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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-12396
CB BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0197163
(State of Incorporation) (IRS Employer Identification No.)
201 MERCHANT STREET HONOLULU, HAWAII 96813
(Address of principal executive offices)
(808) 535-2500
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of each of the registrant's classes of common
stock as of April 30, 2001 was:
Class Outstanding
----------------------------- ----------------
Common Stock, $1.00 Par Value 3,187,712 shares
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
----------------------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(in thousands) 2001 2000 2000
----------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 35,696 $ 40,172 $ 43,111
Interest-bearing deposits in other banks 1,010 1,058 81
Federal funds sold 21,560 610 14,900
Investment and mortgage-backed securities:
Available-for-sale 280,963 298,089 313,462
FHLB Stock 32,949 32,430 32,254
Loans held for sale 49,716 33,696 4,808
Net loans 1,239,265 1,250,215 1,172,609
Premises and equipment 18,576 18,081 17,679
Other real estate owned 2,758 3,458 5,803
Accrued interest receivable and other assets 45,822 43,591 43,460
----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,728,315 $ 1,721,400 $ 1,648,167
==========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 128,502 $ 128,742 $ 118,188
Interest-bearing 1,126,921 1,089,519 1,022,271
----------------------------------------------------------------------------------------------------------
Total deposits 1,255,423 1,218,261 1,140,459
----------------------------------------------------------------------------------------------------------
Short-term borrowings 75,700 170,700 148,500
Accrued expenses and other liabilities 18,065 20,714 17,383
Long-term debt 244,438 181,563 225,073
Minority interest in consolidated subsidiary 7,000 7,000 --
----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,600,626 1,598,238 1,531,415
----------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock -- -- --
Common stock 3,190 3,189 3,238
Additional paid-in capital 54,621 54,594 55,785
Retained earnings 74,767 72,284 64,365
Accumulated other comprehensive
loss, net of tax (4,889) (6,905) (6,636)
----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 127,689 123,162 116,752
----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,728,315 $ 1,721,400 $ 1,648,167
==========================================================================================================
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
-------------------------
(in thousands, except per share data) 2001 2000
------------------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $ 28,139 $ 24,917
Interest and dividends on investment and
mortgage-backed securities:
Taxable interest income 5,036 5,229
Nontaxable interest income 388 384
Dividends 520 527
Other interest income 178 148
------------------------------------------------------------------------------------------------
Total interest income 34,261 31,205
------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 13,086 10,328
FHLB advances and other short-term borrowings 2,242 2,179
Long-term debt 3,131 3,441
------------------------------------------------------------------------------------------------
Total interest expense 18,459 15,948
------------------------------------------------------------------------------------------------
Net interest income 15,802 15,257
Provision for credit losses 2,750 1,906
------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 13,052 13,351
------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 834 646
Other service charges and fees 1,139 918
Net realized gains (losses) on sales of securities 387 (437)
Net gains on sales of loans 162 140
Other 591 447
------------------------------------------------------------------------------------------------
Total noninterest income 3,113 1,714
------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 5,866 4,934
Net occupancy expense 1,592 1,845
Equipment expense 816 501
Other 3,843 3,888
------------------------------------------------------------------------------------------------
Total noninterest expense 12,117 11,168
------------------------------------------------------------------------------------------------
Income before income taxes 4,048 3,897
Income tax expense 1,247 1,463
------------------------------------------------------------------------------------------------
NET INCOME $ 2,801 $ 2,434
================================================================================================
PER SHARE DATA:
BASIC $ 0.88 $ 0.75
DILUTED $ 0.83 $ 0.75
================================================================================================
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
--------------------------------
(in thousands) 2001 2000
----------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 2,801 $ 2,434
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for credit losses 2,750 1,906
Net (gain) loss on sale of investment and
mortgage-backed securities (387) 437
Depreciation and amortization 950 712
