UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to ________________ Commission file number 0-10777 CPB INC. (Exact name of registrant as specified in its charter) Hawaii 99-0212597 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 220 South King Street, Honolulu, Hawaii 96813 (Address of principal executive offices) (Zip Code) (808) 544-0500 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, No Par Value, $1.25 Stated Value; Outstanding at September 30, 1995 - 5,243,978 shares
PART I - FINANCIAL INFORMATION Item 1. Financial Statements The financial statements listed below are filed as a part hereof. Page Consolidated Balance Sheets - September 30, 1995 and December 31, 1994 F-1 Consolidated Statements of Income - Three and nine months ended September 30, 1995 and 1994 F-2 Consolidated Statements of Cash Flows - Nine months ended September 30, 1995 and 1994 F-3 Notes to Consolidated Financial Statements F-4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview CPB Inc. (the "Company") posted third quarter 1995 net income of $3.711 million, increasing by 4.7% over the $3.546 million earned in the third quarter of 1994. Net income for the first nine months of 1995 was $10.676 million, increasing by 5.2% over the $10.152 million earned in the same period in 1994. The increase in net interest income was the principal contributor to the increase in earnings for the third quarter and first nine months of 1995 compared with the same periods in 1994. Net income for the third quarter and first nine months of 1995 reflects a refund of Federal Deposit Insurance Corporation ("FDIC") deposit insurance premiums totalling $691,000. Net income for the first nine months of 1994 reflects expenses of approximately $915,000 related to the Voluntary Early Retirement Program (the "VERP") which was offered to qualified employees of Central Pacific Bank (the "Bank"), a subsidiary of the Company (refer to "Results of Operations -- Other Operating Expense"). As of September 30, 1995, total assets of $1,400.5 million increased by $18.9 million or 1.4%, net loans of $974.1 million increased by $0.5 million, and total deposits of $1,123.0 million increased by $41.1 million or 3.8% when compared with year-end 1994. 1
The following table presents return on average assets, return on average stockholders' equity and earnings per share for the periods indicated. <TABLE> <CAPTION> Three Months Ended September 30, Nine Months Ended September 30, 1995 1994 1995 1994 <S> <C> <C> <C> <C> Annualized return on average assets 1.07% 1.09% 1.03% 1.04% Annualized return on average stockholders' equity 11.47% 12.03% 11.25% 11.63% Earnings per share $0.71 $0.68 $2.04 $1.94 </TABLE> The State of Hawaii's economy has shown signs of recovery in certain sectors during the first three quarters of 1995. The state index of leading economic indicators was down 0.06% in August 1995 after 14 months of improvement. The visitor count has improved over 1994 levels, and industry analysts forecast continued strength throughout the year. Conversely, the local labor market has shown signs of weakness. The state unemployment rate reached 6.0% in September 1995, unchanged from the previous month. The rate reflects a loss of 3,600 government jobs since September 1994, partially the result of state layoffs in response to a projected budget deficit. The high level of unemployment also contributed to an increase in bankruptcies and foreclosures during 1995 over 1994 levels. Ongoing development of a state convention center in Waikiki is expected to stimulate construction activity in the near term and boost tourism upon completion. Accordingly, the results of operations of the Company for the remainder of 1995 will be affected by the speed, strength and duration of economic recovery in the State of Hawaii. Results of Operations Net Interest Income A comparison of net interest income for the three and nine months ended September 30, 1995 and 1994 is set forth below on a taxable equivalent basis using an assumed income tax rate of 35%. Net interest income, when expressed as a percentage of average interest earning assets, is referred to as "net interest margin." <TABLE> <CAPTION> Three Months Ended September 30, Nine Months Ended September 30, 1995 1994 1995 1994 (Dollars in thousands) <S> <C> <C> <C> <C> Interest income $27,547 $23,643 $81,069 $69,090 Interest expense 11,592 7,940 33,550 22,481 Net interest income $15,955 $15,703 $47,519 $46,609 Net interest margin 4.95% 5.23% 4.94% 5.18% </TABLE> 2
