Edgar Filing: CENTRAL PACIFIC FINANCIAL CORP

form424b3.htm

Filed Pursuant to Rule 424(b)(3)

Registration Statement No. 333-172480

PROSPECTUS SUPPLEMENT

(To Prospectus dated April 12, 2011)

Up to 18,487,715 Shares of Common Stock

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RECENT DEVELOPMENTS

We have attached to this prospectus supplement, and incorporated by reference into it, our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on May 13, 2011, our Current Report on Form 8-K filed with the SEC on May 12, 2011, our Current Report on Form 8-K filed with the SEC on May 10, 2011, our Current Report on Form 8-K filed with the SEC on April 29, 2011 and our Current Report on Form 8-K filed with the SEC on April 21, 2011.

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May 13, 2011

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

______________________

FORM 10-Q

______________________

(Mark One)

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

£	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 0-10777

CENTRAL PACIFIC FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Hawaii	99-0212597
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

220 South King Street, Honolulu, Hawaii 96813

(Address of principal executive offices) (Zip Code)

(808) 544-0500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £

Accelerated filer £

Non-accelerated filer £

Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

The number of shares outstanding of registrant’s common stock, no par value, on April 29, 2011 was 39,649,510 shares.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Table of Contents

Part I.	Financial Information

Item I.	Financial Statements (Unaudited)

	Consolidated Balance Sheets March 31, 2011 and December 31, 2010

	Consolidated Statements of Operations Three months ended March 31, 2011 and 2010

	Consolidated Statements of Cash Flows Three months ended March 31, 2011 and 2010

	Notes to Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Item 4.	Controls and Procedures

Part II.	Other Information

Item 1.	Legal Proceedings

Item 1A.	Risk Factors

Item 6.	Exhibits

Signatures

Exhibit Index

PART I. FINANCIAL INFORMATION

Forward-Looking Statements

This document may contain forward-looking statements concerning projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items, concerning plans and objectives of management for future operations, concerning future economic performance, or concerning any of the assumptions underlying or relating to any of the foregoing. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and may include the words “believes”, “plans”, “intends”, “expects”, “anticipates”, “forecasts” or words of similar meaning. While we believe that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions are by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect. Accordingly, actual results could materially differ from projections for a variety of reasons, to include, but not limited to: the impact of local, national, and international economies and events (including natural disasters such as wildfires, tsunamis and earthquakes) on the Company’s business and operations and on tourism, the military, and other major industries operating within the Hawaii market and any other markets in which the Company does business; the impact of regulatory actions on the Company including the Bank MOU (as defined below) which replaced the Consent Order (as defined below) by the Federal Deposit Insurance Corporation and the Hawaii Division of Financial Institutions and the BSA MOU (as defined below); the impact of legislation affecting the banking industry (including the Emergency Economic Stabilization Act of 2008 and the Dodd-Frank Wall Street Reform and Consumer Protection Act); the impact of competitive products, services, pricing, and other competitive forces; movements in interest rates; loan delinquency rates and changes in asset quality; volatility in the financial markets and uncertainties concerning the availability of debt or equity financing; and a general deterioration or malaise in economic conditions, including the continued destabilizing factors in the financial industry and continued deterioration of the real estate market, as well as the impact of levels of consumer and business confidence in the state of the economy and in financial institutions in general and in particular our bank. For further information on factors that could cause actual results to materially differ from projections, please see the Company’s publicly available Securities and Exchange Commission filings, including the Company’s Form 10-K for the last fiscal year. The Company does not update any of its forward-looking statements.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

	March 31,			December 31,
	2011			2010
	(Dollars in thousands)
Assets
Cash and due from banks	$	63,687		$	61,725
Interest-bearing deposits in other banks		537,495			729,014
Investment securities:
Available for sale, at fair value		1,076,181			702,517
Held to maturity (fair value of $2,009 at March 31, 2011 and $2,913 at December 31, 2010)		1,943			2,828
Total investment securities		1,078,124			705,345

Loans held for sale		54,093			69,748

Loans and leases		2,067,302			2,169,444
Less allowance for loan and lease losses		178,010			192,854
Net loans and leases		1,889,292			1,976,590

Premises and equipment, net		55,977			57,390
Accrued interest receivable		11,461			11,279
Investment in unconsolidated subsidiaries		13,950			14,856
Other real estate		56,601			57,507
Other intangible assets		44,498			44,639
Bank-owned life insurance		142,000			142,296
Federal Home Loan Bank stock		48,797			48,797
Income tax receivable		2,353			2,223
Other assets		15,070			16,642
Total assets	$	4,013,398		$	3,938,051

Liabilities and Equity
Deposits:
Noninterest-bearing demand	$	678,007		$	611,744
Interest-bearing demand		528,533			639,548
Savings and money market		1,120,272			1,089,813
Time		818,651			791,842
Total deposits		3,145,463			3,132,947

Short-term borrowings		1,423			202,480
Long-term debt		409,299			459,803
Other liabilities		62,231			66,766
Total liabilities		3,618,416			3,861,996

Equity:
Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding
none at March 31, 2011 and 135,000 shares at December 31, 2010		-			130,458
Common stock, no par value, authorized 185,000,000 shares, issued and outstanding
39,649,052 shares at March 31, 2011 and 1,527,000 shares at December 31, 2010		764,463			404,167
Surplus		63,436			63,308
Accumulated deficit		(428,780	)		(517,316	)
Accumulated other comprehensive loss		(14,135	)		(14,565	)
Total shareholders' equity		384,984			66,052
Non-controlling interest		9,998			10,003
Total equity		394,982			76,055
Total liabilities and equity	$	4,013,398		$	3,938,051

See accompanying notes to consolidated financial statements.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	Three Months Ended March 31,
(Amounts in thousands, except per share data)	2011			2010

Interest income:
Interest and fees on loans and leases	$	28,566		$	37,312
Interest and dividends on investment securities:
Taxable interest		5,221			8,101
Tax-exempt interest		184			515
Dividends		3			3
Interest on deposits in other banks		389			330
Total interest income		34,363			46,261
Interest expense:
Interest on deposits:
Demand		132			258
Savings and money market		732			1,649
Time		2,377			3,981
Interest on short-term borrowings		204			189
Interest on long-term debt		2,717			5,115
Total interest expense		6,162			11,192
Net interest income		28,201			35,069
Provision (credit) for loan and lease losses		(1,575	)		58,837
Net interest income (loss) after provision for loan and lease losses		29,776			(23,768	)

