Central Pacific Financial Corp (CPF) 2009 Q3 法說會逐字稿

Good afternoon, ladies and gentleman. Thank you for standing by and welcome to the Central Pacific Financial Corp. third quarter 2009 conference call. During today's presentation, all parties will be in a listen only mode. (Operator Instructions) This call is being recorded and will be available for replay shortly after its completion on the Company's website at www.centralpacificbank.com.

I'd now like to turn the call over to Mr. David Morimoto, Senior Vice President, Investor Relations. Please go ahead sir.

Thank you Angela and good morning everyone. Today's call will refer to a slide presentation that can be found on our investor relations of our website at centralpacificbank.com.

During the course of today's call, management may make forward-looking statements. While we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected. For a complete discussion of the risks related to forward-looking statements, please see our third quarter earnings release and our other recent documents filed with the SEC. Now I'll turn the call over to Ron Migita, Chairman, President and Chief Executive Officer.

Thank you, David, and thank you all for joining us today to review Central Pacific Financial Corporation's financial performance for the third quarter of 2009.

During the third quarter, we continued to face significant challenges in both our Hawaii and California loan portfolios. In fact, deterioration in both markets is reflected in our increased credit costs and nonperforming loan ratio. While we do not see this situation improving in the near future, we are doing everything we can to monitor our credit quality and take appropriate action. At the same time, we're exploring all available means to raise additional capital.

I would like to summarize some of the key issues pertaining to our third quarter performance as well as describe plans we have in place to address these critical issues going forward. Dean Hirata, our Chief Financial Officer will then provide details of our financial performance, and Mary Weisman, our Chief Credit Officer will discuss our loan situation. Also with us on this call this morning are Denis Isono, our newly appointed Vice Chair and Chief Operations Officer, Blenn Fujimoto, Vice Chair and Head of Retail Banking, and [Lance Misomoto] Executive Vice President and Head of Commercial Banking. We will be happy to address any questions you may have at the end of our report.

The Company realized an adjusted net loss of $71.7 million for the third quarter ended of September 30th, 2009, including total credit cost of $145.1 million, primarily comprised of provisions for loan and lease losses. In addition, we recognized non-cash charges of $50 million for goodwill impairment as well as $61.4 million for a valuation allowance against our net deferred tax assets, resulting in a net loss of $183.1 million. The goodwill impairment charge does not affect our capital ratios. The establishment of a valuation allowance against the Company's net deferred tax assets was based on its net operating losses.

Our loan portfolio continues to deteriorate in the third quarter, both in California and Hawaii, and non-performing assets increased to 8.1% of total assets, compared to 4.7% at the end of the second quarter. Net loan charge-offs totaled $103.7 million in the third quarter. Our allowance for loan and lease losses was at 5.93% of total loans and leases at September 30th, 2009, as compared to 4.5% on June 30th, 2009. We have accelerated our efforts to reduce credit risk by pursuing loan sales, including potential bulk sales. In addition loan restructurings and paydowns, our total loans and leases were reduced by $622.6 million or 15.3% from the same period a year ago. We continue to manage down our California loan operations and concentrate our focus in Hawaii.

Total deposits increased by $83.9 million or 2.2% from a year ago. More importantly, our core deposits increased by $435.6 million dollars or 16.1% during the same period. Our marketing efforts to grow core deposits have been successful in shifting our deposit composition from time to core. In addition, we managed to reduce bulk of deposits to $84.7 million at the end of this quarter compared to $188.1 million at the end of 2008. Our loan to deposit ratio further improved to 89.6% at September 30th, 2009, from 93% at June 30th, 2009.

As of September 30th, 2009, our Tier 1 risk based capital, total risk based capital and leverage capital ratios were 10.94%, 12.24% and 8.11% respectively. As we've previously reported in July, we have been exploring all alternatives for strengthening our capital position and reducing credit risk. As we announced last week, I am pleased that our shareholders have supported our capital raising efforts by approving an increase in the number of authorized shares of common stock from 100 million to 185 million shares. This increase, which was approved at our special shareholders meeting on October 22nd provides our Board of Directors with the added flexibility to pursue all available options for raising capital. In addition to a potential public offering of capital stock, we are exploring all measures to improve our capital position. While we are finalizing our capital needs based continued evaluation of our loan portfolio and prospects for loan sales in the future, we expect the required capital amount to be substantially higher than projected prior to the third quarter. Given the credit costs realized in the this quarter, the currently condition of our asset quality and our capital needs, we anticipate entering into a formal enforcement action with the FDIC and the Hawaii Division of Financial Institutions that will require addressing our asset quality, capital needs and liquidity. As mentioned before, we have already initiated these measures and plan to accelerate them going forward.

