UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ______________
Commission file number 0-10777
CPB INC.
(Exact name of registrant as specified in its charter)
Hawaii 99-0212597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 South King Street, Honolulu, Hawaii 96813
(Address of principal executive offices) (Zip Code)
(808) 544-0500
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed
since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's
classes of common stock, as of the latest practicable date.
Common Stock, No Par Value, $1.25 Stated Value;
Outstanding at March 31, 1994 - 5,233,331 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements listed below are filed as a part
hereof.
<TABLE>
<CAPTION>
Page
<S>
<C>
Consolidated Balance Sheets - March 31, 1994 and
December 31, 1993
F-1
Consolidated Statements of Income - Three months ended
March 31, 1994 and 1993
F-2
Consolidated Statements of Cash Flows - Three months ended
March 31, 1994 and 1993
F-3
Notes to Consolidated Financial Statements
F-4
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition
and Results of Operations
Overview
CPB Inc. (the "Company") posted first quarter 1994 net income of
$3.126 million, decreasing by 22.6% from the $4.041 million earned
in
the first quarter of 1993. Net income for the first quarter of
1994
reflected expenses of approximately $915,000 related to the
Voluntary
Early Retirement Program (the "VERP") which was offered to
qualified
employees of Central Pacific Bank (the "Bank"), a wholly-owned,
except
for directors' qualifying shares, subsidiary of the Company (refer
to
"Results of Operations -- Other Operating Expense"). Net income
for the
first quarter of 1993 included the recovery of $300,000, along with
$185,000 of unaccrued interest, on a 1992 write-down of a mortgage-
backed security and a nonrecurring credit of $208,000 resulting
from the
Company's adoption of Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." As of March 31,
1994,
total assets of $1,326.0 million increased by $22.9 million or
1.8%, net
loans of $913.7 million decreased by $14.9 million or 1.6%, and
total
deposits of $1,088.0 million increased by $9.7 million or 0.9% when
compared with year-end 1993.
The following table presents return on average assets, return on
average stockholders' equity and earnings per share for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994
1993
<S> <C>
<C>
Annualized return on average assets
Before cumulative effect of accounting change 0.97%
1.27%
After cumulative effect of accounting change 0.97%
1.33%
1
<PAGE>
Three Months Ended
March 31,
1994
1993
Annualized return on average stockholders' equity
Before cumulative effect of accounting change 10.86%
14.96%
After cumulative effect of accounting change 10.86%
15.77%
Earnings per share
Before cumulative effect of accounting change $0.60
$0.74
After cumulative effect of accounting change $0.60
$0.78
</TABLE>
The State of Hawaii's economy has demonstrated some signs of
recovery
in certain sectors during the first quarter of 1994. Total visitor
count for March 1994 increased by 10.3% over March 1993. The
increase
in tourism activity, vital to the health of the state's economy, is
attributed to a combination of increased consumer confidence
brought on
by the improvements in the U.S. economy, particularly in
California, and
the movement in the yen exchange rate which has made travel to the
U.S.
more affordable. Likewise, home sales in the state increased by
over
20% in both the single-family and condominium markets in March 1994
when
compared to March 1993, with median prices remaining relatively
stable
over the past year. Although home sales and mortgage refinancings
have
been bolstered in recent years by the low level of mortgage
interest
rates, recent increases in interest rates will likely depress
activity
in these areas in the foreseeable future. Management is hopeful
that
the economic turnaround will continue; however, the positive impact
of
such recovery on loan and deposit growth has yet to be realized by
the
Bank. Consequently, the results of operations of the Company for
the
remainder of 1994 will depend on the speed of economic recovery in
the
State of Hawaii.
Results of Operations
Net Interest Income
A comparison of net interest income for the three months ended
March
31, 1994 and 1993 is set forth below on a taxable equivalent basis
using
an assumed income tax rate of 35% and 34%, respectively. Net
interest
income, when expressed as a percentage of average interest earning
assets, is referred to as "net interest margin."
