SEC Company Response from CENTRAL PACIFIC FINANCIAL CORP (CPF) (CIK 0000701347) (CPF) — Apr 5, 2011
CENTRAL PACIFIC FINANCIAL CORP (CPF) (CIK 0000701347)
Date: April 5, 2011 · CIK: 0000701347 · Accession: 0001104659-11-018585
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 333-172480
Letter
April 4, 2011 Mr. Michael Clampitt Senior Counsel Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, DC 20549-4561
Re: Central Pacific Financial Corp. Registration Statement on Form S-1 (File No. 333-172480)
Dear Mr. Clampitt:
On behalf of our client, Central Pacific Financial Corp., a Hawaii corporation (the “Company”), we enclose herewith Amendment No. 1 (“Amendment No. 1”) to the Company’s Registration Statement on Form S-1 filed February 28, 2011 (File No. 333-172480) (the “Form S-1”) and set forth below the Company’s responses to your letter, dated March 25, 2011 (the “Comment Letter”), relating to comments of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) concerning the Form S-1. Except as otherwise noted in this letter, the information provided in response to the Comment Letter has been supplied by the Company, which is solely responsible for it. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in Amendment No. 1. For your convenience, we have included the Staff’s comments below in bold and have keyed our responses accordingly. References to page numbers herein are references to page numbers in Amendment No. 1.
In some of the responses, the Company has agreed to change or supplement the disclosures in its filings. It is doing so in the spirit of cooperation with the Staff, and not because the Company believes its prior filing is materially deficient or inaccurate. Accordingly, any amendment to its filings to implement these changes, or any changes implemented in future filings, should not be taken as an admission that prior disclosures by the Company were in any way deficient.
We also have indicated in certain of the responses that the Company believes no change in disclosure is appropriate, and have explained why. We understand that the Staff’s comments, even where a disclosure change is requested or suggested, are based on the Staff’s understanding of information available to it, which may be less than the information available to the Company. Accordingly, we understand those Staff comments may be withdrawn or modified based on the additional explanation or information the Company provides.
Mr. Michael Clampitt
-2-
The Company acknowledges that:
· should the Commission or the Staff, acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing;
· the action of the Commission or the Staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the Company from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and
· the Company may not assert the Staff’s comments and the declaration of effectiveness as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Form S-1
General
1. We note your disclosure that Duane K. Kurisu is a contingent nominee to the board. Please file as an exhibit to your next amendment the consent of Mr. Kirisu to be named as the same. Refer to Rule 438 of the Securities Act of 1933.
Response:
The Company has added Mr. Kurisu’s consent to be named as a nominee to the board of directors as Exhibit 99.1 to the Form S-1.
Summary Consolidated Selected Financial Data page 6
2. We note your disclosure of the measure of “Tangible common equity ratio.” This measure appears to be a non-GAAP measure as defined by Item 10(e) of Regulation S-K as it is not required by GAAP, Commission Rules, or banking regulatory requirements. Please revise your disclosures to comply with all of the requirements in Item 10(e) of Regulation S-K, including clearly labeling the ratio as a non-GAAP measure and complying with all of the disclosure requirements.
Mr. Michael Clampitt
-3-
Response:
The Company has deleted the tangible common equity ratio from the Summary Consolidated Selected Financial Data on page 6 in response to this comment.
Risk Factors, page 7
General
3. We note in the second introductory paragraph the statements that this section describes some, but not all, of the risks you face. Please revise to delete this language. You must disclose all risks that you believe are material at this time. Discussing the possibility of risks that are currently unknown or appear immaterial is unnecessarily confusing.
Response:
The Company has revised page 7 in response to this comment.
We are subject to a number of requirements and prohibitions under regulatory orders imposed on us . . . . page 7
4. In the first paragraph you state that your capital levels currently exceed the levels required by the Consent Order and that you are at “well-capitalized” levels. Please revise to disclose, both here and elsewhere in the document, your leverage capital ratio and total risk-based capital ratio as of the latest practicable date.