Deferred income taxes (18) 49
Decrease (increase) in accrued interest receivable 86 (717)
Decrease in accrued interest payable (1,933) (136)
Loans originated for sale (42,298) (12,287)
Sale of loans held for sale 25,502 15,284
Increase in other assets (2,297) (3,154)
(Increase) decrease in income taxes payable (86) 1,182
Decrease in other liabilities (2,123) (3,131)
Other (16) (2,160)
----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (17,069) 419
----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease (increase) in deposits in other banks 48 (5)
Net increase in federal funds sold (20,950) (9,200)
Purchase of available-for-sale securities (50) (4,612)
Proceeds from sales of available-for-sale securities 15,108 4,373
Proceeds from maturities of available-for-sale securities 5,941 3,667
Increase in FHLB Stock (519) (527)
Net decrease (increase) in loans 8,324 (49,365)
Proceeds from sales of premises and equipment -- 195
Capital expenditures (1,179) (578)
Proceeds from sales of foreclosed assets 1,538 2,286
----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 8,261 (53,766)
----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 36,747 36,670
Net decrease in short-term borrowings (95,000) (6,384)
Proceeds from long-term debt 75,000 10,000
Principal payments on long-term debt (12,125) (10,067)
Cash dividends paid (318) (228)
Option exercised 28 --
Stock repurchases -- (451)
----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,332 29,540
----------------------------------------------------------------------------------------------------------
Decrease in cash and due from banks (4,476) (23,807)
Cash and due from banks at beginning of period 40,172 66,918
----------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $ 35,696 $ 43,111
==========================================================================================================
Supplemental schedule of non-cash investing activities:
Interest paid on deposits and other borrowings $ 20,391 $ 16,085
Income taxes paid 1,450 300
==========================================================================================================
See accompanying notes to the consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
-----------------------------------------------------------------------------------------------------------------------------
Accu-
mulated
Other
Compre-
Additional hensive
Common Paid-In Retained Income
(in thousands, except per share data) Stock Capital Earnings (Loss) Total
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 3,189 $ 54,594 $ 72,284 $ (6,905) $ 123,162
COMPREHENSIVE INCOME (LOSS):
NET INCOME -- -- 2,801 -- 2,801
UNREALIZED VALUATION ADJUSTMENT -- -- -- 2,016 2,016
-----------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME -- -- 2,801 2,016 4,817
-----------------------------------------------------------------------------------------------------------------------------
OPTIONS EXERCISED 1 27 -- -- 28
CASH DIVIDENDS ($0.10 PER SHARE) -- -- (318) -- (318)
-----------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2001 $ 3,190 $ 54,621 $ 74,767 $ (4,889) $ 127,689
=============================================================================================================================
Balance at December 31, 1999 $ 3,255 $ 56,219 $ 62,159 $ (6,942) $ 114,691
Comprehensive income (loss):
Net income -- -- 2,434 -- 2,434
Unrealized valuation adjustment -- -- -- 306 306
-----------------------------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) -- -- 2,434 306 2,740
-----------------------------------------------------------------------------------------------------------------------------
Cash dividends ($0.07 per share) -- -- (228) -- (228)
Repurchased, cancelled and retired shares (17) (434) -- -- (451)
-----------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 $ 3,238 $ 55,785 $ 64,365 $ (6,636) $ 116,752
=============================================================================================================================
See accompanying notes to the consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of CB Bancshares,
Inc. (the "Parent Company") and its wholly-owned subsidiaries (the "Company"):
City Bank and its wholly-owned subsidiaries (the "Bank"); Datatronix Financial
Services, Inc.; and O.R.E., Inc. Significant intercompany transactions and
balances have been eliminated in consolidation. The Bank owns 50% of Pacific
Access Mortgage, LLC, a mortgage brokerage company. The investment is accounted
for using the equity method. Effective July 1, 2000, International Savings &
Loan Association (the "Association") was merged with and into the Bank (the
"Merger"). The consolidated financial statements include all adjustments of a
normal and recurring nature, which are, in the opinion of management, necessary
for a fair presentation of the financial results for the interim periods.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, therefore, do not include
all information and footnotes normally included in financial statements prepared
in conformity with generally accepted accounting principles. Accordingly, these
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 31, 2000.
