SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Pacific Crest Capital, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11c(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act
Rule 0-11:<F1>
4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[FN]
<F1> Set forth the amount on which the filing fee is calculated and
state how it was determined
<PAGE>
<PAGE>
CPB INC.
220 South King Street
Honolulu, Hawaii 96813
(808) 544-0500
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 26, 1994
TO THE SHAREHOLDERS OF CPB INC.:
NOTICE IS HEREBY GIVEN that, pursuant to its Bylaws and the
call of its Board of Directors, the Annual Meeting of Shareholders
(the "Meeting") of CPB Inc. (the "Company") will be held on the
third floor of the Central Pacific Plaza Building, 220 South King
Street, Honolulu, Hawaii 96813, on Tuesday, April 26, 1994, at
10:00 a.m., Hawaii time, for the purpose of considering and voting
upon the following matters:
1. Election of Directors. To elect three persons to the
Board of Directors for a term of three years and to serve
until their successors are elected and qualified, as more
fully described in the accompanying Proxy Statement.
2. Ratification of the Appointment of Independent
Accountants. To ratify the appointment of KPMG Peat
Marwick as the Company's independent accountants for the
fiscal year ending December 31, 1994.
3. Other Business. To transact such other business as may
properly come before the Meeting and at any and all
adjournments thereof.
Only those shareholders of record at the close of business on
February 28, 1994 shall be entitled to notice of and to vote at the
Meeting.
SHAREHOLDERS ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY
IN THE POSTAGE PREPAID ENVELOPE AS PROMPTLY AS POSSIBLE, WHETHER OR
NOT THEY PLAN TO ATTEND THE MEETING IN PERSON. SHAREHOLDERS WHO
ATTEND THE MEETING MAY WITHDRAW THEIR PROXY AND VOTE IN PERSON IF
THEY WISH TO DO SO.
By order of the Board of Directors
(signed)
AUSTIN Y. IMAMURA
Vice President and
Secretary
Dated: March 22, 1994
<PAGE>
CPB INC.
220 South King Street
Honolulu, Hawaii 96813
(808) 544-0500
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 26, 1994
INTRODUCTION
This Proxy Statement is furnished in connection with the
solicitation of proxies ("Proxies") by the Board of Directors of
CPB Inc. (the "Company") for use at the Annual Meeting of
Shareholders (the "Meeting") of the Company to be held on the third
floor of the Central Pacific Plaza Building, 220 South King Street,
Honolulu, Hawaii 96813, on Tuesday, April 26, 1994, at 10:00 a.m.,
Hawaii time, and at any and all adjournments thereof. This Proxy
Statement and accompanying Notice will be mailed to shareholders on
or about March 22, 1994.
Matters to be Considered
The matters to be considered and voted upon at the Meeting
will be:
1. Election of Directors. To elect 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 Independent
Accountants. To ratify the appointment of KPMG Peat
Marwick as the Company's independent accountants for the
fiscal year ending December 31, 1994.
3. Other Business. To transact such other business as may
properly come before the Meeting and at any and all
adjournments thereof.
Voting and Revocability of Proxies
A Proxy for use at the Meeting is enclosed. Any shareholder
who executes and delivers such Proxy has the right to revoke it at
any time before it is exercised by filing with the Secretary of the
Company an instrument revoking it or a duly executed Proxy bearing
a later date. It may also be revoked by attendance at the Meeting
and election to vote in person thereat. Subject to such
revocation, all shares represented by a properly executed Proxy
received in time for the Meeting will be voted by the Proxy Holders
in accordance with the instructions on the Proxy. If no
instructions are specified with respect to matters to be acted
upon, the shares represented by the Proxy will be voted "FOR" the
election of all nominees as directors and "FOR" ratification of the
appointment of KPMG Peat Marwick as the Company's independent
accountants for the fiscal year ending December 31, 1994. It is
not anticipated that any matters will be presented at the Meeting
other than as set forth in the accompanying Notice of the Meeting.
If any other matters are presented properly at the Meeting,
however, the Proxy will be voted by the Proxy Holders in accordance
with the recommendations of the Board of Directors.
If you hold your shares of common stock, no par value ("Common
Stock") in "street name" and you fail to instruct your broker or
nominee as to how to vote your Common Stock, your broker or nominee
may, in its discretion, vote your Common Stock "FOR" the election
of the Board of Directors' nominees and "FOR" the proposal to
ratify the appointment of KPMG Peat Marwick as the Company's
independent accountants for the fiscal year ending December 31,
1994.
PAGE
<PAGE>
Cost of Solicitations of Proxies
This solicitation of Proxies is made on behalf of the Board of
Directors of the Company and the Company will bear the costs of
solicitation. The expense of preparing, assembling, printing and
mailing this Proxy Statement and the materials used in this
solicitation of Proxies also will be borne by the Company. It is
contemplated that Proxies will be solicited principally through the
mail, but directors, officers and regular employees of the Company
or its subsidiary, Central Pacific Bank (the "Bank"), may solicit
Proxies personally or by telephone. Although there is no formal
agreement to do so, the Company may reimburse banks, brokerage
houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding these proxy materials to their
principals. The Company does not intend to utilize the services of
other individuals or entities not employed by or affiliated with
the Company in connection with the solicitation of Proxies.
Outstanding Securities and Voting Rights
The close of business on February 28, 1994 has been fixed as
the record date ("Record Date") for the determination of the
shareholders of the Company entitled to notice of and to vote at
the Meeting. There were 5,232,331 shares of the Common Stock
issued and outstanding on the Record Date.
Each holder of Common Stock will be entitled to one vote, in
person or by proxy, for each share of Common Stock standing in his
or her name on the books of the Company as of the Record Date on
any matter submitted to the vote of the shareholders, except that
in connection with the election of directors, the shares are
entitled to be voted cumulatively, provided that not less than
forty-eight hours prior to the time fixed for the Meeting, a
written request for such cumulative vote has been delivered to the
Secretary of the Company. If a shareholder has given such request,
all shareholders may cumulate their votes for candidates in
nomination. Cumulative voting entitles a shareholder to give one
nominee as many votes as is equal to the number of directors to be
elected multiplied by the number of shares of stock owned by such
shareholder, or to distribute his or her votes on the same
principle between two or more nominees as he or she sees fit.
Nominees receiving the highest number of votes on the foregoing
basis up to the total number of directors to be elected will be
elected directors. Discretionary authority to cumulate is hereby
solicited by the Board of Directors and return of the Proxy shall
grant such authority.
The proposal to ratify the appointment of KPMG Peat Marwick as
the Company's independent accountants requires the affirmative vote
of shareholders holding not less than a majority of the shares of
the Company's Common Stock represented and entitled to vote at the
Meeting. Accordingly, an abstention from voting on the proposal to
ratify the appointment of KPMG Peat Marwick will have the effect of
a vote "AGAINST" the proposal.
Principal Shareholders
As of February 28, 1994, the following entities were the only
entities known to Management of the Company to beneficially own
more than five percent of the Company's outstanding Common Stock.
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Name and Address Beneficial Percent
Class of Beneficial Owner Ownership of Class
<S> <C> <C> <C>
Common The Sumitomo Bank, Limited 719,686<F1> 13.73%<F2>
6-5 Kitahama 4-chome,
Chuo-ku
Osaka, Japan
Common The Committee of the Employee 548,455<F3> 10.48%
Stock Ownership Plan of Central
Pacific Bank
220 South King Street
Honolulu, Hawaii 96813
Common State of Wisconsin 275,000<F4> 5.26%
Investment Board
P.O. Box 7842
Madison, Wisconsin 53707
<FN>
PAGE
<PAGE>
<F1> Sole voting and investment power is held with respect to
711,750 shares. Includes 7,936 shares which The Sumitomo
Bank, Limited ("Sumitomo") has the right to acquire by the
exercise of warrants issued pursuant to the Share Purchase
Agreement between the Company and Sumitomo. See "ELECTION OF
DIRECTORS -- Certain Transactions."
<F2> This percentage is computed as if the 7,936 shares subject to
the warrants described in footnote 1 were outstanding.
However, the 7,936 shares are not deemed to be outstanding for
the purpose of computing the percentage of Common Stock owned
by any other person
<F3> Under the terms of the Employee Stock Ownership Plan of
Central Pacific Bank ("ESOP"), shares of the Common Stock of
the Company are held in trust by American Trust Co. of Hawaii,
Inc., the trustee under the ESOP Trust ("Trustee"), for the
exclusive benefit of the participants. The Trustee is the
record holder of the Common Stock held by the ESOP; however,
the Committee of the ESOP (the "ESOP Committee"), which
consists of five members, gives the Trustee investment
instructions with respect to all of the ESOP assets and voting
instructions with respect to those shares held by the ESOP for
which the voting rights have not passed through to
participants. At February 28, 1994, the Trustee held 41,811
shares of Common Stock in a suspense account as collateral for
a loan (the "ESOP Loan"), the proceeds of which were used to
fund part of the purchase of 125,000 shares of Common Stock
for the ESOP. (See "ELECTION OF DIRECTORS -- Certain
Transactions.") Upon receipt of future annual contributions
from the Bank, the Trustee will make payments on the ESOP Loan
and a corresponding amount of shares of Common Stock will be
released from the suspense account and allocated to the
accounts of the participants. Although the members of the
ESOP Committee share among themselves as committee members
(i) all of the voting power with respect to the 41,811 shares
held in the suspense account and (ii) dispositive power,
subject to the terms of the ESOP, over all of the shares held
by the ESOP and, therefore, pursuant to the applicable
regulations promulgated pursuant to the Securities Exchange
Act of 1934, as amended, are technically the beneficial owners
of such shares, the actual beneficial owners are the employees
who participate in the ESOP. The members of the ESOP
Committee, therefore, disclaim beneficial ownership of such
shares held in trust which are otherwise attributable to them
by virtue of serving on such ESOP Committee.
<F4> Based upon information provided by this shareholder.
</TABLE>
ELECTION OF DIRECTORS
Under the Company's Restated Articles of Incorporation and
Bylaws, which provide for a "classified" Board, three directors
(out of a present total of nine) are to be elected at the Meeting
to serve three-year terms expiring at the 1997 Annual Meeting of
Shareholders and until their respective successors are elected and
qualified. The Company's Bylaws currently provide for nine
directors, three each serving as Class I, Class II and Class III
directors. Nominees for the election at the Meeting will serve as
Class III directors.
Mr. Yoichi Abe resigned from the Board of Directors effective
as of June 15, 1993 in order to focus on his duties as Senior
Managing Director of Sumitomo. At that time the Board of Directors
appointed Mr. Kensuke Hotta to the Board of Directors to fill the
vacancy created by Mr. Abe's resignation, to serve out the
remainder of his term, which will expire in 1995.
There are no family relationships among directors or executive
officers of the Company, and, except as set forth below, as of the
date hereof, no directorships are held by any director with a
company which has a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or subject to the requirements of Section 15(d) of
the Exchange Act or any company registered as an investment company
under the Investment Company Act of 1940. Mr. Hong serves as
director of the following companies: Capital Investment of Hawaii,
Inc., First Insurance Company of Hawaii, Ltd., Theo Davies & Co.
and Hawaiian Tax Free Trust: Pacific Capital Funds.
All nominees have indicated their willingness to serve and
unless otherwise instructed, Proxies will be voted for all of the
nominees. However, in the event that any of them should be unable
to serve, the Proxy Holders named on the enclosed Proxy Card will
vote in their discretion for such persons as the Board of Directors
may recommend.
The following table sets forth certain information, as of
February 28, 1994, with respect to each of the directors, nominees
and the Named Executives (as defined below) as well as all
continuing directors and executive officers of the Company, as a
group:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Common Stock
First Year Beneficially
Elected or Owned on
Principal Appointed as February 28, 1994<F2>
Occupation Officer or Percent
for the Past Director of of Term
Name Five Years Age the Company<F1> Number Class<F3> Expires
<S> <C> <C> <C> <C> <C> <C>
DEVENS, Vice Chairman of 62 1980 2,221<F4> * 1994
Paul the Board of
(Class III Company; Attorney
Director, at Law; Partner, Devens,
Nominee) Lo, Youth,
Nakano & Saito
GUILD, Retired, former 59 1980 1,056 * 1996
Alice F. Managing Director, Iolani
(Class II Palace (1986-1991)
Director)
HIROTA, President, Sam O. 53 1980 2,900(6) * 1995
Dennis I., Hirota, Inc. Engineering
Ph.D. and Surveying (1986-present);
(Class I Registered Professional
Director) Engineer<F5>
<PAGE>
HONG, Senior Vice President, 57 1993 200<F7> * 1994
Stanley McCormack Properties, Ltd.
(Class III (1933-present); President
Director, and Chief Executive
Nominee) Officer, Hawaii Visitors
Bureau (1984-1993)
HOTTA, Senior Managing Director 55 1993 --<F8> * 1995
Kensuke Executive Committee
(Class I Member in charge of Interna-
Director) tional Banking at
Head Office, The Sumitomo
Bank, Limited (1993-present);
Senior Managing Director and
Member of the Executive
Committee of The Sumitomo
Bank, Limited (1992-1993);
Managing Director of The
Sumitomo Bank, Limited (1990-
1992); Director of The Sumitomo
Bank, Limited (1987-1990);
General Manager of New York
Branch and President of
Sumitomo Bank of New
York Trust Company (1987-1990)
NAGAMINE, President, Flamingo 52 1983 5,280<F9> * 1996
Daniel M. Enterprises, Inc.
(Class II (1985-present); Certified
Director) Public Accountant
PAGE
<PAGE>
SAITO, President of Company 58 1989 15,226<F11> * 1995
Joichi (1992-present); Executive
(Class I Vice President of Company
Director) (1988-1992); President and
Chief Operating Officer of
Bank (1989 - present);
Executive Vice President
of Bank (1988); Executive
Vice President, The
Sumitomo Bank of California
(1981 - 1988) <F5><F10>
SATOH, Chairman of the Board 65 1975 34,287<F13> * 1994
Yoshiharu and Chief Executive
(Class III Officer of Company
Director, (1992-present); Chairman
Nominee) of the Board, President
and Chief Executive
Officer of Company
(1990-1992); President
and Chief Executive
Officer of Company
(1982-1990); Chairman
of the Board and Chief
Executive Officer
of Bank (1988-present);
President and Chief
Executive Officer of
Bank (1978-1988); Chairman
of the Board of CPB
Properties, Inc. (1983-
present)<F5><F12>
<PAGE>
UEDA, Executive Vice President 64 1980 21,916<F15> * 1996
Minoru of Company (1982-present);
(Class II Vice Chairman of the Board
Director) of Bank (1988-present);
Executive Vice President of
Bank (1981-1988);
President of CPB Properties,
Inc. (1983-present)<F5><F14>
IMAMURA, Vice President and 47 1991 6,792<F16> * N/A
Austin Y. Secretary of Company
(1991-present); Executive
Vice President and
Secretary of Bank (1991-
present); Senior Vice
President and Secretary
of Bank (1991); Senior
Vice President of Bank
(1987-1991); Vice President
of Bank (1986-1987)
All Directors 156,009<F18> 2.97%
and Executive
Officers,
as a Group
(11 persons)<F17>
* Less than 1%.
PAGE
<PAGE>
<FN>
<F1> All directors of the Company are also directors of the
Bank. Dates prior to the formation of the Company in 1982
indicate the year first appointed director of the Bank.
Dr. Hirota, Mrs. Guild and Messrs. Devens, Nagamine, Ueda
and Satoh commenced service as directors of the Company on
February 1, 1982, the date of formation of the Company.
Dr. Hirota, Mrs. Guild and Messrs. Nagamine and Ueda served
as directors of the Company until April 23, 1985 when the
Company's shareholders adopted a classified Board and
reduced the number of directors to nine. However, Dr.
Hirota, Mrs. Guild and Messrs. Nagamine and Ueda continued
to serve on the Bank's Board until they were reelected to
the Company's Board in 1986, 1990, 1990 and 1987,
respectively. Mr. Hong has been a director of the Bank
since 1985.
<F2> Except as otherwise noted below, each person has sole
voting and investment powers with respect to the shares
listed.
<F3> In computing the percentage of shares beneficially owned,
the number of shares which the person (or group) has a
right to acquire within 60 days after February 28, 1994 are
deemed outstanding for the purpose of computing the
percentage of Common Stock beneficially owned by that
person (or group) but are not deemed outstanding for the
purpose of computing the percentage of shares beneficially
owned by any other person.
<F4> Includes 1 share held of record by Devens, Lo, Youth,
Nakano & Saito, a partnership of which Mr. Devens is a
partner.
<F5> Messrs. Hirota, Saito, Satoh and Ueda are also directors of
CPB Properties, Inc., a wholly-owned subsidiary of the
Bank.
<F6> Includes 1,180 shares for which Dr. Hirota has shared
voting and investment powers with his wife, Kathryn Hirota.
<F7> Includes 200 shares for which Mr. Hong has shared voting
and investment powers with his wife, Karen Ho Hong.
<F8> Does not include 711,750 shares held of record by Sumitomo,
of which Mr. Hotta is a Senior Managing Director, or 7,936
shares which Sumitomo has the right to acquire by the
exercise of warrants. With respect to shares described in
the preceding sentence, Mr. Hotta disclaims any beneficial
ownership.
<F9> Includes 5,280 shares for which Mr. Nagamine has shared
voting and investment powers with his wife, Maxine
Nagamine.
<F10> Mr. Saito is currently on indefinite leave of absence from
Sumitomo.
<F11> Includes 1,500 shares for which Mr. Saito has shared voting
and investment powers with his wife, Yoko Saito, 9,680
shares which Mr. Saito has the right to acquire by the
exercise of stock options vested pursuant to the Company's
1986 Stock Option Plan and 4,046 shares allocated to Mr.
Saito's account under the Company's ESOP.
<F12> Mr. Satoh was formerly an officer of Sumitomo and is now
retired from Sumitomo.
<PAGE>
<F13> Includes 6,904 shares held in the name of Yoshiharu Satoh
Revocable Living Trust, Yoshiharu Satoh Trustee, and 6,904
shares held in the name of Ikuko Satoh Revocable Living
Trust, Ikuko Satoh Trustee, for which Mr. Satoh has shared
voting and investment powers with his wife, Ikuko Satoh.
Also includes 9,240 shares which Mr. Satoh has the right to
acquire by the exercise of stock options vested pursuant to
the Company's 1986 Stock Option Plan and 11,239 shares
allocated to Mr. Satoh's account under the Company's ESOP.
<F14> Mr. Ueda was formerly an officer of Sumitomo and is now
retired from Sumitomo.
<F15> Includes 4,048 shares for which Mr. Ueda has shared voting
and investment powers with his wife Kyoko Ueda, 6,072
shares which Mr. Ueda has the right to acquire by the
exercise of stock options vested pursuant to the Company's
1986 Stock Option Plan and 7,128 shares allocated to
Mr. Ueda's account under the Company's ESOP.
