HONOLULU ( TheStreet) -- Bank of Hawaii ( BOH) on Monday reported fourth-quarter net income of $40.6 million, or 84 cents a share, beating the consensus estimate of 69 cents a share among analysts polled by Thomson Reuters.

In comparison, the company earned $44.1 million, or 91 cents a share the previous quarter and $40.5 million, or 84 cents a share during the fourth quarter of 2009.

For all of 2010, Bank of Hawaii earned $183.9 million, or $3.80 a share, increasing from $144 million, or $3.00 a share in 2009.

With reduced credit expenses more than offsetting declines in net interest income, the lower earnings mainly reflected securities gains of $7.9 million in the third quarter and $25.7 million in the fourth quarter of 2009.

Fourth-quarter net interest income totaled $96.6 million, declining $2.2 million from the previous quarter and $7.2 million from a year earlier. The bank's net interest margin - essentially the difference between its average yield on loans and investments and its average cost of funds - declined to 3.15% in the fourth quarter from 3.27% in the third quarter and 3.57% in the fourth quarter of 2009, as increased liquidity and lower loan balances took their toll.

The fourth-quarter provision for loan losses was $5.3 million, declining from $13.4 million the previous quarter and $26.8 million a year earlier. Net charge-offs - loan losses less recoveries - totaled $5.3 during the fourth quarter, the same amount as the provision, meaning the company was "keeping pace" with its charge-off activity. The annualized ratio of net charge-offs to average loans during the fourth quarter was a low 0.40% and reserves covered a high 2.76% of total loans and leases as of December 31.

Bank of Hawaii continues to take a very conservative approach on its loan loss reserves, declining to release reserves during the fourth quarter despite improving credit quality, a low rate of loan losses and strong reserve coverage. Earnings over subsequent quarters seem likely to benefit from reserve releases as they have for the largest U.S. banks, including Citigroup ( C), which reported a net release of allowance for loan losses and unfunded lending commitments of $2.3 billion; Wells Fargo ( WFC), which released $850 million from reserves; JPMorgan Chase ( JPM), which saw a $1.9 billion decline in loan loss reserves; and Bank of America ( BAC), which reported a $1.7 billion decline in reserves during the fourth quarter.

Bank of Hawaii had $13.1 billion in total assets as of December 31 and its asset quality was very strong. Nonperforming assets - including nonaccrual loans and repossessed assets - totaled $37.8 million, or 0.29% of total assets, improving from 0.36% as of September 30 and 0.39% a year earlier.

CEO Peter Ho was upbeat, saying that the "Hawaii economy is continuing to recover due, in part, to improving arrival and spend statistics in our visitor industry," and that the bank was "well positioned to meet the needs of our marketplace as conditions improve."

Bank of Hawaii's return on average assets (ROA) for the fourth quarter was 1.24% and for all of 2010 was 1.45%. The company has been a remarkably steady performer through the financial crisis. According to data supplied by SNL Financial, Bank of Hawaii had the second-highest ROA among the U.S. bank and thrift holding companies with over $10 billion assets for the first three quarters of 2010. Over the preceding five years, the company ranked within the top six for ROA and was the best earnings performer among the group in 2008, with an ROA of 1.84%.

Shares were flat in early trading at $47.71. With a 45-cent quarterly payout, the dividend yield was 3.77%.

As of Friday's close, four of the 12 analysts covering Bank of Hawaii rated the shares a buy, seven recommended holding the shares and one analyst recommended investors sell the shares, which were flat (by total return, with reinvested dividends) over the previous year.

The shares trade for 14 times the consensus estimate or $3.45 in earnings for 2012, although it is possible that estimates will be lowered in coming days, in light of the declining net interest margin.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.