Results of operations for interim periods are not necessarily indicative of
results for the full year.
NEW ACCOUNTING PRINCIPLES
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires entities to recognize
all derivatives in their financial statements as either assets or liabilities
measured at fair value. The effective date for SFAS No. 133, as amended, was
fiscal years beginning after June 15, 2000, or January 1, 2001 for the Company.
The Company implemented the standard as of January 1, 2001.
The Company uses interest rate swaps, caps and floors to modify the interest
rate characteristics of certain assets and liabilities. Interest rate swaps are
primarily used to convert certain fixed rate deposits to floating interest
rates. Since adoption of SFAS 133, these interest rate swaps have been
designated and qualify as fair value hedging instruments.
On January 1, 2001, the Company recorded the cumulative effect of adopting SFAS
133 in its identified fair value hedges. A transition amount of $263,000
associated with establishing fair values of the derivative instruments and
hedged items on the balance sheet was recorded. No adjustments were required to
net earnings in connection with adopting SFAS 133.
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During the first quarter of 2001, no amounts were reclassified to earnings in
connection with the ineffective portion of fair value hedges, no amounts were
excluded from the measure of effectiveness, and there were no transactions that
no longer qualified as a fair value hedge. During the first quarter of 2001, the
Company has not had any cash flow hedges.
Derivatives not designated as hedges primarily consist of options and
instruments containing option features that behave based on limits ("caps",
"floors", or "collars"). These instruments are used to hedge risks associated
with interest rate movements. Although these instruments are effective as hedges
from an economic perspective, they do not qualify for hedge accounting under
SFAS No. 133, as amended.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 2000 have been
reclassified to conform with the 2001 presentation. Such reclassifications had
no effect on the consolidated net income as previously reported.
NOTE B - LOANS
THE LOAN PORTFOLIO CONSISTED OF THE FOLLOWING AT THE DATES INDICATED:
------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(in thousands) 2001 2000 2000
------------------------------------------------------------------------------------
Commercial $ 239,464 $ 246,877 $ 228,531
Real estate:
Construction 32,796 26,237 16,253
Commercial 192,761 192,194 201,479
Residential 679,849 693,068 654,513
Installment and consumer 116,592 114,562 95,405
------------------------------------------------------------------------------------
Gross loans 1,261,462 1,272,938 1,196,181
Less:
Unearned discount 4 4 4
Net deferred loan fees 5,724 5,272 4,938
Allowance for credit losses 16,469 17,447 18,630
------------------------------------------------------------------------------------
Loans, net $1,239,265 $1,250,215 $1,172,609
====================================================================================
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NOTE C - SEGMENT INFORMATION
The Company's business segments are organized around services and products
provided. The segment data presented below was prepared on the same basis of
accounting as the consolidated financial statements described in Note A.
Intersegment income and expense are valued at prices comparable to those for
unaffiliated companies.
-------------------------------------------------------------------------------------------------------------------------------
(in thousands) Retail Wholesale Treasury All Other Total
-------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2001
NET INTEREST INCOME $ 7,370 $ 7,683 $ 747 $ 2 $ 15,802
INTERSEGMENT NET INTEREST
INCOME (EXPENSE) 588 (1,836) 1,248 -- --
PROVISION FOR CREDIT LOSSES 752 1,998 -- -- 2,750
OTHER OPERATING INCOME (EXPENSE) (2,635) (2,196) 130 (4,303) (9,004)
ADMINISTRATIVE AND OVERHEAD
EXPENSE ALLOCATION (1,984) (1,455) (330) 3,769 --
INCOME TAX EXPENSE (BENEFIT) 822 63 570 (208) 1,247
NET INCOME (LOSS) 1,765 135 1,225 (324) 2,801
TOTAL ASSETS 842,776 365,232 333,593 186,714 1,728,315
===============================================================================================================================
Prior to the Merger, the Company's segments were organized around significant
subsidiaries as opposed to products and services as a combined entity. As a
result, comparative segment data for 2000 is not readily available or
practicable to provide.
