Bank of Hawaii Corp.’s net income fell 19.7 percent in the first quarter from the year-earlier period but blew past analysts’ forecasts as its loan portfolio strengthened amid an improving economy.

The state’s second-largest bank in terms of assets said today it had earnings of $42.4 million, or 88 cents a share, to easily beat analysts’ consensus of 72 cents. A year earlier, Bank of Hawaii posted earnings of $52.7 million, or $1.09 a share, that included net gains from the sale of $20 million in investment securities. Last quarter, the bank had net gains of $6.1 million from selling investment securities.

 Bank of Hawaii’s credit portfolio improved in the first quarter as it set aside just $4.7 million to cover potential loan losses compared with $20.7 million a year earlier and $5.3 million in the fourth quarter of 2010. 

The bank’s interest margin of 3.24 percent in the first quarter was worse than the 3.72 percent in the year-earlier quarter but improved from the 3.15 percent in the fourth quarter as the bank benefited from rising rates.

Bank of Hawaii’s stock, which traded as high as $49.22 today, ended off 28 cents, or 0.6 percent, to $47.39.

"All roads go back to the economy," said Peter Ho, chairman, president and CEO of Bank of Hawaii. "We have seen for several quarters now continued improvement in the Hawaiian economy, and that’s 90 percent of our business and hugely important for us."

Ho said the bank has started to see increased activity in its business segments, particularly on the consumer front and in the stabilization of real estate values.

"We think there’s reason for cautious optimism from an economic standpoint here in the islands, and that is obviously impacting our credit quality in a positive way," Ho said.