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 March 31, 1998
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;
Outstanding at May 11, 1998: 10,608,744 shares
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements listed below are filed as a part
hereof.
Page
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997 F-1
Consolidated Statements of Income and Comprehensive
Income - Three months ended March 31, 1998 and 1997 F-3
Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
CPB Inc. (the "Company") posted first quarter 1998 net income
of $3.628 million, increasing by 1.0% over the $3.591 million
earned in the first quarter of 1997. The increase in net income
was mainly due to increases in net interest income and other
operating income, coupled with income tax benefits derived from
the establishment of a captive real estate investment trust in
the first quarter of 1998. As of March 31, 1998, total assets of
$1,524.3 million increased by $27.2 million or 1.8%, net loans of
$1,061.2 million increased by $39.4 million or 3.9%, and total
deposits of $1,200.3 million increased by $7.1 million or 0.6%
compared with year-end 1997. On October 8, 1997, the Company's
board of directors (the "Board") approved a two-for-one stock
split effective October 20, 1997, on common stock outstanding as
of that date. All financial information presented in this report
has been adjusted for the two-for-one stock split.
The following table presents annualized return on average
assets, annualized return on average stockholders' equity and
basic and diluted earnings per share for the periods indicated.
Three Months Ended
March 31,
1998 1997
Annualized return on average assets 0.97% 1.02%
Annualized return on average
stockholders' equity 9.43% 10.05%
Basic earnings per share $0.34 $0.34
Diluted earnings per share $0.34 $0.34
1
Hawaii's economy has experienced little growth in the past seven
years and shows little signs of significant improvement in the near
future. Bankruptcy filings statewide continue to rise, up 28.4% in
the first quarter of 1998 compared to the same period in 1997,
following a 44.4% increase in 1997 over 1996. Recent announcements
of layoffs totaling several thousand positions from both the
private and public sectors suggest further increases in bankruptcy
filings in the future.
The visitor industry, which has sustained the economy in
recent years, has shown signs of weakness. Year-to-date visitor
arrivals through March have declined by 1.7% from 1997 levels. The
decrease is attributed to economic problems in Asia and strong
competition from other vacation destinations. As a
result, the Hawaii Visitors and Convention Bureau has revised its
outlook for 1998 downward, projecting zero growth in visitor
arrivals, with the possibility of a 2% decline.
Meanwhile, the local real estate market has shown signs of
improvement, with total residential real estate sales volume on
Oahu increasing by 25.7% over the first quarter of 1997. In 1997,
single-family residence resales posted double-digit
increases on all the major islands. The combination of low
interest rates and a general belief that real estate prices have
stabilized have contributed to the increased sales activity.
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 loan losses as further discussed
in "Provision for Loan Losses." While the Hawaii economy is
expected to grow modestly in 1998, future trends in bankruptcy and
foreclosure filings, employment, tourism and the real estate market
could affect loan demand, deposit growth, provision for loan
losses, noninterest income and noninterest expense.
Accordingly, the results of operations of the Company for the
remainder of 1998 may be adversely impacted by a lack of
improvement in the economic climate in the State of Hawaii.
The "Year 2000" problem remains a primary focus of the
organization. Integral to the Company's efforts is the upcoming
conversion of the Bank's core processing systems to an AS/400-based
integrated banking system which is scheduled for completion during
the third quarter of 1998. Greater attention is also being given
to the compliance status and efforts of our customers to ensure
minimal risk of business disruption and economic loss. The Company
has expended, and will continue to expend,
substantial resources to address this issue on a timely basis.
Equipment and software expenditures related to the implementation
of the new integrated banking system are expected to be
capitalized and amortized over their respective useful lives.
Expenditures related to the Company's internal resources and
2
expenditures related to the Year 2000 compliance effort are being
expensed as incurred. No estimate of the expected total cost of
this effort can be made at this time, nor can any assurance be
given that the "Year 2000" problem will not have an adverse impact
on the Company's earnings.
Certain matters discussed in this report on Form 10-Q may
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-
looking statements relate to, among other things, Year 2000
compliance, net interest income, net interest margin, the levels of
nonperforming loans, loan losses and the allowance for loan losses.
Important factors that could cause the results to differ from those
discussed in this report include, but are not limited to, general
business conditions in the state of Hawaii, the real estate market
in Hawaii, competitive conditions among financial institutions,
regulatory changes in the financial services
industry, the ability of other entities to become Year 2000
compliant and other risks detailed in the Company's reports filed
with the Securities and Exchange Commission, including the Annual
Report on Form 10-K for the year ended December 31, 1997.
