Filed by CB Bancshares, Inc. pursuant to Rule 425
under the Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934
Subject Company: CB Bancshares, Inc.
Subject Company's Exchange Act File No.: 000-12396
This filing relates to a proposed merger between Central Pacific Financial Corp.
and CB Bancshares, Inc. pursuant to the terms of an Agreement and Plan of Merger
dated as of April 22, 2004. On April 23, 2004, Central Pacific Financial Corp.
and CB Bancshares, Inc. held a conference call relating to the proposed merger
described above. The following is a transcript of the conference call.
--------------------------------------------------------------------------------
OPERATOR
Good morning ladies and gentlemen. I would like to welcome everyone to this call
to discuss Central Pacific Financial's acquisition of CB Bancshares and Central
Pacific's first quarter earnings. My name is Anne-Marie, and I'll be your
coordinator today.
[OPERATOR INSTRUCTIONS]
Before we begin, let me inform you, that this call contains forward-looking
statements. Such statements include, but are not limited to, statements about
the benefits of a merger between Central Pacific Financial Corp, and CB
Bancshares, Inc, including future financial and operating results, costs,
savings and accretion to reported, and cash earnings that may be realized from
such merger. Statements with respect to CPF's plans, objective, expectations and
intentions, and other statements that are not historical facts, and other
statements identified by words such as "believes", "expects", "anticipates",
"estimates", "intends", "plans", "targets", "projects" and other similar
expressions.
These statements are based upon the current beliefs and expectation of
management and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking statements.
The following factors, amongst others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in
forward-looking statements.
One, the business of CPF and CBBI may not be integrated successfully, or such
integration may be more difficult, time-consuming or costly, than expected.
Two, expected revenues, synergies and cost savings from the merger may not be
fully realized, or realized within the expected timeframe.
Three, revenues following the merger may be lower than expected.
Four, deposit attrition, operating cost, customer loss, and business disruption,
including, without limitation, difficulties in maintaining relationships with
the employees, customers, clients, or suppliers, may be greater than expected
following the merger.
Five, any necessary approvals for the merger may not be obtained on the
proposed terms.
Six, the failure of CPF's and CBBI's shareholders to approve the merger.
Seven, competitive pressures among depository and other financial institutions
may increase significantly, and may have an effect on pricing, spending,
third-party relationships and revenues.
Eight, the strength of the United States economy in general, and the strength of
the Hawaii economy may be different than expected, resulting in, among other
things, the deterioration in credit quality, or reduced demand for credit,
including the resultant effect on the combined company's loan portfolio and the
allowance on loan losses.
Nine, changes in the U.S. legal and regulatory framework.
And ten, adverse conditions in the stock market, the public debt market and
other capital markets, including changes in interest rate conditions, and the
impact of such conditions on the combined company's activities.
Additional factors that could cause actual results to differ materially from
those described in forward-looking statements can be found in CPF's and CBBI's
results, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
and Current Reports on Form 8-K filed with the Securities and Exchange
Commission, and available at the SEC's Internet Web site, www.sec.gov.
All subsequent written and oral forward-looking statements concerning the
proposed transaction or other matters, attributable to CPF or CBBI, or any
person acting on their behalf are expressly qualified in their entirety, by the
cautionary statements above. CPF and CBBI do not undertake any obligation to
update any forward-looking statement, to reflect the circumstances, or events
that occur after the date the forward-looking statement is made.
CPF will amend its registration statement on Form S-4 to register shares of CPF
common stock to be issued in this transaction. The registration statement is not
final and will be further amended. The registration statement will include a
joint proxy statement/prospectus for solicitation of proxies from CPF and
CBBI shareholders, in connection with meetings of such shareholders at a
date or dates subsequent hereto.
Investors and security holders are urged to read the registration statement and
joint proxy statement and any other relevant documents, when available, filed
with the SEC, as well as any amendments or supplements to those documents,
because they will contain important information. Investors and security holders
may obtain a free copy of documents filed with the SEC at the SEC Internet Web
site, at www.sec.gov.
Such documents may also be obtained free of charge from CPF by directing such
requests to Central Pacific Financial Corp., 220 South King Street, Honolulu,
Hawaii 96813. Attention - David Morimoto, (808) 544-0627 or from CBBI, by
directing such requests to CB Bancshares, Inc., 201 Merchant Street, Honolulu,
Hawaii 96813. Attention - Investor Relations, (808) 535-2518.
CPF and CBBI, and their respective directors and executive officers and certain
other persons, may be deemed to be participants in the solicitation of proxies
from the shareholders of CBBI and CPF in connection with the merger. Information
about the directors and executive officers of CPF and their ownership of and
interests in CPF stock is set forth in the proxy statement for CPF's 2004 Annual
Meeting of Shareholders. Information about the directors and executive officers
of CBBI and their ownership of and interests in CBBI stock is set forth in the
proxy for CBBI's 2004 Annual Meeting of Shareholders. Additional information
regarding the interests of those participants may be obtained by reading the
joint proxy statement/prospectus regarding the proposed transaction when it
becomes available.
I would now like to turn the call over to Mr. Clint Arnoldus, Chief Executive
Officer of Central Pacific Financial. Go ahead, sir.
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CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
Thank you very much. And hello, everyone. And thank you for joining us today. I
am absolutely delighted to be here today with Mr. Ron Migita, the Chairman and
CEO of CB Bancshares. And we're together today to jointly announce that the
Directors of our respective companies have approved a definitive merger
agreement to combine two great local institutions, Central Pacific Financial
Corp and CB Bancshares, Inc.
We're especially pleased to have reached this friendly negotiated merger
agreement and are extremely excited about the benefits and opportunities that
the combined company will provide to our customers, to our employees and
certainly to our shareholders and the communities that we both serve. We're
committed to delivering the best of both institutions resulting in an enhanced
and broadened scope of the financial services that we provide.
