UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 0-10777
CPB INC.
(Exact name of registrant as specified in its charter)
Hawaii 99-0212597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 South King Street, Honolulu, Hawaii 96813
(Address of principal executive offices) (Zip Code)
(808)544-0500
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, No Par Value;
Outstanding at November 10, 1997: 10,579,184 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements listed below are filed as a part
hereof.
Page
Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996 F-1
Consolidated Statements of Income - Three and nine
months ended September 30, 1997 and 1996 F-2
Consolidated Statements of Cash Flows - Nine months
ended September 30, 1997 and 1996 F-3
Notes to Consolidated Financial Statements F-4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
CPB Inc. (the "Company") posted third quarter 1997 net income
of $3.823 million, increasing by 1.8% over the $3.757 million
earned in the third quarter of 1996. Net income for the first
nine months of 1997 was $11.094 million, increasing by 1.9% over
the $10.888 million earned in the same period in 1996. Increases
in net interest income in the three and nine months ended
September 30, 1997 contributed to the increase in earnings,
offsetting increases of $800,000 and $1.4 million, respectively,
in provision for loan losses. As of September 30, 1997, total
assets of $1,442.2 million increased by $39.0 million or 2.8%,
net loans of $1,024.7 million increased by $2.2 million or 0.2%,
and total deposits of $1,140.9 million increased by $17.3 million
or 1.5% compared with year-end 1996. On October 8, 1997, the
Company's board of directors (the "Board") approved a two-for-one
stock split effective November 14, 1997, on common stock
outstanding as of October 20, 1997. All financial information
presented in this report has been adjusted for the two-for-one
stock split.
1
<PAGE>
The following table presents annualized return on average
assets, annualized return on average stockholders' equity and
earnings per share for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Annualized return on
average assets 1.06% 1.11% 1.04% 1.07%
Annualized return on average
stockholders' equity 10.30% 10.92% 10.17% 10.69%
Earnings per share $0.36 $0.36 $1.05 $1.03
Hawaii's economy shows little sign of recovery in the near
future, with expected real growth of 1% over the next three to
five years and 1.5% to 2% growth thereafter. Business failures
in the first half of 1997 of 29% were ahead of the national
average of 13%. Debts involved in local business failures soared
from $31.6 million for the first half of 1996 to $53.3 million in
1997, a 68.9% increase. Declining real estate values helped keep
inflation at 0.9%, less than half the nation's average of 2.3%.
Reflecting some improvement in the economy, the unemployment rate
improved to 6.1% in September 1997, from 6.5% a year earlier,
still higher than the September 1997 national average of 4.7%.
The visitor industry has sustained the economy in recent
years. However, despite a 4.8% increase in visitors in September
1997 over September 1996, visitor counts during the first nine
months of 1997 declined by 0.4% from 1996 levels. A $6.0 million
marketing campaign launched in Japan and the recent completion of
the Hawaii Convention Center are expected to contribute to
additional tourism activity in the future.
The real estate market continues to suffer from the economic
downturn but has shown some signs of a turnaround. The average
single-family home sales price for the first nine months of 1997
decreased 4.8% compared to the first nine months of 1996, while
single-family and condominium sales volumes for the first nine
months of 1997 increased by 6.8% over last year. An increase in
sales activity of high-end residential properties in recent
months also suggests that the real estate market has stabilized.
Such economic conditions have had, and will likely continue to
have, an adverse effect on our Company. Indicative of this
economic environment, Central Pacific Bank (the "Bank"), a
wholly-owned subsidiary of the Company, has experienced an
increase in residential mortgage and consumer loan losses as
further discussed in "Provision for Loan Losses." While the
Hawaii economy is expected to grow modestly in 1997, future
trends in bankruptcy and foreclosure filings, employment, tourism
2
<PAGE>
and the real estate market could affect loan demand, deposit
growth, provision for loan losses, noninterest income and
noninterest expense. Accordingly, the results of operations of
the Company for the rest of 1997 will depend in part on the
speed, strength and duration of any economic recovery in the
State of Hawaii.
