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 June 30, 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 August 8, 2000: 8,780,198 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The financial statements listed below are filed elsewhere
herein and are incorporated by this reference.
Page
Consolidated Balance Sheets - June 30, 2000
(Unaudited) and December 31, 1999 F-1
Consolidated Statements of Income - Three and six
months ended June 30, 2000 and 1999 (Unaudited) F-3
Consolidated Statements of Changes in Stockholders'
Equity and Comprehensive Income - Six months ended
June 30, 2000 and 1999 (Unaudited) F-5
Consolidated Statements of Cash Flows - Six months
ended June 30, 2000 and 1999 (Unaudited) F-7
Notes to Consolidated Financial Statements - June 30,
2000 (Unaudited) F-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
CPB Inc. (the "Company") posted net income of $4.79 million
in the second quarter of 2000, an increase of 20.5% over the
$3.98 million earned in the second quarter of 1999. Net income
for the first half of 2000 was $9.38 million, an increase of
22.5% over the $7.65 million earned in the same period in 1999.
The increase in net income for the second quarter is
attributable to a $900,000 increase in net interest income and a
$1.3 million decrease in noninterest expense. A net gain of
$1.4 million recognized in the first quarter of 2000 related to
the sale of the merchant servicing portfolio also contributed to
the increase in net income for the first half of 2000. As of
June 30, 2000, total assets of $1,664.5 million increased by
$18.0 million or 1.1% compared with year-end 1999. Net loans of
$1,194.7 million increased by $45.0 million, or 3.9%, and total
deposits of $1,322.1 million increased by $16.5 million, or
1.3%.
1
<PAGE>
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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Annualized return on
average assets 1.17% 1.02% 1.16% 0.98%
Annualized return on
average stockholders'
equity 13.47% 10.57% 13.00% 10.19%
Basic earnings per share $0.53 $0.41 $1.03 $0.79
Diluted earnings per share $0.52 $0.41 $1.01 $0.78
</TABLE>
After eight years of little or no growth, Hawaii's economy
has shown signs of improvement in 2000. Aided by several large
conventions, the visitor industry has rebounded in the second
quarter, with hotel occupancy levels reaching a 28-year high in
June 2000. Year-to-date occupancy rates reflect a comparable
trend, up from 72.9% in 1999 to 78.3% in 2000. 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 June 2000
dropped to 4.7%, from 6.4% a year ago. Bankruptcy filings have
also slowed significantly, declining by 15% from the first half
of 1999.
Local real estate activity also continues to improve, with
total dollar-volume of residential real estate sales on the
island of Oahu in the first half of 2000 increasing by 25.0%
over the same period in 1999. Both average sales prices and
numbers of sales have increased during the first half of this
year, signaling the first time since 1996 that both components
have improved.
Hawaii's economic environment has had, and likely will
continue to have, a direct effect on our Company's performance.
Although 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 ability of the Hawaii economy to
sustain the positive trends experienced in recent months may
directly impact the results of operations of the Company for the
remainder of 2000.
2
<PAGE>
Forward-Looking Statements
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 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.
Results of Operations
Net Interest Income
A comparison of net interest income for the three and six
months ended June 30, 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 Six Months Ended
June 30, June 30,
(Dollars in thousands) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income $31,087 $27,899 $60,365 $55,890
Interest expense 12,920 10,690 24,894 21,450
Net interest income $18,167 $17,209 $35,471 $34,440
Net interest margin 4.71% 4.67% 4.65% 4.68%
</TABLE>
Interest income increased by $3.2 million, or 11.4%, and $4.5
million, or 8.0%, in the second quarter and first half of 2000,
respectively, as compared to the same periods 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 $1,542.7 million for the second quarter of 2000
and $1,526.5 million for the first half of 2000 increased by
$67.9 million, or 4.6%, and by $55.8 million, or 3.8%,
respectively, primarily due to increases in loan and investment
securities balances. The yield on interest-earning assets of
8.06% for the second quarter of 2000 and 7.91% for the first half
of 2000 increased from 7.57% and 7.60%, respectively, compared to
the same periods in 1999 primarily due to the increase in market
interest rates in 1999 and 2000.
