<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 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 March 31, 1996 - 711,000 shares
-1-
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996,
December 31, 1995 and March 31, 1995 (Unaudited)............ 3
Consolidated Statements of Income - Three months
ended March 31, 1996 and 1995 (Unaudited)................... 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 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 6. Exhibits and Reports on Form 8-K.................................. 14
SIGNATURES..................................................................... 14
EXHIBIT INDEX.................................................................. 15
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1996, DECEMBER 31, 1995 AND MARCH 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
-------- ----------- --------
1996 1995 1995
-------- ----------- --------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 16,570 $ 18,908 $ 18,648
Federal funds sold 15,000 13,750 4,750
Investment securities
Held-to-maturity (fair value of $46,933, 46,991 45,993 43,929
$46,165 and $43,485, respectively)
Available-for-sale 1,497 1,497 1,497
Loans and leases 207,327 213,094 219,052
Less allowance for possible loan
and lease losses (note 2) 3,037 3,096 3,453
-------- -------- --------
204,290 209,998 215,599
Premises and equipment 4,115 4,189 4,348
Other assets 5,196 5,255 4,713
-------- -------- --------
Total assets $293,659 $299,590 $293,484
======== ======== ========
LIABILITIES:
Deposits -
Demand $ 85,918 $ 95,647 $91,829
Savings 115,959 113,737 113,123
Time 62,316 59,521 55,308
-------- -------- --------
Total deposits 264,193 268,905 260,260
-------- -------- --------
Federal funds purchased -- -- 371
Short-term borrowings 838 903 4,679
Other liabilities 1,356 2,589 1,788
-------- -------- --------
Total liabilities 266,387 272,397 267,098
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 14,413 14,334 13,539
-------- -------- --------
Total shareholders' equity 27,272 27,193 26,386
-------- -------- --------
Total liabilities and shareholders' equity $293,659 $299,590 $293,484
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE> 4
HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,826 $4,850
Interest on direct financing leases 29 31
Interest on Federal funds sold 168 52
Interest on investment securities-
Taxable 644 546
Exempt from Federal income tax 19 19
------- -------
Total interest income 5,686 5,498
------- -------
INTEREST EXPENSE:
Deposits 1,757 1,573
Federal funds purchased -- 14
Short-term borrowings 10 34
------- -------
Total interest expense 1,767 1,621
------- -------
Net interest income 3,919 3,877
PROVISION FOR LOAN AND LEASE LOSSES (note 2) 225 150
------- -------
Net interest income after provision for
loan and lease losses 3,694 3,727
------- -------
OTHER INCOME:
Service charges on deposit accounts 271 258
Other service charges, collection and
exchange charges, commissions and fees 431 473
------- -------
702 731
------- -------
OTHER EXPENSES:
Salaries and employee benefits 2,050 1,966
Occupancy expense of bank premises 1,086 1,034
Other operating expenses 967 1,062
------- -------
4,103 4,062
------- -------
Income before income taxes 293 396
INCOME TAX PROVISION 107 147
------- -------
Net Income $ 186 $ 249
======= =======
PER SHARE DATA:
Net income $ 0.26 $ 0.35
Cash dividend $ 0.15 $ 0.15
Average shares outstanding 711,000 711,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE> 5
HAWAII NATIONAL BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees received $ 5,532 $ 5,405
Interest paid (1,691) (1,465)
Service charges, collection and exchange charges,
commission and fees received 702 732
Cash paid to suppliers and employees (3,586) (3,826)
Income taxes paid (26) (25)
------- -------
Net cash provided by operating activities 931 821
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment securities held-to-maturity 6,003 4,004
Purchase of investment securities held-to-maturity (7,001) (3,010)
Net decrease (increase) in loans and leases made to customers 2,802 (1,698)
Proceeds from sale of loans 2,819 --
Capital expenditures (66) (232)
Proceeds from sale of equipment 2 152
Purchase of other real estate owned (194) --
------- -------
Net cash provided by (used in) investing activities 4,365 (784)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits and savings accounts (9,007) (3,825)
Net increase in time deposits 2,795 3,113
Net increase (decrease) in short-term borrowings (65) 3,679
Net decrease in federal funds purchased -- (109)
Dividends paid (107) (107)
------- -------
Net cash provided by (used in) financing activities (6,384) 2,751
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,088) 2,788
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,658 20,610
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $31,570 $23,398
======= =======