Other operating income:
Service charges on deposit accounts		2,614			3,207
Other service charges and fees		4,058			3,485
Income from fiduciary activities		761			811
Equity in earnings of unconsolidated subsidiaries		127			29
Fees on foreign exchange		137			156
Investment securities gains		-			831
Loan placement fees		102			85
Net gain on sales of residential loans		2,198			1,945
Income from bank-owned life insurance		1,190			1,184
Other		1,313			1,031
Total other operating income		12,500			12,764
Other operating expense:
Salaries and employee benefits		15,033			14,836
Net occupancy		3,358			3,297
Equipment		1,130			1,477
Amortization of other intangible assets		1,547			1,408
Communication expense		881			1,212
Legal and professional services		2,460			5,650
Computer software expense		883			903
Advertising expense		836			839
Goodwill impairment		-			102,689
Foreclosed asset expense		2,242			5,532
Write down of assets		1,565			774
Other		7,702			10,598
Total other operating expense		37,637			149,215

Income (loss) before income taxes		4,639			(160,219	)
Income tax expense		-			-
Net income (loss)		4,639			(160,219	)
Preferred stock dividends, accretion of discount and conversion of preferred stock to common stock		(83,897	)		2,074
Net income (loss) available to common shareholders	$	88,536		$	(162,293	)

Per common share data:
Basic earnings (loss) per share	$	4.59		$	(107.23	)
Diluted earnings (loss) per share		4.58			(107.23	)
Shares used in computation:
Basic shares		19,301			1,513
Diluted shares		19,321			1,513
See accompanying notes to consolidated financial statements.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Three Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)	$	4,639		$	(160,219	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision (credit) for loan and lease losses		(1,575	)		58,837
Depreciation and amortization		1,757			2,062
Goodwill impairment		-			102,689
Write down of assets		1,565			774
Write down of other real estate, net of gain on sale		534			5,532
Amortization of other intangible assets		1,547			1,408
Net amortization of investment securities		1,433			812
Share-based compensation		128			284
Net gain on investment securities		-			(831	)
Deferred income tax expense		-			2,439
Net gain on sales of residential loans		(2,198	)		(1,945	)
Proceeds from sales of loans held for sale		196,043			262,534
Originations of loans held for sale		(179,824	)		(216,694	)
Equity in earnings of unconsolidated subsidiaries		(127	)		(29	)
Increase in cash surrender value of bank-owned life insurance		(1,190	)		(1,030	)
Decrease (increase) in income tax receivable		(130	)		862
Net change in other assets and liabilities		1,843			3,441
Net cash provided by operating activities		24,445			60,926
Cash flows from investing activities:
Proceeds from maturities of and calls on investment securities available for sale		114,515			131,753
Proceeds from sales of investment securities available for sale		-			439,436
Purchases of investment securities available for sale		(488,616	)		(98,068	)
Proceeds from maturities of and calls on investment securities held to maturity		880			461
Net loan principal repayments		82,376			71,082
Proceeds from sales of loans originated for investment		-			37,950
Proceeds from sale of other real estate		6,948			7,664
Proceeds from bank-owned life insurance		158			-
Purchases of premises and equipment		(344	)		(222	)
Distributions from unconsolidated subsidiaries		523			710
Contributions to unconsolidated subsidiaries		-			(227	)
Net cash provided by (used in) investing activities		(283,560	)		590,539
Cash flows from financing activities:
Net increase (decrease) in deposits		12,516			(233,878	)
Proceeds from long-term debt		-			50,000
Repayments of long-term debt		(50,218	)		(50,284	)
Net decrease in short-term borrowings		(201,057	)		(40,355	)
Net proceeds from issuance of common stock and stock option exercises		308,317			-
Other, net		-			37
Net cash provided by (used in) financing activities		69,558			(274,480	)
Net increase (decrease) in cash and cash equivalents		(189,557	)		376,985
Cash and cash equivalents at beginning of period		790,739			488,367
Cash and cash equivalents at end of period	$	601,182		$	865,352

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	6,365		$	11,276
Income taxes		7			-
Cash received during the period for:
Income taxes		-			1,068
Supplemental disclosure of noncash investing and financing activities:
Net change in common stock held by directors' deferred compensation plan	$	16		$	6
Net reclassification of loans to other real estate		6,575			17,364
Net transfer of loans to loans held for sale		-			17,724
Dividends accrued on preferred stock		969			1,742
Accretion of preferred stock discount		204			332
Preferred stock and accrued unpaid dividends converted to common stock		142,988			-
Common stock received in exchange for preferred stock and accrued unpaid dividends		56,201			-

See accompanying notes to consolidated financial statements.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Central Pacific Financial Corp. and Subsidiaries (herein referred to as the “Company,” “we,” “us” or “our”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These interim condensed consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed on Form 10-K for the fiscal year ended December 31, 2010. In the opinion of management, all adjustments necessary for a fair presentation have been made and include all normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the year.

As discussed in our 2010 Form 10-K and our independent auditor’s report dated February 9, 2011, at the time of the filing of our 2010 Form 10-K, there was substantial doubt about our ability to continue as a going concern. Since the filing of our 2010 Form 10-K, we have completed a number of significant milestones as part of our recovery plan. Upon completion of these milestones, which are described more fully below, substantial doubt about our ability to continue as a going concern no longer exists as of the end of the period covered by this report.

2. REGULATORY MATTERS AND RECOVERY PLAN PROGRESS

While economic conditions have shown recent signs of stabilization and we successfully completed our capital raise and recapitalization, we continue to operate in a difficult environment. Deterioration in the Hawaii and California commercial real estate markets and related declines in property values in those markets has negatively impacted our operating results since the latter half of 2007.

Regulatory Matters

In May 2011, the members of the Board of Directors of the bank entered into a Memorandum of Understanding (the “Bank MOU”) with the Federal Deposit Insurance Corporation (the “FDIC”) and the Hawaii Division of Financial Institutions (the “DFI”), effective May 5, 2011, which replaced the Consent Order (the “Consent Order”) the Board of Directors of the bank agreed to with the FDIC and DFI in December 2009. The termination of the Consent Order was effective May 11, 2011. The Bank MOU continues a number of the same requirements previously required by the Consent Order, including the maintenance of an adequate allowance for loan and lease losses, improvement of our asset quality, limitations on credit extensions, maintenance of qualified management and the prohibition on cash dividends to Central Pacific Financial Corp. (“CPF”), among other matters. In addition, the Bank MOU requires the bank to further reduce classified assets below the level previously required by the Consent Order. The Bank MOU lowers the minimum leverage capital ratio that the bank is required to maintain from 10% in the Consent Order to 8% and does not mandate a minimum total risk-based capital ratio.