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Interest income $22,563 $23,329
Interest expense 7,168 8,170
Net interest income $15,395 $15,159
Net interest margin 5.17% 5.44%
</TABLE>
2
<PAGE>
Interest income decreased by $766,000 or 3.3% in the first
quarter of
1994 as compared to the same period in 1993 due to the lower level
of
interest rates in 1994. Average interest earning assets of
$1,192.0
million for the three months ended March 31, 1994 increased by
$77.6
million or 7.0% over the first quarter of 1993. However, the yield
on
interest earning assets for the first quarter of 1994 as compared
to the
same period in 1993 decreased to 7.57% from 8.37%. The decrease in
yield was primarily attributable to the decline in interest rates
as
well as a lower proportion of average loans outstanding, which
generally
provide higher yields, to average total interest earning assets.
The
decrease in the proportion of average loans outstanding to average
total
interest earning assets to 71.8% from 74.0% for the first quarter
of
1994 and 1993, respectively, was the result of a decline in loan
demand
and, consequently, increased competition among lenders. This
downward
trend in loan demand is expected to continue through year-end 1994.
The
decrease in yield on interest earning assets was partially
attributable
to a recovery during the first quarter of 1993 of $185,000 of
previously
unaccrued interest on a single mortgage-backed security.
Interest expense for the first three months of 1994 decreased by
$1.0
million or 12.3% as compared to the same period in 1993, also a
result
of the downward interest rate trend experienced in 1993. The rate
on
interest-bearing liabilities for the first quarter of 1994 as
compared
to the same period in 1993 decreased to 2.83% from 3.46%. Average
interest-bearing liabilities of $1,013.3 million for the first
quarter
of 1994 increased by $68.4 million or 7.2% when compared to the
first
quarter of 1993.
As a result, net interest income for the first quarter of 1994
increased by $236,000 or 1.6%. Net interest margin decreased
during the
same period due to the growth in interest earning assets which
exceeded
the rate of growth in net interest income. Fees on loans boosted
net
interest income in recent years due to an increase in mortgage
originations, particularly refinancings, resulting from the low
interest
rate environment. Given the current interest rate environment
which has
experienced two 25-basis point increases in the target Federal
funds
rate during the first quarter of 1994, the Company anticipates a
decline
in loan demand and consequently a continued tightening of net
interest
margin for the remainder of 1994.
Provision for Loan Losses
The amounts provided for loan losses are determined by
Management's
ongoing evaluation of the loan portfolio and assessment of the
ability
of the allowance to cover losses inherent in the loan portfolio.
Such
evaluation is based upon the Bank's loan loss experience and
projections
by loan category, the level and nature of current delinquencies and
delinquency trends, the quality and loss potential of specific
loans in
the Bank's portfolio, evaluation of collateral for such loans, the
economic conditions affecting collectibility of loans, trends of
loan
growth and such other factors which, in Management's judgment,
deserve
recognition in the estimation of losses inherent in the Bank's loan
portfolio.
3
<PAGE>
Provision for loan losses, loan charge-offs, recoveries, net
loan
charge-offs and the annualized ratio of net loan charge-offs to
average
loans and other real estate are set forth below for the periods
indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Provision for loan losses $825 $850
Loan charge-offs $158 $174
Recoveries 51 38
Net loan charge-offs $107 $136
Annualized ratio of net loan
charge-offs to average loans
and other real estate 0.05% 0.06%
</TABLE>
The provision for loan losses of $825,000 for the first quarter
of
1994 decreased by 2.9% as compared to the same period in 1993 as a
result of improvements in delinquency ratios. Net loan charge-offs
of
$107,000 and $136,000 for the first three months of 1994 and 1993,
respectively, when expressed as an annualized percentage of average
total loans and other real estate, were 0.05% and 0.06%,
respectively.
Consumer loans accounted for approximately 44% of loans charged off
for
the first three months of 1994. The balance of loans charged off
consisted primarily of partial charge-offs of a commercial loan and
a
nonaccrual residential real estate loan. The allowance for loan
losses
expressed as a percentage of total loans was 1.92% and 1.81% at
March
31, 1994 and December 31, 1993, respectively.
Management believes that the allowance for loan losses at March
31,
1994 was adequate to absorb known and inherent risks in the
portfolio.
However, no assurance can be given that economic conditions which
may
adversely affect the Bank's customers or other circumstances, such
as
material and sustained declines in real estate values, will not
result
in increased losses in the Bank's loan portfolio.
4
<PAGE>
Nonperforming Assets
The following table sets forth nonperforming assets and accruing
loans which were delinquent for 90 days or more. There were no
restructured loans at the dates indicated.