3
<PAGE>
Interest and fees on loans increased by $2.0 million, or 8.6%,
in the second quarter of 2000 and $3.1 million, or 6.9%, in the
first half of 2000 due to increases in average loan balances and
average yields. Interest and dividends on investment securities
increased, in the aggregate, by $1.2 million or 26.7% and by $1.2
million or 12.2% in the second quarter and first half of 2000,
respectively.
Interest expense for the three and six months ended June 30,
2000 increased by $2.2 million, or 20.9%, and by $3.4 million, or
16.1%, respectively, 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 $1,279.9 million in the second quarter of
2000 and $1,267.4 million for the first half of 2000, an increase
of $60.2 million, or 4.9%, and $52.0 million, or 4.3%,
respectively, over the corresponding periods in 1999 with
substantially all growth occurring in certificates of deposit.
The average rate on interest-bearing liabilities for the first
quarter of 2000 increased to 4.04% from 3.51% for the same period
in 1999, and the average rate for the first half of 2000
increased to 3.93% from 3.53% for the same period in 1999.
The resultant net interest income for the first quarter and
first half of 2000 increased by $958,000 or 5.6% and $1.0 million
or 3.0%, respectively, compared to the same periods in 1999. Net
interest margin increased to 4.71% from 4.67% in the second
quarter of 2000 but decreased from 4.68% to 4.65% in the first
half of 2000 compared to the same periods in 1999. 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 determined 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. If the loan is considered to be
collateral-dependent, the amount of impairment is 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
4
<PAGE>
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 Six Months Ended
June 30, June 30,
(Dollars in thousands) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Allowance for loan losses:
Balance at beginning
of period $21,886 $20,337 $20,768 $20,066
Provision for loan
losses 1,000 700 2,000 2,200
Loan charge-offs:
Real estate:
Mortgage-commercial - 29 - 729
Mortgage-residential 418 204 768 750
Commercial, financial
and agricultural 101 150 119 150
Consumer:
Credit card and
related plans 100 23 139 28
Other consumer 33 71 77 167
Other - 3 12 4
Total loan charge-offs 652 480 1,115 1,828
Recoveries:
Real estate:
Mortgage-commercial - 12 513 39
Mortgage-residential 46 102 52 105
Commercial, financial
and agricultural 60 7 72 37
Consumer:
Credit card and
related plans 17 35 45 69
Other consumer 33 22 55 47
Total recoveries 156 178 737 297
Net loan charge-offs 496 302 378 1,531
Balance at end of period $22,390 $20,735 $22,390 $20,735
Annualized ratio of net
loan charge-offs to
average loans 0.17% 0.10% 0.06% 0.27%
</TABLE>
The provision for loan losses of $1.0 million for the second
quarter of 2000 increased by 42.9% compared to the second quarter
5
<PAGE>
of 1999, while the provision for loans losses of $2.0 million for
the first half of 2000 decreased by 9.1% compared to the first
half of 1999. Net loan charge-offs of $496,000 and $378,000 for
the three and six months ended June 30, 2000, when expressed as
an annualized percentage of average total loans, were 0.17% and
0.06%, respectively. Loan charge-offs during the first quarter
of 2000 were comprised primarily of several residential real
estate loans.
The allowance for loan losses expressed as a percentage of
total loans was 1.84% at June 30, 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 is 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.