The economic conditions in Hawaii continue to be challenging. Historically, Hawaii's economic cycle has lagged behind that of the mainland US. So while the mainland US may see signs of stability or even recovery, locally we're experiencing a continued contraction of businesses driven by decreased visitor spending, reduced construction and development activity and consumer concerns over employment stability.

While visitor arrivals appears to be stabilizing, visitor expenditures are projected to decrease by 12% in 2009 compared to last year, primarily due to the widespread discounting in the tourist industry. The unemployment rate has leveled off between 7% and 7.4% over the past few months. However, it is forecasted to average 8.1% in 2010. Inflation has been absent in Hawaii so far this year and average consumer prices are projected to drop by 0.5% by the end of 2009. However, real income is forecasted to decrease by 1%. Given these figures and what we have seen throughout the state, we expect the challenging economic conditions to persist -- in our view -- toward the end of 2010, resulting in further credit deterioration.

As for the execution of our capital raising and asset quality plans demand more dedicated focus from key members of our management team, including myself, I have promoted Denis Isono to Vice Chair and Chief Operations Officer to manage the day to day business of the bank. He has extensive experience and a successful track record managing our operations at the executive level, and will provide the necessary oversight for our operational decisions and execution, while other executives address our critical short-term needs.

Despite our challenges, we have such as sustained our day-to-day banking activity with a solid platform of exceptional service and quality products in our core lines of businesses. We continue to be one of the market leaders in residential mortgage originations in our state with over $1.5 billion year to date. The US Small Business Administration recently closed the fiscal year on September 30th with our bank recording the highest number of SBA loans made in Hawaii among all other financial institutions. We are steadfast in our commitment to delivering value to our customers and marketplace as the premier community bank.

At this time, our Chief Financial Officer, Dean Hirata will be reviewing the Company's financial performance for the third quarter of 2009. Dean?

Thank you Ron. The financial presentation begins on slide three. As we have stated through this economic downturn our key areas of focus continue to be reducing credit risk, enhancing balance sheet liquidity, and strengthening our capital position. In addition to reviewing our third quarter 2009 financial results, we will address each of these items in detail and provide you with an update of what we have done over the past quarter and our plans going forward.

Turning to slide four, this slide provides a brief overview of our quarterly results. I won't go into the specifics, because that's been covered by Ron, but I did want to point out a couple items. The currently quarter results, were impacted by total credit costs of $145.1 million, which included a provision for loan and lease losses of $142.5 million. And, the other item is that we continue to show strong origination volume in residential mortgage loans. During the current quarter, we originated $335 million and year to date originations are over $1.5 billion. Substantially all of these loans were sold in the secondary market primarily to Fannie Mae and Freddie Mac.

Turning to slide five, for the third quarter of 2009, net interest income totaled $43.5 million compared to $46.1 million for the second quarter of 2009. As shown in the table, our net interest margin was 3.56% in the third quarter of 2009 compared to 3.77% in the previous quarter. The sequential quarter compression was primarily due to high reverses of interest on nonaccrual loans and lower loan yields. Excluding the effects of interest reversals on nonaccrual loans, the third quarter net interest margin was 3.72% compared to 3.89% in the previous quarter.

Turning to slide six, for the third quarter of 2009, other operating income totaled $15.4 million compared to $14.6 million in the second quarter of 2009. The increase was primarily due to the recognition of an other than temporary impairment or OTTI charge, totaling $2.6 million during the second of 2009 and higher unrealized gains of outstanding interest rate locks. These items were partially offset by lower gains themselves in residential mortgage loans and lower gains related to the ineffective portion of a cash flow hedge.

Turning to slide seven, for the third quarter of 2009, excluding the non-cash goodwill impairment charge, other operating expense totaled $39.5 million compared to $45.8 million in the second quarter of 2009. The decrease was primarily due to lower reserves for unfunded commitments, FDIC insurance expense, and salaries and employee benefits partially offset by higher foreclosed asset expense. Our efficiency ratio was 55.8% for the third quarter of 2009 compared to 65.6% in the second quarter of 2009.

Beginning with slide eight, I will turn it over to Mary to discuss credit risk and asset quality. Mary?

