<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 June 30, 1997
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, 1997 - 711,000 shares
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets - June 30, 1997, December 31, 1996
and June 30, 1996 (Unaudited) .................................................... 3
Consolidated Statements of Income - Three and six months ended
June 30, 1997 and 1996 (Unaudited) ............................................... 4
Consolidated Statements of Cash Flows - Six months ended June
30, 1997 and 1996 (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, 1997, DECEMBER 31, 1996 AND JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31 JUNE 30
1997 1996 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks $ 17,491 $ 17,277 $ 17,680
Federal funds sold 20,250 16,000 11,000
Investment securities
Held-to-maturity (fair value of $46,981, 46,982 47,930 46,988
$48,007 and $46,784, respectively)
Available-for-sale 1,760 1,487 1,497
Loans and leases 205,589 207,262 205,208
Less allowance for possible loan
and lease losses (Note 2) 3,210 3,067 3,053
-------- -------- --------
202,379 204,195 202,155
Premises and equipment 3,755 3,900 3,995
Other assets 5,392 5,236 5,020
-------- -------- --------
Total assets $298,009 $296,025 $288,335
======== ======== ========
LIABILITIES:
Deposits -
Demand $ 90,052 $ 88,133 $ 84,821
Savings 107,823 110,032 109,971
Time 69,497 66,429 63,906
-------- -------- --------
Total deposits 267,372 264,594 258,698
Short-term borrowings 1,000 844 1,000
Other liabilities 1,750 2,790 1,249
-------- -------- --------
Total liabilities 270,122 268,228 260,947
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 12,148
Retained earnings 15,028 14,938 14,529
-------- -------- --------
Total shareholders' equity 27,887 27,797 27,388
-------- -------- --------
Total liabilities and shareholders' equity $298,009 $296,025 $288,335
======== ======== ========
</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, 1997 AND 1996
(IN THOUSANDS,EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 4,669 $ 4,657 $ 9,266 $ 9,483
Interest on direct financing leases 21 27 43 55
Interest on Federal funds sold 250 207 485 376
Interest on investment securities-
Taxable 749 653 1,476 1,297
Exempt from Federal income tax -- 19 -- 38
-------- -------- -------- --------
Total interest income 5,689 5,563 11,270 11,249
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 1,680 1,707 3,326 3,464
Short-term borrowings 12 10 23 20
-------- -------- -------- --------
Total interest expense 1,692 1,717 3,349 3,484
-------- -------- -------- --------
Net interest income 3,997 3,846 7,921 7,765
PROVISION FOR LOAN AND LEASE LOSSES (Note 2) 180 225 360 450
-------- -------- -------- --------
Net interest income after provision
for loan and lease losses 3,817 3,621 7,561 7,315
-------- -------- -------- --------
OTHER INCOME:
Service charges on deposit accounts 271 277 543 548
Other service charges, collection and
exchange charges, commissions and fees 462 507 946 938
-------- -------- -------- --------
733 784 1,489 1,486
-------- -------- -------- --------
OTHER EXPENSES:
Salaries and employee benefits 2,167 2,087 4,319 4,137
Occupancy expense of bank premises 1,124 1,073 2,225 2,159
Other operating expenses 1,196 1,068 2,184 2,035
-------- -------- -------- --------
4,487 4,228 8,728 8,331
-------- -------- -------- --------
Income before income taxes 63 177 322 470
INCOME TAX PROVISION 25 61 125 168
-------- -------- -------- --------
Net income $ 38 $ 116 $ 197 $ 302
======== ======== ======== ========
PER SHARE DATA:
Net income $ 0.05 $ 0.16 $ 0.28 $ 0.42
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, 1997 AND 1996
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees received $ 10,945 $ 10,978
Interest paid (3,464) (3,560)
Service charges, collection and exchange charges,
commission and fees received 1,489 1,486
Cash paid to suppliers and employees (7,237) (7,407)
Income taxes paid (282) (93)
-------- --------
Net cash provided by operating activities 1,451 1,404
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment securities held-to-maturity 10,954 15,007
Purchase of investment securities held-to-maturity (10,006) (16,002)
Purchase of investment securities available-for-sale (273) --
Net decrease in loans and leases made to customers 1,060 2,285
Proceeds from sale of loans 500 5,319
Capital expenditures (143) (83)
Proceeds from sale of equipment -- 3
Purchase of other real estate owned (425) (194)
-------- --------
Net cash provided by investing activities 1,667 6,335
