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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K


[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-12396

CB BANCSHARES, INC.

(Exact name of registrant as specified in its charter)


|                         |  |                                  
|------------------------ |  | ---------------------------------
|Hawaii                   |  | 99-0197163                       
|(State of Incorporation) |  | (IRS Employer Identification No.)

201 Merchant Street Honolulu, Hawaii 96813
(Address of principal executive offices)

(Registrants Telephone Number) (808) 535-2500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par value $1.00 per share

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [   ]

The aggregate market value of registrants Common Stock held by non-affiliates
at June 30, 2003 was approximately $248,667,000. As of January 31, 2004,
registrant had outstanding 4,338,337 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Proxy Statement for its annual meeting of
shareholders to be held on April 29, 2004 are incorporated by reference into
Part III and IV.


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|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | ITEM 1. BUSINESS                                                                             
|              | ITEM 2. PROPERTIES                                                                           
|              | ITEM 3. LEGAL PROCEEDINGS                                                                    
|              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II      
|              | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|              | ITEM 6. SELECTED FINANCIAL DATA                                                              
|              | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|              | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|              | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|              | ITEM 9A. CONTROLS AND PROCEDURES                                                             
|PART III     
|              | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|              | ITEM 11. EXECUTIVE COMPENSATION                                                              
|              | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|              | ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES                                              
|PART IV      
|              | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES   
|EXHIBIT INDEX
|EXHIBIT 3.2  
|EXHIBIT 21   
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



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|              |  |                                                                                       |  |  |    |  |      | 
|------------- |  | ------------------------------------------------------------------------------------- |  |  | -- |  | ---- | 
|              |  |                                                                                       |  |  |    |  | Page | 
|              |  | PART I                                                                                |  |  |    | 
|Item 1.       |  | Business                                                                              |  |  | 3  | 
|Item 2.       |  | Properties                                                                            |  |  | 10 | 
|Item 3.       |  | Legal Proceedings                                                                     |  |  | 10 | 
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 11 | 
|              |  | PART II                                                                               |  |  |    | 
|Item 5.       |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  |  | 11 | 
|Item 6.       |  | Selected Financial Data                                                               |  |  | 12 | 
|Item 7.       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |  | 13 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 29 | 
|Item 8.       |  | Financial Statements and Supplementary Data                                           |  |  | 32 | 
|Item 9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |  | 55 | 
|Item 9A.      |  | Controls and Procedures                                                               |  |  | 55 | 
|              |  | PART III                                                                              |  |  |    | 
|Item 10.      |  | Directors and Executive Officers of the Registrant                                    |  |  | 56 | 
|Item 11.      |  | Executive Compensation                                                                |  |  | 56 | 
|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 56 | 
|Item 13.      |  | Certain Relationships and Related Transactions                                        |  |  | 56 | 
|Item 14.      |  | Principal Accounting Fees and Services                                                |  |  | 56 | 
|              |  | PART IV                                                                               |  |  |    | 
|Item 15.      |  | Exhibits, Financial Statement Schedules, and Reports On Form 8-K                      |  |  | 56 | 
|Signatures    |  |                                                                                       |  |  | 59 | 
|Exhibit Index |  |                                                                                       |  |  | 60 | 

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K includes forward-looking statements within
the meaning of the Securities Exchange Act of 1934, as amended by the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, included in this report that address results or
developments that CB Bancshares, Inc. and consolidated subsidiaries (the
Company) expects or anticipates will or may occur in the future, where
statements are preceded by, followed by or included the words believes,
plans, intends, expects, anticipates or similar expressions, including
such things as: (i) business strategy; (ii) economic trends and market
condition, particularly in Hawaii; (iii) the direction of interest rates and
prepayment speeds of mortgage loans and mortgage-backed securities; (iv) the
adequacy of the Companys allowances for credit and real estate losses based on
credit risks inherent in the lending processes; (v) expansion and growth of the
Companys business and operations; (vi) renewal of existing credit agreements
with and availability of additional advances from the Federal Home Loan Bank of
Seattle (the FHLB); and (vii) other matters are forward-looking statements.
These statements are based upon certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments as well as other factors it
believes are appropriate in the circumstances. These statements are subject to
a number of risks and uncertainties, many of which are beyond the control of
the Company, including international, national and local economic, market or
business conditions; real estate market conditions, particularly in Hawaii; the
opportunities (or lack thereof) that may be presented to and pursued by the
Company; competitive actions by other companies; changes in laws and
regulations; the effects of natural disasters, terrorist acts and wars; and
other factors. Actual results could differ materially from those contemplated
by these forward-looking statements. Consequently, all of the forward-looking
statements made in this report are qualified by these cautionary statements and
there can be no assurance that the actual results or developments anticipated
by the Company will be realized or, even substantially realized, and that they
will have the expected consequences to or effects on the Company and its
business or operations. Forward-looking statements made in this report speak
as of the date hereof. The Company undertakes no obligation to update or
revise any forward-looking statement in this report.







PART I
ITEM 1. BUSINESS

CB BANCSHARES, INC.

CB Bancshares, Inc. (the Parent Company) is a bank holding company which was
incorporated in the State of Hawaii in 1980. As a bank holding company, the
Parent Company has the flexibility to directly or indirectly engage in certain
bank-related activities other than banking, subject to regulation by the Board
of Governors of the Federal Reserve System (the Federal Reserve Board or
FRB). The Parent Company has three wholly-owned subsidiaries, City Bank (the
Bank), Datatronix Financial Services, Inc. (Datatronix) and O.R.E., Inc.
(inactive), which are discussed below.

Our Internet address is www.citybankhawaii.com. On our Investor Relations web
site, which can be accessed through www.citybankhawaii.com, we post the
following filings as soon as reasonably practicable after they are
electronically filed with or furnished to the Securities and Exchange
Commission: our annual report on Form 10-K, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, our proxy statement related to our annual
stockholders meeting and any amendments to those reports or statements filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934. All such filings on our Investor Relations web site are available free
of charge.

CITY BANK

City Bank is a state-chartered bank organized under the laws of the State of
Hawaii in 1959. The Bank is insured by the Federal Deposit Insurance
Corporation (the FDIC), and provides full commercial banking services through
17 branches on the island of Oahu, 2 branches on the island of Hawaii, 2
branches on the island of Maui and 1 branch on the island of Kauai. These
services include receiving demand, savings and time deposits; making
commercial, real estate and consumer loans; financing leases; financing
international trade activities; issuing letters of credit; handling domestic
and foreign collections; selling travelers checks and bank money orders; and
renting safe deposit boxes.

The Banks primary focus has been corporate lending to small- to medium-sized
businesses by maintaining relationships and expertise within business segments
and providing personal customer service. The Bank intends to continue to
develop and enhance the expertise of the corporate sales force and to leverage
these corporate relationships to generate core deposit growth. The Bank has
linked the corporate and wholesale lending to the retail banking group with the
intent of developing seamless service between the corporate loan officers and
the branch personnel and to increase cross-sale opportunities between business
and retail customers. The Bank has commenced implementing its customer
relationship management program which it believes will significantly enhance
this effort.

The Bank also plans to further develop its electronic banking activities by
continuing to enhance internet banking capability for both business and retail
customers.

DATATRONIX FINANCIAL SERVICES, INC.

Datatronix, a wholly-owned subsidiary, was incorporated in the State of Hawaii
in June 2000. Datatronix offers item processing services to banks, thrifts and
other financial institutions in the State of Hawaii and California. As of
December 31, 2003, Datatronix had six customers, with the Bank as its primary
customer.

BUSINESS SEGMENTS

The Companys business segments are defined as Retail Banking, Wholesale
Banking, Treasury and All Others. Retail Banking is made up of retail
deposits, mortgage banking and consumer lending activities. Wholesale Banking
consists of wholesale deposits, commercial real estate lending, corporate
lending and the specialized lending functions of the Bank. The Treasury
segment is responsible for managing the Companys investment securities
portfolio and borrowing. The All Other segment consists of the administrative
support of the Company. Additional financial and other information about the
Companys business segments is presented in the Segments Discussion section of
Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) and Note V of Notes to the Consolidated Financial
Statements.

FHLB BORROWINGS

A primary source of borrowings for the Company is advances from the FHLB. The
Bank has credit line agreements allowing for both short- and long-term
advances. The agreements permit the Bank to borrow up to 35% of total
qualified assets, provided that adequate mortgage loans or investment
securities are pledged as collateral. At December 31, 2003, the Bank had
$305.0 million in short-term advances from the

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FHLB maturing from August 2004 to December 2004 with rates from 1.10% to 1.49%,
and $194.4 million in long-term advances from the FHLB ranging in maturity from
January 2004 to September 2014 with rates from 2.26% to 8.22%. Advances are
priced at the date of advance as either fixed or variable based. See the
Liquidity section of Managements Discussion and Analysis as well as Notes H
and I of Notes to the Companys Consolidated Financial Statements for further
information.

COMPETITION AND ECONOMIC ENVIRONMENT

The earnings and growth of the Company are affected by the changes in the
monetary and fiscal policies of the United States (the U.S.), as well as by
local, national and international economic conditions. The overall growth of
loans and investments, deposit levels and interest rates are directly
influenced by the monetary policies of the Federal Reserve System. Since these
changes are generally unpredictable, it is difficult to ascertain the impact of
such future changes on the operations of the Company and its subsidiaries.

The banking business is highly competitive. The Bank competes for deposits and
loans with five other commercial banks (the Bank is the fourth largest of the
five commercial banks) and two other savings associations located in Hawaii.
In addition to other commercial banks and savings associations, the Bank
competes for savings and time deposits and certain types of loans with other
financial institutions, such as consumer finance companies, credit unions,
merchandise retailers, and a variety of financial service and advisory
companies. The Bank also competes for mortgage loans with insurance and
mortgage companies.

The economy of Hawaii is supported principally by tourism, governmental
expenditures (primarily for the military), construction, and agriculture. The
government has made certain strides in attempting to broaden the states
economic base in the areas of diversified agriculture, biotechnology,
information technology and film. A small island economy like that of Hawaii,
which significantly depends on imports for consumption, is greatly influenced
by the changes in external economic conditions. A key to the economic
performance of the state is the health of the U.S. and Japan economies and, to
a lesser extent, the economies of Canada, Europe and other Asian nations. With
the continued global instability and geopolitical issues in the Middle East and
Asia, the Hawaii economy and many businesses are vulnerable to another economic
downturn.

The events of September 11, 2001 have had a significant negative impact on the
world, U.S. and Hawaii economies. Due to its dependence on tourism, Hawaii has
been significantly affected by these events. However, during 2003, the states
tourism industry showed slight improvement over 2002, with total visitor days
increasing by 3.0%. At December 31, 2003, Hawaiis unemployment rate was 3.8%,
as compared to 3.6% reported a year ago. This coincided with the increase of
real personal income by approximately 3.5% over this same period. Another
sector showing improvement in 2003 was the states housing market, supported by
low mortgage interest rates. Residential home sales in 2003 were a record $3.5
billion, or a 35.1% increase, compared to $2.6 billion in 2002. The 2003
median sales price for single family homes and condominiums increased by 13.4%
and 15.1%, respectively. Private building permits were up 37.8% overall for
the year through November 2003 compared with same period in 2002. The total
population of the State of Hawaii grew by 1.4% from 2002 to 2003.

Given these positive trends in key non-tourism sectors and overall economic
indicators, the Hawaii economy is expected to grow moderately by 2.8% in 2004
excluding inflation. Future growth in Hawaiis economy is expected to be tied
primarily to the rate of expansion in the mainland U.S. and Japan economies and
increased military spending, and remains vulnerable to uncertainties in the
worlds geopolitical environment.

REGULATORY CONSIDERATIONS

The following discussion sets forth certain elements of the regulatory
framework applicable to the Company. Federal and state regulation of financial
institutions is intended primarily for the protection of depositors rather than
shareholders of those entities. To the extent that the following discussion
describes statutory or regulatory provisions, it is not intended to be complete
and is qualified in its entirety by reference to the particular statutory or
regulatory provisions, and any case law or interpretive letters concerning such
provisions. In addition, there are other statutes and regulations that apply
to and regulate the operation of the Company and its subsidiaries. Any change
in applicable laws, or regulations, may have a material or possibly adverse
effect on the business of the Company or other subsidiaries of the Company.

Bank Holding Company.The Parent Company is a bank holding company subject to
supervision and regulations by the FRB under the Bank Holding Company Act of
1956, as amended (the BHCA). As a bank holding company, the Parent Companys
activities and those of its banking and non-banking subsidiaries are limited to
the business of banking and activities closely related or incidental to banking
and to certain expressly permitted nonbanking activities. In addition, with
certain exceptions, the Parent Company may not acquire, directly or indirectly,
more than 5% of any class of the voting shares of, or substantially all of the
assets of, a bank or any other company without the prior approval of the FRB.

The Bank.The Bank is organized under the laws of the State of Hawaii and is
subject to significant regulations by the FDIC and the State of Hawaii Division
of Financial Institutions of the Department of Commerce and Consumer Affairs.
The Bank is also subject to significant federal and state regulations which
materially affects its operations.

The Community Reinvestment Act.The Community Reinvestment Act (the CRA)
requires lenders to identify the communities served by the Companys offices
and to identify the types of credit the institution is prepared to extend
within such communities. Under the CRA regulations of the FDIC and the other
federal banking agencies, an institutions performance in making loans and
investments and maintaining branches and providing services in low- and
moderate-income areas within the communities that it serves is evaluated. In
connection with its assessment of CRA performance, the FDIC assigns a rating of
outstanding, satisfactory, needs to improve, or substantial
noncompliance.

The Federal Home Loan Banks. Under the Federal Home Loan Bank Act, as amended,
the ongoing stock investment requirement is equal to 0.3% of total assets, 1%
of residential mortgages and mortgage-backed securities, or 5% of advances
divided by the institutions Qualifying Assets Ratio (QAR), whichever is
higher. The institutions QAR will determine a ratio of stock to borrowings
(the higher the QAR, the lower the stock to borrowings requirement). The stock
is recorded as a restricted investment security at par. Furthermore, FHLB
advances must be collateralized with certain types of assets. Accordingly, the
Company has pledged certain investments and loans to the FHLB as collateral for
its advances.

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Dividend Restrictions. The principal source of the Parent Companys cash flow
has been dividend payments received from the Bank. Dividends paid to the
Parent Company by the Bank totaled $11.8 million and $5.8 million in 2003 and
2002, respectively. Under the laws of Hawaii, payment of dividends by the Bank
is subject to certain restrictions, and payment of dividends by the Parent
Company is likewise subject to certain restrictions.

The Company will continue to evaluate the dividend on a quarterly basis. In
addition, applicable regulatory authorities are authorized to prohibit banks,
thrifts and their holding companies from paying dividends which would
constitute an unsafe and unsound banking practice. The FRB has indicated that
it would generally be an unsafe and unsound banking practice for banks to pay
dividends except out of current operating earnings. Furthermore, an insured
depository institution, such as the Bank, cannot make a capital distribution
(broadly defined to include, among other things, dividends, redemptions and
other repurchases of stock), or pay management fees to its holding company if,
thereafter, the depository institution would be undercapitalized.

Capital Standards. The Parent Company and the Bank are subject to capital
standards promulgated by the FRB, the FDIC, and the Hawaii Division of
Financial Institutions. The minimum ratio of total capital to risk-weighted
assets, provided for in the guidelines adopted by the FRB, including certain
off-balance-sheet items such as standby letters of credit, is 8%. At least half
of the total capital is to be comprised of common equity, retained earnings,
non-cumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock less goodwill (Tier 1 Capital). The remainder may
consist of a limited amount of subordinated debt, other preferred stock,
certain other instruments, and a limited amount of reserves for loan losses
(Tier 2 Capital). The FDICs risk-based capital guidelines for state
non-member banks of the Federal Reserve System are generally similar to those
established by the FRB for bank holding companies.

The FRB and FDIC also have adopted minimum leverage ratios for bank holding
companies and banks requiring bank organizations to maintain a Leverage Ratio
(defined as Tier 1 Capital divided by average total assets less goodwill) of at
least 4% of total assets. The most highly rated banking organizations are
expected to maintain an additional cushion of at least 100 basis points (1%
equals 100 basis points), taking into account the level and nature of risk, to
be allocated to the specific banking organizations by the primary regulator.

FRB guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the guidelines indicate
that the FRB will continue to consider a tangible Tier 1 leverage ratio in
evaluating proposals for expansion or new activities. The tangible Tier 1
leverage ratio is the ratio of a banking organizations Tier 1 Capital, less
intangibles, to total assets, less intangibles.

Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, including restricting the
payment of dividends. At December 31, 2003, the Company and the Bank exceeded
applicable capital requirements. The consolidated capital position of the
Parent Company at December 31, 2003 was as follows:

|                    |                      |  |               |       |                        |  |  |      |  
|------------------- | -------------------- |  | ------------- | ----- | ---------------------- |  |  | ---- | -
|                    |                      |  | Company ratio |       | Minimum required ratio
|                    |                      |  |               |       |                       
|Risk-based Capital: |                      |  |               |       |                        |  |  |     
|                    | Tier 1 capital ratio |  |               | 11.03 | %                      |  |  | 4.00 | %
|                    | Total capital ratio  |  |               | 12.29 | %                      |  |  | 8.00 | %
|                    | Leverage ratio       |  |               | 8.90  | %                      |  |  | 4.00 | %
|                    |                      |  |               |       |                        |  |  |      |  

Under FRB regulations, a bank holding company is required to serve as a source
of financial and managerial strength to its subsidiary banks and may not
conduct its operations in an unsafe or unsound manner. In addition, it is the
FRBs policy that in serving as a source of strength to its subsidiary banks, a
bank holding company should stand ready to use available resources to provide
adequate capital funds to its subsidiary banks during periods of financial
stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting its
subsidiary banks. A bank holding companys failure to meet its obligations to
serve as a source of strength to its subsidiary banks will generally be
considered by the FRB to be an unsafe and unsound banking practice or a
violation of the FRB regulations, or both. Any capital loans by a bank holding
company to any of its subsidiary banks are subordinate in right of payment to
deposits and to certain other indebtedness of such subsidiary bank. Moreover,
Congress has passed legislation pursuant to which depositors are granted a
preference over all other unsecured creditors in the event of the insolvency of
a bank or thrift.

Affiliate Transactions.Unless an exemption applies, sections 23A and 23B of
the Federal Reserve Act and Regulation W thereunder (i) limit the extent to
which a financial institution or its subsidiaries may engage in covered
transactions with an affiliate, to an amount equal to 10% of such
institutions capital and surplus and an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such capital and
surplus and (ii) require that all transactions with an affiliate be on terms
substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term covered
transaction includes the making of loans, purchase of assets, issuance of a
guarantee and other similar types of transactions.

Safety and Soundness.The Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA) requires each federal banking regulatory agency to
prescribe, by regulation, standards for all insured depository institutions and
depository institution holding companies relating to: (i) internal controls,
information systems and audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; (v) asset growth; (vi)
compensation, fees and benefits; and (vii) such other operational and
managerial standards as the agency determines to be appropriate. The
compensation standards would prohibit employment contracts, compensation or
benefit arrangements, stock option plans, fee arrangements or other
compensatory arrangements that provide excessive compensation, fees or benefits
or could lead to material financial loss. In addition, each federal banking
regulatory agency must prescribe by regulation standards specifying: (i) a
maximum ratio of classified assets to capital; (ii) minimum earnings sufficient
to absorb losses without impairing capital to the extent feasible; (iii) a
minimum ratio of market value to book value for publicly traded shares of
depository institutions and depository institution holding companies; and (iv)
such other standards relating to asset quality, earnings and valuation as the
agency determines to be appropriate. If an insured depository institution or
its holding company fail to meet any of the standards promulgated by
regulations, then such company will be required to submit a plan to its federal
regulator specifying the steps it will take to correct the deficiency. The
federal banking agencies have uniform rules concerning these standards.

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Prompt Corrective Action.Under FDICIA, each federal banking agency is
required to take prompt corrective action to resolve the problems of insured
depository institutions that do not meet minimum capital ratios. The extent of
an agencys power to take prompt corrective action depends upon whether an
institution is well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, or critically
undercapitalized.

The federal banking agencies have adopted regulations to implement the prompt
corrective action provisions of FDICIA. Under the regulations, an institution
shall be deemed to be: (i) well-capitalized if it has total risk-based
capital of 10% or more, has a Tier 1 risk-based capital ratio of 6% or more,
has a Tier 1 leverage capital ratio of 5% or more and is not subject to any
written agreement, order or directive to meet and maintain a specific capital
level for any capital measure; (ii) adequately capitalized if it has a total
risk-based capital ratio of 8% or more, a Tier 1 risk-based capital ratio of 4%
or more and a Tier 1 leverage capital ratio of 4% or more (3% under certain
circumstances) and does not meet the definition of well-capitalized; (iii)
undercapitalized if it has a total risk-based capital ratio that is less than
8%, a Tier 1 risk-based capital ratio of 4% or more or a Tier 1 leverage
capital ratio that is less than 4% (3% under certain circumstances); (iv)
significantly undercapitalized if it has a total risk-based capital ratio
that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3% or
a Tier 1 leverage capital ratio that is less than 3%; and (v) critically
undercapitalized if it has a ratio of tangible equity to total assets that is
equal to or less than 2%.

FDICIA authorizes the appropriate federal banking agency, after notice and an
opportunity for a hearing, to treat an insured depository institution as if it
had a lower capital-based classification if it is in an unsafe or unsound
condition, engages in an unsafe or unsound practice or receives an
unsatisfactory examination rating. Thus, a well-capitalized institution could
be subjected to the restrictions of undercapitalized institutions.

An undercapitalized institution is required to submit an acceptable capital
restoration plan to its appropriate federal banking agency. The plan must
specify: (i) the steps the institution will take to become adequately
capitalized; (ii) the capital levels to be attained each year; (iii) how the
institution will comply with any regulatory sanctions then in effect against
the institution; and (iv) the types and levels of activities in which the
institution will engage. An undercapitalized institution is also generally
prohibited from paying any management fee or dividends to its holding company,
increasing its average total assets and is generally prohibited from making any
acquisitions, establishing any new branches or engaging in any new line of
business except in accordance with an accepted capital restoration plan or with
the approval of the FDIC.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
IBBEA) amended the BHCA to create certain interstate banking and branching
opportunities. Under the IBBEA, a bank holding company may acquire a bank
located in any state, provided that the acquisition does not result in the bank
holding company controlling more than 10% of the deposits in insured depository
institutions in the United States, or 30% of deposits in insured institutions
in the state in which the bank to be acquired is located (unless the state
waives the 30% deposit limitation or it is the initial entry into the state).
The IBBEA permits individual states to restrict the ability of an out-of-state
bank holding company or bank to acquire an in-state bank that has been in
existence for less than five years and to establish a state concentration limit
of less than 30% if such reduced limit does not discriminate against
out-of-state bank holding companies or banks.

The IBBEA authorizes an adequately-capitalized bank, with the approval of the
appropriate federal banking agency, to merge with another
adequately-capitalized bank in any state that has not opted out of interstate
branching. Such a bank may operate the targets offices as branches if certain
conditions are satisfied. The same national and state deposit concentration
limits and applicable state minimum-existence restrictions which apply to
interstate acquisitions (as discussed above) also apply to interstate mergers.
The applicant also must comply with any non-discriminatory host state filing
and notice requirements and demonstrate a record of compliance with applicable
federal and state community reinvestment laws. Hawaii enacted an interstate
branching and bank mergers law which expressly permits interstate branching
under Sections 102 and 103 of the IBBEA.

Under the IBBEA, the resulting bank in an interstate merger may establish or
acquire additional branches at any location in a state where any of the banks
involved in the merger could have established or acquired a branch. A bank also
may acquire one or more branches of an out-of-state bank without acquiring the
target out-of-state bank if the law of the targets home state permits such a
transaction. In addition, the IBBEA permits a bank to establish a de novo
branch in another state if the host state statutorily permits de novo
interstate branching.

Hawaii law authorizes out-of-state banks to engage in interstate merger
transactions (mergers and consolidations with and purchases of all or
substantially all of the assets and branches of) with Hawaii banks, following
which any such out-of-state bank may operate the branches of the Hawaii bank it
has acquired. The Hawaii bank must have been in continuous operation for at
least five years prior to such an acquisition, unless it is subject to or in
danger of becoming subject to certain types of supervisory action. This statute
does not permit out-of-state banks to acquire branches of Hawaii banks other
than through an interstate merger transaction (except in the case of a bank
that is subject to or in danger of becoming subject to certain types of
supervisory action) nor to open branches in Hawaii on a de novo basis. Hawaii
law imposes no state deposit caps or concentration limits. It also permits the
State Commissioner of Financial Institutions to waive, on a case-by-case basis,
federal statewide concentration limits, in accordance with standards that do
not discriminate against out-of-state banks.

The IBBEA also permits a bank subsidiary of a bank holding company to act as
agent for other depository institutions owned by the same holding company for
purposes of receiving deposits, renewing time deposits, closing or servicing
loans and receiving loan payments.

Gramm-Leach Bliley Act.The Gramm-Leach-Bliley Act (the GLB Act) revised and
expanded the existing BHCA and certain sections of the 1933 Glass-Steagall Act
to permit a holding company system to engage in a full range of financial
activities, including but not limited to, banking, insurance, securities,
merchant banking and other activities incidental to financial services. The
GLB Act permits the scope of financial and incidental activities to evolve with
technology and competition. It also provides expanded financial affiliation
opportunities for existing bank holding companies (BHC) and allows all
financial holding companies to control a full-service insured bank. These
expanded permissible activities are allowable for a BHC if it becomes a
financial holding company (FHC). In order to become an FHC, a BHC must file
a declaration with the FRB electing to engage in activities under the new BHCA
Section 4(k) and certifying that it is eligible to do so because all of its
insured depository institution subsidiaries are well-capitalized and
well-managed. An institution is well-capitalized if it meets the primary
regulators definition for that status under the Federal Deposit Insurance Act
for prompt corrective action purposes. Additionally, the FRB must determine
that each depository institution controlled by an FHC has a satisfactory or
better rating under the CRA in order for a company to become an FHC or for an
FHC to engage in new financial activities or acquire, directly or indirectly, a
company engaged in any

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activity under subsection (k) or (n). The FRB will be the overall regulatory
agency and, along with the Department of Treasury, will have joint oversight to
determine new financial activities of FHC companies. The Parent Company has
not elected FHC status.

It is anticipated that this change in legislation will serve to provide
consumers added convenience and savings as FHCs will be able to provide
one-stop shops for financial services. It also provides for added privacy
for consumers as policies on collecting, using and protecting personal
financial information must be disclosed in writing to customers and customers
will have the option to block information sharing with unaffiliated third
parties, such as telemarketing companies.

Depository Insurance.The FDIC has a premium schedule under which the
assessment rate for a bank depends upon the risk classification the FDIC
assigns the institution. This allows institutions with improving capital
positions to benefit from the improvement by lower assessments, while requiring
those whose capital is falling to pay higher assessments. The FDIC may raise
an institutions insurance premiums or terminate insurance altogether upon a
finding that the institution has engaged in unsafe and unsound practices.

Other Regulatory Considerations.The Bank is also subject to a wide array of
other state and federal laws and regulations, including, without limitation,
usury laws, the Patriot Act, the Equal Credit Opportunity Act, the Electronic
Funds Transfer requirements, the Truth-in-Lending Act, the Truth-in-Savings Act
and the Real Estate Settlement Procedures Act.

UNSOLICITED TAKEOVER PROPOSAL

On April 16, 2003, Central Pacific Financial Corp., a Hawaii corporation
(CPF), delivered an unsolicited proposal to merge with the Parent Company.
CPFs proposal included the exchange of each share of the Parent Companys
common stock outstanding for $21 in cash and 1.8956 shares of CPF common stock.

On April 17, 2003, the Parent Company announced that it had received the
proposal from CPF, and on April 23, 2003, it advised CPF that the Parent
Companys Board would address the merger proposal promptly and in an orderly
manner and would respond in a timely fashion. On April 23, the Parent Company
also issued a press release announcing that it had engaged a financial advisor
and legal counsel to assist its Board of Directors and management team in
evaluating CPFs merger proposal.

On April 28, 2003, CPF filed a registration statement with the Securities and
Exchange Commission in which it described its intent to commence an exchange
offer for all outstanding shares of the Parent Companys common stock. On the
same day, CPF filed applications with federal and state regulators in
furtherance of its proposed exchange offer. Also on April 28, 2003, CPF
delivered to the Parent Company a letter requesting a special meeting of
shareholders of the Parent Company to vote on whether to approve CPFs
acquisition of shares of the Parent Companys common stock pursuant to the
proposed exchange offer under the Hawaii Control Share Acquisitions Act.

On April 29, 2003, the Parent Company announced that at its Board of Directors
meeting held on April 23, 2003, the Board declared a 10% stock dividend and a
cash dividend of $0.12 per common share for the second quarter of 2003, payable
on June 27, 2003 to stockholders of record on June 16, 2003. Similar 10% stock
dividends were declared in the second quarters of 2001 and 2002.

On May 1, 2003, CPF announced that, in light of the 10% stock dividend
announced by the Parent Company on April 29, it was amending its offer so that
the per share amount of cash to be paid and number of shares of CPF common
stock to be issued pursuant to the proposed offer to exchange was adjusted from
$21.00 to $19.09 in cash and from 1.8956 to 1.7233 in shares of CPF common
stock.

On May 2, 2003, CPF amended and supplemented its prior application submitted to
the Division of Financial Institutions of the Department of Commerce & Consumer
Affairs of Hawaii to include a request that the Commissioner of the Division
approve CPF making a tender/exchange offer, pursuant to Section 412:3-612(a)(2)
of the Hawaii Revised Statutes.

On May 4, 2003, the Board of Directors of the Parent Company met with senior
management and independent financial and legal advisors to consider and discuss
CPFs merger proposal and the Parent Companys response. After careful
consideration, the Board concluded that the CPF proposal was inadequate and not
in the best interests of the Parent Company. The Board of Directors of the
Parent Company authorized the issuance of a press release and delivery of a
letter to CPF communicating its determination. Accordingly, on May 4, 2003,
the Parent Company issued a press release announcing the Boards unanimous
rejection of CPFs proposal.

On May 5, 2003, the Parent Company received a letter from CPF requesting that
the date of the special meeting be moved by three weeks, from May 28, 2003 to
June 19, 2003. On May 7, 2003, the Parent Company delivered to CPF a letter
rejecting CPFs request.

On May 9, 2003, CPF delivered a letter to the Parent Company purporting to
rescind, revoke and withdraw its April 15 merger proposal and the related
information statement delivered on April 28. In the same letter, CPF argued
that in light of its withdrawal of its prior proposal, the special meeting
scheduled for May 28 was moot and should be cancelled.

Also on May 9, 2003, CPF delivered a second letter to the Parent Company
presenting a revised proposal pursuant to which the Parent Companys
shareholders would receive 1.7606 shares of CPF common stock and $24.50 in cash
for each outstanding share of common stock (or 1.6005 shares and $22.27 in cash
per share of common stock on a post-stock dividend basis). This revised
proposal did not materially modify the value of the total consideration offered
by CPF, but only changed the mix of cash and stock consideration to be received
per share of common stock.

On May 9, 2003, CPF also amended its registration statement on Form S-4 so that
the consideration to be paid in its proposed offer to exchange would be the
same as that to be paid pursuant to the proposal reflected in CPFs May 9
letter to the Parent Company.

On May 12, 2003, the Board of Directors of the Parent Company met with senior
management and independent financial and legal advisors to consider and discuss
CPFs revised proposal and the Parent Companys response. After careful
consideration, the Board unanimously concluded that the revised proposal was
inadequate and not in the best interests of the Parent Company. Following the
Board meeting, the

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Parent Company issued a press release announcing the Boards unanimous
decision. The Parent Company also advised CPF that the special meeting to
consider CPFs control share acquisition would be held on May 28, 2003, as the
Parent Companys Board had previously scheduled in accordance with Hawaii law
and CPFs letter dated April 28, 2003.

On May 13, 2003, CPF delivered to the Parent Company a letter requesting that a
special meeting of shareholders be held on June 26, 2003 to vote on CPFs
control share acquisition proposal. CPFs letter was accompanied by letters
executed by a number of the Parent Companys shareholders purporting to
designate CPF as their agent to call a special meeting. The Parent Company
believed that CPFs request was invalid because, among other things, a special
meeting of shareholders had already been properly called by the Board of
Directors of the Parent Company to consider the control share acquisition
proposal. CPF disputed the Parent Companys position and maintained that the
May 28 special meeting was moot.

On May 14, 2003, CPF filed a complaint against the Parent Company in the Hawaii
State court seeking a temporary restraining order and preliminary injunction to
prevent the Parent Company from holding the special meeting or taking any
actions in furtherance of a solicitation in connection with the special
meeting. On May 16, 2003, CPFs motion for a temporary restraining order was
denied.

On May 28, 2003, the Parent Company announced that based on the proxies
submitted to the independent inspector of elections at the May 28 special
meeting, it believed that the Parent Companys shareholders rejected CPFs
proposal to acquire a majority of the Parent Companys outstanding shares.

On May 28, 2003, the Parent Company also announced that its Board of Directors
amended the Parent Companys shareholder rights plan to avoid a distribution of
the rights as a result of CPFs invalid request for a special meeting. Under
the plan as it existed prior to the amendment, a distribution of the rights
would have resulted from CPFs obtaining authorizations to call a special
shareholders meeting from the Parent Companys shareholders owning
approximately 27% of the outstanding shares in a non-public solicitation. The
amendment to the plan states that CPF will not be deemed to be the beneficial
owner of the shares underlying any of these authorizations unless the
authorization ultimately is delivered to the Parent Company for a valid and
effective purpose under Hawaii law and the Parent Companys governing
documents.

On June 12, 2003, the Parent Company announced that the independent inspectors
of election certified the final results of the shareholder vote at the special
meeting held on May 28, 2003, confirming that the Parent Companys shareholders
rejected CPFs proposal to acquire a majority of the Parent Companys
outstanding shares.

On June 17, 2003, CPF announced that it would not continue to pursue the
special meeting of shareholders that CPF purported to call for June 26, 2003.

On June 28, 2003, the Parent Company announced that CPF withdrew all pending
legal claims made against the Parent Company regarding the May 28, 2003 special
shareholders meeting. The Parent Company also announced that Circuit Court
Judge Victoria Marks approved the stipulation dismissing CPFs complaint with
prejudice, meaning its claims regarding the validity of the May 28 shareholders
meeting cannot be re-filed.

On July 22, 2003, the Parent Company announced that it had filed a lawsuit in
Hawaii State court against CPF asserting that CPF violated the Hawaii Control
Share Acquisitions statute. The lawsuit alleged that CPF illegally formed a
voting group with certain shareholders of the Parent Company without obtaining
the approval of the Parent Companys shareholders as required by Hawaii law.

On July 30, 2003, CPF filed a complaint against the Parent Company in the
Hawaii State court seeking to invalidate provisions of the Parent Companys new
Rights Plan and bylaws, both adopted on July 23, 2003. CPF also seeks to
enjoin the Parent Company from using its Rights Plans and bylaws.

On December 8 and December 9, 2003, the Division of Financial Institutions held
a public hearing regarding CPFs application. On February 2, 2004, the Division of Financial Institutions approved CPFs application subject to certain conditions.

NUMBER OF EMPLOYEES

As of December 31, 2003, the Company and its subsidiaries employed 547 persons,
503 on a full-time basis and 44 on a part-time basis. Neither the Company nor
any of its subsidiaries are a party to any collective bargaining agreements.

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STATISTICAL DISCLOSURES

Guide 3 of the Securities Act Industry Guides sets forth certain statistical
disclosures to be included in the Description of Business section of bank
holding company filings with the Securities and Exchange Commission (the
SEC).

