The parent of Central Pacific Bank has reached an agreement with the Federal Deposit Insurance Co. and the Hawai'i Division of Financial Institutions that could lead to the sale of the bank.

In agreement disclosed yesterday, Central Pacific Financial Corp. also said the FDIC will require its board of directors to increase participation in the bank's affairs.

The consent order, coming after more than a year of financial turmoil at the state's third-largest financial institution, also requires the bank to increase its capital position and improve its asset quality.

Shares of Central Pacific closed down 2 cents at $1.16 on the New York Stock Exchange yesterday. The disclosure of the FDIC consent order was made after the market's close. The stock was trading around $10 a year ago.

"We have been in close communication with our regulators, and as previously disclosed, expected to agree to this consent order," said Ronald K. Migita, Chairman, President and Chief Executive Officer.

Central Pacific has been reeling from troubled loans to California homebuilders hard hit by the subprime lending meltdown. The problem has led to huge quarterly losses at the Honolulu-based bank, as well as played a role in it obtaining $135 million of Troubled Asset Relief Program funding.

The company disclosed in October that it planned to enter into a formal order with the FDIC and state regulators but details of the pact were only made public yesterday.

Central Pacific said the FDIC and the state want the bank to boost certain capital to maintain a minimum leverage capital ratio of 10 percent and total risk based capital ratio of 12 percent.

The bank said it must adopt a plan within 60 days that addresses regulators' capital ratio requirements.

The agreement also stipulates that Central Pacific must develop a contingency plan "to sell or merge the bank if the FDIC and (the state) so directs," the company said in a filing with the Securities and Exchange Commission yesterday.

The contingency plan is required if the bank cannot meet the regulators' capital ratio requirements or submits a plan that is unacceptable to the FDIC and the state.

The bank said its has already taken steps to address the regulators' concerns. It said it recently sold about $100 million in commercial real estate loans in Hawai'i and the Mainland, improving its balance sheets.

Earlier this week, Central Pacific announced that it plans to exit the California market by 2012 and continue its focus on the local market.

The bank said it has not made a loan in California in more than 18 months and plans to wind down or dispose of its remaining California loans in the next two years.

The company also has retained New York-based turnaround experts Alvarez & Marsal to conduct an independent review of its commercial loan portfolio.

Such a review will give the company a more accurate gauge of the value of its loan portfolio to better position it to meet state and federal regulators' requirements.

"The loan review and loan sales are important steps in reaching our capital and asset quality goals in order to comply with the consent order," said Migita.

The agreement does not affect Central Pacific's FDIC insurance, which provides up to $250,000 of coverage for each customer account.