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income $ 186 $ 249
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation on bank premises and equipment 138 121
Provision for loan and lease losses 225 150
Amortization of deferred loan fees (138) (58)
Changes in -
Interest receivable (16) (35)
Interest payable 76 156
Taxes payable 81 122
Other assets 269 166
Other liabilities 110 (50)
------- -------
Net cash provided by operating activities $ 931 $ 821
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans ro real estate acquired through foreclosure $ 175 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<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 three months ended March 31, 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 MARCH 31
---------------------------
(IN THOUSANDS) 1996 1995
------ ------
<S> <C> <C>
Balance, beginning of period $3,096 $3,421
Provision charged to operations 225 150
Loans and leases charged-off (340) (127)
Recoveries credited to allowance 56 9
------ ------
Net charge-offs (284) (118)
------ ------
Balance, end of period $3,037 $3,453
====== ======
</TABLE>
The following table presents information on the recorded investment in impaired
loans for the dates indicated:
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31 MARCH 31
-------- ----------- --------
(IN THOUSANDS) 1996 1995 1995
-------- ----------- --------
<S> <C> <C> <C>
Impaired loans for which there is a related allowance $ 729 $1,451 $ 740
Impaired loans for which there is a no related allowance 2,427 4,633 781
------ ------ ------
Total recorded investment $3,156 $6,084 $1,521
====== ====== ======
</TABLE>
The average recorded investment in impaired loans was $3,116,000 and $1,345,000
for the three months ended March 31, 1996 and 1995, respectively. Interest
income on impaired loans is recognized in accordance with the Company's
nonaccrual loan policy. There was no interest income recognized on impaired
loans in either period.
3. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
(IN THOUSANDS) 1996 1995
------- -------
<S> <C> <C>
Balance, beginning of period $27,193 $26,244
Net income 186 249
Cash dividends (107) (107)
------- -------
Balance, end of period $27,272 $26,386
======= =======
</TABLE>
-6-
<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
Despite an increase in visitor arrivals, Hawaii's economy is expected
to remain generally weak in 1996. Foreclosure and bankruptcy filings increased
46% and 37%, respectively, in the first quarter of 1996, compared to the first
quarter of 1995. Sales of existing single-family homes and condominiums on Oahu
declined 7.6% and 19.3%, respectively in March, compared to the same month a
year ago. The median price for single-family homes on Oahu in March was
$325,000, a 4.1% drop from the $339,000 March 1995 median. The condominium
median in March was $190,000, up 7.2% from $177,250 a year earlier.
HIGHLIGHTS
The Company reported net income of $186,000 for the three months ended
March 31, 1996, a decrease of $63,000 or 25.3% over the comparable period in
1995. The decline was primarily due to an increase in the provision for loan
and lease losses and higher staffing and occupancy costs associated with the
opening of two new branches on Maui, partly offset by a reduction in Federal
Deposit Insurance Corporation ("FDIC") insurance premiums. Earnings per share
were $0.26 for the first quarter of 1996, compared to $0.35 for the same quarter
a year ago.
During the first quarter of 1996, net charge-offs amounted to $284,000,
compared to $118,000 for the first quarter of 1995. As of March 31, 1996,
noncurrent loans and leases were 48% lower than the level reported at year-end
1995. The improvement was attributable to the sale of a 99.996% participation
in a nonaccrual loan with an unpaid principal balance of approximately
$2,673,000. An offer to purchase the property collateralizing this credit has
been accepted by the Bank and the borrowers. The sale of this property is
expected to generate a recovery of approximately $550,000 in net proceeds which
would reduce net charge- offs and replenish and increase the allowance for loan
and lease losses.
-7-
<PAGE> 8
At March 31, 1996, total assets were $293,659,000, a decrease of 2.0%
from December 31, 1995. Shareholder's equity totaled $27,272,000 at March 31,
1996, an increase of $79,000 from year-end 1995 after payment of cash dividends
of $106,650. Book value per share rose from $38.25 at December 31, 1995 to
$38.36 at March 31, 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 months ended March 31, 1996 increased
$42,000 or 1.1%, over the comparable period in 1995. The improvement was
attributable to an increase in interest income of $188,000, or 3.4%, which
exceeded the increase in interest expense of $146,000, or 9.0%. Net interest
margin for the first quarter of 1996 was 5.84%, compared to 5.93% for the same
period last year. The decline was primarily due to an increase in the average
cost of deposits.
