Table of Contents
 
U N I T E D    S T A T E S
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)
 
[ X ]     Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2008
 
or
 
[     ]     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 ___
 
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    ___
Non-accelerated filer __  (Do not check if a smaller reporting company)           Smaller reporting company  ___
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes __      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 July 25, 2008, there were 47,766,792 shares of common stock outstanding.

Table of Contents
 
Bank of Hawaii Corporation
Form 10-Q
Index
 
 	 	 	Page	
 	 	 	 	
Part I - Financial Information	 	 	
 	 	 	 	
Item 1.	Financial Statements (Unaudited)	 	 	
 	 	 	 	
 	Consolidated Statements of Income – Three and six months ended
June 30, 2008 and 2007	 	2	
 	 	 	 	
 	Consolidated Statements of Condition – June 30, 2008,	 	 	
 	December 31, 2007, and June 30, 2007	 	3	
 	 	 	 	
 	Consolidated Statements of Shareholders’ Equity – Six months ended	 	 	
 	June 30, 2008 and 2007	 	4	
 	 	 	 	
 	Consolidated Statements of Cash Flows – Six months ended	 	 	
 	June 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	 	15	
 	 	 	 	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	 	45	
 	 	 	 	
Item 4.	Controls and Procedures	 	45	

Part II - Other Information	 	 	
 	 	 	 	
Item 1A.	Risk Factors	 	45	
 	 	 	 	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	 	45	
 	 	 	 	
Item 4.	Submission of Matters to a Vote of Security Holders	 	46	
 	 	 	 	
Item 5.	Other Information	 	47	
 	 	 	 	
Item 6.	Exhibits	 	47	
 	 	 	 	
Signatures	 	48	
 
1

Table of Contents
 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
 	 	 	Three Months Ended	 	 	Six Months Ended	 	
 	 	 	 	June 30,	 	 	 	June 30,	 	
(dollars in thousands, except per share amounts)	 	2008	 	2007	 	2008	 	2007	 	
Interest Income	 	 	 	 	 	 	 	 	 	
Interest and Fees on Loans and Leases	 	$	97,959	 	$	112,026	 	$	202,372	 	$	222,324	 	
Income on Investment Securities	 	 	 	 	 	 	 	 	 	
Trading	 	1,209	 	1,357	 	2,369	 	2,975	 	
Available-for-Sale	 	35,321	 	31,563	 	69,572	 	62,524	 	
Held-to-Maturity	 	3,033	 	3,827	 	6,272	 	7,879	 	
Deposits	 	204	 	96	 	399	 	154	 	
Funds Sold	 	420	 	533	 	1,412	 	1,591	 	
Other	 	489	 	364	 	915	 	697	 	
Total Interest Income	 	138,635	 	149,766	 	283,311	 	298,144	 	
Interest Expense	 	 	 	 	 	 	 	 	 	
Deposits	 	20,238	 	33,701	 	47,703	 	67,076	 	
Securities Sold Under Agreements to Repurchase	 	7,488	 	11,665	 	18,105	 	23,551	 	
Funds Purchased	 	270	 	1,452	 	903	 	2,375	 	
Short-Term Borrowings	 	12	 	91	 	46	 	178	 	
Long-Term Debt	 	3,459	 	3,979	 	7,206	 	7,949	 	
Total Interest Expense	 	31,467	 	50,888	 	73,963	 	101,129	 	
Net Interest Income	 	107,168	 	98,878	 	209,348	 	197,015	 	
Provision for Credit Losses	 	7,172	 	3,363	 	21,599	 	5,994	 	
Net Interest Income After Provision for Credit Losses	 	99,996	 	95,515	 	187,749	 	191,021	 	
Noninterest Income	 	 	 	 	 	 	 	 	 	
Trust and Asset Management	 	15,460	 	16,135	 	30,546	 	31,968	 	
Mortgage Banking	 	2,738	 	2,479	 	7,035	 	5,850	 	
Service Charges on Deposit Accounts	 	12,411	 	11,072	 	24,494	 	22,039	 	
Fees, Exchange, and Other Service Charges	 	17,176	 	16,556	 	33,277	 	32,617	 	
Investment Securities Gains, Net	 	157	 	575	 	287	 	591	 	
Insurance	 	5,590	 	4,887	 	12,720	 	11,102	 	
Other	 	7,007	 	6,324	 	38,305	 	14,821	 	
Total Noninterest Income	 	60,539	 	58,028	 	146,664	 	118,988	 	
Noninterest Expense	 	 	 	 	 	 	 	 	 	
Salaries and Benefits	 	45,984	 	44,587	 	101,457	 	89,993	 	
Net Occupancy	 	11,343	 	9,695	 	21,786	 	19,506	 	
Net Equipment	 	4,474	 	4,871	 	8,795	 	9,658	 	
Professional Fees	 	2,588	 	2,599	 	5,201	 	5,142	 	
Other	 	19,473	 	18,080	 	40,055	 	37,656	 	
Total Noninterest Expense	 	83,862	 	79,832	 	177,294	 	161,955	 	
Income Before Provision for Income Taxes	 	76,673	 	73,711	 	157,119	 	148,054	 	
Provision for Income Taxes	 	28,391	 	25,982	 	51,622	 	52,990	 	
Net Income	 	$	48,282	 	$	47,729	 	$	105,497	 	$	95,064	 	
Basic Earnings Per Share	 	$	1.01	 	$	0.97	 	$	2.20	 	$	1.93	 	
Diluted Earnings Per Share	 	$	1.00	 	$	0.95	 	$	2.18	 	$	1.89	 	
Dividends Declared Per Share	 	$	0.44	 	$	0.41	 	$	0.88	 	$	0.82	 	
Basic Weighted Average Shares	 	47,733,278	 	49,276,820	 	47,849,945	 	49,351,959	 	
Diluted Weighted Average Shares	 	48,300,049	 	50,077,219	 	48,423,619	 	50,173,856	 	

