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