As filed with the Securities and Exchange Commission on March 30,
1995
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 [No Fee Required]
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)
Registrant's telephone number, including area code:
(808) 544-0500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 or Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 1995, the aggregate market value of the
common stock held by non-affiliates of the registrant was
approximately $101,244,843.
Number of shares of common stock of the registrant
outstanding as of February 28, 1995: 5,235,331 shares
The following documents are incorporated by reference
herein:
Part of
Form 10-K
Into Which
Document Incorporated Incorporated
------------------------------------- ---------------
1994 Annual Report Parts II and IV
Definitive Proxy Statement for the
Annual Meeting of Shareholders which
will be filed within 120 days of the
fiscal year ended December 31, 1994 Part III
<PAGE>
PART I.
ITEM 1. BUSINESS
Organization
CPB Inc. (the "Company") is a Hawaii corporation organized
on February 1, 1982 pursuant to a Plan of Reorganization and
Agreement of Merger as a bank holding company and is subject to
the Bank Holding Company Act of 1956, as amended. The Company's
principal business is to serve as a holding company for its sole
subsidiary, Central Pacific Bank (the "Bank"). The 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. The Bank's deposits are insured by
the Federal Deposit Insurance Corporation ("FDIC") up to
applicable limits. The Bank is not a member of the Federal
Reserve System. Based on total consolidated assets at December
31, 1994, the Company was the third largest bank holding company
in Hawaii.
The Bank owns 100% of the outstanding stock of CPB
Properties, Inc. ("CPB Properties"), a company which is the
managing partner and 50% owner of CKSS Associates, a Hawaii
limited partnership ("CKSS"). CKSS owns Central Pacific Plaza,
in which the Company's and Bank's headquarters and main office
are located. CKSS also developed the Kaimuki Plaza, in which one
of the Bank's branch offices is located. In addition, CPB
Properties owns the properties on which one of the Bank's branch
offices and the Bank's operations center are located, as well as
the property underlying the Kaimuki Plaza. See "ITEM 2.
PROPERTIES."
The principal office of the Company is located at 220 South
King Street, Honolulu, Hawaii 96813, and its telephone number is
(808) 544-0500.
Banking Services
The Bank is a full-service commercial bank which currently
has 21 banking offices located throughout the State of Hawaii.
Its administrative and main office is located in Honolulu, and
there are 16 other branches located in the City and County of
Honolulu on the island of Oahu. In addition, the Bank maintains
one branch on the island of Maui and two branches on each of the
islands of Hawaii and Kauai. In 1994, the Bank opened its
twentieth branch office in Kailua and its twenty-first and first
in-store branch at the Times Supermarket in Royal Kunia, both on
the island of Oahu.
Through its network of banking offices, the Bank emphasizes
personalized services and offers a full range of banking services
to small- and medium-sized businesses, professionals and
individuals in Hawaii.
The Bank offers a variety of deposit instruments. These
include personal and business checking accounts and savings
accounts, including interest-bearing negotiable order of
withdrawal ("NOW") accounts, money market accounts and time
certificates of deposit.
The Bank engages in a broad range of lending activities
including the granting of commercial, consumer and real estate
loans, with particular emphasis on loans with short- to
medium-term maturities and adjustable interest rates. The Bank
offers inventory and accounts receivable financing, furniture,
fixture and equipment financing, short-term operating loans, and
commercial real estate and construction loans. Consumer loans
include home equity lines of credit, loans for automobiles, home
improvement, debt consolidation, personal and professional lines
of credit and other installment and term loans for other personal
needs.
The Bank also provides specialized services designed to
attract and service the needs of commercial customers and account
holders. These services include cash management services,
merchant windows, travelers' checks, safe deposit boxes,
international banking services, night depository facilities and
wire transfer services.
The Bank's Trust Division, which was established in 1993,
offers management, asset custody and general consultation and
planning services for individuals. It accepts a variety of
accounts including revocable trusts, agency accounts,
guardianships of property, charitable remainder trusts and
probates.
The Bank offers VISA and MasterCard credit card services to
its customers. Credit card transactions are cleared through
Bancard Association of Hawaii, Inc. ("BAHI"), a Hawaii
corporation, jointly owned by the Bank and two other Hawaii
banks. BAHI does not operate at a profit or provide the Bank
with a source of income, and the Bank's investment in, and
payment of operating expenses to, BAHI is not a material amount.
The Bank also offers CHECK CARD, a debit card service, to its
customers.
The Bank is a member of the Plus ATM Network. The related
capital investment was not a material amount. The Bank also
offers an Infoline service, providing telephonic account
information, bill payment and funds transfer services.
Market Area and Competition
The Bank competes in the financial services industry mainly
targeting the retail and small to midsized businesses. The
market is highly competitive with 7 commercial banks, 7 savings
and loans and numerous credit unions and finance companies
operating in the State of Hawaii. The two largest banks in the
state are pursuing aggressive strategies to increase market share
and to deliver new services. Bancorp Hawaii, Inc. had over
$12.5 billion in total assets at year end 1994. Based on call
report data filed with the FDIC, Bank of Hawaii, the subsidiary
bank, maintains approximately 56% of the assets held by banks in
the State of Hawaii.
First Hawaiian, Inc. is the second largest bank holding
company with over $7.5 billion in assets at year end 1994. Based
on call report data filed with the FDIC, First Hawaiian Bank, the
subsidiary bank, has approximately a 31% share of the commercial
banking market.
Based on call report data filed with the FDIC, the Bank is
the third largest bank with market share of approximately 7%. At
$1.4 billion in assets, the Bank is building its position in the
marketplace as a "midsize" bank which is large enough to provide
a wide range of banking services and small enough to provide
personalized service. The two large banks tend to lead the
market with respect to new products and pricing. The Bank
competes by offering proven products with superior service levels
at competitive prices.
The Bank has a distribution network of 21 branches and has a
strong capital base to enable expansion opportunities in its
quest to better serve its targeted market of retail customers and
small to medium-sized businesses. With recent consolidation in
the financial industry, competition has intensified. Bank of
America-Hawaii purchased Honfed Savings Bank in 1992 and Liberty
Bank in 1994 and is fast becoming a trend setter in the Hawaiian
financial services industry by offering innovative services such
as supermarket banking and products to enhance relationship
banking. The larger institutions are very focused in the
business banking and personal banking areas, while leveraging
their large branch and electronic banking networks to attract
retail customers.
The Bank faces substantial competition for deposits and
loans throughout its market areas. Competition for deposits
comes primarily from other commercial banks, savings
institutions, credit unions, money market funds and other
investment alternatives. The primary factors in competing for
deposits are interest rates, personalized services, the quality
and range of financial services, convenience of office locations
and office hours. Competition for loans comes primarily from
other commercial banks, savings institutions, mortgage banking
firms, credit unions and other financial intermediaries. The
primary factors in competing for loans are interest rates, loan
origination fees, the quality and range of lending services and
personalized services. The Bank faces competition for deposits
and loans throughout its market areas not only from local
institutions but also from out-of-state financial intermediaries
which have opened loan production offices or which solicit
deposits in its market areas. Many of the financial
intermediaries operating in the Bank's market areas offer certain
services, such as investment and international banking services,
which the Bank does not offer directly. Additionally, banks with
larger capitalization and financial intermediaries not subject to
bank regulatory restrictions have larger lending limits and are
thereby able to serve the needs of larger customers. Neither the
deposits nor loans of any office of the Bank exceed 1% of the
aggregate loans or deposits of all financial intermediaries
located in the counties in which such offices are located. See
"ITEM 1. BUSINESS - Effect of Governmental Policies and Recent
Legislation."
Effect of Governmental Policies and Recent Legislation
Banking is a business that depends on rate differentials.
In general, the difference between the interest rate paid by the
Bank on its deposits and its other borrowings and the interest
rate received by the Bank on loans extended to its customers and
securities held in the Bank's portfolio comprise the major
portion of the Company's earnings. These rates are highly
sensitive to many factors that are beyond the control of the
Bank. Accordingly, the earnings and growth of the Company are
subject to the influence of domestic and foreign economic
conditions, including inflation, recession and unemployment.
The commercial banking business is not only affected by
general economic conditions but also influenced by the monetary
and fiscal policies of the federal government and the policies of
regulatory agencies, particularly the Federal Reserve Board. The
Federal Reserve Board implements national monetary policies (with
objectives such as curbing inflation and combating recession) by
its open-market operations in United States Government
securities, by adjusting the required level of reserves for
financial institutions subject to its reserve requirements and by
varying the discount rates applicable to borrowings by depository
institutions. The actions of the Federal Reserve Board in these
areas influence the growth of bank loans, investments and
deposits and also affect interest rates charged on loans and paid
on deposits. The nature and impact of any future changes in
monetary policies cannot be predicted.
From time to time, legislation is enacted which has the
effect of increasing the cost of doing business, limiting or
expanding permissible activities or affecting the competitive
balance between banks and other financial institutions.
Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and
other financial institutions are frequently made in Congress, in
the Hawaiian legislature and before various bank regulatory and
other professional agencies. For example, legislation was
recently introduced in Congress that would repeal the current
statutory restrictions on affiliations between commercial banks
and securities firms. Under the proposed legislation, bank
holding companies would be allowed to control both a commercial
bank and a securities affiliate, which could engage in the full
range of investment banking activities, including corporate
underwriting. The likelihood of any major legislative changes
and the impact such changes might have on the Company are
impossible to predict. See "ITEM 1. BUSINESS - Supervision and
Regulation."
Supervision and Regulation
Bank holding companies and banks are extensively regulated
under both federal and state law. Set forth below is a summary
description of certain laws which relate to the regulation of the
Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to the
applicable laws and regulations.
The Company
The Company, as a registered bank holding company, is
subject to regulation under the Bank Holding Company Act of 1956,
as amended (the "BHCA"). The Company is required to file with
the Federal Reserve Board quarterly and annual reports and such
additional information as the Federal Reserve Board may require
pursuant to the BHCA. The Federal Reserve Board may conduct
examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company
terminate an activity or terminate control of or liquidate or
divest certain subsidiaries or affiliates when the Federal
Reserve Board believes the activity or the control of the
subsidiary or affiliate constitutes a significant risk to the
financial safety, soundness or stability of any of its banking
subsidiaries. The Federal Reserve Board also has the authority
to regulate provisions of certain bank holding company debt,
including authority to impose interest ceilings and reserve
requirements on such debt. Under certain circumstances, the
Company must file written notice and obtain approval from the
Federal Reserve Board prior to purchasing or redeeming its equity
securities.
Under the BHCA and regulations adopted by the Federal
Reserve Board, a bank holding company and its nonbanking
subsidiaries are prohibited from requiring certain tie-in
arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, the Company
is required by the Federal Reserve Board to maintain certain
levels of capital. See "ITEM 1. BUSINESS - Supervision and
Regulation - Capital Standards."
The Company is required to obtain the prior approval of the
Federal Reserve Board for the acquisition of more than 5% of the
outstanding shares of any class of voting securities or
substantially all of the assets of any bank or bank holding
company. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of the Company and
another bank holding company.
The Company is prohibited by the BHCA, except in certain
statutorily prescribed instances, from acquiring direct or
indirect ownership or control of more than 5% of the outstanding
voting shares of any company that is not a bank or bank holding
company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or
furnishing services to its subsidiaries. However, the Company,
subject to the prior approval of the Federal Reserve Board, may
engage in any, or acquire shares of companies engaged in,
activities that are deemed by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to
be a proper incident thereto. In making any such determination,
the Federal Reserve Board is required to consider whether the
performance of such activities by the Company or an affiliate can
reasonably be expected to produce benefits to the public, such as
greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition,
conflicts of interest or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between
activities commenced de novo and activities commenced by
acquisition, in whole or in part, of a going concern.
Under Federal Reserve Board regulations, a bank holding
company is required to serve as a source of financial and
managerial strength to its subsidiary banks and may not conduct
its operations in an unsafe or unsound manner. In addition, it
is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company
should stand ready to use available resources to provide adequate
capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility
and capital-raising capacity to obtain additional resources for
assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its
subsidiary banks will generally be considered by the Federal
Reserve Board to be an unsafe and unsound banking practice or a
violation of the Federal Reserve Board's regulations or both.
This doctrine has become known as the "source of strength"
doctrine. Although the United States Court of Appeals for the
Fifth Circuit found the Federal Reserve Board's source of
strength doctrine invalid in 1990, stating that the Federal
Reserve Board had no authority to assert the doctrine under the
BHCA, the decision, which is not binding on federal courts
outside the Fifth Circuit, was recently reversed by the United
States Supreme Court on procedural grounds. The validity of the
source of strength doctrine is likely to continue to be the
subject of litigation until definitively resolved by the courts
or by Congress.
The Bank
The Bank, as a Hawaii state-chartered bank, is subject to
primary supervision, periodic examination and regulation by the
Hawaii Commissioner of Financial Institutions ("Commissioner")
and the FDIC. If, as a result of an examination of a bank, the
FDIC should determine that the financial condition, capital
resources, asset quality, earnings prospects, management,
liquidity or other aspects of the bank's operations are
unsatisfactory or that the bank or its management is violating or
has violated any law or regulation, various remedies are
available to the FDIC. Such remedies include the power to enjoin
"unsafe or unsound" practices, to require affirmative action to
correct any conditions resulting from any violation or practice,
to issue an administrative order that can be judicially enforced,
to direct an increase in capital, to restrict the growth of the
bank, to assess civil monetary penalties, to remove officers and
directors and ultimately to terminate a bank's deposit insurance,
which for a Hawaii state-chartered bank would result in a
revocation of the bank's charter. The Commissioner has many of
the same remedial powers. The Bank has never been the subject of
any such actions by the FDIC or the Commissioner.
The deposits of the Bank are insured by the FDIC in the
manner and to the extent provided by law. For this protection,
the Bank pays a semiannual statutory assessment. See "ITEM 1.
BUSINESS - Supervision and Regulation - Premiums for Deposit
Insurance." Although the Bank is not a member of the Federal
Reserve System, it is nevertheless subject to certain regulations
of the Federal Reserve Board.
Various requirements and restrictions under the laws of the
State of Hawaii and the United States affect the operations of
the Bank. State and federal statutes and regulations relate to
many aspects of the Bank's operations, including reserves against
deposits, interest rates payable on deposits, loans, investments,
mergers and acquisitions, borrowings, dividends, locations of
branch offices and capital requirements. Further, the Bank is
required to maintain certain levels of capital. See "ITEM 1.
BUSINESS - Supervision and Regulation - Capital Standards."
The deposits of the Bank are insured by the FDIC in the
manner and to the extent provided by law. For this protection,
the Bank pays a semiannual statutory assessment. See
"ITEM 1. BUSINESS - Supervision and Regulation - Premiums for
Deposit Insurance." The Bank is also subject to certain
regulations of the Federal Reserve Board and applicable
provisions of Hawaii law, insofar as they do not conflict with or
are not preempted by federal banking law.
Various other requirements and restrictions under the laws
of the United States and the State of Hawaii affect the
operations of the Bank. Federal and Hawaii statutes and
regulations relate to many aspects of the Bank's operations,
including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions,
borrowings, dividends, locations of branch offices, capital
requirements and disclosure obligations to depositors and
borrowers. Further, the Bank is required to maintain certain
levels of capital. See "ITEM 1. BUSINESS - Supervision and
Regulation - Capital Standards."
Restrictions on Transfers of Funds to the Company by the
Bank
The Company is a legal entity separate and distinct from the
Bank and its subsidiaries.
There are statutory and regulatory limitations on the amount
of dividends which may be paid to the Company by the Bank.
Hawaii law provides that a state-chartered bank may not declare
or pay any dividend in an amount greater than its undivided
profits then on hand, deducting therefrom all losses; all debts,
unless the same are well secured, in which interest for a period
of one year is unpaid and debts upon which final judgment has
been recovered but has been for more than one year unsatisfied
and on which interest for a period of one year is unpaid, unless
the same are well secured; all assets which a banking examiner
may have required to be charged off; and all expenses, interest,
taxes, and depreciation.
The FDIC also has authority to prohibit the Bank from
engaging in activities that, in the FDIC's opinion, constitute
unsafe or unsound practices in conducting its business. It is
possible, depending upon the financial condition of the bank in
question and other factors, that the FDIC could assert that the
payment of dividends or other payments might, under some
circumstances, be such an unsafe or unsound practice. Further,
the FDIC and the Federal Reserve Board have established
guidelines with respect to the maintenance of appropriate levels
of capital by banks or bank holding companies under their
jurisdiction. Compliance with the standards set forth in such
guidelines and the restrictions that are or may be imposed under
the prompt corrective action provisions of federal law could
limit the amount of dividends which the Bank or the Company may
pay. See "ITEM 1. BUSINESS - Supervision and Regulation - Prompt
Corrective Action and Other Enforcement Mechanisms" and "-
Capital Standards" for a discussion of these additional
restrictions on capital distributions.
At present, substantially all of the Company's revenues,
including funds available for the payment of dividends and other
operating expenses, are, and will continue to be, primarily
dividends paid by the Bank. At December 31, 1994, the Bank had
$73.8 million in retained earnings available for the payment of
cash dividends.
The Bank is subject to certain restrictions imposed by
federal law on any extensions of credit to, or the issuance of a
guarantee or letter of credit on behalf of, the Company or other
affiliates, the purchase of or investments in stock or other
securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of the Company or other
affiliates. Such restrictions prevent the Company and such other
affiliates from borrowing from the Bank unless the loans are
secured by marketable obligations of designated amounts.
Further, such secured loans and investments by the Bank to or in
the Company or to or in any other affiliate is limited to 10% of
the Bank's capital and surplus (as defined by federal
regulations) and such secured loans and investments are limited,
in the aggregate, to 20% of the Bank's capital and surplus (as
defined by federal regulations). Additional restrictions on
transactions with affiliates may be imposed on the Bank under the
prompt corrective action provisions of federal law. See "ITEM 1.
BUSINESS - Supervision and Regulation - Prompt Corrective Action
and Other Enforcement Mechanisms."
Capital Standards
The Federal Reserve Board and the FDIC have adopted
risk-based minimum capital guidelines intended to provide a
measure of capital that reflects the degree of risk associated
with a banking organization's operations for both transactions
reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded
as off-balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off-balance sheet
items are multiplied by one of several risk
adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. Treasury securities, to 100%
for assets with relatively high credit risk, such as business
loans.
A banking organization's risk-based capital ratios are
obtained by dividing its qualifying capital by its total risk adjusted assets.
The regulators measure risk-adjusted assets,
which includes off-balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts
of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists
primarily of common stock, retained earnings, noncumulative
perpetual preferred stock (cumulative perpetual preferred stock
for bank holding companies) and minority interests in certain
subsidiaries, less most intangible assets. Tier 2 capital may
consist of a limited amount of the allowance for possible loan
and lease losses, cumulative preferred stock, long term preferred
stock, eligible term subordinated debt and certain other
instruments with some characteristics of equity. The inclusion
of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies.
The federal banking agencies require a minimum ratio of
qualifying total capital to risk-adjusted assets of 8% and a
minimum ratio of Tier 1 capital to risk-adjusted assets of 4%.
In addition to the risked-based guidelines, federal banking
regulators require banking organizations to maintain a minimum
amount of Tier 1 capital to total assets, referred to as the
leverage ratio. For a banking organization rated in the highest
of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to
total assets is 3%. For all banking organizations not rated in
the highest category, the minimum leverage ratio must be at least
100 to 200 basis points above the 3% minimum, or 4% to 5%. In
addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the regulators
have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
The federal banking regulators have issued a proposed rule
to take account of interest rate risk in calculating risk-based
capital. The proposed rule includes a supervisory model for
taking account of interest rate risk. Under that model,
institutions would report their assets, liabilities and off-balance sheet
positions in time bands based upon their remaining
maturities. The federal banking agencies would then calculate a
net risk weighted interest rate risk exposure. If that interest
rate risk exposure was in excess of a certain threshold (1% of
assets), the institution could be required to hold additional
capital proportionate to that excess risk. Alternatively, the
agencies have proposed making interest rate risk exposure a
subjective factor in considering capital adequacy. Exposures
would be measured in terms of the change in the present value of
an institution's assets minus the change in the present value of
its liabilities and off-balance sheet positions for an assumed
100 basis point parallel shift in market interest rates.
However, the federal banking agencies have proposed to let banks
use their own internal measurement of interest rate risk if it is
declared adequate by examiners.
Effective January 17, 1995, the federal banking agencies
issued a final rule relating to capital standards and the risks
arising from the concentration of credit and nontraditional
activities. Institutions which have significant amounts of their
assets concentrated in high risk loans or nontraditional banking
activities and who fail to adequately manage these risks, will be
required to set aside capital in excess of the regulatory
minimums. The federal banking agencies have not imposed any
quantitative assessment for determining when these risks are
significant, but have identified these issues as important
factors they will review in assessing an individual bank's
capital adequacy.
In December 1993, the federal banking agencies issued an
interagency policy statement on the allowance for loan and lease
losses which, among other things, establishes certain benchmark
ratios of loan loss reserves to classified assets. The benchmark
set forth by such policy statement is the sum of (a) assets
classified loss; (b) 50 percent of assets classified doubtful;
(c) 15 percent of assets classified substandard; and (d)
estimated credit losses on other assets over the upcoming 12
months.
