Pacific Century Financial Corp.’s struggle with deteriorating credit quality, which has already prompted an early retirement plan for its chief executive officer, has grown severe enough to spur direct action by its regulator.

The $14 billion-asset Honolulu banking company said Thursday that it has agreed to a memorandum of understanding with its regulator, requiring it to get approval before engaging in activities that affect its capitalization, such as paying dividends, incurring debt, or buying back stock. The company is regulated by the Federal Deposit Insurance Corp.

Though problem loans have cropped up at many regional banking companies in the last two quarters, regulatory pressure of this type hasn’t been seen among the big banks since the late 1980s and early 1990s, when a lending crisis forced institutions such as what were then Citicorp and Bank of Boston Corp. to enter into supervisory agreements with their regulators.

Investors and analysts said Thursday that they had been blindsided by the disclosure, which immediately prompted speculation about the continuing independence of Pacific Century. During a conference call that was, at times, contentious, Lawrence M. Johnson, the chief executive officer who said this summer that he would resign as soon as the board finds a suitable successor, responded to a question about whether he has considered a sale:

“We will consider anything of benefit to shareholders,” Mr. Johnson said.

Though the regulatory action does not necessarily indicate Pacific Century’s credit problems are any worse than has been revealed so far, it does nothing to improve the already downbeat perception of the company. Its stock price tumbled 12%, closing down $1.8125 a share, at $13.1875, on an otherwise good day for financial stocks.

The company, whose flagship Bank of Hawaii is the state’s biggest commercial bank, said it has already gotten consent to pay a fourth-quarter dividend and to continue its commercial paper program. This summer the FDIC said it would put an on-site examiner at Bank of Hawaii in order to improve “coordination and communication.”

Pacific Century has hired Korn/Ferry International to do the executive search. A possible candidate is Jack Meyers, a former vice chairman, chief credit officer, and head of risk management at the former BankAmerica Corp. Mr. Meyers has already been consulting with Pacific Century on its credit issues.

A memorandum of understanding is informal and lacks the severity of other regulatory actions. They often go unpublicized because regulators are not obliged to disclose them or their reasons for imposing them.

Richard J. Dahl, president and chief operating officer of Pacific Century, admitted the action stemmed from loan problems but referred to the company’s earnings release for details of the agreement.

“Certainly the issue surrounds the organization’s credit quality,” he said during the conference call, “so we will work diligently to reduce problem credits.” He said the memorandum has no termination date.

Pacific Century has seen its credit quality deteriorate since the beginning of the year, largely because of involvement in syndicated lending and exposure in Asia. In the second quarter, it said it had $210.6 million of nonperforming assets, a 54% jump from the previous quarter. Nonperforming assets grew modestly in the third quarter, increasing 4%, to $220 million.

Net chargeoffs, which leapt 191% in the second quarter, also rose at a slower pace in the third quarter — by 40%, to $19.6 million. Still, the company, which reported a 61% increase in profits Thursday, to $34.6 million, missed analysts’ 48-cent estimate of earnings per share by four cents. Last year’s quarter included charges.

Since the second quarter, Pacific Century has been trying to forestall further credit-quality problems by reducing the size of its syndicated loan portfolio, enhancing credit education, and hiring credit officers. It said it plans to further reduce the size of the portfolio, already trimmed by $200 million, to $3.5 billion.

“They’re making progress, but not they’re not there yet,” said Jacqueline Reeves, director of research at Putnam Lovell Securities. She said the fact that syndicated loans still make up 12% of Pacific Century’s portfolio means “they have to stay on the ball.”

The company is still looking for a chief credit officer to succeed Robert Paris, who is set to retire this year.

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