May 16 - Fitch Ratings has upgraded the long-term Issuer Default Rating (IDR) of Central Pacific Corp. (CPF) and its banking subsidiary, Central Pacific (CPB), to 'BB-' from 'B+' due to solid capital levels for its rating, improving asset quality trends, and a resilient local economy. The Rating Outlook is Stable. A detailed list of affected ratings follows at the end of this release. CPF's ratings upgrade reflects its sustained enhanced capital levels that help to mitigate declining but still elevated non-performing assets (NPAs). Its tangible common equity ratio of 10.6% at 1Q'12 relative to its credit risk profile is consistent with other 'BB-' rated companies. CPF's ratio of non-performing loans to tangible common equity and reserves stood at 35% at 1Q12. CPB is still subject to an eight percent minimum Tier 1 Leverage ratio pursuant to a Memorandum of Understanding (MOU) with regulators, which is easily satisfied by the 13.3% Tier 1 Leverage ratio at the bank. Despite elevated capital levels, CPF cannot pay dividends until it receives regulatory approval due to the MOU. CPF realized significant declines in year over year NPAs, net charge-offs (NCOs), and NPL inflows. Management continues to de-risk its balance sheet by significantly reducing exposure to both construction and development loans and California real estate. Although problem credits are still higher than historical averages, credit risk improved enough for the company to take five consecutive negative quarterly loss provisions despite being under a MOU with state and federal regulators. Remaining loan loss reserves represent 70 percent of impaired loans, which is slightly better than other similarly rated companies. Earnings have improved but remain weak. Pre-provision net income was negative in 2011 due to non-recurring charges, but rose to $8.5 million in the first quarter of 2012. Earnings have been augmented by negative credit loss provisions over the past five quarters. Additionally, CPF realized $9.9 million in income in 2011 from deferred tax asset (DTA) reserve releases. Fitch expects CPF to continue to release DTA reserves during 2012 due to improving asset quality. This should lead to positive earnings in 2012. CPF, whose bank branches are located in Hawaii, should benefit from the relative strength of the local economy compared to the U.S. economy. For the past decade, Hawaii's unemployment rate has been approximately 200bps lower than U.S. unemployment rate. Similarly, mortgage delinquencies have trailed U.S. mortgage delinquency rates by approximately 200bps. When coupled with favorable trends in tourism, this should benefit future profitability. U.S. Treasury sold remaining common stock held in CPF which exited the Troubled Assets Relief Program (TARP) during in 2012. The U.S. Treasury procured the common stock in February 2011 when they exchanged preferred stock and unpaid dividends for common stock upon the completion of CPF's $325 million capital raise. Continued improvement in asset quality metrics, core earnings and payment of preferred dividends in arrears could result in positive ratings momentum for CPF. However, in the near term, the level and trend of core earnings could be difficult to overcome due to weak efficiency ratios. Deteriorating asset quality trends or a significant economic slowdown in Hawaii could negatively pressure CPF's current ratings. The ratings on CPF's trust preferred securities remain at 'C' given that these issues remain in deferral status. Until CPF begins to pay dividends on its trust preferred securities and the deferred dividends are brought current, the ratings on these issues will remain at 'C'. Central Pacific Financial Corp., a Hawaii based bank holding company, is a $4.2 billion FDIC insured bank. The bank and its subsidiaries offers full-service commercial banking with 34 bank branches and 120 ATMs located throughout the Hawaii. Fitch rates Central Pacific Financial Corp as follows: --Long-term Issuer Default Rating (IDR) upgraded to 'BB-' from 'B+'; Outlook Stable; --Short-term IDR affirmed 'B'; --Viability rating upgraded to 'bb-' from 'b+'; --Support Rating Floor affirmed at 'NF'; --Support affirmed at '5'. Central Pacific Bank --Long-term IDR upgraded to 'BB-' from 'B+'; Outlook Stable; --Long-term deposits upgraded to 'BB' from 'BB-/RR3'; --Short-term IDR affirmed at 'B'; --Short-term deposits affirmed at 'B'; --Viability rating upgraded to 'bb-' from 'b+'; --Support Rating Floor affirmed at 'NF'; --Support Rating affirmed at '5'. CPB Capital Trust I, II & IV CPB Statutory Trust III & V --Trust Preferred Securities affirmed at 'C' (formerly C/RR6).