Central Pacific Financial Corp. said yesterday it expects to post a profit in the third quarter after aggressively reducing its exposure to the troubled California residential construction market.

The parent of Hawaii's fourth-largest bank, Central Pacific Bank, estimates net income of $2.2 million to $3.2 million, or 8 cents to 11 cents a diluted share, for the quarter ending Sept. 30, down as much as 76 percent from a profit of $9.1 million, or 30 cents a share, a year earlier.

It posted a net loss of $146.3 million, or $5.10 a share, in the second quarter.

The bank has been hurt by the subprime downturn since last year, when national homebuilders unloaded California inventory at discounts and nearby contractors who Central Pacific had provided loans to were left without buyers.

“;We are facing the same challenges being faced by all banks - the current turmoil and uncertainty in the financial markets; in spite of these challenges we are pleased with the progress we have made,”; Dean Hirata, chief financial officer, said.

In July, the company reduced its exposure to the California market by closing a bulk asset sale worth $44.2 million, reducing its category of loans held for sale to $10 million for the third quarter, Hirata said. The company had previously written those assets down to their sales price in the second quarter, with no impact expected in the third quarter.

At the start of the year, the bank had about $300 million in the California residential market, which has been reduced to about $100 million, Hirata said.

The company also expects to report net loan charge-offs of $8 million to $9 million in the quarter, up from net loan charge-offs in the third quarter of 2007 totaling $100,000.

In the second quarter, the bank reported net loan charge-offs of $73.9 million.

The company also expects to report non-performing assets of $130 million to $135 million as of Sept. 30, compared to $145.9 million on June 30. The allowance for loan and lease losses as a percentage of total loans is expected to be 2.4 percent to 2.5 percent, compared to 2.11 percent in the prior quarter.

A year ago, the bank took a $21.2 million provision for loan and lease losses, when the bank downgraded 12 loans totaling $92 million with exposure to the California residential construction market. Before this latest quarter, Central Pacific had taken loan-loss provisions of $171.5 million through the four previous quarters.

The company does not hold any common stock, preferred stock or subordinated debt of Fannie Mae or Freddie Mac, or have any investment exposure to other financial companies, Hirata said. He declined to give full-year guidance.

Shares of Central Pacific rose 42 cents, or 2.8 percent, to $15.38 in New York Stock Exchange trading yesterday, while the Dow Jones Industrial Average fell 733.08 points, or 7.87 percent, to 8,577.91.

Central Pacific will release its third-quarter earnings before the market opens on Oct. 31.