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PARENT COMPANY AND REGULATORY RESTRICTIONS | 12 Months Ended
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Dec. 31, 2014
PARENT COMPANY AND REGULATORY RESTRICTIONS |
PARENT COMPANY AND REGULATORY RESTRICTIONS | 26.PARENT COMPANY AND REGULATORY RESTRICTIONS At December 31, 2014, the accumulated deficit of the parent company, Central Pacific Financial Corp., included $357.8 million of equity in undistributed losses of Central Pacific Bank. Central Pacific Bank, as a Hawaii state-chartered bank, may only pay dividends to the extent it has retained earnings as defined under Hawaii banking law (“Statutory Retained Earnings”), which differs from GAAP retained earnings. As of December 31, 2014, the bank had Statutory Retained Earnings of $123.8 million. For further information, see Note 14. 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. On October 26, 2012, the Bank MOU was terminated, as described in Note 2. In July 2010, Central Pacific Financial Corp. entered into the Written Agreement with the FRBSF, as described in Note 2, which was terminated on February 12, 2013. Section 131 of the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) required the Board of Governors of the Federal Reserve System, FDIC, and the Comptroller of the Currency (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. The Company’s and the bank’s leverage capital, Tier 1 and total risk-based capital ratios as of December 31, 2014 were above the levels required for a “well-capitalized” regulatory designation.
|  |  |  | Minimum required for |  | Minimum required to |
|  | Actual |  | capital adequacy purposes |  | be well-capitalized |
|  | Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio |
|  | (Dollars in thousands) |
Company |  |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2014: |  |  |  |  |  |  |  |  |  |  |  |  |
Leverage capital |  | $ | 562,063 |  | 12.0 | % | $ | 186,922 |  | 4.0 | % | $ | 233,652 |  | 5.0 | %
Tier 1 risk-based capital |  | 562,063 |  | 17.0 |  | 132,475 |  | 4.0 |  | 198,712 |  | 6.0 |
Total risk-based capital |  | 603,939 |  | 18.2 |  | 264,949 |  | 8.0 |  | 331,187 |  | 10.0 |
As of December 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |  |
Leverage capital |  | $ | 632,724 |  | 13.7 | % | $ | 184,995 |  | 4.0 | % | $ | 231,244 |  | 5.0 | %
Tier 1 risk-based capital |  | 632,724 |  | 20.3 |  | 124,854 |  | 4.0 |  | 187,282 |  | 6.0 |
Total risk-based capital |  | 672,374 |  | 21.5 |  | 249,709 |  | 8.0 |  | 312,136 |  | 10.0 |
Central Pacific Bank |  |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2014: |  |  |  |  |  |  |  |  |  |  |  |  |
Leverage capital |  | $ | 540,273 |  | 11.6 | % | $ | 186,828 |  | 4.0 | % | $ | 233,535 |  | 5.0 | %
Tier 1 risk-based capital |  | 540,273 |  | 16.3 |  | 132,376 |  | 4.0 |  | 198,564 |  | 6.0 |
Total risk-based capital |  | 582,068 |  | 17.6 |  | 264,752 |  | 8.0 |  | 330,940 |  | 10.0 |
As of December 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |  |
Leverage capital |  | $ | 610,753 |  | 13.2 | % | $ | 184,736 |  | 4.0 | % | $ | 230,920 |  | 5.0 | %
Tier 1 risk-based capital |  | 610,753 |  | 19.6 |  | 124,608 |  | 4.0 |  | 186,912 |  | 6.0 |
Total risk-based capital |  | 650,273 |  | 20.9 |  | 249,216 |  | 8.0 |  | 311,520 |  | 10.0 |
Condensed financial statements, solely of the parent company, Central Pacific Financial Corp., follow: Central Pacific Financial Corp. Condensed Balance Sheets
|  | December 31, |
|  | 2014 |  | 2013 |
|  | (Dollars in thousands) |
Assets |  |  |  |  |
Cash and cash equivalents |  | $ | 22,775 |  | $ | 19,629 |
Investment securities available for sale |  | 877 |  | 875 |
Investment in subsidiary bank, at equity in underlying net assets |  | 612,505 |  | 710,122 |
Investment in other subsidiaries, at equity in underlying assets |  | — |  | 554 |
Accrued interest receivable and other assets |  | 26,136 |  | 23,202 |
Total assets |  | $ | 662,293 |  | $ | 754,382 |
Liabilities and Shareholders’ Equity |  |  |  |  |
Long-term debt |  | $ | 92,785 |  | $ | 92,785 |
Other liabilities |  | 1,467 |  | 1,484 |
Total liabilities |  | 94,252 |  | 94,269 |
Shareholders’ equity: |  |  |  |  |
Preferred stock, no par value, authorized 1,100,000 shares; issued and outstanding none at December 31, 2014 and 2013 |  | — |  | — |
Common stock, no par value, authorized 185,000,000 shares; issued and outstanding 35,233,674 and 42,107,633 shares at December 31, 2014 and 2013, respectively |  | 642,205 |  | 784,547 |
Surplus |  | 79,716 |  | 75,498 |
Accumulated deficit |  | (157,039 | ) | (184,087 | )
Accumulated other comprehensive income (loss) |  | 3,159 |  | (15,845 | )
Total shareholders’ equity |  | 568,041 |  | 660,113 |
Total liabilities and shareholders’ equity |  | $ | 662,293 |  | $ | 754,382 |
Central Pacific Financial Corp. Condensed Statements of Income
|  | Year Ended December 31, |
|  | 2014 |  | 2013 |  | 2012 |
|  | (Dollars in thousands) |
Income: |  |  |  |  |  |  |
Dividends from subsidiary banks |  | $ | 159,319 |  | $ | — |  | $ | — |
Interest income: |  |  |  |  |  |  |
Interest from subsidiary banks |  | 16 |  | 30 |  | 48 |
Other income |  | 89 |  | 2,001 |  | 9 |
Total income |  | 159,424 |  | 2,031 |  | 57 |
Expense: |  |  |  |  |  |  |
Interest on long-term debt |  | 2,572 |  | 3,118 |  | 3,687 |
Other expenses |  | 2,262 |  | 2,679 |  | 3,081 |
Total expenses |  | 4,834 |  | 5,797 |  | 6,768 |
Gain (loss) before income taxes and equity in undistributed income of subsidiaries |  | 154,590 |  | (3,766 | ) | (6,711 | )
Income tax benefit |  | (2,520 | ) | (31,891 | ) | — |
Income (loss) before equity in undistributed income of subsidiaries |  | 157,110 |  | 28,125 |  | (6,711 | )
Equity in undistributed income (loss) of subsidiary bank |  | (116,657 | ) | 143,945 |  | 54,124 |
Equity in undistributed income of other subsidiaries |  | — |  | 5 |  | 8 |
Net income |  | $ | 40,453 |  | $ | 172,075 |  | $ | 47,421 |
Central Pacific Financial Corp. Condensed Statements of Cash Flows
|  | Year Ended December 31, |
|  | 2014 |  | 2013 |  | 2012 |
|  | (Dollars in thousands) |
Cash flows from operating activities |  |  |  |  |  |  |
Net income |  | $ | 40,453 |  | $ | 172,075 |  | $ | 47,421 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |  |  |
Deferred income tax benefit |  | (2,520 | ) | (25,707 | ) | — |
Equity in undistributed income (loss) of subsidiary bank |  | 116,657 |  | (143,945 | ) | (54,124 | )
Equity in undistributed income of other subsidiaries |  | — |  | (5 | ) | (8 | )
Share-based compensation |  | 4,218 |  | 4,931 |  | 90 |
Accrued interest payable |  | — |  | (11,919 | ) | 3,687 |
Other, net |  | (923 | ) | (362 | ) | 3,994 |
Net cash provided by (used in) operating activities |  | 157,885 |  | (4,932 | ) | 1,060 |
Cash flows from investing activities |  |  |  |  |  |  |
Distribution from unconsolidated subsidiaries |  | 479 |  | 9,000 |  | — |
Contributions to unconsolidated subsidiaries |  | 518 |  | (9,000 | ) | — |
Net cash provided by investing activities |  | 997 |  | — |  | — |
Cash flows from financing activities |  |  |  |  |  |  |
Net proceeds from issuance of common stock and stock option exercises |  | 74 |  | 74 |  | — |
Repayments of long-term debt |  | — |  | (15,464 | ) | — |
Repurchases of common stock |  | (142,405 | ) | — |  | — |
Dividends paid |  | (13,405 | ) | (6,735 | ) | — |
Net cash used in financing activities |  | (155,736 | ) | (22,125 | ) | — |
Net increase (decrease) in cash and cash equivalents |  | 3,146 |  | (27,057 | ) | 1,060 |
Cash and cash equivalents |  |  |  |  |  |  |
At beginning of year |  | 19,629 |  | 46,686 |  | 45,626 |
At end of year |  | $ | 22,775 |  | $ | 19,629 |  | $ | 46,686 |

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