Much publicity has been given to the "Year 2000" issue and the
ability of computer systems to function properly in the new
millennium. The Company has conducted a comprehensive review of
its computer systems to identify potential problems and develop
plans to resolve those problems. In response to this situation,
the Bank has undertaken a major computer system conversion
project which will bring its core banking applications into the
"Year 2000" compliance. Additional efforts are being made to
modify or replace other noncompliant software, systems and
equipment before the year 1999. Further, the Company is aware of
the risks to third parties, including vendors, depositors and
borrowers, and the potential adverse impact on the Company
resulting from failures by these parties to adequately address
the "Year 2000" problem. The Company has expended, and will
continue to expend, substantial resources to address this issue
on a timely basis. However, no estimate of the expected total
cost of this effort can be made at this time, nor can any
assurance be given that the "Year 2000" problem will not have an
adverse impact on the Company's earnings.
Results of Operations
Net Interest Income
A comparison of net interest income for the three and nine
months ended September 30, 1997 and 1996 is set forth below on a
taxable equivalent basis using an assumed income tax rate of 35%.
Net interest income, when expressed as a percentage of average
interest earning assets, is referred to as "net interest margin".
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Dollars in thousands)
Interest income $28,732 $25,911 $82,602 $78,225
Interest expense 11,436 10,344 33,087 31,087
Net interest income $17,296 $15,567 $49,515 $47,138
Net interest margin 5.07% 4.86% 4.89% 4.91%
Interest income increased by $2.8 million or 10.9% and by $4.4
million or 5.6% in the third quarter and first nine months of
1997, respectively, as compared to the same periods in 1996, due
to the higher level of earning assets held in 1997. Average
interest earning assets of $1,364.5 million and $1,349.2 million
for the third quarter and first nine months of 1997,
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respectively, increased by $83.4 million or 6.5% and $69.0
million or 5.4%, respectively, over the same periods in 1996.
The yield on interest earning assets of 8.42% for the third
quarter of 1997 increased from 8.09%, and the yield of 8.16% for
the nine months ended September 30, 1997 increased from 8.15%
compared to same periods in 1996. Interest income and yields for
the third quarter and first nine months of 1997 were bolstered by
the recognition of $720,000 in interest income on the payoff of a
$5.9 million nonaccrual loan.
Interest and fees on loans increased by $1.5 million or 6.9%
and $2.6 million or 3.9% in the third quarter and first nine
months of 1997, respectively, compared to the same periods in
1996. Increases in average loan balances resulted in increased
interest income, offsetting a $700,000 decline in loan fees for
the first nine months of 1997. Interest on deposits in other
banks also increased by $491,000 and $1.7 million, respectively,
due to an increase in short-term investable funds held during the
current year.
Interest expense for the three and nine months ended September
30, 1997 increased by $1.1 million or 10.6% and $2.0 million or
6.4%, respectively, as compared to the same periods in 1996, due
to increases in average interest-bearing liabilities of $78.9
million or 7.5% and $56.5 million or 5.4%, respectively. The
average rate on interest-bearing liabilities for the third
quarter of 1997 of 4.06% increased from 3.95% in 1996, while the
average rate for the first nine months of 1997 as compared to the
same period in 1996 increased to 3.98% from 3.94%.
The resulting net interest income for the third quarter and
first nine months of 1997 increased by $1.7 million or 11.1% and
$2.4 million or 5.0%, respectively, over the same periods in
1996. Net interest margin increased to 5.07% from 4.86% in the
third quarter but decreased to 4.89% from 4.91% in the first nine
months of 1997 compared to the same periods in 1996. Strong
competition for both loans and deposits and the uncertainty in
the direction of market interest rates provide the Company with
the challenge of maintaining net interest margin at its current
level for the remainder of 1997.
Provision for Loan Losses
Provision for loan losses is determined by Management's
ongoing evaluation of the loan portfolio and assessment of the
ability of the allowance for loan losses to cover inherent
losses. The Company, considering current information and events
regarding a borrower's ability to repay its obligations, treats a
loan as impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is considered to be
impaired, the amount of impairment is measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or, if the loan is considered to
4
<PAGE>
be collateral dependent, based on the fair value of the
collateral. Impairment losses are included in the allowance for
loan losses through a charge to the provision for loan losses.
