27.	PARENT COMPANY AND REGULATORY RESTRICTIONS

At December 31, 2011, the accumulated deficit of the parent company, Central Pacific Financial Corp., included $439.2 million of equity in undistributed losses of Central Pacific Bank.

Central Pacific Bank, as a Hawaii state-chartered bank, is prohibited from declaring or paying dividends greater than its retained earnings. As of December 31, 2011, the bank had an accumulated deficit of $441.5 million. For further information, see Note 15.

In December 2009, the Board of Directors of Central Pacific Bank agreed to the Consent Order with the FDIC and DFI. In May 2011, the Consent Order was lifted and replaced with the Bank MOU, as described in Note 3.

In addition to the Bank MOU, in July 2010, Central Pacific Financial Corp. entered into the Written Agreement with the FRBSF, as described in Note 3.

Section 131 of the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) required the FRB, FDIC, the Comptroller of the Currency and the Office of Thrift Supervision (collectively, the “Agencies”) to develop a mechanism to take prompt corrective action to resolve the problems of insured depository institutions. The final rules to implement FDICIA's Prompt Corrective Action provisions established minimum regulatory capital standards to determine an insured depository institution's capital category. However, the Agencies may impose higher minimum standards on individual institutions or may downgrade an institution from one capital category to a lower capital category because of safety and soundness concerns.

The Prompt Corrective Action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions become increasingly more severe as an institution's capital category declines from undercapitalized to critically undercapitalized.

The following table sets forth actual and required capital and capital ratios for the Company and the bank, as well as the minimum capital adequacy requirements applicable generally to all financial institutions as of the dates indicated. At December 31, 2011, each of the Company and the bank was in compliance with the minimum ratios required by the Bank MOU and the levels required for a well-capitalized regulatory designation.

					Minimum required to be				Minimum required
	Actual				adequately capitalized				to be well-capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Company
As of December 31, 2011:
Tier 1 risk-based capital	$	555,315	22.9	%	$	96,845	4.0	%	$	145,267	6.0	%
Total risk-based capital		586,802	24.2			193,690	8.0			242,112	10.0
Leverage capital		555,315	13.8			161,218	4.0			201,522	5.0

As of December 31, 2010:
Tier 1 risk-based capital	$	180,626	7.6	%	$	94,544	4.0	%	$	141,815	6.0	%
Total risk-based capital		212,259	9.0			189,087	8.0			236,359	10.0
Leverage capital		180,626	4.4			163,454	4.0			204,318	5.0

Central Pacific Bank
As of December 31, 2011:
Tier 1 risk-based capital	$	524,057	21.6	%	$	96,916	4.0	%	$	145,375	6.0	%
Total risk-based capital		555,566	22.9			193,833	8.0			242,291	10.0
Leverage capital		524,057	13.0			161,259	4.0			201,574	5.0

As of December 31, 2010:
Tier 1 risk-based capital	$	197,626	8.4	%	$	94,592	4.0	%	$	141,888	6.0	%
Total risk-based capital		229,271	9.7			189,183	8.0			236,479	10.0
Leverage capital		197,626	4.8			163,500	4.0			204,376	5.0

Condensed financial statements, solely of the parent company, Central Pacific Financial Corp., follow:

Central Pacific Financial Corp.

Condensed Balance Sheets

	December 31,
	2011			2010
	(Dollars in thousands)
Assets
Cash and cash equivalents	$	45,626		$	6,000
Investment securities available for sale		970			1,062
Investment in subsidiary bank, at equity in underlying net assets		530,173			188,047
Investment in other subsidiaries, at equity in underlying assets		541			527
Accrued interest receivable and other assets		7,410			6,793
Total assets	$	584,720		$	202,429

Liabilities and Shareholders' Equity
Long-term debt	$	108,249		$	108,249
Other liabilities		20,031			28,128
Total liabilities		128,280			136,377

Shareholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding
none and 135,000 shares at December 31, 2011 and 2010, respectively		-			130,458
Common stock, no par value, authorized 185,000,000 shares; issued and
outstanding 41,749,116 and 1,527,000 shares at December 31, 2011 and
2010, respectively		784,539			404,167
Surplus		66,585			63,308
Accumulated deficit		(396,848	)		(517,316	)
Accumulated other comprehensive income (loss)		2,164			(14,565	)
Total shareholders' equity		456,440			66,052

Total liabilities and shareholders' equity	$	584,720		$	202,429

Central Pacific Financial Corp.

Condensed Statements of Operations

	Year Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Income:
Dividends from other subsidiaries	$	-		$	-		$	8
Interest income:
Interest and dividends on investment securities		-			11			18
Interest from subsidiary banks		109			12			52
Other income		1,047			107			220
Total income		1,156			130			298

Expense:
Interest on long-term debt		3,392			3,324			3,884
Other expenses		3,584			6,039			5,984
Total expenses		6,976			9,363			9,868

Loss before income taxes and equity in undistributed income
(loss) of subsidiaries		(5,820	)		(9,233	)		(9,570	)
Income tax expense		-			-			3,121
Loss before equity in undistributed income (loss) of subsidiaries		(5,820	)		(9,233	)		(12,691	)

Equity in undistributed income (loss) of subsidiary bank		42,377			(241,720	)		(301,067	)
Equity in undistributed income of other subsidiaries		14			-			11
Net income (loss)	$	36,571		$	(250,953	)	$	(313,747	)

Central Pacific Financial Corp.

Condensed Statements of Cash Flows

	Year Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Cash flows from operating activities
Net income (loss)	$	36,571		$	(250,953	)	$	(313,747	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Deferred income tax expense (benefit)		-			(73	)		3,947
Equity in (income) loss of subsidiary bank		(42,377	)		241,720			301,067
Equity in undistributed income of other subsidiaries		(14	)		-			(11	)
Share-based compensation		153			56			86
Other, net		4,755			8,904			5,979
Net cash used in operating activities		(912	)		(346	)		(2,679	)

Cash flows from investing activities
Proceeds from sales of investment securities available for sale		-			335			-
Investment in subsidiary bank		(283,000	)		-			(135,000	)
Net cash provided by (used in) investing activities		(283,000	)		335			(135,000	)

Cash flows from financing activities
Net proceeds from issuance of preferred stock and warrants		-			-			134,403
Net proceeds from issuance of common stock and stock option exercises		323,538			(1,023	)		2,255
Dividends paid		-			-			(2,362	)
Other, net		-			147			-
Net cash provided by (used in) financing activities		323,538			(876	)		134,296

Net increase (decrease) in cash and cash equivalents		39,626			(887	)		(3,383	)

Cash and cash equivalents
At beginning of year		6,000			6,887			10,270
At end of year	$	45,626		$	6,000		$	6,887