 14,900 5,700 810
Investment and mortgage-backed securities:
Available-for-sale 313,462 316,498 221,840
FHLB Stock 32,254 31,727 30,076
Loans held for sale 4,808 7,805 83,585
Loans:
Loans 1,191,239 1,144,926 958,617
Less allowance for credit losses 18,630 17,942 18,350
- -------------------------------------------------------------------------------------------------------------------------------
Net loans 1,172,609 1,126,984 940,267
- -------------------------------------------------------------------------------------------------------------------------------
Premises and equipment 17,679 18,008 20,501
Other real estate owned 5,803 6,385 8,101
Accrued interest receivable and other assets 43,460 39,448 38,366
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,648,167 $ 1,619,549 $ 1,413,806
===============================================================================================================================
Liabilities and stockholders' equity
Deposits:
Noninterest-bearing $ 118,188 $ 120,544 $ 108,218
Interest-bearing 1,022,271 985,601 946,839
- -------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,140,459 1,106,145 1,055,057
- -------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 148,500 154,884 33,101
Accrued expenses and other liabilities 17,383 18,689 21,008
Long-term debt 225,073 225,140 170,664
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,531,415 1,504,858 1,279,830
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - - -
Common stock 3,238 3,255 3,552
Additional paid-in capital 55,785 56,219 65,108
Retained earnings 64,365 62,159 64,547
Accumulated other comprehensive
income (loss), net of tax (6,636) (6,942) 769
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 116,752 114,691 133,976
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,648,167 $ 1,619,549 $ 1,413,806
===============================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(in thousands of dollars, except per share data) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 25,198 $ 22,681
Interest and dividends on investment and
mortgage-backed securities:
Taxable interest income 5,229 2,387
Nontaxable interest income 384 194
Dividends 527 595
Other interest income 148 568
- ----------------------------------------------------------------------------------------------------------------------------
Total interest income 31,486 26,425
- ----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 10,328 9,294
FHLB advances and other short-term borrowings 2,179 746
Long-term debt 3,441 1,979
- ----------------------------------------------------------------------------------------------------------------------------
Total interest expense 15,948 12,019
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income 15,538 14,406
Provision for credit losses 1,906 1,175
- ----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 13,632 13,231
- ----------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 646 396
Other service charges and fees 637 593
Net realized gains (losses) on sales of securities (437) 49
Net gains on sales of loans 140 1,088
Other 447 531
- ----------------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,433 2,657
- ----------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 4,934 5,344
Net occupancy expense 1,845 2,048
Equipment expense 501 815
Other 3,888 4,410
- ----------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 11,168 12,617
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,897 3,271
Income tax expense 1,463 1,295
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 2,434 $ 1,976
============================================================================================================================
Per share data:
Basic $ 0.75 $ 0.56
Diluted $ 0.75 $ 0.56
============================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
9
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31,
(in thousands of dollars) 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 2,434 $ 1,976
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for credit losses 1,906 1,175
Net gain (loss) on sale of investment and
mortgage-backed securities (437) 49
Depreciation and amortization 712 891
Deferred income taxes 49 1,135
Increase in accrued interest receivable (717) (549)
Increase (decrease) in accrued interest payable (136) 441
Loans originated for sale (12,287) (64,140)
Sale of loans held for sale 15,284 56,832
Increase in other assets (3,154) (1,347)
Increase (decrease) in income taxes payable 1,182 (877)
Increase (decrease) in other liabilities (3,131) 1,995
Other (1,286) 659
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 419 (1,760)
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net increase in interest-bearing deposits in other
banks (5) -
Net decrease (increase) in federal funds sold (9,200) 46,942
Purchase of available-for-sale securities (4,612) (58,488)
Proceeds from sales of available-for-sale securities 4,373 6,216
Proceeds from maturities of available-for-sale securities 3,667 14,294
Purchase of FHLB Stock (527) (595)
Net increase in loans (49,365) (1,145)
Proceeds from sales of premises and equipment 195 -
Capital expenditures (578) (263)
Proceeds from sales of foreclosed assets 2,286 2,443
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (53,766) 9,404
-------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 36,670 (29,553)
Net increase (decrease) in short-term borrowings (6,384) 11,175
Proceeds from long-term debt 10,000 10,000
Principal payments on long-term debt (10,067) (10,451)
Cash dividends paid (228) (213)
