<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________________
to _______________
Commission File Number 0-15508
HAWAII NATIONAL BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0250218
(State of incorporation) (IRS Employer Identification No.)
45 NORTH KING STREET, HONOLULU, HAWAII 96817
(Address of principal executive offices) (Zip Code)
(808) 528-7711
(Registrant's telephone number, including area code)
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 periods 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 issuer's classes of common
stock, as of the latest date is:
Common Stock, $1 Par Value; outstanding at June 30, 1996 - 711,000 shares
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996,
December 31, 1995 and June 30, 1995 (Unaudited) . . . . . . . 3
Consolidated Statements of Income - Three and six months
ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . 4
Consolidated Statements of Cash Flows - Six months
ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . 5
Notes to Consolidated Financial Statements (Unaudited) . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 1996, DECEMBER 31, 1995 AND JUNE 30, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1996 1995 1995
-------- ------------ --------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 17,680 $ 18,908 $ 21,875
Federal funds sold 11,000 13,750 4,750
Investment securities
Held-to-maturity (fair value of $46,784,
$46,165 and $44,895, respectively) 46,988 45,993 44,934
Available-for-sale 1,497 1,497 1,497
Loans and leases 205,208 213,094 213,178
Less allowance for possible loan and lease
losses (note 2) 3,053 3,096 3,562
-------- -------- --------
202,155 209,998 209,616
Premises and equipment 3,995 4,189 4,278
Other assets 5,020 5,255 5,002
-------- -------- --------
Total assets $288,335 $299,590 $291,952
======== ======== ========
LIABILITIES:
Deposits -
Demand $ 84,821 $ 95,847 $ 91,374
Savings 109,971 113,737 112,181
Time 63,906 59,521 59,158
-------- -------- --------
Total deposits 258,698 266,905 262,713
Short-term borrowings 1,000 903 1,000
Other liabilities 1,249 2,589 1,592
-------- -------- --------
Total liabilities 260,947 272,397 265,305
SHAREHOLDERS' EQUITY (NOTE 3):
Common stock, par value $1 per share;
Authorized - 10,000,000 shares
Issued and outstanding - 711,000 shares 711 711 711
Capital in excess of par value 12,148 12,148 12,136
Retained earnings 14,529 14,334 13,800
-------- -------- --------
Total shareholders' equity 27,388 27,193 26,647
-------- -------- --------
Total liabilities and shareholders' equity $288,335 $299,590 $291,952
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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<PAGE> 4
HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the three and six months ended June 30, 1996 and 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------ -----------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $4,657 $5,064 $ 9,483 $ 9,914
Interest on direct financing leases 27 32 55 63
Interest on Federal funds sold 207 125 376 177
Interest on Investment securities--
Taxable 653 564 1,297 1,111
Exempt from Federal income tax 19 19 38 38
------- ------- ------- -------
Total interest income 5,563 5,804 11,249 11,303
------- ------- ------- -------
Interest Expense:
Deposits 1,707 1,734 3,464 3,307
Federal funds purchased -- 9 -- 23
Short-term borrowings 10 74 20 109
------- ------- ------- -------
Total interest expense 1,717 1,817 3,484 3,439
------- ------- ------- -------
Net interest income 3,846 3,987 7,765 7,864
Provision for Loan and Lease Losses
(note 2) 225 150 450 300
------- ------- ------- -------
Net interest income after
provision for loan and lease
losses 3,621 3,837 7,315 7,564
------- ------- ------- -------
Other Income:
Service charges on deposit accounts 277 264 548 523
Other service charges, collection and
exchange charges, commissions and
fees 507 454 938 927
------- ------- ------- -------
784 718 1,486 1,450
------- ------- ------- -------
Other Expenses:
Salaries and employee benefits 2,087 2,000 4,137 3,966
Occupancy expense of bank premises 1,073 1,021 2,159 2,055
Other operating expenses 1,068 1,119 2,035 2,181
------- ------- ------- -------
4,228 4,140 8,331 8,202
------- ------- ------- -------
Income before income taxes 177 415 470 812
Income Tax Provision 61 155 168 302
------- ------- ------- -------
Net Income $ 116 $ 260 $ 302 $ 510
======= ======= ======= =======
Per Share Data:
Net income $ 0.16 $ 0.37 $ 0.42 $ 0.72
Cash dividend $ 0.00 $ 0.00 $ 0.15 $ 0.15
Average shares outstanding 711,000 711,000 711,000 711,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 5
HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, 1996 and 1995
(in thousands)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------
1996 1995
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Interest and fees received........................................................ $ 10,978 $ 11,086
Interest paid..................................................................... (3,560) (3,334)
Service charges, collection and exchange charges, commission and fees received.... 1,486 1,450
Cash paid to suppliers and employees.............................................. (7,407) (8,086)
Income taxes paid................................................................. (93) (343)
-------- --------
Net cash provided by operating activities....................................... 1,404 773
-------- --------
Cash flows from investing activities:
Proceeds from maturity of investment securities held-to-maturity.................. 15,007 10,110
Purchase of investment securities held-to-maturity................................ (16,002) (10,113)
Purchase of investment securities availabe-for-sale............................... -- (8)
Net decrease in loans and leases made to customers................................ 2,285 4,224
Proceeds from sale of loans....................................................... 5,319 --
Capital expenditures.............................................................. (83) (278)
Proceeds from sale of equipment................................................... 3 153
Purchase of other real estate owned............................................... (194) --
-------- --------
Net cash provided by investing activities....................................... 6,335 4,088
-------- --------
Cash flows from financing activities:
Net decrease in demand deposits and savings accounts.............................. (16,092) (5,221)
Net increase in time deposits..................................................... 4,385 6,962
Proceeds from FHLB of Seattle borrowing........................................... -- 4,000
Repayment of FHLB of Seattle borrowing............................................. -- (4,000)
Net increase in short-term borrowings............................................. 97 --
Net decrease in Federal funds purchased........................................... -- (460)
Dividends paid.................................................................... (107) (107)
-------- --------
Net cash provided by (used in) financing activities............................. (11,717) 1,154
-------- --------
Net increase (decrease) in cash and cash equivalents................................ (3,978) 6,015
Cash and cash equivalents at beginning of period.................................... 32,658 20,610
-------- --------
Cash and cash equivalents at end of period.......................................... $28,680 $26,625
======== ========
Reconciliation of Net Income to Net Cash Provided By Operating Activities:
Net income........................................................................ $ 302 $ 510
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on bank premises and equipment..................................... 274 236
Provision for loan and lease losses............................................. 450 300
Amortization of deferred loan fees.............................................. (211) (147)
Changes in --
Interest receivable........................................................... (60) (70)
Interest payable.............................................................. (76) 105
Taxes payable................................................................. 75 (41)
Other assets.................................................................. 489 (88)
Other liabilities............................................................. 161 (32)
-------- --------
Net cash provided by operating activities........................................... $ 1,404 $ 773
======== ========
Supplemental schedule of noncash investing and financing activities:
Transfer from loans to real estate acquired through foreclosure................... $ 175 --
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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<PAGE> 6
HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1996, are
not necessarily indicative of the results anticipated for the year ending
December 31, 1996. For additional information, refer to the consolidated
financial statements and footnotes thereto included in Hawaii National
Bancshares, Inc.'s annual report on Form 10-K for the year ended December 31,
1995.