Results of Operations
Net Interest Income
A comparison of net interest income for the three months ended
March 31, 1998 and 1997 is set forth below on a taxable
equivalent basis using an assumed income tax rate of 35%. Net
interest income, when expressed as a percentage of average
interest earning assets, is referred to as "net interest margin".
Three Months Ended
March 31,
1998 1997
(Dollars in thousands)
Interest income $28,107 $26,519
Interest expense 11,654 10,684
Net interest income $16,453 $15,835
Net interest margin 4.66% 4.75%
Net interest margin was impacted by the reversal of more than
$350,000 in interest income on loans placed on nonaccrual status
during the quarter. Interest income increased by $1.6 million or
6.0% in the first quarter of 1998 compared to the same period in
1997, due to the higher level of interest earning assets held in
1998. Average interest earning assets of $1,411.4 million
increased by $78.3 million or 5.9%, including an $87.3 million
increase in investment securities and a $14.0 million increase in
average loans. The yield on interest earning assets of 7.97% for
the first quarter of 1998 increased slightly over the 7.96% yield
for the first quarter of 1997.
3
Interest and fees on loans increased by $144,000 or 0.6% in the
first three months of 1998, net of the $350,000 in interest
reversals, due to the increase in average loan balances. Interest
and dividends on investment securities increased by $1.5 million
due also to the increase in average balances, while interest on
deposits in other banks declined by $256,000 due to a reduction in
short-term investable funds compared to the prior year.
Interest expense for the three months of 1998 increased by
$970,000 or 9.1% as compared to the same period in 1997 due to the
increase in average interest-bearing liabilities of $73.8 million
or 6.7%. The average rate on interest-bearing
liabilities for the first quarter of 1998 of 3.99% increased from
3.91% in 1997 due primarily to the increased ratio of higher-
costing long-term debt and time deposits of $100,000 and over.
The resulting net interest income for the first quarter of 1998
of $16.2 million increased by $438,000 or 2.8%. Net
interest margin declined to 4.66% from 4.75%, with a ten-basis-
point decline attributable to the aforementioned interest
reversals. Strong competition for both loans and deposits,
particularly core deposits, and the increased reliance on higher-
cost funds are expected to further compress interest margins in the
future.
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 a borrower's ability to repay its 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
loan charge-offs, net of recoveries.
4
The following table sets forth certain information with
respect to the Company's allowance for loan losses as of the dates
and for the periods indicated.
Three Months Ended
March 31,
1998 1997
(Dollars in thousands)
Allowance for loan losses:
Balance at beginning of period $19,164 $19,436
Provision for loan losses 975 750
Loan charge-offs:
Real estate:
Mortgage-commercial - -
Mortgage-residential 211 154
Construction - -
Commercial, financial and agricultural 19 33
Consumer:
Credit card and related plans 206 138
Other consumer 119 152
Other 1 2
Total loan charge-offs 556 479
Recoveries:
Real estate:
Mortgage-commercial 1 -
Mortgage-residential 28 19
Construction - -
Commercial, financial and agricultural 4 4
Consumer:
Credit card and related plans 12 33
Other consumer 18 12
Other - -
Total recoveries 63 68
Net loan charge-offs 493 411
Balance at end of period $19,646 $19,775
Annualized ratio of net loan charge-offs to
average loans 0.19% 0.16%
The provision for loan losses of $975,000 for the first
quarter of 1998 increased by 30.0% over the same period in 1997,
reflecting the poor economic outlook for Hawaii and the higher
level of loan losses expected as a result. Net loan charge-offs of
$493,000 and $411,000, when expressed as an annualized
percentage of average total loans, was 0.19% and 0.16%,
respectively. Loan charge-offs during the first quarter of 1998
included several residential real estate loans, the largest being
5
an $80,000 loan charge-off. Consumer loans comprised
approximately 58% of all loans charged off during the first three
months of 1998, compared to 61% in the first quarter of 1997,
reflecting the impact on individuals of the prolonged economic
slump. Notwithstanding the increase in the ratio of net loan
charge-offs to average loans, the Company's net loan charge-off
ratio of 0.19% remained relatively low.
