Fitch takes negative outlook on Central Pacific Financial
Central Pacific Financial Corp.
's bond ratings outlook has been downgraded to "negative" from "stable" by Fitch Ratings
The ratings agency said the revision reflects "the potential for additional financial stress brought on by CPF's exposure to the California residential real estate market, which has already impacted earnings performance and credit quality."
Last month, the parent of Central Pacific Bank posted a 92 percent decline in first-quarter net income after setting aside $34.3 million for potential loan losses due to its California exposure.
Fitch noted yesterday, though, that Central Pacific's ratings continue to be supported by a healthy capital and reserve base and that the bank's actions to aggressively exit the market should limit future losses.
"Should CPF demonstrate that it can manage through the difficult operating environment in California, while maintaining otherwise sound credit fundamentals," Fitch said, it would consider revising the rating outlook back to stable.
However, it said a ratings downgrade would likely result "should deterioration in the portfolio move beyond manageable levels or weakness develop in other portions of its loan book."
Central Pacific, which has taken $83.7 million in loan-loss provisions in the last three quarters, has been aggressively selling individual and bulk loans and taking charge-offs to reduce that exposure.
"We expect a number of these sales to be completed in the coming months," Clint Arnoldus, president and chief executive of Central Pacific, said on the company's first-quarter conference call.
FTN MidWest Research analyst Brett Rabatin said he can't imagine things getting any worse for Central Pacific than the first quarter.
"It's a process exiting the California high-risk portfolio, so it's going to take more than the fourth and first quarters to get that accomplished," he said.