Stock repurchase (451) -
-------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 29,540 (19,042)
-------------------------------------------------------------------------------------------------------------------------------
Decrease in cash and due from banks (23,807) (11,398)
Cash and due from banks at beginning of period 66,918 61,658
===============================================================================================================================
Cash and due from banks at end of period $ 43,111 $ 50,260
===============================================================================================================================
Supplemental schedule of non-cash investing activities:
Securitization of loans into mortgage-backed
securities $ 42,425 $ 23,981
Transfer of loans into other real estate owned 1,834 2,351
===============================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Accu-
mulated
Other
Compre-
Additional hensive
Common Stock Paid-In Retained Income
(in thousands of dollars, Capital Earnings (Loss) Total
except per share data)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 3,255 $ 56,219 $ 62,159 $ (6,942) $ 114,691
Comprehensive income:
Net income - - 2,434 - 2,434
Unrealized valuation adjustment - - - 306 306
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - 2,434 306 2,740
- --------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.07 per share) - - (228) - (228)
Repurchased, cancelled and retired
shares (17) (434) - - (451)
================================================================================================================================
Balance at March 31, 2000 $ 3,238 $ 55,785 $ 64,365 $ (6,636) $ 116,752
================================================================================================================================
Balance at December 31, 1998 $ 3,552 $ 65,108 $ 62,784 $ 928 $ 132,372
Comprehensive income (loss):
Net income - - 1,976 - 1,976
Unrealized valuation adjustment - - - (159) (159)
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) - - 1,976 (159) 1,817
- --------------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.06 per share) - - (213) - (213)
================================================================================================================================
Balance at March 31, 1999 $ 3,552 $ 65,108 $ 64,547 $ 769 $ 133,976
================================================================================================================================
</TABLE>
See accompanying notes to the 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 (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 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.
NOTE B - Loans
The loan portfolio consisted of the following at the dates indicated:
<TABLE>
<S> <C> <C> <C>
---------------------------------------------- --------------------- ---------------------- ---------------------
March 31, December 31, March 31,
(in thousands of dollars) 2000 1999 1999
---------------------------------------------- --------------------- ---------------------- ---------------------
Commercial $ 228,531 $ 224,660 $ 183,802
Real estate:
Construction 16,253 15,096 26,252
Commercial 201,479 196,810 157,789
Residential 654,513 621,200 510,082
Installment and consumer 95,405 91,647 85,790
---------------------------------------------- --------------------- ---------------------- ---------------------
Gross loans 1,196,181 1,149,413 963,715
Less:
Unearned discount 4 4 5
Net deferred loan fees 4,938 4,483 5,093
Allowance for credit losses 18,630 17,942 18,350
---------------------------------------------- --------------------- ---------------------- ---------------------
Loans, net $1,172,609 $ 1,126,984 $ 940,267
============================================== ===================== ====================== =====================
</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>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Parent Company
(in thousands) Bank Association and Other Eliminations Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
Interest income $17,266 $ 14,220 $ - $ - $ 31,486
Interest expense 7,468 8,480 - - 15,948
Noninterest income 1,072 423 1,574 (1,636) 1,433
Income before income taxes 3,156 1,370 2,195 (2,824) 3,897
Income tax expense (benefit) 1,168 534 (239) - 1,463
Total assets 885,824 763,718 116,489 (117,864) 1,648,167
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999
Interest income $14,706 $ 11,719 $ 2 $ (2) $ 26,425
Interest expense 5,827 6,194 - (2) 12,019
Noninterest income 2,220 1,765 953 (2,281) 2,657
Income before income taxes 2,184 1,493 1,814 (2,220) 3,271
Income tax expense (benefit) 838 619 (162) - 1,295
Total assets 780,649 633,168 135,025 (135,036) 1,413,806
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE D - Earnings Per Share Calculation
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Shares Per Shares Per Share
Income (Denom- Share Income (Denom- Amount
(Numerator) inator) Amount (Numerator) inator)
(in thousands, except number of shares and per share data)
- ------------------------------------------------------------------------------------------------------------------------------
Basic:
Net income $2,434 3,251,738 $0.75 $1,976 3,552,228 $ 0.56
Diluted:
Net income and
assumed conversions $2,434 3,251,738 $0.75 $1,976 3,552,228 $ 0.56
==============================================================================================================================
</TABLE>
At March 31, 2000 and 1999 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.