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
2

Table of Contents
 
Bank of Hawaii Corporation and Subsidiaries	 	 	 	 	 	 	 	
Consolidated Statements of Condition (Unaudited)	 	 	 	 	 	 	 	
 	 	June 30,	 	December 31,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Assets	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	6,056	 	$	4,870	 	$	130,732	 	
Funds Sold	 	-	 	15,000	 	200,000	 	
Investment Securities	 	 	 	 	 	 	 	
Trading	 	94,347	 	67,286	 	123,591	 	
Available-for-Sale	 	2,646,506	 	2,563,190	 	2,455,668	 	
Held-to-Maturity (Fair Value of $255,905; $287,644; and $313,589)	 	260,592	 	292,577	 	327,118	 	
Loans Held for Sale	 	11,183	 	12,341	 	13,527	 	
Loans and Leases	 	6,518,128	 	6,580,861	 	6,566,126	 	
Allowance for Loan and Lease Losses	 	(102,498	)	(90,998	)	(90,998	)	
Net Loans and Leases	 	6,415,630	 	6,489,863	 	6,475,128	 	
Total Earning Assets	 	9,434,314	 	9,445,127	 	9,725,764	 	
Cash and Noninterest-Bearing Deposits	 	280,635	 	368,402	 	345,226	 	
Premises and Equipment	 	117,323	 	117,177	 	122,929	 	
Customers’ Acceptances	 	1,856	 	1,112	 	2,234	 	
Accrued Interest Receivable	 	42,295	 	45,261	 	49,121	 	
Foreclosed Real Estate	 	229	 	184	 	48	 	
Mortgage Servicing Rights	 	30,272	 	27,588	 	29,112	 	
Goodwill	 	34,959	 	34,959	 	34,959	 	
Other Assets	 	429,266	 	433,132	 	413,175	 	
Total Assets	 	$	10,371,149	 	$	10,472,942	 	$	10,722,568	 	
 	 	 	 	 	 	 	 	