NOTE D - EARNINGS PER SHARE CALCULATION
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------------------------------------
2001 2000
-------------------------------------------------------------------------------------------------------------------------------
SHARES Shares
INCOME (DENOM- PER SHARE Income (Denom- Per Share
(NUMERATOR) INATOR) AMOUNT (Numerator) inator) Amount
-------------------------------------------------------------------------------------------------------------------------------
(in thousands, except number of
shares and per share data)
Basic:
Net income $ 2,801 3,189,067 $ 0.88 $ 2,434 3,251,738 $ 0.75
Effect of dilutive securities -
Stock incentive plan options -- 169,978 -- -- -- --
Diluted:
Net income and
assumed conversions $ 2,801 3,359,045 $ 0.83 $ 2,434 3,251,738 $ 0.75
===============================================================================================================================
At March 31, 2000 there were no securities that could potentially dilute basic
earnings per share.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain statements relating to future results of the Company
(including certain projections and business trends) that are considered
"forward-looking statements." Actual results may differ materially from those
projected as a result of certain risks and uncertainties including, but not
limited to, changes in political and economic conditions, interest rate
fluctuations, competitive product and pricing pressures within the Company's
market, equity and bond market fluctuations, personal and corporate customers'
bankruptcies and financial condition, inflation and results of litigation.
Accordingly, historical performance, as well as reasonably applied projections
and assumptions, may not be a reliable indicator of future earnings due to risks
and uncertainties.
As circumstances, conditions or events change that affect the Company's
assumptions and projections on which any of the statements are based, the
Company disclaims any obligation to issue any update or revision to any
forward-looking statement contained herein.
NET INCOME
Consolidated net income for the quarter ended March 31, 2001, totaled $2.8
million, an increase of $367,000, or 15.1%, over the same quarter last year.
Diluted earnings per share for the first quarter of 2001 was $0.83 as compared
to $0.75 for the same period in 2000, an increase of $0.08, or 10.7%. The
increase in consolidated net income for the first three months of 2001, over the
corresponding period in 2000, was primarily due to a 81.6% increase in
noninterest income and a 3.6% increase in net interest income; partially offset
by a 44.3% increase in the provision for credit losses and an 8.5% increase in
noninterest expense.
The Company's annualized return on average total assets for the three months
ended March 31, 2001 was 0.66% as compared to 0.61% for the same period last
year. The Company's annualized return on average stockholders' equity was 9.05%
for the three months ended March 31, 2001, as compared to 8.46% for the same
period last year.
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, was $16.0 million for the
three months ended March 31, 2001, an increase of $545,000, or 3.5% over the
same period in 2000. The increase was primarily due to an increase in
outstanding loans of $109.4 million, or 9.1%; partially offset by an interest
recovery of $480,000 on a certain nonperforming commercial loan in the first
quarter of 2000 and a decrease in the net interest margin. For the quarter ended
March 31, 2001, the Company's net interest margin was 3.96%, a decrease of 12
basis points (1% equals 100 basis points) from the same period in 2000. The
decrease in the net interest margin for the first three months of 2001 as
compared to the same period in 2000 was primarily due to a 48 basis point
increase in the cost of funds, partially offset by a 23 basis point increase in
the yield on average earning assets.
