Fitch Downgrades Central Pacific Bank to 'CCC'

Fitch Ratings has downgraded the long-term Issuer Default Rating (IDR) of Central Pacific Bank, the bank subsidiary Central Pacific Financial (CPF), to 'CCC' from 'B'. The ratings of CPF are unaffected by this action and the IDR remains at 'CCC'. A list of ratings affected by this action appears at the end of this release.

The downgrade of Central Pacific Bank's ratings reflects the significant escalation of credit problems in both its California and Hawaii loan portfolios. While Fitch expected the company to endure increased credit stress in its Hawaii portfolio, as well as in its still sizeable exposure to California commercial real estate, the recent level of deterioration exceeded Fitch's original projections. Credit deterioration, which is not expected to abate in the near-term, has generated sizeable losses and caused considerable erosion to the bank's capital position. Fitch believes that the company will continue to generate material losses, which will continue to erode capital and reduce the benefit of any potential capital augmentation. Further, due to the heightened level of credit stress and the erosion of capital, the bank is expected to consent to a formal enforcement action with the FDIC and its state regulator, with directives focused on capital, asset quality, and liquidity. Existing regulatory agreements call for Central Pacific Bank to maintain enhanced capital levels that exceed the minimum regulatory requirements to be considered 'well-capitalized', specifically maintaining a leverage ratio of 9%, which the bank is now in violation.

CPF continues to explore all public and private means to boost capital and comply with its enhanced capital requirements. Nonetheless, Fitch believes the prospects for raising sufficient equity from external sources to absorb expected losses and to meet enhanced regulatory capital requirements are limited. Should the company be unable to raise the necessary capital and losses continue to diminish the company's capital base, Fitch would likely take further negative rating actions.

Fitch assigns Recovery Ratings to individual security issues where the IDR of the issuer is rated in the single-B or below category. As such, Fitch has assigned a Recovery Rating of 'RR3' to the uninsured long-term deposits of Central Pacific Bank, which implies a recovery between 51%-70%, on these instruments in the event of failure or default by the issuer, and a 'RR6' to the preferred and trust preferred securities of CPF, which implies recovery between 0%-10%.

CPF is a $5.2 billion banking company headquartered in Honolulu, HI. CPF provides a full range of traditional commercial consumer and banking services. Through its bank subsidiary, Central Pacific Bank, the company operates 39 branches through-out Hawaii.

Fitch has taken the following rating actions:

Central Pacific Bank

--Long-term IDR downgraded to 'CCC' from 'B';

--Long-term Deposit downgraded to 'B-/RR3' from 'B/RR3';

--Individual downgraded to 'E' from 'D/E';

--Short-term IDR downgraded to 'C' from 'B';

--Short-term Deposit affirmed at 'B';

--Support affirmed at '5';

--Support Floor affirmed at 'No Floor'.

Additional information is available at ' www.fitchratings.com'. The issuer did not participate in the rating process other than through the medium of its public disclosure.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.