Liabilities	 	 	 	 	 	 	 	
Deposits	 	 	 	 	 	 	 	
Noninterest-Bearing Demand	 	$	1,876,782	 	$	1,935,639	 	$	1,896,335	 	
Interest-Bearing Demand	 	1,666,726	 	1,634,675	 	1,755,646	 	
Savings	 	2,781,082	 	2,630,471	 	2,923,168	 	
Time	 	1,579,400	 	1,741,587	 	1,739,255	 	
Total Deposits	 	7,903,990	 	7,942,372	 	8,314,404	 	
Funds Purchased	 	69,400	 	75,400	 	90,650	 	
Short-Term Borrowings	 	10,180	 	10,427	 	15,644	 	
Securities Sold Under Agreements to Repurchase	 	1,028,518	 	1,029,340	 	910,302	 	
Long-Term Debt (includes $121,326 carried at fair value as of June 30, 2008)	 	205,351	 	235,371	 	260,329	 	
Banker’s Acceptances	 	1,856	 	1,112	 	2,234	 	
Retirement Benefits Payable	 	29,478	 	29,984	 	43,892	 	
Accrued Interest Payable	 	13,588	 	20,476	 	18,292	 	
Taxes Payable and Deferred Taxes	 	250,125	 	278,218	 	277,516	 	
Other Liabilities	 	91,105	 	99,987	 	80,499	 	
Total Liabilities	 	9,603,591	 	9,722,687	 	10,013,762	 	
Shareholders’ Equity	 	 	 	 	 	 	 	
Common Stock ($.01 par value; authorized 500,000,000 shares;	 	 	 	 	 	 	 	
issued / outstanding: June 2008 - 57,016,182 / 47,941,409;	 	 	 	 	 	 	 	
December 2007 - 56,995,447 / 48,589,645;	 	 	 	 	 	 	 	
and June 2007 - 56,927,022 / 49,440,204)	 	568	 	567	 	566	 	
Capital Surplus	 	489,335	 	484,790	 	480,389	 	
Accumulated Other Comprehensive Loss	 	(15,813	)	(5,091	)	(45,705	)	
Retained Earnings	 	745,244	 	688,638	 	645,149	 	
Treasury Stock, at Cost (Shares: June 2008 - 9,074,773;	 	 	 	 	 	 	 	
December 2007 - 8,405,802; and June 2007 - 7,486,818)	 	(451,776	)	(418,649	)	(371,593	)	
Total Shareholders’ Equity	 	767,558	 	750,255	 	708,806	 	
Total Liabilities and Shareholders’ Equity	 	$	10,371,149	 	$	10,472,942	 	$	10,722,568	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).	
 
3

Table of Contents
 
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	 	105,497	 	-	 	-	 	-	 	105,497	 	-	 	$	105,497	 	
Other Comprehensive Income, Net of Tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in Unrealized Gains and Losses on Investment	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Securities Available-for-Sale	 	(10,820	)	-	 	-	 	(10,820	)	-	 	-	 	(10,820	)	
Amortization of Net Loss for Pension Plans and Postretirement Benefit Plan	 	98	 	-	 	-	 	98	 	-	 	-	 	98	 	
Total Comprehensive Income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	94,775	 	
Share-Based Compensation	 	3,072	 	-	 	3,072	 	-	 	-	 	-	 	 	 	
Net Tax Benefits related to Share-Based Compensation	 	1,304	 	-	 	1,304	 	-	 	-	 	-	 	 	 	
Common Stock Issued under Purchase and Equity
Compensation Plans (276,946 shares)	 	8,478	 	1	 	169	 	-	 	(3,812	)	12,120	 	 	 	
Common Stock Repurchased (923,330 shares)	 	(45,247	)	-	 	-	 	-	 	-	 	(45,247	)	 	 	
Cash Dividends Paid	 	(42,343	)	-	 	-	 	-	 	(42,343	)	-	 	 	 	
Balance as of June 30, 2008	 	$	767,558	 	$	568	 	$	489,335	 	$	(15,813	)	$	745,244	 	$	(451,776	)	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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	 	95,064	 	-	 	-	 	-	 	95,064	 	-	 	$	95,064	 	
Other Comprehensive Income, Net of Tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in Unrealized Gains and Losses on Investment
Securities Available-for-Sale	 	(12,316	)	-	 	-	 	(12,316	)	-	 	-	 	(12,316	)	
Amortization of Net Loss for Pension Plans and Postretirement Benefit Plan	 	416	 	-	 	-	 	416	 	-	 	-	 	416	 	
Total Comprehensive Income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	83,164	 	
Share-Based Compensation	 	2,748	 	-	 	2,748	 	-	 	-	 	-	 	 	 	
Net Tax Benefits related to Share-Based Compensation	 	2,208	 	-	 	2,208	 	-	 	-	 	-	 	 	 	
Common Stock Issued under Purchase and Equity
Compensation Plans (444,008 shares)	 	12,407	 	-	 	255	 	-	 	(5,312	)	17,464	 	 	 	
Common Stock Repurchased (779,689 shares)	 	(41,157	)	-	 	-	 	-	 	-	 	(41,157	)	 	 	
Cash Dividends Paid	 	(40,757	)	-	 	-	 	-	 	(40,757	)	-	 	 	 	
Balance as of June 30, 2007	 	$	708,806	 	$	566	 	$	480,389	 	$	(45,705	)	$	645,149	 	$	(371,593	)	 	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).	
 