Federally supervised banks and savings associations are
currently required to report deferred tax assets in accordance
with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes." See "ITEM 1. BUSINESS
- Supervision and Regulation - Accounting Changes." The federal
banking agencies recently issued final rules governing banks and
bank holding companies, which become effective April 1, 1995,
which limit the amount of deferred tax assets that are allowable
in computing an institutions regulatory capital. The standard
has been in effect on an interim basis since March 1993.
Deferred tax assets that can be realized for taxes paid in prior
carryback years and from future reversals of existing taxable
temporary differences are generally not limited. Deferred tax
assets that can only be realized through future taxable earnings
are limited for regulatory capital purposes to the lesser of
(i) the amount that can be realized within one year of the
quarter-end report date, or (ii) 10% of Tier 1 Capital. The
amount of any deferred tax in excess of this limit would be
excluded from Tier 1 Capital and total assets and regulatory
capital calculations. See Notes 1 and 19 to the Company's
Consolidated Financial Statements in the 1994 Annual Report to
Shareholders which is incorporated herein by reference. See
"ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
Future changes in regulations or practices could further
reduce the amount of capital recognized for purposes of capital
adequacy. Such a change could affect the ability of the Bank to
grow and could restrict the amount of profits, if any, available
for the payment of dividends.
The following table presents the amounts of regulatory
capital and the capital ratios for the Bank, compared to its
minimum regulatory capital requirements as of December 31, 1994.
<TABLE>
<CAPTION>
December 31, 1994
Actual
Amount Ratio Minimum
Capital
Requirement
(Dollars in thousands)
<S> <C> <C> <C>
Leverage capital $113,621 8.28% 3.00%
Tier 1 risk-based 113,621 10.11 4.00
capital
Total risk-based 127,715 11.37 8.00
capital ratio
</TABLE>
Prompt Corrective Action and Other Enforcement Mechanisms
Federal law requires each federal banking agency to take
prompt corrective action to resolve the problems of insured
depository institutions, including but not limited to those that
fall below one or more prescribed minimum capital ratios. The
law required each federal banking agency to promulgate
regulations defining the following five categories in which an
insured depository institution will be placed, based on the level
of its capital ratios: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
In September 1992, the federal banking agencies issued
uniform final regulations implementing the prompt corrective
action provisions of federal law. An insured depository
institution generally will be classified in the following
categories based on capital measures indicated below:
"Well capitalized" "Adequately capitalized"
Total risk-based capital of 10%; Total risk-based capital
Tier 1 risk-based capital of 6%; and of 8%;
Leverage ratio of 5%. Tier 1 risk-based capital
of 4%; and Leverage ratio
of 4%.
"Undercapitalized" "Significantly
Total risk-based capital less than undercapitalized"
8%; Tier 1 risk-based capital less Total risk-based capital
than 4%; or Leverage ratio less than less than 6%; or Tier 1
4%. risk-based capital less
than 3%; or Leverage
ratio less than 3%.
"Critically undercapitalized"
Tangible equity to total assets less
than 2%.
An institution that, based upon its capital levels, is
classified as "well capitalized," "adequately capitalized" or
"undercapitalized" may be treated as though it were in the next
lower capital category if the appropriate federal banking agency,
after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice
warrants such treatment. At each successive lower capital
category, an insured depository institution is subject to more
restrictions. The federal banking agencies, however, may not
treat an institution as "critically undercapitalized" unless its
capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from
paying management fees to any controlling persons or, with
certain limited exceptions, making capital distributions if after
such transaction the institution would be undercapitalized. If
an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency,
subject to asset growth restrictions and required to obtain prior
regulatory approval for acquisitions, branching and engaging in
new lines of business. Any undercapitalized depository
institution must submit an acceptable capital restoration plan to
the appropriate federal banking agency 45 days after becoming
undercapitalized. The appropriate federal banking agency cannot
accept a capital plan unless, among other things, it determines
that the plan (i) specifies the steps the institution will take
to become adequately capitalized, (ii) is based on realistic
assumptions and (iii) is likely to succeed in restoring the
depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must
guarantee that the institution will comply with the capital plan
until the depository institution has been adequately capitalized
on an average basis during each of four consecutive calendar
quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is
limited to the lesser of (a) an amount equal to 5% of the
depository institution's total assets at the time the institution
became undercapitalized or (b) the amount which is necessary to
bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution
fails to comply with its capital restoration plan. Finally, the
appropriate federal banking agency may impose any of the
additional restrictions or sanctions that it may impose on
significantly undercapitalized institutions if it determines that
such action will further the purpose of the prompt corrective
action provisions.
An insured depository institution that is significantly
undercapitalized, or is undercapitalized and fails to submit, or
in a material respect to implement, an acceptable capital
restoration plan, is subject to additional restrictions and
sanctions. These include, among other things: (i) a forced sale
of voting shares to raise capital or, if grounds exist for
appointment of a receiver or conservator, a forced merger; (ii)
restrictions on transactions with affiliates; (iii) further
limitations on interest rates paid on deposits; (iv) further
restrictions on growth or required shrinkage; (v) modification or
termination of specified activities; (vi) replacement of
directors or senior executive officers; (vii) prohibitions on the
receipt of deposits from correspondent institutions; (viii)
restrictions on capital distributions by the holding companies of
such institutions; (ix) required divestiture of subsidiaries by
the institution; or (x) other restrictions as determined by the
appropriate federal banking agency. Although the appropriate
federal banking agency has discretion to determine which of the
foregoing restrictions or sanctions it will seek to impose, it is
required to force a sale of voting shares or merger, impose
restrictions on affiliate transactions and impose restrictions on
rates paid on deposits unless it determines that such actions
would not further the purpose of the prompt corrective action
provisions. In addition, without the prior written approval of
the appropriate federal banking agency, a significantly
undercapitalized institution may not pay any bonus to its senior
executive officers or provide compensation to any of them at a
rate that exceeds such officer's average rate of base
compensation during the 12 calendar months preceding the month in
which the institution became undercapitalized.
Further restrictions and sanctions are required to be
imposed on insured depository institutions that are critically
undercapitalized. For example, a critically undercapitalized
institution generally would be prohibited from engaging in any
material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with
certain exceptions, make any payment of principal or interest on
its subordinated debt beginning 60 days after becoming critically
undercapitalized. Most importantly, however, except under
limited circumstances, the appropriate federal banking agency,
not later than 90 days after an insured depository institution
becomes critically undercapitalized, is required to appoint a
conservator or receiver for the institution. The board of
directors of an insured depository institution would not be
liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or
conservator or to an acquisition or merger as required by the
regulator.
In addition to measures taken under the prompt corrective
action provisions, commercial banking organizations may be
subject to potential enforcement actions by the federal
regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation or any
condition imposed in writing by the agency or any written
agreement with the agency. Enforcement actions may include the
imposition of a conservator or receiver, the issuance of a cease
and desist order that can be judicially enforced, the termination
of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the
issuance of directives to increase capital, the issuance of
formal and informal agreements, the issuance of removal and
prohibition orders against institution-affiliated parties and the
enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would
be harmed if such equitable relief was not granted.
Safety and Soundness Standards
On February 2, 1995, the federal banking agencies adopted
final safety and soundness standards for all insured depository
institutions. The standards, which were issued in the form of
guidelines rather than regulations, relate to internal controls,
information systems, internal audit systems, loan underwriting
and documentation, compensation and interest rate exposure. In
general, the standards are designed to assist the federal banking
agencies in identifying and addressing problems at insured
depository institutions before capital becomes impaired. If an
institution fails to meet these standards, the appropriate
federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan may result
in enforcement proceedings. Additional standards on earnings and
classified assets are expected to be issued in the near future.
In December 1992, the federal banking agencies issued final
regulations prescribing uniform guidelines for real estate
lending. The regulations, which became effective on March 19,
1993, require insured depository institutions to adopt written
policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies
must address loan portfolio management, underwriting standards
and loan to value limits that do not exceed the supervisory
limits prescribed by the regulations.
Appraisals for "real estate related financial transactions"
must be conducted by either state certified or state licensed
appraisers for transactions in excess of certain amounts. State
certified appraisers are required for all transactions with a
transaction value of $1,000,000 or more; for all nonresidential
transactions valued at $250,000 or more; and for "complex" 1-4
family residential properties of $250,000 or more. A state
licensed appraiser is required for all other appraisals.
However, appraisals performed in connection with "federally
related transactions" must now comply with the agencies'
appraisal standards. Federally related transactions include the
sale, lease, purchase, investment in, or exchange of, real
property or interests in real property, the financing or
refinancing of real property, and the use of real property or
interests in real property as security for a loan or investment,
including mortgage-backed securities.
Premiums for Deposit Insurance
Federal law has established several mechanisms to increase
funds to protect deposits insured by the Bank Insurance Fund
("BIF") administered by the FDIC. The FDIC is authorized to
borrow up to $30 billion from the United States Treasury; up to
90% of the fair market value of assets of institutions acquired
by the FDIC as receiver from the Federal Financing Bank; and from
depository institutions that are members of the BIF. Any
borrowings not repaid by asset sales are to be repaid through
insurance premiums assessed to member institutions. Such
premiums must be sufficient to repay any borrowed funds within 15
years and provide insurance fund reserves of $1.25 for each $100
of insured deposits. The result of these provisions is that the
assessment rate on deposits of BIF members could increase in the
future. The FDIC also has authority to impose special
assessments against insured deposits.
The FDIC has adopted final regulations implementing a
risk-based premium system required by federal law. Under the
regulations, which cover the assessment periods commencing on and
after January 1, 1994, insured depository institutions are
required to pay insurance premiums currently within a range of 23
cents per $100 of deposits to 31 cents per $100 of deposits
depending on their risk classification. On January 31, 1995, the
FDIC issued proposed regulations that would establish a new
assessment rate schedule of 4 cents per $100 of deposits to 31
cents per $100 of deposits applicable to members of BIF. There
can be no assurance that the final regulations will be adopted as
proposed. To determine the risk-based assessment for each
institution, the FDIC will categorize an institution as well
capitalized, adequately capitalized or undercapitalized based on
its capital ratios. A well-capitalized institution is one that
has at least a 10% total risk-based capital ratio, a 6% Tier 1
risk-based capital ratio and a 5% Tier 1 leverage capital ratio.
An adequately capitalized institution will have at least an 8%
total risk-based capital ratio, a 4% Tier 1 risk-based capital
ratio and a 4% Tier 1 leverage capital ratio. An
undercapitalized institution will be one that does not meet
either of the above definitions. The FDIC will also assign each
institution to one of three subgroups based upon reviews by the
institution's primary federal or state regulator, statistical
analyses of financial statements and other information relevant
to evaluating the risk posed by the institution.
Interstate Banking and Branching
On September 29, 1994, the President signed into law the
Riegel-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Act"). Under the Interstate Act, beginning
one year after the date of enactment, a bank holding company that
is adequately capitalized and managed may obtain approval under
the BHCA to acquire an existing bank located in another state
without regard to state law. A bank holding company would not be
permitted to make such an acquisition if, upon consummation, it
would control (a) more than 10% of the total amount of deposits
of insured depository institutions in the United States or (b)
30% or more of the deposits in the state in which the bank is
located. A state may limit the percentage of total deposits that
may be held in that state by any one bank or bank holding company
if application of such limitation does not discriminate against
out-of-state banks. An out-of-state bank holding company may not
acquire a state bank in existence for less than a minimum length
of time that may be prescribed by state law except that a state
may not impose more than a five year existence requirement.
The Interstate Act also permits, beginning June 1, 1997,
mergers of insured banks located in different states and
conversion of the branches of the acquired bank into branches of
the resulting bank. Each state may permit such combinations
earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other
states by that state's banks. The same concentration limits
discussed in the preceding paragraph apply. The Interstate Act
also permits a national or state bank to establish branches in a
state other than its home state if permitted by the laws of that
state, subject to the same requirements and conditions as for a
merger transaction.
There is no current Hawaii law that permits interstate
banking in Hawaii. Hawaii law permits limited reciprocal banking
between Hawaii and Guam, American Samoa, the Federated States of
Micronesia, the Republic of Palau, the Commonwealth of the
Northern Marianas and the Republic of the Marshall Islands.
Legislation has been introduced in the Hawaii legislature to make
necessary changes to Hawaii law to harmonize it with the
interstate banking legislation passed by Congress.
The Interstate Act is likely to increase competition in the
Company's market areas especially from larger financial
institutions and their holding companies. It is difficult to
assess the impact such likely increased competition will have on
the Company's operations.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and
reporting obligations involving home mortgage lending operations
and Community Reinvestment Act ("CRA") activities. The CRA
generally requires the federal banking agencies to evaluate the
record of a financial institution in meeting the credit needs of
their local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and
corrective measures that may be required for a violation of
certain fair lending laws, the federal banking agencies may take
compliance with such laws and CRA into account when regulating
and supervising other activities. On December 21, 1993, the
federal banking agencies issued a proposal to change the manner
in which they measure a bank's compliance with its CRA
obligations, but no final regulation has yet been approved.
On March 8, 1994, the federal Interagency Task Force on Fair
Lending issued a policy statement on discrimination in lending.
The policy statement describes the three methods that federal
agencies will use to prove discrimination: overt evidence of
discrimination, evidence of disparate treatment and evidence of
disparate impact.
Accounting Changes
In February 1992, the Financial Accounting Standards Board
("FASB") issued SFAS No. 109, "Accounting for Income Taxes,"
which superseded SFAS No. 96 of the same title. SFAS No. 109,
which became effective for fiscal years beginning after
December 31, 1992, employs an asset and liability approach in
accounting for income taxes payable or refundable at the date of
the financial statements as a result of all events that have been
recognized in the financial statements and as measured by the
provisions of enacted tax laws. Adoption by the Company of SFAS
No. 109 did not have a material impact on the Company's results
of operations.
In December 1991, the FASB issued SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," which is effective
for fiscal years ending after December 15, 1992 (December 15,
1995 in the case of entities with less than $150 million in total
assets). SFAS No. 107 requires financial intermediaries to
disclose, either in the body of their financial statements or in
the accompanying notes, the "fair value" of financial instruments
for which it is "practicable to estimate that value." SFAS
No. 107 defines "fair value" as the amount at which a financial
instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
Quoted market prices, if available, are deemed the best evidence
of the fair value of such instruments. Most deposit and loan
instruments issued by financial intermediaries are subject to
SFAS No. 107, and its effect will be to require financial
statement disclosure of the fair value of most of the assets and
liabilities of financial intermediaries such as the Company and
the Bank. The disclosure required by SFAS No. 107 at
December 31, 1994 is presented in Note 24 to the Company's
Consolidated Financial Statements. See "ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA." Management is unable to
predict what effect, if any, such disclosure requirements could
have on the market price of the common stock of the Company or
its ability to raise funds in the financial markets.
In May 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," which was subsequently
amended by SFAS No. 118 in October 1994. SFAS No. 114 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. SFAS No. 114 states
that a loan is impaired when it is probable that a creditor will
be unable to collect all principal and interest amounts due
according to the contracted terms of the loan agreement. A
creditor is required to measure impairment by discounting
expected future cash flows at the loan's effective interest rate,
or by reference to an observable market price, or by the fair
value of the collateral if the loan is collateral dependent or if
foreclosure is probable. SFAS No. 114 also clarifies the
existing accounting for in-substance foreclosures by stating that
a collateral-dependent real estate loan would be reported as real
estate owned only if the lender had taken possession of
collateral.
SFAS No. 118 amended SFAS No. 114 to allow a creditor to use
existing methods for recognizing interest income on an impaired
loan. To accomplish that, it eliminated the provisions in
SFAS No. 114 that described how a creditor should report income
on an impaired loan. SFAS No. 118 did not change the provisions
in SFAS No. 114 that require a creditor to measure impairment
based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a
practical expedient, at the observable market price of the loan
or the fair value of the collateral if the loan is collateral
dependent. SFAS No. 118 amends the disclosure requirements in
SFAS No. 114 to require information about the recorded
investments in certain impaired loans and about how a creditor
recognizes interest income related to those impaired loans. SFAS
No. 114 is effective for financial statements issued for fiscal
years beginning after December 15, 1994. Although earlier
application is encouraged, it is not required. SFAS No. 118 is
effective concurrent with the effective date of SFAS No. 114.
The Company adopted SFAS No. 114 and 118 as of January 1, 1995.
The effects of the new accounting pronouncements were not
material.
In May 1993, the FASB issued SFAS No. 115 "Accounting For
Certain Investments in Debt and Equity Securities" addressing the
accounting and reporting for investments in equity securities
that have readily determinable fair values and for all
investments in debt securities. These investments would be
classified in three categories and accounted for as follows: (i)
debt and equity securities that the entity has the positive
intent and ability to hold to maturity would be classified as
"held to maturity" and reported at amortized cost; (ii) debt and
equity securities that are held for current resale would be
classified as trading securities and reported at fair value, with
unrealized gains and losses included in operations; and (iii)
debt and equity securities not classified as either securities
held to maturity or trading securities would be classified as
securities available for sale, and reported at fair value, with
unrealized gains and losses excluded from operations and reported
as a separate component of shareholders' equity. The statement
is effective for financial statements for calendar year 1994, but
may be applied to an earlier fiscal year for which annual
financial statements have not been issued. The Company adopted
SFAS No. 115 as of January 1, 1994. The effects of adoption of
SFAS No. 115 are set forth in Note 1 to the Company's
Consolidated Financial Statements. See "ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA."
In October 1994, the FASB issued SFAS No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of
Financial Instruments." SFAS No. 119 amends SFAS No. 105,
"Disclosures of Information about Financial Instruments with Off-Balance-Sheet
Risk and Financial Instruments with Concentrations
of Credit Risk," and SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments." SFAS No. 119 requires the disclosure
of comparable information for options and other similar financial
instruments that previously were not within the scope of SFAS
No. 105. SFAS No. 119 defines a "derivative" financial
instrument as a future, forward, swap, option contract or other
financial instrument with similar characteristics. The Bank does
not use futures, forwards, swaps or option contracts either for
trading or for any other purposes, with the exception of a
limited amount of foreign exchange forward contracts used to
satisfy customer and operational needs. Foreign exchange forward
contracts outstanding at December 31, 1994 and 1993 were not
material.
Employees
At January 31, 1995, the Company employed 570 persons, 559
on a full-time basis and 11 on a part-time basis. Management of
the Company believes that it has favorable employee relations.
The Company is not a party to any collective bargaining
agreement.
Selected Statistical Information
The following tables and data set forth, for the respective
periods shown, selected statistical information relating to the
Company and the Bank. These tables should be read in conjunction
with the information contained in "ITEM 6. SELECTED FINANCIAL
DATA," "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
Loan Portfolio
Total loans grew to $992.0 million at the end of 1994,
compared with $945.8 million at the end of 1993 and $901.6
million at the end of 1992. Increases in average loan volumes
were recorded in the commercial, financial, and agricultural and
real estate-construction and mortgage loan categories.
The Bank emphasizes residential and commercial mortgage
loans, business loans to middle-market companies and
professionals and consumer installment loans. Its marketing
strategy for generating new loans includes a business calling
program which requires officers at all levels to make client
development visits to local businesses each month. In addition,
the Bank uses television, radio, print and direct mail marketing.
A significant portion of the Bank's loan portfolio is
secured by real estate. Management believes that the Bank's
underwriting guidelines, including collateral requirements,
provide the Bank with protection against losses on delinquent
loans. However, due to the slowdown in the Hawaiian economy,
delinquencies and charge-offs during 1994 increased over the
previous year. Continued recessionary conditions in Hawaii may
further negatively impact the Bank's real estate collateral and
adversely impact the level of nonperforming loans and provision
for loan losses in the future. See "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Provision and Allowance for Loan Losses," "--
Nonperforming Assets" and "-- Financial Condition."
At December 31, 1994, the Bank did not have any
concentration of loans in any industry classified under the
Standard Industrial Code which exceeded 10% of the Bank's total
loans.
The following table sets forth information regarding
outstanding loans by categories as of the dates indicated.
<PAGE>
<TABLE>
Table I. Loans By Categories
<CAPTION>
December 31,
----------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $387,303 $374,052 $356,028 $322,974 $251,702
Real estate --
construction 35,876 22,080 25,191 21,917 16,101
Real estate --
mortgage 501,941 481,043 439,352 395,498 351,646
Installment 66,848 68,593 80,994 95,277 96,132
--------- --------- --------- --------- ---------
Total loans 991,968 945,768 901,565 835,666 715,581
Allowance for
loan losses 18,296 17,131 15,378 13,849 11,687
--------- --------- --------- --------- ---------
Net loans $973,672 $928,637 $886,187 $821,817 $703,894
========= ========= ========= ========= =========
</TABLE>
<PAGE>
Commercial, Financial and Agricultural. Loans in this category
include loans primarily to small and middle market businesses and
professionals located in Hawaii. Although the Bank typically looks to the
borrower's business as the principal source of repayment, $176.4 million of
the loans within this category at December 31, 1994 had real estate as
their primary collateral. The Bank's agricultural loans at December 31,
1994 totaled $10,400.
Real Estate - Construction. Real estate - construction loans
increased to $35.9 million at the end of 1994 from $22.1 million at the end
of 1993 and $25.2 million at the end of 1992. The majority of the
construction loans provided by the Bank in this category were used for
residential development projects.