Thank you, Dean. Despite signs of early economic recovery nationally, Hawaii and California continue to experience economic challenges. Real estate project attributes continue to weaken in the third quarter due to slow sales and lease absorption, rising vacancies coupled with declining lease rates, and lower property valuations, all of which led to a more rapid and deeper decline than anticipated in our real estate portfolios, especially in Hawaii.

As a result, nonaccrual loans, including loans held for sale increased to $397 million, up $154 million on a sequential quarter basis. Quarter over quarter, Hawaii non-accruals increased approximately $87 million to $204 million, and mainland non-accruals increased approximately $68 million to $193 million. $289 million or 73% of total non-accruals, including loans held for sale, where related to land and construction loans, both on the mainland and in Hawaii.

Net loan charge-offs totaled $103.7 million, up from $30.5 million on a sequential quarter basis, as we charged down impaired assets based on discounted appraised values. The allowance for loan and lease losses was strengthened this quarter. The provision totaled $142.5 million, or $38.8 million in excess of net chargeoffs, bringing the allowance to just under $205 million, or 5.93% of outstanding loans, up from 4.5% last quarter.

Turning to slide nine, this table depicts the composition of our loan portfolio by geographic region and loan type. For each category, this table shows outstanding balances, its percentage of our total portfolio, the amount of nonaccrual loans, nonaccrual loans as a percentage of outstanding balances, delinquencies and cycle to date net charge-offs, write-downs and losses. Since the beginning of the year, total outstanding balances have decreased 14% or $572 million to $3.45 billion. The mainland has decreased 16% to $873 million. And Hawaii has declined 14% to $2.6 billion.

I will provide further insight on the delinquent and non-performing loans in the next two slides. So turn to slide 10 wherein delinquencies depict increase quarter over quarter from $21 million at June 30, 2009 to about $54 million at September 30, 2009. Included in the 60-day to 89-day delinquent bucket is a $50 million mainland commercial construction real estate loan which has since moved to nonaccrual. Loans past due 90 days and still accruing interest totaled $27.7 million. There were two loans totaling $22 million that had matured at quarter end but had been approved to be refinanced. Both loans are considered well secured and in the process of collection. We expect them to be brought current shortly after documentation is fully executed.

Turning to slide 11, this table shows a breakdown of non-performing assets by category at September 30th, with comparative balances over the preceding three quarters. Non-performing loans increased quarter over quarter largely due to real estate loans that are current or otherwise under 90 days delinquent that were placed on nonaccrual. All nonaccrual loans were reviewed for potential impairment, and shortfalls in collaterals were charged off.

As a result, during the third quarter, there was a net $157 million increase in non-performing assets to $418.5 million. The net additions included $53.7 million in mainland commercial mortgage loans, $38.9 million in Hawaii commercial construction loans, $38.8 million in Hawaii residential construction loans, and $33.8 million in mainland commercial construction loans. The next few slides will profile various loan segments with a focus this quarter on the Hawaii commercial real estate sector given the acceleration and risks this quarter.

Turning to slide 12. The bank's total commercial real estate exposure at September 30th totaled $2.27 billion. This represented a $298 million reduction since the beginning of 2009 due in part to charge-offs, payoffs and pay-downs. Turning to slide 13, at $1 billion, the construction portfolio represented about 30% of the bank's total loan outstanding. Mainland construction related loans were 37% of the total, with Hawaii loans at 60%. Construction loans are the bank's highest risk segment, with nonaccruals excluding loans held for sale of $271 million, which represented 72% of the bank's total non-accruals, excluding loans held for sale at September 30th.

Turning to slide 14, Hawaii construction loans totaled $632 million. This balance was comprised of 138 loans with an average loan commitment of $5 million. The composition of the portfolio was evenly split between residential and commercial construction. Land and land development loans represented $173 million or 27% of the total. Since the beginning of 2009, non-accruals have increased as project sales or absorption activity slowed and property values declined most notably on the neighbor islands. At September 30th, nonaccrual loans were $148 million.

Turning to slide 15. Hawaii residential construction loans totaled $334 million at September 30th. This balance was comprised of 64 loans with an average commitment of $6 million. Single-family residential properties accounted for 59% of this portfolio with condominiums and townhomes accounting for the remaining 22% and 19% respectively. 28% of the portfolio was in land and land development loans. Our largest exposures were on Oahu with 35% of the totals with Maui following a close second at 32%.