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.
<PAGE>
NET INCOME
Consolidated net income for the quarter ended March 31, 2000, totaled $2.43
million, an increase of $458,000, or 23.2%, over $1.98 million for the same
quarter last year. Basic and diluted earnings per share for the first quarter of
2000 were $0.75 as compared to $0.56, for the first quarter in 1999. The
increase in consolidated net income for the first quarter of 2000, over the same
period in 1999, was primarily due to a 7.9% increase in net interest income and
an 11.5% decrease in noninterest expense; partially offset by a 62.2% increase
in the provision for credit losses and a 46.1% decrease in noninterest income.
The Company's annualized return on average total assets for the three months
ended March 31, 2000 was 0.61% as compared to 0.57% for the same period last
year. The Company's annualized return on average stockholders' equity was 8.46%
for the three months ended March 31, 2000, as compared to 6.02% for the same
period last year.
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, was $15.8 million for the
first three months of 2000, an increase of $1.2 million, or 8.5%, over the same
period in 1999. The increase in net interest income was primarily due to a 24.3%
increase in loans outstanding from March 31, 1999 to March 31, 2000 and an
interest recovery of $480,000 on a certain nonperforming commercial loan,
partially offset by a decrease in the net interest margin. For the three months
ended March 31, 2000, the Company's net interest margin was 4.15%, a decrease of
31 basis points (1% equals 100 basis points) from the same period in 1999. The
decrease in the net interest margin was primarily attributable to a 52 basis
point increase in the cost of funds, partially offset by a 21 basis point
increase in the yield on average earning assets, for the first three months of
2000 compared to the same period in 1999. 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 March 31, 1999 and March
31, 2000. Specifically, the prime interest rate increased by 125 basis points
from 7.75% at March 31, 1999 to 9.00% at March 31, 2000.