Real Estate - Mortgage. The Bank emphasizes making residential
mortgage loans for owner-occupied primary residences and does not actively
seek to make loans for vacation condominiums or homes. The Bank has also
limited growth of residential mortgages for the higher-priced homes because
of higher volatility in their values. In order to limit such growth and
provide for adequate collateral, the Bank requires higher than normal
equity to loan ratios for loans secured by such homes.
The major components of the Bank's portfolio of commercial, industrial
and other mortgage loans at December 31, 1994 included $93.7 million for
stores and offices, $53.4 million for warehouses and industrial buildings,
$36.4 million for apartment buildings with 5 or more units and $11.0
million for hotels. Mortgage loans held for sale at December 31, 1994
totalled $8.8 million.
<PAGE>
<TABLE>
The following table sets forth certain information with respect to the composition of the
Bank's Real Estate - Mortgage loan portfolio as of the dates indicated.
Table II. Mortgage Loan Portfolio Composition
<CAPTION>
December 31,
1994 1993 1992 1991
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential:
1-4 units $280,923 56.0% $265,694 55.2% $265,037 60.3% $246,300 62.3%
5 or more
units 3,296 0.6 3,908 0.8 5,259 1.2 5,922 1.5
Commercial,
industrial
and other 217,722 43.4 211,441 44.0 169,056 38.5 143,276 36.2
------- ---- ------- ---- ------- ---- ------- ----
Total $501,941 100.0% $481,043 100.0% $439,352 100.0% $395,498 100.0%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
1990
Amount Percent
_______ _______
<S> <C> <C>
Residential:
1-4 units $229,992 65.4%
5 or more 3,761 1.1
units
Commercial,
industrial
and other 117,893 33.5
------- ----
Total $351,646 100.0%
======== ======
</TABLE>
Installment Loans. The following table sets forth the primary components of
the Bank's Installment loan portfolio as of the dates indicated.
Table III. Installment Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
1994 1993 1992 1991
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Automobile $ 27,786 41.6% $ 26,357 38.4% $ 32,717 40.4% $ 38,919 40.8%
Credit cards
and related
plans 19,612 29.3 19,626 28.6 20,393 25.2 20,678 21.7
Other 19,450 29.1 22,610 33.0 27,884 34.4 35,680 37.5
-------- ------ -------- ----- -------- ----- -------- -----
Total $ 66,848 100.0% $ 68,593 100.0% $ 80,994 100.0% $ 95,277 100.0%
======== ======= ======== ====== ======== ======= ======== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1990
Amount Percent
_______ _______
<S> <C> <C>
Automobile $ 40,397 42.0%
Credit cards
and related
plans 20,643 21.5
Other 35,092 36.5
------- -----
Total $ 96,132 100.0%
======== =======
/TABLE
<PAGE>
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table sets forth the maturity distribution of the Bank's
loan portfolio at December 31, 1994. The table excludes real estate loans
(other than construction loans) and installment loans.
Table IV. Maturity Distribution of Commercial and Construction Loans
<TABLE>
<CAPTION>
Maturing
---------------------------------
Over One
One Year Through Over
or Less Five Years Five Years Total
-------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $221,770 $88,705 $76,828 $387,303
Real estate --
construction 27,082 6,983 1,811 35,876
-------- ------- ------- --------
Total $248,852 $95,688 $78,639 $423,179
======== ======== ======== ========
</TABLE>
The following table sets forth the sensitivity of the amounts due
after one year to changes in interest rates.
Table V. Maturity Distribution of Fixed and Variable Rate Loans
<TABLE>
<CAPTION>
Maturing
-----------------------
Over One
Through Over
Five Years Five Years Total
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
With fixed
interest rates $26,016 $16,881 $ 42,897
With variable
interest rates 69,672 61,758 131,430
------- ------- -------
Total $95,688 $78,639 $174,327
======= ======= ========
</TABLE>
Allowance for Loan Losses
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 mangement's evaluation of the
quality, character and inherent risks in the loan portfolio, current and
projected economic conditions, and past loan loss experience.
During 1994, $3.3 million was provided for loan losses compared to
$3.2 million in 1993 and $2.7 million in 1992. In 1994, the Bank
experienced a net charge-off of $2.1 million, compared with net charge-offs
of $1.4 million and $1.2 million in 1993 and 1992, respectively. The
allowance for loan losses at December 31, 1994 was $18.3 million, compared
to $17.1 million at December 31, 1993 and $15.4 million at December 31,
1992. The ratio of allowance for loan losses to total loans was 1.84%,
1.81% and 1.71% at December 31, 1994, 1993 and 1992, respectively.
Management believes that the allowance for loan losses at December 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 service areas 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. See "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
-- Provision and Allowance for Loan Losses" and "-- Nonperforming Assets."
<PAGE>
The following table sets forth certain information with
respect to the Bank's allowance for loan losses as of the dates or for
the periods indicated.
Table VI. Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average amount of
loans outstanding $947,433 $911,611 $865,316 $771,870 $630,836
Allowance for
average loans:
Balance at
beginning of year $ 17,131 $ 15,378 $ 13,849 $ 11,687 $ 9,453
-------- -------- -------- -------- --------
Charge-offs:
Commercial,
financial and
agricultural 1,239 475 654 -- --
Real Estate --
construction -- -- -- -- --
Real Estate --
mortgage 778 557 159 -- --
Installment 502 610 551 391 274
-------- -------- -------- -------- --------
TOTAL 2,519 1,642 1,364 391 274
-------- -------- -------- -------- --------
Recoveries:
Commercial,
financial and
agricultural 160 -- 60 -- 250
Real Estate --
construction -- -- -- -- --
Real Estate --
mortgage 32 -- -- -- --
Installment 192 195 133 153 158
-------- -------- -------- -------- --------
TOTAL 384 195 193 153 408
Net loans charged
off (recovered) 2,135 1,447 1,171 238 (134)
-------- -------- -------- -------- --------
Provision charged
to operations 3,300 3,200 2,700 2,400 2,100
-------- -------- -------- -------- --------
Balance at end
of year $18,296 $17,131 $15,378 $13,849 $11,687
======== ======== ======== ======== ========
Ratios:
Allowance for
loan losses to
loans outstand-
ing at end of
period 1.84% 1.81% 1.71% 1.66% 1.63%
Net loans charged
off (recovered)
during period to
average amount of
loans outstanding .23% .16% .14% .03% (.02%)
</TABLE>
Over the five-year period ended December 31, 1994, the
allocation of the allowance for loan losses for the largest loan
category, real estate mortgage loans, and the allocation for
commercial, financial and agricultural loans increased steadily
to correspond with increases in the total volume of loans and the
level of loan losses in these categories. The Bank's practice is
to make specific allocations to specific loans and unspecified
allocations to each loan category based on Management's risk
assessment. The following table sets forth the allocation of the
allowance for loan losses by loan category as of the dates
indicated.
<PAGE>
Table VII. Allocation of Allowance for Loan Losses
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
Allowance category Allowance category Allowance category Allowance category Allowance category
for loan to total for loan to total for loan to total for loan to total for loan to total
losses loans losses loans losses loans losses loans losses loans
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial and
agricultural $11,700 39.1% $10,500 37.5% $10,500 39.5% $10,000 38.7% $ 9,000 35.2%
Real estate --
construction 500 3.6 400 2.3 400 2.8 300 2.6 -- 2.3
Real estate -
mortgage 4,700 50.6 4,200 52.9 2,500 48.7 1,500 47.3 900 49.1
Installment 1,100 6.7 1,800 7.3 1,800 9.0 1,800 11.4 1,600 13.4
Unallocated 296 N/A 231 N/A 178 N/A 249 N/A 187 N/A
------ ----- ------ ---- ------- ---- ------- ---- ------- ----
TOTAL $18,296 100.0% $17,131 100.0% $15,378 100.0% $13,849 100.0% $11,687 100.0%
======= ======= ======= ======= ======= ====== ======= ====== ======= ======
</TABLE>
<PAGE>
Investment Portfolio
The following table sets forth the amounts and the distribution of investment
securities held as of the dates indicated.
Table VIII. Distribution of Investment Securities
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1994 1993 1992
--------------------------- ---------- ----------
Held-to- Available-
Maturity for Sale
(at Amor- (at Estimated
tized Cost) Fair Value)
(Dollars in Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government agencies $148,213 $66,949 $211,932 $190,305
States and political
subdivisions 13,885 -- 21,334 13,967
Other -- -- 17,402 26,630
-------- ------- -------- --------
Total investment
securities $162,098 $81,690 $250,668 $230,902
======== ======= ======== ========
</TABLE>
<PAGE>
The Bank did not hold investments of any nonfederal issuer
in amounts exceeding 10% of stockholders' equity at December 31,
1994. Except for loans disclosed in "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Nonperforming Assets," the Bank did not have any
other nonperforming or potentially problem interest-bearing
assets at December 31, 1994.
Maturity Distribution of Investment Portfolio
The following table sets forth the maturity distribution of
the investment portfolio at December 31, 1994.
<TABLE>
Table IX. Maturity Distribution of Investment Portfolio
<CAPTION>
Weighted
Type and Maturity Grouping Book Average
Value Yield(1)<F1>
-------- ------------
(Dollars in thousands)
<S> <C> <C>
Held-to-Maturity Portfolio
U.S. Treasury and other
U.S. Government agencies:
Within one year $ 33,508 5.890%
After one but within five years 105,526 5.161
After five but within ten years 7,052 7.925
After ten years 2,127 5.608
--------
Total U.S. Treasury and other 148,213 5.464
U.S. Government agencies --------
States and political subdivisions:
Within one year 6,557 6.600
After one but within five years 4,752 6.220
After five but within ten years -- --
After ten years 2,576 5.710
Total states and political --------
subdivisions 13,885 6.305
--------
Other:
Within one year -- --
After one but within five years -- --
After five but within ten years -- --
After ten years -- --
-------
Total other -- --
-------
Total held-to-maturity
portfolio 162,098 5.536
------- -----
<PAGE>
Available-for-Sale Portfolio
U.S. Treasury and other
U.S. Government agencies:
Within one year -- --
After one but within five years 40,254 6.367
After five but within ten years 10,347 4.922
After ten years 16,348 4.956
--------
Total U.S. Treasury and other 66,949 5.799
U.S. Government agencies --------
States and political subdivisions:
Within one year -- --
After one but within five years -- --
After five but within ten years -- --
After ten years -- --
Total states and political --------
subdivisions -- --
--------
Other:
Within one year -- --
After one but within five years -- --
After five but within ten years -- --
After ten years 14,741 6.281
--------
Total other 14,741 6.281
--------
Total available-for-sale portfolio 81,690 5.886
--------
Total investment securities $243,788 5.653%
======== =======
<FN>
<F1>(1) Weighted average yield is computed on an annual basis and
yields on tax-exempt obligations are computed on a
taxable-equivalent basis using an assumed tax rate of 35%.
</TABLE>
Deposits
The Bank competes for deposits in Hawaii principally by
providing quality customer service at its branch offices. The
Bank, over the years, has developed a relatively large and stable
base of core deposits which consists of noninterest-bearing demand,
interest-bearing demand and savings deposits and time deposits
under $100,000. The Bank does not purchase brokered deposits.
Total deposits at December 31, 1994, 1993, and 1992 were
$1,081.9 million, $1,078.3 million and $1,074.1 million,
respectively. Deposits increased in 1994 by 0.3% compared with the
0.4% growth recorded for 1993. Interest-bearing deposits,
excluding time deposits of $100,000 and greater, decreased by 0.6%
in 1994 and 0.4% in 1993. Noninterest-bearing deposits decreased
by 9.7% in 1994 and 2.5% in 1993. The Bank's ratio of core
deposits to total deposits was 81.2% at December 31, 1994, 83.5% at
December 31, 1993 and 84.5% at December 31, 1992. Time deposits of
$100,000 and greater increased by 14.1% to $203.2 million in 1994
over the $178.1 million in 1993, which increased by 7.2% over the
$166.2 million in 1992. See "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Financial Condition."
The following table sets forth information regarding the
average monthly deposits and the average rate paid for certain
deposit categories for each of the periods indicated. Average
balances are computed using daily average balances.
<PAGE>
Table X. Average Balances and Average Rates on Deposits
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------
1994 1993 1992
------------------ ------------------ ------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $152,941 --% $152,643 --% $147,156 --%
Interest-bearing
demand deposits 104,847 1.36 100,577 1.58 94,869 2.58
Savings and money
market deposits 459,282 2.45 448,921 2.74 422,655 3.81
Time deposits 347,906 3.69 335,127 3.79 351,627 4.93
-------- -------- --------
TOTAL $1,064,976 2.40 $1,037,268 2.56 $1,016,307 3.94
=========== ========== ==========
<PAGE>
The remaining maturities of the certificates of deposit in
denominations of $100,000 or greater are set forth in the following
table.
XI. Remaining Maturities of Large Certificates of Deposit
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
(Dollars in thousands)
<S> <C>
Three months or less $86,870
Over three through six months 61,480
Over six through twelve months 43,197
Over twelve months 11,702
-------
Total $203,249
========
</TABLE>
ITEM 2. PROPERTIES
The executive offices of the Company and the Bank are located
at 220 South King Street, Honolulu, Hawaii 96813.
All Bank properties, except for the properties in which the
Hilo and Moiliili branches and the operations center are situated,
are occupied under leases which expire on various dates through
2019, and, in most instances, include options to renew. For the
year ended December 31, 1994, net rent expense under these leases
aggregated $4.1 million. For additional information relating to
lease rental expense and commitments, see Note 17 to the Company's
Consolidated Financial Statements in the 1994 Annual Report which
is incorporated herein by reference.
CPB Properties is a general partner and the managing partner
with a 50% interest in CKSS. Other partners in CKSS are Kajima
Development Corporation, a general partner, Sumitomo Corporation
and Sumitomo Corporation of America, limited partners. CKSS was
formed to develop, construct and lease a 22-story office building
complex in the downtown financial district of Honolulu at the
corner of King and Alakea Streets, which now serves as the
Company's and the Bank's headquarters. The building contains
201,865 square feet of rentable space of which approximately 57,000
square feet are occupied by the Company. CKSS carried the building
complex on its books at a net book value of $25.8 million as of
December 31, 1994. To finance the building, CKSS entered into loan
agreements with The Sumitomo Bank, Limited ("Sumitomo") and the
Bank, whereby Sumitomo agreed to lend $20.0 million and the Bank
agreed to lend $4.0 million to CKSS. Both loans are secured by
real estate and are due on November 18, 1996. As of December 31,
1994, the Bank had advanced pursuant to this loan agreement the sum
of $0.6 million. As of the same date, Sumitomo had advanced
pursuant to its loan agreement the sum of $11.0 million. The
average interest rate at December 31, 1994 was 7.20%. The
investment in CKSS is carried on the books of the Company under the
equity method of accounting. See Notes 1 and 7 to the Company's
Consolidated Financial Statements in the 1994 Annual Report which
is incorporated herein by reference.
In October 1992, CPB Properties, as lessor, entered into a
lease agreement with CKSS for certain real property located in
Kaimuki, Hawaii, effective from January 1, 1993 to December 31,
2047. Under the terms of the lease, CKSS will develop a 4-story
office building (the "Kaimuki Plaza").
On April 30, 1993, CKSS and the Bank entered into a building
loan agreement to borrow up to $10.7 million at .75% above LIBOR to
finance the Kaimuki Plaza. At December 31, 1994, the Bank had
advanced $9.0 million pursuant to this loan agreement. The average
interest rate at December 31, 1994 was 6.68%.
In November 1994, the Bank entered a 25-year lease agreement
with CKSS to lease office space in the Kaimuki Plaza for its
Kaimuki Branch. The lease is effective from November 1, 1994
through October 31, 2019.
The Bank holds title to the land and building in which the
Hilo branch office is situated. CPB Properties holds title to a
portion of the land and the building in which the Moiliili branch
office is situated. CPB Properties also holds title to the land on
which the operations center is located. There are no encumbrances
with respect to these properties.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary routine litigation
incidental to its business, none of which is considered likely to
have a materially adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders for a
vote during the fourth quarter of 1994.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of February 28, 1995, the
executive officers of the Company, their positions, principal
occupation during the past five years and ages. Each officer is
appointed by the Board of Directors of the Company and serves at
their pleasure.
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name and Position During Past Five Years Age
<S> <C> <C>
Yoshiharu Satoh Chairman of the Board and Chief 66
Chairman of the Board Executive Officer, Central
and Chief Executive Pacific Bank (1988-Present);
Officer Chairman of the Board, CPB
Properties, Inc. (1983 - Present)
Joichi Saito President and Chief Operating 59
President Officer, Central Pacific Bank
(1989 - Present)
Naoaki Shibuya Executive Vice President of Bank 53
Executive (1993-preent); Executive Vice
Vice President President of The Sumitomo Bank of
California (1989-1993)
Austin Y. Imamura Executive Vice President 48
Vice President and and Secretary, Central Pacific
Secretary Bank (1991 - Present); Senior Vice
President and Secretary, Central
Pacific Bank (1991); Senior Vice
President, Central Pacific Bank
(1987 - 1991)
Neal K. Kanda Executive Vice President and 46
Vice President and Controller, Central Pacific Bank
Treasurer (1993 - Present); Senior Vice
President and Controller, Central
Pacific Bank (1990 - 1993); Vice
President and Controller, Central
Pacific Bank (1989 - 1990)
</TABLE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
For information concerning the market for the Company's common
stock and related shareholder matters, see "Common Stock Price
Range and Dividends" contained in the 1994 Annual Report, which is
incorporated herein by reference, and "ITEM 1. BUSINESS --
Supervision and Regulation -- Restrictions on Transfers of Funds to
the Company by the Bank."
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
For selected financial data concerning the Company, see
"Selected Consolidated Financial Data" contained in the 1994 Annual
Report, which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For Management's discussion and analysis of financial
condition and results of operations, see, "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
contained in the 1994 Annual Report, which is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements of the Company, see the 1994 Annual
Report, which is incorporated herein by reference, and the
"Independent Auditors' Report" thereon. See "ITEM 14. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K" below for
financial statements filed as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as hereinafter noted, the information concerning
directors and executive officers of the Company is incorporated by
reference from the section entitled "Election of Directors" of the
Company's Proxy Statement, which is filed as Exhibit No. 99 to this
Annual Report on Form 10-K. For information concerning executive
officers of the Company, see "ITEM 4(A). EXECUTIVE OFFICERS OF THE
REGISTRANT."
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated
by reference from the section entitled "Compensation of Directors
and Executive Officers" of the Company's Proxy Statement, which is
filed as Exhibit No. 99 to this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information concerning security ownership of certain
beneficial owners and Management is incorporated by reference from
the sections entitled "Principal Shareholders," and "Election of
Directors" of the Company's Proxy Statement, which is filed as
Exhibit No. 99 to this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related
transactions is incorporated by reference from the section entitled
"Certain Transactions" of the Company's Proxy Statement, which is
filed as Exhibit No. 99 to this Annual Report on Form 10-K.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedules
(1) The following financial statements included in the
registrant's 1994 Annual Report to Shareholders are incorporated
herein by reference. Page number references are to page numbers in
the 1994 Annual Report.
Page
CPB Inc. and Subsidiary:
Independent Auditors' Report 35
Consolidated Balance Sheets at December 31, 1994
and 1993 18
Consolidated Statements of Income for the Years
Ended December 31, 1994, 1993, and 1992 19
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1994, 1993
and 1992 20
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992 21
Notes to Consolidated Financial Statements 22
(2) All schedules are omitted because they are not
applicable, not material or because the information is included in
the financial statements or the notes thereto.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the last
quarter of 1994.
(c) Exhibits
See Index to Exhibits included in this Annual Report on Form
10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 27, 1995.
CPB INC.
(Registrant)
By /s/ Yoshiharu Satoh
YOSHIHARU SATOH
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
/s/ Yoshiharu Satoh Chairman of the Board, March 29, 1995
Yoshiharu Satoh Chief Executive Officer
(Principal Executive
Officer), Director
/s/ Joichi Saito President, Director March 29, 1995
Joichi Saito
/s/ Neal K. Kanda Vice President, March 29, 1995
Neal K. Kanda Treasurer
(Principal Financial
Officer, Principal
Accounting Officer)
/s/ Paul Devens Director March 29, 1995
Paul Devens
/s/ Alice F. Guild Director March 29, 1995
Alice F. Guild
/s/ Dennis I. Hirota Director March 29, 1995
Dennis I. Hirota, Ph.D.
