UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 0-10777
CPB INC.
(Exact name of registrant as specified in its charter)
Hawaii 99-0212597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 South King Street, Honolulu, Hawaii 96813
(Address of principal executive offices) (Zip Code)
(808)544-0500
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, No Par Value;
Outstanding at May 10, 1999: 9,690,776 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements listed below are filed as a part
hereof.
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Balance Sheets - March 31, 1999 and
December 31, 1998 F-1
Consolidated Statements of Income and Comprehensive
Income - Three months ended March 31, 1999 and 1998 F-3
Consolidated Statements of Cash Flows - Three months
ended March 31, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
CPB Inc. (the "Company") posted first quarter 1999 net income
of $3.679 million, increasing by 1.4% over the $3.628 million
earned in the first quarter of 1998. The increase in net income
was mainly due to increases in net interest income and other
operating income, offset by increases in the provision for loan
losses and other operating expenses. As of March 31, 1999, total
assets of $1,571.4 million increased by $10.5 million or 0.7%,
and net loans of $1,131.6 million increased by $45.7 million or
4.2%, while total deposits of $1,262.7 million decreased by $6.4
million or 0.5% compared with year-end 1998.
The following table presents annualized return on average
assets, annualized return on average stockholders' equity and
basic and diluted earnings per share for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Annualized return on average assets 0.95% 0.97%
Annualized return on average
stockholders' equity 9.81% 9.43%
Basic earnings per share $0.38 $0.34
Diluted earnings per share $0.37 $0.34
</TABLE>
Hawaii's economy has experienced little growth in the past
eight years but is beginning to show signs of improvement. The
statewide unemployment rate in March 1999 dropped to 5.7%, from
6.1% in March 1998 and 5.8% in February 1999. The unemployment
1
<PAGE>
rate on the island of Oahu was 4.9%, closer to the national rate
of 4.2%.
In 1998, Hawaii's largest industry, tourism, suffered from the
Asian financial crisis and increased competition from other
vacation destinations. However, recent activity indicates a
slight improvement. Year-to-date visitor arrivals through
February were comparable to 1998 levels, reflecting a 6.6%
increase in westbound visitors (primarily from the mainland U.S.)
which offset a 10.0% decrease in eastbound visitors (including
Japan and other Asian countries). Similarly, hotel occupancy
rates have stabilized in the first quarter of 1999, after 23
consecutive months of decline. Hotels on the islands of Maui and
Kauai posted strong increases in March 1999 occupancy rates
compared to March 1998, while the statewide occupancy rate was
virtually unchanged from the previous year. As the economic
situation stabilizes in Asia, and with continued strength in the
mainland U.S. economy, local economists forecast a mild rebound
for the visitor industry during 1999 and into the year 2000.
Local real estate sales activity continues to improve, with
total dollar-volume of residential real estate sales on Oahu in
the first quarter of 1999 increasing by 9.5% over the first
quarter of 1998, following a 17.7% increase in 1998 over 1997.
The combination of low interest rates and relatively stable real
estate prices has contributed to the increased sales activity.
Hawaii's economic environment has had, and will likely
continue to have, a direct effect on our Company's performance.
Indicative of the prolonged economic stagnation, Central Pacific
Bank (the "Bank"), a wholly-owned subsidiary of the Company, has
experienced an increase in commercial and residential mortgage
loan losses as further discussed in "Provision for Loan Losses."
While the Hawaii economy is expected to grow modestly in the near
future, actual results in tourism, employment and the real estate
market could affect loan demand, deposit growth, provision for
loan losses, noninterest income and noninterest expense.
Accordingly, the results of operations of the Company for the
remainder of 1999 may be directly impacted by the ability of
success of the Hawaii economy to sustain the positive trends
experienced in recent months.
The "Year 2000" problem remains a primary focus of the
organization. The Company has completed testing of all mission-
critical systems and vendors, including interfaces with third
parties. No major problems were identified during this testing
phase, and any remediation and retesting is expected to be
completed in the first half of 1999. The Company's efforts are
now focused on customer awareness and preparedness and
contingency planning. Programs have been implemented to educate
our customers on potential problems and to assess their
compliance status to ensure minimal risk of business disruption
and economic loss. Customers representing approximately 2% of
2
<PAGE>
loans outstanding and 3% of deposits have been assessed to have a
high risk of noncompliance, and accordingly, programs have been
implemented to closely monitor their compliance efforts.
