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, 2000
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, 2000: 8,926,184 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 (Unaudited)- March 31,
2000 and December 31, 1999 F-1
Consolidated Statements of Income (Unaudited) -
Three months ended March 31, 2000 and 1999 F-3
Consolidated Statements of Changes in Stockholders'
Equity and Comprehensive Income (Unaudited) -
Three months ended March 31, 2000 and 1999 F-5
Consolidated Statements of Cash Flows (Unaudited) -
Three months ended March 31, 2000 and 1999 F-7
Notes to Consolidated Financial Statements
(Unaudited) - March 31, 2000 F-9
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
CPB Inc. (the "Company") posted first quarter 2000 net income
of $4.586 million, increasing by 24.7% over the $3.679 million
earned in the first quarter of 1999. The increase in net income
was attributed to a net gain of $1.4 million related to the sale
of the merchant servicing portfolio and a $0.5 million decrease
in provision for loan losses. As of March 31, 2000, total assets
of $1,625.9 million decreased by $20.6 million or 1.3% compared
with year-end 1999. Net loans of $1,161.7 million increased by
$12.0 million or 1.0%, while total deposits of $1,305.5 million
was unchanged.
The following table presents annualized returns on average
assets and average stockholders' equity and basic and diluted
earnings per share for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Annualized return on
average assets 1.14% 0.95%
Annualized return on
average stockholders'
equity 12.55% 9.81%
Basic earnings per share $0.50 $0.38
Diluted earnings per share $0.49 $0.37
</TABLE>
1
<PAGE>
After eight years of little or no growth, Hawaii's economy has
shown signs of improvement in 2000. Despite a slow start
attributed to Year 2000 concerns, the visitor industry has seen a
slight rebound. First quarter hotel occupancy rates increased by
3.6%, and average daily room rates increased by 5.8% compared to
the same period in 1999. As the economic situation improves in
Asia, and with continued strength in the mainland U.S. economy,
local economists forecast similar results for the remainder of
the year.
Similarly, the statewide unemployment rate in March 2000 fell
to 4.4%, from 5.7% a year ago. Most significantly, the
unemployment rate on the island of Oahu of 3.9% was lower than
the national average of 4.3%. Bankruptcy filings have also
slowed significantly, declining by 14% from the first quarter of
1999. The first quarter of 2000 represented the fourth straight
quarter in which bankruptcy filings dropped from prior year
levels.
Local real estate sales activity also continues to improve,
with total dollar-volume of residential real estate sales on the
island of Oahu in the first quarter 2000 increasing by 28.2% over
the same period in 1999. After reaching a low point in 1996,
residential resales have increased steadily in each of the past
three years.
Hawaii's economic environment has had, and will likely
continue to have, a direct effect on our Company's performance.
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 2000 may be directly impacted by the ability of the
Hawaii economy to sustain the positive trends experienced in
recent months.
Certain matters discussed in this report 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, net interest income,
net interest margin, the levels of nonperforming loans, loan
losses and the allowance for loan losses, noninterest income and
noninterest expense. Important factors that could cause the
results to differ from those discussed in this report include,
but are not limited to, changes in market interest rates, 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, 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, 1999.
2
<PAGE>
Results of Operations
Net Interest Income
A comparison of net interest income for the three months ended
March 31, 2000 and 1999 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."
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Interest income $29,278 $27,991
Interest expense 11,974 10,760
Net interest income $17,304 $17,231
Net interest margin 4.58% 4.70%
</TABLE>
Interest income increased by $1.3 million or 4.6% in the first
quarter of 2000 as compared to the same period in 1999, due to a
combination of increases in average interest-earning assets and
market interest rates during the period. Average interest
earning assets of $1,510.4 million for the first quarter of 2000
increased by $43.7 million or 3.0%, due primarily to increases in
loan balances. The yield on interest earning assets of 7.75% for
the first quarter of 2000 increased from 7.63% compared to the
same period in 1999 due primarily to the increase in market
interest rates in 1999 and 2000.
Interest and fees on loans increased by $1.2 million or 5.1%
in the first quarter of 2000 due to increases in average loan
balances and average yields. Interest and dividends on
investment securities was virtually unchanged, decreasing by
0.4%, while interest on deposits in other banks increased by
$73,000 or 280.8% due to an increase in short-term deposits
compared to the prior year.
