As filed with the Securities and Exchange Commission on March 28, 1997
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Mark One
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
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)
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Registrant's telephone number, including area code:
(808) 544-0500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
NONE NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. [X]
As of February 28, 1997, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $127,527,840.
Number of shares of common stock of the registrant outstanding as of February 28, 1997: 5,269,874 shares
The following documents are incorporated by reference herein:
Part of
Form 10-K
Into Which
Document Incorporated Incorporated
- ------------------------------------- ---------------
1996 Annual Report to Shareholders Parts II and IV
Definitive Proxy Statement for the
Annual Meeting of Shareholders which
will be filed within 120 days of the
fiscal year ended December 31, 1996 Part III
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PART I.
ITEM 1. BUSINESS
Organization
CPB Inc. (the "Company") is a Hawaii corporation organized on February 1, 1982 pursuant to a Plan of Reorganization and Agreement of Merger as a bank holding company and is subject to the Bank Holding Company Act of 1956, as amended. The Company's principal business is to serve as a holding company for its sole subsidiary, Central Pacific Bank (the "Bank"). The Bank was incorporated in its present form in the State of Hawaii on March 16, 1982 in connection with the holding company reorganization, and its predecessor entity was incorporated in the State of Hawaii on January 15, 1954. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The Bank is not a member of the Federal Reserve System. Based on total consolidated assets at December 31, 1996, the Company was the third largest bank holding company in Hawaii.
The Bank owns 100% of the outstanding stock of CPB Properties, Inc. ("CPB Properties"), a company which is the managing partner and 50% owner of CKSS Associates ("CKSS"), a Hawaii limited partnership. CKSS owns Central Pacific Plaza, in which the Company's and Bank's headquarters and main office are located. CKSS also developed the Kaimuki Plaza, in which one of the Bank's branch offices is located. In addition, CPB Properties owns the property on which the Bank's Moiliili branch office is located, as well as the property underlying the Kaimuki Plaza. See "ITEM 2. PROPERTIES."
The principal office of the Company is located at 220 South King Street, Honolulu, Hawaii 96813, and its telephone number is (808) 544-0500.
Banking Services
The Bank is a full-service commercial bank which currently has 26 banking offices located throughout the State of Hawaii. Its administrative and main office is located in Honolulu, and there are 19 other branches on the island of Oahu. In addition, the Bank maintains one branch on the island of Maui, two branches on the island of Kauai and three branches on the island of Hawaii. In 1996, the Bank opened two in-store branches in Times Super Markets on the island of Oahu and relocated its Kapaa Branch to the Big Save Supermarket in Kapaa, on the island of Kauai.
Through its network of banking offices, the Bank emphasizes personalized services and offers a full range of banking services to small- and medium-sized businesses, professionals and individuals in Hawaii.
The Bank offers a variety of deposit instruments. These include personal and business checking and savings accounts, including interest-bearing negotiable order of withdrawal ("NOW") accounts, money market accounts and time certificates of deposit.
Lending activities include granting of commercial, consumer and real estate loans. The Bank offers inventory and accounts receivable financing, furniture, fixture and equipment financing, short-term operating loans, and commercial real estate and construction loans. Consumer loans include home equity lines of credit, loans for automobiles, home improvement and debt consolidation, personal and professional lines of credit and other installment and term loans for other personal needs.
The Bank offers VISA and MasterCard credit card services and CHECK CARD, a debit card service, to its customers. The Bank is also a member of the Plus ATM Network and offers an Infoline service, providing telephonic account information, bill payment and funds transfer services.
Specialized services designed to attract and service the needs of commercial customers and account holders include cash management and lockbox services, merchant windows, travelers' checks, safe deposit boxes, international banking services, night depository facilities and wire transfer services.
The Bank's Trust Division offers asset management and custody services for a variety of accounts including revocable and irrevocable trusts, agency accounts, guardianships of property, charitable remainder trusts and probates.
Market Area and Competition
The Bank competes in the financial services industry mainly targeting retail and small to midsized businesses. The
market is highly competitive with 6 commercial banks, 6 savings and loans and numerous credit unions and finance companies operating in the State of Hawaii. During 1996, First Hawaiian, Inc. and CB Bancshares, Inc. announced plans to merge their respective thrift subsidiaries into First Hawaiian Bank and City Bank, respectively. The two largest banking organizations in the state, Bancorp Hawaii, Inc. and First Hawaiian, Inc., are pursuing aggressive strategies to expand through acquisitions outside of the state of Hawaii.
Bancorp Hawaii, Inc. had over $14.0 billion in total assets at year end 1996. Based on call report data filed with the FDIC, Bank of Hawaii, the subsidiary bank, maintains approximately 44% of the deposits held by banks in the State of Hawaii. First Hawaiian, Inc. was the second largest bank holding company with over $8.0 billion in assets at year end 1996. Based on call report data filed with the FDIC, First Hawaiian Bank, the subsidiary bank, has approximately a 38% share of the deposit market in Hawaii.
At $1.4 billion in assets, the Company was the third largest bank holding company, and based on call report data filed with the FDIC, the Bank was the third largest bank with market share of approximately 10%. The Bank is building its position in the marketplace as a community bank committed to serving the financial needs of Hawaii's residents and businesses, which is large enough to provide a wide range of banking services and small enough to provide personalized service. The two large banks tend to lead the market with respect to new products and pricing. The Bank competes by offering proven products with superior service levels at competitive prices.
The Bank has a distribution network of 26 branches and has a strong capital base to enable expansion opportunities in its quest to better serve its targeted market of retail customers and small to medium-sized businesses. With recent consolidation in the financial industry, competition has intensified. The larger institutions are very focused in the business banking and personal banking areas, while leveraging their large branch and electronic banking networks to attract retail customers.
The Bank faces substantial competition for deposits and loans throughout its market areas. Competition for deposits comes primarily from other commercial banks, savings institutions, credit unions, money market funds and other investment alternatives. The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, convenience of office locations and office hours. Competition for loans comes primarily from other commercial banks, savings institutions, mortgage banking firms, credit unions and other financial intermediaries. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services and personalized services. The Bank faces competition for deposits and loans throughout its market areas not only from local institutions but also from out-of-state financial intermediaries which have opened loan production offices or which solicit deposits in its market areas. Many of the financial intermediaries operating in the Bank's market areas offer certain services, such as investment and international banking services,
which the Bank does not offer directly. Additionally, banks with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the needs of larger customers. See "ITEM 1. BUSINESS - Effect of Governmental Policies and Recent Legislation."
Effect of Governmental Policies and Legislation
Banking is a business that depends on rate differentials. In general, the difference between the interest rate paid by the Bank on its deposits and its other borrowings and the interest rate received by the Bank on loans extended to its customers and securities held in the Bank's investment portfolio comprises the major portion of the Company's earnings. These rates are highly sensitive to many factors that are beyond the control of the Bank. Accordingly, the earnings and growth of the Company are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment.
The commercial banking business is not only affected by general economic conditions but is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Federal Reserve Board. The Federal Reserve Board implements national monetary policies (with objectives such as curbing inflation and combating recession) by its open-market operations in United States Government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements and by varying the discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial services providers are frequently made in Congress, in the Hawaii state legislature and before various bank regulatory and other professional agencies. The likelihood of any major legislative changes and the impact such changes might have on the Company are impossible to predict. See "ITEM 1. BUSINESS - Supervision and Regulation."
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal and state law. Set forth below is a summary description of certain laws which relate to the regulation of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations.
The Company
The Company, as a registered bank holding company, is subject to regulation under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company is required to file with the Federal Reserve Board quarterly and annual reports and such additional information as the Federal Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may conduct examinations of the Company and its subsidiary.
The Federal Reserve Board may require that the Company terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when the Federal Reserve Board believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal Reserve Board also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, the Company must file written notice and obtain approval from the Federal Reserve Board prior to purchasing or redeeming its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve Board, a bank holding company and its nonbanking subsidiaries are prohibited from requiring certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. Further, the Company is required by the Federal Reserve Board to maintain certain
levels of capital. See "ITEM 1. BUSINESS - Supervision and Regulation - Capital Standards."
The Company is required to obtain the prior approval of the Federal Reserve Board for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior approval of the Federal Reserve Board is also required for the merger or consolidation of the Company and another bank holding company.
The Company is prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks or furnishing services to its subsidiaries. However, the Company, subject to the prior approval of the Federal Reserve Board, may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making any such determination, the Federal Reserve Board is required to consider whether the performance of such activities by the Company or an affiliate can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve Board is also empowered to differentiate between activities commenced de novo and activities commenced by acquisition, in whole or in part, of a going concern. In 1996, the Economic Growth and Regulatory Paperwork Reduction Action of 1996 (the "Budget Act") eliminated the requirement that bank holding companies seek Federal Reserve Board approval before engaging de novo in permissible nonbanking activities listed in Regulation Y, which governs bank holding companies, if the holding company and its lead depository institution are well-managed and well-capitalized and certain other criteria specified in the statute are met. For purposes of determining the capital levels at which a bank holding company shall be considered "well-capitalized" under this section of the Budget Act and Regulation Y, the FRB adopted on February 28, 1997, risk-based capital ratios (on a consolidated basis) that are the same as the levels set for determining that a state member bank is well capitalized under the provisions established under the prompt corrective action provisions of federal law, except that there is no minimum leverage ratio requirement for a well-capitalized bank holding company. See "Item 1. Business - Supervision and Regulation--Prompt Corrective Action and Other Enforcement Mechanisms."
Under Federal Reserve Board regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board's regulations or both. This doctrine has become known as the "source of strength" doctrine. Although the United States Court of Appeals for the Fifth Circuit found the Federal Reserve Board's source of strength doctrine invalid in 1990, stating that the Federal Reserve Board had no authority to assert the doctrine under the BHCA, the decision, which is not binding on federal courts outside the Fifth Circuit, was recently reversed by the United States Supreme Court on procedural grounds. The validity of the source of strength doctrine is likely to continue to be the subject of litigation until definitively resolved by the courts or by Congress.
The Bank
The Bank, as a Hawaii state-chartered bank, is subject to primary supervision, periodic examination and regulation by the Hawaii Commissioner of Financial Institutions ("Commissioner") and the FDIC. If, as a result of an examination of a bank, the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of the bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, various remedies are available to the FDIC. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate a bank's deposit insurance, which for a Hawaii state-chartered bank would result in a revocation of the bank's charter. The Commissioner has many of the same remedial powers. The Bank has never been the subject of any such actions by the FDIC or the Commissioner.
The deposits of the Bank are insured by the FDIC in the manner and to the extent provided by law. For this protection, the Bank pays a semiannual statutory assessment. See "ITEM 1. BUSINESS - Supervision and Regulation - Premiums for Deposit Insurance." Although the Bank is not a member of the Federal Reserve System, it is nevertheless subject to certain regulations of the Federal Reserve Board.
Various requirements and restrictions under the laws of the State of Hawaii and the United States affect the operations of the Bank. State and federal statutes and regulations relate to many aspects of the Bank's operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices and capital requirements. Further, the Bank is required to maintain certain levels of capital. See "ITEM 1. BUSINESS - Supervision and Regulation - Capital Standards."
Restrictions on Transfers of Funds to the Company by the Bank
The Company is a legal entity separate and distinct from the Bank and its subsidiary.
There are statutory and regulatory limitations on the amount of dividends which may be paid to the Company by the Bank. Hawaii law provides that a state-chartered bank may not declare or pay any dividend in an amount greater than its undivided profits then on hand, deducting therefrom all losses; all debts, unless the same are well secured, in which interest for a period of one year is unpaid and debts upon which final judgment has been recovered but has been for more than one year unsatisfied and on which interest for a period of one year is unpaid, unless the same are well secured; all assets which a banking examiner may have required to be charged off; and all expenses, interest, taxes, and depreciation.
The FDIC also has authority to prohibit the Bank from engaging in activities that, in the FDIC's opinion, constitute unsafe or unsound practices in conducting its business. It is possible, depending upon the financial condition of the bank in question and other factors, that the FDIC could assert that the payment of dividends or other payments might, under some circumstances, be such an unsafe or unsound practice. Further, the FDIC and the Federal Reserve Board have established guidelines with respect to the maintenance of appropriate levels of capital by banks or bank holding companies under their jurisdiction. Compliance with the standards set forth in such guidelines and the restrictions that are or may be imposed under the prompt corrective action provisions of federal law could limit the amount of dividends which the Bank or the Company may pay. See "ITEM 1. BUSINESS - Supervision and Regulation - Prompt Corrective Action and Other Enforcement Mechanisms" and "-
Capital Standards" for a discussion of these additional restrictions on capital distributions.
At present, substantially all of the Company's revenues, including funds available for the payment of dividends and other operating expenses, are, and will continue to be, primarily dividends paid by the Bank. At December 31, 1996, the Bank had $91.6 million in retained earnings available for the payment of cash dividends.
The Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, the Company or other affiliates, the purchase of or investments in stock or other securities thereof, the taking of such securities as collateral for loans and the purchase of assets of the Company or other affiliates. Such restrictions prevent the Company and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Bank to or in the Company or to or in any other affiliate is limited to 10% of the Bank's capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20% of the Bank's capital and surplus (as defined by federal regulations). Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law. See "ITEM 1. BUSINESS - Supervision and Regulation - Prompt Corrective Action and Other Enforcement Mechanisms."
Capital Standards
The Federal Reserve Board and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off-balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as commercial loans.
A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets.
The regulators measure risk-adjusted assets, including off-balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts
of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists
of, among other things, (i) common stockholder's equity
(which includes common stock and related surplus and undivided profits);
(ii) noncumulative perpetual preferred stock (cumulative perpetual preferred
stock for bank holding companies), including any related surplus; and (iii)
minority interests in certain subsidiaries, less most intangible assets.
Tier 2 capital may consist of (i) a limited amount of the allowance for
loan and lease losses; (ii) cumulative perpetual preferred stock;
(iii) perpetual preferred stock (and any related surplus); and (iv)
eligible term subordinated debt and certain other instruments with some
characteristics of equity. The inclusion of elements of Tier 2 capital is
subject to certain other requirements and limitations of the federal banking
agencies. The federal banking agencies require a minimum ratio of qualifying
total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1
capital to risk-adjusted assets of 4%.
In addition to the 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%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or 4% to 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
In June 1996, the federal banking agencies adopted a joint agency policy statement to provide guidance on managing interest rate risk. These agencies indicated that the adequacy and effectiveness of a bank's interest rate risk management process and the level of its interest rate exposures are critical factors in the agencies' evaluation of the bank's capital adequacy. A bank with material weaknesses in its risk management process or high levels of exposure relative to its capital will be directed by the agencies to take corrective action. Such actions will include recommendations or directions to raise additional capital, strengthen management expertise, improve management information and measurement systems, reduce levels of exposure, or some combination thereof depending upon the individual institution's circumstances. This policy statement augments the August 1995 regulations adopted by the federal banking agencies which addressed risk-based capital standards for interest rate risk.
In December 1993, the federal banking agencies issued an
interagency policy statement on the allowance for loan and lease
losses ("ALLL") which, among other things, establishes certain benchmark
ratios of loan loss reserves to classified assets. The benchmark
set forth by such policy statement is the sum of (a) assets
classified loss; (b) 50 percent of assets classified doubtful;
(c) 15 percent of assets classified substandard; and (d)
estimated credit losses on other assets over the upcoming 12
months. This amount is neither a "floor" nor a "safe harbor" level for an
institution's ALLL.
Federally supervised banks and savings associations are currently required to report deferred tax assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." See "ITEM 1. BUSINESS - Supervision and Regulation - Accounting Changes." The federal banking agencies issued final rules governing banks and bank holding companies, which became effective April 1, 1995, which limit the amount of deferred tax assets that are allowable in computing an institution's regulatory capital. Deferred tax assets that can be realized for taxes paid in prior carryback years and from future reversals of existing taxable temporary differences are generally not limited. Deferred tax assets that can only be realized through future taxable earnings are limited for regulatory capital purposes to the lesser of (i) the amount that can be realized within one year of the quarter-end report date, based on projected taxable income for that year or (ii) 10% of Tier 1 capital. The amount of any deferred tax in excess of this limit would be excluded from Tier 1 capital and total assets and regulatory capital calculations. See Notes 1 and 18 to the Company's Consolidated Financial Statements in the 1996 Annual Report to Shareholders ("1996 Annual Report") which is incorporated herein by reference. See "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
Future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Bank to grow and could restrict the amount of profits, if any, available for the payment of dividends.
The following table presents the amounts of regulatory capital and the capital ratios for the Company and the Bank, compared to its minimum regulatory capital requirements as of December 31, 1996.
The Company
December 31, 1996
Actual Minimum
----------------- Capital
Amount Ratio Requirement
------ ----- -----------
(Dollars in thousands)
Leverage capital $141,391 10.28% 3.00%
Tier 1 risk-based 141,391 12.10 4.00
capital
Total risk-based
capital 156,058 13.35 8.00
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The Bank
December 31, 1996
Actual Minimum
----------------- Capital
Amount Ratio Requirement
------ ----- -----------
(Dollars in thousands)
Leverage capital $131,534 9.60% 3.00%
Tier 1 risk-based 131,534 11.27 4.00
capital
Total risk-based
capital 146,181 12.53 8.00
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Prompt Corrective Action and Other Enforcement Mechanisms
Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. In accordance with federal law, each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
An insured depository institution generally will be classified in the following categories based, in part, on the capital measures indicated below:
"Well capitalized" "Adequately capitalized"
Total risk-based capital of 10%; Total risk-based capital
Tier 1 risk-based capital of 6%; and of 8%;
Leverage ratio of 5%. Tier 1 risk-based capital
of 4%; and Leverage ratio
of 4%.
"Undercapitalized" "Significantly
Total risk-based capital less than undercapitalized"
8%; Tier 1 risk-based capital less Total risk-based capital
than 4%; or Leverage ratio less than less than 6%; or Tier 1
4%. risk-based capital less
than 4%; or Leverage
ratio less than 3%.
"Critically undercapitalized"
Tangible equity to total assets less
than 2%.
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An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as "critically undercapitalized" unless its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from
paying management fees to any controlling persons or, with
certain limited exceptions, making capital distributions if after
such transaction the institution would be undercapitalized. If
an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency,
subject to asset growth restrictions and required to obtain prior
regulatory approval for acquisitions, branching and engaging in
new lines of business. Any undercapitalized depository
institution must submit an acceptable capital restoration plan to
the appropriate federal banking agency 45 days after receiving notice,
or is deemed to have notice that the institution is undercapitalized.
The appropriate federal banking agency cannot accept a capital plan
unless, among other things, it determines that the plan (i) specifies
(a) the steps the institution will take to become adequately capitalized;
(b) the levels of capital to be attained during each year in which the
plan will be in effect; (c) how the institution will comply with the
restrictions or requirements then in effect under Section 38 of the
Federal Deposit Insurance Act; and (d) the types and levels of activities
in which the institution will engage; (ii) is based on realistic
assumptions and is likely to succeed in restoring the depository institution's
capital; and (iii) would not appreciably increase the risk (including
credit risk, interest rate risk, and other types of risk) to which
the institution is exposed. In addition, each company
controlling an undercapitalized depository institution must
guarantee that the institution will comply with the capital plan
until the depository institution has been adequately capitalized
on average during each of four consecutive calendar
quarters and must otherwise provide appropriate assurances of
performance. The aggregate liability of such guarantee is
limited to the lesser of (a) an amount equal to 5% of the
depository institution's total assets at the time the institution
became undercapitalized or (b) the amount which is necessary to
bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution
fails to comply with its capital restoration plan. Finally, the
appropriate federal banking agency may impose any of the
additional restrictions or sanctions that it may impose on
significantly undercapitalized institutions if it determines that
such action will further the purpose of the prompt corrective
action provisions.
An insured depository institution that is significantly undercapitalized, or is undercapitalized and fails to submit, or in a material respect to implement, an acceptable capital restoration plan, is subject to additional restrictions and sanctions. These include, among other things: (i) a forced sale of voting shares to raise capital or, if grounds exist for appointment of a receiver or conservator, a forced merger; (ii) restrictions on transactions with affiliates; (iii) further limitations on interest rates paid on deposits; (iv) further restrictions on growth or required shrinkage; (v) modification or termination of specified activities; (vi) replacement of directors or senior executive officers; (vii) prohibitions on the receipt of deposits from correspondent institutions; (viii) restrictions on capital distributions by the holding companies of such institutions; (ix) required divestiture of subsidiaries by the institution; or (x) other restrictions as determined by the appropriate federal banking agency. Although the appropriate federal banking agency has discretion to determine which of the foregoing restrictions or sanctions it will seek to impose, it is required to (i) force a sale of shares or obligations of the bank, or require the bank to be acquired by or combine with another institution; (ii) impose restrictions on affiliate transactions; and (iii) impose restrictions on rates paid on deposits unless it determines that such actions would not further the purpose of the prompt corrective action provisions. In addition, without the prior written approval of the appropriate federal banking agency, a significantly undercapitalized institution may not pay any bonus to its senior executive officers or provide compensation to any of them at a rate that exceeds such officer's average rate of base compensation during the 12 calendar months preceding the month in which the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on insured depository institutions that are critically undercapitalized. For example, a critically undercapitalized institution generally would be prohibited from engaging in any material transaction other than in the ordinary course of business without prior regulatory approval and could not, with certain exceptions, make any payment of principal or interest on its subordinated debt beginning 60 days after becoming critically undercapitalized. Most importantly, however, except under limited circumstances, the appropriate federal banking agency, not later than 90 days after an insured depository institution becomes critically undercapitalized, is required to appoint a conservator or receiver for the institution. The board of directors of an insured depository institution would not be liable to the institution's shareholders or creditors for consenting in good faith to the appointment of a receiver or conservator or to an acquisition or merger as required by the regulator.
In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency.
Safety and Soundness Standards
Effective July 1995, the federal banking agencies adopted final
guidelines establishing standards for safety and soundness, as
required by the FDIC Improvement Act ("FDICIA"). These standards are designed
to identify potential safety-and-soundness concerns and ensure that
action is taken to address those concerns before they pose a risk to the
deposit insurance funds. The standards relate to (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation,
fees and benefits. If a federal banking agency determines that an
institution fails to meet any of these standards, the agency may
require the institution to submit to the agency an acceptable plan
to achieve compliance with the standard. In the event the institution
fails to submit an acceptable plan within the time allowed by the agency
or fails in any material respect to implement an accepted plan, the
agency must, by order, require the institution to correct the deficiency.
Effective October 1, 1996, the federal banking agencies promulgated
safety and soundness regulations and accompanying interagency compliance
guidelines on asset quality and earnings standards. These new guidelines
provide six standards for establishing and maintaining a system to
identify problem assets and prevent those assets from deteriorating.
The institution should: (i) conduct periodic asset quality reviews to
identify problem assets; (ii) estimate the inherent losses in those
assets and establish reserves that are sufficient to absorb estimated
losses; (iii) compare problem asset totals to capital; (iv) take
appropriate corrective action to resolve problem assets; (v) consider
the size and potential risks of material asset concentrations; and
(vi) provide periodic asset reports with adequate information for
management and the board of directors to assess the level of asset
risk. These new guidelines also set forth standards for evaluating
and monitoring earnings and for ensuring that earnings are sufficient
for the maintenance of adequate capital and reserves. If an institution
fails to comply with a safety and soundness standard, the appropriate federal banking agency may require the institution to submit a compliance plan. Failure to submit a compliance plan or to implement an accepted plan may result in enforcement action.
Premiums for Deposit Insurance
The FDIC has adopted final regulations implementing a risk-based premium system required by federal law. On November 14, 1995, the FDIC issued regulations that establish a new assessment rate schedule ranging from 0 cents per $100 of deposits to 27 cents per $100 of deposits applicable to members of the Bank Insurance Fund ("BIF"). To determine the risk-based assessment for each institution, the FDIC will categorize an institution as well capitalized, adequately capitalized or undercapitalized based on its capital ratios using the same standards used by the FDIC for its prompt corrective action regulations. A well-capitalized institution is generally one that has at least a 10% total risk-based capital ratio, a 6% Tier 1 risk-based capital ratio and a 5% leverage capital ratio. An adequately capitalized institution will generally have at least an 8% total risk-based capital ratio, a 4% Tier 1 risk-based capital ratio and a 4% Tier 1 leverage capital ratio. An undercapitalized institution will generally be one that does not meet either of the above definitions. The FDIC will also assign each institution to one of three subgroups based upon reviews by the institution's primary federal or state regulator, statistical analyses of financial statements and other information relevant to evaluating the risk posed by the institution. The three supervisory categories are: financially sound with only a few minor weaknesses (Group A), demonstrates weaknesses that could result in significant deterioration (Group B), and poses a substantial probability of loss (Group C).
The BIF assessment rates are set forth below for institutions based on their risk-based assessment categorization.
Assessment Rates Effective January 1, 1996
(expressed in terms of cents per $100 of deposits)
Group A Group B Group C
-------- ------- -------
Well Capitalized............................ 0<F1> 3 17
Adequately Capitalized...................... 3 10 24
Undercapitalized............................ 10 24 27
<F1> Subject to a statutory minimum assessment of $1,000 per
semi-annual period (which also applies to all other
assessment risk classifications).
|
On September 30, 1996, Congress passed the Budget Act which capitalized the Savings Association Insurance Fund ("SAIF") through a special assessment on SAIF-insured deposits and required banks to share in part of the interest payments on the Financing Corporation ("FICO") bonds which were issued to help fund the federal government costs associated with the savings and loan crisis of the late 1980's. The special thrift SAIF assessment has been set at 65.7 cents per $100 insured by the thrift funds as of March 31, 1995. Effective January 1, 1997, for the FICO payments, SAIF-insured institutions will pay 3.2 cents per $100 in domestic deposits and BIF-insured institutions, like the Bank, will pay 0.64 cents per $100 in domestic deposits. Full pro rata sharing of the FICO interest payments takes effect on January 1, 2000.
The federal banking regulators are also authorized to prohibit depository institutions and their holding companies from facilitating or encouraging the shifting of deposits from SAIF to BIF for the purpose of evading thrift assessment rates. The Budget Act also prohibits the FDIC from setting premiums above the amount needed to meet the designated reserve ratio (currently 1.25%).