<F16> Includes 2,960 shares for which Mr. Imamura has shared
voting and investment powers with his wife, Patricia
Imamura, and 3,832 shares allocated to Mr. Imamura's
account under the Company's ESOP.
<F17> Includes the offices of the Chairman of the Board and Chief
Executive Officer, President, Executive Vice President,
Vice President and Secretary, and Vice President and
Treasurer.
<F18> Includes 22,072 shares for which certain directors and
officers have shared voting and investment powers, 24,992
shares which members of the group have the right to acquire
by the exercise of stock options vested pursuant to the
Company's 1986 Stock Option Plan and 26,245 shares
allocated to the accounts of executive officers under the
Company's ESOP. Also includes 41,811 shares attributable to
members of the group who serve on the ESOP Committee which
are held in a suspense account as collateral for the ESOP
Loan and 22,145 shares which have been released from the
suspense account but have not yet been allocated to the
accounts of participants, but does not include 484,499
shares held of record by the ESOP Trustee as to which
voting rights have passed through to participants and as to
which such ESOP Committee members disclaim beneficial
ownership.
</TABLE>
PAGE
<PAGE>
The Board of Directors and Committees
The Board of Directors of the Company has various standing
committees, including an Executive Committee, a Nominating
Committee, an Audit Committee and a Stock Option Committee. The
Board has no standing Compensation Committee.
The Executive Committee, which did not hold any meetings
during 1993, is chaired by Mr. Devens, and Messrs. Hirota and Satoh
are members. The purpose of the Executive Committee is, among
other things, to manage the business affairs of the Company while
not in conflict with specific directives that may be given by the
Board of Directors.
The Nominating Committee held one meeting during 1993. The
committee is chaired by Mr. Devens, and Messrs. Hirota, Hong,
Nagamine and Satoh are members. It is responsible for recommending
nominees for directors of the Company. It will consider nominees
for election at the 1995 Annual Meeting of Shareholders recommended
by shareholders if such recommendations are received in writing
prior to December 15, 1994. Shareholder recommendations should be
addressed to the Company's Secretary, P.O. Box 3590, Honolulu,
Hawaii 96811.
The Audit Committee did not hold any meetings during 1993.
The committee is chaired by Mr. Nagamine, and Messrs. Devens,
Hirota and Mrs. Guild are members. The primary functions of the
Audit Committee are to review various financial and audit reports
and to make recommendations concerning the appointment of
independent accountants.
The 1986 Stock Option Plan Committee did not hold any meetings
during 1993. This committee is chaired by Dr. Hirota, and Mr.
Devens and Mrs. Guild are members. The committee's primary
functions include determining individuals to whom options will be
granted and their terms and making periodic reports to the Board of
Directors as to the status of the Company's 1986 Stock Option Plan.
During the fiscal year ended December 31, 1993, the Board of
Directors of the Company held a total of six meetings. All of the
persons who were directors of the Company during 1993 attended at
least 75% of the aggregate of (1) the total number of such Board
meetings and (2) the total number of meetings held by all
committees of the Board on which they served during the year,
except for Mr. Abe who resigned in June of 1993, Mr. Hotta who was
appointed in June of 1993 to fill the vacancy created by Mr. Abe's
resignation, and Mr. Magoon who retired in February of 1993 and was
replaced by Mr. Hong.
The Board of Directors recommends a vote "FOR" each of the
Board of Directors' Nominees.
Compensation of Directors and Executive Officers
Executive Compensation
Summary of Cash and Certain Other Compensation
The following table sets forth certain summary information
concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief Executive Officer and each of the
three other executive officers of the Company (determined as of the
end of the last fiscal year) whose annual salary and bonus exceeded
$100,000 in 1993 (the "Named Executives") for each of the fiscal
years ended December 31, 1993, 1992 and 1991:
PAGE
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
All Other
Name and Principal Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Yoshiharu Satoh 1993 $320,000 200 36,444<F1>
Chairman of the Board
and Chief Executive 1992 293,328 5,867 36,234<F2>
Officer
1991 268,984 200 *
Joichi Saito 1993 213,333 200 32,793<F3>
President
1992 193,333 3,867 29,614<F4>
1991 173,333 200 *
Minoru Ueda 1993 166,667 200 26,173<F5>
Executive Vice
President 1992 156,667 3,133 24,430<F6>
1991 146,667 200 *
Austin Y. Imamura 1993 133,000 200 20,106<F7>
Vice President and
Secretary 1992 121,000 2,420 18,252<F8>
1991 105,000 200 *
* Not required to be disclosed.
<PAGE>
<FN>
<F1> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Satoh of $14,073, $21,211, and $1,160,
respectively.
<F2> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Satoh of $13,495, $20,701, and $2,038,
respectively.
<F3> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Saito of $12,730, $19,187, and $876,
respectively.
<F4> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Saito of $11,400, $17,487, and $727,
respectively.
<F5> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Ueda of $9,945, $14,990, and $1,238,
respectively.
<F6> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Ueda of $9,238, $14,171, and $1,021,
respectively.
<F7> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Imamura of $7,937, $11,962, and $207,
respectively.
<F8> Includes contributions to the Bank's Profit Sharing Plan, the
Bank's ESOP and the Bank's Split Dollar Life Insurance Plan
for the account of Mr. Imamura of $7,135, $10,945, and $172,
respectively.
/TABLE
<PAGE>
Option Exercises and Holdings
The following table provides information with respect to the
Named Executives concerning the exercise of options during the
fiscal year ended December 31, 1993 and unexercised options held by
the Named Executives as of December 31, 1993:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option<F1> Exercises in 1993
and FY-End Option Values
Value of Unexercised
Number of Unexercised In-the-Money Options <F2>
Shares Options at 12/31/93 at 12/31/93
Acquired Value
on Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
SATOH, Yoshiharu 0 N/A 9,240 -- $186,962 $--
SAITO, Joichi 0 N/A 9,680 -- 109,452 --
UEDA, Minoru 0 N/A 6,072 -- 122,861 --
IMAMURA, Austin Y.0 N/A -- -- -- --
<PAGE>
<FN>
<F1> The Company has no compensation plans pursuant to which stock
appreciation rights may be granted.
<F2> The value of unexercised "in-the-money" options is the
difference between the market price of the Common Stock on
December 31, 1993 ($25.625 per share) and the exercise price
of the option, multiplied by the number of shares subject to
the option.
</TABLE>
Defined Benefit Plan
The table below shows estimated annual retirement benefits at
age 65 for various levels of executive compensation and service
under the Bank's Defined Benefit Pension Plan.
<PAGE>
<TABLE>
<CAPTION>
Pension Plan Table
Annualized Final Years of Service
Average
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years
<S> <C> <C> <C> <C> <C>
$50,000 $ 11,250 $ 15,000 $ 18,750 $ 22,500 $ 26,250
100,000 22,500 30,000 37,500 45,000 52,500
150,000 33,750 45,000 56,250 67,500 78,750
200,000 45,000 60,000 75,000 90,000 105,000
Above $250,000 53,064 70,752 88,440 106,128 115,641
</TABLE>
<PAGE>
Under the Defined Benefit Pension Plan, benefits are based
upon the employee's years of service and highest average annual
salary in the final 60-consecutive month period of service,
excluding the period between June 30, 1986 and January 1, 1991,
when the Defined Benefit Pension Plan was curtailed. The credited
years of service as of December 31, 1993 for Messrs. Satoh, Saito,
Ueda and Imamura are 21, 6, 13 and 7, respectively.
Compensation of Directors
The Company and the Bank each has a policy of paying fees to
directors for their attendance at board meetings and committee
meetings. The Company and the Bank pay $800 per board meeting to
all directors and $600 per board committee meeting to non-officer
directors. In addition, the Company pays $4,000 annually to each
director (excluding officers) and the Bank pays $8,000 annually to
each director (excluding officers). CPB Properties, Inc. pays $600
per board meeting to its directors.
Non-officer directors of the Company are eligible to
participate in the Company's 1986 Stock Option Plan.
Report of Board of Directors to Shareholders
The Board of Directors of the Company establishes the general
policies regarding compensation for the Company's subsidiary,
adopts and amends employee compensation plans and approves specific
compensation levels for executive officers, including the Named
Executives. The Bank's Compensation
PAGE
<PAGE>
Committee (the "Compensation Committee") implements and monitors
the Board's policies regarding compensation, recommends changes to
compensation policies or compensation plans and makes
recommendations regarding specific compensation levels for
executives. Currently, the members of the Compensation Committee
are Paul Devens, Alice F. Guild, Dennis I. Hirota, Ph.D. (chair),
Clayton K. Honbo, M.D., Gilbert J. Matsumoto, and Seiji Naya, Ph.D.
Each member of the Compensation Committee is a non-employee
director of the Company and/or the Bank. The Company has also
retained the services of a compensation consultant to provide input
and data to the Compensation Committee. However, the Compensation
Committee did not obtain or rely on any information provided by the
consultant in formulating its recommendations to the Board
regarding the compensation paid during 1993 to the Company's
executive officers.
Set forth below is a report of the Board of Directors
addressing the Company's compensation policies for 1993 applicable
to the Company's executives, including the Named Executives.
The Report of the Board of Directors on Executive Compensation
shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 (the "Securities Act") or
under the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall
not otherwise be deemed filed under such Acts.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Company's compensation programs reflect the philosophy
that executive compensation levels should be linked to Company
performance, yet be competitive and consistent with that provided
to others holding positions of similar responsibility in the
banking and financial services industry. The Company's
compensation plans, which generally are available to all employees,
subject to certain hours and years of service requirements, are
designed to assist the Company in attracting and retaining
qualified employees critical to the Company's long-term success,
while enhancing employees' incentives to perform to their fullest
abilities to increase profitability and maximize shareholder value.
Salary Compensation
The Company pays cash salaries to its executive officers which
are competitive with salaries paid to executives of other companies
in the Company's banking and financial services industry based upon
the individual's experience, performance and responsibilities and
past and potential contribution to the Company. In determining the
market rate, the Company obtains information regarding executive
salary levels for other companies in the banking and financial
services industry, especially among the larger Hawaii banks. The
relative asset size and profitability levels of these institutions
are also considered. Based upon current asset size, the Company is
the third largest Hawaii bank. In April 1993, the Company's Board
of Directors set the compensation for all executive officers for
the ensuing year.
In determining the compensation of the Company's Chief
Executive Officer, the Board considered the factors described
above, along with other performance criteria, such as the Company's
1992 earnings performance, management of credit risk and growth.
The Company weighted each of these factors relatively equally. The
Company's 1992 net income increased by 14.9% over 1991, which
increased by 10.6% over 1990. Return on average assets was 1.23%
in 1992 and 1.21% in 1991. The level of nonperforming assets, past
due loans and charge-offs increased, but was relatively low by
industry standards. Total assets increased by 10.5% in 1992 and
9.4% in 1991. In assessing the Company's performance, the Board
took into account economic conditions in Hawaii.
The Board also considered compensation of other bank chief
executive officers presented in a published survey which grouped
banks by asset size and levels of return on average assets.
Based upon the foregoing, the Company's executive officers
received salary increases ranging from 6.2% to 10.0% over the prior
year. Mr. Satoh's salary was increased 10.0% over the prior year.
Even with the increase, Mr. Satoh's salary remained at a level
below the median salary of chief executive officers in his peer
group covered in the above-mentioned survey.
PAGE
<PAGE>
Incentive Compensation
During 1993, the Bank had three programs whereby individual
compensation was directly linked to the Company's performance: the
Incentive Cash Bonus Program (the "Bonus Plan"), the Profit Sharing
Plan and the ESOP. The 1994 Annual Executive Incentive Plan (the
"Incentive Plan") was adopted by the Company in February 1994, and
therefore is not reflected in 1993 compensation amounts.
Bonus Plan. The Bonus Plan was adopted in 1990 to provide an
opportunity pursuant to which employees could receive cash bonuses
annually. All employees of the Bank who are employed at the end of
the fiscal year and persons who retired during the year after
attaining age 62 are eligible to participate in the Bonus Plan.
Subject to Board approval, each qualifying employee may be paid a
cash bonus equal to a specified percentage of the employee's
regular annual salary. The percentage, which ranges from 2% to
10%, is determined according to a formula based upon increases of
15% or more in the Bank's net income (excluding the after tax
effect of the bonus) over the prior fiscal year. During 1993, the
Bank's net income (as defined) increased 9.2% over the 1992 fiscal
year. Therefore, the Bank's employees, including the Named
Executives, were not entitled to receive any cash bonuses pursuant
to the Bonus Plan. However, the Board of Directors awarded each
employee a $200 appreciation bonus in December 1993.
Profit Sharing Plan and ESOP. The Bank makes annual
contributions (the "Plan Contribution") to the Profit Sharing Plan
and ESOP (collectively, the "Plans") as determined by the Bank's
Board of Directors depending on the profitability of the Bank
during the year, subject to certain limitations on contributions
under the Internal Revenue Code and the Plans, and further subject
to the terms of an Annual Contributions Agreement between the Bank
and the ESOP Trustee with respect to the ESOP Loan. See "ELECTION
OF DIRECTORS -- Certain Transactions."
The assets of the Plans are held in trust for the exclusive
benefit of the participants. Employees with not less than one year
of service with the Bank are eligible to participate in the Plans.
The portion of the Plan Contribution contributed to each Plan is
allocated among the participating employees, including the Named
Executives, in the proportion which each participant's compensation
for the fiscal year bears to the total compensation for all
participating employees for such year. Benefits vest at a rate of
20% per year and participants only receive a distribution of vested
amounts allocated to their accounts upon retirement or termination
of employment with the Bank.
The Bank's Board makes its determination of the amount of the
Plan Contribution based upon management's recommendation at the end
of the fiscal year. For 1993, the Plan Contribution equalled 9.56%
of the pre-tax income of the Bank and CPB Properties, Inc.
(excluding the effect of the Plan Contribution expense), less the
amount of cash dividends paid by the Bank during the fiscal year.
The Plan Contribution is allocated between the Profit Sharing Plan
and the ESOP by the Bank's Board in its discretion based upon
management's recommendation. In determining the allocation of the
Plan Contribution, the Bank's Board considers the countervailing
concerns of investment diversification through the Profit Sharing
Plan and employee Common Stock ownership through the ESOP. In
addition, the Bank's Board takes into account the funding
requirements of the ESOP Loan. The Plan Contribution for 1993 was
allocated approximately 40% to the Profit Sharing Plan and 60% to
the ESOP. In 1993, the Bank contributed $897,000 to the Profit
Sharing Plan and $1,350,000 to the ESOP, which equalled 6.0% and
9.0%, respectively, of total compensation paid to all participating
employees for the fiscal year.
Stock Based Compensation.
The Company also believes that stock ownership by employees,
including the Named Executives, provides valuable long-term
incentives for such persons who will benefit as the Common Stock
price increases and that stock-based performance compensation
arrangements are beneficial in aligning employees' and
stockholders' interests. To facilitate these objectives, the
Company has adopted the Stock Option Plan.
Stock Option Plan. The Stock Option Plan was adopted in 1986
and amended in 1992 to increase the number of shares available for
issuance upon the exercise of stock options granted under the plan.
Through the Stock Option Plan, stock options have been granted to
key employees, including the
PAGE
<PAGE>
Company's executive officers. Non-employee directors and
consultants are eligible to participate in the Stock Option Plan,
but to date the Company has not granted stock options to such
persons, in keeping with the Company's philosophy that stock
incentive programs should be used to motivate employees and to tie
their interests to those of the shareholders. The Stock Option
Plan is administered by a committee (the "Stock Option Committee")
consisting of three non-employee directors. During 1993, there
were no stock options granted pursuant to the 1986 Stock Option
Plan, as amended.
Other Compensation
The Company's executives are also eligible to participate in
the Bank's Defined Benefit Pension Plan (the "Pension Plan") and
the Split Dollar Life Insurance Plan (the "Insurance Plan"). The
Pension Plan is a defined benefit plan which provides for monthly
annuity payments upon retirement. Benefits are based upon the
employee's years of service and highest average annualized
compensation in the employee's final 60-month period of employment.
See "ELECTION OF DIRECTORS -- Compensation of Directors and
Executive Officers -- Executive Compensation -- Defined Benefit
Plan." Under the Insurance Plan, the Bank provides life insurance
coverage for certain senior officers, including the Named
Executives. The Split Dollar Agreements provide death benefits of
approximately two times the officers' normal annual salary during
employment and an amount approximately the officers' final normal
annual salary upon retirement. The Named Executives also
participate in the Company's broad-based employee benefit plans,
such as medical, supplemental disability and term life insurance.
Dated: February 23, 1994.THE BOARD OF DIRECTORS
PAUL DEVENS
ALICE F. GUILD
DENNIS I. HIROTA, Ph.D.
STANLEY HONG
KENSUKE HOTTA
DANIEL M. NAGAMINE
JOICHI SAITO
YOSHIHARU SATOH
MINORU UEDA
Compensation Committee Interlocks and Insider Participation
The Board of Directors of the Company does not have a standing
compensation committee. Decisions regarding executive compensation
are made by the entire Board of Directors based upon
recommendations of the Bank's Compensation Committee. See
"ELECTION OF DIRECTORS -- Report of Board of Directors to
Shareholders." During 1993, three of the Company's executive
officers, Yoshiharu Satoh, Joichi Saito and Minoru Ueda,
participated in deliberations of the Board of Directors concerning
executive officer compensation.
Some of the directors and executive officers of the Company
and the Bank and the companies with which they are associated were
customers of and had banking transactions with the Bank in the
ordinary course of the Bank's business during 1993, and the Bank
expects to conduct similar banking transactions in the future. All
such loans and commitments were made on substantially the same
terms, including interest rates, collateral and repayment terms, as
those prevailing at the time for comparable transactions with other
persons of similar creditworthiness, and in the opinion of
Management of the Bank, did not involve more than a normal risk of
collectibility or present other unfavorable features.
Paul Devens, a director of the Company and a member of the
Bank's Compensation Committee, is a partner in the law firm of
Devens, Lo, Youth Nakano and Saito. The Company and the Bank
retained the legal services of Mr. Devens' law firm during 1993.
Management is of the opinion that the fees paid to Mr. Devens' law
firm are comparable to those fees that would have been paid for
comparable legal services from a law firm not affiliated with the
Company or the Bank. It is anticipated that Mr. Devens' law firm
will perform certain legal services for the Company and the Bank
during 1994.
PAGE
<PAGE>
Performance Graph
The following graph compares the yearly percentage change in
the Company's cumulative total shareholder return on Stock with (i)
the cumulative total return of the NASDAQ market index and (ii) the
cumulative total return of banks and bank holding companies listed
on NASDAQ over the period from January 1, 1989 through December 31,
1993. The graph assumes an initial investment of $100 and
reinvestment of dividends. The graph is not necessarily indicative
of future price performance.
The graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement
into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed
filed under such Acts.
Comparison of Five Year Cumulative Total Return
Among NASDAQ U.S. Companies, NASDAQ Banks/Bank Holding Companies,
and CPB Inc.