<PAGE>
A comparison of net interest income for the three months ended March 31, 2000
and 1999 is set forth below on a taxable equivalent basis:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2000 1999
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(in thousands of dollars) Balance Expense Rate Balance Expense Rate
-------------- ------------- ------------ -------------- ------------- ----------
ASSETS
Earning assets:
Interest-bearing deposits in
other banks $ 146 $ 2 5.51% $ 38,047 $ 455 4.85%
Federal funds sold and
securities purchased under
agreement to resell 10,114 146 5.81 11,356 113 4.04
Taxable investment and
mortgage-backed securities 313,975 5,756 7.37 180,121 2,982 6.71
Nontaxable investment
securities 30,491 591 7.79 14,535 298 8.31
Loans 1 1,170,129 25,203 8.66 1,075,805 22,687 8.55
-------------- ------------- -------------- -------------
Total earning assets 1,524,855 31,698 8.36 1,319,864 26,535 8.15
-------------- ------------- -------------- -------------
Nonearning assets:
Cash and due from banks 39,523 43,127
Premises and equipment 17,879 20,724
Other assets 46,418 41,716
Less allowance for credit
losses (18,236) (17,895)
--------------
==============
Total assets $ 1,610,439 $ 1,407,536
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings deposits $ 359,479 $ 2,310 2.58% $ 366,369 $ 2,245 2.49%
Time deposits 640,257 8,018 5.04 591,238 7,049 4.84
Short-term borrowings 143,679 2,179 6.10 22,193 301 5.50
Long-term debt 227,031 3,441 6.10 169,867 2,424 5.79
-------------- ------------- -------------- -------------
Total interest-bearing deposits
and liabilities 1,370,446 15,948 4.68 1,149,667 12,019 4.24
-------------- ------------- -------------- -------------
Noninterest-bearing liabilities:
Demand deposits 106,746 107,940
Other liabilities 17,525 16,838
-------------- --------------
Total liabilities 1,494,717 1,274,445
Stockholders' equity 115,722 133,091
============== ==============
Total liabilities and
stockholders' equity $ 1,610,439 $ 1,407,536
============== ==============
Net interest income and margin on
total earning assets 15,750 4.15% 14,516 4.46%
Taxable equivalent adjustment (212) (110)
------------- -------------
Net interest income $ 15,538 $ 14,406
============= =============
</TABLE>
<PAGE>
<TABLE>
NONPERFORMING ASSETS
A summary of nonperforming assets at March 31, 2000, December 31, 1999 and March 31, 1999 follows:
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
March 31, December 31, March 31,
(dollars in thousands) 2000 1999 1999
- ----------------------------------------------------------------------------------------------------------------------------
Nonperforming assets:
Nonperforming loans:
Commercial $ 1,522 $ 1,831 $ 1,185
Real estate:
Commercial 2,209 518 933
Residential 9,220 8,992 12,536
- ----------------------------------------------------------------------------------------------------------------------------
Total real estate loans 11,429 9,510 13,469
Consumer 130 441 181
- ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 13,081 11,782 14,835
- ----------------------------------------------------------------------------------------------------------------------------
Other real estate owned 5,803 6,385 8,101
- ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 18,884 $ 18,167 $ 22,936
============================================================================================================================
Past due loans:
Commercial $ 341 $ 96 $ 2,020
Real estate 3,636 3,481 2,190
Consumer 1,092 592 820
- ----------------------------------------------------------------------------------------------------------------------------
Total past due loans (1) $ 5,069 $ 4,169 $ 5,030
============================================================================================================================
Restructured:
Commercial $ 4,761 $ 4,440 $ -
Real estate:
Commercial 1,218 1,231 1,284
Residential 11,410 11,280 11,167
============================================================================================================================
Total restructured loans (2) $ 17,389 $ 16,951 $ 12,451
============================================================================================================================
Nonperforming assets to total loans
and other real estate owned (end of period):
Excluding 90 days past due accruing loans 1.58% 1.57% 2.37%
Including 90 days past due accruing loans 2.00% 1.93% 2.89%
Nonperforming assets to total assets
(end of period):
Excluding 90 days past due accruing loans 1.15% 1.12% 1.62%
Including 90 days past due accruing loans 1.45% 1.38% 1.98%
(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.
</TABLE>
<PAGE>
Nonperforming loans at March 31, 2000 totaled $13.1 million, a decrease of $1.8
million, or 11.8%, from March 31, 1999.
Other real estate owned decreased $2.3 million, or 28.4%, from March 31, 1999 to
$5.8 million at March 31, 2000. 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, still accruing interest, increased $4.9 million from March
31, 1999 to $17.4 million at March 31, 2000. The increase was primarily due to
the restructuring of $5.7 million in commercial loans, collateralized by real
estate, in the third quarter of 1999.
At March 31, 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.
<PAGE>
<TABLE>
The following table sets forth the activity in the allowance for credit losses for the periods indicated:
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Three months ended March 31,
(dollars in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
Loans outstanding (end of period) $ 1,191,239 $ 958,617
===========================================================================================================================
Average loans outstanding $ 1,170,129 $ 1,075,805
===========================================================================================================================
Balance at beginning of period $ 17,942 $ 17,771
- ---------------------------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial 397 -
Real estate:
Residential 746 604
Consumer 292 127
- ---------------------------------------------------------------------------------------------------------------------------
Total loans charged off 1,435 731
- ---------------------------------------------------------------------------------------------------------------------------
Recoveries on loans charged off:
Commercial 3 1
Real estate:
Commercial 12 1
Residential 125 102
Consumer 77 31
- ---------------------------------------------------------------------------------------------------------------------------
Total recoveries on loans
previously charged off 217 135
- ---------------------------------------------------------------------------------------------------------------------------
Net charge-offs (1,218) (596)
Provision charged to expense 1,906 1,175
===========================================================================================================================
Balance at end of period $ 18,630 $ 18,350
===========================================================================================================================
Net loans charged off to average loans .42% (1) .22% (1)
Net loans charged off to allowance
for credit losses 26.30% (1) 13.17% (1)
Allowance for credit losses to total
loans (end of period) 1.56% 1.91%
Allowance for credit losses to nonperforming
loans (end of period):
Excluding 90 days past due
accruing loans 1.42x 1.24x
Including 90 days past due
accruing loans 1.03x .92x
(1) Annualized.
</TABLE>
<PAGE>
The provision for credit losses was $1.9 million for the first quarter of 2000,
an increase of $731,000, or 62.2%, compared to the same quarter last year.
The Allowance at March 31, 2000 was $18.6 million and represented 1.56% of total
loans. The corresponding ratios at December 31, 1999 and March 31, 1999 were
1.56% and 1.91%, respectively.
Net charge-offs were $1.2 million for the first three months of 2000, an
increase of $622,000, or 104.4%, compared to 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 1.42 times nonperforming loans (excluding 90 days
past due accruing loans) at March 31, 2000 from 1.24 times at March 31, 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 March 31, 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
Noninterest income totaled $1.4 million for the first quarter of 2000, a
decrease of $1.2 million, or 46.1%, from the first quarter of 1999.
Service charges on deposit accounts increased by $250,000, or 63.1%, for the
first quarter of 2000 compared to the same period in 1999. The increase resulted
from an increase in deposit accounts.
Net realized losses on sales of securities was $437,000 for the first three
months ended March 31, 2000, as compared to net realized gains of $49,000 for
the same period in 1999. The net realized losses in 2000 related to the sale of
$5.0 million of mortgage-backed securities. The sale was made to reposition the
securities portfolio.
Net gains on sales of loans decreased by $948,000, or 87.1%, in the first three
months of 2000, as compared to the same period in 1999. The decrease in net
gains on sales of loans resulted from the significant decrease in the amount of
loans sold which is as a result of the decreased ability of the Company to sell
loans at a gain in a rising interest rate environment.
Other noninterest income decreased by $84,000, or 15.8%, for the first three
months of 2000, as compared to the same period in 1999. The decrease was
primarily due to option fees of $236,000 recorded in 1999, offset by $150,000 of
additional earnings on bank owned life insurance in 2000.
NONINTEREST EXPENSE
Noninterest expense totaled $11.2 million for the first quarter of 2000, a
decrease of $1.4 million, or 11.5%, from the same period in 1999. Noninterest
expense decreased in all categories which reflects management's efforts to
streamline as well as increase the productivity and efficiency of the Company's
operations.
Salaries and employee benefits in the first three months of 2000 decreased by
$410,000, or 7.6%, as compared to the same period in 1999 primarily due to lower
staffing levels and a workers compensation refund received in 2000.
For the first quarter of 2000, net occupancy expense decreased by $203,000, or
9.9%, from the first quarter of 2000 due to, among other things, lower net rent
expense.
Equipment expense decreased by $314,000, or 38.5%, in the quarter ending March
31, 2000 compared to the same period in 1999 primarily due to a $300,000 refund
of certain software lease payments which reduced equipment expense.
Other noninterest expense decreased by $522,000, for the first quarter of 2000,
a decrease of 11.8% as compared to the same period in 1999. This decrease was
primarily due to the reduction in goodwill amortization of $213,000 as a result
of the write-off of goodwill recorded in the fourth quarter of 1999, and a
$250,000 decrease in legal and professional fees in the current quarter.
As a result of the decrease in noninterest expense, the efficiency ratio
(exclusive of the amortization of goodwill and other intangibles) improved from
72.40% in the first quarter of 1999 to 64.93% in the first quarter of 2000.
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"). Subject to regulatory approvals, the
Association and the Bank will be merged, with the Bank being the surviving
corporation. This Merger is expected to occur by July 1, 2000. The resulting
Bank will, by operation of law, possess all of the rights, privileges,
immunities and franchises of the Association and will be responsible and liable
for all liabilities and obligations of the Association, which will cease to
exist as a separate legal entity. In connection with the Merger, all Association
branches will become Bank branches. Two Association branches, which are already
housed in the same location with the Bank branches, will be merged into the
respective Bank branch. Additionally, Association loan and deposit accounts will
become Bank accounts.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 2000, the Company increased its
interest-bearing deposits to fund its asset growth. At March 31, 2000,
interest-bearing deposits totaled $1.0 billion, an increase of $36.7 million, or
3.7% over December 31, 1999. The Company utilized the increase in
interest-bearing deposits to fund the growth in investments and loans, which
increased by an aggregate of $40.8 million during the three months ended March
31, 2000.
Loans originated for sale were $64.1 million and $12.3 million in 1999 and 2000,
respectively. Sale of loans held for sale were $56.8 million and $15.3 million
in 1999 and 2000, respectively. The Company had a net increase in loans of $1.1
million in 1999 versus $49.4 million in 2000. In the prior year, the Company
originated significant loans for sale and subsequently sold them. In the current
year, due to the rising interest rate environment, the Company has continued to
originate similar volumes of loans, but instead, maintained most of the loans in
its portfolio. The Company used the cash from the increase in deposits in the
current year and the increase in short-term borrowings in the prior year to
finance this activity.
At March 31, 2000, short-term borrowings and long-term debt were at $148.5
million and $225.1 million, respectively, a decrease of $6.4 million, or 4.1%,
and $67,000, or less than 1.0%, respectively, as compared to December 31, 1999.
During the second quarter of 1999, the Company announced that its Board of
Directors had authorized a stock repurchase program to repurchase up to 10%, or
approximately 360,000 shares, of its 3.6 million shares of common stock
outstanding. As of March 31, 2000, the Company repurchased 314,000 shares, or
8.9%, of its outstanding common stock at an aggregate cost of $9.6 million.
At March 31, 2000, the Company had an unrealized valuation loss of $6.6 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 three months ended
March 31, 2000, a net unrealized valuation gain of $306,000 was recorded. The
increase was primarily attributable to the sale of $5.0 million of
mortgage-backed securities in March 2000 for which the Company recognized a loss
of $437,000. The sale was executed to reposition the Company's securities
portfolio.
