CHAIRMAN'S MESSAGE March 23_ 2010 Aloha_ It is with unbridled hope

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CHAIRMAN'S MESSAGE March 23_ 2010 Aloha_ It is with unbridled hope Powered By Docstoc
					P.O. Box 3590
Honolulu, Hawaii 96811-3590

John C. Dean, a 29-year banking veteran, has assumed the position of Executive Chairman of the Board of Central Pacific
Financial Corp. (CPF) and Central Pacific Bank (CPB), acting subject to regulatory approval. Executive management of the bank
reports to Dean. Ronald K. Migita, age 68, has retired as President and CEO and has stepped down as Chairman of the Board of
CPF and CPB, and will remain a director of the holding company and bank.

CHAIRMAN’S MESSAGE                                                                               March 23, 2010

John C. Dean, Acting Executive Chairman of the Board, Central Pacific Financial Corp. and Central Pacific Bank
Ronald K. Migita, Director, Central Pacific Financial Corp. and Central Pacific Bank

       Aloha! It is with unbridled hope for the future of Central Pacific Bank that we announced a
leadership change for this outstanding financial institution. We recognize that there is anxiety and
uncertainty as we move forward. But a certain level of both is inherent whenever you embark on a new
adventure or chart uncharted ground. Such was the case when our founders decided to start a bank to
serve the entire community and provide opportunities for a better life for everyone. More than 56 years
later, we face similar challenges.
       2009 was unprecedented in our history, and we continue to have ongoing challenges. The
recently announced leadership transition is part of an overarching Recovery Plan designed to improve
the Company’s capital ratios by reducing the bank’s assets and focusing on the bank’s core business and
traditional markets in Hawaii. Reducing the bank’s assets will contribute toward improving its capital
ratios, as would any increase in capital. The Plan was developed with the assistance of the Promontory
Financial Group, a highly regarded advisor to financial institutions. The Company continues to work
with investment advisors to explore all options for raising additional capital concurrent with the
implementation of the Plan. We believe the plan is a sound one and that there is an accessible path
toward profitability.
       In many ways, we are starting with a solid foundation of more than 56 years of continuous service
to the people and businesses of Hawaii. Through the years, we have served a critical need in the Hawaii
market – one inspired by the commitment, loyalty, purpose and heart of the heroic veterans who served
with the 100th Battalion and 442nd Regimental Combat Team in World War II. Part of the most
decorated units in U.S. military history, a group of these men returned to the islands and established
Central Pacific Bank in 1954 as a bank for all of Hawaii’s people. They knew small business loans and
first-time mortgages would enable island families to move off the plantations and begin a lifetime of
new opportunities. When statehood arrived in 1959, the opportunities for island businesses and families
rapidly grew – and so did Central Pacific Bank.
       And so we return to our roots and to a business model that has served us so well for most of our
history: To be a smaller bank with large relevance to Hawaii and to be the bank of choice for customers
who appreciate value and personalized service. We have made “relationship banking” the trademark of
Central Pacific Bank, and steps taken this past year have set us on a path to return to the heart of our
successful core franchise.
       As we ended 2009, our company had made significant progress in re-establishing its business model
to become a smaller bank with a return to our core values, a refocus on the Hawaii market, and the
realignment of our financial portfolio. We recognized that the business model we had been using in recent
years placed undue emphasis on the short term, which became a distraction from our long-term goals.
       Still, 2009 brought unprecedented challenges. Increased credit costs associated with our commercial
real estate loan portfolio resulted in net losses that impacted our capital levels and stock price. While
there are still significant inherent costs in our portfolio, we have decreased total loans and leases to $3.1
billion or by nearly 25% through loan sales, loan restructurings and paydowns. Those efforts not only
reduced our overall credit exposure but also created meaningful reductions in our concentration in
commercial real estate loans and allowed us to better balance our overall portfolio.
      Reducing our credit exposure was only part of the story in 2009. While strengthening our capital
position was also a priority issue and we did receive interest from private equity investors, our Board
determined that consummation of a transaction on the terms and conditions proposed to date is not likely
to occur in the near term. As a result we are focused on the immediate implementation of the Recovery
Plan while continuing to seek new capital.
      We are encouraged by the strength of our customer relationships built by a service driven culture
embraced by our managers and team members. We initiated a bank-wide effort to deliver second-to-none
customer service to retain and attract core deposit customers and supported the effort with innovative
marketing campaigns throughout the year. Despite a weak economy and credit issues, we were able to
increase core deposits by approximately $146 million and reduce non-core deposits by over $489 million.
As a result, we improved our liquidity and loan-to-deposit ratio to 85.8% at the end of 2009, down from
103% the previous year.
      In 2009, cost savings, like most other aspects of operations, were not assessed in isolation but in
conjunction with the campaign to improve service to our customers. We consolidated branches in
Kaneohe and Pearl City, and have scheduled consolidations for the Kapiolani-Keeaumoku and Bethel-
Main branches this April. In addition to cost saving benefits, we expanded convenience for our customers
by offering extended hours and Saturday banking at select locations.
      Additional efficiencies will be realized with the closing of three of our four loan production offices
in California as we execute our plan to exit the Mainland market by 2012. The combined savings from
these consolidations and office closures are expected to exceed $2 million annually. We also improved our
internal efficiencies and became the first bank in Hawaii to launch electronic transactions with the Federal
Reserve Bank.
      These and other efforts in 2009 demonstrate our commitment to our island home. In addition
to being recognized by the U.S. Small Business Administration (SBA) as SBA Lender of the Year in our
category for five consecutive years from 2004 to 2008, our 113 SBA loans in 2009 outpaced all other
financial institutions statewide. We also consistently lead the Hawaii market in supporting home
ownership. During 2009, Central Pacific HomeLoans helped more Hawaii residents become homeowners
with a record $1.9 billion in residential mortgage loans, an increase of 24.3% compared to 2008 and
more than any other bank in the state.
      At the end of 2009, Central Pacific Financial Corp. was a $4.9 billion institution with its primary
subsidiary, Central Pacific Bank, operating 37 branches, four residential mortgage loan offices, and more
than 100 ATMs statewide. Our mission is to be the best community bank in Hawaii by being a trusted
partner and true neighbor. To accomplish this, we are strengthening our resolve and rededicating our
efforts to product innovation and service excellence, focusing on creating sustainable growth and increased
asset quality in a market we know well – our home, Hawaii.
      In 2010, we seek to establish a stronger more agile bank that is positioning itself for a long-term
future. The Board of Directors has given the bank its strong support and will be actively engaged with
executive management and in the implementation of the Recovery Plan.
      Finally as individuals and as a bank, we are constantly aware of our connection to the communities
we serve. Shared values connect us all. That will always be Central Pacific Bank’s unique strength, and it
is those values that take us forward with determination and confidence.

John C. Dean                                             Ronald K. Migita
Acting Executive Chairman of the Board                   Board of Directors