Edgar Filing: BANK OF HAWAII CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the quarterly period ended June 30, 2010

or

o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the transition period from to

Commission File Number: 1-6887

BANK OF HAWAII CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		99-0148992
(State of incorporation)		(I.R.S. Employer Identification No.)

130 Merchant Street, Honolulu, Hawaii		96813
(Address of principal executive offices)		(Zip Code)

1-888-643-3888

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of July 20, 2010, there were 48,265,874 shares of common stock outstanding.

Table of Contents

Bank of Hawaii Corporation

Form 10-Q

Index

		Page

Part I - Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Income – Three and six months ended June 30, 2010 and 2009	2

	Consolidated Statements of Condition – June 30, 2010, December 31, 2009, and June 30, 2009	3

	Consolidated Statements of Shareholders’ Equity – Six months ended June 30, 2010 and 2009	4

	Consolidated Statements of Cash Flows – Six months ended June 30, 2010 and 2009	5

	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

Part II - Other Information

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 6.	Exhibits	47

Signatures		48

Table of Contents

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(dollars in thousands, except per share amounts)	2010		2009		2010		2009
Interest Income
Interest and Fees on Loans and Leases	$	71,997	$	83,342	$	149,268	$	169,934
Income on Investment Securities
Trading	—		—		—		594
Available-for-Sale	44,989		38,155		88,830		70,456
Held-to-Maturity	1,700		2,369		3,563		4,936
Deposits	3		5		16		15
Funds Sold	396		526		705		1,103
Other	277		276		554		552
Total Interest Income	119,362		124,673		242,936		247,590
Interest Expense
Deposits	7,930		14,481		16,237		31,506
Securities Sold Under Agreements to Repurchase	6,472		6,477		12,901		13,129
Funds Purchased	6		5		13		10
Long-Term Debt	1,026		859		2,204		3,032
Total Interest Expense	15,434		21,822		31,355		47,677
Net Interest Income	103,928		102,851		211,581		199,913
Provision for Credit Losses	15,939		28,690		36,650		53,577
Net Interest Income After Provision for Credit Losses	87,989		74,161		174,931		146,336
Noninterest Income
Trust and Asset Management	11,457		11,881		23,165		23,513
Mortgage Banking	3,752		5,443		7,216		14,121
Service Charges on Deposit Accounts	14,856		12,910		28,670		26,296
Fees, Exchange, and Other Service Charges	15,806		15,410		30,310		30,386
Investment Securities Gains, Net	14,951		12		34,972		68
Insurance	2,291		4,744		5,006		10,385
Other	5,761		9,432		11,317		25,428
Total Noninterest Income	68,874		59,832		140,656		130,197
Noninterest Expense
Salaries and Benefits	47,500		44,180		92,064		91,208
Net Occupancy	10,154		10,008		20,298		20,336
Net Equipment	4,366		4,502		8,924		8,818
Professional Fees	2,091		4,005		4,083		6,554
FDIC Insurance	3,107		8,987		6,207		10,801
Other	18,700		17,902		36,048		39,800
Total Noninterest Expense	85,918		89,584		167,624		177,517
Income Before Provision for Income Taxes	70,945		44,409		147,963		99,016
Provision for Income Taxes	24,381		13,403		48,663		31,970
Net Income	$	46,564	$	31,006	$	99,300	$	67,046
Basic Earnings Per Share	$	0.97	$	0.65	$	2.07	$	1.41
Diluted Earnings Per Share	$	0.96	$	0.65	$	2.05	$	1.40
Dividends Declared Per Share	$	0.45	$	0.45	$	0.90	$	0.90
Basic Weighted Average Shares	48,080,485		47,682,604		47,997,996		47,624,521
Diluted Weighted Average Shares	48,415,602		47,948,531		48,352,082		47,876,509

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

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Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Condition (Unaudited)
	June 30,			December 31,			June 30,
(dollars in thousands)	2010			2009			2009
Assets
Interest-Bearing Deposits	$	4,062		$	8,755		$	4,537
Funds Sold	355,891			291,546			656,000
Investment Securities
Available-for-Sale	5,980,759			5,330,834			4,292,911
Held-to-Maturity (Fair Value of $161,441; $186,668; and $214,484)	153,190			181,018			209,807
Loans Held for Sale	13,179			16,544			40,994
Loans and Leases	5,440,911			5,759,785			6,149,911
Allowance for Loan and Lease Losses	(147,358		)	(143,658		)	(137,416		)
Net Loans and Leases	5,293,553			5,616,127			6,012,495
Total Earning Assets	11,800,634			11,444,824			11,216,744
Cash and Noninterest-Bearing Deposits	343,514			254,766			294,022
Premises and Equipment	108,394			110,976			112,681
Customers’ Acceptances	412			1,386			2,084
Accrued Interest Receivable	41,420			45,334			43,042
Foreclosed Real Estate	3,192			3,132			438
Mortgage Servicing Rights	25,646			25,970			24,731
Goodwill	31,517			31,517			34,959
Other Assets	501,116			496,922			465,994
Total Assets	$	12,855,845		$	12,414,827		$	12,194,695

Liabilities
Deposits
Noninterest-Bearing Demand	$	2,214,803		$	2,252,083		$	2,109,270
Interest-Bearing Demand	1,615,464			1,609,413			1,589,300
Savings	4,423,473			4,405,969			4,054,039
Time	1,070,919			1,142,211			1,267,052
Total Deposits	9,324,659			9,409,676			9,019,661
Funds Purchased	9,832			8,888			8,670
Short-Term Borrowings	7,000			6,900			10,000
Securities Sold Under Agreements to Repurchase	2,081,393			1,618,717			1,799,794
Long-Term Debt	40,300			90,317			91,432
Banker’s Acceptances	412			1,386			2,084
Retirement Benefits Payable	35,669			37,435			54,286
Accrued Interest Payable	5,078			7,026			7,765
Taxes Payable and Deferred Taxes	228,660			229,140			226,936
Other Liabilities	109,831			109,369			128,182
Total Liabilities	11,842,834			11,518,854			11,348,810
Shareholders’ Equity
Common Stock ($.01 par value; authorized 500,000,000 shares; issued / outstanding: June 30, 2010 - 57,100,287 / 48,264,157; December 31, 2009 - 57,028,239 / 48,018,943; and June 30, 2009 - 57,028,940 / 47,881,083)	570			569			569
Capital Surplus	497,082			494,318			491,784
Accumulated Other Comprehensive Income (Loss)	61,220			6,925			(1,870		)
Retained Earnings	895,565			843,521			811,121
Treasury Stock, at Cost (Shares: June 30, 2010 - 8,836,130; December 31, 2009 - 9,009,296; and June 30, 2009 - 9,147,857)	(441,426		)	(449,360		)	(455,719		)
Total Shareholders’ Equity	1,013,011			895,973			845,885
Total Liabilities and Shareholders’ Equity	$	12,855,845		$	12,414,827		$	12,194,695

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

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Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
									Accum.
									Other
									Compre-
									hensive									Compre-
				Common		Capital			Income			Retained			Treasury			hensive
(dollars in thousands)	Total			Stock		Surplus			(Loss)			Earnings			Stock			Income
Balance as of December 31, 2009	$	895,973		$	569	$	494,318		$	6,925		$	843,521		$	(449,360	)
Comprehensive Income:
Net Income	99,300			—		—			—			99,300			—			$	99,300
Other Comprehensive Income, Net of Tax:
Change in Unrealized Gains and Losses on Investment Securities Available-for-Sale	53,534			—		—			53,534			—			—			53,534
Amortization of Net Losses Related to Defined Benefit Plans	761			—		—			761			—			—			761
Total Comprehensive Income																		$	153,595
Share-Based Compensation	1,545			—		1,545			—			—			—
Common Stock Issued under Purchase and Equity Compensation Plans and Related Tax Benefits (312,707 shares)	8,532			1		1,219			—			(3,902		)	11,214
Common Stock Repurchased (67,493 shares)	(3,280		)	—		—			—			—			(3,280		)
Cash Dividends Paid	(43,354		)	—		—			—			(43,354		)	—
Balance as of June 30, 2010	$	1,013,011		$	570	$	497,082		$	61,220		$	895,565		$	(441,426	)

Balance as of December 31, 2008	$	790,704		$	568	$	492,515		$	(28,888	)	$	787,924		$	(461,415	)
Comprehensive Income:
Net Income	67,046			—		—			—			67,046			—			$	67,046
Other Comprehensive Income, Net of Tax:
Change in Unrealized Gains and Losses on Investment Securities Available-for-Sale	26,302			—		—			26,302			—			—			26,302
Amortization of Net Losses Related to Defined Benefit Plans	716			—		—			716			—			—			716
Total Comprehensive Income																		$	94,064
Share-Based Compensation	944			—		944			—			—			—
Common Stock Issued under Purchase and Equity Compensation Plans and Related Tax Benefits (152,582 shares)	4,087			1		(1,675		)	—			(791		)	6,552
Common Stock Repurchased (24,870 shares)	(856		)	—		—			—			—			(856		)
Cash Dividends Paid	(43,058		)	—		—			—			(43,058		)	—
Balance as of June 30, 2009	$	845,885		$	569	$	491,784		$	(1,870	)	$	811,121		$	(455,719	)

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

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Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
	Six Months Ended
	June 30,
(dollars in thousands)	2010			2009
Operating Activities
Net Income	$	99,300		$	67,046
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses	36,650			53,577
Depreciation and Amortization	6,702			6,794
Amortization of Deferred Loan and Lease Fees	(1,147		)	(1,216		)
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net	17,964			1,723
Share-Based Compensation	1,545			944
Benefit Plan Contributions	(2,184		)	(1,453		)
Deferred Income Taxes	(4,975		)	(15,978		)
Gains on Sale of Insurance Business	—			(852		)
Net Gains on Sales of Leases	(1,614		)	(13,204		)
Net Gains on Investment Securities	(34,972		)	(68		)
Net Change in Trading Securities	—			91,500
Proceeds from Sales of Loans Held for Sale	232,574			670,158
Originations of Loans Held for Sale	(220,497		)	(672,979		)
Tax Benefits from Share-Based Compensation	(1,585		)	(61		)
Net Change in Other Assets and Other Liabilities	(31,441		)	(5,862		)
Net Cash Provided by Operating Activities	96,320			180,069

Investing Activities
Investment Securities Available-for-Sale:
Proceeds from Prepayments and Maturities	846,480			752,929
Proceeds from Sales	618,108			24,258
Purchases	(2,006,953		)	(2,511,199		)
Investment Securities Held-to-Maturity:
Proceeds from Prepayments and Maturities	27,731			29,609
Proceeds from Sale of Insurance Business	—			1,879
Net Change in Loans and Leases	279,973			370,636
Premises and Equipment, Net	(4,120		)	(3,355		)
Net Cash Used in Investing Activities	(238,781		)	(1,335,243		)

Financing Activities
Net Change in Deposits	(85,017		)	727,563
Net Change in Short-Term Borrowings	463,720			768,995
Repayments of Long-Term Debt	(50,000		)	(143,971		)
Tax Benefits from Share-Based Compensation	1,585			61
Proceeds from Issuance of Common Stock	7,207			4,517
Repurchase of Common Stock	(3,280		)	(856		)
Cash Dividends Paid	(43,354		)	(43,058		)
Net Cash Provided by Financing Activities	290,861			1,313,251

Net Change in Cash and Cash Equivalents	148,400			158,077
Cash and Cash Equivalents at Beginning of Period	555,067			796,482
Cash and Cash Equivalents at End of Period	$	703,467		$	954,559
Supplemental Information
Cash Paid for Interest	$	33,303		$	53,749
Cash Paid for Income Taxes	89,949			45,565
Non-Cash Investing Activities:
Transfer from Loans to Foreclosed Real Estate	60			92
Transfers from Loans to Loans Held for Sale	8,713			16,634

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

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Bank of Hawaii Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

Bank of Hawaii Corporation (the “Parent”) is a bank holding company headquartered in Honolulu, Hawaii. Bank of Hawaii Corporation and its subsidiaries (the “Company”) provide a broad range of financial products and services to customers in Hawaii, Guam, and other Pacific Islands. The Parent’s principal subsidiary is Bank of Hawaii (the “Bank”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, the consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods.

Certain prior period information has been reclassified to conform to the current period presentation.

These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements.

Fair Value Measurements and Disclosures

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures About Fair Value Measurements,” which added disclosure requirements about transfers in and out of Levels 1 and 2, clarified existing fair value disclosure requirements about the appropriate level of disaggregation, and clarified that a description of valuation techniques and inputs used to measure fair value was required for recurring and nonrecurring Level 2 and 3 fair value measurements. The Company adopted certain provisions of this ASU in preparing the Consolidated Financial Statements for the period ended March 31, 2010. The adoption of these provisions, which was subsequently codified into Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures,” only affected the disclosure requirements for fair value measurements and as a result had no impact on the Company’s statements of income and condition. See Note 11 to the Consolidated Financial Statements for the disclosures required by this ASU.

This ASU also requires that Level 3 activity about purchases, sales, issuances, and settlements be presented on a gross basis rather than as a net number as currently permitted. This provision of the ASU is effective for the Company’s reporting period ending March 31, 2011. As this provision amends only the disclosure requirements for fair value measurements, the adoption will have no impact on the Company’s statements of income and condition.

Future Application of Accounting Pronouncements

In July 2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which will require the Company to provide a greater level of disaggregated information about the credit quality of the Company’s loans and leases and the Allowance for Loan and Lease Losses (the “Allowance”). This ASU will also require the Company to disclose additional information related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring. The provisions of this ASU are effective for the Company’s reporting period ending December 31, 2010. As this ASU amends only the disclosure requirements for loans and leases and the Allowance, the adoption will have no impact on the Company’s statements of income and condition.

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Note 2. Investment Securities

The amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s investment securities as of June 30, 2010, December 31, 2009, and June 30, 2009 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(dollars in thousands)	Cost		Gains		Losses			Value
June 30, 2010
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	647,860	$	25,300	$	(16	)	$	673,144
Debt Securities Issued by States and Political Subdivisions	51,738		1,889		(13		)	53,614
Debt Securities Issued by U.S. Government-Sponsored Enterprises	750		24		—			774
Mortgage-Backed Securities Issued by Government Agencies	4,993,799		102,993		(5,169		)	5,091,623
U.S. Government-Sponsored Enterprises	155,081		6,523		—			161,604
Total Mortgage-Backed Securities	5,148,880		109,516		(5,169		)	5,253,227
Total	$	5,849,228	$	136,729	$	(5,198	)	$	5,980,759
Held-to-Maturity:
Mortgage-Backed Securities Issued by Government Agencies	$	53,136	$	3,612	$	—		$	56,748
U.S. Government-Sponsored Enterprises	100,054		4,639		—			104,693
Total	$	153,190	$	8,251	$	—		$	161,441

December 31, 2009
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	711,223	$	11,248	$	(1,679	)	$	720,792
Debt Securities Issued by States and Political Subdivisions	52,742		1,391		(17		)	54,116
Debt Securities Issued by U.S. Government-Sponsored Enterprises	751		41		—			792
Mortgage-Backed Securities Issued by Government Agencies	4,015,816		26,900		(20,029		)	4,022,687
U.S. Government-Sponsored Enterprises	509,225		23,276		(54		)	532,447
Total Mortgage-Backed Securities	4,525,041		50,176		(20,083		)	4,555,134
Total	$	5,289,757	$	62,856	$	(21,779	)	$	5,330,834
Held-to-Maturity:
Mortgage-Backed Securities Issued by Government Agencies	$	59,542	$	1,879	$	—		$	61,421
U.S. Government-Sponsored Enterprises	121,476		3,771		—			125,247
Total	$	181,018	$	5,650	$	—		$	186,668

June 30, 2009
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	792,566	$	8,549	$	(2,329	)	$	798,786
Debt Securities Issued by States and Political Subdivisions	88,083		951		(184		)	88,850
Debt Securities Issued by U.S. Government-Sponsored Enterprises	751		57		—			808
Mortgage-Backed Securities Issued by Government Agencies	1,858,334		15,729		(11,841		)	1,862,222
U.S. Government-Sponsored Enterprises	1,257,907		44,481		(7		)	1,302,381
Private-Label Mortgage-Backed Securities	235,771		79		(21,300		)	214,550
Total Mortgage-Backed Securities	3,352,012		60,289		(33,148		)	3,379,153
Other Debt Securities	25,084		231		(1		)	25,314
Total	$	4,258,496	$	70,077	$	(35,662	)	$	4,292,911
Held-to-Maturity:
Mortgage-Backed Securities Issued by Government Agencies	$	65,986	$	1,316	$	—		$	67,302
U.S. Government-Sponsored Enterprises	143,821		3,394		(33		)	147,182
Total	$	209,807	$	4,710	$	(33	)	$	214,484

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The table below presents an analysis of the contractual maturities of the Company’s investment securities as of June 30, 2010. Mortgage-backed securities are disclosed separately in the table below as these investment securities may prepay prior to their scheduled contractual maturity dates.

			Gross		Gross
	Amortized		Unrealized		Unrealized
(dollars in thousands)	Cost		Gains		Losses			Fair Value
Available-for-Sale:
Due in One Year or Less	$	62,368	$	126	$	—		$	62,494
Due After One Year Through Five Years	289,120		3,831		(9		)	292,942
Due After Five Years Through Ten Years	92,639		3,885		(7		)	96,517
Due After Ten Years	256,221		19,371		(13		)	275,579
	700,348		27,213		(29		)	727,532
Mortgage-Backed Securities issued by Government Agencies	4,993,799		102,993		(5,169		)	5,091,623
U.S. Government-Sponsored Enterprises	155,081		6,523		—			161,604
Total Mortgage-Backed Securities	5,148,880		109,516		(5,169		)	5,253,227
Total	$	5,849,228	$	136,729	$	(5,198	)	$	5,980,759

Held-to-Maturity:
Mortgage-Backed Securities issued by Government Agencies	$	53,136	$	3,612	$	—		$	56,748
U.S. Government-Sponsored Enterprises	100,054		4,639		—			104,693
Total	$	153,190	$	8,251	$	—		$	161,441

Investment securities with carrying values of $3.2 billion as of June 30, 2010, $2.7 billion as of December 31, 2009, and $2.8 billion as of June 30, 2009, were pledged to secure deposits of governmental entities and securities sold under agreements to repurchase.

Gross gains on the sales of investment securities were $15.0 million and less than $0.1 million for the three months ended June 30, 2010 and 2009, respectively, and were $35.0 million and $0.1 million for the six months ended June 30, 2010 and 2009, respectively. Gross losses on the sales of investment securities were not material for the three and six months ended June 30, 2010 and 2009. Realized gains and losses on investment securities were recorded in noninterest income using the specific identification method.

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The Company’s temporarily impaired investment securities as of June 30, 2010, December 31, 2009, and June 30, 2009 were as follows:

	Less Than 12 Months					12 Months or Longer					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
(dollars in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
June 30, 2010
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	—	$	—		$	1,553	$	(16	)	$	1,553	$	(16	)
Debt Securities Issued by States and Political Subdivisions	—		—			320		(13		)	320		(13		)
Mortgage-Backed Securities Issued by Government Agencies	643,794		(5,169		)	—		—			643,794		(5,169		)
Total Temporarily Impaired Investment Securities	$	643,794	$	(5,169	)	$	1,873	$	(29	)	$	645,667	$	(5,198	)

December 31, 2009
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	347,324	$	(1,656	)	$	1,703	$	(23	)	$	349,027	$	(1,679	)
Debt Securities Issued by States and Political Subdivisions	878		(5		)	322		(12		)	1,200		(17		)
Mortgage-Backed Securities Issued by Government Agencies	2,171,588		(20,029		)	—		—			2,171,588		(20,029		)
U.S. Government-Sponsored Enterprises	8,982		(54		)	—		—			8,982		(54		)
Total Mortgage-Backed Securities	2,180,570		(20,083		)	—		—			2,180,570		(20,083		)
Total Temporarily Impaired Investment Securities	$	2,528,772	$	(21,744	)	$	2,025	$	(35	)	$	2,530,797	$	(21,779	)

June 30, 2009
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	100,915	$	(2,287	)	$	1,780	$	(42	)	$	102,695	$	(2,329	)
Debt Securities Issued by States and Political Subdivisions	32,453		(170		)	320		(14		)	32,773		(184		)
Mortgage-Backed Securities Issued by Government Agencies	897,348		(11,841		)	—		—			897,348		(11,841		)
U.S. Government-Sponsored Enterprises	17,969		(40		)	—		—			17,969		(40		)
Private-Label Mortgage-Backed Securities	2,724		(506		)	187,340		(20,794		)	190,064		(21,300		)
Total Mortgage-Backed Securities	918,041		(12,387		)	187,340		(20,794		)	1,105,381		(33,181		)
Other Debt Securities	—		—			34		(1		)	34		(1		)
Total Temporarily Impaired Investment Securities	$	1,051,409	$	(14,844	)	$	189,474	$	(20,851	)	$	1,240,883	$	(35,695	)

The Company does not believe that the investment securities that were in an unrealized loss position as of June 30, 2010, which were comprised of 41 securities, represent an other-than-temporary impairment. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost bases, which may be at maturity.

As of June 30, 2010, the gross unrealized losses reported for mortgage-backed securities related to investment securities issued by the Government National Mortgage Association.

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Note 3. Mortgage Servicing Rights

The Company’s portfolio of residential mortgage loans serviced for third parties was $3.1 billion as of June 30, 2010 and December 31, 2009, and $3.0 billion as of June 30, 2009. All of the Company’s residential mortgage loans sold to third parties are sold on a non-recourse basis. The Company’s mortgage servicing activities include collecting principal, interest, and escrow payments from borrowers; making tax and insurance payments on behalf of the borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest payments to investors. Servicing income, including late and ancillary fees, was $2.1 million and $1.9 million for the three months ended June 30, 2010 and 2009, respectively, and $4.1 million and $3.8 million for the six months ended June 30, 2010 and 2009, respectively. Servicing income is recorded as a component of mortgage banking income in the Company’s Consolidated Statements of Income. The Company’s residential mortgage loan servicing portfolio is comprised primarily of fixed rate loans concentrated in Hawaii.

For the three and six months ended June 30, 2010 and 2009, the change in the fair value of the Company’s mortgage servicing rights accounted for under the fair value measurement method was as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2010			2009			2010			2009
Balance at Beginning of Period	$	14,807		$	17,904		$	15,332		$	19,553
Changes in Fair Value:
Due to Change in Valuation Assumptions 1	(554		)	198			(646		)	107
Due to Paydowns and Other 2	(413		)	(1,269		)	(846		)	(2,827		)
Total Changes in Fair Value of Mortgage Servicing Rights	(967		)	(1,071		)	(1,492		)	(2,720		)
Balance at End of Period	$	13,840		$	16,833		$	13,840		$	16,833

1 Principally represents changes in discount rates and loan repayment rate assumptions, mostly due to changes in interest rates.

2 Principally represents changes due to loan payoffs.

For the three and six months ended June 30, 2010 and 2009, the change in the carrying value of the Company’s mortgage servicing rights accounted for under the amortization method, net of a valuation allowance, was as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands)	2010			2009			2010			2009
Balance at Beginning of Period	$	11,275		$	5,624		$	10,638		$	1,796
Servicing Rights that Resulted From Asset Transfers	896			2,444			1,841			6,367
Amortization	(365		)	(170		)	(673		)	(265		)
Balance at End of Period	$	11,806		$	7,898		$	11,806		$	7,898

Valuation Allowance:
Balance at Beginning of Period	$	—		$	—		$	—		$	292
Recoveries	—			—			—			(292		)
Balance at End of Period	$	—		$	—		$	—		$	—
Mortgage Servicing Rights Accounted for Under the Amortization Method, Net of a Valuation Allowance	$	11,806		$	7,898		$	11,806		$	7,898

Fair Value of Mortgage Servicing Rights Accounted for Under the Amortization Method
Beginning of Period	$	16,453		$	6,158		$	14,853		$	1,504
End of Period	$	15,044		$	10,301		$	15,044		$	10,301

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The key assumptions used in estimating the fair value of the Company’s mortgage servicing rights as of June 30, 2010, December 31, 2009, and June 30, 2009 were as follows:

	June 30,		December 31,		June 30,
	2010		2009		2009
Weighted-Average Constant Prepayment Rate 1	15.11	%	14.45	%	15.16	%
Weighted-Average Life (in years)	5.21		5.55		5.19
Weighted-Average Note Rate	5.20	%	5.27	%	5.41	%
Weighted-Average Discount Rate 2	7.04	%	8.00	%	7.95	%

1 Represents annualized loan repayment rate assumption.

2 Derived from multiple interest rate scenarios that incorporate a spread to the London Interbank Offered Rate swap curve and market volatilities.

A sensitivity analysis of the Company’s fair value of mortgage servicing rights to changes in certain key assumptions as of June 30, 2010, December 31, 2009, and June 30, 2009 is presented in the following table.