For smaller-balance homogeneous loans (primarily residential real
estate and consumer loans), the allowance for loan losses is
based upon Management's evaluation of the quality, character and
risks inherent in the loan portfolio, current and projected
economic conditions, and historical loan loss experience. The
allowance is increased by provisions charged to operating expense
and reduced by loan charge-offs, net of recoveries.
The following table sets forth certain information with
respect to the Company's allowance for loan losses as of the
dates and for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Dollars in thousands)
Allowance for loan losses:
Balance at beginning of
period $19,275 $20,582 $19,436 $20,156
Provision for loan losses 1,250 450 2,750 1,350
Loan charge-offs:
Commercial, financial
and agricultural 450 114 1,064 148
Real estate:
Mortgage-commercial 599 1,250 867 1,250
Mortgage-residential 167 80 367 311
Construction - - - -
Consumer:
Credit card and
related plans 163 185 500 425
Other consumer 116 68 480 193
Other 1 5 3 5
Total loan charge-offs $ 1,496 $ 1,702 $ 3,281 $ 2,332
5
<PAGE>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Dollars in thousands)
Recoveries:
Commercial, financial
and agricultural $ 21 $ 81 $ 30 $ 101
Real estate:
Mortgage-commercial - - - -
Mortgage-residential 2 - 22 29
Construction - - - 19
Consumer:
Credit card and
related plans 18 28 68 77
Other consumer 33 23 78 62
Other - 5 - 5
Total recoveries 74 137 198 293
Net loan charge-offs 1,422 1,565 3,083 2,039
Balance at end of period $19,103 $19,467 $19,103 $19,467
Annualized ratio of net
loan charge-offs to
average loans 0.54% 0.61% 0.39% 0.27%
The provision for loan losses of $1.3 million and $2.8 million
for the third quarter and first nine months of 1997 increased by
177.8% and 103.7%, respectively, compared to the same periods in
1996, reflecting the higher level of loan losses recognized
during 1997. Net loan charge-offs of $1.4 million and $3.1
million, when expressed as an annualized percentage of average
total loans, was 0.54% and 0.39%, respectively. Loan charge-offs
during the third quarter of 1997 included $472,000 on a
commercial mortgage and $254,000 on a commercial loan to a
borrower in the hotel industry. Consumer loans comprised
approximately 30% of all loans charged off during the first nine
months of 1997, compared to 19% in 1996. Management believes the
current level of provision for loan losses is indicative of
Hawaii's stagnant economic environment over the last several
years. Notwithstanding the increase in net loan charge-offs in
the first nine months of 1997 compared to the same period in
1996, the Company's net loan charge-offs remained relatively low
as a percentage of average loans.
The allowance for loan losses expressed as a percentage of
total loans was 1.83% at September 30, 1997, declining slightly
from 1.87% at December 31, 1996. Management believes that the
allowance for loan losses at September 30, 1997 was adequate to
cover the credit risks inherent in the loan portfolio. However,
continuation of current economic conditions in the State of
Hawaii may adversely affect borrowers' ability to repay,
6
<PAGE>
collateral values and, consequently, the level of nonperforming
loans and provision for loan losses.
Nonperforming Assets
The following table sets forth nonperforming assets, accruing
loans delinquent for 90 days or more and restructured loans still
accruing interest at the dates indicated.
September 30, December 31, September 30,
1997 1996 1996
(Dollars in thousands)
Nonaccrual loans:
Commercial, financial
and agricultural $ 1,192 $ 2,175 $ -
Real estate:
Mortgage-commercial 8,394 8,863 8,922
Mortgage-residential 1,448 2,462 2,367
Construction - - -
Consumer:
Credit card and
related plans - - -
Other consumer 81 - -
Other - - -
Total nonaccrual loans 11,115 13,500 11,289
Other real estate 3,865 1,235 1,140
Total nonperforming
assets 14,980 14,735 12,429
Loans delinquent for 90
days or more:
Commercial, financial
and agricultural 1,248 1,038 5,298
Real estate:
Mortgage-commercial 2,491 341 4,724
Mortgage-residential 5,795 4,366 6,092
Construction - - -
Consumer:
Credit card and
related plans 94 104 118
Other consumer 414 455 398
Other - 9 -
Total loans delinquent
for 90 days or more $10,042 $ 6,313 $16,630
7
<PAGE>
September 30, December 31, September 30,
1997 1996 1996
(Dollars in thousands)
Restructured loans still
accruing interest:
Commercial, financial
and agricultural $ 125 $ 1,723 $ -
Real estate:
Mortgage-commercial 2,571 11,095 -
Mortgage-residential - - -
Construction - - -
Consumer:
Credit card and
related plans - - -
Other consumer - - -
Other - - -
Total restructured
loans still accruing
interest 2,696 12,818 -
Total nonperforming
assets, loans delin-
quent for 90 days or
more and restructured
loans still accruing
interest $27,718 $33,866 $29,059
Total nonperforming assets
as a percentage of
loans and other real
estate 1.43% 1.41% 1.21%
Total nonperforming assets
and loans delinquent for
90 days or more as a
percentage of loans
and other real estate 2.39% 2.02% 2.82%
Total nonperforming assets,
loans delinquent for 90
days or more and
restructured loans still
accruing interest as a
percentage of loans
and other real estate 2.65% 3.25% 2.82%
Nonperforming assets, loans delinquent for 90 days or more and
restructured loans still accruing interest totaled $27.7 million
at September 30, 1997, decreasing by $6.1 million or 18.2% from
year-end 1996. Nonaccrual loans, loans delinquent for 90 days or
more and restructured loans still accruing interest were
comprised primarily of loans secured by commercial or residential
8
<PAGE>
real property in the State of Hawaii. Nonaccrual loans of $11.1
million included one unsecured commercial loan of $1.0 million,
three large commercial mortgage loans and several residential
mortgage loans. Other real estate of $3.9 million at September
30, 1997 included a $1.3 million condominium unit, a $1.5 million
residence and several other residential properties. Loans
delinquent for 90 days or more and still accruing interest
totaled $10.0 million at September 30, 1997, increasing by $3.7
million or 59.1% from year-end 1996. Increases in delinquencies
were attributable primarily to a $2.4 million mortgage on a
residential complex on the island of Oahu and a $1.8 million
commercial loan secured by various commercial and residential
properties. Impaired loans at September 30, 1997 totaled $13.3
million and included all nonaccrual and restructured loans
greater than $500,000, as well as the $1.8 million delinquent
loan discussed above. The allowance for loan losses allocated to
impaired loans amounted to $2.6 million at September 30, 1997.
Management continues to closely monitor loan delinquencies and
work with borrowers to resolve loan problems; however, a further
decline in general economic conditions may result in future
increases in nonperforming assets, delinquencies, net loan
charge-offs, provision for loan losses and noninterest expense.
Other Operating Income
Total other operating income in the third quarter of 1997 of
$2.8 million increased by $59,000 or 2.2% over the third quarter
of 1996. Total other operating income for the first nine months
of 1997 totaling $8.0 million increased by $19,000 or 0.2% from
the same period in 1996. Increases in trust fees and service
charges on deposits combined to offset declines in foreign
exchange fees and earnings of unconsolidated subsidiaries.
Other Operating Expense
Total other operating expense of $12.4 million for the third
quarter of 1997 increased by $866,000 or 7.5% over the same
period in 1996. This increase was attributed to a combination of
accruals related to the Bank's incentive compensation programs
and a profitability enhancement project.
Total other operating expense of $36.2 million for the first
nine months of 1997 increased by $657,000 or 1.8% over the same
period in 1996. In addition to the abovementioned expenses,
increased write-downs and operating expenses related to other
real estate owned contributed to the increase in other operating
expenses.
Income Taxes
The effective tax rate for the third quarter and first nine
months of 1997 was 37.95% and 38.73%, respectively, compared with
the previous year's rates of 39.51% and 39.63%, respectively.
The decrease in tax rates for 1997 resulted from an increase in
tax-exempt investments and loans held during 1997.
9
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Financial Condition
Total assets at September 30, 1997 of $1,442.2 million
increased by $39.0 million or 2.8% from December 31, 1996.
Investment securities of $286.5 million increased by $46.0
million or 19.1%, and net loans of $1,024.7 million increased by
$2.2 million or 0.2%. This asset growth was funded primarily
through an increase in deposits and borrowings from the Federal
Home Loan Bank of Seattle which are included in long-term debt.
Total deposits at September 30, 1997 of $1,140.9 million
increased by $17.3 million or 1.5% over year-end 1996.
Noninterest-bearing deposits of $151.9 million decreased by $16.3
million or 9.7%, while interest-bearing deposits of $989.0
million increased by $33.6 million or 3.5%. Core deposits
(noninterest-bearing demand, interest-bearing demand and savings
deposits, and time deposits under $100,000) at September 30, 1997
of $842.7 million decreased by $16.5 million or 1.9% during the
first nine months of 1997, while time deposits of $100,000 or
more of $298.2 million increased by $33.8 million or 12.8%. The
decrease in core deposits reflected declines of $6.5 million in
business checking accounts and $5.3 million in personal savings
accounts. Local competition for deposits remains strong and will
continue to challenge the bank's ability to gather low-cost
retail funds.
Capital Resources
Stockholders' equity of $149.1 million at September 30, 1997
increased by $8.2 million or 5.8% from December 31, 1996. When
expressed as a percentage of total assets, stockholders' equity
increased to 10.34% at September 30, 1997, compared to 10.04% at
December 31, 1996. On September 15, 1997, the Board declared a
third quarter cash dividend of $0.12 per share, bringing total
dividends declared to $0.36 per share for the first nine months
of 1997, consistent with the dividends declared during the same
period in 1996. Dividends declared in the first nine months of
1997 totaled $3,801,000 compared with $3,792,000 in the first
nine months of 1996. The Company's objective with respect to
capital resources is to maintain a level of capital that will
support sustained asset growth and anticipated credit risks and
to ensure that regulatory guidelines and industry standards are
met.
Regulations on capital adequacy guidelines adopted by the
Federal Reserve Board (the "FRB") and the Federal Deposit
Insurance Corporation (the "FDIC") are as follows. An
institution is required to maintain a minimum ratio of qualifying
total capital to risk-weighted assets of 8%, of which at least 4%
must consist of Tier I capital, essentially common stockholders'
equity (before unrealized loss on investment securities) less
intangible assets. The FRB and the FDIC have also adopted a
minimum leverage ratio of Tier I capital to total assets of 3%.
10
<PAGE>
The leverage ratio requirement establishes the minimum level for
banks that have a uniform composite ("CAMELS") rating of 1, and
all other institutions and institutions experiencing or
anticipating significant growth are expected to maintain capital
levels at least 100 to 200 basis points above the minimum level.
Furthermore, higher leverage and risk-based capital ratios are
required to be considered well capitalized or adequately
capitalized under the prompt corrective action provisions of the
FDIC Improvement Act of 1991.
The following table sets forth the capital requirements
applicable to the Company and the Company's capital ratios as of
the dates indicated.
Required Actual Excess
At September 30, 1997:
Tier I risk-based
capital ratio 4.00% 12.41% 8.41%
Total risk-based
capital ratio 8.00% 13.66% 5.66%
Leverage capital ratio 4.00% 10.31% 6.31%
At December 31, 1996:
Tier I risk-based
capital ratio 4.00% 12.10% 8.10%
Total risk-based
capital ratio 8.00% 13.35% 5.35%
Leverage capital ratio 4.00% 10.28% 6.28%
In addition, FDIC-insured institutions such as the Bank must
maintain leverage, Tier I and total risk-based capital ratios of
at least 5%, 6% and 10%, respectively, to be considered "well
capitalized" under the prompt corrective action provisions of the
FDIC Improvement Act of 1991.
11
<PAGE>
The following table sets forth the capital requirements for
the Bank to be considered "well capitalized" and the Bank's
capital ratios as of the dates indicated.
Required Actual Excess
At September 30, 1997:
Tier I risk-based
capital ratio 6.00% 11.57% 5.57%
Total risk-based
capital ratio 10.00% 12.83% 2.83%
Leverage capital ratio 5.00% 9.61% 4.61%
At December 31, 1996:
Tier I risk-based
capital ratio 6.00% 11.27% 5.27%
Total risk-based
capital ratio 10.00% 12.53% 2.53%
Leverage capital ratio 5.00% 9.60% 4.60%
Asset-Liability Management and Liquidity
The Company's asset-liability management policy and liquidity
position are discussed in the 1996 Annual Report to Shareholders.
No significant changes in either have occurred during the nine
months ended September 30, 1997.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable.
PART II. OTHER INFORMATION
Item 1 and Items 3 to 5.
Item 1 and Items 3 to 5 are omitted pursuant to instructions
to Part II.
Item 2. Changes in Securities
(a) On October 8, 1997, the "Board" approved a two-for-one
stock split(the "Stock Split") of its common stock effected by an
amendment (the "Articles Amendment") to its Restated Articles of
Incorporation filed on October 20, 1997 (the "Effective Date").
After giving effect to the Stock Split, the shares outstanding
increased from approximately 5,289,592 to 10,579,184.
Distribution of the additional shares as a result of the Stock
Split will occur on November 14, 1997 to shareholders of record
as of the Effective Date. The Articles Amendment also increased
the authorized shares of Common Stock from 25,000,000 to
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50,000,000 shares. As a result of the Stock Split, the "Board"
authorized certain adjustments to the shares of common stock
reserved for issuance under the Company's 1986 Stock Option Plan,
1997 Stock Option Plan and outstanding warrants. See note 2 of
the Company's unaudited financial statements on page F-4.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On October 20, 1997, the Company filed a Report on
Form 8-K announcing the two-for-one stock split.
The Company filed no reports on Form 8-K during
the third quarter of 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
CPB INC.
(Registrant)
Date: November 13, 1997 /s/ Joichi Saito
Joichi Saito
Chairman of the Board and
Chief Executive Officer
Date: November 13, 1997 /s/ Neal Kanda
Neal Kanda
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
14
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CPB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands, except per share data) 1997 1996
<S> <C> <C>
ASSETS
Cash and due from banks $ 39,173 $ 55,534
Interest-bearing deposits in other banks 23,564 26,297
Investment securities:
Held to maturity, at cost (fair value of $145,015
at September 30, 1997 and $109,288 at December 31, 1996) 144,546 109,244
Available for sale, at fair value 141,944 131,214
Total investment securities 286,490 240,458
Loans 1,043,820 1,041,976
Less allowance for loan losses 19,103 19,436
Net loans 1,024,717 1,022,540
Premises and equipment 24,929 25,072
Accrued interest receivable 9,815 8,674
Investment in unconsolidated subsidiaries 7,155 6,902
Due from customers on acceptances 77 1,162
Other real estate owned 3,865 1,235
Other assets 22,405 15,291
Total assets $1,442,190 $1,403,165
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 151,899 $ 168,170
Interest-bearing deposits 989,003 955,444
Total deposits 1,140,902 1,123,614
Short-term borrowings 6,500 5,427
Long-term debt 128,197 115,840
Bank acceptances outstanding 77 1,162
Other liabilities 17,421 16,240
<PAGE>
Total liabilities 1,293,097 1,262,283
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000
shares, none issued - -
Common stock, no par value; authorized 50,000,000 shares;
issued and outstanding 10,571,688 shares at September
30, 1997, and 10,537,748 shares at December 31, 1996 6,607 6,586
Surplus 45,799 45,481
Retained earnings 96,698 89,405
Unrealized loss on investment securities,
net of taxes (11) (590)
Total stockholders' equity 149,093 140,882
Total liabilities and stockholders' equity $1,442,190 $1,403,165
Book value per share $14.10 $13.12
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-1
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Dollars in thousands, September 30, September 30,
except per share data) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $23,571 $22,059 $68,440 $65,844
Interest and dividends on
investment securities:
Taxable interest 3,831 3,426 10,681 11,148
Tax-exempt interest 246 32 399 112
Dividends 312 288 863 819
Interest on deposits in other banks 534 43 1,784 134
Interest on Federal funds sold 3 - 3 -
Total interest income 28,497 25,848 82,170 78,058
Interest expense:
Interest on deposits 9,572 8,709 27,596 26,484
Interest on short-term borrowings 80 113 215 437
Interest on long-term debt 1,784 1,522 5,276 4,166
Total interest expense 11,436 10,344 33,087 31,087
Net interest income 17,061 15,504 49,083 46,971
Provision for loan losses 1,250 450 2,750 1,350
Net interest income after
provision for loan losses 15,811 15,054 46,333 45,621
Other operating income:
Service charges on deposit accounts 792 715 2,224 2,088
Other service charges and fees 1,448 1,399 4,157 4,160
Trust income 121 97 310 223
Equity in earnings of
unconsolidated subsidiaries 107 207 368 423
<PAGE>
Fees on foreign exchange 169 216 556 684
Investment securities losses - - - (6)
Other 144 88 370 394
Total other operating income 2,781 2,722 7,985 7,966
Other operating expense:
Salaries and employee benefits 6,415 6,182 19,178 19,170
Net occupancy 1,613 1,735 4,861 4,939
Equipment 666 645 1,993 2,002
Other 3,737 3,003 10,178 9,442
Total other operating expense 12,431 11,565 36,210 35,553
Income before income taxes 6,161 6,211 18,108 18,034
Income taxes 2,338 2,454 7,014 7,146
Net income $ 3,823 $ 3,757 $11,094 $10,888
Per common share:
Net income $ 0.36 $ 0.36 $ 1.05 $ 1.03
Cash dividends declared $ 0.12 $ 0.12 $ 0.36 $ 0.36
Weighted average shares outstanding
(in thousands) 10,554 10,535 10,547 10,528
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-2
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
(Dollars in thousands) 1997 1996
Cash flows from operating activities:
Net income $11,094 $10,888
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 2,750 1,350
Provision for depreciation and
amortization 2,041 2,034
Net amortization and accretion of
investment securities 269 802
Net loss on investment securities - 6
Federal Home Loan Bank stock
dividends received (863) (819)
Net change in loans held for sale 3,800 (3,909)
Deferred income tax expense 1,065 788
Equity in earnings of unconsolidated
subsidiaries (368) (423)
(Increase) decrease in accrued interest
receivable, other real estate
owned and other assets (8,878) 3,376
Increase in accrued interest payable
and other liabilities 930 261
Net cash provided by operating
activities 11,840 14,354
Cash flows from investing activities:
Proceeds from maturities of and
calls on investment securities
held to maturity 30,993 37,838
Purchases of investment securities
held to maturity (66,505) (15,000)
Proceeds from sales, maturities and
calls on investment securities
available for sale 37,358 46,976
Purchases of investment securities
available for sale (46,321) (33,092)
Net increase in interest-bearing
deposits in other banks (2,733) (2,145)
Net loan originations (11,936) (36,632)
Proceeds from disposal of premises
and equipment 3 16
Purchases of premises and equipment (1,901) (1,939)
Distributions from unconsolidated
subsidiaries 265 -
Investment in unconsolidated
subsidiaries (150) -
<PAGE>
Net cash used in investing
activities (60,927) (3,988)
Cash flows from financing activities:
Net increase (decrease) in deposits 17,288 (37,842)
Proceeds from long-term debt 34,000 50,000
Repayments of long-term debt (21,643) (25,588)
Net increase (decrease)in short-term
borrowings 1,073 (998)
Cash dividends paid (3,797) (3,787)
Proceeds from sale of common stock 339 159
Net cash provided by (used in)
financing activities 27,260 (18,056)
Net decrease in cash and cash
equivalents (16,361) (7,690)
Cash and cash equivalents:
At beginning of period 55,534 50,274
At end of period $39,173 $42,584
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $32,497 $31,211
Cash paid during the period
for income taxes $ 7,700 $ 4,470
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to other real estate $ 3,209 $ 350
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CPB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial information included herein is unaudited, except
for the consolidated balance sheet at December 31, 1996.
However, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the
interim periods.
The results of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results
to be expected for the full year.
2. Two-For-One Stock Split
On October 8, 1997, the "Board" declared a two-for-one split
of CPB Inc. common stock (the "Stock Split"). Each shareholder
receives one additional share of common stock for each share
owned as of October 20, 1997, the record date. Payment date is
November 14, 1997. Based on the 5,289,592 shares of CPB Inc.
common stock outstanding as of the record date, the Stock Split
would double the number of outstanding shares of 10,579,184 after
the payment date. Authorized shares will double to 50,000,000
shares.
The Company's 1997 Stock Option Plan, which was approved by
its shareholders in 1997, authorizes the granting of a maximum of
500,000 shares to participants. After adjustment for the Stock
Split, said shares total 1,000,000 of which 253,400 shares were
granted as of September 30, 1997, none of which were exercisable.