The statistical information required is presented in the index shown below and
as part of Items 6 or 7 of this Form 10-K for the fiscal year ended December
31, 2003. The tables and information contained therein have been prepared by
the Company and have not been audited or reported upon by the Companys
independent accountants.

|     |  |                                                                                         |  |      |    |  |  | 
|---- |  | --------------------------------------------------------------------------------------- |  | ---- | -- |  |  | 
|     |  | Disclosure Requirements                                                                 |  | Page
|I.   |  | Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates            |  |      |    | 
|     |  | A.  Average balance sheets                                                              |  |      | 16 | 
|     |  | B.  Analysis of net interest earnings                                                   |  |      | 17 | 
|     |  | C.  Dollar amount of change in interest income and interest expense                     |  |      | 17 | 
|II.  |  | Investment Portfolio                                                                    |  |      |    | 
|     |  | A.  Book value of investment securities                                                 |  |      | 24 | 
|     |  | B.   Investment securities by maturities and weighted average yields                    |  |      | 25 | 
|III. |  | Loan Portfolio                                                                          |  |      |    | 
|     |  | A.  Types of loans                                                                      |  |      | 21 | 
|     |  | B.  Maturities and sensitivities of loans to changes in interest rates                  |  |      | 22 | 
|     |  | C.  Risk elements                                                                       |  |      |    | 
|     |  | 1.  Nonaccrual, past due and restructured loans                                         |  |      | 23 | 
|     |  | 2.  Potential problem loans                                                             |  |      | 23 | 
|IV.  |  | Summary of Loan Loss Experience                                                         |  |      |    | 
|     |  | A.  Analysis of loss experience                                                         |  |      | 18 | 
|     |  | B.  Breakdown of the allowance for loan losses                                          |  |      | 19 | 
|V.   |  | Deposits                                                                                |  |      |    | 
|     |  | A.  Average amount and average rate paid on deposits                                    |  |      | 24 | 
|     |  | B.  Maturity distribution of domestic time certificates of deposits of $100,000 or more |  |      | 24 | 
|VI.  |  | Return on Equity and Assets                                                             |  |      | 12 | 
|VII. |  | Short-Term Borrowings and Long-Term Debt                                                |  |      | 25 | 

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ITEM 2. PROPERTIES

The operations of the Bank are transacted through its main banking office and
22 other branches. The Companys facilities are located on leased premises, and
expenditures by the Company for interior improvements are capitalized. The
leases for these premises expire on various dates through the year 2035. Lease
terms generally provide for additional payments for real property taxes,
insurance and maintenance. See Note F of Notes to the Companys Consolidated
Financial Statements.




ITEM 3. LEGAL PROCEEDINGS

Clarridge Complaint. On April 28, 2003, Barbara Clarridge (the Plaintiff)
filed a complaint against the Parent Company and each of the members of the
Parent Companys Board of Directors in the Circuit Court of the First Circuit,
State of Hawaii. The case is denominated as a class action on behalf of all
shareholders of the Parent Company although no proceedings have taken place
regarding possible class certification. Plaintiff alleges, among other things,
that the offer proposed by CPF is futile without approval of the Parent
Companys directors because of the Parent Companys Rights Plan, and that the
defendants have refused to seriously consider the CPF offer. The complaint
seeks a judgment: (1) directing the defendants to give due consideration to any
proposed business combination; (2) directing the defendants to assure that no
conflicts of interest exist between the directors and their duties to the
corporation; (3) awarding the plaintiff the costs and attorneys fees; and (4)
granting such other relief as the court deems proper.

On May 8, 2003, the Plaintiff filed a motion for preliminary injunction asking
the court to: (1) enjoin indefinitely, until further order of the court, the
special shareholders meeting scheduled for May 28, 2003; (2) enjoin
enforcement of the Bylaw amendment adopted May 4, 2003 regarding adjournment of
shareholders meetings; and (3) enjoin any further amendment to the Parent
Companys Bylaws prior to the special shareholders meeting.

On May 23, 2003, the Parent Company announced that the court denied the
Plaintiffs motion for a preliminary injunction to halt the Parent Companys
May 28 special meeting of shareholders.

On July 14, 2003, Plaintiff filed a First Amended Complaint, in which she
updated the complaints factual allegations to reflect the results of the May
28, 2003 special shareholders meeting and alleged that the Parent Companys
Directors had further breached their fiduciary duties by amending the Parent
Companys Rights Plan on May 28, 2003.

On February 13, 2004, Plaintiff filed a Second Amended and Supplemental
Complaint, in which she included allegations that the Parent Companys
Directors had further breached their fiduciary duties by amending the Parent
Companys Bylaws and Rights Plan on July 23, 2003 and adopting the 2003 Rights
Agreement.

The Parent Company believes the claims are without merit and intends to defend
against them vigorously.

CPF Complaints. On May 15, 2003, CPF filed a complaint against the Parent
Company in the Circuit Court of the First Circuit, State of Hawaii seeking a
temporary restraining order and preliminary injunction to stop the May 28, 2003
shareholders meeting called by the Parent Company to consider matters related
to CPFs merger proposal. The suit also asked the court to: (1) declare the
meeting in violation of Hawaii law; (2) find the meeting moot because CPFs
first offer to the Parent Company had been revoked and withdrawn; and (3) stop
the Parent Company from soliciting shareholder proxies for that May 28, 2003
meeting.

On May 16, 2003, the Hawaii State court denied CPFs motion for a temporary
restraining order to block the Parent Company from providing its shareholders
with proxy material regarding CPFs hostile takeover proposal.

On May 20, 2003, CPF withdrew, without prejudice, its motion for a preliminary
injunction to stop the May 28, 2003 special shareholders meeting of the Parent
Company.

On May 20, 2003, the Parent Company filed a counterclaim against CPF seeking
injunctive and declaratory relief for CPFs violations of the Hawaii Control
Share Acquisitions statute. The Parent Company alleges, among other things,
that CPF violated Hawaii law by soliciting proxies well in advance of the
statutory period - thirty days prior to a scheduled shareholder
meeting - and
that CPF failed to obtain shareholder approval, as required by statute, prior
to acquiring beneficial ownership of more than ten percent of the outstanding
shares of stock of the Parent Company.

On June 28, 2003, the Parent Company announced that CPF withdrew all pending
legal claims made against the Parent Company regarding the May 28, 2003 special
shareholders meeting. The Parent Company also announced that Circuit Court
Judge Victoria Marks approved the stipulation dismissing CPFs complaint with
prejudice, which means CPFs claims regarding the validity of the May 28
shareholders meeting cannot be re-filed.

On June 30, 2003, CPF filed a motion to dismiss portions of the Parent
Companys counterclaim. On August 6, 2003, CPF withdrew its motion to dismiss
after the Circuit Court ruled that the Parent Company is entitled to take
discovery in support of its remaining claims under the Hawaii Control Share
Acquisition statute. On July 30, 2003, CPF filed a second complaint against the
Parent Company in Circuit Court of the First Circuit, State of Hawaii seeking
to invalidate provisions of the Parent Companys new Rights Plan and bylaws,
both adopted on July 23, 2003. CPF also seeks to enjoin the Parent Company
from using its Rights Plans and bylaws.

On August 19, 2003, CPF filed a motion for judgment on the pleadings in the
Parent Companys counterclaim. CPF argued in the motion that the Hawaii
Control Share Acquisitions statute could not be triggered by the voting
agreement between CPF and the Parent Companys shareholders and that the
statute was unconstitutional. On September 29, 2003, the court rejected CPFs
arguments regarding the applicability and constitutionality of the statute and
denied CPFs motion for judgment on the pleadings. Thus, the Parent Companys
counterclaim remains in the first lawsuit filed by CPF, and was amended on
October 31, 2003 to include additional allegations.

On December 18, 2003, CPF filed a counterclaim against the Parent Company and
each of the members of the Parent Companys Board of Directors. CPFs
counterclaim asks the court to (1) declare that the Parent Companys voting
agreement with one of its shareholders, TON Finance, B.V. (TON), constitutes
unlawful vote-buying; (2) declare that the Parent Company induced TON to breach
its agreement with CPF in a manner constituting tortious interference with
contract; (3) enjoin further such conduct by the Parent Company; (3) declare
that the Parent

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Companys agreement with TON is null and void; and (4) in the alternative,
impose monetary damages. CPFs counterclaim has been served on the Parent
Company, but has not yet been served on the members of the Parent Companys
Board of Directors.

The parties have commenced the discovery process in both CPF lawsuits,
including the production of documents and oral depositions.

The Parent Companys Complaint. On July 22, 2003, the Parent Company announced
that it had filed a lawsuit in the Circuit Court of the First Circuit, State of
Hawaii against CPF asserting that CPF violated the Hawaii Control Share
Acquisitions statute. The lawsuit alleges that CPF illegally formed a voting
group with certain shareholders of the Parent Company without obtaining the
approval of the Parent Companys shareholders as required by Hawaii law.

On August 19, 2003, CPF filed a motion to dismiss the Parent Companys
complaint. CPF argued in the motion that the complaint was duplicative of the
Parent Companys counterclaim asserted in the first lawsuit filed by CPF, that
the Hawaii Control Share Acquisitions statute could not be triggered by voting
agreements or arrangements between CPF and the Parent Companys shareholders,
and that the statute was unconstitutional. On September 29, 2003, the court
denied the motion to dismiss on the substantive arguments, but granted the
motion in part based on procedural grounds, finding similar claims had already
been filed in the Parent Companys counterclaim in the first CPF lawsuit.
Thus, the Parent Companys lawsuit has been dismissed. However, in its ruling
the court specifically granted the Parent Company leave to file an amended
counterclaim in the first lawsuit filed by CPF to include all additional
allegations made in the Parent Companys complaint. Therefore, all of the
allegations made in the Parent Companys lawsuit have been incorporated in the
amended counterclaim, which was filed on October 31, 2003.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of 2003 to a vote of security
holders through the solicitation of proxies or otherwise.







PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Parent Companys common stock is traded on the NASDAQ National Market
System under the symbol CBBI. At March 1, 2004, the Parent Company had
approximately 3,500 common shareholders of record.

The following table sets forth quarterly high and low bid and dividend
information on a per share basis for the Parent Companys common stock over the
preceding two years. Common stock prices have been retroactively adjusted to
reflect stock dividends:

|               |  |      |       |     |  |           |       |  |  |   |      | 
|-------------- |  | ---- | ----- | --- |  | --------- | ----- |  |  | - | ---- | 
|               |  | High |       | Low |  | Dividends
|               |  |      |       |     |  |          
|2003           |  |      |       |     |  |           |       |  |  |   |      | 
|First quarter  |  | $    | 45.28 |     |  | $         | 36.68 |  |  | $ | 0.11 | 
|Second quarter |  |      | 61.73 |     |  |           | 40.74 |  |  |   | 0.12 | 
|Third quarter  |  |      | 62.27 |     |  |           | 58.83 |  |  |   | 0.36 | 
|Fourth quarter |  |      | 64.50 |     |  |           | 59.61 |  |  |   | 0.36 | 
|2002           |  |      |       |     |  |           |       |  |  |   |      | 
|First quarter  |  | $    | 30.23 |     |  | $         | 27.08 |  |  | $ | 0.11 | 
|Second quarter |  |      | 35.38 |     |  |           | 29.73 |  |  |   | 0.11 | 
|Third quarter  |  |      | 35.67 |     |  |           | 29.70 |  |  |   | 0.11 | 
|Fourth quarter |  |      | 38.44 |     |  |           | 31.66 |  |  |   | 0.11 | 
|               |  |      |       |     |  |           |       |  |  |   |      | 

The Parent Companys ability to pay dividends is limited by certain
restrictions generally imposed on Hawaii corporations. The Parent Company may
pay dividends out of funds legally available at such times as the Board of
Directors determines are appropriate.

The following table details the total number of shares available for issuance
under the Companys employee stock-based incentive plans (including shares
available for issuance to nonemployee directors). The Company is not
authorized to grant stock-based incentive awards to nonemployees other than to
nonemployee directors.

|                                                                  |  |                         |         |                     |                                |                            |       |  |  |  |         | 
|----------------------------------------------------------------- |  | ----------------------- | ------- | ------------------- | ------------------------------ | -------------------------- | ----- |  |  |  | ------- | 
|                                                                  |  | Number of shares to be  |         | Weighted-average    |                                | Number of shares remaining
|                                                                  |  | issued upon exercise of |         | exercise price of   | available for future use under
|                                                                  |  | outstanding options     |         | outstanding options |                                | equity compensation plans 
|                                                                  |  |                         |         |                     |                                |                           
|December 31, 2003                                                 |  |                         |         |                     |                                |                            |       |  |  |  |         | 
|Employee stock-based incentive plans
approved by shareholders     |  |                         | 366,791 |                     |                                | $                          | 36.35 |  |  |  | 233,650 | 
|Employee stock-based incentive plans
not approved by shareholders |  |                         |        |                     |                                |                            |      |  |  |  |        | 
|                                                                  |  |                         |         |                     |                                |                            |       |  |  |  |         | 
|Total                                                             |  |                         | 366,791 |                     |                                |                            |       |  |  |  | 233,650 | 
|                                                                  |  |                         |         |                     |                                |                            |       |  |  |  |         | 

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ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)

|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |        | 
|------------------------------- | ----------------------------------------------------- | -------------------------------------------------- | - | --------- | ------ | ---- | - | --------- | ------ | ---- | - | --------- | ------ | - | - | --------- | ------ | - | - | --------- | ------ | 
|                                |                                                       |                                                    |   | 2003      |        | 2002 |   | 2001      |        | 2000 |   | 1999     
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |          
|Income Statement Data:          |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                | Interest income                                       |                                                    | $ | 103,010   |        |      | $ | 106,945   |        |      | $ | 128,254   |        |   | $ | 132,472   |        |   | $ | 111,233   |       
|                                | Interest expense                                      |                                                    |   | 23,416    |        |      |   | 30,292    |        |      |   | 57,448    |        |   |   | 71,478    |        |   |   | 52,717    |       
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                | Net interest income                                   |                                                    |   | 79,594    |        |      |   | 76,653    |        |      |   | 70,806    |        |   |   | 60,994    |        |   |   | 58,516    |       
|                                | Provision for credit losses                           |                                                    |   | 7,180     |        |      |   | 17,110    |        |      |   | 13,628    |        |   |   | 7,539     |        |   |   | 4,975     |       
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                | Net interest income after provision for
credit losses |                                                    |   | 72,414    |        |      |   | 59,543    |        |      |   | 57,178    |        |   |   | 53,455    |        |   |   | 53,541    |       
|                                | Noninterest income (1)                                |                                                    |   | 23,286    |        |      |   | 12,815    |        |      |   | 2,817     |        |   |   | 10,024    |        |   |   | 10,328    |       
|                                | Noninterest expense (2)                               |                                                    |   | 64,927    |        |      |   | 52,618    |        |      |   | 50,595    |        |   |   | 46,679    |        |   |   | 58,336    |       
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                |                                                       | Income before income taxes                         |   |           | 30,773 |      |   |           | 19,740 |      |   |           | 9,400  |   |   |           | 16,800 |   |   |           | 5,533  | 
|                                | Income tax expense                                    |                                                    |   | 10,025    |        |      |   | 6,258     |        |      |   | 3,250     |        |   |   | 5,582     |        |   |   | 5,227     |       
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                |                                                       | Net income                                         |   | $         | 20,748 |      |   | $         | 13,482 |      |   | $         | 6,150  |   |   | $         | 11,218 |   |   | $         | 306    | 
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                |                                                       | Cash dividends                                     |   | $         | 4,015  |      |   | $         | 1,649  |      |   | $         | 1,441  |   |   | $         | 1,093  |   |   | $         | 931    | 
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|End of Year Balance Sheet Data: |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                | Total assets                                          |                                                    | $ | 1,903,661 |        |      | $ | 1,674,358 |        |      | $ | 1,586,040 |        |   | $ | 1,721,602 |        |   | $ | 1,619,549 |       
|                                | Total earning assets                                  |                                                    |   | 1,808,940 |        |      |   | 1,552,936 |        |      |   | 1,516,583 |        |   |   | 1,633,545 |        |   |   | 1,506,732 |       
|                                | Total loans                                           |                                                    |   | 1,342,111 |        |      |   | 1,162,728 |        |      |   | 1,243,003 |        |   |   | 1,301,358 |        |   |   | 1,152,731 |       
|                                | Total deposits                                        |                                                    |   | 1,205,725 |        |      |   | 1,163,227 |        |      |   | 1,138,435 |        |   |   | 1,218,463 |        |   |   | 1,106,145 |       
|                                | Long-term debt                                        |                                                    |   | 194,389   |        |      |   | 319,407   |        |      |   | 214,424   |        |   |   | 181,563   |        |   |   | 225,140   |       
|                                | Stockholders equity                                  |                                                    |   | 169,210   |        |      |   | 151,009   |        |      |   | 133,762   |        |   |   | 123,162   |        |   |   | 114,691   |       
|Average Balances:               |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                | Total assets                                          |                                                    | $ | 1,740,967 |        |      | $ | 1,574,396 |        |      | $ | 1,678,679 |        |   | $ | 1,667,243 |        |   | $ | 1,491,947 |       
|                                | Total earning assets                                  |                                                    |   | 1,655,563 |        |      |   | 1,496,318 |        |      |   | 1,598,969 |        |   |   | 1,583,704 |        |   |   | 1,391,681 |       
|                                | Total loans                                           |                                                    |   | 1,211,840 |        |      |   | 1,149,685 |        |      |   | 1,296,279 |        |   |   | 1,236,305 |        |   |   | 1,077,769 |       
|                                | Total deposits                                        |                                                    |   | 1,176,512 |        |      |   | 1,133,169 |        |      |   | 1,193,758 |        |   |   | 1,154,075 |        |   |   | 1,082,642 |       
|                                | Long-term debt                                        |                                                    |   | 282,394   |        |      |   | 250,658   |        |      |   | 235,028   |        |   |   | 205,877   |        |   |   | 205,098   |       
|                                | Stockholders equity                                  |                                                    |   | 159,571   |        |      |   | 144,253   |        |      |   | 128,666   |        |   |   | 118,132   |        |   |   | 127,567   |       
|Common Stock Data:              |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                | Per share (diluted) (3):                              |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                |                                                       | Net income                                         |   | $         | 4.72   |      |   | $         | 3.11   |      |   | $         | 1.43   |   |   | $         | 2.62   |   |   | $         | 0.07   | 
|                                |                                                       | Cash dividends declared                            |   |           | 0.95   |      |   |           | 0.44   |      |   |           | 0.43   |   |   |           | 0.34   |   |   |           | 0.27   | 
|                                |                                                       | Book value (at December 31)                        |   |           | 39.35  |      |   |           | 39.17  |      |   |           | 35.07  |   |   |           | 31.84  |   |   |           | 29.15  | 
|                                |                                                       | Market price (close at December 31)                |   |           | 62.61  |      |   |           | 42.52  |      |   |           | 31.67  |   |   |           | 20.99  |   |   |           | 23.60  | 
|                                | Average shares outstanding                            |                                                    |   | 4,391,516 |        |      |   | 4,332,455 |        |      |   | 4,300,431 |        |   |   | 4,288,860 |        |   |   | 4,535,017 |       
|Selected Ratios:                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |          
|                                | Return on average:                                    |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                |                                                       | Total assets                                       |   |           | 1.19   | %    |   |           | 0.86   | %    |   |           | 0.37   | % |   |           | 0.67   | % |   |           | 0.02   | 
|                                |                                                       | Stockholders equity                               |   |           | 13.00  |      |   |           | 9.35   |      |   |           | 4.78   |   |   |           | 9.50   |   |   |           | 0.24   | 
|                                | Dividend payout ratio                                 |                                                    |   | 19.35     |        |      |   | 12.23     |        |      |   | 23.43     |        |   |   | 9.74      |        |   |   | 304.25    |       
|                                | Average stockholders equity to
average total assets  |                                                    |   | 9.17      |        |      |   | 9.16      |        |      |   | 7.66      |        |   |   | 7.09      |        |   |   | 8.55      |       
|                                | Year ended December 31:                               |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                |                                                       | Net interest margin
(taxable equivalent basis)     |   |           | 4.86   |      |   |           | 5.18   |      |   |           | 4.48   |   |   |           | 3.91   |   |   |           | 4.25   | 
|                                |                                                       | Net loans charged off to average loans             |   |           | 0.48   |      |   |           | 0.82   |      |   |           | 0.90   |   |   |           | 0.65   |   |   |           | 0.45   | 
|                                | At December 31:                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       
|                                |                                                       | Risk-based capital ratios:                         |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |        | 
|                                |                                                       | Tier 1                                             |   |           | 11.03  |      |   |           | 12.19  |      |   |           | 11.32  |   |   |           | 12.04  |   |   |           | 11.95  | 
|                                |                                                       | Total                                              |   |           | 12.29  |      |   |           | 13.46  |      |   |           | 12.58  |   |   |           | 13.29  |   |   |           | 13.21  | 
|                                |                                                       | Tier 1 leverage ratio                              |   |           | 8.90   |      |   |           | 9.03   |      |   |           | 8.31   |   |   |           | 8.01   |   |   |           | 7.69   | 
|                                |                                                       | Allowance for credit losses to total loans         |   |           | 2.12   |      |   |           | 2.33   |      |   |           | 1.57   |   |   |           | 1.34   |   |   |           | 1.56   | 
|                                |                                                       | Nonperforming assets to total loans                |   |           | 0.44   |      |   |           | 1.28   |      |   |           | 1.65   |   |   |           | 1.43   |   |   |           | 1.58   | 
|                                |                                                       | Nonperforming assets to total assets               |   |           | 0.31   |      |   |           | 0.89   |      |   |           | 1.29   |   |   |           | 1.08   |   |   |           | 1.12   | 
|                                |                                                       | Allowance for credit losses to
nonperforming loans |   |           | 497.38 |      |   |           | 213.06 |      |   |           | 123.24 |   |   |           | 115.35 |   |   |           | 152.28 | 
|                                |                                                       |                                                    |   |           |        |      |   |           |        |      |   |           |        |   |   |           |        |   |   |           |       



---

|(1) |  | Includes impairment charges on asset-backed securities of $1,399,000 and $10,642,000 incurred in 2002 and 2001, respectively.                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes unsolicited hostile takeover proposal expenses of $6,621,000 million in 2003, restructuring and merger-related charges
of $1,551,000 and the write-off of goodwill of $7,873,000 incurred in 1999.
|   
|(3) |  | Common stock data retroactively adjusted for 10% stock dividend paid in 2003, 2002 and 2001.                                                                                                               

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Company is a bank holding company which wholly owns City Bank, the fourth
largest bank with headquarters in the State of Hawaii. The Companys
activities are divided into four segments:



| |  | Retail bankingRetail deposits, mortgage banking and consumer lending activities.                                                                                            
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Wholesale bankingWholesale deposits, commercial real estate lending, corporate lending and specialized lending functions
of the bank.                                       
| 
| |  | TreasuryManages the companys investment securities portfolio and borrowing.                                                                                                
| 
| |  | All otherConsists of administrative support of the bank, transactions of CB Bancshares, Inc. (the Parent Company) and
the subsidiaries of the Parent Company and the bank.

When we use the words the Company, we, us and our, we mean CB Bancshares,
Inc. and its consolidated subsidiaries. In the discussion below we have
included statements that may constitute forward looking statement within the
meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward looking statements are not historical facts
but instead represent only our beliefs regarding future events, many of which,
by their nature, are inherently uncertain and beyond our control. These
statements relate to our future plans and objectives among other things. By
identifying these statements for you in this manner we are alerting to you the
possibility that our actual results may differ, possibly materially, from the
results indicated in these forward looking statements. Important factors,
among others, that could cause our results to differ, possibly materially, from
those indicated in the forward looking statements, are discussed under Forward
Looking Statements and Certain Factors That May Affect Our Business.

Executive Overview. Our diluted earnings per share were $4.72 for 2003, a
53.9% increase over 2002. Return on average shareholders equity was 13%. The
results in 2003 reflected increasing strength in the economy in the State of
Hawaii which impacted the credit condition of our borrowers, reduced our
provision for credit losses and permitted us to expand our deposit base. Our
results were also aided by increased loan production in the last two quarters
from our two California loan production offices which were established last
year. Allocated net income for our wholesale banking segment increased by $8.5
million, for our retail banking segment it increased $1.6 million and for our
treasury segment it increased $2.6 million, with the allocated net loss for the
All Other segment increasing by $5.5 million. The wholesale and retail banking
net income increases were primarily due to the decrease in the provision for
credit losses, which was due to the increased strength of the economy in the
State of Hawaii, a stronger Hawaii real estate market and improvement in loan
quality. Our results were negatively affected by $6.6 million in expenses to
oppose the unsolicited hostile takeover by CPF which was allocated to the All
Other segments. The year showed opportunities for expansion in California loan
production and opportunities to expand our deposit base in the State of Hawaii
and we are implementing some products and marketing efforts to that end.

Business Environment. Our businesses are materially affected by conditions in
the financial markets and economic conditions generally, both in the United
States but, particularly, in the State of Hawaii. A favorable business
environment is generally characterized by low inflation, low and declining
interest rates and strong equity markets. That business market strength and an
increase in strength of the Hawaii economy during 2003 and particularly during
the last two quarters impacted our results positively. The company faces
substantial competition in Hawaii. The market for loans in the State of
California reflects an economy that is more broad based than the State of
Hawaii. In California, there is substantial competition but we believe we can
respond competitively to opportunities to make commercial real estate loans
there.

Certain Factors That May Affect Our Business. We face a variety of risks that
are inherent in our business including market, liquidity, credit, operational,
legal and regulatory risk. A summary of some of the important factors that
could affect our business follows.

Market Conditions and Market Risks. Our business is materially affected by
conditions in the global financial markets and United States markets and
economic conditions generally in Hawaii. Business conditions improved in the
second half of 2003 in Hawaii although in previous years there has been a
challenging environment. Adverse or uncertain economic or market conditions
have in the past adversely affected and may in the future adversely affect our
business and profitability by affecting our borrowers and our credit loss
provision, our ability to compete, our operational costs and the volatility of
interest rates which affect our ability to plan and to maintain our interest
rate margins.

Credit Risks. We are exposed to the risk that third parties owing us money,
securities or other assets will not perform their obligations. These parties
may default on their obligations to us due to bankruptcy, lack of liquidity,
operational failure or other reasons. The amount and duration of our credit
exposures have increased over the past several years as has the breadth of the
entities to which we have credit exposure. Competitive factors we have in
various markets have pressured us to extend credit and price more aggressively
the credit risks that we take.

Liquidity Risks. Liquidity (i.e. ready access to funds) is essential to our
business. Our liquidity can be impaired by an inability to access secured or
unsecured debt markets, an inability to access funds from our subsidiaries, or
an inability to sell assets. This situation might arise due to circumstances
that we may not be able to control such as a general market disruption or
operational problem that affects third parties or us. Our ability to sell
assets may be impaired if other market participants are seeking to sell similar
assets at the same time. We have substantially relied for the last several
years upon advances from the FHLB for liquidity for short and long term
advances. We continue to access these funds, particularly, to pay off loans
from the FHLB as they become due. Our continued access to these or other
replacement borrowings at a reasonable cost is essential for our business.

Operational and Infrastructure Risk. Our businesses are highly dependent on
our ability to process, on a daily basis, a large number of transactions. A
failure in our internal processes, people or systems could lead to, among other
consequences, financial loss and reputation damage. In addition, despite the
contingency plans we have in place, our ability to conduct business may be
adversely impacted by a disruption in the infrastructure that supports our
business and the communities in which they are located. This may include a
disruption involving electrical, communications, transportation or other
services used by the Company or third parties with

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which we conduct business.

Legal and Regulatory Risk. Legal liability or a significant regulatory action
against the Company could have material adverse financial effects or cause
reputational harm to the Company, which in turn could harm our business
prospects. The Company is subject to a comprehensive regulatory framework,
which requires it to spend time and funds in order to comply with regulatory
requirements. Any changes to laws impacting the Company could materially
affect our business. Also, the outcome of pending litigation could impact the
Company.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Managements discussion and analysis of its financial condition and results of
operations are based upon the Companys consolidated financial statements,
which have been prepared in accordance with generally accepted accounting
principles. The preparation of these financial statements requires the Company
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to its investments, loans and allowance for loan
losses, intangible assets, income taxes, contingencies, and litigation. The
Company bases its estimates on current market conditions, historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The Company believes the following
critical accounting policies require significant judgments and estimates used
in the preparation of its consolidated financial statements.

Allowance for Credit Losses. The Companys allowance for credit losses
represents managements estimate of probable losses inherent in the loan
portfolio. The allowance for credit losses is periodically evaluated for
adequacy by management. Factors considered include the Companys loan loss
experience, known and inherent risks in the portfolio, current economic
conditions, known adverse situations that may affect the borrowers ability to
repay, regulatory policies, and the estimated value of underlying collateral.
The evaluation of the adequacy of the allowance is based on the above factors
along with prevailing economic conditions that may impact borrowers ability to
repay loans. Determination of the allowance is in part objective and in part
a subjective judgment by management given the information it currently has in
its possession. Adverse changes in any of these factors or the discovery of
new adverse information could result in higher charge-offs and loan loss
provisions.

The Allowance consists of allocated and unallocated allowances. The allocated
allowance relates to specific allowances for individual loans, pooled graded
loans, and homogeneous loans (consumer loans and residential mortgage loans).
The Company has established and adopted a loan grading system in which loans
are segregated by risk. Certain graded commercial and commercial real estate
loans are analyzed on an individual basis based on performance and collateral.
The allocated allowance also includes a percentage factor for pooled graded and
homogenous pools of loans taking into account the Banks historical losses as
well as the present condition, expected performance of each pool and risks
inherent in loan concentrations in certain industries or categories.

To mitigate imprecision in the estimates of expected credit losses, the
allocated component of the allowance is supplemented by an unallocated
component. The unallocated allowance is more judgmental and takes into
consideration the risks inherent in the loan portfolio, estimation errors, and
economic trends or uncertainties that are not necessarily captured in
determining allocated allowances.

Impairment of Investments. The realization of the Companys investment in
certain mortgage/asset-backed securities and collateralized loan and bond
obligations is dependent on the credit quality of the underlying borrowers and
yields demanded by the marketplace. Increases in market interest rates and
deteriorating credit quality of the underlying borrowers because of adverse
conditions may result in impairment charges. The Company records an investment
impairment charge when it believes an investment has experienced a decline in
value that is other than temporary. Future adverse changes in market
conditions or poor operating results of underlying investments could result in
losses or an inability to recover the carrying value of the investments that
may not be reflected in an investments current carrying value, thereby
possibly requiring an impairment charge in the future. Since the collateralized
loan and bond obligations do not have a liquid trading market, managements
estimate of value is based upon estimates of future returns that may or may not
actually be realized. Accordingly, under different assumptions, the value
could be adversely affected. As of December 31, 2003, approximately $34.8
million of these investments were carried on the books of the Company.

Deferred Tax Assets. The Company records a valuation allowance to reduce its
deferred tax assets to the amount that it believes is more likely than not to
be realized. This requires an objective as well as subjective evaluation and
assessment by management. While the Company has considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing
the need for the valuation allowance, in the event the Company were to
determine that it would be able to realize its deferred tax assets in the
future in excess of its net recorded amount, an adjustment to the valuation
allowance would increase income in the period such determination was made.
Likewise, should the Company determine that it would not be able to realize all
or part of its net deferred tax asset in the future, an adjustment to the
valuation allowance would be charged to income in the period such determination
was made.

RESULTS OF OPERATIONS

Consolidated net income for 2003 was $20.7 million, a 53.9% increase over
consolidated net income of $13.5 million, from 2002. Diluted earnings per
share was $4.72 in 2003, as compared to $3.11 in 2002. All per share amounts
have been restated for the effect of stock dividends. The increase was
primarily due to a $10.5 million increase in noninterest income and a $9.9
million reduction in provision for credit losses, partially offset by a $12.3
million increase in noninterest expense.

Consolidated net income for the quarter and year ended December 31, 2003
includes $470,000 ($320,000, or $0.08 per share, after tax) and $6.6 million
($4.4 million, or $1.01 per share, after tax), respectively, in expenses
associated with the defense of the unsolicited hostile takeover proposal by CPF
announced on April 16, 2003.

Net interest income was $79.6 million for 2003, an increase of $2.9 million, or
3.8%, compared to 2002. The increase in net interest income for the year ended
December 31, 2003 was due to a $157.6 million increase in the average balance
of interest-earning assets,

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partially offset by a $116.7 million increase in the average balance of
interest-bearing liabilities and a 32 basis points decline in the net interest
margin (to 4.86%).

Noninterest income was $23.3 million for 2003, an increase of $10.5 million, or
81.7%, over 2002. The increase was primarily due to: 1) $1.7 million in net
gains on the sale of securities (as compared to a $1.8 million net loss on the
sale of securities during the same period in 2002); 2) a $1.5 million increase
in revenues from item processing fee income; and 3) a $2.5 million increase in
other non-interest income. The increase in other non-interest income was
primarily due to $975,000 recorded in connection with an insurance company
demutualization distribution in the second quarter of 2003 and $756,000
recorded in connection with a deferred gain on sale of a building (gain
recognition criteria was met in the fourth quarter of 2003).

Noninterest expense was $64.9 million for 2003, an increase of $12.3 million,
or 23.4%, over 2002. The increase was primarily due to a $5.2 million increase
in salaries and employee benefits (higher incentive-based compensation and
increase in personnel for mainland loan offices and an item processing center)
and $6.6 million ($4.4 million after tax) of expenses related to the
unsolicited hostile takeover proposal by CPF announced on April 16, 2003.

The provision for credit losses was $7.2 million, $17.1 million and $13.6
million in 2003, 2002 and 2001, respectively. Net charge-offs to average loans
and leases were 0.48%, 0.82% and 0.90% for 2003, 2002 and 2001, respectively.
The allowance for credit losses was $28.5 million, or 2.13% of total loans and
leases, at December 31, 2003, compared with $27.1 million, or 2.34%, at
December 31, 2002. Nonperforming assets totaled 0.31%, 0.89% and 1.29% of
total assets as of December 31, 2003, 2002 and 2001, respectively.

At December 31, 2003, the Companys ratios of Tier 1 Capital to risk-weighted
assets and Total Capital to risk-weighted assets were 11.03% and 12.29%,
respectively, compared with 12.19% and 13.46%, respectively, at December 31,
2002. These ratios were in excess of the well-capitalized ratios of 6.00%
and 10.00%, respectively, specified by the FRB.

NET INTEREST INCOME

Net interest income is the largest single component of the Companys earnings
and represents the difference between interest income received on loans and
other earning assets and interest expense paid on deposits and borrowings. Net
interest income, on a taxable equivalent basis, was $80.4 million in 2003, an
increase of $2.9 million, or 3.8%, over 2002. During 2003, the Companys net
interest margin decreased to 4.86%, compared to 5.18% for 2002.

As summarized on Table 2, the $2.9 million increase in net interest income for
2003 consisted of a $6.9 million decrease in interest expense offset by a $3.9
million decrease in interest income.

The average yield on earning assets in 2003 decreased by 94 basis points to
6.27% and the average balance of earning assets increased by $157.6 million.
The $3.9 million decrease in interest income was primarily due to the 74 basis
point drop in the loan yield.

In 2003, interest costs on interest-bearing deposits and liabilities decreased
to $23.4 million, the average balance of interest-bearing deposits and
liabilities increased by $116.7 million and the average cost of funds (total
interest divided by the average balance of total interest-bearing liabilities
and demand deposits) decreased by 65 basis points to 1.50%. The following
table sets forth the condensed consolidated average balance sheets, an analysis
of interest income/expense and average yield/rate for each major category of
earning assets and interest-bearing deposits and liabilities for the years
indicated on a taxable equivalent basis. The taxable equivalent adjustment is
made for items exempt from federal income taxes (assuming a 35% tax rate) to
make them comparable with taxable items before any income taxes are applied.

Net interest income, on a taxable equivalent basis, was $77.5 million in 2002,
an increase of $5.8 million, or 8.2%, from 2001. During 2002, the Companys
net interest margin increased to 5.18%, compared to 4.48% for 2001. This
increase was due to a 161 basis point decrease in the cost of funds, partially
offset by an 86 basis point decrease in the yield on average earning assets.

Average earning assets decreased $102.7 million, or 6.4%, in 2002 as compared
to 2001. Average interest-bearing deposits and liabilities decreased $146.1
million, or 10.5%, in 2002 as compared to 2001.

