Edgar Filing: BANK OF HAWAII CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2008

or

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

Commission File Number: 1-6887

BANK OF HAWAII CORPORATION

(Exact name of registrant as specified in its charter)

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

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

1-888-643-3888

(Registrant’s telephone number, including area code)

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

Yes x No o

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

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

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

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 24, 2008, there were 47,711,974 shares of common stock outstanding.

Table of Contents

Bank of Hawaii Corporation

Form 10-Q

Index

		Page
Part I - Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Income – Three and nine months ended September 30, 2008 and 2007	2

	Consolidated Statements of Condition –September 30, 2008, December 31, 2007, and September 30, 2007	3

	Consolidated Statements of Shareholders’ Equity – Nine months ended September 30, 2008 and 2007	4

	Consolidated Statements of Cash Flows – Nine months ended September 30, 2008 and 2007	5

	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	48

Part II - Other Information

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 5.	Other Information	48

Item 6.	Exhibits	48

Signatures		49

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Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands, except per share amounts)	2008		2007		2008		2007
Interest Income
Interest and Fees on Loans and Leases	$	92,744	$	112,787	$	295,116	$	335,111
Income on Investment Securities
Trading	1,174		1,114		3,543		4,089
Available-for-Sale	35,152		33,486		104,724		96,010
Held-to-Maturity	2,870		3,616		9,142		11,495
Deposits	33		1,086		432		1,240
Funds Sold	141		1,103		1,553		2,694
Other	490		364		1,405		1,061
Total Interest Income	132,604		153,556		415,915		451,700
Interest Expense
Deposits	17,736		37,613		65,439		104,689
Securities Sold Under Agreements to Repurchase	7,675		11,726		25,780		35,277
Funds Purchased	507		1,654		1,410		4,029
Short-Term Borrowings	13		87		59		265
Long-Term Debt	3,098		3,920		10,304		11,869
Total Interest Expense	29,029		55,000		102,992		156,129
Net Interest Income	103,575		98,556		312,923		295,571
Provision for Credit Losses	20,358		4,070		41,957		10,064
Net Interest Income After Provision for Credit Losses	83,217		94,486		270,966		285,507
Noninterest Income
Trust and Asset Management	14,193		15,146		44,739		47,114
Mortgage Banking	621		3,848		7,656		9,698
Service Charges on Deposit Accounts	13,045		11,919		37,539		33,958
Fees, Exchange, and Other Service Charges	16,991		16,465		50,268		49,082
Investment Securities Gains, Net	159		789		446		1,380
Insurance	5,902		7,446		18,622		18,548
Other	6,075		5,629		44,380		20,450
Total Noninterest Income	56,986		61,242		203,650		180,230
Noninterest Expense
Salaries and Benefits	46,764		44,944		148,221		134,937
Net Occupancy	11,795		10,267		33,581		29,773
Net Equipment	4,775		4,871		13,570		14,529
Professional Fees	3,270		2,369		8,471		7,511
Other	20,186		18,999		60,241		56,655
Total Noninterest Expense	86,790		81,450		264,084		243,405
Income Before Provision for Income Taxes	53,413		74,278		210,532		222,332
Provision for Income Taxes	6,004		26,499		57,626		79,489
Net Income	$	47,409	$	47,779	$	152,906	$	142,843
Basic Earnings Per Share	$	1.00	$	0.98	$	3.20	$	2.90
Diluted Earnings Per Share	$	0.99	$	0.96	$	3.17	$	2.86
Dividends Declared Per Share	$	0.44	$	0.41	$	1.32	$	1.23
Basic Weighted Average Shares	47,518,078		48,913,293		47,738,245		49,204,295
Diluted Weighted Average Shares	48,057,965		49,663,049		48,295,901		50,001,594

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

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Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Condition (Unaudited)

	September 30,			December 31,			September 30,
(dollars in thousands)	2008			2007			2007
Assets
Interest-Bearing Deposits	$	13,845		$	4,870		$	35,471
Funds Sold	—			15,000			—
Investment Securities
Trading	90,993			67,286			92,831
Available-for-Sale	2,572,111			2,563,190			2,591,982
Held-to-Maturity (Fair value of $245,720; $287,644; and $299,191)	249,083			292,577			307,653
Loans Held for Sale	14,903			12,341			8,016
Loans and Leases	6,539,458			6,580,861			6,599,915
Allowance for Loan and Lease Losses	(115,498		)	(90,998		)	(90,998		)
Net Loans and Leases	6,423,960			6,489,863			6,508,917
Total Earning Assets	9,364,895			9,445,127			9,544,870
Cash and Noninterest-Bearing Deposits	285,762			368,402			344,267
Premises and Equipment	118,333			117,177			120,318
Customers’ Acceptances	1,250			1,112			1,967
Accrued Interest Receivable	41,061			45,261			52,652
Foreclosed Real Estate	293			184			105
Mortgage Servicing Rights	27,707			27,588			28,407
Goodwill	34,959			34,959			34,959
Other Assets	460,787			433,132			422,050
Total Assets	$	10,335,047		$	10,472,942		$	10,549,595