Further, Year 2000 compliance has been incorporated into the
underwriting standards for new loans and renewal requests, and a
Year 2000 risk factor has been incorporated into the assessment
of the adequacy of the allowance for loan losses. Contingency
plans, which include outsourcing alternatives, manual processing,
suspension of non-critical functions and the securing of
additional sources of short-term liquidity, have been updated to
ensure that the Company is prepared to handle the most likely
worst-case scenario, including the inability of customers,
vendors and other third 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. Equipment and software expenditures related to the
implementation of new and enhanced systems and equipment are
being capitalized and amortized over their respective useful
lives. Expenditures related to the Company's internal resources
and other Year 2000 compliance costs are being expensed as
incurred. To date, equipment and software expenditures totaled
approximately $3.5 million out of a projected $4 million. Future
expenditures are not expected to have a material impact on the
Company's results of operations; however, no assurance can be
given at this time that all aspects of the Company's operations
will be Year 2000-compliant, nor that the Year 2000 problem will
not have an adverse impact on the Company's future earnings.
Certain matters discussed in this report on Form 10-Q may
constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-
looking statements relate to, among other things, Year 2000
compliance, net interest income, net interest margin, the levels
of nonperforming loans, loan losses and the allowance for loan
losses. Important factors that could cause the results to differ
from those discussed in this report include, but are not limited
to, general business conditions in the state of Hawaii, the real
estate market in Hawaii, competitive conditions among financial
institutions, regulatory changes in the financial services
industry, the ability of other entities to become Year 2000
compliant and other risks detailed in the Company's reports filed
with the Securities and Exchange Commission, including the Annual
Report on Form 10-K for the year ended December 31, 1998.
Results of Operations
Net Interest Income
A comparison of net interest income for the three months ended
March 31, 1999 and 1998 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."
3
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Interest income $28,058 $28,107
Interest expense 10,760 11,654
Net interest income $17,298 $16,453
Net interest margin 4.72% 4.66%
</TABLE>
Net interest margin was impacted by the recovery of more than
$200,000 in interest income on nonaccrual loans during the first
quarter of 1999, compared with reversal of more than $350,000 in
interest income on nonaccrual loans in the first quarter of 1998.
Interest income was virtually unchanged in the first quarter of
1999 compared to the same period in 1998. Average interest
earning assets of $1,466.6 million increased by $55.3 million or
3.9%, reflecting a $70.3 million increase in average loans and a
$9.0 million decrease in average investment securities. The
yield on interest earning assets of 7.65% for the first quarter
of 1999 decreased from the 7.97% yield for the first quarter of
1998 due primarily to a reduction in the general level of
interest rates during the past year.
Interest and fees on loans increased by $251,000 or 1.1% in
the first three months of 1999 when compared with the first
quarter of 1998. Excluding the $550,000 net benefit from
interest on nonaccrual loans, the decline in interest and fees on
loans was attributed to the reduction in loan yields due to the
decline in market interest rates. Interest and dividends on
investment securities was virtually unchanged, while interest on
deposits in other banks declined by $351,000 due to a reduction
in short-term investable funds compared to the prior year.
Interest expense for the three months of 1999 decreased by
$894,000 or 7.7% as compared to the same period in 1998. Average
interest-bearing liabilities of $1,211.0 million increased by
$43.7 million or 3.7% during the period, including a $30.9
million increase in money-market deposits and a $20.6 million
increase in time deposits of $100,000 or more. The average rate
on interest-bearing liabilities declined to 3.55% in the first
quarter of 1999 from 3.99% in the first quarter of 1998 due
primarily to the decline in market interest rates.
The resultant net interest income for the first quarter of
1999 of $17.3 million increased by $845,000 or 5.1%, and net
interest margin improved to 4.72% from 4.66%. However, excluding
the impact of the nonaccrual interest adjustments, net interest
margin declined by ten basis points. Strong competition for both
loans and deposits, particularly core deposits, is expected to
continue and may create additional pressure on net interest
margins in the future.
4
<PAGE>
Provision for Loan Losses
Provision for loan losses is determined by Management's
ongoing evaluation of the loan portfolio and assessment of the
ability of the allowance for loan losses to cover inherent
losses. The Company, considering current information and events
regarding a borrower's ability to repay its obligations, treats a
loan as impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. When a loan is considered to be
impaired, the amount of impairment is measured based on the
present value of expected future cash flows discounted at the
loan's effective interest rate or, if the loan is considered to
be collateral dependent, based on the fair value of the
collateral. Impairment losses are included in the allowance for
loan losses through a charge to the provision for loan losses.