2. Allowance for Possible Loan and Lease Losses
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
(In thousands) 1996 1995 1996 1995
- -------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, beginning of period $3,037 $3,453 $3,096 $3,421
Provision charged to operations 225 150 450 300
Loans and leases charged-off (277) (49) (617) (176)
Recoveries on loans and leases
previously charged-off 66 8 124 17
------ ------ ------ ------
Net charge-offs (209) (41) (493) (159)
------ ------ ------ ------
Balance, end of period $3,053 $3,562 $3,053 $3,562
====== ====== ====== ======
</TABLE>
The following table presents information on the recorded investment in impaired
loans for the dates indicated:
<TABLE>
<CAPTION>
June 30 December 31 June 30
(In thousands) 1996 1995 1995
- -------------- ------ ------ ------
<S> <C> <C> <C>
Impaired loans for which there is a related allowance $ 954 $1,451 $1,573
Impaired loans for which there is no related allowance 2,125 4,633 974
------ ------ ------
Total recorded investment $3,079 $6,084 $2,547
====== ====== ======
</TABLE>
The average recorded investment in impaired loans for the three and six months
ended June 30, 1996 was $2,725,000 and $2,676,000, respectively, compared to
$2,007,000 and $1,659,000 for the same periods in 1995. Interest income on
impaired loans is recognized in accordance with the Company's nonaccrual loan
policy. There was no interest income recognized in impaired loans in any of the
previously mentioned periods.
3. Statement of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
(In thousands) 1996 1995 1996 1995
- -------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, beginning of period $27,272 $26,387 $27,193 $26,244
Net income 116 260 302 510
Cash dividends -- -- (107) (107)
------- ------- ------- -------
Balance, end of period $27,388 $26,647 $27,388 $26,647
======= ======= ======= =======
</TABLE>
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
Hawaii National Bancshares, Inc. ("Company") is a bank holding company
whose wholly-owned subsidiary is Hawaii National Bank ("HNB" or the "Bank"), a
national banking association. The Company derives substantially all of its
income from the operations of the Bank and the Bank's assets constitute the
majority of the Company's assets. Therefore, the discussion that follows
relates mainly to the activities of the Bank.
ECONOMIC OUTLOOK
While the visitor industry has progressed, the improvement in this
sector has not yet spread to the rest of Hawaii's economy which continues to
struggle. According to the U.S. Commerce Department, personal income in Hawaii
grew at the fifth slowest rate in the nation during the first quarter of 1996.
The unemployment rate in Hawaii climbed to a 2-year high of 6.8% in June,
topping the national rate of 5.3%. Foreclosure and bankruptcy filings increased
42% and 49%, respectively, in the first six months of 1996, compared to the
first six months of 1995. Sales of existing single-family homes on Oahu
increased 12.2% in the first half of 1996, compared to the same period a year
ago. Condominium sales for the year-to-date were 8.6% below the level recorded
for the comparable period in 1995. The median price for a single-family home on
Oahu in June was $327,500, a 4.8% drop from the $344,000 June 1995 median. The
condominium median in June was $181,000, down slightly from $182,000 a year
earlier.
HIGHLIGHTS
The Company reported net income of $116,000, or $0.16 per share, for
the three months ended June 30, 1996, compared to $260,000, or $0.37 per share,
for the same period last year. Year-to-date earnings were $302,000, or $0.42
per share, compared to $510,000 or $0.72 per share, for the first half of 1995.
The decline for the quarter and year-to-date was primarily due to a decrease in
net interest income and an increase in the provision for loan and lease losses,
partly offset by a reduction in Federal Deposit Insurance Corporation ("FDIC")
insurance premiums.
Net charge-offs for the quarter were $209,000, bringing the total for
the year-to-date to $493,000. Net charge-offs for the comparable periods in
1995 were $41,000 and $159,000, respectively. Noncurrent loans and leases
declined to $4,176,000 at June 30, 1996, 37% below the level reported at
year-end 1995. The improvement was attributable to the sale in the first
quarter of a 99.996% participation in a nonaccrual loan with an unpaid
principal balance of $2,673,000. Subsequent to quarter-end, the loan was repaid
generating net proceeds of $545,000 which were credited to the allowance for
loan and lease losses as a recovery of an amount previously charged-off in 1995.
-7-
<PAGE> 8
At June 30, 1996, total assets were $288,335,000, representing a
decrease of $11,255,000 from December 31, 1995. Loans and leases declined by
$7,886,000 and total deposits were lower by $10,207,000, compared to year-end
1995. Shareholders' equity grew to $27,388,000 at June 30, 1996. Book value per
share rose from $38.25 at December 31, 1995 to $38.52 at June 30, 1996.