(Performance Graph Data Points)
NASDAQ-U.S. 1988 $100
1989 $121
1990 $103
1991 $165
1992 $192
1993 $219
NASDAQ-Banks/Bank 1988 $100
Holding Companies 1989 $111
1990 $ 81
1991 $134
1992 $194
1993 $221
CPB Inc. 1988 $100
1989 $161
1990 $120
1991 $182
1992 $191
1993 $186
(end of graph)
Certain Transactions
On June 21, 1991, the ESOP Committee filed a Notice of Change
in Bank Control ("Notice") with the Board of Governors of the
Federal Reserve System (the "FRB") pursuant to 12 U.S.C. Section 1817(j)
to permit the acquisition (the "Acquisition") on behalf of the ESOP
of 125,000 shares of Common Stock, which at that time would have
resulted in the ESOP Committee beneficially owning more than 10% of
the outstanding voting securities of the Company. The FRB notified
the ESOP Committee on August 30, 1991 that it would not disapprove
the Acquisition, and on May 18, 1992, the Trustee on behalf of the
ESOP consummated the Acquisition. As a result of the Acquisition,
the ESOP Committee owned beneficially 548,455 shares of Common
Stock or 10.48% of the total outstanding Common Stock, as of
February 28, 1994. Pursuant to applicable regulations of the FRB,
the Committee may acquire up to 25% of the outstanding voting stock
of the Company on behalf of the ESOP without additional
notification to the FRB.
In connection with the Acquisition, on November 8, 1991, the
Trustee under the ESOP entered into a loan agreement with
Sumitomo's Los Angeles Branch, pursuant to which the Trustee
borrowed for the benefit of the ESOP Trust and the participants the
principal amount of $2,000,000. The loan is to be repaid in four
annual installments of $500,000 each plus interest commencing
November 8, 1992. Interest accrues at a rate of 1% above LIBOR for
periods of three, six or twelve months at the option of the
borrower. The Trustee holds the shares acquired with the proceeds
in a suspense account as collateral for the loan. The Company has
guaranteed repayment of the loan, and the Bank is obligated to
PAGE
<PAGE>
make cash contributions to the ESOP Trust in amounts equal to
principal and interest payments on the loan. The balance of the
loan at December 31, 1993 was $1,000,000.
On December 16, 1986, the shareholders of the Company ratified
an agreement ("Share Purchase Agreement") dated November 20, 1986
between the Company and Sumitomo (see "PRINCIPAL SHAREHOLDERS"),
which provides that the Company will not issue or reissue shares of
any class of the Company's authorized capital stock, or issue any
obligations or securities convertible into shares of capital stock
of the Company without first giving written notice to Sumitomo
describing the securities to be sold and offering Sumitomo the
opportunity to purchase an amount of securities which will allow it
to maintain its 13.734% level of ownership of the Company's capital
stock. Pursuant to the Share Purchase Agreement, on December 24,
1986, the Company issued a warrant (the "ISOP Warrant") to Sumitomo
which gave it the right to purchase from the Company 35,025 shares
of Common Stock upon the exercise of stock options at a price equal
to the fair market value of the Common Stock on the date Sumitomo
exercises the ISOP Warrant or any portion thereof. The Company
notifies Sumitomo when it grants stock options to its officers and
employees and when such options are exercised. The ISOP Warrant
expires December 23, 1996. Additionally, on April 7, 1993, the
Company issued a warrant (the "ESOP Warrant") to Sumitomo to
purchase 19,901 shares of Common Stock pursuant to the Share
Purchase Agreement. On May 21, 1993, following receipt of all
necessary regulatory approvals, Sumitomo elected to exercise the
ESOP Warrant and on May 27, 1993, acquired 19,901 shares of Common
Stock. Sumitomo currently has the right to acquire 7,936 shares by
exercise of the ISOP Warrant.
CKSS Associates (the "Partnership"), a limited partnership in
which CPB Properties, Inc., a wholly-owned subsidiary of Central
Pacific Bank, is a general partner and 50% owner, has entered into
loan agreements with Sumitomo, and Central Pacific Bank, whereby
Sumitomo agreed to lend $20,000,000 and the Bank agreed to lend
$4,000,000 to the Partnership. Both loans are secured by the real
estate housing the Company's headquarters. The loans are due on
November 18, 1996, except for a portion advanced by the Bank which
is due on August 1, 2001. As of December 31, 1993, the Bank had
advanced pursuant to its loan agreement the sum of $2,800,000. As
of the same date, Sumitomo had advanced pursuant to its loan
agreement the sum of $12,000,000. The average interest rate at
December 31, 1993 was 5.91%. Management of the Company believes
that the terms of such loans are as favorable as could be
negotiated with unaffiliated third parties.
The Bank regularly effects foreign exchange transactions with
Sumitomo. During the 12 months ended December 31, 1993 the total
amount of yen sold for dollars was Yen 1,999 million ($17,638,015)
at a weighted average exchange rate of Yen 113.33 to $1.00.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick has audited the Company's consolidated
financial statements since the Company's inception in 1982 and has
been the independent accountants for the Bank since 1975.
Accordingly, the Board of Directors has appointed KPMG Peat Marwick
as the Company's independent accountants for the fiscal year ending
December 31, 1994 and the shareholders are being asked to ratify
such appointment. Representatives of KPMG Peat Marwick will be
present at the Meeting to respond to appropriate questions and will
have an opportunity to make a statement if they desire to do so.
Audit services of KPMG Peat Marwick for fiscal year 1993
included the audit of the consolidated financial statements and
audits of certain employee benefit plans of the Bank.
All services provided to the Company and the Bank by KPMG Peat
Marwick were approved in advance or ratified by the Company's and
Bank's Boards of Directors, and the possible effect on the
independence of KPMG Peat Marwick by rendering such services was
considered. All professional services rendered by KPMG Peat
Marwick during 1993 were furnished at customary rates and terms.
PAGE
<PAGE>
The affirmative vote of the holders of at least a majority of
the outstanding shares of the Company's Common Stock represented
and entitled to vote at the Meeting will be required for passage of
this proposal.
The Board of Directors recommends a vote "FOR" this proposal.
OTHER BUSINESS
Management knows of no other business that will be presented
for consideration at the Meeting other than as stated in the Notice
of Meeting. If, however, other matters are properly brought before
the Meeting, it is the intention of the persons named in the
accompanying form of Proxy to vote the shares represented thereby
on such matters in accordance with the recommendation of the Board
of Directors.
PROPOSALS OF SHAREHOLDERS
The 1995 Annual Meeting of Shareholders will be held on or
about April 25, 1995. Proposals of shareholders intended to be
presented at the 1995 Annual Meeting must be received by the
Secretary of the Company, Post Office Box 3590, Honolulu,
Hawaii 96811, no later than November 22, 1994.
SHAREHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K INCLUDING FINANCIAL STATEMENTS REQUIRED
TO BE FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1993 BY WRITING TO AUSTIN Y.
IMAMURA, VICE PRESIDENT AND SECRETARY, CPB INC., POST OFFICE BOX
3590, HONOLULU, HAWAII 96811.
Dated: March 22, 1994.
CPB INC.
(signed)
Yoshiharu Satoh
Chairman of the Board and
Chief Executive Officer
PAGE
<PAGE>
CPB INC.
Annual Meeting of Shareholders
To Be Held April 26, 1994
This Proxy is solicited on behalf of the Board of Directors
The undersigned shareholders of CPB Inc. (the "Company")
hereby nominate, constitute and appoint Messrs. Dennis I. Hirota,
Joichi Saito and Austin Y. Imamura, or any one of them, each with
full power of substitution, as the lawful attorneys, agents and
proxies of the undersigned, for the Annual Meeting of Shareholders
of CPB Inc. ("Annual Meeting") to be held on the third floor of the
Central Pacific Plaza Building, 220 South King Street, Honolulu,
Hawaii 96813, on Tuesday, April 26, 1994 at 10:00 a.m., Hawaii
time, and at any and all adjournments thereof, to represent the
undersigned and to cast all votes to which the undersigned would be
entitled to cast if personally present, as follows:
IMPORTANT: Continued and to be signed on reverse side.
PAGE
<PAGE>
________________ [X] Please mark
COMMON your votes
as this
1. Election of Directors, Class III, Term Will Expire in 1997.
FOR ALL NOMINEES (except as indicated to the contrary
below). [ ]
WITHHOLD AUTHORITY to vote for all nominees listed below.
[ ]
Nominees: Paul Devens, Stanley Hong and Yoshiharu Satoh
(Instructions: To withhold authority to vote for any
individual nominee write that nominee's name on the space
below.)
2. Ratification of the Appointment of Independent Accountants.
To ratify the appointment of KPMG Peat Marwick as independent
accountants of the Company for the fiscal year ending
December 31, 1994.
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
3. Other Business. In their discretion, the Proxy Holders are
authorized to transact such other business as may properly
come before the meeting and any and all adjournments thereof.
The Board of Directors at present knows of no other business
to be presented by or on behalf of the Company or its Board of
Directors.
The Board of Directors recommends a vote "FOR" the election of all
nominees for director and "FOR" ratification of the appointment of
KPMG Peat Marwick as the Company's independent accountants. If any
other business is properly presented at such meeting, this Proxy
shall be voted in accordance with the recommendations of the Board
of Directors.
The undersigned hereby ratifies and confirms all that said
attorneys and Proxy Holders, or any of them, or their substitutes,
shall lawfully do or cause to be done by virtue hereof, and hereby
revokes any and all proxies heretofore given by the undersigned to
vote at the Annual Meeting. The undersigned acknowledges receipt
of the Notice of Annual Meeting and the Proxy Statement
accompanying said notice.
Date: ___________________________________________, 1994
Signature
Signature if held jointly
Please date this Proxy and sign above as your name(s) appear(s) on
this Proxy. Joint owners should each sign personally. Corporate
proxies should be signed by an authorized officer. Partnership
proxies should be signed by an authorized partner. Personal
representatives, executors, administrators, trustees or guardians
should give their full titles. This Proxy will be voted "FOR" the
election of all nominees unless authority to do so is withheld for
all nominees or for any individual nominee. Unless "AGAINST" or
"ABSTAIN" is indicated, this Proxy will be voted "FOR" ratification
of the appointment of KPMG Peat Marwick as the Company's
independent accountants. PLEASE SIGN, DATE AND RETURN THIS PROXY
AS PROMPTLY AS POSSIBLE IN THE POSTAGE PREPAID ENVELOPE PROVIDED.
(Symbol)
CPB INC.
1993 ANNUAL REPORT
HOLDING COMPANY OF CENTRAL PACIFIC BANK
<PAGE>
CONTENTS
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . .1
Message to Shareholders . . . . . . . . . . . . . . . . . . . . . . .2
Putting the Customer First. . . . . . . . . . . . . . . . . . . . . .4
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . .6
Officers, Legal Counsel, Auditors and Advisors. . . . . . . . . . . .7
Selected Consolidated Financial Data. . . . . . . . . . . . . . . . .8
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . .9
Consolidated Financial Statements and Notes . . . . . . . . . . . . 18
Consolidated Balance Sheets. . . . . . . . . . . . . 18
Consolidated Statements of Income. . . . . . . . . . 19
Consolidated Statements of Changes in Stockholders'
Equity. . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Cash Flows. . . . . . . . 21
Notes to Consolidated Financial Statements . . . . . 22
Independent Auditors' Report . . . . . . . . . . . . 35
Common Stock Price Range and Dividends. . . . . . . . . . . . . . . 35
Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
%
(In thousands, except per share data) 1993 1992 Change
<S> <C> <C> <C>
At Year End
Assets $1,303,102 $1,253,663 3.9%
Deposits 1,078,326 1,074,055 0.4
Net Loans 928,637 886,187 4.8
Stockholders' Equity 113,188 100,733 12.4
Number of Shares Outstanding 5,230 5,196 0.7
Book Value Per Share $ 21.64 $ 19.39 11.6
For the Year
Net Income $ 15,940 $ 14,602 9.2%
Per Share 3.06 2.81 8.9
Cash Dividends Declared 4,595 4,155 10.6
Per Share 0.88 0.80 10.0
</TABLE>
<PAGE>
(Graphic Material--See Appendix I)
MESSAGE TO SHAREHOLDERS
(Photograph--See Appendix II)
<PAGE>
<PAGE>
To Our Shareholders
We are pleased to report that CPB Inc. and its subsidiary,
Central Pacific Bank, have continued to perform well relative to
the industry and despite a very difficult year for business in
general. Net income for the year was $15.9 million, reflecting a
9.2 percent increase over 1992. This represented an earnings per
share of $3.06, an 8.9 percent increase over $2.81 per share earned
in the previous year. Total deposits and net loans grew to $1,078
million and $929 million, respectively, representing increases over
the past year of 0.4 percent and 4.8 percent, respectively. Total
assets increased by 3.9 percent to $1,303 million. Cash dividends
in 1993 were 88 cents per common share, which was 10.0 percent over
the cash dividends declared in 1992.
Your company has taken significant steps to remain competitive
in light of the challenging year. A debit card program was
introduced in February of 1993 providing point-of-sale convenience
to our customers. A Trust Division was established in May to
provide for expanded services and to meet the growing needs of our
customers. A Real Estate Loan Division was also created in July,
specializing in construction loan administration. We are starting
1994 with another new retail program, Select Plan, which is
designed to provide expanded banking services based on combined
balances.
Branch expansion plans were met with the opening of our
nineteenth branch in Mililani on the island of Oahu, offering
extended hours to meet the needs of the large concentration of
commuting residents. In February 1994, your company acquired a
branch from First Hawaiian Bank, formerly First Interstate Bank of
Hawaii, located in Lihue, Kauai. These new accounts are being
serviced from our existing Lihue Branch.
The Bank's corporate structure underwent significant
reorganization in November of 1993. The twelve existing divisions
of the Bank were reorganized into three newly created groups:
Administration; Commercial Banking; and Retail Banking. Mr. Neal
Kanda, executive vice president, was appointed Administration Group
Manager, and oversees the Controller's, Cashier's, Operations
Development and Support, Human Resources, Information Services, and
International Operations divisions. Mr. Austin Imamura, executive
vice president, manages the Commercial Banking Group, which
includes the Credit and Legal, Corporate Banking, and Real Estate
Loan divisions. The Retail Banking Group, headed by Mr. Naoaki
Shibuya, executive vice president, manages the Branch
Administration, Consumer Banking, Marketing, and Trust divisions.
It is a pleasure to welcome Mr. Shibuya who is formerly of The
Sumitomo Bank of California. This new corporate structure meets the
growth needs of your company, allowing for more efficient execution
of work and stronger communications within the Bank.
There were also changes made at the board of directors level
in 1993. We would like to express our appreciation to Mr. Eaton
Magoon Jr., who retired from the board of CPB Inc. in February. Mr.
Magoon contributed twenty-seven years of invaluable service as a
director for both CPB Inc. and Central Pacific Bank, and now serves
as senior advisor for the Bank. Mr. Stanley Hong was appointed to
the board of CPB Inc. in February, and maintains his position on
the Central Pacific Bank Board. In June, Mr. Kensuke Hotta, senior
managing director of The Sumitomo Bank, Ltd., was appointed
director for both the CPB Inc. and Central Pacific Bank Boards. He
replaced Mr. Yoichi Abe who was appointed to a new assignment at
The Sumitomo Bank, Ltd.
Our Neighbor Island Advisory Boards have always been a key
resource for our neighbor island branch operations. We expanded our
Kauai Island Advisory Board in January 1994 to include Mr. Allan
Smith of Grove Farm Company. The Hawaii Island - Hilo Advisory
Board was also expanded in January 1994 with the addition of James
T. Lambeth, M.D., Gerrit R. Ludwig, M.D., and Ernest A. Sakamoto,
D.D.S.
We enter 1994 commemorating our fortieth year in business as
a commercial bank in Hawaii. In retrospect, we have continued to
survive the downturns in our economy and managed to excel in the
better years. Through the commitment of dedicated personnel, your
company has achieved many milestones in this relatively short
period of time. We are able to move forward, meeting the dynamic
changes and increasing challenges, with sound management principles
and your support. The current year will be no exception, and we
express our sincere appreciation for your continued support and
confidence.
Sincerely,
(signed)
Yoshiharu Satoh
Chairman of the Board and Chief Executive Officer
(signed)
Joichi Saito
President
PAGE
<PAGE>
PUTTING THE CUSTOMER FIRST
COMMERCIAL BANKING
Commercial loan growth was very stable in 1993, despite the
adverse impact of the economy on the general business community in
Hawaii. By year-end, commercial loan volume achieved a record high
level. Experienced commercial banking officers, both in the
Corporate Banking Division and in the branch offices, have been the
key to success. A continued focus on relationship banking has
allowed for growth in both the Bank and its customers in the
recessionary climate.
Internal expansion and reorganization also played vital roles
in business development and improving service to our business
customers. A Real Estate Loan Division was created to expand the
Bank's capacity for administering construction loans. The Corporate
Banking Division was also expanded to include the International
Banking Department, which increased efficiencies in customer
servicing. These two divisions, along with the Credit and Legal
Division, were consolidated into the newly created Commercial
Banking Group. This group structure has provided for streamlined
communications and more responsiveness to our customers.
Dynamic changes in the market and an ever increasing
competitive environment continue to challenge Central Pacific
Bank's commercial banking operations. This challenge will continue
to be met by being more accessible, responsive and knowledgeable
than the competition with respect to our customers' needs and the
business climate in Hawaii.
RETAIL BANKING
It was a productive year for Central Pacific Bank in the
retail banking sector. Consumer product and service introductions
in 1993 included CHECK CARD, providing convenient card access to
checking accounts at any merchant location accepting VISA credit
cards. The development of a combined balance program, Select Plan,
provides free banking services for customers by combining deposit
and loan accounts. The card embossing function was established in-
house to significantly improve service delivery. A Trust Division
was established to provide affordable and personalized fiduciary
services, as well as the Asset Advantage Account, a mutual fund
investment portfolio.
A new branch was opened in Mililani, developed as the proto-
type for the Bank's new branch design standards. The Kaimuki Branch
was relocated to make room for a new office complex, the Kaimuki
Plaza, which will become the branch's permanent home by the end of
1994. Three additional remote ATM units were installed at retail
merchant locations on Oahu.
Organizational enhancements played a key role in improving the
Bank's competitive position. The Electronic Banking Department,
under the Consumer Banking Division, was expanded to place a strong
emphasis on product and business development. The four retail
divisions, Marketing, Consumer Banking, Branch Administration, and
Trust, were consolidated into the newly created Retail Banking
Group.
ADMINISTRATIVE SERVICES
Administrative support services underwent major improvements
in 1993. Applying technology as the driving force for improved
efficiencies, the Bank upgraded and automated many of its
operational functions. A macrofiche system was installed to reduce
costs associated with time and paper. Major strides were
accomplished in statement preparations and service delivery. A new
sorter system was installed to improve item processing and funds
management. A long-term branch efficiency plan has continued to
increase operational efficiencies throughout the year, addressing
detailed operational policy and procedural issues. Continued
progress has been made in the effort to centralize work processing
from the branch system.
