Bank of Hawaii Corp.’s loan balances continue to increase as the economy improves, but lower mortgage income pulled down earnings last quarter at the state’s second-largest bank.

With no meaningful movement in interest rates, homebuyers had little incentive to refinance and that contributed to the bank’s net income falling 8.6 percent to $37.7 million, or 85 cents a share, from $41.2 million, or 92 cents a share, a year earlier.

Still, the earnings beat analysts’ consensus estimate of 84 cents a share and the stock jumped 1.4 percent, or 81 cents, to close Monday at a 52-week high of $58.22. The stock is now up 31.2 percent this year.

"It was one of the better quarters I’ve seen from them in the past year or so," said Nashville, Tenn.-based analyst Brett Rabatin of brokerage firm Sterne Agee. "They had really nice loan growth this quarter. It was very broad-based across the portfolio and deposit flows were nice. The net interest margin (the spread between lending and deposit rates) was up (from the second quarter). The only challenge was around mortgage banking, and most of the industry has had that challenge with the reduction in refinance activity, so it’s not too big of a surprise there."

Bankoh’s mortgage banking income was down nearly $8 million, falling to $4.1 million from $11.7 million at the same time a year ago. As a result, the bank’s noninterest income fell 14 percent last quarter to $45.1 million from $52.4 million.

"That really just reflects what’s happening in the mortgage banking arena right now," said Peter Ho, chairman, president and CEO of Bank of Hawaii. "As interest rates have risen, our mortgage volumes have fallen. And with the (home) purchase market so tight right now because of very little inventory, it’s hard for us to make up for that volume."

He said what drives the refinance boom is a precipitous drop in rates.

"Until people can get a rate that’s meaningfully lower than what their existing rate is, we won’t see much refinancing activity," Ho said.

Despite the lower mortgage origination activity caused by lower refinance trends, Bankoh’s overall loan growth rose 3.9 percent to $6 billion from $5.8 billion in the year earlier quarter. An 11 percent increase in commercial loans and a 7 percent gain in consumer loans (home equity, auto loans and installment loans) more than offset a 5 percent decline in residential mortgage loans. The banks overall loans were up 2.5 percent from the second quarter.

Ho said when refinancing is popular, the Bank of Hawaii can lose some of its loans to competitors.

"There’s a number of other mortgage providers, and in a heavy refinance market, you get a lot of churn in your own portfolio that can have the impact of reducing your loan balances," Ho said. "As the refinance activity slows, what will end up happening is our loan balances will become more stable."

Bankoh also boosted its assets during the quarter by 3.5 percent to $13.8 billion from $13.4 billion. First Hawaiian Bank is the state’s largest bank in terms of assets at $16.7 billion.

Deposits at Bankoh increased 3.5 percent to $11.6 billion from $11.2 billion.

Net interest margins at banks nationwide have been squeezed because of low interest rates, but Bankoh saw a silver lining last quarter as the spread between lending and deposit rates improved to 2.83 percent last quarter from 2.77 percent in the second quarter. A year ago, though, the net interest margin was 2.98 percent.

Likewise, net interest income declined 2.9 percent to $90.9 million from $93.6 million a year ago but rose 4.1 percent from $87.3 million in the second quarter.

The bank’s nonperforming assets — loans due 90 days or more — declined to $33.8 million in the third quarter from $40.3 million in the year-earlier quarter.