Interstate Banking and Branching
In September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") became law. Under the Interstate Act, beginning one year after the date of enactment, a bank holding company that is adequately capitalized and managed may obtain approval under the BHCA to acquire an existing bank located in another state without regard to state law. A bank holding company is not permitted to make such an acquisition if, upon consummation, it would control (a) more than 10% of the total amount of deposits of insured depository institutions in the United States or (b) 30% or more of the deposits in the state in which the bank is located. A state may limit the percentage of total deposits that may be held in that state by any one bank or bank holding company if application of such limitation does not discriminate against out-of-state banks or bank holding companies. An out-of-state bank holding company may not acquire a state bank in existence for less than a minimum length of time that may be prescribed by state law except that a state may not impose more than a five-year existence requirement.
The Interstate Act also permits, beginning June 1, 1997, mergers of insured banks located in different states and conversion of the branches of the acquired bank into branches of the resulting bank. Each state may permit such combinations earlier than June 1, 1997, and may adopt legislation to prohibit interstate mergers after that date in that state or in other states by that state's banks. The same concentration limits discussed in the preceding paragraph apply. The Interstate Act also permits a national or state bank to establish branches in a state other than its home state if permitted by the laws of that state, subject to the same requirements and conditions as for a merger transaction.
In April 1995, the Hawaii legislature enacted legislation to make necessary changes to Hawaii law to harmonize it with the interstate banking legislation passed by Congress. Currently, Hawaii law permits limited reciprocal banking between Hawaii and Guam, American Samoa, the Federated States of Micronesia, the Republic of Palau, the Commonwealth of the Northern Marianas and the Republic of the Marshall Islands. Hawaii's Interstate Banking Law provides that, effective June 1, 1997, out of state banks may establish branches in Hawaii by merger, subject to certain limitations. However, an out-of-state bank that does not operate a branch in Hawaii may not acquire a branch or establish one de novo. In addition, foreign banks may establish "wholesale" branches and agencies in Hawaii after June 1, 1997; provided, however, that such banks may not accept retail deposits of less than $100,000 from individuals who are U.S. citizens or residents. The Interstate Act is likely to increase competition in the Company's market areas, especially from larger financial institutions and their holding companies. It is difficult to assess the impact such likely increased competition will have on the Company's operations.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods. In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities. The FDIC has rated the Bank "Satisfactory" in complying with its CRA obligations.
In May 1995, the federal banking agencies issued final regulations which change the manner in which they measure a bank's compliance with its CRA obligations. The final regulations adopt a performance-based evaluation system which bases CRA ratings on an institution's actual lending service and investment performance rather than the extent to which the institution conducts needs assessments, documents community outreach activities or complies with other procedural requirements.
In March 1994, the Federal Interagency Task Force on Fair Lending issued a policy statement on discrimination in lending. The policy statement describes the three methods that federal agencies will use to prove discrimination: overt evidence of discrimination, evidence of disparate treatment and evidence of disparate impact.
Potential Enforcement Actions
Commercial banking organizations, such as the Bank, and their institution-affiliated parties, which include the Company, may be subject to potential enforcement actions by the Federal Reserve Board, the FDIC and the Hawaii Commissioner for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of the Bank), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution affiliated parties and the imposition of restrictions and sanctions under the prompt corrective action provisions of the FDICIA. Additionally, a holding company's inability to serve as a source of strength to its subsidiary banking organizations could serve as an additional basis for a regulatory action against the holding company. Neither the Company nor the Bank have ever been subject to any such enforcement actions.
Accounting Changes
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. A transfer of financial assets in which the transferor surrenders control over those assets is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. This statement also requires that liabilities and derivatives incurred or obtained by transferors as part of a transfer of financial assets be initially measured at fair value, if practicable. It also requires that servicing assets and other retained interests in the transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair value at the date of the transfer. Furthermore, this statement requires that debtors reclassify financial assets pledged as collateral, and that secured parties recognize those assets and their obligation to return them in certain circumstances in which the secured party has taken control of those assets. In addition, the statement requires that a liability be derecognized if and only if either (a) the debtor pays the creditor and is relieved of its obligation for the liability or (b) the debtor is legally released from being the primary obligor under the liability either judicially or by the creditor. Accordingly, a liability is not considered extinguished by an in-substance defeasance. SFAS 125 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1996, and is to be applied prospectively. Management does not believe that the application of this statement will have a material impact on the Company's financial statements.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which was subsequently amended by SFAS No. 118 in October 1994. SFAS No. 114 prescribes the recognition criteria for loan impairment and the measurement methods for certain impaired loans and loans whose terms are modified in troubled debt restructurings. SFAS No. 114 states that a loan is impaired when it is probable that a creditor will be unable to collect all principal and interest amounts due according to the contracted terms of the loan agreement. A creditor is required to measure impairment by discounting expected future cash flows at the loan's effective interest rate, or by reference to an observable market price, or by the fair value of the collateral if the loan is collateral dependent or if foreclosure is probable. SFAS No. 114 also clarifies the existing accounting for in-substance foreclosures by stating that a collateral-dependent real estate loan would be reported as real estate owned only if the lender had taken possession of collateral.
SFAS No. 118 amended SFAS No. 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. To accomplish that, it eliminated the provisions in SFAS No. 114 that described how a creditor should report income on an impaired loan. SFAS No. 118 did not change the provisions in SFAS No. 114 that require a creditor to measure impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, or as a practical expedient, at the observable market price of the loan or the fair value of the collateral if the loan is collateral dependent. SFAS No. 118 amends the disclosure requirements in SFAS No. 114 to require information about the recorded investments in certain impaired loans and about how a creditor recognizes interest income related to those impaired loans. SFAS No. 114 is effective for financial statements issued for fiscal years beginning after December 15, 1994. Although earlier
application is encouraged, it is not required. SFAS No. 118 is effective concurrent with the effective date of SFAS No. 114. The Company adopted SFAS No. 114 and 118 as of January 1, 1995. The effects of the new accounting pronouncements were not material.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121, effective for fiscal years beginning after December 15, 1995, establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The application of SFAS No. 121, effective from January 1, 1996, did not have a material impact on the consolidated financial statements of the Company.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65." SFAS No. 122, effective on a prospective basis for fiscal years beginning after December 15, 1995, requires mortgage banking enterprises and other entities (i.e., commercial banks and thrift institutions that conduct operations that are substantially similar to the primary operations of a mortgage banking enterprise) to recognize as separate assets the rights to service mortgage loans for others. SFAS No. 122 also requires the assessment of capitalized mortgage servicing rights for impairment to be based on the current fair value of those rights. The application of SFAS No. 122, effective from January 1, 1996, did not have a material impact on the consolidated financial statements of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123, effective for fiscal years beginning after December 15, 1995, establishes a fair value-based method of accounting for stock-based compensation, but does not require an entity to adopt the new method for purposes of preparing its basic financial statements. For entities not adopting the new method, SFAS No. 123 requires that they disclose in their footnotes pro forma net income and earnings per share information as if the fair value-based method had been adopted. The Company has not adopted the new accounting method, but has provided pro forma disclosures in accordance with the requirements of SFAS No. 123 in its consolidated financial statements for 1996.
Certain amounts in the consolidated financial statements and notes thereto for the previous two years have been reclassified to conform with the current year's presentation. Such reclassifications had no effect on the Company's results of operations.
Employees
At February 28, 1997, the Company employed 605 persons, 595 on a full-time basis and 10 on a part-time basis. Management of the Company believes that it has favorable employee relations. The Company is not a party to any collective bargaining agreement.
Selected Statistical Information
The following tables and data set forth, for the respective periods shown, selected statistical information relating to the Company and the Bank. These tables should be read in conjunction with the information contained in "ITEM 6. SELECTED FINANCIAL DATA," "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," and "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
Loan Portfolio
Total loans increased to $1,042.0 million at the end of 1996, compared with $990.4 million at the end of 1995 and $992.0 million at the end of 1994. Increases in loan volumes were recorded in the real estate - mortgage - commercial and installment loan categories, which offset declines in commercial and real estate - construction loans.
The Bank emphasizes residential and commercial mortgage loans, business loans to middle-market companies and professionals and consumer installment loans. Its marketing strategy for generating new loans includes a business calling program which requires officers at all levels to make client development visits to local businesses each month. In addition, the Bank uses television, radio, print and direct mail marketing.
A significant portion of the Bank's loan portfolio is
secured by real estate. Management believes that the Bank's
underwriting guidelines, including collateral requirements,
provide the Bank with protection against losses on delinquent
loans. However, due to the slowdown in the Hawaiian economy,
delinquencies and charge-offs during 1996 increased over the
previous year. Continued recessionary conditions in Hawaii may
further negatively impact the Bank's real estate collateral and
adversely impact the level of nonperforming loans and provision
for loan losses in the future. See "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Provision and Allowance for Loan Losses," "--
Nonperforming Assets" and "-- Financial Condition."
At December 31, 1996, the Bank did not have any concentration of loans in any industry classified under the Standard Industrial Code which exceeded 10% of the Bank's total loans.
The following table sets forth information regarding outstanding loans by categories as of the dates indicated.
Table I. Loans by Categories
December 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(Dollars in thousands)
Commercial,
financial
and agricultural $141,735 $165,292 $211,257 $237,861 $232,544
Real estate --
construction 43,520 47,853 52,811 41,572 49,024
Real estate --
mortgage --
residential 347,608 341,229 332,073 317,357 309,867
Real estate --
mortgage --
commercial 430,682 368,772 328,979 280,385 229,136
Installment 78,431 67,210 66,848 68,593 80,994
---------- --------- --------- --------- --------
Total loans 1,041,976 990,356 991,968 945,768 901,565
Allowance for
loan losses 19,436 20,156 18,296 17,131 15,378
----------- --------- --------- --------- --------
Net loans $1,022,540 $970,200 $973,672 $928,637 $886,187
=========== ========= ========= ========= ========
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Commercial, Financial and Agricultural. Loans in this category consist primarily of small and middle-market businesses and professionals located in Hawaii. The Bank typically looks to the borrower's business as the principal source of repayment, although the Bank's underwriting policy generally requires additional sources of collateral, including real estate. Because the Bank has maintained its underwriting standards during the recent periods of recession and slow growth in the local economy, there are fewer lending opportunities which meet the Bank's underwriting criteria. Because of that and competition among financial institutions for loans, commercial loan volumes have declined during the past several years, from $237.9 million at December 31, 1993 to $141.7 million at December 31, 1996.
Real Estate - Construction. Real estate - construction loans decreased to $43.5 million at the end of 1996, from $47.9 million at the end of 1995 and $52.8 million at the end of 1994. The majority of the construction loans provided by the Bank in this category were used for residential development projects. Each construction project is evaluated for economic viability, and maximum loan-to-value ratios of 80% on commercial projects and 85% on residential projects are generally required.
Real Estate - Mortgage - Residential. Residential mortgage loans of $347.6 million have grown steadily over the past several years and are comprised primarily of adjustable rate one-to-four family first mortgages. In general, the Bank requires a maximum loan-to-value ratio of 80%, although higher levels are permitted with accompanying mortgage insurance. The Bank emphasizes making residential mortgage loans for owner-occupied primary residences and does not actively seek to make loans for vacation condominiums or homes. The Bank has also limited growth of mortgages for high-end residences because of higher volatility in their values. In order to limit such growth and provide for adequate collateral, the Bank requires lower than normal loan-to-value ratios for loans secured by such homes. Mortgage loans held for sale at December 31, 1996 totaled $8.5 million.
Home equity lines of credit of $90.7 million, with maximum loan-to- value ratios of 75%, were also included in residential mortgage loans.
Real Estate - Mortgage - Commercial. The major components of the Bank's portfolio of commercial, industrial and other mortgage loans at December 31, 1996 included $140.3 million for stores and offices, $50.2 million for warehouses and industrial buildings, and $34.4 million for apartment buildings with 5 or more units.
The following table sets forth certain information with respect to the composition of the Bank's Real Estate - Mortgage loan portfolio as of the dates indicated.
Table II. Mortgage Loan Portfolio Composition
December 31,
1996 1995 1994 1993 1992
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
Residential:
1-4 units $341,890 43.9% $335,345 47.2% $328,282 49.7% $309,458 51.8% $300,710 55.8%
5 or more
units 5,718 0.7 5,884 0.8 3,791 0.6 7,899 1.3 9,157 1.7
Commercial,
industrial
and other 430,682 55.4 368,772 52.0 328,979 49.7 280,385 46.9 229,136 42.5
-------- ------ -------- ------ --------- ------ -------- ------ -------- ------
Total $778,290 100.0% $710,001 100.0% $661,052 100.0% $597,742 100.0% $539,003 100.0%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
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Installment Loans. The following table sets forth the primary components of the Bank's Installment loan portfolio as of the dates indicated.
Table III. Installment Loan Portfolio Composition
December 31,
1996 1995 1994 1993 1992
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
Automobile $ 35,424 45.2% $ 26,368 39.2% $ 27,786 41.6% $ 26,357 38.4% $ 32,717 40.4%
Credit cards
and related
plans 23,989 30.6 22,151 33.0 19,612 29.3 19,626 28.6 20,393 25.2
Other 19,018 24.2 18,691 27.8 19,450 29.1 22,610 33.0 27,884 34.4
-------- ----- -------- ------ -------- ------ -------- ------ -------- ------
Total $ 78,431 100.0% $ 67,210 100.0% $ 66,848 100.0% $ 68,593 100.0% $ 80,994 100.0%
======== ===== ======== ====== ======== ====== ======== ====== ======== ======
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Automobile loans, comprised primarily of indirect dealer loans, increased by $9.1 million or 34.3% in 1996 due to the purchase of $9.0 million in indirect automobile loans.
Credit cards and related plans have increased steadily over the past two years, following a national trend toward increased consumer debt. However, stagnation of the Hawaii economy has resulted in an increase in personal bankruptcies and consequently consumer loan losses. As detailed in Table VI, net charge-offs on installment loans have increased by 70% over 1995 levels, which increased by 33% over 1994 net charge-offs. In response to rising delinquency and loss rates, the Bank has discontinued the practice of extending pre-approved credit on installment loans and has provided additional resources to supplement collection efforts.
Maturities and Sensitivities of Loans to Changes in Interest Rates
The following table sets forth the maturity distribution of the Bank's loan portfolio at December 31, 1996. The table excludes real estate loans (other than construction loans) and installment loans.
Table IV. Maturity Distribution of Commercial and Construction Loans
Maturing
---------------------------------
Over one
One year through Over
or less five years five years Total
-------- ---------- ---------- ---------
(Dollars in thousands)
Commercial, financial
and agricultural $56,597 $54,113 $31,025 $141,735
Real estate --
construction 26,831 9,718 6,971 43,520
------- ------- ------- --------
Total $83,428 $63,831 $37,996 $185,255
======= ======= ======= ========
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The following table sets forth the sensitivity of the amounts due after one year to changes in interest rates.
Table V. Maturity Distribution of Fixed and Variable Rate Loans
Maturing
-----------------------
Over one
through Over
five years five years Total
---------- ---------- ----------
(Dollars in thousands)
With fixed
interest rates $17,526 $20,856 $ 38,382
With variable
interest rates 46,305 17,140 62,902
------- ------- --------
Total $63,831 $37,996 $101,284
======= ======= ========
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Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to provide for potential losses on loans and other extensions of credit, including off-balance sheet credit exposures. The adequacy of the allowance for loan losses is based upon management's evaluation of the quality, character and inherent risks in the loan portfolio, current and projected economic conditions, and past loan loss experience.
During 1996, $2.5 million was provided for loan losses compared to $3.3 million in 1995 and 1994. In 1996, the Bank experienced net charge-offs of $3.2 million, compared with net charge-offs of $1.4 million and $2.1 million in 1995 and 1994, respectively. The allowance for loan losses at December 31, 1996 was $19.4 million, compared to $20.2 million at December 31, 1995 and $18.3 million at December 31, 1994. The ratio of allowance for loan losses to total loans was 1.87%, 2.04% and 1.84% at December 31, 1996, 1995 and 1994, respectively.
Management believes that the allowance for loan losses at December 31,
1996 was adequate to absorb known and inherent risks in the portfolio.
However, no assurance can be given that economic conditions which may
adversely affect the Bank's service areas or other circumstances, such as
material and sustained declines in real estate values, will not result in
increased losses in the Bank's loan portfolio. See "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -- Provision and Allowance for Loan Losses" and "-- Nonperforming Assets."
The following table sets forth certain information with respect to the Bank's allowance for loan losses as of the dates or for the periods indicated.
Table VI. Allowance for Loan Losses
Year ended December 31,
1996 1995 1994 1993 1992
----------- ---------- -------- --------- ---------
(Dollars in thousands)
Average amount of
loans outstanding $1,010,255 $1,004,094 $947,433 $911,611 $865,316
Allowance for
loan losses:
Balance at
beginning of year $ 20,156 $ 18,296 $ 17,131 $ 15,378 $ 13,849
---------- ---------- -------- -------- --------
Charge-offs:
Commercial,
financial and
agricultural 662 146 129 225 257
Real estate --
construction -- -- -- -- --
Real estate --
mortgage --
residential 786 192 538 543 570
Real estate --
mortgage --
commercial 1,250 943 1,360 254 --
Installment 857 540 492 620 537
---------- ------ ------ ------ ------
TOTAL 3,555 1,821 2,519 1,642 1,364
---------- ------ ------ ------ ------
Recoveries:
Commercial,
financial and
agricultural 108 192 160 12 74
Real estate --
construction 19 -- -- -- --
Real estate --
mortgage --
residential 31 48 32 3 --
Real estate --
mortgage --
commercial -- -- -- -- --
Installment 177 141 192 180 119
---------- ------ ------ ------ ------
TOTAL 335 381 384 195 193
---------- ------ ------ ------ ------
34
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Net loans charged
off (recovered) 3,220 1,440 2,135 1,447 1,171
---------- ------- -------- -------- --------
Provision charged
to operations 2,500 3,300 3,300 3,200 2,700
---------- ------- -------- -------- --------
Balance at end
of year $19,436 $20,156 $18,296 $17,131 $15,378
========== ======= ======== ======== ========
Ratios:
Allowance for
loan losses to
loans outstand-
ing at end of
period 1.87% 2.04% 1.84% 1.81% 1.71%
Net loans charged
off (recovered)
during period to
average loans
outstanding
during period .32% .14% .23% .16% .14%
|
Over the five-year period ended December 31, 1996, the allocation of the allowance for loan losses for the largest loan category, commercial real estate mortgage loans, increased steadily to correspond with increases in the total volume of loans and the level of loan losses in these categories. The Bank's practice is to make specific allocations to specific loans and unspecified allocations to each loan category based on Management's risk assessment.
The following table sets forth the allocation of the allowance for loan losses by loan category as of the dates indicated.
Table VII. Allocation of Allowance for Loan Losses
1996 1995 1994 1993 1992
Percent Percent Percent Percent Percent
of loans of loans of loans of loans of loans
in each in each in each in each in each
Allowance category Allowance category Allowance category Allowance category Allowance category
for loan to total for loan to total for loan to total for loan to total for loan to total
losses loans losses loans losses loans losses loans losses loans
---------- --------- --------- -------- --------- -------- --------- -------- --------- -------
(Dollars in thousands)
Commercial,
financial and
agricultural $ 2,900 13.6% $ 4,100 16.7% $ 5,100 21.3% $ 6,100 25.2% $ 5,200 25.8%
Real estate --
construction 100 4.2 200 4.9 500 5.3 500 4.4 100 5.4
Real estate -
mortgage --
residential 1,700 33.4 1,800 34.4 3,000 33.5 3,800 33.6 500 34.4
Real estate -
mortgage --
commercial 9,300 41.3 7,800 37.2 5,500 33.2 5,300 29.5 3,800 25.4
Installment 600 7.5 600 6.8 400 6.7 600 7.3 1,200 9.0
Unallocated 4,836 N/A 5,656 N/A 3,796 N/A 831 N/A 4,578 N/A
------- ------- ------- -------- ------- ------- ------- ------ ------- ------
TOTAL $19,436 100.0% $20,156 100.0% $18,296 100.0% $17,131 100.0% $15,378 100.0%
======= ======= ======= ======== ======= ======= ======= ====== ======= ======
|
Investment Portfolio
The following table sets forth the amounts and the distribution of investment securities held as of the dates indicated.
Table VIII. Distribution of Investment Securities
December 31,
--------------------------------------------------------------------------------------
1996 1995 1994
------------------------ ---------------------------- -----------------------------
Held to Available Held to Available Held to Available
maturity for sale maturity for sale maturity for sale
(at amor- (at estimated (at amor- (at estimated (at amor- (at estimated
tized cost) fair value) tized cost) fair value) tized cost) fair value)
----------- ------------- ----------- -------------- ------------ -------------
(Dollars in thousands)
U.S. Treasury and
other U.S. Government
agencies $100,153 $113,339 $123,073 $129,699 $146,216 $66,949
States and political
subdivisions 9,091 2,791 11,620 2,836 13,885 --
Other -- 15,084 2,000 14,399 1,997 14,741
-------- -------- -------- -------- -------- -------
Total investment
securities $109,244 $131,214 $136,693 $146,934 $162,098 $81,690
======== ======== ======== ======== ======== =======
|
The Bank did not hold investments of any nonfederal issuer in amounts exceeding 10% of stockholders' equity at December 31, 1996. Except for loans disclosed in "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Nonperforming Assets," the Bank did not have any other nonperforming or potentially problem interest-bearing assets at December 31, 1996.
Maturity Distribution of Investment Portfolio
The following table sets forth the maturity distribution of the investment portfolio at December 31, 1996.
Table IX. Maturity Distribution of Investment Portfolio
Weighted Book average Portofolio Type and Maturity value yield<F1>
Grouping -------- ------------
(Dollars in thousands)
Held-to-maturity portfolio:
U.S. Treasury and other
U.S. Government agencies:
Within one year $ 28,569 5.298%
After one but within five years 61,005 6.314
After five but within ten years 10,579 6.481
After ten years -- --
--------
Total U.S. Treasury and other
U.S. Government agencies 100,153 6.042
States and political subdivisions:
Within one year 2,205 5.350
After one but within five years 6,886 6.321
After five but within ten years -- --
After ten years -- --
--------
Total states and political
subdivisions 9,091 6.085
Other:
Within one year -- --
After one but within five years -- --
After five but within ten years -- --
After ten years -- --
--------
Total other -- --
Total held-to-maturity
portfolio $109,244 6.045%
========
38
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Available-for-sale portfolio:
U.S. Treasury and other
U.S. Government agencies:
Within one year $ 8,019 5.722%
After one but within five years 41,883 5.805
After five but within ten years 18,897 5.726
After ten years 44,539 6.060
--------
Total U.S. Treasury and other
U.S. Government agencies 113,338 5.886
States and political subdivisions:
Within one year 2,018 6.108
After one but within five years 773 6.338
After five but within ten years -- --
After ten years -- --
--------
Total states and political
subdivisions 2,791 6.172
Other:
Within one year -- --
After one but within five years -- --
After five but within ten years -- --
After ten years 15,085 7.828
--------
Total other 15,085 7.828
Total available-for-sale portfolio $131,214 6.115%
========
Total investment securities $240,458 6.084%
========
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<F1> Weighted average yields are computed on an annual basis, and yields on tax-exempt obligations are computed on a taxable-equivalent basis using an assumed tax rate of 35%.
Deposits
The Bank competes for deposits in Hawaii principally by providing quality customer service at its branch offices. The Bank, over the years, has developed a relatively large and stable base of core deposits which consists of noninterest-bearing demand, interest-bearing demand and savings deposits and time deposits under $100,000. The Bank does not purchase brokered deposits.
Total deposits at December 31, 1996, 1995 and 1994 were
$1,123.6 million, $1,138.3 million and $1,081.9 million, respectively.
Deposits decreased in 1996 by 1.3% compared with the 5.2% growth recorded for
1995. Interest-bearing deposits, excluding time deposits of $100,000 and
over, decreased by 2.3% in 1996 and 1.2% in 1995. Noninterest-bearing
deposits decreased by 1.4% in 1996 and increased by 4.7% in 1995. The Bank's
ratio of core deposits to total deposits was 76.5% at December 31, 1996, 77.1%
at December 31, 1995 and 81.2% at December 31, 1994. Time deposits of
$100,000 and over increased by 1.6% to $264.3 million in 1996 over the
$260.3 million in 1995, which increased by 28.1% over the $203.2 million in
1994. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Financial Condition."
The following table sets forth information regarding the average deposits and the average rates paid for certain deposit categories for each of the periods indicated. Average balances are computed using daily average balances.
Table X. Average Balances and Average Rates on Deposits
Year ended December 31,
--------------------------------------------------------
1996 1995 1994
------------------ ----------------- ------------------
Average Average Average
Average rate Average rate Average rate
balance paid balance paid balance paid
---------- ------- -------- ------- --------- -------
Noninterest-bearing
demand deposits $ 153,288 --% $ 152,002 --% $ 152,941 --%
Interest-bearing
demand deposits 94,389 1.36 98,303 1.36 104,847 1.36
Savings and money
market deposits 392,603 2.80 414,988 3.12 459,282 2.45
Time deposits 461,771 5.00 437,789 5.16 347,906 3.69
---------- ----------- ----------
TOTAL $1,102,051 3.21% $1,103,082 3.34% $1,064,976 2.40%
========== =========== ==========
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The remaining maturities of the certificates of deposit in denominations of $100,000 and over are set forth in the following table.
XI. Remaining Maturities of Large Certificates of Deposit
December 31, 1996
(Dollars in thousands)
Three months or less $127,762
Over three through six months 64,900
Over six through twelve months 59,587
Over twelve months 12,085
--------
Total $264,334
========
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ITEM 2. PROPERTIES
The executive offices of the Company and the Bank are located at 220 South King Street, Honolulu, Hawaii 96813.
All Bank properties, except for the properties in which the Hilo and Moiliili branches and the operations center are situated, are occupied under leases which expire on various dates through 2019, and, in most instances, include options to renew. For the year ended December 31, 1996, net rent expense under these leases aggregated $5.3 million. For additional information relating to lease rental expense and commitments, see Note 16 to the Company's Consolidated Financial Statements in the 1996 Annual Report which is incorporated herein by reference.