<TABLE>
<CAPTION>
March 31,
December 31,
1994
1993
(Dollars
in thousands)
<S> <C>
<C>
Nonaccrual loans $ 3,376
$ 4,477
Other real estate 2,641
1,750
Total nonperforming assets 6,017
6,227
Loans delinquent for 90 days or more 11,035
19,820
Total nonperforming assets and loans
delinquent for 90 days or more $17,052
$26,047
Total nonperforming assets as a percentage of
total loans and other real estate 0.64%
0.66%
Total nonperforming assets and loans delinquent
for 90 days or more as a percentage of
total loans and other real estate 1.83%
2.75%
</TABLE>
Nonaccrual loans and loans delinquent for 90 days or more at
March
31, 1994 were comprised primarily of loans secured by commercial or
residential real property in the State of Hawaii. Nonaccrual loans
of
$3,376,000 were comprised of several loans, predominantly real
estate
loans, secured by residential or commercial real estate located in
the
State of Hawaii. Other real estate of $2,641,000 at March 31, 1994
consisted of several residential properties acquired by the Bank
through
formal foreclosure proceedings. Loans delinquent for 90 days or
more
and still accruing interest totaled $11,035,000 at March 31, 1994,
decreasing by $8,785,000 or 44.3% from year-end 1993. This
decrease was
due primarily to loans being paid in full or brought current by the
borrowers. Management continues to closely monitor loan
delinquencies
and is increasing its efforts to determine the extent of loss
exposure
on these and all other loans. A continued decline in the general
economic conditions may result in further increases in
nonperforming
assets, delinquencies and net loan charge-offs.
In May 1993, the Financial Accounting Standards Board (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 criteria 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.
5
<PAGE>
Other Operating Income
Total other operating income in the first quarter of 1994 of
$2,784,000 decreased by $219,000 or 7.3% from the first quarter of
1993.
Other service charges and fees of $1,265,000 increased by $109,000
or
9.4% due primarily to an increase in commissions and fees earned on
credit card accounts. Investment securities gains decreased by
$292,000
from the first quarter of 1993 as a result of the Bank's recovery
during
the first quarter of 1993 of a $300,000 write-down of a
mortgage-backed
security recorded in 1992. During the first quarter of 1993, the
full
face value of the security was recovered, along with $185,000 of
previously unaccrued interest.
Other Operating Expense
Total other operating expense of $12,150,000 for the first
quarter of
1994 increased by $1,178,000 or 10.7% over the first quarter of
1993.
Salaries and employee benefits of $6,946,000 increased by
$1,358,000 or
24.3% due primarily to costs incurred by the Bank relating to the
VERP.
During the first quarter of 1994, the Bank offered a special
retirement
bonus to qualifying individuals who elected to retire by April 1,
1994.
The total cost of the VERP, which included the retirement bonus,
accumulated vacation pay and related payroll taxes thereon,
amounted to
approximately $915,000, over half of which management expects to
recoup
via lower salaries and employee benefits through the remainder of
1994.
The benefits from the VERP are also expected to enhance
profitability
into future years. Salaries and employee benefits also increased
during
the first quarter of 1994 due to increases in employees and general
salary levels when compared with the same period in 1993. Other
expense
of $3,314,000 decreased by $288,000 or 8.0% as a result of a
$91,000
decrease in Federal Deposit Insurance Corporation ("FDIC") deposit
insurance premiums and decreases in charitable contributions,
supplies
and other miscellaneous expenses.
Income Taxes
The effective tax rate for the first quarter of 1994 and 1993
was
39.03% and 38.53%, respectively. The increase in effective rates
during
the current year is attributable largely to the increase in the
U.S.
corporate federal income tax rate to 35% from 34%, which became
effective during the third quarter of 1993.
Financial Condition
Total assets at March 31, 1994 of $1,326.0 million increased by
$22.9
million or 1.8% over December 31, 1993. Interest-bearing deposits
in
other banks of $35.4 million increased by $30.4 million or 603.5%,
while
total loans of $931.6 decreased by $14.2 million or 1.5% during the
quarter due to the decline in loan demand.
Total deposits at March 31, 1994 of $1,088.0 million increased
by
$9.7 million or 0.9% from year-end 1993, and securities sold under
agreements to repurchase of $27.5 million increased by $18.3
million or
200.8% over that same period. Noninterest-bearing deposits of
$163.9
million decreased by $16.4 million or 9.1%, while interest-bearing
deposits of $924.1 million increased by $26.0 million or 2.9%.
Core
deposits (noninterest-bearing
6
<PAGE>
demand, interest-bearing demand and savings deposits, and time
deposits
under $100,000) at March 31, 1994 of $912.5 million increased by
$12.3
million or 1.4% during the first quarter of 1994. Increases in
business
and personal savings accounts totalling $19.0 million, or 6.0%,
during
the first quarter of 1994 contributed to the increase in core
deposits.
Recent increases in the level of interest rates, which has produced
losses and created uncertainty in the stock, bond and mutual funds
markets, may reverse the trend of deposit outflows into those
markets
which was experienced in the past year.
The increase in total assets and deposits is attributable, in
part,
to the acquisition of certain accounts of First Hawaiian Bank's
Rice
Branch in February 1994. The Bank acquired approximately $2.7
million
in loans and assumed over $10.8 million in deposits as a result of
this
transaction. These accounts are serviced by the Bank's existing
Lihue
Branch to minimize incremental operating costs.
Effective January 1, 1994, the Company adopted SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
which 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. On January
1,
1994, the Company recorded net unrealized gains of $33,000 (before
income taxes) on its portfolio of investment securities classified
as
available for sale due solely to the implementation of SFAS No.
115. As
of March 31, 1994, net unrealized losses on investment securities
amounted to $910,000 (before income taxes). The change in the
valuation
allowance resulted from the increase in market interest rates
during the
first quarter of 1994. Refer to "Notes to Consolidated Financial
Statements," on Page F-4 for further discussion of SFAS No. 115 and
its
impact on the Company's financial position.
Capital Resources
Stockholders' equity of $114.6 million at March 31, 1994
increased by
$1.5 million or 1.3% from December 31, 1993. Stockholders' equity
at
March 31, 1994 included an unrealized loss on investment securities
available for sale of $548,000 (net of income taxes) as a result of
the
Company's implementation of SFAS No. 115 in the first quarter of
1994.
When expressed as a percentage of total assets, stockholders'
equity was
8.65% and 8.69% at March 31, 1994 and December 31, 1993,
respectively.
On March 15, 1994, the Board of Directors declared a quarterly cash
dividend of $0.22 per share, consistent with the first quarter of
1993.
Dividends declared in the first quarter of 1994 totalled $1,151,000
compared with $1,145,000 in the first quarter of 1993. The
Company's
objective with respect to capital resources is to maintain a level
of
capital that will support sustained asset growth and anticipated
credit
risks and to ensure that regulatory guidelines and industry
standards
are met.
Regulations on capital adequacy guidelines adopted by the
Federal
Reserve Board (the "FRB") and the Federal Deposit Insurance
Corporation
(the "FDIC") are as follows. Effective December 31, 1992, an
institution is required to maintain a minimum ratio of
7
<PAGE>
qualifying total capital to risk-weighted assets of 8%, of which at
least 4% must consist of Tier I capital, essentially common
stockholders' equity (before unrealized loss on investment
securities)
less intangible assets. The FRB and the FDIC have also adopted a
minimum leverage ratio of Tier I capital to total assets of 3%.
The
leverage ratio requirement establishes the minimum level for banks
that
have a uniform composite ("CAMEL") rating of 1, and all other
institutions and institutions experiencing or anticipating
significant
growth are expected to maintain capital levels at least 100 to 200
basis
points above the minimum level. Furthermore, higher leverage and
risk-
based capital ratios are required to be considered well capitalized
or
adequately capitalized under the prompt corrective action
provisions of
the FDIC Improvement Act of 1991. The following table sets forth
capital requirements applicable to the Company and the Company's
capital
ratios as of the dates indicated.
<TABLE>
<CAPTION>
Required Actual
Excess
<S> <C> <C>
<C>
At March 31, 1994:
Tier I risk-based capital ratio 4.00% 11.16%
7.16%
Total risk-based capital ratio 8.00% 12.41%
4.41%
Leverage capital ratio 4.00% 8.65%
4.65%
At December 31, 1993:
Tier I risk-based capital ratio 4.00% 10.94%
6.94%
Total risk-based capital ratio 8.00% 12.19%
4.19%
Leverage capital ratio 4.00% 8.65%
4.65%
</TABLE>
The increase in retained earnings, coupled with a decline in the
risk-weighted assets in the first quarter of 1994, contributed to
the
increase in capital ratios.
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 FDIC Improvement Act of 1991.
The following table sets forth the Bank's capital ratios as of
the
dates indicated.
<TABLE>
<CAPTION>
Required Actual
Excess
<S> <C> <C>
<C>
At March 31, 1994:
Tier I risk-based capital ratio 6.00% 9.96%
3.96%
Total risk-based capital ratio 10.00% 11.21%
1.21%
Leverage capital ratio 5.00% 8.11%
3.11%
8
<PAGE>
Required Actual
Excess
At December 31, 1993:
Tier I risk-based capital ratio 6.00% 9.80%
3.80%
Total risk-based capital ratio 10.00% 11.06%
1.06%
Leverage capital ratio 5.00% 8.10%
3.10%
</TABLE>
Liquidity and Effects of Inflation
A discussion of liquidity and effects of inflation is included
in the
1993 Annual Report to Shareholders. No significant changes in the
Company's liquidity position or policies have occurred during the
quarter ended March 31, 1994.
9
<PAGE>
PART II - OTHER INFORMATION
Items 1 to 3 and Item 5.
Items 1 to 3 and Item 5 are omitted pursuant to instructions to
Part
II.
Item 4. Submission of Matters to a Vote of Security Holders
On Tuesday, April 26, 1994, the Annual Meeting of Shareholders
(the
"Meeting") of the Company was held for the purpose of considering
and
voting upon the following matters:
1. Election of three persons to the Board of Directors for a
term of
three years and to serve until their successors are
elected and
qualified;
2. Ratification of the appointment of KPMG Peat Marwick as
the
Company's independent accountants for the fiscal year
ending
December 31, 1994; and
3. Transaction of such other business as may properly come
before the
Meeting and at any and all adjournments thereof.
The following table presents the names of directors elected at
the
Meeting, as well as the number of votes cast for, votes cast
against or
withheld, and abstentions or nonvotes for each of the directors
nominated.
A total of 3,551,030 shares were represented at the Meeting.
<TABLE>
<CAPTION>
Votes Cast
Against or
Abstentions
Name For Withheld
or Nonvotes
<S> <C> <C>
<C>
Paul Devens 3,521,722 29,308
None
Stanley Hong 3,523,724 27,306
None
Yoshiharu Satoh 3,521,556 29,474
None
</TABLE>
In addition to the above directors, the following directors
will
continue to serve on the Board of Directors until the expiration of
their
respective terms as indicated.
<TABLE>
<CAPTION>
Expiration
Name of Term
<S> <C>
Alice F. Guild 1996
Dennis I. Hirota, Ph.D. 1995
Kensuke Hotta 1995
Daniel M. Nagamine 1996
Joichi Saito 1995
Minoru Ueda 1996
</TABLE>
10
<PAGE>
The ratification of the appointment of KPMG Peat Marwick as
independent
accountants for the fiscal year ending December 31, 1994 was
approved with
a total of 3,508,499 votes cast for, 26,209 votes against or
withheld and
16,322 abstentions or nonvotes.
There were no other matters brought before the Meeting which
required
a vote by shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the
first
quarter of 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934,
the registrant has duly caused this report to be signed on its
behalf by
the undersigned thereunto duly authorized.
CPB INC.
(Registrant)
Date: May 13, 1994 /s/ Yoshiharu Satoh
Yoshiharu Satoh
Chairman of the Board
and
Chief Executive
Officer
Date: May 13, 1994 /s/ Neal Kanda
Neal Kanda
Vice President and
Treasurer
(Principal Financial
and
Accounting Officer)
11
<PAGE>
<TABLE>
<CAPTION>
CPB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31
(Dollars in thousands, except per share data)
1994 1993
<S>
<C> <C>
Assets
Cash and due from banks
$ 59,786 $ 58,152
Interest-bearing deposits in other banks
35,447 5,039
Federal funds sold
9,000 5,000
Investment securities:
Held to maturity, at cost (market value $192,546 and $253,313 at
March 31, 1994 and December 31, 1993, respectively)
193,341 250,668
Available for sale, at market value
58,238 -
Total investment securities
251,579 250,668
Loans
931,579 945,768
Less allowance for loan losses
17,848 17,131
Net loans
913,731 928,637
Premises and equipment, net
23,437 23,282
Accrued interest receivable
9,106 9,108
Investment in partnership
5,000 4,666
Due from customers on acceptances
829 1,347
Other assets
18,079 17,203
Total assets
$ 1,325,994 $ 1,303,102
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing deposits
$ 163,901 $ 180,254
Interest-bearing deposits
924,087 898,072
Total deposits
1,087,988 1,078,326
Federal funds purchased and securities sold under
agreements to repurchase
27,463 9,130
Other borrowed funds
81,738 86,831
Bank acceptances outstanding
829 1,347
Other liabilities
12,336 13,280
Employee stock ownership plan note payable
1,000 1,000
Total liabilities
1,211,354 1,189,914
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 5,233,331
and
5,230,331 shares at March 31, 1994 and December 31, 1993,
respectively 6,542 6,538
Surplus
45,161 45,140
Retained earnings
64,485 62,510
Unrealized loss on investment securities
(548) -
115,640 114,188
Employee stock ownership plan shares purchased with debt
(1,000) (1,000)
Total stockholders' equity
114,640 113,188
Total liabilities and stockholders' equity
$ 1,325,994 $ 1,303,102
Book value per share
$ 21.91 $ 21.64
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
(Dollars in thousands, except per share data)
1994 1993
<S> <C>
<C>
Interest income:
Interest and fees on loans $
18,784 $ 19,569
Interest and dividends on investment securities:
Taxable interest
3,108 3,208
Tax-exempt interest
122 148
Dividends
245 224
Interest on deposits in other banks
198 67
Interest on Federal funds sold
29 9
Total interest income
22,486 23,225
Interest expense:
Interest on deposits
5,818 7,229
Interest on other borrowed funds
1,350 941
Total interest expense
7,168 8,170
Net interest income
15,318 15,055
Provision for loan losses
825 850
Net interest income after provision for loan losses
14,493 14,205
Other operating income:
Service charges on deposit accounts
669 615
Other service charges and fees
1,265 1,156
Partnership income
333 363
Fees on foreign exchange
281 329
Investment securities gains
- 292
Other
236 248
Total other operating income
2,784 3,003
Other operating expense:
Salaries and employee benefits
6,946 5,588
Net occupancy
1,266 1,256
Equipment
624 526
Other
3,314 3,602
Total other operating expense
12,150 10,972
Income before income taxes and cumulative effect
of accounting change
5,127 6,236
Income taxes
2,001 2,403
Income before cumulative effect of accounting change
3,126 3,833
Cumulative effect of accounting change
- 208
Net income $
3,126 $ 4,041
Per common share:
Income before cumulative effect of accounting change
0.60 0.74
Cumulative effect of accounting change
- 0.04
Net income $
0.60 $ 0.78
Cash dividends declared $
0.22 $ 0.22
Weighted average shares outstanding (in thousands)
5,231 5,199
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
(Dollars in thousands)
1994 1993
<S>
<C> <C>
Cash flows from operating activities:
Net income
$ 3,126 $ 4,041
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses
825 850
Provision for depreciation and amortization
561 527
Net amortization and accretion of investment securities
800 860
Net gain on investment securities
- (292)
Federal Home Loan Bank stock dividends
(411) (224)
Net deferred loan origination fees
(89) 54
Net change in loans held for sale
4,919 5,058
Net gain on sale of loans
(166) (162)
Amortization of intangible assets
25 23
Cumulative effect of accounting change
- (208)
Deferred income tax expense (benefit)
836 (206)
Partnership income
(333) (363)
Increase in accrued interest receivable and other assets
(437) (1,982)
Decrease in accrued interest payable and other liabilities
(990) (114)
Net cash provided by operating activities
8,666 7,862
Cash flows from investing activities:
Proceeds from maturities of and calls on investment securities
held to maturity 38,573 52,804
Purchases of investment securities held to maturity
(41,085) (37,586)
Proceeds from maturities of and calls on investment securities
available for sale 46,302 -
Purchases of investment securities available for sale
(46,000) -
Net decrease (increase) in interest-bearing deposits in other
banks (30,408) 10,525
Net loan repayments (originations)
11,182 (7,849)
Loans acquired in branch acquisition
(2,656) -
Purchases of premises and equipment
(716) (398)
Net cash provided by (used in) investing activities
(24,808) 17,496
Cash flows from financing activities:
Net increase (decrease) in deposits
(1,159) (49,111)
Deposits acquired in branch acquisition
10,821 -
Proceeds from Federal Home Loan Bank advances
6,600 -
Repayments of Federal Home Loan Bank advances
(10,999) (178)
Net increase (decrease) in other short-term borrowings
17,639 (478)
Cash dividends paid
(1,151) (1,038)
Proceeds from sale of common stock
25 72
Net cash provided by (used in) financing activities
21,776 (50,733)
Net increase (decrease) in cash and cash equivalents
5,634 (25,375)
Cash and cash equivalents:
At beginning of period
63,152 71,381
At end of period
$ 68,786 $ 46,006
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
$ 7,339 $ 8,472
Cash paid during the period for income taxes
$ 540 $ 1,438
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
CPB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The financial information included herein is unaudited, except for
the
consolidated balance sheet at December 31, 1993. However, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair statement of results for the interim periods.
The results of operations for the three months ended March 31,
1994
are not necessarily indicative of the results to be expected for
the
full year.
INVESTMENT SECURITIES
On January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which requires that
investments in debt securities and marketable equity securities be
designated as trading, held to maturity or available for sale.
Trading
securities, of which the Company had none at March 31, 1994, are
reported at fair value, with changes in fair value included in
earnings.
Available-for-sale securities are reported at fair value, with net
unrealized gains and losses included in stockholders' equity.
Held-to-
maturity debt securities are reported at amortized cost. At
December
31, 1993, investment securities were classified as held to maturity
and
carried at cost, adjusted for amortization of premiums and
accretion of
discounts.
As of January 1, 1994, investment securities with a carrying
value of
$59,019,000 were reclassified to the available-for-sale portfolio,
and a
valuation allowance of $33,000 before income taxes was recorded
thereon.
The classification of investment securities between the
available-for-
sale and held-to-maturity portfolios was made to provide management
with
the flexibility to adjust the Company's liquidity and interest rate
positions as necessary and in consideration of the impact of market
value adjustments on the Company's capital ratios. At March 31,
1994,
the unrealized loss on securities available for sale was $910,000
before
income taxes.
F-4
<PAGE>
A summary of the investment portfolio at March 31, 1994 and
December
31, 1993 follows:
<TABLE>
<CAPTION>
Gross Gross
Estimated
Carrying unrealized
unrealized market
(Dollars in thousands) value gains losses
value
<S> <C> <C> <C>
<C>
At March 31, 1994:
Securities Held to Maturity:
U.S. Treasury and other U.S.
Government agencies $183,011 $1,252
$2,099 $182,164
States and political subdivisions 10,330 106
54 10,382
Total $193,341 $1,358
$2,153 $192,546
Securities Available for Sale:
U.S. Treasury and other U.S.
Government agencies $ 30,596 $ - $
992 $ 29,604
States and political subdivisions 12,000 - -
12,000
Private-issuer mortgage-backed
securities 5,093 93
11 5,175
Federal Home Loan Bank stock 11,459 - -
11,459
Total $ 59,148 $ 93
$1,003 $ 58,238
At December 31, 1993:
Securities Held to Maturity:
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 11,048 -
- - - 11,048
Total $250,668 $3,346 $
701 $253,313
</TABLE>
F-5
<PAGE>
The amortized cost and estimated market value of debt securities
at
March 31, 1994, 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>
Securities Held to Maturity:
Due in one year or less $ 39,939 $
40,172
Due after one year through five years 127,718
126,744
Due after five years through ten years 13,241
12,973
180,898
179,889
Mortgage-backed securities 12,443
12,657
Total $193,341
$192,546
Securities Available for Sale:
Due in one year or less $ 12,000 $
12,000
Due after one year through five years 2,000
2,000
14,000
14,000
Mortgage-backed securities 33,689
32,779
Federal Home Loan Bank stock 11,459
11,459
Total $ 59,148 $
58,238
</TABLE>
Investment securities gains during the three months ended March
31,
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-month periods ended March 31, 1994 and 1993.
F-6
