SAN FRANCISCO - Pacific Century Financial Corp., the Honolulu banking company whose second-quarter credit woes sent its shares plunging early in the summer, seems to have dodged a bullet, at least where one $65 million credit is concerned.

The company, whose flagship Bank of Hawaii is the biggest bank in the state, warned shareholders about the credit in a section titled "potential problem loans" in its August 10-Q filing with the Securities and Exchange Commission.

Word that the company, which had already announced $210.6 million of nonperforming loans at the end of the second quarter, might have to increase that amount by as much as 30%, triggered fears among analysts of another pre-earnings warning.

"It's a very large credit for a bank its size and, for that matter, any bank," said Brock Vandervliet, an analyst at Lehman Brothers. "It's a wild card."

There may now be reason for those fears to subside.

Karl K.Y. Pan, executive vice president and head of the bank's global markets division, said in an interview Wednesday that the credit mentioned in the filing is not "nonperforming and we're not charging it off."

The results of the shared national credit exam and "our own personal assessment of the company" led the bank to give the credit a clean bill of health, he said.

And though banks sometimes need to boost reserves for credits that they view as at risk - though they are not technically classified as nonperforming - "we've already adjusted the level of reserves adequately," Mr. Pan said.

In a pre-earnings release dated June 20, the company said it expected to take an additional provision of between $55 and $65 million to cover loan losses and nonperforming assets. Pacific Century later said it had boosted reserves 27% from the first quarter, to $246.6 million.

The 22% one-day descent of its stock after the June announcement, to $16.25, prompted chairman and chief executive officer Lawrence M. Johnson to announce his retirement late last month.

Investors in Pacific Century had other reasons to fret over the potential souring of the loan. It had investment-grade standing, so the borrower would have been even less expected by bank credit officers to default or delay payments. Having to classify the credit as nonperforming would have been an additional blow to the bank's credit image, already suffering from its second quarter troubles.

(Pacific Century is currently searching for a new chief credit officer to replace Robert Paris, who will retire by yearend.)

Furthermore, the $65 million loan had been fully drawn down - meaning the bank was owed the complete amount of the commitment.

And perhaps most importantly, the loan's classification as a nonperforming credit hinged on the Shared National Credit Review results, which were released to banks only recently. Since Bank of Hawaii was not the lead agent on the credit, it first had to receive information from the lead agent bank as to how federal credit examiners viewed the loan before it could decide how to classify the credit.

Pacific Century does not usually make loans this size, but its banking relationship with this particular borrower paved the way for an exception, Mr. Pan said.

Joseph K. Morford, an analyst with Dain Rauscher Wessels in San Francisco, speculated that the credit could be to commercial lender Finova Corp.

Mr. Pan said the credit could be still termed a problem, though it did not merit the status of a nonperforming loan. Otherwise, Pacific Century would not have mentioned it in the 10-Q.

However, "when our [original] assessment is verified, it's always good news," he said.

Despite his assurances on the $65 million credit, there are still questions about the bank's credit quality as the quarter-end nears.

David Winton, an analyst at Keefe, Bruyette & Woods Inc., said that, the $65 million loan aside, "what I'm most concerned about is the piece of the portfolio that is non-investment grade."

There were about $340 million of outstanding commitments in the company's non-investment grade syndicated loan portfolio at the end of the second quarter.


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