Bank of Hawaii Corp.'s second-quarter earnings fell 35.8 percent, but its stock soared nearly $3 yesterday after the results exceeded analysts' expectations.

The state's second-largest bank in terms of assets continued to fine-tune its credit portfolio as it bolstered its reserves by $3 million in setting aside $28.7 million for potential loan losses — four times the $7.2 million it put aside a year ago — and taking $25.7 million in net charge-offs.

But net interest income and deposits were up from the first quarter, and the second-quarter earnings of $31 million, or 65 cents a share, easily beat the consensus forecast of 60 cents a share by nine analysts. Shares rose $2.99, or 8.4 percent, to close at a six-week high of $38.48 on the New York Stock Exchange.

A year ago Bank of Hawaii had net income of $48.3 million, or $1 a share.

“;Bank of Hawaii's earning performance has been good for the last few years,”; said Allan Landon, chairman and chief executive of Bank of Hawaii.

“;With a weaker economy profitability will naturally decrease. Bank of Hawaii remained solidly profitable, and we increased our deposit base. Reserves and capital increased. Net interest income increased, expenses were controlled and we resolved some credit exposures.”;

During the quarter, Bankoh sold a loan made to Ala Moana Center and Ward Centers owner General Growth Properties, restructured a leveraged lease involving 31 locomotives that was originally guaranteed by General Motors, and wrote down the value of a syndicated credit that was subsequently sold. The result of these three transactions was an increase in net charge-offs of $13.6 million, with remaining charge-offs stemming from the bank's consumer portfolio. The identities of General Growth and General Motors weren't specifically identified by Bankoh, but the description of the two parties by Bankoh made it clear they were involved.

In addition, the bank also had an FDIC insurance expense of $9 million compared with $200,000 a year ago, had a $2.8 million gain related to its sale of its equity interest in an aircraft lease to a cargo carrier, and had a $900,000 gain due to the sale of its retail insurance brokerage business.

“;There was a quite a bit of noise in the quarter (with the nonrecurring gains and expenses), but overall the key point is the operating income continued to grow at a strong pace,”; said Brett Rabatin, senior research analyst of Birmingham, Ala.-based Sterne Agee. “;Total deposits were down due to a decrease in the public funds segment (deposits by public entities), but the bank continued to grow core deposits. Overall, the credit quality continued to be much better than the industry.”;

Revenue fell 3 percent to $162.7 million from $167.7 million.

Net interest income, reflecting the difference between what Bankoh pays depositors and what it brings in from loans, slipped 4 percent to $102.9 million from $107.2 million but was up from $97.1 million in the first quarter. Noninterest income, which includes fees and service charges, fell 1.2 percent to $59.8 million from $60.5 million a year ago. Net interest margin was 3.73 percent versus 4.41 percent a year ago.

Total assets jumped 17.6 percent to $12.2 billion from $10.4 billion due to 14.1 percent year-over-year growth in deposits, which rose to $9 billion from $7.9 billion in June 2008. Deposits, though, fell from $9.2 billion in the first quarter.

Loans and leases decreased 5.6 percent to $6.1 billion from $6.5 billion.

The board also maintained its dividend at 45 cents a share. It will be payable Sept. 15 to shareholders of record on Aug. 31.