The allowance for loan losses expressed as a percentage of total
loans was 1.82% at March 31, 1998, declining slightly from 1.84% at
December 31, 1997. Management believes that the
allowance for loan losses 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.
March 31, December 31, March 31,
1998 1997 1997
(Dollars in thousands)
Nonaccrual loans:
Real estate:
Mortgage-commercial $13,706 $13,979 $ 8,774
Mortgage-residential 1,352 1,081 2,550
Construction - - -
Commercial, financial
and agricultural 2,367 1,312 846
Consumer:
Credit card and
related plans - - -
Other consumer 41 41 69
Other - - -
Total nonaccrual loans 17,466 16,413 12,239
Other real estate 3,430 3,677 965
Total nonperforming
assets 20,896 20,090 13,204
Loans delinquent for 90
days or more:
Real estate:
Mortgage-commercial 1,354 311 4,229
Mortgage-residential 9,992 10,112 2,099
Construction - - -
Commercial, financial
and agricultural 147 1,302 1,079
6
Consumer:
Credit card and
related plans 179 168 130
Other consumer 543 340 553
Other - - 6
Total loans delinquent
for 90 days or more $12,215 $12,233 $8,096
Restructured loans still
accruing interest:
Real estate:
Mortgage-commercial 2,727 2,727 2,571
Mortgage-residential - - -
Construction - - -
Commercial, financial
and agricultural - - 354
Consumer:
Credit card and
related plans - - -
Other consumer - - -
Other - - -
Total restructured
loans still accruing
interest 2,727 2,727 2,925
Total nonperforming
assets, loans delin-
quent for 90 days or
more and restructured
loans still accruing
interest $35,838 $35,050 $24,225
Total nonperforming assets
as a percentage of
loans and other real
estate 1.93% 1.92% 1.26%
Total nonperforming assets
and loans delinquent for
90 days or more as a
percentage of loans
and other real estate 3.05% 3.09% 2.03%
Total nonperforming assets,
loans delinquent for 90
days or more and
restructured loans still
accruing interest as a
percentage of loans
and other real estate 3.31% 3.36% 2.31%
Nonperforming assets, loans delinquent for 90 days or more and
restructured loans still accruing interest totaled $35.8 million at
7
March 31, 1998, increasing by $788,000 or 2.2% from year-end 1997.
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
property in the state of Hawaii. Nonaccrual loans of $17.5 million
included several large commercial and commercial mortgage loans
described as follows. Loans to a hotel interest on the island of
Oahu totaling $5.3 million are partially secured by a first
mortgage on the hotel property. Two loans totaling $3.9 million
are secured by commercial real estate located on the island of
Maui, and loans totaling $3.8 million to a real estate developer
are secured by various properties on Oahu. Nonaccrual loans also
include a number of residential mortgages situated throughout the
state. Other real estate of $3.4 million at March 31, 1998
included a $1.0 million residential condominium unit, a $1.8
million residence and several other residential properties, most of
which were located on Oahu. Loans delinquent for 90 days or more
and still accruing interest totaled $12.2 million at March 31,
1998, were consistent with year-end 1997 levels. Impaired loans at
March 31, 1998 totaled $22.5 million and
included all nonaccrual and restructured loans greater than
$500,000. The allowance for loan losses allocated to impaired
loans amounted to $4.7 million at March 31, 1998.
Management continues to closely monitor loan delinquencies and
work with borrowers to resolve loan problems; however,
continuation of stagnant economic conditions in the state of Hawaii
may result in future increases in nonperforming assets,
delinquencies, net loan charge-offs, provision for loan losses and
noninterest expense.
Other Operating Income
Total other operating income in the first quarter of 1998 of $2.9
million increased by $322,000 or 12.6% over the first
quarter of 1997. Increases of $145,000 in service charges on
deposits and $100,000 in other service charges and fees
contributed to the increase in earnings.
Other Operating Expense
Total other operating expense of $12.5 million for the first
quarter of 1998 increased by $792,000 or 6.8% over the same period
in 1997. This increase was primarily attributed to
accruals related to the Bank's incentive compensation programs and
a $300,000 writedown of other real estate. Increases in credit
card expenses, computer software costs and advertising expense also
contributed to the increase in other operating expense.
Income Taxes
The effective tax rate for the first quarter of 1998 was
35.84%, compared with the previous year's rate of 39.26%. The
decrease in tax rates for 1998 resulted from an increase in tax-
exempt investments and loans held during 1998, as well as tax
8
advantages derived from the formation of a real estate investment
trust in the first quarter of 1998.
