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HONOLULU (

TheStreet

) --

Central Pacific Financial

(CPF) - Get Central Pacific Financial Corp. Report

announced it would raise $325 million in capital, including large contributions from

The Carlyle Group

and

Anchorage Capital Group LLC

.

Each private equity firm agreed to invest $98 million, contingent upon regulatory approvals and Central Pacific raising another $130 million from other sources, including a rights offering to current shareholders. The announcement was made on Thursday after the market close.

Central Pacific Financial owes the U.S. Treasury $135 million in bailout funds received through the Troubled Assets Relief Program, or TARP.

While it was not included in

TheStreet's

Bank Watch List

of banks that were

TheStreet Recommends

undercapitalized

under ordinary regulatory guidelines as of September 30, Central Pacific Financial's main subsidiary,

Central Pacific Bank

slipped below

well-capitalized

after posting a third-quarter net loss of $70.9 million.

To be considered well-capitalized by regulators, most banks and thrifts need to maintain a Tier 1 leverage ratio of 5% and a total risk-based capital ratio of 10%. Since the second ratio reflects asset quality, it is more likely to slip below the threshold. The ratios need to be at least 4% and 8% for most banks to be considered adequately capitalized, and adequate is not good.

Assuming that the announced capital raise is completed, Central Pacific Financial and the bank subsidiary will have the capital needed to achieve a Tier 1 leverage ratio of 10% and a total risk-based capital ratio of 12% required by a December 2009 consent order from state regulators and the Federal Deposit Insurance Corporation. The bank missed a March 31 deadline to achieve the required capital ratios.

The bank booked its sixth straight quarterly loss during the third quarter, with a $79.9 million provision for loan loss reserves, while net charge-offs - loan losses less recoveries - totaled $64.3 million. The continued reserve build ran counter to the industry trend of "reserve releases" which were a major driver of earnings at the largest banks. According to data supplied by SNL Financial,

Citigroup's

(C) - Get Citigroup Inc. Report

loan loss reserves declined $2.5 billion during the third quarter, while

Bank of America

(BAC) - Get Bank of America Corp Report

and

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. Report

each released $1.7 billion in reserves,

Wells Fargo

(WFC) - Get Wells Fargo & Company Report

released $645 million and

PNC Financial

(PNC) - Get PNC Financial Services Group, Inc. Report

released $105 million in reserves.

The bank's annualized net charge-off ratio was 9.73% and its loan loss reserves covered a high 8.98% of total loans as of September 30.

Central Pacific Bank's loan portfolio is heavily concentrated in commercial real estate and construction loans. The bank's ratio of nonperforming assets - including loans past due more than 90 days or in nonaccrual status, and repossessed real estate - was 8.96% as of September 30, compared to 10.97% the previous quarter and 8.64% a year earlier, according to data supplied by SNL.

The holding company's chairman John Dean said the recapitalization would "significantly improve CPF's balance sheet and provide the Company with the capital necessary to address its near-term challenges and build for the longer-term."

Central Pacific's shares were down 3% in early trading to $1.44.

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--

Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.