/s/ Stanley Hong Director March 29, 1995
Stanley Hong
Director March __, 1995
Kensuke Hotta
Director March __, 1995
Daniel M. Nagamine
/s/ Naoaki Shibuya Director March 29, 1995
Naoaki Shibuya
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document
<S> <C>
3.1 Articles of Incorporation of CPB Inc., as
amended<F1>
3.2 Amended Bylaws of CPB Inc.<F2>
10.3 Limited Partnership Agreement of CKSS Associates
Limited Partnership dated July 10, 1981 and among
CPB Properties, Inc., Kajima Hawaii Corporation,
Sumitomo Corporation and Sumitomo Corporation of
America<F3>
10.9 CPB Inc. 1986 Stock Option Plan, as amended<F4>
10.10 Lease dated February 1, 1983 by and between CKSS
Associates and Central Pacific Bank, as amended by
First Amendment of Lease between CKSS Associates and
Central Pacific Bank dated March 3, 1984, as amended
by Second Amendment of Lease between CKSS Associates
and Central Pacific Bank dated April 3, 1987, as
amended by Third Amendment of Lease between CKSS
Associates and Central Pacific Bank dated
September 24, 1992.<F2>
10.11 Share Purchase Agreement dated as of November 20,
1986 by and among The Sumitomo Bank, Limited and CPB
Inc.<F2>
10.16 Split Dollar Life Insurance Plan<F5>
10.17.1 Loan Agreement dated as of November 8, 1991 by and
between American Trust Co. of Hawaii, Inc., as
Trustee and The Sumitomo Bank, Limited, Los Angeles
Branch<F5>
10.17.2 $2,000,000 Promissory Note dated November 8,
1991<F5>
10.17.3 Collateral Agreement dated as of November 8, 1991 by
and among The Sumitomo Bank, Limited, Central
Pacific Bank and CPB Inc.<F5>
10.17.4 Annual Contributions Agreement dated as of November
8, 1991 by and between American Trust Co. of Hawaii,
Inc. and Central Pacific Bank<F5>
10.17.5 Guaranty Agreement dated as of November 8, 1991 by
and between The Sumitomo Bank, Limited, Los Angeles
Branch and CPB Inc.<F5>
10.17.6 Stock Purchase Agreement by and between American
Trust Co. of Hawaii, Inc. and CPB Inc.<F5>
10.18 Common Stock Purchase Warrants issued November 13,
1991 to The Sumitomo Bank, Limited<F5>
10.19 Central Pacific Bank and Subsidiaries 1994 Annual
Executive Incentive Plan<F6>
13 Annual Report to Shareholders for the year ended
December 31, 1994 (parts not incorporated by
reference are furnished for informational purposes
and are not filed herewith)
21 Subsidiaries of CPB Inc.
23 Accountants' Consent
27 Financial Data Schedules
99 Proxy Statement for Annual Meeting of Shareholders
to be held on April 25, 1995
<FN>
<F1> Filed as Exhibit 3.1 to registrant's Registration
Statement on Form S-2 (Registration No. 33-27575)
filed with the Securities and Exchange Commission on
March 17, 1989, which are incorporated herein by
this reference.
<F2> Filed as Exhibits 3.2, 10.10, 10.16 and 10.18 to the
registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993, filed with the
Securities and Exchange Commission on March 17,
1994.
<F3> Filed as Exhibit 10.7 to registrant's Registration
Statement on Form S-14 (Registration No. 2-76608),
filed with the Securities and Exchange Commission on
March 23, 1982, which are incorporated herein by
this reference.
<F4> Filed as Exhibit 28.1 to registrant's Registration
Statement on Form S-8 (Registration No. 33-11462),
filed with the Securities and Exchange Commission on
January 22, 1987, which is incorporated herein by
this reference.
<F5> Filed as Exhibits 10.16, 10.17.1, 10.17.2,
10.17.3,
10.17.4, 10.17.5, 10.17.6 and 10.18, respectively,
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991, filed with the
Securities and Exchange Commission on March 27,
1992.
<F6> Filed as Exhibit 10.19 to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31,
1992, filed with the Securities and Exchange
Commission on March 30, 1993.
</TABLE>
EXHIBIT 10.19
Central Pacific Bank and Subsidiaries
1995 Annual Executive Incentive Plan
Purpose:
The purposes of this plan are to reinforce the mission and
corporate goals of CPB, Inc. (CPB). The plan is designed to help
CPB attract, retain and motivate a talented executive team. This
team's performance, both as a team and as individuals, contributes
directly to serving CPB's customers and communities, sustaining
CPB's strong financial performance, and adding value for the
shareholders.
Definitions:
The following terms will have the indicated meanings throughout
this document. Whenever appropriate, words used in the singular may
include the plural and vice-versa.
"Plan" will be used throughout as a description of this particular
incentive plan.
"Company" will be used throughout as Central Pacific Bank and its
subsidiaries.
"Compensation Committee" will be used throughout as the
Compensation Committee of the Board of Directors of the Company.
"CEO" will be used throughout as Chairman of the Board and Chief
Executive Officer of CPB, Inc.
"Participant" will be used throughout as the individual in a given
position who is eligible to participate in this Plan.
"Base salary" will be used throughout as the base salary, excluding
any other bonus, commission payments, or other extra cash
compensation on an annualized basis, paid to the Participant on the
last day of the calendar year. For example, a Participant who is
paid a monthly salary of $10,000 as of the last day of 1995 will
have an annualized base salary of $120,000 for purposes of
calculating any annual incentive payment.
"Asset growth" will be calculated as the growth in assets, year
over prior year, as measured by the average assets in December of
the respective year.
Administration:
The Plan will be administered by the Compensation Committee, as
ratified by the Board of Directors, who may delegate certain aspects of record
keeping and administration to specified
individuals, at their sole discretion. The Compensation Committee,
or its specific delegates, is given full authority to develop such
rules, regulations, record keeping procedures, and communications
deemed necessary to administer the Plan and interpret its
provisions. Any determination, decision, or action of the
Compensation Committee (as ratified by the Board of Directors) in
connection with this plan will be considered final and
binding upon all Participants and any person validly claiming
access to a potential award.
Payment of any award amounts will be made after audited financial
statements are made available, but no later than April 1 of the
year following the Plan year (e.g., April 1, 1996).
Participation:
Any full-time active employee of the Company who has been granted
the corporate title of Senior Vice President or above (e.g.,
Executive Vice President, President) is eligible to participate in
the plan. The CEO will present annually names, with position
responsibility, to the Compensation Committee for approval and
inclusion in the Plan. The Board will approve this Participant
list no later than January 30 of the plan year (e.g. January 30,
1995 for the 1995 Plan). Participants will be notified in writing
no later than February 1 of the Plan year. This communication will
notify Participants of their participation and the target
percentages of their incentive.
To be eligible, the employee must have been placed on full-time
active status with the corporate title of Senior Vice President or
above, no later than October 1, 1995. Participants becoming
eligible after January 1, 1995 will be eligible for consideration
of payment, pro-rated by the first day of the month on which they
met the eligibility requirements. For example, a Participant
meeting eligibility requirements on April 1, 1995 will be eligible,
once approved by the Compensation Committee, for consideration for
9/12 or 3/4 of the potential award.
Any exception to these minimum eligibility requirements must be
recommended by the CEO and approved by the Compensation Committee.
A participant must have received at least an "Accomplished"
performance appraisal rating during the calendar year (e.g., 1995
for the 1995 Plan) to be eligible for consideration for payment.
Any exceptions from this provision must be recommended by the CEO
and approved by the Compensation Committee, at their sole
discretion.
All participants in this Plan will become ineligible for
participation in the annual all staff Cash Incentive Bonus program.
Funding:
The plan will be funded according to the success of CPB as measured
by return on equity (ROE, from CPB, Inc.) and asset growth. Asset
growth will be measured as the growth year to year in the average
assets for the month of December. The specific values for each of
these measures will be reviewed and adjusted, if deemed
appropriate, annually.
Each measure will fund one-half the total incentive pool available
for distribution. For both measures, performance below a defined
measure will produce no incentive pool; e.g., for 1995 these values
are 13.5 for ROE and 10.0 for asset growth. Each measure will also
have a maximum payout value; e.g., 150% of the target pool for ROE
of 17.0 and 150% of the target pool for asset growth of 17.0. The
actual amount of the pool funded will be extrapolated, using the
determined scale values, between the minimum funded value of 50% of
the pool and the maximum of 150%.
The target amounts funded are calculated as the sum of each
Participant's target incentive, expressed as a percentage of base
salary, multiplied by that individual's base salary.
The funding of the pool is described graphically in the following
diagram.
Allocation of Awards:
The calculation of any actual awards will be based on each
Participant's base salary, annualized, as of the last day of the
calendar year (e.g., for this Plan, December 31, 1995).
The awards, expressed as a percentage of base salary, are shown, by
corporate title, in the following table; e.g., a target incentive
of 25% for Senior Vice President. These target awards will be
adjusted by the percentage of the target pool that is funded
through corporate performance. For example, if 75% of the pool is
funded, the target award for Senior Vice Presidents would be
18.75%.
Actual Awards:
Actual awards will be calculated according to the mix of three
performance elements shown in the following table: 1) corporate
(ROE and asset growth); 2) unit/production objectives; and 3) a
discretionary amount.
The unit/production objectives will be agreed upon between each
Participant and the immediate supervising Officer by January 30 of
the Plan year. These objectives will emphasize those aspects of
CPB's performance for which the Participant is held accountable.
These will be submitted to the CEO for review and thereafter, reported to the
Board of Directors for its approval and subsequent
filing of the report.
The discretionary percentages will be recommended by the CEO to the
Compensation Committee for approval. These percentages and amounts
may be used to reward individual or team accomplishments not
specifically measured by either corporate financial performance or
specific individual objectives.
Projected Cost of the Plan:
Using current salaries as of January 14, 1995 and the projected
list of 14 potential participants, the target incentive amount is
$594,850, while the maximum payout would be $881,838.
Termination of Employment:
The Participant must remain actively employed by the Company on the
last day of the designated calendar year (1995 for this Plan) to be
considered eligible for any potential payment under this Plan. Any
exceptions to this provision must be approved by the Compensation
Committee, at their sole discretion.
Non-Transferability of Award:
An award, or potential award, granted under this Plan shall not be
assignable or transferable by the Participant other than by will or
the laws of descent and distribution.
No Right to Employment:
This Plan does not constitute a contract between the Company and
its employees. Neither establishing this Plan or taking any action
as a result of the Plan shall be construed as giving any employee
the right to be retained by the Company for any period of time, or
to be employed in any particular position, at any particular rate
of pay, or to provide any other job-related benefits.
Amendment or Termination of Plan:
The Compensation Committee, with ratification from the Board of
Directors, may from time to time or at any time amend or terminate
the Plan at their sole discretion. Review and amendment of the
Plan is expected annually when a new Plan document will be
considered for establishment. Amendment or termination of the Plan
is not expected within a Plan year, but that right is retained by
the Compensation Committee.
This Plan has been approved and ratified for the Plan year 1995 on
the __________ day of _______________, 1995 by the CPB Board of
Directors as indicated below.
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
____________________________________________ _____________
(Symbol)
CPB INC.
1994 ANNUAL REPORT
HOLDING COMPANY FOR CENTRAL PACIFIC BANK
<PAGE>
CONTENTS
Financial Highlights . . . . . . . . . . . . . . . . . . . . . .1
Message to Shareholders. . . . . . . . . . . . . . . . . . . . .2
Service Delivery . . . . . . . . . . . . . . . . . . . . . . . .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
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
%
(In thousands, except per share data) 1994 1993 Change
<S> <C> <C> <C>
At Year End
Assets $1,381,539 $1,303,102 6.0%
Deposits 1,081,909 1,078,326 0.3
Net Loans 973,672 928,637 4.8
Stockholders' Equity 121,103 113,188 7.0
Number of Shares Outstanding 5,235 5,230 0.1
Book Value Per Share $ 23.13 $ 21.64 6.9
For the Year
Net Income $ 13,483 $ 15,940 -15.4%
Per Share 2.58 3.06 -15.7
Cash Dividends Declared 4,607 4,595 0.3
Per Share 0.88 0.88 __
</TABLE>
(Graphic Material--See Appendix I)
<PAGE>
MESSAGE TO SHAREHOLDERS
(Photograph--See Appendix II)
To Our Shareholders
In February, 1994, we celebrated our 40th anniversary of
serving the community of Hawaii. As we look back on the phenomenal
growth of our Company, we are mindful of the challenges that lie
ahead.
CPB Inc. and its subsidiary, Central Pacific Bank, continued
to achieve solid earnings in 1994 despite the slow economic
recovery in Hawaii. Net income for 1994 was $13.48 million, or
$2.58 per share, reflecting a 15.4% decrease from last year.
Balance sheet growth continued to be stable throughout 1994. Total
assets grew by 6.0% from a year ago to $1.38 billion. Total
deposits of $1.08 billion increased 0.3% and net loans grew by 4.8%
to $974 million. Cash dividends for 1994 were $0.88 per common
share, consistent with the cash dividends declared in 1993.
Several factors contributed to the decline in earnings in
1994. The weak economic recovery in Hawaii provided minimal growth
for the local financial industry in general. The Bank also offered
a Voluntary Early Retirement Program during the first quarter of
1994, which resulted in a one-time expense of $915,000. Loan fees
and interest income from mortgages decreased significantly compared
to the previous year, when refinancing activity was extremely high
in a lower interest rate environment. In addition, investments
were made for technological improvements and enhancements to the
Bank's retail delivery systems and product offerings. During the
year, your Company successfully introduced several new products and
services to improve our competitive position for the future. The
introduction of a combined balance program, Select Plan, was
designed to expand our banking relationships. Electronic banking
service enhancements were introduced, such as Cash Manager and
telephone bill payment, to provide 24-hour convenience for both
consumer and business customers. We also responded to the market
with a new affordable mortgage program.
Branch expansion plans were accomplished in 1994. Your
Company completed the acquisition of a First Hawaiian Bank branch
in Lihue on Kauai in February, 1994. Our 20th and 21st branch
offices were opened in the second half of 1994. We expanded our
branch network into Kailua, in Windward Oahu, offering extended
hours. Our desire to deliver banking services to the customers
during shopper's hours was realized with our first branch in Times
Super Market in Royal Kunia. This compact and operationally
streamlined in-store branch offers 7-day per week banking
convenience with extended hours. The completion of the Kaimuki
Plaza coincided with the Bank's 35 years of service to the Kaimuki
community. In addition, several branch facilities were upgraded
during the fourth quarter of 1994.
The Bank remains committed to re-investing in the community.
We are pleased to be the lead lender in a senior living development project.
We are also committed to provide financing for several
affordable housing projects in 1995.
We welcomed two new directors to our Central Pacific Bank
Board: Mr. Paul Kosasa, vice president and district manager of
MNS, Ltd. dba ABC Stores, and Mr. Naoaki Shibuya, executive vice
president and manager of the Bank's Retail Banking Group.
Effective February 16, 1995, Mr. Shibuya succeeded Mr. Minoru Ueda
as executive vice president of CPB Inc., and was also appointed to
the board of CPB Inc. Mr. Ueda will retire on April 1, 1995, and
continue to serve as director on the Central Pacific Bank Board.
At that time, Mr. Shibuya will also succeed Mr. Ueda as president
of CPB Properties, Inc.
We also express our appreciation to Dr. Seiji Naya, who has
left the board since being appointed Director of the Department of
Business, Economic Development and Tourism by Governor Ben
Cayetano. Dr. Naya served as a Central Pacific Bank director since
1985, and has been instrumental in the Company's growth and
success.
Our Neighbor Island Advisory Board members have always
provided valuable insight to the direction of our neighbor island
branches. We welcomed several new Island Advisory Board Members
this past year. We expanded our Kauai Island Advisory Board in
January, 1994 by appointing Mr. Allan A. Smith of Grove Farm
Company, Inc. James T. Lambeth, M.D., Gerrit R. Ludwig, M.D., and
Ernest A. Sakamoto, D.D.S. joined our Hawaii Island - Hilo Advisory
Board in January. In July, 1994 Mr. Hitoshi Hirayama, a Central
Pacific Bank retiree and former vice president and manager of the
Bank's Kahului Branch, and Lawrence N. C. Ing, ESQ, partner of Ing,
Ige and Horikawa, Attorneys-at-Law were named to the Maui Advisory
Board. They succeed Mr. Mitsuo Arisumi and Hans Riecke, AIA, who
have served on the Maui Advisory Board since 1984. We would like
to thank Messrs. Arisumi and Riecke, and Dr. Patrick Aiu, who
served on our Kauai Advisory Board since 1983, for their many years
of guidance and support.
Looking toward the future, we anticipate the presence of
interstate banks to intensify the already competitive environment.
Although we will always explore opportunities that will benefit our
shareholders, we are committed to continue servicing our
communities as an independent and solid institution in the
marketplace.
<PAGE>
<PAGE>
[Photographs -- See Appendix II]
The added effects of the unfortunate natural disasters in
California and Japan will hinder the recovery of Hawaii's economy.
Aggressive sales efforts to increase market share and an effective
cost management plan will be essential in achieving our targets for
1995.
You can be proud of the accomplishments of your Company in the
relatively short 40 years of doing business as a commercial bank in
Hawaii. Through the efforts of many men and women who worked hard
through the years, Central Pacific Bank has achieved many
milestones that will serve as an inspiration for all of our
management and staff to always perform at our best. Your
management team and staff will continue to meet the challenges that
lie ahead and work toward higher efficiencies and market share
growth for positive financial results. Thank you very much for
your continued support and confidence.
Sincerely,
(signed)
Yoshiharu Satoh
Chairman of the Board and Chief Executive Officer
(signed)
Joichi Saito
President
PAGE
<PAGE>
SERVICE DELIVERY
There have been major industry shifts in the way banks deliver
services to their customers, and Central Pacific Bank is no
exception. Increased competition has created higher customer
expectations. Service quality, convenience, simplicity and
value-added products and services are necessary to keep pace with
the financial needs of today's customers.
EXPANDING DELIVERY SYSTEMS
Together with Times Super Market Ltd., one of Hawaii's major
supermarket chains, the first CPB in-store branch was introduced in
September in the Royal Kunia Shopping Center. Customers are
offered complete banking services 7-days a week, with extended
hours in the supermarket. The convenience of combining two trips
into one during "shopper's hours," and not "banker's hours," better
serves the needs of consumers with busy and diverse schedules. In
addition, this offers new business opportunities for the Bank and
the supermarket. An expanded in-store branch network is planned
throughout 1995.
The new Kaimuki Plaza, in the heart of the Kaimuki business
district, was completed and dedicated in November. This 63,000
square feet, four-story commercial office building, which houses
our Kaimuki Branch, provides the community with a new landmark and
symbol of progress. CPB has served the Kaimuki community for more
than 35 years.
The Bank also expanded its presence in the Kailua community on
the Windward side of Oahu. The new Kailua Branch also offers
extended hours to accommodate the residents who commute daily.
Established branches, King-Smith and Makiki, were relocated,
streamlined and upgraded to the Bank's new design standards. These
modern facilities offer customers a fresh environment in which to
do their banking.
Central Pacific Bank's ATM network was further expanded into
nine additional retail locations throughout the state, affording
customers and other cardholders greater accessibility to their
money when and where they need it the most. Some of these
locations include ABC Stores, Fastop Convenience Stores, Daiei and
Marukai Wholesale Mart.
The mission of Central Pacific Bank is to be
the industry standard for service and quality
through a total commitment to the success of
our customers, employees, shareholders and
community.
OFFERING NEW PRODUCTS
Electronic banking services were enhanced to serve both retail
and business customers of the Bank. INFOLINE telephone bill
payment and funds transfer services, introduced in July, provide
customers with almost 24-hour access, 7-days a week, to their
accounts from the convenience of their home or office.
Central Pacific Bank also provides solutions for its business
customers' needs. CPB Cash Manager was introduced in April to
provide businesses 24-hour access to their bank accounts through
their personal computer. With Cash Manager businesses can view or
print balance transactions, transfer funds between their business
accounts, make payments and communicate with CPB via electronic
messages. CPB business customers can spend more time on business
and less time managing their accounts.
In 1995 the Bank will continue to explore new applications in
technology to improve the delivery of financial services for both
consumer and business segments.
Central Pacific Bank customers can now enjoy the quality
banking and value offered through Select Plan, which was introduced
in February. This combined balance program offers customers free
banking services, discounts and other benefits by combining their
deposit and loan balances. Rewarding the Bank's customers for
their business represents CPB's aggressive efforts to meet
customers' expectations.
The CPB Affordable Mortgage Program was also successfully
introduced in December. This program was designed to provide
first-time home buyers with the means to realize their dreams.
Our progress originates from our commitment to meeting the
needs of the communities we serve. CPB has responded to the needs
with personalized service, new value-added services, expanded
delivery systems and automation. Making banking convenient for
today's consumer is a must. Our commitment to providing service
quality and these services to our customers is how CPB will
continue to "Put You First" in 1995.
PAGE
<PAGE>
(Photographs--See Appendix III)
PAGE
<PAGE>
BOARD OF DIRECTORS
(Photographs, left to right)
JOSEPH F. BLANCO *
Executive Assistant to the Governor, State of Hawaii
PAUL DEVENS
Attorney-at-Law; Of Counsel, Devens, Lo,
Youth, Nakano & Saito;
Vice Chairman of the Board, CPB Inc.
ALICE F. GUILD
Retired, former Managing Director,
Iolani Palace
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
Attorney-at-law
KENSUKE HOTTA
Senior Managing Director,
The Sumitomo Bank, Limited
PAUL KOSASA *
Vice President and District Manager,
MNS, Ltd., dba ABC Stores
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
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.
NAOAKI SHIBUYA
Executive Vice President, CPB Inc.;
Executive Vice President, Central Pacific Bank;
President, CPB Properties, Inc.