Turning to slide 16, within the Hawaii residential construction portfolio, our high-end resort housing projects, which we view to be of high risk. This market is largely supported by buyers from the mainland and represented projects where homes retail for $1 million plus. With the US recession, freezing of jumbo loans and tightening of lending standards for second home purchases, absorption slowed during 2009. This portfolio totals $128 million or 38% of the total Hawaii residential construction portfolio at September 30th. This segment was comprised of 12 loans, with an average loan commitment of $11 million. Most of the projects are located on the island of Hawaii, with seven loans representing 50% of the total.

Turning to slide 17, our total Hawaii commercial construction portfolio was $298 million at September 30th. This segment was comprised of 74 loans with an average commitment of $5 million. The charts on the left provide a breakdown by property type and geographic location. 57% of the exposure is located on the island of Oahu with 32% on Maui. The segment was primarily comprised of retail and industrial warehouse property types, representing 32% and 20% of the aggregate portfolio respectively. Approximately 26% of the portfolio was for land and land development loans. Non-accruals increased in the third quarter by $39 million to $73 million, $23 million stemmed from two industrial projects, one on Maui and one on Oahu.

Turning to slide 18, this slide provides a detailed breakout of the industrial construction subsegment. Total exposure was $61 million, of which $26 million was on nonaccrual. Turning to slide 19, our total exposure in the Hawaii retail and restaurant segment is $206 million as of September 30th, or approximately 17% of the investor-based Hawaii commercial real estate portfolio. It is comprised of 79 loans with an average commitment of $3 million.

Term loans accounted for 56% of the portfolio, although vertical construction loans represented another 40%. Our largest geographic exposure within this segment was on the island of Maui at 41%, followed by Oahu at 38%. New classified loans during the third quarter included three shopping centers on the island of Maui, which were experiencing slow lease up activity due in large part to reduced tourist traffic. Although I will not be specifically addressing them, there is additional detail regarding other segments of the bank's commercial real estate portfolio that can be found in the appendix section of the presentation.

Turning to slide 20, reducing credit risk is a top priority for us at Central Pacific. From the onset of this economic downturn, we have proactively identified weaknesses and have taken actions to reduce exposures. We have reduced our land and construction portfolios over $260 million since January 1st, 2008 and by $195 million since January 1, 2009. During the third quarter 2009, we wrote down nonaccrual loans to discounted appraised values, and have added more staff to our special credits team in Hawaii. In addition, we've strengthened our allowance for loan and lease losses, which now represents 5.93% of total loans outstanding. But economic indicators for Hawaii and California point to continued challenges over the next few quarters, due to these states' weak economies. So in order to accelerate reductions in our credit risk, we are now pursuing loan sales from both the mainland and Hawaii portfolios, including potential bulk sales.

As we move to slide 21, I will ask Dean to complete the presentation.

Thank you, Mary. In addition to reducing credit risk and improving asset quality, maintaining strong liquidity is another key area of focus. The following key points illustrate our liquidity position at September 30, 2009 -- a loan to deposit ratio of less than 90%, deposits were just under 75% of our total assets, minimum reliance on broker CDs, cash and cash equivalence of more than $317 million, and over $870 million in available borrowing capacity.

Turning to slide 22, this slide depicts our loan to deposit ratio in comparison to a peer group. As you can see, as a result of our proactive approach to strengthening liquidity, we have significantly improved this ratio and it now stands at less than 90% as of September 30, 2009. Through the first three quarters of 2009, this ratio has been consistently lower than our national peers.

We continue to maintain a strong core franchise as depicted on slide 23. At September 30, 2009, our total deposits totaled $3.9 billion, of which $3.1 billion or 81% represent core deposits. Broker CDs account for a nominal 2.2% of our total and CDs over $250,000 account for only 3.5% of our total. In November 2009, approximately $40 million of broker CDs are scheduled to mature. Our average cost of deposits for the current quarter was down to 1.02% for the third quarter of 2009 compared to 1.18% in the previous quarter.

Turning to slide 24, while credit capital and liquidity remain our near-term focus, we continue to look for ways to expand our business operations in our core Hawaii markets. Our deposit market share is greater than 14% among banks and thrifts, and we have a strong branch and ATM network. Through the first nine months of 2009, we originated more SBA loans than any other bank in Hawaii. We are also one of the state's largest originators of residential mortgage loans. We have built a reputation for exceptional service and a commitment to our local community where we are viewed as a community bank that is large enough to provide a broad suite of products and services, yet small enough to deliver personalized customer service.