For smaller-balance homogeneous loans (primarily residential real
estate and consumer loans), the allowance for loan losses is
based upon Management's evaluation of the quality, character and
risks inherent in the loan portfolio, current and projected
economic conditions, and historical loan loss experience. The
allowance is increased by provisions charged to operating expense
and reduced by loan charge-offs, net of recoveries.
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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
(Dollars in thousands)
<S> <C> <C>
Allowance for loan losses:
Balance at beginning of period $20,066 $19,164
Provision for loan losses 1,500 975
Loan charge-offs:
Real estate:
Mortgage-commercial 700 -
Mortgage-residential 546 211
Construction - -
Commercial, financial and agricultural - 19
Consumer:
Credit card and related plans 5 206
Other consumer 96 119
Other 1 1
Total loan charge-offs 1,348 556
Recoveries:
Real estate:
Mortgage-commercial 27 1
Mortgage-residential 3 28
5
<PAGE>
Construction - -
Commercial, financial and agricultural 30 4
Consumer:
Credit card and related plans 34 12
Other consumer 25 18
Other - -
Total recoveries 119 63
Net loan charge-offs 1,229 493
Balance at end of period $20,337 $19,646
Annualized ratio of net loan charge-offs to
average loans 0.44% 0.19%
</TABLE>
The provision for loan losses of $1.5 million for the first
quarter of 1999 increased by 53.8% over the same period in 1998,
reflecting the higher level of loan losses experienced during the
past year. Net loan charge-offs of $1.2 million and $493,000,
when expressed as an annualized percentage of average total
loans, was 0.44% and 0.19%, respectively. Loan charge-offs
during the first quarter of 1999 included a $700,000 charge-off
on a hotel-related commercial loan and several residential real
estate loans. Consumer loan charge-offs decreased to 7% of total
charge-offs during the first three months of 1999, compared to
58% in the first quarter of 1998, due primarily to the sale of
the credit card portfolio in the third quarter of 1998.
The allowance for loan losses expressed as a percentage of
total loans was 1.77% at March 31, 1999, declining slightly from
1.81% at December 31, 1998. Considering the decline in
nonaccrual and delinquent loans during the year, Management
believes that the allowance for loan losses was adequate to cover
the credit risks inherent in the loan portfolio. However,
continuation of current economic conditions in the state of
Hawaii may adversely affect borrowers' ability to repay,
collateral values and, consequently, the level of nonperforming
loans and provision for loan losses.
Nonperforming Assets
The following table sets forth nonperforming assets, accruing
loans delinquent for 90 days or more and restructured loans still
accruing interest at the dates indicated.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:
Real estate:
Mortgage-commercial $ 4,214 $ 6,830 $13,706
Mortgage-residential 5,403 5,037 1,352
Construction - - -
6
<PAGE>
Commercial, financial
and agricultural 1,893 1,065 2,367
Consumer - - 41
Other - - -
Total nonaccrual loans 11,510 12,932 17,466
Other real estate 304 1,155 3,430
Total nonperforming
assets 11,814 14,087 20,896
Loans delinquent for 90
days or more:
Real estate:
Mortgage-commercial 312 315 1,354
Mortgage-residential 4,234 4,206 9,992
Construction - - -
Commercial, financial
and agricultural 215 706 147
Consumer 183 168 722
Other - - -
Total loans delinquent
for 90 days or more 4,944 5,395 12,215
Restructured loans still
accruing interest:
Real estate:
Mortgage-commercial - - 2,727
Mortgage-residential - - -
Construction - - -
Commercial, financial
and agricultural - - -
Consumer - - -
Other - - -
Total restructured
loans still accruing
interest - - 2,727
Total nonperforming
assets, loans delin-
quent for 90 days or
more and restructured
loans still accruing
interest $16,758 $19,482 $35,838
Total nonperforming assets
as a percentage of
loans and other real
estate 1.03% 1.27% 1.93%
Total nonperforming assets
and loans delinquent for
90 days or more as a
percentage of loans
7
<PAGE>
and other real estate 1.45% 1.76% 3.05%
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 1.45% 1.76% 3.31%
</TABLE>
Nonperforming assets, loans delinquent for 90 days or more and
restructured loans still accruing interest totaled $16.8 million
at March 31, 1999, a decrease of $2.7 million or 14.0% from year-
end 1998. Nonaccrual loans, loans delinquent for 90 days or more
and restructured loans still accruing interest were comprised
primarily of loans secured by commercial or residential real
property in the state of Hawaii. Nonaccrual loans of $11.5
million included a $1.6 million loan secured by multi-family
residential property and a $1.2 million loan secured by
commercial real estate located on Oahu. Nonaccrual loans at
March 31, 1999 also included a number of commercial mortgages and
residential mortgages on properties located throughout the state.
