CPF spends $620,000
on merger advertising

Central Pacific Finance also
reports net income was up 4 percent

Central Pacific Financial Corp., vowing to press on with its hostile merger, said it spent $620,000 in advertising-related expenses last quarter in its pursuit of CB Bancshares Inc.

The parent of Central Pacific Bank, which didn't break out its other merger-related expenses, disclosed that figure yesterday in conjunction with its second-quarter earnings.

CPF said net income last quarter was $8 million, or 49 cents a share, compared with $7.7 million, or 47 cents a share, a year ago.

Chief Financial Officer Neal Kanda also said that, excluding merger-related expenses, he expects CPF to meet its 2003 earnings-per-share guidance of 6 percent to 10 percent above last year.

Kanda said CPF's costs for legal fees and other expenses weren't disclosed because "it has to be looked at in the context of our general acquisition plan."

"In the course of the acquisition transaction, there are certain costs that are capitalized (placed on the balance sheet and not treated as an expense) and are attributed to the eventual consummation of the deal," Kanda said.

CB said yesterday it spent $4.2 million before taxes defending against CPF's proposed takeover.

Clint Arnoldus, CPF's chairman, president and chief executive officer, expressed his unwavering desire yesterday to see the merger through.

"We remain committed to moving forward with this transaction," Arnoldus said on a conference call. "Although we're very disappointed by the many obstacles CB Bancshares has placed in the way of its shareholders' ability to call a meeting, we still hope CB Bancshares will negotiate with us."

The prospects of that happening anytime soon appear unlikely, considering CB filed a suit against CPF Monday alleging CPF illegally formed a voting group with certain CB shareholders without obtaining CB shareholder approval as required by Hawaii law.

CB Chairman Lionel Tokioka took CPF to task over CPF's reluctance "to withdraw quietly" after failing to obtain approval from CB shareholders under Hawaii's Control Share Acquisitions statute.

"It is unfortunate that in attempting to force its will on our institution and advance its irresponsible hostile takeover efforts, CPF apparently has chosen to violate Hawaii law," Tokioka said. "Even more troubling is Mr. Arnoldus' apparent disregard for the economic and legal risks the voting group is subject to under Hawaii law."

CPF said the company will vigorously oppose CB's lawsuit, which it called "without legal merit," and will continue to press for the merger.

"By suing the owners of 30 percent of its stock, CB Bancshares is desperately maneuvering to prevent the very people to whom is owes a fiduciary duty from exercising the simple right to call a meeting -- a right they have under their own bylaws and Hawaii law," CPF said. "This lawsuit is an utterly unprecedented assault on the people who own their company, on the intent of Hawaii law, and on shareholder democracy."

RBC Capital Markets analyst Joe Morford, one of two analysts who covers CPF's stock, said the merger situation is still too uncertain to predict what will happen.

"Clearly, CB Bancshares is not going to give up the fight and is going through legal challenges right now, and CPF is pursuing the merger with efforts to get regulatory approvals," Morford said.

Meanwhile, CPF's second-quarter revenues grew 3 percent to $26 million from $25.2 million a year ago. Net interest income before a provision for loan losses was up 2 percent to $22.3 million from $21.8 million a year ago. However, the bank's net interest margin, like all of its peers, continued to be squeezed. The net interest margin fell to 4.8 percent from 5.1 percent a year ago.

Nonperforming assets decreased 91.5 percent to $274,000, from $3.2 million a year ago. However, loans delinquent for 90 days or more increased to $1.8 million from $19,000 a year ago primarily due to a $1.6 million loan that is secured by industrial property. The provision for loan losses fell 33 percent to $200,000 from $300,000 a year ago.

As of June 30, total assets were $2.1 billion, up 8 percent from $1.9 billion a year ago. Total loans were $1.34 billion, up 5 percent from $1.28 billion a year ago but flat with the first quarter of this year. And total deposits were $1.7 billion, up 10 percent from $1.6 billion.

CPF's return on average equity, which measures how well it used reinvested earnings, fell to 17.3 percent from 19.4 percent.

Its return on average assets, which indicates how much profit it achieves for each dollar of assets it controls, slipped to 1.56 percent from 1.62 percent.

Morford, who has a "sector perform" rating on CPF's stock, said the bank's return on equity was impressive but that CPF faces some hurdles.

"Generally, the results were in line with expectations, but a number of the fundamental trends show they're facing their challenges with sluggish loan growth and margins under pressure," he said.


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