CPB Properties is a general partner and the managing partner with a 50% interest in CKSS. Other partners in CKSS are Kajima Development Corporation, a general partner, Sumitomo Corporation and Sumitomo Corporation of America, limited partners. CKSS was formed to develop, construct and lease a 22-story office building complex in the downtown financial district of Honolulu at the corner of King and Alakea Streets, which now serves as the Company's and the Bank's headquarters. The building contains 201,865 square feet of rentable space of which approximately 67,000 square feet are occupied by the Company. CKSS carried the building complex on its books at a net book value of $24.6 million as of December 31, 1996. To finance the building, CKSS entered into a loan agreement with The Sumitomo Bank, Limited ("Sumitomo") which is secured by a mortgage on Central Pacific Plaza. The loan agreement, as amended, allows CKSS to borrow up to $12.5 million at 0.75% above LIBOR. As of December 31, 1996, Sumitomo had advanced pursuant to its loan agreement the sum of $10.7 million, due on June 18, 2001.
The investment in CKSS is carried on the books of the Company under the equity method of accounting. See Notes 1 and 7 to the Company's Consolidated Financial Statements in the 1996 Annual Report which is incorporated herein by reference.
In October 1992, CPB Properties, as lessor, entered into a lease agreement with CKSS for certain real property located in Kaimuki, Hawaii, effective from January 1, 1993 to December 31, 2047. Under the terms of the lease, CKSS would develop a 4-story office building (the "Kaimuki Plaza").
On April 30, 1993, CKSS and the Bank entered into a building loan agreement to borrow up to $12.2 million at .75% above LIBOR to finance the Kaimuki Plaza. At December 31, 1996, the Bank had advanced $10.7 million, due on August 10, 2001, pursuant to this loan agreement. At December 31, 1996, an additional $1.4 million was payable to the Bank, at 0.75% above LIBOR, pursuant to a loan agreement secured by second mortgages on the Central Pacific and Kaimuki Plazas, which matures on April 10, 2001.
The weighted average interest rate on all loans related to the Company's headquarters and Kaimuki Plaza at December 31, 1996 was 6.3125%.
In November 1994, the Bank entered a 25-year lease agreement with CKSS to lease office space in the Kaimuki Plaza for its Kaimuki Branch. The lease is effective from November 1, 1994 through October 31, 2019.
The Bank holds title to the land and building in which the Hilo branch office and operations center are situated. CPB Properties holds title to a portion of the land and the building in which the Moiliili branch office is situated. In August 1996, ownership of the operations center property was transferred from CPB Properties to the Bank at net book value in exchange for CPB Properties common stock, which was recorded as treasury stock.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary routine litigation incidental to its business, none of which is considered likely to have a materially adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's shareholders for a vote during the fourth quarter of 1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of February 28, 1997, the executive officers of the Company, their positions, principal occupation during the past five years and ages. Each officer is appointed by the Board of Directors of the Company and serves at their pleasure.
Principal Occupation
Name and Position During Past Five Years Age
Joichi Saito Chairman of the Board and Chief 61
Chairman of the Executive Officer, Central Pacific
Board and Chief Bank (1996-Present); President
Executive Officer and Chief Operating Officer,
Central Pacific Bank (1989-1995)
Naoaki Shibuya President and Chief Operating 55
President Officer, Central Pacific
Bank (1996-Present); Executive
Vice President, Central Pacific
Bank (1993-1995); Executive
Vice President, The Sumitomo
Bank of California (1989-1993)
Austin Y. Imamura Executive Vice President 50
Vice President and and Secretary, Central Pacific
Secretary Bank (1991-Present)
Neal K. Kanda Executive Vice President, Central 48
Vice President and Pacific Bank (1996-Present);
Treasurer Executive Vice President and
Controller, Central Pacific Bank
(1993-1996); Senior Vice
President and Controller, Central
Pacific Bank (1990-1993)
|
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
For information concerning the market for the Company's common stock and related shareholder matters, see "Common Stock Price Range and Dividends" contained in the 1996 Annual Report, which is incorporated herein by reference, and "ITEM 1. BUSINESS -- Supervision and Regulation -- Restrictions on Transfers of Funds to the Company by the Bank."
ITEM 6. SELECTED FINANCIAL DATA
For selected financial data concerning the Company, see "Selected Consolidated Financial Data" contained in the 1996 Annual Report, which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For Management's discussion and analysis of financial condition and results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the 1996 Annual Report, which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For financial statements of the Company, see "Supplementary
Financial Information," and "Consolidated Financial Statements and
Notes," including the "Independent Auditor's Report" thereon, in the
1996 Annual Report, which is incorporated herein by reference.
See "ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K" below for financial statements filed as
a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as hereinafter noted, the information concerning directors and executive officers of the Company is incorporated by reference from the section entitled "Election of Directors" of the Company's Proxy Statement, which is filed as Exhibit No. 99 to this Annual Report on Form 10-K. For information concerning executive officers of the Company, see "ITEM 4(A). EXECUTIVE OFFICERS OF THE REGISTRANT."
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference from the section entitled "Compensation of Directors and Executive Officers" of the Company's Proxy Statement, which is filed as Exhibit No. 99 to this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the sections entitled "Principal Shareholders," and "Election of Directors" of the Company's Proxy Statement, which is filed as Exhibit No. 99 to this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is incorporated by reference from the section entitled "Certain Transactions" of the Company's Proxy Statement, which is filed as Exhibit No. 99 to this Annual Report on Form 10-K.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
(1) The following financial statements included in the
registrant's 1996 Annual Report are incorporated herein by reference.
Page number references are to page numbers in the 1996 Annual Report.
Page
CPB Inc. and Subsidiary:
Independent Auditors' Report 39
Consolidated Balance Sheets at December 31, 1996 and 1995 17
Consolidated Statements of Income for the Years
ended December 31, 1996, 1995 and 1994 18
Consolidated Statements of Changes in Stockholders'
Equity for the Years ended December 31, 1996, 1995 and 1994 19
Consolidated Statements of Cash Flows for the Years
ended December 31, 1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 21
(2) All schedules are omitted because they are not
applicable, not material or because the information is included in
the consolidated financial statements or the notes thereto.
46
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(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the last
quarter of 1996.
(c) Exhibits
Exhibit No. Document
3.1 Articles of Incorporation of CPB Inc., as
amended<F1>
3.2 Amended Bylaws of CPB Inc.<F2>
10.1 Limited Partnership Agreement of CKSS Associates
Limited Partnership dated July 10, 1981 and among
CPB Properties, Inc., Kajima Hawaii Corporation,
Sumitomo Corporation and Sumitomo Corporation of
America<F3>
10.2 CPB Inc. 1986 Stock Option Plan, as amended<F4><F8>
10.3 Lease dated February 1, 1983 by and between CKSS
Associates and Central Pacific Bank, as amended by
First Amendment of Lease between CKSS Associates and
Central Pacific Bank dated March 3, 1984, as amended
by Second Amendment of Lease between CKSS Associates
and Central Pacific Bank dated April 3, 1987, as
amended by Third Amendment of Lease between CKSS
Associates and Central Pacific Bank dated
September 24, 1992.<F2>
10.4 Share Purchase Agreement dated as of November 20, 1986
by and among The Sumitomo Bank, Limited and CPB Inc.<F2>
10.5 Split Dollar Life Insurance Plan<F5><F8>
10.6 Common Stock Purchase Warrant issued December 16,
1996 to The Sumitomo Bank, Limited
10.7 Central Pacific Bank and Subsidiaries 1996 Annual
Executive Incentive Plan<F8>
10.8 Central Pacific Bank Supplemental Executive Retirement Plan
<F6><F8>
10.9 CPB Inc. 1997 Stock Option Plan <F8>
13 Annual Report to Shareholders for the year ended
December 31, 1996 (parts not incorporated by
reference are furnished for informational purposes
and are not filed herewith)
47
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21 Subsidiaries of CPB Inc.<F7>
23 Accountants' Consent
27 Financial Data Schedule
99 Proxy Statement for Annual Meeting of Shareholders
to be held on April 22, 1997
<F1> Filed as Exhibit 3.1 to registrant's Registration
Statement on Form S-2 (Registration No. 33-27575)
filed with the Securities and Exchange Commission on
March 17, 1989, which is incorporated herein by
this reference.
<F2> Filed as Exhibits 3.2, 10.10, 10.16 and 10.18 to the
|
registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993, filed with the Securities and Exchange Commission on March 17, 1994.
<F3> Filed as Exhibit 10.7 to registrant's Registration Statement on Form S-14 (Registration No. 2-76608), filed with the Securities and Exchange Commission on March 23, 1982, which is incorporated herein by this reference.
<F4> Filed as Exhibit 28.1 to registrant's Registration Statement on Form S-8 (Registration No. 33-11462), filed with the Securities and Exchange Commission on January 22, 1987, which is incorporated herein by this reference.
<F5> Filed as Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, filed with the Securities and Exchange Commission on March 27, 1992.
<F6> Filed as Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, filed with the Securities and Exchange Commission on March 29, 1996.
<F7> Filed as Exhibit 21 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 filed with the Securities and Exchange Commission on March 30, 1994.
<F8> Denotes management contract or compensation plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 25, 1997.
CPB INC.
(Registrant)
By /s/ Joichi Saito JOICHI SAITO Chairman of the Board and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ Joichi Saito Chairman of the Board March 25, 1997
Joichi Saito and Chief Executive
Officer (Principal
Executive Officer),
Director
/s/ Neal K. Kanda Vice President, March 25, 1997
Neal K. Kanda Treasurer
(Principal Financial
Officer, Principal
Accounting Officer)
/s/ Paul Devens Director March 25, 1997
Paul Devens
/s/ Alice F. Guild Director March 25, 1997
Alice F. Guild
/s/ Dennis I. Hirota Director March 25, 1997
Dennis I. Hirota, Ph.D.
/s/ Stanley W. Hong Director March 25, 1997
Stanley W. Hong
______________________ Director March __, 1997
Kensuke Hotta
/s/ Daniel M. Nagamine Director March 25, 1997
Daniel M. Nagamine
/s/ Yoshiharu Satoh Director March 25, 1997
Yoshiharu Satoh
/s/ Naoaki Shibuya Director March 25, 1997
Naoaki Shibuya
|
EXHIBIT 10.6
COMMON STOCK PURCHASE WARRANT
OF
CPB INC.
This certifies that, for value received, the Sumitomo Bank, Limited ("Sumitomo") is entitled to purchase from CPB Inc., a Hawaii corporation (the "Company") at any time prior to 12:00 a.m. Honolulu, Hawaii Time on June 14, 2006, 37,340 fully paid and nonassessable shares (the "Shares") of the Company, $1.25 stated value ("Common Stock"), at such price and upon such terms and conditions as are set forth below.
This Warrant is issued pursuant to that certain Share Purchase Agreement, dated November 20, 1986, by and between the Company and Sumitomo (the "Share Purchase Agreement").
1. EXERCISE.
a. The term ("Term") of this Warrant shall commence on December 16, 1996 and end on June 14, 2006. Sumitomo may not exercise this Warrant until the stock options ("Option"), or portion thereof, representing this Warrant are exercised. The Company will give Sumitomo notice ("Stock Option Notice") of the exercise of any Options issued pursuant to the CPB Inc. 1986 Stock Option Plan ("Plan") within thirty (30) days after June 30 and December 31 of each year setting forth the number of Options exercised, the purchase price paid and the number of shares subject to the Warrant that may be exercised by Sumitomo. After the receipt of the Stock Option Notice, Sumitomo may exercise the Warrant to the extent specified in the Stock Option Notice, in whole or in part, at any time or from time to time during the Term. Sumitomo may exercise the Warrant by delivering to the Company at its principal office, located at 220 South King Street, Honolulu, Hawaii 96813, or at such other office or agency as the Company may designate, the form of Election to Exercise Warrant attached hereto duly executed by Sumitomo, and accompanied by payment of an amount equal to the product of the fair market value of the Common Stock on the date such Warrant is exercised (the "Warrant Price") and number of Shares to be acquired on such exercise. Payment shall be made in United States Dollars. If Sumitomo shall exercise less than the entire Warrant represented hereby, the Company shall promptly issue and deliver to Sumitomo a Warrant of like tenor and dated the date hereof in the name of Sumitomo and providing for the right to purchase the number of Shares with respect to which this Warrant has not been exercised. Notwithstanding the foregoing, the shares issuable upon the exercise of this Warrant shall be adjusted consistent with any adjustments pursuant to Section 9 of the Plan to the Option to which such shares relate (or the adjustments which would have occurred to the Option but for its exercise before the exercise of this Warrant).
b. Upon the exercise of this Warrant in full or in part, Sumitomo shall be entitled to receive a certificate or certificates for the number of fully paid and nonassessable shares of the Common Stock of the Company purchasable of such exercise, and Sumitomo shall pay all transfer taxes in receipt of the issuance thereof. If a fraction of a share would be issuable on any exercise of this Warrant, Sumitomo will be paid by the Company the cash value of that fractional share, as determined in good faith by the Board of Directors of the Company. Appropriate certificates shall be sent to Sumitomo promptly after the exercise of this Warrant in full or in part.
c. The Company covenants that it will at all times reserve and keep available, solely for issuance on exercise of this Warrant,
all shares of Common Stock or other securities or property from time to time issuable on such exercise.
2. RIGHTS OF WARRANTHOLDERS.
Sumitomo shall not, by virtue of the ownership of this Warrant, be considered a shareholder of the Company for any purpose, nor shall anything in this Warrant be construed to confer on Sumitomo any rights of a shareholder of the Company, including without limitation any right to vote, give or withhold consent to any corporate action, receive notice of meetings of shareholders or receive dividends in respect of the Shares issuable upon the exercise of this Warrant until the Warrant has been exercised and the Shares purchasable upon the exercise thereof have been issued.
3. TRANSFER.
a. The securities issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the "Act"), and may be sold, assigned, pledged, hypothecated or otherwise transferred, or offered for sale, assignment, pledge, hypothecation or transfer only if registered under that Act or if an exemption from registration is available.
b. The rights represented by and title to this Warrant may not be transferred or assigned; however, the securities issuable upon exercise of this Warrant may be transferred or assigned subject to Section 3a. above.
c. Each certificate for shares issued upon exercise of this Warrant shall bear a legend substantially in the form set forth below:
The securities evidenced by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, pledged, hypothecated, transferred or otherwise disposed of except as may be authorized under such Act or the rules and regulations promulgated thereunder.
d. Sumitomo represents that this Warrant and any shares it may acquire upon exercise of all or part of this Warrant is being acquired for its own account and not with a view to or for sale in connection with any distribution thereof. The holder agrees to furnish confirmation of the foregoing representation upon exercise of all or any part of this Warrant in such form as the Company shall reasonably require.
4. GOVERNING LAW.
This Warrant shall be governed by and construed and enforced in accordance with the laws of the State of Hawaii applicable to contracts made and to be performed wholly within that state.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its authorized officer as of the l6th day of December, 1996.
CPB INC.
By: /s/ Joichi Saito ------------------------------ Joichi Saito Chairman of the Board and Chief Executive Officer |
TO: CPB INC.
220 South King Street
Honolulu, Hawaii 96813
Attention: Mr. Joichi Saito
The Sumitomo Bank, Limited ("Warrantholder") hereby irrevocably elects to exercise the right to purchase represented by the Common Stock Purchase Warrant issued on December 16, 1996 pursuant to the Share Purchase Agreement dated November 20, 1986 (the "Warrant"), and to purchase thereunder, ______________ shares of Common Stock provided for under the Warrant. Within three (3) business days after notification by you of the average of the closing bid and asked prices for the Common Stock for the five (5) business days immediately preceding the date of this Election to Exercise Warrant, which is agreed to be the fair market value of such shares on the date hereof, Warrantholder will tender payment to the order of CPB Inc. for such shares of Common Stock in full. Warrantholder requests that certificates for such shares be issued as follows:
Name: ______________________________
Address: ______________________________
______________________________
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and that if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable under the Warrant that a new Warrant for the balance remaining of the shares of Common Stock purchasable under the Warrant be registered in the name of and delivered to the undersigned Warrantholder at the address stated below:
Name of Warrantholder: THE SUMITOMO BANK, LIMITED
Address: _______________________________
_______________________________
Dated: __________________ THE SUMITOMO BANK, LIMITED
By ____________________________
Name: _________________________
Title: __________________________
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EXHIBIT 10.7
Central Pacific Bank and Subsidiaries
1996 Annual Executive Incentive Plan
PURPOSE:
The purposes of this plan are to reinforce the mission and corporate goals of CPB Inc. (CPB). The plan is designed to help CPB attract, retain and motivate a talented executive team. This team's performance, both as a team and as individuals, contributes directly to serving CPB's customers and communities, sustaining CPB's strong financial performance, and adding value for the shareholders.
DEFINITIONS:
The following terms will have the indicated meanings throughout this document. Whenever appropriate, words used in the singular may include the plural and vice-versa.
"Plan" will be used throughout as a description of this particular incentive plan.
"Company" will be used throughout as Central Pacific Bank and its subsidiaries.
"Compensation Committee" will be used throughout as the Compensation Committee of the Board of Directors of the Company.
"CEO" will be used throughout as Chairman of the Board and Chief Executive Officer of CPB, Inc.
"Participant" will be used throughout as the individual in a given position who is eligible to participate in this Plan.
"Base salary" will be used throughout as the base salary, excluding any other bonus, commission payments, or other extra cash compensation on an annualized basis, paid to the Participant on the last day of the calendar year. For example, a Participant who is paid a monthly salary of $10,000 as of the last day of 1996 will have an annualized base salary of $120,000 for purposes of calculating any annual incentive payment.
"Asset growth" will be calculated as the growth in assets, year over prior year, as measured by the average assets in December of the respective year.
ADMINISTRATION:
The Plan will be administered by the Compensation Committee, as ratified by the Board of Directors, who may delegate certain aspects of record keeping and administration to specified individuals, at their sole discretion. The Compensation Committee, or its specific delegates, is given full authority to develop such rules, regulations, record keeping procedures, and communications deemed necessary to administer the Plan and interpret its provisions. Any determination, decision, or action of the Compensation Committee (as ratified by the Board of Directors) in connection with this plan will be considered final and binding upon all Participants and any person validly claiming access to a potential award.
Payment of any award amounts will be made after audited financial statements are made available, but no later than April 1 of the year following the Plan year (e.g., April 1, 1997).
PARTICIPATION:
Any full-time active employee of the Company who has been granted the corporate title of Senior Vice President or above (e.g., Executive Vice President, President) is ELIGIBLE to participate in the plan. The CEO will present annually names, with position responsibility, to the Compensation Committee for approval and inclusion in the Plan. The Board will approve this Participant list no later than January 30 of the plan year (e.g., January 30, 1996 for the 1996 Plan). Participants will be notified in writing no later than February 1 of the Plan year. This communication will notify Participants of their participation and the target percentages of their incentive.
To be eligible, the employee must have been placed on full-time active status with the corporate title of Senior Vice President or above, no later than October 1, 1996. Participants becoming eligible after January 1, 1996 will be eligible for consideration of payment, prorated by the first day of the month on which they met the eligibility requirements. For example, a Participant meeting eligibility requirements on April 1, 1996 will be eligible, once approved by the Compensation Committee, for consideration for 9/12 or 3/4 of the potential award. Any exception to these minimum eligibility requirements must be recommended by the CEO and approved by the Compensation Committee.
A participant must have received at least an "Accomplished" performance appraisal rating during the calendar year (e.g., 1996 for the 1996 Plan) to be eligible for consideration for payment. Any exceptions from this provision must be recommended by the CEO and approved by the Compensation Committee, at their sole discretion.
All participants in this Plan will become INELIGIBLE for participation in the annual all staff Cash Incentive Bonus program.
FUNDING:
The plan will be funded according to the success of CPB as measured by return on equity (ROE, from CPB Inc.), asset growth and the ratio of CPB's return on assets (ROA, from CPB Inc.) to the unweighted average ROA's of the other Hawaii bank holding companies. Asset growth will be measured as the growth year to year in the average assets for the month of December. The specific values for each of these measures will be reviewed and adjusted, if deemed appropriate, annually.
Each measure will fund the total incentive pool as follows: (a) ROE will fund
50%, (b) asset growth will fund 25% and (c) ROA ratio will fund 25%. For each
measure performance below a defined measure will produce no incentive pool;
e.g., for 1996 these values are 11% for ROE, 10% for asset growth and 105%
ratio for ROA. Each measure will also have a maximum payout percentage; e.g.,
150% of the target pool for ROE of 17% and 150% of the target pool for asset
growth of 17% and 150% of the ROA ratio of 130%. The actual amount of the
pool funded will be extrapolated, using the determined scale values, between
the minimum funded value of 25% of the pool and maximum of 150%.
The target amounts funded are calculated as the sum of each Participant's target incentive, expressed as a percentage of base salary, multiplied by that individual's base salary.
The funding of the pool is described graphically in the following diagram.
ALLOCATION OF AWARDS:
The calculation of any actual awards will be based on each Participant's base salary, annualized, as of the last day of the calendar year (e.g., for this Plan, December 31, 1996).
The awards, expressed as a percentage of base salary, are shown, by corporate title, in the following table; e.g., a target incentive of 25% for Senior Vice President. These target awards will be adjusted by the percentage of the target pool that is funded through corporate performance. For example, if 75% of the pool is funded, the target award for Senior Vice Presidents would be 18.75%.
ACTUAL AWARDS:
Actual awards will be calculated according to the mix of three performance elements shown in the following table: 1) corporate (ROE and asset growth); 2) unit/production objectives; and 3) a discretionary amount.
The unit/production objectives will be agreed upon between each Participant and the immediate supervising Officer by January 30 of the Plan year. These objectives will emphasize those aspects of CPB's performance for which the Participant is held accountable. These will be submitted to the CEO for review and thereafter, reported to the Board of Directors for its approval and subsequent filing of the report.
CENTRAL PACIFIC BANK AND SUBSIDIARIES
FUNDING OF ANNUAL INCENTIVE PLAN<F1>*
Return on Equity Asset ROA Ratio
Above Threshold Incentive Pool Growth to Hawaii Banks
---------------- -------------- ------ ---------------
150% 17.00 17.00 150% 130 150%
---------------- ------ ------------
125% 15.75 16.25 125% 125 125%
---------------- ------ ------------
100% 15.00 [Diagram] 15.00 100% 120 100%
---------------- ------ ------------
75% 14.00 13.00 75% 115 75%
---------------- ------ ------------
50% 13.50 10.00 50% 110 50%
---------------- ------ ------------
25% 10.50 25% 105 25%
---------------- ------------
0% 0% 0%
---------------- ------------
<F1> * Each component funds the following portions of pool: 2/20/96
*Return on Equity = 50%
*Asset Growth = 25%
*ROA Ratio = 25%
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CENTRAL PACIFIC BANK
Determining Payouts
Groups
===============================================================================================================================
Measures CEO COO EVP/Group SVPs- SVPs-
Manager Profit Center Admin. Areas
========= ==== ==== ========= ============= ============
Corporate 100% 100% 50% 50% 50%
- --------- ---- ---- --------- ------------- ------------
Unit/ 0% 0% 25% 30% 30%
Production
Objectives
- ---------- ---- ---- --------- ------------- ------------
Discretionary 0% 0% 25% 20% 20%
===============================================================================================================================
Total 100% 100% 100% 100% 100%
===============================================================================================================================
Targets as 40% 35% 30% 25% 25%
a % of
Base Salary
2/20/96
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The discretionary percentages will be recommended by the CEO to the Compensation Committee for approval. These percentages and amounts may be used to reward individual or team accomplishments not specifically measured by either corporate financial performance or specific individual objectives.
PROJECTED COST OF THE PLAN:
[See attached for estimates of pay outs and list of participants.]
TERMINATION OF EMPLOYMENT:
The Participant must remain actively employed by the Company on the last day of the designated calendar year (1996 for this Plan) to be considered eligible for any potential payment under this Plan. Any exceptions to this provision must be approved by the Compensation Committee, at their sole discretion.
NON-TRANSFERABILITY OF AWARD:
An award, or potential award, granted under this Plan shall not be assignable or transferable by the Participant other than by will or the laws of descent and distribution.
NO RIGHT TO EMPLOYMENT:
This Plan does not constitute a contract between the Company and its employees. Neither establishing this Plan or taking any action as a result of the Plan shall be construed as giving any employee the right to be retained by the Company for any period of time, or to be employed in any particular position, at any particular rate of pay, or to provide any other job-related benefits.
AMENDMENT OR TERMINATION OF PLAN:
The Compensation Committee, with ratification from the Board of Directors, may from time to time or at any time amend or terminate the Plan at their sole discretion. Review and amendment of the Plan is expected annually when a new Plan document will be considered for establishment. Amendment or termination of the Plan is not expected within a Plan year, but that right is retained by the Compensation Committee.
This Plan has been approved and ratified for the Plan year 1996 on the __________ day of _______________, 1996 by the CPB Board of Directors as indicated below.
____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ ____________________________________________ _____________ |
1996 ANNUAL EXECUTIVE INCENTIVE PLAN
PARTICIPANTS
Joichi Saito Chairman of the Board & CEO
Naoaki Shibuya Pres. & COO
Austin Imamaura EVP & Secretary & Commercial Banking
Group Mgr.
Neal Kanda EVP & Controller & Asst. Secretary &
Admin. Group Mgr.
Wayne Kirihara SVP & Retail Banking Group Mgr.
Alwyn Chikamoto SVP & Corporate Banking Div. Mgr.
Clifford Fujiwara SVP & Real Estate Loan Div. Mgr.
Walter Horikoshi SVP & Credit and Legal Div.Mgr.
Raymond Kurosu SVP & ODS Div. Mgr.
Barbara Southern SVP & Sales and Marketing Div. Mgr.
David Chang SVP & ISD Mgr.
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EXHIBIT 10.8
CENTRAL PACIFIC BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
CENTRAL PACIFIC BANK hereby adopts this Supplemental Executive Retirement Plan in order to provide (in conjunction with Social Security and the Company's qualified pension plan) adequate retirement benefits to selected key management employees of the Bank.
ARTICLE I
DEFINITIONS
For the purposes of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise:
1.1 BENEFIT. "Benefit" means the retirement benefit payable to a Participant or to his Beneficiary under Article II.
1.2 CODE. "Code" means the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder.
1.3 COMMITTEE. "Committee" means the Committee appointed to administer the Plan as described in Section 5.1.
1.4 COMPANY. "Company" means Central Pacific Bank.
1.5 COMPENSATION. "Compensation" means the Participant's compensation as defined under the Pension Plan for the purpose of calculating the Participant's benefits under that Plan, without application of the $150,000 limit set forth in Section 1.8(a) of the Pension Plan.
1.6 COVERED COMPENSATION. "Covered Compensation" means the Participant's compensation as defined under the Pension Plan for the purpose of calculating the Participant's benefits under that Plan, subject to all of the limits set forth in that definition.
1.7 EFFECTIVE DATE. "Effective Date" means January 1, 1995.
1.8 ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
1.9 PARTICIPANT. "Participant" means the Company employees designated in accordance with Article II.
1.10 PENSION PLAN. "Pension Plan" means the Central Pacific Bank Deferred Benefit Retirement Plan.
1.11 PLAN. "Plan" means this Central Pacific Bank Supplemental Executive Retirement Plan.
1.12 PLAN YEAR. "Plan Year" means the tax year adopted by the Company, currently ending on December 31.
1.13 SPOUSE. "Spouse" means a Participant's spouse qualified to receive a death benefit under the Pension Plan.
ARTICLE II
PARTICIPATION
2.1 ELIGIBILITY. Only "management or highly compensated employees" (as those terms are used in ERISA Section 401(a)(i)) of the Company are eligible to Participate in this Plan.
2.2 DESIGNATION. The Company may from time to time designate Company employees eligible under Section 2.1 to become Plan Participants. The names of such designees shall be entered on Exhibit A attached hereto, along with the effective date of their participation.
2.3 TERMINATION. The Company may in its discretion terminate an employee's participation under this Plan, in which event the date of such termination shall be entered on Exhibit A. A terminated Participant's benefit under Article III shall be frozen as of the date of termination, as if his employment with the Company had also terminated on that date (although payment of his benefit shall not begin until his benefit under the Pension Plan is actually payable).
ARTICLE III
BENEFITS
3.1 CALCULATION OF BENEFIT. The Participant shall receive a Benefit under this Plan equal to the benefit which he would have accrued (whether or not vested) under the Pension Plan if that benefit had been based on his actual Compensation rather than Covered Compensation, reduced by the benefit that he actually accrues under the Pension Plan. If the Participant is not entitled to a benefit under the Pension Plan (for any reason other than a failure to vest in his accrued benefit), or if his benefit under the Pension Plan has not been reduced by the Covered Compensation limits, neither he nor his Spouse shall be entitled to a Benefit hereunder.
3.2 PAYMENT OF BENEFIT. The Participant's Benefit shall be payable on the dates and in the forms available to him with respect to his benefit under the Pension Plan, except that the Participant shall also be eligible to elect to receive his Benefit in the form of a single lump sum payment at any time after the Company is dissolved, merged into or acquired by any other company or group in a transaction which changes the ownership of the Company by more than 50%. The Participant shall make his election as to the time and form of Benefit payment in writing to the Committee within 90 days after the Effective Date, and he may change such election by further written notice to the Committee at any time prior to the first day of the calendar year in which Benefit payments would have commenced under his prior election. If the Participant elects to have his Benefit under this Plan paid at a different time or in a different form than his benefit under the Pension Plan, his Benefit shall be the actuarial equivalent of a Benefit payable at the same time and in the same form as his benefit under the Pension Plan, using the adjustments and actuarial assumptions set forth in the Pension Plan for calculating such equivalency. If the Participant elects to have his Benefit hereunder commence earlier than his Pension Plan benefit, his Benefit payments shall not be increased by subsequent increases in Compensation or service.
3.3 DEATH BENEFIT. Subject to the last sentence of Section 3.1, the Participant's Spouse shall receive a Benefit hereunder if such Spouse is or
would have been entitled to a benefit under the Pension Plan had the Participant elected the timing and form of benefit distribution elected hereunder and been vested in his accrued benefit under the Pension Plan at the time of his death. Such death Benefit shall be equal to the benefit which the Spouse would have received under the Pension Plan if that benefit had been based on the Participant's actual Compensation rather than Covered Compensation, reduced by the benefit actually payable to the Spouse under the Pension Plan (or that would have been so payable had the Participant elected the timing and form of benefit distribution elected hereunder and been vested in his accrued benefit at the time of his death).
3.4 FORFEITURE. The Participant's Benefit under this Plan (or the
undistributed balance thereof) shall be forfeited if (i) the Participant's
employment with the Company is terminated before he attains the age of 62 for
any reason, or (ii) the Participant cannot be located as described in Section
4.5, or (iii) the Participant's employment with the Company is terminated
because of embezzlement or the commission of any other felony in the course of
his employment or if the Participant is found after termination to have
committed such a crime in the course of his employment, or (iv) the
Participant enters into the employ of any bank in the State of Hawaii within
two years after termination of his employment with the Company. Subsection
(i) above shall not apply if the Participant's employment is terminated after
or because of the dissolution, merger or acquisition of the Company as
described in Section 3.2.
ARTICLE IV
FUNDING AND PAYMENT
4.1 FUNDING. This is an "unfunded" deferred compensation plan as that term is used in Section 401(a)(1) of ERISA. All Benefits shall be paid from the general assets of the Company. The Company may, in its discretion, elect to set aside money into one or more separate investment accounts, insurance policies, annuity contracts or grantor trusts to assist it in funding the Benefits as they become due, but the assets of any such account, policy, contract or trust shall remain the property of the Company, subject to the claims of its unsecured general creditors, and no Participant shall have any claim to those particular assets.
4.2 BENEFITS NONASSIGNABLE. The rights of a Participant or Spouse to receive a Benefit hereunder shall not be transferable, assignable, mortgageable or otherwise able to be encumbered in advance of payment, which payments are expressly declared to be non-assignable and non-transferable. Neither shall these payments be subject to seizure for the payment of a Participant's or Spouse's public or private debts, judgments, alimony or separate maintenance or by a proceeding at law or in equity, or be transferable by operation of law in the event of a Participant's or Spouse's bankruptcy, insolvency or otherwise, or be subject to any domestic relations order.
4.3 WITHHOLDING; PAYROLL TAXES. The Company may withhold from payments made hereunder any taxes required to be withheld from such payments under federal, state or local law.
4.4 PAYMENT TO GUARDIAN. If a Participant or Spouse has been declared incompetent or is otherwise incapable of handling the disposition of his property, the Committee may direct payment of his Benefit to the guardian, legal representative or person having the care and custody of such person.
The Committee may require proof of incompetency, incapacity or guardianship as it may deem appropriate prior to distribution of the Benefit. Such distribution shall completely discharge the Company's obligations under this Plan with respect to the payments made to such guardian, legal representative or custodian.
4.5 PLACE OF PAYMENT. Payment to any person under this Plan shall be made in person or by mailing such payment to the last known address of such person as shown on the Company's records. It shall be the responsibility of any person to whom a Benefit is due hereunder to keep a current address on file with the Company. If the Committee cannot with reasonable diligence locate a person entitled to a Benefit hereunder, such Benefit shall be forfeited.
ARTICLE V
ADMINISTRATION
5.1 COMMITTEE. This Plan shall be administered by a Committee designated by the Company from time to time. The Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan, decide or resolve any and all questions or interpretations concerning this Plan, and invest all assets held in trust pursuant to this Plan. A Participant may be a member of the Committee.
5.2 AGENTS. The Committee may, from time to time, employ other agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company.
5.3 INDEMNITY OF COMMITTEE. To the extent permitted by applicable law, the Company shall indemnify, hold harmless, and defend the Committee and its members against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of gross negligence or willful misconduct.
ARTICLE VI
CLAIMS PROCEDURE
6.1 CLAIM. Any person claiming a Benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Committee, which shall respond in writing as soon as practicable.
6.2 DENIAL OF CLAIM. If the claim or request is denied, the written notice of denial shall state:
(a) The reasons for denial, with specific reference to the Plan provisions on which the denial is based.
(b) A description of any additional material or information required and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
6.3 REVIEW OF CLAIM. Any person whose claim or request is denied or who has not received a response within 30 days may request review by notice given in writing to the Committee. The claim or request shall be reviewed by the Committee which may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing.
6.4 FINAL DECISION. The decision on review shall normally be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned.
ARTICLE VII
AMENDMENT AND TERMINATION OF THE PLAN
7.1 AMENDMENT. The Company may at any time amend the Plan in whole or in part; provided, however, that no amendment shall decrease or eliminate the accrued Benefit of any Participant whose Benefit is in pay status or who would be entitled to a Benefit if he separated from the service of the Company on the later of the effective date of the amendment or the date on which it is adopted by the Company's Board of Directors.
7.2 TERMINATION. The Company may terminate the Plan at any time. After such termination, Benefits shall continue to be paid in accordance with Article III, but (i) pay increases after the date of Plan termination shall not be taken into account in calculating the Benefits, and (ii) service after the date of Plan termination shall not be taken into account in calculating the Benefits but it shall be taken into account in determining vesting.
ARTICLE VIII
MISCELLANEOUS
8.1 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Company and any Participant, and the Participants shall have no rights against the Company except as may otherwise be specifically provided herein. Moreover, nothing in this Plan shall be deemed to give the Participants the right to be retained in the service of the Company or to interfere with the right of the Company to discipline or discharge them at any time.
8.2 TERMS. Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply, and wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.
8.3 CAPTIONS. The captions of the articles sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.
8.4 GOVERNING LAW. The provisions of this Plan shall be construed, interpreted and governed in all respects in accordance with ERISA and other
applicable federal law and, to the extent not preempted by such federal law, in accordance with the laws of the State of Hawaii.
8.5 VALIDITY. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.
8.6 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity.
Dated: April 20, 1995
CENTRAL PACIFIC BANK
By: /s/ Yoshiharu Satoh ----------------------------------- Its |
EXHIBIT A
Date Participation Date Participation
Name of Participant Began Terminated
- ------------------- ------------------ --------------------
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
___________________ __________________ ____________________
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[Letterhead of Central Pacific Bank]
April 20, 1995
Top Hat Plan Exemption
Pension and Welfare Benefits Administration
Room N-5644
200 Constitution Ave., N.W.
WASHINGTON DC 20210
Re: STATEMENT OF DEFERRED COMPENSATION PLAN
Gentlemen:
You are hereby notified, pursuant to Reg. Section 2520.104-23, that the following employer maintains a plan primarily for the purpose of providing deferred compensation for a select group of management and/or highly compensated employees:
Name of Employer: Central Pacific Bank
Address of Employer: P.O. Box 3590
Honolulu, Hawaii 96811
EIN of Employer: 99-0080213
Number of Plans: 1
Number of Participants: 6
Effective Date of Plan: January 01, 1995
Sincerely yours,
CENTRAL PACIFIC BANK
By: /s/ Yoshiharu Satoh
-------------------------------
Its
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CENTRAL PACIFIC BANK
RESOLUTION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)
RESOLVED by the Board of Directors of Central Pacific Bank, that effective January 1, 1995, the Central Pacific Bank Supplemental Executive Retirement Plan ("SERP"), as presented to the Board, is hereby approved.
RESOLVED, FURTHER, that the officers of the Bank are hereby authorized to execute the SERP and take all other actions necessary and proper to effectuate these resolutions:
RESOLVED, FURTHER, that the following Bank employees are designated as participants under the SERP, effective January 1, 1995:
Yoshiharu Satoh
Joichi Saito
Minoru Ueda
Naoaki Shibuya
Austin Imamura
Neal Kanda
I, Austin Imamura, Secretary of Central Pacific Bank, a Hawaii Corporation, do hereby certify that the foregoing is a full, true and correct copy of a resolution duly adopted by the Board of Directors of said Corporation, at its meeting duly called and held at the office of the Corporation, 220 South King Street, Honolulu, Hawaii, on the 19th day of April, 1995, at which a quorum was present and acting throughout; and that said resolution has not been modified, amended, or rescinded and continues in full force and effect.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the corporate seal of said Central Pacific Bank this 20th day of April, 1995.
/s/ Austin Imamura
--------------------------------------
Austin Imamura, Secretary
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EXHIBIT 10.9
CPB INC.
1997 STOCK OPTION PLAN
Adopted by the Compensation Committee as of February 18, 1997 Adopted by the Board of Directors as of February 19, 1997 Approved by the Shareholders on April 23, 1997
1. PURPOSE.
(a) The purpose of the CPB Inc. 1997 Stock Option Plan (the "1997 Plan") is to strengthen CPB Inc. (the "Company") and those corporations which are or hereafter become subsidiary corporations of the Company, within the meaning of Section 424 of the Internal Revenue Code of 1986, as amended (the "Code"), by providing to participating full-time salaried employees (the "Employees"), full-time salaried employee directors (the "Employee Directors") and directors who are not full-time salaried employees (the "Non-Employee Directors") added incentives for high levels of performance and to encourage stock ownership in the Company. The 1997 Plan seeks to accomplish these performance goals by providing a means whereby such Employees, Employee Directors and Non-Employee Directors of the Company and its subsidiaries may be given an opportunity to purchase by way of option common stock of the Company. The performance goal for those eligible to participate in the 1997 Plan is an increase in the value of the Company's shares over the option exercise price.
(b) The Company, by means of the 1997 Plan, seeks to secure and retain the services of such Employees, Employee Directors and Non-Employee Directors of the Company or any of its subsidiaries and to provide incentives for such persons to exert maximum efforts for the success of the Company.
(c) The Company intends that the options issued under the 1997 Plan shall, in the discretion of the committee responsible for administration of the 1997 Plan, be either incentive stock options as that term is used in Section 422 of the Code or any successor thereto ("incentive stock options"), or options which do not qualify as incentive stock options ("non-qualified stock options"). All options shall be separately designated as incentive stock options or non-qualified stock options at the time of grant, and a separate certificate or certificates shall be issued for shares purchased on the exercise of each type of option.
2. ADMINISTRATION.
(a) The 1997 Plan has been adopted and shall be administered solely by a committee ("Committee"). The Board and the Committee have evidenced their adoption and approval of the 1997 Plan by their signatures at the end of the 1997 Plan.
(b) The Committee shall have the authority, in its discretion, in connection with the administration of the 1997 Plan, subject to and within the limitations of the express provisions of the 1997 Plan:
(i) To determine from time to time which of the persons eligible under the 1997 Plan shall be granted an option; when and how the option shall be granted; whether the option will be an incentive stock option or a non-qualified stock option; the provisions of each option granted (which need not be identical), including, without limitation, the time or times during the term of each option within which all or portions of such option may be exercised; the duration of and purposes of leaves of absence which may be granted to participants without constituting a
termination of their employment for purposes of the 1997 Plan; and the number of shares for which an option shall be granted to each such person.
(ii) To determine any conditions or restrictions imposed on stock acquired pursuant to the exercise of an option (including, but not limited to, repurchase rights, forfeiture restrictions and restrictions on transferability).
(iii) To construe and interpret the 1997 Plan and the options granted under it, to construe and interpret any conditions or restrictions imposed on stock acquired pursuant to the exercise of an option, to define the terms used herein, and to establish, amend and revoke rules and regulations for its administration, to establish and administer performance goals under the 1997 Plan and, to the extent required by the Code and Treasury Regulations, ensure and certify that performance goals have been attained; provided, however, that the Committee has no authority to change the performance goals of the 1997 Plan after the shareholders of the Company have approved the 1997 Plan and any amendments thereto. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the 1997 Plan or in any option agreement, in a manner and to the extent it shall deem necessary or expedient to make the 1997 Plan fully effective.
(iv) To cancel, at any time and from time to time, with the consent of the affected optionee or optionees, any or all outstanding options granted under the 1997 Plan and the grant and substitution therefor of new options under the 1997 Plan (subject to limitations hereof) covering the same or different number of shares of stock at an option price per share in all events not less than the fair market value on the new grant date.
(v) Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to promote the best interests of the Company.
(c) The Committee shall be composed of not fewer than two (2)
members of the Company's Board of Directors (the "Board"). All members of
the Committee shall qualify as "outside directors" within the meaning of
Section 162(m) of the Code and Treasury Regulation Section 1.162-27(c)(3)
("Outside Directors"). Members of the Committee shall serve at the pleasure
of the Board and the Board may from time to time remove members from, or add
members to, the Committee; provided, however, that any attempted appointment
to the Committee of a person who does not qualify as an Outside Director
shall be null and void. Any member of the Committee who loses the status of
an Outside Director shall automatically and without further action cease to
be a member of the Committee as soon as such status is lost. In the event
the Company registers or has registered any class of equity security
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended
(the "1934 Act") as in effect from time to time, from the effective date of
such registration until six months after termination of such registration,
all of the members of the Committee also shall be "nonemployee directors" as
provided in Rule 16b-3 promulgated pursuant to the 1934 Act. The Committee
shall comply with the provisions of Rule 16b-3, to the extent applicable to
the 1997 Plan.
(d) Any action of the Committee with respect to administration of the 1997 Plan shall be taken pursuant to a majority vote or to the unanimous written consent of its members.
(e) The determinations of the Committee on matters referred to in this paragraph 2 shall be final and conclusive.
(f) Notwithstanding any other provision herein, the Board may at any time abolish the Committee and administer the 1997 Plan itself.
3. SHARES SUBJECT TO THE 1997 PLAN. Subject to the provisions of paragraph 9 relating to adjustments upon changes in stock, the stock that may be offered pursuant to options granted under the 1997 Plan shall not exceed the aggregate of 500,000 shares of the Company's common stock. If any option granted under the 1997 Plan shall for any reason expire, be canceled or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the 1997 Plan.
4. ELIGIBILITY.
(a) All Employees and Employee Directors of the Company or its subsidiaries shall be eligible to receive incentive stock options. Non- Employee Directors of the Company or its subsidiaries shall not be eligible to receive incentive stock options.
(b) All Employees, Employee Directors and Non-Employee Directors of the Company or its subsidiaries shall be eligible to receive non-qualified stock options.
(c) No person shall be eligible for the grant of an incentive stock option under the 1997 Plan if, at the time of grant, such person owns (or is deemed to own pursuant to Section 425(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its affiliates unless the exercise price of such incentive stock option is at least one hundred ten percent (110%) of the fair market value (determined without regard to any restriction other than a restriction which, by its terms, will never lapse) of such stock at the date of grant and such incentive stock option by its terms is not exercisable after the expiration of five (5) years from the date such incentive stock option was granted.
(d) The Company may issue incentive stock options provided that the aggregate fair market value (determined at the time the incentive stock option is granted) of the stock with respect to which incentive stock options are exercisable for the first time by the optionee during any calendar year (under all incentive stock option plans of the Company) shall not exceed One Hundred Thousand Dollars ($100,000). Should it be determined that any incentive stock option granted pursuant to the 1997 Plan exceeds such maximum, such incentive stock option shall be considered to be a non-qualified option and not to qualify for treatment as an incentive stock option under Section 422 of the Code to the extent, but only to the extent, of such excess.
(e) Notwithstanding anything to the contrary contained in this Plan, no person may be granted an option under this Plan if such person at the time of grant holds options to purchase more than 10% of the outstanding shares of common stock of the Company. In addition, no person may be granted options to purchase more than 100,000 shares of common stock in any calendar year, or more than 100,000 shares of common stock in the aggregate, subject to adjustment pursuant to Paragraph 9. The amount of compensation any eligible person could receive under an option grant is based solely on
an increase in value of the Company's common stock after the date of the grant of the option.
5. OPTION PROVISIONS. Each option shall be in such form and shall contain such terms and conditions as the Committee shall deem appropriate. The provisions of separate options need not be identical, but each option shall include (through incorporation of provisions hereof by reference in the option or otherwise) the substance of each of the following provisions:
(a) Each option granted and all rights or obligations thereunder by its terms shall expire on such date as the Committee may determine as set forth in such stock option agreement, but not later than ten (10) years from the date the option was granted and shall be subject to earlier termination as provided elsewhere in the 1997 Plan. Notwithstanding the foregoing, any incentive stock option granted to an optionee who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any of its affiliates shall expire not later than five (5) years from the date of grant. For purposes of the 1997 Plan, the date of grant of an option shall be the date on which the Committee takes final action approving the award of the option, notwithstanding the date the optionee accepts the option, the date of execution of the option agreement, or any other date with respect to such option.
(b) The exercise price of each option shall be determined by the Committee and shall be not less than one hundred percent (100%) of the fair market value of the stock subject to the option on the date the option is granted; provided, however, that the purchase price of common stock subject to an incentive stock option may not be less than one hundred ten percent (110%) of such fair market value (without regard to any restriction other than a restriction which, by its terms, will never lapse) where the optionee owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. The fair market value of such stock shall be determined by the Committee in accordance with any reasonable valuation method, including the valuation method described in Treasury Regulation Section 20.2031-2.
(c) The purchase price of stock acquired pursuant to an option shall be paid, as specified in the option, either (i) in cash at the time the option is exercised, or (ii) at the discretion of the Committee, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the option is granted or to whom the option is transferred pursuant to subparagraph 5(d), or (C) in any other form of legal consideration that may be acceptable to the Committee in its discretion, either at the time of grant or exercise of the option. Shares of stock given as part of the purchase price shall be valued at fair market value determined by the Board or the Committee in accordance with any reasonable valuation, including the valuation methods described in Treasury Regulation section 20.2031.2.
In the case of any deferred payment arrangement specified at the time of grant, an interest rate shall be stated which is not less than the rate then specified which will prevent any imputation of higher interest under the Code. If other than the optionee, the person or persons exercising the option shall be required to furnish the Company appropriate
documentation that such person or persons have the full legal right and power to exercise the option on behalf of and for the optionee.
(d) An option by its terms may only be transferred by will or by the laws of descent and distribution upon the death of the optionee, shall not be transferable during the optionee's lifetime other than pursuant to a qualified domestic relations order (within the meaning of the Code), and shall be exercisable during the lifetime of the person to whom the option is granted only by such person or a permitted transferee.
(e) At the discretion of the Committee the total number of shares of stock subject to an option granted to an eligible participant may, but need not, be allotted in periodic installments (which may, but need not, be equal) and upon such contingencies as the Committee may determine. In addition, the Committee shall have the power to accelerate the time (other than, except as provided in paragraph 10, the expiration date) during which an option may be exercised, notwithstanding the provisions in the option stating the time during which it may be exercised.
(f) From time to time during each of such installment periods, the option may be exercised with respect to some or all of the shares allotted to that period, and/or with respect to some or all of the shares allotted to any prior period as to which the option was not fully exercised. During the remainder of the term of the option (if its term extends beyond the end of the installment periods), the option may be exercised from time to time with respect to any shares then remaining subject to the option. The provisions of this subparagraph (5)(f) are subject to any option provisions governing the minimum number of shares as to which an option may be exercised.
(g) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 5(d), as a condition of exercising any such option, to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. The requirement of providing written assurances, and any assurances given pursuant to the requirement, shall be inoperative if (i) the shares to be issued upon the exercise of the option have been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) a determination is made by counsel for the Company that such written assurances are not required in the circumstances under the then applicable federal or state securities laws.
(h) If an Employee or Employee Director optionee ceases to be employed by the Company or its subsidiaries or a Non-Employee Director optionee ceases to serve as a director of the Company or its subsidiaries, then such optionee's option shall terminate three (3) months thereafter, and during such three-month period, such option shall be exercisable only as to those shares with respect to which installments, if any, had accrued as of the date on which the optionee ceased to be employed by the Company or its subsidiaries or ceased to serve as a director of the Company or its subsidiaries, unless:
(i) Such termination or cessation of service is due to such person's permanent and total disability, within the meaning of Section 22(e)(3) of the Code, in which case such person's stock option agreement may, but need not, provide that it may be exercised at any time within a period of not more than one (1) year following such termination of
employment, or cessation of service as a director and provided further that if such optionee dies during such one (1) year specified period following such termination of employment or cessation of service, then the stock option agreement may, but need not, provide that such option may be exercised at any specified time up to one (1) year following the death of the optionee, but only to the extent that the optionee was entitled to exercise said option immediately prior to the termination of the optionee's employment or cessation of service as a director;
(ii) The optionee dies while in the employ of the Company or its subsidiaries or while serving as a director, in which case options may be exercised at any time within a period of not more than one (1) year following the death of the optionee, but only to the extent that the optionee was entitled to exercise said option immediately prior to the termination of optionee's employment or cessation of service; and, provided further that if an optionee dies within not more than three (3) months after termination of such employment or cessation of service, then such person's option may, but need not, provide that it may be exercised at any time within one (1) year following the death of the optionee, and provided further that, unless the option provides otherwise, such option shall only be exercisable to the extent that the optionee was entitled to exercise said option immediately prior to the termination of the optionee's employment or cessation of service as a director as provided herein;
(iii) The option by its terms specifies (a) that it shall terminate sooner than three (3) months after termination of the optionee's employment or cessation of the optionee's directorship or (b) that it may be exercised more than three (3) months after termination of the optionee's employment, provided that, unless the option provides otherwise, such option shall only be exercisable to the extent that the optionee was entitled to exercise said option immediately prior to the optionee's termination;
(iv) The optionee's employment is terminated due to the optionee's retirement at age sixty-five (65), in which case the option may, but need not, provide that it may be exercised for a period greater or less than three (3) months after termination on the optionee's employment, provided that, unless the option provides otherwise, such option shall only be exercisable to the extent that the optionee was entitled to exercise said option immediately prior to the optionee's termination;
(v) The Employee or Employee Director optionee's employment is terminated for cause, whereupon the option terminates immediately unless such termination is waived by the Committee. Termination for cause shall include termination for malfeasance or gross misfeasance in the performance of duties, or conviction of illegal activity in connection therewith, conviction for a felony, or any significant conduct detrimental to the interest of the Company or any of its subsidiaries, and the determination of the Committee with respect thereto shall be final and conclusive; or
(v) The Employee Director or Non-Employee Director optionee is removed from the Board for cause, whereupon the option terminates immediately on the date of such removal unless such termination is waived by the Committee. Removal for cause shall include removal of a director who has been declared of unsound mind by an order of court or convicted of a felony.
