Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 1-6887

---

BANK OF HAWAII CORPORATION
(Exact name of registrant as specified in its charter)

---

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

---

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No ý

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 ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

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. (Check one):

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

Yes o No ý

The aggregate market value of the registrant's outstanding voting common stock held by non-affiliates on June 30, 2008 (the last business day of the registrant's most recently completed second fiscal quarter), determined using the per share closing price on that date on the New York Stock Exchange of $47.80, was approximately $2,262,211,719. There was no non-voting common equity of the registrant outstanding on that date.

As of February 20, 2009, there were 47,748,586 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 24, 2009, are incorporated by reference into Part III of this Report.

---

Table of Contents

Bank of Hawaii Corporation

Form 10-K

---

1

---

Table of Contents

Part I

Item 1. Business

General

Bank of Hawaii Corporation (the "Parent") is a Delaware corporation and a bank holding company ("BHC") headquartered in Honolulu, Hawaii.

The Parent's principal and only operating subsidiary, Bank of Hawaii (the "Bank"), was organized on December 17, 1897 and is chartered by the State of Hawaii. The Bank's deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") and the Bank is a member of the Federal Reserve System.

The Bank provides a broad range of financial services and products primarily to customers in Hawaii and the Pacific Islands (Guam, nearby islands, and American Samoa). References to "we," "our," "us," or "the Company" refer to the holding company and its subsidiaries that are consolidated for financial reporting purposes.

The Bank's subsidiaries include Bank of Hawaii Leasing, Inc., Bankoh Investment Services, Inc., Pacific Century Life Insurance Corporation, Triad Insurance Agency, Inc., Bank of Hawaii Insurance Services, Inc., Pacific Century Insurance Services, Inc., Bankoh Investment Partners, LLC, and Bank of Hawaii International, Inc. The Bank's subsidiaries are engaged in equipment leasing, securities brokerage and investment services, and insurance and insurance agency services.

We are aligned into four business segments for management reporting purposes: Retail Banking, Commercial Banking, Investment Services, and Treasury. See Table 9 of Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A") and Note 12 to the Consolidated Financial Statements for more information.

Information on the Bank's limited foreign activities is presented in Table 15 of MD&A.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports can be found free of charge on our website at www.boh.com as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). The SEC maintains a website, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our Corporate Governance Guidelines; charters of the Audit Committee, the Executive and Strategic Planning Committee, the Human Resources and Compensation Committee, and the Nominating and Corporate Governance Committee; and our Code of Business Conduct and Ethics are available on our website. Upon written request to the Corporate Secretary at 130 Merchant Street, Honolulu, Hawaii, 96813, this information is available in print form.

The Parent's other subsidiary is the BOHC Investment Fund, LLC (the "Fund"). The Fund was organized in September 2007, to invest in and hold securities of Qualified High Technology Businesses, as defined in the Hawaii Revised Statutes.

We have included the Chief Executive Officer and the Chief Financial Officer certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 of this report. Additionally, we filed with the New York Stock Exchange (the "NYSE") the Chief Executive Officer certification regarding our compliance with the NYSE's Corporate Governance Listing Standards (the "Listing Standards") pursuant to Section 303A.12(a) of the Listing Standards. The certification was dated May 15, 2008 and indicated that the Chief Executive Officer was not aware of any violations of the Listing Standards by the Company.

Competition

We are subject to substantial competition from banks, savings associations, credit unions, mortgage companies, finance companies, mutual funds, brokerage firms, insurance companies, and other providers of financial services, including financial service subsidiaries of commercial and manufacturing companies. We also compete with non-financial institutions that offer financial products and services. Some of our competitors are not subject to the same level of regulation and oversight that is required of

2

---

Table of Contents

banks and BHCs. As a result, some of our competitors may have lower cost structures. Also, some of our competitors, through alternative delivery channels such as the internet, may be based outside of the markets that we serve. Our extensive branch network, exceptional service levels, and knowledge of local trends and conditions contribute to our competitive advantage.

Supervision and Regulation

We are extensively regulated under both federal and state laws. The following information describes significant laws and regulations applicable to us. The description is qualified in its entirety by reference to the applicable laws and regulations. Proposals to change the laws and regulations governing the banking industry are frequently raised in Congress, in state legislatures, and with the various bank regulatory agencies. The recent intervention into the banking system by the federal government to deal with the current financial crisis and its impact on the supervision and regulation of the banking and financial services industries may adversely affect our business, operations, and earnings. Changes in applicable laws or regulations, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a material impact on our business, operations, and earnings.

The Parent

The Parent is registered as a BHC under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is subject to the supervision of and to examination by the Board of Governors of the Federal Reserve Bank (the "FRB"). The Parent is also registered as a financial institution holding company under the Hawaii Code of Financial Institutions (the "Code") and is subject to the registration, reporting, and examination requirements of the Code.

The BHC Act prohibits, with certain exceptions, a BHC from acquiring beneficial ownership or control of more than 5% of the voting shares of any company, including a bank, without the FRB's prior approval. The Act also prohibits a BHC from engaging in any activity other than banking, managing or controlling banks or other subsidiaries authorized under the BHC Act, or furnishing services to or performing services for its subsidiaries.

Under FRB policy, a BHC is expected to serve as a source of financial and management strength to its subsidiary bank. A BHC is also expected to commit resources to support its subsidiary bank in circumstances where it might not do so absent such a policy. Under this policy, a BHC is expected to stand ready to provide adequate capital funds to its subsidiary bank during periods of financial adversity and to maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary bank.

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act, banks and bank holding companies from any state are permitted to acquire banks located in any other state, subject to certain conditions, including certain nationwide and state-imposed deposit concentration limits. The Bank also has the ability, subject to certain restrictions, to acquire branches outside its home state by acquisition or merger. The establishment of new interstate branches is also possible in those states with laws that expressly permit de novo branching. Because the Code permits de novo branching by out-of-state banks, those banks may establish new branches in Hawaii. Interstate branches are subject to certain laws of the states in which they are located.

Under the BHC Act, a BHC may elect to become a financial holding company and thereby engage in a broader range of financial and other activities than are permissible for traditional BHCs. In order to qualify for the election, all of the depository institution subsidiaries of the BHC must be well-capitalized and well-managed. Additionally, all of its insured depository institution subsidiaries must have achieved a rating of "satisfactory" or better under the Community Reinvestment Act (the "CRA"). Financial holding companies are permitted to engage in activities that are "financial in nature"; activities incidental to or complementary of the financial activities of traditional BHCs, as determined by the FRB. The Parent has not elected to become a financial holding company.

Bank of Hawaii

The Bank is subject to supervision and examination by the FRB of San Francisco and the State of Hawaii Department of Commerce and Consumer Affairs ("DCCA"), Division of Financial Institutions. The Bank is subject to extensive federal and state

3

---

Table of Contents

regulations that significantly affect business and activities. Regulatory bodies have broad authority to implement standards and to initiate proceedings designed to prohibit depository institutions from engaging in activities that represent unsafe and unsound banking practices or constitute violations of applicable laws, rules, regulations, administrative orders, or written agreements with regulators. The standards relate generally to operations and management, asset quality, interest rate exposure, capital, and executive compensation. The agencies are authorized to take action against institutions that fail to meet such standards, including the assessment of civil monetary penalties, the issuance of cease-and-desist orders, and other actions.

Bankoh Investment Services, Inc., the broker dealer subsidiary of the Bank, is incorporated in Hawaii and is regulated by the Financial Industry Regulatory Authority, and the DCCA's Business Registration Division. The Bank's insurance subsidiaries, Bank of Hawaii Insurance Services, Inc., Triad Insurance Agency, Inc., and Pacific Century Insurance Services, Inc., are incorporated in Hawaii and are regulated by the DCCA's Division of Insurance. Pacific Century Life Insurance Corporation is incorporated in Arizona and is regulated by the State of Arizona Department of Insurance.

Capital Requirements

The federal bank regulatory agencies have issued substantially similar risk-based and leverage capital guidelines applicable to BHCs and the banks they supervise. Under the risk-based capital requirements, the Company and the Bank are each generally required to maintain a minimum ratio of total capital to risk-weighted assets of 8%. At least half of the total capital is to be composed of common equity, retained earnings, and qualifying perpetual preferred stock, less certain intangibles ("Tier 1 Capital"). The remainder may consist of certain subordinated debt, certain hybrid capital instruments and other qualifying preferred stock, and a limited amount of the allowance for loan and lease losses ("Tier 2 Capital") and, together with Tier 1 Capital, equals total capital ("Total Capital"). Risk weighted assets are calculated by taking assets and credit equivalent amounts of off-balance-sheet items and assigning them to one of several broad risk categories. The risk categories are assigned according to the obligor, or, if relevant, to the guarantor, or to the nature of the collateral. The aggregate dollar value of the amount in each category is then multiplied by the risk weight associated with that category.

BHCs and banks are also required to maintain minimum leverage ratios established by the federal bank regulatory agencies. These requirements provide for a minimum leverage ratio of Tier 1 Capital to adjusted quarterly average assets equal to 3% for BHCs and banks that have the highest regulatory rating and are not experiencing significant growth or expansion. All other BHCs and banks will generally be required to maintain a leverage ratio of at least 100 to 200 basis points above the stated minimum. See Note 10 to the Consolidated Financial Statements for capital ratios for the Company and the Bank.

The risk-based capital standards identify concentrations of credit risk and the risk arising from non-traditional banking activities, as well as an institution's ability to manage these risks, as important factors to be taken into account by the agencies in assessing an institution's overall capital adequacy. The capital guidelines also provide that exposure to a decline in the economic value of an institution's capital due to changes in interest rates is a factor to be considered in evaluating a bank's capital adequacy.

Dividend Restrictions

The Parent is a legal entity separate and distinct from the Bank. The Parent's principal source of funds to pay dividends on its common stock and to service its debt is dividends from the Bank. Various federal and state laws and regulations limit the amount of dividends the Bank may pay to the Parent without regulatory approval. The FRB is authorized to determine the circumstances when the payment of dividends would be an unsafe or unsound practice and to prohibit such payments. The right of the Parent, its shareholders, and creditors, to participate in any distribution of the assets or earnings of its subsidiaries, is also subject to the prior claims of creditors of those subsidiaries.

For information regarding the limitations on the Bank's ability to pay dividends to the Parent, see Note 10 to the Consolidated Financial Statements.

4

---

Table of Contents

Transactions with Affiliates

Under federal law, the Bank is subject to restrictions that limit the transfer of funds or other items of value to the Parent, and any other non-bank affiliates in so-called "covered transactions." In general, covered transactions include loans, leases, other extensions of credit, investments and asset purchases, as well as other transactions involving the transfer of value from the Bank to an affiliate or for the benefit of an affiliate. Unless an exemption applies, 1) covered transactions by the Bank with a single affiliate are limited to 10% of the Bank's capital and surplus, and 2) with respect to all covered transactions with affiliates in the aggregate, to 20% of the Bank's capital and surplus.

FDIC Insurance

The Deposit Insurance Fund ("DIF") of the FDIC insures deposit accounts in the Bank generally up to a maximum of $100,000 per separately insured depositor, and up to a maximum of $250,000 per separately insured depositor for certain retirement accounts. Beginning in October 2008, the FDIC temporarily increased FDIC deposit insurance coverage per separately insured depositor to $250,000 through December 31, 2009. On January 1, 2010, the standard coverage limit is scheduled to return to $100,000 for all deposit accounts, except for certain retirement accounts.

FDIC-insured depository institutions are required to pay deposit insurance premiums based on the risk an institution poses to the DIF. The current annual risk-based assessment rates range from $0.05 per $100 of domestic deposits for well-managed, well-capitalized banks with the highest ratings, to $0.43 per $100 of domestic deposits for institutions posing the most risk to the DIF. The FDIC may increase or decrease the assessment rate schedule on a quarterly basis. The Federal Deposit Insurance Reform Act of 2005 ("FDIRA") provided for a one-time assessment credit to be allocated among member institutions. As of December 31, 2008, the remaining assessment credit available to offset our future deposit insurance assessments was $2.5 million. We expect to exhaust this remaining assessment credit in 2009.

In addition to DIF assessments, all FDIC-insured depository institutions must pay an annual assessment to provide funds for the repayment of debt obligations of the Financing Corporation. The Financing Corporation is a government-sponsored entity that was formed to borrow the money necessary to carry out the closing and ultimate disposition of failed thrift institutions by the Resolution Trust Corporation. As of January 1, 2009, the annualized assessment rate of risk-adjusted deposits, established by the FDIC for all DIF-assessable deposits was 1.14 basis points.

In October 2008, the FDIC introduced the Temporary Liquidity Guarantee Program (the "TLGP"), a program designed to improve the functioning of the credit markets and to strengthen capital in the financial system during this period of economic distress. The TLGP has two components: 1) a debt guarantee program, guaranteeing newly issued senior unsecured debt, and 2) a transaction account guarantee program, providing a full guarantee of noninterest-bearing deposit transaction accounts, Negotiable Order of Withdrawal (or "NOW") accounts paying less than 0.5% annual interest, and Interest on Lawyers Trust Accounts, regardless of the amount. The Bank has not issued any senior unsecured debt to take advantage of the debt guarantee program, however, this program remains available to the Bank. The Bank is presently participating in the transaction account guarantee program and, as such, all funds in covered accounts held through December 31, 2009 will be covered with a full guarantee. In connection with this guarantee, a 10 basis point annual rate surcharge will be assessed on amounts in covered accounts exceeding $250,000.

In the event of the liquidation or insolvency of an insured depository institution, the claims of depositors and the FDIC, where the FDIC succeeds to the claims of depositors or has been appointed as a receiver, will be afforded priority over other general unsecured claims against such an institution.

For 2008, the Bank's FDIC insurance assessment was approximately $1.5 million. For 2009, we expect that the Bank's FDIC insurance assessment will be approximately $10.0 million. The increase in our expected FDIC assessment in 2009 is the result of us exhausting our FDIRA credit, higher assessment rates, along with our participation in new programs.

5

---

Table of Contents

In order to restore reserves and ensure that the DIF will be able to adequately cover losses from future bank failures, the FDIC, in October 2008, proposed amendments to its deposit insurance rules to alter the way the assessment system differentiates risks among insured institutions and to change assessment rates, including base assessment rates, in order to increase assessment revenue. A uniform assessment increase for the first quarter of 2009 was adopted as a final rule in December 2008. The FDIC has also proposed further base rate assessment adjustments effective April 1, 2009. We cannot currently provide any assurance as to the amount of any proposed increase in the Bank's deposit insurance premium rate, should there be an increase, because any increase would be dependent upon a number of factors, some of which are beyond the Bank's control.

Other Safety and Soundness Regulations

Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") the federal banking agencies possess broad powers to take prompt corrective action to resolve problems of insured depository institutions. FDICIA identifies five capital categories for insured depository institutions: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," or "critically undercapitalized." Under regulations established by the federal banking agencies, a "well capitalized" institution must have a Tier 1 Capital Ratio of at least 6%, a Total Capital Ratio of at least 10%, a Leverage Ratio of at least 5%, and not be subject to a capital directive order. As of December 31, 2008, the Bank was classified as "well capitalized." The classification of a depository institution under FDICIA is primarily for the purpose of applying the federal banking agencies' prompt corrective action provisions, and is not intended to be, nor should it be interpreted as, a representation of the overall financial condition or the prospects of any financial institution.

The federal banking agencies' prompt corrective action powers impose progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. These actions can include: requiring an insured depository institution to adopt a capital restoration plan guaranteed by the institution's parent company; placing limits on asset growth and restrictions on activities, including restrictions on transactions with affiliates; restricting the interest rates the institution may pay on deposits; prohibiting the payment of principal or interest on subordinated debt; prohibiting the holding company from making capital distributions without prior regulatory approval; and, ultimately, appointing a receiver for the institution.

As required by FDICIA, the federal banking agencies also have adopted guidelines prescribing safety and soundness standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation and benefits. The federal regulatory agencies may take action against a financial institution that does not meet such standards.

Community Reinvestment and Consumer Protection Laws

In connection with its lending activities, the Bank is subject to a number of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. These include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and the CRA. In addition, federal banking regulators, pursuant to the Gramm-Leach-Bliley Act, have enacted regulations limiting the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated parties.

The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank's record in meeting the credit needs of the communities served by the bank, including low and moderate income neighborhoods. Under the CRA, institutions are assigned a rating of "outstanding," "satisfactory," "needs to improve," or "substantial non-compliance." The Bank received an "outstanding" rating in its most recent CRA evaluation.

6

---

Table of Contents

Bank Secrecy Act / Anti-Money Laundering Laws

The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. The USA PATRIOT Act substantially broadened the scope of U.S. anti-money laundering laws and regulations by creating new laws, regulations, and penalties, imposing significant new compliance and due diligence obligations, and expanding the extra-territorial jurisdiction of the U.S. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity of their customers. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing bank mergers and BHC acquisitions.

Employees

As of January 31, 2009, we had approximately 2,600 employees.

Item 1A. Risk Factors

Our business routinely encounters and addresses risks. There are a number of risks and uncertainties that could cause our financial results and condition to differ materially from expected results.

Recent legislation in response to market and economic conditions may significantly affect our operations, financial condition, and earnings.

Disruptions in the financial system during 2008 have resulted in significantly reduced business activity throughout the global and U.S. economies, which have the potential to significantly affect financial institutions. In response to this financial crisis affecting the banking system and financial markets, the Emergency Economic Stabilization Act of 2008 (the "EESA") was signed into law on October 3, 2008. Pursuant to the EESA, the U.S. Treasury was given the authority to purchase up to $700 billion of financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. Several programs have been initiated by the U.S. Treasury, the FRB, and the FDIC to stabilize the financial system. The U.S. Treasury's Troubled Asset Relief Program and Capital Purchase Program (the "TARP/CPP") was created to invest up to $250 billion (of the $700 billion) into banks and savings institutions of all sizes. The FDIC also began to temporarily provide a 100% guarantee of the senior debt of all FDIC insured institutions, as well as deposits in noninterest-bearing transaction deposit accounts under its TLGP. These actions by the U.S. Treasury and FDIC have combined to respond to this unprecedented financial crisis. The Parent has chosen not to participate in the TARP/CPP, but the Bank is participating in the transaction account guarantee component of the TLGP.

It is not clear what impact the EESA and its attendant programs, and other liquidity, funding and economic stimulus initiatives of the federal government that may be initiated in the future, will have on the financial markets or on the U.S. banking and financial services industries and the broader U.S. and global economies. These new laws, regulations, and changes will increase our FDIC insurance premiums and may also increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. They may significantly affect the markets in which we do business, the markets for and value of our investments, and our ongoing operations, costs, and profitability.

Changes in business and economic conditions, in particular those of Hawaii and the Pacific Islands (Guam, nearby islands, and American Samoa) could lead to lower revenue, lower asset quality, and lower earnings.

Unlike larger national or other regional banks that are more geographically diversified, our business and earnings are closely tied to general business and economic conditions, particularly the economies of Hawaii and the Pacific Islands. These local economies are heavily influenced by tourism, real estate, government, and other service-based industries. Factors that could affect these local economies include declines in tourism, geopolitical risks, such as real or threatened acts of war or terrorism, higher energy costs, the availability of affordable air transportation, reduced consumer or corporate spending, natural disasters or adverse

7

---

Table of Contents

weather, public health issues, and the recent significant deterioration in general economic conditions. A sustained economic downturn could adversely affect the quality of our assets, credit losses, and the demand for our products and services, which could lead to lower revenue and lower earnings.

The Hawaii economy continued to weaken during the fourth quarter of 2008. Visitor arrivals decreased and unemployment levels increased compared to the fourth quarter of 2007. We continually monitor changes in the economy, including levels of visitor arrivals and spending, changes in housing prices, and unemployment rates. We also monitor the value of collateral, such as real estate, that secures loans we have made. A decline in the value of collateral could also reduce a customer's borrowing power.

Difficult market conditions have adversely affected our industry.

Dramatic declines in the U.S. Mainland housing market over the past year, with falling home prices and increasing foreclosures and unemployment, have negatively impacted credit performance of residential mortgage loans and have resulted in significant write-downs of asset values by other financial institutions, including government-sponsored enterprises, as well as major commercial and investment banks. Home prices were down more modestly in Hawaii compared to the U.S. Mainland over the past year. Many lenders and institutional investors have reduced, and in some cases, ceased providing funding to borrowers, including other financial institutions, reflecting concern about the stability of financial markets, generally, and the strength of counterparties, specifically. This market turmoil and tightening of credit has led to an increased level of commercial and consumer delinquencies for other financial institutions, a lack of confidence in the financial sector, and increased volatility in the financial markets. The resulting economic pressure on consumers and lack of confidence in the financial markets may adversely affect our business, financial condition, and results of operations.

Changes in interest rates could adversely impact our results of operations.

Our earnings are highly dependent on the spread between the interest earned on loans, leases, and investment securities and the interest paid on deposits and borrowings. Changes in market interest rates impact the rates earned on loans, leases, and investment securities and the rates paid on deposits and borrowings. In addition, changes to market interest rates could impact the level of loans, leases, investment securities, deposits, and borrowings, and the credit profile of existing loans and leases. Interest rates are affected by many factors beyond our control, including general economic conditions, and the monetary and fiscal policies of various governmental and regulatory authorities. Changes in interest rates may negatively impact our ability to attract deposits, originate loans and leases, and achieve satisfactory interest rate spreads which could adversely affect our financial condition or results of operations.

Credit losses may increase due to weaker economic conditions.

The risk of nonpayment of loans and leases is inherent in all lending activities. We maintain a reserve for credit losses to absorb estimated probable credit losses inherent in the loan, lease, and commitment portfolios as of the balance sheet date. Management makes various assumptions and judgments about the loan and lease portfolio, in determining the level of the reserve for credit losses. Many of these assumptions are based on current economic conditions. Volatility and deterioration in the broader economy may increase our risk of credit losses. If our assumptions are incorrect or economic conditions change, the reserve for credit losses may not be sufficient to cover losses, which could adversely affect our financial condition or results of operations.

Many of our loans are secured by real estate in Hawaii and Guam. As these locations experience softness in the economy, real estate values and customers' ability to repay could be adversely affected, and our loan and lease losses could exceed the estimates that are currently recorded in the reserve for credit losses.

8

---

Table of Contents

Our operations are subject to extensive regulation.

Our operations are subject to extensive regulation by federal and state governmental authorities. The regulations are primarily intended to protect depositors, customers, and the banking system as a whole and not for the protection of shareholders. Failure to comply with applicable regulations could lead to penalties and damage to our reputation. Furthermore, the regulatory environment is constantly undergoing change and the impact of changes to laws and regulations, the interpretation of such laws or regulations, or other actions by regulatory agencies could make regulatory compliance more difficult or expensive. The ramifications and uncertainties of the recent increase in government intervention in the U.S. financial system could adversely affect us.

Future legislative or regulatory actions responding to perceived financial and market problems could affect our rights against borrowers.

Recently, legislative and regulatory proposals have been discussed at the federal level that would limit an institution's ability to foreclose on the mortgage collateral of borrowers by reducing the amount borrowers are contractually obligated to pay under their mortgage loans. We could experience increased credit losses or increased expense in pursuing our remedies as a creditor, if proposals like these, or other proposals limiting our rights as a creditor, were implemented.

Competition may adversely affect our business.

Our future depends on our ability to compete effectively. We compete for deposits, loans, leases, and other financial services with a variety of competitors, including banks, thrifts, credit unions, mortgage companies, broker dealers, and insurance companies all of which may be based in or out of Hawaii and the Pacific Islands. Competition in our industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. Failures to effectively compete, innovate, and make effective use of available channels to deliver our products and services could adversely affect our financial condition or results of operations.

Our liquidity is dependent on dividends from the Bank.

The Parent is a separate and distinct legal entity from the Bank. The Parent receives substantially all of its cash in the form of dividends from the Bank. These dividends are the principal source of funds to pay dividends on the Parent's common stock. Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to the Parent. If the amount of dividends paid by the Bank is further limited, the Parent's ability to meet its obligations, pay dividends to shareholders, or repurchase stock, may be further limited.

An interruption or breach in security of our information systems may result in a loss of customers.

We rely heavily on communications, electricity, and information systems to conduct our business. In addition, we rely on third parties to provide key components of our infrastructure, including loan, deposit and general ledger processing, internet connections, and network access. Any disruption in service of these key components could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our operations. Furthermore, security breaches of our information systems or data, whether managed by us or by third parties, could harm our reputation or cause a decrease in the number of customers that choose to do business with us. Security breaches could also subject the Bank to additional regulatory scrutiny and expose the Bank to civil litigation and possible financial liability.

Negative public opinion could damage our reputation and adversely impact our earnings and liquidity.

Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely

9

---

Table of Contents

affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity.

Changes in income tax laws or interpretations or in accounting standards could materially affect our financial condition or results of operations.

Changes in income tax laws could be enacted or interpretations of existing income tax laws could change causing an adverse effect to our financial condition or results of operations. Similarly, our accounting policies and methods are fundamental to how we report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the value of our assets, liabilities, and financial results. Periodically, new accounting standards are imposed or existing standards are revised, changing the methods for preparing our financial statements.

Our performance depends on attracting and retaining key employees and skilled personnel to operate our business effectively.

There are a limited number of qualified personnel in the markets we serve, so our success depends in part on the continued services of many of our current management and other key employees. Failure to retain our key employees and maintain adequate staffing of qualified personnel, could adversely impact our operations and our ability to compete.

The soundness of other financial institutions may adversely impact our financial condition or results of operation.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, lending, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, the Federal Home Loan Bank of Seattle (the "FHLB"), and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. Such losses could materially affect our financial condition or results of operations.

Changes in the equity markets could materially affect the level of assets under management and the demand for our other fee-based services.

Economic downturns could affect the volume of income from and demand for our fee-based services. Our investment management revenues depend in large part on the level of assets under management. Market volatility that leads customers to liquidate investments, as well as lower asset values can reduce our level of assets under management and thereby decreasing our investment management revenues.

Our mortgage banking income may experience significant volatility.

Our mortgage banking income is highly influenced by the level and direction of mortgage interest rates. In lower interest rate environments, the demand for mortgage loans and refinancing activity will tend to increase. This has the effect of increasing fee income, but could adversely impact the estimated fair value of our mortgage servicing rights as the rate of loan prepayments increase. In higher interest rate environments, the demand for mortgage loans and refinancing activity will generally be lower. This has the effect of decreasing fee income.

The requirement to record certain assets and liabilities at fair value may adversely affect our financial results.

We report certain assets, including investment securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we carry these assets on our books at their estimated fair value, we may incur losses even if the asset in question presents minimal credit risk. Given the continued disruption in the capital markets, we may be required to recognize other-than-temporary impairments in future periods

10

---

Table of Contents

with respect to investment securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of our investment securities and our estimation of the anticipated recovery period.

Item 1B. Unresolved Staff Comments

Not Applicable.

Item 2. Properties

Our principal offices are located in the Financial Plaza of the Pacific in Honolulu, Hawaii. We own and lease other branch offices and operating facilities located throughout Hawaii and the Pacific Islands.

Item 3. Legal Proceedings

We are involved in various legal proceedings arising from normal business activities. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of legal proceedings will have a material adverse effect on our financial position. However, we cannot presently determine whether or not any claims asserted against us or others to whom we may have indemnification obligations will have a material adverse effect on our results of operations in any future reporting period. See Note 17 related to commitments and contingencies for more information.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted during the fourth quarter of 2008 to a vote of security holders through solicitation of proxies or otherwise.

Executive Officers of the Registrant:

Listed below are executive officers of the Parent as of February 20, 2009.

Allan R. Landon, 60
Chairman and Chief Executive Officer since September 2004; President from December 2003 to April 2008; Chief Operating Officer from May 2004 to August 2004; and Chief Financial Officer from February 2001 to April 2004.

Peter S. Ho, 43
President since April 2008; Vice Chairman and Chief Banking Officer since January 2006; Vice Chairman, Investment Services from April 2004 to December 2005; and Executive Vice President, Hawaii Commercial Banking Group from February 2003 to April 2004.

Kent T. Lucien, 55
Vice Chairman and Chief Financial Officer since April 2008; Trustee, C. Brewer & Co., Ltd. from April 2006 to December 2007; and Chief Executive Officer Operations, C. Brewer & Co., Ltd. from May 2001 to April 2006.

Mark A. Rossi, 60
Vice Chairman, Chief Administrative Officer, General Counsel, and Corporate Secretary since February 2007; President of Lane Powell PC from July 2004 to January 2007; and Partner of Lane Powell Spears Lubersky, LLP from April 1996 to July 2004.

Mary E. Sellers, 52
Vice Chairman and Chief Risk Officer since July 2005; and Executive Vice President, Director of Risk Management from June 2003 to June 2005.

Derek J. Norris, 59
Executive Vice President and Controller since December 2008; and Executive Vice President and General Auditor from January 2002 to December 2008.

11

---

Table of Contents

Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information, Shareholders, and Dividends

Information regarding the historical market prices of the Parent's common stock and dividends declared on that stock are shown below.

The common stock of the Parent is traded on the New York Stock Exchange (NYSE Symbol: BOH) and quoted daily in leading financial publications. As of February 20, 2009, there were 7,502 common shareholders of record.

The Parent's Board of Directors considers on a quarterly basis the feasibility of paying a cash dividend to its shareholders. Under the Parent's general practice, dividends are declared upon completion of a quarter and are paid prior to the end of the subsequent quarter. Dividends declared consider future expected earnings. See "Dividend Restrictions" under "Supervision and Regulation" in Item 1 of this report and Note 10 to the Consolidated Financial Statements for more information.

¹

The months of October, November, and December 2008 included 227, 1,826, and 4,077 shares, respectively, purchased from employees in connection with stock swaps, income tax withholdings related to vesting of restricted stock, and shares purchased for a Rabbi Trust. These shares were not purchased as part of the publicly announced program. The shares were purchased at the closing price of the Parent's common stock on the dates of purchase.

²

The Parent repurchased shares during the fourth quarter of 2008 pursuant to its ongoing share repurchase program that was first announced in July 2001. The Parent announced an additional authorization for share repurchases of $50.0 million on October 24, 2008. As of February 20, 2009, $85.4 million remained of the total $1.70 billion total repurchase amount authorized by the Parent's Board of Directors under the share repurchase program. The program has no set expiration or termination date.

12

---

Table of Contents

Performance Graph

The following graph shows the cumulative total return for the Parent's common stock compared to the cumulative total returns for the Standard & Poor's ("S&P") 500 Index and the S&P Bank Index. The graph assumes that $100 was invested on December 31, 2003 in the Parent's common stock, the S&P 500 Index, and the S&P Bank Index. The cumulative total return on each investment is as of December 31 of each of the subsequent five years and assumes reinvestment of dividends.

13

---

Table of Contents

Item 6. Selected Financial Data

Summary of Selected Consolidated Financial Data

¹

Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

²

Operating leverage is defined as the percentage change in income before provision for credit losses and provision for income taxes.

³

Net interest margin is defined as net interest income, on a fully taxable equivalent basis, as a percentage of average earning assets.

⁴

Dividend payout ratio is defined as dividends declared per share divided by basic earnings per share.

⁵

Tier 1 capital, total capital, and leverage ratios as of December 31, 2007 were corrected from 10.36%, 11.96%, and 7.04%, respectively.

14

---

Table of Contents

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation

Forward-Looking Statements

This report contains forward-looking statements concerning, among other things, the economic and business environment in our service area and elsewhere, credit quality, and other financial and business matters in future periods. Our forward-looking statements are based on numerous assumptions, any of which could prove to be inaccurate and actual results may differ materially from those projected because of a variety of risks and uncertainties, including, but not limited to: 1) general economic conditions either nationally, internationally, or locally may be less favorable than expected; 2) changes in the securities markets, public debt markets, and other capital markets in the U.S. and globally; 3) the increase in government intervention in the U.S. financial system; 4) competitive pressure among financial services and products; 5) the impact of legislation and the regulatory environment; 6) fiscal and monetary policies of the markets in which we operate; 7) actual or alleged conduct which could harm our reputation; 8) changes in accounting standards; 9) changes in tax laws or regulations or the interpretation of such laws and regulations; 10) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses; 11) changes in market interest rates that may affect our credit markets and ability to maintain our net interest margin; 12) unpredicted costs and other consequences of legal or regulatory matters involving the Company; 13) changes to the amount and timing of proposed common stock repurchases; and 14) geopolitical risk, military or terrorist activity, natural disaster, adverse weather, public health, and other conditions impacting us and our customers' operations. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under the section entitled "Risk Factors" in Part I of this report. Words such as "believes," "anticipates," "expects," "intends," "targeted," and similar expressions are intended to identify forward-looking statements but are not exclusive means of identifying such statements. We do not undertake an obligation to update forward-looking statements to reflect later events or circumstances.

Critical Accounting Estimates

Our Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1 to the Consolidated Financial Statements. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. Critical accounting estimates are defined as those that require assumptions or judgments to be made based on information available as of the date of the financial statements. Certain policies inherently have a greater reliance on the use of estimates. Those policies have a greater possibility of producing results that could be materially different than reported if there is a change to any of the estimates, assumptions, or judgments made by us. Based on the potential impact to the financial statements of the valuation methods, estimates, assumptions, and judgments used, we identified the determination of the reserve for credit losses, the valuation of mortgage servicing rights, the valuation of leased asset residual values, the fair value of financial instruments, the valuation of pension and postretirement benefit obligations, and the determination of income tax expense and liability to be the accounting estimates that are the most subjective or judgmental.

Reserve for Credit Losses

A consequence of lending activities is that we may incur losses. The amount of such losses will vary, depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions, including rising interest rates, and the financial performance of borrowers. The reserve for credit losses consists of the Allowance for Loan and Lease Losses (the "Allowance") and a Reserve for Unfunded Commitments (the "Unfunded Reserve"). The reserve for credit losses provides for credit losses inherent in lending or committing to lend and is based on loss estimates derived from a comprehensive quarterly evaluation, reflecting analyses of individual borrowers and historical loss experience, supplemented as necessary by credit

15

---

Table of Contents

judgment to address observed changes in trends, conditions, and other relevant environmental and economic factors. The Allowance provides for probable and estimable losses inherent in our loan and lease portfolio. The Allowance is increased or decreased through the provisioning process. There is no exact method of predicting specific losses or amounts that ultimately may be charged-off on particular segments of the loan and lease portfolio.

Our determination of the amount of the reserve for credit losses is a critical accounting estimate as it requires the use of estimates and significant judgment as to the amount and timing of expected future cash flows on impaired loans and leases, estimated loss rates on homogenous portfolios, and deliberation on economic factors and trends. On a quarterly basis, an evaluation of specific individual commercial borrowers is performed to identify impaired loans and leases. Also, on a quarterly basis, the Audit Committee of the Board of Directors reviews and approves the reserve for credit losses prior to final affirmation by the Board of Directors. See Note 3 to the Consolidated Financial Statements for more information on the reserve for credit losses.

Valuation of Mortgage Servicing Rights

When mortgage loans are sold with servicing rights retained, a servicing asset is established and accounted for based on estimated fair values. An estimated fair value is used because there is no quoted or established market for valuation of mortgage servicing rights. The estimated fair value is determined using discounted cash flow modeling techniques, which requires us to make estimates and assumptions regarding the amount and timing of expected future cash flows, loan repayment rates, costs to service, and interest rates that reflect the risk involved. Our estimates of the fair value of mortgage servicing rights are sensitive to changes in the underlying estimates and assumptions. Had we assumed lower interest rates and higher loan repayment rates, the estimated fair value of the mortgage servicing rights could have been lower than recorded in our Consolidated Statements of Condition. See Note 4 to the Consolidated Financial Statements for more information on mortgage servicing rights.

Valuation of Leased Asset Residual Values

Lease financing receivables include a residual value component, which represents the estimated value of leased assets upon lease expiration. Our determination of residual value is derived from a variety of sources, including equipment valuation services, appraisals, and publicly available market data on recent sales transactions on similar equipment. The length of time until lease termination, the cyclical nature of equipment values, and the limited marketplace for re-sale of certain leased assets, are important variables considered in making this determination. We update our valuation analysis on an annual basis, or more often when events or circumstances warrant. When we determine that the fair value is lower than the expected residual value at lease expiration, the difference is recognized as an asset impairment in the period in which the analysis is completed. See Note 3 to the Consolidated Financial Statements for more information on the residual value of leased assets.

Pension and Postretirement Benefit Obligations

Our pension and postretirement benefit obligations and net periodic benefit cost are actuarially determined based on a number of key assumptions, including the discount rate, estimated future return on plan assets, and the health care cost trend rate. Our determination of the pension and postretirement benefit obligations and net periodic benefit cost is a critical accounting estimate as it requires the use of estimates and judgment related to the amount and timing of expected future cash out-flows for benefit payments and cash in-flows for maturities and return on plan assets. Changes in estimates and assumptions related to mortality rates and future health care costs could also have a material impact to our financial condition or results of operations. The discount rate is used to determine the present value of future benefit obligations and the net periodic benefit cost. The discount rate used to value the future benefit obligation as of each year-end is the rate used to determine the periodic benefit cost in the following year.

16

---

Table of Contents

The estimated pension and postretirement net periodic benefit cost for 2009 is $4.2 million, based on an assumed discount rate of 6.25%. The following table presents a sensitivity analysis of a 25 basis point change in discount rates to the net periodic benefit cost and benefit obligation:

See Note 13 to the Consolidated Financial Statements for more information on our pension and postretirement benefit plans.

Income Taxes

We determine our liabilities for income taxes based on current tax regulation and interpretations in tax jurisdictions where our income is subject to taxation. Currently, we file tax returns in 11 federal, state and local domestic jurisdictions, and four foreign jurisdictions. In estimating income taxes payable or receivable, we assess the relative merits and risks of the appropriate tax treatment considering statutory, judicial, and regulatory guidance in the context of each tax position. Accordingly, previously estimated liabilities are regularly reevaluated and adjusted, through the provision for income taxes.

Changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates, interpretations of tax law, the status of examinations being conducted by various taxing authorities, and newly enacted statutory, judicial and regulatory guidance that impact the relative merits and risks of each tax position. These changes, when they occur, affect accrued income taxes and can be significant to our operating results. See Note 15 to the Consolidated Financial Statements for more information on income taxes.

Reclassifications

Certain prior period information in Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A") has been reclassified to conform to the 2008 presentation.

17

---

Table of Contents

Overview

We are a regional financial services company serving businesses, consumers, and governments in Hawaii, American Samoa, and the West Pacific. Our main operating subsidiary, the Bank, was founded in 1897 and is the largest independent financial institution in Hawaii.

"Maximizing shareholder value over time" remains our governing objective. Our vision is "exceptional people building exceptional value for our customers, our island communities, our shareholders, and each other."

In striving to fulfill our governing objective and vision, we introduced our 2007+ Plan ("Plan") to our shareholders, customers, and employees in January 2007. Our Plan, which we continued to follow in 2008, focused on soundness and on disciplined management of lending, investing, compliance, capital, and liquidity.

Plan Financial Objectives and Earnings Summary

Our Plan was prepared with the expectation that economic growth in Hawaii could slow in 2007 and beyond. Our Plan was based on assumptions of moderate growth in revenues and consistent, positive operating leverage. Our Plan also allowed us to adjust for economic softness as we became increasingly cautious in 2008. Our Plan is to grow with the markets that we serve, while maintaining our conservative risk profile.

In 2008, the U.S. economy, and in particular the financial services industry, faced unprecedented challenges. Although we were not immune to these external factors, 2008 produced solid financial results.

The following summarizes our Plan financial objectives compared with our financial results for 2008:

Net income for 2008 was $192.2 million, an increase of 5% from 2007. Diluted earnings per share were $3.99 for 2008, an increase of 8% from 2007. Our solid financial performance in 2008 was primarily due to a $23.8 million or 6% increase in net interest income from 2007, a result of a 25 basis point increase in our net interest margin to 4.33%.

Our solid financial performance in 2008 was also positively impacted by three transactions:

•

$13.7 million pre-tax gain resulting from the mandatory redemption of our Visa, Inc. ("Visa") shares, as well as a $5.6 million reversal of previously recorded contingency accruals related to Visa legal matters;



•

$11.6 million pre-tax gain resulting from the sale of our equity interest in an aircraft lease. This sale also resulted in a net benefit for income taxes from the adjustment of previously recognized tax liabilities. After-tax gains from this transaction were $13.0 million; and



•

$8.9 million net gain related to the settlement of our Sale-In Lease-Out ("SILO") transactions with the Internal Revenue Service (the "IRS"). This amount was comprised of a $4.0 million decrease to lease financing interest income and a $12.9 million credit to the provision for income taxes.

18

---

Table of Contents

Our actions in 2008 were influenced by the weakening economy and uncertainties regarding the impact of government regulation. We strengthened our balance sheet in 2008, with increased levels of deposits, reserves for credit losses, and capital.

•

Total deposits were $8.3 billion as of December 31, 2008, an increase of $349.7 million or 4% from the balance as of December 31, 2007;



•

We increased our reserve for credit losses by $32.5 million or 34% during 2008, to reflect increased risk due to the overall softening of the economy, and risk in the credit and financial markets; and



•

We significantly increased our capital. Our leverage ratio was 7.30% as of December 31, 2008 compared to 7.02% as of December 31, 2007. Also, our Tier 1 capital ratio was 11.24% as of December 31, 2008 compared to 10.32% as of December 31, 2007.

In December 2008, we decided not to participate in the U.S. Treasury's TARP/CPP. Rather than relying on government funding, we focused on increasing deposits and building capital. We have substantial resources for investment and lending, and will make such investments as opportunities and conditions warrant.

We anticipate that the challenging economic environment will continue in 2009. We will focus on maintaining high levels of liquidity, as well as strong capital and reserves for credit losses. Special emphasis will be given to workforce productivity, technology and service enhancement, and management of risk and expenses.

19

---

Table of Contents

Analysis of Statements of Income

Average balances, related income and expenses, and resulting yields and rates are presented in Table 3. An analysis of the change in net interest income, on a taxable equivalent basis, is presented in Table 4.

¹

Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis.

²

Comprised of other consumer revolving credit, installment, and consumer lease financing.

³

Interest income includes taxable equivalent basis adjustments, based upon a federal statutory tax rate of 35%, of $945,000, $923,000, and $696,000 for the years ended December 31, 2008, 2007, and 2006, respectively.

20

---

Table of Contents

¹

The changes for each category of interest income and expense are allocated between the portion of changes attributable to the variance in volume and rate for that category.

²

Comprised of other consumer revolving credit, installment, and consumer lease financing.

Net Interest Income

The amount of net interest income is affected by both changes in interest rates (rate) and the amount and composition of earning assets and interest-bearing liabilities (volume). Net interest income benefited significantly from the lower interest rate environment in 2008 and as our liabilities re-priced faster than our assets.

Net interest income, on a taxable equivalent basis, increased by $23.8 million or 6% in 2008 from 2007, primarily due to lower funding costs and the effects of a steeper yield curve in 2008. Net interest margin increased by 25 basis points in 2008 from 2007. Rates paid on interest-bearing deposits decreased by 95 basis points in 2008, reflecting the full effects of a decreasing interest rate environment during 2008. Also contributing to our lower funding costs was a 138 basis point decrease in rates paid on securities sold under agreements to repurchase in 2008. The decrease in our funding costs more than offset the decrease in interest income from our earning assets. Yields on our loans and leases decreased by 83 basis

21

---

Table of Contents

points in 2008 from 2007. Yields were 190 basis points lower in our commercial and industrial portfolio and 166 basis points lower in our home equity portfolio, as interest rates reset on these variable rate products.

Average balances of our interest earning assets and interest-bearing liabilities changed only slightly in 2008 from 2007. Average interest-bearing liabilities increased by $96.8 million or 1% in 2008 from 2007, primarily due to growth in interest-bearing demand and savings deposits as customers moved balances to more liquid accounts. Also contributing to the increase in average interest-bearing liabilities was a $38.5 million increase in average balances in securities sold under agreements to repurchase. Average earning assets decreased by $16.9 million or less than 1% in 2008 from 2007.

Net interest income, on a taxable equivalent basis, decreased by $7.4 million or 2% in 2007 from 2006, primarily due to increased funding costs. Net interest margin decreased by 17 basis points in 2007 from 2006, primarily due to the prolonged effects of the inverted or flat yield curve. Rates paid on interest-bearing deposits increased by 51 basis points in 2007, reflecting the full effects of a rising interest rate environment during 2006. The increase in our funding costs more than offset the increase in interest income from our earning assets. Yields on our loans and leases increased by 12 basis points in 2007 from 2006. Yields were also 28 basis points higher in our investment securities available-for-sale in 2007 from 2006, primarily as a result of reinvestment in higher yielding investment securities as well as a decrease in the level of prepayments.

Average interest-bearing liabilities increased by $280.0 million or 4% in 2007 from 2006, primarily due to growth in time deposits. Average time deposit balances increased by $243.6 million as customers sought higher rate deposit products. Also contributing to the increase in average interest-bearing liabilities was a $112.4 million increase in average balances in securities sold under agreements to repurchase. Average long-term debt, the costliest of our interest-bearing liabilities, remained relatively unchanged in 2007 from 2006. Average loans and leases increased by $192.4 million or 3% in 2007 from 2006, with growth in substantially all loan categories. Average balances in investment securities declined slightly in 2007 from 2006.

Provision for Credit Losses

The Provision for Credit Losses (the "Provision") reflects our judgment of the expense or benefit necessary to achieve the appropriate amount of the Allowance. We maintain the Allowance at levels adequate to cover our estimate of probable credit losses as of the end of the reporting period. The Provision is determined through detailed quarterly analyses of the loan and lease portfolio. The Provision is based on our loss experience, changes in the economic environment, as well as an ongoing assessment of our credit quality. The Provision was $60.5 million in 2008, $15.5 million in 2007, and $10.8 million in 2006. The Provision recorded in 2008 increased the Allowance to $123.5 million as of December 31, 2008, which is reflective of higher levels of net loans and leases charged-off and a slowdown in local economic activity. For further discussion on the Allowance, see the "Corporate Risk Profile – Allowance for Loan and Lease Losses" section in MD&A.

22

---

Table of Contents

Noninterest Income

Table 5 presents the major components of noninterest income for 2008, 2007, and 2006.

n.m. – not meaningful.

Trust and asset management income is comprised of fees earned from the management and administration of trust and other customer assets. These fees are in large part based upon the market value of the assets that we manage. Total trust assets under administration were $9.8 billion as of December 31, 2008, $13.0 billion as of December 31, 2007, and $12.6 billion as of December 31, 2006. Trust and asset management income decreased by 9% in 2008 from 2007 primarily due to a $3.2 million decrease in investment advisory fees and a $2.7 million decrease in fees from accounts under management. Both decreases were affected by the decline in the value of equity markets over this period. Trust and asset management income increased in 2007 from 2006 primarily due to a $2.0 million increase in fees from new accounts under management as well as an increase in fees from existing accounts as a result of an increase in the market value of assets under managements.

23

---

Table of Contents

Mortgage banking income for 2008, 2007, and 2006 was comprised of the following:

¹

Principally represents changes due to loan payoffs and loan sales with servicing rights retained.

²

Changes in valuation assumptions principally reflects changes in discount rates and loan repayment rate assumptions, mostly due to changes in interest rates. Designated Securities were comprised of mortgage-backed securities in our trading portfolio, which were used to manage the volatility of the fair value of our mortgage servicing rights. Realized investment trading gains and losses were not material.

Mortgage banking income is highly influenced by mortgage interest rates and the housing market. Mortgage banking income decreased by 30% in 2008 from 2007 primarily due to a $12.5 million decrease in income related to the estimated fair value of our mortgage servicing rights, net of the change in fair value of our designated trading securities. The decrease in our income from mortgage servicing rights was primarily due to higher loan repayment rate assumptions in 2008 as a result of lower interest rates on mortgage-based products and the resulting increase in refinancing activity. This was partially offset by an $8.5 million increase in net gains on our derivative financial instruments in 2008. Our adoption of SAB No. 109 on January 1, 2008 had the effect of accelerating gain recognition of the estimated fair value of our mortgage servicing rights related to the loan from the loan sale date to the loan commitment date. Derivative gains related to our application of SAB No. 109 in 2008 were $7.6 million. Mortgage loan originations were $866.3 million in 2008, a $55.6 million or 7% increase compared to 2007. The increase in mortgage loan originations in 2008 compared to 2007 was primarily due to higher refinancing activity due to lower mortgage interest rates. Servicing income has also remained stable in 2008, as our portfolio of residential mortgage loans serviced for third parties was $2.7 billion as of December 31, 2008 compared to $2.5 billion as of December 31, 2007.

Mortgage banking income increased by 11% in 2007 from 2006 primarily due to the discontinuation of the amortization of mortgage servicing rights in 2007. This was partially offset by a $1.6 million decrease in income related to the estimated fair value of our mortgage servicing rights, net of the change in fair value of our designated trading securities. Mortgage loan originations were $775.9 million in 2007, a $66.7 million decrease from 2006. See Note 4 to the Consolidated Financial Statements for more information on mortgage servicing rights.

24

---

Table of Contents

Service charges on deposit accounts increased by 10% in 2008 from 2007 primarily due to a $4.4 million increase in account analysis fees on analyzed business checking accounts as a result of lower earnings credit rates on customer accounts. Service charges on deposit accounts increased by 11% in 2007 from 2006 primarily due to a $4.9 million increase in overdraft fees as a result of fee schedule changes as well as an increase in the number of transactional deposit accounts.

Fees, exchange, and other service charges are primarily comprised of debit card income, fees from ATMs, merchant service activity, and other loan fees and service charges. The increase in fees, exchange, and other service charges in 2008 from 2007 was primarily due to a $1.4 million increase in debit card income and a $0.6 million increase in fees from facilitating interest rate swaps on behalf of our customers. This was partially offset by a $1.2 million decrease in fees from ATMs. The increase in fees, exchange, and other service charges in 2007 from 2006 was primarily due to a $3.7 million increase in debit card income and a $1.0 million increase in fees from facilitating interest rate swaps on behalf of our customers. This was partially offset by a $0.6 million decrease in other loan fees and a $0.4 million decrease in fees from ATMs. The increases in debit card income for both periods were due to higher transactional volume from new and existing debit cardholders.

Insurance income is comprised of commission income derived from our retail and wholesale insurance businesses. Insurance income increased by 6% in 2008 from 2007 primarily due to a $1.2 million increase in income from annuity and life insurance products and a $0.8 million increase in contingent commission income. This was partially offset by a $0.4 million decrease in income from life insurance premiums. The increase in income from fixed annuity products was a result of customers preferring conservative investment alternatives in light of equity market conditions. Insurance income increased by 14% in 2007 from 2006 primarily due to a $1.2 million increase in income from annuity and life insurance products as well as a $1.1 million increase in contingent commission income.

Other noninterest income increased by 73% in 2008 from 2007 primarily due to the $13.7 million gain from the mandatory redemption of our Visa shares and the $11.6 million gain on the sale of our equity interest in an aircraft lease. Also contributing to the increase was a $3.6 million change in the estimated fair value of our subordinated notes, partially offset by a $1.4 million decrease in commission income from the sale of mutual funds. Other noninterest income increased by 32% in 2007 from 2006 primarily due to the gain on the sale of real estate, increased income from bank-owned life insurance, higher income from low-income housing investments, and higher commission income from the sale of mutual funds.

25

---

Table of Contents

Noninterest Expense

Table 7 presents the major components of noninterest expense for 2008, 2007, and 2006.

n.m.

– not meaningful.

Total salaries and benefits increased by 6% in 2008 from 2007 primarily due to cash for stock grants, broad-based incentive awards, and annual merit increases. The $4.6 million cash for stock grants related to a change in our practice of equity compensation for senior management. Senior officers, other than executive officers, received cash grants to encourage them to purchase our common stock in lieu of receiving restricted stock grants. Incentive compensation increased in 2008 from 2007 primarily due to $1.6 million in broad-based incentive awards which was designed to reward employees who helped us achieve solid financial performance despite the challenging economic environment in 2008. Employees eligible for this award were those employees who did not earn bonuses, commissions, or other incentives as a part of their compensation during 2008. Partially offsetting these increases in 2008 were reduced pension costs, as a result of assumption changes, and reduced executive retention expense. Total salaries and benefits increased by 2% in 2007 from 2006 primarily due to annual merit increases. Share-based compensation also contributed to the increase due to a $1.0 million expense related to an executive retention agreement that ended on December 31, 2007. Another contributing factor to higher salaries and benefits expense in 2007 was an increase in group medical insurance expense. These increases were partially offset by a reduction in postretirement medical benefits expense, as a result of our decision to amend our plan to reduce retirement benefit costs, and reduced incentive compensation.

26

---

Table of Contents

Net occupancy increased by 13% in 2008 from 2007 primarily due to a $2.2 million increase in utilities expense as well as a $2.1 million increase in net rental expense. The increase in net rental expense was primarily related to our new Waikiki branch and the opening of two new in-store branches. Net occupancy expense increased by 3% in 2007 from 2006 primarily due to a $1.6 million increase in utilities expense, partially offset by a $0.4 million decrease in depreciation and amortization expense. The increase in utilities expense in 2008 and 2007 were primarily due to higher energy costs.

Professional fees remained relatively unchanged in 2008 from 2007. Professional fees increased by $4.4 million in 2007 from 2006 primarily due to a $4.0 million reduction in legal fees in 2006 as a result of the conclusion of various legal matters.

Other noninterest expense decreased by 5% in 2008 from 2007 primarily due to a $5.6 million reversal of previously recorded Visa contingency accruals. Also contributing to the decrease in other noninterest expense in 2008 was a $1.8 million fraud loss recorded in 2007. These items were partially offset by a $3.0 million increase in our reserves for legal contingencies, a $2.3 million increase in our contributions to the Bank of Hawaii Charitable Foundation and other charitable organizations, and a $1.0 million call premium related to our Bancorp Hawaii Capital Trust I Capital Securities ("Capital Securities"). Other noninterest expense increased by 7% in 2007 from 2006 primarily due to the $5.6 million Visa contingency accruals. See Note 17 to the Consolidated Financial Statements for more information on the Visa legal matters.

Income Taxes

Our provision for income taxes and effective tax rates for 2008, 2007, and 2006 were as follows:

The lower effective tax rate in 2008 from 2007 was primarily due to a $12.9 million credit to the provision for income taxes recorded in September 2008. This credit was the result of our acceptance of the settlement initiative from the IRS related to our SILO transactions. Also favorably impacting our effective tax rate in 2008 was a pre-tax gain from the sale of our equity interest in an aircraft leveraged lease that would have resulted in an income tax expense of approximately $4.6 million, based on statutory income tax rates. However, due to the timing of the sale of our equity interest and the adjustment of previously recognized income tax liabilities, this transaction resulted in a $1.4 net credit to the provision for income taxes. As a result, the total income tax benefit from this transaction was approximately $6.0 million.

The lower effective tax rate in 2007 from 2006 was primarily due to an $8.2 million charge recorded to the provision for income taxes in 2006 related to a change in tax law. The 2007 effective tax rate was also favorably impacted by $0.5 million in higher tax credits realized from our investments in the State of Hawaii's qualified high technology business investment program and by a $0.4 million credit to the provision for income taxes as a result of the effective settlement of our Lease-In Lease-Out ("LILO") transaction. See Note 15 to the Consolidated Financial Statements for more information.

27

---

Table of Contents

Analysis of Business Segments

Our business segments are Retail Banking, Commercial Banking, Investment Services, and Treasury. Our 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, 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 U.S. generally accepted accounting principles.

We evaluate several performance measures of the business segments, the most important of which are net income after capital charge ("NIACC") and risk adjusted return on capital ("RAROC"). NIACC is economic net income less a charge for the cost of allocated capital. The cost of allocated capital is determined by multiplying our estimate of a shareholder's minimum required rate of return on the cost of capital invested (10% for 2008) by the segment's allocated equity. We assume a cost of capital that is equal to a risk-free rate plus a risk premium. RAROC is the ratio of economic net income to risk-adjusted equity. Equity is allocated to each business segment based on an assessment of its inherent risk. 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 our overall asset and liability management activities on a proportionate basis. The basis for the allocation of net interest income is a function of our 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. Adjustments to Allocated Net Income include the replacement of the Provision with the higher of an economic provision or the Provision, the replacement of the hedge effectiveness of our mortgage servicing rights with an amortization approach, the reversal of an earnings credit related to the Allowance, as well as the tax effect of these adjustments. The economic provision is a statistically derived estimate of annual expected credit losses over an economic cycle.

We consider NIACC to be a measure of shareholder value creation. Our NIACC was $109.8 million in 2008, $91.7 million in 2007, and $94.1 million in 2006. See Note 12 to the Consolidated Financial Statements for more information on our business segments.

28

---

Table of Contents

Table 9 summarizes NIACC and RAROC results for our business segments for 2008, 2007, and 2006.

29

---

Table of Contents

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, and installment loans. Deposit products include checking, savings, and time deposit accounts. Retail Banking also provides merchant services to its small business customers. Products and services from Retail Banking are delivered to customers through 73 Hawaii branch locations, 462 ATMs throughout Hawaii and the Pacific Islands, e-Bankoh (on-line banking service), a 24-hour customer service center, and a mobile banking service. This segment also offers retail property, casualty, and life insurance products.

Financial measures decreased in 2008 from 2007 primarily due to an increase in the Provision and noninterest expense. This was partially offset by higher net interest income and noninterest income. The $12.6 million increase in the Provision was primarily due to higher net loan losses and risk in the segment's consumer portfolios. The $7.8 million increase in noninterest expense was primarily due to increased debit card usage, occupancy, and salaries and benefits expense, as well as higher allocated expenses to the segment related to earnings-based incentive compensation. The $8.2 million increase in net interest income was primarily due to lower loan funding costs and higher deposit earnings credits, which was partially offset by lower average deposit balances. The $6.6 million increase in noninterest income was primarily due to higher fee income from overdraft fees and debit card transactions. Retail Banking's capital charge decreased by $1.4 million in 2008 from 2007, primarily due to a lower rate assessed on allocated capital in 2008.

Financial measures improved in 2007 from 2006 primarily due to higher net interest income and noninterest income. This was partially offset by an increase in the Provision and noninterest expense. The $8.3 million increase in net interest income was primarily due to higher earnings credits on the segment's deposit portfolio, which was partially offset by lower average deposit balances. The $6.3 million increase in noninterest income was primarily due to higher fee income from transaction volume and growth in the number of transactional deposit accounts, as well as higher interchange income from debit card transactions. The $1.8 million increase in the Provision was primarily due to increased risk in the segment's consumer and small business lending portfolios. The $1.2 million increase in noninterest expense was primarily due to increased debit card usage and higher salaries and benefits expense. Retail Banking's capital charge remained relatively unchanged in 2007 from 2006.

Commercial Banking

Commercial Banking offers products including corporate banking, commercial real estate loans, commercial lease financing, auto dealer financing, consumer automobile loans and leases, deposit and cash management products, and wholesale property and casualty insurance products. Commercial lending, deposit, and cash management services are offered to middle-market and large companies in Hawaii. Commercial real estate mortgages focus on customers that include investors, developers, and builders domiciled in Hawaii. Commercial Banking also includes syndicated lending activities, international banking, and operations at our 12 branches in the Pacific Islands.

Financial measures decreased in 2008 from 2007 primarily due to an in increase in the Provision and noninterest expense. This was partially offset by higher noninterest income and net interest income. The $32.2 million increase in the Provision is primarily due to heightened risk in specific loan exposures and to general risk from the weakening economy in Hawaii and the U.S. Mainland. The $2.0 million increase in noninterest expense was primarily due to higher allocated expenses to the segment. The $13.5 million increase in noninterest income was primarily due to the $11.6 million pre-tax gain on the sale of our equity interest in an aircraft lease as well as higher account analysis fees as a result of lower earnings credit rates on customer accounts. The $0.7 million increase in net interest income was primarily due to lower funding costs, partially offset by the effects of the settlement of our SILO transactions. Commercial Banking's capital charge decreased by $1.5 million in 2008 from 2007, primarily due to a lower rate assessed on allocated capital in 2008.

Financial measures improved in 2007 from 2006 primarily due to an increase in net interest income and noninterest income as well as a decrease in the

30

---

Table of Contents

provision for income taxes. This was partially offset by an increase in noninterest expense. The $3.0 million increase in net interest income was primarily due to growth in the segment's loan and deposit balances as well as higher earnings credits on the segment's deposit portfolio. The $2.6 million increase in noninterest income was primarily due to higher fee income on wholesale property and casualty insurance products. Higher fee income from facilitating customer interest rate swaps, mutual fund fee income, and gains on the sale of leased assets also contributed to the growth in noninterest income. The $9.8 million decrease in the provision for income taxes was primarily due to a tax charge in 2006 related to a change in tax law. See Note 15 to the Consolidated Financial Statements for more information. The $6.8 million increase in noninterest expense was primarily due to higher salaries and benefits, other operating, and allocated expenses.

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.

Financial measures decreased in 2008 from 2007 primarily due to a decrease in noninterest income and an increase in noninterest expense. This was partially offset by an increase in net interest income. The $6.1 million decrease in noninterest income was primarily due to lower fee income as a result of lower asset values under trust administration. The $1.2 million increase in noninterest expense was primarily due to higher salaries and benefits, and allocated expenses. The $1.4 million increase in net interest income was primarily due to lower funding costs on the segment's deposit balances. Investment Services' capital charge decreased by $0.5 million in 2008 from 2007, primarily due to a lower rate assessed on allocated capital in 2008.

Financial measures improved in 2007 from 2006 primarily due to an increase in noninterest income, partially offset by an increase in noninterest expense. The $6.3 million increase in noninterest income was primarily due to higher fee income as a result of higher levels of assets under trust administration as well as higher income related to our fixed annuity products. The $1.5 million increase in noninterest expense was primarily due to higher salaries and benefits, and other operating expenses. Investment Services' capital charge remained relatively unchanged in 2007 from 2006.

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 this segment, along with eliminations of inter-company transactions.

Financial measures improved in 2008 from 2007 primarily due to an increase in net interest income, a higher benefit for income taxes, higher noninterest income, and an increase in the adjustment to allocated net income. This was partially offset by an increase in the capital charge. The $13.4 million increase in net interest income was primarily due to a net benefit from a reduction in lower loan rates and deposit funding costs, as well as decreases in the cost of securities sold under agreements to repurchase, funds purchased, and long-term debt. The increase in the benefit for income taxes was primarily due to the $12.9 million credit related to our SILO transactions recorded in 2008. The $3.7 million increase in noninterest income was primarily due to a $13.7 million gain from the mandatory redemption of our Visa shares, partially offset by a $10.0 million net change in the estimated fair value of our

31

---

Table of Contents

mortgage servicing rights due to changes in valuation assumptions and the fair value of our designated trading securities. The $6.4 million increase in the adjustment to allocated net income was primarily due to the replacement of the hedge effectiveness of our mortgage servicing rights with an amortization approach. The $1.4 million increase in the capital charge in 2008 from 2007 was primarily due to an increase in excess equity, partially offset by a lower rate assessed on allocated capital in 2008.

Financial measures decreased in 2007 from 2006 primarily due to lower net interest income and an increase in noninterest expense. This was partially offset by an increase in noninterest income in 2007. The $19.4 million decrease in net interest income was primarily due to higher funding costs associated with our deposit portfolio and an increase in the average balance of deposits funded by this segment. The $4.9 million increase in noninterest expense was primarily due to the previously noted $5.6 million charge related to Visa legal costs. The $9.0 million increase in noninterest income was primarily due to a $3.1 million gain on the sale of real estate, a $1.7 million increase in income from bank-owned life insurance, and a $1.3 million increase in net gains from investment securities. This segment's financial results were also negatively impacted by a $3.5 million increase in the capital charge. This increase was due to an increase in excess equity as a result of a decrease in the unrealized loss position on our investment securities available-for-sale, net of tax, of $20.8 million.

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 our other income earning segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.

32

---

Table of Contents

Analysis of Statements of Condition

Investment Securities

Table 10 contains the contractual maturity distribution, fair value, and weighted-average yield to maturity of our investment securities.

¹

Weighted-average yields on investment securities available-for-sale are based on amortized cost.

²

Weighted-average yields on obligations of states and political subdivisions are generally tax-exempt and are computed on a taxable equivalent basis using a federal statutory tax rate of 35%.

³

Contractual maturities do not anticipate reductions for periodic paydowns.

Our investment securities portfolio is managed to provide liquidity and interest income. Our portfolio is also used to offset interest rate risk positions and to provide collateral for various banking activities. The carrying amount of our investment securities, excluding trading securities, decreased by $96.9 million or 3% from December 31, 2007.

Our investment securities portfolio had gross unrealized gains of $43.2 million or 2% of total amortized cost as of December 31, 2008. Our investment securities portfolio also had gross unrealized losses of $47.4 million or 2% of total amortized cost as of December 31, 2008. The unrealized losses were primarily related to mortgage-backed securities issued by non-agencies for which there is no active or liquid market. We do not believe that the investment securities that were in an unrealized loss position as of December 31, 2008, represent an other-than-temporary impairment. Total gross unrealized losses were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. We have both the intent and ability to hold the investment securities for the time necessary to recover the amortized cost. See Note 2 to the Consolidated Financial Statements for more information.

33

---

Table of Contents

As of December 31, 2008, the par value, amortized cost, and fair value of our callable debt and mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation were as follows:

As of December 31, 2008, we did not own any subordinated debt, or preferred or common stock of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

As of December 31, 2008, all of our mortgage-backed securities issued by private issuers ("non-agencies") were prime jumbo, with an average original loan-to-value ratio of 59%. As of December 31, 2008, 98% of the fair value of our mortgage-backed securities issued by non-agencies were AAA-rated and were originated prior to 2006. Loans past due 90 days or more, underlying the mortgage-backed securities issued by non-agencies, represented approximately 91 basis points of the par value outstanding or approximately $2.7 million as of December 31, 2008. As of December 31, 2008, there were no "sub-prime" or "Alt-A" securities in our mortgage-backed securities portfolio.

Loans and Leases

Loans and leases represent our largest category of interest earning assets and the largest source of revenue. Total loans and leases were $6.5 billion as of December 31, 2008. Loans and leases decreased by $50.6 million or 1% from $6.6 billion as of December 31, 2007.

The commercial loan and lease portfolio is comprised of commercial and industrial loans, commercial mortgages, construction loans, and lease financing. Commercial and industrial loans are made primarily to corporations, middle market, and small businesses. Commercial mortgages and construction loans are offered to real estate investors, developers, and builders primarily domiciled in Hawaii. Commercial mortgages are secured by real estate. The source of repayment for investor property is cash flow from the property and for owner-occupied property it is operating cash flow from the business. Construction loans are for the purchase or construction of a property for which repayment will be generated by the property. Lease financing consists of direct financing leases and leveraged leases. Although our primary market is Hawaii, the commercial portfolio contains loans to some borrowers based on the U.S. Mainland, including some Shared National Credits.

Commercial loans and leases increased by $37.3 million or 2% from $2.4 billion as of December 31, 2007. This increase was primarily due to a $106.3 million increase in our commercial secured mortgage loan portfolio and was consistent with our strategy to grow this portfolio. Our construction loan portfolio decreased by $54.7 million and our lease financing balances decreased by $13.7 million from December 31, 2007. The decrease in our construction loan exposure is consistent with our strategy to reduce our exposure in this area as we experience a slowing economy in Hawaii. The decrease in our lease financing balance was primarily a result of the exercise of an early

34

---

Table of Contents

buy-out option by one of our aircraft lessees in March 2008.

The consumer loan and lease portfolio is comprised of residential mortgage loans, home equity loans, personal credit lines, direct installment loans, and indirect auto loans and leases. These products are offered generally in the markets we serve through our branch network. Consumer loans and leases decreased by $87.9 million or 2% from $4.2 billion as of December 31, 2007. This decrease in our consumer loans and leases was in all categories except home equity loans, consistent with a slowing economy in Hawaii and our strategy to reduce exposure to higher risk loans. The increase in our home equity balances was primarily due to increased customer utilization of existing home equity lines.

See Note 3 to the Consolidated Financial Statements for more information.

Table 12 presents the geographic distribution of our loan and lease portfolio based on the location of the borrower and Table 13 presents maturities and sensitivities of loans to changes in interest rates. See Note 3 to the Consolidated Financial Statements and the "Corporate Risk Profile – Credit Risk" section of MD&A for more information.

¹

For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located. For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower's business operations are conducted.

²

Loans and leases classified as Foreign represents those which are recorded in our international business units.

³

Comprised of other revolving credit, installment, and lease financing.

35

---

Table of Contents

¹

Based on contractual maturities.

²

As of December 31, 2008, loans maturing after one year consisted of $198.5 million in variable rate loans and $302.9 million in fixed rate loans.

Other Assets

Other assets were $474.6 million as of December 31, 2008, a $41.4 million or 10% increase from December 31, 2007. As of December 31, 2008, we had a total of $82.5 million in tax deposits placed with the IRS and State of Hawaii Department of Taxation. These deposits with the respective taxing authorities limits the potential accrual of additional interest based on our current estimate of our tax liabilities. The increase in other assets during 2008 was primarily due to an additional $21.5 million tax deposit placed with the IRS and State of Hawaii Department of Taxation during the third quarter of 2008. Also contributing to the increase in other assets was a $28.3 million increase in the estimated fair value of our customer-related interest rate swap accounts, which have off-setting amounts recorded in other liabilities. See Note 6 to the Consolidated Financial Statements for more information.

Deposits

Total deposits were $8.3 billion as of December 31, 2008, a $349.7 million or 4% increase from December 31, 2007. We experienced strong deposit growth particularly during the fourth quarter of 2008. This increase was primarily due to a $491.8 million increase in our new Bonus Rate Savings Plus product as well as a $213.5 million increase in our new interest-bearing personal money management product in 2008. This was partially offset by a $228.1 million decrease in our non-interest bearing personal checking account product. We also experienced a $163.7 million decrease in time deposits as some customers moved their deposits to more liquid savings and interest-bearing demand products, in light of current economic conditions.

Average time deposits of $100,000 or more was $946.0 million in 2008 and $976.7 million in 2007. See Note 7 to the Consolidated Financial Statements for more information.

Table 14 presents the components of our savings deposits as of December 31, 2008 and 2007.

Borrowings

Borrowings consisted of funds purchased and short-term borrowings, including commercial paper. Borrowings were $20.6 million as of December 31, 2008, a $65.2 million decrease from December 31, 2007. This decrease was primarily due to a $59.7 million decrease in funds purchased. We manage the level of our funds purchased to ensure that we have adequate sources of liquidity. Due to our successful deposit gathering efforts, particularly in the fourth quarter of 2008, and our increased capital levels, we reduced the level of funds purchased as a source of funds. See Note 8 to the Consolidated Financial Statements for more information.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase were $1.0 billion as of December 31, 2008 and 2007. Securities sold under agreements to repurchase also provide us with a short-term source of liquidity. As many of our securities sold under agreements to

36

---

Table of Contents

repurchase are at variable rates, this provided us with a relatively inexpensive source of short-term funding as interest rates declined during 2008. Average rates paid on securities sold under agreements to repurchase were 3.12% in 2008, a 138 basis point decrease from 2007. See Note 8 to the Consolidated Financial Statements for more information.

Long-Term Debt

Long-term debt, which represents a relatively more expensive source of funds for us, was $203.3 million as of December 31, 2008, a $32.1 million or 14% decrease from December 31, 2007. This decrease was primarily due to the redemption of our $26.4 million in Capital Securities and $6.0 million in subordinated notes in the second quarter of 2008. See Note 9 to the Consolidated Financial Statements for more information.

Foreign Activities

In 2008 and 2007, we held U.S. dollar denominated placements and investment securities issued by foreign entities, as a means of generating foreign source income. We used foreign tax credits available to reduce the tax on this income.

As of December 31, 2008 and 2007, we did not have cross-border outstandings to any foreign country which exceeded 0.75% of our total assets. Lower levels of cross-border outstandings as of December 31, 2008 and 2007 were primarily due to the maturity of investment securities.

Table 15 presents a geographic distribution of cross-border outstandings exceeding 0.75% of total assets as of December 31, 2006. Cross-border outstandings, which reflect country of risk outside the U.S., are reported by the country of the guarantor.

¹

Cross-border outstandings are defined as loans (including accrued interest), acceptances, interest-bearing deposits with other banks, other interest-bearing investments, and any other monetary assets which are denominated in dollars or other non-local currency.

37

---

Table of Contents

Corporate Risk Profile

Credit Risk

Credit Risk is defined as the risk that borrowers or counter-parties will not be able to repay their obligations to us. Credit exposures reflect legally binding commitments for loans, leases, banker's acceptances, standby and commercial letters of credit, and overnight deposit account overdrafts.

We manage and control risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Written credit policies document underwriting standards, approval levels, exposure limits, and other limits or standards deemed necessary and prudent. Portfolio diversification at the obligor, industry, product, and/or geographic location levels is actively managed to mitigate concentration risk. In addition, credit risk management also includes an independent credit review process that assesses compliance with commercial and consumer credit policies, risk ratings, and other critical credit information. Our credit risk profile is reflective of the weakening trend in economic activity.

Table 16 presents a five-year history of our air transportation credit exposure. As of December 31, 2008, included in our commercial lending portfolio are nine leveraged leases on aircraft that were originated prior to 2000. Outstanding credit exposure related to these leveraged leases was $71.0 million as of December 31, 2008. These leases, and especially those with domestic air carriers, continue to demonstrate a higher risk profile due to fuel costs, pension plan obligations, and marginal pricing power. We continue to consider these factors in our evaluation of the reserve for credit losses.

¹

Exposure includes loans, leveraged leases, and operating leases.

38

---

Table of Contents

Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More

Table 17 presents a five-year history of non-performing assets and accruing loans and leases past due 90 days or more.

¹

Comprised of other revolving credit, installment, and lease financing.

39

---

Table of Contents

The following table presents the activity in NPAs for 2008:

Non-performing assets ("NPAs") consist of non-accrual loans and leases, foreclosed real estate, and other non-performing investments. Our NPAs were $14.9 million, compared to $5.3 million as of December 31, 2007. The increase was primarily in the commercial segment. The largest component of the increase was a commercial construction loan on a residential project located on the U.S. Mainland which experienced slower than anticipated sales. This project is a participation with a U.S. Mainland bank and is one of the two non-Hawaii based projects in the commercial construction portfolio. Total outstandings associated with these two projects were $6.5 million as of December 31, 2008. The other commercial and industrial NPAs are two Hawaii based companies that are experiencing difficulties due to the slowdown in local economic activity. Consumer NPAs increased by $1.4 million from December 31, 2007 to $5.5 million as of December 31, 2008. The increase was primarily in our residential mortgage loan portfolio and represented 32 loans with a weighted average current loan-to-value ratio of 58% as of December 31, 2008.

Included in NPAs are loans and leases that are considered impaired. Impaired loans and leases are defined as those which we believe it is probable we will not collect all amounts due according to the contractual terms of the loan or lease agreement. Impaired loans and leases as of December 31, 2008 were $8.3 million as compared to $0.1 million as of December 31, 2007. The increase in impaired loans and leases was due to the increase in non-accrual commercial and industrial and commercial construction loans.

Accruing loans and leases past due 90 days or more were $14.2 million as of December 31, 2008, an increase of $6.6 million from December 31, 2007. This increase was primarily due to an increase in delinquencies in commercial and industrial loans reflecting two loans in the Pacific Islands which are in the process of being refinanced.

The ratio of non-accrual loans and leases to total loans and leases was 0.22% as of December 31, 2008, 0.08% as of December 31, 2007, and 0.09% as of December 31, 2006.

Table 19 presents a five-year history of foregone interest income on non-accrual loans and leases.

¹

Interest income recorded during the year included recoveries of interest income previously reversed.

40

---

Table of Contents

Allowance for Loan and Lease Losses

Allowance allocations by loan and lease category are presented in Table 20.

 

¹

Comprised of other revolving credit, installment, and lease financing.

The components of the Allowance, including the allocation between commercial and consumer categories, reflect the increasing credit risk experienced in 2008 due to the weakening economy. Based on our ongoing assessment of the credit quality of the loan and lease portfolio and the economic environment, we recorded a Provision of $60.5 million for 2008, an increase of $45.0 million from 2007.

The ratio of the Allowance to total loans and leases outstanding was 1.89% as of December 31, 2008 compared to 1.38% as of December 31, 2007. The increase in the ratio was indicative of weakening economic conditions. See Note 3 to the Consolidated Financial Statements for more information on the Allowance.

Net loans and leases charged-off in 2008 was $28.0 million or 0.43% of total average loans and leases, an increase from $15.5 million or 0.24% of total average loans and leases in 2007. The increase in net loans and leases charged-off was primarily due to higher net losses in the commercial loan portfolio

41

---

Table of Contents

and increased consumer charge-offs, notably home equity credit lines, automobile, and unsecured consumer loans.

Reserve for Unfunded Commitments

The Unfunded Reserve was $5.2 million as of December 31, 2008, unchanged from December 31, 2007. The process used to determine the Unfunded Reserve is consistent with the process for determining the Allowance as adjusted for estimated funding probabilities or loan and lease equivalency factors. See Note 3 to the Consolidated Financial Statements for more information on the Unfunded Reserve.

Market Risk

Market risk is the potential of loss arising from adverse changes in interest rates and prices. We are exposed to market risk as a consequence of the normal course of conducting our business activities. Our market risk management process involves measuring, monitoring, controlling, and managing risks that can significantly impact our statements of income and condition. In this management process, market risks are balanced with expected returns in an effort to enhance earnings performance, while limiting volatility. The activities associated with these market risks are categorized into "trading" and "other than trading."

Our trading activities include foreign currency and foreign exchange contracts that expose us to a small degree of foreign currency risk. These transactions are primarily executed on behalf of customers. Our other than trading activities include normal business transactions that expose our balance sheet profile to varying degrees of market risk.

Our primary market risk exposure is interest rate risk.

Interest Rate Risk

The objective of our interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

The potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and repricing characteristics of financial instruments.

Our earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the U.S. and its agencies, particularly the FRB. The monetary policies of the FRB influence, to a significant extent, the overall growth of loans, investment securities, and deposits and the level of interest rates earned on assets and paid for liabilities. The nature and impact of future changes in monetary policies are generally not predictable.

In managing interest rate risk, we, through the Asset/Liability Management Committee ("ALCO"), measure short and long-term sensitivities to changes in interest rates. The ALCO utilizes several techniques to manage interest rate risk, which include:

•

adjusting balance sheet mix or altering the interest rate characteristics of assets and liabilities;

•

changing product pricing strategies;

•

modifying characteristics of the investment securities portfolio; or

•

using derivative financial instruments.

The use of derivative financial instruments, as detailed in Note 16 to the Consolidated Financial Statements, has generally been limited. This is due to natural on-balance sheet hedges arising out of offsetting interest rate exposures from loans, investment securities with deposits, and other interest-bearing liabilities. In particular, the investment securities portfolio is utilized to manage the interest rate exposure and sensitivity to within the guidelines and limits established by ALCO. Natural and offsetting hedges reduce the need to employ off-balance sheet derivative financial instruments to hedge interest rate risk exposures. Expected movements in interest rates are also considered in

42

---

Table of Contents

managing interest rate risk. Thus, as interest rates change, we may use different techniques to manage interest rate risk.

A key element in our ongoing process to measure and monitor interest rate risk is the utilization of an asset/liability simulation model. The model is used to estimate and measure the balance sheet sensitivity to changes in interest rates. These estimates are based on assumptions on the behavior of loan and deposit pricing, repayment rates on mortgage-based assets, and principal amortization and maturities on other financial instruments. The model's analytics include the effects of standard prepayment options on mortgages and customer withdrawal options for deposits. While such assumptions are inherently uncertain, we believe that these assumptions are reasonable. As a result, the simulation model attempts to capture the dynamic nature of the balance sheet.

We utilize net interest income simulations to analyze short-term income sensitivities to changes in interest rates. Table 21 presents, for the next twelve months subsequent to December 31, 2008, 2007, and 2006, an estimate of the change in net interest income that would result from a gradual change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. The base case scenario assumes the balance sheet and interest rates are generally unchanged. Based on the net interest income simulation as of December 31, 2008, our Consolidated Statement of Condition is slightly asset sensitive to parallel changes in interest rates. Net interest income sensitivity to changes in interest rates as of December 31, 2008 was more sensitive to changes in interest rates as compared to the sensitivity profiles as of December 31, 2007 and 2006, particularly in higher interest rate scenarios. Late in 2008, market conditions were very uncertain. Economic conditions led consumers to a flight to safety. Government intervention caused interest rates to fall to unprecedented levels and introduced significant market volatility. In addition, credit spreads remained wide relative to historic levels. These factors have contributed to greater interest rate risk to the Company as of December 31, 2008.

To analyze the impact of changes in interest rates in a more realistic manner, non-parallel interest rate scenarios are also simulated. These non-parallel interest rate scenarios indicate that net interest income may decrease from the base case scenario should the yield curve flatten or become inverted for a period of time. Conversely, if the yield curve should steepen further from its mostly "normal" profile, net interest income may increase.

We also use the Market Value of Portfolio Equity ("MVPE") sensitivity analysis to estimate the net present value change in our net assets (i.e., assets, liabilities, and off-balance sheet instruments) from changes in interest rates. The MVPE was approximately $1.3 billion as of December 31, 2008, and approximately $1.8 billion as of December 31, 2007 and 2006. Table 22 presents, as of December 31, 2008, 2007, and 2006, an estimate of the change in the MVPE that would occur from an instantaneous 100 and 200 basis point increase or decrease in interest rates, moving in a parallel fashion over the entire yield curve. The MVPE sensitivity increased as of December 31, 2008 compared to December 31, 2007 as a result of unusually low interest rates and extremely wide market spreads as of December 31, 2008. A further significant parallel decline in interest rates effectively creates a 0% interest rate environment which greatly reduces the estimated value of both our loans and deposits.

43

---

Table of Contents

Further enhancing the MVPE sensitivity analysis are:

•

value-at-risk metrics;

•

key rate analysis;

•

duration of equity analysis; and

•

exposure to basis risk and non-parallel yield curve shifts.

There are inherent limitations to these measures; however, used along with the MVPE sensitivity analysis, we obtain better overall insight for managing our exposures to changes in interest rates. Based on the additional analyses, we estimate that our greatest exposure is in scenarios where medium-term interest rates decrease on a relative basis more than long-term interest rates.

Liquidity Management

Liquidity is managed in an effort to ensure that we have continuous access to sufficient, reasonably priced funds. Funding requirements are impacted by loan originations and refinancings, liability issuances and settlements, and off-balance sheet funding commitments. We consider and comply with various regulatory guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability, and off-balance sheet positions. The ALCO monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.

In an effort to satisfy our liquidity needs, we actively manage our assets and liabilities. The potential sources of short-term liquidity include interest-bearing deposits as well as the ability to sell certain assets including investment securities available-for-sale. Assets generate long-term liquidity through cash flows from investment securities and loans. With respect to liabilities, short-term liquidity is generated from securities sold under agreements to repurchase and other short-term funding sources such as federal funds while long-term liquidity is generated through growth in deposits and long-term debt.

We strengthened our liquidity position in 2008, with increased levels of commercial and consumer deposits. Total deposits were $8.3 billion as of December 31, 2008, a $349.7 million or 4% increase from December 31, 2007. As a result, cash and cash equivalents were $796.5 million as of December 31, 2008, an increase of $408.2 million from December 31, 2007.

In February 2009, we repaid $25.0 million in privately placed fixed rate notes. In March 2009, we expect to repay $119.3 million of our subordinated notes. We do not expect to replace these repayments with new long-term debt. During 2009, we expect to contribute $10.2 million to our pension plans and $1.2 million to our postretirement benefit plan.

Capital Management

The Company and the Bank are subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can cause certain mandatory and discretionary actions by regulators that, if undertaken, could have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative and qualitative measures. These measures were established by regulation to ensure capital adequacy. As of December 31, 2008 and 2007, the Company

44

---

Table of Contents

and the Bank were "well capitalized" under this regulatory framework. There have been no conditions or events since December 31, 2008 that management believes have changed either the Company's or the Bank's capital classifications. See Note 10 to the Consolidated Financial Statements for more information.

As of December 31, 2008, our shareholders' equity was $790.7 million, an increase of $40.4 million or 5% from December 31, 2007. The increase in shareholders' equity was primarily due to current year earnings of $192.2 million, which was partially offset by $84.9 million in cash dividends paid, $62.0 million in common stock repurchases, and $21.0 million in unamortized losses related to our pension and postretirement benefit plans.

As of December 31, 2008, the fair value of our subordinated notes of $119.3 million, recorded as a component of long-term debt on our statements of condition, no longer qualified as a component of Total Capital for regulatory capital purposes due to the maturity of our subordinated notes being within 12 months from December 31, 2008.

In response to a slowing economy and economic uncertainty, we began in the second half of 2008 to increase capital. As of December 31, 2008, all of our key capital ratios have increased from December 31, 2007. As of December 31, 2008, our Tier 1 capital ratio was 11.24%, our total capital ratio was 12.49%, and our leverage ratio was 7.30%.

We significantly reduced our share repurchases, with only 1,000 shares repurchased during the fourth quarter of 2008, to continue to build capital. We will continue to monitor our capital position and will resume our share repurchases when deemed appropriate. On October 24, 2008, our Board of Directors increased the authorization under the share repurchase program by an additional $50.0 million. This new authorization, combined with previously announced authorizations totaling $1.65 billion, brings the total share repurchase authority of our common stock to $1.70 billion.

From January 1, 2008 through October 28, 2008, we repurchased 1.2 million shares of common stock under our share repurchase program at an average cost of $48.89 per share, totaling $59.0 million. From the beginning of our share repurchase program in July 2001 through October 28, 2008, we repurchased a total of 45.6 million shares of common stock and returned $1.6 billion to our shareholders at an average cost of $35.44 per share. We have not repurchased shares of our common stock since October 28, 2008.

From January 1, 2009 through February 20, 2009, we did not repurchase any shares of our common stock. Remaining buyback authority was $85.4 million as of February 20, 2009.

45

---

Table of Contents

Table 23 presents a five-year history of activities and balances in our capital accounts, along with key capital ratios.

¹

Includes unrealized gains and losses on investment securities available-for-sale, foreign currency translation, minimum pension liability adjustment, common stock issuances under share-based compensation, and related tax benefits.

²

Amount presented as of December 31, 2006 represents the adjustment to initially apply the provisions of SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)."

³

Tier 1 capital, total capital, and leverage ratios as of December 31, 2007 were corrected from 10.36%, 11.96%, and 7.04%, respectively.

Off-Balance Sheet Arrangements, Credit Commitments, and Contractual Obligations

Off-Balance Sheet Arrangements

We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships. Such entities are often referred to as variable-interest entities. We routinely sell residential mortgage loans to investors, with servicing rights retained. Sales of residential mortgage loans are generally made on a non-recourse basis.

46

---

Table of Contents

Credit Commitments and Contractual Obligations

Our credit commitments and contractual obligations as of December 31, 2008 were as follows:

¹

On January 1, 2007, we adopted the provisions of FASB Interpretation No. ("FIN") 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109." Our liability for unrecognized tax benefits ("UTBs") as of December 31, 2008 was $16.9 million. We are unable to reasonably estimate the period of cash settlement with the respective taxing authority. As a result, our liability for UTBs is not included in this disclosure.

Commitments to extend credit, standby letters of credit, and commercial letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.

Non-cancelable operating leases are primarily related to branch premises and equipment, with lease terms extending through 2052. Purchase obligations arise from agreements to purchase goods or services that are enforceable and legally binding. Our largest purchase obligation is an outsourcing agreement for technology services related to our core systems and applications. Total payments over the remaining term (through 2014) of this contract are estimated to be $67.6 million. Other contracts included in purchase obligations consist of service agreements for our asset management, ATM, and cash management systems. Pension and postretirement benefit contributions represent the minimum expected contribution to these plans. Actual contributions may differ from these estimates.

See Note 17 to the Consolidated Financial Statements for more information on commitments.

Future Application of Accounting Pronouncements

See Note 1 to the Consolidated Financial Statements for more information regarding the expected impact of accounting pronouncements recently issued but that we have not adopted as of December 31, 2008.

47

---

Table of Contents

Fourth Quarter Results and Other Matters

Net Income

Net income was $39.3 million for the fourth quarter of 2008, a decrease of $1.6 million or 4% from net income of $40.9 million in the fourth quarter of 2007. Diluted earnings per share were $0.82 for the fourth quarter of 2008, a decrease of $0.01 or 1% from the fourth quarter of 2007.

Net Interest Income

Net interest income, on a taxable equivalent basis, for the fourth quarter of 2008 was $106.1 million, an increase of $6.4 million or 6% from the fourth quarter of 2007. The net interest margin was 4.43% for the fourth quarter of 2008, an increase of 31 basis points from the fourth quarter of 2007. The increases in both the net interest income and margin were the result of lower funding costs and the effects of a steeper yield curve in 2008.

Provision for Credit Losses

Net income for the fourth quarter of 2008 included a Provision of $18.6 million compared to a Provision of $5.4 million for the fourth quarter of 2007. The Provision exceeded net charge-offs by $8.0 million in the fourth quarter of 2008 to reflect increased risk due to the overall weakening of the economy and risk in the credit and financial markets.

Noninterest Income

Noninterest income was $54.5 million for the fourth quarter of 2008, a decrease of $5.8 million or 10% from the fourth quarter of 2007. This decrease was primarily due to a $3.5 million decrease in trust and asset management fees and a $3.1 million gain on the sale of real estate recorded in the fourth quarter of 2007. Also contributing to the decrease in noninterest income was a $1.5 million decrease in mortgage banking income, primarily related to the change in fair value of our mortgage servicing rights. These items were partially offset by a $1.3 million gain related to the change in estimated fair value of our subordinated notes, as well as a $1.3 million increase in insurance income and a $1.0 million increase in service charges on deposit accounts.

Noninterest Expense

Noninterest expense was $82.7 million for the fourth quarter of 2008, a decrease of $9.3 million or 10% from the fourth quarter of 2007. This decrease was primarily due to the previously mentioned $5.6 million Visa contingency accrual and the $1.8 million fraud loss, both of which were recorded in the fourth quarter of 2007. Also contributing to the decrease was a $2.2 million decrease in salaries and benefits, primarily due to lower restricted stock units and value sharing accruals, partially offset by a $1.2 million increase in net occupancy expense.

Provision for Income Taxes

The provision for income taxes was $19.8 million for the fourth quarter of 2008, a decrease of $1.6 million or 8% from the fourth quarter of 2007. This represented an effective tax rate of 33.46% for the fourth quarter of 2008, as compared to an effective tax rate of 34.37% for the fourth quarter of 2007.

Share Repurchase Program

As previously noted, we significantly reduced our share repurchases during the fourth quarter of 2008, consistent with our plans to build capital levels. During the fourth quarter of 2008 only 1,000 shares were repurchased and no shares have been repurchased since December 31, 2008.

48

---

Table of Contents

Selected Quarterly Consolidated Financial Data

Table 25 presents our selected quarterly financial data for 2008 and 2007.

¹

Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

²

Net interest margin is defined as net interest income, on a fully-taxable equivalent basis, as a percentage of average earning assets.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

See the Market Risk section in Management's Discussion and Analysis of Financial Condition and Results of Operation included in Item 7 of this report.

Item 8. Financial Statements and Supplementary Data

See Table 25, Selected Quarterly Consolidated Financial Data, included in Item 7 of this report.

49

---

Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Bank of Hawaii Corporation

We have audited the accompanying consolidated statements of condition of Bank of Hawaii Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bank of Hawaii Corporation and subsidiaries at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2007, the Company changed its method of accounting for mortgage servicing rights in accordance with Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140; changed its method of accounting for leveraged leases in accordance with Financial Accounting Standards Board ("FASB") Staff Position No. 13-2, Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction; and changed its method of accounting for tax positions in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Bank of Hawaii Corporation and subsidiaries' internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Honolulu, Hawaii
February 23, 2009

50

---

Table of Contents

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Income