Financial Condition
Total assets at March 31, 1998 of $1.52 billion increased by
$27.2 million or 1.8% over year-end 1997. Net loans of $1.06
billion increased by $39.4 million or 3.9%, and investment
securities of $329.5 million increased by $8.8 million or 2.8%.
Funding was provided by a reduction in cash and interest-bearing
deposits in other banks by $21.2 million, a $7.1 million increase
in deposits and a $17.9 million increase in short-term borrowings
and long-term debt, primarily from the Federal Home Loan Bank of
Seattle.
Total deposits at March 31, 1998 of $1.20 billion increased by
$7.1 million or 0.6% over year-end 1997. Noninterest-bearing
deposits of $158.9 million decreased by $9.6 million or 5.7%, while
interest-bearing deposits of $1.04 billion increased by $16.8
million or 1.6%. Core deposits (noninterest-bearing
demand, interest-bearing demand and savings deposits, and time
deposits under $100,000) at March 31, 1998 of $874.0 million
decreased slightly by $2.0 million or 0.2% during the first quarter
of 1998, while time deposits of $100,000 and over of $326.3 million
increased by $9.1 million or 2.9%. The decrease in core deposits
included an increase of $6.6 million in business money market
deposits, offset by a $5.7 million decline in
personal savings accounts. 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 $154.3 million at March 31, 1998
increased by $2.6 million or 1.7% over December 31, 1997. When
expressed as a percentage of total assets, stockholders' equity
decreased slightly to 10.12% at March 31, 1998, compared to 10.14%
at year-end 1997. On March 16, 1998, the Board declared a first
quarter cash dividend of $0.13 per share, an increase of 8.3% over
the dividend declared in the first quarter of 1997. Dividends
declared in the first quarter of 1998 totaled
$1,379,000 compared with $1,265,000 in the first quarter of 1997,
a 9.0% increase.
On April 21, 1998, the Board authorized a stock repurchase
program to repurchase up to 5% or approximately 530,000 shares out
of 10.6 million shares of the Company's common stock
outstanding. The repurchase of shares, to be conducted over a one-
year period in the open market, will be dependent upon market
conditions.
The Company's objective with respect to capital resources is to
maintain a level of capital that will support sustained asset
9
growth and anticipated credit risks. Furthermore, the Company
seeks 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 March 31, 1998:
Tier I risk-based
capital ratio 4.00% 11.88% 7.88%
Total risk-based
capital ratio 8.00% 13.14% 5.14%
Leverage capital ratio 4.00% 10.31% 6.31%
At December 31, 1997:
Tier I risk-based
capital ratio 4.00% 12.45% 8.45%
Total risk-based
capital ratio 8.00% 13.71% 5.66%
Leverage capital ratio 4.00% 10.41% 6.41%
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.
10
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.
Required Actual Excess
At March 31, 1998:
Tier I risk-based
capital ratio 6.00% 11.09% 5.09%
Total risk-based
capital ratio 10.00% 12.34% 2.34%
Leverage capital ratio 5.00% 9.62% 4.62%
At December 31, 1997:
Tier I risk-based
capital ratio 6.00% 11.63% 5.63%
Total risk-based
capital ratio 10.00% 12.88% 2.88%
Leverage capital ratio 5.00% 9.72% 4.72%
Asset/Liability Management and Liquidity
The Company's asset/liability management policy and liquidity are
discussed in the 1997 Annual Report to Shareholders. No
significant changes have occurred during the three months ended
March 31, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The Company discussed the nature and extent of market risk
exposure in the 1997 Annual Report to Shareholders. No
significant changes have occurred during the three months ended
March 31, 1998.
11
PART II. OTHER INFORMATION
Items 1 to 3 and Item 5.
Items 1 to 3 and Item 5 are omitted pursuant to instructions to
Part II.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the "Meeting") of the Company
was held on April 21, 1998, for the purpose of
considering and voting upon the following matters:
1. Election of three persons to the Board of Directors for a
term of three years and to serve until their successors
are elected and qualified;
2. Ratification of the appointment of KPMG Peat Marwick LLP
as the Company's independent accountants for the fiscal
year ending December 31, 1998; and
3. Transaction of such other business as may properly come
before the Meeting and at any and all adjournments
thereof.