Turning to slide 25 as you can see from the table, at September 30, 2009, our Tier 1 risk-based capital, total risk-based capital and leveraged capital ratios were 10.9%, 12.2% and 8.1% respectively, and our tangible common equity ratio was 3.6%. October 22nd, 2009, our shareholders voted in favor of increasing our authorized common shares from 100 million to 185 million. The authorization of additional common shares provides us with increased flexibility as we move forward with our capital raising efforts. We are actively pursuing all measures to strengthen our capital position, including potential public and private offerings As part of our capital raising efforts, we have engaged a third-party consultant to provide an independent review of the loan portfolio.

I will now close the formal portion of our presentation on slide 26 by recapping our near-term strategies. With respect to credit, we continue to enhance our risk management infrastructure and intend to accelerate the reduction of our credit risk by pursuing loan sales, including potential bulk loan sales. With respect to liquidity, we continue to proactively manage our balance sheet. Driven by a strong core deposit base and reductions in our loan portfolio, we have been able to enhance our liquidity position. And finally, with respect to capital, we are actively pursuing all measures to strengthen our capital position, including potential public and private offerings.

This concludes our presentation. We will now open it up to questions.

Thank you. (Operator Instructions) Our first question comes from Brett Rabatin of Stern Agee. Please go ahead.

Hi, good morning.

Good morning, Brett.

Wanted to first start off with a little more color around if possible, the formal enforcement action. You discussed it briefly there, but can you talk about that in a little more detail, assuming cease and desist and time line to raise capital and the parameters around what they have outlined for you?

Maybe I'll just start off. The examination by the local regulatory agency here in Hawaii as well as the FDIC started in August of this year and concluded toward the end of the month. And the examination identified areas of concern, and they included asset quality, capital adequacy and maintaining liquidity that required corrective action.

As a result, the formal enforcement action is designed to address these areas of concern. And I can tell you that the board and management have committed to addressing these areas of concern. We continue to serve our customers with all of their banking needs.

Insofar as the timing of their capital, I'll ask our CFO here, Dean Hirata, to address that. Dean?

Brett, we now have more authorized common shares. And as I stated on the call, we are actively pursuing all capital raising measures, including public and private offerings to increase our capital levels. And, the regulators are aware that we are actively pursuing these measures to increase our capital levels.

Okay. Maybe we can follow-up offline a little more about the formal action. Can you -- you haven't given any parameters around the size -- or how much you hope to raise. Obviously it's bigger than your previous assumption. Can you give us a ballpark, or is that something you're not willing to talk about at this point?

Based on our third quarter results, the challenging economic conditions we expect to persist over the coming quarters, and the resulting of further credit deterioration, we believe we need a substantial amount of additional capital. We are using internal and third-party loan reviews to reduce credit risk. We are also pursuing loan sales, including potential bulk loan sales to reduce the risk in our balance sheet, and the amount of capital that will be required will be a function of potential loan sales and our assessment of the risk remaining in our balance sheet.

Okay. Let me make sure I'm clear on something. The third party review -- is that essentially for yourself, or is it more of a function of a third-party review for interested investors to get a different perspective on your loan portfolio?

It's the latter. It's really a validation of our own -- first and foremost it starts at our own internal review, but like you said, it's a validation for potential investors.

And based on that prior comment about the process you're going through, is it fair to assume you haven't quite put down on paper the number you're hoping to achieve in various efforts to raise capital? You're still in that process, so to speak?

Yes.

Okay. And then, I wanted to get a little more color, if possible around -- there was a commentary in the press release, and then just generally in the prepared comments about deterioration in credit quality further from these levels, and I know you had some of those loans that were delinquent that were working out. But can you put a little more color if possible around the segments that are experiencing additional stress at this point, relative to where you were maybe a quarter ago? Is it more a function of mainland commercial real estate, and you see higher levels of impaired assets in that portfolio, or can you put a little more color around where you expect the further deterioration?

Okay. We'll ask Mary Weisman to address that question.

Good morning, Brett.

Good morning.

With respect to what occurred during the third quarter, we accelerated receipt of appraisals during the three-month period. And as a result of that, we received values that were substantially less than we thought they would come in at. For example, the appraisals came in approximately 30% to 40% lower than what we may have received in an appraised value earlier in 2009. So there's been substantial movement in the view of what these independent parties are suggesting, relative to the property values.

