UNITED STATES SECURITIES AND EXCHANGE COMMISSION
[X]
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | |
| EXCHANGE ACT OF 1934 |
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.
| Hawaii (State of Incorporation) |
99-0197163 (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 [ ] |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes [X] | No [ ] |
The number of shares outstanding of each of the registrant’s classes of common stock as of April 30, 2004 was:
| Class |
Outstanding |
|||
Common Stock, $1.00 Par Value |
4,407,523 shares | |||
1
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) |
2004 |
2003 |
2003 |
|||||||||
Assets |
||||||||||||
Cash and due from banks |
$ | 56,577 | $ | 46,566 | $ | 34,410 | ||||||
Interest-bearing deposits in other banks |
1,109 | 1,343 | 19,428 | |||||||||
Federal funds sold |
2,300 | 400 | — | |||||||||
Investment securities: |
||||||||||||
Held-to-maturity |
105,441 | 134,163 | 174,120 | |||||||||
Available-for-sale |
281,756 | 302,646 | 202,610 | |||||||||
FHLB stock |
31,889 | 31,576 | 30,382 | |||||||||
Loans held for sale |
21,352 | 56,039 | 110,381 | |||||||||
Loans, net |
1,299,474 | 1,257,582 | 1,015,423 | |||||||||
Premises and equipment |
16,712 | 16,867 | 16,373 | |||||||||
Other real estate owned |
— | 173 | 771 | |||||||||
Accrued interest receivable and other assets |
56,913 | 56,306 | 52,861 | |||||||||
Total assets |
$ | 1,873,523 | $ | 1,903,661 | $ | 1,656,759 | ||||||
Liabilities and stockholders’ equity |
||||||||||||
Deposits: |
||||||||||||
Noninterest-bearing |
$ | 205,336 | $ | 217,148 | $ | 172,076 | ||||||
Interest-bearing |
1,103,242 | 988,577 | 974,018 | |||||||||
Total Deposits |
1,308,578 | 1,205,725 | 1,146,094 | |||||||||
Short-term borrowings |
115,400 | 305,400 | 6,400 | |||||||||
Accrued expenses and other liabilities |
24,487 | 26,217 | 27,617 | |||||||||
Long-term debt |
244,385 | 194,389 | 319,402 | |||||||||
Minority interest in consolidated subsidiary |
2,720 | 2,720 | 2,720 | |||||||||
Total liabilities |
1,695,570 | 1,734,451 | 1,502,233 | |||||||||
Stockholders’ equity: |
||||||||||||
Common stock |
4,353 | 4,337 | 3,917 | |||||||||
Additional paid-in capital |
103,466 | 103,050 | 78,834 | |||||||||
Retained earnings |
64,778 | 56,542 | 67,221 | |||||||||
Unreleased shares to employee stock
ownership plan |
(1,284 | ) | (1,323 | ) | (1,448 | ) | ||||||
Accumulated other comprehensive income,
net of tax |
6,640 | 6,604 | 6,002 | |||||||||
Total stockholders’ equity |
177,953 | 169,210 | 154,526 | |||||||||
Total liabilities and stockholders’ equity |
$ | 1,873,523 | $ | 1,903,661 | $ | 1,656,759 | ||||||
See accompanying notes to the consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
| Three months
ended March 31, |
||||||||
| (in thousands, except per share data) |
2004 |
2003 |
||||||
Interest income: |
||||||||
Interest and fees on loans |
$ | 22,313 | $ | 20,684 | ||||
Interest and dividends on investment
securities: |
||||||||
Taxable interest income |
3,784 | 3,185 | ||||||
Nontaxable interest income |
386 | 390 | ||||||
Dividends |
314 | 496 | ||||||
Other interest income |
6 | 178 | ||||||
Total interest income |
26,803 | 24,933 | ||||||
Interest expense: |
||||||||
Deposits |
2,711 | 3,483 | ||||||
Short-term borrowings |
542 | 43 | ||||||
Long-term debt |
2,293 | 3,105 | ||||||
Total interest expense |
5,546 | 6,631 | ||||||
Net interest income |
21,257 | 18,302 | ||||||
Provision for credit losses |
500 | 4,330 | ||||||
Net interest income after provision
for credit losses |
20,757 | 13,972 | ||||||
Noninterest income: |
||||||||
Service charges on deposit accounts |
1,092 | 1,111 | ||||||
Other service charges and fees |
1,634 | 1,693 | ||||||
Net realized gains (losses) on sales of securities |
2,353 | 252 | ||||||
Net gains on sales of loans |
1,066 | 882 | ||||||
Item processing fee income |
479 | 425 | ||||||
Other |
821 | 1,148 | ||||||
Total noninterest income |
7,445 | 5,511 | ||||||
Noninterest expense: |
||||||||
Salaries and employee benefits |
7,975 | 7,174 | ||||||
Net occupancy expense |
1,723 | 1,629 | ||||||
Equipment expense |
573 | 609 | ||||||
Merger proposal expenses |
348 | — | ||||||
Other |
3,923 | 4,230 | ||||||
Total noninterest expense |
14,542 | 13,642 | ||||||
Income before income taxes |
13,660 | 5,841 | ||||||
Income tax expense |
3,858 | 1,869 | ||||||
Net income |
$ | 9,802 | $ | 3,972 | ||||
Per share data: |
||||||||
Basic |
$ | 2.27 | $ | 0.93 | ||||
Diluted |
$ | 2.21 | $ | 0.92 | ||||
See accompanying notes to the consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
| Three months ended March 31, | ||||||||
| (in thousands) |
2004 |
2003 |
||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 9,802 | $ | 3,972 | ||||
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
||||||||
Provision for credit losses |
500 | 4,330 | ||||||
Net realized gains on sale of loans, investment and
mortgage-backed securities |
(3,419 | ) | (1,134 | ) | ||||
Depreciation and amortization |
1,294 | 1,090 | ||||||
Decrease (increase) in accrued interest receivable |
459 | (306 | ) | |||||
Decrease in accrued interest payable |
154 | 189 | ||||||
Loans originated for sale |
(54,407 | ) | (107,784 | ) | ||||
Sale of loans held for sale |
51,441 | 42,167 | ||||||
Increase in other assets |
(1,066 | ) | (232 | ) | ||||
Increase (decrease) in other liabilities |
(1,908 | ) | 464 | |||||
Other |
(459 | ) | (422 | ) | ||||
Net cash provided by (used in) operating activities |
2,391 | (57,666 | ) | |||||
Cash flows from investing activities: |
||||||||
Net decrease (increase) in deposits in other banks |
234 | (18,214 | ) | |||||
Net decrease (increase) in federal funds sold |
(1,900 | ) | 20,525 | |||||
Purchase of held-to-maturity securities |
— | (94,549 | ) | |||||
Proceeds from maturities of held-to-maturity investment securities |
28,228 | 32,194 | ||||||
Purchase of available-for-sale securities |
— | (11 | ) | |||||
Proceeds from sales of available-for-sale securities |
42,054 | 59,902 | ||||||
Proceeds from maturities of available-for-sale securities |
13,624 | 18,863 | ||||||
Net decrease (increase) in loans |
(36,286 | ) | 17,746 | |||||
Capital expenditures |
(407 | ) | (439 | ) | ||||
Proceeds from sales of foreclosed assets |
335 | 1,978 | ||||||
Net cash provided by investing activities |
45,882 | 37,995 | ||||||
Cash flows from financing activities: |
||||||||
Net increase (decrease) in deposits |
102,853 | (17,133 | ) | |||||
Net decrease in short-term borrowings |
(190,000 | ) | (4,000 | ) | ||||
Proceeds from long-term debt |
70,000 | — | ||||||
Principal payments on long-term debt |
(20,004 | ) | (5 | ) | ||||
Cash dividends paid |
(1,566 | ) | (430 | ) | ||||
Options exercised |
376 | 537 | ||||||
Stock repurchase |
— | (12 | ) | |||||
Unreleased ESOP shares |
77 | 55 | ||||||
Net cash used in financing activities |
(38,264 | ) | (20,988 | ) | ||||
Increase (decrease) in cash and due from banks |
10,011 | (40,659 | ) | |||||
Cash and due from banks at beginning of period |
46,566 | 75,069 | ||||||
Cash and due from banks at end of period |
$ | 56,577 | $ | 34,410 | ||||
Supplemental schedule of non-cash investing activities: |
||||||||
Interest paid on deposits and other borrowings |
$ | 4,863 | $ | 6,441 | ||||
Income taxes paid |
$ | — | $ | — | ||||
Securitization of mortgage loans into mortgage-backed securities
classified as available-for-sale |
$ | 32,613 | $ | 54,065 | ||||
Loans held
for sale reclassified to loans held for investment |
$ | 6,106 | $ | — | ||||
See accompanying notes to the consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS) (Unaudited)
CB BANCSHARES, INC. AND SUBSIDIARIES
| Unreleased | ||||||||||||||||||||||||
| Shares to | Accumulated | |||||||||||||||||||||||
| Employee | Other | |||||||||||||||||||||||
| Additional | Stock | Compre- | ||||||||||||||||||||||
| Common | Paid-In | Retained | Ownership | hensive | ||||||||||||||||||||
| (in thousands, except per share data) |
Stock |
Capital |
Earnings |
Plan |
Income |
Total |
||||||||||||||||||
Three months ended March 31, 2004: |
||||||||||||||||||||||||
Balance at January 1, 2004 |
$ | 4,337 | $ | 103,050 | $ | 56,542 | $ | (1,323 | ) | $ | 6,604 | $ | 169,210 | |||||||||||
Comprehensive income |
||||||||||||||||||||||||
Net income |
— | — | 9,802 | — | — | 9,802 | ||||||||||||||||||
Other comprehensive income, net of tax |
||||||||||||||||||||||||
Unrealized gains on securities, net of
reclassification adjustment |
— | — | — | — | 36 | 36 | ||||||||||||||||||
Comprehensive income subtotal |
— | — | 9,802 | — | 36 | 9,838 | ||||||||||||||||||
Cash dividends ($0.36 per share) |
— | — | (1,566 | ) | — | — | (1,566 | ) | ||||||||||||||||
Options exercised |
16 | 360 | — | — | — | 376 | ||||||||||||||||||
Directors’ compensation |
— | 18 | — | — | — | 18 | ||||||||||||||||||
Unreleased ESOP shares |
— | 38 | — | 39 | — | 77 | ||||||||||||||||||
Balance at March 31, 2004 |
$ | 4,353 | $ | 103,466 | $ | 64,778 | $ | (1,284 | ) | $ | 6,640 | $ | 177,953 | |||||||||||
| Unreleased | ||||||||||||||||||||||||
| Shares to | Accumulated | |||||||||||||||||||||||
| Employee | Other | |||||||||||||||||||||||
| Additional | Stock | Compre- | ||||||||||||||||||||||
| Common | Paid-In | Retained | Ownership | hensive | ||||||||||||||||||||
| (in thousands, except per share data) |
Stock |
Capital |
Earnings |
Plan |
Income |
Total |
||||||||||||||||||
Three months ended March 31, 2003: |
||||||||||||||||||||||||
Balance at January 1, 2003 |
$ | 3,898 | $ | 78,311 | $ | 63,679 | $ | (1,486 | ) | $ | 6,607 | $ | 151,009 | |||||||||||
Comprehensive income |
||||||||||||||||||||||||
Net income |
— | — | 3,972 | — | — | 3,972 | ||||||||||||||||||
Other comprehensive income, net of tax |
||||||||||||||||||||||||
Unrealized losses on securities, net of
reclassification adjustment |
— | — | — | — | (605 | ) | (605 | ) | ||||||||||||||||
Comprehensive income subtotal |
— | — | 3,972 | — | (605 | ) | 3,367 | |||||||||||||||||
Cash
dividends ($0.10 per share) |
— | — | (430 | ) | — | — | (430 | ) | ||||||||||||||||
Options exercised |
19 | 518 | — | — | — | 537 | ||||||||||||||||||
Repurchased, cancelled and retired shares |
— | (12 | ) | — | — | — | (12 | ) | ||||||||||||||||
Unreleased ESOP shares |
— | 17 | — | 38 | — | 55 | ||||||||||||||||||
Balance at March 31, 2003 |
$ | 3,917 | $ | 78,834 | $ | 67,221 | $ | (1,448 | ) | $ | 6,002 | $ | 154,526 | |||||||||||
See accompanying notes to the consolidated financial statements.
5
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. (“Datatronix”); 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. 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, 2003.
Results of operations for interim periods are not necessarily indicative of results for the full year.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for 2003 have been reclassified to conform with the 2004 presentation. Such reclassifications had no effect on the consolidated net income as previously reported.
NEW ACCOUNTING PRINCIPLES
Financial Accounting Standard Board (“FASB”) Interpretation No. 46. In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities (VIEs) as defined. The Interpretation applies immediately to variable interests in VIEs created or obtained after January 31, 2003. For variable interests in VIEs that an enterprise acquired before February 1, 2003, the Interpretation is applicable in the first fiscal year or interim period beginning after June 15, 2003. In December 2003, the FASB revised Interpretation No. 46, which replaced its original interpretation issued in January 2003, and among other things, revised certain effective dates. At March 31, 2004, the Company had no variable interests in a variable interest entity requiring consolidation or disclosure in accordance with the Interpretation.
6
NOTE B — Loans
The loan portfolio consisted of the following at the dates indicated:
| March 31, | December 31, | March 31, | ||||||||||
| (in thousands) |
2004 |
2003 |
2003 |
|||||||||
Commercial and financial |
$ | 253,884 | $ | 245,875 | $ | 241,751 | ||||||
Real estate: |
||||||||||||
Construction |
108,683 | 98,237 | 47,898 | |||||||||
Commercial |
440,279 | 403,946 | 210,743 | |||||||||
Residential |
356,144 | 367,685 | 413,282 | |||||||||
Installment and consumer |
179,090 | 180,064 | 138,678 | |||||||||
Gross loans |
1,338,080 | 1,295,807 | 1,052,352 | |||||||||
Less: |
||||||||||||
Unearned discount |
2,435 | 2,453 | 1,541 | |||||||||
Net deferred loan fees |
7,485 | 7,282 | 4,178 | |||||||||
Allowance for credit losses |
28,686 | 28,490 | 31,210 | |||||||||
Loans, net |
$ | 1,299,474 | $ | 1,257,582 | $ | 1,015,423 | ||||||
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 as described in Note A.
The Company’s business segments are defined as Retail Banking, Wholesale Banking, Treasury and All Other. Retail Banking is made up of retail deposits, mortgage banking and consumer lending activities. Wholesale Banking consists of wholesale deposits, commercial real estate lending, corporate lending and the specialized lending functions of the Bank. The Treasury segment is responsible for managing the Company’s investment securities portfolio and borrowing. The All Other segment consists of the administrative support of the Bank, transactions of the parent company, CB Bancshares, Inc., and subsidiaries of the Company and the Bank.
Retail banking net interest income is made up of interest income from revolving real estate, residential real estate and consumer loans, partially offset by the interest expense on retail deposits. Wholesale banking net interest income is made up of interest income from commercial, real estate construction, and commercial real estate loans, partially offset by the interest expense on wholesale deposits. Treasury net interest income is derived from the interest income on investment securities the Bank has in its possession, partially offset by the interest expense on short- and long-term borrowings.
Intersegment net interest income is allocated based on the net funding needs of each segment and applying an interest credit or charge based on an internal cost of capital.
Other operating income (expense) is the noninterest income and expense designated to Retail Banking, Wholesale Banking, Treasury, and All Other.
Administrative overhead allocates the noninterest income/(expense) from the All Other non-banking function segment to the other three segments, Retail Banking, Wholesale Banking and Treasury.
Assets are composed of cash, investments, loans, and fixed and other assets. Loan balances and any corresponding allowance for credit losses are allocated based on loan product types. Fixed assets are allocated by location and function within the Company.
7
The Company continues to enhance its segment reporting process methodologies. These methodologies assign certain balance sheet and income statement items to the responsible operating segment. This process is dynamic and, unlike financial accounting, there is no comprehensive, authoritative guidance for management accounting equivalent to generally accepted accounting principles. 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, 2004 |
||||||||||||||||||||
Net interest income (loss) |
$ | 7,964 | $ | 11,652 | $ | 1,655 | $ | (14 | ) | $ | 21,257 | |||||||||
Intersegment net interest income (expense) |
216 | (1,639 | ) | 1,423 | — | — | ||||||||||||||
Provision for credit losses |
114 | 386 | — | — | 500 | |||||||||||||||
Other operating expense |
(1,327 | ) | (3,486 | ) | 2,075 | (4,359 | ) | (7,097 | ) | |||||||||||
Administrative and overhead expense
allocation |
(1,516 | ) | (1,303 | ) | (171 | ) | 2,990 | — | ||||||||||||
Income tax expense (benefit) |
1,505 | 1,394 | 1,435 | (476 | ) | 3,858 | ||||||||||||||
Net income (loss) |
3,718 | 3,444 | 3,547 | (907 | ) | 9,802 | ||||||||||||||
Total assets |
578,764 | 756,432 | 482,032 | 56,295 | 1,873,523 | |||||||||||||||
| (in thousands) |
Retail |
Wholesale |
Treasury |
All Other |
Total |
|||||||||||||||
Three months ended March 31, 2003 |
||||||||||||||||||||
Net interest income (loss) |
$ | 9,563</ | ||||||||||||||||||