The following table presents the names of directors elected at
the Meeting, as well as the number of votes cast for, votes cast
against or withheld, and abstentions or nonvotes for each of the
directors nominated. A total of 10,585,184 shares, or 80.9% of
eligible shares, were represented at the Meeting.
Votes Cast
Against or Abstentions
Name For Withheld or Nonvotes
Dennis I. Hirota, Ph.D. 8,459,542 106,017 None
Shunichi Okuyama 8,395,707 169,852 None
Joichi Saito 8,463,773 101,786 None
In addition to the above directors, the following directors will
continue to serve on the Board of Directors until the
expiration of their respective terms as indicated.
Expiration
Name of Term
Paul Devens 2000
Alice F. Guild 1999
Stanley W. Hong 2000
Daniel M. Nagamine 1999
Yoshiharu Satoh 2000
Naoaki Shibuya 1999
12
The ratification of the appointment of KPMG Peat Marwick LLP as
independent accountants for the fiscal year ending December 31,
1998 was approved with a total of 8,481,092 votes cast for, 40,353
votes against or withheld and 44,114 abstentions or
nonvotes.
There were no other matters brought before the Meeting which
required a vote by shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Financial Data Schedule as of and for the
three months ended March 31, 1998, is filed as
Exhibit 27 to this report on Form 10-Q.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K
during the first quarter of 1998.
13
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: May 12, 1998 /s/ Naoaki Shibuya
Naoaki Shibuya
President
Date: May 12, 1998 /s/ Neal K. Kanda
Neal K. Kanda
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
14
CPB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
(Dollars in thousands, except per share data) 1998 1997
ASSETS
Cash and due from banks $ 43,736 $ 50,695
Interest-bearing deposits in other banks 19,919 34,188
Investment securities:
Held to maturity, at cost (fair value of $158,250
at March 31, 1998 and $153,494 at December 31, 1997) 157,590 152,688
Available for sale, at fair value 171,958 168,023
Total investment securities 329,548 320,711
Loans 1,080,879 1,041,023
Less allowance for loan losses 19,646 19,164
Net loans 1,061,233 1,021,859
Premises and equipment 26,420 26,676
Accrued interest receivable 9,741 9,404
Investment in unconsolidated subsidiaries 7,422 7,269
Due from customers on acceptances 56 59
Other real estate owned 3,430 3,677
Other assets 22,809 22,563
Total assets $1,524,314 $1,497,101
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 158,865 $ 168,505
Interest-bearing deposits 1,041,438 1,024,653
Total deposits 1,200,303 1,193,158
Short-term borrowings 14,783 6,248
Long-term debt 137,102 127,705
F-1
Bank acceptances outstanding 56 59
Other liabilities 17,754 18,189
Total liabilities 1,369,998 1,345,359
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000
shares, none issued - -
Common stock, no par value; authorized 50,000,000 shares;
issued and outstanding 10,608,744 shares at March 31,
1998, and 10,579,184 shares at December 31, 1997 6,902 6,612
Surplus 45,848 45,848
Retained earnings 101,437 99,188
Accumulated other comprehensive income, net of taxes 129 94
Total stockholders' equity 154,316 151,742
Total liabilities and stockholders' equity $1,524,314 $1,497,101
Book value per share $14.55 $14.34
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-2
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
(Dollars in thousands, March 31,
except per share data) 1998 1997
Interest income:
Interest and fees on loans $22,348 $22,204
Interest and dividends on
investment securities:
Taxable interest 4,536 3,315
Tax-exempt interest 293 35
Dividends 308 267
Interest on deposits in other banks 377 633
Total interest income 27,862 26,454
Interest expense:
Interest on deposits 9,572 8,893
Interest on short-term borrowings 181 67
Interest on long-term debt 1,901 1,724
Total interest expense 11,654 10,684
Net interest income 16,208 15,770
Provision for loan losses 975 750
Net interest income after
provision for loan losses 15,233 15,020
Other operating income:
Service charges on deposit accounts 835 690
Other service charges and fees 1,483 1,383
Trust income 143 91
Equity in earnings of
unconsolidated subsidiaries 103 127
Fees on foreign exchange 157 182
F-3
Investment securities gains (losses) - -
Other 162 88
Total other operating income 2,883 2,561
Other operating expense:
Salaries and employee benefits 6,663 6,368
Net occupancy 1,592 1,584
Equipment 716 684
Other 3,490 3,033
Total other operating expense 12,461 11,669
Income before income taxes 5,655 5,912
Income taxes 2,027 2,321
Net income $ 3,628 $ 3,591
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
on securities 35 (381)
Comprehensive income $ 3,663 $ 3,210
Per share data:
Basic earnings per share $ 0.34 $ 0.34
Diluted earnings per share 0.34 0.34
Cash dividends declared 0.13 0.12
Weighted average shares outstanding
(in thousands) 10,586 10,540