MINORU UEDA *
Retired, former Vice Chairman of the Board, Central Pacific Bank
and 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
Naoaki Shibuya
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
Steven S. Fuke
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
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
Wayne H. Kirihara
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
OAHU
MAIN BRANCH
Frederick T. Takamoto
Senior Vice President and Manager
HAWAII KAI BRANCH
Marie E. Uehara
Assistant Vice President and Manager
KAILUA BRANCH
Robert C. Stott
Assistant Vice President and Manager
KAIMUKI BRANCH
Milton Y. Okuhara
Vice President and Manager
KALIHI BRANCH
Roland H. H. Chang
Vice President and Manager
KANEOHE BRANCH
David S. Arashiro
Assistant Vice President and Manager
KING-SMITH BRANCH
David D. Mau
Assistant Vice President and Manager
MAKIKI BRANCH
Michael T. Hirao
Vice President and Manager
MAPUNAPUNA BRANCH
Alan T. Shiraishi
Vice President and Manager
MILILANI BRANCH
Sharon W. U. Kawae
Vice President and Manager
MOILIILI BRANCH
Clifford Y. Kawano
Vice President and Manager
PEARLRIDGE BRANCH
Duncan E. Chun
Vice President and Manager
WAIKIKI BRANCH
David S. Yoshino
Vice President and Manager
WAIPAHU BRANCH
Henry Yuen
Vice President and Manager
WARD BRANCH
Keith K. Yonekura
Vice President and Manager
IN-STORE BRANCH
TIMES-ROYAL KUNIA
Lawrence P.C. Pai
Assistant Vice President and Manager
HAWAII
HILO BRANCH
Clifton K. Tsuji
Senior Vice President and Manager
KAILUA-KONA BRANCH
Mavis S. Hirata
Assistant Vice President and Manager
KAUAI
LIHUE BRANCH
Shirley H. Tani
Vice President and Manager
KAPAA BRANCH
Shirley H. Tani
Vice President and Manager
MAUI
KAHULUI BRANCH
Virgilio R. Agcolicol
Assistant Vice President and Manager
CPB PROPERTIES, INC.
Yoshiharu Satoh
Chairman of the Board
Naoaki Shibuya
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 LLP
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 W. Higgins
Wally K. Ichishita
Jean A. Murphy, GRI, CIPS
ISLAND OF KAUAI
Lindbergh Akita
Dennis M. Esaki
Clyde T. Ishida, D.M.D.
Joseph N. Kobayashi, ESQ
Richard Maeda
Caroline A. Nii, CPA
Frank Nonaka
Allan A. Smith
Roy Tanaka
Dennis R. Yamada, ESQ
ISLAND OF MAUI
Hilario A. Aquilizan, M.D.
Hitoshi Hirayama
Lawrence N. C. Ing, ESQ
Howard Miyamoto, D.D.S.
Roy Okumura
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, 1994, 1993 and 1992, and with respect to
consolidated balance sheets at December 31, 1994, 1993, are derived
from the consolidated financial statements which have been audited
by KPMG Peat Marwick LLP, independent auditors, included elsewhere
in this Annual Report. The selected statements of income data for
the years 1991 and 1990, and the selected balance sheet data at
December 31, 1992, 1991 and 1990, 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)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Total interest income $ 93,793 $ 91,995 $ 96,712 $ 97,992 $ 91,072
Total interest expense 31,600 30,922 39,447 46,200 45,594
Net interest income 62,193 61,073 57,265 51,792 45,478
Provision for loan losses 3,300 3,200 2,700 2,400 2,100
Net interest income after
provision for loan losses 58,893 57,873 54,565 49,392 43,378
Other operating income 10,708 11,169 9,089 8,569 7,313
Other operating expense 47,332 43,284 39,933 37,700 32,531
Income before income taxes
and cumulative effect of
accounting change 22,269 25,758 23,721 20,261 18,160
Income taxes 8,786 10,026 9,119 7,554 6,675
Net income 13,483 15,940<F1> 14,602 12,707 11,485
Balance Sheet Data (Year-End):
Interest-bearing deposits
in other banks $ 40,277 $ 5,039 $ 13,104 $ 32,082 $ 37,386
Federal funds sold -- 5,000 5,000 15,000 10,000
Investment securities 243,788 250,668 230,902 157,299 187,721
Loans 991,968 945,768 901,565 835,666 715,581
Allowance for loan losses 18,296 17,131 15,378 13,849 11,687
Total assets 1,381,539 1,303,102 1,253,663 1,134,589 1,036,906
Core deposits <F2> 878,660 900,218 907,852 821,370 763,404
Total deposits 1,081,909 1,078,326 1,074,055 990,862 932,311
Long-term debt -- -- -- 200 424
Total stockholders' equity 121,103 113,188 100,733 89,706 79,193
Per Share Data:
Net income $ 2.58 $ 3.06 $ 2.81 $ 2.51 $ 2.29
Cash dividends declared 0.88 0.88 0.80 0.70 0.60
Book value 23.13 21.64 19.39 17.30 15.77
Weighted average shares
outstanding (in thousands) 5,234 5,216 5,192 5,054 5,011
Financial Ratios:
Return on average assets 1.03% 1.29% 1.23% 1.21% 1.21%
Return on average stockholders' equity 11.48 14.88 15.36 15.11 15.44
Average stockholders' equity to
average assets 8.99 8.70 8.03 8.02 7.83
Net interest margin <F3> 5.18 5.42 5.31 5.48 5.36
Net charge-offs (recoveries) to
average loans & other
real estate 0.22 0.16 0.14 0.03 (0.02)
Nonperforming assets to
year-end loans & other
real estate <F4> 1.84 0.66 0.64 0.26 0.10
Allowance for loan losses to
year-end loans 1.84 1.81 1.71 1.66 1.63
Allowance for loan losses to
nonaccrual loans 113.95 382.64 280.72 634.11 1,596.58
Dividend payout ratio 34.11 28.76 28.47 27.89 26.20
<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 nonaccrual loans and other real estate.
</FN>
</TABLE>
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
OVERVIEW
CPB Inc. (the "Company") recorded net income of $13.5 million
for 1994 decreasing by $2.4 million or 15.4% from the record high
$15.9 million earned in 1993, which increased by $1.3 million or
9.2% over the $14.6 million earned in 1992. Total assets were
$1,381.5 million at December 31, 1994, increasing by $78.4 million
or 6.0% over year-end 1993. Net loans of $973.7 million increased
by $45.1 million or 4.8%, and total deposits of $1,081.9 million
increased by $3.6 million or 0.3% over year-end 1993.
Stockholders' equity of $121.1 million at December 31, 1994
increased by $7.9 million or 7.0% over year-end 1993.
The decrease in 1994 net income was mainly attributable to an
increase in other operating expense combined with a decrease in
other operating income. Return on average assets in 1994 of 1.03%
decreased from 1.29% in 1993 and 1.23% in 1992. Return on average
stockholders' equity of 11.48% decreased from 14.88% in 1993 and
15.36% in 1992. Earnings per share in 1994 of $2.58 decreased by
15.7% from $3.06 in 1993, which increased by 8.9% over the $2.81
earned in 1992. Cash dividends per share of $0.88 in 1994 remained
the same as 1993 as compared to the $0.80 per share declared in
1992.
The State of Hawaii's economy showed some signs of recovery
during 1994 from the mild recession experienced during 1993.
Visitor arrivals increased over 1993, however, construction
activity has not yet recovered. The economic downturn in the
Hawaiian economy which began in 1991 and continued to show little
improvement during 1994 had a negative impact on the Bank's
nonperforming and past due loans. Lack of significant improvement
in the major sectors of the local economy may have an adverse
impact on future loan and deposit growth and may also result in
higher levels of nonperforming loans and related loan losses.
RESULTS OF OPERATIONS
Net Interest Income
Table 1 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 1994 and 1993 and 34% for 1992. Average balances were computed
on a daily average basis.
Net interest income in 1994 of $62.5 million increased by $1.0
million or 1.6% over $61.5 million in 1993, which increased by $3.9
million or 6.8% over the $57.6 million in 1992.
Interest income in 1994 of $94.1 million increased by 1.7%
over 1993, which decreased by 4.8% from 1992. The increase in
interest income in 1994 reflected the increase in average interest earning
assets offset by the decline in the effective yield on
those assets compared with 1993. Average interest earning assets of
$1,205.6 million increased by 6.3% over 1993, which increased by
4.5% over 1992.
<PAGE>
(bar graphs)
RETURN ON AVERAGE ASSETS (Percent)
'90 1.21
'91 1.21
'92 1.23
'93 1.29
'94 1.03
RETURN ON AVERAGE STOCKHOLDERS' EQUITY (Percent)
'90 15.44
'91 15.11
'92 15.36
'93 14.88
'94 11.48
NET INTEREST MARGIN TAXABLE EQUIVALENT (Percent)
'90 5.36
'91 5.48
'92 5.31
'93 5.42
'94 5.18
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
The average yield on interest earning assets decreased to
7.80% from 8.15% in 1993 and 8.95% in 1992. The decline in the
average yield during 1994 was primarily due to the volume of loans
and investment securities that were repriced during the previous
two years of declining interest rates.
Interest and fees on loans in 1994 increased by 1.8% over
1993, which decreased by 3.9% from 1992. Average net loans
increased by 3.8% in 1994 and by 5.2% in 1993. The average yield on
net loans decreased to 8.51% in 1994 from 8.68% in 1993 and from
9.50% in 1992.
Interest on investment securities in 1994 decreased by 2.6%
from 1993, which also decreased by 3.5% from 1992. The increase in
average investment securities of 11.0% was offset by the decrease
in the yield on taxable investment securities to 5.57% from 6.40%
in 1993 and 7.39% in 1992. The decrease in average yield was due to
the maturities of higher coupon investment securities in 1994.
Interest expense in 1994 of $31.6 million increased by 2.2%
over 1993, which decreased by 21.6% from 1992. The increase in 1994
reflected the higher average balance of interest-bearing
liabilities. Average interest-bearing liabilities of $1,021.2
million increased by 6.5% over 1993, which increased by 3.1% over
1992. The proportion of deposits held in interest-bearing demand,
savings and money market accounts decreased during 1994 with time
deposits $100,000 and over increasing, reflecting depositors'
attraction to higher rates
<PAGE>
<TABLE>
<CAPTION>
Table 1. Average Balances, Interest Income and Expense, Yields and Rates (Taxable Equivalent)
Year ended December 31,
1994 1993
Average Amount Average Amount
Average Yield/ of Average Yield/ of
Balance Rate Interest Balance Rate Interest
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets
Interest earning assets:
Interest-bearing
deposits
in other banks $ 24,673 4.27% $ 1,054 $ 11,376 3.17% $ 361
Federal funds sold 1,849 3.52 65 1,877 2.88 54
Taxable investment
securities 241,062 5.57 13,437 210,792 6.40 13,484
Tax-exempt
investment securities 8,984 5.48 492 14,492 5.67 821
Net loans 929,039 8.51 79,043 895,135 8.68 77,667
Total interest
earning assets 1,205,607 7.80 94,091 1,133,672 8.15 92,387
Nonearning assets 100,094 97,236
Total assets $1,305,701 $1,230,908
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Interest-bearing
demand deposits $ 104,847 1.36% $ 1,423 $ 100,577 1.58% $ 1,586
Savings and money
market deposits 459,282 2.45 11,264 448,921 2.74 12,308
Time deposits under
$100,000 163,479 3.77 6,161 168,076 4.49 7,540
Time deposits $100,000
and over 184,427 3.61 6,661 167,051 3.08 5,147
Other borrowed funds 109,150 5.58 6,091 73,874 5.88 4,341
Long-term debt -- -- -- -- -- --
Total interest-bearing
liabilities 1,021,185 3.09 31,600 958,499 3.23 30,922
Noninterest-bearing
deposits 152,941 152,643
Other liabilities 14,145 12,660
Stockholders' equity 117,430 107,106
Total liabilities and
stockholders'
equity $1,305,701 $1,230,908
Net interest income $62,491 $61,465
Net interest margin 5.18% 5.42%
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
Table 1. Average Balances, Interest Income and Expense, Yields and Rates (Taxable Equivalent) (cont'd)
1992
Average Amount
Average Yield/ of
Balance Rate Interest
<S> <C> <C> <C>
(Dollars in thousands)
Assets
Interest earning assets:
Interest-bearing
deposits
in other banks $ 25,600 4.14% $ 1,061
Federal funds sold 9,732 3.68 358
Taxable investment
securities 189,885 7.39 14,023
Tax-exempt
investment securities 9,103 8.73 795
Net loans 850,626 9.50 80,844
Total interest
earning assets 1,084,946 8.95 97,081
Nonearning assets 99,108
Total assets $1,184,054
Liabilities and
Stockholders' Equity:
Interest-bearing
liabilities:
Interest-bearing
demand deposits $ 94,869 2.58% $ 2,444
Savings and money
market deposits 422,655 3.81 16,123
Time deposits under
$100,000 176,750 5.82 10,286
Time deposits $100,000
and over 174,877 4.02 7,033
Other borrowed funds 60,433 5.88 3,554
Long-term debt 94 7.45 7
Total interest-bearing
liabilities 929,678 4.24 39,447
Noninterest-bearing
deposits 147,156
Other liabilities 12,135
Stockholders' equity 95,085
Total liabilities and
stockholders'
equity $1,184,054
Net interest income $57,634
Net interest margin 5.31%
</TABLE>
PAGE
<PAGE>
paid. The effective rate on interest-bearing liabilities decreased
to 3.09% in 1994 from 3.23% in 1993 and 4.24% in 1992. The rapid
increase in market interest rates during 1994 was not reflected in
the effective rate on interest-bearing liabilities primarily due to
the timing and magnitude with which the Bank's deposit liabilities,
except for time deposits $100,000 and over, were repriced as
compared to the changes in market interest rates. It is
anticipated that interest expense will increase in 1995 as deposits
reprice upward in response to the increase in the general level of
market interest rates that occurred over the past year.
As a result, the net interest margin was 5.18% in 1994 compared
to 5.42% in 1993 and 5.31% in 1992. The decrease in net interest
margin in 1994 was primarily due to the decrease in yields on loans
and investments. Further contraction in the net interest margin may
be anticipated as interest expense increases.
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 ("Allowance")
$3,300,000, $3,200,000 and $2,700,000 during 1994, 1993 and 1992,
respectively. Net loans charged-off of $2,135,000 in 1994 were
comprised of $1,079,000 in commercial loans, $310,000 in
installment loans and $746,000 in mortgage loans. Net charge-offs
were $1,447,000 in 1993 and $1,171,000 in 1992. The increase in
charge-offs was mainly due to the slowdown in the State of Hawaii
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 and mortgage loans are secured by
real estate and other collateral in Hawaii. Partial writedowns
were recorded on several commercial and mortgage loans during 1994
as a result of the Bank's ongoing monitoring of borrowers' ability
to repay and evaluation of related collateral.
The Allowance expressed as a percentage of loans increased to
1.84% at December 31, 1994, from 1.81% and 1.71% at the previous
two yearends, respectively. The increase in this ratio 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 is adequate to cover the
credit risks inherent in the loan portfolio. However, continuation
of current economic conditions in the State of Hawaii may adversely
affect the level of nonperforming loans and provision for loan
losses in the future.
PAGE
<PAGE>
<TABLE>
<CAPTION>
Table 2. Analysis of Changes in Net Interest Income (Taxable Equivalent)
Year ended December 31,
1994 Compared to 1993 1993 Compared to 1992
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
(Dollars in thousands)
Volume Rate Net Change Volume Rate Net Change
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest-bearing
deposits in other
banks $ 422 $ 271 $ 693 (590) $ (110) $ (700)
Federal funds sold (1) 12 11 (289) (15) (304)
Taxable investment
securities 1,936 (1,983) (47) 1,544 (2,083) (539)
Tax-exempt investment
securities (312) (17) (329) 471 (445) 26
Net loans 2,942 (1,566) 1,376 4,230 (7,407) (3,177)
Total interest
earning assets 4,987 (3,283) 1,704 5,366 (10,060) (4,694)
Interest-bearing
liabilities:
Interest-bearing
deposits 824 (1,896) (1,072) 329 (9,634) (9,305)
Other borrowed funds 2,072 (322) 1,750 790 (3) 787
Long-term debt -- -- -- (7) -- (7)
Total interest-bearing
liabilities 2,896 (2,218) 678 1,112 (9,637) (8,525)
Net interest income $ 2,091 $(1,065) $1,026 $ 4,254 $ (423) $ 3,831
</TABLE>
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
Nonperforming Assets
Total nonperforming assets, accruing loans delinquent for 90
days or more and restructured, accruing loans totaled $39,656,000
at December 31, 1994, increasing from $26,047,000 a year ago.
Nonaccrual loans of $16,056,000 increased during 1994 primarily due
to an $11.2 million loan ("hotel loan") secured by a hotel located
on the island of Maui. The sale of the hotel is currently being
negotiated and Management expects to collect all contractual
amounts due on the loan from the proceeds of the pending sale.
Restructured, still accruing loans of $8,486,000 were comprised of
two loans primarily secured by real estate. Other real estate of
$2,242,000 was comprised of residential properties. Loans
delinquent for 90 days or more of $12,872,000 at December 31, 1994
decreased from the $19,820,000 reported a year ago primarily due to
the transfer of the hotel loan to nonaccrual status in 1994. The
remaining balance of loans delinquent for 90 days or more was
comprised of loans secured by residential and light commercial
properties. A continuation of current economic conditions in the
local economy 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.
In May 1993 and October 1994, the Financial Accounting
Standards Board issued Statements on Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures," respectively. SFAS Nos.
114 and 118 prescribe the recognition criteria for loan impairment
and the measurement methods for certain impaired loans and loans
whose terms are modified in troubled debt restructurings. SFAS Nos.
114 and 118 are effective for fiscal years beginning after December
15, 1994. The Bank implemented the provisions of SFAS Nos. 114 and
118 on January 1, 1995. The effects of the implementation were not
material to the consolidated financial statements of the Company.
Table 3 sets forth nonperforming assets, accruing loans which were
delinquent for 90 days or more and restructured, accruing loans at
the dates indicated.
<TABLE>
<CAPTION>
Table 3. Nonperforming Assets, Past Due Loans and Restructured Loans
DECEMBER 31,
(Dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $16,056 $ 4,477 $ 5,478 $2,184 $ 732
Other real estate 2,242 1,750 296 -- --
Total nonperforming
assets 18,298 6,227 5,774 2,184 732
Loans delinquent for
90 days or more 12,872 19,820 7,383 4,113 3,146
Restructured, accruing
loans 8,486 -- -- -- --
Total nonperforming
assets, loans
delinquent for
90 days or more
and restructured,
accruing loans $39,656 $26,047 $13,157 $6,297 $3,878
Total nonperforming
assets as a percentage
of loans and other
real estate 1.84% 0.66% 0.64% 0.26% 0.10%
Total nonperforming
assets, loans
delinquent for 90
days or more and
restructured, accruing
loans as a percentage
of loans and other
real estate 3.99% 2.75% 1.46% 0.75% 0.54%
</TABLE>
<PAGE>
<PAGE>
Other Operating Income
Other operating income of $10,708,000 decreased by 4.1% in
1994 from 1993, which increased 22.9% over 1992. Service charges on
deposit accounts of $2,750,000 in 1994 increased by 6.6% compared
to 1993 and by 18.4% in 1993 compared to 1992. An adjustment to the
Bank's fee schedule in 1992 and efforts to enhance fee income
accounted for the increases. Partnership income derived from the
Company's 50% investment in CKSS Associates, which owns the
Company's headquarters building, totaled $1,362,000 in 1994
decreasing by 9.4% from 1993 due to lower rental income and higher
maintenance expenses. The building's occupancy rate exceeded 96%
at year-end 1994. Partnership income in 1993 increased by 19.8%
over 1992 due to lower interest expense on borrowings. Investment
securities gains were lower in 1994 primarily due to a $300,000
recovery on a mortgage-backed security in 1993. The Bank recorded a provision
for loss on the mortgage-backed security in 1992. Other
income of $540,000 in 1994 decreased from $943,000, which increased
by 34.5% over 1992, largely due to premiums earned from the
fluctuating volume of sales of residential mortgage loans. Total
other operating income expressed as a percentage of average assets
was 0.82% in 1994, 0.91% in 1993 and 0.77% in 1992.
Total Operating Expense
Total other operating expense of $47,332,000 in 1994 increased
by 9.4% over 1993, which increased by 8.4% over 1992. Salaries and
employee benefits of $25,209,000 increased by 10.0% over 1993,
which increased by 7.2% over 1992. Personnel expense increased
during 1994 due to the establishment of the Trust and Real Estate
Loan divisions and the new In-Store Branch Department along with
the opening of two new full-service branches in the towns of
Mililani and Kailua. In addition, the Bank opened its first
in-store branch in the Times Super Market in Royal Kunia on the
island of Oahu. 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 voluntary early
retirement program ("VERP"), which included the retirement bonus,
accumulated vacation pay and related payroll taxes thereon,
amounted to approximately $915,000.
Equipment expense increased by 14.7% in 1994 and by 11.7% in
1993 primarily due to increased investment in personal computers
and software and expenses related to the aforementioned new
divisions and branches. Other expense increased by 10.8% in 1994
and by 10.1% in 1993 largely due to losses from writedowns of other
real estate of $320,000 and an irregular transaction discussed
below. Total other operating expense as a percentage of average
assets was 3.63%, 3.52% and 3.37% in 1994, 1993 and 1992,
respectively. The increase in this ratio in 1994 was adversely
affected by the Bank's ongoing program to establish new branches
during this slow growth period in anticipation of future growth and
increased competition.
As disclosed in the Company's third quarter 1994 Form 10-Q
filed with the Securities and Exchange Commission, irregular
transactions were discovered in October 1994 involving a former
employee. With subsequent investigations and negotiations with the bonding
insurance company substantially completed, it is
anticipated that no material loss will be sustained by the Company
as a result of these transactions. Estimated expenses related to
this matter of approximately $300,000 were recorded during the
fourth quarter of 1994.