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits and savings accounts (1,771) (16,092)
Net increase in time deposits 3,068 4,385
Net increase in short-term borrowings 156 97
Dividends paid (107) (107)
-------- --------
Net cash provided by (used in) financing activities 1,346 (11,717)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,464 (3,978)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,277 32,658
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 37,741 $ 28,680
======== ========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 197 $ 302
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation on bank premises and equipment 288 274
Provision for loan and lease losses 360 450
Amortization of deferred loan fees (103) (211)
Changes in -
Interest receivable (222) (60)
Interest payable (114) (76)
Taxes payable (157) 75
Other assets 490 489
Other liabilities 712 161
======== ========
Net cash provided by operating activities $ 1,451 $ 1,404
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer from loans to real estate acquired through foreclosure $ 425 $ 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
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 consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, the Bank. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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, 1997 are not
necessarily indicative of the results anticipated for the year ended December
31, 1997. 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, 1996.
2. ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
(IN THOUSANDS) 1997 1996 1997 1996
- -------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period $ 3,198 $ 3,037 $ 3,067 $ 3,096
Provision charged to operations 180 225 360 450
Loans and leases charged-off (225) (277) (285) (617)
Recoveries on loans and leases
previously charged-off 57 68 68 124
------- ------- ------- -------
Net charge-offs (168) (209) (217) (493)
------- ------- ------- -------
Balance, end of period $ 3,210 $ 3,053 $ 3,210 $ 3,053
======= ======= ======= =======
</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) 1997 1996 1996
- -------------- ------- ------ ------
<S> <C> <C> <C>
Impaired loans for which there is a related allowance $1,132 $1,424 $ 954
Impaired loans for which there is no related allowance 2,608 1,650 2,125
------ ------ ------
Total recorded investment $3,740 $3,074 $3,079
====== ====== ======
</TABLE>
The average recorded investment in impaired loans for the three and six months
ended June 30, 1997 was $3,417,000 and $3,014,000, respectively, compared to
$2,725,000 and $2,676,000 for the same periods in 1996. 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 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) 1997 1996 1997 1996
- ----------------- ------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period $27,849 $27,272 $27,797 $27,193
Net income 38 116 197 302
Cash dividends -- -- (107) (107)
------- ------- ------- -------
Balance, end of period $27,887 $27,388 $27,887 $27,388
======= ======= ======= =======
</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.
LOCAL ECONOMY
According to a nationwide study, Hawaii ranked last of all the states
in terms of job growth from February 1992 to February 1997. During this period,
the nation's employment base expanded by 11.8% while Hawaii's job count shrunk
by 2.3%. The lack of job creation continues to be a major drag on both the local
economy and the local real estate market. In 1996, Hawaii had the highest rate
of increase of bankruptcy filings in the nation. The number of residents and
businesses filing for bankruptcy in the state has increased in each of the last
10 quarters and for the first half of this year is up 54% over the same period
last year. Real estate activity has remained generally sluggish with prices
continuing to slide. Through the first six months of 1997, sales of existing
homes on Oahu totaled 827, compared to 834 for the first half of 1996.
Condominium sales for the year-to-date were 9.5% below the level recorded for
the comparable period last year. The median price for a single-family home on
Oahu in June was $311,300, a 4.9% decline from $327,500 in June 1996. The median
price for a condominium in June was $165,000, down 9.1% from $181,500 a year
earlier. Although comparable statistics are not available for commercial real
estate, this market has also experienced lower activity and lower prices,
particularly in the outlying areas, due to corporate downsizings, failures and
migrations to other states.