15



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##### Table of Contents



TABLE 1: DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS EQUITY; INTEREST RATES

|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |      |  
|------------------------------------ | --------------------------------------------------------------------- | ------- | --------- | --------- | ------- | ---- | -------- | ------- | ------- | ------- | ------- | ---- | ------ | ------- | --------- | --------- | -------- | ---- | ------- | ------ | - |  | ---- | ---- | - | - | --------- | --------- | - |  | ------- | ------- | - |  | ---- | ---- | -
|                                     |                                                                       |         |           |           |         |      | 2003     |         |         |         |         |      |        |         |           |           | 2002     |      |         |        |   |  |      |      |   |   | 2001      |           |   |  |        
|                                     |                                                                       |         |           |           |         |      | Interest |         |         |         |         |      |        |         |           |           | Interest |      |         |        |   |  |      |      |   |   | Interest  |           |   |  |        
|                                     |                                                                       |         | Average   |           | Income/ |      | Yield/   |         | Average |         | Income/ |      | Yield/ |         | Average   |           | Income/  |      | Yield/ 
|(dollars in thousands)               |                                                                       | Balance |           | Expense   |         | Rate |          | Balance |         | Expense |         | Rate |        | Balance |           | Expense   |          | Rate
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |     
|ASSETS                               |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|Earning assets:                      |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|                                     | Interest-bearing
deposits in other banks                              |         | $         | 4,894     |         |      | $        | 86      |         |         |         | 1.76 | %      |         | $         | 1,052     |          |      | $       | 25     |   |  |      | 2.38 | % |   | $         | 1,030     |   |  | $       | 54      |   |  |      | 5.24 | %
|                                     | Federal funds sold
and securities
purchased under
agreement to resell |         |           | 11,657    |         |      |          | 144     |         |         |         | 1.24 |        |         |           | 11,174    |          |      |         | 162    |   |  |      | 1.45 |   |   |           | 9,871     |   |  |         | 397     |   |  |      | 4.02 |  
|                                     | Taxable investment and
mortgage/asset-backed securities               |         |           | 396,457   |         |      |          | 15,599  |         |         |         | 3.93 |        |         |           | 303,433   |          |      |         | 15,449 |   |  |      | 5.09 |   |   |           | 260,867   |   |  |         | 17,538  |   |  |      | 6.72 |  
|                                     | Nontaxable investment
securities                                      |         |           | 30,715    |         |      |          | 2,378   |         |         |         | 7.74 |        |         |           | 30,974    |          |      |         | 2,395  |   |  |      | 7.73 |   |   |           | 30,922    |   |  |         | 2,389   |   |  |      | 7.73 |  
|                                     | Loans (1)                                                             |         |           | 1,211,840 |         |      |          | 85,635  |         |         |         | 7.07 |        |         |           | 1,149,685 |          |      |         | 89,752 |   |  |      | 7.81 |   |   |           | 1,296,279 |   |  |         | 108,715 |   |  |      | 8.39 |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |      |  
|Total interest-earning
assets        |                                                                       |         | 1,655,563 |           |         |      | 103,842  |         |         |         | 6.27    |      |        |         | 1,496,318 |           |          |      | 107,783 |        |   |  | 7.20 |      |   |   | 1,598,969 |           |   |  | 129,093 |         |   |  | 8.07 |     
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |      |  
|Non-interest earning
assets:         |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|                                     | Cash and due from
banks                                               |         |           | 45,444    |         |      |          |         |         |         |         |      |        |         |           | 35,083    |          |      |         |        |   |  |      |      |   |   |           | 28,835    |   |  |         |         |   |  |      |      |  
|                                     | Premises and
equipment - net                                          |         |           | 16,350    |         |      |          |         |         |         |         |      |        |         |           | 17,226    |          |      |         |        |   |  |      |      |   |   |           | 18,372    |   |  |         |         |   |  |      |      |  
|                                     | Other assets                                                          |         |           | 54,022    |         |      |          |         |         |         |         |      |        |         |           | 49,943    |          |      |         |        |   |  |      |      |   |   |           | 50,999    |   |  |         |         |   |  |      |      |  
|                                     | Less allowance for
loan losses                                        |         |           | (30,412   | )       |      |          |         |         |         |         |      |        |         |           | (24,174   | )        |      |         |        |   |  |      |      |   |   |           | (18,496   | ) |  |         |         |   |  |      |      |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|Total assets                         |                                                                       | $       | 1,740,967 |           |         |      |          |         |         |         |         |      |        | $       | 1,574,396 |           |          |      |         |        |   |  |      |      |   | $ | 1,678,679 |           |   |  |         |         |   |  |      |     
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|LIABILITIES AND
STOCKHOLDERS EQUITY |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|Interest-bearing liabilities:        |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|                                     | Savings deposits                                                      |         | $         | 537,517   |         |      | $        | 2,949   |         |         |         | 0.55 | %      |         | $         | 471,314   |          |      | $       | 5,255  |   |  |      | 1.11 | % |   | $         | 412,331   |   |  | $       | 8,927   |   |  |      | 2.17 | %
|                                     | Time deposits                                                         |         |           | 448,399   |         |      |          | 8,186   |         |         |         | 1.83 |        |         |           | 504,685   |          |      |         | 12,843 |   |  |      | 2.54 |   |   |           | 651,344   |   |  |         | 30,511  |   |  |      | 4.68 |  
|                                     | Short-term borrowings                                                 |         |           | 98,357    |         |      |          | 1,158   |         |         |         | 1.18 |        |         |           | 23,339    |          |      |         | 672    |   |  |      | 2.88 |   |   |           | 97,428    |   |  |         | 5,095   |   |  |      | 5.23 |  
|                                     | Long-term debt                                                        |         |           | 282,394   |         |      |          | 11,123  |         |         |         | 3.94 |        |         |           | 250,658   |          |      |         | 11,522 |   |  |      | 4.60 |   |   |           | 235,028   |   |  |         | 12,915  |   |  |      | 5.50 |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |      |  
|                                     | Total interest-bearing
liabilities                                    |         |           | 1,366,667 |         |      |          | 23,416  |         |         |         | 1.71 |        |         |           | 1,249,996 |          |      |         | 30,292 |   |  |      | 2.42 |   |   |           | 1,396,131 |   |  |         | 57,448  |   |  |      | 4.11 |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |      |  
|                                     | Non-interest-bearing
liabilities:                                     |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |      |  
|                                     | Demand deposits                                                       |         |           | 190,596   |         |      |          |         |         |         |         |      |        |         |           | 157,170   |          |      |         |        |   |  |      |      |   |   |           | 130,083   |   |  |         |         |   |  |      |      |  
|                                     | Other liabilities                                                     |         |           | 24,133    |         |      |          |         |         |         |         |      |        |         |           | 22,977    |          |      |         |        |   |  |      |      |   |   |           | 23,799    |   |  |         |         |   |  |      |      |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|                                     | Total liabilities                                                     |         |           | 1,581,396 |         |      |          |         |         |         |         |      |        |         |           | 1,430,143 |          |      |         |        |   |  |      |      |   |   |           | 1,550,013 |   |  |         |         |   |  |      |      |  
|                                     | Stockholders equity                                                  |         |           | 159,571   |         |      |          |         |         |         |         |      |        |         |           | 144,253   |          |      |         |        |   |  |      |      |   |   |           | 128,666   |   |  |         |         |   |  |      |      |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|                                     | Total liabilities and
stockholders equity                            |         | $         | 1,740,967 |         |      |          |         |         |         |         |      |        |         | $         | 1,574,396 |          |      |         |        |   |  |      |      |   |   | $         | 1,678,679 |   |  |         |         |   |  |      |      |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|                                     | Net interest income                                                   |         |           |           |         |      |          | 80,426  |         |         |         |      |        |         |           |           |          |      |         | 77,491 |   |  |      |      |   |   |           |           |   |  |         | 71,645  |   |  |      |      |  
|                                     | Net interest margin on
total earning assets                           |         |           |           |         |      |          |         |         |         |         | 4.86 | %      |         |           |           |          |      |         |        |   |  |      | 5.18 | % |   |           |           |   |  |         |         |   |  |      | 4.48 | %
|                                     | Taxable equivalent
adjustment                                         |         |           |           |         |      |          | (832    | )       |         |         |      |        |         |           |           |          |      |         | (838   | ) |  |      |      |   |   |           |           |   |  |         | (839    | ) |  |      |      |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     
|                                     | Net interest income                                                   |         |           |           |         |      | $        | 79,594  |         |         |         |      |        |         |           |           |          |      | $       | 76,653 |   |  |      |      |   |   |           |           |   |  | $       | 70,806  |   |  |      |      |  
|                                     |                                                                       |         |           |           |         |      |          |         |         |         |         |      |        |         |           |           |          |      |         |        |   |  |      |      |   |   |           |           |   |  |         |         |   |  |      |     



|(1) |  | Yields and amounts earned include loan fees. Nonaccrual loans have been included in earning assets for purposes of these computations.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

16



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##### Table of Contents



TABLE 2: INTEREST DIFFERENTIAL

|                                                                      |                                                                        |        |                       |        |                       |            |         |        |   |      |        |            |   |   |        |         |   |   |         |         |   |   |         |         |  
|--------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------ | --------------------- | ------ | --------------------- | ---------- | ------- | ------ | - | ---- | ------ | ---------- | - | - | ------ | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                      |                                                                        |        | 2003 compared to 2002 |        | 2002 compared to 2001
|                                                                      |                                                                        |        | Increase (Decrease)   |        | Increase (Decrease)  
|                                                                      |                                                                        |        | due to change in: (1) |        | due to change in: (1)
|                                                                      |                                                                        |        |                       |        |                      
|(in thousands)                                                        |                                                                        | Volume |                       | Rate   |                       | Net Change |         | Volume |   | Rate |        | Net Change
|                                                                      |                                                                        |        |                       |        |                       |            |         |        |   |      |        |           
|Earning assets:                                                       |                                                                        |        |                       |        |                       |            |         |        |   |      |        |            |   |   |        |         |   |   |         |         |   |   |         |        
|                                                                      | Interest-bearing deposits in other
banks                               |        | $                     | 91     |                       |            | $       | (30    | ) |      | $      | 61         |   |   | $      | 1       |   |   | $       | (30     | ) |   | $       | (29     | )
|                                                                      | Federal funds sold and securities
purchased under agreements to
resell |        |                       | 7      |                       |            |         | (25    | ) |      |        | (18        | ) |   |        | 52      |   |   |         | (287    | ) |   |         | (235    | )
|                                                                      | Taxable investment and
mortgage/asset-backed securities                |        |                       | 4,736  |                       |            |         | (4,586 | ) |      |        | 150        |   |   |        | 2,862   |   |   |         | (4,951  | ) |   |         | (2,089  | )
|                                                                      | Nontaxable investment securities                                       |        |                       | (20    | )                     |            |         | 3      |   |      |        | (17        | ) |   |        | 4       |   |   |         | 2       |   |   |         | 6       |  
|                                                                      | Loans (2)                                                              |        |                       | 4,852  |                       |            |         | (8,969 | ) |      |        | (4,117     | ) |   |        | (12,294 | ) |   |         | (6,669  | ) |   |         | (18,963 | )
|                                                                      |                                                                        |        |                       |        |                       |            |         |        |   |      |        |            |   |   |        |         |   |   |         |         |   |   |         |         |  
|Total earning assets                                                  |                                                                        |        | 9,666                 |        |                       |            | (13,607 | )      |   |      | (3,941 | )          |   |   | (9,375 | )       |   |   | (11,935 | )       |   |   | (21,310 | )      
|Interest-bearing liabilities:                                         |                                                                        |        |                       |        |                       |            |         |        |   |      |        |            |   |   |        |         |   |   |         |         |   |   |         |        
|                                                                      | Savings deposits                                                       |        |                       | 738    |                       |            |         | (3,044 | ) |      |        | (2,306     | ) |   |        | 1,277   |   |   |         | (4,949  | ) |   |         | (3,672  | )
|                                                                      | Time deposits                                                          |        |                       | (1,432 | )                     |            |         | (3,225 | ) |      |        | (4,657     | ) |   |        | (6,870  | ) |   |         | (10,798 | ) |   |         | (17,668 | )
|                                                                      | Short-term borrowings                                                  |        |                       | 2,160  |                       |            |         | (1,674 | ) |      |        | 486        |   |   |        | (3,874  | ) |   |         | (549    | ) |   |         | (4,423  | )
|                                                                      | Long-term debt                                                         |        |                       | 1,459  |                       |            |         | (1,858 | ) |      |        | (399       | ) |   |        | 859     |   |   |         | (2,252  | ) |   |         | (1,393  | )
|                                                                      |                                                                        |        |                       |        |                       |            |         |        |   |      |        |            |   |   |        |         |   |   |         |         |   |   |         |         |  
|Total interest-bearing deposits
and liabilities                       |                                                                        |        | 2,925                 |        |                       |            | (9,801  | )      |   |      | (6,876 | )          |   |   | (8,608 | )       |   |   | (18,548 | )       |   |   | (27,156 | )      
|                                                                      |                                                                        |        |                       |        |                       |            |         |        |   |      |        |            |   |   |        |         |   |   |         |         |   |   |         |         |  
|Increase (decrease) in net interest
income (taxable equivalent basis) |                                                                        | $      | 6,741                 |        |                       | $          | (3,806  | )      |   | $    | 2,935  |            |   | $ | (767   | )       |   | $ | 6,613   |         |   | $ | 5,846   |        
|                                                                      |                                                                        |        |                       |        |                       |            |         |        |   |      |        |            |   |   |        |         |   |   |         |         |   |   |         |         |  



|(1) |  | The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion
to the relationship of the absolute dollar amounts of the change in each.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Yields and amounts earned include loan fees. Nonaccrual loans have been included in earning assets for
purposes of these computations.                                                  

NONINTEREST INCOME

Noninterest income totaled $23.3 million and $12.8 million in 2003 and 2002,
respectively. In 2003 there was no impairment charge on asset-backed
securities. Net realized gains on sales of securities were $1.7 million in 2003 ($855,000 of which were related to the
termination of two interest rate swaps) compared to a net loss of $1.8 million in 2002. Net gains on
sales of loans increased to $2.5 million in 2003 from $1.5 million in 2002.
Item processing fee income increased to $1.9 million in 2003 from $397,000 in
2002. The increase in other noninterest income was primarily due to $975,000
recorded in connection with an insurance company demutualization distribution
in 2003 and $756,000 recorded in connection with a deferred gain on sale of a
building (gain recognition criteria was met in 2003).

Total noninterest income increased to $12.8 million in 2002 from $2.8 million
in 2001. The impairment charge on asset-backed securities decreased to $1.4
million in 2002 from $10.6 million in 2001. There was a $2.4 million increase
in service charges and fees in 2002 as a result of the Companys concerted
effort to increase fee income related to deposit and credit products. Net
realized losses on sales of securities increased to $1.8 million in 2002 from
$169,000 in 2001. Net gains on sales of loans decreased to $1.5 million in
2002 from $2.1 million in 2001.

The following table sets forth information by category of noninterest income
for the years indicated:

|                                                   |       |      |       |        |  |      |        |        |  |   |         |       | 
|-------------------------------------------------- | ----- | ---- | ----- | ------ |  | ---- | ------ | ------ |  | - | ------- | ----- | 
|(in thousands)                                     |       | 2003 |       | 2002   |  | 2001
|                                                   |       |      |       |        |  |     
|Service charges on deposits                        |       | $    | 4,559 |        |  | $    | 4,345  |        |  | $ | 3,811   |      
|Other service charges and fees                     |       |      | 7,147 |        |  |      | 6,784  |        |  |   | 4,897   |      
|Net realized gains (losses) on sales of securities |       |      | 1,718 |        |  |      | (1,765 | )      |  |   | (169    | )    
|Net gains on sales of loans                        |       |      | 2,533 |        |  |      | 1,493  |        |  |   | 2,060   |      
|Earnings on bank-owned life insurance              |       |      | 1,989 |        |  |      | 1,762  |        |  |   | 1,359   |      
|Item processing fee income                         |       |      | 1,866 |        |  |      | 397    |        |  |   | 135     |      
|Impairment on asset-backed securities              |       |      |      |        |  |      | (1,399 | )      |  |   | (10,642 | )    
|Other                                              |       |      | 3,474 |        |  |      | 1,198  |        |  |   | 1,366   |      
|                                                   |       |      |       |        |  |      |        |        |  |   |         |      
|                                                   | Total |      | $     | 23,286 |  |      | $      | 12,815 |  |   | $       | 2,817 | 
|                                                   |       |      |       |        |  |      |        |        |  |   |         |      

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##### Table of Contents



PROVISION AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes changes in the allowance for credit losses for
the years indicated:

|                                                            |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |       |       | 
|----------------------------------------------------------- | ------------------------ | ----------------- | ------ | ----- | ------ | ---- | ------ | ----- | ------ | ---- | ------ | ----- | ------ | - | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|(dollars in thousands)                                      |                          | 2003              |        | 2002  |        | 2001 |        | 2000  |        | 1999
|                                                            |                          |                   |        |       |        |      |        |       |        |     
|Balance at beginning of year                                |                          | $                 | 27,123 |       |        | $    | 19,464 |       |        | $    | 17,447 |       |        | $ | 17,942 |       |       | $ | 17,771 |      
|Charge-offs:                                                |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|                                                            | Commercial and financial |                   |        | 2,751 |        |      |        | 6,901 |        |      |        | 9,052 |        |   |        | 3,138 |       |   |        | 442   |      
|                                                            | Real estate  mortgage   |                   |        | 3,602 |        |      |        | 1,353 |        |      |        | 2,034 |        |   |        | 4,378 |       |   |        | 4,085 |      
|                                                            | Installment and consumer |                   |        | 5,402 |        |      |        | 5,043 |        |      |        | 1,342 |        |   |        | 1,490 |       |   |        | 896   |      
|                                                            |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|                                                            |                          | Total charge-offs |        |       | 11,755 |      |        |       | 13,297 |      |        |       | 12,428 |   |        |       | 9,006 |   |        |       | 5,423 | 
|                                                            |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|Recoveries:                                                 |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|                                                            | Commercial and financial |                   |        | 2,541 |        |      |        | 924   |        |      |        | 108   |        |   |        | 170   |       |   |        | 94    |      
|                                                            | Real estate  mortgage   |                   |        | 1,219 |        |      |        | 1,175 |        |      |        | 399   |        |   |        | 537   |       |   |        | 314   |      
|                                                            | Installment and consumer |                   |        | 2,182 |        |      |        | 1,747 |        |      |        | 310   |        |   |        | 265   |       |   |        | 211   |      
|                                                            |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|                                                            |                          | Total recoveries  |        |       | 5,942  |      |        |       | 3,846  |      |        |       | 817    |   |        |       | 972   |   |        |       | 619   | 
|                                                            |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|Net loans charged-off                                       |                          |                   | 5,813  |       |        |      | 9,451  |       |        |      | 11,611 |       |        |   | 8,034  |       |       |   | 4,804  |      
|Provision for credit losses                                 |                          |                   | 7,180  |       |        |      | 17,110 |       |        |      | 13,628 |       |        |   | 7,539  |       |       |   | 4,975  |      
|                                                            |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|Balance at end of year                                      |                          | $                 | 28,490 |       |        | $    | 27,123 |       |        | $    | 19,464 |       |        | $ | 17,447 |       |       | $ | 17,942 |      
|                                                            |                          |                   |        |       |        |      |        |       |        |      |        |       |        |   |        |       |       |   |        |      
|Net charge-offs to average loans outstanding                |                          |                   | 0.48   | %     |        |      | 0.82   | %     |        |      | 0.90   | %     |        |   | 0.65   | %     |       |   | 0.45   | %    
|Allowance for credit losses to year-end loans               |                          |                   | 2.12   | %     |        |      | 2.33   | %     |        |      | 1.57   | %     |        |   | 1.34   | %     |       |   | 1.56   | %    
|Allowance for credit losses to year-end
nonperforming loans |                          |                   | 497.38 | %     |        |      | 213.06 | %     |        |      | 123.24 | %     |        |   | 115.35 | %     |       |   | 152.28 | %    

The provision for credit losses is based upon periodic evaluations by
management as to the adequacy of the allowance for credit losses. In these
evaluations, management considers numerous factors including, but not limited
to, global, national and local economic conditions, loan portfolio composition,
loan loss experience and managements estimate of potential losses. These
various analyses lead to a determination of the amount needed in the allowance
for credit losses. To the extent the existing allowance is below the amount so
determined, a provision is made that will bring the allowance to such amount.
Thus, the provision for credit losses may fluctuate and may not be comparable
from year to year. Factors affecting the components of the allowance for
credit losses and the related provision for credit losses are discussed below.

Provision for credit losses was $7.2 million, $17.1 million and $13.6 million
in 2003, 2002 and 2001, respectively. The Companys allowance for credit
losses increased to $28.5 million at December 31, 2003, from $27.1 million at
December 31, 2002 and $19.5 million at December 31, 2001. The allowance for
credit losses as a percentage of total loans was 2.13% at December 31, 2003,
compared to 2.34% and 1.57% at December 31, 2002 and 2001, respectively.
Allowance for credit losses as a percentage of nonperforming loans increased to
497.38% at December 31, 2003 compared to 213.06% and 123.24% at December 31,
2002 and 2001, respectively. The Companys lower provision in 2003 reflects the
reduction in non-performing loans, improvement in asset quality and the
stronger Hawaii economy as well as elimination of uncertainties concerning the
impact of hostilities in Iraq upon the tourism industry.

Net loans charged-off were $5.8 million in 2003, a decrease of $3.6 million
from the $9.5 million in 2002. Commercial and financial net charged-off
decreased by $5.8 million in 2003 over 2002.

The net investment in loans that were considered to be impaired was $5.4
million at December 31, 2003, a decrease of $6.9 million from the $12.3 million
at December 31, 2002. Additional information on impaired loans is presented in
Note D of Notes to the Companys Consolidated Financial Statements.

The Companys allowance for credit losses represents managements estimate of
probable losses inherent in the loan portfolio. The allowance for credit
losses is periodically evaluated for adequacy by management. Factors
considered include the Companys loan loss experience, known and inherent risks
in the portfolio, known adverse situations that may affect the borrowers
ability to repay, regulatory policies, and the estimated value of underlying collateral. The
evaluation of the adequacy of the allowance is based on the above factors along
with prevailing economic conditions that may impact borrowers ability to repay
loans. The determination of the allowance is in part objective and in part a
subjective assessment by management given the information it currently has in
its possession. Adverse changes in any of these factors or the discovery of
new adverse information could result in higher charge-offs and loan loss
provisions.

The Allowance consists of allocated and unallocated allowances. The allocated
allowance relates to specific allowances for individual loans, pooled graded
loans, and homogeneous loans (consumer loans and residential mortgage loans).
The Company has established and adopted a loan grading system in which loans
are segregated by risk. Certain graded commercial and commercial real estate
loans are analyzed on an individual basis based on performance and collateral.
The allocated allowance also includes a percentage factor for homogenous pools
of loans taking into account the Banks historical losses as well as the
present condition, expected performance of each pool and risks inherent in loan
concentrations in certain industries or categories.

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To mitigate imprecision in the estimates of expected credit losses, the
allocated component of the allowance is supplemented by an unallocated
component. The unallocated allowance is more judgmental and takes into
consideration the risks inherent in the loan portfolio, estimation errors, and
economic trends or uncertainties that are not necessarily captured in
determining allocated allowances.

There were no material changes in the allowance methodology in 2003 or cross
border credits affecting the allowance calculation.

At December 31, 2003, the allowance for loan losses was $28.5 million, or 2.12%
of total loans, an increase of $1.4 million over the $27.1 million, or 2.33% of
total loans, at December 31, 2002. The components of the allowance, allocated
and unallocated, are shown in the table below. The allocated component
increased to $25.8 million at December 31, 2003 from $24.6 million at December
31, 2002, while the unallocated component increased to $2.7 million at December
31, 2003 from $2.5 million at December 31, 2002.

Certain changes in loan concentrations, credit quality, terms, and other
factors affecting the allocated allowance for credit losses at December 31,
2003 are noted below:



| |  |  | Commercial and financial loans balances increased by $18.1 million
in 2003 to $245.9 million from $227.7 million in 2002. Non-performing
commercial and financial loans declined by $1.9 million in 2003 to $3.3
million from $5.2 million in 2002. As a result of the improvement in
asset quality, the allocated allowance for commercial and financial
credits declined by $1.2 million to $14.1 million from $15.3 million in
2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Real estate construction loan balances increased by $45.7 million
in 2003 to $98.2 million from $52.5 million in 2002. This resulted in
a $664,000 increase in allocated allowance for real estate construction
loans.                                                                                                                                                                                                                 
|
| |  |  | Real estate residential loans declined to $367.7 million in 2003, a
decrease of $76.6 million from the $444.2 million in 2002. The
decrease in outstanding loan balances resulted in a $636,000 reduction
in allocated allowance for real estate residential loans to $1.1
million in 2003, from $1.8 million in 2002.                                                                                                                 
|
| |  |  | Real estate commercial loan balances increased to $403.9 million,
an increase of $193.4 million over $210.5 million in 2002.
Non-performing loans in this category declined to $708,000, a decrease
of $3.4 million from the $4.2 million in 2002. The aggregate effect of
these factors was an increase in the allocated allowance for real
estate commercial credits to $4.9 million from $4.7 million in 2002.                      
|
| |  |  | Installment and consumer loan balances increased by $44.6 million
in 2003 to $180.1 million. Estimated credit loss factors on
installment and consumer loans were increased due to the higher losses
in this loan category. The aggregate effect of these factors was an
increase in the allocated allowance to $4.2 million, an increase of
$2.3 million over 2002.                                                                   

The unallocated allowance for credit losses at December 31, 2003 was $2.7
million, an increase over the $2.5 million in 2002. The unallocated balance
reflects risks inherent in the loan portfolio, estimation errors, and economic
trends or uncertainties that are not necessarily captured in determining
allocated allowances. In managements judgment, the allowance for credit
losses was adequate to absorb potential losses currently inherent in the loan
portfolio at December 31, 2003. However, changes in prevailing economic
conditions in the Companys markets or in the financial condition of its
customers could alter the level of nonperforming assets and charge-offs in the
future and, accordingly, affect the allowance for credit losses.

The allowance for credit losses has been allocated by the Companys management
according to the amount deemed to be reasonably necessary to provide for the
possibility of loan losses being incurred within the following categories of
loans at December 31 for the years indicated:

|                           |       |        |        |        |  |        |       |        |   |        |        |        |  |        |       |        |   |        |        |        |  |  |       |        |   |   |        |        |  |  |       |        |   |   |       |        |  |  |       |        |  
|-------------------------- | ----- | ------ | ------ | ------ |  | ------ | ----- | ------ | - | ------ | ------ | ------ |  | ------ | ----- | ------ | - | ------ | ------ | ------ |  |  | ----- | ------ | - | - | ------ | ------ |  |  | ----- | ------ | - | - | ----- | ------ |  |  | ----- | ------ | -
|(dollars in                |       | 2003   |        | 2002   |  | 2001   |       | 2000   |   | 1999  
|thousands)                 |       | Amount |        | %
(1)  |  | Amount |       | % (1)  |   | Amount |        | % (1)  |  | Amount |       | % (1)  |   | Amount |        | % (1) 
|                           |       |        |        |        |  |        |       |        |   |        |        |        |  |        |       |        |   |        |        |       
|Commercial &
Financial     |       | $      | 14,063 |        |  |        | 18.97 | %      |   | $      | 15,250 |        |  |        | 21.27 | %      |   | $      | 11,208 |        |  |  | 19.19 | %      |   | $ | 10,303 |        |  |  | 19.40 | %      |   | $ | 7,359 |        |  |  | 19.55 | %     
|Real estate 
Construction |       |        | 1,555  |        |  |        | 7.58  |        |   |        | 891    |        |  |        | 4.91  |        |   |        | 487    |        |  |  | 4.41  |        |   |   |       |        |  |  | 2.06  |        |   |   |      |        |  |  | 1.31  |       
|Real estate 
Residential  |       |        | 1,114  |        |  |        | 28.37 |        |   |        | 1,750  |        |  |        | 41.50 |        |   |        | 2,262  |        |  |  | 49.15 |        |   |   | 2,634  |        |  |  | 54.45 |        |   |   | 4,000 |        |  |  | 54.04 |       
|Real estate 
Commercial   |       |        | 4,884  |        |  |        | 31.18 |        |   |        | 4,740  |        |  |        | 19.67 |        |   |        | 2,594  |        |  |  | 15.90 |        |   |   | 2,121  |        |  |  | 15.10 |        |   |   | 3,680 |        |  |  | 17.12 |       
|Installment &
Consumer     |       |        | 4,219  |        |  |        | 13.90 |        |   |        | 1,952  |        |  |        | 12.65 |        |   |        | 860    |        |  |  | 11.35 |        |   |   | 483    |        |  |  | 9.00  |        |   |   | 1,432 |        |  |  | 7.97  |       
|Unallocated                |       |        | 2,655  |        |  |        | n/a   |        |   |        | 2,540  |        |  |        | n/a   |        |   |        | 2,053  |        |  |  | n/a   |        |   |   | 1,906  |        |  |  | n/a   |        |   |   | 1,471 |        |  |  | n/a   |       
|                           |       |        |        |        |  |        |       |        |   |        |        |        |  |        |       |        |   |        |        |        |  |  |       |        |   |   |        |        |  |  |       |        |   |   |       |        |  |  |       |       
|                           | Total |        | $      | 28,490 |  |        |       | 100.00 | % |        | $      | 27,123 |  |        |       | 100.00 | % |        | $      | 19,464 |  |  |       | 100.00 | % |   | $      | 17,447 |  |  |       | 100.00 | % |   | $     | 17,942 |  |  |       | 100.00 | %
|                           |       |        |        |        |  |        |       |        |   |        |        |        |  |        |       |        |   |        |        |        |  |  |       |        |   |   |        |        |  |  |       |        |   |   |       |        |  |  |       |       



|(1) |  | Represents percentage of loans in each category to total loans.
|--- |  | ---------------------------------------------------------------

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NONINTEREST EXPENSE

The following table sets forth information by category of noninterest expense
for the years indicated:

|                                               |       |      |        |        |  |      |        |        |  |   |        |        | 
|---------------------------------------------- | ----- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|(dollars in thousands)                         |       | 2003 |        | 2002   |  | 2001
|                                               |       |      |        |        |  |     
|Salaries and employee benefits                 |       | $    | 29,852 |        |  | $    | 24,675 |        |  | $ | 23,111 |       
|Net occupancy expense                          |       |      | 6,639  |        |  |      | 6,367  |        |  |   | 6,588  |       
|Unsolicited hostile takeover proposal expenses |       |      | 6,621  |        |  |      |       |        |  |   |       |       
|Legal and professional fees                    |       |      | 4,599  |        |  |      | 4,740  |        |  |   | 4,147  |       
|Advertising and promotion                      |       |      | 2,611  |        |  |      | 2,716  |        |  |   | 2,997  |       
|Equipment expense                              |       |      | 2,406  |        |  |      | 2,942  |        |  |   | 3,469  |       
|Stationery, supplies, postage and delivery     |       |      | 2,317  |        |  |      | 2,070  |        |  |   | 1,867  |       
|Deposit insurance premiums                     |       |      | 198    |        |  |      | 201    |        |  |   | 227    |       
|Provision for other real estate owned losses   |       |      | 176    |        |  |      | 500    |        |  |   | 150    |       
|Other                                          |       |      | 9,508  |        |  |      | 8,407  |        |  |   | 8,039  |       
|                                               |       |      |        |        |  |      |        |        |  |   |        |       
|                                               | Total |      | $      | 64,927 |  |      | $      | 52,618 |  |   | $      | 50,595 | 
|                                               |       |      |        |        |  |      |        |        |  |   |        |       
|Efficiency ratio                               |       |      | 56.41  | %      |  |      | 57.37  | %      |  |   | 59.33  | %     
|                                               |       |      |        |        |  |      |        |        |  |   |        |       

Noninterest expense increased $12.3 million, or 23.4%, in 2003, as compared to
2002. The Companys efficiency ratio decreased to 56.41% in 2003, as compared
to 57.37% in 2002.

The Company incurred $6.6 million in expenses associated with the defense of
the unsolicited hostile takeover proposal by CPF announced on April 16, 2003.
Among other things, such expenses included attorneys fees, special shareholders
meeting expenses, solicitation costs and other related expenses.

Salaries and employment benefits increased by $5.2 million, or 21.0%, in 2003,
to $29.9 million, compared to $24.7 million in 2002. The increase in salaries
and employee benefits over 2002 was due to higher incentive-based compensation
in 2003 and an increase in personnel for the mainland loan offices and an item
processing center.

Net occupancy expense was $6.6 million in 2003, which compares to $6.4 million
in 2002. The increase in net occupancy expense in 2003 was primarily
attributable to new branch locations.

Total noninterest expense increased $2.0 million, or 4.0%, in 2002, as compared
to 2001. The primary reason for the increase in noninterest expense was the
$1.6 million increase in salaries and employment benefits.

INCOME TAXES

Total income tax expense of the Company was $10.0 million, $6.3 million and
$3.3 million in 2003, 2002 and 2001, respectively. The corresponding effective
income tax rate was 32.6%, 31.7% and 34.6%, respectively. The significant
decline in the effective tax rate in 2003 and 2002 as compared to 2001 was
primarily due to the utilization of state investment tax credits. Note L of
Notes to the Companys Consolidated Financial Statements presents a
reconciliation of the Companys effective and statutory income tax rates.

SEGMENT DISCUSSION

The Companys business segments are Retail Banking, Wholesale Banking, Treasury
and All Others. Retail Banking is made up of retail deposits, mortgage banking
and consumer lending activities. Wholesale Banking consists of wholesale
deposits, commercial real estate lending, corporate lending and the specialized
lending functions of the Bank. The Treasury segment is responsible for
managing the Companys interest rate risk, investment securities portfolio and
borrowing. The All Other segment consists of the administrative support of the
Bank, transactions of CB Bancshares, Inc. (the Parent Company), and
subsidiaries of the Parent Company and Bank. See Note V of Notes to the
Consolidated Financial Statements for financial information on segments.

Retail banking net interest income is made up of interest income from revolving
real estate, residential real estate and consumer loans, partially offset by
the interest expense on retail deposits. Wholesale banking net interest income
is made up of interest income from commercial, real estate construction, and
commercial real estate loans, partially offset by the interest expense on
wholesale deposits. Treasury net interest income is derived from the interest
income on investment securities, partially offset by the interest expense on
short- and long-term borrowings.

Intersegment net interest income is allocated based on the net funding needs of
each segment and applying an interest credit or charge based on an internal
cost of capital. Other operating income and expense is the non-interest income
and expense designated to Retail Banking, Wholesale Banking, Treasury, and All
Other. Administrative overhead allocates the non-interest income and expense
from the All Other non-banking function segment to the other three segments,
Retail Banking, Wholesale Banking and Treasury.

Assets are composed of cash, investments, loans, premises and equipment and
other assets. Loan balances and any corresponding allowance for credit losses
are allocated based on loan product types. Premises and equipment are
allocated by location and function within the Company.

The Company continues to enhance its segment reporting process methodologies
for assigning balance sheet and income statement items to the appropriate
operating segment. This process is dynamic and, unlike financial accounting,
there is no comprehensive, authoritative guidance for management accounting
equivalent to generally accepted accounting principles. The Company defines its
segments by product and service type.

20



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##### Table of Contents



Allocated net income for the Retail Banking segment increased by $1.1 million,
or 6.8%, in 2003 as compared to 2002. This was primarily due to decreases in
the provision for credit losses of $1.5 million, or 50.1%, and decrease in
noninterest expense of $3.6 million, or 22.7%, partially offset by a $2.7
million, or 6.4%, decline in net interest income.

Allocated net income for Wholesale Banking increased by $8.5 million, or
286.4%, in 2003 as compared to 2002. This was primarily due to decreases in
the provision for credit losses of $7.6 million, or 54.1%, and an increase in
net interest income of $5.5 million, or 18.7%, partially offset by decreases in
intersegment net interest expense of $606,000, or 22.8%, and noninterest
expense of $1.7 million, or 14.0%.

Allocated net income for Treasury increased by $2.6 million, or 179.5%. This
was primarily a result of a decrease in noninterest expense of $3.7 million, or
90.1%, partially offset by the decrease in intersegment net interest income of
$178,000, or 8.6%, in 2003 compared to 2002.

Allocated net loss for the All Other segment increased by $5.5 million, or
432.9%. This was primarily the result of an increase in non-interest expense of
41.6% (due primarily to the $6.6 million hostile takeover proposal expenses),
partially offset by an increase in the administrative overhead expense
allocation of 15.5%.

LOAN PORTFOLIO

Total loans at December 31, 2003 increased to $1,295.8 million, a $225.4
million, or 21.1%, increase from the previous year-end. The increase in total
loans was primarily due to an increase in commercial mortgage loans.