Loans delinquent for 90 days or more and still accruing interest
totaled $4.9 million at March 31, 1999, a slight decrease from
year-end 1998 levels. Impaired loans at March 31, 1999 totaled
$9.2 million and included all nonaccrual and restructured loans
greater than $500,000. The allowance for loan losses allocated
to impaired loans amounted to $2.0 million at March 31, 1999.
Management continues to closely monitor loan delinquencies and
work with borrowers to resolve loan problems; however,
continuation of the current economic conditions in the state of
Hawaii may result in future increases in nonperforming assets,
delinquencies, net loan charge-offs, provision for loan losses
and noninterest expense.
Other Operating Income
Total other operating income for the first quarter of 1999 of
$3.3 million increased by $453,000 or 15.7% over the first
quarter of 1998. A gain on sale of investment securities of
$203,000 and increased earnings on corporate-owned life insurance
policies contributed to the increase in other operating income.
Other Operating Expense
Total other operating expense of $13.1 million for the first
quarter of 1999 increased by $608,000 or 4.9% over the same
period in 1998. This increase was primarily attributed to a
$350,000 accrual for potential losses on an international debit
card fraud scheme and outsourcing expenses related to the
servicing of merchant accounts. Management expects to recover a
portion of the debit card loss during the second quarter of 1999
and has installed additional manual and technological controls
to minimize the risk of future losses of this nature.
8
<PAGE>
Income Taxes
The effective tax rate for the first quarter of 1999 was
36.18%, compared with the previous year's rate of 35.84%. The
tax rate for 1998 reflected the recognition of expected tax
benefits, which were subsequently reversed, related to the
formation of a real estate investment trust in the first quarter
of 1998. While the Company believes that the associated tax
benefits are realizable, the state of Hawaii has indicated that
it may challenge the tax treatment. As of March 31, 1999, the
cumulative estimated tax benefits not yet recognized amounted to
$1.4 million.
Financial Condition
Total assets at March 31, 1999 of $1.57 billion increased by
$10.5 million or 0.7% over year-end 1998. Net loans of $1.13
billion increased by $45.7 million or 4.2%, funded by a decrease
in investments securities of $34.4 million or 9.8%.
Total deposits at March 31, 1999 of $1.26 billion decreased by
$6.4 million or 0.5% from year-end 1998. Noninterest-bearing
deposits of $180.7 million decreased by $6.2 million or 3.3%,
while interest-bearing deposits of $1.08 billion was unchanged
from year-end 1998. Core deposits (noninterest-bearing demand,
interest-bearing demand and savings deposits, and time deposits
under $100,000) at March 31, 1999 of $922.2 million decreased
slightly by $2.8 million or 0.3% during the first quarter of
1999, and time deposits of $100,000 and over of $340.5 million
decreased by $3.6 million or 1.1%. The decrease in core deposits
included decreases of $4.6 million in business checking accounts
and $4.4 million in business money market deposits, offset by a
$5.6 million increase 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 $149.2 million at March 31, 1999
increased by $1.2 million or 0.8% over December 31, 1998. When
expressed as a percentage of total assets, stockholders' equity
increased slightly to 9.50% at March 31, 1999, compared to 9.49%
at year-end 1998. On March 15, 1999, the board of directors
declared a first quarter cash dividend of $0.13 per share,
consistent with the dividend declared in the first quarter of
1998. Dividends declared in the first quarter of 1999 totaled
$1,269,000 compared with $1,379,000 in the first quarter of 1998,
an 8.0% decrease resulting from the reduction in outstanding
shares due to the stock repurchase program which commenced in
1998.
As of March 31, 1999, a total of 877,988 out of an approved
1.1 million shares have been repurchased under the Company's
stock repurchase program at a weighted average price of $17.36.
9
<PAGE>
The remaining repurchases will be conducted in the open market
and are dependent upon market conditions. The stock repurchase
program has resulted in a slight decrease in capital and capital
ratios and a corresponding increase in equity-based performance
measures.
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. Furthermore, the Company
seeks to ensure that regulatory guidelines and industry standards
are met. Regulations on capital adequacy guidelines adopted by
the Federal Reserve Board (the "FRB") and the Federal Deposit
Insurance Corporation (the "FDIC") are as follows. An
institution is required to maintain a minimum ratio of qualifying
total capital to risk-adjusted assets of 8% and a minimum ratio
of Tier 1 capital to risk-adjusted assets of 4%. In addition to
the risk-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 must by
3%. 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 following table sets forth the capital requirements
applicable to the Company and the Company's capital ratios as of
the dates indicated.
<TABLE>
<CAPTION>
Actual Required Excess
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At March 31, 1999:
Leverage capital
ratio $149,095 9.59% $62,156 4.00% $86,939 5.59%
Tier I risk-based
capital ratio 149,095 11.83 50,423 4.00 98,672 7.83
Total risk-based
capital ratio 164,909 13.08 100,847 8.00 64,062 5.08
At December 31, 1998:
Leverage capital
ratio $147,338 9.71% $60,722 4.00% $86,616 5.71%
Tier I risk-based
capital ratio 147,338 12.10 48,698 4.00 98,640 8.10
Total risk-based
capital ratio 162,616 13.36 97,395 8.00 65,221 5.36
</TABLE>
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
10
<PAGE>
capitalized" under the prompt corrective action provisions of the
FDIC Improvement Act of 1991.
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.
<TABLE>
<CAPTION>
Actual Required Excess
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At March 31, 1999:
Leverage capital
ratio $139,661 9.00% $77,589 5.00% $62,072 4.00%
Tier I risk-based
capital ratio 139,661 11.09 75,563 6.00 64,098 5.09
Total risk-based
capital ratio 155,460 12.34 125,939 10.00 29,521 2.34
At December 31, 1998:
Leverage capital
ratio $137,233 9.05% $75,795 5.00% $61,438 4.05%
Tier I risk-based
capital ratio 137,233 11.28 72,992 6.00 64,241 5.28
Total risk-based
capital ratio 152,500 12.54 121,653 10.00 30,847 2.54
</TABLE>
Asset/Liability Management and Liquidity
The Company's asset/liability management policy and liquidity
are discussed in the 1998 Annual Report to Shareholders. No
significant changes have occurred during the three months ended
March 31, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The Company discussed the nature and extent of market risk
exposure in the 1998 Annual Report to Shareholders. No
significant changes have occurred during the three months ended
March 31, 1999.
11
<PAGE>
PART II. OTHER INFORMATION
Items 1 to 3 and Item 5.
Items 1 to 3 and Item 5 are omitted pursuant to instructions
to Part II.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the "Meeting") of the
Company was held on April 27, 1999, for the purpose of
considering and voting upon the following matters:
1. Election of three persons to the Board of Directors for a
term of three years and to serve until their successors
are elected and qualified;
2. Ratification of the appointment of KPMG LLP as the
Company's independent accountants for the fiscal year
ending December 31, 1999; and
3. Transaction of such other business as may properly come
before the Meeting and at any and all adjournments
thereof.
The following table presents the names of directors elected at
the Meeting, as well as the number of votes cast for, votes cast
against or withheld, and abstentions or nonvotes for each of the
directors nominated. A total of 7,758,137 shares, or 79.4% of
eligible shares, were represented at the Meeting.
<TABLE>
<CAPTION>
Votes Cast
Against or Abstentions
Name For Withheld or Nonvotes
<S> <C> <C> <C>
Alice F. Guild 7,583,428 174,709 None
Daniel M. Nagamine 7,570,220 187,917 None
Naoaki Shibuya 7,598,232 159,905 None
</TABLE>
In addition to the above directors, the following directors
will continue to serve on the Board of Directors until the
expiration of their respective terms as indicated.
<TABLE>
<CAPTION>
Expiration
Name of Term
<S> <C>
Paul Devens 2000
Dennis I. Hirota, Ph.D. 2001
Stanley W. Hong 2000
Kensuke Hotta 2001
Joichi Saito 2001
Clayton K. Honbo 2000
</TABLE>
12
<PAGE>
The ratification of the appointment of KPMG LLP as
independent accountants for the fiscal year ending December 31,
1999 was approved with a total of 7,671,359 votes cast for,
35,790 votes against or withheld and 50,988 abstentions or
nonvotes.
There were no other matters brought before the Meeting which
required a vote by shareholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Financial Data Schedule as of and for the
three months ended March 31, 1999, is filed
as Exhibit 27 to this report on Form 10-Q.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K
during the first quarter of 1999.
13
<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: May 12, 1999 /s/ Joichi Saito
Joichi Saito
Chairman of the Board and
Chief Executive Officer
Date: May 12, 1999 /s/ Neal K. Kanda
Neal K. Kanda
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
14
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands, except per share data) 1999 1998
<S> <C> <C>
ASSETS
Cash and due from banks $ 53,235 $ 42,735
Interest-bearing deposits in other banks 55 10,469
Investment securities:
Held to maturity, at cost (fair value of $120,651 at
March 31, 1999 and $123,226 at December 31, 1998) 119,045 120,476
Available for sale, at fair value 198,001 230,960
Total investment securities 317,046 351,436
Loans 1,151,921 1,105,912
Less allowance for loan losses 20,337 20,066
Net loans 1,131,584 1,085,846
Premises and equipment 26,411 26,833
Accrued interest receivable 9,398 9,122
Investment in unconsolidated subsidiaries 8,147 7,990
Due from customers on acceptances 56 32
Other real estate 304 1,155
Other assets 25,114 25,267
Total assets $1,571,350 $1,560,885
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 180,737 $ 186,892
Interest-bearing deposits 1,081,966 1,082,231
Total deposits 1,262,703 1,269,123
F-1
<PAGE>
Short-term borrowings 19,586 2,014
Long-term debt 121,931 118,289
Bank acceptances outstanding 56 32
Other liabilities 17,834 23,361
Total liabilities 1,422,110 1,412,819
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 9,762,236 shares at March 31,
1999, and 9,797,596 shares at December 31, 1998 6,683 6,637
Surplus 45,848 45,848
Retained earnings 96,675 94,954
Accumulated other comprehensive income, net of taxes 34 627
Total stockholders' equity 149,240 148,066
Total liabilities and stockholders' equity $1,571,350 $1,560,885
Book value per share $15.29 $15.11
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-2
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands, March 31,
except per share data) 1999 1998
<S> <C> <C>
Interest income:
Interest and fees on loans $22,599 $22,348
Interest and dividends on
investment securities:
Taxable interest 4,344 4,536
Tax-exempt interest 419 293
Dividends 359 308
Interest on deposits in other banks 26 377
Interest on Federal funds sold and
securities purchased under
agreements to resell 11 -
Total interest income 27,758 27,862
Interest expense:
Interest on deposits 8,857 9,572
Interest on short-term borrowings 280 181
Interest on long-term debt 1,623 1,901
Total interest expense 10,760 11,654
Net interest income 16,998 16,208
Provision for loan losses 1,500 975
Net interest income after
provision for loan losses 15,498 15,233
Other operating income:
Income from fiduciary activities 177 143
Service charges on deposit accounts 814 731
Other service charges and fees 1,620 1,587
F-3
<PAGE>
Equity in earnings of
unconsolidated subsidiaries 96 103
Fees on foreign exchange 170 157
Investment securities gains 203 -
Other 256 162
Total other operating income 3,336 2,883
Other operating expense:
Salaries and employee benefits 6,551 6,663
Net occupancy 1,526 1,592
Equipment 730 716
Other 4,262 3,490
Total other operating expense 13,069 12,461
Income before income taxes 5,765 5,655
Income taxes 2,086 2,027
Net income $ 3,679 $ 3,628
Other comprehensive income, before tax:
Unrealized holding (losses) gains
on securities:
Unrealized holding (losses) gains
during period, net of taxes of
$(395,000) and $23,000 in 1999
and 1998, respectively (593) 35
Less: reclassification adjustment
for gains included in net income,
net of taxes of $81,000 in 1999 122 -
Net unrealized holding (losses)
gains (715) 35
Comprehensive income $ 2,964 $ 3,663
F-4
<PAGE>
Per share data:
Basic earnings per share $ 0.38 $ 0.34
Diluted earnings per share 0.37 0.34
Cash dividends declared 0.13 0.13
Weighted average shares outstanding
(in thousands) 9,778 10,586
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-5
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in thousands) 1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,679 $ 3,628
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Provision for loan losses 1,500 975
Provision for depreciation and
amortization 724 771
Net amortization and accretion of
investment securities 49 39
Net gain on investment securities (203) -
Federal Home Loan Bank stock
dividends received (332) (308)