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A comparison of net interest income for the three months ended March 31, 2001
and 2000 is set forth below on a taxable equivalent basis:
-----------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
2001 2000
----------------------------------------- -----------------------------------------
INTEREST Interest
AVERAGE INCOME/ YIELD/ Average Income/ Yield/
(dollars in thousands) BALANCE EXPENSE RATE Balance Expense Rate
------- -------- ------- ------- -------- ------
ASSETS
Earning assets:
Interest-bearing deposits in
other banks $ 1,077 $ 18 6.78% $ 146 $ 2 5.51%
Federal funds sold and
securities purchased under
agreement to resell 11,830 160 5.49 10,114 146 5.81
Taxable investment and
mortgage-backed securities 295,064 5,556 7.64 313,975 5,756 7.37
Nontaxable investment
securities 30,904 597 7.83 30,491 591 7.79
Loans(1) 1,302,216 28,142 8.76 1,170,129 24,922 8.57
--------------------------- ---------------------------
Total earning assets 1,641,091 34,473 8.52 1,524,855 31,417 8.29
--------------------------- ---------------------------
Nonearning assets:
Cash and due from banks 30,795 39,523
Premises and equipment 18,176 17,879
Other assets 47,716 46,418
Less allowance for credit losses (17,730) (18,236)
----------- -----------
Total assets $ 1,720,048 $ 1,610,439
=========== ===========
Interest-bearing liabilities:
Savings deposits $ 378,917 $ 2,585 2.77% $ 359,479 $ 2,310 2.58%
Time deposits 735,947 10,501 5.79 640,257 8,018 5.04
Short-term borrowings 133,914 2,242 6.79 143,679 2,179 6.10
Long-term debt 202,945 3,131 6.26 227,031 3,441 6.10
--------------------------- ---------------------------
Total interest-bearing
deposits and liabilities 1,451,723 18,459 5.16 1,370,446 15,948 4.68
--------------------------- ---------------------------
Noninterest-bearing liabilities:
Demand deposits 118,368 106,746
Other liabilities 24,405 17,525
----------- -----------
Total liabilities 1,594,496 1,494,717
Stockholders' equity 125,552 115,722
----------- -----------
Total liabilities and
stockholders' equity $ 1,720,048 $ 1,610,439
=========== ===========
Net interest income and
margin on total earning
assets 16,014 3.96% 15,469 4.08%
=========== ===========
Taxable equivalent adjustment (212) (212)
----------- -----------
Net interest income $ 15,802 $ 15,257
=========== ===========
(1) Yields and amounts earned include loan fees. Nonaccrual loans have been
included in earning assets for purposes of these computations.
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NONPERFORMING ASSETS
A summary of nonperforming assets at March 31, 2001, December 31, 2000 and March
31, 2000 follows:
--------------------------------------------------------------------------------------------------------------------------------
MARCH 31, December 31, March 31,
(dollars in thousands) 2001 2000 2000
--------------------------------------------------------------------------------------------------------------------------------
Nonperforming assets:
Nonperforming loans:
Commercial $ 9,199 $ 6,268 $ 1,522
Real estate:
Commercial 2,269 3,030 2,209
Residential 5,916 5,827 9,220
--------------------------------------------------------------------------------------------------------------------------------
Total real estate loans 8,185 8,857 11,429
Consumer -- -- 130
--------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 17,384 15,125 13,081
--------------------------------------------------------------------------------------------------------------------------------
Other real estate owned 2,758 3,458 5,803
--------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $20,142 $18,583 $18,884
================================================================================================================================
Past due loans:
Commercial $ 1,951 $ 975 $ 341
Real estate 2,636 473 3,636
Consumer 851 1,256 1,092
--------------------------------------------------------------------------------------------------------------------------------
Total past due loans (1) $ 5,438 $ 2,704 $ 5,069
================================================================================================================================
Restructured:
Commercial $ 1,978 $ 4,153 $ 4,761
Real estate:
Commercial -- -- 1,218
Residential 10,352 11,730 11,410
--------------------------------------------------------------------------------------------------------------------------------
Total restructured loans (2) $12,330 $15,883 $17,389
================================================================================================================================
Nonperforming assets to total loans and other real estate owned (end of period):
Excluding 90 days past due accruing loans 1.54% 1.42% 1.57%
Including 90 days past due accruing loans 1.96% 1.63% 1.99%
Nonperforming assets to total assets (end of period):
Excluding 90 days past due accruing loans 1.17% 1.08% 1.15%
Including 90 days past due accruing loans 1.48% 1.24% 1.45%
(1) Represents loans which are past due 90 days or more as to principal
and/or interest, are still accruing interest and are in the process of
collection.
