A Honolulu banking company is dissolving its thrift subsidiary in an effort to reduce expenses and placate regulators.

CB Bancshares is merging its International Savings and Loan Association subsidiary into its main bank, City Bank. The merger is expected to be completed in the first half of 1997.

The new bank will operate under the name City Bank, with $1.4 billion in assets.

As a result, Lionel Tokioka, president and chief executive of International, will lose his job of 10 years, according to the Associated Press. Mr. Tokioka, who had also served as chairman of the thrift until it was acquired by CB in 1994, will remain a director of CB.

CB officials did not return telephone calls, but said in a prepared statement that the merger would fulfill goals set in the company's long- term plan.

"It is apparent in the increasingly competitive Hawaiian market that combining our resources is essential to driving down costs," CB chairman and chief executive James M. Morita said in a prepared statement. "These steps are part of our continuing effort to improve operating efficiency while maintaining effective customer service in our local market."

CB is the third-largest banking company in the state, whose sluggish economy has been hit hard by a slowdown in tourism and new construction.

The merger of the two subsidiaries comes a few months after a failed attempt by New York City investment firm M.A. Schapiro & Co. to unseat two CB directors in a proxy battle. Investors led by M.A. Schapiro had criticized the company for its weak earnings and high expenses, particularly for salaries and so-called "golden parachutes." And they accused officials of nepotism and self-dealing.

The two directors, Caryn Morita, daughter of the chairman, and Robert Taira, were reelected with each receiving just over 60% of the vote.

The restructuring also follows a critical review by federal and state regulators, resulting in the bank signing a memorandum of understanding with the Federal Reserve Bank of San Francisco concerning the "management, operations, and structure of the company," according to CB's statement.

The agreement with regulators restricts CB from paying cash dividends, incurring debt, or redeeming stock without Fed approval.

The memorandum requires prior Fed approval for the bank to increase director and executive pay, and enter into acquisition or sale agreements.

Mr. Morita said in the statement that the merger plan, together with additional streamlining at the holding company, represent officials' efforts to address regulatory concerns while proceeding with the bank's own strategic plans.

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