The amount of loans outstanding at December 31 for the years indicated are
shown in the following table categorized as to types of loans:

|                                   |  |      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|---------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | --------- | 
|(in thousands)                     |  | 2003 |           | 2002 |  | 2001 |           | 2000 |  | 1999
|                                   |  |      |           |      |  |      |           |      |  |     
|Commercial and financial           |  | $    | 245,875   |      |  | $    | 227,736   |      |  | $    | 229,885   |  |  | $ | 246,877   |  |  | $ | 224,660   | 
|Real estate  construction         |  |      | 98,237    |      |  |      | 52,538    |      |  |      | 52,750    |  |  |   | 26,237    |  |  |   | 15,096    | 
|Real estate  residential mortgage |  |      | 367,685   |      |  |      | 444,246   |      |  |      | 588,525   |  |  |   | 693,068   |  |  |   | 621,200   | 
|Real estate  commercial mortgage  |  |      | 403,946   |      |  |      | 210,512   |      |  |      | 190,328   |  |  |   | 192,194   |  |  |   | 196,810   | 
|Installment and consumer           |  |      | 180,064   |      |  |      | 135,415   |      |  |      | 135,901   |  |  |   | 114,562   |  |  |   | 91,647    | 
|                                   |  |      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 
|                                   |  | $    | 1,295,807 |      |  | $    | 1,070,447 |      |  | $    | 1,197,388 |  |  | $ | 1,272,938 |  |  | $ | 1,149,413 | 
|                                   |  |      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |           | 

Commercial and financial.Loans outstanding in this category comprise 19.0% of
total loans, or $245.9 million, an increase of $18.1 million, or 8.0%, above
year-end 2002. Loans in this category are primarily loans to small- and
medium-sized businesses and professionals doing business in Hawaii. Cash flow
from the borrowers business is typically regarded as the principal source of
repayment, although the Banks underwriting policy and practice generally
requires collateral as an additional source of repayment, including real
estate, where possible, as well as equipment, receivables and personal assets
or guarantees as deemed necessary. Risks of credit losses are greater in this
loan category relative to other secured loans, such as commercial and
residential mortgages, where, generally, a greater percentage of the loan
amount is covered by collateral. Any collateral or guarantees obtained
mitigates such risk.

Real estate  construction.Loans in this category comprise 7.6% of total
loans, or $98.2 million, an increase of $45.7 million, or 87.0%, above year-end
2002. For construction loans, each project is evaluated independently for
economic viability, while maximum loan-to-value ratios of 80% are generally
required. A construction loan poses higher credit risks than a typical secured
loan due to the risk that the project will not be completed on time and within
budget. Consideration of the ability and reputation of the developer and
monitoring of a project during the construction phase are undertaken to
mitigate the increased risk in construction lending.

Real estate  residential mortgage.Loans in this category comprise 28.4% of
total loans, or $367.7 million, at December 31, 2003, a decrease of $76.6
million, or 17.2%, below year-end 2002. The decreasing balances are primarily
the result of the low interest rate environment which provides an incentive to
borrowers to refinance existing loans at lower rates. Prepayments are expected
to continue until interest rates increase to the point that refinance activity
is not cost-effective for borrowers. The Bank allows a maximum loan-to-value
ratio of 80% for residential mortgage loans, although higher levels are
permitted with mortgage insurance. First mortgage loans secured by residential
properties typically represent a moderate credit risk and the improved
residential real estate market is expected to have a positive effect on credit
losses. Mortgage loans on one-to-four family residential loans have the lowest
credit risk and amounted to $340.1 million at December 31, 2003. Additional
information on residential mortgage loans at December 31, 2003 is presented
below:

|                       |  |              |         |          |  |          |      |   |  |            |  | 
|---------------------- |  | ------------ | ------- | -------- |  | -------- | ---- | - |  | ---------- |  | 
|                       |  | At           |         | Weighted |  | Weighted
|                       |  | December 31, |         | Average  |  | Average 
|(dollars in thousands) |  | 2003         |         | Coupon   |  | Maturity
|                       |  |              |         |          |  |         
|Fixed                  |  | $            | 175,880 |          |  |          | 7.30 | % |  | 21.4 years
|Adjustable             |  |              | 191,805 |          |  |          | 5.46 | % |  | 25.0 years
|                       |  |              |         |          |  |          |      |   |  |            |  | 
|                       |  | $            | 367,685 |          |  |          |      |   |  |            |  | 
|                       |  |              |         |          |  |          |      |   |  |            |  | 

Real estate  commercial mortgage.Loans in this category comprise 31.3% of
total loans, an increase of $193.4 million, or 91.9%, from year-end 2002.
These loans consist primarily of loans secured by office and industrial
buildings and warehouses located in Hawaii and California. Loans secured by
commercial property carry a greater risk than loans secured by residential
property as they

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are typically less marketable than residential properties,
have rental income risk and are subject to market and interest rate conditions.
The Bank utilizes property inspections, rental projections and analysis of
market conditions to mitigate risk in these loans.

Installment and consumer.Loans in this category comprise 13.9% of total
loans, or $180.1 million, an increase of $44.6 million, or 33.0%, from year-end
2002, and consist primarily of automobile and other revolving consumer credits,
including home equity lines of credit. For consumer loans, credit risk is
managed on a pooled basis including an evaluation of the quality, character and
inherent risks in the loan portfolio, current economic conditions, and past
loan loss experience. Consumer loans represent a moderate credit risk. However,
the average loan size is modest and risk is diversified among many borrowers
and credit profiles. The Bank utilizes credit-scoring systems for most of its
consumer loans which offer the ability to modify credit exposure based on the
Banks risk tolerance and loss experience.

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following table shows the contractual maturities of the Companys loan
portfolio by category (excluding real estate-mortgage and installment and
consumer) at December 31, 2003. Demand loans are included as due within one
year:

|                           |  |               |         |                |  |               |         |       |  |   |        |  |  |   |         | 
|-------------------------- |  | ------------- | ------- | -------------- |  | ------------- | ------- | ----- |  | - | ------ |  |  | - | ------- | 
|                           |  |               |         |                |  | After 1 but   |         |       |  |   |        |  |  |  
|(in thousands)             |  | Within 1 year |         | Within 5 years |  | After 5 years |         | Total
|                           |  |               |         |                |  |               |         |      
|Commercial and financial   |  | $             | 88,335  |                |  | $             | 123,601 |       |  | $ | 33,939 |  |  | $ | 245,875 | 
|Real estate  construction |  |               | 32,340  |                |  |               | 65,422  |       |  |   | 475    |  |  |   | 98,237  | 
|                           |  |               |         |                |  |               |         |       |  |   |        |  |  |   |         | 
|                           |  | $             | 120,675 |                |  | $             | 189,023 |       |  | $ | 34,415 |  |  | $ | 344,112 | 
|                           |  |               |         |                |  |               |         |       |  |   |        |  |  |   |         | 

The following table sets forth the interest rate sensitivity of the above
amounts due after one year at December 31, 2003:

|                           |  |            |         |               |  |       |        |  |  |   |         | 
|-------------------------- |  | ---------- | ------- | ------------- |  | ----- | ------ |  |  | - | ------- | 
|(in thousands)             |  | Fixed Rate |         | Variable Rate |  | Total
|                           |  |            |         |               |  |      
|After 1 but within 5 years |  | $          | 127,957 |               |  | $     | 61,065 |  |  | $ | 189,022 | 
|After 5 years              |  |            | 34,282  |               |  |       | 133    |  |  |   | 34,415  | 
|                           |  |            |         |               |  |       |        |  |  |   |         | 
|                           |  | $          | 162,239 |               |  | $     | 61,198 |  |  | $ | 223,437 | 
|                           |  |            |         |               |  |       |        |  |  |   |         | 

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RISK ELEMENTS IN LENDING ACTIVITIES

Nonperforming (nonaccrual) assets and past due and restructured loans at
December 31 are reflected below for the years indicated:

|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |        |        | 
|------------------------------------------------------------------------------ | ------------ | ----------------------------------------- | ---------------------------- | ----- | ----- | ----- | ----- | ----- | ----- | ------ | ----- | ----- | ----- | ------ | ----- | ----- | ------ | ------ | ----- | ----- | ------ | ------ | 
|(dollars in thousands)                                                         |              | 2003                                      |                              | 2002  |       | 2001  |       | 2000  |       | 1999  
|                                                                               |              |                                           |                              |       |       |       |       |       |       |       
|Nonperforming loans:                                                           |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |      
|                                                                               | Commercial   |                                           | $                            | 3,264 |       |       | $     | 5,190 |       |        | $     | 7,034 |       |        | $     | 6,268 |        |        | $     | 1,831 |       
|                                                                               | Real estate: |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               |              | Commercial                                |                              |       | 708   |       |       |       | 4,152 |        |       |       | 2,438 |        |       |       | 3,030  |        |       |       | 518    |       
|                                                                               |              | Residential                               |                              |       | 1,756 |       |       |       | 3,219 |        |       |       | 6,174 |        |       |       | 5,827  |        |       |       | 8,992  |       
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               |              |                                           | Total real estate loans      |       |       | 2,464 |       |       |       | 7,371  |       |       |       | 8,612  |       |       |        | 8,857  |       |       |        | 9,510  | 
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               | Consumer     |                                           |                              |      |       |       |       | 169   |       |        |       | 148   |       |        |       |      |        |        |       | 441   |       
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               |              |                                           | Total nonperforming loans    |       |       | 5,728 |       |       |       | 12,730 |       |       |       | 15,794 |       |       |        | 15,125 |       |       |        | 11,782 | 
|Other real estate owned                                                        |              |                                           | 173                          |       |       |       | 2,193 |       |       |        | 4,674 |       |       |        | 3,458 |       |        |        | 6,385 |      
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               |              |                                           | Total nonperforming assets   |       | $     | 5,901 |       |       | $     | 14,923 |       |       | $     | 20,468 |       |       | $      | 18,583 |       |       | $      | 18,167 | 
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|Past due loans:                                                                |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |      
|                                                                               | Commercial   |                                           | $                            |      |       |       | $     |      |       |        | $     |      |       |        | $     | 975   |        |        | $     | 96    |       
|                                                                               | Real estate  |                                           |                              | 213   |       |       |       | 72    |       |        |       | 2,190 |       |        |       | 473   |        |        |       | 3,481 |       
|                                                                               | Consumer     |                                           |                              | 728   |       |       |       | 860   |       |        |       | 1,464 |       |        |       | 1,256 |        |        |       | 592   |       
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               |              |                                           | Total past due loans (1)     |       | $     | 941   |       |       | $     | 932    |       |       | $     | 3,654  |       |       | $      | 2,704  |       |       | $      | 4,169  | 
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|Restructured loans:                                                            |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |      
|                                                                               | Commercial   |                                           | $                            |      |       |       | $     |      |       |        | $     | 2,214 |       |        | $     | 4,153 |        |        | $     | 4,440 |       
|                                                                               | Real estate: |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               |              | Commercial                                |                              |       |      |       |       |       |      |        |       |       |      |        |       |       |       |        |       |       | 1,231  |       
|                                                                               |              | Residential                               |                              |       | 1,413 |       |       |       | 2,919 |        |       |       | 8,629 |        |       |       | 11,730 |        |       |       | 11,280 |       
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|                                                                               |              |                                           | Total restructured loans (2) |       | $     | 1,413 |       |       | $     | 2,919  |       |       | $     | 10,843 |       |       | $      | 15,883 |       |       | $      | 16,951 | 
|                                                                               |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |       |       
|Nonperforming assets to total loans
and other real estate owned (end of year): |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |      
|                                                                               |              | Excluding 90 days past due accruing loans |                              |       | 0.44  | %     |       |       | 1.28  | %      |       |       | 1.64  | %      |       |       | 1.42   | %      |       |       | 1.57   | %     
|                                                                               |              | Including 90 days past due accruing loans |                              |       | 0.51  | %     |       |       | 1.36  | %      |       |       | 1.93  | %      |       |       | 1.63   | %      |       |       | 1.93   | %     
|Nonperforming assets to total assets
(end of year):                            |              |                                           |                              |       |       |       |       |       |       |        |       |       |       |        |       |       |        |        |       |      
|                                                                               |              | Excluding 90 days past due accruing loans |                              |       | 0.31  | %     |       |       | 0.89  | %      |       |       | 1.29  | %      |       |       | 1.08   | %      |       |       | 1.12   | %     
|                                                                               |              | Including 90 days past due accruing loans |                              |       | 0.36  | %     |       |       | 0.95  | %      |       |       | 1.52  | %      |       |       | 1.24   | %      |       |       | 1.38   | %     



|(1) |  | Represents loans which are past due 90 days or more as to principal and/or interest, are still accruing interest and
are in the process of collection.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Represents loans which have been restructured, are current and still accruing interest.                                                               

Nonperforming loans decreased to $5.7 million at December 31, 2003, a decrease
of $7.0 million, or 55.0%, below the $12.7 million at year-end 2002. The
decrease in nonperforming loans was primarily due to a $4.9 million decrease in
real estate loans. At December 31, 2003, other real estate owned (net of
valuation allowance) amounted to $173,000, a decrease of $2.0 million, or
92.1%, from the prior year-end.

Past due loans which are still accruing interest increased $9,000, to $941,000
at December 31, 2003. Substantially all loans in this category are both
well-collateralized and in the process of collection.

Restructured loans decreased $1.5 million, or 51.6%, as compared to 2002,
primarily due to pay-off of certain residential loans.

Interest on non-accrual loans that would have been recorded in 2003 had such
loans been performing in accordance with their original terms was $448,000.
The amount of interest on non-accrual loans that was included in net income in
2003 was $138,000.

At December 31, 2003, the Company was not aware of any significant potential
problem loans (not otherwise classified as nonperforming or past due) where
possible credit problems of the borrower caused management to have serious
concerns as to the ability of such borrower to comply with the present loan
repayment terms.

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DEPOSITS

The Company competes for deposits in Hawaii principally by providing quality
customer service at its branch offices.

The Company has a network of 22 branch offices which seek to provide a stable
core deposit base. The deposit base provided by these branches consists of
interest- and noninterest-bearing demand and savings accounts, money market
certificates and time certificates of deposit.

The average daily amount of deposits and the average rate paid on such deposit
categories is summarized below:

|                                    |       |        |         |           |      |        |      |      |   |        |         |           |  |  |      |      |   |   |         |           |  |  |      |      |  
|----------------------------------- | ----- | ------ | ------- | --------- | ---- | ------ | ---- | ---- | - | ------ | ------- | --------- |  |  | ---- | ---- | - | - | ------- | --------- |  |  | ---- | ---- | -
|                                    |       |        | 2003    |           | 2002 |        | 2001
|(dollars in thousands)              |       | Amount |         | Rate      |      | Amount |      | Rate |   | Amount |         | Rate     
|                                    |       |        |         |           |      |        |      |      |   |        |         |          
|Noninterest-bearing demand deposits |       | $      | 190,596 |           |      |        |     | %    |   | $      | 157,170 |           |  |  |     | %    |   | $ | 130,083 |           |  |  |     | %   
|Interest-bearing demand deposits    |       |        | 285,506 |           |      |        | 0.41 |      |   |        | 285,480 |           |  |  | 1.08 |      |   |   | 256,882 |           |  |  | 2.29 |     
|Savings                             |       |        | 252,011 |           |      |        | 0.71 |      |   |        | 185,834 |           |  |  | 1.17 |      |   |   | 155,449 |           |  |  | 1.97 |     
|Time deposits                       |       |        | 448,399 |           |      |        | 1.83 |      |   |        | 504,685 |           |  |  | 2.54 |      |   |   | 651,344 |           |  |  | 4.68 |     
|                                    | Total |        | $       | 1,176,512 |      |        |      | 0.95 | % |        | $       | 1,133,169 |  |  |      | 1.60 | % |   | $       | 1,193,758 |  |  |      | 3.30 | %
|                                    |       |        |         |           |      |        |      |      |   |        |         |           |  |  |      |      |   |   |         |           |  |  |      |     

The remaining maturities of time deposits in amounts of $100,000 or more
outstanding at December 31, 2003 is summarized below:

|                                |       |   |         |         | 
|------------------------------- | ----- | - | ------- | ------- | 
|(in thousands)                  |       |   |         |        
|3 months or less                |       | $ | 110,397 |        
|Over 3 months through 6 months  |       |   | 51,850  |        
|Over 6 months through 12 months |       |   | 29,576  |        
|Over 12 months                  |       |   | 18,684  |        
|                                |       |   |         |        
|                                | Total |   | $       | 210,507 | 
|                                |       |   |         |        

INVESTMENT AND MORTGAGE-BACKED SECURITIES PORTFOLIO

The following table sets forth the book value and the distribution by category
of investment securities at December 31 for the years indicated:

|                                                                  |       |      |         |         |  |      |         |         |  |   |         |         | 
|----------------------------------------------------------------- | ----- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|(in thousands)                                                    |       | 2003 |         | 2002    |  | 2001
|                                                                  |       |      |         |         |  |     
|Held-to-Maturity                                                  |       |      |         |         |  |      |         |         |  |   |         |        
|U.S. Treasury and other U.S. government agencies
and corporations |       | $    | 79,126  |         |  | $    | 75,996  |         |  | $ |        |        
|Corporate bonds                                                   |       |      | 29,199  |         |  |      | 34,861  |         |  |   | 24,830  |        
|Mortgage-backed securities                                        |       |      | 25,838  |         |  |      | 1,156   |         |  |   | 1,170   |        
|                                                                  |       |      |         |         |  |      |         |         |  |   |         |        
|                                                                  | Total |      | $       | 134,163 |  |      | $       | 112,013 |  |   | $       | 26,000  | 
|                                                                  |       |      |         |         |  |      |         |         |  |   |         |        
|Available-for-sale                                                |       |      |         |         |  |      |         |         |  |   |         |        
|U.S. Treasury and other U.S. government agencies
and corporations |       | $    | 50,457  |         |  | $    | 5,462   |         |  | $ | 5,450   |        
|State and political subdivisions                                  |       |      | 35,167  |         |  |      | 35,036  |         |  |   | 33,204  |        
|Mortgage/asset-backed securities                                  |       |      | 195,970 |         |  |      | 168,371 |         |  |   | 164,909 |        
|Others                                                            |       |      | 21,052  |         |  |      | 19,466  |         |  |   |        |        
|                                                                  |       |      |         |         |  |      |         |         |  |   |         |        
|                                                                  | Total |      | $       | 302,646 |  |      | $       | 228,335 |  |   | $       | 203,563 | 
|                                                                  |       |      |         |         |  |      |         |         |  |   |         |        
|FHLB stock                                                        |       | $    | 31,576  |         |  | $    | 29,886  |         |  | $ | 32,406  |        
|                                                                  |       |      |         |         |  |      |         |         |  |   |         |        

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The following table sets forth the maturities of investment securities (at
amortized cost) at December 31, 2003 and the weighted average yields of such
securities (calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security, not adjusted to a fully
tax-equivalent basis as impact, not material):

|                                                                  |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |       |   |   |        |         |  |  |      |      |   |   |        |         |  |  |      |      |  
|----------------------------------------------------------------- | ----- | ------ | ------------- | ------ | -------------- | ------ | --------------- | ----- | -------------- | ------ | ----------- | ------ | ----------- | ------ | ---- | ----- | - | - | ------ | ------- |  |  | ---- | ---- | - | - | ------ | ------- |  |  | ---- | ---- | -
|                                                                  |       |        |               |        |                |        |                 |       |                |        | After 1 but |        | After 5 but |        |      |       |   |   |        |         | 
|                                                                  |       |        | Within 1 year |        | within 5 years |        | within 10 years |       | After 10 years
|(dollars in thousands)                                            |       | Amount |               | Yield  |                | Amount |                 | Yield |                | Amount |             | Yield  |             | Amount |      | Yield
|                                                                  |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |      
|Held-to-maturity                                                  |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |       |   |   |        |         |  |  |      |      |   |   |        |         |  |  |      |     
|U.S. Treasury and other U.S.
government agencies and
corporations |       | $      |              |        |                |        |                | %     |                | $      | 53,757      |        |             |        | 2.31 | %     |   | $ | 25,369 |         |  |  | 2.38 | %    |   |   |       |         |  |  |     | %   
|Corporate bonds                                                   |       |        | 18,925        |        |                |        | 4.59            |       |                |        | 10,274      |        |             |        | 4.13 |       |   |   |       |         |  |  |     |      |   |   |       |         |  |  |     |     
|Mortgage-backed securities                                        |       |        |              |        |                |        |                |       |                |        |            |        |             |        |     |       |   |   |       |         |  |  |     |      |   |   | 25,838 |         |  |  | 3.95 |     
|                                                                  |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |       |   |   |        |         |  |  |      |      |   |   |        |         |  |  |      |     
|                                                                  | Total |        | $             | 18,925 |                |        |                 | 4.59  | %              |        | $           | 64,031 |             |        |      | 2.98  | % |   | $      | 25,369  |  |  |      | 2.38 | % |   | $      | 25,838  |  |  |      | 3.95 | %
|                                                                  |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |       |   |   |        |         |  |  |      |      |   |   |        |         |  |  |      |     
|Available-for-sale                                                |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |       |   |   |        |         |  |  |      |      |   |   |        |         |  |  |      |     
|U.S. Treasury and other U.S
government agencies and
corporations  |       | $      | 5,005         |        |                |        | 6.31            | %     |                | $      | 44,507      |        |             |        | 5.53 | %     |   | $ |       |         |  |  |     | %    |   | $ |       |         |  |  |     | %   
|State and political subdivisions                                  |       |        |              |        |                |        |                |       |                |        |            |        |             |        |     |       |   |   | 11,955 |         |  |  | 6.07 |      |   |   | 20,703 |         |  |  | 5.01 |     
|Mortgage/asset-backed securities                                  |       |        | 572           |        |                |        | 7.25            |       |                |        | 741         |        |             |        | 8.04 |       |   |   | 90,276 |         |  |  | 3.36 |      |   |   | 97,592 |         |  |  | 5.94 |     
|Other                                                             |       |        |              |        |                |        |                |       |                |        |            |        |             |        |     |       |   |   |       |         |  |  |     |      |   |   | 20,906 |         |  |  | 3.27 |     
|                                                                  |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |       |   |   |        |         |  |  |      |      |   |   |        |         |  |  |      |     
|                                                                  | Total |        | $             | 5,577  |                |        |                 | 6.41  | %              |        | $           | 45,248 |             |        |      | 5.54  | % |   | $      | 102,231 |  |  |      | 3.58 | % |   | $      | 139,201 |  |  |      | 5.40 | %
|                                                                  |       |        |               |        |                |        |                 |       |                |        |             |        |             |        |      |       |   |   |        |         |  |  |      |      |   |   |        |         |  |  |      |     

A table setting forth information regarding investment and
mortgage/asset-backed securities, including estimated fair value and carrying
value of such securities is included in Note B of Notes to the Companys
Consolidated Financial Statements.

SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Federal funds purchased generally mature on the day following the date of
purchase.

Advances from the FHLB were made under a credit line agreement providing for
advances up to $570.1 million, of which $70.7 million was undrawn at December
31, 2003. See Notes H and I of Notes to the Companys Consolidated Financial
Statements and the discussions below under Liquidity Management.

At December 31, 2003, there were seven long-term FHLB advances totaling $123.0
million, callable after initial lockout periods. The next call date range is
between January 2004 and August 2006.

FINANCIAL CONDITION

Total assets at December 31, 2003 were $1,903.7 million, an increase of $229.3
million, or 13.7%, from 2002. The increase was due primarily to increases in
investment securities available for sale and loans of $74.3 million, or 32.5%
and $218.6 million, or 21.1%, respectively. These increases were a result of
cash flows generated from a decrease in loans held for sale of $42.1 million,
or 42.7% and an increase in deposits of $42.5 million, or 3.7%, and an increase
in borrowings of $170.0 million, or 51.5%.

LIQUIDITY AND CAPITAL RESOURCES

The primary objective of liquidity management is to maintain a balance between
sources and uses of funds in order that the cash flow needs of the Company are
met in the most economical and expedient manner. The liquidity needs of a
financial institution require the availability of cash to meet the withdrawal
demands of depositors and the credit commitments of borrowers. In order to
optimize liquidity, management monitors and forecasts the various sources and
uses of funds in an effort to continually meet the financial requirements of
the Company and the financial needs of its customer base.

To ensure liquidity on a short-term basis, the Companys primary sources are
cash or cash equivalents, loan repayments, proceeds from the sale of assets
available for sale, increases in deposits, proceeds from maturing securities
and, when necessary, federal funds purchased, brokered deposits and credit
arrangements with correspondent banks and the FHLB. Maturities of investment
securities are also structured to cover large commitments and seasonal
fluctuations in credit arrangements.

At December 31, 2003, the Bank had advances outstanding from the FHLB of $499.4
million (28.8% of total liabilities) at December 31, 2003 compared to $329.4
million (21.6% of total liabilities) at December 31, 2002. The maximum amount
of advances from the FHLB that the Bank had outstanding at any month-end during
such periods was $499.4 million. As of December 31, 2003, the Bank had
available unused credit lines of $70.7 million from the FHLB. During 2004,
$305.0 million of short-term and $31.2 million of long-term borrowings from the
FHLB mature  see Note I of Notes to the Companys Consolidated Financial
Statements for future maturity of long-term borrowings from the FHLB. It has
been the Companys general practice to satisfy maturing obligations to the FHLB
in part by additional advances under its credit line agreement with the FHLB.
The creditline agreements have standard FHLB default provisions which, among
other matters, accelerate the maturity date if there is a material adverse
change to the financial condition of the Bank and/or if repayment ability
becomes impaired. The Banks ability to continue to draw upon this credit line
and avoid an acceleration of the maturity dates is dependent upon the Companys continued
adequate financial condition and fulfillment of collateral requirements. As of
December 31, 2003, these borrowings were collateralized by $686.3 million in
U.S. Treasury and other U.S. government agency securities and loans.
Management believes that the FHLB will continue to extend borrowings to the
Bank to refinance advances maturing in 2004. In the remote case that the FHLB
ceases to make advances available as a reliable source of

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liquidity, the Bank
would be required to repay the advances as they mature or are accelerated from
other sources of funds in order to mitigate the risk that the security pledged
as collateral for the advances might be realized upon by the FHLB. Management
believes that the Bank could obtain other sources of funding, such as through
repurchase agreements, brokered CDs, federal fund lines with other
correspondent banks or lines of credit with the Federal Reserve System in order
to meet such repayment requirements.

The Companys most liquid assets are cash, interest bearing deposits, Federal
funds sold, investment securities available for sale and loans held for sale.
The levels of these assets are dependent on the Companys operating, financing,
lending and investing activities during any given period. At December 31,
2003, cash, interest-bearing deposits, Federal funds sold and available for
sale investment securities and loans held for sale totaled $407.0 million, a
decrease of 3.8% from $423.1 million at December 31, 2002.

Investing activities used cash flow of $84.7 million in 2003, while providing
cash flow of $27.1 million and $124.4 million in 2002 and 2001, respectively.
The primary use of cash for investing activities in 2003 was the $230.1 million
in net loan originations, partially offset by proceeds from sales of
available-for-sale securities of $179.4 million. The primary source of cash for
investing activities in 2002 was proceeds from sales and maturities of
available-for-sale securities of $113.5 million and net loan payoffs of $117.1
million.

Financing activities provided cash flow of $209.9 million and $62.2 million in
2003 and 2002, respectively, and used $149.4 million in 2001. During 2003,
proceeds from short-term debt of $295.0 million were the primary source of cash
flows from financing activities and, in 2002; proceeds from long-term debt of
$140.0 million were the primary source of cash flows from financing activities.

At any time, the Company has outstanding commitments to extend credit. See
Note O of Notes to the Companys Consolidated Financial Statements. See Note N
of Notes to the Companys Consolidated Financial Statements for further
discussion and disclosure of risk management activities.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, the Company is a party to various financial
transactions that are not recorded on the Companys balance sheet, in
accordance with generally accepted accounting principles. Such transactions
are structured to meet the financial needs of customers and manage the
Companys interest rate risk, and include transactions such as interest rate
lock commitments and forward sales of securities, and derivative financial
instruments such as swaps, caps, floors, and options. Management is not aware
of any known event, demand, commitment, trend or uncertainty that will result
in or is reasonably likely to result in the termination or material reduction
in availability of these off-balance sheet arrangements. See Notes A,
Derivative Instruments and Hedging Activities, and N of Notes to the
Companys Consolidated Financial Statements for further discussion on
Derivative Instruments and Hedging Activities, and Risk Management Activities.

During 2003, swaps and call options resulted in a
net gain of $1.5 million. Based on the off-balance
sheet arrangements with which it is involved, the Company does not
believe that such arrangements are reasonably likely to have a
material impact on its current or future financial condition, results
of operations, liquidity or capital.

CONTRACTUAL OBLIGATIONS

Set forth below is a summary of Contractual Obligations as of December 31, 2003
on total payments due during the indicated periods for the specified
obligations. Additional information on operating leases and long-term debt can
be found in Notes F and I of Notes to the Companys Consolidated Financial
Statements.

|                                             |                               |               |        |              |  |              |        |               |  |       |        |        |  |   |         |         |  |   |         |         | 
|-------------------------------------------- | ----------------------------- | ------------- | ------ | ------------ |  | ------------ | ------ | ------------- |  | ----- | ------ | ------ |  | - | ------- | ------- |  | - | ------- | ------- | 
|(in thousands)                               |                               | Within 1 year |        | 2 to 3 years |  | 4 to 5 years |        | After 5 years |  | Total
|                                             |                               |               |        |              |  |              |        |               |  |      
|Long-term debt                               |                               | $             | 31,200 |              |  | $            | 40,000 |               |  | $     | 13,000 |        |  | $ | 110,189 |         |  | $ | 194,389 |        
|Operating leases                             |                               |               | 4,470  |              |  |              | 8,238  |               |  |       | 7,694  |        |  |   | 9,762   |         |  |   | 30,164  |        
|Facilities management services               |                               |               | 1,164  |              |  |              | 2,632  |               |  |       | 2,793  |        |  |   | 1,710   |         |  |   | 8,299   |        
|Minority interest in consolidated subsidiary |                               |               |       |              |  |              |       |               |  |       |       |        |  |   | 2,720   |         |  |   | 2,720   |        
|                                             |                               |               |        |              |  |              |        |               |  |       |        |        |  |   |         |         |  |   |         |        
|                                             | Total contractual obligations |               | $      | 36,834       |  |              | $      | 50,870        |  |       | $      | 23,487 |  |   | $       | 124,381 |  |   | $       | 235,572 | 
|                                             |                               |               |        |              |  |              |        |               |  |       |        |        |  |   |         |         |  |   |         |        

At any time, the Company has a significant number of outstanding commitments to
extend credit. These commitments take the form of approved lines of credit and
loans with terms of up to one year. The Company also provides financial
guarantees and letters of credit to guarantee the performance of customers to
third parties. These agreements generally extend for up to one year. The
contractual amounts of these credit-related instruments are set out in the
following table by category of instrument. Because many of those instruments
expire without being advanced in whole or in part, the amounts do not represent
future cash flow requirements.

|                                 |        |               |         |         | 
|-------------------------------- | ------ | ------------- | ------- | ------- | 
|(in thousands)                   |        | Within 1 year
|                                 |        |              
|Loan commitments                 |        | $             | 391,394 |        
|Guarantees and letters of credit |        |               | 16,147  |        
|                                 |        |               |         |        
|                                 | Totals |               | $       | 407,541 | 
|                                 |        |               |         |        

The Company did not have material commitment for capital expenditures at
December 31, 2003.

UNSOLICITED TAKEOVER PROPOSAL

CPF has not withdrawn its unsolicited takeover proposal and continues to
litigate and states that it intends to proceed with such takeover. In 2003,
the Company expended approximately $6.6 million in unsolicited hostile takeover
proposal expenses. It is unknown as to what expenses and expenditure of time
of personnel the Company will incur in the future for this matter, whether CPF
will withdraw its proposal or what the result of such proposal will be. These
uncertainties could affect the financial performance of the Company and the
price at which the shares of the Company trade.

EFFECTS OF INFLATION

The financial statements and related data presented herein have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Virtually all of the assets and liabilities of the
Company

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are monetary in nature. As a result, interest rate changes have a more
significant impact on the Companys performance than the effects of general
levels of inflation.

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QUARTERLY RESULTS OF OPERATIONS (Unaudited)

Net income for the fourth quarter of 2003 was $6.9 million, or $1.56 per
diluted share, a 90.7% increase over net income of $3.6 million, or $0.83 per
diluted share, for the same quarter in 2002.

The higher net income for the fourth quarter of 2003 was primarily due to a
$2.7 million increase in net interest income, a $3.0 million decrease in
provision for credit losses and a $2.8 million increase in noninterest income,
partially offset by a $3.5 million increase in noninterest expense.

The following table summarizes the Companys quarterly results for the years
2003 and 2002:

|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |        | 
|--------------------------- | -------------------------- | ----- | ------ | ------ |  | ----- | ------ | ------ |  | ------- | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------ | 
|(in thousands, except per   |                            |       |        |        |  |       |        |        |  | Quarter |        |        |  |   |        |        |  |  
|share data)                 |                            | First |        | Second |  | Third |        | Fourth |  | Total  
|                            |                            |       |        |        |  |       |        |        |  |        
|2003:                       |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|Total interest income       |                            | $     | 24,933 |        |  | $     | 25,299 |        |  | $       | 26,009 |        |  | $ | 26,769 |        |  | $ | 103,010 |       
|Total interest expense      |                            |       | 6,631  |        |  |       | 6,085  |        |  |         | 5,590  |        |  |   | 5,110  |        |  |   | 23,416  |       
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|                            | Net interest income        |       |        | 18,302 |  |       |        | 19,214 |  |         |        | 20,419 |  |   |        | 21,659 |  |   |         | 79,594 | 
|Provision for credit losses |                            |       | 4,330  |        |  |       | 550    |        |  |         | 1,150  |        |  |   | 1,150  |        |  |   | 7,180   |       
|Noninterest income          |                            |       | 5,511  |        |  |       | 6,464  |        |  |         | 5,023  |        |  |   | 6,288  |        |  |   | 23,286  |       
|Noninterest expense         |                            |       | 13,642 |        |  |       | 18,717 |        |  |         | 15,998 |        |  |   | 16,570 |        |  |   | 64,927  |       
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|                            | Income before income taxes |       |        | 5,841  |  |       |        | 6,411  |  |         |        | 8,294  |  |   |        | 10,227 |  |   |         | 30,773 | 
|Income tax expense          |                            |       | 1,869  |        |  |       | 2,051  |        |  |         | 2,750  |        |  |   | 3,355  |        |  |   | 10,025  |       
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|                            | Net income                 |       | $      | 3,972  |  |       | $      | 4,360  |  |         | $      | 5,544  |  |   | $      | 6,872  |  |   | $       | 20,748 | 
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|Basic earnings per share    |                            | $     | 0.93   |        |  | $     | 1.03   |        |  | $       | 1.29   |        |  | $ | 1.61   |        |  | $ | 4.86    |       
|Diluted earnings per share  |                            | $     | 0.92   |        |  | $     | 0.99   |        |  | $       | 1.25   |        |  | $ | 1.56   |        |  | $ | 4.72    |       
|2002:                       |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|Total interest income       |                            | $     | 27,634 |        |  | $     | 26,720 |        |  | $       | 26,480 |        |  | $ | 26,111 |        |  | $ | 106,945 |       
|Total interest expense      |                            |       | 8,195  |        |  |       | 7,682  |        |  |         | 7,257  |        |  |   | 7,158  |        |  |   | 30,292  |       
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|                            | Net interest income        |       |        | 19,439 |  |       |        | 19,038 |  |         |        | 19,223 |  |   |        | 18,953 |  |   |         | 76,653 | 
|Provision for credit losses |                            |       | 4,868  |        |  |       | 4,102  |        |  |         | 3,989  |        |  |   | 4,151  |        |  |   | 17,110  |       
|Noninterest income          |                            |       | 3,959  |        |  |       | 3,760  |        |  |         | 1,589  |        |  |   | 3,507  |        |  |   | 12,815  |       
|Noninterest expense         |                            |       | 13,348 |        |  |       | 13,321 |        |  |         | 12,845 |        |  |   | 13,104 |        |  |   | 52,618  |       
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|                            | Income before income taxes |       |        | 5,182  |  |       |        | 5,375  |  |         |        | 3,978  |  |   |        | 5,205  |  |   |         | 19,740 | 
|Income tax expense          |                            |       | 1,646  |        |  |       | 1,754  |        |  |         | 1,257  |        |  |   | 1,601  |        |  |   | 6,258   |       
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|                            | Net income                 |       | $      | 3,536  |  |       | $      | 3,621  |  |         | $      | 2,721  |  |   | $      | 3,604  |  |   | $       | 13,482 | 
|                            |                            |       |        |        |  |       |        |        |  |         |        |        |  |   |        |        |  |   |         |       
|Basic earnings per share    |                            | $     | 0.84   |        |  | $     | 0.85   |        |  | $       | 0.63   |        |  | $ | 0.85   |        |  | $ | 3.17    |       
|Diluted earnings per share  |                            | $     | 0.83   |        |  | $     | 0.83   |        |  | $       | 0.62   |        |  | $ | 0.83   |        |  | $ | 3.11    |       

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ASSET/LIABILITY MANAGEMENT AND INTEREST RATE SENSITIVITY

Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency
exchange rates, commodity prices and equity prices. The Companys primary
market risk exposure is interest rate risk. The ongoing monitoring and
management of this risk is an important component of the Companys
asset/liability management process which is governed by policies established by
its Board of Directors that are reviewed and approved annually. The Board of
Directors delegates responsibility for carrying out the asset/liability
management policies to the Asset/Liability Committee (ALCO). In this
capacity, ALCO develops guidelines and strategies impacting the Companys
asset/liability management related activities based upon estimated market risk
sensitivity, policy limits and overall market interest rate levels and trends.

The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are interest rate sensitive and by
monitoring an institutions interest rate sensitivity gap. An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest-bearing liabilities maturing or repricing within that
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of falling interest rates, the net earnings of an institution with a
positive gap theoretically may be adversely affected due to its
interest-earning assets repricing to a greater extent than its interest-bearing
liabilities. Conversely, during a period of rising interest rates,
theoretically, the net earnings of an institution with a positive gap position
may increase as it is able to invest in higher yielding interest-earning assets
at a more rapid rate than its interest-bearing liabilities reprice.

The Company also measures and monitors its sensitivity to interest rates using
net interest income simulations on a quarterly basis. Any identified exposure
is managed primarily through the use of on-balance-sheet hedges such as the
extension or shortening of the duration of the investment and
mortgage/asset-backed securities portfolio, retail certificates of deposit and
FHLB advances. Additionally, the Company uses derivative instruments that have
been designated and have qualified as either cash flow hedging instruments such
as swaps, caps and floors or fair value hedging instruments such as options.
The Company currently does not engage in the use of trading activities,
high-risk derivatives and synthetic instruments in controlling its interest
rate risk. Such uses are permitted at the recommendation of ALCO with the
approval of the Board of Directors.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 2003, which are
anticipated by the Company, based upon certain assumptions, to reprice or
mature in each of the future time periods shown. Except as stated below, the
amounts of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of the term to
repricing or the contractual terms of the asset or liability. Since all
interest rates and yields do not adjust at the same velocity or magnitude, and
since volatility is subject to change, the gap is only a general indicator of
interest rate sensitivity.

|                                           |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |       |         |         |  |   |          |         |  |   |          |         |  |   |           |         | 
|------------------------------------------ | --------------------------------------------------------------------------------------------- | ---- | -------- | ------- | ------ | ---- | -------- | ------- | --- | ----- | ------- | --------- | -------- | ----- | ------- | ------- |  | - | -------- | ------- |  | - | -------- | ------- |  | - | --------- | ------- | 
|                                           |                                                                                               |      | 0-90     |         | 91-180 |      | 181-365  |         | 1-5 |       | Over 5  |           | Non-rate |       |         |         | 
|(in thousands)                             |                                                                                               | Days |          | Days    |        | Days |          | Years   |     | Years |         | sensitive |          | Total
|                                           |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |      
|Assets:                                    |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |       |         |         |  |   |          |         |  |   |          |         |  |   |           |        
|                                           | Investment and mortgage/
asset-backed securities and
interest-bearing deposits in
other banks |      | $        | 99,492  |        |      | $        | 38,011  |     |       | $       | 68,552    |          |       | $       | 156,916 |  |   | $        | 106,757 |  |   | $        |        |  |   | $         | 469,728 | 
|                                           | Federal funds sold                                                                            |      |          | 400     |        |      |          |        |     |       |         |          |          |       |         |        |  |   |          |        |  |   |          |        |  |   |           | 400     | 
|                                           | Commercial loans                                                                              |      |          | 113,806 |        |      |          | 13,139  |     |       |         | 15,622    |          |       |         | 66,660  |  |   |          | 13,055  |  |   |          |        |  |   |           | 222,282 | 
|                                           | Real estate loans                                                                             |      |          | 219,734 |        |      |          | 80,577  |     |       |         | 142,019   |          |       |         | 432,566 |  |   |          | 39,735  |  |   |          |        |  |   |           | 914,631 | 
|                                           | Consumer loans                                                                                |      |          | 52,969  |        |      |          | 10,807  |     |       |         | 17,345    |          |       |         | 83,496  |  |   |          | 12,091  |  |   |          |        |  |   |           | 176,708 | 
|                                           | Other assets                                                                                  |      |          |        |        |      |          |        |     |       |         |          |          |       |         |        |  |   |          |        |  |   |          | 119,912 |  |   |           | 119,912 | 
|                                           |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |       |         |         |  |   |          |         |  |   |          |         |  |   |           |         | 
|Total assets                               |                                                                                               | $    | 486,401  |         |        | $    | 142,534  |         |     | $     | 243,538 |           |          | $     | 739,638 |         |  | $ | 171,638  |         |  | $ | 119,912  |         |  | $ | 1,903,661 |        
|                                           |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |       |         |         |  |   |          |         |  |   |          |         |  |   |           |         | 
|Liabilities and stockholders equity:      |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |       |         |         |  |   |          |         |  |   |          |         |  |   |           |        
|                                           | Noninterest-bearing deposits                                                                  |      | $        |        |        |      | $        |        |     |       | $       |          |          |       | $       |        |  |   | $        |        |  |   | $        | 217,148 |  |   | $         | 217,148 | 
|                                           | Time and savings deposits                                                                     |      |          | 417,573 |        |      |          | 114,442 |     |       |         | 71,179    |          |       |         | 80,477  |  |   |          | 304,906 |  |   |          |        |  |   |           | 988,577 | 
|                                           | Short-term borrowings                                                                         |      |          | 300,400 |        |      |          |        |     |       |         | 5,000     |          |       |         |        |  |   |          |        |  |   |          |        |  |   |           | 305,400 | 
|                                           | Long-term debt                                                                                |      |          | 20,003  |        |      |          | 3       |     |       |         | 11,206    |          |       |         | 53,054  |  |   |          | 110,123 |  |   |          |        |  |   |           | 194,389 | 
|                                           | Other liabilities                                                                             |      |          |        |        |      |          |        |     |       |         |          |          |       |         |        |  |   |          |        |  |   |          | 28,937  |  |   |           | 28,937  | 
|                                           | Stockholders equity                                                                          |      |          |        |        |      |          |        |     |       |         |          |          |       |         |        |  |   |          |        |  |   |          | 169,210 |  |   |           | 169,210 | 
|                                           |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |       |         |         |  |   |          |         |  |   |          |         |  |   |           |         | 
|Total liabilities and stockholders
equity |                                                                                               | $    | 737,976  |         |        | $    | 114,445  |         |     | $     | 87,385  |           |          | $     | 133,531 |         |  | $ | 415,029  |         |  | $ | 415,295  |         |  | $ | 1,903,661 |        
|                                           |                                                                                               |      |          |         |        |      |          |         |     |       |         |           |          |       |         |         |  |   |          |         |  |   |          |         |  |   |           |         | 
|Interest rate sensitivity gap              |                                                                                               | $    | (251,575 | )       |        | $    | 28,089   |         |     | $     | 156,153 |           |          | $     | 606,107 |         |  | $ | (243,391 | )       |  | $ | (295,383 | )       |  | $ |          |        
|Cumulative interest rate
sensitivity gap   |                                                                                               | $    | (251,575 | )       |        | $    | (223,486 | )       |     | $     | (67,333 | )         |          | $     | 538,774 |         |  | $ | 295,383  |         |  | $ |         |         |  | $ |          |        

The Companys policy is to match its level of interest-earning assets and
interest-bearing liabilities within a limited range, thereby reducing its
exposure to interest rate fluctuations. In connection with these asset and
liability management objectives, various actions have been taken, including
changes in the composition of assets and liabilities, and the use of financial
instruments.

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When appropriate, ALCO may utilize off-balance sheet instruments such as
interest rate swaps, caps and floors to hedge its interest rate risk position.
A Board of Directors approved hedging policy statement governs the use of these
instruments.

The financial instruments used and their notional amounts outstanding at
December 31 for the years indicated were as follows:

|                       |                                    |      |   |        |   |      |   |        |   |  |   |        |  
|---------------------- | ---------------------------------- | ---- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|(dollars in thousands) |                                    | 2003 |   | 2002   |   | 2001
|                       |                                    |      |   |        |   |     
|Interest rate swaps:   |                                    |      |   |        |   |      |   |        |   |  |   |       
|                       | Pay-floating swaps-notional amount |      | $ | 30,000 |   |      | $ | 20,000 |   |  | $ | 15,000 |  
|                       | Average receive rate               |      |   | 5.98   | % |      |   | 6.40   | % |  |   | 7.29   | %
|                       | Average pay rate                   |      |   | 4.00   | % |      |   | 4.25   | % |  |   | 2.07   | %
|                       |                                    |      |   |        |   |      |   |        |   |  |   |        |  
|                       | Pay-fixed swaps-notional amount    |      | $ | 10,000 |   |      | $ | 35,000 |   |  | $ |       |  
|                       | Average receive rate               |      |   | 1.17   | % |      |   | 1.72   | % |  |   |       | %
|                       | Average pay rate                   |      |   | 4.17   | % |      |   | 3.99   | % |  |   |       | %
|                       |                                    |      |   |        |   |      |   |        |   |  |   |        |  

Under interest rate swaps, the Company agrees with other parties to exchange,
at specified intervals, the difference between fixed rate and floating rate
interest amounts calculated by reference to the agreed notional amount.

Interest rate contracts are primarily used to convert certain deposits and
long-term debt to fixed interest rates or to convert certain groups of customer
loans and other interest earning assets to fixed rates. Certain interest rate
swaps specifically match the amounts and terms of particular assets and
liabilities.

Interest rate options, which primarily consist of caps and floors, are interest
rate protection instruments that involve the payment from the seller to the
buyer of an interest rate differential in exchange for a premium paid by the
buyer. This differential represents the difference between current interest
rates and an agreed upon rate applied to a notional amount. Interest rate caps
limit the cap holders risk associated with an increase in interest rates.
Interest rate floors limit the risk associated with a decline in interest
rates.

The Company has a mortgage banking operation and thus holds a portfolio of
residential loans funded, pending sale to investors. These loans were $56.0
million and $97.9 million at December 31, 2003 and 2002, respectively, and are
carried on the books at the lower of cost or market. Because the market value
of these loans are subject to change due to interest rates, the Company
utilizes forward sales and short call options to protect against rising rates.

Interest rate options at December 31, 2003, 2002 and 2001 consisted of the
following:

|               |                             |        |          |        |      |        |           |       |      |        |          |        |           |   |        |      |   |     |           |        |  |  |     |     |  
|-------------- | --------------------------- | ------ | -------- | ------ | ---- | ------ | --------- | ----- | ---- | ------ | -------- | ------ | --------- | - | ------ | ---- | - | --- | --------- | ------ |  |  | --- | --- | -
|               |                             |        | 2003     |        | 2002 |        | 2001     
|               |                             |        |          |        |      |        | Estimated |       |      |        |          |        | Estimated |   |        |      |   |     | Estimated
|               |                             |        | Notional |        | Fair |        | Notional  |       | Fair |        | Notional |        | Fair     
|(in thousands) |                             | Amount |          | Value  |      | Amount |           | Value |      | Amount |          | Value 
|               |                             |        |          |        |      |        |           |       |      |        |          |       
|Caps           |                             | $      |         |        |      | nil    |           | $     |     |        |          | nil    |           | $ | 50,000 |      |   | nil
|Options        |                             |        | 30,000   |        |      |        | (230      | )     |      |        | 30,000   |        |           |   | (217   | )    |   |     | 5,000     |        |  |  | (40 | )  
|               |                             |        |          |        |      |        |           |       |      |        |          |        |           |   |        |      |   |     |           |        |  |  |     |    
|               | Total interest rate options |        | $        | 30,000 |      |        | $         | (230  | )    |        | $        | 30,000 |           |   | $      | (217 | ) |     | $         | 55,000 |  |  | $   | (40 | )
|               |                             |        |          |        |      |        |           |       |      |        |          |        |           |   |        |      |   |     |           |        |  |  |     |    

INTEREST RATE RISK

Interest rate risk represents the sensitivity of earnings to changes in market
interest rates. As interest rates change, the interest income and expense
streams associated with the Companys financial instruments also change thereby
impacting net interest income (NII), the primary component of the Companys
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
horizon, it also utilizes additional tools to monitor potential longer-term
interest rate risk.

Based on the results of the simulation model and interest rate risk position,
management monitors short- and long-term exposure to market risk by managing
rates paid on liabilities; pricing on loans; volumes of loans, deposits and
investments; mix of asset types varying in term, optionality and cash flow
characteristics; and other factors. These tactics are employed considering
market conditions, competition, and loan demand and customer preferences.

A unique aspect of the Banks earning asset base is that 28% of total gross
loans are residential mortgage loans, which have longer terms and greater
option risk arising from the borrowers right to prepay. This potentially
creates significant mismatch risk as funding of those assets are typically at
terms much shorter than the expected terms of the loans. As a result, the Bank
has generally been liability-sensitive in the past. Due to the presence of an
established secondary market for residential real estate loans and its
acceptance as collateral for wholesale borrowing for the Bank, this portfolio
and continuing operation is a significant source of liquidity, regardless of
the interest rate environment.

Over the last year, the Banks interest rate risk position has shifted from
being asset-sensitive in the first half of the year to being
liability-sensitive in the second half as rates generally remained low during
the year, as compared to historical averages. Continued high prepayments of
residential mortgages were replaced with loans and investments that were either
variable rate or with shorter fixed maturities (3 to 5 years). Additionally,
long-term advances that came due were replaced with overnight borrowings. As a
result, the balance sheet became liability-sensitive which had a positive
impact on the net interest margin, which was continuing to compress in this low
interest rate environment. Management continues to monitor the gap position at
least quarterly and determines its risk management strategies based on income
at risk, growth projections and biases for interest rate direction.

30



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##### Table of Contents



The simulation model captures the impact of changing interest rates on the
interest income received and interest expense paid on all assets and
liabilities reflected on the Companys balance sheet as well as for off-balance
sheet derivative financial instruments. This sensitivity analysis is compared
to ALCO policy limits which specify a maximum tolerance level for NII exposure
over a one-year horizon, assuming no balance sheet growth, given both a 200
basis point (bp) upward and 100 bp downward shift in interest rates. A
parallel and pro rata shift in rates over a 12-month period is assumed. The
following reflects the Companys NII sensitivity analysis as of December 31,
2003. Rate Change
    
    Estimated NII Sensitivity+200bp
    
    
    (1.35
    )%-100bp
    
    
    (1.22
    )%
 The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including:
the nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cashflows,
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change, caps
or floors on adjustable rate assets, the potential effect of changing debt
service levels on customers with adjustable rate loans, depositor early
withdrawals and product preference changes, and other internal/external
variables. Furthermore, the sensitivity analysis does not reflect actions that
ALCO might take in responding to or anticipating changes in interest rates. 31




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS REPORT CB BANCSHARES, INC. AND SUBSIDIARIES December 31, 2003, 2002 and 2001 CONTENTS
    
    PAGEINDEPENDENT AUDITORS REPORT
    
    
    32CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS
    
    
    33CONSOLIDATED STATEMENTS OF INCOME
    
    
    34CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY AND COMPREHENSIVE INCOME (LOSS)
    
    
    35CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    36NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    
    
    37-54
 32




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##### Table of Contents



INDEPENDENT AUDITORS REPORT
CB Bancshares, Inc. and Subsidiaries The Board of Directors and Stockholders
CB Bancshares, Inc.: We have audited the accompanying consolidated balance sheets of CB Bancshares,
Inc. and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income, changes in stockholders equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 2003. These consolidated financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CB Bancshares, Inc.
and subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America. /s/ KPMG LLP KPMG LLP Honolulu, Hawaii
February 13, 2004 33




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
CB Bancshares, Inc. and Subsidiaries December 31,(in thousands, except number of shares and per share data)
    
    2003
    
    2002ASSETSCash and due from banks (Note A)
    
    $
    46,566
    
    
    $
    75,069Interest-bearing deposits and deposits in other banks
    
    
    1,343
    
    
    
    1,214Federal funds sold
    
    
    400
    
    
    
    20,525Investment and mortgage/asset-backed securities (Notes B and I):Held-to-maturity (fair value of $134,552 and $113,138 at December 31,
2003 and 2002, respectively
    
    
    134,163
    
    
    
    112,013Available-for-sale
    
    
    302,646
    
    
    
    228,335FHLB stock
    
    
    31,576
    
    
    
    29,886Loans held-for-sale
    
    
    56,039
    
    
    
    97,948Loans, net (Notes C, D and I)
    
    
    1,257,582
    
    
    
    1,037,657Premises and equipment, net (Note F)
    
    
    16,867
    
    
    
    16,596Other real estate owned and other repossessed property (Note E)
    
    
    173
    
    
    
    2,193Accrued interest receivable and other assets (Note L)
    
    
    56,306
    
    
    
    52,922TOTAL ASSETS
    
    $
    1,903,661
    
    
    $
    1,674,358LIABILITIES AND STOCKHOLDERS EQUITYDeposits (Note G):Noninterest-bearing
    
    $
    217,148
    
    
    $
    212,140Interest-bearing
    
    
    988,577
    
    
    
    951,087Total deposits
    
    
    1,205,725
    
    
    
    1,163,227Short-term borrowings (Note H)
    
    
    305,400
    
    
    
    10,400Accrued expenses and other liabilities (Notes L and M)
    
    
    26,217
    
    
    
    27,595Long-term debt (Note I)
    
    
    194,389
    
    
    
    319,407Minority interest in consolidated subsidiary (Note J)
    
    
    2,720
    
    
    
    2,720Total liabilities
    
    
    1,734,451
    
    
    
    1,523,349Commitments and contingencies (Notes F, I, N, O, P and Q)Stockholders equity (Notes Q and R):Preferred stock $1 par value -Authorized and unissued 25,000,000 shares
    
    
    
    
    
    
    Common stock $1 par value -Authorized 50,000,000 shares; issued and outstanding
4,337,211 shares in 2003 and 3,897,975 shares in 2002
    
    
    4,337
    
    
    
    3,898Additional paid-in capital
    
    
    103,050
    
    
    
    78,311Retained earnings
    
    
    56,542
    
    
    
    63,679Unreleased shares to employee stock ownership plan
    
    
    (1,323
    )
    
    
    (1,486
    )Accumulated other comprehensive income, net of tax
    
    
    6,604
    
    
    
    6,607Total stockholders equity
    
    
    169,210
    
    
    
    151,009TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    1,903,661
    
    
    $
    1,674,358
 See accompanying notes to the consolidated financial statements. 34




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
CB Bancshares, Inc. and Subsidiaries Years ended December 31,(in thousands, except per share data)
    
    2003
    
    2002
    
    2001Interest income:Interest and fees on loans
    
    $
    85,635
    
    
    $
    89,752
    
    
    $
    108,712Interest and dividends on investment and mortgage/
asset-backed securities:Taxable interest income
    
    
    13,906
    
    
    
    13,478
    
    
    
    15,260Nontaxable interest income
    
    
    1,546
    
    
    
    1,557
    
    
    
    1,553Dividends
    
    
    1,693
    
    
    
    1,971
    
    
    
    2,278Other interest income
    
    
    230
    
    
    
    187
    
    
    
    451Total interest income
    
    
    103,010
    
    
    
    106,945
    
    
    
    128,254Interest expense:Deposits (Note G)
    
    
    11,135
    
    
    
    18,098
    
    
    
    39,438FHLB advances and other short-term borrowings
    
    
    1,158
    
    
    
    672
    
    
    
    5,095Long-term debt
    
    
    11,123
    
    
    
    11,522
    
    
    
    12,915Total interest expense
    
    
    23,416
    
    
    
    30,292
    
    
    
    57,448Net interest income
    
    
    79,594
    
    
    
    76,653
    
    
    
    70,806Provision for credit losses (Note D)
    
    
    7,180
    
    
    
    17,110
    
    
    
    13,628Net interest income after provision for credit losses
    
    
    72,414
    
    
    
    59,543
    
    
    
    57,178Noninterest income:Service charges on deposit accounts
    
    
    4,559
    
    
    
    4,345
    
    
    
    3,811Other service charges and fees
    
    
    7,147
    
    
    
    6,784
    
    
    
    4,897Net realized gains (losses) on sales of securities (Notes B and S)
    
    
    1,718
    
    
    
    (1,765
    )
    
    
    (169
    )Net gains on sales of loans
    
    
    2,533
    
    
    
    1,493
    
    
    
    2,060Item processing fee
    
    
    1,866
    
    
    
    397
    
    
    
    135Impairment of asset-backed securities (Note A)
    
    
    
    
    
    
    (1,399
    )
    
    
    (10,642
    )Other (Note M)
    
    
    5,463
    
    
    
    2,960
    
    
    
    2,725Total noninterest income
    
    
    23,286
    
    
    
    12,815
    
    
    
    2,817Noninterest expense:Salaries and employee benefits (Note Q)
    
    
    29,852
    
    
    
    24,675
    
    
    
    23,111Net occupancy expense (Note F)
    
    
    6,639
    
    
    
    6,367
    
    
    
    6,588Equipment expense (Note F)
    
    
    2,406
    
    
    
    2,942
    
    
    
    3,469Unsolicited hostile takeover proposal expenses
    
    
    6,621
    
    
    
    
    
    
    
    Other (Note K)
    
    
    19,409
    
    
    
    18,634
    
    
    
    17,427Total noninterest expense
    
    
    64,927
    
    
    
    52,618
    
    
    
    50,595Income before income taxes
    
    
    30,773
    
    
    
    19,740
    
    
    
    9,400Income tax expense (Note L)
    
    
    10,025
    
    
    
    6,258
    
    
    
    3,250NET INCOME
    
    $
    20,748
    
    
    $
    13,482
    
    
    $
    6,150Per share data (Note R):Basic
    
    $
    4.86
    
    
    $
    3.17
    
    
    $
    1.45Diluted
    
    $
    4.72
    
    
    $
    3.11
    
    
    $
    1.43
 See accompanying notes to the consolidated financial statements. 35




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
CB Bancshares, Inc. and Subsidiaries Unreleased
    
    AccumulatedAdditional
    
    
    
    
    
    Shares to
    
    OtherCommon Stock
    
    Paid-In
    
    Retained
    
    Employee
    
    Comprehensive(in thousands, except per share data)
    
    Shares
    
    Amount
    
    Capital
    
    Earnings
    
    Stock
    
    Income (Loss)
    
    TotalYear ended December 31, 2003:Balance at January 1, 2003
    
    
    3,898
    
    
    $
    3,898
    
    
    $
    78,311
    
    
    $
    63,679
    
    
    $
    (1,486
    )
    
    $
    6,607
    
    
    $
    151,009Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,748
    
    
    
    
    
    
    
    
    
    
    
    20,748Other comprehensive income,
net of taxUnrealized loss on securities,
net of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,748
    
    
    
    
    
    
    
    (3
    )
    
    
    20,745Cash dividends:$0.95 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,015
    )
    
    
    
    
    
    
    
    
    
    
    (4,015
    )Options exercised
    
    
    47
    
    
    
    47
    
    
    
    1,178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,225Directors compensation
    
    
    1
    
    
    
    1
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Stock dividend
    
    
    391
    
    
    
    391
    
    
    
    23,381
    
    
    
    (23,870
    )
    
    
    
    
    
    
    
    
    
    
    (98
    )Cancelled and retired shares
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Unreleased ESOP shares
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    
    
    
    
    163
    
    
    
    
    
    
    
    324Balance at December 31, 2003
    
    
    4,337
    
    
    $
    4,337
    
    
    $
    103,050
    
    
    $
    56,542
    
    
    $
    (1,323
    )
    
    $
    6,604
    
    
    $
    169,210Year ended December 31, 2002:Balance at January 1, 2002
    
    
    3,506
    
    
    $
    3,506
    
    
    $
    65,427
    
    
    $
    65,714
    
    
    $
    (1,839
    )
    
    $
    954
    
    
    $
    133,762Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,482
    
    
    
    
    
    
    
    
    
    
    
    13,482Other comprehensive income,
net of taxUnrealized gains on securities,
net of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,653
    
    
    
    5,653Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,482
    
    
    
    
    
    
    
    5,653
    
    
    
    19,135Cash dividends:$0.44 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,649
    )
    
    
    
    
    
    
    
    
    
    
    (1,649
    )Options exercised
    
    
    182
    
    
    
    182
    
    
    
    4,786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4968Stock dividend
    
    
    362
    
    
    
    362
    
    
    
    13,448
    
    
    
    (13,868
    )
    
    
    
    
    
    
    
    
    
    
    (58
    )Cancelled and retired shares
    
    
    (152
    )
    
    
    (152
    )
    
    
    (5412
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,564
    )Unreleased ESOP shares
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    353
    
    
    
    
    
    
    
    415Balance at December 31, 2002
    
    
    3,898
    
    
    $
    3,898
    
    
    $
    78,311
    
    
    $
    63,679
    
    
    $
    (1,486
    )
    
    $
    6,607
    
    
    $
    151,009Year ended December 31, 2001:Balance at January 1, 2001
    
    
    3,189
    
    
    $
    3,189
    
    
    $
    54,594
    
    
    $
    72,284
    
    
    $
    
    
    
    $
    (6,905
    )
    
    $
    123,162Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,150
    
    
    
    
    
    
    
    
    
    
    
    6,150Other comprehensive income,
net of taxUnrealized gains on securities,
net of reclassification adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,859
    
    
    
    7,859Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,150
    
    
    
    
    
    
    
    7,859
    
    
    
    14,009Cash dividends:$0.43 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,441
    )
    
    
    
    
    
    
    
    
    
    
    (1,441
    )Options exercised
    
    
    8
    
    
    
    8
    
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199Stock dividend
    
    
    318
    
    
    
    318
    
    
    
    10,907
    
    
    
    (11,279
    )
    
    
    
    
    
    
    
    
    
    
    (54
    )Cancelled and retired shares
    
    
    (9
    )
    
    
    (9
    )
    
    
    (265
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (274
    )Unreleased ESOP shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,839
    )
    
    
    
    
    
    
    (1,839
    )Balance at December 31, 2001
    
    
    3,506
    
    
    $
    3,506
    
    
    $
    65,427
    
    
    $
    65,714
    
    
    $
    (1,839
    )
    
    $
    954
    
    
    $
    133,762
 See accompanying notes to the consolidated financial statements. 36




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
CB Bancshares, Inc. and Subsidiaries Years ended December 31,(in thousands)
    
    2003
    
    2002
    
    2001Cash flows from operating activities:Net income
    
    $
    20,748
    
    
    $
    13,482
    
    
    $
    6,150Adjustments to reconcile net income to net cash
provided by operating activities:Provision for credit losses
    
    
    7,180
    
    
    
    17,110
    
    
    
    13,628Impairment of asset-backed securities
    
    
    
    
    
    
    1,399
    
    
    
    10,642Gain on sale of foreclosed assets
    
    
    (440
    )
    
    
    (359
    )
    
    
    (50
    )Net realized (gains) losses on sales of securities
    
    
    (1,718
    )
    
    
    1,765
    
    
    
    169Depreciation and amortization
    
    
    4,924
    
    
    
    3,916
    
    
    
    2,329Deferred income taxes
    
    
    (570
    )
    
    
    (1,467
    )
    
    
    86Decrease in accrued interest receivable
    
    
    166
    
    
    
    1,516
    
    
    
    1,526Increase (decrease) in accrued interest payable
    
    
    (728
    )
    
    
    69
    
    
    
    (3,577
    )Gain on sale of loans available for sale
    
    
    (2,533
    )
    
    
    (1,493
    )
    
    
    (2,060
    )Loans originated for sale
    
    
    (416,018
    )
    
    
    (238,790
    )
    
    
    (189,441
    )Proceeds from sale of loans held for sale
    
    
    238,070
    
    
    
    165,238
    
    
    
    172,476Increase in other assets
    
    
    (3,273
    )
    
    
    (1,675
    )
    
    
    (1,891
    )Increase (decrease) in other liabilities
    
    
    1,904
    
    
    
    4,110
    
    
    
    (1,601
    )FHLB stock dividends
    
    
    (1,690
    )
    
    
    (1,969
    )
    
    
    (2,276
    )Other
    
    
    236
    
    
    
    500
    
    
    
    1,111Net cash provided by (used in) operating activities
    
    
    (153,742
    )
    
    
    (36,648
    )
    
    
    7,221Cash flows from investing activities:Net decrease (increase) in interest-bearing deposits
in other banks
    
    
    (129
    )
    
    
    (197
    )
    
    
    41Net decrease (increase) in federal funds sold
    
    
    20,125
    
    
    
    (9,870
    )
    
    
    (10,045
    )Purchase of held-to-maturity securities
    
    
    (163,978
    )
    
    
    (143,401
    )
    
    
    (26,200
    )Repayments of held-to-maturity securities
    
    
    139,583
    
    
    
    57,125
    
    
    
    198Proceeds from sales of available-for-sale securities
    
    
    179,414
    
    
    
    63,493
    
    
    
    54,607Proceeds from maturities of available-for-sale securities
    
    
    74,675
    
    
    
    49,987
    
    
    
    43,843Purchase of available-for-sale securities
    
    
    (104,166
    )
    
    
    (105,900
    )
    
    
    (928
    )Proceeds from sale of FHLB stock
    
    
    
    
    
    
    4,489
    
    
    
    2,300Net loan originations under (over) principal payments
    
    
    (230,555
    )
    
    
    115,375
    
    
    
    56,447Capital expenditures
    
    
    (2,913
    )
    
    
    (2,101
    )
    
    
    (1,805
    )Proceeds from sales of foreclosed assets
    
    
    3,280
    
    
    
    5,635
    
    
    
    5,946Purchase of bank owned life insurance
    
    
    
    
    
    
    (7,500
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    (84,664
    )
    
    
    27,135
    
    
    
    124,404Cash flows from financing activities:Net increase (decrease) in time deposits
    
    
    (29,217
    )
    
    
    (74,176
    )
    
    
    (186,798
    )Net increase (decrease) in other deposits
    
    
    71,714
    
    
    
    98,968
    
    
    
    106,770Net increase (decrease) in short-term borrowings
    
    
    295,000
    
    
    
    (65,700
    )
    
    
    (94,600
    )Proceeds from long-term debt
    
    
    35,000
    
    
    
    140,000
    
    
    
    151,200Principal payments on long-term debt
    
    
    (160,018
    )
    
    
    (35,017
    )
    
    
    (118,285
    )Net decrease in minority interest in consolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    (4,280
    )Cash dividends paid
    
    
    (4,015
    )
    
    
    (1,649
    )
    
    
    (1,441
    )Cash-in-lieu payments on stock dividend
    
    
    (98
    )
    
    
    (58
    )
    
    
    (54
    )Stock repurchase
    
    
    (12
    )
    
    
    (5,564
    )
    
    
    (274
    )Stock options exercised
    
    
    1,225
    
    
    
    4,968
    
    
    
    199Unreleased ESOP shares
    
    
    324
    
    
    
    415
    
    
    
    (1,839
    )Net cash provided by (used in) financing activities
    
    
    209,903
    
    
    
    62,187
    
    
    
    (149,402
    )Increase (decrease) in cash and due from banks
    
    
    (28,503
    )
    
    
    52,674
    
    
    
    (17,777
    )Cash and due from banks at beginning of year
    
    
    75,069
    
    
    
    22,395
    
    
    
    40,172Cash and due from banks at end of year
    
    $
    46,566
    
    
    $
    75,069
    
    
    $
    22,395Supplemental disclosures of cash flow information:Interest paid on deposits and other borrowings
    
    $

    24,203
    
    
    $
    29,555
    
    
    $
    61,023Income taxes paid
    
    
    12,582
    
    
    
    3,400
    
    
    
    5,248Supplemental disclosure of non-cash activities:Loan securitizations
    
    $
    223,010
    
    
    $
    27,138
    
    
    $
    
  Supplemental schedule of non-cash operating and investing activity:The Company converted $1,065,000, $6,424,000 and $7,262,000 of loans
into other real estate owned and repossessed personal
property in 2003, 2002 and 2001, respectively.
 See accompanying notes to the consolidated financial statements. 37




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
CB Bancshares, Inc. and Subsidiaries NOTE
A  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
CB Bancshares, Inc. and Subsidiaries (the Company) provide financial services
to domestic markets and grant commercial, financial, real estate, installment
and consumer loans to customers throughout the State of Hawaii. Although the
Company has a diversified loan portfolio, a substantial portion of its debtors
ability to honor their contracts is primarily dependent upon the economy and
the real estate market in the State of Hawaii. The significant accounting policies of the Company are as follows: Principles of Consolidation and Presentation.The consolidated financial
statements include the accounts of CB Bancshares, Inc. (the Parent Company)
and its wholly-owned subsidiaries: City Bank and its wholly-owned subsidiaries
(the Bank); Datatronix Financial Services, Inc. (Datatronix); and O.R.E.,
Inc. Significant intercompany transactions and balances have been eliminated in
consolidation. The Companys consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and conform to
prevailing practices within the banking industry. Preparing financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and the accompanying notes and the disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates. Also, certain reclassifications have been made to the consolidated
financial statements and accompanying notes for the previous two years to
conform to the current years presentation. Such reclassifications did not
have a material effect on the consolidated financial statements. Risks Associated with Financial Instruments.The credit risk of a financial
instrument is the possibility that a loss may result from the failure of
another party to perform in accordance with the terms of the contract. The
most significant credit risk associated with the Companys financial
instruments is concentrated in its loans receivable. The Company has
established a system for monitoring the level of credit risk in its loan
portfolio. Concentrations of credit risk would exist for groups of borrowers when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or
other conditions. The ability of the Companys borrowers to repay their
commitments is contingent on several factors, including the economic conditions
in the borrowers geographic area and the individual financial condition of the
borrowers. The Company generally requires collateral or other security to
support borrower commitments on loans receivable. This collateral may take
several forms. Generally, on the Companys mortgage loans, the collateral will
be the underlying mortgaged property. The Companys lending activities are
primarily concentrated in the State of Hawaii. Market risk is the risk of loss from adverse changes in market prices and
rates. The Companys market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure. The Company
does not currently engage in trading activities. The Company is subject to
interest rate risk to the degree that its interest-earning assets reprice on a
different frequency or schedule than its interest-bearing liabilities. The
Company closely monitors the pricing sensitivity of its financial instruments. Cash and Cash Equivalents. For purposes of the consolidated statements of cash
flows, cash and cash equivalents are defined as those amounts included in the
balance sheet caption, Cash and due from banks. Included in cash are amounts
restricted for the Federal Reserve requirement of $8,022,000 and $11,179,000 in
2003 and 2002, respectively. Investment and Mortgage/Asset-Backed Securities. Investment and
mortgage/asset-backed securities are classified into the following categories: Trading securities are securities that are bought and held principally for the
purpose of selling them in the near term and are reported at fair value with
changes in fair value reported in current earnings. Held-to-maturity securities are securities the Company has the positive intent
and ability to hold to maturity. Held-to-maturity securities are reported at
amortized cost with premiums and discounts included in interest income over the
period to maturity, using the interest method. Available-for-sale securities are securities not classified as either trading
or held-to-maturity. Securities available-for-sale are reported at fair value
with unrealized gains and losses, net of tax, included as other comprehensive
income in stockholders equity. Gains and losses on sales are determined using
the specific identification method. For individual held-to-maturity and available-for-sale securities, declines in
fair value below cost for other than temporary market conditions would result
in write-downs of the carrying value to the current fair value and the realized
losses included in earnings. As a member of the Federal Home Loan Bank of Seattle (the FHLB), the Company
is required to maintain a minimum investment in the capital stock of the FHLB
in an amount at least equal to the greater of 1% of the aggregate principal
amount of its unpaid residential loans, residential purchase contracts and
similar obligations at the end of each calendar year, assuming for such
purposes that at least 30% of its assets were residential mortgage loans, or 5%
of its advances from the FHLB. The stock is recorded as a restricted
investment security at amortized cost, which approximates fair value. Interest income earned on retained or purchased beneficial interests in
securitized financial assets is recognized over the life of the investment
based on an anticipated yield determined by periodically estimating cash flows.
Interest income is revised prospectively for changes in cash flows and
impairment is recognized if the fair value of the beneficial interest has
declined below its carrying amount 38