Liabilities
Deposits
Noninterest-Bearing Demand	$	1,592,251		$	1,935,639		$	1,894,933
Interest-Bearing Demand	1,750,297			1,634,675			1,530,982
Savings	2,738,684			2,630,471			2,711,169
Time	1,577,252			1,741,587			1,738,082
Total Deposits	7,658,484			7,942,372			7,875,166
Funds Purchased	189,700			75,400			191,900
Short-Term Borrowings	10,621			10,427			10,749
Securities Sold Under Agreements to Repurchase	1,109,431			1,029,340			1,087,511
Long-Term Debt (includes $120,598 carried at fair value as of September 30, 2008)	204,616			235,371			235,350
Banker’s Acceptances	1,250			1,112			1,967
Retirement Benefits Payable	22,438			29,984			41,125
Accrued Interest Payable	12,702			20,476			18,526
Taxes Payable and Deferred Taxes	240,795			278,218			271,089
Other Liabilities	104,990			99,987			84,515
Total Liabilities	9,555,027			9,722,687			9,817,898
Shareholders’ Equity
Common Stock ($.01 par value; authorized 500,000,000 shares; issued / outstanding: September 2008 - 57,022,797 / 47,707,629; December 2007 - 56,995,447 / 48,589,645; and September 2007 - 57,005,602 / 49,068,275)	568			567			567
Capital Surplus	491,419			484,790			482,586
Accumulated Other Comprehensive Loss	(18,643		)	(5,091		)	(28,359		)
Retained Earnings	770,373			688,638			671,451
Treasury Stock, at Cost (Shares: September 2008 - 9,315,168; December 2007 - 8,405,802; and September 2007 - 7,937,327)	(463,697		)	(418,649		)	(394,548		)
Total Shareholders’ Equity	780,020			750,255			731,697
Total Liabilities and Shareholders’ Equity	$	10,335,047		$	10,472,942		$	10,549,595

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

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Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)


								Accum.
								Other
								Compre-									Compre-
				Common		Capital		hensive			Retained			Treasury			hensive
(dollars in thousands)	Total			Stock		Surplus		Loss			Earnings			Stock			Income
Balance as of December 31, 2007	$	750,255		$	567	$	484,790	$	(5,091	)	$	688,638		$	(418,649	)
Cumulative-Effect Adjustment of a Change in Accounting Principle, Net of Tax:
SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115”	(2,736		)	—		—		—			(2,736		)	—
Comprehensive Income:
Net Income	152,906			—		—		—			152,906			—			$	152,906
Other Comprehensive Income, Net of Tax:
Change in Unrealized Gains and Losses on Investment Securities Available-for-Sale	(13,699		)	—		—		(13,699		)	—			—			(13,699		)
Amortization of Net Loss for Pension Plans and Postretirement Benefit Plan	147			—		—		147			—			—			147
Total Comprehensive Income																	$	139,354
Share-Based Compensation	4,480			—		4,480		—			—			—
Net Tax Benefits related to Share-Based Compensation	1,728			—		1,728		—			—			—
Common Stock Issued under Purchase and Equity Compensation Plans (378,382 shares)	12,000			1		421		—			(5,075		)	16,653
Common Stock Repurchased (1,260,398 shares)	(61,701		)	—		—		—			—			(61,701		)
Cash Dividends Paid	(63,360		)	—		—		—			(63,360		)	—
Balance as of September 30, 2008	$	780,020		$	568	$	491,419	$	(18,643	)	$	770,373		$	(463,697	)

Balance as of December 31, 2006	$	719,420		$	566	$	475,178	$	(39,084	)	$	630,660		$	(347,900	)
Cumulative-Effect Adjustment of a Change in Accounting Principle, Net of Tax:
SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140”	5,126			—		—		5,279			(153		)	—
FSP 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”	(27,106		)	—		—		—			(27,106		)	—
FIN 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”	(7,247		)	—		—		—			(7,247		)	—
Comprehensive Income:
Net Income	142,843			—		—		—			142,843			—			$	142,843
Other Comprehensive Income, Net of Tax:
Change in Unrealized Gains and Losses on Investment Securities Available-for-Sale	4,809			—		—		4,809			—			—			4,809
Amortization of Net Loss for Pension Plans and Postretirement Benefit Plan	637			—		—		637			—			—			637
Total Comprehensive Income																	$	148,289
Share-Based Compensation	4,464			—		4,464		—			—			—
Net Tax Benefits related to Share-Based Compensation	2,624			—		2,624		—			—			—
Common Stock Issued under Purchase and Equity Compensation Plans (628,252 shares)	16,321			1		320		—			(6,611		)	22,611
Common Stock Repurchased (1,335,305 shares)	(69,259		)	—		—		—			—			(69,259		)
Cash Dividends Paid	(60,935		)	—		—		—			(60,935		)	—
Balance as of September 30, 2007	$	731,697		$	567	$	482,586	$	(28,359	)	$	671,451		$	(394,548	)

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

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Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended
	September 30,
(dollars in thousands)	2008			2007
Operating Activities
Net Income	$	152,906		$	142,843
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses	41,957			10,064
Depreciation and Amortization	10,878			11,006
Amortization of Deferred Loan and Lease Fees	(1,563		)	(1,354		)
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net	1,117			2,250
Share-Based Compensation	4,480			4,464
Benefit Plan Contributions	(8,403		)	(8,404		)
Deferred Income Taxes	(32,559		)	(81,991		)
Net Gain on Investment Securities	(446		)	(1,380		)
Net Change in Trading Securities	(23,707		)	71,349
Proceeds from Sales of Loans Held for Sale	327,331			253,217
Originations of Loans Held for Sale	(329,893		)	(249,291		)
Tax Benefits from Share-Based Compensation	(1,813		)	(2,624		)
Net Change in Other Assets and Other Liabilities	(21,944		)	2,753
Net Cash Provided by Operating Activities	118,341			152,902

Investing Activities
Investment Securities Available-for-Sale:
Proceeds from Prepayments and Maturities	601,213			418,107
Proceeds from Sales	233,085			50,012
Purchases	(864,985		)	(611,015		)
Investment Securities Held-to-Maturity:
Proceeds from Prepayments and Maturities	43,184			63,193
Net Change in Loans and Leases	25,509			(28,176		)
Premises and Equipment, Net	(12,034		)	(5,399		)
Net Cash Provided by (Used in) Investing Activities	25,972			(113,278		)

Financing Activities
Net Change in Deposits	(283,888		)	(148,228		)
Net Change in Short-Term Borrowings	194,585			171,138
Repayments of Long-Term Debt	(32,425		)	(25,000		)
Tax Benefits from Share-Based Compensation	1,813			2,624
Proceeds from Issuance of Common Stock	11,998			16,442
Repurchase of Common Stock	(61,701		)	(69,259		)
Cash Dividends Paid	(63,360		)	(60,935		)
Net Cash Used in Financing Activities	(232,978		)	(113,218		)

Net Change in Cash and Cash Equivalents	(88,665		)	(73,594		)
Cash and Cash Equivalents at Beginning of Period	388,272			453,332
Cash and Cash Equivalents at End of Period	$	299,607		$	379,738
Supplemental Information
Cash Paid for:
Interest	$	110,766		$	160,321
Income Taxes	75,758			73,989
Non-cash Investing and Financing Activities:
Transfers from Investment Securities-Available-for-Sale to Trading	—			164,180
Transfers from Loans to Foreclosed Real Estate	174			243

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

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Bank of Hawaii Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

Certain prior period amounts have been reclassified to conform to current period classifications.

These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Operating results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

Fair Value Measurements

Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” which became effective for the Company on January 1, 2008, established a framework for measuring fair value, while expanding fair value measurement disclosures. SFAS No. 157 established a fair value hierarchy that distinguishes between independent observable inputs and unobservable inputs based on the best information available. SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities, the effect of these measurements on earnings for the period, and the inputs used to measure fair value. In February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) FAS 157-1 to exclude SFAS No. 13, “Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions, from the scope of SFAS No. 157. In February 2008, the FASB also issued FSP FAS 157-2 to allow entities to electively defer the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. The Company will apply the fair value measurement provisions of SFAS No. 157 to its nonfinancial assets and liabilities measured at fair value effective January 1, 2009. The adoption of SFAS No. 157 had no impact on retained earnings and is not expected to have a material impact on the Company’s statements of income and condition.

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Fair Value Option

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,” which became effective for the Company on January 1, 2008, provides entities with an option to report selected financial assets and financial liabilities, on an instrument by instrument basis, at fair value. On January 1, 2008, the Company elected the fair value option for its subordinated notes, which are included in long-term debt on the Company’s Consolidated Statements of Condition. In adopting the provisions of SFAS No. 159 on January 1, 2008, the Company adjusted the carrying value of the subordinated notes to fair value and recorded an after-tax cumulative-effect adjustment to reduce retained earnings by $2.7 million. Prospectively, the accounting for the Company’s subordinated notes at fair value is not expected to have a material impact on the Company’s statements of income and condition.

Loan Commitments

U.S. Securities and Exchange Commission (the “SEC”) Staff Accounting Bulletin (“SAB”) No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings,” which became effective for the Company on January 1, 2008, requires entities to include the expected net future cash flows related to the servicing of the loan in the measurement of written loan commitments that are accounted for at fair value through earnings. The expected net future cash flows from servicing the loan that are to be included in measuring the fair value of the written loan commitment is to be determined in the same manner that the fair value of a recognized servicing asset is measured under SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140.” However, a separate and distinct servicing asset is not recognized for accounting purposes until the servicing rights have been contractually separated from the underlying loan by sale or securitization of the loan with servicing rights retained. The impact of SAB No. 109 was to accelerate the recognition of the estimated fair value of the servicing rights related to the loan from the loan sale date to the loan commitment date. The adoption of SAB No. 109 did not have a material impact on the Company’s statements of income and condition.

Future Application of Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities - an Amendment of FASB Statement No. 133.” SFAS No. 161 expands disclosure requirements regarding an entity’s derivative instruments and hedging activities. Expanded qualitative disclosures that will be required under SFAS No. 161 include: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and related interpretations; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 also requires several added quantitative disclosures in financial statements. SFAS No. 161 will be effective for the Company on January 1, 2009 and its adoption is not expected to impact the Company’s statements of income and condition.

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Note 2. Pension Plans and Postretirement Benefit Plan

The components of net periodic benefit cost for the Company’s pension plans and the postretirement benefit plan for the three and nine months ended September 30, 2008 and 2007 are presented in the following table:

Pension Plans and Postretirement Benefit Plan (Unaudited)

	Pension Benefits						Postretirement Benefits
(dollars in thousands)	2008			2007			2008			2007
Three Months Ended September 30,
Service Cost	$	—		$	—		$	89		$	178
Interest Cost	1,298			1,223			420			412
Expected Return on Plan Assets	(1,522		)	(1,373		)	—			—
Amortization of Prior Service Credit	—			—			(53		)	(50		)
Recognized Net Actuarial Losses (Gains)	270			450			(140		)	(75		)
Net Periodic Benefit Cost	$	46		$	300		$	316		$	465

Nine Months Ended September 30,
Service Cost	$	—		$	—		$	267		$	488
Interest Cost	3,893			3,669			1,260			1,202
Expected Return on Plan Assets	(4,565		)	(4,119		)	—			—
Amortization of Prior Service Credit	—			—			(159		)	(150		)
Recognized Net Actuarial Losses (Gains)	810			1,350			(420		)	(225		)
Net Periodic Benefit Cost	$	138		$	900		$	948		$	1,315

The net periodic benefit cost for the Company’s pension plans and postretirement benefit plan are recorded as a component of salaries and benefits in the statements of income. The expected 2008 contribution to the Company’s pension plans increased to $7.7 million from $0.7 million, as previously reported. There were no significant changes from the previously reported $1.1 million that the Company expects to contribute to the postretirement benefit plan for the year ending December 31, 2008. For the three and nine months ended September 30, 2008, the Company contributed $7.1 million and $7.5 million, respectively, to its pension plans. For the three and nine months ended September 30, 2008, the Company contributed $0.2 million and $0.9 million, respectively, to its postretirement benefit plan.

Note 3. Business Segments

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

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Selected financial information for each business segment is presented below for the three and nine months ended September 30, 2008 and 2007.

Business Segments Selected Financial Information (Unaudited)
	Retail			Commercial			Investment						Consolidated
(dollars in thousands)	Banking			Banking			Services			Treasury			Total
Three Months Ended September 30, 2008 1
Net Interest Income	$	58,228		$	36,564		$	3,922		$	4,861		$	103,575
Provision for Credit Losses	5,475			13,826			1,089			(32		)	20,358
Net Interest Income After Provision for Credit Losses	52,753			22,738			2,833			4,893			83,217
Noninterest Income	27,380			10,508			17,458			1,640			56,986
Noninterest Expense	(43,709		)	(24,488		)	(16,800		)	(1,793		)	(86,790		)
Income Before Provision for Income Taxes	36,424			8,758			3,491			4,740			53,413
Provision for Income Taxes	(13,478		)	(4,686		)	(1,292		)	13,452			(6,004		)
Allocated Net Income	$	22,946		$	4,072		$	2,199		$	18,192		$	47,409
Total Assets as of September 30, 2008	$	3,669,924		$	3,023,242		$	285,497		$	3,356,384		$	10,335,047

Three Months Ended September 30, 2007 2
Net Interest Income (Loss)	$	56,830		$	40,352		$	3,574		$	(2,200	)	$	98,556
Provision for Credit Losses	1,773			2,486			(1		)	(188		)	4,070
Net Interest Income (Loss) After Provision for Credit Losses	55,057			37,866			3,575			(2,012		)	94,486
Noninterest Income	26,346			11,442			18,068			5,386			61,242
Noninterest Expense	(41,653		)	(22,430		)	(16,074		)	(1,293		)	(81,450		)
Income Before Provision for Income Taxes	39,750			26,878			5,569			2,081			74,278
Provision for Income Taxes	(14,707		)	(9,948		)	(2,060		)	216			(26,499		)
Allocated Net Income	$	25,043		$	16,930		$	3,509		$	2,297		$	47,779
Total Assets as of September 30, 2007 2	$	3,651,121		$	3,118,106		$	216,795		$	3,563,573		$	10,549,595

Nine Months Ended September 30, 2008 1
Net Interest Income	$	176,207		$	122,663		$	11,731		$	2,322		$	312,923
Provision for Credit Losses	15,999			25,704			1,089			(835		)	41,957
Net Interest Income After Provision for Credit Losses	160,208			96,959			10,642			3,157			270,966
Noninterest Income	83,196			42,753			54,738			22,963			203,650
Noninterest Expense	(130,813		)	(72,753		)	(50,026		)	(10,492		)	(264,084		)
Income Before Provision for Income Taxes	112,591			66,959			15,354			15,628			210,532
Provision for Income Taxes	(41,660		)	(26,273		)	(5,681		)	15,988			(57,626		)
Allocated Net Income	$	70,931		$	40,686		$	9,673		$	31,616		$	152,906
Total Assets as of September 30, 2008	$	3,669,924		$	3,023,242		$	285,497		$	3,356,384		$	10,335,047

Nine Months Ended September 30, 2007 2
Net Interest Income (Loss)	$	166,855		$	120,050		$	10,565		$	(1,899	)	$	295,571
Provision for Credit Losses	4,576			5,700			(1		)	(211		)	10,064
Net Interest Income (Loss) After Provision for Credit Losses	162,279			114,350			10,566			(1,688		)	285,507
Noninterest Income	78,714			31,689			56,669			13,158			180,230
Noninterest Expense	(124,096		)	(67,667		)	(47,276		)	(4,366		)	(243,405		)
Income Before Provision for Income Taxes	116,897			78,372			19,959			7,104			222,332
Provision for Income Taxes	(43,246		)	(28,881		)	(7,385		)	23			(79,489		)
Allocated Net Income	$	73,651		$	49,491		$	12,574		$	7,127		$	142,843
Total Assets as of September 30, 2007 2	$	3,651,121		$	3,118,106		$	216,795		$	3,563,573		$	10,549,595

1 Business segment results have been revised for the three and nine months ended September 30, 2008, since reported in the Company’s Form 8-K filing on October 27, 2008.

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

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Note 4. Fair Value of Financial Assets and Liabilities

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level 1:	Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level 2:	Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means.

Level 3:	Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis as of September 30, 2008:

Assets and Liabilities Measured at Fair Value on a Recurring Basis (Unaudited)
	Quoted Prices in
	Active Markets for		Significant Other		Significant
	Identical Assets		Observable Inputs		Unobservable Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Investment Securities Trading	$	—	$	90,993	$	—	$	90,993
Investment Securities Available-for-Sale	678		2,571,433		—		2,572,111
Mortgage Servicing Rights	—		—		27,057		27,057
Other Assets	6,120		—		—		6,120
Net Derivative Assets and Liabilities	606		96		41		743
Total Assets at Fair Value	$	7,404	$	2,662,522	$	27,098	$	2,697,024

Long-Term Debt	$	—	$	—	$	120,598	$	120,598
Total Liabilities at Fair Value	$	—	$	—	$	120,598	$	120,598

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For the three and nine months ended September 30, 2008, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

	Investment						Net
	Securities			Mortgage			Derivative
	Available-for-			Servicing			Assets and
Assets (Unaudited) (dollars in thousands)	Sale 1			Rights 2			Liabilities 3				Total
Three Months Ended September 30, 2008
Balance as of July 1, 2008	$	25,016		$	30,272		$	326			$	55,614
Realized and Unrealized Net Gains (Losses):
Included in Net Income	—			(3,349		)	1,185				(2,164			)
Included in Other Comprehensive Income	(16		)	—			—				(16			)
Purchases, Sales, Issuances, and Settlements, Net	(25,000		)	134			(1,470		)		(26,336			)
Balance as of September 30, 2008	$	—		$	27,057		$	41			$	27,098

Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2008	$	—		$	(2,894	)	$	41			$	(2,853		)

	Long-Term
Liabilities (Unaudited) (dollars in thousands)	Debt 4			Total
Three Months Ended September 30, 2008
Balance as of July 1, 2008	$	121,326		$	121,326
Unrealized Net Gains Included in Net Income		(728	)		(728	)
Balance as of September 30, 2008	$	120,598		$	120,598

Total Unrealized Net Gains Included in Net Income Related to Liabilities Still Held as of September 30, 2008	$	(728	)	$	(728	)

	Investment						Net
	Securities			Mortgage			Derivative
	Available-for-			Servicing			Assets and
Assets (Unaudited) (dollars in thousands)	Sale 1			Rights 2			Liabilities 3			Total
Nine Months Ended September 30, 2008
Balance as of January 1, 2008	$	218,980		$	27,588		$	113		$		246,681
Realized and Unrealized Net Gains (Losses):
Included in Net Income	—			(4,248		)	4,079			(169			)
Included in Other Comprehensive Income	1,012			—			—			1,012
Purchases, Sales, Issuances, and Settlements, Net	(219,992		)	3,717			(4,151		)	(220,426			)
Balance as of September 30, 2008	$	—		$	27,057		$	41		$		27,098

Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2008	$	—		$	(2,241	)	$	41		$		(2,200	)

	Long-Term
Liabilities (Unaudited) (dollars in thousands)	Debt 4			Total
Nine Months Ended September 30, 2008
Balance as of January 1, 2008	$	129,032		$	129,032
Unrealized Net Gains Included in Net Income	(2,434		)	(2,434		)
Purchases, Sales, Issuances, and Settlements, Net	(6,000		)	(6,000		)
Balance as of September 30, 2008	$	120,598		$	120,598

Total Unrealized Net Gains Included in Net Income Related to Liabilities Still Held as of September 30, 2008	$	(2,239	)	$	(2,239	)

1	Unrealized gains and losses related to investment securities available-for-sale are reported as a component of other comprehensive income.
2	Realized and unrealized gains and losses related to mortgage servicing rights are reported as a component of mortgage banking income in the statement of income.
3	Realized and unrealized gains and losses related to written loan commitments are reported as a component of mortgage banking income in the statement of income.
4	Unrealized gains and losses related to long-term debt are reported as a component of other noninterest income in the statement of income.

There were no transfers in or out of the Company’s Level 3 financial assets and liabilities for the three and nine months ended September 30, 2008.

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company also measures certain financial assets at fair value on a nonrecurring basis in accordance with GAAP. For the three and nine months ended September 30, 2008, there were no adjustments to fair value for the Company’s loans held for sale and mortgage servicing rights recorded at amortized cost in accordance with GAAP.

Fair Value Option

On January 1, 2008, the Company elected the fair value option for its subordinated notes, which are included in long-term debt on the Company’s Consolidated Statements of Condition. The table below reconciles the balance of the Company’s subordinated notes as of December 31, 2007 and January 1, 2008.

	Balance as of		Net Loss			Balance as of
(Unaudited) (dollars in thousands)	December 31, 2007 1		Upon Adoption			January 1, 2008
Long-Term Debt	$	124,822	$	4,210		$	129,032
Pre-Tax Cumulative-Effect of Adopting the Fair Value Option			4,210
Increase in Deferred Tax Asset			(1,474		)
After-Tax Cumulative-Effect of Adopting the Fair Value Option			$	2,736

1	Includes unamortized discount and deferred costs, which were removed from the statement of condition with the cumulative-effect adjustment to adopt the provisions of SFAS No. 159 on January 1, 2008.

The fair value option was elected for the subordinated notes as it provided the Company with an opportunity to better manage its interest rate risk and to achieve balance sheet management flexibility. As of September 30, 2008, the subordinated notes no longer qualified as a component of Total Capital for regulatory capital purposes, due to the maturity being within 12 months from September 30, 2008.

Gains and losses on the subordinated notes subsequent to the initial fair value measurement are recognized in earnings as a component of other noninterest income. For the three and nine months ended September 30, 2008, the Company recorded a gain of $0.7 million and $2.4 million, respectively, as a result of the change in fair value of the Company’s subordinated notes. Interest expense related to the Company’s subordinated notes continues to be measured based on contractual interest rates and reported as such in the statement of income.

The following reflects the difference between the fair value carrying amount of the Company’s subordinated notes and the aggregate unpaid principal amount the Company is contractually obligated to pay until maturity as of September 30, 2008.

					Excess of Fair Value
	Fair Value		Aggregate Unpaid		Carrying Amount
	Carrying Amount as of		Principal Amount as of		Over Aggregate Unpaid
(Unaudited) (dollars in thousands)	September 30, 2008		September 30, 2008		Principal Balance
Long-Term Debt Reported at Fair Value	$	120,598	$	118,971	$	1,627

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Note 5. Lease Transaction

In March 2008, the lessee in an aircraft leveraged lease exercised its early buyout option resulting in an $11.6 million pre-tax gain for the Company. This gain on the sale of the Company’s equity interest in the lease was recorded as a component of other noninterest income in the statement of income. This sale also resulted in a benefit for income taxes of $1.4 million from the adjustment of previously recognized tax liabilities. After-tax gains from this transaction were $13.0 million.

Note 6. Income Taxes

Lease In-Lease Out (“LILO”) and Sale In-Lease Out (“SILO”) Transactions

During the years 1998 through 2002, the Company entered into one leveraged lease transaction known as a LILO transaction and five leveraged lease transactions known as SILO transactions. In August 2008, the Internal Revenue Service (the “IRS”) publicly released a general settlement initiative for identified participants, including the Company, in LILO and SILO transactions that would disallow 80% of previously claimed income tax deductions through December 31, 2007 but offered relief from penalties that might have otherwise been imposed. The Company accepted the settlement initiative from the IRS in October 2008. In accordance with the terms of the settlement initiative, the Company will consider December 31, 2008 to be the deemed termination date of the SILO transactions for income tax purposes. With the effective settlement of the SILO transactions at a disallowance percentage of less than its original estimate, the Company recalculated the total and periodic income from the SILO transactions from the inception of the lease through December 31, 2008. The Company remeasured its income tax liabilities in accordance with FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” and its lease financing interest income in accordance with SFAS No. 13 and recorded a net gain of $8.9 million in September 2008. 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.

The Company previously reached an agreement with the IRS in June 2007 as to the terms of the settlement of the issues related to the Company’s LILO transaction. As a result, the general settlement initiative released by the IRS in August 2008 had no impact on the LILO transaction which had previously been effectively settled.

As a result of the Company accepting the settlement initiative from the IRS related to the SILO transactions, the Company decreased its liability for unrecognized tax benefits (“UTBs”) by $115.5 million during the three months ended September 30, 2008. As of September 30, 2008, all of the $14.1 million in the Company’s remaining liability for UTBs was related to UTBs that if reversed would have an impact on the Company’s effective tax rate.

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Effective Tax Rate

The following is a reconciliation of the statutory federal income tax rate to the effective tax rate for the three and nine months ended September 30, 2008 and 2007.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Unaudited)	2008		2007		2008		2007
Statutory Federal Income Tax Rate	35.00	%	35.00	%	35.00	%	35.00	%
Increase (Decrease) in Tax Rate Resulting From:
State Income Tax, Net of Federal Income Tax	5.47		3.13		4.95		3.54
Foreign Tax Credits	—		(1.07	)	—		(1.08	)
Low Income Housing Investments	(0.14	)	(0.14	)	(0.19	)	(0.14	)
Bank-Owned Life Insurance	(1.59	)	(0.92	)	(1.04	)	(0.91	)
Leveraged Leases	(23.80	)	(0.08	)	(9.69	)	(0.36	)
Other	(3.70	)	(0.24	)	(1.66	)	(0.30	)
Effective Tax Rate	11.24	%	35.68	%	27.37	%	35.75	%

The lower effective tax rate for the three months ended September 30, 2008 compared to the three months ended September 30, 2007 was primarily due to the SILO deemed termination gain. The lower effective tax rate for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007 was also due to the SILO deemed termination gain and the sale of the Company’s equity interest in an aircraft leveraged lease in March 2008. The pre-tax gain from the aircraft sale 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 the Company’s equity interest and the adjustment of previously recognized income tax liabilities, this transaction resulted in a $1.4 million income tax benefit to the Company. As a result, the total income tax benefit from this transaction was approximately $6.0 million. The income tax benefit from both of these transactions is reflected in the leveraged leases line item in the table above.

Note 7. Contingencies

Parent Support of Money Market Mutual Fund

The Bank provides investment advisory services to the Pacific Capital Funds’ family of mutual funds. Due to the illiquidity and turmoil in the credit markets and money market mutual fund industry in the three months ended September 30, 2008, three investments made by the Pacific Capital Cash Assets Trust Fund (the “Fund”), an SEC registered money market mutual fund regulated under Rule 2a-7 of the Investment Company Act of 1940, measured at fair market value which was estimated at less than amortized cost during this period. For the three months ended September 30, 2008, the Parent pledged overnight support to the Fund on 11 days in amounts ranging from $0.7 million to $8.0 million in order to maintain the asset value of the Fund at a minimum of $1.00. As of September 30, 2008, the Parent’s pledge to the Fund was $2.3 million. This support was not contractually required and was provided at the sole discretion of the Parent. As of September 30, 2008, management does not believe that the Parent will absorb the majority of the expected future risks associated with the Fund’s assets, including interest rate, liquidity, credit, and other relevant risks that are expected to impact the value of the underlying assets of the Fund. As a result, as of September 30, 2008, management believes that on-balance sheet accounting treatment for the supported Fund is not required.

During October 2008, the Parent continued to pledge overnight support to the Fund in amounts within the range noted above. As of October 24, 2008, the Parent’s pledge to the Fund was $1.9 million.

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Visa Litigation

In October 2007, Visa, Inc. (“Visa”) announced that it had completed a series of restructuring transactions in preparation for its initial public offering (“IPO”) planned for the first quarter of 2008. As part of this restructuring, the Company received approximately 0.9 million shares of restricted Class USA stock in Visa in exchange for the Company’s membership interests. The Company did not recognize a gain or loss upon the receipt of Class USA shares in October 2007. Visa completed its IPO in March 2008, resulting in the conversion of the Company’s Class USA shares to approximately 0.8 million shares of Class B common stock in Visa. Visa exercised its option to mandatorily redeem approximately 0.3 million shares of the Company’s Class B common stock in Visa in exchange for cash, which resulted in the Company recording a $13.7 million gain in other noninterest income in the first quarter of 2008. The Company’s remaining Class B shares (approximately 0.5 million) in Visa are restricted for a period of three years after the IPO or upon settlement of litigation claims, whichever is later. The Company has not recognized a gain or loss on the remaining Class B shares in Visa. Concurrent with its IPO, Visa funded an escrow account to cover litigation claims and settlements as discussed below.

In November 2007, Visa announced that it had reached an agreement with American Express, related to its claim that Visa and its member banks had illegally blocked American Express from the bank-issued card business in the United States. The Company was not a named defendant in the lawsuit and, therefore, was not directly liable for any amount of the settlement. However, according to an interpretation of Visa’s by-laws, the Company and other Visa U.S.A., Inc. (a wholly-owned subsidiary of Visa) members are obligated to indemnify Visa for certain losses, including the settlement of the American Express matter. The Company’s indemnification obligation is limited to its proportionate interest in Visa U.S.A., Inc. In December 2007, as a result of Visa’s agreement with American Express, the Company established a liability of $4.3 million for this indemnification obligation. However, as a result of Visa’s IPO and funding of the escrow account, the Company reversed the $4.3 million liability previously established and recorded a credit to other noninterest expense in March 2008.

Other litigation covered by the Company’s indemnification of Visa and expected to be settled from the escrow account include: 1) a lawsuit filed by Discover Financial Services, Inc. (“Discover”) claiming that Visa prevented banks from issuing payment cards on the Discover network; 2) class action lawsuits filed on behalf of merchants who accept payment cards against Visa U.S.A., Inc. claiming that the setting of interchange is unlawful, among other claims; and 3) a consumer class action lawsuit against Visa U.S.A., Inc., Visa International, and MasterCard alleging unfair competition. In December 2007, the Company established a liability of $1.3 million related to the indemnification of Visa in the Discover lawsuit. However, as a result of Visa’s IPO and funding of the escrow account, the Company reversed the $1.3 million liability previously established and recorded a credit to other noninterest expense in March 2008. Our indemnification of Visa, related to the costs of the class action lawsuits, if any, is expected to be funded from the Visa escrow account prior to any additional liability being incurred by the Company.

In October 2008, Visa announced a settlement of approximately $1.9 billion with Discover, which is subject to approval by Visa’s former U.S. member financial institutions. Management is in the process of analyzing the terms of the settlement and potential impact to the Company.

In addition to the Visa litigation, the Company is subject to various other pending and threatened legal proceedings arising out of the normal course of business or operations. Management believes that current legal reserves are adequate and the amount of an incremental liability, if any, arising from these matters is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

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

Forward-Looking Statements

This report contains, and other written or oral statements made by the Company may contain, 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 are less favorable than expected; 2) competitive pressure among financial services and products; 3) the impact of legislation and the regulatory environment; 4) fiscal and monetary policies of the markets in which we operate; 5) actual or alleged conduct which could harm our reputation; 6) changes in accounting standards; 7) changes in tax laws or regulations or the interpretation of such laws and regulations; 8) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses; 9) changes in market interest rates that may affect our credit markets and ability to maintain our net interest margin; 10) unpredicted costs and other consequences of legal or regulatory matters involving the Company; 11) changes to the amount and timing of proposed common stock repurchases; and 12) geopolitical risk, military or terrorist activity, natural disaster, adverse weather, public health, and other conditions impacting us and our customers’ operations. For 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, refer to the section entitled “Risk Factors” in Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, and subsequent periodic and current reports, filed with the U.S. Securities and Exchange Commission (the “SEC”). 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.

Overview

General

Bank of Hawaii Corporation (the “Parent”) is a bank holding company headquartered in Honolulu, Hawaii. The Parent’s principal and only operating subsidiary is Bank of Hawaii (the “Bank”).

The Bank, directly and through its subsidiaries, 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.

2007+ Plan

Our governing objective is to maximize shareholder value over time.

In January 2007, we introduced our 2007+ Plan (“Plan”) to our shareholders, customers, and employees. Our Plan, which we continue to follow in 2008, focuses on five strategic themes:

· Growth

Washington, D.C. 20549

Part II - Other Information

Signatures

49