Response:
The Company has revised pages 7 and 36 in response to this comment.
5. Please revise the third paragraph on page 8 to describe in greater detail the “number of other requirements” with which you are not currently in compliance with or provide a cross-reference to a section of the Prospectus where that complete discussion is located.
Response:
The Company has revised page 8 in response to this comment.
A large percentage of our loans are collateralized by real estate . . . . page 15
6. If available for your market area, or a large segment of it, please provide statistics, for example from the Case-Shiller index, regarding declines in property values over the last three years.
Mr. Michael Clampitt
-4-
Response:
The Company’s disclosure of the potential risks associated with its high concentration of loans secured by real estate is based on its actual loan loss experience in recent years. The Company’s loss experience is consistent with and supported by third parties who provide statistical data on some of the markets in which the Company competes.
· The Company’s residential real estate portfolio is domiciled in Hawaii. Case-Shiller does not separately provide data for the Hawaii market. However, the University of Hawaii Economic Research Organization (UHERO) recently reported that the average annual change in the average sales price of single family homes in Hawaii has been -11.2%, -5.7% and 2.8% for the years 2009, 2008 and 2007, respectively.
· The Hawaii commercial real estate market is influenced by the general economic trends of the state. According to UHERO, total payroll jobs shrank by 4.4% in 2009 and 0.9% in 2008, and are projected to decline by 0.5% in 2010. Tourism is a significant component of the state economy and visitor arrivals are projected to increase by 8.2% in 2010 after declining by 4.4% in 2009 and 10.5% in 2008. Consequently, net absorption for commercial property of all types is projected to register a modest positive increase for 2010 after registering negative growth for 2009 and 2008. Retail vacancy in Honolulu reached 19.1% in 2010 and is projected to decrease to 14.8% by the end of 2011. The vacancy rate for office space in Honolulu is expected to peak at 13.6% in mid 2011. While improving, the fundamentals still point to depressed values, lower net operating income, and longer stabilization periods.
· The Company’s mainland commercial real estate portfolio is concentrated primarily in California. According to Moody’s REAL Commercial Property Index, the value of U.S. commercial properties has declined by 41.9% as of October 2010 since its peak in October 2007. In the last quarter of 2010, it improved by 5.7%.
The value of certain securities in our investment securities portfolio may be negatively affected . . . . page 18
7. Please revise to explain in greater detail the “certain” securities to which this risk factor relates.
Response:
The Company has revised page 18 in response to this comment.
Mr. Michael Clampitt
-5-
Selling Shareholders, page 27
8. Please tell us whether any of the selling shareholders is a broker-dealer or an affiliate of a broker-dealer. Be advised that any selling shareholder who is a broker-dealer must be identified in the prospectus as an underwriter unless all of the securities being registered on behalf of that broker-dealer were received as compensation for underwriting activities. In addition, a selling shareholder who is an affiliate of a broker-dealer must be identified in the prospectus as an underwriter unless the prospectus states, if true, that:
· the selling shareholder purchased the shares being registered for resale in the ordinary course of business, and
· at the time of the purchase, the selling shareholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities.
Please revise as appropriate.
Response:
Based upon information provided by the selling shareholders to the Company, the Company can confirm that none of the selling shareholders is a broker-dealer. Certain selling shareholders stated they are affiliates of broker-dealers, but they are not required to be identified as underwriters. For those selling shareholders, the Company has revised pages 30 to 32 to add the requested disclosure in response to this comment.
Capitalization and Pro Forma Financial Information, page 34
9. We note your disclosure that you assumed 100% of the rights to purchase your common stock will be exercised for the purposes of determining pro forma adjustments. Please revise to disclose, in detail, your analysis supporting your determination that a 100% rate of exercise was factually supportable. Refer to Article 11-02(b)(6) of Regulation S-X.
Response:
The Company has revised pages 34-36 in response to this comment.
10. Footnote 2 on page 36 indicates that you issued 5,620,117 shares in connection with the TARP exchange. In the table at the bottom of page 35 you reflect 5,523,200 as the weighted average number of shares. You also show $55,232,000 in common stock issued in the TARP Exchange. Tell us the reasons for the differences between these amounts. Please revise your pro forma financial information to reflect the actual number of shares issued since this appears to be known.
Mr. Michael Clampitt
-6-
Response:
The Company has revised pages 34-36 in response to this comment.
Pro forma Consolidated Balance Sheet, page 34
11. You disclose that you utilized the Black-Scholes model to estimate the fair value of the Amended TARP warrant on the conversion date. Please revise to disclose the assumptions used in that valuation. Please also disclose how you determined that it was appropriate to record this adjustment in other liabilities since it appears to be equity indexed. Tell us the accounting literature you relied on for your classification of the adjustment and tell us how you considered the guidance of ASC 815-40-35-2.
Response:
The Company has revised page 35 in response to this comment.
Pro forma Consolidated Statement of Operations, page 35
12. Please revise to disclose your basis for assuming a 25 basis point return on the proceeds from the private placement and rights offering.
Response:
The Company has revised page 35 in response to this comment.
13. Your pro forma income statement indicates that you will record a gain on the exchange of the TARP preferred shares for common stock. Please revise to disclose how you concluded that a gain from the exchange of stock would have a recurring impact as the gain appears to be a one-time event. Refer to Rule 11-02(b)(5) of Regulation S-X.
Response:
The Company has revised page 35 in response to this comment.
14. Please address the following regarding your issuance of shares in the private placement to officers and directors:
a. Revise to disclose how you considered whether the issuance of shares in the private placement to officers and directors at $10 would result in stock compensation given that your shares were trading in excess of $20 around that time.
b. Tell us in detail how you considered the guidance of ASC 718-10-55-10.
Mr. Michael Clampitt
-7-
c. Revise this section as well as your Description of Capital Stock on page 37 to more clearly disclose and compare terms of shares issued in the private placements, including the respective lock-up agreements and other terms.
d. Specifically discuss how you considered these respective terms valuing the shares issued to your officers and directors.
e. Quantify the amount of compensation expense recorded for pro forma purposes and the service periods to which it relates.
f. If you determined that no compensation expense was warranted, provide a clear analysis to support your conclusion, specifically addressing your consideration of the concurrent trading price.
Response:
The Company does not believe the issuance of shares to its officers and directors in the Private Placement results in stock compensation to those individuals as the $10 per share purchase price was negotiated with independent third parties in arms-length transactions and therefore is a reasonable approximation of the per share value of the Common Stock.
All investors in the Private Placement paid the same $10 per share purchase price for the Common Stock. In addition, the terms of the TARP Exchange are based on the same $10 per share valuation of the Common Stock. The $10 per share price was the result of a competitive negotiation process involving multiple potential investors as well as the Treasury in connection with its evaluation of the TARP Exchange. The Company’s officers and directors participated in the Private Placement at the request of the Lead Investors to convey a message of confidence in the merits of the investment and help achieve a successful process of securing fill-in investors for the Private Placement. The officers’ and directors’ aggregate investments constituted a very small portion of the overall $325 million capital raise. Based on the then financial condition of the Company and the likely receivership of the bank absent a capital raise, the best indicator of value of the Common Stock was in fact the price negotiated with the Lead Investors and the Treasury in arms-length transactions, and not the trading price of the Common Stock.
The Company acknowledges the fact that its stock was at the consummation of the Private Placement and is currently trading well above the $10 purchase price and that the guidance in ASC 718-10-55-10 states that “observable market prices for identical or similar equity instruments in active markets are the best evidence of fair value and, if available, shall be used as the basis for the measurement of equity instruments awarded in a share-based payment transaction with employees.” However, the Company respectfully submits that the market for the Common Stock as of the consummation of the Private Placement was not sufficiently active. Prior to the Private Placement and TARP Exchange, 1,528,935 shares were outstanding. Following the Private Place
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CORRESP 1 filename1.htm April 4, 2011 Mr. Michael Clampitt Senior Counsel Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, DC 20549-4561 Re: Central Pacific Financial Corp. Registration Statement on Form S-1 (File No. 333-172480) Dear Mr. Clampitt: On behalf of our client, Central Pacific Financial Corp., a Hawaii corporation (the “Company”), we enclose herewith Amendment No. 1 (“Amendment No. 1”) to the Company’s Registration Statement on Form S-1 filed February 28, 2011 (File No. 333-172480) (the “Form S-1”) and set forth below the Company’s responses to your letter, dated March 25, 2011 (the “Comment Letter”), relating to comments of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) concerning the Form S-1. Except as otherwise noted in this letter, the information provided in response to the Comment Letter has been supplied by the Company, which is solely responsible for it. Capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in Amendment No. 1. For your convenience, we have included the Staff’s comments below in bold and have keyed our responses accordingly. References to page numbers herein are references to page numbers in Amendment No. 1. In some of the responses, the Company has agreed to change or supplement the disclosures in its filings. It is doing so in the spirit of cooperation with the Staff, and not because the Company believes its prior filing is materially deficient or inaccurate. Accordingly, any amendment to its filings to implement these changes, or any changes implemented in future filings, should not be taken as an admission that prior disclosures by the Company were in any way deficient. We also have indicated in certain of the responses that the Company believes no change in disclosure is appropriate, and have explained why. We understand that the Staff’s comments, even where a disclosure change is requested or suggested, are based on the Staff’s understanding of information available to it, which may be less than the information available to the Company. Accordingly, we understand those Staff comments may be withdrawn or modified based on the additional explanation or information the Company provides. Mr. Michael Clampitt -2- The Company acknowledges that: · should the Commission or the Staff, acting pursuant to delegated authority, declare the filing effective, it does not foreclose the Commission from taking any action with respect to the filing; · the action of the Commission or the Staff, acting pursuant to delegated authority, in declaring the filing effective, does not relieve the Company from its full responsibility for the adequacy and accuracy of the disclosure in the filing; and · the Company may not assert the Staff’s comments and the declaration of effectiveness as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. Form S-1 General 1. We note your disclosure that Duane K. Kurisu is a contingent nominee to the board. Please file as an exhibit to your next amendment the consent of Mr. Kirisu to be named as the same. Refer to Rule 438 of the Securities Act of 1933. Response: The Company has added Mr. Kurisu’s consent to be named as a nominee to the board of directors as Exhibit 99.1 to the Form S-1. Summary Consolidated Selected Financial Data page 6 2. We note your disclosure of the measure of “Tangible common equity ratio.” This measure appears to be a non-GAAP measure as defined by Item 10(e) of Regulation S-K as it is not required by GAAP, Commission Rules, or banking regulatory requirements. Please revise your disclosures to comply with all of the requirements in Item 10(e) of Regulation S-K, including clearly labeling the ratio as a non-GAAP measure and complying with all of the disclosure requirements. Mr. Michael Clampitt -3- Response: The Company has deleted the tangible common equity ratio from the Summary Consolidated Selected Financial Data on page 6 in response to this comment. Risk Factors, page 7 General 3. We note in the second introductory paragraph the statements that this section describes some, but not all, of the risks you face. Please revise to delete this language. You must disclose all risks that you believe are material at this time. Discussing the possibility of risks that are currently unknown or appear immaterial is unnecessarily confusing. Response: The Company has revised page 7 in response to this comment. We are subject to a number of requirements and prohibitions under regulatory orders imposed on us . . . . page 7 4. In the first paragraph you state that your capital levels currently exceed the levels required by the Consent Order and that you are at “well-capitalized” levels. Please revise to disclose, both here and elsewhere in the document, your leverage capital ratio and total risk-based capital ratio as of the latest practicable date. Response: The Company has revised pages 7 and 36 in response to this comment. 5. Please revise the third paragraph on page 8 to describe in greater detail the “number of other requirements” with which you are not currently in compliance with or provide a cross-reference to a section of the Prospectus where that complete discussion is located. Response: The Company has revised page 8 in response to this comment. A large percentage of our loans are collateralized by real estate . . . . page 15 6. If available for your market area, or a large segment of it, please provide statistics, for example from the Case-Shiller index, regarding declines in property values over the last three years. Mr. Michael Clampitt -4- Response: The Company’s disclosure of the potential risks associated with its high concentration of loans secured by real estate is based on its actual loan loss experience in recent years. The Company’s loss experience is consistent with and supported by third parties who provide statistical data on some of the markets in which the Company competes. · The Company’s residential real estate portfolio is domiciled in Hawaii. Case-Shiller does not separately provide data for the Hawaii market. However, the University of Hawaii Economic Research Organization (UHERO) recently reported that the average annual change in the average sales price of single family homes in Hawaii has been -11.2%, -5.7% and 2.8% for the years 2009, 2008 and 2007, respectively. · The Hawaii commercial real estate market is influenced by the general economic trends of the state. According to UHERO, total payroll jobs shrank by 4.4% in 2009 and 0.9% in 2008, and are projected to decline by 0.5% in 2010. Tourism is a significant component of the state economy and visitor arrivals are projected to increase by 8.2% in 2010 after declining by 4.4% in 2009 and 10.5% in 2008. Consequently, net absorption for commercial property of all types is projected to register a modest positive increase for 2010 after registering negative growth for 2009 and 2008. Retail vacancy in Honolulu reached 19.1% in 2010 and is projected to decrease to 14.8% by the end of 2011. The vacancy rate for office space in Honolulu is expected to peak at 13.6% in mid 2011. While improving, the fundamentals still point to depressed values, lower net operating income, and longer stabilization periods. · The Company’s mainland commercial real estate portfolio is concentrated primarily in California. According to Moody’s REAL Commercial Property Index, the value of U.S. commercial properties has declined by 41.9% as of October 2010 since its peak in October 2007. In the last quarter of 2010, it improved by 5.7%. The value of certain securities in our investment securities portfolio may be negatively affected . . . . page 18 7. Please revise to explain in greater detail the “certain” securities to which this risk factor relates. Response: The Company has revised page 18 in response to this comment. Mr. Michael Clampitt -5- Selling Shareholders, page 27 8. Please tell us whether any of the selling shareholders is a broker-dealer or an affiliate of a broker-dealer. Be advised that any selling shareholder who is a broker-dealer must be identified in the prospectus as an underwriter unless all of the securities being registered on behalf of that broker-dealer were received as compensation for underwriting activities. In addition, a selling shareholder who is an affiliate of a broker-dealer must be identified in the prospectus as an underwriter unless the prospectus states, if true, that: · the selling shareholder purchased the shares being registered for resale in the ordinary course of business, and · at the time of the purchase, the selling shareholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities. Please revise as appropriate. Response: Based upon information provided by the selling shareholders to the Company, the Company can confirm that none of the selling shareholders is a broker-dealer. Certain selling shareholders stated they are affiliates of broker-dealers, but they are not required to be identified as underwriters. For those selling shareholders, the Company has revised pages 30 to 32 to add the requested disclosure in response to this comment. Capitalization and Pro Forma Financial Information, page 34 9. We note your disclosure that you assumed 100% of the rights to purchase your common stock will be exercised for the purposes of determining pro forma adjustments. Please revise to disclose, in detail, your analysis supporting your determination that a 100% rate of exercise was factually supportable. Refer to Article 11-02(b)(6) of Regulation S-X. Response: The Company has revised pages 34-36 in response to this comment. 10. Footnote 2 on page 36 indicates that you issued 5,620,117 shares in connection with the TARP exchange. In the table at the bottom of page 35 you reflect 5,523,200 as the weighted average number of shares. You also show $55,232,000 in common stock issued in the TARP Exchange. Tell us the reasons for the differences between these amounts. Please revise your pro forma financial information to reflect the actual number of shares issued since this appears to be known. Mr. Michael Clampitt -6- Response: The Company has revised pages 34-36 in response to this comment. Pro forma Consolidated Balance Sheet, page 34 11. You disclose that you utilized the Black-Scholes model to estimate the fair value of the Amended TARP warrant on the conversion date. Please revise to disclose the assumptions used in that valuation. Please also disclose how you determined that it was appropriate to record this adjustment in other liabilities since it appears to be equity indexed. Tell us the accounting literature you relied on for your classification of the adjustment and tell us how you considered the guidance of ASC 815-40-35-2. Response: The Company has revised page 35 in response to this comment. Pro forma Consolidated Statement of Operations, page 35 12. Please revise to disclose your basis for assuming a 25 basis point return on the proceeds from the private placement and rights offering. Response: The Company has revised page 35 in response to this comment. 13. Your pro forma income statement indicates that you will record a gain on the exchange of the TARP preferred shares for common stock. Please revise to disclose how you concluded that a gain from the exchange of stock would have a recurring impact as the gain appears to be a one-time event. Refer to Rule 11-02(b)(5) of Regulation S-X. Response: The Company has revised page 35 in response to this comment. 14. Please address the following regarding your issuance of shares in the private placement to officers and directors: a. Revise to disclose how you considered whether the issuance of shares in the private placement to officers and directors at $10 would result in stock compensation given that your shares were trading in excess of $20 around that time. b. Tell us in detail how you considered the guidance of ASC 718-10-55-10. Mr. Michael Clampitt -7- c. Revise this section as well as your Description of Capital Stock on page 37 to more clearly disclose and compare terms of shares issued in the private placements, including the respective lock-up agreements and other terms. d. Specifically discuss how you considered these respective terms valuing the shares issued to your officers and directors. e. Quantify the amount of compensation expense recorded for pro forma purposes and the service periods to which it relates. f. If you determined that no compensation expense was warranted, provide a clear analysis to support your conclusion, specifically addressing your consideration of the concurrent trading price. Response: The Company does not believe the issuance of shares to its officers and directors in the Private Placement results in stock compensation to those individuals as the $10 per share purchase price was negotiated with independent third parties in arms-length transactions and therefore is a reasonable approximation of the per share value of the Common Stock. All investors in the Private Placement paid the same $10 per share purchase price for the Common Stock. In addition, the terms of the TARP Exchange are based on the same $10 per share valuation of the Common Stock. The $10 per share price was the result of a competitive negotiation process involving multiple potential investors as well as the Treasury in connection with its evaluation of the TARP Exchange. The Company’s officers and directors participated in the Private Placement at the request of the Lead Investors to convey a message of confidence in the merits of the investment and help achieve a successful process of securing fill-in investors for the Private Placement. The officers’ and directors’ aggregate investments constituted a very small portion of the overall $325 million capital raise. Based on the then financial condition of the Company and the likely receivership of the bank absent a capital raise, the best indicator of value of the Common Stock was in fact the price negotiated with the Lead Investors and the Treasury in arms-length transactions, and not the trading price of the Common Stock. The Company acknowledges the fact that its stock was at the consummation of the Private Placement and is currently trading well above the $10 purchase price and that the guidance in ASC 718-10-55-10 states that “observable market prices for identical or similar equity instruments in active markets are the best evidence of fair value and, if available, shall be used as the basis for the measurement of equity instruments awarded in a share-based payment transaction with employees.” However, the Company respectfully submits that the market for the Common Stock as of the consummation of the Private Placement was not sufficiently active. Prior to the Private Placement and TARP Exchange, 1,528,935 shares were outstanding. Following the Private Place