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 0-10777
CPB INC.
(Exact name of registrant as specified in its charter)
Hawaii 99-0212597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 South King Street, Honolulu, Hawaii 96813
(Address of principal executive offices) (Zip Code)
(808)544-0500
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, No Par Value, $1.25 Stated Value;
Outstanding at June 30, 1997: 5,275,494 shares
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements listed below are filed as a part
hereof.
Page
Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996 F-1
Consolidated Statements of Income - Three and six
months ended June 30, 1997 and 1996 F-2
Consolidated Statements of Cash Flows - Six months
ended June 30, 1997 and 1996 F-3
Notes to Consolidated Financial Statements F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
CPB Inc. (the "Company") posted second quarter 1997 net income
of $3.680 million, increasing by 2.9% over the $3.577 million
earned in the second quarter of 1996, with increased net interest
income offsetting a $300,000 increase in the provision for loan
losses. Net income for the first six months of 1997 was $7.271
million, increasing by 2.0% over the $7.131 million earned in the
same period in 1996. A reduction in salaries and benefits
contributed to this increase. As of June 30, 1997, total assets
of $1,450.2 million increased by $47.0 million or 3.3%, net loans
of $1,033.7 million increased by $11.2 million or 1.1% and total
deposits of $1,163.3 million increased by $39.7 million or 3.5%
compared with year-end 1996.
The following table presents annualized return on average
assets, annualized return on average stockholders' equity and
earnings per share for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Annualized return on
average assets 1.04% 1.06% 1.03% 1.05%
Annualized return on average
stockholders' equity 10.16% 10.56% 10.11% 10.57%
Earnings per share $0.70 $0.68 $1.38 $1.36
Hawaii's economy remains in a slump, with little likelihood of
recovery in the near future. Bankruptcies and foreclosures are
at record levels, a product of the prolonged economic downturn.
1
Chapter 7 liquidations during the first half of 1997 increased by
54% over the same period in 1996, while Chapter 13 filings
increased by more than 85% over last year's record levels.
Reflecting some improvement in the economy, the unemployment rate
improved slightly to 6.6% in June 1997, from 6.9% a year earlier,
although still higher than the June 1997 national average of
5.2%.
The visitor industry has sustained the economy in recent
years; however, visitor counts during the first six months of
1997 declined by 0.6% from 1996 levels. Tourism from Japan has
dropped off in recent months, due in part to the strengthening of
the U.S. dollar relative to the Japanese yen, but improvement in
national economic conditions is expected to result in increases
in westbound tourism (from the mainland U.S.). The development
of the Hawaii Convention Center, targeted for completion in the
fourth quarter of 1997, is expected to provide a further stimulus
for future growth in the visitor industry.
Likewise, the real estate market continues to suffer from the
economic downturn. Existing single-family home sales during the
first half of 1997 declined by more than 5%, with average sales
prices declining nearly 10%, compared to the first half of 1996.
Meanwhile, the commercial real estate market has stabilized,
although at a level significantly lower than the peaks of the
late 1980's. Examples of such are a luxury hotel in Maui which
recently sold at slightly more than 50% of its original 1990
purchase price, and the pending sale of a lot in Waikiki at an
anticipated sales price of $6.8 million, 60% of its 1988 purchase
price.
Such economic conditions have had, and will likely continue to
have, an adverse effect on our Company. Indicative of this
economic environment, Central Pacific Bank (the "Bank"), a
wholly-owned subsidiary of the Company, has experienced an
increase in residential mortgage and consumer loan losses as
further discussed in "Provision for Loan Losses." While the
Hawaii economy is expected to grow modestly in 1997, future
trends in bankruptcy and foreclosure filings, employment, tourism
and the real estate market could affect the Company's loan
demand, deposit growth, provision for loan losses, noninterest
income and noninterest expense. Accordingly, the results of
operations of the Company for the second half of 1997 will depend
in part on the speed, strength and duration of any economic
recovery in the State of Hawaii.
Results of Operations
Net Interest Income
A comparison of net interest income for the three and six
months ended June 30, 1997 and 1996 is set forth below on a
taxable equivalent basis using an assumed income tax rate of 35%.
2
Net interest income, when expressed as a percentage of average
interest earning assets, is referred to as "net interest margin."
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Interest income $27,351 $25,886 $53,870 $52,314
Interest expense 10,967 10,154 21,651 20,743
Net interest income $16,384 $15,732 $32,219 $31,571
Net interest margin 4.86% 4.93% 4.80% 4.93%
Interest income increased by $1.5 million or 5.7% and by $1.6
million or 3.0% in the second quarter and first half of 1997,
respectively, as compared to the same periods in 1996 due to the
higher level of earning assets held in 1997. Average interest
earning assets of $1,349.6 million and $1,341.4 million for the
second quarter and first half of 1997, respectively, increased by
$73.1 million or 5.7% and $61.7 million or 4.8%, respectively,
over the same periods in 1996. The yield on interest earning
assets of 8.11% for the second quarter of 1997 was unchanged from
the yield in 1996. The yield on interest earning assets for the
six months ended June 30, 1997 of 8.03% declined from 8.18% for
the same periods in 1996.
Interest and fees on loans increased by $1.0 million or 4.7%
and $1.1 million or 2.5% in the second quarter and first half of
1997, respectively, compared to the same periods in 1996.
Increases in average loan balances resulted in increased interest
income, offsetting declines in loan fees of $251,000 and
$695,000, respectively. Interest on deposits in other banks also
increased by $543,000 and $1.2 million, respectively, due to an
increase in short-term investable funds held during the current
year.
Interest expense for the three and six months ended June 30,
1997 increased by $813,000 or 8.0% and $908,000 or 4.4%,
respectively, as compared to the same periods in 1996, due to
increases in average interest-bearing liabilities, which
increased by 5.4% to $1,104.9 million and by 4.3% to $1,099.2
million, respectively. The average rate on interest-bearing
liabilities for the second quarter of 1997 of 3.97% increased
from 3.88% in 1996, while the average rate for the first half of
1997 as compared to the same period in 1996 was unchanged at
3.94%.
The resulting net interest income for the second quarter and
first half of 1997 increased by $652,000 or 4.1% and by $648,000
or 2.1%, respectively, over the same periods in 1996, while net
interest margin declined to 4.86% from 4.93% in the second
quarter and to 4.80% from 4.93% in the first half of the year.
3
Strong competition for both loans and deposits and the
uncertainty in the direction of market interest rates provide the
Company with the challenge of maintaining net interest margin at
its current level for the remainder of 1997.
Provision for Loan Losses
Provision for loan losses is determined by Management's
ongoing evaluation of the loan portfolio and assessment of the
ability of the allowance for loan losses to cover inherent
losses. The Company, considering current information and events
regarding the borrowers' ability to repay their obligations,
treats a loan as impaired when it is probable that the Company
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of impairment is measured
based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, if the loan
is considered to be collateral dependent, based on the fair value
of the collateral. Impairment losses are included in the
allowance for loan losses through a charge to the provision for
loan losses. For smaller-balance homogeneous loans (primarily
residential real estate and consumer loans), the allowance for
loan losses is based upon Management's evaluation of the quality,
character and risks inherent in the loan portfolio, current and
projected economic conditions, and historical loan loss
experience. The allowance is increased by provisions charged to
operating expense and reduced by charge-offs, net of recoveries.
The following table sets forth certain information with
respect to the Company's allowance for loan losses as of the
dates or for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Allowance for loan losses:
Balance at beginning of
period $19,775 $20,500 $19,436 $20,156
Provision for loan losses 750 450 1,500 900
Loan charge-offs:
Commercial, financial
and agricultural 581 30 614 34
Real estate:
Mortgage-commercial 268 - 268 -
Mortgage-residential 46 231 200 231
Construction - - - -
Consumer:
Credit card and
related plans 199 145 337 240
4
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(Dollars in thousands)
Other consumer 212 69 364 125
Other - - 2 -
Total loan charge-offs 1,306 475 1,785 630
Recoveries:
Commercial, financial
and agricultural 5 18 9 20
Real estate:
Mortgage-commercial - - - -
Mortgage-residential 1 29 20 29
Construction - 8 - 19
Consumer:
Credit card and
related plans 17 33 50 49
Other consumer 33 19 45 39
Other - - - -
Total recoveries 56 107 124 156
Net loan charge-offs 1,250 368 1,661 474
Balance at end of period $19,275 $20,582 $19,275 $20,582
Annualized ratio of net
loan charge-offs to
average loans 0.48% 0.15% 0.32% 0.10%
The provision for loan losses of $750,000 and $1,500,000 for
the second quarter and first half of 1997, respectively,
increased by 66.7% compared to the same periods in 1996. Net
loan charge-offs of $1,250,000 and $1,661,000, when expressed as
an annualized percentage of average total loans, was 0.48% and
0.32%, respectively. Loan charge-offs during the second quarter
of 1997 included $564,000 on a commercial loan and $268,000 on a
commercial mortgage loan. Approximately 74% of all other loans
charged off during the first half of 1997 were consumer loans.
Management believes the current level of provision for loan
losses is indicative of Hawaii's stagnant economic environment
over the last several years. Notwithstanding the increase in net
charge-offs in the first half of 1997 compared to the same period
in 1996, the Company's net charge-offs remained relatively low as
a percentage of total loans. Substantially all commercial and
real estate loan charge-offs were specifically provided for in
the allowance for loan losses. Accordingly, no significant
increase in the provision for loans losses is anticipated.
The allowance for loan losses expressed as a percentage of
total loans was 1.83% at June 30, 1997, declining slightly from
the 1.87% at December 31, 1996. Management believes that the
5
allowance for loan losses at June 30, 1997 was adequate to cover
the credit risks inherent in the loan portfolio. However,
continuation of current economic conditions in the State of
Hawaii may adversely affect borrowers' ability to repay,
collateral values and, consequently, the level of nonperforming
loans and provision for loan losses.
Nonperforming Assets
The following table sets forth nonperforming assets, accruing
loans delinquent for 90 days or more and restructured loans still
accruing interest at the dates indicated.
June 30, December 31, June 30,
1997 1996 1996
(Dollars in thousands)
Nonaccrual loans:
Commercial, financial
and agricultural $ 269 $ 2,175 $ 851
Real estate:
Mortgage-commercial 7,443 8,863 10,177
Mortgage-residential 1,063 2,462 2,352
Construction - - -
Consumer:
Credit card and
related plans 70 - -
Other consumer 81 - -
Other - - -
Total nonaccrual loans 8,926 13,500 13,380
Other real estate 3,708 1,235 2,157
Total nonperforming
assets 12,634 14,735 15,537
Loans delinquent for 90
days or more:
Commercial, financial
and agricultural 1,230 1,038 4,082
Real estate:
Mortgage-commercial 7,485 341 840
Mortgage-residential 6,256 4,366 6,802
Construction - - -
Consumer:
Credit card and
related plans 105 104 98
Other consumer 324 455 449
Other 2 9 -
Total loans delinquent
for 90 days or more 15,402 6,313 12,271
6
June 30, December 31, June 30,
1997 1996 1996
(Dollars in thousands)
Restructured loans still
accruing interest:
Commercial, financial
and agricultural 231 1,723 -
Real estate:
Mortgage-commercial 2,571 11,095 -
Mortgage-residential - - -
Construction - - -
Consumer:
Credit card and
related plans - - -
Other consumer - - -
Other - - -
Total restructured
loans still accruing
interest 2,802 12,818 -
Total nonperforming
assets, loans delin-
quent for 90 days or
more and restructured
loans still accruing
interest $30,838 $33,866 $27,808
Total nonperforming assets
as a percentage of total
loans and other real
estate 1.20% 1.41% 1.52%
Total nonperforming assets
and loans delinquent for
90 days or more as a
percentage of total loans
and other real estate 2.65% 2.02% 2.72%
Total nonperforming assets,
loans delinquent for 90
days or more and
restructured loans still
accruing interest as a
percentage of total loans
and other real estate 2.92% 3.25% 2.72%
Nonperforming assets, loans delinquent for 90 days or more and
restructured loans still accruing interest totaled $30.8 million
at June 30, 1997, decreasing by $3.0 million or 8.9% from year-
end 1996. Nonaccrual loans, loans delinquent for 90 days or more
and restructured loans still accruing interest were comprised
primarily of loans secured by commercial or residential real
7
property in the State of Hawaii. Nonaccrual loans of $8.9
million were comprised primarily of two large commercial mortgage
loans and several residential mortgage loans. Other real estate
of $3.7 million at June 30, 1997 included a $1.3 million
condominium unit, a $1.5 million residence and several other
residential properties. Loans delinquent for 90 days or more and
still accruing interest totaled $15.4 million at June 30, 1997,
increasing by $9.1 million or 144.0% from year-end 1996.