In addition, on July 2, 2010, we entered into a Written Agreement (the “Agreement”) with the Federal Reserve Bank of San Francisco (the “FRBSF”) and DFI. For the most part, the Agreement continues and formalizes the terms of the Memorandum of Understanding that the Company entered into on April 1, 2009 with the FRBSF and DFI, and the Agreement supersedes that Memorandum of Understanding in its entirety. Among other matters, the Agreement provides that unless we receive the consent of the FRBSF and DFI, we cannot: (i) pay dividends; (ii) receive dividends or payments representing a reduction in capital from Central Pacific Bank; (iii) directly or through any non-bank subsidiaries make any payments on subordinated debentures or trust preferred securities; (iv) directly or through any non-bank subsidiaries incur, increase or guarantee any debt; or (v) purchase or redeem any shares of our stock. The Agreement also requires that our Board of Directors fully utilize the Company’s financial and managerial resources to ensure that the bank complies with the Consent Order and any other supervisory action taken by the bank’s regulators. Additionally, we were required to submit to the FRBSF an acceptable capital plan and cash flow projection.

In February 2011, we also entered into a Memorandum of Understanding (the “BSA MOU”) with the FDIC and DFI relating to the Bank Secrecy Act (the “BSA”). Under the BSA MOU, we are required to (i) fully comply with the BSA and anti-money laundering requirements, (ii) implement a plan to ensure such compliance, including improving and maintaining an adequate system of internal controls, bolstering policies on customer due diligence, providing for comprehensive independent testing to validate compliance and maintaining an adequate compliance staff, (iii) correct all deficiencies identified by our regulators and (iv) provide them with progress reports.

The requirements and restrictions of the Bank MOU, the Agreement and the BSA MOU are judicially enforceable and the Company or the bank's failure to comply with such requirements and restrictions may subject the Company and the bank to additional regulatory restrictions including: the imposition of civil monetary penalties; the termination of insurance of deposits; the issuance of removal and prohibition orders against institution-affiliated parties; the appointment of a conservator or receiver for the bank; the issuance of directives to increase capital or enter into a strategic transaction, whether by merger or otherwise, with a third party, if we again fall below the capital ratio requirement; and the enforcement of such actions through injunctions or restraining orders.

Recovery Plan Progress

As previously disclosed, we adopted and implemented a recovery plan in March 2010 to improve our financial health by completing a significant recapitalization, reducing our credit risk exposure and focusing on our core businesses and traditional markets in Hawaii.

As of March 31, 2011, we have accomplished a number of key milestones in our recovery plan, including:

On February 18, 2011, we successfully completed a $325 million capital raise from accredited investors in a private placement (the “Private Placement”). Concurrently with the completion of the Private Placement, we exchanged our TARP preferred stock and accrued and unpaid dividends thereon for common stock (the “TARP Exchange”).

Significantly improved our tier 1 risk-based capital, total risk-based capital, and leverage capital ratios as of March 31, 2011 to 21.34%, 22.67%, and 12.64%, respectively, from 7.64%, 8.98%, and 4.42%, respectively, as of December 31, 2010. The Company’s capital ratios currently exceed the minimum levels previously required by the Consent Order and the minimum level required by the Bank MOU and are above the levels required for a “well-capitalized” regulatory designation.

·	We reported net income in the first quarter of 2011 of $4.6 million, compared to net losses in the first and fourth quarters of 2010 of $160.2 million and $2.1 million, respectively.

·	We reduced nonperforming assets by $18.0 million to $284.9 million at March 31, 2011 from $302.8 million at December 31, 2010 primarily through loan pay downs and charge-offs.

We reduced our construction and development loan portfolio (excluding owner-occupied loans) by approximately $41.7 million, or 13.9%, from $299.9 million at December 31, 2010. Construction and development loans (excluding owner-occupied loans) as a percentage of our total loan portfolio was 12.5% at March 31, 2011, compared to 13.8% at December 31, 2010.

We had an allowance for loan and lease losses as a percentage of total loans and leases of 8.61% at March 31, 2011, compared to 8.89% at December 31, 2010. In addition, we had an allowance for loan and lease losses as a percentage of nonperforming assets of 62.49% at March 31, 2011, compared to 63.69% at December 31, 2010.

·	We had cash and cash equivalents totaling $601.2 million at March 31, 2011, compared to $790.7 million at December 31, 2010.

·	We reduced total outstanding borrowings with the Federal Home Loan Bank of Seattle (the “FHLB”) to $301.0 million at March 31, 2011 from $551.3 million at December 31, 2010.

·	On May 9, 2011, we announced that our rights offering is fully subscribed. Total gross proceeds to us from the rights offering will be approximately $20 million.

3. RECENT ACCOUNTING PRONOUNCEMENTS

In July 2010, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2010-20, Receivables (Topic 310), Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires a greater level of disaggregated information about the credit quality of loan and leases and the allowance for loan and lease losses. This ASU also requires additional disclosures related to past due information, credit quality indicators and information related to loans modified in a troubled debt restructuring. We adopted this ASU effective January 1, 2011 and the adoption of this statement did not have a material impact on our consolidated financial statements.