HIGHLIGHTS
The Company reported net income of $38,000, or $0.05 per share, for the
three months ended June 30, 1997, compared to $116,000, or $0.16 per share, for
the same period last year. Year-to-date earnings were $197,000, or $0.28 per
share, compared to $302,000 or $0.42 per share, for the first half of 1996. The
lower results for the quarter and year-to-date were primarily due to reductions
in the carrying costs of certain properties in other real estate owned as a
result of declines in market values. These adjustments approximated $135,000 and
were recognized through charges to other operating expenses, which directly
impacted current earnings.
Total assets increased from $296,025,000 at December 31, 1996 to
$298,009,000 at June 30, 1997. Loans and leases ended the quarter at
$205,589,000, slightly below the $207,262,00 reported at year-end 1996. Deposits
increased $2,778,000 to $267,372,000 at June 30, 1997 from December 31, 1996.
Leverage and risk-based capital ratios continued to exceed regulatory
requirements by a substantial margin.
-7-
<PAGE> 8
Net charge-offs for the quarter were $168,000, bringing the total for
the year-to-date to $217,000. Net charge-offs for the comparable periods in 1996
were $209,000 and $493,000, respectively. Noncurrent loans and leases increased
to $3,999,000 at June 30, 1997 from $3,392,000 at year-end 1996. The increase
was primarily due to a commercial mortgage loan relationship approximating
$1,022,000 that was placed on nonaccrual in the second quarter.
In May 1997, the Bank opened a new branch in the Times Square Shopping
Center in Pearl City on Oahu, which will provide it with an opportunity to
expand its loan and deposit base. Based on past experience, initially new
branches have an adverse impact on earnings until the volume of new business
grows to cover overhead expenses.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income for the three and six months ended June 30, 1997
increased $151,000 or 3.9% and $156,000 or 2.0%, respectively, from the
comparable periods in 1996. The improvement for the quarter was primarily due to
higher interest income on investment securities and federal funds sold. The
increase for the year-to-date was mainly due to lower interest expense on
deposits.
The average net interest margin improved to 5.84% for the second
quarter of 1997 from 5.70% reported for the second quarter of 1996. The increase
was principally due to higher average asset yields, which resulted from a
general increase in market interest rates. Net interest margin for the
year-to-date increased to 5.84% from 5.77% for the same period last year. The
higher margin was primarily due to a lower average cost of funds.
The average yield on interest-earning assets rose to 8.31% for the
second quarter of 1997 from 8.25% for the comparable quarter a year ago. For the
first half of 1997 and 1996, the average yield was 8.31% and 8.36%,
respectively. The average cost of funds for the quarter declined to 3.31% from
3.36% for the same period in 1996. The year-to-date average cost of funds for
1997 and 1996 was 3.28% and 3.41%, respectively.
Other Income and Expenses
Other income for the three months ended June 30, 1997 decreased $51,000
or 6.5%, compared to the second quarter of 1996. The decline was largely due to
a decrease in other service charges, collection and exchange charges,
commissions and fees. When compared to the respective period last year, other
income for the first half of 1997 was virtually unchanged.
Other expenses consist of salaries and employee benefits, occupancy
expense and other operating expenses. For the three and six months ended June
30, 1997, other expenses increased $259,000 or 6.1% and $397,000 or 4.8%,
respectively, compared to the same periods last year.
-8-
<PAGE> 9
Salaries and employee benefits for the three and six months ended June
30, 1997 increased $80,000 or 3.8% and $182,000 or 4.4%, 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, 1997
rose $51,000 or 4.8% and $66,000 or 3.1%, respectively, from the comparable
period in 1996. The increase was attributable to higher repair costs, taxes and
depreciation charges.
