First Hawaiian Bank’s assets climbed to a record $15.4 billion in the third quarter, but the state’s largest bank posted a 10.6 percent decline in net income due to an increase in income tax expenses.

The bank, scheduled to release its financial results today, said earnings fell to $50.4 million from $56.4 million in the year-earlier period because of reduced investment tax credits. Some of those tax credits came under the state’s now-expired Act 221 for the bank’s investment in its technology subsidiary that writes financial software. Act 221 was adopted in 1999 to spur growth in Hawaii’s technology sector and diversify the economy.

"We recognized several major investment tax credits in the third quarter of 2010 that served to reduce our tax rate, so we had a much lower tax rate in 2010 than we did in 2011," First Hawaiian Chairman and CEO Don Horner said. "We did not have those same tax credits last quarter."

Excluding one-time tax gains in the third quarter of 2010, net income was up 9.8 percent last quarter.

Net income before tax for the quarter was $80.5 million compared with $69.9 million in 2010, a 15.1 percent increase.

"Despite our sluggish state and national economic recoveries, the bank achieved a respectable quarter highlighted by strong deposit growth as well as continued solid asset quality," said Horner, who is retiring at the end of the year and is being replaced by President and Chief Operating Officer Bob Harrison.

Last week, First Hawaiian, the state’s largest local credit and debit card processor of merchant services, said year-over-year growth in credit and debit card spending slowed in the third quarter to 7.5 percent at businesses open at least a year. The lower sales increase followed second-quarter growth of 8 percent and first-quarter growth of 10.2 percent.

The bank said total assets rose 3.8 percent from $14.8 billion in the year-ago quarter while deposits jumped 16.9 percent to $12.2 billion from $10.5 billion.

"Fifty percent of our deposit growth was repositioning deposit assets on the balance sheet compared to last year, and the other 50 percent growth was in market share and our borrowers becoming more liquid," Horner said.

Loans and leases increased 1.1 percent to $8.2 billion from $8.1 billion while nonperforming assets — loans overdue by 90 days or more — remained one of the strongest in the United States at 0.26 percent of total assets, up from 0.25 percent a year ago.

Horner said loan demand is still lagging due to many businesses remaining cautious about the strength of the economic recovery. Through the first nine months of the year, First Hawaiian remained the largest local real estate lender in the state with funding of nearly $900 million in mortgages.

First Hawaiian, a wholly owned subsidiary of French banking giant BNP Paribas, is not required to separately report its earnings, but does so voluntarily each quarter.

The Honolulu-based bank, founded in 1858, has 58 branches in Hawaii, three on Guam and two on Saipan.