Net loss on sale of loans 44 25
Net increase in loans held for sale (20,220) (3,779)
Deferred income tax expense 2,054 201
Equity in earnings of unconsolidated
subsidiaries (96) (103)
Net increase other assets (244) (194)
Net decrease in other liabilities (5,861) (481)
Net cash (used in) provided by
operating activities (18,906) 774
Cash flows from investing activities:
Proceeds from maturities of and calls on
investment securities held to maturity 2,498 14,220
Purchases of investment securities
held to maturity (1,088) (19,142)
Proceeds from sales of investment
securities available for sale 15,102 -
Proceeds from maturities of and calls
on investment securities available
for sale 25,829 9,701
Purchases of investment securities
available for sale (8,453) (13,289)
Net decrease in interest-bearing
deposits in other banks 10,414 14,269
Net loan originations (27,385) (36,919)
Purchases of premises and equipment (302) (515)
Investment in unconsolidated
subsidiaries (86) (50)
Net cash provided by (used in)
investing activities 16,529 (31,725)
F-6
<PAGE>
Cash flows from financing activities:
Net (decrease) increase in deposits (6,420) 7,145
Proceeds from long-term debt 19,250 10,000
Repayments of long-term debt (15,608) (603)
Net increase in short-term borrowings 17,572 8,535
Cash dividends paid (1,274) (1,375)
Proceeds from sale of common stock 74 290
Repurchases of common stock (717) -
Net cash provided by financing
activities 12,877 23,992
Net increase (decrease) in cash
and cash equivalents 10,500 (6,959)
Cash and cash equivalents:
At beginning of period 42,735 50,695
At end of period $ 53,235 $ 43,736
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $ 10,223 $ 11,162
Cash paid during the period
for income taxes $ 7,200 $ 450
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to other real estate $ 323 $ 324
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-7
<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, 1998.
However, such information reflects all adjustments (consisting
solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair statement of results for the
interim periods.
The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected
for the full year.
2. Comprehensive Income
Components of other comprehensive income for the three months
ended March 31, 1999 and 1998 were comprised solely of unrealized
holding gains (losses) on available-for-sale investment
securities. Accumulated other comprehensive income, net of
taxes, is presented below as of the dates indicated:
<TABLE>
<CAPTION>
March 31,
(Dollars in thousands) 1999 1998
<S> <C> <C>
Balance at beginning of period $627 $ 94
Current-period change (593) 35
Balance at end of period $ 34 $129
</TABLE>
3. Segment Information
The Company has three reportable segments: retail branches,
commercial finance and treasury. The segments reported are
consistent with internal functional reporting lines. They are
managed separately because each unit has different target
markets, technological requirements, marketing strategies and
specialized skills. The retail branch segment includes all
retail branch offices. Products and services offered include a
full range of deposit and loan products, safe deposit boxes and
various other bank services. The commercial finance segment
focuses on lending to corporate customers, residential mortgage
lending, construction and real estate development lending and
international banking services. The treasury segment is
responsible for managing the Company's investment securities
portfolio and wholesale funding activities.
The accounting policies of the segments are consistent with
the Company's accounting policies which are described in note 1
to the consolidated financial statements in the 1998 Annual
Report to Shareholders. The majority of the Company's net income
is derived from net interest income. Accordingly, Management
F-8
<PAGE>
focuses primarily on net interest income (expense), rather than
gross interest income and expense amounts, in evaluating segment
profitability. Intersegment net interest income (expense) is
allocated to each segment based on the amount of net investable
funds provided (used) by that segment at a rate equal to the
Bank's average rate on interest-sensitive assets and liabilities.
All administrative and overhead expenses are allocated to the
segments at cost. Cash, investment securities, loans and their
related balances are allocated to the segment responsible for
acquisition and maintenance of those assets. Segment assets also
include all premises and equipment used directly in segment
operations.
Segment profits and assets are provided in the following table
for the periods indicated.
F-9
<PAGE>
<TABLE>
<CAPTION>
Retail Commercial All
(Dollars in thousands) Branch Finance Treasury Others Total
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1999:
Net interest income (expense) $ (1,931) $ 16,142 $ 2,080 $ 707 $ 16,998
Intersegment net interest
income (expense) 10,932 (10,676) 20 (276) -
Provision for loan losses 92 1,348 - 60 1,500
Other income 1,162 79 222 1,873 3,336
Other expense 4,017 757 71 8,224 13,069
Administrative and overhead
expense allocation 4,141 787 56 (4,984) -
Income tax expense 689 946 798 (347) 2,086
Net income $ 1,224 $ 1,707 $ 1,397 $ (649) $ 3,679
At March 31, 1999:
Investment securities $ - $ - $317,046 $ - $ 317,046
Loans 282,151 850,476 - 19,294 1,151,921
Other 23,485 20,675 35,780 22,443 102,383
Total assets $305,636 $871,151 $352,826 $41,737 $1,571,350
Three months ended March 31, 1998:
Net interest income (expense) $ (2,288) $ 14,724 $ 2,322 $ 1,450 $ 16,208
Intersegment net interest
income (expense) 11,348 (10,381) (295) (672) -
Provision for loan losses 196 498 - 281 975
Other income 1,009 120 3 1,751 2,883
Other expense 3,910 1,353 57 7,141 12,461
Administrative and overhead
expense allocation 3,463 861 46 (4,370) -
Income tax expense 945 652 616 (186) 2,027
Net income $ 1,555 $ 1,099 $ 1,311 $ (337) $ 3,628
At December 31, 1998:
Investment securities $ - $ - $351,436 $ - $ 351,436
Loans 286,221 799,745 - 19,946 1,105,912
Other 23,291 20,279 34,741 25,226 103,537
Total assets $309,512 $820,024 $386,177 $ 45,172 $1,560,885
</TABLE>
F-10
<PAGE>
4. Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Earlier
application is permitted only as of the beginning of a fiscal
quarter. The application of SFAS No. 133, effective from January
1, 2000, is not expected to have a material impact on the
Company's consolidated financial statements.
In February 1999, the FASB issued SFAS No. 135, "Rescission of
FASB Statement No. 75 and Technical Corrections." SFAS No. 135,
effective for fiscal years ending after February 15, 1999,
rescinds SFAS No. 75, "Deferral of the Effective Date of Certain
Accounting Requirements for Pension Plans of State and Local
Governmental Units," and amends SFAS No. 35, "Accounting and
Reporting by Defined Benefit Pension Plans," to exclude from its
scope plans that are sponsored by and provide benefits for
employees of state and local governmental units. SFAS No. 135
also amends other existing authoritative guidance to make various
technical corrections, clarify meanings, or describe
applicability under changed conditions. As the rescission of
SFAS No. 75 and amendment of SFAS No. 35 relate solely to
governmental entities, and as the technical corrections do not
significantly change existing authoritative guidance, the
application of SFAS No. 135 is not expected to have a material
impact on the Company's consolidated financial statements.
F-11
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000701347
<NAME> CPB INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 53,235
<INT-BEARING-DEPOSITS> 55
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 198,001
<INVESTMENTS-CARRYING> 119,045
<INVESTMENTS-MARKET> 120,651
<LOANS> 1,151,921
<ALLOWANCE> 20,337
<TOTAL-ASSETS> 1,571,350
<DEPOSITS> 1,262,703
<SHORT-TERM> 19,586
<LIABILITIES-OTHER> 17,834
<LONG-TERM> 121,931
0
0
<COMMON> 6,683
<OTHER-SE> 142,557
<TOTAL-LIABILITIES-AND-EQUITY> 1,571,350
<INTEREST-LOAN> 22,599
<INTEREST-INVEST> 5,122
<INTEREST-OTHER> 37
<INTEREST-TOTAL> 27,758
<INTEREST-DEPOSIT> 8,857
<INTEREST-EXPENSE> 10,760
<INTEREST-INCOME-NET> 16,998
<LOAN-LOSSES> 1,500
<SECURITIES-GAINS> 203
<EXPENSE-OTHER> 13,069
<INCOME-PRETAX> 5,765
<INCOME-PRE-EXTRAORDINARY> 3,679
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,679
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 4.72
<LOANS-NON> 11,510
<LOANS-PAST> 4,944
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,066
<CHARGE-OFFS> 1,348
<RECOVERIES> 119
<ALLOWANCE-CLOSE> 20,337
<ALLOWANCE-DOMESTIC> 12,665
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,672
</TABLE>