Interest expense for the three months ended March 31, 2000
increased by $1.2 million or 11.3% as compared to the same
periods in 1999 due to an increase in average interest-bearing
liabilities and the higher level of market interest rates.
Average interest-bearing liabilities totaled $1,254.9 million in
the first quarter of 2000, increasing by $43.9 million or 3.6%,
with substantially all growth occurring in certificates of
deposit. The average rate on interest-bearing liabilities for
the first quarter of 2000 increased to 3.82% from 3.55% in 1999.
The resultant net interest income for the first quarter of
2000 increased by $73,000 or 0.4% over the same period in 1999.
However, net interest margin declined to 4.58% from 4.70% in the
3
<PAGE>
first quarter of 2000 compared to 1999 due to the higher rate of
increase in funding costs relative to asset yields. Strong
competition for both loans and deposits, particularly core
deposits, is expected to continue and may create additional
pressure on net interest margin in the future.
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,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Allowance for loan losses:
Balance at beginning
of period $20,768 $20,066
Provision for loan
losses 1,000 1,500
Loan charge-offs:
Real estate:
Mortgage-commercial - 700
Mortgage-residential 350 546
Commercial, financial
and agricultural 18 -
Consumer:
Credit card and
related plans 39 5
4
<PAGE>
Other consumer 44 96
Other 12 1
Total loan charge-offs 463 1,348
Recoveries:
Real estate:
Mortgage-commercial 513 27
Mortgage-residential 6 3
Commercial, financial
and agricultural 12 30
Consumer:
Credit card and
related plans 28 34
Other consumer 22 25
Total recoveries 581 119
Net loan (recoveries)
charge-offs (118) 1,229
Balance at end of period $21,886 $20,337
Annualized ratio of net
loan (recoveries) charge-
offs to average loans (0.04%) 0.44%
</TABLE>
The provision for loan losses of $1.0 million for the first
quarter of 2000 decreased by 33.3% compared to the same period in
1999. Net loan (recoveries) charge-offs of ($118,000) and $1.2
million for the three months ended March 31, 2000 and 1999, when
expressed as an annualized percentage of average total loans, was
(0.04%) and 0.44%, respectively. Loan charge-offs during the
first quarter of 2000 were comprised primarily of several
residential real estate loans. Loan recoveries included $355,000
and $148,000 recovered on two commercial mortgage loans charged
off in prior years.
The allowance for loan losses expressed as a percentage of
total loans was 1.85% at March 31, 2000, increasing slightly over
the 1.77% at December 31, 1999. Considering the decline in net
loan charge-offs and decrease in total 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, any deterioration in economic
conditions in the state of Hawaii or continued material increases
in interest rates could adversely affect borrowers' ability to
repay, collateral values and, consequently, the level of
nonperforming loans and provision for loan losses.
5
<PAGE>
Nonperforming Assets
The following table sets forth nonperforming assets and
accruing loans delinquent for 90 days or more at the dates
indicated.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
(Dollars in thousands) 2000 1999 1999
<S> <C> <C> <C>
Nonaccrual loans:
Real estate:
Mortgage-commercial $ 3,106 $ 2,981 $ 4,214
Mortgage-residential 5,783 5,124 5,403
Commercial, financial
and agricultural 1,624 1,590 1,893
Total nonaccrual loans 10,513 9,695 11,510
Other real estate 476 1,366 304
Total nonperforming
assets 10,989 11,061 11,814
Loans delinquent for 90
days or more:
Real estate:
Mortgage-commercial 12 1,749 312
Mortgage-residential 902 1,636 4,234
Commercial, financial
and agricultural 395 128 215
Consumer 43 92 183
Total loans delinquent
for 90 days or more 1,352 3,605 4,944
Restructured loans still
accruing interest:
Real estate:
Mortgage-commercial 494 500 -
Total restructured
loans still accruing
interest 494 500 -
Total nonperforming
assets, loans delin-
quent for 90 days or
more and restructured
loans still accruing
interest $12,835 $15,166 $16,758
Total nonperforming assets
as a percentage of
loans and other real
estate 0.93% 0.94% 1.03%
6
<PAGE>
Total nonperforming assets
and loans delinquent for
90 days or more as a
percentage of loans
and other real estate 1.04% 1.25% 1.45%
Total nonperforming assets,
loans delinquent for 90
days or more and restruc-
tured loans still accruing
interest as a percentage
of loans and other real
estate 1.08% 1.29% 1.45%
</TABLE>
Nonperforming assets, loans delinquent for 90 days or more and
restructured loans still accruing interest totaled $12.8 million
at March 31, 2000, a decrease of $2.3 million or 15.4% from year-
end 1999. 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 all of which are located in the state of Hawaii.
Nonaccrual loans at March 31, 2000 of $10.5 million included a
$1.1 million loan secured by multi-family residential property
and a $1.1 million loan secured by commercial real estate, all
located on the island of Oahu. Nonaccrual loans also included a
number of other commercial mortgages and residential mortgages on
properties located throughout the state. Loans delinquent for 90
days or more and still accruing interest totaled $1.4 million at
March 31, 2000, a 62.5% decrease from year-end 1999 levels.
Impaired loans at March 31, 2000 totaled $7.5 million and
included all nonaccrual loans greater than $500,000. The
allowance for loan losses allocated to impaired loans amounted to
$2.3 million at March 31, 2000. Impaired loans at year-end 1999
totaled $6.1 million with an allocated allowance for loan losses
of $2.5 million.
Management continues to closely monitor loan delinquencies and
work with borrowers to resolve loan problems; however, any
worsening of current economic conditions in the state of Hawaii
or continued material increases in interest rates 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 of $4.5 million for the first
quarter of 2000 increased by $1.2 million or 36.9% over the same
period in 1999 due to the sale of the Bank's merchant servicing
portfolio in the first quarter of 2000. The merchant portfolio
sale resulted in a $1.9 million gain, offset by a $424,000
reduction in servicing fees. Investment securities losses of
$360,000 were also recognized in the first quarter of 2000,
compared with gains of $203,000 in 1999. Excluding the impact of
these items, total other operating income increased by $352,000
7
<PAGE>
or 13.2% in the first quarter of 2000 compared to the same period
in 1999.
Other Operating Expense
Total other operating expense of $13.4 million for the first
quarter of 2000 increased by $380,000 or 2.9% over the same
period in 1999. The increase was primarily attributed to a
$480,000 charge related to the termination of the contract with
Bank's merchant servicer due to the sale of the merchant
servicing portfolio and $500,000 accrued for consulting services.
The sale of the merchant servicing portfolio is expected to
result in a decrease of approximately $3.6 million in annual
operating income and a comparable decrease in annual operating
expenses in future periods.
Income Taxes
The effective tax rate for the first quarter of 2000 was
35.29%, compared with the previous year's rate of 36.18%.
Financial Condition
Total assets at March 31, 2000 of $1.63 billion decreased by
$20.6 million or 1.3% from year-end 1999 due to temporary
increases in cash and short-term borrowings at year-end for Year
2000 contingencies. Net loans of $1.16 billion increased by
$12.0 million or 1.0%, and investment securities of $337.9
million increased by $16.2 million or 5.0%, funded by an increase
in long-term debt. Total deposits at March 31, 2000 of $1.31
billion was unchanged from year-end 1999. Noninterest-bearing
deposits of $194.9 million decreased by $9.9 million or 4.9%,
while interest-bearing deposits of $1.11 billion increased by
$9.8 million or 0.9% compared to year-end 1999. Core deposits
(noninterest-bearing demand, interest-bearing demand and savings
deposits, and time deposits under $100,000) at March 31, 2000 of
$944.1 million decreased by $14.6 million or 1.5% during the
first three months of 2000, while time deposits of $100,000 and
over of $361.4 million increased by $14.5 million or 4.2%.
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 $145.5 million at March 31, 2000
increased by $1.4 million or 1.0% from December 31, 1999. When
expressed as a percentage of total assets, stockholders' equity
increased to 8.95% at March 31, 2000, from 8.75% at year-end
1999. Book value per share at March 31, 2000 was $15.77,
compared to $15.51 at year-end 1999.
On March 13, 2000, the board of directors declared a first
quarter cash dividend of $0.15 per share, a 15.4% increase over
the dividend declared in the first quarter of 1999. Dividends
8
<PAGE>
declared in the first quarter of 2000 totaled $1,383,000 compared
with $1,269,000 in the first quarter of 1999, a 9.0% increase.
On March 13, 2000, the board of directors authorized a fourth
stock repurchase program that provides for the repurchase of up
to five percent or approximately 435,000 shares of common stock
outstanding. In conjunction with the stock repurchase program,
the Company repurchased 262,163 shares of its common stock from
The Sumitomo Bank, Limited ("Sumitomo") effective as of May 4,
2000. This transaction reduced Sumitomo's holdings in CPB Inc.
to 711,750 shares or 7.97% of total common stock outstanding,
from 10.60% held prior to the transaction. As of May 4, 2000, a
total of 1,733,011 shares have been repurchased and retired under
the Company's stock repurchase program at a weighted average
price of $20.52. Any remaining repurchases are dependent upon
market conditions. The effect of stock repurchases to date has
been a decrease in capital and capital ratios and an 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 risks. Furthermore, the Company seeks to
ensure that regulatory guidelines and industry standards for
well-capitalized institutions 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 be
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.
9
<PAGE>
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
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At March 31, 2000:
Leverage capital
ratio $148,156 9.19% $64,47 4.00% $83,686 5.19%
Tier 1 risk-based
capital ratio 148,156 11.23 52,771 4.00 95,385 7.23
Total risk-based
capital ratio 164,714 12.49 105,543 8.00 59,171 4.49
At December 31, 1999:
Leverage capital
ratio $146,703 9.00% $65,198 4.00% $81,505 5.00%
Tier 1 risk-based
capital ratio 146,703 11.24 52,199 4.00 94,504 7.24
Total risk-based
capital ratio 163,070 12.50 104,397 8.00 58,673 4.50
In addition, FDIC-insured institutions such as the Bank must
maintain leverage, Tier 1 and total risk-based capital ratios of
at least 5%, 6% and 10%, respectively, to be considered "well
capitalized" under the prompt corrective action provisions of the
FDIC Improvement Act of 1991.
The following table sets forth the capital requirements for
the Bank to be considered "well capitalized" and the Bank's
capital ratios as of the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Actual Required Excess
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At March 31, 2000:
Leverage capital
ratio $139,588 8.67% $80,470 5.00% $59,118 3.67%
Tier 1 risk-based
capital ratio 139,588 10.60 78,993 6.00 60,595 4.60
Total risk-based
capital ratio 156,112 11.86 131,656 10.00 24,456 1.86
At December 31, 1999:
Leverage capital
ratio $136,345 8.38% $81,397 5.00% $54,948 3.38%
Tier 1 risk-based
capital ratio 136,345 10.47 78,140 6.00 58,205 4.47
Total risk-based
capital ratio 152,680 11.72 130,234 10.00 22,446 1.72
</TABLE>
10
<PAGE>
Asset/Liability Management and Liquidity
The Company's asset/liability management policy and liquidity
are discussed in the 1999 Annual Report to Shareholders. No
significant changes have occurred during the three months ended
March 31, 2000.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
The Company discussed the nature and extent of market risk
exposure in the 1999 Annual Report to Shareholders. No
significant changes have occurred during the three months ended
March 31, 2000.
11
<PAGE>
PART II. OTHER INFORMATION
Items 1 to 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 25, 2000 for the purpose of considering
and voting upon the following matters:
1. Election of three persons to serve on the Board of Directors
for a term of three years and to serve until their
successors are elected and qualified;
2. Approval of an amendment to the Restated Articles of
Incorporation to clarify the authority of the Board of
Directors to provide for the issuance of shares of preferred
stock previously authorized by the shareholders of the
Company in one or more series and fix the rights,
preferences and privileges of each series of preferred stock
of the Company;
3. Ratification of the appointment of KPMG LLP as the Company's
independent accountants for the fiscal year ending December
31, 2000; and
4. 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 7,369,831 shares, or 79.7% of
eligible shares, were represented at the Meeting.
<TABLE>
<CAPTION>
Votes Cast
Against or Abstentions
Name For Withheld or Nonvotes
<S> <C> <C> <C>
Paul Devens 6,884,237 485,594 None
Clayton K. Honbo 6,880,890 488,941 None
Stanley W. Hong 6,880,197 489,634 None
</TABLE>
12
<PAGE>
In addition to the above directors, the following directors
will continue to serve on the Board of Directors until the
expiration of their respective terms as indicated.
<TABLE>
<CAPTION>
Expiration
Name of Term
<S> <C>
Alice F. Guild 2002
Dennis I. Hirota, Ph.D. 2001
Kensuke Hotta 2001
Daniel M. Nagamine 2002
Joichi Saito 2001
Naoaki Shibuya 2002
</TABLE>
The amendment to the Restated Articles of Incorporation was
not approved, with a total of 5,037,784 votes cast for, 1,409,691
votes against, and 922,356 abstentions or nonvotes. The
affirmative vote of two-thirds of the common stock having voting
power was required for approval.
The ratification of the appointment of KPMG LLP as independent
accountants for the fiscal year ending December 31, 2000 was
approved with a total of 7,280,055 votes cast for, 18,142 votes
against, and 71,634 abstentions or nonvotes.
There were no other matters brought before the Meeting that
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, 2000, 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 2000.
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, 2000 /s/ Joichi Saito
Joichi Saito
Chairman of the Board and
Chief Executive Officer
Date: May 12, 2000 /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) 2000 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 46,548 $ 83,425
Interest-bearing deposits in other banks 871 9,828
Investment securities:
Held to maturity, at cost (fair value of $96,192 at
March 31, 2000 and $99,808 at December 31, 1999) 98,325 101,567
Available for sale, at fair value 239,562 220,103
Total investment securities 337,887 321,670
Loans 1,183,575 1,170,476
Less allowance for loan losses 21,886 20,768
Net loans 1,161,689 1,149,708
Premises and equipment 24,623 24,774
Accrued interest receivable 9,304 9,606
Investment in unconsolidated subsidiaries 8,562 8,451
Due from customers on acceptances 24 12
Other real estate 476 1,366
Other assets 35,873 37,651
Total assets $1,625,857 $1,646,491
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 194,905 $ 204,850
Interest-bearing deposits 1,110,619 1,100,804
Total deposits 1,305,524 1,305,654
F-1
<PAGE>
Short-term borrowings 36,856 79,000
Long-term debt 117,621 98,279
Bank acceptances outstanding 24 12
Other liabilities 20,378 19,467
Total liabilities 1,480,403 1,502,412
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 9,220,707 shares at March 31,
2000, and 9,288,457 shares at December 31, 1999 6,512 6,540
Surplus 45,848 45,848
Retained earnings 95,911 94,436
Accumulated other comprehensive loss, net of taxes (2,817) (2,745)
Total stockholders' equity 145,454 144,079
Total liabilities and stockholders' equity $1,625,857 $1,646,491
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-2
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In thousands, except per share data) 2000 1999
<S> <C> <C>
Interest income:
Interest and fees on loans $23,755 $22,599
Interest and dividends on
investment securities:
Taxable interest 4,210 4,344
Tax-exempt interest 591 419
Dividends 302 359
Interest on deposits in other banks 99 26
Interest on Federal funds sold and
securities purchased under
agreements to resell 2 11
Total interest income 28,959 27,758
Interest expense:
Interest on deposits 9,720 8,857
Interest on short-term borrowings 681 280
Interest on long-term debt 1,573 1,623
Total interest expense 11,974 10,760
Net interest income 16,985 16,998
Provision for loan losses 1,000 1,500
Net interest income after
provision for loan losses 15,985 15,498
Other operating income:
Income from fiduciary activities 236 177
Service charges on deposit accounts 781 814
F-3
<PAGE>
Other service charges and fees 1,232 1,620
Equity in earnings of
unconsolidated subsidiaries 142 96
Fees on foreign exchange 153 170
Investment securities (losses) gains (360) 203
Gain on sale of merchant servicing portfolio 1,850 -
Other 472 211
Total other operating income 4,506 3,291
Other operating expense:
Salaries and employee benefits 6,549 6,551
Net occupancy 1,591 1,526
Equipment 667 730
Other 4,597 4,217
Total other operating expense 13,404 13,024
Income before income taxes 7,087 5,765
Income taxes 2,501 2,086
Net income $ 4,586 $ 3,679
Per share data:
Basic earnings per share $ 0.50 $ 0.38
Diluted earnings per share 0.49 0.37
Cash dividends declared 0.15 0.13
Basic weighted average shares outstanding 9,260 9,778
Diluted weighted average shares outstanding 9,409 9,822
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-4
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other
(Dollars in thousands, Common Retained comprehensive
except per share data) stock Surplus earnings income(loss) Total
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 2000:
Balance at December 31, 1999 $6,540 $45,848 $94,436 $(2,745) $144,079
Net income - - 4,586 - 4,586
Net change in unrealized
gain(loss) on investment
securities, net of taxes
of $(47) - - - (72) (72)
Comprehensive income 4,514
Cash dividends declared
($0.15 per share) - - (1,383) - (1,383)
1,550 shares of common stock
issued 21 - - - 21
69,300 shares of common stock
repurchased (49) - (1,728) - (1,777)
Balance at March 31, 2000 $6,512 $45,848 $95,911 $(2,817) $145,454
Disclosure of reclassification amount:
Unrealized holding gain(loss)
on investment securities during
period, net of taxes of $76 - - - 115 115
Less: reclassification adjustment
for gains included in net income,
net of taxes of $124 - - - 187 187
Net change in unrealized gain(loss)
on investment securities - - - $ (72) $ (72)
F-5
<PAGE>
Three months ended March 31, 1999:
Balance at December 31, 1998 $6,637 $45,848 $94,954 $ 627 $148,066
Net income - - 3,679 - 3,679
Net change in unrealized
gain(loss) on investment
securities, net of taxes
of $(395) - - - (593) (593)
Comprehensive income 3,086
Cash dividends declared
($0.13 per share) - - (1,269) - (1,269)
5,640 shares of common stock
issued 74 - - - 74
41,000 shares of common stock
repurchased (28) - (689) - (717)
Balance at March 31, 1999 $6,683 $45,848 $96,675 $ 34 $149,240
Disclosure of reclassification amount:
Unrealized holding gain(loss)
on investment securities during
period, net of taxes of $(528) - - - (794) (794)
Less: reclassification adjustment
for losses included in net income,
net of taxes of $(133) - - - (201) (201)
Net change in unrealized gain(loss)
on investment securities - - - $ (593) $ (593)
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-6
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,586 $ 3,679
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,000 1,500
Provision for depreciation and
amortization 686 724
Net amortization and accretion of
investment securities 25 49
Net loss (gain) on investment securities 360 (203)
Federal Home Loan Bank stock
dividends received (302) (332)
Origination of loans held for sale (2,182) (10,721)
Net loss on sale of loans 29 44
Proceeds from sales of loans held
for sale 2,153 10,677
Deferred income tax expense 106 2,054
Equity in earnings of unconsolidated
subsidiaries (142) (96)
Net decrease (increase) in other assets 3,844 (244)
Net increase (decrease) in other
liabilities 750 (5,861)
Net cash provided by operating
activities 10,913 1,270
Cash flows from investing activities:
Proceeds from maturities of and calls on
investment securities held to maturity 3,215 2,498
Purchases of investment securities
held to maturity - (1,088)
Proceeds from sales of investment
securities available for sale 9,649 15,102
Proceeds from maturities of and calls
on investment securities available
for sale 8,542 25,829
Purchases of investment securities
available for sale (37,825) (8,453)
Net decrease in interest-bearing
deposits in other banks 8,957 10,414
Net loan originations over principal
repayments (13,805) (47,561)
Purchases of premises and equipment (535) (302)
F-7
<PAGE>
Investments in unconsolidated
subsidiaries - (86)
Net cash used in investing
activities (21,802) (3,647)
Cash flows from financing activities:
Net decrease in deposits (130) (6,420)
Proceeds from long-term debt 20,000 19,250
Repayments of long-term debt (658) (15,608)
Net (decrease) increase in short-term
borrowings (42,144) 17,572
Cash dividends paid (1,300) (1,274)
Proceeds from sale of common stock 21 74
Repurchases of common stock (1,777) (717)
Net cash (used in) provided by
financing activities (25,988) 12,877
Net increase (decrease) in cash
and cash equivalents (36,877) 10,500
Cash and cash equivalents:
At beginning of period 83,425 42,735
At end of period $46,548 $53,235
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $10,569 $10,223
Cash paid during the period
for income taxes $ - $ 7,200
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to other real estate $ 824 $ 323
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-8
<PAGE>
CPB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2000 and 1999
1. Basis of Presentation
The financial information included herein is unaudited, except
for the consolidated balance sheet at December 31, 1999.
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,
2000 are not necessarily indicative of the results to be expected
for the full year.
2. Comprehensive Income
Components of other comprehensive income (loss) for the three
months ended March 31, 2000 and 1999 were comprised solely of
unrealized holding gains (losses) on available-for-sale
investment securities. Accumulated other comprehensive income
(loss), net of taxes, is presented below as of the dates
indicated:
<TABLE>
<CAPTION>
Three months ended
March 31,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Balance at beginning of period $(2,745) $627
Current-period change (72) (593)
Balance at end of period $(2,817) $ 34
</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. Other activities
include trust, mortgage servicing, indirect lending activities.
F-9
<PAGE>
The accounting policies of the segments are consistent with
the Company's accounting policies that are described in note 1 to
the consolidated financial statements in the 1999 Annual Report
to Shareholders. The majority of the Company's net income is
derived from net interest income. Accordingly, Management
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-10
<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, 2000:
Net interest income (expense) $ (2,583) $ 17,324 $ 1,614 $ 630 $ 16,985
Intersegment net interest
income (expense) 11,941 (12,010) 329 (260) -
Provision for loan losses 381 615 - 4 1,000
Other operating income (expense) 1,070 189 (314) 3,588 4,506
Other operating expense 3,664 1,326 119 8,295 13,404
Administrative and overhead
expense allocation 4,229 1,057 93 (5,378) -
Income tax expense 721 877 487 416 2,501
Net income $ 1,433 $ 1,628 $ 903 $ 621 $ 4,586
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 operating income 1,162 34 222 1,873 3,291
Other operating expense 4,017 712 71 8,224 13,024
Administrative and overhead
expense allocation 4,141 787 56 (4,984) -
Income tax expense (benefit) 689 946 798 (347) 2,086
Net income (loss) $ 1,224 $ 1,707 $ 1,397 $ (649) $ 3,679
At March 31, 2000:
Investment securities $ - $ - $337,887 $ - $ 337,887
Loans 286,727 877,893 - 18,955 1,183,575
Other 21,185 22,588 34,499 26,123 104,395
Total assets $307,912 $900,481 $372,386 $45,078 $1,625,857
At December 31, 1999:
Investment securities $ - $ - $321,670 $ - $ 321,670
Loans 290,183 861,449 - 18,844 1,170,476
Other 30,091 23,257 46,567 54,430 154,345
Total assets $320,274 $884,706 $368,237 $73,274 $1,646,491
F-11
<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. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of SFAS Statement No. 133," which deferred the
effective date of SFAS No. 133. SFAS No. 133, as amended, is now
effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. Earlier application is permitted only as of the
beginning of a fiscal quarter. The application of SFAS No. 133,
as amended, effective from January 1, 2001, is not expected to
have a material impact on the Company's consolidated financial
statements.
In March 2000, the FASB issued Interpretation No. 44,
"Accounting for Certain Transactions involving Stock
Compensation," an interpretation of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Interpretation No. 44 clarifies the application of
Opinion 25 for certain issues, including (a) the definition of
"employee" for purposes of applying Opinion No. 25, (b) the
criteria for determining whether a plan quailifies as a
noncompensatory plan, (c) the accounting consequence of various
modifications to the terms of a previously fixed stock option or
award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The application
of Interpretation No. 44, effective July 1, 2000, is not expected
to have a material impact on the Company's consolidated financial
statements.
F-12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000701347
<NAME> CPB INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 46,548
<INT-BEARING-DEPOSITS> 871
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 239,562
<INVESTMENTS-CARRYING> 98,325
<INVESTMENTS-MARKET> 96,192
<LOANS> 1,183,575
<ALLOWANCE> 21,886
<TOTAL-ASSETS> 1,625,857
<DEPOSITS> 1,305,524
<SHORT-TERM> 36,856
<LIABILITIES-OTHER> 20,378
<LONG-TERM> 117,621
0
0
<COMMON> 6,512
<OTHER-SE> 138,942
<TOTAL-LIABILITIES-AND-EQUITY> 1,625,857
<INTEREST-LOAN> 23,755
<INTEREST-INVEST> 5,103
<INTEREST-OTHER> 101
<INTEREST-TOTAL> 28,959
<INTEREST-DEPOSIT> 9,720
<INTEREST-EXPENSE> 11,974
<INTEREST-INCOME-NET> 16,985
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> (360)
<EXPENSE-OTHER> 13,404
<INCOME-PRETAX> 7,087
<INCOME-PRE-EXTRAORDINARY> 4,586
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,586
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 4.58
<LOANS-NON> 10,513
<LOANS-PAST> 1,352
<LOANS-TROUBLED> 494
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,768
<CHARGE-OFFS> 463
<RECOVERIES> 581
<ALLOWANCE-CLOSE> 21,886
<ALLOWANCE-DOMESTIC> 13,504
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,382
</TABLE>