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and the decline is other than temporary. Because the book values of certain of
the Companys asset backed securities were more than the fair values of those
securities during 2002 and 2001, the Company recognized a $1.4 million (after
tax charge of $1.0 million) and $10.6 million (after tax charge of $6.4
million), respectively, noncash charge in the Consolidated Statements of
Income. Loans and Leases Held for Investment.Interest income on loans receivable is
accrued as it is earned. Loans receivable are reported at the outstanding
principal balance, adjusted for any charge-offs, the allowance for credit
losses, any deferred fees or costs on originated loans, and unamortized
premiums or discounts on purchased loans. Direct financing leases are carried at the aggregate of lease payments
receivable plus estimated residual value of the leased property, less unearned
income. Unearned income is amortized over the lease terms by methods that
approximate the interest method. Residual values on leased assets are reviewed
regularly for other than temporary impairment. Loan origination fees and costs are deferred and recognized as an adjustment of
the yield. Accretion of discounts and deferred loan fees is discontinued when
loans are placed on nonaccrual status. Loan commitment fees received are
deferred as other liabilities until the loan is advanced and are then
recognized over the term or estimated life of the loan as an adjustment of the
yield. At expiration, unused commitment fees are recognized as fees and
commission revenue. Guarantee fees received are recognized as fee revenue over
the related terms. The allowance for credit losses is periodically evaluated for adequacy by
management. Factors considered include the Companys loan loss experience,
known and inherent risks in the portfolio, current economic conditions, adverse
situations that may affect the borrowers ability to repay, regulatory
policies, and the estimated value of underlying collateral, if any. The
allowance for credit losses is increased by any provision for credit losses and
decreased by charge-offs (net of recoveries). Loans are impaired when, based on current information and events, it is
probable that principal or interest will not be collected at scheduled maturity
or will be unreasonably delayed. Impaired loans are measured at the present
value of expected future cash flows discounted at the loans effective interest
rate or the fair value of the collateral, if the loan is collateral dependent.
Impairment losses are reflected as charge-offs in the allowance for loan
losses. For smaller-balance homogeneous loans (primarily residential real
estate and consumer loans), the allowance for loan losses is based upon
Managements evaluation of the quality, character and inherent risks in the
loan portfolio, current economic conditions, and historical loan loss
experience. Delinquent close-ended consumer loans are charged off within 120
days (180 days for open-ended consumer loans and residential real estate
loans), unless determined to be adequately collateralized or in imminent
process of collection. Interest accrual on impaired loans is discontinued when, in managements
opinion, the borrower may be unable to make scheduled payments. When interest
accrual is discontinued, any outstanding accrued interest is reversed and,
subsequently, interest income is recognized as payments are received. The Company generally places loans on nonaccrual status that are 90 days past
due as to principal or interest unless well-collateralized and in the process
of collection, or when management believes that collection of principal or
interest has become doubtful, or when a loan is first classified as impaired.
When loans are placed on nonaccrual status, previously accrued and uncollected
interest is reversed against interest income of the current period. Cash
interest payments received on nonaccrual loans are applied as a reduction of
principal balance when doubt exists as to the ultimate collection of the
principal; otherwise, such payments are recorded as income. Nonaccrual loans are generally returned to accrual status when they become both
current as to principal and interest or become both well collateralized and in
the process of collection. Loans Held-for-Sale. The Company sells loans and participations in loans with
yield rates to the investors based upon current market rates. Gain or loss on
the sale of loans is recognized to the extent that the selling prices differ
from the carrying value of the loans sold based on the estimated relative fair
values of the loans sold and any retained interests. Residential mortgage
loans originated for sale are classified as loans held-for-sale and are
accounted for at the lower of aggregate cost or fair value. Transfers and Servicing of Financial Assets.A transfer of financial assets is
accounted for as a sale when control is surrendered over the assets
transferred. Servicing rights and other retained interests in the assets sold
are recorded by allocating the previous recorded investment between the asset
sold and the interest retained based on their relative fair values, if
practicable to determine, at the date of transfer. For the years presented,
servicing assets and amortization were not material. Premises and Equipment.Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using both the straight-line and accelerated methods over the
estimated useful lives of the assets or the applicable facility leases,
whichever is shorter. The range of estimated useful lives is 3 to 45 years for
premises and leasehold improvements and 3 to 20 years for equipment. Other Real Estate Owned. Other real estate owned properties acquired through,
or in lieu of, foreclosure proceedings are recorded at fair value on the date
of foreclosure establishing a new cost basis. Losses arising at the time of
acquisition of such properties are charged against the allowance for credit
losses. After foreclosure, management performs periodic valuations and the
properties are carried at the lower of cost or fair value, less estimated costs
to sell. Revenues, expenses and provisions to the valuation allowance are
included in operations as incurred. Income Taxes.The Company files consolidated income tax returns. The Bank and
Datatronix pay to the Parent Company the amount of income taxes they would have
paid had they filed separate income tax returns. Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using 39




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enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Intangible Assets.Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets, requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually. SFAS No. 142 also requires
that intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and also
be reviewed for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. The Company adopted the
provisions of SFAS No. 142 beginning January 1, 2002. At December 31, 2003 and
2002, the Company did not have any assets classified as goodwill under the new
pronouncement. However, the Company does have servicing premiums. Under the
provisions of SFAS No. 142, the Company expects to continue amortizing these
intangible assets over the period of estimated net servicing income. The impact
of the adoption of SFAS No. 142 has not had a material impact on the Companys
consolidated financial statements. Stock-Based Compensation. The Company applies the intrinsic value-based method
of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations
including Financial Accounting Standards Board (FASB) interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25 issued in March 2002, in accounting for
its fixed plan stock options. As such, compensation expense would be recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based
Compensation, established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans.
In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment of FASB Statement No. 123was issued.
This Statement amends SFAS No. 123 to provide alternative methods of transition
for a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements. As allowed by SFAS No. 123 (as amended by
SFAS No. 148), the Company has elected to continue to apply the intrinsic
value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 148. The original exercise price of each option equals the market price of the
Companys stock on the date of grant. Accordingly, no compensation cost has
been recognized for the plan. Had compensation cost for the plan been
determined using the fair value based method, the Companys net income and net
income per share would have been the pro forma amounts below: 2003
    
    2002
    
    2001Net income:As reported
    
    $
    20,748,000
    
    
    $
    13,482,000
    
    
    $
    6,150,000Deduct: total stock-based employee compensation expense
determined under fair value method for all awards, net of
related tax effects
    
    
    (634,000
    )
    
    
    (179,000
    )
    
    
    (603,000
    )Pro forma
    
    $
    20,114,000
    
    
    $
    13,303,000
    
    
    $
    5,547,000Earnings per share:Basic  as reported
    
    $
    4.86
    
    
    $
    3.17
    
    
    $
    1.45Basic  Pro forma
    
    $
    4.71
    
    
    $
    3.12
    
    
    $
    1.31Diluted  as reported
    
    $
    4.72
    
    
    $
    3.11
    
    
    $
    1.43Diluted  Pro forma
    
    $
    4.58
    
    
    $
    3.07
    
    
    $
    1.29
 The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model. For grants in 2003, 2002 and 2001, the
following weighted average assumptions were used; expected dividend of 1.03%,
1.03% and 1.25%, expected volatility of 19.00%, 19.00% and 23.00%, risk-free
interest rate of 4.61%, 5.55% and 4.55%, and expected life of 4.0 years, 5.0
years and 6.0 years. The weighted average fair value of options granted during
2003, 2002 and 2001 was $20.91, $8.77 and $9.82, respectively. Derivative Instruments and Hedging Activities. The Company uses interest rate
swaps, caps and floors to modify the interest rate characteristics of certain
assets and liabilities. The Company documents the relationship between the
hedging instruments and hedged items, as well as the risk management objective
and strategy for undertaking the hedge. To qualify for hedge accounting, the
derivative instruments that are designated as fair value or cash flow hedges
are linked to specific assets and/or liabilities on the balance sheet.
Additionally, the Company assesses on an ongoing basis, whether the derivative
instruments are highly effective in offsetting changes in fair values or
cashflows of hedged items. If it is determined that the derivative instrument
is not highly effective as a hedge, hedge accounting would be discontinued.
The interest rate swap contracts that were designated as a hedge at inception
are still highly effective based on the Companys ongoing assessments. In 2003, interest rate swaps were used to convert floating assets and
liabilities to fixed rates. $20 million of pay-floating swaps qualify as cash
flow hedging instruments as they served to convert $20 million of prime-based
loans to fixed rates. During 2003, no amounts were recognized in earnings in
connection with the ineffective portion of these cash flow hedges and no
amounts were excluded from the measure of effectiveness. Derivatives not designated as hedges consist of $10 million of pay-floating
swaps, $10 million of pay-fixed swaps and $30 million of options and
instruments containing option features that behave based on limits. At
December 31, 2003, the Company also had $15.0 million of forward sales on
securities to hedge residential mortgage loans. These instruments are used to
hedge risks associated with interest rate movements and serve as hedges from an
economic perspective; however, they do not qualify for hedge accounting under
SFAS No. 133, as amended. The Bank recorded a gain of approximately $1.5
million in 2003 for these instruments as a component of noninterest income in
the consolidated statement of income. Included in this $1.5 million gain is a
one-time gain of $855,000 recognized on the termination of two (2) interest
rate swaps. 40




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The Company occasionally purchases or originates financial instruments that
contain an embedded derivative instrument. At inception of the financial
instrument, the Company assesses whether the economic characteristics of the
embedded derivative instrument are clearly and closely related to the economic
characteristics of the financial instrument (host contract), whether the
financial instrument that embodies both the embedded derivative instrument and
the host contract is currently measured at fair value with changes in fair
value reported in earnings, and whether a separate instrument with the same
terms as the embedded instrument would meet the definition of a derivative
instrument. As of December 31, 2003 and 2002, all of the Companys embedded
derivatives are considered clearly and closely related to the host contract and
therefore are not required to be separated from their host contract On January 1, 2001, the Company recorded the cumulative effect of adopting SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended, in its identified fair value hedges that were employed at the time. A
transition adjustment of $263,000 associated with establishing fair values of
the derivative instruments and hedged items on the balance sheet was recorded
in investment securities. Earnings Per Share.Basic earnings per common share are based on the
weighted-average number of common shares outstanding for the year. Diluted
earnings per common share are based on the assumption that all potentially
dilutive common shares and dilutive stock options were converted at the
beginning of the year. All per share amounts have been restated to reflect the
impact of the 10% stock dividend issued in June 2003. New Accounting Principles.SFAS No. 143. In June 2001, FASB issued SFAS No.
143, Accounting for Asset Retirement Obligations, which requires that the
fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs would be capitalized as part of
the carrying amount of the long-lived asset and depreciated over the life of
the asset. The liability is accreted at the end of each period through charges
to operating expense. If the obligation is settled for other than the carrying
amount of the liability, the Company will recognize a gain or loss on
settlement. The adoption of SFAS No. 143 on January 1, 2003 had no effect on
the Companys consolidated financial statements. SFAS No. 146. In June 2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
The provisions of this Statement were effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of SFAS No. 146 on
January 1, 2003 had no effect on the Companys consolidated financial
statements. SFAS No. 149. In April 2003, the FASB issued SFAS No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. This
Statement amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 149 is effective for contracts entered into or
modified and for hedging relationships designated after June 30, 2003. The
adoption of SFAS No. 149 on July 1, 2003 had no material effect on the
Companys consolidated financial statements. SFAS No. 150. In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity which establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). SFAS 150
is effective for all financial instruments entered into or modified after May
31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. In October 2003, however, the FASB
indefinitely deferred the effective date of the provisions of SFAS No. 150
related to classification and measurement requirements for mandatorily
redeemable financial instruments that become subject to SFAS No. 150 solely as
a result of consolidation. At December 31, 2003, the Company had no financial
instruments falling within the scope of SFAS No. 150. FASB Interpretation No. 45. In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. This interpretation
provides disclosures to be made by a guarantor in its interim and annual
financial statements for periods ending after December 15, 2002 about its
obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The Company adopted the provisions of the Interpretation on January
1, 2003 with no effect on the Companys historical consolidated financial
statements. FASB Interpretation No. 46. In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51.This Interpretation addresses the consolidation by business enterprises
of variable interest entities (VIEs) as defined. The Interpretation applies
immediately to variable interests in VIEs created after January 31, 2003, and
to variable interests in VIEs obtained after January 31, 2003. For variable
interests in VIEs that an enterprise acquired before February 1, 2003, the
Interpretation is applicable in the first fiscal year or interim period
beginning after June 15, 2003. In December 2003, the FASB revised
Interpretation No. 46, which replaced its original interpretation issued in
January 2003, and among other things, revised certain effective dates. At
December 31, 2003, the Company had no significant variable interests in a
variable interest entity requiring consolidation or disclosure in accordance
with the Interpretation. 41




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##### Table of Contents



NOTE
B - INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated fair values of the Companys investment
portfolio at December 31, 2003 and 2002 were as follows: Gross
    
    GrossAmortized
    
    Unrealized
    
    Unrealized
    
    Estimated Fair(in thousands)
    
    Cost
    
    Gains
    
    Losses
    
    Value2003:Held to Maturity:U.S. Treasury and other U.S. government
agencies and corporations
    
    $
    79,126
    
    
    $
    292
    
    
    $
    375
    
    
    $
    79,043Corporate bonds
    
    
    29,199
    
    
    
    417
    
    
    
    
    
    
    
    29,616Mortgage-backed securities
    
    
    25,838
    
    
    
    215
    
    
    
    160
    
    
    
    25,893Total held to maturity
    
    $
    134,163
    
    
    $
    924
    
    
    $
    535
    
    
    $
    134,552Available-for-sale securities:U.S. Treasury and other U.S. government
agencies and corporations
    
    $
    49,512
    
    
    $
    969
    
    
    $
    24
    
    
    $
    50,457States and political subdivisions
    
    
    32,658
    
    
    
    2,509
    
    
    
    
    
    
    
    35,167Mortgage/asset-backed securities
    
    
    189,181
    
    
    
    8,048
    
    
    
    1,259
    
    
    
    195,970Others
    
    
    20,906
    
    
    
    146
    
    
    
    
    
    
    
    21,052Total available-for-sale
    
    $
    292,257
    
    
    $
    11,672
    
    
    $
    1,283
    
    
    $
    302,646Total investments
    
    $
    426,420
    
    
    $
    12,596
    
    
    $
    1,818
    
    
    $
    437,1982002:Held to Maturity:U.S. Treasury and other U.S. government
agencies and corporations
    
    $
    75,996
    
    
    $
    410
    
    
    $
    
    
    
    $
    76,406Corporate bonds
    
    
    34,861
    
    
    
    655
    
    
    
    
    
    
    
    35,516Mortgage-backed securities
    
    
    1,156
    
    
    
    60
    
    
    
    
    
    
    
    1,216Total held to maturity
    
    $
    112,013
    
    
    $
    1,125
    
    
    $
    
    
    
    $
    113,138Available-for-sale securities:U.S. Treasury and other U.S. government
agencies and corporations
    
    $
    5,125
    
    
    $
    337
    
    
    $
    
    
    
    $
    5,462States and political subdivisions
    
    
    32,975
    
    
    
    2,073
    
    
    
    12
    
    
    
    35,036Mortgage/asset-backed securities
    
    
    159,866
    
    
    
    8,641
    
    
    
    136
    
    
    
    168,371Others
    
    
    19,399
    
    
    
    97
    
    
    
    30
    
    
    
    19,466Total available-for-sale
    
    $
    217,365
    
    
    $
    11,148
    
    
    $
    178
    
    
    $
    228,335Total investments
    
    $
    329,378
    
    
    $
    12,273
    
    
    $
    178
    
    
    $
    341,473
 At December 31, 2003 and 2002, the Company had no securities classified as
trading. Securities with an aggregate carrying value of $320,507,000 and $160,512,000,
at December 31, 2003 and 2002, respectively, were pledged to collateralize
public deposits and for other purposes required by law. Investment in the
stock of the FHLB of Seattle totaled $31.6 million and $29.9 million at
December 31, 2003 and 2002, respectively. The stock of the FHLB of Seattle is
pledged as collateral for FHLB advances. The following presents the amortized cost and estimated fair value of
investment securities at December 31, 2003 by contractual maturity. Expected
maturity will differ from contractual maturity because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties. The stated maturity of mortgage/asset-backed securities is
presented in total since the principal cash flows of these securities are not
received at a single maturity date. Held to Maturity
    
    Available for SaleAmortized
    
    Estimated
    
    Amortized
    
    Estimated(in thousands)
    
    Cost
    
    Fair Value
    
    Cost
    
    Fair ValueDue in one year or less
    
    $
    18,925
    
    
    $
    19,017
    
    
    $
    5,005
    
    
    $
    5,136Due 1 to 5 years
    
    
    64,031
    
    
    
    64,131
    
    
    
    44,507
    
    
    
    45,321Due 5 to 10 years
    
    
    25,369
    
    
    
    25,511
    
    
    
    11,955
    
    
    
    13,039Due > 10 years
    
    
    
    
    
    
    
    
    
    
    41,609
    
    
    
    43,180Mortgage/asset-backed securities
    
    
    25,838
    
    
    
    25,893
    
    
    
    189,181
    
    
    
    195,970Total
    
    $
    134,163
    
    
    $
    134,552
    
    
    $
    292,257
    
    
    $
    302,646
 Proceeds from sales of securities available-for-sale during 2003, 2002, and
2001 were $179,414,000, $63,493,000, and $54,607,000, respectively. These
sales resulted in gross realized gains of $2,672,000, $175,003 and $1,075,000,
respectively, and gross realized losses of $954,000, $12,170 and $1,000,
respectively. 42




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At December 31, 2003, there were $1.8 million of unrealized losses on
temporarily impaired securities. The unrealized losses were primarily due to
the increases in market interest rates and not from the deterioration in the
creditworthiness of the issuer. At the end of 2003, there were 14 securities
in the investment portfolio that were in an unrealized loss position for less
than 12 months and one security for more than 12 months. The following is a
summary of the unrealized losses on temporarily impaired securities at December
31, 2003: (in thousands)
    
    Less than 12 months
    
    12 months or longer
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    Losses
    
    Fair Value
    
    Losses
    
    Fair Value
    
    LossesUS Treasury obligations and direct
obligations of US Government agencies
    
    $
    37,034
    
    
    $
    399
    
    
    $
    
    
    
    $
    
    
    
    $
    37,034
    
    
    $
    399Federal agency mortgage-backed
securities
    
    
    49,739
    
    
    
    1,419
    
    
    
    
    
    
    
    
    
    
    
    49,739
    
    
    
    1,419Other mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Total temporarily impaired securities
    
    $
    86,773
    
    
    $
    1,818
    
    
    $
    4
    
    
    $
    
    
    
    $
    86,777
    
    
    $
    1,818
 NOTE C - LOANS
The loan portfolio consisted of the following at December 31, 2003 and 2002: (in thousands)
    
    2003
    
    2002Commercial and financial
    
    $
    245,875
    
    
    $
    227,736Real estate:Construction
    
    
    98,237
    
    
    
    52,538Commercial
    
    
    403,946
    
    
    
    210,512Residential
    
    
    367,685
    
    
    
    444,246Installment and consumer
    
    
    180,064
    
    
    
    135,415Gross loans
    
    
    1,295,807
    
    
    
    1,070,447Less:Unearned income
    
    
    2,453
    
    
    
    1,683Net deferred loan fees
    
    
    7,282
    
    
    
    3,984Allowance for credit losses
    
    
    28,490
    
    
    
    27,123Loans, net
    
    $
    1,257,582
    
    
    $
    1,037,657
 Substantially all of the Companys residential real estate loans are
collateralized by properties located in the State of Hawaii. Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans,
including mortgage/asset-backed securities serviced for others, were
$420,914,000 and $327,728,000 at December 31, 2003 and 2002, respectively.
Custodial escrow balances maintained with the foregoing loan servicing, and
included in demand deposits, were $1,741,000 and $1,624,000 at December 31,
2003 and 2002, respectively. Commercial and financial loans at December 31, 2003 and 2002 include financing
lease receivables of $26.5 million and $16.6 million, respectively. Nonaccrual loans amounted to $5.7 million and $12.7 million at December 31,
2003 and 2002, respectively. Loans past due 90 days or more still accruing
interest amounted to $941,000 and $932,000 at December 31, 2003 and 2002,
respectively. Interest on nonaccrual loans that would have been recorded in
2003 and 2002 had such loans been performing in accordance with their original
terms was $448,000 and $1.2 million, respectively. The amount of interest on
nonaccrual loans that was included in net income in 2003 and 2002 was $138,000
and $711,000, respectively. At December 31, 2003, the Company had $24.0 million of commitments to sell
loans and $23.9 million of rate lock commitments. In the normal course of business, the Company makes loans to its executive
officers and directors and to companies and individuals affiliated with its
executive officers and directors. In managements opinion, such loans and loan
commitments were made at the Companys normal credit terms, including interest
rates and collateral requirements, and do not represent more than a normal risk
of collection. The following is the activity of loans to such parties in 2003: (in thousands)Balance at beginning of year
    
    $
    6,032New loans
    
    
    7,072Repayments
    
    
    (10,112
    )Balance at end of year
    
    $
    2,992
 43




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NOTE D - ALLOWANCE FOR CREDIT LOSSES The changes in the allowance for credit losses for the years indicated were as
follows: (in thousands)
    
    2003
    
    2002
    
    2001Balance at beginning of year
    
    $
    27,123
    
    
    $
    19,464
    
    
    $
    17,477Provision charged to expense
    
    
    7,180
    
    
    
    17,110
    
    
    
    13,628Recoveries
    
    
    5,942
    
    
    
    3,846
    
    
    
    817Charge-offs
    
    
    (11,755
    )
    
    
    (13,297
    )
    
    
    (12,428
    )Balance at end of year
    
    $
    28,490
    
    
    $
    27,123
    
    
    $
    19,494
 Information related to loans considered to be impaired for the years indicated
were as follows: (in thousands)
    
    2003
    
    2002
    
    2001Recorded investment in impaired loans
    
    $
    5,385
    
    
    $
    12,261
    
    
    $
    20,315Impaired loans with related allowance for
credit losses calculated under SFAS No. 114
    
    
    1,413
    
    
    
    1,493
    
    
    
    8,052Total allowance for credit losses on
impaired loans
    
    
    1,122
    
    
    
    3,395
    
    
    
    1,555Average recorded investment in impaired
loans during the year
    
    
    8,737
    
    
    
    17,021
    
    
    
    23,897Interest income on impaired loans using
cash basis of income recognition
    
    
    368
    
    
    
    1,027
    
    
    
    937
 NOTE
E  OTHER REAL ESTATE OWNED The carrying value of foreclosed real estate, net of the following allowance
for losses, were $173,000, $2,193,000, and $4,674,000 at December 31, 2003,
2002 and 2001, respectively. Activity in the allowance for losses on other
real estate owned was as follows: (in thousands)
    
    2003
    
    2002
    
    2001Balance at beginning of year
    
    $
    69
    
    
    $
    177
    
    
    $
    217Provision charged to expense
    
    
    176
    
    
    
    500
    
    
    
    150Charge-offs, net of recoveries
    
    
    
    
    
    
    (608
    )
    
    
    (190
    )Balance at end of year
    
    $
    245
    
    
    $
    69
    
    
    $
    177
 NOTE F - PREMISES AND EQUIPMENT The Companys premises and equipment at December 31, 2003 and 2002 were as
follows: (in thousands)
    
    2003
    
    2002Premises
    
    $
    23,961
    
    
    $
    22,326Equipment
    
    
    28,818
    
    
    
    27,838Total cost
    
    
    52,779
    
    
    
    50,164Less accumulated depreciation and amortization
    
    
    (35,912
    )
    
    
    33,568Net carrying value
    
    $
    16,867
    
    
    $
    16,596
 Depreciation and amortization charged to operations for the years ended
December 31, 2003, 2002 and 2001 were as follows: (in thousands)
    
    2003
    
    2002
    
    2001Net occupancy expense
    
    $
    926
    
    
    $
    967
    
    
    $
    1,036Equipment expense
    
    
    1,719
    
    
    
    2,172
    
    
    
    2,234Total depreciation and amortization
    
    $
    2,645
    
    
    $
    3,139
    
    
    $
    3,270
 The Company leases certain properties and equipment under leases that expire on
various dates through 2067. Certain leases provide for renegotiations at fixed
intervals and require payment of real estate taxes, maintenance, insurance and
certain other operating expenses. Rent charged against operations, including
equipment rental, was as follows: (in thousands)
    
    2003
    
    2002
    
    2001Rental expense
    
    $
    5,714
    
    
    $
    5,541
    
    
    $
    5,505Less sublease income
    
    
    566
    
    
    
    580
    
    
    
    557Total net rental expense
    
    $
    5,148
    
    
    $
    4,961
    
    
    $
    4,948
 44




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The following are future minimum net rental commitments for long-term
noncancelable operating leases as of December 31, 2003. Future rentals subject
to renegotiations are computed at the latest annual rents. Operating(in thousands)
    
    Leases2004
    
    $
    4,4702005
    
    
    4,3572006
    
    
    3,8812007
    
    
    3,8482008
    
    
    3,846Thereafter
    
    
    9,762Total
    
    $
    30,164
 NOTE G - DEPOSITS Deposits consisted of the following at December 31, 2003 and 2002: (in thousands)
    
    2003
    
    2002Noninterest-bearing deposits
    
    $
    217,148
    
    
    $
    212,140Interest-bearing deposits:Demand deposits
    
    
    198,943
    
    
    
    194,108Savings
    
    
    352,276
    
    
    
    290,404Time deposits of $100 or more
    
    
    210,507
    
    
    
    211,030Time deposits less than $100
    
    
    226,851
    
    
    
    255,545Total interest-bearing deposits
    
    
    988,577
    
    
    
    951,087Total deposits
    
    $
    1,205,725
    
    
    $
    1,163,227
 Interest expense on deposits for the years ended December 31, 2003, 2002 and
2001 were as follows: (in thousands)
    
    2003
    
    2002
    
    2001Demand deposits
    
    $
    500
    
    
    $
    2,284
    
    
    $
    5,200Savings
    
    
    2,449
    
    
    
    2,970
    
    
    
    3,727Time deposits of $100 or more
    
    
    3,553
    
    
    
    4,486
    
    
    
    10,908Time deposits less than $100
    
    
    4,633
    
    
    
    8,358
    
    
    
    19,603Total interest expense
    
    $
    11,135
    
    
    $
    18,098
    
    
    $
    39,438
 At December 31, 2003, the scheduled maturities of time deposits were as
follows: (in thousands)2003
    
    $
    366,8032004
    
    
    43,5512005
    
    
    12,0582006
    
    
    7,8752007
    
    
    7,071Total
    
    $
    437,358
 NOTE H - SHORT-TERM BORROWINGS Short-term borrowings at December 31, 2003 and 2002 consisted of the following: (in thousands)
    
    2003
    
    2002Advances from the FHLB
    
    $
    305,000
    
    
    $
    10,000Federal treasury tax and loan note
    
    
    400
    
    
    
    400Total short-term borrowings
    
    $
    305,400
    
    
    $
    10,400
 45




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##### Table of Contents



Average interest rates and average and maximum balances for short-term
borrowing categories were as follows for categories of borrowings where the
average outstanding balance for the year was 30% or more of stockholders
equity at December 31 for the years indicated:

|                                     |  |      |         |      |  |      |        |   |  |   |         |  
|------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ------- | -
|(dollars in thousands)               |  | 2003 |         | 2002 |  | 2001
|                                     |  |      |         |      |  |     
|Advances from the FHLB:              |  |      |         |      |  |      |        |   |  |   |         |  
|Average interest rate at year-end    |  |      | 1.11    | %    |  |      | 1.87   | % |  |   | 3.13    | %
|Maximum outstanding at any month-end |  | $    | 305,000 |      |  | $    | 79,000 |   |  | $ | 174,000 |  
|Average outstanding                  |  |      | 98,357  |      |  |      | 22,938 |   |  |   | 93,273  |  
|Average interest rate for the year   |  |      | 1.18    | %    |  |      | 2.66   | % |  |   | 4.71    | %
|Federal funds purchased:             |  |      |         |      |  |      |        |   |  |   |         |  
|Average interest rate at year-end    |  |      |        | %    |  |      |       | % |  |   |        | %
|Maximum outstanding at any month-end |  |      |        |      |  |      |       |   |  |   | 14,300  |  
|Average outstanding                  |  |      |        |      |  |      |       |   |  |   | 3,755   |  
|Average interest rate for the year   |  |      |        | %    |  |      |       | % |  |   | 3.48    | %
|                                     |  |      |         |      |  |      |        |   |  |   |         |  

NOTE I - LONG-TERM DEBT
Long-term debt at December 31, 2003 and 2002 consisted of the following:

|                       |                      |      |         |         |  |   |         |         | 
|---------------------- | -------------------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|(in thousands)         |                      | 2003 |         | 2002   
|                       |                      |      |         |        
|Advances from the FHLB |                      | $    | 194,389 |         |  | $ | 319,407 |        
|                       |                      |      |         |         |  |   |         |        
|                       | Total long-term debt |      | $       | 194,389 |  |   | $       | 319,407 | 
|                       |                      |      |         |         |  |   |         |        

The advances from the FHLB bear interest at rates ranging from 2.26% to 8.22%.
Interest is payable monthly over the term of each advance. Pursuant to
collateral agreements with the FHLB, short and long-term advances are
collateralized by a blanket pledge of certain securities with carrying values
of $221,014,000 and $47,326,000, and loans of $465,246,000 and $458,670,000 in
2003 and 2002, respectively. FHLB advances are under credit line agreements of
$570,107,000 and $416,450,000 in 2003 and 2002, respectively. At December 31,
2003, FHLB advances aggregating $123.0 million are callable, on a quarterly
basis, after initial lockout periods. The next call date range is from January
2004 to August 2006. Aggregate maturities of long-term advances from the FHLB
as of December 31, 2003 were as follows:

|               |       |   |         |         | 
|-------------- | ----- | - | ------- | ------- | 
|(in thousands) |       |   |         |        
|2004           |       | $ | 31,200  |        
|2005           |       |   | 5,000   |        
|2006           |       |   | 35,000  |        
|2007           |       |   | 10,000  |        
|2008           |       |   | 3,000   |        
|Thereafter     |       |   | 110,189 |        
|               |       |   |         |        
|               | Total |   | $       | 194,389 | 
|               |       |   |         |        

NOTE J - MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY

During 2000, Citibank Properties, Inc. (CB Properties), a wholly-owned
subsidiary of the Bank, elected to be taxed as a real estate investment trust
(REIT). On July 18, 2000, CB Properties issued 120 shares of Series A
Preferred Stock, 10,000 shares of Series B Preferred Stock, and 55,000 shares
of Series C Preferred Stock at $1,000 per share in exchange for approximately
$150 million in participation interests in mortgage loans and mortgage-related
securities less the assumption of $85 million in advances made from the FHLB to
the Bank. During 2001, CB Properties issued 1.7 million shares of common stock
in exchange for approximately $128 million in participation interests in
mortgage loans and mortgage-related securities, less the cancellation of $61.3
million in debt owed by CB Properties to the Bank. On August 21, 2000, the
Bank sold 7,000 shares of Series B Preferred Stock to third party investors, of
which 4,400 shares were repurchased at par value during 2001. This transaction
was recorded as a minority interest for financial statement purposes and
classified as Tier 1 capital for regulatory purposes pursuant to guidelines set
forth by the Federal Deposit Insurance Corporation. CB Properties business
objective is to acquire, hold, finance and manage qualifying REIT assets.

NOTE K - OTHER NONINTEREST EXPENSE

Other noninterest expense for the years ended December 31, 2003, 2002 and 2001
were as follows:

|                                             |                                 |      |       |        |  |      |       |        |  |   |       |        | 
|-------------------------------------------- | ------------------------------- | ---- | ----- | ------ |  | ---- | ----- | ------ |  | - | ----- | ------ | 
|(in thousands)                               |                                 | 2003 |       | 2002   |  | 2001
|                                             |                                 |      |       |        |  |     
|Legal and professional fees                  |                                 | $    | 4,599 |        |  | $    | 4,740 |        |  | $ | 4,147 |       
|Advertising and promotion                    |                                 |      | 2,611 |        |  |      | 2,716 |        |  |   | 2,997 |       
|Stationary, supplies, postage and delivery   |                                 |      | 2,317 |        |  |      | 2,070 |        |  |   | 1,867 |       
|Provision for other real estate owned losses |                                 |      | 176   |        |  |      | 500   |        |  |   | 150   |       
|Deposit insurance premiums                   |                                 |      | 198   |        |  |      | 201   |        |  |   | 227   |       
|Other                                        |                                 |      | 9,508 |        |  |      | 8,407 |        |  |   | 8,039 |       
|                                             |                                 |      |       |        |  |      |       |        |  |   |       |       
|                                             | Total other noninterest expense |      | $     | 19,409 |  |      | $     | 18,634 |  |   | $     | 17,427 | 
|                                             |                                 |      |       |        |  |      |       |        |  |   |       |       

46



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NOTE L - INCOME TAXES

The components of income tax expense for the years ended December 31, 2003,
2002 and 2001 were as follows:

|               |         |                          |   |        |        |      |   |        |        |   |   |       |       | 
|-------------- | ------- | ------------------------ | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ----- | ----- | 
|(in thousands) |         | 2003                     |   | 2002   |        | 2001
|               |         |                          |   |        |        |     
|Current:       |         |                          |   |        |        |      |   |        |        |   |   |      
|               | Federal |                          | $ | 10,595 |        |      | $ | 7,725  |        |   | $ | 2,571 |      
|               | State   |                          |   |       |        |      |   |       |        |   |   | 593   |      
|               |         |                          |   |        |        |      |   |        |        |   |   |       |      
|               |         | Total current            |   |        | 10,595 |      |   |        | 7,725  |   |   |       | 3,164 | 
|               |         |                          |   |        |        |      |   |        |        |   |   |       |      
|Deferred:      |         |                          |   |        |        |      |   |        |        |   |   |      
|               | Federal |                          |   | (465   | )      |      |   | (1,191 | )      |   |   | 70    |      
|               | State   |                          |   | (105   | )      |      |   | (276   | )      |   |   | 16    |      
|               |         |                          |   |        |        |      |   |        |        |   |   |       |      
|               |         | Total deferred           |   |        | (570   | )    |   |        | (1,467 | ) |   |       | 86    | 
|               |         |                          |   |        |        |      |   |        |        |   |   |       |      
|               |         | Total income tax expense |   | $      | 10,025 |      |   | $      | 6,258  |   |   | $     | 3,250 | 
|               |         |                          |   |        |        |      |   |        |        |   |   |       |      

The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities as of December 31, 2003 and
2002 were as follows:

|                          |                                                   |                                |   |        |        |  |   |        |        | 
|------------------------- | ------------------------------------------------- | ------------------------------ | - | ------ | ------ |  | - | ------ | ------ | 
|(in thousands)            |                                                   | 2003                           |   | 2002  
|                          |                                                   |                                |   |       
|Deferred tax assets:      |                                                   |                                |   |        |        |  |   |       
|                          | Allowance for credit losses                       |                                | $ | 11,331 |        |  | $ | 9,331  |       
|                          | Gain on sale of building                          |                                |   | 918    |        |  |   | 1,402  |       
|                          | Deferred compensation                             |                                |   | 1,441  |        |  |   | 705    |       
|                          | Capital loss carryforward                         |                                |   | 670    |        |  |   | 1,283  |       
|                          | Other                                             |                                |   | 638    |        |  |   | 452    |       
|                          |                                                   |                                |   |        |        |  |   |        |       
|                          |                                                   | Gross deferred tax assets      |   |        | 14,998 |  |   |        | 13,173 | 
|                          | Less: valuation allowance                         |                                |   | (597   | )      |  |   | (1,193 | )     
|                          |                                                   |                                |   |        |        |  |   |        |       
|                          |                                                   | Total deferred tax assets      |   |        | 14,401 |  |   |        | 11,980 | 
|                          |                                                   |                                |   |        |        |  |   |        |       
|Deferred tax liabilities: |                                                   |                                |   |        |        |  |   |       
|                          | FHLB stock dividends                              |                                |   | 8,281  |        |  |   | 7,609  |       
|                          | Deferred loan fees                                |                                |   | 1,365  |        |  |   | 3,372  |       
|                          | Capitalized servicing                             |                                |   | 1,032  |        |  |   | 375    |       
|                          | Unrealized gains on available-for-sale securities |                                |   | 4,361  |        |  |   | 4,363  |       
|                          | Leasing activities                                |                                |   | 2,558  |        |  |   | 1,031  |       
|                          | Other                                             |                                |   | 2,350  |        |  |   | 1,349  |       
|                          |                                                   |                                |   |        |        |  |   |        |       
|                          |                                                   | Total deferred tax liabilities |   |        | 19,947 |  |   |        | 18,099 | 
|                          |                                                   |                                |   |        |        |  |   |        |       
|                          |                                                   | Net deferred tax liabilities   |   | $      | 5,546  |  |   | $      | 6,119  | 
|                          |                                                   |                                |   |        |        |  |   |        |       

The net change in the total valuation allowance for the years ended December
31, 2003 and 2002 was a decrease of $596,000 and $398,000, respectively. In
assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and tax planning
strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more likely
than not that the Company will realize the benefits of these deductible
differences net of the existing valuation allowance at December 31, 2003.

Reconciliation of the federal statutory rate to the Companys effective income
tax rate for the years ended December 31, 2003, 2002 and 2001 was as follows:

|                                                         |                           |  |      |      |      |  |      |      |   |  |      |      |  
|-------------------------------------------------------- | ------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                         |                           |  | 2003 |      | 2002 |  | 2001
|                                                         |                           |  |      |      |      |  |     
|Federal statutory rate                                   |                           |  | 35.0 | %    |      |  | 35.0 | %    |   |  | 35.0 | %   
|Tax exempt interest                                      |                           |  | (1.3 | )    |      |  | (1.8 | )    |   |  | (0.2 | )   
|Hawaii state franchise taxes, net of federal tax benefit |                           |  |     |      |      |  |     |      |   |  | 3.0  |     
|Tax exempt earnings on bank owned life insurance         |                           |  | (2.1 | )    |      |  | (2.8 | )    |   |  | (2.4 | )   
|Other, net                                               |                           |  | 1.0  |      |      |  | 1.3  |      |   |  | -0.8 |     
|                                                         |                           |  |      |      |      |  |      |      |   |  |      |     
|                                                         | Effective income tax rate |  |      | 32.6 | %    |  |      | 31.7 | % |  |      | 34.6 | %
|                                                         |                           |  |      |      |      |  |      |      |   |  |      |     

In 2003 and 2002, the Company utilized $2.8 million and $1.8 million,
respectively, of Hawaii State investment credits against its state franchise
tax liability. At December 31, 2003, the Company had non-refundable state
credits (unlimited carry forward) aggregating $4.4 million that become
available for use at various dates through 2007.

NOTE M - DEFERRED GAIN

Previously, CB Properties entered into a limited partnership agreement as a
limited partner. The partnership acquired the ground leases of certain real
property, constructed a commercial building on the property and sold the
leasehold estate and commercial

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building to an unrelated third party (the
Purchaser). Prior to the sale, the Bank entered into a 20-year office lease
agreement with the partnership for the ground floor, mezzanine and first four
floors of the building. The Banks lease was assigned to the Purchaser and has
not been affected by the sale of the building.

The Company recognized a deferred gain in a manner similar to that for a
sale-leaseback transaction. The deferred gain is being amortized over the
remaining lease term, resulting in annual gains of $447,000. As of December 31,
2003, the unamortized deferred gain was $2,309,000.

NOTE N - RISK MANAGEMENT ACTIVITIES

Refer to Note A, Derivative Instruments and Hedging Activities, for the
Companys current accounting treatment of derivative financial investments.

Interest rate contracts are primarily used to convert certain deposits or to
convert certain groups of customer loans to fixed or floating rates. Certain
interest rate swaps specifically match the amounts and terms of particular
liabilities.

Under interest rate swaps, the Company agrees with other parties to exchange,
at specified intervals, the difference between fixed rate and floating rate
interest amounts calculated by reference to an agreed upon notional amount. At
December 31, 2003, there were five (5) interest rate swaps outstanding, of
which two (2) are classified as cash flow hedges against commercial loans, with
notional principal amounts totaling $20 million. The Company paid the floating
rate and received the fixed rate on the swaps hedging commercial loans. For
the swaps which are not classified as cash flow hedges, the Company paid the
floating rate and received the fixed rate on one (1) swap hedging commercial
loans (with a notional principal amount of $10 million), and paid the fixed
rate and received the floating rate on two (2) swaps hedging time deposits and
short-term liabilities (with notional principal amounts totaling $10 million).
The estimated fair values of the outstanding interest rate swaps were
$(204,307) and $(651,322) at December 31, 2003, and December 31, 2002,
respectively, and are recorded as an adjustment to investments.

The following table indicates the types of swaps used, as of December 31, their
aggregate notional amounts and weighted-average interest rates, and includes
the matched swaps. Average variable rates are based on rates implied in the
yield curve at the reporting date. Those rates may change significantly,
affecting future cash flows.

|                       |                                    |      |   |        |   |      |   |        |   |  |   |        |  
|---------------------- | ---------------------------------- | ---- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|(dollars in thousands) |                                    | 2003 |   | 2002   |   | 2001
|Interest rate swaps:   |                                    |      |   |        |   |      |   |        |   |  |   |       
|                       | Pay-floating swaps-notional amount |      | $ | 30,000 |   |      | $ | 20,000 |   |  | $ | 15,000 |  
|                       | Average receive rate               |      |   | 5.98   | % |      |   | 6.40   | % |  |   | 7.29   | %
|                       | Average pay rate                   |      |   | 4.00   | % |      |   | 4.25   | % |  |   | 2.07   | %
|                       |                                    |      |   |        |   |      |   |        |   |  |   |        |  
|                       | Pay-fixed swaps-notional amount    |      | $ | 10,000 |   |      | $ | 35,000 |   |  | $ |       |  
|                       | Average receive rate               |      |   | 1.17   | % |      |   | 1.72   | % |  |   |       | %
|                       | Average pay rate                   |      |   | 4.17   | % |      |   | 3.99   | % |  |   |       | %
|                       |                                    |      |   |        |   |      |   |        |   |  |   |        |  

Interest rate options at December 31, 2003, 2002 and 2001 consisted of the
following:

|               |                             |       |          |        |           |        |          |       |           |       |          |        |           |   |        |      |   |      |       |        |  |  |     |     |  
|-------------- | --------------------------- | ----- | -------- | ------ | --------- | ------ | -------- | ----- | --------- | ----- | -------- | ------ | --------- | - | ------ | ---- | - | ---- | ----- | ------ |  |  | --- | --- | -
|               |                             |       | 2003     |        | 2002      |        | 2001    
|               |                             |       | Notional |        | Estimated |        | Notional |       | Estimated |       | Notional |        | Estimated
|               |                             |       | Amount   |        | Fair      |        | Amount   |       | Fair      |       | Amount   |        | Fair     
|(in thousands) |                             | Value |          | Value  |           | Value  |          | Value |           | Value |          | Value 
|               |                             |       |          |        |           |        |          |       |           |       |          |       
|Caps           |                             | $     |         |        |           | $  nil |          | $     |          |       |          | $  nil |           | $ | 50,000 |      |   | $nil
|Options        |                             |       | 30,000   |        |           |        | (230     | )     |           |       | 30,000   |        |           |   | (217   | )    |   |      | 5,000 |        |  |  | (40 | )  
|               |                             |       |          |        |           |        |          |       |           |       |          |        |           |   |        |      |   |      |       |        |  |  |     |    
|               | Total interest rate options |       | $        | 30,000 |           |        | $        | (230  | )         |       | $        | 30,000 |           |   | $      | (217 | ) |      | $     | 55,000 |  |  | $   | (40 | )
|               |                             |       |          |        |           |        |          |       |           |       |          |        |           |   |        |      |   |      |       |        |  |  |     |    

Interest rate lock commitments issued on residential mortgage loans expose the
Company to interest rate risk, which is economically hedged with options. At
December 31, 2003, the Company also had $15.0 million of forward sales on
securities to hedge residential mortgage loans. These derivatives are carried
at fair value with changes in fair value recorded as a component of noninterest
income in the consolidated statement of income.

Interest rate options written and purchased are contracts that allow the holder
of the option to purchase or sell a financial instrument at a specified price
and within a specified period of time from the seller or writer of the option.
As a writer of options, the Company receives a premium at the outset and then
bears the risk of an unfavorable change in the price of the financial
instrument underlying the option. At December 31, 2003, 2002 and 2001, there
were outstanding written option contracts with notional principal amounts of
$30.0 million, $30.0 million and $5.0 million, respectively, and fair values of
$(229,687), $(217,181), and $(39,844), respectively.

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NOTE O - CREDIT-RELATED INSTRUMENTS

At any time, the Company has a significant number of outstanding commitments to
extend credit. These commitments take the form of approved lines of credit and
loans with terms of up to one year. The Company also provides financial
guarantees and letters of credit to guarantee the performance of customers to
third parties. These agreements generally extend for up to one year. The
contractual amounts of these credit-related instruments are set out in the
following table by category of instrument. Because many of those instruments
expire without being advanced in whole or in part, the amounts do not represent
future cash flow requirements.

|                                 |        |      |         |         |  |      |  |   |         |         | 
|-------------------------------- | ------ | ---- | ------- | ------- |  | ---- |  | - | ------- | ------- | 
|(in thousands)                   |        | 2003 |         |         |  | 2002
|                                 |        |      |         |         |  |      |  |  
|Loan commitments                 |        | $    | 391,394 |         |  |      |  | $ | 259,104 |        
|Guarantees and letters of credit |        |      | 16,147  |         |  |      |  |   | 6,587   |        
|                                 |        |      |         |         |  |      |  |   |         |        
|                                 | Totals |      | $       | 407,541 |  |      |  |   | $       | 265,691 | 
|                                 |        |      |         |         |  |      |  |   |         |        

These credit-related financial instruments have off-balance sheet risk because
only origination fees and accruals for probable losses are recognized in the
consolidated financial statements until the commitments are fulfilled or
expire. Credit risk represents the accounting loss that would be recognized at
the reporting date if counterparties failed completely to perform as
contracted. The credit risk amounts are equal to the contractual amounts,
assuming that the amounts are fully advanced and that the collateral or other
security is of no value.

The Companys policy is to require suitable collateral to be provided by
certain customers prior to the disbursement of approved loans. For retail
loans, the Company usually retains a security interest in the property or
products financed, which provides repossession rights in the event of default
by the customer. Guarantees and letters of credit also are subject to strict
credit assessments before being provided. Those agreements specify monetary
limits to the Companys obligations. Collateral for commercial loans,
guarantees, and letters of credit is usually in the form of cash, inventory,
marketable securities, or other property.

NOTE P - COMMITMENTS AND CONTINGENCIES

The Company is a defendant in various legal proceedings arising from normal
business activities. While the results of these proceedings cannot be predicted
with certainty, management believes, based on advice of counsel, the aggregate
liability, if any, resulting from these proceedings would not have a material
effect on the Companys consolidated financial position or results of
operations.

NOTE Q - EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan. The Company has an Employee Stock Ownership
Plan (the ESOP) for all employees of the Company who satisfy
length-of-service requirements. Trust assets under the plan are invested
primarily in shares of stock of the Company. Employer contributions are to be
paid in cash, shares of stock or other property as determined by the Board of
Directors provided, however, contributions may not be made in amounts which
cannot be allocated to any participants account by reason of statutory
limitations. In October 2001, the ESOP borrowed $2,115,000 from the Bank to
purchase 62,269 outstanding shares of the Companys common stock from a
stockholder. The shares purchased collateralize the loan from the Bank in
accordance with a stock pledge agreement. The loan will be repaid principally
from the Companys contributions to the ESOP. Shares purchased with the loan
proceeds are held in a suspense account for allocation to participants as the
loan is repaid. Shares released from the suspense account are allocated among
participants on the basis of compensation, as described in the plan. The
Company accounts for its ESOP in accordance with Statement of Position 93-6,
Employers Accounting for Employee Stock Ownership Plans. Accordingly, the
Company reports compensation expense equal to the fair value of the shares
allocated, and the allocated shares are considered outstanding for the
computation of earnings per share. Dividends on allocated ESOP shares are
recorded as a reduction to retained earnings. ESOP compensation expense was
$898,000, $415,000, and $276,000 for 2003, 2002 and 2001, respectively. The
2003 ESOP compensation expense includes a $575,000 cash contribution for
purchases of additional ESOP shares. At December 31, 2003, unreleased ESOP
shares amounted to $1,323,000 and are shown as a reduction of stockholders
equity in the accompanying consolidated balance sheets. The table below
reflects ESOP activity for the periods indicated:

|                                    |  |      |           |      |  |   |           | 
|----------------------------------- |  | ---- | --------- | ---- |  | - | --------- | 
|Year ended December 31,             |  | 2003 |           | 2002
|                                    |  |      |           |     
|Allocated shares, beginning of year |  |      | 245,197   |      |  |   | 240,011   | 
|Shares committed to be released     |  |      | 5,956     |      |  |   | 11,422    | 
|Unallocated shares                  |  |      | 42,006    |      |  |   | 47,704    | 
|Fair value of unallocated shares    |  | $    | 2,630,000 |      |  | $ | 2,028,000 | 
|                                    |  |      |           |      |  |   |           | 

Profit Sharing Retirement Savings Plan.The Company has a Profit Sharing
Retirement Savings Plan for all employees who satisfy length-of-service
requirements. Eligible employees may contribute up to 100% of their
compensation, limited to the total amount deductible under applicable
provisions of the Internal Revenue Code, of which 20% will be matched by the
Company, provided that the matching contribution shall not exceed 2% of the
participants compensation. In addition, the Company contributes an amount
equal to 3% of the compensation of eligible participants, and additional
amounts determined by the Board of Directors at their discretion. Contributions
to the plan for 2003, 2002 and 2001 were approximately $429,000, $388,000 and
$366,000, respectively.

Deferred Compensation.The Company has deferred compensation agreements with
several key management employees, all of whom are officers. Under the
agreements, the Company is obligated to provide for each such employee or his
beneficiaries, during a period of ten to eighteen years after the employees
death, disability, or retirement, annual benefits ranging from $25,000 to
$250,000. The estimated present value of future benefits to be paid is being
accrued over the period from the effective date of the agreements until the
full eligibility dates of the participants. The expense incurred for this plan
for the years ended December 31, 2003, 2002 and
2001 amounted to $52,000, $73,000 and $118,000, respectively. The Company is
the beneficiary of life insurance policies, with an aggregate cash surrender
value of $13,775,000 at December 31, 2003, that were purchased as a method of
partially financing benefits under this plan.

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Supplemental Executive Retirement Plan.In 2002, the Company adopted a
non-qualified, unfunded Supplemental Executive Retirement Plan (SERP) for
certain executive officers to supplement the benefit these executive officers
will receive under the Companys qualified retirement plans (or predecessor
qualified retirement plans). The SERP provides annual benefits ranging from
8.9% to 65.0% of the executives final average compensation (as defined and
adjusted under the SERP) payable over the executives remaining lifetime
(assuming the executive attains age 65). The SERP also provides for survivor
and certain other termination benefits.

The expense recorded in connection with the SERP was $400,000 and $300,000 for
2003 and 2002, respectively. The Company is the beneficiary of life insurance
policies with an aggregate cash surrender value of $7.8 million. The Company
is using these policies as a method of funding benefits under this plan.

Stock Compensation Plans.On September 16, 1994, the Board of Directors
adopted a Stock Compensation Plan (the SCP) which the shareholders approved
on January 26, 1995. On April 30, 1998, the stockholders approved the increase
of shares of common stock reserved under the SCP to 532,400 shares. Such
shares may be granted to employees, including officers and other key employees,
of the Company. The purpose of the SCP is to enhance the ability of the
Company to attract, retain and reward key employees and to encourage a sense of
proprietorship and to stimulate the interests of those employees in the
financial success of the Company. The SCP is administered by the Compensation
Committee (the Committee) of the Board of Directors. The SCP provides for
the award of incentive stock options, performance stock options, non-qualified
stock options, stock grants and stock appreciation rights (SARs). Options
granted under the SCP vest after 1 year of service from the date of grant (3
years of service for 2002 and 2003 grants).

The Company adopted the Directors Stock Option Plan (DSOP) which the
shareholders approved on April 29, 1999. Under the DSOP, each director of the
Company, the Bank or Datatronix, who is not an employee, receives an annual
grant of options to acquire restricted stock at a price equal to the fair
market value of the Companys common stock at the date of the grant. Under the
DSOP, the stock option grants are exercisable from the date of the grant for a
ten-year period.

The following table presents information on options outstanding under the SCP
and DSOP described above:

|                  |  |                     |         |                     |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|----------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                 
|                  |  | Options Outstanding |         | Options Exercisable
|                 
|                  |  |                     |         | Weighted Average    |  |                  |      |             |  |                 
|                  |  | Options             |         | Remaining           |  | Weighted Average |      | Options     |  | Weighted Average
|Grant Price Range |  | Outstanding         |         | Contractual Life    |  | Exercise Price   |      | Exercisable |  | Exercise Price  
|                  |  |                     |         |                     |  |                  |      |             |  |                 
|$18.41 - $20.47   |  |                     | 16,422  |                     |  |                  | 5.68 |             |  | $                | 19.75 |  |  |  | 16,422  |  |  | $ | 19.75 | 
|$20.48 - $22.16   |  |                     | 52,551  |                     |  |                  | 6.70 |             |  | $                | 21.94 |  |  |  | 52,551  |  |  | $ | 21.94 | 
|$22.17 - $23.51   |  |                     | 24,527  |                     |  |                  | 4.99 |             |  | $                | 22.93 |  |  |  | 24,527  |  |  | $ | 22.93 | 
|$23.52 - $26.00   |  |                     | 16,004  |                     |  |                  | 7.10 |             |  | $                | 25.97 |  |  |  | 16,004  |  |  | $ | 25.97 | 
|$26.01 - $31.28   |  |                     | 21,104  |                     |  |                  | 8.13 |             |  | $                | 31.20 |  |  |  | 21,104  |  |  | $ | 31.20 | 
|$31.29 - $32.31   |  |                     | 67,828  |                     |  |                  | 3.97 |             |  | $                | 32.23 |  |  |  | 67,828  |  |  | $ | 32.23 | 
|$32.32 - $34.96   |  |                     | 88,305  |                     |  |                  | 8.43 |             |  | $                | 34.96 |  |  |  |        |  |  | $ |      | 
|$34.97 - $61.61   |  |                     | 65,750  |                     |  |                  | 9.75 |             |  | $                | 61.61 |  |  |  |        |  |  | $ |      | 
|$61.62 - $62.57   |  |                     | 14,300  |                     |  |                  | 9.26 |             |  | $                | 62.57 |  |  |  | 14,300  |  |  | $ | 62.57 | 
|                  |  |                     |         |                     |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|                  |  |                     | 366,791 |                     |  |                  | 7.20 |             |  | $                | 36.35 |  |  |  | 212,736 |  |  | $ | 29.12 | 
|                  |  |                     |         |                     |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 

Transactions involving stock options are summarized as follows:

|                             |           |             |               |                |                  |   |       |       | 
|---------------------------- | --------- | ----------- | ------------- | -------------- | ---------------- | - | ----- | ----- | 
|                             |           |             | Stock Options |                | Weighted Average
|Description                  |           | Outstanding |               | Exercise Price
|                             |           |             |               |               
|Balance at December 31, 2000 |           |             | 344,574       |                |                  | $ | 24.80 |      
|                             | Granted   |             |               | 127,079        |                  |   | $     | 22.76 | 
|                             | Forfeited |             |               | (16,501        | )                |   | $     | 25.94 | 
|                             | Exercised |             |               | (9,981         | )                |   | $     | 19.96 | 
|                             |           |             |               |                |                  |   |       |      
|Balance at December 31, 2001 |           |             | 445,171       |                |                  | $ | 24.28 |      
|                             | Granted   |             |               | 112,505        |                  |   | $     | 34.25 | 
|                             | Forfeited |             |               | (968           | )                |   | $     | 34.96 | 
|                             | Exercised |             |               | (217,772       | )                |   | $     | 22.81 | 
|                             |           |             |               |                |                  |   |       |      
|Balance at December 31, 2002 |           |             | 338,936       |                |                  | $ | 28.51 |      
|                             | Granted   |             |               | 80,563         |                  |   | $     | 61.79 | 
|                             | Forfeited |             |               | (1,454         | )                |   | $     | 34.96 | 
|                             | Exercised |             |               | (51,254        | )                |   | $     | 24.55 | 
|                             |           |             |               |                |                  |   |       |      
|Balance at December 31, 2003 |           |             | 366,791       |                |                  | $ | 36.35 |      
|                             |           |             |               |                |                  |   |       |      

Upon the occurrence of a reorganization event, as defined in the SCP, the
Committee may, in its discretion, provide that the options granted shall be
terminated unless exercised within 30 days of notice and advance the exercise
dates of any, or all, outstanding options.

NOTE R - STOCKHOLDERS EQUITY

Regulatory Matters. The Company is subject to various capital requirements
administered by federal regulatory agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Companys consolidated financial statements. Under
capital adequacy

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guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Companys assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Companys capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios of Total and Tier 1
capital (as defined in the regulations) to risk-weighted assets (as defined)
and Tier I capital (as defined) to average assets (as defined). The following
table presents the actual and required regulatory capital amounts and ratios of
the Company as of December 31, 2003 and 2002. Management believes that the
Company and the Bank meet all capital adequacy requirements to which they are
subject as of December 31, 2003.

|                                          |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |       |  
|----------------------------------------- | ------------ | ------ | ------ | ------- | -------- | ------ | ---------------------- | ----- | - | ------ | -------------------- | ------- |  |  |  | ---- | - |  | - | ------- |  |  |  | ----- | -
|                                          |              |        |        |         |          |        |                        |       |   |        | For Capital Adequacy |         |  |  |  |      |   |  |  
|                                          |              |        | Actual |         | Purposes |        | To Be Well-Capitalized
|(in thousands of dollars)                 |              | Amount |        | Ratio   |          | Amount |                        | Ratio |   | Amount |                      | Ratio  
|                                          |              |        |        |         |          |        |                        |       |   |        |                      |        
|December 31, 2003:                        |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|Tier 1 capital (to risk weighted assets): |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|                                          | Consolidated |        | $      | 165,326 |          |        |                        | 11.03 | % |        | $                    | 59,933  |  |  |  | 4.00 | % |  | $ | n/a     |  |  |  | n/a   | %
|                                          | Bank         |        |        | 155,937 |          |        |                        | 10.42 |   |        |                      | 59,862  |  |  |  | 4.00 |   |  |   | 89,793  |  |  |  | 6.00  |  
|Total capital (to risk weighted assets):  |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|                                          | Consolidated |        |        | 184,207 |          |        |                        | 12.29 |   |        |                      | 119,865 |  |  |  | 8.00 |   |  |   | n/a     |  |  |  | n/a   |  
|                                          | Bank         |        |        | 174,797 |          |        |                        | 11.68 |   |        |                      | 119,724 |  |  |  | 8.00 |   |  |   | 149,655 |  |  |  | 10.00 |  
|Tier 1 capital (to average assets):       |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|                                          | Consolidated |        |        | 165,326 |          |        |                        | 8.90  |   |        |                      | 74,336  |  |  |  | 4.00 |   |  |   | n/a     |  |  |  | n/a   |  
|                                          | Bank         |        |        | 155,937 |          |        |                        | 8.41  |   |        |                      | 74,132  |  |  |  | 4.00 |   |  |   | 92,666  |  |  |  | 5.00  |  
|December 31, 2002:                        |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|Tier 1 capital (to risk weighted assets): |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|                                          | Consolidated |        | $      | 147,122 |          |        |                        | 12.19 | % |        | $                    | 48,264  |  |  |  | 4.00 | % |  | $ | n/a     |  |  |  | n/a   | %
|                                          | Bank         |        |        | 140,197 |          |        |                        | 11.63 |   |        |                      | 48,204  |  |  |  | 4.00 |   |  |   | 72,307  |  |  |  | 6.00  |  
|Total capital (to risk weighted assets):  |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|                                          | Consolidated |        |        | 162,381 |          |        |                        | 13.46 |   |        |                      | 96,527  |  |  |  | 8.00 |   |  |   | n/a     |  |  |  | n/a   |  
|                                          | Bank         |        |        | 155,438 |          |        |                        | 12.90 |   |        |                      | 96,409  |  |  |  | 8.00 |   |  |   | 120,511 |  |  |  | 10.00 |  
|Tier 1 capital (to average assets):       |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |      
|                                          | Consolidated |        |        | 147,122 |          |        |                        | 9.03  |   |        |                      | 65,138  |  |  |  | 4.00 |   |  |   | n/a     |  |  |  | n/a   |  
|                                          | Bank         |        |        | 140,197 |          |        |                        | 8.59  |   |        |                      | 65,261  |  |  |  | 4.00 |   |  |   | 81,576  |  |  |  | 5.00  |  
|                                          |              |        |        |         |          |        |                        |       |   |        |                      |         |  |  |  |      |   |  |   |         |  |  |  |       |  

The most recent notification from the federal regulatory agencies categorized
the Company as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the Company must
maintain minimum Tier 1 and Total risk-based capital ratios and Tier 1 leverage
ratios as set forth in the table above. To be categorized as
adequately-capitalized, the Company must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table. As of
December 31, 2003, there are no conditions or events since that notification
that management believes have changed the Companys capital category.

Payment of dividends by the Parent Company and Bank are subject to certain
restrictions. Applicable regulatory authorities are authorized to prohibit
banks, thrifts and their holding companies from paying dividends which would
constitute an unsafe and unsound banking practice. The Bank cannot make a
capital distribution (broadly defined to include, among other things,
dividends, redemptions and other repurchases of stock), or pay management fees
to its holding company if, thereafter, the depository institution would be
undercapitalized.

Earnings Per Share. The table below presents the information used to compute
basic and diluted earnings per common share for the years ended December 31,
2003, 2002 and 2001:

|                                       |                                             |                                                                 |      |            |           |      |      |            |           |   |      |           |           | 
|-------------------------------------- | ------------------------------------------- | --------------------------------------------------------------- | ---- | ---------- | --------- | ---- | ---- | ---------- | --------- | - | ---- | --------- | --------- | 
|                                       |                                             |                                                                 |      | 2003       |           | 2002 |      | 2001      
|                                       |                                             |                                                                 |      |            |           |      |      |           
|Numerator:                             |                                             |                                                                 |      |            |           |      |      |            |           |   |      |          
|                                       | Net income                                  |                                                                 | $    | 20,748,000 |           |      | $    | 13,482,000 |           |   | $    | 6,150,000 |          
|                                       |                                             |                                                                 |      |            |           |      |      |            |           |   |      |           |          
|Denominator:                           |                                             |                                                                 |      |            |           |      |      |            |           |   |      |          
|                                       | Weighted average shares outstanding         |                                                                 |      | 4,269,424  |           |      |      | 4,257,506  |           |   |      | 4,244,228 |          
|                                       | Effect of dilutive securities-stock options |                                                                 |      | 122,092    |           |      |      | 74,949     |           |   |      | 56,203    |          
|                                       |                                             |                                                                 |      |            |           |      |      |            |           |   |      |           |          
|                                       |                                             | Adjusted weighted average shares
outstanding, assuming dilution |      |            | 4,391,516 |      |      |            | 4,332,455 |   |      |           | 4,300,431 | 
|                                       |                                             |                                                                 |      |            |           |      |      |            |           |   |      |           |          
|Earnings per share - basic             |                                             | $                                                               | 4.86 |            |           | $    | 3.17 |            |           | $ | 1.45 |          
|Earnings per share - assuming dilution |                                             | $                                                               | 4.72 |            |           | $    | 3.11 |            |           | $ | 1.43 |          
|                                       |                                             |                                                                 |      |            |           |      |      |            |           |   |      |           |          

At December 31, 2003, there were outstanding options to purchase 366,791 shares
at a range of $18.41 to $62.57. At December 31, 2002, there were outstanding
options to purchase 338,936 shares at a range of $18.41 to $34.95. At December
31, 2001, there were outstanding options to purchase 445,171 shares at a range
of $18.41 to $32.30. Earnings per share reflect 10% stock dividend paid in
2003 and 2002.

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NOTE S - OTHER COMPREHENSIVE INCOME (LOSS)

The schedule below presents the reclassification amount to adjust for gains and
losses on securities included in net income, including the amount of income
taxes allocated, and also included in other comprehensive income as unrealized
gains (losses) in the year in which they arose:

|                                  |                                                                     |        |            |         |               |        |            |        |   |   |       |        |  
|--------------------------------- | ------------------------------------------------------------------- | ------ | ---------- | ------- | ------------- | ------ | ---------- | ------ | - | - | ----- | ------ | -
|                                  |                                                                     |        | Before Tax |         | Tax (Expense) |        | Net of Tax
|(in thousands)                    |                                                                     | Amount |            | Benefit |               | Amount
|                                  |                                                                     |        |            |         |               |       
|2003:                             |                                                                     |        |            |         |               |        |            |        |   |   |       |       
|Unrealized gains on securities:   |                                                                     |        |            |         |               |        |            |        |   |   |       |       
|                                  | Unrealized holding gain arising during the year                     |        | $          | 1,654   |               |        | $          | (622   | ) |   | $     | 1,032  |  
|                                  | Less: reclassification adjustment for gains realized
in net income  |        |            | 1,718   |               |        |            | (683   | ) |   |       | 1,035  |  
|                                  |                                                                     |        |            |         |               |        |            |        |   |   |       |        |  
|Other comprehensive income (loss) |                                                                     | $      | (64        | )       |               | $      | 61         |        |   | $ | (3    | )     
|                                  |                                                                     |        |            |         |               |        |            |        |   |   |       |        |  
|2002                              |                                                                     |        |            |         |               |        |            |        |   |   |       |       
|Unrealized gains on securities:   |                                                                     |        |            |         |               |        |            |        |   |   |       |       
|                                  | Unrealized holding gain arising during the year                     |        | $          | 6,131   |               |        | $          | (2,384 | ) |   | $     | 3,747  |  
|                                  | Less: reclassification adjustment for losses realized
in net income |        |            | (3,164  | )             |        |            | 1,258  |   |   |       | (1,906 | )
|                                  |                                                                     |        |            |         |               |        |            |        |   |   |       |        |  
|Other comprehensive income (loss) |                                                                     | $      | 9,295      |         |               | $      | (3,642     | )      |   | $ | 5,653 |       
|                                  |                                                                     |        |            |         |               |        |            |        |   |   |       |        |  
|2001                              |                                                                     |        |            |         |               |        |            |        |   |   |       |       
|Unrealized gains on securities:   |                                                                     |        |            |         |               |        |            |        |   |   |       |       
|                                  | Unrealized holding gain arising during the year                     |        | $          | 2,201   |               |        | $          | (937   | ) |   | $     | 1,264  |  
|                                  | Less: reclassification adjustment for losses realized
in net income |        |            | (10,811 | )             |        |            | 4,216  |   |   |       | (6,595 | )
|                                  |                                                                     |        |            |         |               |        |            |        |   |   |       |        |  
|Other comprehensive income (loss) |                                                                     | $      | 13,012     |         |               | $      | (5,153     | )      |   | $ | 7,859 |       
|                                  |                                                                     |        |            |         |               |        |            |        |   |   |       |        |  

NOTE T - FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Companys entire holdings of a particular
financial instrument. Because a limited or no market exists for a significant
portion of the Companys financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include
premises and equipment and deferred income taxes. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates.

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:



| |  | Cash and due from banks, interest-bearing deposits in other banks and federal
funds sold: The carrying amounts approximate fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Investment securities (including mortgage/asset-backed securities): Fair
values for securities are based on quoted market prices, if available. If
not available, quoted market prices of comparable instruments are used except
in the case of certain options and swaps that utilize pricing models and
certain securities that utilize net present value calculations of discounted
cash flows. For FHLB stock, the carrying amount approximates fair value.                                                                                                                                                                                                         
|
| |  | Loans:For variable rate loans that reprice frequently and entail no
significant change in credit risk, fair values are based on carrying values.
For certain mortgage loans (e.g., one-to-four family residential), fair
values are based on quoted market prices of similar loans sold in conjunction
with securitization transactions, adjusted for differences in loan
characteristics. For other loans, fair values are estimated based on
discounted cash flow analyses using interest rates currently offered for
loans with similar terms to borrowers of similar credit quality. The
carrying amount of accrued interest receivable approximates its fair value.
|
| |  | Deposits:The estimated fair values of deposits with no stated maturities,
which includes demand deposits, checking accounts, passbook savings and
certain types of money market accounts, is equal to the amount payable on
demand. The estimated fair values of fixed maturity deposits are estimated
using a discounted cash flow calculation with rates currently offered by the
Company for deposits of similar remaining maturity. The carrying amount of
accrued interest payable approximates its fair value.                                                                                                                                                    
|
| |  | Short-term borrowings:The carrying amounts of advances from the FHLB and
other short-term borrowings approximate their fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Long-term debt (other than deposits): The fair values are estimated using
discounted cash flow analyses using the Companys current incremental
borrowing rates for similar types of borrowing arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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| |  | Off-balance sheet financial instruments: Fair values for letters of credit,
guarantees, and lending commitments are based on fees currently charged to
enter into similar agreements, considering the remaining terms of the
agreements and the counterparties credit standing.                                                 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Derivative financial instruments:Fair values for swaps, caps, floors,
forwards, and options are based upon current settlement values (financial
forwards), if available. If there are no relevant comparables, fair values
are based on pricing models or formulas using current assumptions for
interest rate swaps and options.

The following table provides a summary of the carrying and fair values of the
Companys financial instruments at December 31, 2003 and 2002:

|                                         |                                          |                       |   |             |        |                |   |             |      |                |   |           |        |  |   |           |      |  
|---------------------------------------- | ---------------------------------------- | --------------------- | - | ----------- | ------ | -------------- | - | ----------- | ---- | -------------- | - | --------- | ------ |  | - | --------- | ---- | -
|                                         |                                          |                       |   | 2003        |        | 2002          
|                                         |                                          |                       |   | Carrying or |        | Estimated Fair |   | Carrying or |      | Estimated Fair
|(in thousands)                           |                                          | Notional Value        |   | Value       |        | Notional Value |   | Value      
|                                         |                                          |                       |   |             |        |                |   |            
|Financial assets:                        |                                          |                       |   |             |        |                |   |             |      |                |   |           |        |  |   |          
|                                         | Cash and due from banks                  |                       | $ | 46,566      |        |                | $ | 46,566      |      |                | $ | 75,069    |        |  | $ | 75,069    |     
|                                         | Interest-bearing deposits in other banks |                       |   | 1,343       |        |                |   | 1,343       |      |                |   | 1,214     |        |  |   | 1,214     |     
|                                         | Federal funds sold                       |                       |   | 400         |        |                |   | 400         |      |                |   | 20,525    |        |  |   | 20,525    |     
|                                         | Investment securities                    |                       |   | 436,809     |        |                |   | 437,121     |      |                |   | 340,348   |        |  |   | 341,473   |     
|                                         | FHLB stock                               |                       |   | 31,576      |        |                |   | 31,576      |      |                |   | 29,886    |        |  |   | 29,886    |     
|                                         | Loans                                    |                       |   | 1,313,621   |        |                |   | 1,348,306   |      |                |   | 1,135,605 |        |  |   | 1,172,425 |     
|Financial liabilities:                   |                                          |                       |   |             |        |                |   |             |      |                |   |           |        |  |   |          
|                                         | Deposits                                 |                       |   | 1,205,725   |        |                |   | 1,207,409   |      |                |   | 1,163,227 |        |  |   | 1,167,331 |     
|                                         | Short-term borrowings                    |                       |   | 305,400     |        |                |   | 305,464     |      |                |   | 10,400    |        |  |   | 10,675    |     
|                                         | Long-term debt                           |                       |   | 194,389     |        |                |   | 205,824     |      |                |   | 319,407   |        |  |   | 335,608   |     
|Off-balance sheet financial instruments: |                                          |                       |   |             |        |                |   |             |      |                |   |           |        |  |   |          
|                                         | Derivative financial instruments:        |                       |   |             |        |                |   |             |      |                |   |           |        |  |   |           |     
|                                         |                                          | Interest rate swaps   |   |             | 40,000 |                |   |             | (204 | )              |   |           | 55,000 |  |   |           | (651 | )
|                                         |                                          | Interest rate options |   |             | 30,000 |                |   |             | (230 | )              |   |           | 30,000 |  |   |           | (217 | )
|                                         | Loan commitments                         |                       |   | 391,394     |        |                |   | 48          |      |                |   | 259,104   |        |  |   | 44        |     
|                                         | Guarantees and letters of credit         |                       |   | 16,147      |        |                |   | 236         |      |                |   | 6,587     |        |  |   | 93        |     
|                                         |                                          |                       |   |             |        |                |   |             |      |                |   |           |        |  |   |           |     

NOTE U - FINANCIAL STATEMENTS OF CB BANCSHARES, INC. (PARENT COMPANY)

Condensed financial statements of CB Bancshares, Inc. (Parent company only)
follows:

CONDENSED BALANCE SHEETS

|                                                           |                                                                                                                           |                                            |       |              |         |   |       |         |         | 
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------------ | ------- | - | ----- | ------- | ------- | 
|                                                           |                                                                                                                           |                                            |       | December 31,
|                                                           |                                                                                                                           |                                            |       |             
|(in thousands, except number of shares and per share data) |                                                                                                                           | 2003                                       |       | 2002        
|                                                           |                                                                                                                           |                                            |       |             
|ASSETS                                                    
|Cash on deposit with the Bank                              |                                                                                                                           | $                                          | 7,754 |              |         | $ | 5,721 |        
|Investment in subsidiaries:                                |                                                                                                                           |                                            |       |              |         |   |       |        
|                                                           | Bank                                                                                                                      |                                            |       | 159,821      |         |   |       | 144,084 |        
|                                                           | Other                                                                                                                     |                                            |       | 2,467        |         |   |       | 1,668   |        
|Premises and equipment                                     |                                                                                                                           |                                            | 101   |              |         |   | 123   |        
|Other assets                                               |                                                                                                                           |                                            | 1,810 |              |         |   | 2,084 |        
|                                                           |                                                                                                                           |                                            |       |              |         |   |       |        
|                                                           |                                                                                                                           | TOTAL ASSETS                               |       | $            | 171,953 |   |       | $       | 153,680 | 
|                                                           |                                                                                                                           |                                            |       |              |         |   |       |        
|LIABILITIES AND STOCKHOLDERS EQUITY                      
|Employee stock ownership plan note payable                 |                                                                                                                           | $                                          | 1,355 |              |         | $ | 1,694 |        
|Other liabilities                                          |                                                                                                                           |                                            | 1,388 |              |         |   | 977   |        
|                                                           |                                                                                                                           |                                            |       |              |         |   |       |        
|                                                           |                                                                                                                           | Total liabilities                          |       |              | 2,743   |   |       |         | 2,671   | 
|                                                           |                                                                                                                           |                                            |       |              |         |   |       |        
|Stockholders equity:                                      |                                                                                                                           |                                            |       |              |         |   |       |        
|                                                           | Preferred stock $1 par value -
Authorized and unissued 25,000,000 shares                                                  |                                            |       |             |         |   |       |        |        
|                                                           | Common stock $1 par value -
Authorized 50,000,000 shares; issued and outstanding,
4,337,211 in 2003 and 3,897,975 in 2002 |                                            |       | 4,337        |         |   |       | 3,898   |        
|                                                           | Additional paid-in capital                                                                                                |                                            |       | 103,050      |         |   |       | 78,311  |        
|                                                           | Retained earnings                                                                                                         |                                            |       | 56,542       |         |   |       | 63,679  |        
|                                                           | Unreleased shares to employee stock ownership plan                                                                        |                                            |       | (1,323       | )       |   |       | (1,486  | )      
|                                                           | Accumulated other comprehensive income, net of tax                                                                        |                                            |       | 6,604        |         |   |       | 6,607   |        
|                                                           |                                                                                                                           |                                            |       |              |         |   |       |        
|                                                           |                                                                                                                           | Total stockholders equity                 |       |              | 169,210 |   |       |         | 151,009 | 
|                                                           |                                                                                                                           |                                            |       |              |         |   |       |        
|                                                           |                                                                                                                           | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |       | $            | 171,953 |   |       | $       | 153,680 | 
|                                                           |                                                                                                                           |                                            |       |              |         |   |       |        

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CONDENSED STATEMENTS OF INCOME

|                                                |                              |                                   |        |                          |        |      |       |       |        |  |       |       |       | 
|----------------------------------------------- | ---------------------------- | --------------------------------- | ------ | ------------------------ | ------ | ---- | ----- | ----- | ------ |  | ----- | ----- | ----- | 
|                                                |                              |                                   |        | Years Ended December 31,
|(in thousands)                                  |                              | 2003                              |        | 2002                     |        | 2001
|                                                |                              |                                   |        |                          |        |     
|Income:                                         |                              |                                   |        |                          |        |      |       |       |        |  |       |      
|                                                | Dividends from subsidiaries: |                                   |        |                          |        |      |       |       |        |  |       |       |      
|                                                |                              | Bank                              |        | $                        | 11,800 |      |       | $     | 5,780  |  |       | $     | 6,270 | 
|                                                |                              | Citibank Properties               |        |                          |       |      |       |       | 1      |  |       |       |      | 
|                                                | Other interest income        |                                   |        | 2                        |        |      |       | 3     |        |  |       | 8     |      
|                                                | Other income                 |                                   |        |                         |        |      |       | 4     |        |  |       | 25    |      
|                                                |                              |                                   |        |                          |        |      |       |       |        |  |       |       |       | 
|                                                |                              | Total income                      |        |                          | 11,802 |      |       |       | 5,788  |  |       |       | 6,303 | 
|                                                |                              | Total expenses                    |        |                          | 10,667 |      |       |       | 2,158  |  |       |       | 2,145 | 
|                                                |                              |                                   |        |                          |        |      |       |       |        |  |       |       |       | 
|                                                |                              | Operating profit                  |        |                          | 1,135  |      |       |       | 3,630  |  |       |       | 4,158 | 
|Equity in undistributed income of subsidiaries: |                              |                                   |        |                          |        |      |       |       |        |  |       |      
|                                                | Bank                         |                                   |        | 15,740                   |        |      |       | 8,972 |        |  |       | 1,007 |      
|                                                | Other                        |                                   |        | 299                      |        |      |       | 131   |        |  |       | 236   |      
|                                                |                              |                                   |        |                          |        |      |       |       |        |  |       |       |       | 
|                                                |                              |                                   | 16,039 |                          |        |      | 9,103 |       |        |  | 1,243 |      
|                                                |                              |                                   |        |                          |        |      |       |       |        |  |       |       |       | 
|                                                |                              | Income (loss) before income taxes |        |                          | 17,174 |      |       |       | 12,733 |  |       |       | 5,401 | 
|                                                | Income tax benefit           |                                   |        | 3,574                    |        |      |       | 749   |        |  |       | 749   |      
|                                                |                              |                                   |        |                          |        |      |       |       |        |  |       |       |       | 
|                                                |                              | NET INCOME                        |        | $                        | 20,748 |      |       | $     | 13,482 |  |       | $     | 6,150 | 
|                                                |                              |                                   |        |                          |        |      |       |       |        |  |       |       |       | 

CONDENSED STATEMENTS OF CASH FLOWS

|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |        |  
|----------------------------------------- | --------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------ | ------------------------ | ------- | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                          |                                                                                   |                                                                      |        | Years Ended December 31,
|(in thousands)                            |                                                                                   | 2003                                                                 |        | 2002                     |         | 2001
|                                          |                                                                                   |                                                                      |        |                          |         |     
|Cash flows from operating activities:     |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |       
|                                          | Net income                                                                        |                                                                      | $      | 20,748                   |         |      | $      | 13,482 |        |   | $      | 6,150  |       
|                                          | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|                                          |                                                                                   | Excess of equity in earnings of subsidiaries over
dividends received |        |                          | (16,039 | )    |        |        | (9,103 | ) |        |        | (1,243 | )
|                                          |                                                                                   | Other                                                                |        |                          | 707     |      |        |        | 187    |   |        |        | 1,084  |  
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|Net cash provided by operating activities |                                                                                   |                                                                      | 5,416  |                          |         |      | 4,566  |        |        |   | 5,991  |       
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|Cash flows from investing activities:     |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |       
|                                          | Purchase of investments                                                           |                                                                      |        | (500                     | )       |      |        | (1,185 | )      |   |        | (435   | )     
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|Net cash used by investing activities     |                                                                                   |                                                                      | (500   | )                        |         |      | (1,185 | )      |        |   | (435   | )     
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|Cash flows from financing activities:     |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |       
|                                          | Cash-in-lieu payments on stock dividend                                           |                                                                      |        | (98                      | )       |      |        | (58    | )      |   |        | (54    | )     
|                                          | Cash dividends                                                                    |                                                                      |        | (4,015                   | )       |      |        | (1,649 | )      |   |        | (1,441 | )     
|                                          | Stock repurchase                                                                  |                                                                      |        | (12                      | )       |      |        | (5,666 | )      |   |        | (274   | )     
|                                          | Directors compensation                                                           |                                                                      |        | 32                       |         |      |        |       |        |   |       | -      |       
|                                          | Stock options exercised                                                           |                                                                      |        | 1,225                    |         |      |        | 5,132  |        |   |        | 199    |       
|                                          | Unreleased ESOP shares                                                            |                                                                      |        | 324                      |         |      |        | 353    |        |   |        |       |       
|                                          | ESOP loan repayment                                                               |                                                                      |        | (339                     | )       |      |        | (80    | )      |   |        |       |       
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|Net cash used in financing activities     |                                                                                   |                                                                      | (2,883 | )                        |         |      | (1,968 | )      |        |   | (1,570 | )     
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|                                          | Increase (decrease) in cash                                                       |                                                                      |        | 2,033                    |         |      |        | 1,413  |        |   |        | 3,986  |       
|Cash at beginning of year                 |                                                                                   |                                                                      | 5,721  |                          |         |      | 4,308  |        |        |   | 322    |       
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       
|Cash at end of year                       |                                                                                   | $                                                                    | 7,754  |                          |         | $    | 5,721  |        |        | $ | 4,308  |       
|                                          |                                                                                   |                                                                      |        |                          |         |      |        |        |        |   |        |        |       

NOTE V - SEGMENT INFORMATION

The Companys business segments are organized around services and products
provided. The segment data presented below was prepared on the same basis of
accounting as the consolidated financial statements as described in Note A.

The Companys business segments are defined as Retail Banking, Wholesale
Banking, Treasury and All Other. Retail Banking is made up of retail deposits,
mortgage banking and consumer lending activities. Wholesale Banking consists
of wholesale deposits, commercial real estate lending, corporate lending and
the specialized lending functions of the Bank. The Treasury segment is
responsible for managing the Companys investment securities portfolio and
borrowing. The All Other segment consists of the administrative support of the
Bank, transactions of the parent company, CB Bancshares, Inc., and subsidiaries
of the Company and Bank.

Retail banking net interest income is made up of interest income from revolving
real estate, residential real estate and consumer loans, partially offset by
the interest expense on retail deposits. Wholesale banking net interest income
is made up of interest income from

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commercial, real estate construction, and
commercial real estate loans, partially offset by the interest expense on
wholesale deposits. Treasury net interest income is derived from the interest
income on investment securities the Bank has in its possession, partially
offset by the interest expense on short- and long-term borrowings.

Intersegment net interest income is allocated based on the net funding needs of
each segment and applying an interest credit or charge based on an internal
cost of capital.

Other operating income (expense) is the non-interest income and expense
designated to Retail Banking, Wholesale Banking, Treasury, and All Other.

Administrative overhead allocates the non-interest income/(expense) from the
All Other non-banking function segment to the other three segments, Retail
Banking, Wholesale Banking and Treasury.

Assets are composed of cash, investments, loans, and fixed and other assets.
Loan balances and any corresponding allowance for credit losses are allocated
based on loan product types. Fixed assets are allocated by location and
function within the Company.

The Company continues to enhance its segment reporting process methodologies.
These methodologies assign certain balance sheet and income statement items to
the responsible operating segment. This process is dynamic and, unlike
financial accounting, there is no comprehensive, authoritative guidance for
management accounting equivalent to generally accepted accounting principles.
Intersegment income and expense are valued at prices comparable to those for
unaffiliated companies.

|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|---------------------------------------------- |  | ------ | ------- | --------- |  | -------- | ------- | --------- |  | ----- | ------- | - |  | - | ------- | - |  | - | --------- | -
|(in thousands)                                 |  | Retail |         | Wholesale |  | Treasury |         | All Other |  | Total
|                                               |  |        |         |           |  |          |         |           |  |      
|2003:                                          |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Net interest income                            |  | $      | 39,504  |           |  | $        | 35,057  |           |  | $     | 5,093   |   |  | $ | (60     | ) |  | $ | 79,594    |  
|Intersegment net interest income (expense)     |  |        | 168     |           |  |          | (2,049  | )         |  |       | 1,881   |   |  |   |        |   |  |   |          |  
|Provision for credit losses                    |  |        | 1,482   |           |  |          | 5,698   |           |  |       |        |   |  |   |        |   |  |   | 7,180     |  
|Net other operating expense                    |  |        | (6,471  | )         |  |          | (13,519 | )         |  |       | (412    | ) |  |   | (21,239 | ) |  |   | (41,641   | )
|Administrative and overhead expense allocation |  |        | (5,794  | )         |  |          | (4,734  | )         |  |       | (574    | ) |  |   | 11,102  |   |  |   |          |  
|Income tax expense (benefit)                   |  |        | 8,537   |           |  |          | 2,983   |           |  |       | 1,972   |   |  |   | (3,467  | ) |  |   | 10,025    |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Net income (loss)                              |  |        | 17,388  |           |  |          | 6,074   |           |  |       | 4,016   |   |  |   | (6,730  | ) |  |   | 20,748    |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Total assets                                   |  |        | 627,329 |           |  |          | 697,527 |           |  |       | 520,138 |   |  |   | 58,667  |   |  |   | 1,903,661 |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|2002:                                          |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Net interest income                            |  | $      | 42,189  |           |  | $        | 29,547  |           |  | $     | 4,999   |   |  | $ | (82     | ) |  | $ | 76,653    |  
|Intersegment net interest income (expense)     |  |        | 596     |           |  |          | (2,655  | )         |  |       | 2,059   |   |  |   |        |   |  |   |          |  
|Provision for credit losses                    |  |        | 2,972   |           |  |          | 14,138  |           |  |       |        |   |  |   |        |   |  |   | 17,110    |  
|Net other operating expense                    |  |        | (8,799  | )         |  |          | (11,864 | )         |  |       | (4,144  | ) |  |   | (14,996 | ) |  |   | (39,803   | )
|Administrative and overhead expense allocation |  |        | (7,070  | )         |  |          | (5,262  | )         |  |       | (800    | ) |  |   | 13,132  |   |  |   |          |  
|Income tax expense (benefit)                   |  |        | 7,663   |           |  |          | (1,399  | )         |  |       | 677     |   |  |   | (683    | ) |  |   | 6,258     |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Net income (loss)                              |  |        | 16,281  |           |  |          | (2,973  | )         |  |       | 1,437   |   |  |   | (1,263  | ) |  |   | 13,482    |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Total assets                                   |  |        | 699,247 |           |  |          | 450,345 |           |  |       | 470,029 |   |  |   | 54,737  |   |  |   | 1,674,358 |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|2001:                                          |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Net interest income                            |  | $      | 38,148  |           |  | $        | 31,143  |           |  | $     | 1,533   |   |  | $ | (18     | ) |  | $ | 70,806    |  
|Intersegment net interest income (expense)     |  |        | 1,111   |           |  |          | (7,628  | )         |  |       | 6,517   |   |  |   |        |   |  |   |          |  
|Provision for credit losses                    |  |        | 2,470   |           |  |          | 11,158  |           |  |       |        |   |  |   |        |   |  |   | 13,628    |  
|Net other operating expense                    |  |        | (9,175  | )         |  |          | (9,646  | )         |  |       | (12,859 | ) |  |   | (16,098 | ) |  |   | (47,778   | )
|Administrative and overhead expense allocation |  |        | (8,166  | )         |  |          | (5,231  | )         |  |       | (961    | ) |  |   | 14,358  |   |  |   |          |  
|Income tax expense (benefit)                   |  |        | 6,605   |           |  |          | (802    | )         |  |       | (1,931  | ) |  |   | (622    | ) |  |   | 3,250     |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Net income (loss)                              |  |        | 12,843  |           |  |          | (1,718  | )         |  |       | (3,839  | ) |  |   | (1,136  | ) |  |   | 6,150     |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  
|Total assets                                   |  |        | 785,310 |           |  |          | 457,465 |           |  |       | 312,514 |   |  |   | 30,751  |   |  |   | 1,586,040 |  
|                                               |  |        |         |           |  |          |         |           |  |       |         |   |  |   |         |   |  |   |           |  




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.




ITEM 9A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was carried
out under the supervision and with the participation of the Companys
management, including its Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of these disclosure
controls and procedures were effective as of the end of the period covered by
this report. In addition, no change in our internal control over financial
reporting (as defined in Rule 13(a)-15(f) under the Securities Exchange Act of
1934) occurred during the fourth quarter of our fiscal year ended December 31,
2003 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




PART III

Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement pursuant to Regulation
14A (the Proxy Statement) not later than 120 days after the end of the fiscal
year covered by this Report, and certain information included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by
reference.

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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the Companys directors and executive officers
required by this Item is incorporated by reference to the Companys Proxy
Statement.

The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby
incorporated by reference.

We have adopted a Code of Ethics for Senior Officers which applies to our
principal executive and financial officers. The full text of our Code of
Ethics for Senior Officers is published on our Investor Relations web site,
which can be accessed through www.citybankhawaii.com. We intend to disclose
future amendments to certain provisions of our Code of Ethics for Senior
Officers, or waivers of such provisions, on this web site within five business
days following the date of such amendment or waiver.




ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
Companys Proxy Statement.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
Companys Proxy Statement.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
Companys Proxy Statement.




ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference to the
Companys Proxy Statement.




PART IV




ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) FINANCIAL STATEMENTS AND SCHEDULES

The following consolidated financial statements of the Registrant and its
subsidiaries are included in Item 8:

Independent Auditors Report

Consolidated Balance Sheets - December 31, 2003 and 2002

Consolidated Statements of Income - For years ended December 31, 2003, 2002 and
2001

Consolidated Statements of Changes in Stockholders Equity and Comprehensive
Income (Loss) - For years ended December 31, 2003, 2002 and 2001

Consolidated Statement of Cash Flows - For years ended December 31, 2003, 2002
and 2001

Notes to the Consolidated Financial Statements

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(b) EXHIBITS

The following exhibits are filed as a part of, or incorporated by reference
into this Report:

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.1         |  | Articles of Incorporation of CB Bancshares, Inc., incorporated by
reference to Exhibit 3.1 filed with the Registrants
Registration Statement on Form S-4, Registration No. 33-72340.                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.2         |  | By-laws of CB Bancshares, Inc. (compilation)                                                                                                                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.0         |  | No instrument which defines the rights of holders of long-term debt, of
the registrant and all of its consolidated subsidiaries, is filed herewith
pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy of any such
instrument to the SEC upon request.                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.1         |  | Rights Agreement dated as of March 16, 1989, between CB Bancshares, Inc.
and City Bank, Rights Agent, incorporated by reference to Form 8-A, filed
on April 24, 1989 (File No. 0-12396).                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.2         |  | Amendment to Rights Agreement made as of June 21, 1989, incorporated by
reference to Form 8 Amendment No. 1 to Form 8-A, filed on July 11, 1989
(File No. 0-12396).                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.3         |  | Amendment No. 2 to Rights Agreement entered into as of August 15, 1990,
incorporated by reference to Form 8 Amendment No. 2 to Form 8-A, filed on
August 28, 1990 (File No. 0-12396).                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.4         |  | Amendment No. 3 to Rights Agreement entered into as of February 17, 1993,
incorporated by reference to Exhibit 4.4 to Form 8-A/A, Amendment No. 3,
filed on March 25, 1999.                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.5         |  | Amendment No. 4 to Rights Agreement entered into as of March 25, 1999,
incorporated by reference to Exhibit 4.5 to Form 8-A/A, Amendment No.3,
filed on March 25, 1999.                                                                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.6         |  | Amendment No. 5 to the Registrants existing Rights Agreement, dated as
of May 28, 2003, incorporated herein by reference to Exhibit 99.2 to the
Registrants Current Report on Form 8-K, filed May 29, 2003.                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.7         |  | Amendment No. 6 to the Registrants existing Rights Agreement, dated as
of July 23, 2003, incorporated by reference to Exhibit 99.2 to the
Registrants Current Report on Form 8-K, filed July 24, 2003.                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.8         |  | Rights Agreement, dated as of July 23, 2003 by and between CB Bancshares,
Inc. and City Bank, as Rights Agent, including the form of Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock attached as Exhibit A thereto and the form of Rights
Certificate attached as Exhibit B thereto incorporated herein by reference
to Exhibit 99.1 to the Companys Current Report on Form 8-K, filed July
24, 2003.
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.1        |  | Stock Compensation Plan, incorporated by reference to Exhibit A and B to
the Registrants Proxy Statement for the
January 25, 1995 Special Meeting of Shareholders, filed on December 9,
1995. *                                                                                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.2        |  | Form of Stock Option Agreement incorporated by reference to Exhibit 10.6
of Form 10-K filed on April 1, 1996. *                                                                                                                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.4        |  | Form of Change in Control Agreement is incorporated by reference to
Exhibit 99.2 of Form 8-K filed on April 18, 1996.                                                                                                                                                                                                                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.4.1      |  | Amendment to Change in Control Agreements incorporated herein by
reference to Exhibit 10.1 to the Companys Form 10-Q, filed on November
12, 2003.                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.5        |  | Agreement and Plan of Merger dated as of December 22, 1999, by and
between City Bank and International Savings and Loan Association, Limited,
is incorporated by reference to Exhibit 10.5 to the Registrants Form 10-K
filed on March 15, 2001.                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.6        |  | Advances, Security and Deposit Agreement dated as of May 20, 1999 by and
between City Bank, including its successors, and the Federal Home Loan
Bank of Seattle is incorporated by reference to Exhibit 10.6 to the
Registrants Form 10-K filed on March 15, 2001.                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.7        |  | Director Stock Option Plan, incorporated by reference to Exhibit 4 files
with the Registrants Registration Statement on Form
S-8, Registration No. 333-81279, filed on June 22, 1999. *                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.8        |  | Directors Deferred Compensation Plan effective April 29, 1999,
incorporated by reference to Exhibit 10.9 to the
Registrants Form 10-K
filed on March 15, 2000. *                                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.9        |  | Stock Purchase Agreement dated August 21, 2000, by and between City Bank
and Island Insurance Co., Ltd, is incorporated by reference to Exhibit
10.9 to the Registrants Form 10-K filed on March 15, 2001.                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.10       |  | Stock Purchase Agreement dated August 21, 2000, by and between City Bank
and the Trustees of the Hawaii Electricians Health and Welfare Fund is
incorporated by reference to Exhibit 10.10 to the Registrants Form 10-K
filed on March 15, 2001.                                                                                                                                                                                                         

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|            |  |                                                                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                           
|10.11       |  | Stock Purchase Agreement dated August 21, 2000, by and between City Bank
and the Trustees of the Hawaii Electricians Pension Fund is incorporated
by reference to Exhibit 10.11 to the Registrants Form 10-K filed on March
15, 2001.
|            |  |                                                                                                                                                                                                                                       
|10.12       |  | Supplemental Executive Retirement Agreement for Ronald K. Migita is
incorporated by reference to Exhibit 10.1 to the Registrants Form 10-Q
filed on August 13, 2002.                                                                 
|            |  |                                                                                                                                                                                                                                       
|10.13       |  | Supplemental Executive Retirement Agreement for Richard C. Lim is
incorporated by reference to Exhibit 10.2 to the Registrants Form 10-Q
filed on August 13, 2002.                                                                   
|            |  |                                                                                                                                                                                                                                       
|10.14       |  | Supplemental Executive Retirement Agreement for Dean K. Hirata is
incorporated by reference to Exhibit 10.3 to the Registrants Form 10-Q
filed on August 13, 2002.                                                                   
|            |  |                                                                                                                                                                                                                                       
|10.15       |  | Supplemental Executive Retirement Agreement for Warren K. Kunimoto is
incorporated by reference to Exhibit 10.4 to the Registrants Form 10-Q
filed on August 13, 2002.                                                               
|            |  |                                                                                                                                                                                                                                       
|10.16       |  | Supplemental Executive Retirement Agreement for Jasen H. Takei is
incorporated by reference to Exhibit 10.5 to the Registrants Form 10-Q
filed on August 13, 2002.                                                                   
|            |  |                                                                                                                                                                                                                                       
|10.17       |  | CB Bancshares, Inc. Executive Compensation Agreement for Ronald K.
Migita is incorporated by reference to Exhibit 10.1 filed with the
Registrants Form 10-Q filed on November 12, 2002.                                              
|            |  |                                                                                                                                                                                                                                       
|10.18       |  | Supplemental Executive Retirement Agreement for Douglas R. Weld is
incorporated by reference to Exhibit 10.2 to the Companys Form 10-Q,
filed on November 12, 2003.                                                                  
|            |  |                                                                                                                                                                                                                                       
|10.19       |  | Agreement between CB Bancshares, Inc. and TON Finance, B.V., dated as of
October 31, 2003, is incorporated by reference to Exhibit 99.1 to Form 8-K
filed on November 5, 2003.                                                        
|            |  |                                                                                                                                                                                                                                       
|16          |  | Letter re: change in certifying accountant, incorporated by reference to Exhibit 16 to Registrants Form 10-K filed on
March 15, 2000.                                                                                                
|            |  |                                                                                                                                                                                                                                       
|18          |  | Letter re: change in accounting principles, incorporated by reference to Exhibit 17 to Registrants Form 10-K filed on
March 15, 2000.                                                                                                
|            |  |                                                                                                                                                                                                                                       
|21          |  | Subsidiaries of the Registrant incorporated by reference to Exhibit 21 to Registrants Form 10-K filed on March 12, 2003.                                                                                                             
|            |  |                                                                                                                                                                                                                                       
|23          |  | Consent of experts and counsel.                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                       
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                
|            |  |                                                                                                                                                                                                                                       
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                                                                
|            |  |                                                                                                                                                                                                                                       
|32.1        |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                     
|            |  |                                                                                                                                                                                                                                       
|32.2        |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                    



|* |  | Management contract or compensatory plan or arrangement.
|- |  | --------------------------------------------------------

All other schedules are omitted because they are not applicable, not material,
or because the information is included in the financial statement or the notes
thereto.

(c) REPORTS ON FORM 8-K

On November 5, 2003, the Company filed a Current Report on Form 8-K under Item
5, Other Events.

On October 21, 2003, the Company filed a Current Report on Form 8-K under Item
7, Financial Statements and Exhibits (information furnished pursuant to Item
12, Disclosure of Results of Operations and Financial Condition).

58



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##### Table of Contents






SIGNATURES

Pursuant to the Requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                     |  |                                          
|-------------------- |  | -----------------------------------------
|Date: March 10, 2004 |  | CB BANCSHARES, INC.                      
|                     |  |                                          
|                     |  | /s/ Ronald K. Migita                     
|                     |  |                                          
|                     |  | Ronald K. Migita, President and          
|                     |  | Chief Executive Officer                  
|                     |  |                                          
|                     |  | /s/ Dean K. Hirata                       
|                     |  |                                          
|                     |  | Dean K. Hirata, Senior Vice President and
|                     |  | Chief Financial Officer / Treasurer      

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

|                                             |  |                                             
|-------------------------------------------- |  | --------------------------------------------
|Date: March 10, 2004                         |  |                                             
|                                             |  |                                             
|/s/ Donald J. Andres                         |  | /s/ Tomio Fuchu                             
|                                             |  |                                             
|Donald J. Andres, Director                   |  | Tomio Fuchu, Vice Chairman and Director     
|                                             |  |                                             
|/s/ Duane K. Kurisu                          |  | /s/ Colbert M. Matsumoto                    
|                                             |  |                                             
|Duane K. Kurisu, Director                    |  | Colbert M. Matsumoto, Director              
|                                             |  |                                             
|/s/ Ronald K. Migita                         |  | /s/Calvin K. Y. Say                         
|                                             |  |                                             
|Ronald K. Migita, President, Chief Executive |  | Calvin K. Y. Say, Director                  
|Officer and Director                         |  |                                             
|                                             |  |                                             
|/s/ Mike K. Sayama                           |  | /s/ Lionel Y. Tokioka                       
|                                             |  |                                             
|Mike K. Sayama, Director                     |  | Lionel Y. Tokioka, Chairman of the Board and
|                                             |  | Director                                    
|                                             |  |                                             
|/s/ Maurice H. Yamasato                      |  | /s/ Dwight L. Yoshimura                     
|                                             |  |                                             
|Maurice H. Yamasato, Director                |  | Dwight L. Yoshimura, Director               

59



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.1     |  | Articles of Incorporation of CB Bancshares, Inc., incorporated by reference to Exhibit 3.1 filed with the Registrants
Registration Statement on Form S-4, Registration No. 33-72340.                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3.2     |  | By-laws of CB Bancshares, Inc. (compilation)                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.0     |  | No instrument which defines the rights of holders of long-term debt, of
the registrant and all of its consolidated subsidiaries, is filed herewith
pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy of any such
instrument to the SEC upon request.                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.1     |  | Rights Agreement dated as of March 16, 1989, between CB Bancshares, Inc.
and City Bank, Rights Agent, incorporated by reference to Form 8-A, filed
on April 24, 1989 (File No. 0-12396).                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.2     |  | Amendment to Rights Agreement made as of June 21, 1989, incorporated by
reference to Form 8 Amendment No. 1 to Form 8-A, filed on July 11, 1989
(File No. 0-12396).                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.3     |  | Amendment No. 2 to Rights Agreement entered into as of August 15, 1990,
incorporated by reference to Form 8 Amendment No. 2 to Form 8-A, filed on
August 28, 1990 (File No. 0-12396).                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.4     |  | Amendment No. 3 to Rights Agreement entered into as of February 17, 1993,
incorporated by reference to Exhibit 4.4 to Form 8-A/A, Amendment No. 3,
filed on March 25, 1999.                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.5     |  | Amendment No. 4 to Rights Agreement entered into as of March 25, 1999,
incorporated by reference to Exhibit 4.5 to Form 8-A/A, Amendment No.3,
filed on March 25, 1999.                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.6     |  | Amendment No. 5 to the Registrants existing Rights Agreement, dated as
of May 28, 2003, incorporated herein by reference to Exhibit 99.2 to the
Registrants Current Report on Form 8-K, filed May 29, 2003.                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.7     |  | Amendment No. 6 to the Registrants existing Rights Agreement, dated as
of July 23, 2003, incorporated by reference to Exhibit 99.2 to the
Registrants Current Report on Form 8-K, filed July 24, 2003.                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.8     |  | Rights Agreement, dated as of July 23, 2003 by and between CB Bancshares,
Inc. and City Bank, as Rights Agent, including the form of Certificate of
Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock attached as Exhibit A thereto and the form of Rights
Certificate attached as Exhibit B thereto incorporated herein by reference
to Exhibit 99.1 to the Companys Current Report on Form 8-K, filed July
24, 2003.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.1    |  | Stock Compensation Plan, incorporated by reference to Exhibit A and B to
the Registrants Proxy Statement for the
January 25, 1995 Special Meeting of Shareholders, filed on December 9,
1995. *                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.2    |  | Form of Stock Option Agreement incorporated by reference to Exhibit 10.6
of Form 10-K filed on April 1, 1996. *                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.4    |  | Form of Change in Control Agreement is incorporated by reference to
Exhibit 99.2 of Form 8-K filed on April 18, 1996.                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.4.1  |  | Amendment to Change in Control Agreements incorporated herein by
reference to Exhibit 10.1 to the Companys Form 10-Q, filed on November
12, 2003.                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.5    |  | Agreement and Plan of Merger dated as of December 22, 1999, by and
between City Bank and International Savings and Loan Association, Limited,
is incorporated by reference to Exhibit 10.5 to the Registrants Form 10-K
filed on March 15, 2001.                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.6    |  | Advances, Security and Deposit Agreement dated as of May 20, 1999 by and
between City Bank, including its successors, and the Federal Home Loan
Bank of Seattle is incorporated by reference to Exhibit 10.6 to the
Registrants Form 10-K filed on March 15, 2001.                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.7    |  | Director Stock Option Plan, incorporated by reference to Exhibit 4 files
with the Registrants Registration Statement on Form
S-8, Registration No. 333-81279, filed on June 22, 1999. *                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.8    |  | Directors Deferred Compensation Plan effective April 29, 1999,
incorporated by reference to Exhibit 10.9 to the
Registrants Form 10-K
filed on March 15, 2000. *                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.9    |  | Stock Purchase Agreement dated August 21, 2000, by and between City Bank
and Island Insurance Co., Ltd, is incorporated by reference to Exhibit
10.9 to the Registrants Form 10-K filed on March 15, 2001.                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.10   |  | Stock Purchase Agreement dated August 21, 2000, by and between City Bank
and the Trustees of the Hawaii Electricians Health and Welfare Fund is
incorporated by reference to Exhibit 10.10 to the Registrants Form 10-K
filed on March 15, 2001.                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.11   |  | Stock Purchase Agreement dated August 21, 2000, by and between City Bank
and the Trustees of the Hawaii Electricians Pension Fund is incorporated
by reference to Exhibit 10.11 to the Registrants Form 10-K filed on March
15, 2001.                                                                                                                                                                                                                    

60



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##### Table of Contents



|        |  |                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                             
|        |  |                                                                                                                                                                                         
|10.12   |  | Supplemental Executive Retirement Agreement for Ronald K. Migita is
incorporated by reference to Exhibit 10.1 to the Registrants Form 10-Q
filed on August 13, 2002.                   
|        |  |                                                                                                                                                                                         
|10.13   |  | Supplemental Executive Retirement Agreement for Richard C. Lim is
incorporated by reference to Exhibit 10.2 to the Registrants Form 10-Q
filed on August 13, 2002.                     
|        |  |                                                                                                                                                                                         
|10.14   |  | Supplemental Executive Retirement Agreement for Dean K. Hirata is
incorporated by reference to Exhibit 10.3 to the Registrants Form 10-Q
filed on August 13, 2002.                     
|        |  |                                                                                                                                                                                         
|10.15   |  | Supplemental Executive Retirement Agreement for Warren K. Kunimoto is
incorporated by reference to Exhibit 10.4 to the Registrants Form 10-Q
filed on August 13, 2002.                 
|        |  |                                                                                                                                                                                         
|10.16   |  | Supplemental Executive Retirement Agreement for Jasen H. Takei is
incorporated by reference to Exhibit 10.5 to the Registrants Form 10-Q
filed on August 13, 2002.                     
|        |  |                                                                                                                                                                                         
|10.17   |  | CB Bancshares, Inc. Executive Compensation Agreement for Ronald K.
Migita is incorporated by reference to Exhibit 10.1 filed with the
Registrants Form 10-Q filed on November 12, 2002.
|        |  |                                                                                                                                                                                         
|10.18   |  | Supplemental Executive Retirement Agreement for Douglas R. Weld is
incorporated by reference to Exhibit 10.2 to the Companys Form 10-Q,
filed on November 12, 2003.                    
|        |  |                                                                                                                                                                                         
|10.19   |  | Agreement between CB Bancshares, Inc. and TON Finance, B.V., dated as of
October 31, 2003, is incorporated by reference to Exhibit 99.1 to Form 8-K
filed on November 5, 2003.          
|        |  |                                                                                                                                                                                         
|16      |  | Letter re: change in certifying accountant, incorporated by reference to Exhibit 16 to Registrants Form 10-K filed on
March 15, 2000.                                                  
|        |  |                                                                                                                                                                                         
|18      |  | Letter re: change in accounting principles, incorporated by reference to Exhibit 17 to Registrants Form 10-K filed on
March 15, 2000.                                                  
|        |  |                                                                                                                                                                                         
|21      |  | Subsidiaries of the Registrant incorporated by reference to Exhibit 21 to Registrants Form 10-K filed on March 12, 2003.                                                               
|        |  |                                                                                                                                                                                         
|23      |  | Consent of experts and counsel.                                                                                                                                                         
|        |  |                                                                                                                                                                                         
|31.1    |  | Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                  
|        |  |                                                                                                                                                                                         
|31.2    |  | Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.                                                                                  
|        |  |                                                                                                                                                                                         
|32.1    |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                      
|        |  |                                                                                                                                                                                         
|32.2    |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                      



|* |  | Management contract or compensatory plan or arrangement.
|- |  | --------------------------------------------------------

61