Credit note upgrade: !3.64
Fitch Upgrades Central Pacific Financial's IDR to 'B+'; Outlook Positive
Last update: 5/20/2011 9:44:00 AM
NEW YORK, May 20, 2011 (BUSINESS WIRE) -- Fitch Ratings has upgraded the long-term Issuer Default Ratings (IDRs) of Central Pacific Financial Corp. (CPF) and its banking subsidiary, Central Pacific Bank to 'B+' from 'B-'. Fitch has also withdrawn the 'F' Individual rating assigned to both entities and assigned a new Individual rating of 'D'. The Rating Outlook is Positive. A complete list of ratings follows at the end of this release.
The upgrade of CPF's IDR reflects the considerable enhancement of its capital position, reduction in problem credits, as well as the company's return to profitability. CPF's capital raise in February 2011 significantly bolstered its regulatory capital position. With Tier 1 Leverage and Total Capital ratios at March 31, 2011 of 12.64% and 22.67%, respectively, the company's capital ratios significantly exceed the enhanced levels (10% Tier 1 Leverage ratio and 12% Total Risk-Based ratio) previously required by the Consent Order with the FDIC and the Hawaii Division of Financial Services, which was lifted on May 11, 2011 and replaced with a less restrictive Memorandum of Understanding (MOU). Notably, the new MOU reduces the required Tier 1 leverage ratio standard at the bank subsidiary to 8% and removed the enhanced requirement for the Total Risk-Based ratio. That said, Fitch views CPF's significantly replenished capital position as necessary against the remaining risk on its balance sheet.
CPF has significantly reduced problem assets, with NPAs down over 40% from a year ago and while non-performing assets are still elevated at 13.14% and commercial real estate remains a significant concentration, the loss content in the portfolio has been materially reduced and was a key driver of the company's return to profitability during 1Q'11.
The Positive Outlook mainly reflects that the company's current capital and reserve base should be sufficient to absorb expected future losses in the portfolio. For CPF's ratings to move higher, the company will still need to make considerable strides toward reducing problem credits, as well as demonstrate sustained profitability and maintain an enhanced capital base, a scenario Fitch believes is possible over the next 12 to 18 months. However, if credit problems persist causing the company to incur losses of a magnitude that starts to materially erode its capital position, CPF's ratings would face downward pressure.
The withdrawal of the 'F' Individual rating (assigned Feb. 23, 2011) reflects the temporary nature of the rating (as per Fitch's Global Financial Institutions Rating Criteria), and was assigned to signify a company that has defaulted or in Fitch's opinion CPF would have defaulted if it had not received some form of external support namely the capital infusion and the U.S. Treasury's willingness to convert its $135 million of CPP preferred stock into common shares on a discounted basis to facilitate the recapitalization. The assignment of the 'D' Individual rating is Fitch's assessment of the company on a standalone basis following its recapitalization.
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'. Fitch has also maintained a 'RR6' Recovery Rating on these issues, as Fitch's recovery analysis still indicates recovery prospects below 10%.
Headquartered in Honolulu, HI, CPF operates 34 branches. As of March 31, 2011, CPF had almost $4 billion in assets.
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