As a result of that, across pretty much all sectors, mainland and Hawaii of commercial construction mainland, commercial mortgage mainland, residential construction Hawaii, commercial construction Hawaii -- we saw property deter -- value deterioration such that we made the decision that given the level of impairment and the value of the property versus our carrying value of the loan, that with sponsor capacity diminishing and near-term maturities, that there was likely impairment and thus those loans were placed on nonaccrual. In many cases the loans were actually paying interest; but given the principal impairment, and the risk of potential nonpayment over the next couple of quarters, we decided to move forward and place them on nonaccrual which led to the significant increase that you saw for this quarter.

I'm going to just expand a little bit. You mentioned what segments. On the mainland, we did see some movement this quarter in apartment values that we hadn't seen previously. So we do have some multifamily properties in the state of Washington and in California that were placed on nonaccrual given new appraised values.

In Hawaii, we continue to see stress within the high-end resort development sector and also within the retail sector.

Okay. I'll follow up offline with the rest. Thank you.

Thank you, Brett.

Thank you. Our next question comes from Joe Morford of RBC Capital Markets.

Good morning, everyone.

Good morning, Joe.

I guess this is a follow-up for Mary, and maybe you just answered it there, but I was just trying to get a better understanding about this significant increase in these commercial real estate problems in the mainland this quarter with commercial construction in Hawaii and just trying to get a sense of -- did the trends actually deteriorate that much since June? It sounds like maybe it's the result of these updated appraisals, because -- I was under the impression when you took over as chief credit officer earlier this year, you had done a pretty thorough review of exposures and updated appraisals that at the time moved a lot into classified trends or classified categories. So just trying to reconcile all that's transpired here.

Okay Joe. You're right. In June, we did do a portfolio review, but also I came on board the beginning of June. At that time we also started looking at making adjustments to some of our credit process as it related to ongoing reviews, getting updated appraisals, making determinations as to risk ratings, and getting our line officers to go out and really assess what was happening with the various projects and the status of the sponsorship as it related to their able to support the projects.

During the third quarter, that deepened further, and as a result, we did receive quite a number of appraisals in that suggested that the weaknesses were more pronounced than we had anticipated. So rather than waiting until another quarter or two goes by, we elected at this time to recognize the risk that exists within these various segments. We continue to believe that there will be ongoing evolution, because both California and Hawaii continue to face economic challenges. While we have recognized the risk, there is room for further deterioration as we work with our clients and clients have an opportunity to meet certain trigger events with respect to the credit facilities that they have with us.

Okay. And, can you also comment on specifically is this really an issue of collateral values, and what's happening also with cash flow trends with the commercial real estate properties both in the mainland and Hawaii?

Well, that's obviously being factored in, especially on some of the commercial construction and the commercial mortgage properties. Absorption has slowed so there's higher levels of vacancy and there is pressure to reduce rents. So as a result when we get an appraisal, it's reflective of those current trends, layering in higher capitalization rates lead to lower property values. So it's a combination of many different factors.

The sponsors themselves, while they have been supporting the projects along the way for any gaps that might exist relative to debt service coverage have, in fact, reached maximum capacity. As a result, they are less inclined at this point to continue to fund projects for the long term. So we continue to work with them and restructure where appropriate. However, they are experiencing stress themselves, so when you combine that with the valuation component, it leads to the weaknesses we experienced this quarter.

That's helpful and just lastly -- can you give us a break down of the net charge-offs by type and geography this quarter and give us a little more color of what's driving these losses, the big increases? It sounds like it's just reflecting the new appraised values.

On the mainland the overall commercial real estate charge-offs totaled $56 million of which $29 million were with commercial construction, and about $14 million with CRE term loans. A big portion of that related to apartment loans, which I had mentioned earlier.

For Hawaii commercial real estate, charge-offs totaled about $33 million with $21million stemming from residential construction and another $11 million from commercial construction. The commercial construction side was primarily within an industrial development that we have here on Oahu.

Okay. Thanks very much, Mary.

You're welcome, Joe.

Our next question comes from [Joe Bladeu of B. Riley]. Please go ahead.

Hi.

Good morning.

Good morning.

Mary, I guess I'd like to follow up with one comment you made earlier and just trying to get my hands around the migration to non-performing in the third quarter.