Other operating expenses for the three and six months ended June 30,
1997 increased $128,000 or 12.0% and $149,000 or 7.3%, respectively, compared to
same periods a year ago. The increase was primarily due to writedowns
approximating $135,000 of certain properties in other real estate owned as a
result of declines in market value. (see Loan Portfolio Risk Elements and Other
Real Estate Owned). 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 $378,395 and
$355,364 for the first half of 1997 and 1996, respectively.
The Bank is currently conducting an assessment of various systems to
ensure the Bank will be prepared for the Year 2000 and the turn of the century.
The review in progress covers vendors and service providers as well as other
systems that use embedded microchips, such as automated teller machines,
elevators and vaults. An upgrade to new computer hardware and software, which is
Year 2000 compliant, is planned in early 1998. While the conversion will
increase costs in the near-term, the enhancements to the Bank's systems are
expected to result in greater operating efficiencies and improvements in service
quality, which will have a positive impact on long-term future profits.
Income Taxes
The Company's effective income tax rate for the three and six months
ended June 30, 1997 was 39.7% and 38.8%, respectively, compared to 34.5% and
35.7% for the same periods last year. The higher tax rates for the quarter and
year-to-date reflected the absence of tax exempt income from investment
securities, compared to the same periods in 1996.
FINANCIAL CONDITION
Deposits
At June 30, 1997, total deposits were $267,372,000, an increase from
$264,594,000 at December 31, 1996 and $258,698,000 at June 30, 1996.
Noninterest-bearing demand deposits ended the quarter $1,954,000 above the
balance reported at year-end 1996. The increase was primarily due to higher
balances in bankruptcy and escrow fund accounts. Interest-bearing demand
deposits at quarter-end remained comparable to December 31, 1996 balances. Time
deposits increased $3,068,000 over year-end 1996 levels, offsetting a decline in
savings deposits of $2,209,000, as customers continued to shift their funds from
savings to time deposits to take advantage of higher
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<PAGE> 10
rates. The average rate paid on savings and time deposits for the first half of
1997 was 2.75% and 4.81%, respectively. Subsequent to quarter-end, a deposit
withdrawal of $15,500,000 was recorded. This reduction in deposits did not have
an adverse impact upon the Bank's liquidity.
The following table presents the distribution of the Bank's deposit
accounts for the dates indicated.
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
------------------------- ------------------------- -------------------------
Balance % Balance % Balance %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 61,943,000 23.2% $ 59,989,000 22.7% $ 56,986,000 22.0%
Interest-bearing demand 28,109,000 10.5 28,144,000 10.6 27,835,000 10.8
Savings 107,823,000 40.3 110,032,000 41.6 109,971,000 42.5
Time 69,497,000 26.0 66,429,000 25.1 63,906,000 24.7
----------- ---- ---------- ---- ---------- ----
Total deposits $267,372,000 100.0% $264,594,000 100.0% $258,698,000 100.0%
============ ====== ============ ====== ============ ======
- ------------------------------------------------------------------------------------------------------------------
</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, 1997, December 31, 1996, and June
30, 1996, public time deposits totaled $32,548,000, $32,192,000, and
$30,925,000, respectively, representing 12.2%, 12.2%, and 12.0% 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 and other U.S. government
agencies. The Bank is also a stockholder in the Federal Reserve Bank and the
Federal Home Loan Bank of Seattle. The Bank has no zero coupon bonds,
collateralized mortgage obligations or stripped mortgage-backed securities.
