An all-but-done deal

The impending merger of
2 isle banks will test cost
-savings projections

Can two banks with similar roots but different personalities find happiness under one roof?

That question will start to get answered today when shareholders from Central Pacific Financial Corp. and CB Bancshares Inc. convene in separate meetings at Dole Cannery.

The expectation among bank followers is that the financial institutions have been able to gain the necessary 75 percent share approval to merge the two companies. That likelihood will close the chapter on City Bank's parent's 45-year history and mark a new beginning for 50-year-old Central Pacific Bank's parent. Both banks were founded to serve the Japanese-American community in Hawaii.

When the expected merger closes on Wednesday, the combined bank will have $4.4 billion in assets, $3.3 billion in deposits and $3 billion in loans. Its deposit market share will be 14 percent and rank it a strong fourth in the market, right on the heels of American Savings Bank. Bank of Hawaii and First Hawaiian Bank are in a virtual tie for the top position.

The marriage of No. 4 Central Pacific and No. 5 CB Bancshares also will create a more diversified loan portfolio by combining Central Pacific's stronger commercial loans with CB Bancshares' emphasis on residential lending.

CB Bancshares shareholders will receive cash and Central Pacific stock worth approximately $95 a share for each share of CB Bancshares stock.

Central Pacific has said it stands behind its commitment of no layoffs, but it might need to offer voluntary separation packages to get employee numbers down with the expected closure of approximately 10 overlapping branches. The identity of those branches, though, is not expected to be unveiled until later this year or early next year because the banks -- unlike the holding companies -- won't merge until the first quarter.

One announcement, though, that is expected later this week is the configuration of the new bank's 15-member board of directors. Central Pacific said it will bring over six of CB Bancshares' 10 board members, including President and Chief Executive Ronald Migita, who will become nonexecutive chairman of the combined company. Migita and the CB Bancshares board had attempted to keep CB Bancshares independent during the past year and a half but eventually relented after Central Pacific continued to sweeten its takeover bid and agreed to bring over some CB Bancshares executives to the new company.

Clint Arnoldus, chairman, president and CEO of Central Pacific, will retain only the CEO title at the new bank. Arnoldus was hired more than two years ago as the first non-Japanese leader of the bank.

Among other key positions, Central Pacific Chief Financial Officer Neal Kanda will take over as president while Dean Hirata, CFO of CB Bancshares, will move over to Central Pacific in the same capacity.

Analyst Joe Morford, who covers Central Pacific for San Francisco-based RBC Capital Markets, said Wall Street will be watching the integration of the two companies to see if the combined bank can achieve the $19.5 million in annual cost savings by 2006 that Arnoldus has projected.

"In this case the integration of the banks may be particularly acute given the small community in Hawaii, the history between the two companies and also the fact that Central Pacific has limited experience in integrating acquisitions," Morford said. "And just the relative size of the two companies can often make things more challenging."