(2) Represents loans which have been restructured, are current and still
accruing interest.
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Nonperforming loans at March 31, 2001 totaled $17.4 million, an increase of $4.3
million, or 32.9%, over March 31, 2000. The increase in nonperforming loans was
primarily due to an increase in the commercial category, partially offset by a
decrease in the residential real estate loan category.
Nonperforming commercial loans were $9.2 million at March 31,2001, an increase
of $7.7 million over March 31, 2000. The increase was due to: 1) a $3.7 million
loan placed on non-accrual status in the third quarter of 2000; 2) loans
totaling $2.6 million to a real estate developer that were placed on nonaccrual
in the first quarter of 2001; and 3) a $1.9 million loan to a builder supplier
that was placed on nonaccrual in the first quarter of 2001.
Other real estate owned was $2.8 million at March 31, 2001, a decrease of $3.0
million, or 52.5%, from March 31, 2000. The decrease in other real estate owned
was consistent with the decrease in nonperforming residential real estate loans
and the increase in real estate sales activity in Hawaii.
Restructured loans were $12.3 million at March 31, 2001, a decrease of $5.1
million, or 29.1%, from March 31, 2000. The decrease was primarily due to the
restructuring of a certain commercial real estate loan to a market interest rate
in the second quarter of 2000 and the reclassification of certain commercial
loans and residential real estate loans to nonperforming loans and past due
loans.
At March 31, 2001, the Company was not aware of any significant potential
problem loans (not otherwise classified as nonperforming, past due, or
restructured in the above table) where possible credit problems of the borrower
caused management to have serious concerns as to the ability of such borrower to
comply with the present scheduled repayment terms. The Company's future levels
of nonperforming loans will be reflective of Hawaii's economy and the financial
condition of its customers.
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
The provision for credit losses is based upon management's judgment as to the
adequacy of the allowance for credit losses (the "Allowance") to absorb future
losses. The Company uses a systematic methodology to determine the adequacy of
the Allowance and related provision for credit losses to be reported for
financial statement purposes. The determination of the adequacy of the Allowance
is ultimately one of management's judgment, which includes consideration of many
factors, including, among other things, the amount of problem and potential
problem loans, net charge-off experience, changes in the composition of the loan
portfolio by type and geographic location of loans and in overall loan risk
profile and quality, general economic factors and the fair value of collateral.
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The following table sets forth the activity in the allowance for credit losses
for the periods indicated:
--------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
(dollars in thousands) 2001 2000
--------------------------------------------------------------------------------------------------------------
Loans outstanding (end of period) $ 1,305,450 $ 1,196,047
==============================================================================================================
Average loans outstanding $ 1,302,216 $ 1,170,129
==============================================================================================================
Balance at beginning of period $ 17,447 $ 17,942
--------------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial 3,035 397
Real estate
Commercial --
Residential 467 746
Consumer 474 292
--------------------------------------------------------------------------------------------------------------
Total loans charged off 3,976 1,435
--------------------------------------------------------------------------------------------------------------
Recoveries on loans charged off:
Commercial 10 3
Real estate:
Commercial -- 12
Residential 143 125
Consumer 95 77
--------------------------------------------------------------------------------------------------------------
Total recoveries on loans
previously charged off 248 217
--------------------------------------------------------------------------------------------------------------
Net charge-offs (3,728) (1,218)
--------------------------------------------------------------------------------------------------------------
Provision charged to expense 2,750 1,906
--------------------------------------------------------------------------------------------------------------
Balance at end of period $ 16,469 $ 18,630
==============================================================================================================
Net loans charged off to average loans 1.16%(1) 0.42%(1)
Net loans charged off to allowance
for credit losses 91.80%(1) 26.30%(1)
Allowance for credit losses to total
loans (end of period) 1.26% 1.56%
Allowance for credit losses to nonperforming loans (end of period):
Excluding 90 days past due accruing loans 0.95X 1.42x
Including 90 days past due accruing loans 0.72X 1.03x
(1) Annualized.