At June 30, 1997, the book and fair value of the held-to-maturity
portfolio was $46,982,000 and $46,981,000, respectively. As of the same date,
the book and fair value of the available-for-sale portfolio was $1,760,000. The
Bank had no trading securities as of June 30, 1997. During the first six months
of 1997, 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, 1997, loans and leases were $205,589,000, compared to
$207,262,000 at December 31, 1996 and $205,208,000 at June 30, 1996. During the
first half of 1997, growth in the portfolio continued to be constrained by a
weak local economy. 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, 1997 December 31, 1996 June 30, 1996
------------------------- ------------------------- -------------------------
Balance % Balance % Balance %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate
Family residential $104,618,000 50.9% $104,791,000 50.5% $104,075,000 50.7%
Construction 1,404,000 0.7 2,572,000 1.2 2,344,000 1.1
Commercial property 26,992,000 13.1 25,851,000 12.5 26,616,000 13.0
----------- ---- ---------- ---- ---------- ----
Total 133,014,000 64.7 133,214,000 64.2 133,035,000 64.8
Commercial, industrial
and agricultural 63,616,000 31.0 64,804,000 31.3 63,332,000 30.9
Consumer 7,464,000 3.6 7,674,000 3.7 7,577,000 3.7
All other loans 600,000 0.3 557,000 0.3 265,000 0.1
Direct financing leases 895,000 0.4 1,013,000 0.5 999,000 0.5
----------- ---- ---------- ---- ---------- ----
Total $205,589,000 100.0% $207,262,000 100.0% $205,208,000 100.0%
- ------------------------------------------------------------------------------------------------------------------
</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, 1997, noncurrent loans and leases amounted to
$3,999,000, representing 1.9% of loans and leases outstanding, compared to
$3,392,000 or 1.6% at December 31, 1996 and $4,176,000 or 2.0% at June 30, 1996.
The increase from year-end 1996 was primarily due to a commercial mortgage loan
relationship of approximately $1,022,000, which was placed on nonaccrual. The
Bank had no restructured loans or leases at June 30, 1997, December 31, 1996 or
June 30, 1996.
Other real estate owned ("OREO"), which is included in other assets, is
generally comprised of properties acquired through foreclosure proceedings in
settlement of debts previously contracted. These assets are recorded at the
lower of cost or fair market value based on current appraisals less estimated
selling costs. Any excess of the carrying amount of the loan over the fair
market value of the asset, net of estimated disposal costs, is charged against
the allowance for loan and lease losses at the time of transfer. Subsequent to
transfer, any losses on disposition or writedowns as a result of declines in the
market value of specific properties are recorded as a charge to other expenses,
which reduces current earnings.
During the second quarter of 1997, a periodic re-evaluation of certain
OREO properties indicated lower values due to a sluggish real estate market.
Accordingly, the Bank reduced its carrying costs for those assets with a charge
to other expenses of approximately $135,000 that directly impacted current
earnings. At June 30, 1997, December 31, 1996 and June 30, 1996, OREO totaled
$1,506,000, $1,219,000 and $1,356,000, respectively. Subsequent to quarter-end,
one of the properties was sold leaving a commercial property, a single-family
residence and a residential condominium remaining in the portfolio.
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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
1997 1996 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Noncurrent
Past due 90 days or more $ 115,000 $ 212,000 $1,080,000
Nonaccrual 3,884,000 3,180,000 3,168,000
---------- ---------- ----------
Total $3,999,000 $3,392,000 $4,176,000
========== ========== ==========
OREO $1,506,000 $1,219,000 $1,356,000
========== ========== ==========
- --------------------------------------------------------------------------------
</TABLE>
Provision and Allowance for Loan and Lease Losses
During the three and six months ended June 30, 1997, the Bank provided
$180,000 and $360,000, respectively, for possible loan and lease losses,
compared to $225,000 and $450,000 for the three and six months ended June 30,
1996.
Net charge-offs for the quarter and year-to-date were $168,000 and
$217,000, respectively, compared to $209,000 and $493,000 for the same periods
in 1996. Most of the Bank's losses in the first half of 1997 and 1996 were
attributable to a few credits. The annualized ratio of net charge-offs to
average loans and leases for the year-to-date was 0.21%, compared to 0.47% for
the same period last year.