Nonperforming Assets
The following table sets forth nonperforming assets and
accruing loans delinquent for 90 days or more at the dates
indicated.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(Dollars in thousands) 2000 1999 1999
<S> <C> <C> <C>
Nonaccrual loans:
Real estate:
Mortgage-commercial $ 2,972 $ 2,981 $ 4,076
Mortgage-residential 3,016 5,124 4,451
Commercial, financial
and agricultural 1,082 1,590 1,955
Total nonaccrual loans 7,070 9,695 10,482
Other real estate 1,248 1,366 509
Total nonperforming
assets 8,318 11,061 10,991
Loans delinquent for 90 days or
more still accruing interest:
Real estate:
Mortgage-commercial 293 1,749 929
Mortgage-residential 442 1,636 1,966
Commercial, financial
and agricultural 192 128 150
Consumer - 92 59
Total loans delinquent
for 90 days or more
still accruing interest 927 3,605 3,104
6
<PAGE>
Restructured loans still
accruing interest:
Real estate:
Mortgage-commercial 485 500 -
Total restructured
loans still accruing
interest 485 500 -
Total nonperforming
assets, loans delin-
quent for 90 days or
more and restructured
loans still accruing
interest $ 9,730 $15,166 $14,095
Total nonperforming assets
as a percentage of
loans and other real
estate 0.68% 0.94% 0.93%
Total nonperforming assets
and loans delinquent for
90 days or more still
accruing interest as a
percentage of loans
and other real estate 0.76% 1.25% 1.19%
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 0.80% 1.29% 1.19%
</TABLE>
Nonperforming assets, loans delinquent for 90 days or more and
restructured loans still accruing interest totaled $9.7 million
at June 30, 2000, a decrease of $5.4 million or 35.84% 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 June 30, 2000 of $7.1 million included a $1.1
million loan secured by multi-family residential property and a
$1.1 million loan secured by commercial real estate, both 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 $927,000 at June
30, 2000, a 74.3% decrease from year-end 1999 levels. Impaired
loans at June 30, 2000 totaled $5.1 million and included all
nonaccrual loans greater than $500,000. The allowance for loan
losses allocated to impaired loans amounted to $1.4 million at
7
<PAGE>
June 30, 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 $2.7 million for the second
quarter of 2000 decreased by $537,000, or 16.7%, compared to the
second quarter of 1999. The decline is attributable to a
decrease in other service charges and fees resulting from the
sale in the first quarter of 2000 of the bank's merchant
servicing portfolio and investment securities losses. Total
other operating income of $7.2 million for the first half of 2000
increased by $678,000 or 10.4% over the first half of 1999 as a
result of the merchant portfolio sale, which generated a $1.9
million gain, partially offset by a $1.1 million reduction in
servicing fees. Investment securities losses of $667,000 were
recognized in the first half of 2000, compared with gains of
$219,000 in 1999. Excluding the impact of these items, total
other operating income increased by $839,000 or 16.3% in the
first half of 2000 compared to the same period in 1999.
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.
Other Operating Expense
Total other operating expense of $12.1 million for the second
quarter of 2000 and $25.5 million for the first half of 2000
decreased by $1.3 million, or 9.6%, and $907,000, or 3.4%,
respectively, when compared to the same periods in 1999. The
decrease is attributable to a $600,000 reversal of previously
accrued restructuring charges and a reduction in employee
retirement benefit expenses. The reversal of restructuring
charges resulted from revised estimates of severance payments to
be made in connection with the staff downsizing occurring
throughout 2000. Of the original 76 positions being eliminated,
approximately one-third of the employees were retained to fill
new positions and vacancies created by attrition. As of June 30,
2000, 26 employees have been terminated and received severance
payments totaling $533,000. The remaining terminations are
expected to be completed by the fourth quarter of 2000.
8
<PAGE>
Income Taxes
The effective tax rate for the second quarter and first half
of 2000 was 35.24% and 35.26%, respectively, compared with the
previous year's rate of 34.62% and 35.38%.
Financial Condition
Total assets at June 30, 2000 of $1.66 billion increased by
$18.0 million or 1.1% from year-end 1999 due to an increase in
loans which offset declines in cash and interest-bearing deposits
held at year-end for Year 2000 contingencies. Net loans of $1.19
billion increased by $45.0 million or 3.9%, while cash and due
from banks decreased by $37.7 million or 45.2% from year-end
1999. Total deposits at June 30, 2000 of $1.32 billion increased
by $16.5 million or 1.3%. Short-term borrowings declined by
$33.3 million and were replaced by long-term debt, which
increased by $38.7 million. Noninterest-bearing deposits of
$205.6 million were unchanged, while interest-bearing deposits of
$1.12 billion increased by $15.7 million, or 1.4%, compared to
year-end 1999. Core deposits (noninterest-bearing demand,
interest-bearing demand and savings deposits, and time deposits
under $100,000) at June 30, 2000 of $943.9 million decreased by
$14.9 million, or 1.6%, during the first half of 2000, while time
deposits of $100,000 and over of $378.3 million increased by
$31.4 million, or 9.0%. 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 $138.5 million at June 30, 2000
decreased by $5.5 million or 3.8% from December 31, 1999. When
expressed as a percentage of total assets, stockholders' equity
declined to 8.32% at June 30, 2000, from 8.75% at year-end 1999.
Book value per share at June 30, 2000 was $15.77, compared to
$15.51 at year-end 1999.
On June 19, 2000, the board of directors declared a second
quarter cash dividend of $0.15 per share, a 7.1% increase over
the dividend declared in the second quarter of 1999. Dividends
declared in the second quarter of 2000 totaled $1,318,000
compared with $1,358,000 in the second quarter of 1999, a 2.9%
decrease.
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 connection 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 the 10.60% held prior to the transaction. As of August 8,
9
<PAGE>
2000, a total of 1,879,347 shares have been repurchased and
retired under the Company's stock repurchase program at a
weighted average price of $20.70. The Company is authorized to
repurchase $3.1 million more in shares under its current repurchase
programs. Any remaining repurchases will depend on 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. As discussed below, the
Company and the Bank both qualify as being "well-capitalized."
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 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
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At June 30, 2000:
Leverage capital
ratio $142,305 8.69% $65,490 4.00% $76,815 4.69%
Tier 1 risk-based
capital ratio 142,305 10.44 54,533 4.00 87,772 6.44
Total risk-based
capital ratio 159,413 11.69 109,066 8.00 50,347 3.69
10
<PAGE>
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
</TABLE>
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>
<CAPTION>
Actual Required Excess
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At June 30, 2000:
Leverage capital
ratio $134,144 8.21% $81,744 5.00% $52,400 3.21%
Tier 1 risk-based
capital ratio 134,144 9.86 81,638 6.00 52,506 3.86
Total risk-based
capital ratio 151,218 11.11 136,063 10.00 15,155 1.11
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>
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 and six months
ended June 30, 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 and six months
ended June 30, 2000.
11
<PAGE>
PART II. OTHER INFORMATION
Items 1 to 5.
Items 1 to 5 are omitted pursuant to instructions to Part II.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Financial Data Schedule as of and for the six
months ended June 30, 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
second quarter of 2000.
12
<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: August 11, 2000 /s/ Joichi Saito
Joichi Saito
Chairman of the Board and
Chief Executive Officer
Date: August 11, 2000 /s/ Neal K. Kanda
Neal K. Kanda
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
13
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands, except per share data) 2000 1999
<S> <C> <C>
ASSETS
Cash and due from banks $ 45,684 $ 83,425
Interest-bearing deposits in other banks 4,997 9,828
Investment securities:
Held to maturity, at cost (fair value of $92,397 at
June 30, 2000 and $99,808 at December 31, 1999) 94,296 101,567
Available for sale, at fair value 231,883 220,103
Total investment securities 326,179 321,670
Loans 1,217,090 1,170,476
Less allowance for loan losses 22,390 20,768
Net loans 1,194,700 1,149,708
Premises and equipment 24,272 24,774
Accrued interest receivable 9,527 9,606
Investment in unconsolidated subsidiaries 8,467 8,451
Due from customers on acceptances 12 12
Other real estate 1,248 1,366
Other assets 49,364 37,651
Total assets $1,664,450 $1,646,491
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 205,592 $ 204,850
Interest-bearing deposits 1,116,532 1,100,804
Total deposits 1,322,124 1,305,654
F-1
<PAGE>
Short-term borrowings 45,660 79,000
Long-term debt 136,961 98,279
Bank acceptances outstanding 12 12
Other liabilities 21,157 19,467
Total liabilities 1,525,914 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 8,785,198 shares at June 30,
2000, and 9,288,457 shares at December 31, 1999 6,252 6,540
Surplus 45,848 45,848
Retained earnings 89,189 94,436
Accumulated other comprehensive loss, net of taxes (2,753) (2,745)
Total stockholders' equity 138,536 144,079
Total liabilities and stockholders' equity $1,664,450 $1,646,491
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $25,137 $23,151 $48,892 $45,750
Interest and dividends on
investment securities:
Taxable interest 4,584 3,645 8,794 7,989
Tax-exempt interest 614 431 1,205 850
Dividends 375 321 677 680
Interest on deposits in other banks 42 93 141 119
Interest on Federal funds sold and
securities purchased under
agreements to resell 5 20 7 31
Total interest income 30,757 27,661 59,716 55,419
Interest expense:
Interest on deposits 10,182 8,974 19,902 17,831
Interest on short-term borrowings 764 165 1,445 445
Interest on long-term debt 1,974 1,551 3,547 3,174
Total interest expense 12,920 10,690 24,894 21,450
Net interest income 17,837 16,971 34,822 33,969
Provision for loan losses 1,000 700 2,000 2,200
Net interest income after
provision for loan losses 16,837 16,271 32,822 31,769
Other operating income:
Income from fiduciary activities 262 186 498 363
Service charges on deposit accounts 753 800 1,534 1,614
F-3
<PAGE>
Other service charges and fees 985 1,690 2,217 3,310
Equity in earnings of
unconsolidated subsidiaries 160 111 302 207
Fees on foreign exchange 128 134 281 304
Investment securities (losses) gains (307) 16 (667) 219
Gain on sale of merchant servicing
portfolio - - 1,850 -
Other 697 278 1,169 489
Total other operating income 2,678 3,215 7,184 6,506
Other operating expense:
Salaries and employee benefits 5,748 6,768 12,297 13,319
Net occupancy 1,580 1,556 3,171 3,082
Equipment 710 669 1,377 1,399
Other 4,081 4,413 8,678 8,630
Total other operating expense 12,119 13,406 25,523 26,430
Income before income taxes 7,396 6,080 14,483 11,845
Income taxes 2,606 2,105 5,107 4,191
Net income $ 4,790 $ 3,975 $ 9,376 $ 7,654
Per share data:
Basic earnings per share $ 0.53 $ 0.41 $ 1.03 $ 0.79
Diluted earnings per share 0.52 0.41 1.01 0.78
Cash dividends declared 0.15 0.14 0.30 0.27
Weighted average shares outstanding:
Basic 9,022 9,702 9,141 9,740
Diluted 9,176 9,817 9,286 9,817
</TABLE>
See accompanying notes to consolidated financial statements.
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>
Six months ended June 30, 2000:
Balance at December 31, 1999 $6,540 $45,848 $94,436 $(2,745) $144,079
Net income - - 9,376 - 9,376
Net change in unrealized
gain(loss) on investment
securities, net of taxes
of $(5) - - - (8) (8)
Comprehensive income 9,368
Cash dividends declared
($0.30 per share) - - (2,701) - (2,701)
4,540 shares of common stock
issued 73 - - - 73
507,799 shares of common stock
repurchased (361) - (11,922) - (12,283)
Balance at June 30, 2000 $6,252 $45,848 $89,189 $(2,753) $138,536
Disclosure of reclassification amount:
Unrealized holding gain(loss)
on investment securities
during period, net of taxes
of $205 - - - 310 310
Less: reclassification adjustment
for gains included in net income,
net of taxes of $211 - - - 318 318
Net change in unrealized
gain(loss) on investment
securities - - - $ (8) $ (8)
F-5
<PAGE>
Six months ended June 30, 1999:
Balance at December 31, 1998 $6,637 $45,848 $94,954 $ 627 $148,066
Net income - - 7,654 - 7,654
Net change in unrealized
gain(loss) on investment
securities, net of
taxes of $(1,384) - - - (2,080) (2,080)
Comprehensive income 5,574
Cash dividends declared
($0.27 per share) - - (2,627) - (2,627)
13,018 shares of common stock
issued 168 - - - 168
112,660 shares of common stock
repurchased (77) - (1,970) - (2,047)
Balance at June 30, 1999 $6,728 $45,848 $98,011 $(1,453) $149,134
Disclosure of reclassification amount:
Unrealized holding gain(loss) on
investment securities during
period, net of taxes of
$(1,517) - - - (2,281) (2,281)
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 - - - $(2,080) $ (2,080)
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CPB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
(Dollars in thousands) 2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,376 $ 7,654
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 2,000 2,200
Provision for depreciation and
amortization 1,370 1,441
Net amortization and accretion of
investment securities 28 149
Net loss (gain) on investment securities 667 (219)
Federal Home Loan Bank stock
dividends received (610) (653)
Origination of loans held for sale (642) (1,046)
Net loss on sale of loans 28 78
Proceeds from sales of loans held
for sale 3,413 22,236
Deferred income tax (benefit) expense (365) 3,728
Equity in earnings of unconsolidated
subsidiaries (302) (207)
Net (increase) decrease in other assets (9,160) 540
Net increase (decrease) in other
liabilities 1,633 (6,532)
Net cash provided by operating
activities 7,436 29,369
Cash flows from investing activities:
Proceeds from maturities of and calls on
investment securities held to maturity 7,216 14,108
Purchases of investment securities
held to maturity - (1,088)
Proceeds from sales of investment
securities available for sale 29,340 23,017
Proceeds from maturities of and calls
on investment securities available
for sale 15,422 40,481
Purchases of investment securities
available for sale (56,585) (24,192)
Net decrease in interest-bearing
deposits in other banks 4,831 10,400
Net loan originations over principal
repayments (51,688) (102,916)
Purchases of premises and equipment (868) (302)
F-7
<PAGE>
Distributions from unconsolidated
subsidiaries 250 174
Investments in unconsolidated
Subsidiaries (27) (86)
Net cash used in investing
activities (52,109) (40,404)
Cash flows from financing activities:
Net increase (decrease) in deposits 16,470 (11,536)
Proceeds from long-term debt 50,000 22,550
Repayments of long-term debt (11,318) (26,255)
Net (decrease) increase in short-term
borrowings (33,340) 35,935
Cash dividends paid (2,670) (2,543)
Proceeds from sale of common stock 73 168
Repurchases of common stock (12,283) (2,047)
Net cash provided by financing
activities 6,932 16,272
Net (decrease) increase in cash
and cash equivalents (37,741) 5,237
Cash and cash equivalents:
At beginning of period 83,425 42,735
At end of period $45,684 $47,972
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $22,510 $21,252
Cash paid during the period
for income taxes $ 5,100 $ 7,200
Supplemental disclosure of noncash
investing and financing activities:
Transfer of loans to other real estate $ 1,897 $ 754
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
CPB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 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, in the opinion of
management, are necessary for a fair statement of results for the
interim periods.
The results of operations for the three and six months ended
June 30, 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
and six months ended June 30, 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 Six months ended
June 30, June 30,
(Dollars in thousands) 2000 1999 2000 1999
<S> <C> <C> <C> <C>
Balance at beginning
of period $(2,817) $ 34 $(2,745) $ 627
Current-period change 64 (1,487) (8) (2,080)
Balance at end of period $(2,753) $(1,453) $(2,753) $(1,453)
</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
F-9
<PAGE>
include trust, mortgage servicing and indirect lending
activities.
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 June 30, 2000:
Net interest income
(expense) $ (2,818) $ 15,268 $ 1,432 $ 3,955 $ 17,837
Intersegment net interest
income (expense) 11,765 (9,761) 526 (2,530) -
Provision for loan losses 284 374 - 342 1,000
Other operating income
(expense) 967 81 (296) 1,926 2,678
Other operating expense 3,834 526 79 7,680 12,119
Administrative and overhead
expense allocation 3,934 939 79 (4,952) -
Income tax expense 658 1,299 528 121 2,606
Net income $ 1,204 $ 2,450 $ 976 $ 160 $ 4,790
Three months ended June 30, 1999:
Net interest income
(expense) $ (2,234) $ 14,039 $ 1,666 $ 3,500 $ 16,971
Intersegment net interest
income (expense) 11,228 (9,224) 231 (2,235) -
Provision for loan losses 127 243 - 330 700
Other operating income 1,184 28 28 1,975 3,215
Other operating expense 3,917 562 87 8,840 13,406
Administrative and overhead
expense allocation 4,554 766 84 (5,404) -
Income tax expense (benefit) 555 1,107 611 (168) 2,105
Net income (loss) $ 1,025 $ 2,165 $ 1,143 $ (358) $ 3,975
Six months ended June 30, 2000:
Net interest income
(expense) $ (5,401) $ 32,592 $ 3,046 $ 4,585 $ 34,822
Intersegment net interest
income (expense) 23,706 (21,771) 855 (2,790) -
Provision for loan losses 665 989 - 346 2,000
Other operating income
(expense) 2,037 270 (610) 5,487 7,184
Other operating expense 7,498 1,852 198 15,975 25,523
Administrative and overhead
expense allocation 8,163 1,996 172 (10,331) -
Income tax expense 1,379 2,176 1,015 537 5,107
Net income $ 2,637 $ 4,078 $ 1,906 $ 755 $ 9,376
F-11
<PAGE>
Six months ended June 30, 1999:
Net interest income
(expense) $ (4,165) $ 30,181 $ 3,746 $ 4,207 $ 33,969
Intersegment net interest
income (expense) 22,160 (19,900) 251 (2,511) -
Provision for loan losses 219 1,591 - 390 2,200
Other operating income 2,346 62 250 3,848 6,506
Other operating expense 7,934 1,274 158 17,064 26,430
Administrative and overhead
expense allocation 8,695 1,553 140 (10,388) -
Income tax expense (benefit) 1,244 2,053 1,409 (515) 4,191
Net income (loss) $ 2,249 $ 3,872 $ 2,540 $(1,007) $ 7,654
At June 30, 2000:
Investment securities $ - $ - $326,179 $ - $ 326,179
Loans 172,884 858,963 - 185,243 1,217,090
Other 19,247 18,258 48,959 34,717 121,181
Total assets $192,131 $877,221 $375,138 $219,960 $1,664,450
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
</TABLE>
F-12
<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. In June 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," an amendment of FASB Statement No.
133." SFAS No. 138 amends the accounting and reporting standards
of SFAS No. 133 for certain derivative instruments and certain
hedging activities. SFAS No. 133, as amended, is now effective
for all fiscal quarters of fiscal years beginning after June 15,
2000. 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.
FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation, An Interpretation of
APB Opinion No. 25," was issued in March 2000. This
interpretation clarifies the application of Accounting Principals
Board (APB) Opinion No. 25 (Opinion 25) for certain issues and
does not address any issues related to the application of the
fair value method in SFAS No. 123. Among other issues, the
Interpretation clarifies (a) the definition of an employee for
purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence of various modifications to the terms of a
previously fixed stock option award, and (d) the accounting for
an exchange of stock compensation awards in a business
combination.
The Interpretation is effective July 1, 2000, but certain
conclusions in the Interpretation cover specific events that
occur after either December 15, 1998, or January 12, 2000. To
the extent that the Interpretation covers events occurring during
the period after December 15, 1998, or January 12, 2000, but
before the effective date of July 1, 2000, the effects of
applying the Interpretation are to be recognized on a prospective
basis from July 1, 2000. The Company adopted the provisions of
the Interpretation on July 1, 2000. Management believes that
there will be no material impact to the Company's results of
operations resulting from the adoption of the Interpretation.
F-13