Just looking back the 30-day to 89-day past-due loans were only about $17 million as of June 30, and yet there was over $150 million of migration to non-performing status. You mentioned that a good number of those were performing loans that had deterioration in the values of the collateral. Was that a big portion, or can you give us some -- a little more color on that?

It was a big portion, about 65% of new nonaccrual loans were actually paying interest at the time that we placed them on nonaccrual. So it does represent a fairly sizable amount of what was moved. In looking through the delinquency spectrum, clearly the loans have not migrated from 30 plus into the nonaccrual bucket. This placement on nonaccrual is driven primarily on the risk of principal impairment and relative future risk associated with nonpayment as maturities come due and sponsors are less inclined to support projects on an ongoing basis.

And as far as the number of appraisals you got on the commercial real estate and construction loans, was that all of the loans, or what percentage got new appraisals this quarter?

It wasn't all loans. But as loans moved into our classified category, we did get new appraisals. Approximately the entire CRE book was about 55% newly appraised in the past three months.

Okay. And lastly, I'll ask, can you give us some idea of what the largest, still-performing CRE in construction loans, how big the largest couple of loans are. And if you can give us some color on what type of loans they are?

Can you repeat that, Joe? I'm sorry.

I'm just looking for what the largest construction and CRE loans are that are still performing that are not classified, I guess just looking for what big chunks of things might be out there.

We do have one large loan on the mainland. It's a shopping center that is currently not classified and performing. We also have some exposures to some single borrower groups that are continuing to perform that are located both here on the islands of Hawaii as well as on the mainland. Namely, a couple of residential construction projects that are still working through, and we think will be okay.

And we do have quite a number of officed projects, that while in Hawaii, there is some pressure there. These particular projects are still performing well.

Can you give us any idea of what some of the dollar values of some of those? $10 million? $20 million plus or whatever?

They tend to be in the $10 million to $15 million range.

All right. And I think that's it for me.

Thank you, Joe.

Thank you. Our next question is from Bobby Bohlen of KBW.

Hi. Thank you for taking my call. My question -- when you're looking at the bulk loan sales, would you consider the PPIP program?

Dean, I think maybe you can start addressing that question.

Yes. At this point, we are looking at all alternatives with respect to loan sales, and we did potentially including a bulk loan sale.

But you would look at other -- at alternatives outside of private sales, too, correct? You would consider the PPIP?

Yes. Like I said, we're looking at all options at this point.

And then I guess a follow-up question. If you were doing -- if you are doing bulk loan sales or looking to put together a suite of loans to sell, would they be homogenous, or would they be a mix of some good, some bad and different types of loans?

Maybe Mary can probably answer this question. Mary?

Primarily it will be our criticized loans, but we are entertaining layering in some good quality loans. It helps with the price.

All right. I know, the mainland bulk sale had a mix of loans in it.

That's correct.

Okay. Thank you very much. For the insight on that.

Thanks, Bobby.

Our next question is from Al Savastano of Fox-Pitt Kelton.

Good morning.

Good morning, Al.

Just two questions for you. First when do you expect your capital plans to be complete? Is that the next quarter or so?

Dean?

Al, as I said before, now with the increase in our authorized common shares, we are actively pursuing all capital raising measures which could include public and private offers to increase our capital levels? I said that we are -- we have engaged a third-party review of our portfolio. And based on that review, and based on potentially the loan sales that we just talked about, that would all factor into the overall timing of a potential capital raise.

Okay. And then the second question, in terms of the deferred tax asset, do you have anything remaining or did you reserve for it this quarter ?

Yes, the deferred -- net deferred tax asset is about $72 million, and of that, we have provided the valuation allowance of about $64 million. $61 million of that flowed through the P&L, and $3 million through the other comprehensive income.

Will you take the remaining -- what is that -- $8 million in the fourth quarter?

Could you repeat your question?

Of the remaining $8 million of net DTA, will you reserve for that in the fourth quarter?

The analysis is done on a quarterly basis. And like I said, as of 9/30, there is still $8 million. We will do that same analysis in the fourth quarter, so I can't say at this time, whether, in fact, the allowance will increase.

Okay. Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Ron Migita for closing remarks.

Thank you all for your questions and for participating in our earnings call this morning. Throughout these unprecedented economic challenges and on behalf of our directors and management, I want to express my sincere appreciation to our employees, customers and shareholders for their continued support. Central Pacific Bank plays a key role in the competitive landscape of our community, and we remain committed to be a market leader in Hawaii supporting home ownership and small businesses. Thank you very much again.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect .