Central Pacific Financial Corp. cut its financial loss by more than half in the third quarter and has lined up a tentative deal for investors to pump $325 million into the struggling owner of Hawaii’s fourth-largest bank.

The company announced yesterday that it lost $72.5 million in the June-to-September period, which was an improvement from a $183.1 million loss in the same period last year.

Though the net loss was still quite big, the reduction represents progress in a turnaround plan that seeks to return the parent of Central Pacific Bank to profitability in 2011 and achieve compliance with regulatory orders governing capital and risk levels.

"We continue to make progress on our recovery plan milestones and are working to reduce our credit risk exposure and improve our asset quality," John C. Dean, Central Pacific’s executive chairman of the board, said in a statement.

Shares of Central Pacific stock closed yesterday down 9 cents at $1.39 after the earnings announcement.

The bank’s recapitalization plan, if realized, would bring Central Pacific into regulatory compliance for capital requirements but would severely dilute the value of company stock owned by existing shareholders.

Two co-lead investors may finalize agreements by the end of the week for buying about $100 million in company stock apiece, or $200 million total, Central Pacific said.

Those investments would be contingent on other investors buying another roughly $125 million in stock.

Other conditions also apply to the stock sale plan, including obtaining approval from existing shareholders or obtaining a waiver to shareholder approval.

Dean said the company believes strongly that the recapitalization plan is in the best interest of shareholders.

Joe Gladue, senior analyst with the research, trading and investment banking firm B. Riley & Co. in Pennsylvania, said Central Pacific is planning to raise more than the $200 million he estimated would be adequate for recapitalization, but the additional amount doesn’t hurt.

"It had to come," he said of the capital infusion. "I’m sure it will be put to good service."

Selling $325 million in new stock will dilute the ownership stake of current shareholders by giving new investors roughly 75 percent of the equity in Central Pacific. But Gladue said existing shareholders have little choice.

"Not approving (the injection) would be playing a dangerous game of chicken," Gladue said. "The alternative is probably getting taken over by the (Federal Deposit Insurance Corp.) or somebody else."

Central Pacific plans to seek an exemption to obtaining shareholder approval for the recapitalization from the New York Stock Exchange as a way to expedite the transaction. If a waiver isn’t granted, the transaction would be subject to a shareholder vote.

As a way to make the deal more attractive to existing shareholders, Central Pacific plans to allow them to buy up to $20 million in additional shares at the same price new investors pay for their shares. This offering would bring total new capital raised by Central Pacific to $345 million.

Another condition expected to be part of the deal is getting the U.S. Department of the Treasury to convert its higher-value preferred stock in Central Pacific to common stock.

The Treasury Department owns $135 million in Central Pacific preferred stock as part of the federal government program to shore up U.S. banks that were teetering on failure amid the global financial crisis.

If the recapitalization plan is successful, Central Pacific would increase capital levels beyond minimums set under consent orders with state and federal banking regulators at the end of last year.

"Our recovery plan, particularly our efforts to raise capital to meet the capital ratios required by our consent order, is our top priority," Dean said.

Central Pacific’s recovery effort also has been focused on conserving cash and shedding riskier loans, which has reduced the bank’s size and its income from lending.

Assets held by the bank at the end of the quarter totaled $4.2 billion, which is down from $5.2 billion a year ago.

Deposits totaled $3.2 billion, down from $3.9 billion in the same period.

Nonperforming assets for Central Pacific were reduced to $372.7 million in the quarter from $418.5 million a year ago.

Reflecting the reduced exposure to bad loans, Central Pacific lowered its provision for loan and lease losses to $79.9 million in the quarter from $142.5 million a year ago.

During the third quarter, the bank sold mainland real estate and construction loans with a book value of $124.1 million, of which $41.2 million were nonperforming assets. The bank received $110.8 million for the loans, or 10.7 percent less than the book value.

Net interest income for the bank decreased to $27.4 million in the quarter from $43.5 million a year ago.

The reduced interest income reflected Central Pacific’s effort to scale back lending and conserve cash.

Dean said the bank is on the road to recovery and will become more active in lending again, though lending will be more prudent.

"We’re going to grow," he said. "It’s going to be balanced and it’s going to be careful."