This subparagraph 5(h) shall not be construed to extend the term of any option or to permit anyone to exercise the option after
expiration of its term, nor shall it be construed to increase the number of shares as to which any option is exercisable from the amount exercisable on the date of termination of the optionee's employment or service as director.
(i) Options may be exercised by ten (10) days' written notice delivered to the Company stating the number of shares with respect to which the option is being exercised together with payment for such shares. Not less than ten (10) shares may be purchased at any one time unless the number purchased is the total number of shares which may be purchased under the option.
(j) Any option granted hereunder shall provide as determined by the Committee for appropriate arrangements for the satisfaction by the Company or its subsidiaries and the optionee of all federal, state, local or other income, excise or employment taxes or tax withholding requirements applicable to the exercise of the option or the later disposition of the shares of stock thereby acquired. Such arrangements shall include, without limitation, the right of the Company or any subsidiary thereof to deduct or withhold in the form of cash or, if permitted by law, shares of stock from any transfer or payment to an optionee or, if permitted by law, to receive transfers of shares of stock or other property from the optionee, in such amount or amounts deemed required or appropriate by the Committee in its discretion. Any shares of stock issued pursuant to the exercise of an option and transferred by the optionee to the Company for purposes of satisfying any withholding obligation shall not again be available for purposes of the 1997 Plan.
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the 1997 Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the 1997 Plan or the Company such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the 1997 Plan; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the 1997 Plan, any option granted under the 1997 Plan or any stock issued or issuable pursuant to any such option or grant. If the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the 1997 Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon grant or upon exercise of such options unless and until such authority is obtained.
(c) The Company shall indemnify and hold harmless the members of the Committee in any action brought against any member in connection with the administration of the 1997 Plan to the maximum extent permitted by then applicable law.
7. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to options granted under the 1997 Plan shall constitute general funds of the Company.
8. MISCELLANEOUS.
(a) The Board or the Committee shall have the power to accelerate the time during which an option may be exercised, notwithstanding the provisions in the option stating the time during which it may be exercised.
(b) Neither an optionee nor any person to whom an option is transferred under subparagraph 5(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms.
(c) Nothing contained in the 1997 Plan, or in any option granted pursuant to the 1997 Plan, shall obligate the Company, or any of its subsidiaries, to employ any employee for any period or interfere in any way with the right of the Company, or any of its subsidiaries, to reduce the compensation of any employee.
9. ADJUSTMENTS UPON CHANGES IN STOCK. If the outstanding shares of the stock of the Company are increased, decreased, or changed into, or exchanged for a different number or kind of shares or securities of the Company, without receipt of consideration by the Company, through reorganization, merger, recapitalization, reclassification, stock split, stock dividend, stock consolidation, or otherwise, an appropriate and proportionate adjustment shall be made in the number and kind of shares as to which options may be granted. A corresponding adjustment changing the number or kind of shares and the exercise price per share allocated to unexercised options, or portions thereof, which shall have been granted prior to any such change shall likewise be made. Any such adjustment, however, in an outstanding option shall be made without change in the total price applicable to the unexercised portion of the option but with a corresponding adjustment in the price for each share subject to the option. Adjustments under this section shall be made by the Committee whose determination as to what adjustments shall be made, and the extent thereof, shall be final and conclusive. No fractional shares of stock shall be issued under the 1997 Plan on account of any such adjustment.
10. TERMINATING EVENT. Not less than thirty (30) days prior to the dissolution or liquidation of the Company, or a reorganization, merger, or consolidation of the Company with one or more corporations as a result of which the Company will not be the surviving or resulting corporation, or a sale of substantially all the assets of the Company to another person, or a reverse merger in which the Company is the surviving corporation but the shares of the Company's stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, or in the event of any other capital reorganization or in which shares of stock of the Company possessing more than fifty percent (50%) of the voting power of the Company are exchanged (a "Terminating Event"), the Committee shall notify each optionee of the pendency of the Terminating Event. Upon delivery of said notice, any option granted prior to the Terminating Event shall be, notwithstanding the provisions of paragraph 5 hereof, exercisable in full and not only as to those shares with respect to which installments, if any, have then accrued, subject, however, to earlier expiration or termination as provided elsewhere in the 1997 Plan. Upon the date thirty (30) days after delivery of said notice, any option or portion thereof not exercised shall terminate, and upon the effective date of the Terminating Event, the 1997 Plan shall terminate, unless provision is made in connection with the Terminating Event for assumption of options theretofore granted, or
substitution for such options of new options covering stock of a successor employer corporation, or a parent or subsidiary corporation thereof, solely at the option of such successor corporation or parent or subsidiary corporation, with appropriate adjustments as to number and kind of shares and prices.
11. AMENDMENT OF THE 1997 PLAN.
(a) The Committee at any time, and from time to time, may amend the 1997 Plan. However, except as provided in paragraph 9 relating to adjustments upon changes in stock, no amendment shall be effective unless, within twelve (12) months before or after the adoption of the amendment, the amendment is approved by the vote of a majority of the outstanding shares of the Company represented and voting at a shareholders meeting or by the written consent of a majority of the outstanding shares of the Company where the amendment will:
(i) Increase the number of shares reserved for options under the 1997 Plan;
(ii) Materially modify the requirements as to eligibility for participation in the 1997 Plan; or
(iii) Materially increase the benefits accruing to participants under the 1997 Plan.
It is expressly contemplated that the Board may amend the 1997 Plan in any respect the Board deems necessary or advisable to provide optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to incentive stock options and/or to bring the 1997 Plan and/or options granted under it into compliance therewith.
(b) Rights and obligations under any option granted pursuant to the 1997 Plan, while the 1997 Plan is in effect, shall not be altered or impaired by any amendment, suspension or termination of the 1997 Plan, except with the consent of the person to whom the stock or option was granted.
12. TERMINATION OR SUSPENSION OF THE 1997 PLAN.
(a) The Committee may suspend or terminate the 1997 Plan at any time. Unless sooner terminated, the 1997 Plan shall terminate ten (10) years from the effective date of the 1997 Plan. No options may be granted under the 1997 Plan while the 1997 Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted pursuant to the 1997 Plan, while the 1997 Plan is in effect, shall not be altered or impaired by suspension or termination of the 1997 Plan, except with the consent of the person to whom the stock or option was granted.
13. EFFECTIVE DATE OF PLAN. The 1997 Plan shall be deemed adopted as of February 18, 1997. The 1997 Plan shall become effective as determined by the Board, but no options granted under the 1997 Plan shall be exercised unless and until the 1997 Plan has been approved within twelve (12) months after February 18, 1997 by the vote of the holders of a majority of the outstanding shares of the Company represented and voting at a shareholders meeting or by the written consent of a majority of the outstanding shares of
the Company and, if required, an appropriate permit has been issued by the Director of Business Registration of the Hawaii Department of Commerce and Consumer Affairs.
The CPB Inc. 1997 Stock Option Plan is hereby approved and adopted in all respects.
STOCK OPTION PLAN COMMITTEE
BOARD OF DIRECTORS
EXHIBIT 13
Selected Consolidated Financial Data
The selected consolidated financial data set forth below with respect to CPB Inc.'s consolidated statements of income for the years ended December 31, 1996, 1995 and 1994, and with respect to the consolidated balance sheets at December 31, 1996 and 1995, are derived from the consolidated financial statements which have been audited by KPMG Peat Marwick LLP, independent auditors, included elsewhere in this Annual Report. The selected statements of income data for the years 1993 and 1992, and the selected balance sheet data at December 31, 1994, 1993 and 1992, are derived from audited consolidated financial statements which are not included in this Annual Report.
Year ended December 31,
(Dollars in thousands, except per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
Statement of Income Data:
Total interest income $104,287 $107,802 $93,793 $91,995 $96,712
Total interest expense 41,679 44,745 31,600 30,922 39,447
Net interest income 62,608 63,057 62,193 61,073 57,265
Provision for loan losses 2,500 3,300 3,300 3,200 2,700
Net interest income after provision for loan losses 60,108 59,757 58,893 57,873 54,565
Other operating income 10,771 10,764 10,708 11,169 9,089
Other operating expense 47,552 47,679 47,332 43,284 39,933
Income before income taxes and cumulative effect
of accounting change 23,327 22,842 22,269 25,758 23,721
Income taxes 9,236 9,034 8,786 10,026 9,119
Net income 14,091 13,808 13,483 15,940<F1> 14,602
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Balance Sheet Data (Year-End):
Interest-bearing deposits in other banks $26,297 $7,140 $40,277 $5,039 $13,104
Federal funds sold -- -- -- 5,000 5,000
Investment securities <F2> 240,458 283,627 243,788 250,668 230,902
Loans 1,041,976 990,356 991,968 945,768 901,565
Allowance for loan losses 19,436 20,156 18,296 17,131 15,378
Total assets 1,403,165 1,371,909 1,381,539 1,303,102 1,253,663
Core deposits <F3> 859,280 878,065 878,660 900,218 907,852
Total deposits 1,123,614 1,138,319 1,081,909 1,078,326 1,074,055
Long-term debt 115,840 81,107 68,307 80,881 61,483
Total stockholders' equity 140,882 132,507 121,103 113,188 100,733
- ---------------------------------------------------------------------------------------------------------------------
Per Share Data:
Net income $2.68 $2.64 $2.58 $3.06 $2.81
Cash dividends declared 0.96 0.92 0.88 0.88 0.80
Book value 26.74 25.23 23.13 21.64 19.39
Weighted average shares outstanding (in thousands) 5,265 5,240 5,234 5,216 5,192
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Financial Ratios:
Return on average assets 1.04% 1.00% 1.03% 1.29% 1.23%
Return on average stockholders' equity 10.27 10.79 11.48 14.88 15.36
Average stockholders' equity to average assets 10.09 9.29 8.99 8.70 8.03
Net interest margin <F4> 4.89 4.87 5.10 5.34 5.24
Net charge-offs to average loans 0.32 0.14 0.23 0.16 0.14
Nonperforming assets to year-end loans &
other real estate <F5> 1.41 0.59 1.84 0.66 0.64
Allowance for loan losses to year-end loans 1.87 2.04 1.84 1.81 1.71
Allowance for loan losses to nonaccrual loans 143.97 562.55 113.95 382.64 280.72
Dividend payout ratio 35.82 34.85 34.11 28.76 28.47
- ---------------------------------------------------------------------------------------------------------------------
<F1> Includes a $208,000 credit for cumulative effect of accounting
change.
<F2> Held-to-maturity securities at amortized cost, available-for-sale
securities at fair value in 1996, 1995 and 1994. At amortized cost in 1993 and 1992.
<F3> Noninterest-bearing demand, interest-bearing demand and savings
deposits, and time deposits under $100,000.
<F4> Computed on a taxable equivalent basis.
<F5> Nonperforming assets include nonaccrual loans and other real
estate.
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Management's Discussion & Analysis of
Financial Condition & Results of Operations
OVERVIEW
CPB Inc.'s (the "Company's") net income in 1996 was $14.1 million increasing by 2.0% over the $13.8 million earned in 1995. Net income of $13.5 million was recorded in 1994. The increase in 1996 net income reflected decreases in the provision for loan losses, Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums and salaries and employee benefits. The return on average assets in 1996 was 1.04%, compared to 1.00% in 1995 and 1.03% in 1994, while the return on average stockholders' equity in 1996 declined to 10.27% from 10.79% in 1995 and 11.48% in 1994. Earnings per share of $2.68 in 1996 increased by 1.5% over the $2.64 in 1995, which increased by 2.3% over the $2.58 in 1994. Cash dividends per share of $0.96 in 1996 increased from $0.92 in 1995 and $0.88 in 1994.
Total assets of $1,403.2 million at December 31, 1996 increased by 2.3%, net loans of $1,022.5 million increased by 5.4% and stockholders' equity of $140.9 million increased by 6.3% compared to year-end 1995. However, total deposits of $1,123.6 million decreased by 1.3% during 1996. The relatively low asset and loan growth rates and the decrease in deposits reflected the slow economic recovery in the state of Hawaii during 1996. The state's tourism industry improved due to increased visitor arrivals, but this improvement was negated by continued weakness in the construction industry. The Hawaiian economy is expected to grow modestly in 1997; however, a lack of significant improvement may continue to have an adverse impact on the Company's growth and levels of nonperforming loans and related loan losses.
Certain matters discussed in this Annual 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, partnership income and liquidity that involve certain risks and uncertainties. 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 and the 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, 1996.
RESULTS OF OPERATIONS
Net Interest Income
Table 1 sets forth information concerning average interest earning assets and interest-bearing liabilities and the yields and rates thereon, and Table 2 presents an analysis of changes in components of net interest income between years. Interest income, which includes loan fees, and resultant yield information presented in the table and discussed in this section are expressed on a taxable equivalent basis using an assumed income tax rate of 35%. Average balances were computed on a daily average basis. Investment securities are valued at amortized cost, and nonaccrual loans are included in total loans for purposes of computing yields.
Net interest income in 1996 of $62.8 million decreased by 0.8% from $63.3 million in 1995, which increased by 1.3% over $62.5 million in 1994.
Total interest income in 1996 of $104.5 million decreased by 3.2% from $108.0 million in 1995, which increased by 14.8% over the $94.1 million earned in 1994. The decrease in interest income in 1996 reflected the decrease in interest earning assets and lower yields compared to 1995. The increase in total interest income in 1995 over 1994 was due to volume increase and higher yields resulting from the increase in the general level of interest rates during 1994. Average interest earning assets of $1,285.1 million decreased by 1.0% from $1,297.7 million in 1995, which increased by 5.9% over the $1,225.1 million average in 1994. The average yield on interest earning assets decreased to 8.13% from 8.32% in 1995, which increased from 7.68% in 1994.
Interest and fees on loans of $88.3 million in 1996 decreased by 3.2% from $91.3 million in 1995, which increased by 15.5% over 1994. Average loans increased by 0.6% in 1996 and by 6.0% in 1995, while the average yield on loans was 8.74% in 1996 compared with 9.09% in 1995 and 8.34% in 1994. Interest on taxable and tax-exempt investment securities of $15.8 million in 1996 increased by 9.6% over 1995, which increased by 3.4% over 1994. The increases during the last two years were due to increases in average investment securities of 5.2% in 1996 and 1.0% in 1995 and in average yield which increased to 5.80% from 5.69% in 1995 and 5.55% in 1994. Interest on deposits in other banks decreased by $1.6 million or 79.1% due primarily to two large short-term deposits received from customers in 1995 which were invested in interest-bearing deposits in other banks or in Federal funds.
Interest expense in 1996 of $41.7 million decreased by 6.9% from $44.7 million in 1995, which increased by 41.6% over 1994. Despite the trend of deposit movement from savings and money market accounts into higher-yielding certificates of deposit, the decrease in effective rates paid on deposits in 1996 combined with the decrease in average interest-bearing liabilities by 2.5% from 1995 resulted in lower interest expense for 1996. The large increase in interest expense in 1995 was a result of the increase in the general level of interest rates in 1994 combined with the aforementioned deposit movement to certificates of deposit. Additionally, average interest-bearing liabilities in
Table 1. Average Balances, Interest Income and Expense, Yields and Rates
(Taxable Equivalent)
Year ended December 31,
1996 1995 1994
----------------------------- --------------------------- -----------------------------
Average Amount Average Amount Average Amount
Average Yield/ of Average Yield/ of Average Yield/ of
(Dollars in thousands) Balance Rate Interest Balance Rate Interest Balance Rate Interest
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Assets:
Interest earning assets:
Interest-bearing deposits in
other banks $ 7,924 5.28% $ 418 $ 34,224 5.84% $ 1,998 $ 24,673 4.27% $ 1,054
Federal funds sold 22 4.55 1 5,666 5.93 336 1,849 3.52 65
Taxable investment
securities<F1> 261,934 5.94 15,568 250,101 5.68 14,198 242,137 5.55 13,437
Tax-exempt investment
securities<F1> 4,917 4.47 220 3,631 5.76 209 8,984 5.48 492
Loans<F2> 1,010,255 8.74 88,310 1,004,094 9.09 91,260 947,433 8.34 79,043
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Total interest earning assets 1,285,052 8.13 104,517 1,297,716 8.32 108,001 1,225,076 7.68 94,091
Nonearning assets 74,678 79,019 80,625
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Total assets $1,359,730 $1,376,735 $1,305,701
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Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
Interest-bearing demand deposits $ 94,389 1.36% $ 1,284 $ 98,303 1.36% $ 1,335 $ 104,847 1.36% $ 1,423
Savings and money market deposits 392,603 2.80 10,977 414,988 3.12 12,940 459,282 2.45 11,264
Time deposits under $100,000 194,950 4.80 9,348 188,574 4.78 9,021 163,479 3.77 6,161
Time deposits $100,000 and over 266,821 5.16 13,755 249,215 5.44 13,564 184,427 3.61 6,661
Short-term borrowings 8,844 5.52 488 50,703 5.64 2,860 32,873 4.49 1,476
Long-term debt 96,741 6.02 5,827 79,942 6.29 5,025 76,277 6.05 4,615
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Total interest-bearing
liabilities 1,054,348 3.95 41,679 1,081,725 4.14 44,745 1,021,185 3.09 31,600
Noninterest-bearing deposits 153,288 152,002 152,941
Other liabilities 14,923 15,075 14,145
Stockholders' equity 137,171 127,933 117,430
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $1,359,730 $1,376,735 $1,305,701
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 62,838 $63,256 $62,491
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Net interest margin 4.89% 4.87% 5.10%
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<F1> At amortized cost.
<F2> Includes nonaccrual loans.
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1995 increased by 5.9% over 1994. The effective rate on interest-bearing liabilities was 3.95% in 1996 compared to 4.14% in 1995 and 3.09% in 1994.
As a result, net interest margin increased to 4.89% in 1996 from 4.87% in 1995, which decreased from 5.10% in 1994.
Provision and Allowance for Loan Losses
The provision for loan losses is determined by Management's ongoing evaluation of the loan portfolio and assessment of the ability of the allowance for loan losses ("Allowance") to cover inherent losses. The Company provided $2,500,000, $3,300,000 and $3,300,000 to the Allowance in 1996, 1995 and 1994, respectively. Net loan charge-offs of $3,220,000 in 1996 were comprised of $1,986,000 in loans secured by real estate, $554,000 in commercial and industrial loans and $680,000 in consumer loans. Net loan charge-offs were $1,440,000 in 1995 and $2,135,000 in 1994. Net loan charge-offs expressed as a percentage of average loans were 0.32%, 0.14% and 0.23% in 1996, 1995 and 1994, respectively. The increase in charge-offs in 1996 was mainly due to partial charge-offs on several residential mortgage loans and two commercial loans secured by real estate.
The Allowance expressed as a percentage of loans was 1.87% at December 31, 1996, and 2.04% and 1.84% at the previous two year-ends. The decrease in this ratio in 1996 was due to higher net loan charge-offs and the recent growth of the loan portfolio. Management believes that the current level of provision for loan losses is consistent with the state of Hawaii's relative economic stability experienced during the last three years. Delinquencies, bankruptcies and foreclosures occurring in 1996 were the result of past economic conditions which had been provided for in the Allowance in previous years. Notwithstanding the increase in nonperforming assets since 1992, the Company's net loan charge-offs have remained relatively low as a percentage of total loans. During the fourth quarter of 1996, higher than anticipated charge-offs were recorded, related primarily to planned foreclosures on residential mortgages and the deterioration of one borrower's financial condition, which prompted management to increase the provision for loan losses. Should current economic conditions continue, adverse effects on borrowers' financial situations and collateral values may negatively impact nonperforming assets, charge-offs and provision for loan losses.
Table 2. Analysis of Changes in Net Interest Income (Taxable Equivalent)
Year ended December 31,
1996 Compared to 1995 1995 Compared to 1994
------------------------------ ------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
------------------- -------------------
(Dollars in thousands) Volume Rate Net Change Volume Rate Net Change
- ----------------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Interest-bearing deposits in other banks $(1,536) $ (44) $(1,580) $ 408 $536 $944
Federal funds sold (335) -- (335) 134 137 271
Taxable investment securities 672 698 1,370 442 319 761
Tax-exempt investment securities 74 (63) 11 (293) 10 (283)
Loans 560 (3,510) (2,950) 4,726 7,491 12,217
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Total interest earning assets (565) (2,919) (3,484) 5,417 8,493 13,910
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Interest-bearing liabilities:
Interest-bearing demand deposits (53) 2 (51) (89) 1 (88)
Savings and money market deposits (698) (1,265) (1,963) (1,085) 2,761 1,676
Time deposits under $100,000 305 22 327 946 1,914 2,860
Time deposits $100,000 and over 958 (767) 191 2,339 4,564 6,903
Short-term borrowings (2,361) (11) (2,372) 801 583 1,384
Long-term debt 1,057 (255) 802 222 188 410
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Total interest-bearing liabilities (792) (2,274) (3,066) 3,134 10,011 13,145
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Net interest income $ 227 $ (645) $ (418) $2,283 $(1,518) $765
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Nonperforming Assets
Table 3 sets forth nonperforming assets, accruing loans which were delinquent for 90 days or more and restructured loans still accruing interest at the dates indicated.
Total nonperforming assets, accruing loans delinquent for 90 days or more, and restructured loans still accruing interest totaled $33,866,000 at December 31, 1996, compared to $20,977,000 at year-end 1995, an increase of 61.4%. Nonaccrual loans of $13,500,000 increased during 1996 from $3,583,000 in 1995 primarily due to four commercial real estate loans and several residential mortgage loans. A $1.6 million commercial loan secured by a retail/apartment complex and various other properties and a $6.0 million loan secured by commercial properties in Honolulu are in the workout process. Two loans totaling $2.7 million to a borrower are secured by residential properties, one of which is in the foreclosure process. Specific allocations for these loans have been made in the Allowance. Other real estate of $1,235,000 decreased from the $2,231,000 held at year-end 1995. Loans delinquent for 90 days or more of $6,313,000 decreased from $9,189,000 reported a year ago, primarily due to the transfer of a large commercial real estate loan to nonaccrual status. Delinquencies were primarily comprised of residential mortgage loans. Restructured loans still accruing interest totaled $12,818,000, increasing from $5,974,000 at year-end 1995, and were comprised of loans to three borrowers. Loans totaling $6.0 million to a borrower are secured by commercial property, loans totaling $3.8 million to another borrower are secured by commercial and residential properties, and loans totaling $3.0 million to the third borrower are secured by various commercial and residential properties, all of which had specific allocations in the Allowance.
Accounting for nonperforming assets is discussed in note 1 to the consolidated financial statements on pages 21 and 22 of this Annual Report.
Table 3. Nonperforming Assets, Past Due Loans and Restructured Loans
December 31,
(Dollars in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
Nonaccrual loans $13,500 $ 3,583 $16,056 $ 4,477 $ 5,478
Other real estate 1,235 2,231 2,242 1,750 296
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets 14,735 5,814 18,298 6,227 5,774
Loans delinquent for 90 days or more 6,313 9,189 12,872 19,820 7,383
Restructured loans still accruing interest 12,818 5,974 8,486 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets, loans delinquent for 90 days or more
and restructured loans still accruing interest $33,866 $20,977 $39,656 $26,047 $13,157
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets as a percentage of loans and other real estate 1.41% 0.59% 1.84% 0.66% 0.64%
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets and loans delinquent for 90 days or more
as a percentage of loans and other real estate 2.02% 1.51% 3.14% 2.75% 1.46%
- ------------------------------------------------------------------------------------------------------------------------------
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 3.25% 2.11% 3.99% 2.75% 1.46%
- ------------------------------------------------------------------------------------------------------------------------------
|
Other Operating Income
Table 4 sets forth components of other operating income and the total as a percentage of average assets.
Other operating income of $10,771,000 increased by 0.1% over 1995, which increased by 0.5% over 1994. Service charges on deposit accounts of $2,795,000 and other service charges and fees of $5,545,000 increased by 5.7% and 5.5%, respectively. Partnership income is derived from the Company's 50% investment in CKSS Associates, which owns the Company's headquarters building and the Kaimuki Plaza which was completed in the fourth quarter of 1994. The investment in partnership is discussed in note 7 to the consolidated financial statements on page 27 of this Annual Report. Partnership income totaled $681,000 in 1996, decreasing by 44.3% from 1995 due to depreciation and interest expense related to the Kaimuki Plaza and the effects of vacancies and declines in lease rates resulting from an oversupply of office space in the Honolulu area. Partnership income in 1995 decreased by 10.2% from 1994. Fees on foreign exchange of $876,000 in 1996 decreased by 17.4% mainly due to a reduction in volume. Forward foreign exchange contracts are discussed in note 1 to the consolidated financial statements on page 23 of this Annual Report. Other income of $880,000 increased by 70.2% due to a one-time credit of $191,000 in interest income on income tax refunds received.
Other Operating Expense
Table 5 sets forth components of other operating expense and the total as a percentage of average assets.
Total other operating expense of $47,552,000 in 1996 decreased by 0.3% from 1995, which increased by 0.7% over 1994. Salaries and employee benefits of $24,998,000 decreased by 2.8% from 1995, which increased by 2.1% over 1994. Contributing to the decrease was the revision of the defined benefit pension plan during the year which reduced pension expense by $484,000 or 31.7%. A bonus and other expenses related to the retirement of the chairman of the board in 1995 also contributed to the decrease in 1996. A nonrecurring expense was recognized in 1994 related to a special retirement bonus offered to qualifying individuals who elected to retire by April 1, 1994. Total costs of the voluntary early retirement program, which included the retirement bonus, accumulated vacation pay and related payroll taxes thereon, amounted to approximately $915,000, which the Company expected to recover by lowering salary and employee benefit levels.
Net occupancy expense of $6,833,000 in 1996 increased by 16.3% over 1995, which increased by 14.9% over 1994, primarily due to the opening of five branches during the last two years. Equipment expense of $2,690,000 increased by 5.7% in 1996 over 1995, which increased by 0.7% over 1994, primarily due to investments in personal computers related to additional locations and development of the Bank's communications network. Other expense of $13,031,000 decreased by 3.7% from 1995, which also decreased by 6.6% from 1994. FDIC deposit insurance premiums decreased by $1,242,000 and $1,158,000 in 1996 and 1995, respectively, due to the reduction in premium rate effective in June 1995. Charge card related expenses increased by $408,000 or 19.9% mainly due to an increase in interchange fees, and expenses related to legal, audit and professional services increased by $286,000 or 39.3%. Regulatory examination fees and consulting fees related to business recovery planning contributed to the increase.
Income Taxes
Income tax expense totaled $9,236,000 in 1996, compared to $9,034,000 in 1995 and $8,786,000 in 1994. The effective tax rate was 39.6%, 39.6% and 39.5%, respectively.
Table 4. Components of Other Operating Income
Year ended December 31,
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 2,795 $ 2,645 $2,750
Other service charges and fees 5,545 5,258 5,076
Partnership income 681 1,223 1,362
Fees on foreign exchange 876 1,060 980
Investment securities (losses) gains (6) 61 --
Other 880 517 540
- ----------------------------------------------------------------------------------------------------------
Total $10,771 $10,764 $10,708
- ----------------------------------------------------------------------------------------------------------
Total other operating income as a
percentage of average assets 0.79% 0.78% 0.82%
- -----------------------------------------------------------------------------------------------------------
|
Table 5. Components of Other Operating Expense
Year ended December 31,
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits $24,998 $25,728 $25,209
Net occupancy 6,833 5,873 5,112
Equipment 2,690 2,545 2,528
Other 13,031 13,533 14,483
- --------------------------------------------------------------------------------------------------------------------------
Total $47,552 $47,679 $47,332
- --------------------------------------------------------------------------------------------------------------------------
Total other operating expense as a
percentage of average assets 3.50% 3.46% 3.63%
- --------------------------------------------------------------------------------------------------------------------------
|
Financial Condition
Table 6 sets forth the distribution of assets, liabilities and stockholders' equity.
Average total assets of $1,359.7 million in 1996 decreased by $17.0 million or 1.2% from 1995, which increased by $71.0 million or 5.4% over 1994. Average loans of $1,010.3 million increased by $6.2 million or 0.6% and by $56.7 million or 6.0% in the respective periods. The recent performance of assets, loans and deposits reflected the level of economic activity in the state of Hawaii, compounded by increased competition. Average taxable and tax-exempt investment securities of $266.9 million increased by 5.2% over 1995, which increased by 1.2% over 1994. Interest-bearing deposits in other banks averaged $7.9 million in 1996, compared to $34.2 million in 1995 and $24.7 million in 1994.
Commercial and residential mortgage loans of $781.7 million at year-end 1996 increased by 9.4%, and consumer loans of $78.4 million increased by 16.7% compared to year-end 1995. Commercial loans of $142.4 million decreased by 14.1%, and construction loans of $43.7 million decreased by 9.2% during the same period. Note 4 to the consolidated financial statements on page 25 of this Annual Report sets forth loan information by category.
Average total deposits of $1,102.1 million in 1996 decreased by $1.0 million or 0.1% from 1995, which increased by $38.1 million or 3.6% over 1994. Average core deposits (noninterest-bearing demand, interest-bearing demand, savings, money market and time deposits under $100,000) of $835.2 million in 1996 decreased from $853.9 million in 1995 and $880.5 million in 1994. Average time deposits $100,000 and over increased to $266.8 million from $249.2 million in 1995 and $184.4 million in 1994, continuing the trend since 1994 of customers transferring funds into higher yielding deposits. Average short-term borrowings and long-term debt of $105.6 million in 1996 decreased by 19.2% from 1995, which increased by 19.7% over 1994. These funds were primarily comprised of $96.7 million, $79.9 million
Table 6. Distribution of Assets, Liabilities and Stockholders' Equity
Year ended December 31,
1996 1995 1994
----------------- ----------------- -----------------
Average Percent Average Percent Average Percent
(Dollars in thousands) Balance to Total Balance to Total Balance to Total
- --------------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 38,959 2.9% $ 40,633 2.9% $ 43,986 3.4%
Interest-bearing deposits in other banks 7,924 0.6 34,224 2.5 24,673 1.9
Federal funds sold 22 -- 5,666 0.4 1,849 0.1
Taxable investment securities 261,934 19.3 250,101 18.2 242,137 18.6
Tax-exempt investment securities 4,917 0.3 3,631 0.3 8,984 0.7
Loans 1,010,255 74.3 1,004,094 72.9 947,433 72.5
Allowance for loan losses (20,018) (1.5) (19,661) (1.4) (18,395) (1.4)
Premises and equipment 24,756 1.8 24,377 1.8 23,565 1.8
Other assets 30,981 2.3 33,670 2.4 31,469 2.4
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $1,359,730 100.0% $1,376,735 100.0% $1,305,701 100.0%
- --------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Deposits:
Noninterest-bearing demand $ 153,288 11.3% $ 152,002 11.0% $ 152,941 11.7%
Interest-bearing demand 94,389 6.9 98,303 7.1 104,847 8.0
Savings and money market 392,603 28.9 414,988 30.2 459,282 35.2
Time deposits under $100,000 194,950 14.3 188,574 13.7 163,479 12.5
Time deposits $100,000 and over 266,821 19.6 249,215 18.1 184,427 14.1
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 1,102,051 81.0 1,103,082 80.1 1,064,976 81.5
Short-term borrowings 8,844 0.7 50,703 3.7 32,873 2.5
Long-term debt 96,741 7.1 79,942 5.8 76,277 5.9
Other liabilities 14,923 1.1 15,075 1.1 14,145 1.1
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,222,559 89.9 1,248,802 90.7 1,188,271 91.0
Stockholders' equity 137,171 10.1 127,933 9.3 117,430 9.0
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $1,359,730 100.0% $1,376,735 100.0% $1,305,701 100.0%
- --------------------------------------------------------------------------------------------------------------------------------
|
and $76.3 million in advances from the Federal Home Loan Bank of Seattle ("FHLB") in 1996, 1995 and 1994, respectively. These advances provide medium- and long-term financing for loan customers.
Asset/Liability Management
The Company's net interest margin is subject to the risk of interest rate fluctuations to the extent that rate-sensitive assets and rate-sensitive liabilities mature or re-price during differing periods or in differing amounts. Asset/liability management is the coordination of the Company's rate-sensitive assets and rate sensitive liabilities to minimize interest rate risk while maintaining targeted levels of return, liquidity and capital.
The Company's asset/liability management policy is to minimize interest rate risk and optimize net interest margin by closely matching its level of rate-sensitive assets and rate-sensitive liabilities. The Company's asset/liability committee monitors interest rate risk through the use of income simulation and rate shock analyses. This process is designed to measure the impact of future changes in interest rates on net interest margin. Any identified exposures to net interest margin are managed through the shortening or lengthening of the duration of the Company's assets and/or liabilities. The Company's asset/liability management activities do not include the use of derivative financial instruments, such as interest rate swaps, futures or options.
Table 7 sets forth information concerning the interest rate sensitivity of the Company's assets, liabilities and stockholders' equity at December 31, 1996. The assumptions used in determining interest rate sensitivity of various asset and liability products had a significant impact on the resulting table. For purposes of this presentation, assets and liabilities are classified by the earliest re-pricing date or maturity. All interest-bearing demand and savings balances are included in the three months or less category, even though re-pricing of these accounts is not contractually required and may not actually occur during that period.
As shown in Table 7, the amount of liabilities being re-priced exceeds the amount of assets in the three months or less and the over three through six months categories. In the remaining time periods, re-pricing assets exceed re-pricing liabilities. Generally, where rate- sensitive liabilities exceed rate-sensitive assets, net interest margin is expected to be negatively impacted during periods of increasing interest rates and positively impacted during periods of decreasing interest rates. Accordingly, net interest margin improved slightly in 1996, when market interest rates declined. The Company's net interest margin during the last three years has also been adversely impacted by a slowdown in loan demand, competitive loan and deposit pricing and the reduction in core deposits.
Table 7. Rate Sensitivity of Assets, Liabilities and Stockholders' Equity
Over One
Over Over Six Year
Three Three Through Through Over
Months Through Twelve Three Three Nonrate
(Dollars in thousands) or Less Six Months Months Years Years Sensitive Total
- -----------------------------------------------------------------------------------------------------------------------------
Assets:
Interest-bearing deposits
in other banks $ 26,297 $ -- $ -- $ -- $ -- $ -- $ 26,297
Federal funds sold -- -- -- -- -- -- --
Investment securities 39,137 23,639 26,977 66,867 68,904 14,934 240,458
Loans 377,620 92,063 129,058 318,418 111,317 13,500 1,041,976
Other assets -- -- -- -- -- 94,434 94,434
- -----------------------------------------------------------------------------------------------------------------------------
Total assets 443,054 115,702 156,035 385,285 180,221 122,868 1,403,165
- -----------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Noninterest-bearing deposits -- -- -- -- -- 168,170 168,170
Interest-bearing deposits 662,102 122,141 118,225 51,411 1,565 -- 955,444
Short-term borrowings 1,427 3,000 1,000 -- -- -- 5,427
Long-term debt 55,674 135 12,276 16,188 31,567 -- 115,840
Other liabilities -- -- -- -- -- 17,402 17,402
Stockholders' equity -- -- -- -- -- 140,882 140,882
- -----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity 719,203 125,276 131,501 67,599 33,132 326,454 1,403,165
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $(276,149) $ (9,574) $ 24,534 $317,686 $ 147,089 $(203,586) $ --
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative interest rate sensitivity gap $(276,149) $(285,723) $(261,189) $ 56,497 $ 203,586 $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------
|
Capital Resources
The Company's objective is to maintain a level of capital that will support sustained asset growth and anticipated credit risks and to ensure that regulatory guidelines and industry standards are met. Regulations on capital adequacy guidelines adopted by the Board of Governors of the Federal Reserve System and the FDIC are as follows. In 1989, a risk-based capital framework was adopted consisting of capital comprised of a core capital component (Tier I), essentially common stockholders' equity, less intangible assets, and a supplemental component (Tier II), which includes the allowance for loan losses up to 1.25% of risk-weighted assets, and a system for assigning assets and off-balance sheet items to one of four risk-weighted categories. The capital standards require a minimum Tier I risk-based capital ratio of 4.00% and total risk-based capital ratio (Tier I plus Tier II) of 8.00%. The Federal Reserve Board and the FDIC have also adopted a 3.00% minimum leverage ratio which is Tier I capital as a percentage of total assets. Higher-risk banks as measured by the Federal regulatory rating system are expected to maintain capital well above the minimum leverage ratio requirement.
In addition, effective December 19, 1992, FDIC-insured institutions such as the Bank must maintain leverage, Tier I and total risk-based capital ratios of at least 5%, 6% and 10%, respectively, to be considered "well capitalized" under the prompt corrective action provisions of the FDIC Improvement Act of 1991.
Table 8 sets forth the Company's and Bank's capital ratios as of the dates indicated.
Capital levels for the Company and the Bank were well in excess of minimum regulatory required levels at December 31, 1996 and 1995. The relatively low rate of asset growth over the last three years, coupled with stable earnings, contributed to the excess.
Liquidity
The Company's objective in managing its liquidity is to maintain a balance between sources and uses of funds in order to most economically meet the cash requirements of customers for loans and deposit withdrawals and participate in investment and lending opportunities as they arise. Management monitors the Company's liquidity position in relation to trends of loan demand and deposit growth on a daily basis to assure maximum utilization and maintenance of an adequate level of readily marketable assets and access to short-term funding sources.
The consolidated statements of cash flows identify three major sources and uses of cash as operating, investing and financing activities. Cash generated from operations represents a major source of liquidity. As presented in the consolidated statements of cash flows on page 20 of this Annual Report, the Company's operating activities provided a stable source of cash totaling $22.5 million, $24.0 million and $24.4 million in 1996, 1995 and 1994, respectively.
Investing activities represent a use of cash, with the increase being attributed primarily to the growth of the Company's loan and investment securities portfolios. Net cash used in investing activities during 1996 amounted to $34.3 million, compared to $10.1 million in 1995 and $90.7 million in 1994. Net loan originations of $54.8 million in 1996 matched the 1994 level of $53.0 million, compared to $2.1 million in 1995. Activities from investment securities and interest-bearing deposits in other banks provided net cash of $22.8 million in 1996 compared to net cash used of $4.6 million in 1995 and $32.4 million in 1994.
In addition to cash flows from operating activities, financing activities generally provided funding for the growth in loans and investment securities with increased deposits supplemented by the Company's borrowing sources. The Company's borrowing sources have included short-term sources such as Federal funds purchased and securities sold under agreements to repurchase and longer-term FHLB advances.
Table 8. Regulatory Capital Ratios
December 31, 1996 December 31, 1995
------------------------- -------------------------
Required Actual Excess Required Actual Excess
- ----------------------------------------------------------------------------------------------------------------
Company:
Tier I risk-based capital ratio 4.00% 12.10% 8.10% 4.00% 12.35% 8.35%
Total risk-based capital ratio 8.00 13.35 5.35 8.00 13.61 5.61
Leverage capital ratio 3.00 10.28 7.28 3.00 9.61 6.61
- ----------------------------------------------------------------------------------------------------------------
Bank:
Tier I risk-based capital ratio 6.00% 11.27% 5.27% 6.00% 11.05% 5.05%
Total risk-based capital ratio 10.00 12.53 2.53 10.00 12.31 2.31
Leverage capital ratio 5.00 9.60 4.60 5.00 8.99 3.99
- ----------------------------------------------------------------------------------------------------------------
|
Except for 1995, deposits have been a net user of cash during the last three years, reflecting the lack of economic growth in the state of Hawaii. Deposits declined by $14.7 million in 1996 and $7.2 million in 1994 compared to an increase of $56.4 million in 1995. The composition of the Bank's deposits reflected a trend since 1994 of increases in certificates of deposit due to the attraction of higher interest rates. The increase in 1995 was primarily due to an increase in time deposits of $100,000 and over of approximately $57.0 million. The increase in such deposits was subject to the Bank's internal policy guidelines to minimize the risks associated with these types of deposit products. The Company's total borrowings increased by $36.7 million in 1996 after decreasing by $77.1 million in 1995 and increasing by $65.7 million in 1994. The increase in total borrowings in 1996 reflected the increase in loans originated and the decrease in deposits, usually a net cash provider. Accordingly, net cash provided by financing activities approximated $17.1 million in 1996 and $64.7 million in 1994, compared to the $25.2 million used in 1995.
The increase in loans outstanding was funded primarily by increases in borrowings from the FHLB. The Bank's core deposits of $859.3 million at December 31, 1996 decreased by 2.1%, and time deposits of $100,000 and over of $264.3 million increased by 1.5% from a year ago. Although the Company's liquidity was relatively stable during 1996, management's concern over the lack of deposit growth has caused the Bank to increase its branch network and place increased emphasis on marketing and sales efforts in order to enhance core deposit growth.
The primary uses of funds, as reflected in the Company's parent company condensed statements of cash flows, of approximately $5.1 million, $4.7 million and $4.6 million in 1996, 1995 and 1994, respectively, were for the payment of dividends. The Company's primary source of funds was dividends received from the Bank of approximately $5.1 million, $4.8 million and $4.6 million in 1996, 1995 and 1994, respectively. As presented in note 25 to the consolidated financial statements on page 36 of this Annual Report, the Bank's retained earnings, as defined, is the maximum amount permitted to be distributed as a dividend without prior regulatory approvals. At December 31, 1996, retained earnings of the Bank approximated $91.6 million.
Supplementary Financial Information
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
A summary of unaudited quarterly operating results for the years ended December 31, 1996 and 1995 follows:
(Dollars in thousands, except per share data) First quarter Second quarter Third quarter Fourth quarter Total - --------------------------------------------------------------------------------------------------------------------------- 1996: Interest income $26,375 $25,835 $25,848 $26,802 $104.287 Net interest income 15,786 15,681 15,504 15,637 62,608 Provision for loan losses 450 450 450 1,150 2,500 Net interest income after provision for loan losses 15,336 15,231 15,054 14,487 60,108 Income before income taxes 5,885 5,938 6,211 5,293 23,327 Net income 3,554 3,577 3,757 3,203 14,091 Net income per share 0.68 0.68 0.71 0.61 2.68 - --------------------------------------------------------------------------------------------------------------------------- 1995: Interest income $25,964 $27,458 $27,500 $26,800 $107,802 Net interest income 15,372 16,092 15,908 15,685 63,057 Provision for loan losses 825 825 825 825 3,300 Net interest income after provision for loan losses 14,547 15,267 15,083 14,860 59,757 Income before income taxes 5,694 5,840 6,143 5,165 22,842 Net income 3,442 3,523 3,711 3,132 13,808 Net income per share 0.66 0.67 0.71 0.60 2.64 - --------------------------------------------------------------------------------------------------------------------------- |
Consolidated Balance Sheets
CPB INC. AND SUBSIDIARY - DECEMBER 31, 1996 AND 1995
(Dollars in thousands, except per share data) 1996 1995
- ------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 55,534 $ 50,274
Interest-bearing deposits in other banks 26,297 7,140
Investment securities:
Held to maturity, at amortized cost (fair value of $109,288 and $137,347
at December 31, 1996 and 1995, respectively) 109,244 136,693
Available for sale, at fair value 131,214 146,934
- ------------------------------------------------------------------------------------------------------------
Total investment securities 240,458 283,627
- ------------------------------------------------------------------------------------------------------------
Loans 1,041,976 990,356
Less allowance for loan losses 19,436 20,156
- ------------------------------------------------------------------------------------------------------------
Net loans 1,022,540 970,200
- ------------------------------------------------------------------------------------------------------------
Premises and equipment 25,072 25,452
Accrued interest receivable 8,674 9,454
Investment in partnership 6,902 6,221
Due from customers on acceptances 1,162 1,443
Other assets 16,526 18,098
- ------------------------------------------------------------------------------------------------------------
Total assets $1,403,165 $1,371,909
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing deposits $ 168,170 $ 170,494
Interest-bearing deposits 955,444 967,825
- ------------------------------------------------------------------------------------------------------------
Total deposits 1,123,614 1,138,319
Short-term borrowings 5,427 3,497
Long-term debt 115,840 81,107
Bank acceptances outstanding 1,162 1,443
Other liabilities 16,240 15,036
- ------------------------------------------------------------------------------------------------------------
Total liabilities 1,262,283 1,239,402
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares, none issued -- --
Common stock, no par value, stated value $1.25 per share;
authorized 25,000,000 shares; issued and outstanding 5,268,874 and
5,251,762 shares at December 31, 1996 and 1995, respectively 6,586 6,565
Surplus 45,481 45,337
Retained earnings 89,405 80,370
Unrealized (loss) gain on investment securities, net of taxes (590) 235
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 140,882 132,507
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,403,165 $1,371,909
- ------------------------------------------------------------------------------------------------------------
|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Income
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 88,157 $91,134 $78,939
Interest and dividends on investment securities:
Taxable interest 14,454 13,336 12,632
Tax-exempt interest 143 136 298
Dividends 1,114 862 805
Interest on deposits in other banks 418 1,998 1,054
Interest on Federal funds sold 1 336 65
- ------------------------------------------------------------------------------------------------------------------------
Total interest income 104,287 107,802 93,793
- ------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 35,364 36,860 25,509
Interest on short-term borrowings 488 2,860 1,476
Interest on long-term debt 5,827 5,025 4,615
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 41,679 44,745 31,600
- ------------------------------------------------------------------------------------------------------------------------
Net interest income 62,608 63,057 62,193
Provision for loan losses 2,500 3,300 3,300
- ------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 60,108 59,757 58,893
- ------------------------------------------------------------------------------------------------------------------------
Other operating income:
Service charges on deposit accounts 2,795 2,645 2,750
Other service charges and fees 5,545 5,258 5,076
Partnership income 681 1,223 1,362
Fees on foreign exchange 876 1,060 980
Investment securities (losses) gains (6) 61 --
Other 880 517 540
- ------------------------------------------------------------------------------------------------------------------------
Total other operating income 10,771 10,764 10,708
- ------------------------------------------------------------------------------------------------------------------------
Other operating expense:
Salaries and employee benefits 24,998 25,728 25,209
Net occupancy 6,833 5,873 5,112
Equipment 2,690 2,545 2,528
Other 13,031 13,533 14,483
- ------------------------------------------------------------------------------------------------------------------------
Total other operating expense 47,552 47,679 47,332
- ------------------------------------------------------------------------------------------------------------------------
Income before income taxes 23,327 22,842 22,269
Income taxes 9,236 9,034 8,786
- ------------------------------------------------------------------------------------------------------------------------
Net income $ 14,091 $13,808 $13,483
- ------------------------------------------------------------------------------------------------------------------------
Per common share:
Net income $ 2.68 $ 2.64 $ 2.58
Cash dividends declared 0.96 0.92 $ 0.88
- ------------------------------------------------------------------------------------------------------------------------
|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Unrealized Employee
(loss) gain on stock ownership
investment plan shares
Common Retained securities, purchased
(Dollars in thousands, except per share data) stock Surplus earnings net of taxes with debt Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $6,538 $45,140 $62,510 $ -- $ (1,000) $113,188
Net income -- -- 13,483 -- -- 13,483
Cash dividends declared ($0.88 per share) -- -- (4,607) -- -- (4,607)
5,000 shares of common stock issued 6 38 -- -- -- 44
Net change in unrealized (loss) gain
on investment securities, net of taxes -- -- -- (1,505) -- (1,505)
Reduction of employee stock ownership plan
obligation guaranteed by Company -- -- -- -- 500 500
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 6,544 45,178 71,386 (1,505) (500) 121,103
Net income -- -- 13,808 -- -- 13,808
Cash dividends declared ($0.92 per share) -- -- (4,824) -- -- (4,824)
16,431 shares of common stock issued 21 159 -- -- -- 180
Net change in unrealized (loss) gain
on investment securities, net of taxes -- -- -- 1,740 -- 1,740
Reduction of employee stock ownership plan
obligation guaranteed by Company -- -- -- -- 500 500
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 6,565 45,337 80,370 235 -- 132,507
Net Income -- -- 14,091 -- -- 14,091
Cash dividends declared ($0.96 per share) -- -- (5,056) -- -- (5,056)
17,112 shares of common stock issued 21 144 -- -- -- 165
Net change in unrealized (loss) gain
on investment securities, net of taxes -- -- -- (825) -- (825)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $6,586 $45,481 $89,405 $ (590) $ -- $140,882
- ---------------------------------------------------------------------------------------------------------------------------
|
See accompanying notes to consolidated financial statements.
Consolidated Statements of Cash Flows
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $14,091 $13,808 $ 13,483
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 2,500 3,300 3,300
Provision for depreciation and amortization 2,716 2,574 2,386
Net amortization and accretion of investment securities 949 1,755 2,719
Net loss (gain) on investment securities 6 (61) --
Federal Home Loan Bank stock dividends received (1,114) (862) (1,216)
Net change in loans held for sale (655) 872 6,408
Deferred income tax (benefit) expense (1,121) (1,909) 4,068
Partnership income (681) (1,223) (1,362)
Decrease (increase) in accrued interest receivable and other assets 4,292 5,669 (6,306)
Increase in other liabilities 1,548 59 949
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,531 23,982 24,429
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from maturities of and calls on investment securities held to maturity 46,803 56,891 83,311
Purchases of investment securities held to maturity (20,306) (51,618) (56,550)
Proceeds from sales of investment securities available for sale 17,807 7,964 --
Proceeds from maturities of and calls on investment securities available for sale 33,991 4,171 79,334
Purchases of investment securities available for sale (36,341) (55,188) (103,218)
Net (increase) decrease in interest-bearing deposits in other banks (19,157) 33,137 (35,238)
Net loan originations over principal repayments (54,804) (2,089) (52,978)
Loans acquired in branch acquisition -- -- (2,656)
Purchases of premises and equipment (2,372) (4,116) (3,321)
Net proceeds from disposal of premises and equipment 36 307 --
Distributions from partnership -- 430 600
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (34,343) (10,111) (90,716)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net (decrease) increase in deposits (14,705) 56,410 (7,238)
Deposits acquired in branch acquisition -- -- 10,821
Proceeds from long-term debt 67,000 32,120 14,600
Repayments of long-term debt (32,267) (19,320) (27,174)
Net increase (decrease) in short-term borrowings 1,930 (89,875) 78,292
Cash dividends paid (5,051) (4,716) (4,606)
Proceeds from sale of common stock 165 180 44
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 17,072 (25,201) 64,739
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 5,260 (11,330) (1,548)
Cash and cash equivalents:
At beginning of year 50,274 61,604 63,152
- ---------------------------------------------------------------------------------------------------------------------------
At end of year $55,534 $50,274 $ 61,604
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $41,700 $46,589 $ 29,663
Cash paid during the year for income taxes 7,588 11,048 7,634
- ---------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of noncash investing and financing activities:
Transfer of held-to-maturity securities to available-for-sale category $ -- $18,331 $ 59,019
Reclassification of loans to other real estate 619 1,389 891
- ---------------------------------------------------------------------------------------------------------------------------
|
See accompanying notes to consolidated financial statements.
Notes to Consolidated Financial Statements
CPB INC. AND SUBSIDIARY - YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
CPB Inc.'s (the "Company's") sole operating subsidiary, Central Pacific Bank (the "Bank"), is a full-service commercial bank which had 26 banking offices located throughout the state of Hawaii at December 31, 1996. The Bank engages in a broad range of lending activities including the granting of commercial, consumer and real estate loans. The Bank also offers a variety of deposit instruments. These include personal and business checking and savings accounts, money market accounts and time certificates of deposit.
Other services include cash management services, merchant windows, traveler's checks, safe deposit boxes, international banking services, night depository facilities and wire transfer services. The Bank's Trust Division offers management, asset custody and general consultation and planning services.
The Bank's business depends on rate differentials which is the difference between the interest rate paid by the Bank on its deposits and other borrowings and the interest rate received by the Bank on loans extended to its customers and securities held in the Bank's portfolio. These rates are highly sensitive to many factors that are beyond the control of the Bank. Accordingly, the earnings and growth of the Company are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment.
Principles of Consolidation
The consolidated financial statements include the accounts of CPB Inc. and its wholly-owned subsidiary, Central Pacific Bank and its wholly-owned subsidiary, CPB Properties, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
CPB Properties, Inc. is a general partner with a 50 percent interest in CKSS Associates, a limited partnership. The investment in partnership is accounted for by the equity method.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers cash and cash equivalents to include cash and due from banks.
Investment Securities
The Company accounts for its investment securities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires that investments in debt securities and marketable equity securities be designated as trading, held to maturity or available for sale. Trading securities, of which the Company had none at December 31, 1996 and 1995, are reported at fair value, with changes in fair value included in earnings. Available-for-sale securities are reported at fair value, with net unrealized gains and losses, net of taxes, included as a separate component of stockholders' equity. Held-to-maturity debt securities are reported at amortized cost.
As of January 1, 1994, investment securities with a carrying value of $59,019,000 were reclassified to the available-for-sale portfolio, and a valuation allowance of $33,000 before income taxes was recorded thereon. The classification of investment securities as available for sale was made to provide management with the flexibility, under certain circumstances, to adjust the Company's liquidity and interest rate positions as necessary. Investment securities with a carrying value of $191,649,000 at January 1, 1994 were classified as held to maturity based on the Company's positive intent and ability to hold such securities to maturity.
In November 1995, the Financial Accounting Standards Board
("FASB") issued a special report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." In connection with the guidance provided in the special
report, the FASB indicated that an enterprise may reassess the
appropriateness of the classifications of all securities held at that
time and account for any resulting reclassifications at fair value in
accordance with the requirements of SFAS No. 115. Such
reclassifications were required to occur no later than December 31,
1995, and be disclosed in accordance with the requirements of SFAS No.
115. The guidance indicated that reclassification from the
held-to-maturity category that resulted from this one-time
reassessment would not call into question the intent of an enterprise
to hold other debt securities to maturity in the future.
In accordance with the implementation guidance provided in the special report, the Company transferred approximately $18,331,000 of investment securities previously classified as held to maturity to the available-for-sale category on December 27, 1995.
Gains and losses from the disposition of investment securities are computed using the specific identification method.
Loans
Loans are stated at the principal amount outstanding, net of unearned income. Unearned income represents net deferred loan fees which are recognized over the life of the related loan as an adjustment to yield.
Loans held for sale, consisting primarily of fixed-rate residential mortgage loans which were originated with the intent to sell, amounted to $8,547,00 and $7,892,000 at December 31, 1996 and 1995, respectively, and were valued at the lower of aggregate cost or market value.
Interest income on loans is generally recognized on an accrual basis. Loans are placed on nonaccrual status when interest payments are 90 days past due, or earlier should management determine that the borrowers will be unable to meet contractual principal and/or interest obligations, unless the loans are well-secured and in the process of collection. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income should management determine that the collectibility of such accrued interest is doubtful. All subsequent receipts are applied to principal outstanding, and no interest income is recognized unless the financial condition and payment record of the borrowers warrant such recognition. A nonaccrual loan may be restored to an accrual basis when principal and interest payments are current and full payment of principal and interest is expected.
Allowance for Loan Losses
The allowance for loan losses is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged off against the allowance, and all interest previously accrued but not collected is reversed against current period interest income. Subsequent receipts, if any, are credited first to the allowance as recoveries, then to any remaining principal and unaccrued interest.
Effective January 1, 1995, the Company adopted the provisions of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure." SFAS Nos. 114 and 118 address the accounting treatment of certain impaired loans. However, these statements do not address the overall adequacy of the allowance for loan losses and do not apply to large groups of smaller-balance homogeneous loans. The Company, considering current information and events regarding the borrower's ability to repay their 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 the 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. Interest income continues to be recognized on an accrual basis unless the loan is placed on nonaccrual status. Prior periods have not been restated.
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 inherent risks in the loan portfolio, current and projected economic conditions, and past loan loss experience. Delinquent installment loans other than charge card loans are charged off after 120 days, unless determined to be adequately collateralized or in imminent process of collection. Delinquent charge card loans are generally charged off within 180 days.
Premises and Equipment
Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are included in other operating expense and are computed under the straight-line method over the estimated useful lives of the assets or the applicable leases, whichever is shorter. Major improvements and betterments are capitalized, while recurring maintenance and repairs are charged to operating expense. Net gains or losses on dispositions of premises and equipment are included in other operating expense.
Intangible Assets
Intangible assets are carried at the lower of amortized cost or fair value and are included in other assets. Intangible assets totaled $491,000 and $477,000 at December 31, 1996 and 1995, respectively, and were comprised of mortgage servicing rights and deposit purchase premiums, which represent the excess of purchase price over the estimated fair value of net assets acquired from two branch acquisitions. Intangible assets are amortized on a straight-line basis over their estimated benefit periods. Amortization expense amounted to $114,000, $100,000 and $112,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Accumulated amortization amounted to $519,000 and $405,000 at December 31, 1996 and 1995, respectively.
Other Real Estate
Other real estate, included in other assets, is composed of properties acquired through foreclosure proceedings. Properties acquired through foreclosure are valued at fair value which establishes the new cost basis of other real estate. Losses arising at the time of acquisition of such properties are charged against the allowance for loan losses. Subsequent to acquisition, such properties are carried at the lower of cost or fair value less estimated selling expenses, determined on an individual asset basis. Any deficiency resulting from the excess of cost over fair value less estimated selling expenses is recognized as a valuation allowance. Any subsequent increase in fair value up to its new cost basis is recorded as a reduction of the valuation allowance. Increases or decreases in the valuation allowance and gains or losses recognized on the sale of these properties are included in other operating income or expense. Other real estate amounted to $1,235,000 and $2,231,000 at December 31, 1996 and 1995, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized using the liability method for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Forward Foreign Exchange Contracts
The Bank periodically is a party to a limited amount of forward foreign exchange contracts to satisfy customer requirements for foreign currencies. These contracts are not utilized for trading purposes and are carried at market value, with realized gains and losses included in fees on foreign exchange. Net (losses) gains for 1996, 1995 and 1994 were ($6,000), $0 and $6,000, respectively.
Use of Estimates
The Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. With respect to the allowance for loan losses, the Company believes the allowance for loan losses is adequate to provide for potential losses on loans and other extensions of credit, including off-balance sheet credit exposures. While the Company utilizes available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions, particularly in the state of Hawaii. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Accordingly, actual results could differ from those estimates.
Reclassifications
Certain amounts in the consolidated financial statements and notes thereto for the previous two years have been reclassified to conform with the current year's presentation. Such reclassifications had no effect on the Company's results of operations.
Accounting Changes
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
The Company adopted the provisions of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less estimated selling expenses. Adoption of SFAS No. 121 did not have a material impact on the Company's consolidated financial statements.
Mortgage Servicing Rights
The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No. 65," on January 1, 1996. SFAS No. 122 requires an entity engaged in mortgage banking activities to recognize as separate assets any rights to service mortgage loans for others based on their relative fair values, if it is practicable to estimate those fair values. SFAS No. 122 also requires a servicer to assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The adoption of SFAS No. 122 was not material to the consolidated financial statements of the Company. However, SFAS No. 122 could have a material impact on the Company's future consolidated financial statements should market conditions result in an increased volume of mortgage banking activities or the recognition of impairment valuation allowances.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1994 and future years as if the fair-value based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
2. RESERVE REQUIREMENTS
The Bank is required by the Federal Reserve Bank to maintain reserves based on the amount of deposits held. The amount held as a reserve at December 31, 1996 and 1995 was $27,453,000 and $18,831,000, respectively.
3. INVESTMENT SECURITIES
A summary of investment securities at December 31, 1996 and 1995
follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(Dollars in thousands) cost gains losses value
- ---------------------------------------------------------------------------------------------------------------------------
1996:
Held to Maturity:
U.S. Treasury and
other U.S.
Government agencies $100,153 $ 348 $ 320 $100,181
States and political
subdivisions 9,091 25 9 9,107
- ---------------------------------------------------------------------------------------------------------------------------
Total $109,244 $ 373 $ 329 $109,288
- ---------------------------------------------------------------------------------------------------------------------------
Available for Sale:
U.S. Treasury and
other U.S.
Government agencies $114,330 $ 168 $1,159 $113,339
States and political
subdivisions 2,784 7 -- 2,791
Private-issuer mortgage-
backed securities 148 2 -- 150
Federal Home Loan Bank
of Seattle stock 14,934 -- -- 14,934
- ---------------------------------------------------------------------------------------------------------------------------
Total $132,196 $ 177 $1,159 $131,214
- ---------------------------------------------------------------------------------------------------------------------------
1995:
Held to Maturity:
U.S. Treasury and
other U.S. Government
agencies $125,073 $ 980 $ 399 $125,654
States and political
subdivisions 11,620 82 9 11,693
- ----------------------------------------------------------------------------------------------------------------------------
Total $136,693 $ 1,062 $ 408 $137,347
- ----------------------------------------------------------------------------------------------------------------------------
Available for Sale:
U.S. Treasury and
other U.S. Government
agencies $129,331 $ 848 $ 480 $129,699
States and political
subdivisions 2,831 7 2 2,836
Private-issuer mortgage-
backed securities 560 18 -- 578
Federal Home Loan Bank of Seattle
stock 13,821 -- -- 13,821
- ----------------------------------------------------------------------------------------------------------------------------
Total $146,543 $ 873 $ 482 $146,934
- ----------------------------------------------------------------------------------------------------------------------------
|
The amortized cost and estimated fair value of investment securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized fair
(Dollars in thousands) cost value
- --------------------------------------------------------------------------------------------------
Held to Maturity:
Due in one year or less $30,243 $30,207
Due after one year through five years 62,364 62,319
Due after five years through ten years 8,028 8,037
Mortgage-backed securities 8,609 8,725
- --------------------------------------------------------------------------------------------------
Total $109,244 $109,288
- --------------------------------------------------------------------------------------------------
Available for Sale:
Due in one year or less $10,019 $10,038
Due after one year through five years 39,533 39,194
Due after five years through ten years 3,062 3,058
Mortgage-backed securities 64,648 63,990
Federal Home Loan Bank stock 14,934 14,934
- --------------------------------------------------------------------------------------------------
Total $132,196 $131,214
- --------------------------------------------------------------------------------------------------
|
Proceeds from sales of investment securities available for sale were $17,807,000 in 1996 and $7,964,000 in 1995, resulting in gross realized gains of $140,000 and $8,000 and gross realized losses of $146,000 and $7,000, respectively. Investment securities gains of $60,000 were also realized in 1995 as a result of call provisions exercised by issuers of $2,500,000 of investment securities classified as held to maturity. There were no sales of investment securities during the year ended December 31, 1994.
Investment securities of 155,650,000 and $150,453,000 at December 31, 1996 and 1995, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase and other short-term borrowings.
As a member of the Federal Home Loan Bank of Seattle ("FHLB"), the Bank is required to obtain and hold a specified number of shares of capital stock of the FHLB based on the amount of its outstanding FHLB advances. These shares are pledged to the FHLB as collateral to secure outstanding advances (see note 10).
4. LOANS
Loans consisted of the following at December 31, 1996 and 1995:
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------
Real estate:
Mortgage - commercial $ 432,567 $371,089
Mortgage - residential 349,129 343,118
Construction 43,710 48,131
Commercial, financial
and agricultural 142,365 165,812
Installment 78,431 67,210
- ------------------------------------------------------------
1,046,202 995,360
Unearned income 4,226 5,004
- ------------------------------------------------------------
Total $1,041,976 $990,356
- ------------------------------------------------------------
|
In the normal course of business, the Bank has made loans to certain directors, executive officers and their affiliates under terms consistent with the Bank's general lending policies. An analysis of the activity of such loans in 1996 follows:
(Dollars in thousands) - ---------------------------------------------------------- Balance, beginning of year $20,249 Additions 2,906 Repayments (2,688) Other changes (9,360) - ---------------------------------------------------------- Balance, end of year $11,107 - ---------------------------------------------------------- |
The amount of other changes includes loans sold during the year and the net change in loans due to entities that were not considered related parties for the entire year.
Impaired loans at December 31, 1996 and 1995, all of which had related allowance for loan losses established (see note 5), amounted to $24,044,000 and $8,567,000 respectively and included all nonaccrual and restructured loans greater than $500,000. The average recorded investment in impaired loans amounted to $11,292,000 in 1996 and $15,797,000 in 1995. Interest income recognized on such loans amounted to $1,714,000 in 1996 and $1,300,000 in 1995, of which $860,000 and $492,000, respectively, was earned on nonaccrual loans, and $854,000 and $715,000, respectively, was recorded on restructured loans still accruing interest.
Nonaccrual loans at December 31, 1996 and 1995 totaled 13,500,000, and $3,583,000, respectively. The Bank collected and recognized interest of $257,000 on nonaccrual loans in 1996. The Bank would have recognized additional interest income of $1,125,000 had these loans been accruing interest throughout 1996. Additionally, the Bank collected and recognized interest of $43,000 on charged-off loans in 1996.
Restructured loans still accruing interest at December 31, 1996 and 1995 amounted to $12,818,000 and $5,974,000, respectively. During 1996, the Bank recognized interest income of $975,000 on these loans in accordance with their original and restructured contractual terms.
Substantially all of the Bank's loans are to residents of, or companies doing business in, the State of Hawaii and are generally secured by personal assets, business assets, residential properties or income-producing or commercial properties.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
(Dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------
Balance, beginning of year $20,156 $18,296 $17,131
Provision for loan losses 2,500 3,300 3,300
- -------------------------------------------------------------------------------------------
22,656 21,596 20,431
- -------------------------------------------------------------------------------------------
Charge-offs (3,555) (1,821) (2,519)
Recoveries 335 381 384
- -------------------------------------------------------------------------------------------
Net charge-offs (3,220) (1,440) (2,135)
- -------------------------------------------------------------------------------------------
Balance, end of year $19,436 $20,156 $18,296
- -------------------------------------------------------------------------------------------
|
Changes in the allowance for loan losses for impaired loans (included in the above amounts) for 1996 and 1995 were as follows:
(Dollars in thousands) 1996 1995 - ----------------------------------------------------------- Balance, beginning of year $2,181 $ -- Provision for loan losses 872 584 Net charge-offs (1,981) (943) Other changes 4,805 2,540 - ------------------------------------------------------------ Balance, end of year $5,877 $2,181 - ------------------------------------------------------------ |
The amount of other changes represents the net transfer of allocated allowances for loans which were not classified as impaired for the entire year.
At December 31, 1996, $22,773,000 of impaired loans were measured based on the fair value of the underlying collateral, while $1,271,000 of impaired loans were measured based on the present value of expected future cash flows.
6. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31,
1996 and 1995:
(Dollars in thousands) 1996 1995
- ---------------------------------------------------------------------
Land $ 6,000 $ 6,000
Office buildings and leasehold
improvements 20,389 19,828
Furniture, fixtures and equipment 14,671 13,561
- ---------------------------------------------------------------------
41,060 39,389
Less accumulated depreciation and
amortization 15,988 13,937
- ---------------------------------------------------------------------
Net $25,072 $25,452
- ---------------------------------------------------------------------
|
Depreciation and amortization of premises and equipment were charged to the following operating expenses:
Useful
(Dollars in thousands) 1996 1995 1994 lives
- ---------------------------------------------------------------------------------------------------------
Net occupancy $ 995 $ 925 $ 787 1 to 35
years
Equipment 1,721 1,649 1,599 2 to 20
years
- ---------------------------------------------------------------------------------------------------------
Total $2,716 $2,574 $2,386
- ---------------------------------------------------------------------------------------------------------
|
7. INVESTMENT IN PARTNERSHIP
CPB Properties, Inc. is a general partner with a 50 percent interest in CKSS Associates, a limited partnership. The partnership developed an office building complex in Honolulu known as Central Pacific Plaza, part of which serves as the Company's headquarters. CPB Properties, Inc. contributed cash of $846,000 and land with a carrying value of $1,381,000. CPB Properties, Inc. recorded its contribution to the partnership at book value. The partnership has agreed to a value of $5,200,000 for the land and has credited the subsidiary with a contribution of $6,046,000. For accounting purposes, the difference between the $1,381,000 carrying value of the land and the $5,200,000 value of the land agreed upon by the partnership in determining the amount of the contribution would be recognized, if at all, only upon the sale of the subsidiary's interest in the partnership or upon the sale of the land and building by the partnership.
Financial information of CKSS Associates is summarized as follows:
CKSS Associates
Condensed Balance Sheets
December 31, 1996 and 1995
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------
Assets:
Office building
(including land valued at $5,200) $38,517 $39,521
Deferred costs 4,386 2,925
Other assets 2,241 862
- --------------------------------------------------------------------------------------------
Total assets $45,144 $43,308
- --------------------------------------------------------------------------------------------
Liabilities and Partners' Equity:
Notes payable $22,801 $22,500
Other liabilities 902 729
Partners' equity 21,441 20,079
- --------------------------------------------------------------------------------------------
Total liabilities and partners' equity $45,144 $43,308
- --------------------------------------------------------------------------------------------
|
CKSS Associates
Condensed Statements of Income
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------
Revenues:
Rental income from bank $2,162 $2,132 $1,925
Other rental income
and other revenues 6,438 5,173 5,603
- --------------------------------------------------------------------------------------------
Total revenues 8,600 7,305 7,528
Total costs and expenses 7,238 4,860 4,804
- --------------------------------------------------------------------------------------------
Net income $1,362 $2,445 $2,724
- --------------------------------------------------------------------------------------------
|
Notes Payable
At December 31, 1996, notes payable included $10,701,000 payable to The Sumitomo Bank, Limited ("Sumitomo"), the principal stockholder of CPB Inc., and $12,100,000 due to the Bank. The notes payable to Sumitomo, due on June 18, 2001, are secured by a mortgage on Central Pacific Plaza. The notes payable to the Bank include $10,700,000 due on August 10, 2001, which is secured by a mortgage on the Kaimuki Plaza, and $1,400,000 due on April 10, 2001, which is secured by second mortgages on the Central Pacific Plaza and Kaimuki Plaza properties. All loans are priced at 0.75% above the London Interbank Offered Rate ("LIBOR"). The weighted average interest rate on these notes was 6.3125% at December 31, 1996.
Operating Lease
In 1995 CKSS Associates completed its development of a four-story office building known as the Kaimuki Plaza in Kaimuki, on the island of Oahu, Hawaii, on land owned by CPB Properties, Inc. In 1992, CKSS Associates and CPB Properties, Inc. entered into a lease agreement effective from January 1, 1993 to December 31, 2047. This lease agreement has been accounted for as an operating lease. Fixed annual lease payments through 2007 are as follows:
1997 through 2002 $300,000 2003 through 2007 $360,000
Thereafter, and until the end of the lease term, minimum annual lease payments will be renegotiated to a rate not less than $360,000 per year. Lease rent paid to CPB Properties, Inc. totaled $300,000 during each of the years ended December 31, 1996 and 1995, and $250,000 during the year ended December 31, 1994.
8. DEPOSITS
Certificates of deposit of $100,000 or more totaled $264,334,000 and $260,254,000 at December 31, 1996 and 1995, respectively.
Interest expense on certificates of deposit of $100,000 or more totaled $13,755,000, $13,564,000 and $6,661,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
9. SHORT-TERM BORROWINGS
Federal funds purchased generally mature on the day following the date of purchase.
Securities sold under agreements to repurchase, with a weighted average contractual maturity of 214 days at December 31, 1996, were treated as financings, and the obligations to repurchase the identical securities sold were reflected as a liability with the dollar amount of securities underlying the agreements
remaining in the asset accounts. At December 31, 1996, the underlying securities were held in a custodial account subject to Bank control.
Other short-term borrowings consist primarily of the Treasury Tax and Loan balance, which represents tax payments collected on behalf of the U.S. government, and FHLB short term advances. The Treasury Tax and Loan balances bear market interest rates and are callable at any time.
A summary of short-term borrowings follows:
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------
Federal funds purchased:
Amount outstanding at
December 31 $ -- $ -- $ --
Average amount outstanding
during year 4,589 3,296 282
Highest month-end balance
during year 8,000 42,000 11,000
Weighted average interest rate
on balances outstanding
at December 31 -- -- --
Weighted average interest rate
during year 5.48% 5.93% 4.82%
- --------------------------------------------------------------------------------------------------
Securities sold under agreements
to repurchase:
Amount outstanding at
December 31 $ 4,400 $ 2,500 $67,355
Average amount outstanding
during year 2,433 45,357 29,533
Highest month-end balance
during year 4,400 68,483 67,355
Weighted average interest rate
on balances outstanding
at December 31 5.32% 5.69% 5.05%
Weighted average interest rate
during year 5.62 5.63 4.42
- --------------------------------------------------------------------------------------------------
Other short-term borrowings:
Amount outstanding at
December 31 $ 1,027 $ 997 $26,017
Average amount outstanding
during year 1,822 2,050 3,058
Highest month-end balance
during year 21,003 6,000 26,017
Weighted average interest rate
on balances outstanding
at December 31 5.11% 5.16% 6.74%
Weighted average interest rate
during year 5.50 5.44 5.13
- --------------------------------------------------------------------------------------------------
|
10. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consisted of intermediate-term FHLB advances with a weighted average interest rate of 5.875% and 6.204%, respectively. FHLB advances are secured by the Bank's holdings of stock of the FHLB, other unencumbered investment securities and certain real estate loans in accordance with the collateral provisions of the Advances, Security and Deposit Agreement between the Bank and the FHLB. At December 31, 1996 the Bank had available to it additional unused FHLB advances of approximately $9,600,000.
At December 31, 1996, approximate maturities of FHLB advances were as follows:
(Dollars in thousands)
- ---------------------------------------------------------------------
Year ending December 31:
1997 $ 33,085
1998 25,577
1999 25,611
2000 10,235
2001 6,017
Thereafter 15,315
- ---------------------------------------------------------------------
Total $115,840
- ---------------------------------------------------------------------
|
11. EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has an employee stock ownership plan ("ESOP") and related trust covering substantially all full-time employees with at least one year of service. Normal vesting occurs at the rate of 20 percent per year starting the second year of participation. The Bank made contributions of $1,199,000, $1,195,000 and $1,164,000 for 1996, 1995 and 1994, respectively, which were charged to salaries and employee benefits.
On November 8, 1991, with the approval of the boards of directors of the Company and the Bank, the trust purchased 125,000 shares of newly issued common stock of the Company. The purchase was made with cash obtained through a four-year term loan for $2,000,000 from Sumitomo, $500,000 in existing funds held in the ESOP trust account and $350,000 in Bank contributions. A portion of the shares purchased was pledged as security for the loan.
The Company guaranteed repayment of the loan, and the Bank was obligated to make cash contributions to the trust in amounts sufficient to enable the trust to make four annual principal payments of $500,000 plus interest on the loan. The interest rate floated at LIBOR plus 1 percent, for periods of 3, 6, or 12 months at the option of the borrower.
For financial reporting purposes, the ESOP loan was recorded as a liability, and stockholders' equity was reduced by a like amount. As principal payments were made, the liability was reduced and stockholders' equity was increased by the amounts paid. The ESOP loan was paid in full in November 1995.
12. STOCK OPTION PLAN
On November 7, 1986, the Company adopted the CPB Inc. 1986 Stock Option Plan ("Stock Option Plan") for the purpose of granting stock options to directors, officers and other key individuals. On April 28, 1992, the stockholders of the Company approved an amendment to the Stock Option Plan which increased to 520,000 the number of shares available for issuance upon the exercise of stock options granted.
Options are granted with an exercise price equal to the stock's fair market value at the date of the grant. All options have 10 year terms and vest at the rate of 20 percent per year.
During 1995, options to purchase 69,600 shares were granted. There were no options granted in 1996 or 1994.
The per share weighted-average fair value of options granted during 1995 was $9.07 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: expected dividend yield of 3.07%, expected volatility of 30%, risk-free interest rate of 6.10% and expected life of 7.5 years.
The Company applied APB Opinion No. 25 in accounting for its Stock Option Plan, and accordingly, no compensation cost was recognized for its options in the consolidated financial statements. Had the Company determined compensation cost based on the fair values at the date of grant for its options under SFAS No. 123, the Company's net income and net income per share would have been reduced to the pro forma amounts indicated below:
(Dollars in thousands, except per share data) 1996 1995 1994 - ----------------------------------------------------------------- As reported: Net income $14,091 $13,808 $13,483 Net income per share 2.68 2.64 2.58 Pro forma: Net income 13,977 13,751 13,483 Net income per share 2.65 2.62 2.58 - ----------------------------------------------------------------- |
Pro forma net income and net income per share reflects only those options granted in 1995. Therefore, the full impact of calculating compensation cost for options under SFAS No. 123 is not reflected in the pro forma net income and net income per share amounts presented above because compensation cost is reflected over the options' vesting period of five years and compensation cost for options granted prior to January 1, 1994 is not considered.
At December 31, 1996, stock options to purchase 148,013 shares of the Company's common stock were outstanding, of which 84,889 shares were exercisable. These options expire ten years after the grant date. The option price on 23,288 shares is $14.32, on 62,725 shares is $25.45 and on the remaining 62,000 shares is $26.08. These option prices were based on the fair market value of the common stock on the dates granted. During the year ended December 31, 1996, options on 17,112 shares of the Company's common stock were exercised for a total of 179,347 shares exercised through December 31, 1996.
The Stock Option Plan expired on November 7, 1996, and no new options will be granted under this plan. Outstanding options may be exercised by optionees until the expiration of the respective options in accordance with the original terms of the Stock Option Plan.
13. SHARE PURCHASE AGREEMENT
On December 16, 1986, the stockholders of the Company ratified a Share Purchase Agreement which gives Sumitomo the right to purchase newly issued common stock of the Company for the purpose of maintaining its pro rata ownership interest in the Company. Pursuant to the agreement, warrants were issued giving Sumitomo the right to purchase 35,025 shares at fair market value (at the time such warrants are exercised), contingent upon the exercise of stock options by the optionees. Warrants for 14,778 shares were exercised in September 1991 at $24.375 per share. Warrants for an additional 13,775 shares were exercisable as of December 31, 1996, subject to the approval of the Federal Reserve Board. Warrants for the remaining 6,472 shares, which expire on June 14, 2006, will be exercisable as stock options are exercised by the optionees. No warrants were exercised during the three-year period ended December 31, 1996.
14. PENSION PLANS
The Bank has a defined benefit retirement plan covering substantially all of its employees. The pension plan was curtailed in 1986, and accordingly, plan benefits were fixed as of that date. The Bank also had a money purchase pension plan which covered all full-time employees with at least one year of service. This plan was terminated in 1991 as part of a review of the employee benefits program. Participants in the money purchase pension plan became fully vested at the time of termination.
Effective January 1, 1991, the Bank reactivated its defined benefit retirement plan to address changes brought about by the Omnibus Reconciliation Act of 1990 and to provide a more competitive employee benefit program. As a result of the reactivation, employees for whom benefits became fixed in 1986 continued to accrue additional benefits under the new formula that became effective on January 1, 1991. Employees who were not participants at curtailment, but were subsequently eligible to join, became participants effective January 1, 1991. Under the reactivated plan, benefits are based upon the employees' years of service and their highest average annual salaries in a 60-consecutive-month period of service, reduced by benefits provided from the Bank's terminated money purchase pension plan. The reactivation of the defined benefit retirement plan on January 1, 1991 resulted in an increase of $5,914,000 in the unrecognized prior service cost, which is being amortized over a period of 13 years.
Effective September 1, 1996, the Bank revised the benefit calculations under the defined benefit retirement plan reducing benefit levels to 0.75% per year of service from 1.50% per year. This revision resulted in a $3,623,000 reduction in unrecognized prior service cost.
The following table sets forth the plan's funded status and amounts recognized in the consolidated balance sheets at December 31, 1996 and 1995:
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Estimated present value of vested benefits $(19,232) $(18,436)
Estimated present value of nonvested benefits (323) (339)
- -----------------------------------------------------------------------------------------
Accumulated benefit obligations (19,555) (18,775)
Value of future pay increases (705) (5,353)
- -----------------------------------------------------------------------------------------
Projected benefit obligations (20,260) (24,128)
Plan assets at fair value 19,872 18,835
- -----------------------------------------------------------------------------------------
Projected benefit obligations in excess of
plan assets (388) (5,293)
Unrecognized prior service cost 256 4,334
Unrecognized net loss resulting from changes
in plan experience and actuarial
assumptions 3,740 4,811
Unrecognized net asset being recognized
over 15 years (182) (228)
- -----------------------------------------------------------------------------------------
Prepaid pension cost included in other assets $ 3,426 $ 3,624
- -----------------------------------------------------------------------------------------
Actuarial assumptions:
Weighted average discount rate 7.75% 7.50%
Weighted average rate
of compensation increase 5.00 5.00
- -----------------------------------------------------------------------------------------
|
Net pension cost for the years ended December 31, 1996, 1995 and 1994 included the following components:
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------
Service cost $ 654 $ 739 $ 893
Interest cost 1,479 1,597 1,518
Actual (gain) loss on plan assets (1,463) (2,801) 899
Net amortization and deferral 371 1,989 (1,759)
- --------------------------------------------------------------------------------------------
Net pension cost $ 1,041 $ 1,524 $ 1,551
- --------------------------------------------------------------------------------------------
Actuarial assumptions:
Weighted average discount rate 7.50% 8.00% 6.90%
Weighted average rate
of compensation increase 5.00 5.00 5.00
Expected long-term rate of
return on plan assets 9.00 9.00 9.00
- --------------------------------------------------------------------------------------------
|
In January 1995, the Bank established a Supplemental Executive Retirement Plan ("SERP") which provides certain officers of the Bank with supplemental retirement benefits in excess of limits imposed on qualified plans by Federal tax law.
The following table sets forth the plan's unfunded status and amounts recognized in the consolidated balance sheets at December 31, 1996 and 1995:
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Estimated present value of vested benefits $456 $473
Estimated present value of nonvested benefits 97 70
- --------------------------------------------------------------------------
Accumulated benefit obligations 553 543
Value of future pay increases 17 78
- --------------------------------------------------------------------------
Projected benefit obligations 570 621
Unrecognized net loss (gain) 40 (37)
Net transition liability (54) (82)
- --------------------------------------------------------------------------
Accrued pension cost included
in other liabilities $556 $502
- --------------------------------------------------------------------------
|
Components of net periodic pension cost for the years ended December 31, 1996 and 1995 are provided below:
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------
Service cost $ 24 $ 37
Interest cost 47 41
Net amortization and deferral (17) 424
- --------------------------------------------------------------------------
Net pension cost $ 54 $502
- --------------------------------------------------------------------------
|
Actuarial assumptions, including weighted average discount rates and rates of compensation increase, were consistent with the rates used for the defined benefit retirement plan.
15. PROFIT SHARING AND 401(K) PLANS
The Bank's profit sharing plan covers substantially all employees with at least one year of service. The board of directors has sole discretion in determining the annual contribution to the plan, subject to limitations of the Internal Revenue Code. Employees may elect to receive up to 50% of their annual allocation in cash. The Bank made contributions of $810,000, $793,000 and $784,000 for 1996, 1995 and 1994, respectively.
Effective March 31, 1996, the profit sharing plan was merged with an existing employee-funded 401(k) plan which allows employees to direct their own investments. Effective September 1, 1996, the Bank instituted a 50% employer- matching program for the 401(k) plan, contributing up to 2% of qualifying employees' salaries. Bank contributions to the 401(k) plan in 1996 totaled $88,000.
16. OPERATING LEASES
The Bank occupies a number of properties under leases which expire on various dates through 2019 and, in most instances, provide for renegotiation of rental terms at fixed intervals. These leases generally contain renewal options for periods ranging from 5 to 20 years.
Total rent expense represents gross rent expense less the net operating income from Company-owned properties of $577,000, $1,092,000 and $1,038,000 for 1996, 1995 and 1994, respectively.
Net rent expense, charged to net occupancy expense, for all operating leases is summarized as follows:
(Dollars in thousands) 1996 1995 1994 - ----------------------------------------------------------------------- Total rent expense $5,510 $4,668 $4,037 Less sublease rental income (205) (89) (83) - ----------------------------------------------------------------------- Net $5,305 $4,579 $3,954 - ----------------------------------------------------------------------- |
The following is a schedule of future minimum rental commitments for all noncancellable operating leases that had initial lease terms in excess of one year at December 31, 1996:
Less
sublease Net
Rental rental rental
(Dollars in thousands) commitment income commitment
- -------------------------------------------------------------------------
Year ending December 31:
1997 $ 3,577 $(182) $ 3,395
1998 3,292 (172) 3,120
1999 3,063 (167) 2,896
2000 2,910 (105) 2,805
2001 2,714 (59) 2,655
Thereafter 14,609 (18) 14,591
- -------------------------------------------------------------------------
Total $30,165 $(703) $29,462
- -------------------------------------------------------------------------
|
Rental commitments include $16,886,000 in commitments to CKSS Associates by the Bank for office space in the Central Pacific and Kaimuki Plazas.
In addition, the Bank and CPB Properties, Inc. lease certain properties that they own. The following is a schedule of future minimum rental income for those noncancellable operating leases that had initial lease terms in excess of one year at December 31, 1996:
1997 $ 1,053
1998 953
1999 892
2000 811
2001 598
Thereafter 16,973
- ---------------------------------------
Total $21,280
- ---------------------------------------
|
In instances where the lease calls for a renegotiation of rental payments, the lease rental payment in effect prior to renegotiation was used throughout the remaining lease term.
17. OTHER EXPENSE
Components of other expense for the years ended December 31, 1996, 1995 and 1994 were as follows:
(Dollars in thousands) 1996 1995 1994 - ----------------------------------------------------------------- Charge card $ 2,455 $ 2,047 $ 1,827 Advertising 1,160 1,200 1,200 Computer software 1,115 1,008 750 Stationery and supplies 1,044 953 1,099 Insurance 316 1,580 2,723 Other 6,941 6,745 6,884 - ----------------------------------------------------------------- Total $13,031 $13,533 $14,483 - ----------------------------------------------------------------- |
18. INCOME AND FRANCHISE TAXES
Components of income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 were as follows:
(Dollars in thousands) Current Deferred Total
- -------------------------------------------------------------------------------------------------
1996:
Federal $ 8,387 $ (874) $7,513
State 1,970 (247) 1,723
- -------------------------------------------------------------------------------------------------
Total $10,357 $(1,121) $9,236
- -------------------------------------------------------------------------------------------------
1995:
Federal $ 9,025 $(1,676) $7,349
State 1,918 (233) 1,685
- -------------------------------------------------------------------------------------------------
Total $10,943 $(1,909) $9,034
- -------------------------------------------------------------------------------------------------
1994:
Federal $ 3,920 $ 3,225 $7,145
State 798 843 1,641
- -------------------------------------------------------------------------------------------------
Total $ 4,718 $ 4,068 $8,786
- -------------------------------------------------------------------------------------------------
|
Income tax expense amounted to $9,236,000, $9,034,000 and $8,786,000 for 1996, 1995 and 1994, respectively. Income tax expense for the periods presented differed from the "expected" tax expense (computed by applying the U.S. Federal corporate tax rate of 35 percent to income before income taxes) for the following reasons:
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------
Computed "expected"
tax expense $8,164 $7,995 $7,794
Increase (decrease) in taxes
resulting from:
Tax-exempt interest (192) (147) (194)
State franchise tax, net of
Federal income tax benefit 1,120 1,095 1,067
Other 144 91 119
- -----------------------------------------------------------------------------------------
Total $9,236 $9,034 $8,786
- -----------------------------------------------------------------------------------------
|
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 were as follows:
(Dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 6,338 $6,537
Employee retirement benefits 1,471 855
Interest on nonaccrual loans 973 341
Accrued expenses 726 299
State franchise tax 639 469
Deferred finance fees 303 340
Other 108 60
- -------------------------------------------------------------------------------------------------
Total deferred tax assets 10,558 8,901
- -------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred gain on curtailed retirement plan 2,771 2,759
FHLB stock dividends received 2,115 1,663
Investment in unconsolidated subsidiary 1,263 974
Net deferred gain on investment securities 567 836
Premises and equipment, principally
due to differences in depreciation 365 615
Accreted discounts receivable 300 486
Other 137 200
- -------------------------------------------------------------------------------------------------
Total deferred tax liabilities 7,518 7,533
- -------------------------------------------------------------------------------------------------
Net deferred tax assets $ 3,040 $1,368
- -------------------------------------------------------------------------------------------------
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. There was no valuation allowance for deferred tax assets as of December 31, 1996 and 1995.
19. NET INCOME PER COMMON SHARE
Net income per common share is calculated by dividing net income by the weighted average number of shares outstanding of 5,265,000, 5,240,000 and 5,234,000 in 1996, 1995 and 1994, respectively. Stock options and share purchase agreement warrants are considered common stock equivalents for purposes of per-share data but have been excluded from the computation since the dilutive effect is not material.
20. BRANCH ACQUISITION
In February 1994, the Bank acquired certain assets, including $2,656,000 in loans, and assumed certain liabilities, including $10,821,000 in deposits, of First Hawaiian Bank's Rice Branch in Lihue, Kauai. The acquisition was accounted for using the purchase method of accounting.
21. CONTINGENT LIABILITIES AND OTHER COMMITMENTS
The Company and its subsidiary are involved in legal actions arising in the ordinary course of business. Management, after consultation with legal counsel, believes the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial statements.
In the normal course of business, there are outstanding contingent liabilities and other commitments, such as unused letters of credit, items held for collection and unsold traveler's checks, which are not reflected in the accompanying consolidated financial statements. Management does not anticipate any material losses as a result of these transactions.
22. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees written, and forward foreign exchange contracts. Those instruments involve, to varying degrees, elements of credit, interest rate and foreign exchange risk in excess of the amounts recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual amount of those instruments. For forward foreign exchange contracts, the contract amounts do not represent exposure to credit loss. The Bank controls the credit risk of its forward foreign exchange contracts through credit approvals, limits and monitoring procedures. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
At December 31, 1996 and 1995 financial instruments with off-balance sheet risk were as follows:
Contract or notional
amount
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $359,819 $351,072
Standby letters of credit and
financial guarantees written 16,477 22,336
- -----------------------------------------------------------------------------------------
Financial instruments whose contract
amounts exceed the amount of credit risk:
Forward foreign exchange contracts $ 164 $ 665
- -----------------------------------------------------------------------------------------
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral supporting those commitments for which collateral is deemed necessary.
Forward foreign exchange contracts represent commitments to purchase or sell foreign currencies at a future date at a specified price. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in foreign currency exchange rates.
23. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," as amended by SFAS No. 119, requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments.
December 31, 1996 December 31, 1995
------------------------ ------------------------
Carrying/ Carrying/
notional Estimated notional Estimated
(Dollars in thousands) amount fair value amount fair value
- -------------------------------------------------------------------------------------------------------------------
Financial assets:
Cash and due from banks $ 55,534 $ 55,534 $ 50,274 $ 50,274
Interest-bearing deposits in other banks 26,297 26,297 7,140 7,140
Investment securities 240,458 240,502 283,627 284,281
Loans 1,041,976 1,039,618 990,356 990,653
Accrued interest receivable 8,674 8,674 9,454 9,454
Due from customers on acceptances 1,162 1,162 1,443 1,443
Financial liabilities:
Deposits:
Noninterest-bearing deposits 168,170 168,170 170,494 170,494
Interest-bearing demand and savings deposits 492,017 492,017 515,242 515,242
Time deposits 463,427 461,433 452,583 453,780
Total deposits 1,123,614 1,121,620 1,138,319 1,139,516
Short-term borrowings 5,427 5,427 3,497 3,497
Long-term debt 115,840 115,104 81,107 81,343
Bank acceptances outstanding 1,162 1,162 1,443 1,443
Accrued interest payable (included in other liabilities) 4,893 4,893 4,914 4,914
Off-balance sheet financial instruments:
Commitments to extend credit 359,819 1,106 351,072 1,308
Standby letters of credit and financial
guarantees written 16,477 124 22,336 168
Forward foreign exchange contracts 164 -- 666 6
- ---------------------------------------------------------------------------------------------------------------------------
|
Short-Term Financial Instruments
The carrying values of short-term financial instruments are deemed to approximate fair values. Such instruments are considered readily convertible to cash and include cash and due from banks, interest-bearing deposits in other banks, accrued interest receivable, due from customers on acceptances, short-term borrowings, bank acceptances outstanding and accrued interest payable.
Investment Securities
The fair value of investment securities is based on market price quotations received from securities dealers. Where quoted market prices are not available, fair values are based on quoted market prices of comparable securities. The equity investment in common stock of the FHLB, which is redeemable for cash at par value, is reported at its par value.
Loans
The fair value of loans is estimated based on discounted cash flows of portfolios of loans with similar financial characteristics including the type of loan, interest terms and repayment history. The fair value of loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loans. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information.
Deposit Liabilities
The fair values of deposits with no stated maturity, such as noninterest-bearing demand deposits and interest-bearing demand and savings accounts, are equal to the amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
Long-Term Debt
The fair value of FHLB advances is estimated by discounting scheduled cash flows over the contractual borrowing period at the estimated market rate for similar borrowing arrangements.
Off-Balance Sheet Financial Instruments
The fair values of off-balance sheet financial instruments are estimated based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties, current settlement values or quoted market prices of comparable instruments.
Limitations
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-bal- ance sheet financial instruments without attempting to estimate the value of future business and the value of assets and liabilities that are not considered financial instruments. For example, significant assets and liabilities that are not considered financial assets or liabilities include deferred tax assets, premises and equipment and intangible assets. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.
24. DECLARATION OF DIVIDENDS
The board of directors, at a special meeting held on December 16, 1996, declared a fourth quarter cash dividend of $0.24 per share, in addition to the three quarterly cash dividends previously declared, for a total of $0.96 per share for the year ended December 31, 1996.
25. PARENT COMPANY AND REGULATORY RESTRICTIONS
At December 31, 1996, retained earnings of the parent company, CPB Inc., included $91,494,000 of equity in undistributed income of the Bank.
The Bank, as a Hawaii state-chartered bank, is prohibited from declaring or paying dividends greater than its retained earnings. As of December 31, 1996, retained earnings of the Bank totaled $91,567,000.
Section 131 of the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") required the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Comptroller of the Currency and the Office of Thrift Supervision (collectively, the "Agencies") to develop a mechanism to take prompt corrective action to resolve the problems of insured depository institutions. The final rules to implement FDICIA's Prompt Corrective Action provisions established minimum regulatory capital standards to determine an insured depository institution's capital category. However, the Agencies may impose higher minimum standards on individual institutions or may downgrade an institution from one capital category to a lower capital category because of safety and soundness concerns.
The Prompt Corrective Action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions become increasingly more severe as an institution's capital category declines from undercapitalized to critically undercapitalized. As of December 31, 1996 and 1995, the Bank's regulatory capital ratios exceeded the minimum thresholds for a well-capitalized institution.
The following table sets form actual and required capital and capital ratios for the Company and the Bank as of the dates indicated:
Required
for capital Required to be
Actual adequacy purposes well-capitalized
------------------- ------------------ -----------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------
Company:
As of December 31, 1996:
Tier I leverage capital $141,391 10.28% $55,012 4.00% $ 68,766 5.00%
Tier I risk-based capital 141,391 12.10 46,745 4.00 70,117 6.00
Total risk-based capital 156,058 13.35 93,490 8.00 116,862 10.00
As of December 31, 1995:
Tier I leverage capital 131,795 9.61 54,587 4.00 68,572 5.00
Tier I risk-based capital 131,795 12.35 42,686 4.00 64,029 6.00
Total risk-based capital 145,219 13.61 85,372 8.00 106,716 10.00
- ---------------------------------------------------------------------------------------------------------------
Bank:
As of December 31, 1996:
Tier I leverage capital $131,534 9.60% $54,806 4.00% $ 68,508 5.00%
Tier I risk-based capital 131,534 11.27 46,679 4.00 70,018 6.00
Total risk-based capital 146,181 12.53 93,358 8.00 116,697 10.00
As of December 31, 1995:
Tier I leverage capital 122,538 8.99 54,521 4.00 68,151 5.00
Tier I risk-based capital 122,538 11.05 44,345 4.00 66,518 6.00
Total risk-based capital 136,474 12.31 88,690 8.00 110,863 10.00
- ---------------------------------------------------------------------------------------------------------------
|
Condensed financial statements, solely of the parent company, CPB Inc., follow:
CPB Inc.
Condensed Balance Sheets
December 31, 1996 and 1995
(Dollars in thousands, except per share data) 1996 1995
- ----------------------------------------------------------------------------------------
Assets:
Cash $ 4,823 $ 844
Investment securities available for sale 4,787 7,823
Investment in and advances to subsidiary
bank, at equity in underlying net assets 132,647 125,186
Accrued interest receivable and other assets 46 59
- ----------------------------------------------------------------------------------------
Total assets $142,303 $133,912
- ----------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Dividends payable $ 1,265 $ 1,260
Other liabilities 156 145
- ----------------------------------------------------------------------------------------
Total liabilities 1,421 1,405
- ----------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, no par value, authorized
1,000,000 shares, none issued -- --
Common stock, no par value, stated value
$1.25 per share; authorized 25,000,000
shares; issued and outstanding 5,268,874
and 5,251,762 shares at December 31, 1996
and 1995, respectively 6,586 6,565
Surplus 45,481 45,337
Retained earnings 89,405 80,370
Unrealized (loss) gain on investment
securities, net of taxes (590) 235
- ----------------------------------------------------------------------------------------
Total stockholders' equity 140,882 132,507
- ----------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $142,303 $133,912
- ----------------------------------------------------------------------------------------
|
CPB Inc.
Condensed Statements of Income
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Income:
Dividends from subsidiary bank $ 5,101 $ 4,782 $ 4,623
Interest income:
Interest on investment securities 281 333 254
Interest from subsidiary bank 116 55 30
Investment securities gains -- 60 --
- ---------------------------------------------------------------------------------------------------
Total income 5,498 5,230 4,907
Total expenses 259 281 251
- ---------------------------------------------------------------------------------------------------
Income before income taxes and
equity in undistributed income of
subsidiary bank 5,239 4,949 4,656
Income taxes 55 65 13
- ---------------------------------------------------------------------------------------------------
Income before equity in undistributed
income of subsidiary bank 5,184 4,884 4,643
Equity in undistributed income of
subsidiary bank 8,907 8,924 8,840
- ---------------------------------------------------------------------------------------------------
Net income $14,091 $13,808 $13,483
- ---------------------------------------------------------------------------------------------------
|
CPB Inc.
Condensed Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $14,091 $13,808 $13,483
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred income tax expense 4 -- 34
Equity in undistributed income of subsidiary bank (8,907) (8,924) (8,840)
Other, net 63 130 11
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,251 5,014 4,688
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from calls on investment securities held to maturity -- 2,560 --
Purchases of investment securities held to maturity -- -- (2,666)
Proceeds from maturities of investment securities available for sale 3,000 34,700
Purchases of investment securities available for sale - (2,844) (32,693)
Investment in and advances to subsidiary bank 614 65 (19)
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Net cash provided by (used in) investing activities 3,614 (219) (678)
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Cash flows from financing activities:
Proceeds from sale of common stock 165 180 44
Dividends paid (5,051) (4,716) (4,606)
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Net cash used in financing activities (4,886) (4,536) (4,562)
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Net increase (decrease) in cash and cash equivalents 3,979 259 (552)
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Cash and cash equivalents:
At beginning of year 844 585 1,137
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At end of year $4,823 $ 844 $ 585
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26. ACCOUNTING PRONOUNCEMENTS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 127 defers the effective date of SFAS No. 125 for one year for certain transactions occurring after December 31, 1997. Transactions subject to deferral under SFAS No. 127 include transactions addressing secured borrowings and collateral and transactions addressing financial assets that are part of repurchase agreements, dollar rolls, securities lending, and similar transactions. The Company does not expect that the adoption of SFAS No. 125 and the transactions covered under SFAS No. 127 will have a material impact on the Company's consolidated financial statements.
Independent Auditors' Report
The Stockholders and Board of Directors of CPB Inc.:
We have audited the accompanying consolidated balance sheets of CPB Inc. and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CPB Inc. and subsidiary as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP - ------------------------- Honolulu, Hawaii February 26, 1997 |
Common Stock
Price Range & Dividends
The Company's common stock is traded on the Nasdaq National Market ("Nasdaq") under the symbol "CPBI." The following table sets forth quarterly per share information for the high and low sales prices of the common stock for 1996 and 1995 as reported by Nasdaq and cash dividends declared for those years.
Cash
dividends
High Low declared
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1996:
First quarter $34.00 $29.50 $0.24
Second quarter 34.50 31.00 0.24
Third quarter 32.50 28.50 0.24
Fourth quarter 30.75 28.25 0.24
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Year $34.50 $28.25 $0.96
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1995:
First quarter $25.69 $23.50 $0.22
Second quarter 27.00 23.50 0.22
Third quarter 35.50 25.50 0.24
Fourth quarter 33.75 30.50 0.24
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Year $35.50 $23.50 $0.92
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|
The last sales price of the common stock as of January 31, 1997 as reported by Nasdaq was $29.50 per share.
On January 31, 1997, there were approximately 2,343 stockholders of record of the common stock, excluding individuals and institutions for whom shares were held in the names of nominees and brokerage firms.
The Company and its predecessor have paid regular semi-annual cash dividends on the common stock since 1958. Beginning in 1988, the Company commenced paying regular quarterly cash dividends. It is the present intention of the Company's board of directors ("Board") to continue to pay regular quarterly cash dividends. However, since substantially all of the funds available for the payment of dividends are derived from Central Pacific Bank, future dividends will depend upon the Bank's earnings, its financial condition, its capital needs, applicable governmental policies and regulations and such other matters as the Board may deem to be appropriate.
Exhibit 23
The Board of Directors
CPB Inc.:
We consent to incorporation by reference in the registration statement No. 33-11462 on Form S-8 of CPB Inc. of our report dated February 26, 1997, relating to the consolidated balance sheets of CPB Inc. and subsidiary as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of CPB Inc.
/s/ KPMG Peat Marwick LLP Honolulu, Hawaii March 25, 1997 |
| ARTICLE 9 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE REGISTRANT FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS |
| MULTIPLIER: 1000 |
| PERIOD TYPE: YEAR |
| FISCAL YEAR END: DEC 31 1996 |
| PERIOD END: DEC 31 1996 |
| CASH: 55,534 |
| INT BEARING DEPOSITS: 26,297 |
| FED FUNDS SOLD: 0 |
| TRADING ASSETS: 0 |
| INVESTMENTS HELD FOR SALE: 131,214 |
| INVESTMENTS CARRYING: 240,458 |
| INVESTMENTS MARKET: 240,502 |
| LOANS: 1,041,976 |
| ALLOWANCE: 19,436 |
| TOTAL ASSETS: 1,403,165 |
| DEPOSITS: 1,123,614 |
| SHORT TERM: 5,427 |
| LIABILITIES OTHER: 16,240 |
| LONG TERM: 115,840 |
| COMMON: 6,586 |
| PREFERRED MANDATORY: 0 |
| PREFERRED: 0 |
| OTHER SE: 134,296 |
| TOTAL LIABILITIES AND EQUITY: 1,403,165 |
| INTEREST LOAN: 88,157 |
| INTEREST INVEST: 15,711 |
| INTEREST OTHER: 419 |
| INTEREST TOTAL: 104,287 |
| INTEREST DEPOSIT: 35,364 |
| INTEREST EXPENSE: 41,679 |
| INTEREST INCOME NET: 62,608 |
| LOAN LOSSES: 2,500 |
| SECURITIES GAINS: (6) |
| EXPENSE OTHER: 47,552 |
| INCOME PRETAX: 23,327 |
| INCOME PRE EXTRAORDINARY: 14,091 |
| EXTRAORDINARY: 0 |
| CHANGES: 0 |
| NET INCOME: 14,091 |
| EPS PRIMARY: 2.68 |
| EPS DILUTED: 2.68 |
| YIELD ACTUAL: 4.89 |
| LOANS NON: 13,500 |
| LOANS PAST: 6,313 |
| LOANS TROUBLED: 12,818 |
| LOANS PROBLEM: 0 |
| ALLOWANCE OPEN: 20,156 |
| CHARGE OFFS: 3,555 |
| RECOVERIES: 335 |
| ALLOWANCE CLOSE: 19,436 |
| ALLOWANCE DOMESTIC: 14,600 |
| ALLOWANCE FOREIGN: 0 |
| ALLOWANCE UNALLOCATED: 4,836 |