<TABLE>
<CAPTION>
Table 4. Components of Other Operating Income
Year ended December 31,
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Service charges on deposit accounts $2,750 $2,580 $2,179
Other service charges and fees 5,076 4,828 4,424
Partnership income 1,362 1,504 1,255
Fees on foreign exchange 980 978 808
Investment securities gains (losses) -- 336 (278)
Other 540 943 701
Total $10,708 $11,169 $9,089
Total other operating income as a
percentage of average assets 0.82% 0.91% 0.77%
</TABLE>
<TABLE>
<CAPTION>
Table 5. Components of Other Operating Expense
Year ended December 31,
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Salaries and employee benefits $25,209 $22,910 $21,372
Net occupancy expense 5,112 5,094 4,712
Equipment expense 2,528 2,204 2,026
Other 14,483 13,076 11,823
Total $47,332 $43,284 $39,933
Total other operating expense
as a percentage of average assets 3.63% 3.52% 3.37%
</TABLE>
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
INCOME TAXES
Income tax expense totaled $8,786,000 in 1994 compared to
$10,026,000 in 1993 and $9,119,000 in 1992. The effective tax rate
was 39.5%, 38.9% and 38.4%, 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
issued FAS No. 109, "Accounting for Income Taxes." The Statement
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 $1,305.7 million in 1994 increased by
$74.8 million or 6.1% over 1993, which increased by $46.9 million
or 4.0% over 1992. Average net loans of $929.0 million increased by
$33.9 million or 3.8% over 1993, which increased by $44.5 million
or 5.2% over 1992. The relatively low asset and loan growth in 1994
compared to higher growth rates experienced in recent years was
largely reflective of the lower level of economic activity in the
State of Hawaii. Average investment securities of $250.0 million
increased by $24.7 million or 11.0% over 1993, which increased by
$26.3 million or 13.2% over 1992. Interest-bearing deposits in
other banks averaged $24.7 million, $11.4 million and $25.6 million
in 1994, 1993 and 1992, respectively.
Loans increased primarily in the mortgage loan category,
totaling $505.8 million at year-end 1994, up by $20.7 million or
4.3% over year-end 1993. Commercial and industrial loans of $388.2
million increased by $13.3 million or 3.5%, construction loans of
$36.2 million increased by $14.1 million or 63.8%. Consumer loans
of $66.8 million decreased by $1.8 million from year-end 1993.
Average total deposits of $1,065.0 million increased by $27.7
million or 2.7% over 1993, which increased by $21.0 million or 2.1%
over 1992. Average core deposits (noninterest-bearing demand,
interest-bearing demand, savings deposits and time deposits under
$100,000) of $880.5 million increased over $870.2 million in 1993,
which increased by $28.8 million or 3.4% over 1992. Average core
deposits as a percentage of average total deposits were 82.7% in
1994 compared to 83.9% in 1993 and 82.8% in 1992. Average time
deposits greater than $100,000 were $184.4 million, $167.1 million
and $174.9 million in 1994, 1993 and 1992, respectively. The Bank
does not actively seek time deposits greater than $100,000 from
non-customers and does not accept brokered deposits. Average other
borrowed funds of $109.2 million in 1994 increased by $35.3 million
or 47.8% over 1993, which increased by $13.4 million or 22.2% over
1992. These funds were comprised primarily of advances from the
Federal Home Loan Bank of Seattle ("FHLB") of which the Bank is a member and
provided a source of intermediate-term fixed rate
financing for loan customers during the past three years. The
increase in 1994 over 1993 was due to securities sold under
agreements to repurchase transactions with customers investing in
shorter term instruments. Federal funds purchased along with
securities sold under agreements to repurchase are used to satisfy
overnight and short-term funding needs, and when advantageous, for
arbitrage. Accordingly, balances in these accounts may fluctuate
significantly on a day-to-day basis. Short-term funding needs may
also be satisfied by overnight advances from the FHLB.
>
PAGE
<PAGE>
<TABLE>
<CAPTION>
Table 6. Distribution of Assets, Liabilities and Stockholders' Equity
Year ended December 31,
1994 1993 1992
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 $43,705 3.3% $ 44,911 3.6% $ 53,190 4.5%
Interest-bearing deposits
in other banks 24,673 1.9 11,376 0.9 25,600 2.2
Federal funds sold 1,849 0.1 1,877 0.2 9,732 0.8
Taxable investment
securities 241,062 18.5 210,792 17.1 189,885 16.0
Tax-exempt investment
securities 8,984 .7 14,492 1.2 9,103 0.8
Net loans 929,039 71.2 895,135 72.7 850,626 71.8
Premises and equipment 23,583 1.8 22,985 1.9 23,283 2.0
Other assets 32,806 2.5 29,340 2.4 22,635 1.9
Total assets $1,305,701 100.0% $1,230,908 100.0% $1,184,054 100.0%
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing
demand $ 152,941 11.7%$ 152,643 12.4% $ 147,156 12.4%
Interest-bearing
demand 104,847 8.0 100,577 8.2 94,869 8.0
Savings and money
market 459,282 35.3 448,921 36.5 422,655 35.7
Time deposits under
$100,000 163,479 12.5 168,076 13.6 176,750 14.9
Time deposits $100,000
and over 184,427 14.1 167,051 13.6 174,877 14.8
Total deposits 1,064,976 81.6 1,037,268 84.3 1,016,307 85.8
Federal funds
purchased, securities
sold under agreements
to repurchase and
other borrowed funds 109,150 8.3 73,874 6.0 60,433 5.1
Long-term debt -- -- -- -- 94 --
Other liabilities 14,145 1.1 12,660 1.0 12,135 1.1
Total liabilities 1,188,271 91.0 1,123,802 91.3 1,088.969 92.0
Stockholders' equity 117,430 9.0 107,106 8.7 95,085 8.0
Total liabilities and
stockholders' equity $1,305,701 100.0% $1,230,908 100.0% $1,184,054 100.0%
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
(CONTINUED)
ASSET/LIABILITY MANAGEMENT
The Bank's net interest margin is subject to the risk of
interest rate fluctuations to the extent that rate-sensitive assets
and rate-sensitive liabilities mature or reprice at different times
or in differing amounts. 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 optimize 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 through the use of income simulation and rate shock
analysis. 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. The Bank's asset/liability management activities do
not include the use of derivative financial instruments, such as
interest rate swaps, futures and options.
Table 7 sets forth information concerning the interest rate
sensitivity of the Company's assets, liabilities and stockholders'
equity at December 31, 1994. 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 and over
three through six months categories. 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. Conversely, where
rate-sensitive liabilities exceed rate-sensitive assets, the
opposite impact occurs.
><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 $ 40,277 $ -- $ -- $ -- $ -- $ -- $ 40,277
Investment securities 29,344 17,343 33,514 96,927 54,396 12,264 243,788
Net loans 484,163 81,329 168,645 191,805 47,730 -- 973,672
Noninterest earning assets -- -- -- -- -- 123,802 123,802
Total assets 553,784 98,672 202,159 288,732 102,126 136,066 1,381,539
Liabilities and Stockholders'
Equity:
Noninterest-bearing deposits -- -- -- -- -- 162,776 162,776
Interest-bearing deposits 670,116 97,869 89,816 57,980 3,352 -- 919,133
Other borrowed funds 97,338 2,179 6,231 36,303 19,628 -- 161,679
Other liabilities -- -- 500 -- -- 16,348 16,848
Stockholders' equity -- -- -- -- -- 121,103 121,103
Total liabilities and
stockholders' equity 767,454 100,048 96,547 94,283 22,980 300,227 1,381,539
Interest rate sensitivity gap $(213,670) $ (1,376) $ 105,612 $ 194,449 $ 79,146 $(164,161) $ --
Cumulative interest rate
sensitivity gap $(213,670) $(215,046) $(109,434) $ 85,015 $ 164,161 $ -- $ --
</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. 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 II), 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 II) 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 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.
The Company's liquidity declined during 1994 primarily due to
the growth in loans which were funded primarily by an increase in
Federal funds purchased and securities sold under agreements to
repurchase and the reduction in investment securities.
Core deposits at December 31, 1994 totaled $878.7 million
decreasing by $21.5 million from year-end 1993. Time deposits
greater than $100,000 of $203.2 million at December 31, 1994
increased by $25.1 million or 14.1% from year-end 1993. The
increase reflected customers' attraction to the higher rates paid
on those deposits during 1994 due to the rise in interest rates.
The increase in time deposits greater than $100,000 was subject to
the Bank's internal policy guidelines which also disallows the use
of brokered deposits as a funding source.
Net cash provided by operating activities was $24.5 million,
$17.9 million and $11.1 million and by financing activities was
$64.7 million, $33.6 million and $105.7 million in 1994, 1993 and
1992, respectively. Net cash used in investing activities was $90.8
million, $59.8 million and $114.8 million in the respective years,
resulting in cash and cash equivalents decreasing by $1.5 million
and $8.2 million in 1994 and 1993, respectively and increasing by
$2.0 million in 1992.
EFFECTS OF INFLATION
The consolidated 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, 1994 At December 31, 1993
Required Actual Excess Required Actual Excess
<S> <C> <C> <C> <C> <C> <C>
Tier I risk-based
capital ratio 4.00% 11.31% 7.31% 4.00% 10.94% 6.94%
Total risk-based
capital ratio 8.00 12.56 4.56 8.00 12.19 4.19
Leverage capital
ratio 3.00 8.84 5.84 3.00 8.65 5.65
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
CPB INC. AND SUBSIDIARY - DECEMBER 31, 1994 AND 1993
(Dollars in thousands,
except per share data) 1994 1993
<S> <C> <C>
Assets
Cash and due from banks $ 61,604 $ 58,152
Interest-bearing deposits
in other banks 40,277 5,039
Federal funds sold -- 5,000
Investment securities:
Held to maturity, at cost
(fair value $157,345 and $253,313
at December 31, 1994 and December
31, 1993, respectively) 162,098 250,668
Available for sale, at fair value 81,690 --
Total investment securities 243,788 250,668
Loans 991,968 945,768
Less allowance for loan losses 18,296 17,131
Net loans 973,672 928,637
Premises and equipment 24,217 23,282
Accrued interest receivable 9,781 9,108
Investment in partnership 5,428 4,666
Due from customers on acceptances 1,459 1,347
Other assets 21,313 17,203
Total assets $1,381,539 $1,303,102
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing deposits $ 162,776 $ 180,254
Interest-bearing deposits 919,133 898,072
Total deposits 1,081,909 1,078,326
Federal funds purchased and
securities sold under
agreements to repurchase 67,355 9,130
Other borrowed funds 94,324 86,831
Bank acceptances outstanding 1,459 1,347
Other liabilities 14,889 13,280
Employee stock ownership plan
note payable 500 1,000
Total liabilities 1,260,436 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
5,235,331 and 5,230,331
shares at December 31, 1994
and 1993, respectively 6,544 6,538
Surplus 45,178 45,140
Retained earnings 71,386 62,510
Unrealized loss on investment
securities (1,505) --
121,603 114,188
Employee stock ownership plan
shares purchased with debt (500) (1,000)
Total stockholders' equity 121,103 113,188
Total liabilities and
stockholders' equity $1,381,539 $1,303,102
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands,
except per share data) 1994 1993 1992
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $78,939 $77,577 $80,753
Interest and dividends on
investment securities:
Taxable interest 12,632 11,998 13,137
Tax-exempt interest 298 519 517
Dividends 805 1,486 886
Interest on deposits in other banks 1,054 361 1,061
Interest on Federal funds sold 65 54 358
Total interest income 93,793 91,995 96,712
Interest expense:
Interest on deposits 25,509 26,581 35,886
Interest on other borrowed funds 6,091 4,341 3,554
Interest on subordinated capital note -- -- 7
Total interest expense 31,600 30,922 39,447
Net interest income 62,193 61,073 57,265
Provision for loan losses 3,300 3,200 2,700
Net interest income after
provision for loan losses 58,893 57,873 54,565
Other operating income:
Service charges on deposit accounts 2,750 2,580 2,179
Other service charges and fees 5,076 4,828 4,424
Partnership income 1.362 1,504 1,255
Fees on foreign exchange 980 978 808
Investment securities gains (losses) -- 336 (278)
Other 540 943 701
Total other operating income 10,708 11,169 9,089
Other operating expense:
Salaries and employee benefits 25,209 22,910 21,372
Net occupancy 5,112 5,094 4,712
Equipment 2,528 2,204 2,026
Other 14,483 13,076 11,823
Total other operating expense 47,332 43,284 39,933
Income before income taxes
and cumulative effect
of accounting change 22,269 25,758 23,721
Income taxes 8,786 10,026 9,119
Income before cumulative effect
of accounting change 13,483 15,732 14,602
Cumulative effect of accounting change -- 208 --
Net income $13,483 $15,940 $14,602
Per common share:
Income before cumulative effect
of accounting change $ 2.58 $ 3.02 $ 2.81
Cumulative effect of accounting change -- 0.04 --
Net income $ 2.58 $ 3.06 $ 2.81
Cash dividends declared $ 0.88 $ 0.88 $ 0.80
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, 1994, 1993 AND 1992
UnrealizedEmployee stock
loss onownership plan
Common Retained investmentshares purchased
(Dollars in thousands, stock Surplus earnings securities with debt Total
except per share data)
<S> <C> <C> <C> <C> <C> <C>
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
Reduction of 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
Reduction of 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
Net income -- -- 13,483 -- -- 13,483
Cash dividends declared
($0.88 per share) -- -- (4,607) -- -- (4,607)
5,000 shares of common
stock issued 6 38 -- -- -- 44
Net change in unrealized
loss on investment
securities -- -- -- (1,505) -- (1,505)
Reduction of employee
stock ownership plan
obligation guaranteed
by Company -- -- -- -- 500 500
Balance at December 31, 1994 $6,544 $45,178 $71,386 $(1,505) $(500) $121,103
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,483 $ 15,940 $ 14,602
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 3,300 3,200 2,700
Provision for depreciation and amortization 2,386 2,151 2,011
Net amortization and accretion of investment securities 2,719 3,245 2,025
Net loss (gain) on investment securities -- (336) (278)
Federal Home Loan Bank stock dividends received (1,216) (1,076) (886)
Net deferred loan origination fees 97 43 118
Net change in loans held for sale 6,622 (844) (9,909)
Net gain on sale of loans (214) (554) (412)
Amortization of intangible assets 112 92 92
Cumulative effect of accounting change -- (208) --
Deferred income tax expense (benefit) 4,068 (572) (575)
Partnership income (1,362) (1,504) (1,255)
Decrease (increase) in accrued interest
receivable and other assets (6,418) (1,770) 3,048
Increase (decrease) in accrued interest
payable and other liabilities 949 105 (720)
Net cash provided by operating activities 24,526 17,912 11,117
Cash flows from investing activities:
Proceeds from maturities of and calls on
investment securities held to maturity 83,311 207,593 90,591
Purchases of investment securities held to maturity (56,550) (229,192) (165,611)
Proceeds from maturities of and calls on
investment securities available for sale 79,344 -- --
Purchases of investment securities available for sale (103,218) -- --
Net decrease (increase) in interest-bearing
deposits in other banks (35,238) 8,065 18,978
Net loan originations over principal repayments (53,075) (44,295) (58,065)
Loans acquired in branch acquisition (2,656) -- --
Purchases of premises and equipment (3,321) (2,498) (1,230)
Distributions from partnership 600 540 490
Net cash used in investing activities (90,813) (59,787) (114,847)
Cash flows from financing activities:
Net increase (decrease) in deposits (7,238) 4,271 83,193
Deposits acquired in branch acquisition 10,821 -- --
Proceeds from Federal Home Loan Bank
intermediate-term advances 14,600 20,455 38,100
Repayments of Federal Home Loan Bank
intermediate-term advances (27,174) (1,057) (629)
Net increase (decrease) in short-term borrowings 78,292 13,850 (10,782)
Payments on subordinated capital note -- -- (200)
Cash dividends paid (4,606) (4,483) (4,049)
Proceeds from sale of common stock 44 610 80
Net cash provided by financing activities 64,739 33,646 105,713
Net increase (decrease) in cash and cash equivalents (1,548) (8,229) 1,983
Cash and cash equivalents:
At beginning of year 63,152 71,381 69,398
At end of year $ 61,604 $ 63,152 $ 71,381
Supplemental disclosure of cash flow information:
Cash paid during the year for interest 29,663 $ 31,511 $ 40,946
Cash paid during the year for income taxes 7,634 $ 10,970 $ 9,452
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CPB INC. AND SUBSIDIARY - DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CPB Inc. ("Company") and its wholly-owned 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 and Federal funds sold.
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 January 1,
1994 and December 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 as a separate component of stockholders'
equity, net of taxes. Held-to-maturity debt securities are
reported at amortized cost.
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
as available for sale was made to provide management with the
flexibility, under certain circumstances, to adjust the Company's
liquidity and interest rate positions as necessary. Investment
securities with a carrying value of $191,649,000 at January 1, 1994
were classified as held to maturity based on the Company's positive
intent and ability to hold such securities to maturity.
As of December 31, 1993, investment securities were carried at
cost, adjusted for the amortization of premiums and the accretion
of discounts, as the Company had the intent and ability to hold its
investment securities to maturity.
Gains and losses from the disposition of investment securities
are computed using the specific identification method.
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
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, 1994 and 1993, approximately $8,764,000 and $15,386,000,
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 is 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
Intangible assets, included in other assets, represent the
excess of purchase price over the estimated fair value of net
assets acquired from two branch acquisitions. Accumulated
amortization amounted to $319,000 and $207,000 at December 31, 1994
and 1993, respectively. The intangible assets are being amortized
on a straight-line basis over the estimated benefit periods based
on depositor relationships existing at the acquisitions dates.
Amortization expense amounted to $112,000 for the year ended December 31, 1994
and $92,000 for each of the years ended December
31, 1993 and 1992.
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 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 $2,242,000 and $1,750,000 at December 31, 1994 and
1993, 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 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
The Bank is required by the Federal Reserve Bank to maintain
reserves based on the amount of deposits held. The amount held as
a reserve at December 31, 1994 and 1993 was $19,077,000 and
$17,931,000, respectively.
3. INVESTMENT SECURITIES
A summary of investment securities at December 31, 1994 and
1993 follows:
><PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
(Dollars in thousands) Cost gains losses value
<S> <C> <C> <C> <C>
1994:
Held to Maturity:
U.S. Treasury and other
U.S. Government agencies $148,213 $ 369 $4,902 $143,680
States and political
subdivisions 13,885 67 287 13,665
Total $162,098 $ 436 $5,189 $157,345
Available for Sale:
U.S. Treasury and other
U.S. Government agencies $ 69,377 $ -- $2,428 $ 66,949
Private-issuer mortgage-backed
securities 2,549 -- 72 2,477
Federal Home Loan Bank stock 12,264 -- -- 12,264
Total $ 84,190 $ -- $2,500 $ 81,690
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 11,048 -- -- 11,048
Total $250,668 $3,346 $701 $253,313
</TABLE>
PAGE
<PAGE>
The amortized cost and estimated fair value of investment
securities at December 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
Amortized fair
(Dollars in thousands) cost value
<S> <C> <C>
Held to Maturity:
Due in one year or less $ 40,064 $ 39,747
Due after one year through five years 106,490 102,402
Due after five years through ten years 3,181 2,890
Due after ten years 2,577 2,621
152,312 147,660
Mortgage-backed securities 9,786 9,685
Total $162,098 $157,345
Available for Sale:
Due after one year through five years $ 40,903 $ 40,254
Mortgage-backed securities 31,023 29,172
Federal Home Loan Bank stock 12,264 12,264
Total $ 84,190 $ 81,690
</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, 1994.
Investment securities of $205,960,000 and $129,934,000 at
December 31, 1994 and 1993, respectively, were pledged to secure
public funds on deposit, securities sold under agreements to
repurchase 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 10).
4. LOANS
Loans consisted of the following at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
<S> <C> <C>
Real estate:
Mortgage $505,802 $ 485,148
Construction 36,152 22,080
Commercial, financial
and agricultural 388,184 374,868
Installment 66,848 68,593
996,986 950,689
Unearned income 5,018 4,921
Total 991,968 $945,768
</TABLE>
In the normal course of business, the Bank has made loans to
certain directors, executive 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, 1993 $2,971
Additions 2,998
Repayments (462)
Other changes 805
Balance, December 31, 1994 $6,312
</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, 1994 and 1993 were
$16,056,000 and $4,477,000, respectively. The Bank collected and
recognized interest of $74,000 on nonaccrual loans in 1994. The
Bank would have recognized additional interest income of $266,000
had these loans been accruing interest throughout 1994.
Additionally, the Bank collected interest of $54,000 on charged-off
loans in 1994.
Restructured, accruing loans at December 31, 1994 amounted to
$8,486,000. During 1994, the Bank recognized interest income of
$704,000 on these loans in accordance with their original and
restructured contractual terms. There were no restructured,
accruing loans outstanding at December 31, 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 Financial Accounting Standards Board ("FASB")
issued SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," which was subsequently amended by SFAS No. 118 in October
1994. SFAS Nos. 114 and 118, effective for fiscal years beginning
after December 15, 1994, prescribe 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 Nos. 114 and 118 is
permitted, and restatement of previously-issued financial
statements is prohibited. The Company adopted the requirements of
SFAS Nos. 114 and 118 on January 1, 1995. The effects of the new
accounting pronouncements were not material to the consolidated
financial statements of the Company.