Leverage and risk-based capital ratios continued to exceed regulatory
requirements by a substantial margin.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three and six months ended June 30, 1996
decreased $141,000 or 3.5% and $99,000 or 1.3%, respectively, from the
comparable period in 1995. The decline was primarily due to a compression in
net interest margin. Net interest margin for the second quarter of 1996 was
5.70%, compared to 5.90% for the same period last year. For the year-to-date,
net interest margin was 5.77%, a decrease from the 5.92% reported for the same
period in 1995.
Interest income for the three and six months ended June 30, 1996
decreased $241,000 or 4.2% and $54,000 or 0.5%, respectively, compared to the
same periods last year. The decline was primarily due to a decrease in yield
which resulted from lower market interest rates, weak loan demand and an
increase in nonaccrual loans and leases. The average yield on interest-earning
assets for the quarter and year-to-date was 8.25% and 8.36%, respectively,
compared to 8.59% and 8.50% for the same periods in 1995.
Interest expense for the three and six months ended June 30, 1996
decreased $100,000 or 5.5% and increased $45,000 or 1.3%, respectively, versus
the same periods a year earlier. The improvement in the quarter was primarily
due to a lower average cost of deposits and a lower average balance of
short-term borrowings. The year-to-date increase was attributable to a higher
average cost of deposits and a higher average deposit balance. The average cost
of funds for the quarter and year-to-date was 3.36% and 3.41%, respectively,
compared to 3.53% and 3.39% for the same periods in 1995.
Other Income and Expenses
Other income for the three and six months ended June 30, 1996 increased
$66,000 or 9.2% and $36,000 or 2.5%, respectively, compared to the same periods
in the prior year. The improved results were primarily due to the collection of
rental income on other real estate owned.
Other expenses consist of salaries and employee benefits, occupancy
expense and other operating expenses. For the three and six months ended June
30, 1996, other expenses increased $88,000 or 2.1% and $129,000 or 1.6%,
respectively, compared to the same periods last year.
-8-
<PAGE> 9
Salaries and employee benefits for the three and six months ended June
30, 1996 increased $87,000 or 4.4% and $171,000 or 4.3%, respectively, over the
same periods a year earlier. The growth in this category reflected normal merit
and inflationary adjustments which were adopted to keep the Bank's salary and
benefit packages competitive.
Occupancy expenses for the three and six months ended June 30, 1996
rose $52,000 and $104,000, respectively, from the comparable period in 1995.
The increase of 5.1% for the quarter and year-to-date was primarily attributable
to the opening of two new branches on Maui which were previously operated by
the former Bank USA, N.A.
Other operating expenses for the three and six months ended June 30,
1996 declined $51,000 or 4.6% and $146,000 or 6.7%, respectively, compared to
same periods a year ago. The decrease was primarily due to a reduction in FDIC
insurance premiums. Effective January 1, 1996, the premiums that banks pay for
deposit insurance were lowered from a range of $0.23 to $0.31 per $100 of
deposits to a wider range of $0.00 to $0.27. The actual rate assessed each bank
continued to be contingent upon its capital adequacy and risk classification.
Well-capitalized and well-managed banks that qualify for the zero premium rate
are still required to pay the legal minimum of $2,000 per year. Also included
in other expenses are data processing fees paid to Computer Systems
International, Ltd. ("CSI"), a company formed to provide computer services to
financial institutions including the Bank. An affiliate of a director and the
Bank each own a 50% interest in this bank service corporation. Data processing
fees paid to CSI amounted to $355,364 and $340,594 for the first half of 1996
and 1995, respectively.
Income Taxes
The Company's effective income tax rate for the three and six months
ended June 30, 1996 was 34.5% and 35.7%, respectively, compared to 37.4% and
37.2% for the same periods last year. The decline was attributable to a
decrease in taxable income while tax exempt income from investment securities
has remained constant.
FINANCIAL CONDITION
Deposits
At June 30, 1996, total deposits were $258,698,000, compared to
$268,905,000 at December 31, 1995, and $262,713,000 at June 30, 1995.
Noninterest-bearing demand deposits ended the quarter $9,345,000 below the
balance reported at year-end 1995. The decline was primarily due to an outflow
of escrow funds in the first quarter. Interest-bearing demand deposits at
quarter-end were $1,481,000 lower, compared to December 31, 1995. Time deposits
increased $4,385,000 over year-end 1995 levels, offsetting a decline in savings
deposits of $3,766,000. During the first six months of 1996, customers continued
to shift their funds from savings to time deposits to take advantage of higher
rates. The average rate paid on savings and time deposits for the first half of
1996 was 2.95% and 4.96%, respectively.
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<PAGE> 10
The following table presents the distribution of the Bank's deposit
accounts for the dates indicated.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
---------------------- ---------------------- ----------------------
Balance % Balance % Balance %
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 56,986,000 22.0% $ 66,331,000 24.7% $ 61,158,000 23.3%
Interest-bearing demand 27,835,000 10.8 29,316,000 10.9 30,216,000 11.5
Savings 109,971,000 42.5 113,737,000 42.3 112,181,000 42.7
Time 63,906,000 24.7 59,521,000 22.1 59,158,000 22.5
------------ ----- ------------ ----- ------------ -----
Total deposits $258,698,000 100.0% $268,905,000 100.0% $262,713,000 100.0%
============ ===== ============ ===== ============ =====
</TABLE>
Included in time deposits are certificates of deposits ("CD") purchased
by the State of Hawaii, its counties and other government agencies.
Historically, these CDs have been a stable source of funds for the Bank and are
considered to be core deposits. At June 30, 1996, December 31, 1995 and June
30, 1995, public time deposits totaled $30,925,000, $30,197,000, and
$28,513,000, respectively, representing 12.0%, 11.2%, and 10.9% of the Bank's
total deposits.
Investment Securities
Investment securities consist principally of short and intermediate
term debt instruments issued by the U.S. Treasury, other U.S. government
agencies, and State and local government units. The Bank is also a stockholder
in the Federal Reserve Bank and the Federal Home Loan Bank of Seattle. The Bank
has no derivative securities, such as structured notes, collateralized mortgage
obligations or stripped mortgage-backed securities.
At June 30, 1996, the book and fair value of the held-to-maturity
portfolio was $46,988,000 and $46,784,000, respectively. As of the same date,
the book and fair value of the available-for-sale portfolio was $1,497,000. The
Bank had no trading securities as of June 30, 1996. During the first six months
of 1996, there were no sales or transfers of investment securities between the
held-to-maturity, available-for-sale or trading categories.
Loan Portfolio and Loan Concentrations
At June 30, 1996, the loans and leases were $205,208,000, a decrease of
$7,886,000 or 3.7% from year-end 1995 and $7,970,000 or 3.7% from June 30,
1995. The decline from year-end 1995 was primarily due to payoffs and sales
which exceeded originations. The Bank had no significant concentrations of
credit with any individual party; however, its lending was concentrated on the
island of Oahu.
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<PAGE> 11
The following table presents the composition of the Bank's loan and
lease portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
---------------------- ---------------------- ----------------------
Balance % Balance % Balance %
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Real estate
Family residential $104,075,000 50.7% $106,200,000 49.9% $108,975,000 51.1%
Construction 2,344,000 1.1 4,558,000 2.1 4,278,000 2.0
Commercial property 26,616,000 13.0 27,647,000 13.0 26,626,000 12.5
------------ ----- ------------ ----- ------------ -----
Total 133,035,000 64.8 138,405,000 65.0 139,879,000 65.6
Commercial & industrial 63,332,000 30.9 66,021,000 31.0 64,876,000 30.4
Consumer 7,577,000 3.7 7,255,000 3.4 6,779,000 3.2
All other loans 265,000 0.1 248,000 0.1 389,000 0.2
Direct financing leases 999,000 0.5 1,165,000 0.5 1,255,000 0.6
------------ ----- ------------ ----- ------------ -----
Total $205,208,000 100.0% $213,094,000 100.0% $213,178,000 100.0%
============ ===== ============ ===== ============ =====
</TABLE>
Loan Portfolio Risk Elements and Other Real Estate Owned
Noncurrent loans and leases consist of loans and leases that are past
due for 90 days or more and still accruing interest and loans and leases on
nonaccrual status. Most of the credits in this category are collateralized by
real estate. At June 30, 1996, noncurrent loans and leases decreased to
$4,176,000, representing 2.0% of loans and leases outstanding, compared to
$6,620,000 or 3.1% at December 31, 1995 and $2,919,000 or 1.4% at June 30,
1995. The improvement was attributable to the sale at par of a 99.996%
participation in a nonaccrual loan with an unpaid principal balance of
$2,673,000 in the first quarter. The loan was repaid on July 2, 1996. There
were no restructured loans or leases at quarter-end.
Other real estate owned ("OREO"), which is included in other assets,
increased from $938,000 at June 30, 1995 to $1,162,000 at December 31, 1995 and
to $1,356,000 at June 30, 1996. The OREO portfolio consisted of a commercial
property, a single-family residence and two residential condominiums at
quarter-end. The commercial property generates a positive cash flow. The
single-family residence was sold for $150,000 under an agreement of sale. The
two condominiums are in the process of being prepared for sale or rent. At June
30, 1996, the market values of the properties in OREO, less estimated selling
costs, exceeded their respective carrying values. There was no activity in the
reserve for the quarter.
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<PAGE> 12
The following table presents information on noncurrent loans and leases
and OREO for the dates indicated:
<TABLE>
<CAPTION>
June 30 December 31 June 30
1996 1995 1995
---------- ----------- -----------
<S> <C> <C> <C>
Noncurrent
Past due 90 days or more............ $1,008,000 $ 414,000 $ 337,000
Nonaccrual.......................... 3,168,000 6,206,000 2,582,000
---------- ---------- ----------
Total............................. $4,176,000 $6,620,000 $2,919,000
========== ========== ==========
OREO $1,356,000 $1,162,000 $ 938,000
========== ========== ==========
</TABLE>
Note: Impaired loans are included in nonaccrual loans and leases.
Provision and Allowance for Loan and Lease Losses
During the three and six months ended June 30, 1996, the Bank provided
$225,000 and $450,000, respectively, for possible loan and lease losses,
compared to $150,000 and $300,000 for the three and six months ended June 30,
1995.
Net charge-offs for the quarter and year-to-date were $209,000 and
$493,000, respectively, compared to $41,000 and $159,000 for the same periods
in 1995. Seventy-two percent of the Bank's losses for the first half of this
year were attributable to one commercial credit. The annualized ratio of net
charge-offs to average loans and leases for the year-to-date was 0.47%,
compared to 0.15% for the same period last year.
At June 30, 1996, the allowance for loan and lease losses stood at
$3,053,000, compared to $3,096,000 at December 31, 1995 and $3,562,000 at June
30, 1995. The ratio of the allowance to total loans and leases outstanding was
1.5%, 1.5% and 1.7% at June 30, 1996, December 31, 1995 and June 30, 1995,
respectively. While the reserve measured 0.73 times noncurrent loans and leases
at quarter-end, in the opinion of management, it remained at a sufficient level
to absorb potential losses. As noted earlier, most of the credits in the
noncurrent category are collateralized by real estate.
On July 2, 1996, a nonaccrual loan was repaid generating net proceeds
of $545,000 which were credited to the allowance for loan and lease losses as
a recovery of an amount previously charged-off in 1995.
Liquidity
The Bank has adequate liquidity to accommodate fluctuations in deposit
levels, fund operations, provide for customer credit needs and meet obligations
and commitments on a timely basis. The Bank has no brokered deposits. It has
generally been a net seller of federal funds. An additional source of liquidity
is provided through a line of credit with the Federal Home Loan Bank of Seattle
("FHLB") which enables the Bank to borrow up to 10% of its total assets.
Included in this facility is a cash management agreement line of 5%. During the
first half of 1996, there were no FHLB borrowings or federal funds purchased.
-12-
<PAGE> 13
For the first six months of 1996, net cash provided by operating activities
was $1,404,000. Net cash provided by investing activities was $6,335,000,
largely due to sales and payoffs of loans and leases. Net cash used in financing
activities was $11,717,000, due primarily to a net outflow in demand and savings
deposits, partly offset by an increase in time deposits.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' equity totaled $27,388,000 at June 30, 1996, an increase of
$195,000 or 0.7% from December 31, 1995 and $741,000 or 2.8% from June 30, 1995.
The growth in equity was achieved through retention of earnings after payment of
cash dividends of $106,650 in the first quarter of 1996. Book value per share
increased from $37.48 at June 30, 1995 to $38.25 at December 31, 1995 and to
$38.52 at June 30, 1996.
In order to be considered well-capitalized by the bank regulatory agencies,
an institution must have at minimum a 5.0% leverage ratio, a Tier 1 risk-based
capital ratio of 6.0% and a total capital ratio of 10.0%. The Company's leverage
ratio was 9.41% at June 30, 1996, 9.21% at December 31, 1995, and 9.15% at June
30, 1995. At June 30, 1996, the Company's Tier 1 and total capital ratios were
13.90% and 15.16%, respectively, compared to 13.10% and 14.36% at December 31,
1995, and 12.78% and 14.04% at June 30, 1995.
EFFECT OF NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights," which amends
Statement 65 "Accounting for Certain Mortgage Banking Activities" and requires
that mortgage banking enterprises recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired. This
Statement applies to transactions in which a mortgage banking enterprise sells
or securitizes mortgage loans with servicing rights retained and to impairment
evaluations of all amounts capitalized as mortgage servicing rights. The
adoption of this Statement did not have a material impact on the consolidated
financial statements of the Company.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held on April 16, 1996, the
shareholders voted on the election of five persons to serve as directors
for the ensuing year. The table below sets forth the names of the
directors elected at the meeting, as well as the number of votes cast
for, against or withheld, for each of the directors nominated. There
were no abstentions or unvoted shares.
<TABLE>
<CAPTION>
VOTES
--------------------------
AGAINST OR
NAME FOR WITHHELD
---- ------- ----------
<S> <C> <C>
K. J. Luke 639,898 113
Warren K. K. Luke 639,898 113
Gordon J. Mau 639,898 113
Tam Tek Lum 639,898 113
Arthur S. K. Fong 639,898 113
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
<TABLE>
<S> <C>
HAWAII NATIONAL BANCSHARES, INC.
(Registrant)
Date August 6, 1996 By /s/ Warren K. K. Luke
-------------------- --------------------------------------
Warren K. K. Luke
President
Date August 6, 1996 By /s/ Ernest T. Murata
-------------------- --------------------------------------
Ernest T. Murata
Vice President, Treasurer,
Assistant Secretary and
Chief Financial Officer
</TABLE>
-14-
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULE
</TABLE>
-15-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS' FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,680
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,497
<INVESTMENTS-CARRYING> 46,988
<INVESTMENTS-MARKET> 46,784
<LOANS> 205,208
<ALLOWANCE> 3,053
<TOTAL-ASSETS> 288,335
<DEPOSITS> 258,698
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 1,249
<LONG-TERM> 0
0
0
<COMMON> 711
<OTHER-SE> 26,677
<TOTAL-LIABILITIES-AND-EQUITY> 288,335
<INTEREST-LOAN> 9,483
<INTEREST-INVEST> 1,335
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,249
<INTEREST-DEPOSIT> 3,464
<INTEREST-EXPENSE> 3,484
<INTEREST-INCOME-NET> 7,765
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,331
<INCOME-PRETAX> 470
<INCOME-PRE-EXTRAORDINARY> 302
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 5.77
<LOANS-NON> 3,168
<LOANS-PAST> 1,008
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,096
<CHARGE-OFFS> 617
<RECOVERIES> 124
<ALLOWANCE-CLOSE> 3,053
<ALLOWANCE-DOMESTIC> 3,053
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 566
</TABLE>