4. INVESTMENT SECURITIES

A summary of available for sale and held to maturity investment securities are as follows:

			Gross		Gross
	Amortized		unrealized		unrealized			Estimated
	cost		gains		losses			fair value
	(Dollars in thousands)
March 31, 2011
Available for Sale
U.S. Government sponsored entities debt securities	$	331,345	$	249	$	(1,050	)	$	330,544
States and political subdivisions		12,530		-		-			12,530
U.S. Government sponsored entities mortgage-backed securities		727,303		7,563		(2,804	)		732,062
Non-agency collateralized mortgage obligations		17		-		-			17
Other		1,008		20		-			1,028
Total	$	1,072,203	$	7,832	$	(3,854	)	$	1,076,181

Held to Maturity
U.S. Government sponsored entities mortgage-backed securities	$	1,943	$	66	$	-		$	2,009

December 31, 2010
Available for Sale
U.S. Government sponsored entities debt securities	$	202,192	$	306	$	(643	)	$	201,855
States and political subdivisions		12,619		-		-			12,619
U.S. Government sponsored entities mortgage-backed securities		483,647		6,653		(3,336	)		486,964
Non-agency collateralized mortgage obligations		17		-		-			17
Other		1,057		5		-			1,062
Total	$	699,532	$	6,964	$	(3,979	)	$	702,517

Held to Maturity
States and political subdivisions	$	500	$	4	$	-		$	504
U.S. Government sponsored entities mortgage-backed securities		2,328		81		-			2,409
Total	$	2,828	$	85	$	-		$	2,913

The amortized cost and estimated fair value of investment securities at March 31, 2011 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2011
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Available for Sale
Due after one year through five years	$	331,345	$	330,544
Due after five years through ten years		7,270		7,270
Due after ten years		5,260		5,260
Mortage-backed securities		727,303		732,062
Other		1,025		1,045
Total	$	1,072,203	$	1,076,181

Held to Maturity
Mortage-backed securities	$	1,943	$	2,009

There were no sales of available for sale securities during the first quarter of 2011. As part of our recovery plan, we sold certain available for sale investment securities during the first quarter of 2010 and received gross proceeds of $439.4 million. Gross realized gains and losses on the sales of the available for sale investment securities during the three months ended March 31, 2010 were $9.6 million and $8.8 million, respectively. The basis on which the cost of all securities sold was determined using the specific identification method.

Investment securities of $579.5 million and $613.5 million at March 31, 2011 and December 31, 2010, respectively, were pledged to secure public funds on deposit, securities sold under agreements to repurchase and other long-term and short-term borrowings. None of these securities were pledged to a secured party that has the right to sell or repledge the collateral as of the same periods.

Provided below is a summary of the 28 and 18 investment securities which were in an unrealized loss position at March 31, 2011 and December 31, 2010, respectively.

	Less than 12 months					12 months or longer				Total
			Unrealized					Unrealized				Unrealized
Description of Securities	Fair Value		Losses			Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
At March 31, 2011:
U.S. Government sponsored entities
debt securities	$	210,122	$	(1,050	)	$	-	$	-	$	210,122	$	(1,050	)
U.S. Government sponsored entities
mortgage-backed securities		248,194		(2,804	)		-		-		248,194		(2,804	)
Total temporarily impaired securities	$	458,316	$	(3,854	)	$	-	$	-	$	458,316	$	(3,854	)

At December 31, 2010:
U.S. Government sponsored entities
debt securities	$	83,973	$	(643	)	$	-	$	-	$	83,973	$	(643	)
U.S. Government sponsored entities
mortgage-backed securities		194,756		(3,336	)		-		-		194,756		(3,336	)
Non-agency collateralized mortgage obligations		17		-			-		-		17		-
Total temporarily impaired securities	$	278,746	$	(3,979	)	$	-	$	-	$	278,746	$	(3,979	)

Unrealized losses for all investment securities are reviewed to determine whether the losses are deemed “other-than-temporary impairment” (“OTTI”). Investment securities are evaluated for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary. In conducting this assessment, we evaluate a number of factors including, but not limited to:

·	The length of time and the extent to which fair value has been less than the amortized cost basis;

·	Adverse conditions specifically related to the security, an industry, or a geographic area;

·	The historical and implied volatility of the fair value of the security;

·	The payment structure of the debt security and the likelihood of the issuer being able to make payments;

·	Failure of the issuer to make scheduled interest or principal payments;

·	Any rating changes by a rating agency; and

·	Recoveries or additional decline in fair value subsequent to the balance sheet date.

The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses.

The declines in market value were primarily attributable to changes in interest rates and disruptions in the credit and financial markets. Because we have no intent to sell securities in an unrealized loss position and it is not more likely than not that we will be required to sell such securities before recovery of its amortized cost basis, we do not consider these investments to be other-than-temporarily impaired.

5. LOANS AND LEASES

Loans and leases, excluding loans held for sale, consisted of the following:

	March 31,			December 31,
	2011			2010
	(Dollars in thousands)

Commercial, financial and agricultural	$	183,079		$	207,900
Real estate:
Construction		272,739			314,530
Mortgage - residential		741,057			747,870
Mortgage - commercial		737,249			761,710
Consumer		111,172			112,950
Leases		25,281			28,163
		2,070,577			2,173,123
Unearned income		(3,275	)		(3,679	)
Total loans and leases	$	2,067,302		$	2,169,444

During the three months ended March 31, 2011, we did not transfer any loans to the held-for-sale category. In addition, no loans were sold or purchased during the three months ended March 31, 2011. During the three months ended March 31, 2010, we transferred loans with a carrying value of $17.7 million, all of which were non-performing, to the held-for-sale category and sold loans with a carrying value of $7.3 million. In addition, no loans were purchased during the three months ended March 31, 2010.

The following table presents by class, the balance in the allowance for loan and lease losses and the recorded investment in loans and leases based on the Company’s impairment measurement method as of March 31, 2011:

	Commercial,		Real estate
	financial & agricultural		Construction		Mortgage - residential		Mortgage - commercial		Consumer		Leases		Total
	(Dollars in thousands)
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	94	$	10,015	$	56	$	162	$	-	$	-	$	10,327
Collectively evaluated for impairment		11,006		49,085		30,744		68,838		2,500		1,500		163,673
		11,100		59,100		30,800		69,000		2,500		1,500		174,000
Unallocated														4,010
Total ending balance	$	11,100	$	59,100	$	30,800	$	69,000	$	2,500	$	1,500	$	178,010

Loans and leases:
Individually evaluated for impairment	$	447	$	133,645	$	59,582	$	15,577	$	-	$	-	$	209,251
Collectively evaluated for impairment		182,632		139,094		681,475		721,672		111,172		25,281		1,861,326
		183,079		272,739		741,057		737,249		111,172		25,281		2,070,577
Unearned income														(3,275	)
Total ending balance	$	183,079	$	272,739	$	741,057	$	737,249	$	111,172	$	25,281	$	2,067,302

Impaired loans requiring an allowance for loan and lease losses at March 31, 2011 and December 31, 2010 amounted to $105.2 million and $119.8 million, respectively, and included all nonaccrual loans greater than $0.5 million and all loans modified in a troubled debt restructuring. Impaired loans, many of which have been reduced to the estimated fair value of the underlying collateral, not requiring an allowance for loan and lease losses amounted to $104.1 million and $105.2 million at March 31, 2011 and December 31, 2010, respectively. The average recorded investment in impaired loans was $220.0 million during the three months ended March 31, 2011. Interest income recognized on impaired loans was $0.3 million during the three months ended March 31, 2011.