Interest income from federal funds sold increased $116,000, over the
comparable period in 1995. The growth in this category was attributable to an
increase in volume. The average balance of federal funds sold grew to
$12,477,000 for the quarter, compared to $3,610,00 for the same period last
year. Interest income from investment securities increased $98,000, over the
prior period in 1995. The increase was due to higher yields and higher volume.
The average yield on investment securities rose to 5.67% for the quarter, above
the 5.12% recorded for the same period last year. The average balance of
investment securities amounted to $47,012,000 for the first quarter of 1996, up
from $44,613,000 for the first quarter of 1995. Interest and fees on loans and
leases was $26,000 lower in the quarter, compared to the respective period in
1995. The lower results were attributable to a decline in volume. The average
balance of loans and leases was $212,772,000 and $216,699,000 for the first
quarter of 1996 and 1995, respectively.
Interest expense on deposits was $184,000 higher than the comparable
period in 1995. The increase was due to higher average cost of deposits and a
higher average deposit balance. The average rate paid on deposits increased
from 3.19% for the first quarter of 1995 to 3.45% for the first quarter of 1996.
The increase in rates reflected the keen competition for deposits and a
continuing shift in the Bank's deposit mix from lower-costing savings to
higher-costing time deposits. During the quarter, the average rate paid on
savings and time deposits was 3.01% and 5.06%, respectively. The average
balance of deposits increased to $206,608,000 for the three months ended March
31, 1996, compared to $199,773,000 for the same period a year ago. Interest
expense from federal funds purchased and short-term borrowings were $14,000 and
$24,000 lower, compared to the respective periods in 1995.
Other Income and Expenses
Other income for the three months ended March 31, 1996 decreased
$29,000, or 4.0%, compared to the same quarter in the prior year. The decline
was primarily due to the waiver of the annual membership fee on existing Visa
credit card accounts.
-8-
<PAGE> 9
Other expenses consist primarily of salaries and employee benefits,
occupancy expense and other operating expenses. For the three months ended
March 31, 1996, other expenses increased $41,000 or 1.0%, compared to the same
period last year.
Salaries and employee benefits for the first quarter of 1996 increased
$84,000 or 4.3%, over the same period a year earlier. The growth in this
category reflected both an increase in staff as well as normal merit and
inflationary adjustments which were adopted to keep the Bank's salary and
benefit packages competitive. The number of full and part-time employees
totaled 227 at March 31, 1996 and 222 at March 31, 1995. The increase in staff
was attributable to the opening of two new branches on Maui which were
previously operated by the former Bank USA, N.A.
Occupancy expenses for the three months ended March 31, 1996 rose
$52,000 or 5.0% from the comparable period in 1995. The increase was
attributable to the addition of two new branches on Maui.
Other operating expenses for the first quarter of 1996 were $95,000, or
8.9% lower, compared to same period a year ago. The decrease was primarily due
to a reduction in FDIC insurance premiums of approximately $143,000. 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
bank's 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 $235,134
and $219,185 for the first three months of 1996 and 1995, respectively.
Income Taxes
The Company's federal and state income tax provision for the first
quarter of 1996 was $107,000, a decrease of $40,000 from the same quarter a year
ago. The effective income tax rates for these periods was 36.5% and 37.1%,
respectively.
FINANCIAL CONDITION
Deposits
At March 31, 1996, total deposits were $264,193,000, compared to
$268,905,000 at December 31, 1995, and $260,260,000 at March 31, 1995.
Noninterest-bearing demand deposits ended the quarter $9,865,000 below the
balance reported at year-end 1995. The decline was primarily due to an outflow
of escrow funds. Interest-bearing demand deposits at quarter-end remained
virtually unchanged from December 31, 1995. Savings and time deposits increased
$2,222,000 and $2,795,000, respectively, over year-end 1995 levels.