To further support operational efficiencies, an Operations
Development and Support Division was established to provide a more
dedicated focus. This division, along with the Cashier's,
Controller's, Human Resources, Information Services, and
International Operations divisions, were consolidated under the
newly established Administration Group.
As technology, cost controls and operational efficiencies
become ever increasing factors for success in the financial
services industry, Central Pacific Bank has continued to meet the
challenges of the nineties.
PAGE
<PAGE>
(Photographs--See Appendix III)
PAGE
<PAGE>
BOARD OF DIRECTORS
(Photographs, left to right)
(ROW 1)
JOSEPH F. BLANCO *
Executive Vice President, KCOM Corp.;
President-Principal Broker,
Pacific Commercial Realty Corporation;
President, Blanco Realty Co., Inc.
PAUL DEVENS
Attorney-at-Law; Partner, Devens, Lo,
Youth, Nakano & Saito;
Vice Chairman of the Board, CPB Inc.
ALICE F. GUILD
Retired, former Managing Director,
Iolani Palace
(ROW 2)
DENNIS I. HIROTA, PH.D.
Registered Professional Engineer; President,
Sam O. Hirota, Inc., Engineering and Surveying
CLAYTON K. HONBO, M.D. *
Obstetrics and Gynecology
STANLEY HONG
Senior Vice President - Properties,
McCormack Corp.; Attorney-at-Law
(ROW 3)
KENSUKE HOTTA
Senior Managing Director,
The Sumitomo Bank, Limited
GILBERT J. MATSUMOTO *
Certified Public Accountant;
Principal-President, The Matsumoto Group,
Certified Public Accountants
DANIEL M. NAGAMINE
President-Treasurer, Flamingo Enterprises, Inc.;
Certified Public Accountant
(ROW 4)
SEIJI NAYA, PH.D. *
Chairman, Department of Economics,
University of Hawaii
JOICHI SAITO
President, CPB Inc.; President and Chief
Operating Officer, Central Pacific Bank
YOSHIHARU SATOH
Chairman of the Board and Chief Executive
Officer, CPB Inc.; Chairman of the Board and
Chief Executive Officer, Central Pacific Bank;
Chairman of the Board, CPB Properties, Inc.
(ROW 5)
MINORU UEDA
Executive Vice President, CPB Inc.;
Vice Chairman of the Board, Central Pacific Bank;
President, CPB Properties, Inc.
HAROLD K. YAMANAKA *
Retired, former Executive Vice President,
Central Pacific Bank
* Central Pacific Bank only
PAGE
<PAGE>
OFFICERS, LEGAL COUNSEL, AUDITORS & ADVISORS
CPB INC.
Yoshiharu Satoh
Chairman of the Board
and Chief Executive Officer
Joichi Saito
President
Minoru Ueda
Executive Vice President
Austin Y. Imamura
Vice President and Secretary
Neal K. Kanda
Vice President, Treasurer
and Assistant Secretary
CENTRAL PACIFIC BANK
OFFICE OF THE CHAIRMAN
Yoshiharu Satoh
Chairman of the Board
and Chief Executive Officer
COMMUNITY RELATIONS
Paul S. Yamashige
Senior Vice President
OFFICE OF THE PRESIDENT
Joichi Saito
President and Chief Operating Officer
SERVICE QUALITY
JoAnne A. Gasher
Vice President
COMPLIANCE
Michael Wang
Assistant Vice President
ADMINISTRATION GROUP
Neal K. Kanda
Executive Vice President,
Controller and Assistant Secretary
CASHIER'S DIVISION
Kenneth Y. Fujita
Vice President and Cashier
CONTROLLER'S DIVISION
Neal K. Kanda
Executive Vice President,
Controller and Assistant Secretary
HUMAN RESOURCES DIVISION
Rita S. Flynn
Vice President and Manager
INFORMATION SERVICES DIVISION
Gary G. Hakoda
Senior Vice President and Manager
INTERNATIONAL OPERATIONS DIVISION
Takayoshi Nagae
Vice President and Manager
OPERATIONS DEVELOPMENT
AND SUPPORT DIVISION
Raymond T. Kurosu
Vice President and Manager
COMMERCIAL BANKING GROUP
Austin Y. Imamura
Executive Vice President
and Secretary
CORPORATE BANKING DIVISION
Alwyn S. Chikamoto
Senior Vice President and Manager
CREDIT AND LEGAL DIVISION
Austin Y. Imamura
Executive Vice President
and Secretary
REAL ESTATE LOAN DIVISION
Clifford K. Fujiwara
Senior Vice President and Manager
RETAIL BANKING GROUP
Naoaki Shibuya
Executive Vice President
BRANCH ADMINISTRATION
division
Elbridge T. Yogi
Senior Vice President and Manager
CONSUMER BANKING DIVISION
Roxford R. Orikasa
Senior Vice President and Manager
MARKETING DIVISION
Wayne H. Kirihara
Senior Vice President and Manager
TRUST DIVISION
Gary S. Morimoto
Vice President and Manager
AUDIT DEPARTMENT
Jon K. Nakamoto
Vice President and Manager
CENTRAL PACIFIC BANK
BRANCHES
MAIN BRANCH
Frederick T. Takamoto
Senior Vice President and Manager
KING-SMITH BRANCH
Kenneth K. Uyeno
Vice President and Manager
MOILIILI BRANCH
David S. Yoshino
Vice President and Manager
KALIHI BRANCH
Roland H. H. Chang
Vice President and Manager
KAIMUKI BRANCH
Milton Y. Okuhara
Vice President and Manager
MAKIKI BRANCH
Michael T. Hirao
Vice President and Manager
WAIKIKI BRANCH
Hironari Suzuki
Vice President and Manager
KANEOHE BRANCH
Duncan E. Chun
Assistant Vice President and Manager
PEARLRIDGE BRANCH
Alan T. Shiraishi
Assistant Vice President and Manager
WARD BRANCH
Keith K. Yonekura
Vice President and Manager
WAIPAHU BRANCH
Henry Yuen
Vice President and Manager
MAPUNAPUNA BRANCH
Clifford Y. Kawano
Vice President and Manager
HAWAII KAI BRANCH
Marie E. Uehara
Assistant Vice President and Manager
MILILANI BRANCH
Sharon W. O. Kawae
Vice President and Manager
HILO BRANCH
Clifton K. Tsuji
Senior Vice President and Manager
KAILUA-KONA BRANCH
Mavis S. Hirata
Assistant Vice President and Manager
KAHULUI BRANCH
Hitoshi Hirayama
Vice President and Manager
LIHUE BRANCH
Shirley H. Tani
Vice President and Manager
KAPAA BRANCH
Shirley H. Tani
Vice President and Manager
CPB PROPERTIES, INC.
Yoshiharu Satoh
Chairman of the Board
Minoru Ueda
President
Austin Y. Imamura
Senior Vice President and Secretary
Neal K. Kanda
Senior Vice President, Treasurer
and Assistant Secretary
LEGAL COUNSEL
Devens, Lo, Youth, Nakano & Saito
Manatt, Phelps & Phillips
AUDITORS
KPMG Peat Marwick
SENIOR ADVISORS
Sakae Takahashi
Chairman Emeritus and Consultant
Ernest H. Hara
Daniel K. Inouye, U.S. Senator
Kazuo Ishii
Charles H. Kimura
Sidney S. Kosasa
Eaton Magoon Jr.
Shinsuke Nakamine
Elton H. Sakamoto
Lester B.K. Yee, M.D.
NEIGHBOR ISLAND ADVISORS
ISLAND OF HAWAII (HILO)
Tsuneo Akiyama
Roland Higashi
Thomas Hirano
James T. Lambeth, M.D.
Gerrit R. Ludwig, M.D.
Rex Matsuno
Jack Miyashiro
Ernest A. Sakamoto, D.D.S.
Bonnie Walton
ISLAND OF HAWAII (KAILUA-KONA)
James Higgins
Wally K. Ichishita
Jean A. Murphy, GRI, CIPS
ISLAND OF KAUAI
Patrick Aiu, M.D.
Lindberg Akita
Dennis M. Esaki
Clyde Ishida, D.M.D.
Joseph Kobayashi, ESQ
Richard Maeda
Caroline Nii, CPA
Frank Nonaka
Allan Smith
Roy Tanaka
Dennis R. Yamada, ESQ
ISLAND OF MAUI
Hilario Aquilizan, M.D.
Mitsuo Arisumi
Howard Miyamoto, D.D.S.
Roy Okumura
Hans Riecke, A.I.A.
Naoki Tokuhisa
Maria A. Unemori, CPA
Masaru "Pundy" Yokouchi
Roy Yonahara
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with
respect to CPB Inc.'s consolidated statements of income for the
years ended December 31, 1993, 1992 and 1991, and with respect to
consolidated balance sheets at December 31, 1993 and 1992, are
derived from the consolidated financial statements which have been
audited by KPMG Peat Marwick, independent auditors, included
elsewhere in this Annual Report. The selected statement of income
data for the years 1990 and 1989, and the selected balance sheet
data at December 31, 1991, 1990 and 1989, are derived from audited
consolidated financial statements which are not included in this
Annual Report.
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
(Dollars in thousands, except per share data) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Total interest income $ 91,995 $ 96,712 $ 97,992 $ 91,072 $ 76,052
Total interest expense 30,922 39,447 46,200 45,594 39,559
Net interest income 61,073 57,265 51,792 45,478 36,493
Provision for loan losses 3,200 2,700 2,400 2,100 1,400
Net interest income after provision for loan losses 57,873 54,565 49,392 43,378 35,093
Other operating income 11,169 9,089 8,569 7,313 6,188
Other operating expense 43,284 39,933 37,700 32,531 26,937
Income before income taxes and cumulative effect
of accounting change 25,758 23,721 20,261 18,160 14,344
Income taxes 10,026 9,119 7,554 6,675 4,925
Net income 15,940<F1> 14,602 12,707 11,485 9,419
Balance Sheet Data (Year-End):
Interest-bearing deposits in other banks $ 5,039 $ 13,104 $ 32,082 $ 37,386 $ 32,411
Federal funds sold 5,000 5,000 15,000 10,000 65,500
Investment securities 250,668 230,902 157,299 187,721 184,318
Loans 945,768 901,565 835,666 715,581 558,882
Allowance for loan losses 17,131 15,378 13,849 11,687 9,453
Total assets 1,303,102 1,253,663 1,134,589 1,036,906 925,315
Core deposits <F2> 900,218 907,852 821,370 763,404 697,837
Total deposits 1,078,326 1,074,055 990,862 932,311 804,445
Long-term debt -- -- 200 424 648
Total stockholders' equity 113,188 100,733 89,706 79,193 70,138
Per Share Data:
Net income $ 3.06 $ 2.81 $ 2.51 $ 2.29 $ 2.02
Cash dividends declared 0.88 0.80 0.70 0.60 0.44
Book value 21.64 19.39 17.30 15.77 14.00
Weighted average shares outstanding (in thousands) 5,216 5,192 5,054 5,011 4,655
Financial Ratios:
Return on average assets 1.29% 1.23% 1.21% 1.21% 1.17%
Return on average stockholders' equity 14.88 15.36 15.11 15.44 15.85
Average stockholders' equity to average assets 8.70 8.03 8.02 7.83 7.39
Net interest margin <F3> 5.42 5.31 5.48 5.36 5.14
Net charge-offs (recoveries) to average loans & other real estate 0.16 0.14 0.03 (0.02) 0.04
Nonperforming assets to year-end loans & other real estate <F4> 0.66 0.64 0.26 0.10 0.26
Allowance for loan losses to year-end loans 1.81 1.71 1.66 1.63 1.69
Allowance for loan losses to nonperforming loans <F4> 382.64 280.72 634.11 1,596.58 638.72
Dividend payout ratio 28.76 28.47 27.89 26.20 21.78
<FN>
<F1> Includes a $208,000 credit for cumulative effect of accounting change.
<F2> Noninterest-bearing demand, interest-bearing demand and savings deposits, and time deposits under $100,000.
<F3> Computed on a taxable equivalent basis.
<F4> Nonperforming assets include nonperforming loans and other real estate. Nonperforming loans include nonaccrual and
restructure loans.
</TABLE>
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
OVERVIEW
CPB Inc. (the "Company") posted a record high net income of $15.9
million for 1993 increasing by $1.3 million or 9.2% over the $14.6
million earned in 1992, which increased by 14.9% over 1991. Total
assets were $1,303.1 million at December 31, 1993, increasing by
$49.4 million or 3.9%, net loans of $928.6 million increased by
$42.5 million or 4.8%, and total deposits of $1,078.3 million
increased by $4.3 million or 0.4% over year-end 1992. Growth was
lower than the 10.5%, 7.8% and 8.4% increases at year-end 1992 over
1991 for total assets, net loans and total deposits, respectively.
Stockholders' equity of $113.2 million at December 31, 1993
increased by $12.5 million or 12.4% over year-end 1992.
The increase in 1993 net income achieved by the Company was
mainly attributable to a decrease in interest expense and an
increase in total other operating income. Return on average assets
in 1993 of 1.29% increased from 1.23% in 1992 and 1.21% in 1991.
Return on average stockholders' equity decreased to 14.88% from
15.36% in 1992 and 15.11% in 1991, mainly due to lower growth in
interest earning assets. Earnings per share in 1993 were $3.06,
increasing by 8.9% over the $2.81 earned in 1992, which increased
by 12.0% over 1991. Cash dividends per share of $0.88 increased by
10.0% over the $0.80 per share declared in 1992, which increased by
14.3% over the $0.70 per share in 1991.
The State of Hawaii's economy was in a mild recession during
1993. A downtrend began in 1991, with key components of the local
economy showing deteriorating performance. Visitor arrivals and
construction activity declined during 1993 compared to previous
year levels. The economic slowdown had a negative impact on the
Bank's nonperforming assets and past due loans which increased
substantially during 1993. The timing and strength of an economic
recovery in the State of Hawaii will depend to a large degree on
these sectors, forecasts for which are not positive for 1994.
However, residential and commercial real estate prices have
remained relatively stable. A sustained economic downturn may
likely have an adverse impact on the Company's loan and deposit
growth and may result in higher loan losses.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Table I sets forth information concerning average interest
earning assets and interest-bearing liabilities and the yields and
rates thereon, and Table 2 presents an analysis of changes in
components of net interest income between years. Interest income,
which includes loan fees, and resultant yield information presented
in the table and discussed in this section are expressed on a
taxable equivalent basis using an assumed income tax rate of 35%
for 1993 and 34% for 1992 and 1991. Average balances were computed
on a daily average basis.
Net interest income in 1993 of $61.5 million increased by $3.8
million or 6.6% over the $57.6 million in 1992, which increased by
$5.3 million or 10.2% over the $52.3 million in 1991.
Interest income in 1993 of $92.4 million decreased by 4.8% from
1992, which also decreased by 1.5% compared to 1991. Decreases in
interest income in both years were due to declining yields on
average interest earning assets, which offset the benefits from
increases in the volume of those assets. Average interest earning
assets of $1,133.7 million in 1993 increased by 4.5% over 1992
which increased by 13.6% over 1991. The yield on average interest
earning assets decreased to 8.15% in 1993 from 8.95% in 1992 and
10.32% in 1991, reflecting the decline in the general level of
interest rates in the U.S. economy during those periods.
(bar graphs)
RETURN ON AVERAGE ASSETS (Percent)
'89 1.17
'90 1.21
'91 1.21
'92 1.23
'93 1.29
RETURN ON AVERAGE STOCKHOLDERS' EQUITY (Percent)
'89 15.85
'90 15.44
'91 15.11
'92 15.36
'93 14.88
NET INTEREST MARGIN (Percent)
'89 5.14
'90 5.36
'91 5.48
'92 5.31
'93 5.42
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
Interest and fees on loans in 1993 decreased by 3.9% from 1992,
which decreased by 1.0% compared to 1991. Average net loans
increased by 5.2% in 1993 and by 12.1% in 1992. Yield on net loans
decreased to 8.68% in 1993 from 9.50% in 1992 and 10.76% in 1991.
Interest on investment securities in 1993 decreased by 3.5% and
increased by 0.8% in 1992. Average investment securities increased
by 13.2% in 1993 and 20.7% in 1992. These increases, however, were
offset by the decrease in yield, primarily in taxable investment
securities, which decreased to 6.40% from 7.39% in 1992 and 8.92%
in 1991. The increase in average balance was primarily due to the
lower rate of loan growth and, for 1993, funds transferred from
shorter maturity and lower yielding interest-bearing deposits in
other banks and Federal funds sold. The decrease in yield was due
to purchases made during the declining interest rate environment of
the last two years.
Interest expense in 1993 of $30.9 million decreased by 21.6% from
1992, which also decreased by 14.6% from 1991, primarily accounting
for the increase in net interest income in 1993 and 1992. Decreases
in interest expense in both years were due to the effect of
declining effective rates paid on interest-bearing liabilities
exceeding the impact of increases in the volume of those
liabilities. Average interest-bearing liabilities of $958.5 million
increased by 3.1% over 1992, which increased by 14.2% over 1991.
The proportion of deposits held in interest-bearing demand, savings
and money market accounts increased during 1993 and 1992 with time
certificates of deposit decreasing, reflecting depositors'
uncertainties as to future interest rate movements. The effective
rate of interest-bearing liabilities decreased to 3.23% in 1993
from 4.24% in 1992 and 5.67% in 1991.
<PAGE>
<TABLE>
<CAPTION>
Table 1. Average Balances, Interest Income and Expense, Yields and Rates (Taxable Equivalent)
Year ended December 31,
1993 1992 1991
Average Amount Average Amount Average Amount
Average Yield/ of Average Yield/ of Average Yield/ of
Balance Rate Interest Balance Rate Interest Balance Rate Interes
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Interest earning assets:
Interest-bearing deposits
in other banks $ 11,376 3.17% $ 361 $ 25,600 4.14% $ 1,061 $ 24,219 7.35% $ 1,780
Federal funds sold 1,877 2.88 54 9,732 3.68 358 6,535 5.48 358
Taxable investment securities 210,792 6.40 13,484 189,885 7.39 14,023 151,171 8.92 13,483
Tax-exempt investment securities 14,492 5.67 821 9,103 8.73 795 13,680 8.88 1.215
Net loans 895,135 8.68 77,667 850,626 9.50 80,844 759,132 10.76 81,677
Total interest earning assets 1,133,672 8.15 92,387 1,084,946 8.95 97,081 954,737 10.32 98,513
Nonearning assets 97,236 99,108 93,588
Total assets $1,230,908 $1,184,054 $1,048,325
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits $ 100,577 1.58% $ 1,586 $ 94,869 2.58% $ 2,444 $ 87,138 4.53% $ 3,944
Savings and money market deposits 448,921 2.74 12,308 422,655 3.81 16,123 329,247 4.99 16,424
Time deposits under $100,000 168,076 4.49 7,540 176,750 5.82 10,286 199,901 6.89 13,780
Time deposits $100,000 and over 167,051 3.08 5,147 174,877 4.02 7,033 180,550 6.10 11,009
Other borrowed funds 73,874 5.88 4,341 60,433 5.88 3,554 17,285 5.90 1,019
Long-term debt -- .-- -- 94 7.45 7 311 7.72 24
Total interest-bearing liabilities 958,499 3.23 30,922 929,678 4.24 39,447 814,432 5.67 46,200
Noninterest-bearing deposits 152,643 147,156 137,975
Other liabilities 12,660 12,135 11,812
Stockholders' equity 107,106 95,085 84,106
Total liabilities and stockholders'
equity $1,230,908 $1,184,054 $1,048,325
Net interest income $61,465 $57,634 $52,313
Net interest margin 5.42% 5.31% 5.48%
</TABLE>
PAGE
<PAGE>
As a result, net interest margin in 1993 was 5.42% compared to
5.31% in 1992 and 5.48% in 1991. The increase in net interest
margin in 1993 was primarily due to the increase in lower-cost
interest-bearing demand, savings and money market deposits.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The 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 provided to the allowance for loan losses $3,200,000,
$2,700,000 and $2,400,000 during 1993, 1992 and 1991, respectively.
Net loans charged-off of $1,447,000 in 1993 were comprised of
$475,000 in commercial loans, $415,000 in consumer loans and
$557,000 in mortgage loans. Net charge-offs were $1,171,000 in 1992
and $238,000 in 1991. The increase in charge-offs was mainly due to
the slowdown in the State of Hawaii's economy during the past three
years, which has negatively affected certain borrowers' ability to
satisfy their obligations to the Bank.
Most of the Bank's commercial loans are secured by real estate
and other collateral in Hawaii.
The allowance for loan losses expressed as a percentage of loans
increased to 1.81% at December 31, 1993, from 1.71% and 1.66% at
the previous two year-ends. The increase in this ratio at December
31, 1993 reflected uncertainties due to increases in nonperforming
assets and past due loans as impacted by the condition of the local
economy.
Management believes the allowance for loan losses is adequate to
cover the credit risks inherent in the loan portfolio. However,
continuation of unfavorable conditions in Hawaii may adversely
affect the level of nonperforming loans and provision for loan
losses.
NONPERFORMING ASSETS
Total nonperforming assets and accruing loans delinquent for 90
days or more totaled $26,047,000 at December 31, 1993, increasing
from $13,157,000 a year ago. Nonaccrual loans of $4,477,000 were
comprised of several loans secured by residential properties and a
loan primarily secured by resort commercial property. Other real
estate of $1,750,000 was comprised of two residential properties,
writedowns of which were recorded to reflect current market values.
Loans delinquent for 90 days or more of $19,820,000 at December 31,
1993 increased from the $7,383,000 reported a year ago. Most of the
increase was attributed to a loan secured by commercial real
estate, the market value of which is well in excess of the loan
balance. A continued decline in general economic conditions may
result in future increases in nonperforming assets, delinquencies
and net loan charge-offs.
Accrual of interest is generally discontinued on commercial
loans when the interest payment becomes delinquent for 90 days and
prospects for timely repayments appear compromised. Consumer loans
with principal balances of $20,000 or more are charged off after
120 days, unless determined to be adequately collateralized or in
imminent process of collection. Subsequent receipts are generally
applied to principal outstanding, and no interest income is
recognized unless the financial condition and payment record of the
borrowers warrant such recognition.
<PAGE>
<TABLE>
<CAPTION>
Table 2. Analysis of Changes in Net Interest Income (Taxable Equivalent)
Year ended December 31,
1993 Compared to 1992 1992 Compared to 1991
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
Volume Rate Net Change Volume Rate Net Change
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest-bearing deposits
in other banks $ (590) $ (110) $ (700) $ 9,885 $(10,718) (833)
Federal funds sold (289) (15) (304) 3,448 (2,905) 543
Taxable investment securities 1,544 (2,083) (539) (406) (14) (420)
Tax-exempt investment securities 471 (445) 26 103 (822) (719)
Net loans 4,230 (7,407) (3,177) 175 (175) --
Total interest earning assets 5,366 (10,060) (4,694) 13,205 (14,634) (1,429)
Interest-bearing liabilities:
Interest-bearing deposits 329 (9,634) (9,305) 4,114 (13,385) (9,271)
Other borrowed funds 790 (3) 787 2,547 (12) 2,535
Long-term debt (7) -- (7) (17) -- (17)
Total interest-bearing
liabilities 1,112 (9,637) (8,525) 6,644 (13,397) (6,753)
Net interest income $ 4,254 $ (423) $ 3,831 $ 6,561 $ (1,237) $ 5,324
</TABLE>
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
Table 3 sets forth nonperforming assets accruing loans which were
delinquent for 90 days or more at the dates indicated.
DECEMBER 31,
(Dollars in thousands) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 4,477 $ 5,478 $2,184 $ 732 $1,480
Restructured loans -- -- -- -- --
Other real estate 1,750 296 -- -- --
Total nonperforming
assets 6,227 5,774 2,184 732 1,480
Loans delinquent for
90 days or more 19,820 7,383 4,113 3,146 1,068
Total nonperforming
assets and loans
delinquent for
90 days or more $26,047 $13,157 $6,297 $3,878 $2,548
Total nonperforming
assets as a percentage
of loans and other
real estate 0.66% 0.64% 0.26% 0.10% 0.26%
Total nonpeforming
assets and loans
delinquent for 90
days or more as a
percentage of loans
and other real estate 2.75% 1.46% 0.75% 0.54% 0.46%
</TABLE>
<PAGE>
(bar graphs)
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF LOANS (Percent)
'89 1.69
'90 1.63
'91 1.66
'92 1.71
'93 1.81
NONPERFORMING ASSETS AS A PERCENTAGE OF LOANS AND OTHER REAL ESTATE (Percent)
'89 0.26
'90 0.10
'91 0.26
'92 0.64
'93 0.66
TOTAL OTHER OPERATING EXPENSE AS A PERCENTAGE OF AVERAGE ASSETS
'89 3.35
'90 3.43
'91 3.60
'92 3.37
'93 3.52
<PAGE>
OTHER OPERATING INCOME
Other operating income of $11,169,000 increased by 22.9% in
1993 over 1992, which increased by 6.1% over 1991. Service charges
on deposit accounts of $2,580,000 increased by 18.4% in 1993 and by
28.4% in 1992 due to an adjustment to the Bank's fee schedule and
efforts to enhance fee income. Other service charges and fees of
$4,828,000 increased by 9.1% in 1993 and by 12.3% in 1992.
Partnership income derived from the Company's 50% investment in
CKSS Associates, which owns the Company's headquarters building,
totaled $1,504,000, increasing by 19.8% in 1993 and by the same
percentage in 1992 due to lower interest expense on borrowings.
Investment securities gains of $336,000 was primarily due to the
recovery of a $300,000 provision for loss recorded in 1992 related
to a mortgage-backed security. Other income of $943,000 in 1993
increased by 34.5% over 1992 primarily due to the sale of
residential mortgage loans. Total other operating income, expressed
as a percentage of average assets, increased to 0.91% in 1993 from
0.77% in 1992 and 0.82% in 1991.
<TABLE>
<CAPTION>
Table 4. Components of Other Operating Income
Year ended December 31,
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Service charges on deposit accounts $2,580 $2,179 $1,697
Other service charges and fees 4,828 4,424 3,941
Partnership income 1,504 1,255 1,048
Fees on foreign exchange 978 808 801
Investment securities gains (losses) 336 (278) 41
Others 943 701 1,041
Total $11,169 $9,089 $8,569
Total other operating income as a
percentage of average assets 0.91% 0.77% 0.82%
</TABLE>
OTHER OPERATING EXPENSE
Other operating expense of $43,284,000 in 1993 increased by
8.4% over 1992, which increased by 5.9% over 1991. Salaries and
employee benefits of $22,910,000 increased by 7.2% over 1992, which
increased by 8.5% over 1991. Salaries and wages increased by 6.6%
in 1993 reflecting staff increases, the addition of new operating
units as described below and merit pay increases. Employee benefits
increased by 8.9% primarily due to increases in pension
contributions and medical benefits.
Equipment expense increased by 11.7% in 1993 primarily due to
increased investment in personal computers. Other expense increased
by 10.1% primarily due to promotional expenses. Total other
operating expense as a percentage of average assets was 3.52%,
3.37% and 3.60% in 1993, 1992 and 1991, respectively. The increase
in this ratio in 1993 was largely attributable to expenses incurred
in the establishment of the Bank's Trust and Commercial Real Estate
Loan Divisions, opening of the Mililani Branch and increased
marketing and product development activity due to heightened
competition during a period of slow asset growth.
<TABLE>
<CAPTION>
Table 5. Components of Other Operating Expense
Year ended December 31,
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Salaries and employee benefits $22,910 $21,372 $19,706
Net occupancy expense 5,094 4,712 4,577
Equipment expense 2,204 1,974 1,896
Other 13,076 11,875 11,521
Total $43,284 $39,933 $37,700
Total other operating expense
as a percentage of average assets 3.52% 3.37% 3.60%
</TABLE>
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
INCOME TAXES
Income taxes totaled $10,026,000 in 1993 compared to
$9,119,000 in 1992 and $7,554,000 in 1991. The effective tax rate
was 38.9%, 38.4% and 37.3% in 1993, 1992 and 1991, respectively.
The increase in the Federal income tax rate to 35%, due to passage
of the Omnibus Budget Reconciliation Act of 1993, was effective
from January 1, 1993 and was recognized during the third quarter of
1993.
In February 1992, the Financial Accounting Standards Board
("FASB") issued Statement on Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." SFAS No. 109
requires a change to the asset and liability method of accounting
for income taxes. The requirements of SFAS No. 109 became effective
for fiscal years beginning after December 15, 1992. The cumulative
effect of the change in accounting for income taxes in 1993
resulted in a nonrecurring credit of $208,000.
FINANCIAL CONDITION
Average total assets of $1,230.9 million in 1993 increased by
$46.9 million or 4.0% over 1992 which increased by $135.7 million
or 12.9% over 1991. The relatively low asset and loan growth, as
compared to growth experienced in recent years, was largely
reflective of the level of economic activity in the State of
Hawaii. Average investment securities of $225.3 million increased
by $26.3 million or 13.2% from 1992, while interest-bearing
deposits in other banks and Federal funds sold decreased by a total
of $22.1 million. Average investment securities of $199.0 million
in 1992 increased by $34.1 million or 20.7% over 1991, while
average interest-bearing deposits in other banks of $25.6 million
increased by 5.8% over 1991.
Mortgage loans totaling $485.1 million at year-end 1993
increased by $41.7 million or 9.4% over year-end 1992. Commercial,
financial and agricultural loans of $374.9 million increased by
$18.0 million or 5.0% during the year, offset by decreases in
construction loans and fixed-rate personal and automobile loans.
Average total deposits of $1,037.3 million increased by $21.0
million or 2.1% over 1992 which increased by $81.5 million or 8.7%
over 1991. Average core deposits (noninterest-bearing demand,
interest-bearing demand, savings deposits and time deposits under
$100,000) of $870.2 million in 1993 increased by $28.8 million or
3.4%, and average large certificates of deposit of $167.1 million
decreased by $7.8 million or 4.5% as compared to 1992. In 1992,
average core deposits increased by 11.6%, while average large
certificates of deposit decreased by 3.1% from 1991. The Bank does
not actively seek large certificates of deposit from non-customers
and does not accept brokered deposits. Average other borrowed funds
of $73.9 million in 1993 increased by $13.4 million or 22.2% over
$60.4 million in 1992, which increased from $17.3 million in 1991.
These funds were comprised primarily of advances from the Federal
Home Loan Bank of Seattle, of which the Bank is a member, and
provided a significant source of longer-term fixed-rate financing
for loan customers during 1993 and 1992.
PAGE
<PAGE>
<TABLE>
<CAPTION>
Table 6. Distribution of Assets, Liabilities and Stockholders' Equity
Year ended December 31,
1993 1992 1991
Average Percent Average Percent Average Percent
Balance to Total Balance to Total Balance To Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 53,917 4.4% $ 53,737 4.5% $ 47,765 4.6%
Interest-bearing deposits
in other banks 11,376 0.9 25,600 2.2 24,219 2.3
Federal funds sold 1,877 0.2 9,732 0.8 6,535 0.6
Taxable investment
securities 210,792 17.1 189,885 16.0 151,171 14.4
Tax-exempt investment
securities 14,492 1.2 9,103 0.8 13,680 1.3
Net loans 895,135 72.7 850,626 71.8 759,132 72.4
Premises and equipment 22,985 1.9 23,283 2.0 22,996 2.2
Other assets 20,334 1.6 22,088 1.9 22,827 2.2
Total assets $1,230,908 100.0% $1,184,054 100.0% $1,048,325 100.0%
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing
demand $ 152,643 12.4% $ 147,156 12.4% $ 137,975 13.2%
Interest-bearing demand 100,577 8.2 94,869 8.0 87,138 8.3
Savings and money market 448,921 36.5 422,655 35.7 329,247 31.4
Time deposits under
$100,000 168,076 13.6 176,750 14.9 199,901 19.1
Time deposits $100,000 and
over 167,051 13.6 174,877 14.8 180,550 17.2
Total deposits 1,037,268 84.3 1,016,307 85.8 934,811 89.2
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowed funds 73,874 6.0 60,433 5.1 17,285 1.6
Long-term debt -- -- 94 -- 311 0.1
Other liabilities 12,660 1.0 12,135 1.1 11,812 1.1
Total liabilities 1,123,802 91.3 1,088.969 92.0 964,219 92.0
Stockholders' equity 107,106 8.7 95,085 8.0 84,106 8.0
Total liabilities and
stockholders' equity $1,230,908 100.0% $1,184,054 100.0% $1,048,325 100.0%
</TABLE>
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
ASSET/LIABILITY MANAGEMENT
Asset/liability management is the coordination of the Bank's
rate-sensitive assets and rate-sensitive liabilities to reduce
interest rate risk while maintaining targeted levels of liquidity
and capital.
The Company's asset/liability management policy is to minimize
interest rate risk and stabilize net interest margin by closely
matching its level of rate-sensitive assets and rate-sensitive
liabilities. The Bank's Asset/Liability Committee monitors interest
rate risk exposures through the use of gap, income simulation, and
rate shock analyses. This process is designed to measure the impact
to net interest margin of future changes in interest rates. Any
identified exposures to net interest margin are managed through the
shortening or lengthening of the duration of the Bank's assets
and/or liabilities.
Table 7 sets forth information concerning the interest rate
sensitivity of the Bank's assets, liabilities and stockholders'
equity as of year-end 1993. The assumptions used in determining the
interest rate sensitivity of various asset and liability products
can have a
significant impact on the resulting table. For purposes of this
presentation, assets and liabilities are classified by the earliest
repricing date or maturity. All interest-bearing demand and savings
balances are included in the three months or less category even
though repricing of these accounts is not contractually required
and may not actually occur during that period.
As shown in Table 7, the amount of liabilities being repriced
exceeds the amount of assets in the three months or less category.
In the remaining time periods, repricing assets exceed repricing
liabilities. Generally, where rate-sensitive assets exceed rate-
sensitive liabilities, the net interest margin is expected to be
positively impacted during periods of increasing interest rates and
negatively impacted during periods of decreasing interest rates.
The Company's net interest margin has remained relatively stable
over the last three years.<PAGE>
<TABLE>
<CAPTION>
Table 7. Rate Sensitivity of Assets, Liabilities and Stockholders' Equity.
Over One
Over Six Year
Three Over Three Through Through Over
Months Through Twelve Three Three Nonrate
(Dollars in thousands) or Less Six Months Months Years Years Sensitive Total
<s\> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing deposits in other banks $ 5,039 $ -- $ -- $ -- $ -- $ -- $ 5,039
Federal funds sold 5,000 -- -- -- -- -- 5,000
Investment securities 34,432 24,765 37,762 83,179 59,482 11,048 250,668
Net loans 389,651 85,370 182,006 171,954 99,656 -- 928,637
Noninterest earning assets -- -- -- -- -- 113,758 113,758
Total assets 434,122 110,135 219,768 255,133 159,138 124,806 1,303,102
Liabilities and Stockholders' Equity
Noninterest-bearing deposits -- -- -- -- -- 180,254 180,254
Interest-bearing deposits 694,008 75,718 68,766 54,559 5,021 -- 898,072
Other borrowed funds 15,318 14,138 12,575 24,023 29,907 -- 95,961
Other liabilities -- -- 500 500 -- 14,627 15,627
Stockholders' equity -- -- -- -- -- 113,188 113,188
Total liabilities and stockholders'
equity 709,326 89,856 81,841 79,082 34,928 308,069 1,303,102
Interest rate sensitivity gap $(275,204) $ 20,279 $ 137,927 $176,051 $124,210 $(183,263 $ --)
Cumulative interest rate sensitivity gap $(275,204) $(254,925) $(116,998) $ 59,053 $183,263 $ -- $ --
</TABLE>
PAGE
<PAGE>
CAPITAL RESOURCES
The Company's objective 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. The Company also expects to maintain capital in an amount
sufficient to be considered "well capitalized" by regulatory
guidelines. At December 31, 1993, the Company and the Bank were
"well capitalized."
Regulations on capital adequacy guidelines adopted by the
Board of Governors of the Federal Reserve System and the Federal
Deposit Insurance Corporation ("FDIC") are as follows. In 1989, a
risk-based capital framework was adopted consisting of capital
comprised of a core capital component (Tier I), essentially common
stockholders' equity less intangible assets, and a supplemental
component (Tier 2), which includes the allowance for loan losses up
to 1.25% of risk-weighted assets, and a system for assigning assets
and off-balance sheet items to one of four risk-weighted
categories. The new capital standards require a minimum Tier I
risk-based capital ratio of 4.00% and total risk-based capital
ratio (Tier I plus Tier 2) of 8.00%. The Federal Reserve Board and
the FDIC have also adopted a 3.00% minimum equity capital to assets
ratio which is Tier I capital as a percentage of total assets. This
is referred to as the leverage ratio. Higher-risk banks as measured
by the Federal regulatory rating system are expected to maintain
capital well above the minimum leverage ratio requirement. Table 8
sets forth the Company's capital ratios as of the dates indicated.
In addition, effective December 19, 1992, 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 Federal Deposit Insurance
Corporation Improvement Act of 1991.
LIQUIDITY
The Company's objective in managing its liquidity is to
maintain a balance between sources and uses of funds in order to
most economically meet the cash requirements of customers for loans
and deposit withdrawals and participate in investment opportunities
as they arise. Management monitors the Company's liquidity position
continuously in relation to trends of loans and deposits or
withdrawals by its customers for short-term and long-term
requirements. Liquid assets are monitored on a daily basis to
assure maximum utilization. An adequate level of readily marketable
assets and access to short-term funding sources are maintained.
During 1993, the Company's liquidity remained relatively
unchanged from year-end 1992. The growth in loans and investment
securities was funded primarily by the reduction in cash and due
from banks and increases in other borrowed funds.
Core deposits at December 31, 1993 totaled $900.2 million
decreasing by $7.6 million from year-end 1992. Average core
deposits as a percentage of average total deposits were 83.9% in
1993 compared to 82.8% in 1992 and 80.7% in 1991.
Large certificates of deposit of $178.1 million at December
31, 1993 increased by $11.9 million from year-end 1992. The Bank's
policy disallows the use of brokered deposits as a funding source.
Net cash provided by operating activities was $17.9 million,
$11.1 million and $10.0 million and by financing activities was
$33.6 million, $105.7 million and $83.2 million in 1993, 1992 and
1991, respectively. Net cash used in investing activities was $59.8
million, $114.8 million and $85.1 million in the respective years,
resulting in cash and cash equivalents decreasing in 1993 by $8.2
million and increasing by $2.0 million in 1992 and $8.0 million in
1991.
EFFECTS OF INFLATION
The financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and
the results of operations in terms of historical dollars without
considering changes in the relative purchasing power of money over
time due to inflation.
Virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institution's
performance than the effects of general levels of inflation.
<PAGE>
<TABLE>
<CAPTION>
Table 8. Regulatory Capital Ratios
At December 31, 1993 At December 31, 1992
Required Actual Excess Required Actual Excess
<S> <C> <C> <C> <C> <C> <C>
Tier I risk-based capital ratio 4.00% 10.94% 6.94% 4.00% 10.33% 6.33%
Total risk-based capital ratio 8.00 12.19 4.19 8.00 11.58 3.58
Leverage capital ratio 3.00 8.65 5.65 3.00 7.98 4.98
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
CPB INC. AND SUBSIDIARY - DECEMBER 31, 1993 AND 1992
(Dollars in thousands, except per share data) 1993 1992
<S> <C> <C>
Assets
Cash and due from banks $ 58,152 $ 66,381
Interest-bearing deposits in other banks 5,039 13,104
Federal funds sold 5,000 5,000
Investment securities (market value $253,313 and $234,744 at
December 31, 1993 and 1992, respectively) 250,668 230,902
Loans 945,768 901,565
Less allowance for loan losses 17,131 15,378
Net loans 928,637 886,187
Premises and equipment 23,282 22,935
Accrued interest receivable 9,108 9,263
Investment in partnership 4,666 3,702
Due from customers on acceptances 1,347 1,917
Other assets 17,203 14,272
Total assets $1,303,102 $1,253,663
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing deposits $ 180,254 $ 184,810
Interest-bearing deposits 898,072 889,245
Total deposits 1,078,326 1,074,055
Federal funds purchased and securities sold under agreements to repurchase 9,130 --
Other borrowed funds 86,831 62,713
Bank acceptances outstanding 1,347 1,917
Other liabilities 13,280 12,745
Employee stock ownership plan note payable 1,000 1,500
Total liabilities 1,189,914 1,152,930
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 5,230,331 and
5,196,142 shares at December 31, 1993 and 1992, respectively 6,538 6,495
Surplus 45,140 44,573
Retained earnings 62,510 51,165
114,188 102,233
Employee stock ownership plan shares purchased with debt (1,000) (1,500)
Total stockholders' equity 113,188 100,733
Total liabilities and stockholders' equity $1,303,102 $1,253,663
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands, except per share data) 1993 1992 1991
Interest income:
Interest and fees on loans $77,577 $80,753 $81,569
Interest and dividends on investment securities:
Taxable interest 11,998 13,137 13,340
Tax-exempt interest 519 517 802
Dividends 1,486 886 143
Interest on deposits in other banks 361 1,061 1,780
Interest on Federal funds sold 54 358 358
Total interest income 91,995 96,712 97,992
Interest expense:
Interest on deposits 26,581 35,886 45,157
Interest on other borrowed funds 4,341 3,554 1,019
Interest on subordinated capital note -- 7 24
Total interest expense 30,922 39,447 46,200
Net interest income 61,073 57,265 51,792
Provision for loan losses 3,200 2,700 2,400
Net interest income after provision for loan losses 57,873 54,565 49,392
Other operating income:
Service charges on deposit accounts 2,580 2,179 1,697
Other service charges and fees 4,828 4,424 3,941
Partnership income 1,504 1,255 1,048
Fees on foreign exchange 978 808 801
Investment securities gains (losses) 336 (278) 41
Other 943 701 1,041
Total other operating income 11,169 9,089 8,569
Other operating expense:
Salaries and employee benefits 22,910 21,372 19,706
Net occupancy 5,094 4,712 4,577
Equipment 2,204 1,974 1,896
Other 13,076 11,875 11,521
Total other operating expense 43,284 39,933 37,700
Income before income taxes and cumulative effect
of accounting change 25,758 23,721 20,261
Income taxes 10,026 9,119 7,554
Income before cumulative effect of accounting change 15,732 14,602 12,707
Cumulative effect of accounting change 208 -- --
Net income $15,940 $14,602 $12,707
Per common share:
Income before cumulative effect of accounting change $ 3.02 $ 2.81 $ 2.51
Cumulative effect of accounting change 0.04 -- --
Net income $ 3.06 $ 2.81 $ 2.51
Cash dividends declared $ 0.88 $ 0.80 $ 0.70
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Employee stock
ownership plan
Common Retained shares purchased
(Dollars in thousands, except per share data) stock Surplus earnings with debt Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $6,278 $41,351 $31,564 $ -- $ 79,193
Net income -- -- 12,707 -- 12,707
Cash dividends declared ($0.70 per share) -- -- (3,553) -- (3,553)
163,651 shares of common stock issued 205 3,154 -- -- 3,359
Employee stock ownership plan obligation
guaranteed by Company -- -- -- (2,000) (2,000)
Balance at December 31, 1991 6,483 44,505 40,718 (2,000) 89,706
Net income -- -- 14,602 -- 14,602
Cash dividends declared ($0.80 per share) -- -- (4,155) -- (4,155)
9,820 shares of common stock issued 12 68 -- -- 80
Employee stock ownership plan obligation
guaranteed by Company -- -- -- 500 500
Balance at December 31, 1992 6,495 44,573 51,165 (1,500) 100,733
Net income -- -- 15,940 -- 15,940
Cash dividends declared ($0.88 per share) -- -- (4,595) -- (4,595)
34,189 shares of common stock issued 43 567 -- -- 610
Employee stock ownership plan obligation
guaranteed by Company -- -- -- 500 500
Balance at December 31, 1993 $6,538 $45,140 $62,510 $(1,000) $113,188
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands) 1993 1992 1991
Cash flows from operating activities:
Net income $ 15,940 $ 14,602 $ 12,707
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 3,200 2,700 2,400
Provision for depreciation and amortization 2,151 2,011 1,798
Net amortization and accretion of investment securities 3,245 2,025 473
Net loss (gain) on investment securities (336) 278 (41)
Federal Home Loan Bank stock dividends received (1,076) (886) (143)
Net deferred loan origination fees 43 118 480
Net change in loans held for sale (844) (9,909) (4,633)
Net gain on sale of loans (554) (412) (822)
Amortization of intangible assets 92 92 23
Cumulative effect of accounting change (208) -- --
Deferred income tax benefit (572) (575) (1,061)
Partnership income (1,504) (1,255) (1,048)
Decrease (increase) in accrued interest receivable and other assets (1,770) 3,048 (2,949)
Increase (decrease) in accrued interest payable and other liabilities 105 (720) 2,809
Net cash provided by operating activities 17,912 11,117 9,993
Cash flows from investing activities:
Proceeds from maturities of and calls on investment securities 207,593 90,591 56,705
Purchases of investment securities (229,192) (165,611) (26,715)
Net decrease in interest-bearing deposits in other banks 8,065 18,978 5,304
Net loan originations over principal repayments (44,295) (58,065) (132,841)
Proceeds from sale of loans -- -- 27,478
Loans acquired in branch acquisition -- -- (5,352)
Purchases of premises and equipment (2,498) (1,230) (10,115)
Distributions from partnership 540 490 400
Net cash used in investing activities (59,787) (114,847) (85,136)
Cash flows from financing activities:
Net increase in deposits 4,271 83,193 44,345
Deposits acquired in branch acquisition -- -- 14,206
Proceeds from Federal Home Loan Bank advances 25,455 38,100 24,015
Repayments of Federal Home Loan Bank advances (1,057) (629) (3)
Net increase (decrease) in other short-term borrowings 8,850 (10,782) 898
Payments on subordinated capital note -- (200) (224)
Cash dividends paid (4,483) (4,049) (3,422)
Proceeds from sale of common stock 610 80 3,359
Net cash provided by financing activities 33,646 105,713 83,174
Net increase (decrease) in cash and cash equivalents (8,229) 1,983 8,031
Cash and cash equivalents:
At beginning of year 71,381 69,398 61,367
At end of year $ 63,152 $ 71,381 $ 69,398
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 31,511 $ 40,946 $ 46,455
Cash paid during the year for income taxes $ 10,970 $ 9,452 $ 6,929
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CPB INC. AND SUBSIDIARY - DECEMBER 31, 1993, 1992 AND 1991
1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CPB Inc. ("Company") and its wholly-owned (except for directors'
qualifying shares) subsidiary, Central Pacific Bank ("Bank") and
its wholly-owned subsidiary, CPB Properties, Inc. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
CPB Properties, Inc. is a general partner with a 50 percent
interest in CKSS Associates, a limited partnership. The investment
in partnership is accounted for by the equity method.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company
considers cash and cash equivalents to include cash and due from
banks, Federal funds sold and other short-term investments with an
original maturity or remaining life at date of purchase of three
months or less. Such investments are considered readily convertible
to known amounts of cash due to the insignificant risk of changes
in their market values.
INVESTMENT SECURITIES
Investment securities, which are held to maturity, are carried
at cost and adjusted for amortization of premiums and accretion of
discounts using a method that approximates the interest method.
Gains or losses from the disposition of investment securities are
computed using the specific identification method. Unrealized
permanent impairments in value are reported in non-interest income
as investment securities losses.
The Company believes it has the intent and ability to hold to
maturity its portfolio of investment securities at December 31,
1993 as part of its portfolio of long-term interest-earning assets.
The Company's intent to hold investment securities to maturity is
based on management's assessment of the probability of future
events and their impact on the Company.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the principal amount outstanding, net of
unearned income. Loans are placed on nonaccrual status when
management has determined that the borrowers will be unable to meet
contractual principal and/or interest obligations. When a loan is
placed on nonaccrual status, all interest previously accrued but
not collected is reversed against current period interest income
should management determine that the collectibility of such accrued
interest is doubtful. All subsequent receipts are applied to
principal outstanding, and no interest income is recognized unless
the financial condition and payment record of the borrowers warrant
such recognition. A nonaccrual loan may be restored to an accrual
basis when principal and interest payments are current, and full
payment of principal and interest is expected.
The allowance for loan losses is maintained at a level
considered adequate to provide for potential losses on loans and
other extensions of credit, including off-balance sheet credit
exposures. The adequacy of the allowance for loan losses is based
upon management's evaluation of the quality, character and inherent
risks in the loan portfolio, current and projected economic
conditions, and past loan loss experience. The allowance is
increased by provisions charged to operating expense and reduced by
loan charge-offs, net of recoveries.
LOAN ORIGINATION AND COMMITMENT FEES
All loan origination fees, substantially all loan commitment
fees and certain direct loan origination costs are deferred and
recognized over the life of the related loan as an adjustment to
yield.
LOANS HELD FOR SALE
Generally, fixed-rate residential mortgage loans are
originated with the intent to sell, and occasionally other loans
are sold in response to changes in interest rate risk. At December
31, 1993 and 1992, approximately $15,386,000 and $14,542,000,
respectively, of loans were held for sale and were valued at the
lower of aggregate cost or market value.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, net of accumulated
depreciation and amortization. Depreciation and amortization are
included in other operating expense and are computed under the
straight-line method over the estimated useful lives of the assets
or the applicable leases, whichever are shorter. Major improvements
and betterments are capitalized while recurring maintenance and
repairs are charged to operating expense. Gains or losses on
dispositions of premises and equipment are included in other
operating income or expense.
INTANGIBLE ASSETS
An intangible asset of $827,000, less accumulated amortization
of $207,000 and $115,000 at December 31, 1993 and 1992,
respectively, resulting from a branch acquisition is included in
other assets and is being amortized on a straight-line basis over
a period of nine years based on depositor relationships existing at
the date of acquisition. Amortization expense amounted to $92,000
for each of the years ended December 31, 1993 and 1992 and $23,000
for the year ended December 31, 1991.
OTHER REAL ESTATE
Other real estate, included in other assets, is composed of
properties acquired through foreclosure proceedings and in-
substance foreclosures. An in-substance foreclosure results when a
borrower is having financial difficulty and has little or no equity
or prospects for building equity in the collateral and when
repayment of the loan is expected to come only from the operation
or sale of the collateral. When acquired, these properties are
valued at fair value which establishes the new cost
<PAGE>
basis of other real estate. Losses arising at the time of
acquisition of such properties are charged against the allowance
for loan losses. Subsequent to acquisition, such properties are
carried at the lower of a) cost or b) fair value less estimated
selling expenses, determined on an individual asset basis. Any
deficiency resulting from the excess of cost over fair value less
estimated selling expenses is recognized as a valuation allowance.
Any subsequent increase in fair value up to its new cost basis is
recorded as a reduction of the valuation allowance. Increases or
decreases in the valuation allowance and gains or losses recognized
on the sale of these properties are included in other income. Other
real estate amounted to $1,750,000 and $296,000 at December 31,
1993 and 1992, respectively.
INCOME TAXES
The Company and its subsidiary file consolidated Federal and
State tax returns.
Effective January 1, 1993, the Company adopted the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date.
Pursuant to the deferred method under Accounting Principles
Board Opinion No. 11, "Accounting for Income Taxes," which was
applied through December 31, 1992, deferred income taxes were
recognized for income and expense items that were reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable in the year of calculation.
Under the deferred method, deferred taxes were not adjusted for
subsequent changes in tax rates.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements and
notes thereto for the previous two years have been reclassified to
conform to the current year's presentation. Such reclassification
had no effect on the Company's results of operations.
2. RESERVE REQUIREMENTS
In 1986, State banks that were not members of the Federal
Reserve System began an eight-year transition from State reserve
requirements to Federal Reserve Board reserve requirements. State
reserve requirements were reduced by the Federal Reserve Board
reserve requirements over this period of time. Effective January
1993, the State requirements no longer applied, and the Bank was
subject only to the Federal Reserve Board reserve requirements. The
total amount held as a reserve at December 31, 1993 was
$17,931,000.
3. INVESTMENT SECURITIES
A summary of carrying and approximate market values of
investment securities at December 31, 1993 and 1992 follows:
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Carrying unrealized unrealized market
(Dollars in thousands) value gains losses value
<S> <C> <C> <C> <C>
1993:
U.S. Treasury and
other U.S. Government
agencies $211,932 $2,904 $701 $214,135
States and political
subdivisions 21,334 215 -- 21,549
Private-issuer mortgage-
backed securities 6,354 227 -- 6,581
Federal Home Loan Bank
stock, at cost 11,048 -- -- 11,048
Total $250,668 $3,346 $701 $253,313
1992:
U.S. Treasury and
other U.S. Government
agencies $190,305 $4,112 $756 $193,661
States and political
subdivisions 13,967 321 -- 14,288
Private-issuer mortgage-
backed securities 16,657 202 37 16,822
Federal Home Loan Bank
stock, at cost 9,973 -- -- 9,973
Total $230,902 $4,635 $793 $234,744
/TABLE
<PAGE>
The amortized cost and estimated market value of debt
securities at December 31, 1993, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Carrying market
(Dollars in thousands) value value
<S> <C> <C>
Due in one year or less $ 61,265 $ 61,779
Due after one year through five years 119,867 121,193
Due after five years through ten years 10,000 10,077
191,132 193,049
Mortgage-backed securities 48,488 49,216
Federal Home Loan Bank stock 11,048 11,048
Total $250,668 $253,313
</TABLE>
PAGE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Investment securities gains in 1993 included a $300,000
recovery of a 1992 write-down of a private-issuer mortgage-backed
security. The 1992 write-down was based on management's assessment
that the security had suffered an impairment in value deemed other
than temporary. During the first quarter of 1993, the full
principal amount and $185,000 of previously unaccrued interest was
recovered. There were no sales of investment securities during the
three-year period ended December 31, 1993.
Investment securities of $129,934,000 and $123,823,000 at
December 31, 1993 and 1992, respectively, were pledged to secure
public funds on deposit and other short-term borrowings.
As a member of the Federal Home Loan Bank of Seattle ("FHLB"),
the Bank is required to obtain and hold a specified number of
shares of capital stock of the FHLB based on the amount of its
outstanding FHLB advances. These shares are pledged to the FHLB as
collateral to secure outstanding advances (see note 9).
In May 1993, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." SFAS No. 115, effective for fiscal years
beginning after December 15, 1993, addresses the accounting and
reporting for investments in equity securities that have readily
determinable fair values (other than those accounted for under the
equity method or as investments in consolidated subsidiaries) and
all investments in debt securities. Under SFAS No. 115, such
investments are to be classified into three categories: held-to-
maturity, trading or available-for-sale. Early adoption is
permitted as of the beginning of a fiscal year only in financial
statements for fiscal years beginning after the issuance of SFAS
No. 115. The Company adopted the requirements of SFAS No. 115 on
January 1, 1994. The cumulative effect of the change in accounting
was not material to the consolidated financial statements of the
Company.
4. LOANS
Loans consisted of the following at December 31, 1993 and
1992:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
<S> <C> <C>
Real estate:
Mortgage $ 485,148 $ 443,409
Construction 22,080 25,191
Commercial, financial
and agricultural 374,868 356,849
Installment 68,593 80,994
950,689 906,443
Unearned income 4,921 4,878
Total $945,768 $901,565
</TABLE>
In the normal course of business, the Bank has made loans to
certain directors, officers and their affiliates under terms
consistent with the Bank's general lending policies. An analysis of
the activity of such loans follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Balance, December 31, 1992 $6,166
Additions 2,530
Repayments (982)
Other changes (4,743)
Balance, December 31, 1993 $2,971
</TABLE>
The amount of other changes represents sales of loans
originated by the Bank (included in additions) and the net change
in loans due to entities that were not considered related parties
for the entire year.
Nonaccrual loans at December 31, 1993 and 1992 were $4,477,000
and $5,478,000, respectively. The Bank collected and recognized
interest of $160,000 on nonaccrual loans in 1993. The Bank would
have recognized additional interest income of $331,000 if these
loans had been accruing interest throughout 1993. Additionally, the
Bank collected interest of $42,000 on charged-off loans in 1993.
Substantially all of the Bank's loans are to residents of, or
companies doing business in, the State of Hawaii and are generally
secured by personal assets, business assets, residential properties
or income-producing or commercial properties.
In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114, effective for
fiscal years beginning after December 15, 1994, prescribes the
recognition criterion for loan impairment and the measurement
methods for certain impaired loans and loans whose terms are
modified in troubled debt restructurings. Early adoption of SFAS
No. 114 is permitted, and restatement of previously-issued
financial statements is prohibited. The Company has not determined
whether to adopt SFAS No. 114 prior to the effective date and,
accordingly, has not determined the impact of its application at
this time.
PAGE
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Balance, beginning of year $15,378 $13,849 $11,687
Provision for loan losses 3,200 2,700 2,400
18,578 16,549 14,087
Charge-offs (1,642) (1,364) (391)
Recoveries 193 193 153
Net charge-offs (1,447) (1,171) (238)
Balance, end of year $17,131 $15,378 $13,849
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December
31, 1993 and 1992:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
<S> <C> <C>
Land $ 6,000 $ 4,625
Office buildings and leasehold improvements 17,195 18,302
Furniture, fixtures and equipment 11,643 10,139
34,838 33,066
Less accumulated depreciation and amortization 11,556 10,131
Net $23,282 $22,935
</TABLE>
Depreciation and amortization of premises and equipment were charged to
the following operating expenses:
<TABLE>
<CAPTION>
Useful
(Dollars in thousands) 1993 1992 1991 lives
<S> <C> <C> <C> <C>
Net occupancy expense $ 751 $ 741 $ 747 1 to 35
years
Equipment expense 1,400 1,270 1,051 2 to 20
years
Total $2,151 $2,011 $1,798
</TABLE>
In October 1992, CPB Properties, Inc., as lessor, entered into
a lease agreement with CKSS Associates to lease certain real
property located in Kaimuki, on the island of Oahu, Hawaii,
effective from January 1, 1993 to December 31, 2047 (see note 7).
Under the terms of the lease, CKSS Associates is responsible for
redeveloping the property by December 31, 1995. Upon completion of
the redevelopment, the Bank plans to lease a portion of the office
space from CKSS Associates for use as bank premises.
7. INVESTMENT IN PARTNERSHIP
CPB Properties, Inc. is a general partner with a 50 percent
interest in CKSS Associates, a limited partnership. The partnership
developed an office building complex in Honolulu known as Central
Pacific Plaza, part of which is serving as the Company's
headquarters. CPB Properties, Inc. contributed cash of $846,000 and
land with a carrying value of $1,381,000. CPB Properties, Inc.
recorded its contribution to the partnership at book value. The
partnership has agreed to a value of $5,200,000 for the land and
credited the subsidiary with a contribution of $6,046,000. For
accounting purposes, the difference between the $1,381,000 carrying
value of the land and the $5,200,000 value of the land agreed upon
by the partnership in determining the amount of the contribution
would be recognized, if at all, only upon the sale of the
subsidiary's interest in the partnership or upon the sale of the
land and building by the partnership.
Financial information of CKSS Associates is summarized as
follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1993 and 1992
(Dollars in thousands) 1993 1992
<S> <C> <C>
Assets:
Office building
(including land valued at $5,200) $26,110 $26,830
Development in process 4,153 475
Deferred costs 2,143 2,169
Other assets 460 447
Total assets $32,866 $29,921
Liabilities and Partners' Equity:
Notes payable $14,800 $14,200
Other liabilities 1,096 680
Partners' equity 16,970 15,041
Total liabilities and partners' equity $32,866 $29,921
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended December 31, 1993,
1992 and 1991
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Revenues:
Rental income from bank $1,785 $1,606 $1,587
Other rental income
and other revenues 6,033 5,943 5,909
Total revenues 7,818 7,549 7,496
Total costs and expenses 4,810 5,038 5,401
Net income $3,008 $2,511 $2,095
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DEVELOPMENT IN PROCESS
CKSS Associates is currently developing a four-story office
building in Kaimuki, on the island of Oahu, Hawaii ("Kaimuki
Project"), on land owned by CPB Properties, Inc. During 1992, CKSS
Associates and CPB Properties, Inc. entered into a lease agreement
effective from January 1, 1993 to December 31, 2047. This lease
agreement has been accounted for as an operating lease. Fixed
annual lease payments through 2007 are as follows:
1994 $ 240,000
1995 to 2002 300,000
2003 to 2007 360,000
Thereafter, and until the end of the lease term, annual
minimum lease payments are $360,000 per year. Lease rent paid to
CPB Properties, Inc. during the year ended December 31, 1993 was
$180,000.
NOTES PAYABLE
At December 31, 1993, notes payable included $12,000,000 due
in November 1996, payable to The Sumitomo Bank, Limited
("Sumitomo"), the principal stockholder of CPB Inc., and $2,800,000
due to Central Pacific Bank of which $800,000 is due in November
1996 and $2,000,000 (discussed in greater detail below) is due in
August 2001. The average interest rate on these notes was 5.91
percent at December 31, 1993. The notes are secured by a mortgage
on Central Pacific Plaza and the leasehold interest in the Kaimuki
Project.
On April 30, 1993, CKSS Associates entered into a building
loan agreement with the Bank to borrow up to a maximum of $10.7
million at .75% above the London Interbank Offered Rate ("LIBOR")
for the Kaimuki Project. The outstanding balance at December 31,
1993 was $2,000,000.
8. DEPOSITS
Certificates of deposit with balances of $100,000 or more were
$178,108,000 and $166,203,000 at December 31, 1993 and 1992,
respectively.
Interest expense on certificates of deposit with balances of
$100,000 or more was $5,336,000, $7,033,000 and $11,009,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
9. OTHER BORROWED FUNDS
A summary of FHLB advances and other borrowings at
December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
<S> <C> <C>
FHLB advances with a weighted average
interest rate of 5.800% and 6.166% at
December 31, 1993 and 1992, respectively $85,881 $61,483
Other short-term borrowings 950 1,230
Total $86,831 $62,713
</TABLE>
The Bank had additional unused FHLB advances of approximately
$5,800,000 at December 31, 1993.
The FHLB advances are secured by the Bank's holdings of stock
of the FHLB, other unencumbered investment securities and certain
real estate loans in accordance with the collateral provisions of
the Advances, Security and Deposit Agreement dated May 8, 1991,
between the Bank and the FHLB.
At December 31, 1993 approximate maturities of FHLB advances
and other borrowings were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Year ending December 31:
<S> <C>
1994 $32,901
1995 12,104
1996 11,920
1997 15,762
1998 261
Thereafter 13,883
Total $86,831
</TABLE>
10. SUBORDINATED CAPITAL NOTE
At December 31, 1991, the Bank had a subordinated capital note
outstanding in the amount of $200,000 payable to Sumitomo. This
7.75 percent note was repaid in October 1992.
11. EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has an employee stock ownership plan ("ESOP") and
related trust covering substantially all full-time employees with
at least one year of service. Normal vesting occurs at the rate of
20 percent per year starting the second year of participation. The
Bank made contributions of $1,350,000, $1,300,000 and $1,100,000
for 1993, 1992 and 1991, respectively, which were charged to
salaries and employee benefits.
On November 8, 1991, after obtaining the approval of the
boards of directors of the Company and the Bank, the trust
purchased 125,000 shares of newly issued common stock of the
Company. The purchase was made with cash obtained through a four-
year term loan for $2,000,000 from Sumitomo, $500,000 in existing
funds held in the ESOP trust account and $350,000 from Bank
contributions. A portion of the shares purchased was pledged as
security for the loan.
The Company has guaranteed repayment of the loan, and the Bank
is obligated to make cash contributions to the trust in amounts
sufficient to enable the trust to make four annual principal
payments of $500,000 plus interest on the loan. The interest rate
floats at LIBOR plus 1 percent, for periods of 3, 6, or 12 months
at the option of the borrower.
For financial reporting purposes, the ESOP loan has been
recorded as a liability, and stockholders' equity has been reduced
by a like amount. As principal payments are made, the liability
will be reduced and stockholders' equity will be increased by the
amounts paid.
PAGE
<PAGE>
12. STOCK OPTION PLAN
On November 7, 1986, the Company adopted the CPB Inc. 1986
Stock Option Plan ("Stock Option Plan") for the purpose of granting
stock options to directors, officers and other key individuals. On
April 28, 1992, the stockholders of the Company approved an
amendment to the Stock Option Plan which increased from 220,000 to
520,000 the number of shares available for issuance upon the
exercise of stock options granted. During 1992, options to purchase
78,720 shares were granted. At December 31, 1993, stock options to
purchase 134,156 shares of the Company's common stock were
outstanding, of which 76,460 shares were exercisable. These options
expire ten years after the grant date. The option price on 22,064
shares is $5.39, on 36,672 shares is $14.32 and on the remaining
75,420 shares is $25.45. These option prices were based on the fair
market value of the common stock on the date granted. During the
year ended December 31, 1993, options on 14,288 shares of the
Company's common stock were exercised for a total of 140,804 shares
exercised through December 31, 1993.
13. SHARE PURCHASE AGREEMENT
On December 16, 1986, the stockholders of the Company ratified
a Share Purchase Agreement which gives Sumitomo the right to
purchase newly-issued common stock of the Company for the purpose
of maintaining its pro rata ownership interest in the Company.
Pursuant to the agreement, warrants were issued giving Sumitomo the
right to purchase 35,025 shares at fair market value (at the time
such warrants are exercised), contingent upon the exercise of stock
options by the optionees. Warrants for 14,778 shares were exercised
in September 1991 at $24.375 per share. Warrants for an additional
7,639 shares were exercisable as of December 31, 1993, subject to
the approval of the Federal Reserve Board. Warrants for the
remaining 12,608 shares, which expire on December 23, 1996, will be
exercisable as stock options are exercised by the optionees.
In May 1993, Sumitomo exercised warrants for 19,901 shares at
$22.80 per share. These warrants were issued in connection with the
Company's issuance of 125,000 shares of common stock to the ESOP in
1991 (see note 11).
14. PENSION PLAN
The Bank has a defined benefit retirement plan covering
substantially all of its employees. The pension plan was curtailed
in 1986, and accordingly, plan benefits were fixed as of that date.
Effective January 1, 1991, the Bank reactivated its defined benefit
retirement plan to address changes brought about by the Omnibus
Reconciliation Act of 1990 and to provide a more competitive
employee benefit program.
As a result of the reactivation, employees for which benefits
became fixed in 1986 continued to accrue additional benefits under
the new formula that became effective on January 1, 1991. Employees
who were not participants at curtailment, but were subsequently
eligible to join, became participants effective January 1, 1991.
Under the reactivated plan, benefits are based upon the employees'
years of service and their highest average annual salary in the
final 60-consecutive-month period of service, reduced by benefits
provided from the Bank's curtailed money purchase pension plan.
The following table sets forth the plan's funded status and
amounts recognized in the consolidated balance sheets at December
31, 1993 and 1992:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992
<S> <C> <C>
Actuarial present value of benefit obligations:
Estimated present value of vested benefits $(15,015) $(13,483)
Estimated present value of nonvested benefits (1,437) (1,298)
Accumulated benefit obligations (16,452) (14,781)
Value of future pay increases (5,201) (4,911)
Projected benefit obligations (21,653) (19,692)
Plan assets at fair value 17,345 16,672
Projected benefit obligation in excess of
plan assets (4,308) (3,020)
Unrecognized prior service cost 5,422 5,967
Unrecognized net loss resulting from changes
in plan experience and actuarial
assumptions 4,294 3,209
Unrecognized net asset being recognized
over 15 years (318) (365)
Prepaid pension cost included in other assets $ 5,090 $ 5,791
</TABLE>
Net pension cost for the years ended December 31, 1993, 1992
and 1991 included the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Service cost $ 829 $ 685 $ 575
Interest cost 1,349 1,217 1,126
Actual gain on plan assets (773) (1,409) (2,086)
Net amortization and deferral (136) 543 1,402
Net pension cost $1,269 $1,036 $1,017
</TABLE>
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was 7
percent for 1993 and 1992. The expected long-term rate of return on
assets was 9 percent, and the weighted average rate of compensation
increase was 5 percent for 1993 and 1992.
PAGE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The reactivation of the defined benefit pension plan on
January 1, 1991 resulted in an increase of $5,914,000 in the
unrecognized prior service cost, which is being amortized over a
period of 13 years.
The Bank also had a money purchase pension plan which covered
all full-time employees with at least one year of service. This
plan was curtailed on January 1, 1991 as part of the review of the
employee benefits program, which resulted in the reactivation of
the defined benefit pension plan. Participants in the money
purchase pension plan became fully vested at the time of
curtailment, and in November 1993 each participant's share of the
plan assets was distributed to the participant.
15. PROFIT SHARING PLAN
The Bank's profit sharing plan covers substantially all
employees with at least one year of service. The board of directors
has sole discretion in determining the annual contribution to the
plan, subject to limitations of the Internal Revenue Code. The Bank
made contributions of $897,000, $849,000 and $723,000 for 1993,
1992 and 1991, respectively.
16. OPERATING LEASES
The Bank occupies a number of properties under leases which
expire on various dates through 2010 and, in most instances,
provide for renegotiation of rental terms at fixed intervals. These
leases generally contain renewal options for periods ranging from
5 to 15 years.
Rent expense for all operating leases is summarized as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Total rent expense $4,325 $4,094 $4,064
Less sublease rental income (86) (75) (25)
Net $4,239 $4,019 $4,039
</TABLE>
The following is a schedule of future minimum rental
commitments for all noncancelable operating leases that had initial
or remaining lease terms in excess of one year at December 31,
1993:
<TABLE>
<CAPTION>
Less
sublease Net
Rental rental rental
(Dollars in thousands) commitment income commitment
<S> <C> <C> <C>
Year ending December 31:
1994 $ 3,156 $ 75 $ 3,081
1995 2,855 73 2,782
1996 2,632 73 2,559
1997 2,464 18 2,446
1998 2,272 -- 2,272
Thereafter 15,290 -- 15,290
Total $ 28,669 $239 $28,340
</TABLE>
In instances where the lease calls for a renegotiation of
rental payments, the lease rental payment in effect prior to
renegotiation was used throughout the remaining lease term.
In addition, the Bank and CPB Properties, Inc. lease certain
properties that they own. The following is a schedule of future
minimum rental income for those noncancelable operating leases that
had initial or remaining lease terms in excess of one year at
December 31, 1993:
<TABLE>
<CAPTION>
Minimum
(Dollars in thousands) rental income
<S> <C>
Year ending December 31:
1994 $ 1,384
1995 1,212
1996 1,006
1997 819
1998 681
Thereafter 18,690
Total $23,792
</TABLE>
17. OTHER EXPENSE
Components of other expense for the years ended December 31,
1993, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Insurance $ 2,856 $ 2,736 $ 2,457
Charge card 1,648 1,435 1,509
Stationery and supplies 1,205 1,103 1,240
Advertising 1,202 1,001 1,030
Other 6,165 5,600 5,285
Total $13,076 $11,875 $11,521
</TABLE>
PAGE
<PAGE>
18. INCOME AND FRANCHISE TAXES
As discussed in note 1, the Company adopted SFAS No. 109 as of
January 1, 1993. The cumulative effect of this change in
accounting for income taxes of $208,000 was determined as of
January 1, 1993 and is reported separately in the consolidated
statement of income for the year ended December 31, 1993. Prior
years' consolidated financial statements have not been restated to
apply the provisions of SFAS No. 109.
Components of income tax expense (benefit) for the years ended
December 31, 1993, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Current Deferred Total
<S> <C> <C> <C>
1993:
Federal $ 8,672 $ (557) $ 8,115
State 1,926 (15) 1,911
Total $10,598 $ (572) $10,026
1992:
Federal $ 8,028 $ (629) $ 7,399
State 1,666 54 1,720
Total $ 9,694 $ (575) $ 9,119
1991:
Federal $ 7,015 $ (936) $ 6,079
State 1,600 (125) 1,475
Total $ 8,615 $(1,061) $ 7,554
</TABLE>
Income tax expense amounted to $10,026,000, $9,119,000 and
$7,554,000 for 1993, 1992 and 1991, respectively. Income tax
expense for the periods presented differed from the "expected" tax
expense (computed by applying the U.S. Federal corporate tax rate
of 35 percent in 1993 and 34 percent in 1992 and 1991 to income
before income taxes and cumulative effect of accounting change) for
the following reasons:
<TABLE>
<CAPTION>
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Computed "expected"
tax expense $ 9,015 $8,065 $6,889
Increase (decrease) in taxes
resulting from:
Tax-exempt interest (402) (293) (384)
State franchise tax, net of
Federal income tax benefit 1,242 1,037 885
Other 171 310 164
Total $10,026 $9,119 $7,554
</TABLE>
The components of deferred income taxes for the years ended
December 31, 1992 and 1991 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1992 1991
<S> <C> <C>
Provision for loan losses $(520) $ (816)
Finance fees (54) (218)
Employee retirement benefits (266) (138)
Interest on nonaccrual loans (139) 1
Unrealized loss (gain)
on investment securities (137) --
State franchise tax (120) (74)
FHLB stock dividends received 405 65
Depreciation 57 80
Other 199 39
Total $(575) $(1,061)
</TABLE>
The tax effects of temporary differences that gave rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Deferred tax assets:
Allowance for loan losses $5,555
Deferred finance fees 1,957
Premises and equipment, principally
due to differences in depreciation 346
Employee retirement benefits 642
Other 404
Total deferred tax assets 8,904
Deferred tax liabilities:
Deferred gain on curtailed retirement plan 2,759
FHLB stock dividends received 1,000
Investment in unconsolidated subsidiary 727
Other 735
Total deferred tax liabilities 5,221
Net deferred tax assets $3,683
</TABLE>
There was no valuation allowance for deferred tax assets as of
December 31, 1993.
PAGE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
19. NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net
income by the weighted average number of shares outstanding of
5,216,230, 5,191,956 and 5,053,721 in 1993, 1992 and 1991,
respectively. Stock options and share purchase agreement warrants
are considered common stock equivalents for purposes of per-share
data but have been excluded from the computation since the dilutive
effect is not material.
20. BRANCH ACQUISITIONS
In October 1993, the Bank entered into a "Purchase and
Assumption Agreement" with First Hawaiian Bank ("FHB") to acquire
certain assets and assume certain liabilities of FHB's Rice Branch.
The transaction is expected to close in February 1994 and is not
anticipated to have a material impact on the Company's financial
position or results of operation.
During October 1991, the Bank acquired the Kailua-Kona branch
of First Interstate Bank of Hawaii. The acquisition was accounted
for using the purchase method of accounting. The aggregate amount
of deposits assumed was $14,206,000. Assets acquired amounted to
$5,352,000 in loans, $827,000 in core deposit premiums and $331,000
in other assets. The balance of $7,696,000 was received as a cash
settlement.
21. CONTINGENT LIABILITIES AND
OTHER COMMITMENTS
The Company and its subsidiary are involved in legal actions
arising in the ordinary course of business. Management, after
consultation with legal counsel, believes the ultimate disposition
of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
In the normal course of business, there are outstanding
contingent liabilities and other commitments, such as unused
letters of credit, items held for collection and unsold travelers'
checks, which are not reflected in the accompanying consolidated
financial statements. Management does not anticipate any material
losses as a result of these transactions.
22. FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit and
financial guarantees written. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated balance sheets. The contract
or notional amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit and
financial guarantees written is represented by the contractual
amount of those instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
At December 31, 1993 and 1992 financial instruments with off-
balance-sheet risk were as follows:
<TABLE>
<CAPTION>
Contract or notional
amount
(Dollars in thousands) 1993 1992
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $331,019 $288,256
Standby letters of credit and
financial guarantees written 25,410 21,082
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank
evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit
evaluation of the counter-party. Collateral held varies but may
include accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Bank
holds collateral supporting those commitments for which collateral
is deemed necessary.
PAGE
<PAGE>
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991, the Financial Accounting Standards Board
issued SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," which requires that the Company disclose estimated
fair values for its financial instruments. Fair value estimates,
methods and assumptions are set forth below for the Company's
financial instruments.
SHORT-TERM FINANCIAL INSTRUMENTS
The carrying values of short-term financial instruments are
deemed to approximate fair values. Such instruments are considered
readily convertible to cash and include cash and due from banks,
interest-bearing deposits in other banks, Federal funds sold,
accrued interest receivable, due from customers on acceptances,
Federal funds purchased and securities sold under agreements to
repurchase, bank acceptances outstanding and accrued interest
payable.
INVESTMENT SECURITIES
The fair values of investment securities are based on market
price quotations received from securities dealers. Where quoted
market prices are not available, fair values are based on quoted
market prices of comparable securities. The equity investment in
common stock of the FHLB, which is redeemable for cash at par
value, is reported at its par value.
LOANS
The fair values of loans are estimated based on discounted
cash flows of portfolios of loans with similar financial
characteristics including the type of loan, interest terms and
repayment history. The fair value of loans is calculated by
discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loans. Assumptions regarding
credit risk, cash flows, and discount rates are judgmentally
determined using available market information and specific borrower
information.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1993 At December 31, 1992
Carrying Estimated Carrying Estimated
amount fair value amount fair value
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 58,152 $ 58,152 $ 66,381 $ 66,381
Interest-bearing deposits in other banks 5,039 5,039 13,104 13,104
Federal funds sold 5,000 5,000 5,000 5,000
Investment securities 250,668 253,313 230,902 234,744
Loans 945,768 950,855 901,565 907,778
Less allowance for loan losses 17,131 -- 15,378 --
Net loans 928,637 950,855 886,187 907,778
Accrued interest receivable 9,108 9,108 9,263 9,263
Due from customers on acceptance 1,347 1,347 1,917 1,917
Financial liabilities:
Deposits:
Noninterest-bearing deposits 180,254 180,254 184,810 184,810
Interest-bearing demand and savings deposits 559,608 559,608 552,779 552,779
Time deposits 338,464 339,815 336,466 338,220
Total deposits 1,078,326 1,079,677 1,074,055 1,075,809
Federal funds purchased and securities sold under agreements
to repurchase 9,130 9,130 -- --
Advances from FHLB 85,881 86,936 61,483 61,443
Other short-term borrowings 950 950 1,230 1,230
Bank acceptances outstanding 1,347 1,347 1,917 1,917
Accrued interest payable (included in other liabilities) 4,821 4,821 5,410 5,410
Employee stock ownership plan note payable 1,000 1,000 1,500 1,500
Off-balance-sheet financial instruments:
Commitments to extend credit 331,019 792 288,256 636
Standby letters of credit and financial guarantees written 25,410 191 21,082 158
</TABLE>
PAGE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
DEPOSIT LIABILITIES
The fair values of deposits with no stated maturity, such as
noninterest-bearing demand deposits and interest-bearing demand and
savings accounts, is equal to the amount payable on demand as of
December 31, 1993. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar
remaining maturities.
OTHER BORROWED FUNDS AND
EMPLOYEE STOCK OWNERSHIP PLAN NOTE PAYABLE
The fair value of FHLB advances is estimated by discounting
scheduled cash flows over the contractual borrowing period at the
estimated market rate for similar borrowing arrangements. Due to
the short-term nature of the instruments, the fair value of other
short-term borrowings approximates carrying value. Likewise, the
fair value of the ESOP note payable, which reprices frequently as
discussed in note 11, is based on its carrying value.
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS
OF CREDIT AND FINANCIAL GUARANTEES WRITTEN
The fair value of commitments to extend credit is estimated
using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
present creditworthiness of the counter-parties. The fair value of
standby letters of credit and financial guarantees written is based
on fees currently charged for similar agreements. At December 31,
1993 and 1992, the carrying values for commitments to extend credit
and standby letters of credit and financial guarantees written were
not significant.
LIMITATIONS
Fair value estimates are made at a specific point in time,
based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the
Bank's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of the Bank's
financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments
and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-
balance-sheet financial instruments without attempting to estimate
the value of future business and the value of assets and
liabilities that are not considered financial instruments. For
example, significant assets and liabilities that are not considered
financial assets or liabilities include deferred tax assets,
premises and equipment and intangible assets. In addition, the tax
ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates
and have not been considered in many of the
estimates.
24. DECLARATION OF DIVIDENDS
The board of directors, at a special meeting held December 14,
1993, declared a fourth quarter cash dividend of $0.22 per share in
addition to the three quarterly cash dividends previously declared
for a total of $0.88 per share for the year ended December 31,
1993.
25. SUBSEQUENT EVENT
In January 1994, a Voluntary Early Retirement Program ("VERP")
was offered which provides a special retirement bonus to qualifying
individuals who retire by April 1, 1994, in addition to the normal
retirement benefits in accordance with the Bank's defined benefit
retirement plan (see note 14). The retirement bonus will be
included in salaries and employee benefits in the first quarter of
1994. The election to participate in the VERP must be made by March
15, 1994. Accordingly, the Company cannot determine the impact of
the VERP at this time.
26. PARENT COMPANY
AND REGULATORY RESTRICTIONS
On November 5, 1992, the Company purchased 650,000 shares of
the Bank's common stock for $4,875,000. The purchase raised the
Bank's capital level to satisfy the Federal Deposit Insurance
Corporation's requirements for a well-capitalized institution.
At December 31, 1993, retained earnings of the parent company,
CPB Inc., included $64,823,000 of equity in undistributed income of
the Bank.
The Bank, as a Hawaii State chartered bank, is prohibited from
declaring or paying dividends greater than its retained earnings.
As of December 31, 1993, the retained earnings of the Bank totaled
$65,100,000.
Section 131 of the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA") required the Federal Reserve Board, the
Federal Deposit Insurance Corporation, the Comptroller of the
Currency and the Office of Thrift Supervision (collectively, the
"Agencies") to develop a mechanism to take prompt corrective action
to resolve the problems of insured depository institutions. The
final rules to implement FDICIA's Prompt Corrective Action
provisions became effective on December 19,1992. The regulatory
capital standards used to determine an insured depository
institution's capital category under the Prompt Corrective Action
provisions represent minimum standards that generally will be
applied to all institutions. However, the Agencies may impose
higher minimum standards on individual institutions or may
downgrade an institution from one capital category to a lower
capital category because of safety and soundness concerns.
The Prompt Corrective Action provisions impose certain
restrictions on institutions that are undercapitalized. The
restrictions imposed become increasingly more severe as an
institution's capital category declines from "undercapitalized" to
"critically undercapitalized." As of December 31, 1993, the Bank's
regulatory capital ratios exceeded the minimum thresholds for a
"well-capitalized" institution.
PAGE
<PAGE>
Condensed financial statements, solely of the parent company,
CPB Inc., follow:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1993 and 1992
(Dollars in thousands, except per share data) 1993 1992
<S> <C> <C>
Assets:
Cash $ 1,137 $ 426
Interest-bearing deposits in other banks -- 3,019
Investment securities 7,000 4,000
Investment in and advances to subsidiary
bank, at equity in underlying net assets 107,120 95,699
Accrued interest receivable and other assets 15 50
Total assets $115,272 $103,194
Liabilities and Stockholders' Equity:
Employee stock ownership plan note payable $ 1,000 $ 1,500
Other liabilities 1,084 961
Total liabilities 2,084 2,461
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 5,230,331 and
5,196,142 shares at December 31, 1993
and 1992, respectively 6,538 6,495
Surplus 45,140 44,573
Retained earnings 62,510 51,165
114,188 102,233
Employee stock ownership plan shares
purchased with debt (1,000) (1,500)
Total stockholders' equity 113,188 100,733
Total liabilities and stockholders' equity $115,272 $103,194
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended December 31, 1993, 1992
and 1991
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Income:
Dividends from subsidiary bank $ 4,516 $ 4,063 $ 3,442
Interest income:
Interest on interest-bearing
deposits in other banks 1 191 311
Interest on investment securities 209 103 --
Interest from subsidiary bank 19 158 225
Total income 4,745 4,515 3,978
Total expenses 225 129 117
Income before income taxes and
equity in undistributed income of
subsidiary bank 4,520 4,386 3,861
Income taxes 1 124 161
Income before equity in undistributed
income of subsidiary bank 4,519 4,262 3,700
Equity in undistributed income of
subsidiary bank 11,421 10,340 9,007
Net income $15,940 $14,602 $12,707
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows - Years ended December 31, 1993, 1992 and 1991
(Dollars in thousands) 1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 15,940 $ 14,602 $ 12,707
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax expense 2 103 134
Equity in undistributed income of subsidiary bank (11,421) (10,340) (9,007)
Other, net 46 75 (19)
Net cash provided by operating activities 4,567 4,440 3,815
Cash flows from investing activities:
Net decrease in interest-bearing deposits in other banks 3,019 3,987 19
Purchases of investment securities (68,200) (11,000) --
Proceeds from maturities of investment securities 65,200 7,000 --
Investment in and advances to subsidiary bank (2) (4,875) --
Net cash provided by (used in) investing activities 17 (4,888) 19
Cash flows from financing activities:
Proceeds from sale of common stock 610 80 3,359
Dividends paid (4,483) (4,049) (3,422)
Net cash used in financing activities (3,873) (3,969) (63)
Net increase (decrease) in cash and cash equivalents 711 (4,417) 3,771
Cash and cash equivalents:
At beginning of year 426 4,843 1,072
At end of year $ 1,137 $ 426 $ 4,843
/TABLE
<PAGE>
27. Quarterly Information (unaudited)
A summary of unaudited quarterly operating results for the years ended
December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) First quarter Second quarter Third quarter Fourth quarter Total
<S> <C> <C> <C> <C> <C>
1993:
Interest income $23,225 $23,059 $22,862 $22,849 $91,995
Net interest income 15,055 15,285 15,338 15,395 61,073
Provision for loan losses 850 750 850 750 3,200
Net interest income after provision for loan losses 14,205 14,535 14,488 14,645 57,873
Income before income taxes
and cumulative effect of accounting change 6,236 6,336 6,573 6,613 25,758
Net income 4,041 3,906 3,978 4,015 15,940
Net income per share .78 .75 .76 .77 3.06
1992:
Interest income $24,154 $24,278 $24,325 $23,955 $96,712
Net interest income 13,745 13,954 14,671 14,895 57,265
Provision for loan losses 600 700 700 700 2,700
Net interest income after provision for loan losses 13,145 13,254 13,971 14,195 54,565
Income before income taxes 5,637 5,766 6,144 6,174 23,721
Net income 3,495 3,566 3,759 3,782 14,602
Net income per share .67 .69 .72 .73 2.81
</TABLE>
<PAGE>
<PAGE>
INDEPENDENT AUDITORS'
REPORT
THE STOCKHOLDERS AND BOARD OF DIRECTORS OF CPB INC.:
We have audited the accompanying consolidated balance sheets
of CPB Inc. and subsidiary as of December 31, 1993 and 1992, and
the related consolidated statements of income, changes in stock-
holders' equity, and cash flows for each of the years in the three-
year period ended December 31, 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of CPB Inc. and subsidiary as of December 31, 1993 and
1992, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1993
in conformity with generally accepted accounting principles.
As discussed in notes 1 and 18 to the consolidated financial
statements, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in 1993.
Honolulu, Hawaii
February 16, 1994
COMMON STOCK
PRICE RANGE & DIVIDENDS
The Company's common stock is traded in the over-the-counter
market under the National Association of Securities Dealers, Inc.
Automated Quotation system ("NASDAQ") symbol "CPBI." The following
table sets forth quarterly per share information for the high and
low sales prices of the common stock for 1993 and 1992 as reported
by NASDAQ and cash dividends declared for those years.
<TABLE>
<CAPTION>
Cash
dividends
High Low declared
<S> <C> <C> <C>
1993:
First quarter $29.75 $26.50 $0.22
Second quarter $29.50 $25.50 $0.22
Third quarter $27.00 $25.00 $0.22
Fourth quarter $27.50 $24.50 $0.22
Year $29.75 $24.50 $0.88
1992:
First quarter $27.25 $24.25 $0.20
Second quarter $26.00 $23.00 $0.20
Third quarter $25.75 $23.25 $0.20
Fourth quarter $28.50 $22.00 $0.20
Year $28.50 $22.00 $0.80
</TABLE>
The last sales price of the common stock on January 31, 1994
as reported by NASDAQ was $26.50 per share.
On January 31, 1994, there were approximately 2,471
stockholders of record of the common stock, excluding individuals
and institutions for whom shares were held in the names of nominees
and brokerage firms.
The Company and its predecessor have paid regular semi-annual
cash dividends on the common stock since 1958. Beginning in 1988,
the Company commenced paying regular quarterly cash dividends. It
is the present intention of the Company's board of directors
("Board") to continue to pay regular quarterly cash dividends.
However, since substantially all of the funds available for the
payment of dividends are derived from Central Pacific Bank, future
dividends will depend upon the Bank's earnings, its financial
condition, its capital needs, applicable governmental policies and
regulations and such other matters as the Board may deem to be
appropriate.
PAGE
<PAGE>
CORPORATE ORGANIZATION
CPB Inc. is a Hawaii corporation organized on February 1, 1982
as a bank holding company pursuant to a Plan of Reorganization and
Agreement of Merger and is subject to the Bank Holding Company Act
of 1956, as amended. CPB Inc.'s principal business is to serve as
a holding company for its subsidiary, Central Pacific Bank. Central
Pacific Bank was incorporated in its present form in the State of
Hawaii on March 16, 1982 in connection with the holding company
reorganization, and its predecessor entity was incorporated in the
State of Hawaii on January 15, 1954. Central Pacific Bank's
deposits are insured by the Federal Deposit Insurance Corporation
up to applicable limits. Central Pacific Bank is not a member of
the Federal Reserve System. In September 1991, Central Pacific Bank
became a member of the Federal Home Loan Bank of Seattle. Based on
consolidated total assets at December 31, 1993, CPB Inc. was the
third largest commercial bank holding company in the State of
Hawaii.
Central Pacific Bank owns 100% of the outstanding stock of CPB
Properties, Inc., the managing partner and 50% owner of CKSS
Associates. CKSS Associates owns Central Pacific Plaza where CPB
Inc.'s and Central Pacific Bank's headquarters and main offices are
located. CPB Properties, Inc. also owns properties on which two of
the Bank's branch offices are located and the building in which the
Bank's Operations Center is located.
BANKING SERVICES
Central Pacific Bank is a full-service commercial bank which
currently has 19 banking offices located throughout the State of
Hawaii. Its administrative offices are located in Honolulu.
Fourteen branches are located on the island of Oahu. The Bank also
operates two branches on each of the islands of Hawaii and Kauai
and a branch on the island of Maui.
Through this network of banking offices, Central Pacific Bank
offers a full range of banking services and emphasizes personalized
service to small- and medium-sized businesses, professionals and
individuals.
Central Pacific Bank offers a variety of deposit instruments
which include personal and business checking and savings accounts,
interest-bearing negotiable order of withdrawal ("NOW") accounts,
money market accounts and time certificates of deposits.
Central Pacific Bank engages in a broad range of lending
activities, including commercial, consumer and real estate loans,
with particular emphasis on loans with short- to medium-term
maturities. Commercial loans include inventory and accounts
receivable financing; furniture, fixture and equipment financing;
short-term operating loans; commercial real estate loans; and
construction loans. Consumer loans include home mortgage loans;
home equity lines of credit; loans for automobiles, home
improvement and debt consolidation; personal lines of credit; and
installment and term loans for other personal needs.
Central Pacific Bank provides personal trust services through
its Trust Division. Personal trust services include custodial,
investment management and other special services.
Central Pacific Bank provides specialized services designed to
service the needs of commercial and retail customers. These
services include merchant windows, traveler's checks, safe deposit
boxes, international banking services, night depository facilities,
wire transfer services and INFOLINE - telephone banking services.
Central Pacific Bank offers VISA and MasterCard credit card
services, and a VISA debit card service. Credit and debit card
transactions are cleared through Bancard Association of Hawaii,
Inc. ("BAHI"), a Hawaii corporation jointly owned by the Bank and
two other Hawaii banks.
Central Pacific Bank currently has 23 Automated Teller
Machines ("ATMs") throughout the State of Hawaii, offering 24-hour,
7-day per week access for customers. The Bank is a member of the
PLUS and VISA/MasterCard International ATM networks, allowing
common access to member institutions' ATMs.
PAGE
<PAGE>
CPB Inc.
Central Pacific Bank
We Put You First: Member FDIC
CORPORATE HEADQUARTERS
220 South King Street - P.O. Box 3590 - Honolulu, Hawaii 96811-
3590
Telephone: (808) 544-0500 - Telex: CENPACBANK HONOLULU
MCI CENPAC 634261 - RCA 7238308 CPBHR
Telefax: (808) 531-2875 - Cable: CENPACBANK HONOLULU
Fedline: CENTRAL PAC HONO 121301578
Shareholders having inquiries about their account, lost stock
certificate, dividend checks, or change of address, may contact
Chemical Trust Company by calling toll-free 1-800-356-2017, between
5 a.m. and 5 p.m. Pacific Standard Time. Written correspondence
may be sent to: Chemical Bank, J.A.F. Building, P.O. Box 3068, New
York, NY 10116-3068.
Shareholders may obtain without charge a copy of the Company's
annual report on Form 10-K including financial statements required
to be filed with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1993, by writing to: Austin Y. Imamura, Vice President
and Secretary, CPB Inc., P.O. Box 3590, Honolulu, Hawaii
96811-3590.
<PAGE>
Appendix I
Bar graphs: Left to right
Caption: DEPOSITS (In millions)
Data points: '89 804
'90 932
'91 991
'92 1,074
'93 1,078
Caption: NET LOANS (In millions)
Data points: '89 549
'90 704
'91 822
'92 886
'93 929
Caption: NET INCOME (In millions)
Data points: '89 9.4
'90 11.3
'91 12.7
'92 14.6
'93 15.9
<PAGE>
Appendix II
Photograph: Left to right, Joichi Saito, President, and Yoshiharu
Satoh, Chairman of the Board and Chief Executive Officer<PAGE>
Appendix III
Photographs: Clockwise from top left, customer using ATM, Central
Pacific Bank VISA credit card, customers in Mililani branch office,
Mililani branch office teller window