The following table presents by class, loans individually evaluated for impairment as of March 31, 2011 and December 31, 2010:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
March 31, 2011
With no related allowance recorded:
Real estate:
Construction	$	130,530	$	83,141	$	-
Mortgage - residential		67,439		58,782		-
Mortgage - commercial		13,578		13,257		-
With an allowance recorded:
Commercial, financial & agricultural		1,146		447		94
Real estate:
Construction		86,673		50,504		10,015
Mortgage - residential		1,263		800		56
Mortgage - commercial		2,853		2,320		162
Total	$	303,482	$	209,251	$	10,327

December 31, 2010
With no related allowance recorded:
Real estate:
Construction	$	112,675	$	85,571	$	-
Mortgage - residential		66,203		58,333		-
Mortgage - commercial		10,917		10,917		-
With an allowance recorded:
Commercial, financial & agricultural		1,184		485		81
Real estate:
Construction		104,429		59,384		18,197
Mortgage - residential		3,681		3,256		89
Mortgage - commercial		7,746		7,088		1,158
Total	$	306,835	$	225,034	$	19,525

The following table presents by class, the recorded investment in nonaccrual loans and accruing loans delinquent for 90 days or more as of March 31, 2011 and December 31, 2010:

	Nonaccrual		Accruing loans delinquent for 90 days or more
	(Dollars in thousands)
March 31, 2011
Commercial, financial & agricultural	$	805	$	-
Real estate:
Construction		167,541		-
Mortgage - residential		47,859		427
Mortgage - commercial		12,046		-
Consumer		-		13
Leases		-		66
Total	$	228,251	$	506

December 31, 2010
Commercial, financial & agricultural	$	982	$	-
Real estate:
Construction		182,073		6,550
Mortgage - residential		47,560		1,800
Mortgage - commercial		14,464		-
Consumer		225		181
Total	$	245,304	$	8,531

For all loan types, the Company determines delinquency status by considering the number of days full payments required by the contractual terms of the loan are past due. The following table presents by class, the aging of the recorded investment in past due loans and leases as of March 31, 2011 and December 31, 2010:

	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 90 Days Past Due		Nonaccrual Loans		Total Past Due		Loans & Leases Not Past Due		Total
	(Dollars in thousands)
March 31, 2011
Commercial, financial & agricultural	$	47	$	129	$	-	$	805	$	981	$	182,109	$	183,090
Real estate:
Construction		199		-		-		167,541		167,740		104,589		272,329
Mortgage - residential		8,100		1,053		427		47,859		57,439		682,133		739,572
Mortgage - commercial		1,262		3,155		-		12,046		16,463		719,395		735,858
Consumer		445		333		13		-		791		110,381		111,172
Leases		312		-		66		-		378		24,903		25,281
Total	$	10,365	$	4,670	$	506	$	228,251	$	243,792	$	1,823,510	$	2,067,302

December 31, 2010
Commercial, financial & agricultural	$	495	$	252	$	-	$	982	$	1,729	$	206,251	$	207,980
Real estate:
Construction		12,551		118		6,550		182,073		201,292		112,493		313,785
Mortgage - residential		4,183		7,494		1,800		47,560		61,037		685,224		746,261
Mortgage - commercial		273		3,169		-		14,464		17,906		742,400		760,306
Consumer		620		444		181		225		1,470		111,479		112,949
Leases		100		-		-		-		100		28,063		28,163
Total	$	18,222	$	11,477	$	8,531	$	245,304	$	283,534	$	1,885,910	$	2,169,444

Restructured loans included in nonperforming assets at March 31, 2011 consisted of eight Hawaii construction and development loans with a combined principal balance of $39.3 million, 78 Hawaii residential mortgage loans with a combined principal balance of $31.3 million, one Mainland construction and development loan with a principal balance of $1.4 million and one Hawaii commercial loan with a principal balance of $0.4 million. Concessions made to the original contractual terms of these loans consisted primarily of the deferral of interest and/or principal payments due to deterioration in the borrowers’ financial condition. The principal balances on these restructured loans were matured and/or in default at the time of restructure and we have no commitments to lend additional funds to any of these borrowers. There were $12.4 million of restructured loans still accruing interest at March 31, 2011, none of which were more than 90 days delinquent. At December 31, 2010, there were $14.2 million of restructured loans still accruing interest, including two residential mortgage loans totaling $0.8 million that were more than 90 days delinquent.

The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis includes loans and leases with an outstanding balance greater than $0.5 million or $1.0 million, depending on loan type, and non-homogeneous loans and leases, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans and leases classified as special mention, while still adequately protected by the borrower’s capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management’s close attention so as to avoid becoming undue or unwarranted credit exposures.

Substandard. Loans and leases classified as substandard are inadequately protected by the borrower’s current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans and leases classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate loss is deferred until its more exact status may be determined.

Loss. Loans and leases classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

Loans and leases not meeting the criteria above that are analyzed individually as part of the process described above are considered to be pass rated loans and leases. Loans and leases listed as not rated are either less than $0.5 million or are included in groups of homogeneous loan pools. The following table presents by class and credit indicator, the recorded investment in the Company’s loans and leases as of March 31, 2011 and December 31, 2010:

	Pass		Special Mention		Substandard		Doubtful		Loss		Not Rated		Unearned Income			Total
	(Dollars in thousands)
March 31, 2011
Commercial, financial
& agricultural	$	101,385	$	14,484	$	13,552	$	-	$	-	$	53,658	$	(11	)	$	183,090
Real estate:
Construction		33,644		31,589		201,396		-		-		6,110		410			272,329
Mortgage - residential		75,450		12,889		54,143		-		-		598,575		1,485			739,572
Mortgage - commercial		543,717		71,048		86,724		-		-		35,760		1,391			735,858
Consumer		4,768		-		306		-		-		106,098		-			111,172
Leases		19,355		3,800		2,126		-		-		-		-			25,281
Total	$	778,319	$	133,810	$	358,247	$	-	$	-	$	800,201	$	3,275		$	2,067,302

December 31, 2010
Commercial, financial
& agricultural	$	109,619	$	22,529	$	19,370	$	-	$	-	$	56,382	$	(80	)	$	207,980
Real estate:
Construction		44,488		41,330		215,187		5,789		-		7,736		745			313,785
Mortgage - residential		70,747		17,475		55,533		-		-		604,115		1,609			746,261
Mortgage - commercial		557,511		67,639		97,871		2,883		-		35,806		1,404			760,306
Consumer		5,778		307		769		-		14		106,082		1			112,949
Leases		21,761		4,039		2,363		-		-		-		-			28,163
Total	$	809,904	$	153,319	$	391,093	$	8,672	$	14	$	810,121	$	3,679		$	2,169,444

In accordance with applicable Interagency Guidance issued by our primary bank regulators, we define subprime borrowers as typically having weakened credit histories that include payment delinquencies and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories. Subprime loans are loans to borrowers displaying one or more of these characteristics at the time of origination or purchase. Such loans have a higher risk of default than loans to prime borrowers. At March 31, 2011 and December 31, 2010, we did not have any loans that we considered to be subprime.

6. ALLOWANCE FOR LOAN AND LEASE LOSSES

The following table presents the changes in the allowance for loan and lease losses (the “Allowance”) for the periods indicated:

	Three Months Ended
	March 31,
	2011			2010
	(Dollars in thousands)

Balance, beginning of period	$	192,854		$	205,279
Provision (credit) for loan and lease losses		(1,575	)		58,837
		191,279			264,116
Charge-offs		(18,131	)		(59,968	)
Recoveries		4,862			7,498
Net charge-offs		(13,269	)		(52,470	)
Balance, end of period	$	178,010		$	211,646

Our provision for loan and lease losses (the “Provision”) was a credit of $1.6 million in the first quarter of 2011, compared to a charge of $58.8 million in the first quarter of 2010. The year-over-year decrease in both our Provision and Allowance is directly attributable to continued improvement in our credit risk profile as evidenced by declines in both nonperforming assets and net charge-offs.

The following table presents by class, the activity in the Allowance for the three months ended March 31, 2011:

	Commercial,			Real estate
	financial &						Mortgage -			Mortgage -
	agricultural			Construction			residential			commercial			Consumer			Leases			Unallocated		Total
	(Dollars in thousands)

Beginning balance	$	13,400		$	76,600		$	31,800		$	64,300		$	3,200		$	1,600		$	1,954	$	192,854
Provision (credit) for loan
and lease losses		(1,326	)		(7,008	)		336			4,887			(420	)		(100	)		2,056		(1,575	)
		12,074			69,592			32,136			69,187			2,780			1,500			4,010		191,279
Charge-offs		(1,406	)		(13,858	)		(2,036	)		(226	)		(605	)		-			-		(18,131	)
Recoveries		432			3,366			700			39			325			-			-		4,862
Net charge-offs		(974	)		(10,492	)		(1,336	)		(187	)		(280	)		-			-		(13,269	)
Ending balance	$	11,100		$	59,100		$	30,800		$	69,000		$	2,500		$	1,500		$	4,010	$	178,010

In determining the amount of our Allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions, as well as regulatory requirements and input. If our assumptions prove to be incorrect, our current Allowance may not be sufficient to cover future loan losses and we may experience increases to our Provision.

7. SECURITIZATIONS

In prior years, we securitized certain residential mortgage loans with a U.S. Government sponsored entity and continue to service the residential mortgage loans. The servicing assets were recorded at their respective fair values at the time of securitization. The fair value of the servicing assets was determined using a discounted cash flow model based on market value assumptions at the time of securitization and is amortized in proportion to and over the period of net servicing income.

All unsold mortgage-backed securities were categorized as available for sale securities and were therefore recorded at their fair value of $9.7 million and $10.0 million at March 31, 2011 and December 31, 2010, respectively. The fair values of these mortgage-backed securities were based on quoted prices of similar instruments in active markets. Unrealized gains of $26 thousand and $34 thousand on unsold mortgage-backed securities were recorded in accumulated other comprehensive loss (“AOCL”) at March 31, 2011 and December 31, 2010, respectively.

8. GOODWILL AND OTHER INTANGIBLE ASSETS

We review the carrying amount of goodwill for impairment on an annual basis. Additionally, we perform an impairment assessment of goodwill and evaluate our other intangible assets whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Significant negative industry or economic trends, disruptions to our business, unexpected significant changes or planned changes in use of the assets, divestitures and market capitalization declines may result in impairments to goodwill. Absent any impairment indicators, we perform our annual goodwill impairment test during the fourth quarter of each fiscal year.

Our impairment assessment of goodwill and other intangible assets involves the estimation of future cash flows and the fair value of reporting units to which goodwill is allocated. We reconcile the estimated fair values of our reporting units to our total market capitalization plus a control premium. Estimating future cash flows and determining fair values of the reporting units is judgmental and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of the impairment charge.

During the first quarter of 2010, we determined that an impairment test was required because of the uncertainty regarding our ability to continue as a going concern combined with the fact that our market capitalization remained depressed. As a result of our impairment test, we determined that the remaining goodwill associated with our Hawaii Market reporting unit was impaired and we recorded a non-cash impairment charge of $102.7 million during that quarter. As of March 31, 2011, we had no goodwill remaining on our consolidated balance sheet.

Other intangible assets include a core deposit premium, mortgage servicing rights, customer relationships and non-compete agreements. The following table presents changes in other intangible assets for the three months ended March 31, 2011:

	Core			Mortgage
	Deposit			Servicing			Customer			Non-Compete
	Premium			Rights			Relationships			Agreements			Total
	(Dollars in thousands)

Balance, beginning of period	$	20,727		$	22,712		$	1,050		$	150		$	44,639
Additions		-			1,406			-			-			1,406
Amortization		(669	)		(828	)		(35	)		(15	)		(1,547	)
Balance, end of period	$	20,058		$	23,290		$	1,015		$	135		$	44,498

Income generated as the result of new mortgage servicing rights is reported as gains on sales of loans and totaled $1.4 million for the three months ended March 31, 2011, compared to $1.6 million for the three months ended March 31, 2010. Amortization of mortgage servicing rights was $0.8 million and $0.7 million for the three months ended March 31, 2011 and 2010, respectively.

