Central Pacific Bank will become the first Hawai'i-based bank to take advantage of the federal government's bank bailout plan.

Parent company Central Pacific Financial Corp. said yesterday that it received preliminary approval for a $135 million infusion from the U.S. Treasury Department's $700 billion Troubled Asset Relief Program.

The bank said it expects to obtain the financing during the first quarter 2009 and will use the money to shore up its balance sheets, which has been hit hard by troubled loans to California homebuilders.

"This capital will further strengthen the fundamentals of our bank and provide additional resources to support our commercial and retail customers here in Hawai'i," said Ronald Migita, Central Pacific's president and CEO.

Shares of Central Pacific dipped $1.07 yesterday to end at $11.76 on the New York Stock Exchange. News of the bailout approval came after the market's close.

The company becomes the second Hawai'i financial institution to receive the go-ahead for the federal bailout plan.

Bank of Hawaii Corp. received preliminary approval last month for up to $200 million in financing, or about 3 percent of its loans and leases, but hasn't decided yet whether to use the money.

Bank of Hawaii has remained highly profitable and has experienced relatively few loan defaults. CEO Allan Landon said the bank sees the program as another option for financing.

American Savings Bank also applied for the Treasury Department program but recently decided against taking part in it, said company spokeswoman Dawn Dunbar.

First Hawaiian Bank, the state's largest financial institution, and Territorial Savings Bank said they have not applied for the program. Finance Factors did not return calls yesterday.

Congress passed the Troubled Asset Relief Program, or TARP, in October in the wake of the meltdown in the nation's financial markets that has threatened Mainland banks and Wall Street investment firms.

The Capital Purchase Program within TARP was designed to provide capital for banks to clean up their trouble loans, freeing them up to lend to customers.

STOCK ISSUE COMING

Central Pacific said it will issue $135 million in senior preferred stock to the Treasury Department. The Treasury Department also will receive warrants to purchase another $20 million in the company's common stock.

The preferred stock will pay a 5 percent annual dividend.

Founded in 1954, Central Pacific is a mid-sized Hawai'i bank with assets of $5.5 billion. The bank operates 39 branches statewide.

The company has been hurt by loans to homebuilders in Southern California. During the second quarter, the company posted a net loss of $146.3 million after it wrote down a large chunk of its Mainland loans.

The bank's Mainland lending woes came on top of the abrupt retirement of the company's charismatic CEO, Clint Arnoldus, in July.

Since then, the company returned to profitability, reporting a $3 million net profit for the third quarter.

In a related matter, Central Pacific said yesterday that it has entered into a memorandum of understanding with state and federal regulators to boost its capital ratios.

The MOU with the Federal Deposit Insurance Corp. and the state of Hawai'i's Division of Financial Institutions requires the company to boost its leverage capital from 8.3 percent to 9 percent within the next 120 days.

The agreement also calls for the company to obtain regulatory approval when it shifts profits earned by its bank subsidiary to its parent company.