Interest income increased by $3.9 million or 16.5% and $12.0 million or 17.3% in the third quarter and first nine months of 1995, respectively, as compared to the same periods in 1994, due to the higher level of interest rates in 1995. In addition, average interest earning assets of $1,290.0 million and $1,281.4 million for the third quarter and first nine months of 1995, respectively, increased by $89.2 million or 7.4% and $81.6 million or 6.8%, respectively, over the same periods in 1994. As a result, the yield on interest earning assets for the three and nine months ended September 30, 1995 as compared to the same periods in 1994 increased to 8.54% from 7.88% and to 8.44% from 7.68%, respectively. Interest and fees on loans increased by $3.3 million or 16.5% and $10.8 million or 18.8% in the third quarter and first nine months of 1995, respectively, as compared to the same periods in 1994 due primarily to the increase in interest rates during the latter half of 1994 and early 1995. Interest on loans for the nine months ended September 30, 1995 also included $485,000 of previously unaccrued interest on two nonaccrual loans which were repaid during the second quarter of 1995 (refer to "Results of Operations -- Nonperforming Assets"). Fees on loans, which are included in interest income, increased by $278,000 or 56.8% in the third quarter of 1995 but decreased by $247,000 or 12.2% in the first nine months of 1995 compared to prior year levels. Interest on deposits in other banks increased by $500,000 or 357.1% and by $772,000 or 112.9%, respectively, in the three and nine months ended September 30, 1995, compared with the same periods in 1994, due to a combination of the rise in short-term interest rates and an increase in average balances during 1995. Interest expense for the three and nine months ended September 30, 1995 increased by $3.7 million or 46.0% and $11.1 or 49.2%, respectively, as compared to the same periods in 1994, also a result of the upward interest rate trend experienced in the second half of 1994 and first half of 1995. Average interest-bearing liabilities of $1,093.2 million for the third quarter of 1995 increased by $77.4 million or 7.6% when compared to the third quarter of 1994. Average interest-bearing liabilities for the first nine months of 1995 of $1,087.3 million also increased by $71.6 million or 7.0% when compared with the comparable period in 1994. As such, the rate on interest-bearing liabilities for the third quarter and first nine months of 1995 as compared to the same periods in 1994 increased to 4.24% from 3.13% and to 4.11% from 2.95%, respectively, due primarily to the increase in rates paid on the Bank's deposits and shifts in balances to higher-rate deposit products. As a result, net interest income for the third quarter and first nine months of 1995 increased by $252,000 or 1.6% and $910,000 or 2.0%, respectively, over the same periods in 1994. Net interest margin, however, decreased during the same periods as average interest-bearing liabilities and the average rate on those liabilities grew at a higher rate than average interest earning assets and their corresponding average yield. Due to the expectation of increased competition for both loans and deposits, the Company anticipates continuing pressure on net interest margin for the remainder of 1995. 3
Provision 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 to cover inherent losses. Such evaluation is based upon the Bank's loan loss experience and projections by loan category, the level and nature of current delinquencies and delinquency trends, the quality and loss potential of specific loans in the Bank's portfolio, evaluation of collateral for such loans, the economic conditions affecting collectibility of loans, trends of loan growth and such other factors which, in Management's judgment, deserve recognition in the estimation of losses inherent in the Bank's loan portfolio. Provision for loan losses, loan charge-offs, recoveries, net loan charge-offs and the annualized ratio of net loan charge-offs to average loans and other real estate are set forth below for the periods indicated. <TABLE> <CAPTION> Three Months Ended September 30, Nine Months Ended September 30, 1995 1994 1995 1994 (Dollars in thousands) <S> <C> <C> <C> <C> Provision for loan losses $825 $825 $2,475 $2,475 Loan charge-offs $266 $147 $ 561 $ 797 Recoveries 45 116 261 249 Net loan charge-offs $221 $ 31 $ 300 $ 548 Annualized ratio of net loan charge-offs to average loans and other real estate 0.09% 0.01% 0.04% 0.08% </TABLE> The provision for loan losses of $825,000 and $2,475,000 for the third quarter and first nine months of 1995, respectively, remained constant with the same periods in 1994. Net loan charge- offs of $221,000 and $300,000 for the third quarter and first nine months of 1995, when expressed as an annualized percentage of average total loans and other real estate, was 0.09% and 0.04%, respectively. Consumer loans comprised 71% and real estate loans represented 25% of all loans charged off during the first nine months of 1995. The allowance for loan losses expressed as a percentage of total loans was 2.06% and 1.84% at September 30, 1995 and December 31, 1994, respectively. Management believes that the allowance for loan losses at September 30, 1995 was adequate to cover the credit risks inherent in the loan portfolio. However, no assurance can be given that economic conditions which may adversely affect the Bank's customers 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. 4
Nonperforming Assets The following table sets forth nonperforming assets, accruing loans which were delinquent for 90 days or more and restructured loans still accruing interest at the dates indicated. <TABLE> <CAPTION> September 30, December 31, September 30, 1995 1994 1994 (Dollars in thousands) <S> <C> <C> <C> Nonaccrual loans $ 4,820 $16,056 $ 4,394 Other real estate 3,181 2,242 2,583 Total nonperforming assets 8,001 18,298 6,977 Loans delinquent for 90 days or more 6,447 12,872 9,789 Restructured loans still accruing interest 6,809 8,486 8,522 Total nonperforming assets, loans delinquent for 90 days or more and restructured loans still accruing interest $21,257 $39,656 $25,288 Total nonperforming assets as a percentage of total loans and other real estate 0.80% 1.84% 0.72% Total nonperforming assets and loans delinquent for 90 days or more as a percentage of total loans and other real estate 1.45% 3.14% 1.72% Total nonperforming assets, loans delinquent for 90 days or more and restructured loans still accruing interest as a percentage of total loans and other real estate 2.13% 3.99% 2.60% </TABLE> Nonperforming assets, loans delinquent for 90 days or more and restructured loans still accruing interest totalled $21.3 million at September 30, 1995, decreasing by $18.4 million or 46.4% from year-end 1994. Nonaccrual loans, loans delinquent for 90 days or more and restructured loans still accruing interest were comprised primarily of loans secured by commercial or residential real property in the State of Hawaii. Nonaccrual loans of $4.8 million at September 30, 1995 were comprised of two commercial real estate loans, several residential real estate loans and a small commercial loan. During the second quarter of 1995, nonaccrual loans to one borrower totalling $11,250,000 were paid in full, along with $485,000 of previously unaccrued interest thereon. Other real estate of $3.2 million at September 30, 1995 consisted of six residential properties acquired by the Bank through formal foreclosure proceedings. Write-downs totalling $175,000 were made to reflect declines in values on two properties during the third quarter of 1995, bringing total write-downs to $350,000 in the nine months ended September 30, 1995. Loans delinquent for 90 days or more and still accruing interest totaled $6.4 million at September 30, 1995, decreasing by $6.4 million or 49.9% from year-end 1994. This decrease was due primarily to loans being paid in full or brought current by borrowers. Management continues to 5
closely monitor loan delinquencies and is maintaining its efforts to determine the extent of loss exposure on these and all other loans. A continued decline in real estate values and general economic conditions may result in further increases in nonperforming assets, delinquencies, net loan charge-offs and provisions for loan losses. In January 1995, the Company adopted the provisions of the Financial Accounting Standards Board (the "FASB") Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS Nos. 114 and 118 prescribe the recognition criteria for loan impairment and the measurement methods for certain impaired loans and loans whose terms are modified in troubled debt restructurings. The effects of the implementation were not material to the consolidated financial statements of the Company. At September 30, 1995, there were no impaired loans not already included in nonaccrual loans, loans delinquent for 90 days or more or restructured loans still accruing interest. Other Operating Income Total other operating income in the third quarter of 1995 of $2,655,000 increased by $72,000 or 2.8% from the third quarter of 1994. A decline in partnership income of $72,000, due primarily to the capitalization of costs in 1994 related to the development of the Kaimuki Plaza, partially offset increases in other service charges and fees on foreign exchange. Total other operating income for the first nine months of 1995 of $8,081,000 decreased by $31,000 or 0.4% from the same period in 1994. Increases in other service charges and fees on foreign exchange offset declines in service charges on deposits and partnership income. Other Operating Expense Total other operating expense of $11,595,000 for the third quarter of 1995 increased by $23,000 or 0.2% over the same period in 1994. Salaries and employee benefits of $6,391,000 increased by $311,000 or 5.1% as the number of employees increased during this period, a result of the growth of our in-store banking activities during the past year. Net occupancy expense of $1,543,000 also increased by $378,000 or 32.4% over the third quarter of 1995 due to the expansion of the bank's in-store branch network. Other expenses decreased $630,000 or 17.0% due to the $691,000 FDIC deposit insurance premium refund received in the third quarter of 1995. In September 1995, the FDIC premium rates were reduced by 83%, and overpayments since June 1995 were refunded. The lower level of FDIC deposit insurance premiums will apply through the remainder of 1995. Total other operating expense of $35,301,000 for the first nine months of 1995 increased by $61,000 or 0.2% over the same period in 1994. Salaries and employee benefits of $18,866,000 decreased by $235,000 or 1.2% due in part to expenses incurred by the Bank in 1994 relating to the VERP. During the first quarter of 1994, the Bank offered a special retirement bonus to qualifying individuals who elected to retire by April 1, 1994. The total 6
cost of the VERP, which included a retirement bonus, accumulated vacation pay and related payroll taxes thereon, amounted to approximately $915,000. Excluding the impact of the VERP, salaries and employee benefits increased by $680,000 during the first nine months of 1995 due to the Bank's recent in-store branch expansion. Net occupancy expense of $4,321,000 increased by $558,000 or 14.8%, due also to this expansion. Other expenses decreased by $267,000 or 2.5% due to the FDIC deposit insurance premium reduction, offset by increases in other real estate write-downs and an increase in charge card expenses. Income Taxes The effective tax rates for the third quarter and first nine months of 1995 were 39.59% and 39.61%, respectively, compared with the previous year's rates of 39.01% and 39.39%, respectively. The difference in effective rates during the current year was attributable largely to the changes in tax-exempt investment securities holdings during the first nine months of 1995 compared to the previous year. Financial Condition Total assets at September 30, 1995 of $1,400.5 million increased by $18.9 million or 1.4% from December 31, 1994. Cash and due from banks of $44.3 million decreased by $17.3 million or 28.0%, while interest-bearing deposits in other banks of $61.2 million increased $20.9 million or 51.9%, and investment securities of $259.8 million increased by $16.0 million or 6.6%. Net loans of $974.1 million was virtually unchanged from the $973.7 million at year-end 1994. Total deposits at September 30, 1995 of $1,123.0 million increased by $41.1 million or 3.8% from year-end 1994. Noninterest-bearing deposits of $150.9 million decreased by $11.9 million or 7.3%, while interest-bearing deposits of $972.1 million increased by $52.9 million or 5.8%. Core deposits (noninterest- bearing demand, interest-bearing demand and savings deposits, and time deposits under $100,000) at September 30, 1995 of $850.4 million decreased by $28.3 million or 3.2% during the first nine months of 1995, while time deposits of $100,000 or more of $272.6 million increased by $69.3 million or 34.1% during the nine months ended September 30, 1995. The decline in core deposits, attributed to the higher deposit rates offered during 1995 which attracted depositors to longer-term, higher-yielding certificates of deposit, resulted from a combination of declines in business money market and savings accounts of $17.6 million and $7.1 million, respectively, and personal savings accounts which decreased by $10.7 million during the first nine months of 1995. Conversely, time deposits with maturities greater than one year increased by $22.8 million. Capital Resources Stockholders' equity of $129.7 million at September 30, 1995 increased by $8.5 million or 7.1% from December 31, 1994. Approximately $1.4 million of this increase was attributable to the reduction in the unrealized loss, net of taxes, on investment securities available for sale. When expressed as a percentage of total assets, stockholders' equity was 9.26% and 8.77% at September 30, 1995 and December 31, 1994, respectively. On 7
September 11, 1995, the Board of Directors declared a third quarter cash dividend of $0.24 per share, a 9.1% increase over the previous quarter, bringing total dividends declared to $0.68 per share for the first nine months of 1995, a 3.0% increase over dividends declared during the same period in 1994. Dividends declared in the first nine months of 1995 totalled $3,564,000 compared with $3,455,000 in the first nine months of 1994. The Company's objective with respect to capital resources is to maintain a level of capital that will support sustained asset growth and anticipated credit risks and to ensure that regulatory guidelines and industry standards are met. Regulations on capital adequacy guidelines adopted by the Federal Reserve Board (the "FRB") and the FDIC are as follows. Effective December 31, 1992, an institution is required to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8%, of which at least 4% must consist of Tier I capital, essentially common stockholders' equity (before unrealized loss on investment securities) less intangible assets. The FRB and the FDIC have also adopted a minimum leverage ratio of Tier I capital to total assets of 3%. The leverage ratio requirement establishes the minimum level for banks that have a uniform composite ("CAMEL") rating of 1, and all other institutions and institutions experiencing or anticipating significant growth are expected to maintain capital levels at least 100 to 200 basis points above the minimum level. Furthermore, higher leverage and risk-based capital ratios are required to be considered well-capitalized or adequately capitalized under the prompt corrective action provisions of the FDIC Improvement Act of 1991. The following table sets forth capital requirements applicable to the Company and the Company's capital ratios as of the dates indicated. <TABLE> <CAPTION> Required Actual Excess <S> <C> <C> <C> At September 30, 1995: Tier I risk-based capital ratio 4.00% 12.10% 8.10% Total risk-based capital ratio 8.00% 13.36% 5.36% Leverage capital ratio 4.00% 9.24% 5.24% At December 31, 1994: Tier I risk-based capital ratio 4.00% 11.31% 7.31% Total risk-based capital ratio 8.00% 12.56% 4.56% Leverage capital ratio 4.00% 8.84% 4.84% </TABLE> The increase in retained earnings, which exceeded the rate of growth in risk-weighted assets in the first nine months of 1995, contributed to the increase in capital ratios. 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. 8
The following table sets forth the Bank's capital ratios as of the dates indicated. <TABLE> <CAPTION> Required Actual Excess <S> <C> <C> <C> At September 30, 1995: Tier I risk-based capital ratio 6.00% 10.87% 4.87% Total risk-based capital ratio 10.00% 12.12% 2.12% Leverage capital ratio 5.00% 8.67% 3.67% At December 31, 1994: Tier I risk-based capital ratio 6.00% 10.11% 4.11% Total risk-based capital ratio 10.00% 11.37% 1.37% Leverage capital ratio 5.00% 8.17% 3.17% </TABLE> Liquidity and Effects of Inflation A discussion of liquidity and effects of inflation is included in the 1994 Annual Report to Shareholders. No significant changes in the Company's liquidity position or policies have occurred during the nine months ended September 30, 1995. 9
PART II - OTHER INFORMATION Items 1 to 5. Items 1 to 5 are omitted pursuant to instructions to Part II. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K The Company filed a report on Form 8-K on September 19, 1995 announcing the retirement of Yoshiharu Satoh, chairman of the board and chief executive officer, effective January 1, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CPB INC. (Registrant) Date: November 13, 1995 /s/Austin Imamura Austin Imamura Vice President and Secretary Date: November 13, 1995 /s/Neal Kanda Neal Kanda Vice President and Treasurer (Principal Financial and Accounting Officer) 10
CPB INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) <TABLE> <CAPTION> September 30, December 31, (Dollars in thousands, except per share data) 1995 1994 <S> <C> <C> Assets Cash and due from banks $ 44,337 $ 61,604 Interest-bearing deposits in other banks 61,189 40,277 Federal funds sold and securities purchased under agreements to resell - - Investment securities: Held to maturity, at cost (fair value $161,949 and $157,345 at September 30, 1995 and December 31, 1994, respectively) 162,878 162,098 Available for sale, at fair value 96,917 81,690 Total investment securities 259,795 243,788 Loans 994,599 991,968 Less allowance for loan losses 20,471 18,296 Net loans 974,128 973,672 Premises and equipment 24,483 24,217 Accrued interest receivable 10,156 9,781 Investment in partnership 6,033 5,428 Due from customers on acceptances 777 1,459 Other assets 19,560 21,313 Total assets $ 1,400,458 $ 1,381,539 Liabilities and Stockholders' Equity Deposits: Noninterest-bearing deposits $ 150,900 $ 162,776 Interest-bearing deposits 972,059 919,133 Total deposits 1,122,959 1,081,909 Federal funds purchased and securities sold under agreements to repurchase 42,000 67,355 Other borrowed funds 87,392 94,324 Bank acceptances outstanding 777 1,459 Other liabilities 17,179 14,889 Employee stock ownership plan note payable 500 500 Total liabilities 1,270,807 1,260,436 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 5,243,978 and 5,235,331 shares at September 30, 1995 and December 31, 1994, respectively 6,555 6,544 Surplus 45,238 45,178 Retained earnings 78,498 71,386 Unrealized loss on investment securities (140) (1,505) 130,151 121,603 Employee stock ownership plan shares purchased with debt (500) (500) Total stockholders' equity 129,651 121,103 Total liabilities and stockholders' equity $ 1,400,458 $ 1,381,539 Book value per share $ 24.72 $ 23.13 <FN> See accompanying notes to consolidated financial statements. </FN> </TABLE> F-1
