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 September 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 October 19, 2010, there were 48,217,442 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 nine months ended September 30, 2010 and 2009	2

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

	Consolidated Statements of Shareholders’ Equity – Nine months ended September 30, 2010 and 2009	4

	Consolidated Statements of Cash Flows – Nine months ended September 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	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	45

Part II - Other Information

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 6.	Exhibits	46

Signatures		47

Table of Contents

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
		Three Months Ended			Nine Months Ended
		September 30,			September 30,
(dollars in thousands, except per share amounts)	2010		2009	2010		2009
Interest Income
Interest and Fees on Loans and Leases	$ 70,198		$ 79,530	$ 219,466		$ 249,464
Income on Investment Securities
Trading	-		-	-		594
Available-for-Sale	40,775		46,419	129,605		116,875
Held-to-Maturity	1,553		2,179	5,116		7,115
Deposits	5		3	21		18
Funds Sold	211		320	916		1,423
Other	278		277	832		829
Total Interest Income	113,020		128,728	355,956		376,318
Interest Expense
Deposits	7,041		12,235	23,278		43,741
Securities Sold Under Agreements to Repurchase	6,670		6,394	19,571		19,523
Funds Purchased	10		5	23		15
Long-Term Debt	673		1,207	2,877		4,239
Total Interest Expense	14,394		19,841	45,749		67,518
Net Interest Income	98,626		108,887	310,207		308,800
Provision for Credit Losses	13,359		27,500	50,009		81,077
Net Interest Income After Provision for Credit Losses	85,267		81,387	260,198		227,723
Noninterest Income
Trust and Asset Management	10,534		10,915	33,699		34,428
Mortgage Banking	6,811		4,656	14,027		18,777
Service Charges on Deposit Accounts	12,737		14,014	41,407		40,310
Fees, Exchange, and Other Service Charges	15,500		14,801	45,810		45,187
Investment Securities Gains (Losses), Net	7,877		(5)	42,849		63
Insurance	2,646		7,304	7,652		17,689
Other	7,020		5,115	18,337		30,543
Total Noninterest Income	63,125		56,800	203,781		186,997
Noninterest Expense
Salaries and Benefits	46,840		46,387	138,904		137,595
Net Occupancy	10,186		10,350	30,484		30,686
Net Equipment	4,545		4,502	13,469		13,320
Professional Fees	905		2,642	4,988		9,196
FDIC Insurance	3,159		3,290	9,366		14,091
Other	24,255		16,816	60,303		56,616
Total Noninterest Expense	89,890		83,987	257,514		261,504
Income Before Provision for Income Taxes	58,502		54,200	206,465		153,216
Provision for Income Taxes	14,438		17,729	63,101		49,699
Net Income	$ 44,064		$ 36,471	$ 143,364		$ 103,517
Basic Earnings Per Share	$ 0.91		$ 0.76	$ 2.98		$ 2.17
Diluted Earnings Per Share	$ 0.91		$ 0.76	$ 2.96		$ 2.16
Dividends Declared Per Share	$ 0.45		$ 0.45	$ 1.35		$ 1.35
Basic Weighted Average Shares	48,189,358		47,745,375	48,062,385		47,665,146
Diluted Weighted Average Shares	48,462,154		48,045,873	48,386,647		47,930,271

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)
	September 30,		December 31,		September 30,
(dollars in thousands)	2010		2009		2009
Assets
Interest-Bearing Deposits	$ 2,641		$ 8,755		$ 5,863
Funds Sold	174,288		291,546		401,200
Investment Securities
Available-for-Sale	6,213,949		5,330,834		4,827,588
Held-to-Maturity (Fair Value of $148,631; $186,668; and $201,118)	141,192		181,018		194,444
Loans Held for Sale	18,765		16,544		19,346
Loans and Leases	5,312,054		5,759,785		5,931,358
Allowance for Loan and Lease Losses	(147,358)	)	(143,658)	)	(142,658	)
Net Loans and Leases	5,164,696		5,616,127		5,788,700
Total Earning Assets	11,715,531		11,444,824		11,237,141
Cash and Noninterest-Bearing Deposits	267,597		254,766		291,480
Premises and Equipment	108,855		110,976		110,173
Customers' Acceptances	1,087		1,386		950
Accrued Interest Receivable	40,606		45,334		43,047
Foreclosed Real Estate	5,910		3,132		201
Mortgage Servicing Rights	24,316		25,970		25,437
Goodwill	31,517		31,517		34,959
Other Assets	521,184		496,922		464,637
Total Assets	$ 12,716,603		$ 12,414,827		$ 12,208,025

Liabilities
Deposits
Noninterest-Bearing Demand	$ 2,290,033		$ 2,252,083		$ 2,055,872
Interest-Bearing Demand	1,814,934		1,609,413		1,588,705
Savings	4,423,095		4,405,969		4,365,257
Time	1,074,400		1,142,211		1,240,266
Total Deposits	9,602,462		9,409,676		9,250,100
Funds Purchased	9,832		8,888		8,670
Short-Term Borrowings	7,100		6,900		7,200
Securities Sold Under Agreements to Repurchase	1,616,243		1,618,717		1,524,755
Long-Term Debt	40,292		90,317		91,424
Banker's Acceptances	1,087		1,386		950
Retirement Benefits Payable	35,461		37,435		43,918
Accrued Interest Payable	6,492		7,026		9,740
Taxes Payable and Deferred Taxes	219,525		229,140		254,375
Other Liabilities	138,548		109,369		114,094
Total Liabilities	11,677,042		11,518,854		11,305,226
Shareholders' Equity
Common Stock ($.01 par value; authorized 500,000,000 shares;
issued / outstanding: September 30, 2010 - 57,115,287 / 48,265,014;
December 31, 2009 - 57,028,239 / 48,018,943;
and September 30, 2009 - 57,028,554 / 47,937,543)	570		569		569
Capital Surplus	499,437		494,318		492,346
Accumulated Other Comprehensive Income	66,953		6,925		37,307
Retained Earnings	914,901		843,521		825,709
Treasury Stock, at Cost (Shares: September 30, 2010 - 8,850,273;
December 31, 2009 - 9,009,296; and September 30, 2009 - 9,091,011)	(442,300)	)	(449,360)	)	(453,132	)
Total Shareholders' Equity	1,039,561		895,973		902,799
Total Liabilities and Shareholders' Equity	$ 12,716,603		$ 12,414,827		$ 12,208,025

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	143,364	-	-	-	143,364	-	$ 143,364
Other Comprehensive Income, Net of Tax:
Change in Unrealized Gains and Losses
on Investment Securities Available-for-Sale	58,886	-	-	58,886	-	-	58,886
Amortization of Net Losses Related to Defined Benefit Plans	1,142	-	-	1,142	-	-	1,142
Total Comprehensive Income							$ 203,392
Share-Based Compensation	2,703	-	2,703	-	-	-
Common Stock Issued under Purchase and Equity
Compensation Plans and Related Tax Benefits (522,542 shares)	15,716	1	2,416	-	(6,850)	20,149
Common Stock Repurchased (276,471 shares)	(13,089)	-	-	-	-	(13,089)
Cash Dividends Paid	(65,134)	-	-	-	(65,134)	-
Balance as of September 30, 2010	$ 1,039,561	$ 570	$ 499,437	$ 66,953	$ 914,901	$ (442,300)

Balance as of December 31, 2008	$ 790,704	$ 568	$ 492,515	$ (28,888)	$ 787,924	$ (461,415)
Comprehensive Income:
Net Income	103,517	-	-	-	103,517	-	$ 103,517
Other Comprehensive Income, Net of Tax:
Change in Unrealized Gains and Losses
on Investment Securities Available-for-Sale	65,121	-	-	65,121	-	-	65,121
Amortization of Net Losses Related to Defined Benefit Plans	1,074	-	-	1,074	-	-	1,074
Total Comprehensive Income							$ 169,712
Share-Based Compensation	1,700	-	1,700	-	-	-
Common Stock Issued under Purchase and Equity
Compensation Plans and Related Tax Benefits (209,847 shares)	6,202	1	(1,869)	-	(1,101)	9,171
Common Stock Repurchased (25,675 shares)	(888)	-	-	-	-	(888)
Cash Dividends Paid	(64,631)	-	-	-	(64,631)	-
Balance as of September 30, 2009	$ 902,799	$ 569	$ 492,346	$ 37,307	$ 825,709	$ (453,132)

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)
		Nine Months Ended
		September 30,

(dollars in thousands)	2010	2009
Operating Activities
Net Income	$ 143,364	$ 103,517
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses	50,009	81,077
Depreciation and Amortization	10,008	10,130
Amortization of Deferred Loan and Lease Fees	(2,019)	(1,754)
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net	31,474	4,920
Share-Based Compensation	2,703	1,700
Benefit Plan Contributions	(2,559)	(12,302)
Deferred Income Taxes	(15,193)	(21,235)
Net Gain on Sale of Proprietary Mutual Funds	(2,852)	-
Gains on Sale of Insurance Business	(904)	(742)
Net Gains on Sales of Leases	(292)	(13,332)
Net Gains on Investment Securities	(42,849)	(63)
Net Change in Trading Securities	-	91,500
Proceeds from Sales of Loans Held for Sale	418,650	902,169
Originations of Loans Held for Sale	(412,158)	(863,849)
Tax Benefits from Share-Based Compensation	(2,725)	(122)
Net Change in Other Assets and Other Liabilities	(24,215)	(5,589)
Net Cash Provided by Operating Activities	150,442	276,025

Investing Activities
Investment Securities Available-for-Sale:
Proceeds from Prepayments and Maturities	1,047,571	1,341,645
Proceeds from Sales	1,289,679	169,952
Purchases	(3,109,587)	(3,722,753)
Investment Securities Held-to-Maturity:
Proceeds from Prepayments and Maturities	39,685	44,892
Proceeds from Sale of Proprietary Mutual Funds	4,424	-
Proceeds from Sale of Insurance Business	904	1,769
Net Change in Loans and Leases	395,020	548,355
Premises and Equipment, Net	(7,887)	(4,183)
Net Cash Used in Investing Activities	(340,191)	(1,620,323)

Financing Activities
Net Change in Deposits	192,786	958,002
Net Change in Short-Term Borrowings	(1,330)	491,156
Repayments of Long-Term Debt	(50,000)	(143,971)
Tax Benefits from Share-Based Compensation	2,725	122
Proceeds from Issuance of Common Stock	13,250	6,569
Repurchase of Common Stock	(13,089)	(888)
Cash Dividends Paid	(65,134)	(64,631)
Net Cash Provided by Financing Activities	79,208	1,246,359

Net Change in Cash and Cash Equivalents	(110,541)	(97,939)
Cash and Cash Equivalents at Beginning of Period	555,067	796,482
Cash and Cash Equivalents at End of Period	$ 444,526	$ 698,543
Supplemental Information
Cash Paid for Interest	$ 46,284	$ 71,615
Cash Paid for Income Taxes	115,374	56,347
Non-Cash Investing Activities:
Transfer from Loans to Foreclosed Real Estate	3,478	92
Transfers from Loans to Loans Held for Sale	8,713	36,126
Replacement of a Leveraged Lease with a Direct Financing Lease	-	32,437

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 these 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 Level 3 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, nonaccrual and past due information, and information related to impaired loans and 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 fair value of the Company’s investment securities as of September 30, 2010, December 31, 2009, and September 30, 2009 were as follows:

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
(dollars in thousands)	Cost	Gains	Losses	Value
September 30, 2010
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$ 536,690	$ 26,903	$ (11)	$ 563,582
Debt Securities Issued by States and Political Subdivisions	54,563	2,911	(10)	57,464
Debt Securities Issued by U.S. Government-Sponsored Enterprises	750	14	-	764
Mortgage-Backed Securities Issued by
Government Agencies	5,346,832	106,984	(2,265)	5,451,551
U.S. Government-Sponsored Enterprises	134,774	5,814	-	140,588
Total Mortgage-Backed Securities	5,481,606	112,798	(2,265)	5,592,139
Total	$ 6,073,609	$ 142,626	$ (2,286)	$ 6,213,949
Held-to-Maturity:
Mortgage-Backed Securities Issued by
Government Agencies	$ 50,480	$ 3,329	$ -	$ 53,809
U.S. Government-Sponsored Enterprises	90,712	4,110	-	94,822
Total	$ 141,192	$ 7,439	$ -	$ 148,631

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

September 30, 2009
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$ 537,636	$ 14,937	$ (462)	$ 552,111
Debt Securities Issued by States and Political Subdivisions	61,968	2,343	(12)	64,299
Debt Securities Issued by U.S. Government-Sponsored Enterprises	751	51	-	802
Mortgage-Backed Securities Issued by
Government Agencies	2,869,636	39,826	(4,331)	2,905,131
U.S. Government-Sponsored Enterprises	1,145,778	52,845	-	1,198,623
Private-Label Mortgage-Backed Securities	91,668	50	(10,292)	81,426
Total Mortgage-Backed Securities	4,107,082	92,721	(14,623)	4,185,180
Other Debt Securities	25,081	116	(1)	25,196
Total	$ 4,732,518	$ 110,168	$ (15,098)	$ 4,827,588
Held-to-Maturity:
Mortgage-Backed Securities Issued by
Government Agencies	$ 62,502	$ 2,314	$ -	$ 64,816
U.S. Government-Sponsored Enterprises	131,942	4,360	-	136,302
Total	$ 194,444	$ 6,674	$ -	$ 201,118

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The table below presents an analysis of the contractual maturities of the Company’s investment securities as of September 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	$ 92,145	$ 429	$ -	$ 92,574
Due After One Year Through Five Years	248,224	4,776	(6)	252,994
Due After Five Years Through Ten Years	107,438	6,818	(15)	114,241
Due After Ten Years	144,196	17,805	-	162,001
	592,003	29,828	(21)	621,810
Mortgage-Backed Securities issued by
Government Agencies	5,346,832	106,984	(2,265)	5,451,551
U.S. Government-Sponsored Enterprises	134,774	5,814	-	140,588
Total Mortgage-Backed Securities	5,481,606	112,798	(2,265)	5,592,139
Total	$ 6,073,609	$ 142,626	$ (2,286)	$ 6,213,949

Held-to-Maturity:
Mortgage-Backed Securities issued by
Government Agencies	$ 50,480	$ 3,329	$ -	$ 53,809
U.S. Government-Sponsored Enterprises	90,712	4,110	-	94,822
Total	$ 141,192	$ 7,439	$ -	$ 148,631

Investment securities with carrying values of $3.0 billion, $2.7 billion, and $2.9 billion as of September 30, 2010, December 31, 2009, and September 30, 2009, respectively, were pledged to secure deposits of governmental entities and securities sold under agreements to repurchase. As of September 30, 2010, December 31, 2009, and September 30, 2009, the Company did not pledge any investment securities where the secured party had the right to sell or repledge the collateral.

Gross gains on the sales of investment securities were $7.9 million and $0.6 million for the three months ended September 30, 2010 and 2009, respectively, and were $42.9 million and $0.6 million for the nine months ended September 30, 2010 and 2009, respectively. Gross losses on the sales of investment securities were not material for the three months and nine months ended September 30, 2010 and were $0.6 million for the three months and nine months ended September 30, 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 investment securities in an unrealized loss position, segregated by continuous length of impairment, 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
September 30, 2010
Debt Securities Issued by
	the U.S. Treasury and Government Agencies	$ -	$ -	$ 1,479	$ (11)	$ 1,479	$ (11)
Debt Securities Issued by
	States and Political Subdivisions	4,992	(10)	-	-	4,992	(10)
Mortgage-Backed Securities Issued by
	Government Agencies	465,433	(2,265)	-	-	465,433	(2,265)
Total		$ 470,425	$ (2,275)	$ 1,479	$ (11)	$ 471,904	$ (2,286)

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		$ 2,528,772	$ (21,744)	$ 2,025	$ (35)	$ 2,530,797	$ (21,779)

September 30, 2009
Debt Securities Issued by
	the U.S. Treasury and Government Agencies	$ 86,656	$ (427)	$ 1,831	$ (35)	$ 88,487	$ (462)
Debt Securities Issued by
	States and Political Subdivisions	559	(1)	323	(11)	882	(12)
Mortgage-Backed Securities Issued by
	Government Agencies	393,823	(4,331)	-	-	393,823	(4,331)
Private-Label Mortgage-Backed Securities		-	-	71,152	(10,292)	71,152	(10,292)
Total Mortgage-Backed Securities		393,823	(4,331)	71,152	(10,292)	464,975	(14,623)
Other Debt Securities		-	-	34	(1)	34	(1)
Total		$ 481,038	$ (4,759)	$ 73,340	$ (10,339)	$ 554,378	$ (15,098)

The Company does not believe that the investment securities that were in an unrealized loss position as of September 30, 2010, which were comprised of 24 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 September 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 $3.2 billion as of September 30, 2010, $3.1 billion as of December 31, 2009, and $3.0 billion as of September 30, 2009. The Company’s residential mortgage loans sold to third parties are generally 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 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 $2.2 million and $2.1 million for the three months ended September 30, 2010 and 2009, respectively, and $6.2 million and $5.7 million for the nine months ended September 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 nine months ended September 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						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2010			2009			2010			2009
Balance at Beginning of Period	$	13,840		$	16,833		$	15,332		$	19,553
Changes in Fair Value:
Due to Change in Valuation Assumptions 1	(1,954		)	(78		)	(2,600		)	29
Due to Paydowns and Other 2	(642		)	(783		)	(1,488		)	(3,610		)
Total Changes in Fair Value of Mortgage Servicing Rights	(2,596		)	(861		)	(4,088		)	(3,581		)
Balance at End of Period	$	11,244		$	15,972		$	11,244		$	15,972

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 nine months ended September 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						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2010			2009			2010			2009
Balance at Beginning of Period	$	11,806		$	7,898		$	10,638		$	1,796
Servicing Rights that Resulted From Asset Transfers	1,711			1,802			3,552			8,169
Amortization	(445		)	(235		)	(1,118		)	(500		)
Balance at End of Period	$	13,072		$	9,465		$	13,072		$	9,465

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	$	13,072		$	9,465		$	13,072		$	9,465

Fair Value of Mortgage Servicing Rights Accounted for Under the Amortization Method
Beginning of Period	$	15,044		$	10,301		$	14,853		$	1,504
End of Period	$	14,159		$	12,156		$	14,159		$	12,156

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

	September 30,			December 31,		September 30,
		2010		2009		2009
Weighted-Average Constant Prepayment Rate 1		16.68	%	14.45	%	15.12	%
Weighted-Average Life (in years)		4.79		5.55		5.17
Weighted-Average Note Rate		5.13	%	5.27	%	5.34	%
Weighted-Average Discount Rate 2		6.76	%	8.00	%	7.80	%

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 September 30, 2010, December 31, 2009, and September 30, 2009 is presented in the following table.

	September 30,			December 31,			September 30,
(dollars in thousands)	2010			2009			2009
Constant Prepayment Rate
Decrease in fair value from 25 basis points (“bps”) adverse change	$	(285	)	$	(315	)	$	(294	)
Decrease in fair value from 50 bps adverse change	(563		)	(624		)	(596		)
Discount Rate
Decrease in fair value from 25 bps adverse change	(334		)	(385		)	(350		)
Decrease in fair value from 50 bps adverse change	(662		)	(755		)	(685		)

This analysis generally cannot be extrapolated because the relationship of a change in one key assumption to the change in the fair value of the Company’s mortgage servicing rights usually is not linear. Also, the effect of changing one key assumption without changing other assumptions is not realistic.

Note 4. Securities Sold Under Agreements to Repurchase

The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, securities sold under agreements to repurchase are accounted for as collateralized financing arrangements and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Company’s Consolidated Statements of Condition, while the securities underlying the securities sold under agreements to repurchase remain in the respective asset accounts and are delivered to and held as collateral by third party trustees.

As of September 30, 2010, the contractual maturities of the Company’s securities sold under agreements to repurchase were as follows:

(dollars in thousands)	Amount
Overnight	$	-
2 to 30 Days	240,845
31 to 90 Days	720,558
Over 90 Days	654,840
Total	$	1,616,243

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Note 5. Comprehensive Income

The following table presents the components of comprehensive income for the three and nine months ended September 30, 2010 and 2009:

(dollars in thousands)	Before Tax	Tax Effect	Net of Tax
Three Months Ended September 30, 2010
Net Income	$ 58,502	$ 14,438	$ 44,064
Other Comprehensive Income:
Net Unrealized Gains on Investment Securities
Available-for-Sale	16,686	6,548	10,138
Reclassification of Net Gains on Investment Securities
Available-for-Sale Included in Net Income	(7,877)	(3,091)	(4,786)
Change in Unrealized Gains and Losses on
Investment Securities Available-for-Sale	8,809	3,457	5,352
Amortization of Net Losses Related to Defined Benefit Plans	595	214	381
Change in Accumulated Other Comprehensive Income (Loss)	9,404	3,671	5,733
Total Comprehensive Income	$ 67,906	$ 18,109	$ 49,797

Three Months Ended September 30, 2009
Net Income	$ 54,200	$ 17,729	$ 36,471
Other Comprehensive Income:
Net Unrealized Gains on Investment Securities
Available-for-Sale	60,650	21,834	38,816
Reclassification of Net Losses on Investment Securities
Available-for-Sale Included in Net Income	5	2	3
Change in Unrealized Gains and Losses on
Investment Securities Available-for-Sale	60,655	21,836	38,819
Amortization of Net Losses Related to Defined Benefit Plans	559	201	358
Change in Accumulated Other Comprehensive Income (Loss)	61,214	22,037	39,177
Total Comprehensive Income	$ 115,414	$ 39,766	$ 75,648

Nine Months Ended September 30, 2010
Net Income	$ 206,465	$ 63,101	$ 143,364
Other Comprehensive Income:
Net Unrealized Gains on Investment Securities
Available-for-Sale	142,112	57,811	84,301
Reclassification of Net Gains on Investment Securities
Available-for-Sale Included in Net Income	(42,849)	(17,434)	(25,415)
Change in Unrealized Gains and Losses on
Investment Securities Available-for-Sale	99,263	40,377	58,886
Amortization of Net Losses Related to Defined Benefit Plans	1,784	642	1,142
Change in Accumulated Other Comprehensive Income (Loss)	101,047	41,019	60,028
Total Comprehensive Income	$ 307,512	$ 104,120	$ 203,392

Nine Months Ended September 30, 2009
Net Income	$ 153,216	$ 49,699	$ 103,517
Other Comprehensive Income:
Net Unrealized Gains on Investment Securities
Available-for-Sale	101,814	36,653	65,161
Reclassification of Net Gains on Investment Securities
Available-for-Sale Included in Net Income	(63)	(23)	(40)
Change in Unrealized Gains and Losses on
Investment Securities Available-for-Sale	101,751	36,630	65,121
Amortization of Net Losses Related to Defined Benefit Plans	1,678	604	1,074
Change in Accumulated Other Comprehensive Income (Loss)	103,429	37,234	66,195
Total Comprehensive Income	$ 256,645	$ 86,933	$ 169,712

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Note 6. Earnings Per Share

There were no adjustments to net income, the numerator, for purposes of computing basic earnings per share. The following is a reconciliation of the weighted average number of common shares outstanding for computing diluted earnings per share and antidilutive shares outstanding for the three and nine months ended September 30, 2010 and 2009:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2010	2009	2010	2009
Denominator for Basic Earnings Per Share	48,189,358	47,745,375	48,062,385	47,665,146
Dilutive Effect of Stock Options	257,170	273,236	303,919	245,796
Dilutive Effect of Restricted Stock	15,626	27,262	20,343	19,329
Denominator for Diluted Earnings Per Share	48,462,154	48,045,873	48,386,647	47,930,271

Antidilutive Shares Outstanding	203,802	422,590	277,272	472,766

Note 7. Business Segments

The Company’s business segments are defined as Retail Banking, Commercial Banking, Investment Services, and Treasury. The Company’s internal management accounting process measures the performance of the business segments based on the management structure of the Company. This process, which is not necessarily comparable with similar information for any other financial institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the provision for credit losses, and capital. This process is dynamic and requires certain allocations based on judgment and other subjective factors. Unlike financial accounting, there is no comprehensive authoritative guidance for management accounting that is equivalent to GAAP. Previously reported results have been reclassified to conform to the current organizational reporting structure.

The net interest income of the business segments reflects the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities on a proportionate basis. The basis for the allocation of net interest income is a function of the Company’s assumptions that are subject to change based on changes in current interest rates and market conditions. Funds transfer pricing also serves to transfer interest rate risk to Treasury. However, the other business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions within guidelines.

Retail Banking

Retail Banking offers a broad range of financial products and services to consumers and small businesses. Loan and lease products include residential mortgage loans, home equity lines of credit, automobile loans and leases, and installment loans. Deposit products include checking, savings, and time deposit accounts. Retail Banking also offers retail life insurance products and provides merchant services to its small business customers. Products and services from Retail Banking are delivered to customers through 71 Hawaii branch locations, 492 ATMs throughout Hawaii and the Pacific Islands, e-Bankoh (on-line banking service), a 24-hour customer service center, and a mobile banking service.

Commercial Banking

Commercial Banking offers products including corporate banking, commercial real estate loans, commercial lease financing, auto dealer financing, and deposit products. Commercial lending and deposit products are offered to middle-market and large companies in Hawaii. Commercial real estate mortgages focus on customers that include investors, developers, and builders predominantly domiciled in Hawaii. Commercial Banking also includes international banking and operations at the Bank’s 12 branches in the Pacific Islands.

Investment Services

Investment Services includes private banking, trust services, asset management, and institutional investment advisory services. A significant portion of this segment’s income is derived from fees, which are generally based on the market values of assets under management. The private banking and personal trust group assists individuals and families in building and preserving their wealth by providing investment, credit, and trust services to high-net-worth individuals. The asset management group manages portfolios and creates investment products. Institutional sales and service offers investment advice to corporations, government entities, and foundations. This segment also provides a full service brokerage offering equities, mutual funds, life insurance, and annuity products.

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Treasury

Treasury consists of corporate asset and liability management activities, including interest rate risk management and a foreign exchange business. This segment’s assets and liabilities (and related interest income and expense) consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, and short- and long-term borrowings. The primary sources of noninterest income are from bank-owned life insurance and foreign exchange income related to customer driven currency requests from merchants and island visitors. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with the elimination of intercompany transactions.

Other organizational units (Technology, Operations, Marketing, Human Resources, Finance, Credit and Risk Management, and Corporate and Regulatory Administration) included in Treasury provide a wide-range of support to the Company’s other income earning segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.

Selected business segment financial information as of and for the three and nine months ended September 30, 2010 and 2009 were as follows:

	Retail	Commercial	Investment	Treasury	Consolidated
(dollars in thousands)	Banking	Banking	Services	and Other	Total
Three Months Ended September 30, 2010
Net Interest Income	$ 46,746	$ 35,236	$ 4,043	$ 12,601	$ 98,626
Provision for Credit Losses	6,288	7,121	(19)	(31)	13,359
Net Interest Income After Provision for Credit Losses	40,458	28,115	4,062	12,632	85,267
Noninterest Income	28,049	9,745	16,478	8,853	63,125
Noninterest Expense	(43,391)	(23,370)	(13,851)	(9,278)	(89,890)
Income Before Provision for Income Taxes	25,116	14,490	6,689	12,207	58,502
Provision for Income Taxes	(9,293)	(421)	(2,475)	(2,249)	(14,438)
Net Income	$ 15,823	$ 14,069	$ 4,214	$ 9,958	$ 44,064
Total Assets as of September 30, 2010	$ 3,094,047	$ 2,251,004	$ 242,312	$ 7,129,240	$ 12,716,603

Three Months Ended September 30, 2009
Net Interest Income	$ 53,441	$ 40,232	$ 4,275	$ 10,939	$ 108,887
Provision for Credit Losses	15,599	11,918	33	(50)	27,500
Net Interest Income After Provision for Credit Losses	37,842	28,314	4,242	10,989	81,387
Noninterest Income	25,095	14,668	14,026	3,011	56,800
Noninterest Expense	(42,380)	(25,072)	(14,952)	(1,583)	(83,987)
Income Before Provision for Income Taxes	20,557	17,910	3,316	12,417	54,200
Provision for Income Taxes	(7,636)	(6,037)	(1,227)	(2,829)	(17,729)
Net Income	$ 12,921	$ 11,873	$ 2,089	$ 9,588	$ 36,471
Total Assets as of September 30, 2009	$ 3,441,050	$ 2,547,978	$ 253,580	$ 5,965,417	$ 12,208,025

Nine Months Ended September 30, 2010
Net Interest Income	$ 144,311	$ 112,682	$ 12,582	$ 40,632	$ 310,207
Provision for Credit Losses	31,516	18,468	69	(44)	50,009
Net Interest Income After Provision for Credit Losses	112,795	94,214	12,513	40,676	260,198
Noninterest Income	77,322	31,461	45,814	49,184	203,781
Noninterest Expense	(129,160)	(72,210)	(43,450)	(12,694)	(257,514)
Income Before Provision for Income Taxes	60,957	53,465	14,877	77,166	206,465
Provision for Income Taxes	(22,554)	(14,742)	(5,505)	(20,300)	(63,101)
Net Income	$ 38,403	$ 38,723	$ 9,372	$ 56,866	$ 143,364
Total Assets as of September 30, 2010	$ 3,094,047	$ 2,251,004	$ 242,312	$ 7,129,240	$ 12,716,603