The Company's 1996 Stock Option Plan expired in 1996. Options
granted from the plan which were exercisable at September 30,
1997 totaled 262,086 shares after adjustment for the Stock Split.
The Company's share purchase agreement with The Sumitomo Bank,
Ltd. ("Sumitomo") provides 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. As of
September 30, 1997, pursuant to this share purchase agreement,
the Company has issued warrants giving Sumitomo the right to
purchase 32,380 shares, after adjustment for the Stock Split.
Further explanation of the share purchase agreement is presented
in "Certain Transactions" on page 14 of the Company's Proxy
Statement for its Annual Meeting of Shareholders which was held
on April 22, 1997.
The financial statements presented in this Form 10-Q as of and
for the three and nine months ended September 30, 1997 and 1996,
reflect the effects of the Stock Split.
F-4
<PAGE>
3. Accounting Pronouncements
In June 1996, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components
approach that focuses on control, distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. In December 1996, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 127 defers the effective date of
certain provisions of SFAS No. 125 to transactions occurring
after December 31, 1997. In January 1997, the Company
implemented those provisions of SFAS No. 125 which were not
subject to deferral by SFAS No. 127. However, servicing assets
were deemed immaterial, and accordingly, no disclosures will be
made, as permitted by SFAS No. 125. Further, the Company does
not expect the future application of SFAS No. 125 to the
transactions covered under SFAS No. 127 to have a material impact
on the Company's consolidated financial condition, results of
operations or liquidity.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per
Share," and SFAS No. 129, "Disclosure of Information about
Capital Structure." SFAS No. 128 simplifies the calculation of
earnings per share and revises related disclosure requirements.
SFAS No. 129 consolidates existing guidance relating to an
entity's capital structure. SFAS No. 128 is effective for
interim periods and fiscal years ending after December 15, 1997.
Earlier application is not permitted. SFAS No. 129 is effective
for financial statements for periods ending after December 15,
1997. The adoption of these statements is not expected to be
material on the Company's financial condition, results of
operations or liquidity.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130
requires that changes in comprehensive income be reported in a
financial statement. Comprehensive income is defined as all
changes in equity, including net income, except those resulting
from investments by and distributions to owners. SFAS No. 131
requires public companies to report selected quarterly
information about business segments, including information on
products and services, geographic areas and major customers,
based on a management approach to reporting. SFAS No. 130 and
131 are effective for fiscal years beginning after December 15,
1997, although SFAS No. 131 need not be applied to interim
periods in the initial year of implementation. Reclassification
of financial statements for prior periods will be required for
F-5
<PAGE>
comparative purposes. As these statements relate solely to
disclosure requirements, their implementation will not have an
affect on the Company's financial condition or results of
operations or liquidity.
F-6
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 39,173
<INT-BEARING-DEPOSITS> 23,564
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 141,944
<INVESTMENTS-CARRYING> 286,490
<INVESTMENTS-MARKET> 286,959
<LOANS> 1,043,820
<ALLOWANCE> 19,103
<TOTAL-ASSETS> 1,442,190
<DEPOSITS> 1,140,902
<SHORT-TERM> 6,500
<LIABILITIES-OTHER> 17,421
<LONG-TERM> 128,197
0
0
<COMMON> 6,607
<OTHER-SE> 142,486
<TOTAL-LIABILITIES-AND-EQUITY> 1,442,190
<INTEREST-LOAN> 68,440
<INTEREST-INVEST> 11,943
<INTEREST-OTHER> 1,787
<INTEREST-TOTAL> 82,170
<INTEREST-DEPOSIT> 27,596
<INTEREST-EXPENSE> 33,087
<INTEREST-INCOME-NET> 49,083
<LOAN-LOSSES> 2,750
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 36,210
<INCOME-PRETAX> 18,108
<INCOME-PRE-EXTRAORDINARY> 18,108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,094
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 8.16
<LOANS-NON> 11,115
<LOANS-PAST> 10,042
<LOANS-TROUBLED> 2,696
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 19,436
<CHARGE-OFFS> 3,281
<RECOVERIES> 198
<ALLOWANCE-CLOSE> 19,103
<ALLOWANCE-DOMESTIC> 19,103
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,001
</TABLE>