The following table presents the fair market value and key assumptions used in determining the fair market value of our mortgage servicing rights:

	Three Months Ended March 31,
	2011			2010
	(Dollars in thousands)

Fair market value, beginning of period	$	23,709		$	23,019
Fair market value, end of period		24,316			22,897
Weighted average discount rate		8.5	%		8.5	%
Weighted average prepayment speed assumption		14.2			13.2

The gross carrying value and accumulated amortization related to our intangible assets are presented below:

	March 31, 2011							December 31, 2010
	Gross							Gross
	Carrying		Accumulated					Carrying		Accumulated
	Value		Amortization			Net		Value		Amortization			Net
	(Dollars in thousands)

Core deposit premium	$	44,642	$	(24,584	)	$	20,058	$	44,642	$	(23,915	)	$	20,727
Mortgage servicing rights		43,073		(19,783	)		23,290		41,667		(18,955	)		22,712
Customer relationships		1,400		(385	)		1,015		1,400		(350	)		1,050
Non-compete agreements		300		(165	)		135		300		(150	)		150
Total	$	89,415	$	(44,917	)	$	44,498	$	88,009	$	(43,370	)	$	44,639

Based on the core deposit premium, mortgage servicing rights, customer relationships and non-compete agreements held as of March 31, 2011, estimated amortization expense for the remainder of fiscal 2011, the next five succeeding fiscal years and all years thereafter are as follows:

	Estimated Amortization Expense
			Mortgage
	Core Deposit		Servicing		Customer		Non-Compete
	Premium		Rights		Relationships		Agreements		Total
	(Dollars in thousands)

2011 (remainder)	$	2,006	$	2,160	$	105	$	45	$	4,316
2012		2,674		3,119		140		60		5,993
2013		2,674		2,705		140		30		5,549
2014		2,674		2,351		140		-		5,165
2015		2,674		2,014		140		-		4,828
2016		2,674		1,709		140		-		4,523
Thereafter		4,682		9,232		210		-		14,124
	$	20,058	$	23,290	$	1,015	$	135	$	44,498

9. DERIVATIVES

We utilize various designated and undesignated derivative financial instruments to reduce our exposure to movements in interest rates including interest rate swaps, interest rate lock commitments and forward sale commitments. We measure all derivatives at fair value on our consolidated balance sheet. At each reporting period, we record the derivative instruments in other assets or other liabilities depending on whether the derivatives are in an asset or liability position. For derivative instruments that are designated as hedging instruments, we record the effective portion of the changes in the fair value of the derivative in AOCL, net of tax, until earnings are affected by the variability of cash flows of the hedged transaction. We immediately recognize the portion of the gain or loss in the fair value of the derivative that represents hedge ineffectiveness in current period earnings. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivative are included in current period earnings.

Interest Rate Swap

In January 2008, we entered into a derivative transaction to hedge future cash flows from a portion of our then existing variable rate loan portfolio. Under the terms of the arrangement, we would receive payments equal to a fixed interest rate of 6.25% from January 2008 through January 2013 from the counterparty on a notional amount of $400 million. In return, we would pay the counterparty a floating rate, namely our prime rate, on the same notional amount. The purpose of the derivative transaction was to minimize the risk of fluctuations in interest payments received on our variable rate loan portfolio. The derivative transaction was designated as a cash flow hedge.

On September 1, 2009, we terminated the derivative transaction with the counterparty at its then fair market value of $18.0 million. As a result of the termination, we recorded an unrealized gain related to hedge effectiveness of $12.5 million as a component of AOCL and $5.5 million of hedge ineffectiveness as other operating income. The unrealized gain is being recognized into income over the original contract period through January 2013 using the effective yield method and we expect to reclassify $2.7 million of this gain into earnings within the next 12 months.

Interest Rate Lock and Forward Sale Commitments

We enter into interest rate lock commitments on certain mortgage loans that are intended to be sold. To manage interest rate risk on interest rate lock commitments, we also enter into forward loan sale commitments. The interest rate lock and forward loan sale commitments are accounted for as undesignated derivatives and are recorded at their respective fair values in other assets or other liabilities, with changes in fair value recorded in current period earnings. These instruments serve to reduce our exposure to movements in interest rates. At March 31, 2011, we were a party to interest rate lock and forward sale commitments on $50.5 million and $20.6 million of mortgage loans, respectively.

The following table presents the location of all assets and liabilities associated with our derivative instruments within the consolidated balance sheet:

		Asset Derivatives				Liability Derivatives
Derivatives not designated as hedging instruments	Balance Sheet Location	Fair Value at March 31, 2011		Fair Value at December 31, 2010		Fair Value at March 31, 2011		Fair Value at December 31, 2010
		(Dollars in thousands)
Interest rate contracts	Other assets /
	other liabilities	$	230	$	1,035	$	251	$	523

The following table presents the impact of derivative instruments and their location within the consolidated statements of operations:

Derivatives in Cash Flow Hedging Relationship	Amount of Gain Recognized in AOCL on Derivative (Effective Portion)		Amount of Gain Reclassified from AOCL into Earnings (Effective Portion)		Amount of Gain Recognized in Earnings on Derivative (Ineffective Portion)
	(Dollars in thousands)
Three Months Ended March 31, 2011
Interest rate contracts	$	-	$	1,116	$	-

Three Months Ended March 31, 2010
Interest rate contracts	$	-	$	1,890	$	-

Amounts recognized in AOCL are net of income taxes. Amounts reclassified from AOCL into income are included in interest income in the consolidated statements of operations. The ineffective portion has been recognized as other operating income in the consolidated statements of operations.

Derivatives not in Cash Flow Hedging Relationship	Location of Gain Recognized in Earnings on Derivatives	Amount of Gain Recognized in Earnings on Derivatives
		(Dollars in thousands)
Three Months Ended March 31, 2011
Interest rate contracts	Other operating income	$	279

Three Months Ended March 31, 2010
Interest rate contracts	Other operating income	$	219

10. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

At March 31, 2011, our bank maintained a $31.9 million line of credit with the Federal Reserve discount window, of which there were no advances outstanding. As of March 31, 2011, certain commercial real estate loans totaling $125.5 million have been pledged as collateral on our line of credit with the Federal Reserve discount window. The Federal Reserve does not have the right to sell or repledge these loans. Future advances under this arrangement are subject to approval of the Federal Reserve. Furthermore, all terms and maturities of advances under this arrangement are at the discretion of the Federal Reserve and are generally limited to overnight borrowings. Since September 2009, our bank was no longer eligible to access the Federal Reserve’s primary credit facility but maintained access to its secondary facility. There was no change in the level of credit available to the bank; however, future advances will have higher borrowing costs under the secondary facility.