What we're creating is a much stronger, much more versatile bank that will be
focused on the banking needs of Hawaii, both for consumers and small-to-mid-size
businesses. The combined company is going to retain the name of Central Pacific
Financial Corp. and Central Pacific Bank, respectively. The combination will
create a bank with approximately $4.3 billion in assets, $3.0 billion in
deposits and $507 million in shareholder's equity.
And we expect the closing date of the transaction to be in the third quarter of
this year. And that will be subject to shareholder approvals and other customary
conditions. At closing, CB Bancshare's shareholders will receive $20 in cash and
2.6752 shares of CPF stock for each CBBI share for a value of $91.83 per share
based on the closing price of CPF stock as of April 22, 2004. The total
transaction is valued at $420 million.
This combination, which will create a bank with a market capitalization of over
$700 million, is expected to be significantly accretive to earnings in the first
full year of combined operations. And I have a detailed slideshow that I'll be
taking you through later that will outline that for you in greater detail.
The nine-member Board of Directors of Central Pacific Financial Corp. will be
expanded to include six additional directors from CB Bancshares, Inc. Our
executive and senior management team will be a tremendous combination of the
talents that have been the driving force behind both of these successful
institutions.
We think we're extremely fortunate to retain the expertise of Ron Migita in the
capacity of Non-Executive Chairman of the Board of our combined company. I will
remain as the Chief Executive Officer chief executive officer and Neal Kanda,
the chief financial officer of Central Pacific will be appointed president and
chief operating officer. I'm very pleased to say that Dean Hirata, the chief
financial officer of City Bank, will be appointed the chief financial officer of
the combined company. And most of the other members of the City Bank management
team will be retained in various capacities that would best serve this
significantly expanded organization. Our employees will be integrated to sustain
the exceptional level of customer service that both of these organizations are
extremely well known for. And very importantly, as we pledged to the employees
of both companies last December, we'll honor our commitment to no involuntary
layoffs as a result of the merger.
Our branch expansion plans will be accelerated to enable us to reach into
communities that neither bank currently serves by reallocating resources from
duplicate branch offices. And as we also committed to last year, we plan to
establish a $1 million community fund to invest into worthy causes that will
help
improve the quality of life throughout the communities that we serve.
It's going to take a few months to complete this merger. Our shareholders have
to vote on the transaction. And, of course, it's subject to customary
conditions. We're going to spend these months in close collaborations. So, the
actual combination of the two institutions will proceed seamlessly. Our goal
will be to have the least possible disruption to our customers and to our
employees. And we're confident that we'll be able to meet that goal.
Ron Migita has been an extremely constructive force in our discussions over the
last couple of weeks. And I'm looking forward to working closely with Ron, as we
move forward. And I, like you, am anxious to hear from Ron right now. So, Ron,
let me turn it over to you.
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RON MIGITA - CB BANCSHARES - CHAIRMAN & CEO
OK. Well, thank you very much. And good morning, everybody. I think Clint
covered most of the key points regarding the benefits of this merger entity
going forward. But, I'd like to add that today's announcement ushers in a new
and exciting chapter for our two banks. Particularly because, you know, we have
a common history and a common heritage. The consideration being given to City
Bank's shareholders represents a substantial premium to CB Bancshare's stock
price and reflects our recent record performance, as well as the future value of
the City Bank franchise.
We believe that joining with Central Pacific will create many concrete benefits
for City Bank customers/employees that quickly will become apparent as we begin
to realize the full potential of our combined capabilities. This transaction
will position the combined company as Hawaii's leading community bank with an
unmatched focus on individuals and small-to-mid-sized businesses, which are
really the backbone of our local economy.
Considering Central Pacific's revised offer and in subsequent conversations with
Central Pacific's management team, our Board concluded that the opportunity to
continue providing our customers with unsurpassed products and services and
create value for our shareholders is greater by joining with Central Pacific
Bank.
I agree with Clint's assessment that we have assembled a top-notch management
team that is fully capable of taking Central Pacific Bank to new heights. I look
forward to our new partnership and in working alongside with Directors and
Management, as we begin the next phase of integration and leveraging the
synergies of our combined companies. Thank you. Clint?
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CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
Thank you, Ron. And certainly, that expressed my sentiments too. I think that we
have an opportunity here to build a very powerful institution that is going to
be massively accretive and creates great value to our shareholders, going
forward. And I look forward to working in partnership with you in getting this
organization launched and off on the right foot.
What I want to do - I know that people probably have a lot of questions. Let me
tell you how we're going to go through the remainder of our call. I have a
slideshow that goes into a little bit more detail about the merger. It's
contained on our Web site, as previously mentioned by our moderator. Following
that, we'll briefly go through the first quarter earnings report for Central
Pacific Financial Corp. And then we'll go into a question and answer period.
And that's a unique opportunity to hear from - we'll have four people available
for questions. Of course, Ron and I are available. And Neal Kanda. But also have
Dean Hirata here. So, we welcome any and all questions at that time.
So, why don't we go to the slideshow that's on our Web site? I'll spare you the
brain damage of reading the forward-looking information. And let's go straight
to the transaction summary. I certainly call your attention to our
forward-looking information at your leisure.
The aggregate consideration for each CBBI share is 2.6752 shares of CPF stock
plus $20 in cash. And shareholders will be able to elect cash or stock, subject
to pro-ration. So, the offer price is $91.83 per CBBI share. This is a 26%
premium over the closing price as of 4/22/04 and an implied transaction value of
$420 million. We're looking at pro-forma ownership of 59% CPF and 41% CBBI.
As I mentioned, we anticipate closing this in the third quarter of this year. We
need shareholder votes from CPF and CBBI to close this. And we have completed
our due diligence. Just to give you, quickly, an overview of Central Pacific,
we're a $2.28 billion asset institution headquartered here in Honolulu, 24
offices in four counties, $1.8 billion in deposits, $1.5 billion rounding in
loans.
And significantly, looking at the makeup of the loans, we are very strong in
commercial real estate. What you see in the next slide, if you want to turn to
that, is City Bank has very strong residential real estate. We think that that
is just one of the many areas that creates a great marriage here, because it -
on a combined basis, it gives us a more balanced risk profile, but it also, more
importantly, gives us a stronger profile to go out into the market with and grow
our institutions.
If you look at the overview of CB Bancshares, it's a $1.87 billion-asset
institution, also headquartered here in Honolulu, 21 full service offices, also
serving four counties, $1.31 billion in deposits, $1.35 billion in loans.
One of the things that we've stressed continually is how good this combination
is going to be for Hawaii, the local community and our customers. This takes us
up to a 14% deposit market share in Hawaii. I have a bar graph that will follow
in a few minutes that will graphically show you how much better that positions
us to gain further market share. The customers are certainly going to benefit
tremendously. There's going to be added convenience through an expanded network.
We both have fiercely loyal service commitments which, combined, will make us
even stronger. And we're going to have a broader menu of products and services
and more capacity to help meet our customers' needs.
The real big winners in this are shareholders. And both sides win big. This is a
massively accretive transaction. Again, I have a slide that follows that will go
into more detail with that. We expect annual cost saves of $19.5 million through
consolidation and increased efficiencies. We're going to have a very well
capitalized balance sheet of over $4 billion. And we're going to be a - we're
going to be generating substantial capital over time. One of our strategies
independently, as Central Pacific Bank, was to begin a stock repurchase.
Obviously, that has been put on the shelf, but - in light of the merger, but
this organization will generate capital so strongly, I think we're going to be
in the market with that same objective before long.
CBBI shareholders are going to receive a 25.6% premium. And one of the things
we're really looking forward to is, since we both have light trading stocks,
we'll be able to get more investor visibility, greater liquidity through our New
York Stock Exchange listing and, of course, that $700 million market cap.
The next slide is the bar graph I was referring to a few minutes ago. The key
one is the yellow bar. It will show you graphically how much distance there is,
looking to the left, between us and the other, smaller institutions. And how
strongly positioned we are to start making more of an impact on the left side of
that graph. So, we think there's a great opportunity. This is a very logical
fit. You never take integration lightly. But, we think that a lot of the
commonality is going to make this integration easier than others.
Both banks have very similar roots, very similar cultures. As I mentioned, we
have a very high service commitment, very strong local values, which is very
critical for gaining market share in this market. And of course, we service the
same market, the small/mid-sized business, retail customers and the commercial
real estate market. And we even have a common Fiserv technology platform.
So, going into the next slide, this just shows what I was just talking about in
a different format. But, you can see the way that is outlined, what I'm talking
about, you know, in terms of the great fit and the common background. We have
substantial overlap in branch locations, as you'll see by the map. That's going
to create opportunities to create some of the savings that will make this so
accretive and be able to get some of those cost saves.
We also have a very experienced management team, if you'll look at the next
slide. We have always stressed that this is an opportunity to take the best of
both banks and create a very solid and powerful community bank. And the key to
that working is the management team. And we think, in looking at this slate of
managers, that we have combined the best of both banks. As I mentioned, I'll be
the CEO. Neal Kanda is moving up to be President and Chief Operating Officer.
We're very happy to have Dean Hirata come in as the Chief Financial Officer from
City Bank.
Dean has always impressed us with his financial skills and we, certainly,
welcome him to the team. Blenn Fujimoto will be managing our Hawaii market and
Alwyn Chikamoto, our national market. We're bringing over Doug Weld from City
Bank as the Chief Credit Officer. I was familiar with Doug when I was working in
California. And have had occasion to speak with Doug, certainly to see Doug
operate in the market. And I think we're bringing in a very solid Chief Credit
Officer. And we look forward to him coming in as well.
And particularly Ron, coming in as the Non-Executive Chair. Ron, in the two plus
years I've been in this market, has received more community awards, I think,
than anybody else, I've noticed. A very well respected, solid player in the
community and someone who's really going to be an invaluable asset to this
combined bank in having the community hear our message and to get the right tone
set for taking these banks out into the market. So, we're very appreciative of
Ron being willing to take this position. And he'll make a great contribution, as
I said.
Let's move to the strategic growth plan. The goal, here, is obviously to capture
market share. We think we have the management. We think we have the products and
services. More importantly, we think we've got the culture. We've got the
service culture. We've got the sales culture. So, we think we're going to have a
lot of success. The slogan we like to use is "The best bank for Hawaii." We're
going to be focusing on growth market segments, small business, commercial real
estate. And certainly, the combination of these banks gives us an opportunity to
be more competitive in the retail sector.
And we now have enough of a base to go out there and make more of a commitment
to our retail products and services. And we have a convenience factor, I think,
that we didn't have before. That's going to help us to see a lot more success
there. It also gives us an opportunity to expand our core competencies. The
Central Pacific organization has invested a lot of resources in our wealth
management arena. That's comprised of the three areas that you see under that
heading.
We think that the combined organization will provide now a platform for that
area of the bank to reach profitability faster and become a significant profit
contributor to us. Looking at the next slide, this just shows you the strong
balance sheet. We've referred to this, previously. So, we don't really need to
spend any time on that.
The important thing on the next slide, though, is the capital ratios. You can
see this is still strongly capitalized. At the rate that we will be building
capital, it will, as I said, it's going to become even stronger and we'll be
looking for ways to profitably deploy our surplus capital in many different
arenas. In the credit area, very solid non-performing assets-to-loans.
Reserves; very, very strong reserve position. So, we're creating a very, very
solid balance sheet there.
