City Bank’s
earnings soarProfits jump 90.7 percent as
the company fights off a hostile
merger attempt
City Bank's parent, bolstering its claim that it is undervalued by its rival's takeover proposal, said yesterday that fourth-quarter earnings soared 90.7 percent and 2003 net income jumped 53.9 percent from comparable periods a year ago.
CB Bancshares Inc. took out newspaper advertisements earlier this month claiming that the company's stock is worth $109 a share. Chief Financial Officer Dean Hirata said yesterday that the bank's latest results indicate that CB Bancshares' stock now would be fairly valued at $126 a share.
Regardless of the price, though, Hirata said it's the bank's intention to remain independent.
"We're not for sale and we believe we can provide more value for our shareholders as an independent institution," Hirata said.
Central Pacific Financial Corp.'s offer, worth $69.48 for each CB share based on yesterday's market close, represents a 50 percent premium to where CB Bancshares' stock was trading last April when the merger proposal was announced. CB Bancshares' stock closed yesterday at $64.50.
Hirata said he derived the $126-a-share figure by taking the bank's 2003 net income, excluding merger-related expenses, of $5.73 a share and multiplying it by the average multiple for bank mergers of 22 times earnings.
CB Bancshares' latest results brought its net income for 2003 to a record $20.7 million. Strong earnings-per-share gains, adjusted for merger expenses, of 96 and 83 percent in the second and third quarters respectively greatly contributed to the record performance.
"Beginning with the second quarter, City Bank has delivered three consecutive quarters of outstanding financial performance fueled by continued strength in the bank's core businesses," said Ron Migita, president and chief executive officer of CB Bancshares. "Loan volume in our California operations and our Hawaii mortgage banking business continue to exceed expectations."
CB Bancshares ended the fourth quarter with net income of $6.9 million, or $1.56 a share, compared with $3.6 million, or 83 cents a share, in the year-ago period. Excluding merger-related expenses of $470,000, the bank's net income doubled to $7.2 million from $3.6 million a year ago.
For the year, CB Bancshares' $20.7 million, or $4.72 a share, easily exceeded the net income of $13.5 million, or $3.11 a share, from 2002. Excluding merger-related expenses of $6.6 million, the bank's net income was up 74.4 percent to $25.2 million from $14.4 million a year ago.
CB Bancshares' nonperforming loans and nonperforming assets both showed significant decreases for the quarter from a year ago. Nonperforming loans decreased 55 percent to $5.7 million from $12.7 million. Nonperforming assets declined 60.5 percent to $5.9 million from $14.9 million. The bank also reduced its provision for credit losses by 72.3 percent in the quarter to $1.2 million from $4.2 million and 58 percent for the year to $7.2 million from 17.1 million.
"(The big percentage gains in net income) are primarily due to the improved asset quality that has resulted in reduced credit-related costs," Hirata said. "So if you look at the provision between last year and this year, you'll see significant decreases there that's due to improved asset quality. We feel that with the strong reserves and the improved asset quality that the company is well positioned for growth going forward."
CB Bancshares said total assets for the quarter rose 13.7 percent to $1.9 billion from $1.7 billion. Net loans grew 21.1 percent to $1.3 billion from $1 billion. And total deposits increased 3.7 percent to $1.21 billion from $1.16 billion.
The company's net interest margin, which reflects the difference of what a bank pays depositors and what it brings in from loans, slipped to 4.9 percent in the quarter from 5.2 percent a year ago.
CB Bancshares' return-on-assets ratio, which indicates how many dollars of profits it achieves for each dollar of assets it controls, improved to 1.19 percent from 0.86 percent, including the merger-related expenses and special items. The bank's return on equity, a measure of how well it used reinvested earnings to generate additional earnings, improved to 13 percent from 9.4 percent, including the merger-related expenses.
The bank's efficiency ratio rose to 63.11 percent from 58.81 percent a year ago when merger costs and other special items are included. Excluding special items, CB Bancshares' efficiency ratio improved to 56.41 percent from 57.37 percent. The efficiency ratio measures in percentages how much it costs the bank to make a dollar of revenue.
Noninterest income, which includes revenue from service charges and fees, jumped 79.3 percent to $6.3 million from $3.5 million.
"We feel that we're a company on the move and our earnings are up and our asset quality has improved," Hirata said. "This validates the rejection of (Central Pacific's) proposal back in May. The proposal was voted down by an overwhelming majority of our shareholders. Their proposal does not reflect the true value of our franchise and Central Pacific is trying to get a steal."