The bank is a member of and maintained a $732.1 million line of credit with the FHLB as of March 31, 2011. Long-term borrowings under this arrangement totaled $301.1 million at March 31, 2011, compared to $200.0 million and $351.3 million of short-term and long-term borrowings, respectively, at December 31, 2010. There were no short-term borrowings under this arrangement at March 31, 2011. FHLB advances outstanding at March 31, 2011 were secured by investment securities with a fair value of $340.9 million and certain real estate loans totaling $602.9 million in accordance with the collateral provisions of the Advances, Security and Deposit Agreement with the FHLB. Approximately $431.0 million was undrawn under this arrangement at March 31, 2011. The FHLB has no obligation to make future advances to the bank.

On August 20, 2009, we began deferring regularly scheduled interest payments on our outstanding junior subordinated debentures relating to our trust preferred securities. The terms of the junior subordinated debentures and the trust documents allow us to defer payments of interest for up to 20 consecutive quarterly periods without default or penalty. During the deferral period, which currently stands at seven consecutive quarters, the respective trusts have suspended the declaration and payment of dividends on the trust preferred securities. Also during the deferral period, we may not, among other things and with limited exceptions, pay cash dividends on or repurchase our common stock or make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated debentures. During the deferral period, we will continue to accrue, and reflect in our consolidated financial statements, the deferred interest payments on our junior subordinated debentures. Accrued interest on our outstanding junior subordinated debentures relating to our trust preferred securities was $5.9 million and $5.1 million at March 31, 2011 and December 31, 2010, respectively. With the recent completion of the Private Placement, we plan to seek regulatory approval to pay all deferred payments under our trust preferred securities.

11. EQUITY

During the first quarter of 2011, we completed the following transactions as part of our recapitalization:

·	on February 2, 2011, we effected a one-for-twenty reverse stock split of our Common Stock (the “Reverse Stock Split”). Except as otherwise specified, the share and per share amounts for historical periods have been restated to give the effect to the Reverse Stock Split;

on February 18, 2011, we completed the $325 million Private Placement with investments from (1) affiliates of each of The Carlyle Group (“Carlyle”) and Anchorage Capital Group, L.L.C. (together with Carlyle, the “Lead Investors”) pursuant to investment agreements with each of the Lead Investors and (2) various other investors, including certain of our directors and officers, pursuant to subscription agreements with each of such investors; and

concurrently with the closing of the Private Placement, we completed the TARP Exchange of 135,000 shares of our Fixed Rate Cumulative Perpetual Preferred Stock, no par value per share and liquidation preference $1,000 per share, held by the United States Department of the Treasury (the “Treasury”), and accrued and unpaid dividends thereon for 5,620,117 common shares. We also amended the warrant held by the Treasury (the “Amended TARP Warrant”) to, among other things, reduce the exercise price from $255.40 per share to $10 per share. The warrant grants the Treasury the right to purchase 79,288 Common Shares, subject to adjustment.

The TARP Exchange resulted in a non-cash increase in net income available to common shareholders of $85.1 million as the book value of the preferred stock plus accrued and unpaid dividends was greater than the estimated fair value of the common stock issued to the Treasury of $56.2 million and the fair value of the Amended TARP Warrant at the time of the TARP Exchange. This accounting treatment had no effect on our total shareholders’ equity or our regulatory capital position.

In addition to adjusting the exercise price of the Amended TARP Warrant, its terms were revised to include a “down-round” provision allowing for the future adjustment to the exercise price for any subsequent issuances of common stock by the Company. If the Company subsequently issues common stock, or rights or shares convertible into common stock, at a per share price lower than the $10 exercise price of the warrant, the exercise price of the warrant will be reduced to the per share common stock amount received in connection with the issuance and the number of shares of common stock subject to the warrant will be increased. This provision resulted in the warrant being carried as a derivative liability as compared to a common stock equivalent for balance sheet purposes as it possesses the characteristics of a freestanding derivative financial instrument as defined by Accounting Standards Codification (“ASC”) 815-10-15-83, Accounting for Derivatives and Hedging, and similar to the example illustrated in ASC 815-40-55-33 and -34. As a derivative liability, the warrant is carried at fair value, with subsequent remeasurements recorded through the current period's earnings. The initial value attributed to the warrant was $1.7 million, with the fair value estimated using the Black-Scholes options pricing model, with the following assumptions: 67% volatility, a risk-free rate of 3.59%, a yield of 1.45% and an estimated life of 10 years. From February 18, 2011 through March 31, 2011, this instrument’s estimated fair value decreased, which resulted in the recognition of $0.5 million recorded in other noninterest income.

In 2009, our Board of Directors suspended the payment of all cash dividends on our common stock. Our ability to pay dividends with respect to common stock is subject to obtaining approval from the FRBSF, DFI and Treasury, and is restricted until our obligations under our trust preferred securities are brought current. Additionally, our ability to pay dividends depends on our ability to obtain dividends from our bank. In addition to obtaining approval from the FDIC and DFI, Hawaii law only permits Central Pacific Bank to pay dividends out of retained earnings. Given that the bank had an accumulated deficit of $478.1 million at March 31, 2011, the bank is prohibited from paying any dividends until this deficit is eliminated. Accordingly, we do not anticipate that the bank will be permitted to pay dividends for the foreseeable future.

12. SHARE-BASED COMPENSATION

Stock Option Activity

There was no activity related to stock options for the Company’s stock option plans during the three months ended March 31, 2011.

Restricted Stock Awards and Units

There was no activity related to restricted stock awards and units during the three months ended March 31, 2011.

Performance Shares and Stock Appreciation Rights

No performance shares or SARs were granted under the 2005 LTIP and 2008 LTIP during the three months ended March 31, 2011.

The table below presents activity of performance shares under both the 2005 LTIP and 2008 LTIP for the three months ended March 31, 2011: