Central Pacific Financial Corp. Reports Operating Results (10-Q)

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Nov 05, 2010
Central Pacific Financial Corp. (CPF, Financial) filed Quarterly Report for the period ended 2010-09-30.

Central Pacific Financial Corp. has a market cap of $45.2 million; its shares were traded at around $1.48 with and P/S ratio of 0.2. CPF is in the portfolios of Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

On November 4, 2010, we announced that CPF has entered into definitive agreements with affiliates of The Carlyle Group and Anchorage Capital Group, L.L.C. (collectively, the “Lead Investors”) pursuant to which each Lead Investor agreed to invest approximately $98 million in common stock of the Company. This investment is part of an expected aggregate $325 million capital raise by the Company from institutional and other investors. The closing of each Lead Investor s investment is conditioned upon the Company raising the remaining $130 million from other investors and exchanging its TARP preferred stock for common stock and amending its TARP warrant on specified terms. The closing is further conditioned on, among other things, receipt of requisite regulatory approvals and the Company s receipt of approval from the NYSE to issue the common stock in the capital raise in reliance on the shareholder approval exception set forth in Section 312.05 of the NYSE listed company manual (or, in the event that the NYSE does not provide such approval, receipt of shareholder approval of the issuance of common stock in the capital raise). The Company also plans to conduct a $20 million rights offering after the closing of the capital raise that will allow current shareholders or their transferees to purchase shares of common stock at the same purchase price per share as the Lead Investors. There is no assurance that we will be able to satisfy all the closing conditions and successfully complete the capital raise.

At December 31, 2009, we used a weighted-average discount rate of 5.9% and an expected long-term rate of return on plan assets of 8.0%, which affected the amount of pension liability recorded as of year-end 2009 and the amount of pension expense to be recorded in 2010. For both the discount rate and the asset return rate, a range of estimates could reasonably have been used which would affect the amount of pension expense and pension liability recorded. A 0.25% change in the discount rate assumption would impact 2010 pension expense by less than $0.1 million and year-end 2009 pension liability by $0.8 million, while a 0.25% change in the asset return rate would impact 2010 pension expense by less than $0.1 million.

During the third quarter of 2010, we reported a net loss of $72.5 million, or $2.46 per diluted share, compared to a net loss of $16.1 million, or $0.60 per diluted share, reported in the second quarter of 2010 and a net loss of $183.1 million, or $6.38 per diluted share, reported in the third quarter of 2009. The net loss for the third quarter of 2010 included a provision for loan and lease losses of $79.9 million, compared to $20.4 million in the second quarter of 2010 and $142.5 million in the third quarter of 2009. The current quarter s Provision reflects an increase to the Allowance at September 30, 2010 related to our commercial and residential mortgage portfolios.

The net loss for the first nine months of 2010 was $248.9 million, compared to a net loss of $215.0 million for the comparable prior year period. The net loss recognized for the first nine months of 2010 included a non-cash goodwill impairment charge of $102.7 million.

The following table presents annualized returns on average assets, average shareholders equity, average tangible equity and basic and diluted earnings per share for the periods indicated. Average tangible equity is calculated as average shareholders equity less average intangible assets, which includes goodwill, core deposit premium, customer relationships and non-compete agreements. Average intangible assets were $23.1 million and $57.3 million for the three and nine months ended September 30, 2010, respectively, and $178.1 million and $179.2 million for the comparable prior year periods.

Historically, real estate lending has been a primary focus for us, including construction, residential mortgage and commercial mortgage loans. As a result, we are dependent on the strength of Hawaii s real estate market. According to the Honolulu Board of Realtors, Oahu unit sales volume increased 20.4% for single-family homes and 21.4% for condominiums for the nine months ended September 2010 compared to the nine months ended September 2009. The median sales price for single-family homes on Oahu for the nine months ended September 2010 was $599,000, representing an increase of 4.2% from the prior year. The median sales price for condominiums on Oahu for the nine months ended September 2010 remained unchanged from the prior year at $305,000. Expectations from local real estate experts and economists are for the Hawaii real estate market to show improvement during the remainder of 2010, however, there is no assurance that this will occur. As part of our plans to reduce our credit risk exposure, we have taken and will continue to take, steps to reduce certain sectors of our commercial real estate and construction loan portfolios. We ceased commercial real estate lending on the Mainland in April 2008, limited commercial real estate lending in Hawaii starting in January 2009 and have not made any new construction loans in Hawaii since June 2009. In addition, as part of the recovery plan, we continue to look for opportunities to sell certain real estate secured assets both in Hawaii and on the Mainland.

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