At June 30, 1997, the allowance for loan and lease losses stood at
$3,210,000, compared to $3,067,000 at December 31, 1996 and $3,053,000 at June
30, 1996. The ratio of the allowance to total loans and leases outstanding was
1.56%, 1.48% and 1.49% at June 30, 1997, December 31, 1996 and June 30, 1996,
respectively. While the reserve represented 80.3% of 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.
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 1997 and 1996, there were no borrowings from the FHLB.
-12-
<PAGE> 13
For the first six months of 1997, net cash provided by operating
activities was $1,451,000. Net cash provided by investing activities was
$1,667,000, largely due to sales and payoffs of loans and leases. Net cash
provided by financing activities was $1,346,000, due primarily to a net inflow
in time deposits, partly offset by a net outflow in demand and savings deposits.
Shareholders' Equity and Capital Resources
Shareholders' equity totaled $27,887,000 at June 30, 1997, $27,797,000
at December 31, 1996 and $27,388,000 at June 30, 1996. The growth in equity was
achieved through retention in earnings after payment of cash dividends of
$106,650 in the first quarter of 1997 and 1996. Book value per share rose from
$38.52 at June 30, 1996 to $39.10 at December 31, 1996 and to $39.22 at June 30,
1997.
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 9.47% at June 30, 1997, 9.45% at December 31, 1996,
and 9.41% at June 30, 1996. At June 30, 1997, the Company's Tier 1 and total
capital ratios were 14.25% and 15.51%, respectively, compared to 13.96% and
15.22% at December 31, 1996, and 13.90% and 15.16% at June 30, 1996.
EFFECT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," which is effective for financial statements issued for periods ending
after December 31, 1997, including interim periods. Earlier application is not
permitted. This Statement requires disclosing basic and diluted earnings per
share for all the years presented in the income statement. The adoption of this
Statement is not anticipated to have a material impact on the consolidated
financial statements of the Company.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," which is effective for
fiscal years beginning after December 15, 1997. This Statement establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. Since the Company has no items of other
comprehensive income, the adoption of this Statement is not expected to have a
material impact on the consolidated financial statements of the Company.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This Statement requires that
public business enterprises report certain information about operating segments
in complete sets of financial statements of the Company and in condensed
financial statements of interim periods issued to shareholders. Since the
Company does not have separate operating segments, the adoption of this
Statement is not expected to 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 15, 1997, 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 644,421 100
Warren K.K. Luke 644,421 100
Gordon J. Mau 644,421 100
Tan Tek Lum 644,421 100
Arthur S.K. Fong 644,421 100
</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.
HAWAII NATIONAL BANCSHARES, INC.
(Registrant)
Date August 7, 1997 By /s/ WARREN K.K. LUKE
------------------ ------------------------------
Warren K.K. Luke
President
Date August 7, 1997 By /s/ ERNEST T. MURATA
------------------ ------------------------------
Ernest T. Murata
Vice President, Treasurer,
Assistant Secretary and
Chief Financial Officer
-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 FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S
FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 17,491
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 20,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,760
<INVESTMENTS-CARRYING> 46,982
<INVESTMENTS-MARKET> 46,981
<LOANS> 205,589
<ALLOWANCE> 3,210
<TOTAL-ASSETS> 298,009
<DEPOSITS> 267,372
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 1,750
<LONG-TERM> 0
0
0
<COMMON> 711
<OTHER-SE> 27,176
<TOTAL-LIABILITIES-AND-EQUITY> 298,009
<INTEREST-LOAN> 9,266
<INTEREST-INVEST> 1,476
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,270
<INTEREST-DEPOSIT> 3,326
<INTEREST-EXPENSE> 3,349
<INTEREST-INCOME-NET> 7,921
<LOAN-LOSSES> 360
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,728
<INCOME-PRETAX> 322
<INCOME-PRE-EXTRAORDINARY> 197
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 5.84
<LOANS-NON> 3,884
<LOANS-PAST> 115
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,067
<CHARGE-OFFS> 285
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 3,210
<ALLOWANCE-DOMESTIC> 3,210
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 558
</TABLE>
