May 16, 2012 / 2:35 PM / 8 years ago

TEXT-Fitch raises Central Pacific Corp rating

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).
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