Increases in delinquencies were attributable primarily to three
commercial mortgage loans and a residential mortgage loan: a $2.7
million loan secured by an office building located on the island
of Maui; a $2.4 million mortgage on a commercial complex on the
island of Oahu; a $1.8 million loan secured by various commercial
and residential properties; and a $900,000 loan secured by
residential property on Oahu. Impaired loans at June 30, 1997
amounted to $14.1 million and included all nonaccrual and
restructured loans greater than $500,000 as well as the $2.7
million and $1.8 million delinquent loans discussed above. The
allowance for loan losses allocated to impaired loans amounted to
$2.6 million at June 30, 1997.
Management continues to closely monitor loan delinquencies and
work with borrowers to resolve loan problems; however, further
decline in general economic conditions may result in future
increases in nonperforming assets, delinquencies, net charge-
offs, provision for loan losses and noninterest expense.
Other Operating Income
Total other operating income in the second quarter of 1997 of
$2,577,000 decreased by $101,000 or 3.8% from the second quarter
of 1996 due primarily to $190,000 in interest received on income
tax refunds in the second quarter of 1996.
Total other operating income for the first half of 1997 of
$5,204,000 decreased by $51,000 or 1.0% from the first half of
1996. Increases in service charges on deposits, partnership
income and gains from sales of other real estate combined to
offset the impact of the $190,000 in interest on income tax
refunds discussed above.
Other Operating Expense
Total other operating expense of $12,044,000 for the second
quarter of 1997 increased by $73,000 or 0.6% from the same period
in 1996. This increase was attributed to an increase in net
occupancy expense of $68,000 or 4.3% resulting from a combination
of lower rental income and increased maintenance expense for the
University Square building, owned by CPB Properties, Inc., a
wholly-owned subsidiary of the Bank.
Total other operating expense of $23,779,000 for the first
half of 1997 decreased by $220,000 or 0.9% from the first half of
1996. Salaries and employee benefits of $12,763,000 decreased by
$225,000 or 1.7% due primarily to a $452,000 reduction in pension
8
expense resulting from a revision to the pension plan which
became effective during the third quarter of 1996, offset by
increases in incentive compensation expense and general salary
levels.
Income Taxes
The effective tax rates for the second quarter and first half
of 1997 were 39.02% and 39.14%, respectively, compared with the
previous year's rates of 39.76% and 39.69%, respectively. The
decrease in tax rates for 1997 resulted from an increase in tax-
exempt investments and loans held during 1997.
Financial Condition
Total assets at June 30, 1997 of $1,450.2 million increased by
$47.0 million or 3.3% from December 31, 1996. Investment
securities of $273.4 million increased by $32.9 million or 13.7%,
and net loans of $1,033.7 million increased by $11.2 million or
1.1%. This asset growth was funded primarily through an increase
in deposits.
Total deposits at June 30, 1997 of $1,163.3 million increased
by $39.7 million or 3.5% over year-end 1996. Noninterest-bearing
deposits of $171.2 million increased by $3.1 million or 1.8%, and
interest-bearing deposits of $992.1 million increased by $36.6
million or 3.8%. Core deposits (noninterest-bearing demand,
interest-bearing demand and savings deposits, and time deposits
under $100,000) at June 30, 1997 of $873.7 million increased by
$14.4 million or 1.7% during the first half of 1997, while time
deposits of $100,000 or more of $289.6 million increased by $25.2
million or 9.6%. The increase in core deposits included
increases of $8.1 million in business checking accounts and $3.4
million in business money market accounts. The increase in
deposits experienced during the year is attributable, in part, to
an aggressive business development campaign launched in 1997 and
a renewed focus on sales-oriented deposit-gathering efforts which
was aided by the 1996 restructuring of the Bank's branch network.
Local competition for deposits remains strong and will continue
to challenge the Bank's ability to gather low-cost retail funds.
Capital Resources
Stockholders' equity of $145.9 million at June 30, 1997
increased by $5.0 million or 3.6% from December 31, 1996. When
expressed as a percentage of total assets, stockholders' equity
was relatively stable at 10.06% and 10.04% at June 30, 1997 and
December 31, 1996, respectively. On June 16, 1997, the Board of
Directors declared a second quarter cash dividend of $0.24 per
share, bringing total dividends declared to $0.48 per share for
the first half of 1997, consistent with the dividends declared
during the same period in 1996. Dividends declared in the first
half of 1997 totaled $2,532,000 compared with $2,527,000 in the
first half of 1996. The Company's objective with respect to
9
capital resources is to maintain a level of capital that will
support sustained asset growth and anticipated credit risks and
to ensure that regulatory guidelines and industry standards are
met.
Regulations on capital adequacy guidelines adopted by the
Federal Reserve Board (the "FRB") and the Federal Deposit
Insurance Corporation (the "FDIC") are as follows. An
institution is required to maintain a minimum ratio of qualifying
total capital to risk-weighted assets of 8%, of which at least 4%
must consist of Tier I capital, essentially common stockholders'
equity (before unrealized loss on investment securities) less
intangible assets. The FRB and the FDIC have also adopted a
minimum leverage ratio of Tier I capital to total assets of 3%.
The leverage ratio requirement establishes the minimum level for
banks that have a uniform composite ("CAMELS") rating of 1, and
all other institutions and institutions experiencing or
anticipating significant growth are expected to maintain capital
levels at least 100 to 200 basis points above the minimum level.
Furthermore, higher leverage and risk-based capital ratios are
required to be considered well capitalized or adequately
capitalized under the prompt corrective action provisions of the
FDIC Improvement Act of 1991.
The following table sets forth the capital requirements
applicable to the Company and the Company's capital ratios as of
the dates indicated.
Required Actual Excess
At June 30, 1997:
Tier I risk-based
capital ratio 4.00% 12.01% 8.01%
Total risk-based
capital ratio 8.00% 13.26% 5.26%
Leverage capital ratio 4.00% 10.29% 6.29%
At December 31, 1996:
Tier I risk-based
capital ratio 4.00% 12.10% 8.10%
Total risk-based
capital ratio 8.00% 13.35% 5.35%
Leverage capital ratio 4.00% 10.28% 6.28%
In addition, FDIC-insured institutions such as the Bank must
maintain leverage, Tier I and total risk-based capital ratios of
at least 5%, 6% and 10%, respectively, to be considered "well
capitalized" under the prompt corrective action provisions of the
FDIC Improvement Act of 1991.
The following table sets forth the capital requirements for
the Bank to be considered "well capitalized" and the Bank's
capital ratios as of the dates indicated.
10
Required Actual Excess
At June 30, 1997:
Tier I risk-based
capital ratio 6.00% 11.20% 5.20%
Total risk-based
capital ratio 10.00% 12.45% 2.45%
Leverage capital ratio 5.00% 9.60% 4.60%
At December 31, 1996:
Tier I risk-based
capital ratio 6.00% 11.27% 5.27%
Total risk-based
capital ratio 10.00% 12.53% 2.53%
Leverage capital ratio 5.00% 9.60% 4.60%
Asset-Liability Management and Liquidity
The Company's asset-liability management policy and liquidity
position are discussed in the 1996 Annual Report to Shareholders.
No significant changes in either have occurred during the six
months ended June 30, 1997.
PART II. OTHER INFORMATION
Items 1 to 5.
Items 1 to 5 are omitted pursuant to instructions to Part II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during
the second quarter of 1997.
11
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.
CPB INC.
(Registrant)
Date: August 11, 1997 /s/ Joichi Saito
Joichi Saito
Chairman of the Board and
Chief Executive Officer
Date: August 11, 1997 /s/ Neal Kanda
Neal Kanda
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
12
CPB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(Dollars in thousands, except per share data) 1997 1996
ASSETS
Cash and due from banks $ 45,734 $ 55,534
Interest-bearing deposits in other banks 36,265 26,297
Investment securities:
Held to maturity, at cost (fair value of $142,199
at June 30, 1997 and $109,288 at December 31, 1996) 142,380 109,244
Available for sale, at fair value 130,986 131,214
Total investment securities 273,366 240,458
Loans 1,052,991 1,041,976
Less allowance for loan losses 19,275 19,436
Net loans 1,033,716 1,022,540
Premises and equipment 25,219 25,072
Accrued interest receivable 9,981 8,674
Investment in partnership 6,955 6,902
Due from customers on acceptances 2 1,162
Other assets 18,915 16,526
Total assets $1,450,153 $1,403,165
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 171,203 $ 168,170
Interest-bearing deposits 992,068 955,444
Total deposits 1,163,271 1,123,614
Short-term borrowings 6,929 5,427
Long-term debt 117,906 115,840
Bank acceptances outstanding 2 1,162
Other liabilities 16,126 16,240
Total liabilities 1,304,234 1,262,283
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000
shares, none issued - -
Common stock, no par value, stated value $1.25 per
share; authorized 25,000,000 shares; issued and
outstanding 5,275,494 shares at June 30, 1997
and 5,268,874 shares at December 31, 1996 6,594 6,586
Surplus 45,608 45,481
Retained earnings 94,144 89,405
Unrealized loss on investment securities,
net of taxes (427) (590)
Total stockholders' equity 145,919 140,882
Total liabilities and stockholders' equity $1,450,153 $1,403,165
Book value per share $27.66 $26.74
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-1
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands, June 30, June 30,
except per share data) 1997 1996 1997 1996
Interest income:
Interest and fees on loans $22,665 $21,651 $44,869 $43,785
Interest and dividends on
investment securities:
Taxable interest 3,535 3,801 6,850 7,722
Tax-exempt interest 118 36 153 80
Dividends 284 273 551 531
Interest on deposits in other banks 617 74 1,250 91
Interest on Federal funds sold - - - 1
Total interest income 27,219 25,835 53,673 52,210
Interest expense:
Interest on deposits 9,131 8,618 18,024 17,775
Interest on short-term borrowings 68 118 135 324
Interest on long-term debt 1,768 1,418 3,492 2,644
Total interest expense 10,967 10,154 21,651 20,743
Net interest income 16,252 15,681 32,022 31,467
Provision for loan losses 750 450 1,500 900
Net interest income after
provision for loan losses 15,502 15,231 30,522 30,567
Other operating income:
Service charges on deposit accounts 742 701 1,432 1,373
Other service charges and fees 1,326 1,354 2,709 2,761
Partnership income 134 101 261 216
Fees on foreign exchange 205 197 387 468
Investment securities gains - (6) - (6)
Other 170 331 415 443
Total other operating income 2,577 2,678 5,204 5,255
Other operating expense:
Salaries and employee benefits 6,395 6,399 12,763 12,988
Net occupancy 1,664 1,596 3,248 3,204
Equipment 643 681 1,327 1,357
Other 3,342 3,295 6,441 6,450
Total other operating expense 12,044 11,971 23,779 23,999
Income before income taxes 6,035 5,938 11,947 11,823
Income taxes 2,355 2,361 4,676 4,692
Net income $ 3,680 $ 3,577 $ 7,271 $ 7,131
Per common share:
Net income $ 0.70 $ 0.68 $ 1.38 $ 1.36
Cash dividends declared $ 0.24 $ 0.24 $ 0.48 $ 0.48
Weighted average shares outstanding
(in thousands) 5,274 5,264 5,272 5,262
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-2
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
(Dollars in thousands) 1997 1996
Cash flows from operating activities:
Net income $ 7,271 $ 7,131
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 1,500 900
Provision for depreciation and
amortization 1,362 1,359
Net amortization and accretion of
investment securities 209 567
Net loss on investment securities - 6
Federal Home Loan Bank stock
dividends received (551) (531)
Net change in loans held for sale 2,812 (981)
Deferred income tax expense (benefit) 371 (158)
Partnership income (261) (216)
(Increase) decrease in accrued interest
receivable and other assets (1,492) 2,803
(Decrease) increase in accrued interest
payable and other liabilities (205) 838
Net cash provided by operating
activities 11,016 11,718
Cash flows from investing activities:
Proceeds from maturities of and
calls on investment securities
held to maturity 19,556 22,383
Purchases of investment securities
held to maturity (52,860) -
Proceeds from sales of investment
securities available for sale - 17,807
Proceeds from maturities and calls
on investment securities available
for sale 34,509 12,605
Purchases of investment securities
available for sale (33,497) (33,091)
Net (increase) decrease in interest-
bearing deposits in other banks (9,968) 6,956
Net loan originations (18,086) (28,607)
Proceeds from disposal of premises
and equipment - 15
Purchases of premises and equipment (1,512) (1,095)
Distributions from partnership 208 -
Net cash used in investing
activities (61,650) (3,027)
Cash flows from financing activities:
Net increase (decrease) in deposits 39,657 (28,384)
Proceeds from long-term debt 21,000 25,000
Repayments of long-term debt (18,934) (15,409)
Net increase in short-term borrowings 1,502 9,137
Cash dividends paid (2,526) (2,523)
Proceeds from sale of common stock 135 143
Net cash provided by (used in)
financing activities 40,834 (12,036)
Net decrease in cash and cash
equivalents (9,800) (3,345)
Cash and cash equivalents:
At beginning of period 55,534 50,274
At end of period $45,734 $46,929
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $21,774 $21,448
Cash paid during the period
for income taxes $ 4,400 $ 990
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to other real estate $ 2,598 $ 350
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-3
CPB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The financial information included herein is unaudited, except
for the consolidated balance sheet at December 31, 1996.
However, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the
interim periods.
The results of operations for the three and six months ended
June 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components
approach that focuses on control, distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. In December 1996, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 127 defers the effective date of
certain provisions of SFAS No. 125 to transactions occurring
after December 31, 1997. In January 1997, the Company
implemented those provisions of SFAS No. 125 which were not
subject to deferral by SFAS No. 127. However, servicing assets
were deemed immaterial, and accordingly, no disclosures will be
made, as permitted by SFAS No. 125. Further, the Company does
not expect the future application of SFAS No. 125 to the
transactions covered under SFAS No. 127 to have a material impact
on the Company's consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share," and SFAS No. 129, "Disclosure of Information about
Capital Structure." SFAS No. 128 simplifies the calculation of
earnings per share and revises related disclosure requirements.
SFAS No. 129 consolidates existing guidance relating to an
entity's capital structure. SFAS No. 128 is effective for
interim periods and fiscal years ending after December 15, 1997.
Earlier application is not permitted. SFAS No. 129 is effective
for financial statements for periods ending after December 15,
1997. The impact of these statements on the Company's
consolidated financial statements is not expected to be material.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130
requires that changes in comprehensive income be reported in a
financial statement. Comprehensive income is defined as all
changes in equity, including net income, except those resulting
from investments by and distributions to owners. SFAS No. 131
requires public companies to report selected quarterly
information about business segments, including information on
products and services, geographic areas and major customers,
based on a management approach to reporting. SFAS No. 130 and
131 are effective for fiscal years beginning after December 15,
1997, although SFAS No. 131 need not be applied to interim
periods in the initial year of implementation. Reclassification
of financial statements for prior periods will be required for
comparative purposes. As these statements relate solely to
disclosure requirements, their implementation will not have an
affect on the Company's financial condition or results of
operations.
F-4