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Central Pacific Plaza
PO Box 3590
Honolulu Hawaii 96811-3590
Telephone 808-544-0500
Fax Line 808-531-2875
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VIA EDGAR AND EMAIL
October 6, 2014
Ms. Lindsay McCord
Division of Corporate Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549-4561
Re: Central Pacific Financial Corp.
Form 10-K for Fiscal Period Ended December 31, 2013 (File No. 001-31567)
Dear Ms. McCord,
On behalf of Central Pacific Financial Corp., a Hawaii corporation (the “Company”), we respectfully set forth below additional information to supplement our July 11, 2014 responses to your comment letter, dated June 19, 2014 (the “Comment Letter”), relating to comments of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) concerning the Company’s Form 10-K for the fiscal period ended December 31, 2013. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in Form 10-K.
The Company acknowledges that:
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the Company is responsible for the adequacy and accuracy of disclosures in our SEC filing.
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Staff comments or changes to disclosure in response to SEC staff comments do not foreclose the Commission from taking any action with respect to the filing.
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the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
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1.
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The Company’s amount of ASC 450 (formerly FAS 5) Allowance for Loan and Lease Losses (“ALLL”) related to economic factors, qualitative adjustments and proxies as of December 31, 2013, March 31, 2014, and June 30, 2014 is presented below.
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ALLL ASC 450 Balance Composition
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As a % of Total ASC 450 Reserve Balance
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Historical
Experience
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Qualitative Adjustments
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Total
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Economic / Market Conditions
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Proxy
Factor
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Concentration
Risk
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Other
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December 31, 2013
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9 | % | 10 | % | 29 | % | n/a | 52 | % | 100 | % | ||||||||||||
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March 31, 2014
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51 | 4 | 6 | 28 | % | 11 | 100 | ||||||||||||||||
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June 30, 2014
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50 | 6 | 5 | 28 | 11 | 100 | |||||||||||||||||
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ALLL ASC 450 Balance Composition
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ASC 450 Reserve Balance by Input Factor
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Historical
Experience
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Qualitative Adjustments
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Total
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Economic / Market Conditions
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Proxy
Factor
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Concentration
Risk
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Other
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December 31, 2013
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$ | 6,976 | $ | 7,468 | $ | 22,202 | n/a | $ | 40,825 | $ | 77,471 | |||||||||||
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March 31, 2014
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37,687 | 2,841 | 4,478 | $ | 20,439 | 8,225 | 73,670 | |||||||||||||||
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June 30, 2014
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38,102 | 4,830 | 3,537 | 21,468 | 8,489 | 76,426 | ||||||||||||||||
The dominant effect of the extended look back period enhancement that was introduced in the first quarter of 2014 was to decrease the reliance on use of third party proxy data (where we have no recorded experience in the applicable look back period) as is depicted in the tables above.
Concentration Risk was incorporated as an enhancement to the methodology in the first quarter of 2014. Given the longer look back period also adopted in the first quarter of 2014 to better capture the economic cycle, the qualitative adjustment of refinance risk applied to the commercial mortgage loans was discontinued. This was previously recorded under ‘Other’.
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2.
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The impact of the methodology changes made in the first quarter of 2014 by major loan category is detailed below.
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December 31, 2013
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March 31, 2014
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ASC 450
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Loan Balance
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ASC 450
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Loan Balance
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(dollars in thousands) | ||||||||||||||||||||
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Commercial, financial and agricultural
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$ | 12,847 | $ | 394,426 | 3.3 | % | $ | 9,294 | $ | 418,230 | 2.2 | % | |||||||||
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Construction
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2,774 | 67,862 | 4.1 | 14,940 | 81,649 | 18.3 | |||||||||||||||
| Mortgage - residential | 25,272 | 1,098,376 | 2.3 | 17,812 | 1,142,220 | 1.6 | |||||||||||||||
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Mortgage - commercial
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29,947 | 687,529 | 4.4 | 25,925 | 668,624 | 3.9 | |||||||||||||||
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Consumer
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6,576 | 311,670 | 2.1 | 5,687 | 306,440 | 1.8 | |||||||||||||||
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Leases
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55 | 6,241 | 0.9 | 12 | 5,338 | 0.2 | |||||||||||||||
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Total
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$ | 77,471 | $ | 2,566,104 | 3.0 | % | $ | 73,670 | $ | 2,622,501 | 2.8 | % | |||||||||
The methodology changes incorporated greater use of our own historical experience and resulted in a decrease in the reserve factors in all but the Construction loan segment. This is reasonable given our adverse experience with Construction-related credits in prior years.
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3.
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The tables below include further detail regarding the calculation of our ALLL reserve balance for the quarters ended December 31, 2013 and March 31, 2014.
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Below is the reserve balance at the end of the quarter but prior to the calculation of the required reserve. It comprises the prior quarter end balance and is adjusted for net charge-offs or recoveries as incurred in the quarter.
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December 31,
2013
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March 31,
2014
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Reserve Balance Prior Quarter End
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$ | 85,228 | $ | 83,820 | |||
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Net Charge-offs / (Recoveries) in the current quarter
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75 | (658 | ) | ||||
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Reserve Balance
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$ | 85,153 | $ | 84,478 | |||
Below is the summary of the calculated amounts of the components of the ALLL required reserve balance as of the end of the quarter.
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December 31,
2013
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March 31,
2014
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Variance
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ASC 310 (FAS 114)
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$ | 349 | $ | 3,492 | $ | 3,143 | |||||
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ASC 450 (FAS 5)
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77,471 | 73,670 | (3,801 | ) | |||||||
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Unallocated
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6,000 | 6,000 | - | ||||||||
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Required Reserves
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$ | 83,820 | $ | 83,162 | $ | (658 | ) | ||||
Below is the difference between the Reserve Balance and the Required Reserves for the current quarter.
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December 31,
2013
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March 31,
2014
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Total Provision Released / (Required)
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$ | 1,333 | $ | 1,316 | |||
* * * * *
If you have any questions regarding this letter or should need any additional information, please contact the undersigned at 808.544.6881.
Sincerely yours,
/s/ Denis Isono
Denis Isono
Chief Financial Officer