CPB INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands, except per share data) 1995 1994 1995 1994 <S> <C> <C> <C> <C> Interest income: Interest and fees on loans $ 23,251 $ 19,965 $ 68,601 $ 57,756 Interest and dividends on investment securities: Taxable interest 3,343 3,243 9,817 9,471 Tax-exempt interest 30 33 98 243 Dividends 236 180 614 615 Interest on deposits in other banks 640 140 1,456 684 Interest on Federal funds sold and securities purchased under agreements to resell - 7 336 64 Total interest income 27,500 23,568 80,922 68,833 Interest expense: Interest on deposits 9,589 6,464 27,260 18,219 Interest on other borrowed funds 2,003 1,476 6,290 4,262 Total interest expense 11,592 7,940 33,550 22,481 Net interest income 15,908 15,628 47,372 46,352 Provision for loan losses 825 825 2,475 2,475 Net interest income after provision for loan losses 15,083 14,803 44,897 43,877 Other operating income: Service charges on deposit accounts 658 708 1,972 2,062 Other service charges and fees 1,373 1,284 3,961 3,829 Partnership income 253 325 924 1,064 Fees on foreign exchange 244 166 808 701 Investment securities gains - - 25 - Other 127 100 391 456 Total other operating income 2,655 2,583 8,081 8,112 Other operating expense: Salaries and employee benefits 6,391 6,080 18,866 19,101 Net occupancy 1,543 1,165 4,321 3,763 Equipment 591 627 1,901 1,896 Other 3,070 3,700 10,213 10,480 Total other operating expense 11,595 11,572 35,301 35,240 Income before income taxes and cumulative effect of accounting change 6,143 5,814 17,677 16,749 Income taxes 2,432 2,268 7,001 6,597 Net income $ 3,711 $ 3,546 $ 10,676 $ 10,152 Per common share: Net income $ 0.71 $ 0.68 $ 2.04 $ 1.94 Cash dividends declared $ 0.24 $ 0.22 $ 0.68 $ 0.66 Weighted average shares outstanding (in thousands) 5,243 5,235 5,239 5,233 <FN> See accompanying notes to consolidated financial statements. </FN> </TABLE> F-2
CPB INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Nine Months Ended September 30, (Dollars in thousands) 1995 1994 <S> <C> <C> Cash flows from operating activities: Net income $ 10,676 $ 10,152 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,475 2,475 Provision for depreciation and amortization 1,922 1,754 Net amortization and accretion of investment securities 1,405 2,110 Net gain on investment securities (25) - Federal Home Loan Bank stock dividends received (614) (1,026) Net deferred loan origination fees (68) 121 Net change in loans held for sale (915) 7,218 Net gain on sale of loans (9) (211) Loss on disposal of premises and equipment 37 - Amortization of intangible assets 75 83 Deferred income tax expense (benefit) (1,696) 1,479 Partnership income (924) (1,064) Decrease (increase) in accrued interest receivable and other assets 3,377 (1,051) Increase (decrease) in accrued interest payable and other liabilities 2,191 (1,460) Net cash provided by operating activities 17,907 20,580 Cash flows from investing activities: Proceeds from maturities of and calls on investment securities held to maturity 33,433 67,740 Purchases of investment securities held to maturity (35,667) (56,550) Proceeds from maturities of and calls on investment securities available for sale 9,112 78,767 Purchases of investment securities available for sale (21,384) (90,245) Net decrease (increase) in interest-bearing deposits in other banks (20,912) 839 Net loan originations (3,228) (29,550) Loans acquired in branch acquisition - (2,656) Purchases of premises and equipment (2,442) (2,285) Proceeds from disposal of premises and equipment 217 - Distributions from partnership 320 470 Net cash used in investing activities (40,551) (33,470) Cash flows from financing activities: Net increase (decrease) in deposits 41,050 (20,722) Deposits acquired in branch acquisition - 10,821 Proceeds from Federal Home Loan Bank intermediate-term advances 26,000 14,600 Repayments of Federal Home Loan Bank intermediate-term advances (7,885) (20,331) Net increase (decrease) in other short-term borrowings (50,402) 21,167 Cash dividends paid (3,457) (3,454) Proceeds from sale of common stock 71 44 Net cash provided by financing activities 5,377 2,125 Net decrease in cash and cash equivalents (17,267) (10,765) Cash and cash equivalents: At beginning of period 61,604 63,152 At end of period $ 44,337 $ 52,387 Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 34,864 $ 22,899 Cash paid during the period for income taxes $ 8,800 $ 5,620 <FN> See accompanying notes to consolidated financial statements. </FN> </TABLE> F-3
CPB INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The financial information included herein is unaudited, except for the consolidated balance sheet at December 31, 1994. However, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim periods. The results of operations for the three and nine months ended September 30, 1995 are not necessarily indicative of the results to be expected for the full year. F-4