>
PAGE
<PAGE>
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Balance, beginning of year $17,131 $15,378 $13,849
Provision for loan losses 3,300 3,200 2,700
20,431 18,578 16,549
Charge-offs (2,519) (1,642) (1,364)
Recoveries 384 195 193
Net charge-offs (2,135) (1,447) (1,171)
Balance, end of year $18,296 $17,131 $15,378
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December
31, 1994 and 1993:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
<S> <C> <C>
Land $ 6,000 $ 6,000
Office buildings and leasehold
improvements 18,246 17,195
Furniture, fixtures and equipment 13,077 11,643
37,323 34,838
Less accumulated depreciation and
amortization 13,106 11,556
Net $24,217 $23,282
</TABLE>
Depreciation and amortization of premises and equipment were
charged to the following operating expenses:
<TABLE>
<CAPTION>
Useful
(Dollars in thousands) 1994 1993 1992 lives
<S> <C> <C> <C> <C>
Net occupancy expense $ 787 $ 751 $ 741 1 to 35
years
Equipment expense 1,599 1,400 1,270 2 to 20
years
Total $2,386 $2,151 $2,011
</TABLE>
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, 1994 and 1993
(Dollars in thousands) 1994 1993
<S> <C> <C>
Assets:
Office building
(including land valued at $5,200) 25,832 26,110
Development in process 12,286 4,153
Deferred costs 2,469 2,143
Other assets 772 460
Total assets $41,359 $32,866
Liabilities and Partners' Equity:
Notes payable $20,600 $14,800
Other liabilities 2,265 1,096
Partners' equity 18,494 16,970
Total liabilities and partners'
equity $41,359 $32,866
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended December 31, 1994,
1993 and 1992
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Revenues:
Rental income from bank $1,925 $1,785 $1,606
Other rental income
and other revenues 5,603 6,033 5,943
Total revenues 7,528 7,818 7,549
Total costs and expenses 4,804 4,810 5,038
Net income $2,724 $3,008 $2,511
</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
Plaza"), 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:
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 years ended December 31, 1994 and
1993 was $240,000 and $180,000, respectively.
In November 1994, the Bank entered a 25-year lease agreement
with CKSS Associates to lease office space in the Kaimuki Plaza for
its Kaimuki Branch. This lease is effective from November 1, 1994
through October 31, 2019 and has been accounted for as an operating
lease. Lease payments commence in May 1995 and are fixed at
$122,000 per year for five years. Thereafter, and until the end of
the lease term, annual rental payments are to be reset every five
years based on fair market rates at the time.
NOTES PAYABLE
At December 31, 1994, notes payable included $11,000,000
payable to The Sumitomo Bank, Limited ("Sumitomo"), the principal
stockholder of CPB Inc., and $9,600,000 due to Central Pacific
Bank. The note payable to Sumitomo with an outstanding balance of
$11,000,000 and a note payable to the Bank with an outstanding
balance of $600,000 are due on November 18, 1996 and are secured by
a mortgage on Central Pacific Plaza which houses the Company's
headquarters. The remaining $9,000,000 payable to the Bank
represents the outstanding balance on a $10,700,000 facility due on
August 10, 2001, which is secured by the leasehold interest in the
Kaimuki Plaza. All loans are priced at .75% above the London
Interbank Offered Rate ("LIBOR"). The weighted average interest
rate on these notes was 7.075% at December 31, 1994.
8. DEPOSITS
Certificates of deposit with balances of $100,000 or more were
$203,249,000 and $178,108,000 at December 31, 1994 and 1993,
respectively.
Interest expense on certificates of deposit with balances of
$100,000 or more was $6,661,000, $5,336,000 and $7,033,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
9. FEDERAL FUNDS PURCHASED AND SECURITIES
SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase, with a
weighted average contractual maturity of 80 days at December 31,
1994, were treated as financings, and the obligations to repurchase
the identical securities sold were reflected as a liability with
the dollar amount of securities underlying the agreements remaining
in the asset accounts. At December 31, 1994, the underlying
securities were held in a custodial account subject to Bank
control. Federal funds purchased generally mature on the day
following the date of purchase.
A summary of federal funds purchased and securities sold under
agreements to repurchase follows:<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Federal funds purchased:
Amounts outstanding at
December 31 $ -- $ -- $ --
Average amount outstanding
during year 282 145 736
Highest month-end balance
during year 11,000 -- --
Weighted average interest
rate on balance outstanding
at December 31 -- -- --
Weighted average interest rate
during year 4.819% 3.167% 3.244%
Securities sold under agreements
to repurchase:
Amounts outstanding at
December 31 $67,355 $ 9,130 $ --
Average amount outstanding
during year 29,534 3,126 3,133
Highest month-end balance
during year 67,355 9,130 --
Weighted average interest rate
on balance outstanding at
December 31 5.048% 2.781% --
Weighted average interest rate
during year 4.421% 2.990% 4.184%
</TABLE>
10. OTHER BORROWED FUNDS
A summary of FHLB advances and other borrowings at December
31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
<S> <C> <C>
FHLB intermediate-term advances with
a weighted average
interest rate of 6.173% and 5.951% at
December 31, 1994 and 1993, respectively $68,307 $80,881
FHLB overnight advances 25,000 5,000
Other short-term borrowings 1,107 950
Total $94,324 $86,831
</TABLE>
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. The Bank had additional unused FHLB
advances of approximately $4,800,000 at December 31, 1994.
At December 31, 1994 approximate maturities of FHLB advances
and other short-term borrowings were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Year ending December 31:
<S> <C>
1995 $38,371
1996 12,170
1997 24,012
1998 511
1999 511
Thereafter 18,749
Total $94,324
</TABLE>
11. 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.
12. 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 $1,164,000, $1,350,000 and $1,300,000
for 1994, 1993 and 1992, 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.
13. 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, 1994, stock options to
purchase 125,856 shares of the Company's common stock were
outstanding, of which 82,584 shares were exercisable. These options
expire ten years after the grant date. The option price on 19,064
shares is $5.39, on 34,672 shares is $14.32 and on the remaining
72,120 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, 1994, options on 5,000 shares of the
Company's common stock were exercised for a total 145,804 shares
exercised through December 31, 1994.
14. 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
8,435 shares were exercisable as of December 31, 1994, subject to
the approval of the Federal Reserve Board. Warrants for the
remaining 11,812 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 in connection with the Company's issuance of
125,000 shares of common stock to the ESOP in 1991 (see note 12).
No warrants were exercised in 1994.
15. 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 terminated 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, 1994 and 1993:
>
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993
<S> <C> <C>
Actuarial present value of
benefit obligations:
Estimated present value
of vested benefits $(12,797) $(15,015)
Estimated present value
of nonvested benefits (382) (1,437)
Accumulated benefit obligations (13,179) (16,452)
Value of future pay increases (5,427) (5,201)
Projected benefit obligation (18,606) (21,653)
Plan assets at fair value 16,087 17,345
Projected benefit
obligation in excess of
plan assets (2,519) (4,308)
Unrecognized prior service cost 4,878 5,422
Unrecognized net loss resulting
from changes in plan
experience and actuarial
assumptions 2,020 4,294
Unrecognized net asset being
recognized over 15 years (273) (318)
Prepaid pension cost included
in other assets $ 4,106 $ 5,090
</TABLE>
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was 8
percent in 1994 and 6.9 percent in 1993. The weighted average rate
of compensation increase was 5 percent for 1994 and 1993.
Net pension cost for the years ended December 31, 1994, 1993
and 1992 included the following components:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost $ 893 $ 829 $ 685
Interest cost 1,518 1,349 1,217
Actual loss (gain)
on plan assets 899 (773) (1,409)
Net amortization and deferral (1,759) (136) 543
Net pension cost $1,551 $1,269 $1,036
</TABLE>
The weighted average discount rate used in determining the net
periodic pension cost was 6.9 percent, 7.0 percent and 7.5 percent
in 1994, 1993 and 1992, respectively. The weighted average rate of
compensation increase was 5 percent, and the expected long-term
rate of return on plan assets was 9 percent for 1994, 1993 and
1992.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED)
The reactivation of the defined benefit retirement 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 retirement plan. Participants in the money
purchase pension plan came fully vested at the time of curtailment,
and in November 1993 each participant's share of the plan assets
was distributed to the participant.
16. 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.
Employees may elect to receive up to 50% of their annual allocation
in cash. The Bank made contributions of $784,000, $897,000 and
$849,000 for 1994, 1993 and 1992, respectively.
17. OPERATING LEASES
The Bank occupies a number of properties under leases which
expire on various dates through 2019 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, charged to net occupancy expense, for all
operating leases is summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Total rent expense $4,164 $4,325 $4,094
Less sublease rental income (83) (86) (75)
Net $4,081 $4,239 $4,019
</TABLE>
The following is a schedule of future minimum rental
commitments for all noncancelable operating leases that had initial
lease terms in excess of one year at December 31, 1994:
>
<TABLE>
<CAPTION>
Less
sublease Net
Rental rental rental
(Dollars in thousands) Commitment income commitment
<S> <C> <C> <C>
Year ending December 31:
1995 3,570 78 3,492
1996 3,347 78 3,269
1997 3,170 73 3,097
1998 2,887 65 2,822
1999 2,665 60 2,605
Thereafter 17,786 -- 17,786
Total $ 33,425 $354 $33,071
</TABLE>
<PAGE>
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 lease terms in excess of one year at December 31, 1994:
<TABLE>
<CAPTION>
Minimum
(Dollars in thousands) rental income
<S> <C>
Year ending December 31:
1995 $ 1,265
1996 1,045
1997 856
1998 727
1999 698
Thereafter 18,167
Total $22,758
</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.
18. OTHER EXPENSE
Components of other expense for the years ended December 31,
1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Insurance $2,723 $ 2,701 $ 2,592
Charge card 1,827 1,648 1,435
Stationery and supplies 1,099 1,205 1,103
Advertising 1,200 1,202 1,001
Other 7,634 6,320 5,692
Total $14,483 $13,076 $11,823
</TABLE>
19. 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, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
Dollars in thousands) Current Deferred Total
<S> <C> <C> <C>
1994:
Federal $ 3,920 $ 3,225 $ 7,145
State 798 843 1,641
Total $ 4,718 $ 4,068 $ 8,786
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
</TABLE>
Income tax expense amounted to $8,786,000, $10,026,000 and $9,119,000 for
1994, 1993 and 1992, 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 1994 and 1993 and 34 percent in 1992 to income
before income taxes and cumulative effect of accounting change) for
the following reasons:
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Computed "expected"
tax expense $ 7,794 $ 9,015 $ 8,065
Increase (decrease) in taxes
resulting from:
Tax-exempt interest (194) (402) (293)
State franchise tax, net of
Federal income tax benefit $ 1,067 1,242 1,037
Other 119 171 310
Total $ 8,786 $10,026 $ 9,119
</TABLE>
The components of deferred income taxes for the year ended
December 31, 1992 were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1992
<S> <C>
Provision for loan losses $(520)
Finance fees (54)
Employee retirement benefits (266)
Interest on nonaccrual loans (139)
Unrealized gain
on investment securities (137)
State franchise tax (120)
FHLB stock dividends received 405
Depreciation 57
Other 199
Total $(575)
</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, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
(Dollars in thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $6,404 $5,555
Deferred finance fees --- 1,957
Premises and equipment, principally
due to differences in depreciation --- 346
Employee retirement benefits 1,115 642
Accrued Expenses 395 ---
Other 464 404
Total deferred tax assets 8,378 8,904
Deferred tax liabilities:
Deferred gain on curtailed retirement plan 2,977 2,759
Net deferred gain on investment securities 1,067 ---
FHLB stock dividends received 1,425 1,000
Investment in unconsolidated subsidiary 832 727
Premises and equipment, principally
due to differences in depreciation 762 ---
Deferred finance fees 238 ---
Other 467 735
Total deferred tax liabilities 7,768 5,221
Net deferred tax assets $ 610 $3,683
</TABLE>
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which
those temporary differences become deductible. Management
considers projected future taxable income and tax planning
strategies in making this assessment. There was no valuation
allowance for deferred tax assets as of December 31, 1994 and 1993.
PAGE
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
20. 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
5,234,000, 5,216,000 and 5,192,000 in 1994, 1993 and 1992,
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.
21. BRANCH ACQUISITIONS
In February 1994, the Bank acquired certain assets, including
$2,656,000 in loans, and assumed certain liabilities, including
$10,821,000 in deposits, of First Hawaiian Bank's Rice Branch in
Lihue, Kauai. The acquisition was accounted for using the purchase
method of accounting. The acquisition premium amounted to $67,000,
and the balance of $8,109,000 was received as a cash settlement.
22. 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.
23. 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, 1994 and 1993 financial instruments with off-balance-sheet
risk were as follows:
<TABLE>
<CAPTION>
Contract or notional
amount
(Dollars in thousands) 1994 1993
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $328,971 $331,019
Standby letters of credit and
financial guarantees written 25,573 25,410
</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.
In October 1994, the FASB issued SFAS No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of Financial
Instruments." SFAS No. 119 amends SFAS No. 105, "Disclosures of
Information about Financial Instruments with Off-Balance-Sheet Risk
and Financial Instruments with Concentrations of Credit Risk," and
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments." SFAS No. 119 requires the disclosure of comparable
information for options and other similar financial instruments
that previously were not within the scope of SFAS No. 105. SFAS
No. 119 defines a "derivative" financial instrument as a future,
forward, swap, option contract or other financial instrument with
similar characteristics. The Bank does not use futures, forwards,
swaps or option contracts either for trading or for any other
purposes, with the exception of a limited amount of foreign
exchange forward contracts used to satisfy customer and operational needs.
Foreign exchange forward contracts outstanding at
December 31, 1994 and 1993 were not material.
24. 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.
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1994 At December 31, 1993
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 $ 61,604 $ 61,604 $ 58,152 $ 58,152
Interest-bearing deposits
in other banks 40,277 40,277 5,039 5,039
Federal funds sold -- -- 5,000 5,000
Investment securities 243,788 239,035 250,668 253,313
Loans 991,968 987,876 945,768 950,855
Accrued interest receivable 9,781 9,781 9,108 9,108
Due from customers on acceptance 1,459 1,459 1,347 1,347
Financial liabilities:
Deposits:
Noninterest-bearing deposits 162,776 162,776 180,254 180,254
Interest-bearing demand and
savings deposits 552,998 552,998 559,608 559,608
Time deposits 366,135 364,581 338,464 339,815
Total deposits 1,081,909 1,080,355 1,078,326 1,079,677
Federal funds purchased and
securities sold under
agreements to repurchase 67,355 67,355 9,130 9,130
FHLB Advances 93,307 89,486 85,881 86,936
Other short-term borrowings 1,017 1,017 950 950
Bank acceptances outstanding 1,459 1,459 1,347 1,347
Accrued interest payable
(included in other liabilities) 6,758 6,758 4,821 4,821
Employee stock ownership
plan note payable 500 500 1,000 1,000
Off-balance-sheet financial
instruments:
Commitments to extend credit 328,971 854 331,019 792
Standby letters of credit and
financial guarantees written 25,573 192 25,410 191
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
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, 1994. 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 12, 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 counterparties. The fair value of
standby letters of credit and financial guarantees written is based
on fees currently charged for similar agreements.
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.
25. DECLARATION OF DIVIDENDS
The board of directors, at a special meeting held December 6,
1994, 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,
1994.
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, 1994, retained earnings of the parent company,
CPB Inc., included $73,633,000 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, 1994, the retained earnings of the Bank totaled
$73,842,000.
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, 1994, 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, 1994 and 1993
(Dollars in thousands, except per share data) 1994 1993
<S> <C> <C>
Assets:
Cash $ 585 $ 1,137
Investment securities 7,503 7,000
Investment in and advances
to subsidiary bank, at equity
in underlying net assets 114,588 107,120
Accrued interest receivable
and other assets 106 15
Total assets 122,782 $115,272
Liabilities and Stockholders' Equity:
Employee stock ownership
plan note payable $ 500 $ 1,000
Other liabilities 1,179 1,084
Total liabilities 1,679 2,084
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
5,235,331 and 5,230,331
shares at December 31, 1994
and 1993, respectively 6,544 6,538
Surplus 45,178 45,140
Retained earnings 71,386 62,510
Unrealized loss on investment securities (1,505) --
121,603 114,188
Employee stock ownership plan shares
purchased with debt (500) (1,000)
Total stockholders' equity 121,103 113,188
Total liabilities and
stockholders' equity $122,782 $115,272
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Income:
Dividends from subsidiary bank $ 4,623 $ 4,516 $ 4,063
Interest income:
Interest on interest-bearing
deposits in other banks -- 1 191
Interest on investment securities 254 209 103
Interest from subsidiary bank 30 19 158
Total income 4,907 4,745 4,515
Total expenses 251 225 129
Income before income taxes and
equity in undistributed
income of subsidiary bank 4,656 4,520 4,386
Income taxes 13 1 124
Income before equity in
undistributed income of
subsidiary bank 4,643 4,519 4,262
Equity in undistributed income of
subsidiary bank 8,840 11,421 10,340
Net income $13,483 $15,940 $14,602
</TABLE>
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,483 $ 15,940 $ 14,602
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income tax expense 34 2 103
Equity in undistributed income of subsidiary bank (8,840) (11,421) (10,340)
Other, net 11 46 75
Net cash provided by operating activities 4,688 4,567 4,440
Cash flows from investing activities:
Net decrease in interest-bearing deposits in other banks -- 3,019 3,987
Proceeds from maturities of investment securities held to maturity -- 65,200 7,000
Purchases of investment securities held to maturity (2,666) (68,200) (11,000)
Proceeds from maturities of investment securities available for sale 34,700 -- --
Purchases of investment securities available for sale (32,693) -- --
Investment in and advances to subsidiary bank (19) (2) (4,875)
Net cash provided by (used in) investing activities (678) 17 (4,888)
Cash flows from financing activities:
Proceeds from sale of common stock 44 610 80
Dividends paid (4,606) (4,483) (4,049)
Net cash used in financing activities (4,562) (3,873) (3,969)
Net increase (decrease) in cash and cash equivalents (552) 711 (4,417)
Cash and cash equivalents:
At beginning of year 1,137 426 4,843
At end of year $ 585 $ 1,137 $ 426
/TABLE
<PAGE>
27. Quarterly Information (unaudited)
A summary of unaudited quarterly operating results for the years ended
December 31, 1994 and 1993, follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) First Second Third Fourth
quarter quarter quarter quarter Total
<S> <C> <C> <C> <C> <C>
1994:
Interest income $22,486 $22,779 $23,568 $24,960 $93,793
Net interest income 15,318 15,406 15,628 15,841 62,193
Provision for loan losses 825 825 825 825 3,300
Net interest income after provision
for loan losses 14,493 14,581 14,803 15,016 58,893
Income before income taxes
and cumulative effect of
accounting change 5,127 5,808 5,814 5,520 22,269
Net income 3,126 3,480 3,546 3,331 13,483
Net income per share .60 .66 .68 .64 2.58
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
</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, 1994 and 1993, 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, 1994. 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, 1994 and
1993, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1994
in conformity with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial
statements, the Company changed its methods of accounting for
investment securities in 1994 and income taxes in 1993.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
February 24, 1995
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 1994 and 1993 as reported
by NASDAQ and cash dividends declared for those years.
<TABLE>
<CAPTION>
Cash
dividends
High Low declared
<S> <C> <C> <C>
1994:
First quarter $27.25 $24.75 $0.22
Second quarter 29.00 24.50 0.22
Third quarter 28.75 24.75 0.22
Fourth quarter 26.00 22.25 0.22
Year $29.00 $22.25 $0.88
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
</TABLE>
The last sales price of the common stock as of January 31,
1995 as reported by NASDAQ was $24.00 per share.
On January 31, 1995, there were approximately 2,453
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.
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 administrative headquarters and
main offices are located. CKSS Associates also owns Kaimuki Plaza,
where the Bank's Kaimuki Branch office is located. CPB Properties,
Inc. also owns buildings where a branch facility and the Bank's
Operations Center are located, and owns the land on which CKSS
Associates' Kaimuki Plaza is built.
BANKING SERVICES
Central Pacific Bank is a full-service commercial bank which
currently has 21 banking offices located throughout the state of
Hawaii. Its administrative offices are located in Honolulu and 16
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.
In September, 1994, Central Pacific Bank established its first
branch office within a supermarket.This branch operates 7-days a
week with extended hours.
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.
A variety of deposit instruments are offered, including
personal and business checking and savings accounts,
interest-bearing negotiable order of withdrawal ("NOW") accounts,
money market accounts and time certificates of deposits.
The 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; automobile loans, home improvement and debt
consolidation; personal lines of credit; and installment and term
loans for other personal needs.
VISA and MasterCard credit card services, and a VISA debit
card service are offered by the Bank. 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 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, INFOLINE - telephone banking services, and
Cash Manager, a PC Windows based account manager. A combined
balance program, Select Plan, offers free and discounted banking
services at certain combined balance levels for retail customers.
Personal trust services are provided through the Trust
Division. Personal trust services include custodial, investment
management and other special services.
The Bank currently has 33 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.
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, 1994, by writing to: Austin Y. Imamura, Vice President
and Secretary, CPB Inc., P.O. Box 3590, Honolulu, Hawaii
96811-3590.
PAGE
<PAGE>
APPENDIX I
Bar Graphs
Deposits (In millions)
90 $ 932
91 $ 991
92 $1,074
93 $1,078
94 $1,082
Net Loans (In millions)
90 $ 704
91 $ 822
92 $ 886
93 $ 929
94 $ 974
Net Income (In millions)
90 $11.5
91 $12.7
92 $14.6
93 $15.9
94 $13.5
PAGE
<PAGE>
APPENDIX II
Photograph (left to right) Yoshiharu Satoh, Joichi Saito.
PAGE
<PAGE>
APPENDIX III
(Clockwise from top)
"Kaimuki Plaza - a new landmark and symbol of progress in the
Kaimuki business district."
(Photograph of Kaimuki branch)
"CPB Cash Manager, a PC Windows based account management system,
affords business customers on-line access to their accounts, 24-hours a day."
(Photograph of customer and computer)
"Customer simplifying their 'to do' list by doing their banking and
shopping in one trip. CPB's in-store branch offer complete banking
services 7-days a week with extended hours."
(Photograph of in-store branch)
"Customers have greater access to their money with CPB's growing
ATM Network in retail locations."
(Photograph of customer using automated teller machine.)
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF CPB INC.
CENTRAL PACIFIC BANK (HAWAII)
CPB PROPERTIES, INC. (HAWAII)
CKSS ASSOCIATES (HAWAII)
CENTRAL BUSINESS CLUB OF HONOLULU (HAWAII)
Exhibit 23
The Board of Directors
CPB Inc.:
We consent to incorporation by reference in the registration
statements No. 33-11462 on Form S-8 of CPB Inc. of our report
dated February 24, 1995, relating to the consolidated balance
sheets of CPB Inc. and subsidiary as of December 31, 1994 and
1993, and the related consolidated statements of income, changes
in stockholders' equity, and cash flow for each of the years in
the three-year period ended December 31, 1994, which report
appears in the December 31, 1994 annual report on Form 10-K of
CPB Inc.
/s/ KPMG Peat Marwick LLP
Honolulu, Hawaii
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEAR ENDED DECEMBER
31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 61604
<INT-BEARING-DEPOSITS> 40277
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81690
<INVESTMENTS-CARRYING> 243788
<INVESTMENTS-MARKET> 239035
<LOANS> 991968
<ALLOWANCE> 18296
<TOTAL-ASSETS> 1381539
<DEPOSITS> 1081909
<SHORT-TERM> 93372
<LIABILITIES-OTHER> 14889
<LONG-TERM> 68807
<COMMON> 6544
0
0
<OTHER-SE> 114559
<TOTAL-LIABILITIES-AND-EQUITY> 1381539
<INTEREST-LOAN> 78939
<INTEREST-INVEST> 13735
<INTEREST-OTHER> 1119
<INTEREST-TOTAL> 93793
<INTEREST-DEPOSIT> 25509
<INTEREST-EXPENSE> 31600
<INTEREST-INCOME-NET> 62193
<LOAN-LOSSES> 3300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10708
<INCOME-PRETAX> 22269
<INCOME-PRE-EXTRAORDINARY> 13483
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13483
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.58
<YIELD-ACTUAL> 5.18
<LOANS-NON> 16056
<LOANS-PAST> 12872
<LOANS-TROUBLED> 8486
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17131
<CHARGE-OFFS> 2519
<RECOVERIES> 384
<ALLOWANCE-CLOSE> 18296
<ALLOWANCE-DOMESTIC> 18296
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 296
</TABLE>
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
CPB 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 25, 1995
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 25, 1995, 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 LLP as the
Company's independent accountants for the fiscal year ending
December 31, 1995.
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, 1995 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 20, 1995
<PAGE>
CPB INC.
220 South King Street
Honolulu, Hawaii 96813
(808) 544-0500
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 25, 1995
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 25, 1995, 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 20, 1995.
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 LLP
as the Company's independent accountants for the fiscal year
ending December 31, 1995.
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
<PAGE>
election of all nominees as directors and "FOR" ratification of
the appointment of KPMG Peat Marwick LLP as the Company's
independent accountants for the fiscal year ending December 31,
1995. 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 LLP
as the Company's independent accountants for the fiscal year
ending December 31, 1995.
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, 1995 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 5,235,331 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
<PAGE>
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
LLP 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 LLP will have the effect of a vote "AGAINST" the
proposal.
Principal Shareholders
As of February 28, 1995, 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
<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 720,185<F1> 13.73%<F2>
6-5 Kitahama 4-chome,
Chuo-ku
Osaka, Japan
Common The Committee of the Employee 522,870<F3> 9.99%
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 8,435 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 8,435 shares subject
to the warrants described in footnote 1 were outstanding.
However, the 8,435 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 Central Pacific Bank, 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, 1995, the
Trustee held 20,604 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 20,604
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>
<PAGE>
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 1998 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 I directors.
Mr. Minoru Ueda resigned from the Board of Directors and as an
officer of the Company as of February 16, 1995. At that time,
Mr. Naoaki Shibuya was appointed to the Board of Directors
to fill the vacancy created by Mr. Ueda's resignation to serve
out the remainder of his term which will expire in 1996.
Mr. Ueda will remain on the Board of Directors of the Bank.
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, 1995, 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 February
Principal Appointed as 28, 1995<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 63 1980 2,221<F4> * 1997
Paul the Board of
(Class III Company; Attorney
Director) at Law; Of Counsel
(1994 - present),
Partner (1975 - 1994),
Devens, Lo, Youth,
Nakano & Saito
GUILD, Retired, former 60 1980 1,056 * 1996
Alice F. Managing Director, Iolani
(Class II Palace (1986-1991)
Director)
HIROTA, President, Sam O. 54 1980 2,900<F6> * 1995
Dennis I., Hirota, Inc. - Engineering
Ph.D. and Surveying (1986-present);
(Class I Registered Professional
Director, Engineer<F5>
Nominee)
HONG, Attorney-at-Law (1995- 58 1993 200<F7> * 1997
Stanley present); Senior Vice
(Class III President -- Properties,
Director) McCormack Corp.
(1993-1994); President
and Chief Executive
<PAGE>
Officer, Hawaii Visitors
Bureau (1984-1993)
HOTTA, Senior Managing Director 56 1993 -- <F8> * 1995
Kensuke Executive Committee
(Class I Member in charge of Inter-
Director, national Banking at Head
Nominee) 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 53 1983 5,280<F9> * 1996
Daniel M. Enterprises, Inc.
(Class II (1985-present); Certified
Director) Public Accountant
SAITO, President of Company 59 1989 15,961<F11> * 1995
Joichi (1992-present); Executive
(Class I Vice President of Company
Director, (1988-1992); President and
Nominee) 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>
<PAGE>
SATOH, Chairman of the Board 66 1975 34,543<F13> * 1997
Yoshiharu and Chief Executive
(Class III Officer of Company
Director) (1992-present); Chairman
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>
SHIBUYA, Executive Vice President 53 1995 200 * 1996
Naoaki of Company (1995-present);
(Class II Vice President of Company
Director) (1993-1995); Executive
Vice President of Bank
(1993-present); Executive
Vice President of The
Sumitomo Bank of California
(1989-1993)
IMAMURA, Vice President and 48 1991 7,324<F14> * 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
<PAGE>
Vice President of Bank
(1987-1991); Vice President
of Bank (1986-1987)
All Directors 115,917<F16> 2.20%
and Executive
Officers,
as a Group
(11 persons)<F15>
* 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, 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 Mr.
Nagamine 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 Mr.
Nagamine continued to serve on the Bank's Board until
they were reelected to the Company's Board in 1986, 1990,
and 1990, respectively. Mr. Hong has been a director of
the Bank since 1985. Mr. Shibuya has been a director of
the Bank since 1994.
<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, 1995
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 for which Mr. Devens is of
counsel.
<F5> Messrs. Hirota, Saito and Satoh 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 8,435 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
<PAGE>
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 4,781 shares
allocated to Mr. Saito's account under the Bank's
ESOP.
<F12> Mr. Satoh was formerly an officer of Sumitomo and is now
retired from Sumitomo.
<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 12,111 shares allocated to Mr. Satoh's account under
the Bank's ESOP.
<F14> Includes 2,960 shares for which Mr. Imamura has shared
voting and investment powers with his wife, Patricia
Imamura, and 4,364 shares allocated to Mr. Imamura's
account under the Bank's ESOP.
<F15> Includes the offices of the Chairman of the Board and
Chief Executive Officer, President, Vice President, Vice
President and Secretary, and Vice President and
Treasurer.
<F16> Includes 18,025 shares for which certain directors and
officers have shared voting and investment powers, 21,440
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 22,341 shares
allocated to the accounts of executive officers under the
Bank's ESOP. Also includes 20,604 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 21,207 shares which have been released
from the suspense account but have not yet been allocated
to the accounts of participants, but does not include
481,059 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 1994, 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 1994. 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 1996 Annual Meeting of
Shareholders recommended by shareholders if such recommendations
are received in writing prior to December 15, 1995. Shareholder
recommendations should be addressed to the Company's Secretary,
P.O. Box 3590, Honolulu, Hawaii 96811.
The Audit Committee held one meeting during 1994. 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 1994. 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, 1994, the Board of
Directors of the Company held a total of six meetings. All of
the persons who were directors of the Company during 1994
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. Hotta.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
BOARD OF DIRECTORS' NOMINEES.
<PAGE>
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
four 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 1994 (the "Named Executives") for each of
the fiscal years ended December 31, 1994, 1993 and 1992:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
All Other
Name and Principal Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Yoshiharu Satoh 1994 $363,328 $ -- $19,965<F1>
Chairman of the Board
and Chief Executive 1993 320,000 200 36,444<F2>
Officer
1992 293,328 5,867 36,234<F3>
Joichi Saito 1994 236,661 -- 19,637<F4>
President
1993 213,333 200 32,793<F5>
1992 193,333 3,867 29,614<F6>
Minoru Ueda 1994 176,667 -- 19,360<F7>
Executive Vice
President 1993 166,667 200 26,173<F8>
1992 156,667 3,133 24,430<F9>
Naoaki Shibuya 1994 156,667 -- 35<F11>
Vice President<F10>
1993 6,250 200 --
1992 -- -- --
Austin Y. Imamura 1994 145,667 -- 18,353<F12>
Vice President and
Secretary 1993 133,000 200 20,106<F13>
1992 121,000 2,420 18,252<F14>
PAGE
<PAGE>
<FN>
<F1> Includes contributions to the Bank's Cash or Deferred
Arrangement ("CODA")/Profit Sharing Plan, the Bank's ESOP
and the Bank's Split Dollar Life Insurance Plan for the account
of Mr. Satoh of $7,500, $11,155, and $1,310 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 $14,073, $21,211, and $1,160
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. Satoh of $13,495, $20,701, and $2,038,
respectively.
<F4> Includes contributions to the Bank's CODA/Profit Sharing
Plan, the Bank's ESOP and the Bank's Split Dollar Life Insurance
Plan for the account of Mr. Saito of $7,500, $11,155, and $982,
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. Saito of $12,730, $19,187, and $876,
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. Saito of $11,400, $17,487, and $727,
respectively.
<F7> Includes contributions to the Bank's CODA/Profit Sharing
Plan, the Bank's ESOP and the Bank's Split Dollar Life Insurance
Plan for the account of Mr. Ueda of $7,500, $11,155, and $705,
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. Ueda of $9,945, $14,990, and $1,238,
respectively.
<F9> 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.
<F10> Mr. Shibuya was named Executive Vice President of the
Company on February 16, 1995 by the Board of Directors.
<F11> Represents a contribution to the Bank's Split Dollar Life
Insurance Plan for the account of Mr. Shibuya.
<F12> Includes contributions to the Bank's CODA/Profit Sharing
<PAGE>
Plan, the Bank's ESOP and the Bank's Split Dollar Life Insurance
Plan for the account of Mr. Imamura of $7,284, $10,833 and $236,
respectively.
<F13> 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.
<F14> 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 $172,
respectively.
</TABLE>
Option Exercises and Holdings
The following table provides information with respect to the
Named Executives concerning the exercise of options during the
fiscal year ended December 31, 1994 and unexercised options held
by the Named Executives as of December 31, 1994:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option<F1> Exercises in 1994
and FY-End Option Values
Value of Unexercised
Number of Unexercised In-the-Money Options<F2>
Shares Options at 12/31/94 at 12/31/94
Acquired Value
on Exercise Realized
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
SATOH, Yoshiharu 0 N/A 9,240 -- $190,427 $--
SAITO, Joichi 0 N/A 9,680 -- 113,082 --
UEDA, Minoru 0 N/A 6,072 -- 125,138 --
SHIBUYA, Naoaki 0 N/A -- -- -- --
IMAMURA, Austin Y. 0 N/A -- -- -- --
<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, 1994 ($26.00 per share) and the exercise price of the option, multiplied
by the number of shares subject to the option.
</TABLE>
PAGE
<PAGE>
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.
<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 33,750 45,000 56,250 67,500 78,750
Above $250,000 33,750 45,000 56,250 67,500 78,750
</TABLE>
PAGE
<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, 1994 for Messrs.
Satoh, Saito, Ueda, Shibuya and Imamura are 22, 7, 14 1, and 8,
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, effective May 1, 1994, the
Bank pays $10,000 annually to each director (excluding officers).
Prior to May 1, 1994, the Bank paid its directors $8,000
annually. 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
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. and Gilbert J. Matsumoto. 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.
Set forth below is a report of the Board of Directors
addressing the Company's compensation policies for 1994
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
<PAGE>
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 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. With the exception
of the 1994 Annual Executive Incentive Plan (the "Annual
Incentive Plan") and the Supplemental Executive Retirement Plan
(the "SERP"), the Company's compensation plans are generally
available to all employees, subject to certain hours and years
of service requirements.
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. On April 26, 1994, 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 1993 earnings performance, management of credit risk
and growth. The Company weighted each of these factors
relatively equally. The Company's 1993 net income increased by
9.2% over 1992, which increased by 14.9% over 1991. Return on
average assets was 1.29% in 1993 and 1.23% in 1992. The level of
nonperforming assets, past due loans and charge-offs increased,
but remained relatively low by industry standards. Total assets
increased by 6.0% in 1993 and 10.5% in 1992. In assessing the
Company's performance, the Board also 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
<PAGE>
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 6.0% to 13.5% over the
prior year. Mr. Satoh's salary was increased 13.5% 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.
Incentive Compensation
During 1994, the Bank had four programs whereby individual
compensation was directly linked to the Company's performance:
the Incentive Cash Bonus Program (the "Bonus Plan"), the Profit
Sharing Plan, the ESOP and the Annual Incentive Plan.
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, except those executives who are participants in the
Incentive 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 1994, the Bank's net income (as defined) decreased 15.4%
over the 1993 fiscal year. Therefore, the Bank's employees
did not receive any cash bonuses pursuant to the Bonus Plan.
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.
<PAGE>
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 1994, the Plan Contribution
equalled 10.0% 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. On May 11, 1994, the Bank's Board of Directors approved
the Cash or Deferred Arrangement ("CODA") program which allows
each employee who is a participant in the Profit Sharing Plan to
elect to receive one-half of the current year's profit sharing
contribution in cash with the other half being allocated to such
employee's account under the Profit Sharing Plan. Elections not
made would be deferred into that employee's 401(k) Plan account.
The Plan Contribution for 1994 was allocated approximately
40% to the Profit Sharing Plan and 60% to the ESOP. In 1994, the
Bank contributed $784,000 to the CODA and Profit Sharing Plan and
$1,164,000 to the ESOP, which equalled 4.9% and 7.3%,
respectively, of total compensation paid to all participating
employees for the fiscal year.
Annual Incentive Plan. The Annual Incentive Plan was
adopted by the Board of Directors for the 1994 fiscal year. Full-
time employees of the Company or its subsidiaries who have been
granted the title of Senior Vice President or above prior to
October 1, 1994, were eligible to participate in the Annual
Incentive Plan. In addition, a participant must receive a
performance appraisal rating of "accomplished" or above during the
calendar year to be considered eligible for an award. Participants
in the Annual Incentive Plan were NOT eligible to participate in
the Bonus Plan. During 1994, 16 executives, including each of the
Named Executives, were eligible to participate in the Annual
Incentive Plan.
Subject to review by the Board of Directors, participants
were eligible to receive a cash bonus under the Annual Incentive
Plan, provided certain corporate objectives for financial
performance, as measured by return on equity ("ROE") and growth in
average assets, were met. During 1994, based upon the Company's
historical earnings and asset trends, the Board of Directors
established a target ROE of 15% and target asset growth of 15%.
During 1994, the Company's return on equity was 11.48% and its
average assets in December increased 5.2% over average assets in
December 1993. Because the target objectives for corporate
performance set forth in the Annual Incentive Plan were not met,
Messrs. Satoh, Saito, Ueda, Shibuya and Imamura received no cash
<PAGE>
awards under the Annual Incentive Plan in 1994.
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 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 1994, there
were no stock options granted pursuant to the 1986 Stock Option
Plan.
Other Compensation
The Company's executives are also eligible to participate in
the Bank's Defined Benefit Pension Plan (the "Pension Plan"),
Split Dollar Life Insurance Plan (the "Insurance Plan") and the
SERP. The Pension Plan is a qualified 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. In 1994, the maximum annual compensation
allowable for determining benefits payable under the Pension Plan
was reduced to $150,000, which had the effect of reducing the
benefits payable under the Pension Plan to the Company's
executive officers whose annualized compensation was likely to
exceed $150,000. See "ELECTION OF DIRECTORS -- Compensation of
Directors and Executive Officers -- Executive Compensation --
Defined Benefit Plan." The SERP was adopted by the Board of
Directors in 1994 as a means of supplementing the benefits
provided under the Pension Plan in light of the recently imposed
salary limitations. 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.
<PAGE>
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 16, 1995. 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
NAOAKI SHIBUYA
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 1994, 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 1994, 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 of counsel to 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 1994.
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 1995.
<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, 1990
through December 31, 1994. 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. 1989 $100
1990 $ 85
1991 $136
1992 $159
1993 $181
1994 $177
NASDAQ-Banks/Bank 1989 $100
Holding Companies 1990 $ 73
1991 $120
1992 $175
1993 $199
1994 $199
CPB Inc. 1989 $100
1990 $ 75
1991 $113
1992 $119
1993 $116
1994 $122
(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
<PAGE>
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 522,870 shares of Common Stock or 9.99% of
the total outstanding Common Stock, as of February 28, 1995.
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 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, 1994 was $500,000.
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. Sumitomo currently has the
right to acquire 8,435 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
<PAGE>
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, 1994, the Bank had advanced pursuant to its loan
agreement the sum of $600,000. As of the same date, Sumitomo
had advanced pursuant to its loan agreement the sum of
$11,000,000. The average interest rate at December 31, 1994 was
7.08%.
On April 30, 1993, the Partnership entered into a building
loan agreement with the Bank to develop a four-story building in
Kaimuki on the island of Oahu, Hawaii ("Kaimuki Project"), on
land owned by CPB Properties, Inc. During 1992, the Partnership
and CPB Properties, Inc. entered into a lease agreement effective
from January 1, 1993 to December 31, 2047. The loan agreement
called for the Partnership to borrow up to $10.7 million at 0.75%
above the London Interbank Offered Rate for the Kaimuki Project.
The outstanding balance and average interest rate at December 31,
1994 were $9,000,000 and 6.69%, respectively.
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, 1994 the
total amount of yen sold for dollars was Yen 2,239 million
($21,985,000) at a weighted average exchange rate of Yen 101.84
to $1.00.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP 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 LLP as the Company's independent accountants for the
fiscal year ending December 31, 1995 and the shareholders are
being asked to ratify such appointment. Representatives of KPMG
Peat Marwick LLP 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 LLP for fiscal year 1994
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 LLP 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 LLP by rendering such
<PAGE>
services was considered. All professional services rendered by
KPMG Peat Marwick LLP during 1994 were furnished at customary
rates and terms.
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 repre-
sented thereby on such matters in accordance with the recommenda-
tion of the Board of Directors.
PROPOSALS OF SHAREHOLDERS
The 1996 Annual Meeting of Shareholders will be held on or
about April 23, 1996. Proposals of shareholders intended to be
presented at the 1996 Annual Meeting must be received by the
Secretary of the Company, Post Office Box 3590, Honolulu,
Hawaii 96811, no later than November 20, 1995.
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, 1994 BY WRITING TO
AUSTIN Y. IMAMURA, VICE PRESIDENT AND SECRETARY, CPB INC., POST
OFFICE BOX 3590, HONOLULU, HAWAII 96811.
Dated: March 20, 1995.
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 25, 1995
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.
Paul Devens, Yoshiharu Satoh 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 25,
1995 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 I, Term Will Expire in 1998.
[ ] FOR ALL NOMINEES (except as indicated to the
contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
below.
Nominees: Dennis I. Hirota, Kensuke Hotta,
Joichi Saito
(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 LLP as
independent accountants of the Company for the fiscal year
ending December 31, 1995.
[ ] 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 LLP 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.
PAGE
<PAGE>
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: ___________________________________________, 1995
_____________________________________
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
LLP as the Company's independent accountants. PLEASE SIGN, DATE
AND RETURN THIS PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE
PREPAID ENVELOPE PROVIDED.