The provision for credit losses was $2.8 million for the first quarter of 2001,
an increase of $844,000, or 44.3%, over the same quarter last year. The increase
in the provision for credit losses was primarily related to the increase in the
loan portfolio of 9.1% and the $2.5 million increase in the net charge-offs from
the three months ended March 31, 2000 to the three months ended March 31, 2001.
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The Allowance at March 31, 2001 was $16.5 million and represented 1.26% of total
loans. The corresponding ratios at December 31, 2000 and March 31, 2000 were
1.34% and 1.56%, respectively.
Net charge-offs were $3.7 million for the first three months of 2001, an
increase of $2.5 million, or 206.1%, over the same period in 2000. The increase
was primarily due to higher charge-offs in the commercial and consumer loan
categories. The increase in the commercial loan category was primarily due to
the charge-off of three commercial loans totaling $3.0 million during the first
quarter of 2001. Such amounts were previously provided for in the Allowance.
The Allowance decreased to 0.95 times nonperforming loans (excluding 90 days
past due accruing loans) at March 31, 2001 from 1.42 times at March 31, 2000 as
a result of the increase in nonperforming loans.
In management's judgment, the Allowance was adequate to absorb potential losses
currently inherent in the loan portfolio at March 31, 2001. However, changes in
prevailing economic conditions in the Company's markets or in the financial
condition of its customers could result in changes in the level of nonperforming
assets and charge-offs in the future and, accordingly, changes in the Allowance.
NONINTEREST INCOME
Noninterest income totaled $3.1 million for the first quarter of 2001, an
increase of $1.4 million, or 81.6%, over the first quarter of 2000.
Service charges on deposit accounts increased $188,000, or 29.1%, for the first
quarter of 2001 over the same period in 2000. These increases resulted from an
increase in deposit accounts.
Other service charges and fees increased $221,000, or 24.1%, for the first three
months of 2001 over the same period in 2000. These increases were primarily due
to higher ATM fee income recorded during the three months ended March 31, 2001.
Net realized gains on sales of securities was $387,000 for the three months
ended March 31, 2001 compared to net realized losses of $437,000 in the same
period in 2000.
Net gains on sales of loans increased $22,000, or 15.7%, for the first quarter
of 2001 from the same period in 2000.
Other noninterest income increased $144,000, or 32.2%, for the first three
months of 2001 over the same period in 2000. The increase was primarily due to
the revaluation of foreign currency, which resulted in a gain of $63,000.
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NONINTEREST EXPENSE
Noninterest expense totaled $12.1 million for the first quarter of 2001, an
increase of $950,000, or 8.5%, from the same period in 2000. The efficiency
ratio (exclusive of intangibles) improved from 64.9% for the three months ended
March 31, 2000 to 63.3% for the three months ended March 31, 2001.
Salaries and employee benefits increased $932,000, or 18.9%, for the first
quarter ended March 31, 2001 from the same period in 2000. The increases were
primarily due to higher incentive-based compensation related to the growth in
loans and deposits.
Net occupancy expense decreased $253,000, or 13.7%, for the first three months
ended March 31, 2001 from the same period in 2000. The decrease was primarily
due to decreases in lease rents for various branch locations.
Equipment expense increased $315,000, or 62.9%, for the first quarter 2001 from
the same period in 2000. The lower equipment expense in the prior year was
primarily due to a $300,000 refund of certain software lease payments received
in the first quarter of 2000.
Other noninterest expense decreased $45,000, or 1.2%, for the first three months
of 2001 from the same period in 2000.
INCOME TAXES
The Company's effective income tax rates (exclusive of the tax equivalent
adjustment) for the first three months of 2001 was 30.8% as compared to 37.5%
for the same period in 2000. The decline in the effective tax rate was primarily
due to the utilization of capital losses.
