Bank of Hawaii Corp. said its loan portfolio and interest margins are continuing to benefit from the state’s improving economy.

Hawaii’s second-largest bank in terms of assets blew past analysts’ first-quarter earnings estimates by 16 cents yesterday even as net income fell 19.7 percent from the year-ago period.

Bank of Hawaii had earnings of $42.4 million, or 88 cents a share. Analysts had expected the bank to earn 72 cents a share. A year earlier, the bank earned $52.7 million, or $1.09 a share, but that included net gains of $20 million from the sale of investment securities. Last quarter, the bank had securities gains of just $6.1 million.

Peter Ho, chairman, president and CEO of Bank of Hawaii, said he was pleased with the first-quarter results, adding that the improving economy in Hawaii was largely behind it.

"All roads go back to the economy," Ho said. "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. "We’ve logged improvement in credit quality for at least three quarters now, and our assumption is we’ll continue to see that. I guess the big ‘X factor’ is what happens with the Japanese situation. We’re obviously concerned like the rest of the community, but it’s a little too early to determine how much an impact that will have on the economic recovery."

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

The securities gains came from the bank trying to take the risk out of its balance sheet by selling longer-term government securities in favor of shorter-term securities due to the rising interest-rate environment. Rising interest rates also helped the bank improve its net interest margin, which is the difference between what it pays depositors and what it brings in from loans. Bank of Hawaii’s net interest margin was 3.24 percent in the first quarter. That was worse than the 3.72 percent in the year-earlier quarter but better than the 3.15 percent in the fourth quarter.

Analyst Brett Rabatin of Birmingham, Ala.-based Sterne Agee said credit quality and better margins "drove the quarter in terms of upside."

"I think it was a good quarter in a still-challenging environment," Rabatin said. "Bank of Hawaii obviously had stellar asset-quality trends through the downturn. Their credit quality never got to be peer-like because they had less exposure to high-risk borrowers and loan types like construction. So they’ve definitely seen lower charge-offs from consumer trends and nonperforming assets. Generally, I think that’s indicative of an improving economy."

Bank of Hawaii set aside just $4.7 million to cover potential loan losses in the first quarter, compared with $20.7 million a year earlier and $5.3 million in the fourth quarter of 2010.

Total assets rose 4.2 percent to $13 billion from $12.4 billion. First Hawaiian Bank ranks first in the state in total assets with $15.2 billion.

Loans and leases declined 5 percent to $5.3 billion from $5.6 billion. And deposits gained 4.4 percent to $9.9 billion from $9.5 billion.

Revenue fell 14.4 percent to $153.6 million from $179.4 million. Net interest income declined 7.4 percent to $99.7 million from $107.7 million. Noninterest income, which includes money earned from fees and charges, fell 24.9 percent to $53.9 million from $71.8 million.

Ho said the bank generated $2 million less in debit card overdraft fees last quarter from the year-earlier period after a federal law went into effect in the middle of last year that required consumers to give their permission for banks to assess overdraft charges.

The bank also maintained its quarterly dividend at 45 cents a share. It will be payable June 14 to shareholders of record as of the close of business on May 31.