RECOVERY PLAN PROGRESS	12 Months Ended
Dec. 31, 2012
RECOVERY PLAN PROGRESS
RECOVERY PLAN PROGRESS	3. RECOVERY PLAN PROGRESS As previously discussed, we adopted and implemented a recovery plan in March 2010 to improve our financial health by completing a significant recapitalization, aggressively reducing our credit risk exposure and focusing on our core businesses and traditional markets in Hawaii. In addition to recapitalizing our Company, key elements of the recovery plan included, but were not limited to: · Aggressively managing the bank’s existing loan portfolios to minimize further credit losses and to maximize recoveries; and · Lowering operating costs to align with the restructured business model. Through December 31 2012, we have accomplished a number of key milestones in our recovery plan, including: · On February 18, 2011, we successfully completed the Private Placement and TARP Exchange. · On May 6, 2011, we successfully completed a $20 million Rights Offering. · In May 2011, our Consent Order was lifted and replaced with the Bank MOU. On October 26, 2012, the Bank MOU was terminated. · In November 2011, the memorandum of understanding relating to compliance with the Bank Secrecy Act (the “BSA MOU”) that the bank entered into with the FDIC and DFI was terminated. · We maintained a strong capital position with tier 1 risk-based capital, total risk-based capital, and leverage capital ratios as of December 31, 2012 of 22.54%, 23.83%, and 14.32%, respectively, compared to 22.94%, 24.24%, and 13.78%, respectively, as of December 31, 2011, and 7.64%, 8.98%, and 4.42%, respectively, as of December 31, 2010. Our capital ratios continue to exceed the levels required for a “well-capitalized” regulatory designation. · We reported eight consecutive profitable quarters with net income totaling $47.4 million and $36.6 million for the years ended December 31, 2012 and 2011, respectively. · We reduced our nonperforming assets by $105.6 million to $90.0 million at December 31, 2012 from $195.6 million at December 31, 2011. Our nonperforming assets at December 31, 2011 were reduced by $107.2 million from $302.8 million at December 31, 2010. · We significantly reduced our construction and development loan portfolio as of December 31, 2012 to $96.2 million, or 4.4% of our total loan portfolio. At December 31, 2011 and 2010, this portfolio totaled $161.1 million and $313.8 million, or 7.8% and 14.5% of our total loan portfolio, respectively. · We maintained an allowance for loan and lease losses as a percentage of total loans and leases of 4.37% at December 31, 2012, compared to 5.91% and 8.89% at December 31, 2011 and 2010, respectively. In addition, we maintained an allowance for loan and lease losses as a percentage of nonperforming assets of 107.10% at December 31, 2012, compared to 62.42% and 63.69% at December 31, 2011 and 2010, respectively. · We reduced total outstanding borrowings with the FHLB to $32,000 at December 31, 2012 from $50.0 million at December 31, 2011 and $551.3 million at December 31, 2010. In addition to the above, see Notes 14 and 15 for further capital preservation initiatives undertaken by management related to the suspension of dividends on common shares, as well as the deferral of interest and dividend payments on the Company’s subordinated debentures and trust preferred securities. The actions described above are designed to improve the overall financial position of our bank. However, there is no assurance that we will be able to successfully implement the remaining aspects of our recovery.

3. RECOVERY PLAN PROGRESS

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

In addition to recapitalizing our Company, key elements of the recovery plan included, but were not limited to:

· Aggressively managing the bank’s existing loan portfolios to minimize further credit losses and to maximize recoveries; and

· Lowering operating costs to align with the restructured business model.

Through December 31 2012, we have accomplished a number of key milestones in our recovery plan, including:

· On February 18, 2011, we successfully completed the Private Placement and TARP Exchange.

· On May 6, 2011, we successfully completed a $20 million Rights Offering.

· In May 2011, our Consent Order was lifted and replaced with the Bank MOU. On October 26, 2012, the Bank MOU was terminated.

· In November 2011, the memorandum of understanding relating to compliance with the Bank Secrecy Act (the “BSA MOU”) that the bank entered into with the FDIC and DFI was terminated.

· We maintained a strong capital position with tier 1 risk-based capital, total risk-based capital, and leverage capital ratios as of December 31, 2012 of 22.54%, 23.83%, and 14.32%, respectively, compared to 22.94%, 24.24%, and 13.78%, respectively, as of December 31, 2011, and 7.64%, 8.98%, and 4.42%, respectively, as of December 31, 2010. Our capital ratios continue to exceed the levels required for a “well-capitalized” regulatory designation.

· We reported eight consecutive profitable quarters with net income totaling $47.4 million and $36.6 million for the years ended December 31, 2012 and 2011, respectively.

· We reduced our nonperforming assets by $105.6 million to $90.0 million at December 31, 2012 from $195.6 million at December 31, 2011. Our nonperforming assets at December 31, 2011 were reduced by $107.2 million from $302.8 million at December 31, 2010.

· We significantly reduced our construction and development loan portfolio as of December 31, 2012 to $96.2 million, or 4.4% of our total loan portfolio. At December 31, 2011 and 2010, this portfolio totaled $161.1 million and $313.8 million, or 7.8% and 14.5% of our total loan portfolio, respectively.

· We maintained an allowance for loan and lease losses as a percentage of total loans and leases of 4.37% at December 31, 2012, compared to 5.91% and 8.89% at December 31, 2011 and 2010, respectively. In addition, we maintained an allowance for loan and lease losses as a percentage of nonperforming assets of 107.10% at December 31, 2012, compared to 62.42% and 63.69% at December 31, 2011 and 2010, respectively.

· We reduced total outstanding borrowings with the FHLB to $32,000 at December 31, 2012 from $50.0 million at December 31, 2011 and $551.3 million at December 31, 2010.

In addition to the above, see Notes 14 and 15 for further capital preservation initiatives undertaken by management related to the suspension of dividends on common shares, as well as the deferral of interest and dividend payments on the Company’s subordinated debentures and trust preferred securities.

The actions described above are designed to improve the overall financial position of our bank. However, there is no assurance that we will be able to successfully implement the remaining aspects of our recovery.