LIQUIDITY AND CAPITAL RESOURCES
The consolidated statements of cash flows identify three major sources and uses
of cash as operating, investing and financing activities.
The Company's operating activities used $17.1 million in the first quarter of
2001, which compares to $0.4 million provided by operating activities in the
same period in last year. The primary use of cash flows from operations in 2001
was the origination of $42.3 million of loans held for sale, which was partially
offset by the sale of $25.3 million of loans held for sale. During the first
quarter of 2000, the Company originated $12.3 million of loans held for sale and
sold $15.3 million of loans held for sale.
Investing activities provided cash flow of $8.3 million in the first quarter of
2001, compared to using $53.4 million during the same period last year. The
primary use of cash for investing activities in the first quarter of 2000 was
the net increase in loans of $49.4 million.
Financing activities provided cash flow of $4.3 million in the first quarter of
2001, compared to $29.5 million during the same period last year. During the
first quarter of 2001, the Company repaid $95.0 million of short-term advances,
funded by the $75.0 million in proceeds from long-term debt and the $36.7
million net increase in deposits.
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The Company and the Bank are subject to capital standards promulgated by the
Federal banking agencies and the Hawaii Division of Financial Institutions.
Prior to the Merger, the Association was subject to the minimum capital
standards established by the Office of Thrift Supervision for all savings
associations. Quantitative measures established by regulation to ensure capital
adequacy required the Company, the Bank, and the Association (prior to the
Merger) to maintain minimum amounts and ratios (set forth in the following table
at March 31, 2001 and 2000) of Tier 1 and Total capital to risk-weighted assets,
and of Tier 1 capital to average assets. The March 31, 2000 ratios for the Bank
do not include the operations of the Association.
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TO BE WELL-
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
-----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-----------------------------------------------------------------------------------------------------------------------------
AS OF MARCH 31, 2001
TIER 1 CAPITAL TO
RISK-WEIGHTED ASSETS:
CONSOLIDATED $139,578 11.52% $ 48,447 4.00% N/A
BANK 136,363 11.28 48,376 4.00 $ 72,564 6.00%
TOTAL CAPITAL TO
RISK-WEIGHTED ASSETS:
CONSOLIDATED $154,767 12.78% $ 96,894 8.00% N/A
BANK 151,530 12.53 96,752 8.00 $120,940 10.00%
TIER 1 CAPITAL TO
AVERAGE ASSETS:
CONSOLIDATED $139,578 8.11% $ 68,802 4.00% N/A
BANK 136,363 7.61 71,671 4.00 $ 89,589 5.00%
As of March 31, 2000
Tier 1 Capital to
Risk-Weighted Assets:
Consolidated $123,114 11.63% $ 42,331 4.00% N/A
Bank 72,289 10.15 28,492 4.00 $ 40,738 6.00%
Association 49,533 12.60 15,719 4.00 23,579 6.00
Total Capital to
Risk-Weighted Assets:
Consolidated $136,435 12.89% $ 84,662 8.00% N/A
Bank 81,244 11.41 56,983 8.00 $ 71,229 10.00%
Association 52,173 13.28 31,438 8.00 39,298 10.00
Tier 1 Capital to
Average Assets:
Consolidated $123,114 7.65% $ 64,407 4.00% N/A
Bank 72,289 8.17 35,393 4.00 $ 44,242 5.00%
Association 49,533 6.70 29,590 4.00 36,988 5.00
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company disclosed both quantitative and qualitative analyses of market risks
in its 2000 Form 10-K. No significant changes have occurred during the three
months ended March 31, 2001.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the first quarter of 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CB BANCSHARES, INC.
(REGISTRANT)
Date May 10, 2001 By /s/ Dean K. Hirata
------------------- ----------------------------------
Dean K. Hirata
Senior Vice President and
Chief Financial Officer
(principal financial officer)
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