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 March 31, 2000 and 1999) 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
- --------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------------
As of March 31, 2000
Tier 1 Capital to
Risk-Weighted
Assets:
Consolidated $ 123,114 11.63 % $ 42,331 4.00 % N/A
Bank 72,289 10.15 28,492 4.00 $42,738 6.00 %
Association 49,533 12.60 15,719 4.00 23,579 6.00
Total Capital to
Risk-Weighted
Assets:
Consolidated $ 136,435 12.89 % $ 84,662 8.00 % N/A
Bank 81,244 11.41 56,983 8.00 $71,229 10.00 %
Association 52,173 13.28 31,438 8.00 39,298 10.00
Tier 1 Capital to
Average Assets:
Consolidated $ 123,114 7.65 % $ 64,407 4.00 % N/A
Bank 72,289 8.17 35,393 4.00 $44,242 5.00 %
Association 49,533 6.70 29,590 4.00 36,988 5.00
As of March 31, 1999
Tier 1 Capital to
Risk-Weighted
Assets:
Consolidated $ 124,384 13.40 % $ 37,127 4.00 % N/A
Bank 68,223 11.01 24,772 4.00 $37,162 6.00 %
Association 55,768 18.78 11,875 4.00 17,813 6.00
Total Capital to
Risk-Weighted
Assets:
Consolidated $ 136,102 14.66 % $ 74,253 8.00 % N/A
Bank 76,013 12.27 49,549 8.00 $61,937 10.00 %
Association 58,947 19.86 23,751 8.00 29,689 10.00
Tier 1 Capital to
Average Assets:
Consolidated $ 124,384 8.81 % $ 56,492 4.00 % N/A
Bank 68,223 8.74 31,211 4.00 $39,013 5.00 %
Association 55,768 8.91 25,025 4.00 31,281 5.00
</TABLE>
<PAGE>
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".
In 1998, the Company established a Year 2000 committee comprised of senior
managers from each major operational unit. The Year 2000 committee had prepared
a comprehensive program to address this problem to ensure that the Company's
computer systems would function properly in the years 2000 and thereafter.
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. While the Company continued discussions with, obtained written
certification from, tested such external parties' Year 2000 compliance efforts,
and have not experienced to date any adverse impact as a result of the failure
of these companies to resolve their Year 2000 issues, 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 March 31, 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 cost
and the approximately $2.50 million cost incurred in converting to the FiServ
Comprehensive Banking System. The Company did not separately track internal
costs related to the internal allocation of personnel and other costs related to
the Year 2000 project. Most of these incremental expenditures related to the
acquisition and implementation of new and enhanced systems and/or equipment,
which was 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 three
months ended March 31, 2000.
<PAGE>
PART II - OTHER INFORMATION
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 first quarter of 2000.
<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 May 12, 2000 By /s/ Dean K. Hirata
Dean K. Hirata
Senior Vice President and
Chief Financial Officer
(principal financial officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial data schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000316312
<NAME> CB BANCSHARES, INC.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 43,111
<INT-BEARING-DEPOSITS> 81
<FED-FUNDS-SOLD> 14,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 345,716
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,191,239
<ALLOWANCE> 18,630
<TOTAL-ASSETS> 1,648,167
<DEPOSITS> 1,140,459
<SHORT-TERM> 148,500
<LIABILITIES-OTHER> 17,383
<LONG-TERM> 225,073
0
0
<COMMON> 3,238
<OTHER-SE> 113,514
<TOTAL-LIABILITIES-AND-EQUITY> 1,648,167
<INTEREST-LOAN> 25,198
<INTEREST-INVEST> 6,140
<INTEREST-OTHER> 148
<INTEREST-TOTAL> 31,486
<INTEREST-DEPOSIT> 10,328
<INTEREST-EXPENSE> 15,948
<INTEREST-INCOME-NET> 15,538
<LOAN-LOSSES> 1,906
<SECURITIES-GAINS> (437)
<EXPENSE-OTHER> 3,888
<INCOME-PRETAX> 3,897
<INCOME-PRE-EXTRAORDINARY> 2,434
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,434
<EPS-BASIC> 0.75
<EPS-DILUTED> 0.75
<YIELD-ACTUAL> 8.36
<LOANS-NON> 11,437
<LOANS-PAST> 5,069
<LOANS-TROUBLED> 17,389
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,942
<CHARGE-OFFS> 1,435
<RECOVERIES> 217
<ALLOWANCE-CLOSE> 18,630
<ALLOWANCE-DOMESTIC> 17,382
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,248
</TABLE>