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-4
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(Dollars in thousands) 1998 1997
Cash flows from operating activities:
Net income $ 3,628 $ 3,591
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 975 750
Provision for depreciation and
amortization 771 683
Net amortization and accretion of
investment securities 39 120
Federal Home Loan Bank stock
dividends received (308) (267)
Net change in loans held for sale (3,779) 565
Deferred income tax expense 201 520
Equity in earnings of unconsolidated
subsidiaries (103) (127)
Net increase in accrued interest
receivable, other real estate
owned and other assets (194) (140)
Net (decrease) increase in accrued
interest payable and other liabilities (481) 31
Net cash provided by operating
activities 749 5,726
Cash flows from investing activities:
Proceeds from maturities of and
calls on investment securities
held to maturity 14,220 10,277
Purchases of investment securities
held to maturity (19,142) (16,784)
Proceeds from maturities of and calls
on investment securities available
for sale 9,701 22,279
Purchases of investment securities
available for sale (13,289) (26,108)
Net decrease (increase) in interest-
bearing deposits in other banks 14,269 (21,139)
Net loan originations (36,894) (4,849)
Purchases of premises and equipment (515) (465)
Investment in unconsolidated
subsidiaries (50) -
Net cash used in investing
activities (31,700) (36,789)
F-5
Cash flows from financing activities:
Net increase in deposits 7,145 30,885
Proceeds from long-term debt 10,000 16,000
Repayments of long-term debt (603) (13,726)
Net increase (decrease) in short-term
borrowings 8,535 (427)
Cash dividends paid (1,375) (1,265)
Proceeds from sale of common stock 290 91
Net cash provided by financing
activities 23,992 31,558
Net (decrease) increase in cash
and cash equivalents (6,959) 495
Cash and cash equivalents:
At beginning of period 50,695 55,534
At end of period $ 43,736 $ 56,029
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $ 11,162 $ 10,726
Cash paid during the period
for income taxes $ 450 $ 1,450
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to other real estate $ 324 $ 1,615
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-6
CPB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial information included herein is unaudited, except
for the consolidated balance sheet at December 31, 1998.
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 months ended March 31,
1998 are not necessarily indicative of the results to be expected
for the full year.
2. Comprehensive Income
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130,
effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and display of
comprehensive income and its components in a full set of general-
purpose financial statements. Comprehensive income is defined as
all changes in equity, including net income, except those
resulting from investment by and distributions to owners.
Components of other comprehensive income for the three months
ended March 31, 1998 and 1997 were comprised solely of unrealized
holding gains (losses) on available-for-sale investment
securities. There were no sales of investment securities during
those periods. Income tax expense (benefit) allocated to
components of other comprehensive income were $23,000 and
($253,000) for the three months ended March 31, 1998 and 1997,
respectively. Accumulated other comprehensive income is
presented below as of the dates indicated:
March 31,
(Dollars in thousands) 1998 1997
Balance at beginning of period $ 94 $(590)
Current-period change 35 (381)
Balance at end of period $ 129 $(971)
3. Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
is effective for fiscal years beginning after December 15, 1997,
although need not be applied to interim periods in the initial
F-7
year of implementation. SFAS No. 131 establishes standards for the
way public companies 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. Reclassification of
financial statements for prior periods will be required for
comparative purposes. As this statement relates solely to
disclosure requirements, its implementation will not have an effect
on the Company's financial condition, results of
operations or liquidity.
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," an
amendment of SFAS No. 87, "Employers' Accounting for Pensions, No.
88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans," and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 132,
effective for fiscal years beginning after December 15, 1997,
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires
additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate
financial analysis and eliminates certain disclosures that are no
longer useful as they were when SFAS Nos. 87, 88 and 106 were
issued. The applications of SFAS No. 132 is not expected to have
a material impact on the Company's consolidated financial
statements.
F-8