-9-
<PAGE> 10
The following table presents the distribution of the Bank's deposit
accounts for the dates indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
March 31, 1996 December 31, 1995 March 31, 1995
--------------------- --------------------- ---------------------
Balance % Balance % Balance %
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 56,466,000 21.4% $ 66,331,000 24.7% $ 63,054,000 24.2%
Interest-bearing demand 29,452,000 11.1 29,316,000 10.9 28,775,000 11.1
Savings 115,959,000 43.9 113,737,000 42.3 113,123,000 43.5
Time 62,316,000 23.6 59,521,000 22.1 55,308,000 21.2
------------ ----- ------------ ----- ------------ -----
Total deposits $264,193,000 100.0% $268,905,000 100.0% $260,260,000 100.0%
============ ===== ============ ===== ============ =====
</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 March 31, 1996, December 31, 1995, and March
31, 1995, public time deposits totaled $31,455,000, $30,197,000, and
$29,949,000, respectively, representing 11.9%, 11.2%, and 11.5% 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 March 31, 1996, the book and fair value of the held-to-maturity
portfolio was $46,991,000 and $46,933,000, 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 March 31, 1996. During the quarter, 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 March 31, 1996, loans and leases were $207,327,000, a decrease of
$5,767,000, or 2.7%, from year-end 1995 and $11,725,000, or 5.4%, from March 31,
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.
-10-
<PAGE> 11
The following table presents the composition of the Bank's loan and
lease portfolio at the dates indicated.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
March 31, 1996 December 31, 1995 March 31, 1995
---------------------- ---------------------- ----------------------
Balance % Balance % Balance %
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real Estate
Family Residential $104,324,000 50.4% $106,200,000 49.9% $106,823,000 48.8%
Construction 3,603,000 1.7 4,558,000 2.1 3,821,000 1.7
Commercial Property 26,561,000 12.8 27,647,000 13.0 31,262,000 14.3
------------ ----- ------------ ----- ------------ -----
Total 134,488,000 64.9 138,405,000 65.0 141,906,000 64.8
Commercial & Industrial 64,130,000 31.0 66,021,000 31.0 68,798,000 31.4
Consumer 7,276,000 3.5 7,255,000 3.4 6,835,000 3.1
All Other Loans 304,000 0.1 248,000 0.1 211,000 0.1
Direct Financing Leases 1,129,000 0.5 1,165,000 0.5 1,302,000 0.6
------------ ----- ------------ ----- ------------ -----
Total $207,327,000 100.0% $213,094,000 100.0% $219,052,000 100.0%
============ ===== ============ ===== ============ =====
</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 March 31, 1996, noncurrent loans and leases decreased to
$3,427,000, representing 1.7% of loans and leases outstanding, compared to
$6,620,000, or 3.1%, at December 31, 1995, and $3,972,000, or 1.8%, at March 31,
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
approximately $2,673,000 to an affiliate of a director. There were no
restructured loans or leases at quarter-end.
Other real owned ("OREO"), which is included in other assets, increased
from $938,000 at March 31, 1995 to $1,162,000 at December 31, 1995 and to
$1,356,000 at March 31, 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 which
matures in June 1996. The two condominiums are in the process of being prepared
for sale or rental. At March 31, 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.
-11-
<PAGE> 12
The following table presents information on noncurrent loans and
leases and OREO for the dates indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
March 31 December 31 March 31
1996 1995 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noncurrent
Past due 90 Days or more 6,000 414,000 2,352,000
Nonaccrual 3,421,000 6,206,000 1,620,000
---------- ---------- ----------
Total $3,427,000 $6,620,000 $3,972,000
========== ========== ==========
OREO $1,356,000 $1,162,000 $ 938,000
========== ========== ==========
Note: Impaired loans are included in nonaccrual loans and leases.
- ------------------------------------------------------------------------------------
</TABLE>
Provision and Allowance for Loan and Lease Losses
During the three months ended March 31, 1996, the Bank provided
$225,000 for possible loan losses, compared to $150,000 for the three months
ended March 31, 1995. The increase in the quarterly provision was due to an
increase in net charge-offs which resulted from a weak local economy.
Net charge-offs increased from $118,000 for the first quarter of 1995
to $284,000 for the first quarter of 1996. The majority of the charge-offs in
the current period were attributable to two commercial credits. For the first
three months of 1996, the annualized ratio of net charge-offs to average loans
and leases was 0.53%, compared to 0.22% for the same period in 1995.
At March 31, 1996, the allowance for loan and lease losses stood at
$3,037,000, compared to $3,096,000 at December 31, 1995 and $3,453,000 at March
31, 1995. The ratio of the allowance to total loans and leases outstanding was
1.5%, 1.5% and 1.6% at March 31, 1996, December 31, 1995 and March 31, 1995,
respectively. While the reserve measured .89 times noncurrent loans and leases
at quarter-end, in the opinion of management, it remained at a sufficient level
to absorb potential losses. As was noted earlier, the majority of the loans and
leases in the noncurrent category are collateralized by real estate.
During the first quarter, the Bank sold a 99.996% participation in a
nonaccrual loan with an unpaid principal balance of approximately $2,673,000. An
offer to purchase the property collateralizing this credit has been accepted by
the Bank and the borrowers. The sale of this property is expected to generate a
recovery of approximately $550,000 in net proceeds which would reduce net
charge-offs and replenish and increase the allowance for loan and lease losses.
-12-
<PAGE> 13
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. In 1994, the Bank established a
line of credit with the Federal Home Loan Bank of Seattle ("FHLB") equal to 10%
of total assets, including a cash management agreement line of 5%. This
facility enhances the Bank's asset and liability management by providing an
alternative source of liquidity.
For the first three months of 1996, net cash provided by operating
activities was $931,000. Net cash provided by investing activities was
$4,365,000, largely due to the sale of a commercial mortgage loan participation.
Net cash used by financing activities was $6,384,000, due primarily to a net
outflow in escrow funds, partly offset by an increase in time deposits.
Shareholders' Equity and Capital Resources
Shareholders' equity totaled $27,272,000 at March 31, 1996, an increase
of $79,000, or 0.3%, from December 31, 1995 and $886,000, or 3.4%, from March
31, 1995. The growth in equity was achieved through retention of earnings after
payment of cash dividends of $106,650. Book value per share increased to $38.36
at March 31, 1996, compared to $38.25 and $37.11 at December 31, 1995 and March
31, 1995, respectively.
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 capital ratio was 9.29% at March 31, 1996; 9.21% at December
31, 1995; and 9.19% at March 31, 1995. At March 31, 1996, the Company's Tier 1
and total capital ratios were 13.55% and 14.80%, respectively, compared to
13.10% and 14.36% at December 31, 1995; and 12.21% and 13.47% at March 31, 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 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.
HAWAII NATIONAL BANCSHARES, INC.
(Registrant)
Date May 10, 1996 By /s/Warren K.K. Luke
---------------------------------
Warren K.K. Luke
President
Date May 10, 1996 By /s/Ernest T. Murata
---------------------------------
Ernest T. Murata
Vice President, Treasurer,
Assistant Secretary and
Chief Financial Officer
-14-
<PAGE> 15
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,570
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,497
<INVESTMENTS-CARRYING> 46,991
<INVESTMENTS-MARKET> 46,933
<LOANS> 207,327
<ALLOWANCE> 3,037
<TOTAL-ASSETS> 293,659
<DEPOSITS> 264,193
<SHORT-TERM> 838
<LIABILITIES-OTHER> 1,356
<LONG-TERM> 0
711
0
<COMMON> 0
<OTHER-SE> 26,561
<TOTAL-LIABILITIES-AND-EQUITY> 293,659
<INTEREST-LOAN> 4,826
<INTEREST-INVEST> 663
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,686
<INTEREST-DEPOSIT> 1,757
<INTEREST-EXPENSE> 1,767
<INTEREST-INCOME-NET> 3,919
<LOAN-LOSSES> 225
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,103
<INCOME-PRETAX> 293
<INCOME-PRE-EXTRAORDINARY> 186
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 186
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<YIELD-ACTUAL> 5.84
<LOANS-NON> 3,421
<LOANS-PAST> 6
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,096
<CHARGE-OFFS> 340
<RECOVERIES> 56
<ALLOWANCE-CLOSE> 3,037
<ALLOWANCE-DOMESTIC> 3,037
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 436
</TABLE>
