We have been experiencing a very good week on Wall Street, mostly driven by the banks. Tuesday, March 13th’s 200-point rise was triggered by the positive results from the Federal Reserve’s “stress tests” on U.S. banks. The stress test used very dramatic scenarios to see if the banks could survive a 50 percent downturn in the stock markets, 20 percent drop in real estate prices among other potentially stressful financial factors. At the same time we were hearing major banks were implementing and/or considering starting to pay dividends again and, in some cases, increasing dividends — All very positive for the markets.

Here in Hawaii we have a very good example of how things have turned around in the finacial sector with the positive results from Central Pacific Financial Corp (CPF, NYSE, 52 week range 9.37 – 22.10), the holding company for Central Pacific Bank.

When the financial crisis hit, CPF was overexposed to California real estate, with a very high loan to deposit ratio. When home prices crashed and foreclosures skyrocketed its balance sheet, capital ratios, etc. collapsed. We saw CPF’s stock market value (market cap) plummet from over $2 billion to, at one point, under $100 million.

TARP and new management came to the rescue, which necessitated raising new capital and caused huge dilution for current shareholders. The share price was so low that it also needed to do a 20-to-1 reverse stock split in January 2011. Looking at that alone shows how bad things got, as on an after split basis, its share price was about $600 just five years ago. Today’s current price is around $14 per share.

What we are seeing today is a solid bank with three consecutive quarters of positive earnings, over the last 12 months return on equity (ROE) of 9.83 percent and return on assets (ROA) of 0.90 percent, and shares trading at 1.25 times book value. Its market cap is now close to $600 million. Thomson/First Call is calling for 2012 earnings of $0.87 per share and increasing to $1.07 per share in 2013.

For Hawaii, the turnaround gives us the needed competition, which has always been an issue for our state, and even more importantly, the saving of over 800 local jobs. Kudos to CEO John Dean and his team.