Let's talk about some of the transaction assumptions for just a moment. Earnings
for CPF were - you can read them there. Starting with $2.19 per share in 2004,
going up to $2.51 in 2006. Earnings for CBBI, $6.40 per share in 2004, up to
$7.19 per share in 2006. So, I think Ron and Dean would tell us that's
conservative based on what they've run. But, it's exciting, on a conservative
estimate, that we're still getting the results that we're forecasting for this
combined institution. There's the $19.5 million of cost saves I talked about.
The core-deposit intangibles estimated at $24 million amortized over 10 years.
And we've got $50 million net after tax restructuring charge. The key to this is
really the synergies, which you see on the next slide. We see very strong
synergies in compensation benefits, net occupancy and other expenses, where you
can see the cost saves in 2005 are 21%, after 2006, 32%. That's very, very
beneficial to the combined bank.
Going to the final page, this is what it's all about for our shareholders in
bringing these two banks together. That's the accretion of this transaction. You
can see in the yellow bars, we have a transaction that is massively accretive.
And we are very excited about seeing those results realized as we bring these
banks together. Our commitment to our customers, and to our employees and to our
shareholders is that will be done with great diligence, co-operation and
effectiveness. But we are really looking forward to this.
Now, let's move to the first quarter results for Central Pacific Financial very
quickly and then we'll go into the question and answers. I'll start with an
overview of the significant highlights of the first quarter, comment on some of
the current economic conditions in Hawaii in 2004. And Neal will follow with a
review of the financial results in more detail.
Net income for the first quarter of this year was $7.9 million, or 48 cents in
diluted earnings per share. It's down by 7.8% and 7.7% respectively. That is
compared to an exceptionally strong first quarter that we realized in 2003. We
continue to experience asset re-pricing during the quarter due to very
competitive market environment and interest rate environment.
The operating expenses were impacted by our investment in expanding our wealth
management program. As I said a few minutes ago, we think that this merger will
enable us to see the benefit to that program quickly - more quickly. But that
was - that impact was particularly felt in the area of salaries and benefits.
But, we're pleased to report that the fee income from fiduciary activities
improved by 23%. And fees from deposit accounts increased by 32.8% over the same
period last year as we're gaining momentum in our efforts to diversify our
revenue streams.
This environment and compression on our interest rate margins have made us very
determined that that's a diversification that we need, moving forward. Solid
gains in loans and deposits were realized by the end of this quarter. We're
especially pleased with our efforts to expand our core customer base, as
reflected by increases in our non-interest-bearing deposits and our core
deposits over the same period last year.
Let me say, just something briefly, about the economic outlook, here in Hawaii.
We're very optimistic there's going to be steady growth over the next few years.
According to a March issue of the State's Department of Business, Economic
Development and Tourism's quarterly statistical and economic report - that
sounds like a report economists would put out - we continue to project solid
gains in employment, income and visitor arrivals for the remainder of 2004.
The forecast is for 2.6% increase in real gross state product, 1.5% increase in
jobs - that's 8,500 jobs, which is a 1.5% increase - will result in a 1.5%
increase in wages and salaries too and a 5.1% increase in personal income. This
projection takes into account the impact of a labor strike in the local concrete
industry that really slowed the economy down for a short period of time.
Visitor arrivals and expenditures are now projected to increase by 5.2% and 6.5%
respectively. These are figures that are greater than before September 11, which
is very significant in this tourism-focused economy. There's renewed optimism
for Japanese visitor arrivals to be stronger with a recovering economy there and
a very strong Yen. The outlook for construction activity and home sales continue
to be strong, driven primarily by Federal construction contracts and this low
interest rate environment that we're experiencing.
Let me turn it over to Neal Kanda now to go through some of our financial
results in more detail. Then, we'll throw it open to question and answer.
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NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
Thanks very much, Clint. I'd like to just add additional details on our first
quarter financial results. First quarter, net income decreased by 7.8% over the
last year's first quarter mainly
due to a modest growth in net interest income and an increase in operating
expense.
Asset growth was healthy at 12.3% over a year ago, fueled by continued deposited
growth of $151 million or 9.2% with demand deposits increasing by over 23% and
savings accounts by over 12%. Certificates of Deposits jumped by $13 million
from a year ago. Loans increased by 9% over a year ago, primarily in the
residential and commercial mortgage loan categories. Net interest margin of
4.52% for the quarter decreased by 46 basis points from last year's first
quarter and was relatively unchanged from the 4.53% in the fourth quarter of
2003.
Provision for loan losses for the quarter, totaled $300,000 with $226,000 in net
loan charge offs for the first quarter, compared to $912,000 in net loan
recoveries a year ago. Non-interest expense increased mainly due to salaries and
employee benefits, which increased by 16% due to expenses, related to the
company's building of our business banking staff and to new lines of business
invested in during the last year.
As for income taxes, the effective rate on income taxes for the first quarter of
2004 was 33% with an expected run rate at 34% for the rest of the year.
Non-performing assets, as of March 31st 2004, totaled $7.6 million or 51 basis
points of total loans, up from $691,000 a year ago and up from $4.3 million at
year end, 2003. Non-accrual loans of $7.5 million were mainly comprised of loans
secured by commercial property. There was no other real estate held at March 31.
Stockholder's equity at March 31, 2004 increased to $204 million or 8.91% of
total assets. You may recall that in 2003, $55 million in Tier 1 qualified trust
preferred securities were issued in anticipation of the merger transaction.
Performance ratios for the first quarter of 2004 were return on assets of 1.43%
and return on stockholder's equity, of 15.76%. And efficiency ratio increased to
54.59%.
Looking ahead, we expect standalone earnings per share of approximately 5-7% for
2004. Net interest income growth will be driven by increased loan growth as net
interest margins is expected to settle, for the rest of the year, at 4.3-4.4%
range for those coming quarters. The company's balance sheet remains relatively
neutral to slightly asset sensitive. Despite the increase in non-performing
loans during the first quarter, loan quality is expected to remain relatively
strong during the remainder of the year. Non-interest income is positioned to
increase as we offer a wider array of investment and wealth management services
to the community and we remain focused on cost containment.
This concludes the discussion of our financial results for the first quarter of
2004. I'd like to turn it back to Clint.
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CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
OK, thanks Neal. We'd like to open it up for questions now. There are four of us
here that you can direct your questions to and looking forward to hearing what
you have to ask
Filed by CB Bancshares, Inc. pursuant to Rule 425
under the Securities Act of 1933 and deemed filed
pursuant to Rule 14a-12 under the Securities
Exchange Act of 1934
Subject Company: CB Bancshares, Inc.
Subject Company's Exchange Act File No.: 000-12396
QUESTION AND ANSWER
--------------------------------------------------------------------------------
OPERATOR
[OPERATOR INSTRUCTIONS] And your first question comes from Joe Morford of RBC
Capital Markets. You may proceed.
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JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
Thanks. Good morning everyone.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Morning Joe.
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JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
I've got a couple of questions, if I may, and the first is actually for Ron.
And just candidly, besides the price, what's really changed here and
specifically, how did you get comfortable with all your concerns about the
impact this merger will have on local Hawaii market and even something you
talked about anti-trust issues that held this deal up for the past year.
And then I have a follow up.
--------------------------------------------------------------------------------
RON MIGITA - CB BANCSHARES - CHAIRMAN & CEO
OK, thank you Joe.
You know, frankly, after the revised offer, you know, Clint and I had a number
of conversations. And I think, during that period of time, our comfort level I
think - our mutual comfort level between each other and our trust I think had
gotten to the point that you know, we felt that we could both proceed on and see
if this combination made a lot of sense. And you know, in addition to that you
know, in terms of the value that it brings not only to our shareholders but I
think to the employees and to the customers, and to the community, only made
more sense as we continued talking.
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CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
I'd just like to add something to that, if I could. As Ron said, we met several
times. Ron was very receptive to hearing our side of things and very open-minded
and really was instrumental in this thing finally coming together. So, we can
thank Ron for extending that olive branch and making this thing come together.
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
I think, on that point, can I just ask when was that olive branch extended and
you know, how long have you actually - the two of you actually have been
talking?
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CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
Maybe it was there for a while and we didn't see it.
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JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
My follow-up question is, I guess, two fold. One, I was just wondering if you
could provide a bit more detail into how the due diligence was conducted and how
extensive it's been particularly on the credit side?
And then, also, it looks like the cost saving projections may be up slightly
from the initial proposal, a year ago, and just, if you could talk through a
little bit more about how you going to accomplish that when you've committed to
not cutting employees involuntarily? You're retaining much of the senior
management of City Bank and you've also committed to opening a new branch for
each one you're going to close.
--------------------------------------------------------------------------------
CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
Thank you. We're going to let Dean take the first pass at that answer.
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DEAN HIRATA - CB BANCSHARES - CFO
Joe, yes, with regards to the due diligence, we had teams from both
institutions, both at the management level as well as the financial advisors.
And it was you know, very detailed due diligence that occurred over three or
four days and we did have a strong review of both loan portfolio - but as you
know, both institutions have very strong asset quality and the reserves are more
than adequate, very strong, positioned for growth going forward.
And there was some familiarity between some of the borrowers that we saw in both
portfolios. So, you know, we feel that through the due diligence but also
through our overall knowledge of both portfolios over the years, we've concluded
that the asset quality was as strong as we had anticipated. And as far as any
issues that came up again,
the due diligence went very well and there are really no surprises on either
side.
And speaking from our side on the due diligence, Neal, you want to give that
out?
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
Sure.
I'd like to add to what Dean said - the credit review from both sides were very
completely, it allowed us to get a very good view of and good prospective on
their lending and their loan quality has been improving, as Dean mentioned.
The other issue that we looked at was the asset liability strategy that City
Bank was - had embarked on. And we saw that they have had very good growth in
their core deposit area of late and that, they are making very good use of their
funds with very strong loan growth. So, that generally gave us a lot of comfort
in their asset liability strategy.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
It was a very thorough due diligence process on both banks and we spent
considerable amount of time getting through it and a lot of resources. We feel
like both sides got a very good look at each other.
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
OK, now, on the cost savings.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
I'm sorry, what? Can you repeat the question again?
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
Yes. I was just - looking at the cost saving projections, they seem to be up
slightly from the initial proposal a year ago. And kind of, where is that coming
from? And I guess, more specifically, you know, how you going to accomplish some
of these targets when you've committed to not cutting employees involuntarily
and you're retaining much of the senior management of City Bank and you've also
committed to opening a new branch for each one you're going to close.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
OK, Neal's got that question.
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
Joe, let me take a stab at that. First of all, in the past year, of course,
expenses at both companies did increase and when taking a better look at the
various expenses and expense levels and types of expenses in the various
categories, mainly the compensation and occupancy and other areas, we felt that
the higher number is the realistic number.
Frankly, when we came out with our initial number of $16 million a year ago, we
felt that was very conservative. As far as the no involuntary lay out strategy.
When we took a look at numbers, both bank are running at a natural attrition
rate of 20%. So, $16 million, a year ago, actually was assuming a lot more
attrition rate. We feel strongly that we can commit to the no involuntary
layoff policy. We believe strongly in our - both banks' employees and their
value to the organization and to servicing our customers. So that's going to be
a very crucial issue there, for us.
And again, in our assumptions that we had revised for this year, it rendered two
years down the road, a higher cost savings number.
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
And on the occupancy side, you're talking about cutting 40% of City Bank's
occupancy costs again. Doesn't sound like on a net basis, you're really cutting
any branches though.
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
Well, as far as the branch expansion program, we already have in our respective
budgets, branch and expansion costs. So, in our standalone budget, we - in the
case of Central Pacific Bank, we already have two branches budgeted for the
coming year. So that would help in any closures as far as our promise to open
new branches. And City Bank likewise, is doing that. So that does give a good
start and the opportunity to close branches. So that's what's reflected in the
numbers.
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
OK, thanks everyone.
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
One, Joe ...
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
Yes.
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
.... you've gone off.
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
No, I'm here.
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
OK, you're still there, OK. Dean's got a comment in here too.
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
In the numbers, again, with the policy of no involuntary layoffs, you know,
there are going to be positions and people moving into new positions, but there
is a broad-based severance plan that has been built into the numbers and with
this, we feel that we will be able to staff the organization for the future,
going forward.
--------------------------------------------------------------------------------
JOE MORFORD - RBC CAPITAL MARKETS - ANALYST
OK, that helps. Thank you Dean.
--------------------------------------------------------------------------------
OPERATOR
And your next question comes from Brett Rabatin of FTN Midwest Research.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
Good morning guys. How are you?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Good Brett, good.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
A couple of questions. First off, wanted to make sure I'm assuming this is a
fixed exchange ratio. I was curious if there were any (inaudible) collars on the
deal.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
(off mic)
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
I'm sorry.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
No. No collars are fixed.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
OK, so it's just rate fixed. And then, wanted to talk basically about some of
the things that are assumed for CBBI's assumptions in the near term. If Dean
could talk about, perhaps, some of the margin assumptions for the $6.40 per
share in this year. And then, if the $6.40 - assumes that the loan loss reserve
would somewhat continue to abate relative to loans.
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
First on the margin issue, with regards to the loan growth. You know, we have
built in the margin for this year. In fact, in the first quarter, have exceeded
our projections in our budget. We do see some margin pressure going forward,
somewhere from about 5-10 basis points. But again, that offset by strong loan
growth in our commercial real estate portfolio.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
Well Dean, can you then just give me a spread revenue growth perspective. I mean
the - will you grow your loan portfolio double digit that results in sort of,
8-10% total spread revenue growth. Is that kind of, how you're doing the Math?
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Yes, the growth is in that range of 8-10%. And primarily coming from our loan
production offices up in California.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
I know you've been doing that for a little while now. Can you talk about how
much you guys have on the mainland?
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Yes, the outstandings are a little over $200 million. And again, these borrowers
are triple A borrowers with very strong financial positions. These are credits
that our team has extensive experience with - relationships going back as far as
15-20 years. Doug Weld, our Chief Credit Officer was very instrumental in
setting up these two
offices. And again, the focus has been on maintaining the highest credit quality
with the loans that have been made to date.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Brett, if I could just jump in on that too. That was one of the areas we were
doing diligence that we really wanted to look at very carefully. And we were
very impressed that these are all relationship loans.
Generally, on the front end, we had a concern that you know, they might be
brokered or largely participation loans but these are relationship loans. Doug
Weld, the Chief Credit Officer came out of California, had a team in California
that he was able to bring together at City Bank. And so, not only are these good
relationships from a borrowing standpoint, it looks like there can be good
relationships from the deposits standpoint as well.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
OK. And then to go back to the assumptions for CBBI's earning power this year
and next year. Credit quality is cleaned up and you pulled the reserve down
little bit relatively speaking in the first quarter. So I was curious about the
implied credit leverage and the EPS assumptions.
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Again, the significant improvement in our credit quality has resulted in
a reduction in the provision for credit losses. As at the end of March, our
allowance to non-performing coverage ratio was at six times. So we are very
strong with our reserves. We feel that we do have a sufficient reserve, for the
growth that we have going forward. So we anticipate the provision we maintain at
these levels and being sustainable going forward, over the next few years.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
I don't quite follow that. So can you talk about relative provisioning to loan
growth i.e. will the reserve abate somewhat in terms of coverage of a loan
portfolio?
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Again, in projecting out our projected charge offs, and looking at the
provision and balancing that against the current allowance that we have at the
end of the first quarter, with the growth, we have packed it in that with the
adequate reserves, these are the appropriate provisions that we anticipate over
the next quarters, I'd like to say, going forward over the next few years. So I
guess the key to this is that we have a very strong allowance, which provides
for the growth that we anticipate ...
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
OK.
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
.... at these levels.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
I think I understand what you're saying. All right. And then, just wanted to
talk about - you guys have a little bit different product sets. I wanted to talk
about, you know, leverage of the asset management division and then, just
generally, you two overlaying your commercial and consumer product sets on each
other, how will that occur?
--------------------------------------------------------------------------------
CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
Well, as I mentioned, the wealth management team is a team we've made an
investment in. And right now, we're on the cost side of that investment,
building the revenue side and it's building nicely.
Clearly, when we have a larger base to build from, that helps us from two
respects. One is obviously we have a bigger customer base that we can sell those
products into but also an external credibility issue is even more important. You
know, we are viewed as an organization that has more significant assets to be
able to back the product and services that come out of that group. And I think
perception is very important in being able to attract the kind of client base
you want out of there. So that's really going to help us out in our efforts
going forward.
In terms of the different real estate loan concentrations in the banks, you've
correctly observed, we do actually offset each other quite nicely. When we blend
the bank, we think we've got a more prudent concentration. The key thing that
your question is driving at is how we manage it going forward. We think in our
bank we've got an extremely solid team that focuses on the commercial real
estate area and we will be able to bring further strength to that team from City
Bank. Where they've really helped this combination is their expertise in the
retail mortgage area.
And we're looking forward to bring their team in and that will help us, I think
to become a much more effective retail player because as you know, that mortgage
business is a great opportunity for cross selling. And we can now really
institute a program so we can get more retail products and services in there and
into the market. And we feel like we've got very strong management on both sides
to keep that balanced and keep the same credit quality moving forward.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
OK, and then, just one last question - the $50 million restructuring charge,
can you talk about how much of that will be taken in the third quarter and what
a trend line for that should be over the next year or so?
