Bank of Hawaii said the time was right to take a profit on some of its investment securities, so it cashed out a portion of its portfolio last quarter.

Investors in the state's second-largest bank did the same yesterday with their stock.

A $25.7 million net gain from the sale of its investments helped boost Bankoh's net income 3.1 percent to $40.5 million, or 84 cents a share, in the final three months of the year. That beat analysts' forecasts by 9 cents.

But investors, concerned that the gain came from a one-time item and worried about the bank's lower net interest margins, sold off the stock in heavy volume as the shares dropped $2.93, or 6 percent, to $46.15. About 1.4 million shares traded hands, more than double the average daily volume of 624,338.

Senior research analyst Brett Rabatin said the bank's margin-related decrease in net interest income prompted the sell-off because he said the stock market has priced all companies to beat earnings on a core basis and Bankoh was richly priced compared with its competitors.

“;If you don't beat core earnings, the market tends to sell off the name,”; he said.

Analysts had expected Bankoh to post earnings per share of 75 cents, excluding special items.

Still, Rabatin, of Birmingham, Ala.-based Sterne Agee, said Bank of Hawaii “;continues to post pretty strong asset quality trends and core deposit growth.”;

Al Landon, chairman and chief executive officer of Bank of Hawaii, said he wasn't surprised by the sell-off since the stock had run up over the last week to a 52-week high of $49.72, and some of the bank's financial indicators were higher than most other banks.

“;The (investment) securities gain caused some uncertainty as to what our future net interest margin will be,”; Landon said. “;From our standpoint we had an unusual situation where we had a lot of appreciation in our securities, and we were concerned that interest rates were going to go up some time in the future and the value of those securities would decrease.

“;So from our standpoint, very simply, it was reducing risk, increasing reserves and maintaining capital,”; Landon said. “;Those were all part of our plan, and it's unique to get to do them all at once.”;

Bankoh's net interest margin for the quarter was 3.57 percent, a 28 basis-point decrease from the previous quarter and an 86 basis-point decrease from the fourth quarter of 2008.

Landon said the $25.7 million net gain from the investment securities included a complete liquidation of more than $100 million that remained in private-label mortgage securities.

The gain helped boost Bankoh's noninterest income to $80.8 million, a 48.4 percent increase from $54.5 million a year ago.

Net interest income, reflecting the difference between what Bankoh pays depositors and what it brings in from loans, slipped 2.2 percent to $103.5 million from $105.9 million.

Bankoh's revenue, which consists of the net interest income and noninterest income, rose 15 percent to $184.3 million from $160.3 million.

The bank's assets rose 15.3 percent to $12.4 billion from $10.8 billion, and its deposits increased 13.5 percent to $9.4 billion from $8.3 billion. Loans and leases, however, fell 11.8 percent to $5.8 billion from $6.5 billion.

Bankoh set aside $26.8 million to cover potential loan losses compared with $18.6 million in the year-ago quarter. Net charge-offs more than doubled to $25.8 million from $10.6 million a year ago. The charge-offs last quarter included $9.4 million for a leveraged lease related to the Chapter 11 bankruptcy filing of interisland carrier go!'s parent, Mesa Air Group Inc.

“;There's very little loan demand, and we're seeing some borrowers continue to have difficulty with their debt load, especially consumers who might be suffering from employment or underemployment,”; Landon said.

In the fourth quarter of 2008, Bankoh's net income was $39.3 million, or 82 cents a share.

For all of 2009, Bankoh had net income of $144 million, or $3 a share, compared with $192.2 million, or $3.99 a share, in 2008.

Separately, Bankoh maintained its dividend at 45 cents a share. It will be payable on March 12 to shareholders of record at the close of business on Feb. 26.