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
The total of roughly $50 million in restructuring charges comprised of about $23
million in transaction expenses and the remaining in restructuring on a pre-tax
basis. So roughly, I'm sorry, $31 million.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
OK.
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
Yes.
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
OK. Will it all be taken at closing? That is what you're saying.
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
Well, you know, it depends on when you know, I mean, some of these restructuring
charges are related to lease terminations and those type things. So, those have
to taken as they occur. So in our modeling, we are assuming for capital adequacy
purposes that they will be taken up front. However, and hopefully, that you
know, we would be able to take it within the first 6-9 months as our integration
plans develop. So we've you know, capital adequacy issue was the main issue in
modeling if we assumed all of it was a plan. Did I answer your question, Brett?
--------------------------------------------------------------------------------
BRETT RABATIN - FTN MIDWEST RESEARCH - ANALYST
Yes, I think so. I'll turn it over to someone else. Congratulations on you guys
getting together.
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Thanks Brett.
--------------------------------------------------------------------------------
OPERATOR
And your next question comes from Mark Lynch of Lincoln Management Company
(ph). You may proceed.
--------------------------------------------------------------------------------
MARK LYNCH - LINCOLN MANAGEMENT COMPANY - ANALYST
Good morning. I was wondering why the $50 million charge was such a big multiple
of the cost savings? Normally, the number is much closer to one-to-one or one
and a half-to-one?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Well, it did drag on for a year and it was an unsolicited situation. So it did
cause in our mutual communications over the year through the media and through
other means to build up the costs. It was, yes, I'm pretty sure that it was an
expensive development leading up to this combination.
--------------------------------------------------------------------------------
MARK LYNCH - LINCOLN MANAGEMENT COMPANY - ANALYST
OK, thank you.
--------------------------------------------------------------------------------
OPERATOR
And your next question comes from Jim Hoffman (ph) of TSAM (ph), you may
proceed.
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
Good morning and congratulations. I have several questions. First is, can you
estimate how much excess capital the new company will enjoy?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Well, excess capital, you know, in our models, the capital levels are - of
course, always, we are at well capitalized levels as far as total capital ratio
is concerned. And the equity of the assets ratio is perhaps in the sub-6% area
at inception by closing, with the profitability of combination, however, the
equity of assets ratio will increase very quickly in the first couple of years.
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Second, if I can speak on the interest capital for CB Bancshares. Again, for us,
the most stringent of the ratios is our total risk base capital ratio and at
that level we have approximately $30 million in excess capital. So again, we do
bring this to the combination and I know that Central Pacific, likewise, is well
capitalized. So there will be excess capital that we can deploy for - to
increase our overall profitability.
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
OK, it sounds like from your two answers that the excess capital, I guess,
initially will build in the first two years then?
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Yes.
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
OK. Two, are there any plans to open any branches in California?
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
I think that the strategy we need to talk about more, there are no current
plans. No - to answer your question.
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
OK. Two other quick questions - can you elaborate a little bit on the election
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
OK. There is a - OK, let's go to the former again. We are seeing $20 per share,
plus 2.6752 shares on an exchange ratio. So the cash amount is a fixed pool,
which is roughly $90 million. And as the CPF price fluctuates up to the closing
date - I believe, it's 10 days before closing date is when it will be fixed and
prorated based on the election of the various shareholders.
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
OK, and ...
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
(off mic).
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
I'm sorry. And lastly, what other alternatives did CB Bancshares evaluate or
consider?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Can you repeat the question?
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
What other alternatives, if any, did CB Bancshares evaluate or consider?
--------------------------------------------------------------------------------
DEAN HIRATA - CB BANCSHARES - CFO
Hang on just a minute.
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
Sure.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Maybe I can just you know, say very simply that all of this will be reflected in
the proxy. However, you know, I want you to know that we are committed to this
transaction.
--------------------------------------------------------------------------------
JIM HOFFMAN - TSAM - ANALYST
OK, thank you very much.
--------------------------------------------------------------------------------
OPERATOR
And your next question comes from Patrice Canada (ph) of Guardhill Capital. You
may proceed.
--------------------------------------------------------------------------------
PATRICE CANADA - GUARDHILL CAPITAL - ANALYST
Good morning, just a few quick questions - one, I wanted to confirm that there
is no walk away provision?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
That's right.
--------------------------------------------------------------------------------
PATRICE CANADA - GUARDHILL CAPITAL - ANALYST
OK, and is there a max and min for the cash stock election?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
No, there is just a fixed amount of cash.
--------------------------------------------------------------------------------
PATRICE CANADA - GUARDHILL CAPITAL - ANALYST
Fixed at $20 and ...
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Right. And the total pool is about $90 million as Neal had said.
--------------------------------------------------------------------------------
PATRICE CANADA - GUARDHILL CAPITAL - ANALYST
OK. And in terms of filing or redoing the regulatory applications, do you plan
to simply file amendments to the existing applications?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
That's our plan.
--------------------------------------------------------------------------------
PATRICE CANADA - GUARDHILL CAPITAL - ANALYST
OK, and my last question quickly is, FDIC is just a notification?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
I'm sorry Patrice, can you repeat that question?
--------------------------------------------------------------------------------
PATRICE CANADA - GUARDHILL CAPITAL - ANALYST
The FDIC - the filing with the FDIC was just made as a notification, it's not
a formal review that will be required or that was required?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Yes it's our own.
--------------------------------------------------------------------------------
PATRICE CANADA - GUARDHILL CAPITAL - ANALYST
OK, thank you very much.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
OK.
--------------------------------------------------------------------------------
OPERATOR
And your next question comes from Greg Ison (ph) of Safeco.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
Thanks. Good morning. Could you describe what you think the time frame will be
that will - it will take you to close the duplicate branches that you plan on
closing and to start up the new branches that you intend to start up? How long
will it take to run through the kind of turnover of the branches?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
You know, I think it's probably a little early to answer that in any detail.
We've got to - as we move forward now to bring these banks together, both sides
have to really evaluate that and come up with a plan. You know, clearly that's
something we want to address early on and we will be coming forward with more
specifics.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
OK. If I could move on, my next question would be, I understand your statements
about excess capital and your risk-based capital ratios but just kind of, on a
superficial level because many of your shareholders will look at this on a
superficial level and say, "Your tangible equity to tangible assets ratio is
down to 6.51% on a pro-forma basis. It seems quite low. I guess that's because
of the cash payment and then the $50 million charge." Do you intend to do
anything to conserve capital to build that up and could you comment about
dividend policy go forward?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Well, right now we intend to keep general level of dividend you know, relatively
the same, as far as keeping the overall return to our shareholders as attractive
as can be. We are looking at - we will monitor growth, growth rate and manage
that very carefully. Our models show that on our, in the ensuing quarters, as we
regain earnings, our capital - our tangible capital ratios will increase quite
nicely. So in a year, year or two during the closing, we are comfortable that we
can maintain the general level of dividend.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
So ...
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
I'd like to add to that. Again, as Neal indicated, now with the earnings growth
and again, with the cost savings and synergies that we've projected, the
combined institution would generate capital, going forward.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
OK, but CPF stock right now has an annualized - because 64 cent dividend. Can
you make a verbal commitment to try to maintain that or is that subject to
whatever you see going forward?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Again on a stand-alone basis, CPF has tried to keep a stable long-term growth in
dividend. So you know, it's difficult for us to make a commitment there but what
we do commit is to the shareholder to provide an attractive return on their
investment.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
I see. Obviously it's too early for you to state what the dividend will be ...
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Yes.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
.... post closing. You are not willing to make that statement. Well, I had to as
If I could ask another question. You said - you said over and over that there
will not be any involuntary severance of employees but it seems - something you
said earlier in the call seems to imply that may have an expectation for
voluntary severance. Can you describe what you may, what steps you may take to
solicit voluntary severance and is the cost of that program in the $50 million
charge?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
At this time we have not discussed any voluntary programs. We are again
committing to having no involuntary layoffs and there are no costs for voluntary
programs in our restructuring charge.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
So it's not in the charge?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
I'm sorry - what?
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
A voluntary program is not in the charge - the $50 million number?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
Right. With regards to the voluntary plan again, as Neal indicated, you know, we
are committed to the no involuntary layoff policy. We have built in to the
restructuring charges, an amount for employees that would be placed in lower
level positions or moved into non-like positions and again, this has been
factored into the overall restructuring charge.
So, we anticipate that - again, like I indicated earlier, we're going to do
what's right for the intuition, going forward. We want the right employees in
the right positions within the bank. And we're really looking at this as a
long-term plan as opposed to just what we need to achieve this year and what we
plan to achieve, going forward.
--------------------------------------------------------------------------------
GREG ISON - SAFECO - ANALYST
I see. OK that's it for me. I'll let someone else go.
--------------------------------------------------------------------------------
OPERATOR
[OPERATOR INSTRUCTIONS] And your next question comes from Brian Law (ph) of
Chesapeake Partners. You may proceed.
--------------------------------------------------------------------------------
BRIAN LAW - CHESAPEAKE PARTNERS - ANALYST
Hi, congratulations on reaching a friendly deal. I was hoping you could clarify
the election procedure - if a shareholder were to elect all stock, what would
they receive? Or if they were to elect all cash, what would they receive?
--------------------------------------------------------------------------------
NEAL KANDA - CENTRAL PACIFIC FINANCIAL - CFO
Again, there is a fixed pool of Dollars and just on an aggregate basis. So, OK,
let me turn it over to Neil Moganbesser for a more technical explanation of that
--------------------------------------------------------------------------------
BRIAN LAW - CHESAPEAKE PARTNERS - ANALYST
Yes, OK, thanks Neal.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
The price will be set immediately prior to closing - on a 10-day average, prior
to closing, based on CPF's stock price and that number times the exchange ratio
plus $20 will be the per share consideration for all CBBI shareholders. CBBI
shareholders will
have the option to choose cash or stock in that dollar values and the aggregate
pool stays the same, so one side will have to be prorated back - as in, there's
not have enough cash or enough stock, enough cash and not enough stock or enough
stock and not enough cash. If there's enough cash and not enough stock, cash
people will receive that value in cash and if there's enough stock and not
enough cash, the stock people will receive that value all in CPF stock.
In reverse, obviously, if they get prorated back, if there's not enough cash,
they will receive prorated amount of cash and the remainder to gross them up to
that value in stock. All shareholders based on that 10-day average price of CPF
stock will receive the same value regardless of the election.
--------------------------------------------------------------------------------
BRIAN LAW - CHESAPEAKE PARTNERS - ANALYST
And if a shareholder wanted to elect just the $20 in cash and the 2.6572 shares,
would they have been guaranteed of getting that?
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
That will not be an election option.
--------------------------------------------------------------------------------
UNIDENTIFIED PARTICIPANT
It will not be an election option. OK, thank you.
--------------------------------------------------------------------------------
OPERATOR
If there are no more questions, I will turn the call back over to Mr. Clint
Arnoldus for closing remarks.
--------------------------------------------------------------------------------
CLINT ARNOLDUS - CENTRAL PACIFIC FINANCIAL - CEO
OK, thank you again for joining us today. And, I just want to reiterate how
great we think this combination is, how much it's going to benefit our
shareholders, our customers, our employees and our communities in the state of
Hawaii. We're very committed to making this a resounding success and we will be
working very, very hard to bring that to reality and think we have all the
components to get it done. Thank you very much.
--------------------------------------------------------------------------------
OPERATOR
Thank you for your participation in today's conference. This concludes the
presentation. You may now disconnect. Good day.