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Bank of Hawaii Corporation and Subsidiaries	 	 	
Consolidated Statements of Cash Flows (Unaudited)	 	 	
 	 	Six Months Ended	 	
 	 	June 30,	 	
(dollars in thousands)	 	2008	 	2007	 	
Operating Activities	 	 	 	 	 	
Net Income	 	$	105,497	 	$	95,064	 	
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:	 	 	 	 	 	
Provision for Credit Losses	 	21,599	 	5,994	 	
Depreciation and Amortization	 	7,047	 	7,376	 	
Amortization of Deferred Loan and Lease Fees	 	(1,058	)	(911	)	
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net	 	741	 	1,603	 	
Share-Based Compensation	 	3,072	 	2,748	 	
Benefit Plan Contributions	 	(1,078	)	(5,217	)	
Deferred Income Taxes	 	(58,991	)	(35,400	)	
Net Gain on Investment Securities	 	(287	)	(591	)	
Net Change in Trading Securities	 	(27,061	)	40,589	 	
Proceeds from Sales of Loans Held for Sale	 	261,820	 	179,139	 	
Originations of Loans Held for Sale	 	(260,662	)	(180,724	)	
Tax Benefits from Share-Based Compensation	 	(1,389	)	(2,229	)	
Net Change in Other Assets and Other Liabilities	 	26,870	 	(21,360	)	
Net Cash Provided by Operating Activities	 	76,120	 	86,081	 	
 	 	 	 	 	 	
Investing Activities	 	 	 	 	 	
Investment Securities Available-for-Sale:	 	 	 	 	 	
Proceeds from Prepayments and Maturities	 	494,209	 	301,327	 	
Proceeds from Sales	 	195,000	 	-	 	
Purchases	 	(789,666	)	(334,901	)	
Investment Securities Held-to-Maturity:	 	 	 	 	 	
Proceeds from Prepayments and Maturities	 	31,765	 	43,861	 	
Net Change in Loans and Leases	 	53,692	 	9,239	 	
Premises and Equipment, Net	 	(7,193	)	(4,380	)	
Net Cash (Used in) Provided by Investing Activities	 	(22,193	)	15,146	 	
 	 	 	 	 	 	
Financing Activities	 	 	 	 	 	
Net Change in Deposits	 	(38,382	)	291,010	 	
Net Change in Short-Term Borrowings	 	(7,069	)	(102,426	)	
Repayments of Long-Term Debt	 	(32,425	)	-	 	
Tax Benefits from Share-Based Compensation	 	1,389	 	2,229	 	
Proceeds from Issuance of Common Stock	 	8,569	 	12,500	 	
Repurchase of Common Stock	 	(45,247	)	(41,157	)	
Cash Dividends Paid	 	(42,343	)	(40,757	)	
Net Cash (Used in) Provided by Financing Activities	 	(155,508	)	121,399	 	
 	 	 	 	 	 	
Net Change in Cash and Cash Equivalents	 	(101,581	)	222,626	 	
Cash and Cash Equivalents at Beginning of Period	 	388,272	 	453,332	 	
Cash and Cash Equivalents at End of Period	 	$	286,691	 	$	675,958	 	
Supplemental Information	 	 	 	 	 	
Cash Paid for:	 	 	 	 	 	
Interest	 	$	80,852	 	$	105,555	 	
Income Taxes	 	63,604	 	33,076	 	
Non-cash Investing and Financing Activities:	 	 	 	 	 	
Transfers from Investment Securities-Available-for-Sale to Trading	 	-	 	164,180	 	
Transfers from Loans to Foreclosed Real Estate	 	110	 	138	 	

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 six months ended June 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 plans to 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 six months ended June 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 June 30,	 	 	 	 	 	 	 	 	 	 	
Service Cost	 	$	-	 	$	-	 	 	$	89	 	$	155	 	
Interest Cost	 	1,298	 	1,223	 	 	420	 	395	 	
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	 	$	425	 	
 	 	 	 	 	 	 	 	 	 	 	
Six Months Ended June 30,	 	 	 	 	 	 	 	 	 	 	
Service Cost	 	$	-	 	$	-	 	 	$	179	 	$	310	 	
Interest Cost	 	2,596	 	2,446	 	 	840	 	790	 	
Expected Return on Plan Assets	 	(3,044	)	(2,746	)	 	-	 	-	 	
Amortization of Prior Service Credit	 	-	 	-	 	 	(107	)	(100	)	
Recognized Net Actuarial Losses (Gains)	 	540	 	900	 	 	(280	)	(150	)	
Net Periodic Benefit Cost	 	$	92	 	$	600	 	 	$	632	 	$	850	 	

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.  There were no significant changes from the previously reported $0.7 million that the Company expects to contribute to the pension plans and the $1.1 million that it expects to contribute to the postretirement benefit plan for the year ending December 31, 2008.  For the three and six months ended June 30, 2008, the Company contributed $0.3 million and $0.4 million, respectively, to its pension plans.  For the three and six months ended June 30, 2008, the Company contributed $0.3 million and $0.7 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 (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 GAAP.
 
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Selected financial information for each business segment is presented below for the three and six months ended June 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 June 30, 2008	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	59,555	 	$	43,264	 	$	3,938	 	$	411	 	$	107,168	 	
Provision for Credit Losses	 	2,571	 	4,652	 	(1	)	(50	)	7,172	 	
Net Interest Income After Provision for Credit Losses	 	56,984	 	38,612	 	3,939	 	461	 	99,996	 	
Noninterest Income	 	27,270	 	9,997	 	19,019	 	4,253	 	60,539	 	
Noninterest Expense	 	(43,335	)	(23,544	)	(16,363	)	(620	)	(83,862	)	
Income Before Provision for Income Taxes	 	40,919	 	25,065	 	6,595	 	4,094	 	76,673	 	
Provision for Income Taxes	 	(15,140	)	(9,286	)	(2,440	)	(1,525	)	(28,391	)	
Allocated Net Income	 	$	25,779	 	$	15,779	 	$	4,155	 	$	2,569	 	$	48,282	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 2008	 	$	3,649,376	 	$	2,998,013	 	$	242,443	 	$	3,481,317	 	$	10,371,149	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Three Months Ended June 30, 20071	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	55,606	 	$	40,668	 	$	3,466	 	$	(862	)	$	98,878	 	
Provision for Credit Losses	 	1,258	 	2,115	 	-	 	(10	)	3,363	 	
Net Interest Income (Loss) After Provision for Credit Losses	 	54,348	 	38,553	 	3,466	 	(852	)	95,515	 	
Noninterest Income	 	26,790	 	8,033	 	19,454	 	3,751	 	58,028	 	
Noninterest Expense	 	(41,109	)	(22,318	)	(15,519	)	(886	)	(79,832	)	
Income Before Provision for Income Taxes	 	40,029	 	24,268	 	7,401	 	2,013	 	73,711	 	
Provision for Income Taxes	 	(14,812	)	(9,061	)	(2,738	)	629	 	(25,982	)	
Allocated Net Income	 	$	25,217	 	$	15,207	 	$	4,663	 	$	2,642	 	$	47,729	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 20071	 	$	3,638,207	 	$	3,108,240	 	$	230,134	 	$	3,745,987	 	$	10,722,568	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Six Months Ended June 30, 2008	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	117,979	 	$	86,099	 	$	7,808	 	$	(2,538	)	$	209,348	 	
Provision for Credit Losses	 	10,523	 	11,878	 	(1	)	(801	)	21,599	 	
Net Interest Income (Loss) After Provision for Credit Losses	 	107,456	 	74,221	 	7,809	 	(1,737	)	187,749	 	
Noninterest Income	 	55,817	 	32,246	 	37,280	 	21,321	 	146,664	 	
Noninterest Expense	 	(87,104	)	(48,265	)	(33,226	)	(8,699	)	(177,294	)	
Income Before Provision for Income Taxes	 	76,169	 	58,202	 	11,863	 	10,885	 	157,119	 	
Provision for Income Taxes	 	(28,182	)	(21,587	)	(4,389	)	2,536	 	(51,622	)	
Allocated Net Income	 	$	47,987	 	$	36,615	 	$	7,474	 	$	13,421	 	$	105,497	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 2008	 	$	3,649,376	 	$	2,998,013	 	$	242,443	 	$	3,481,317	 	$	10,371,149	 	
Six Months Ended June 30, 20071	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	110,025	 	$	79,698	 	$	6,991	 	$	301	 	$	197,015	 	
Provision for Credit Losses	 	2,803	 	3,213	 	-	 	(22	)	5,994	 	
Net Interest Income After Provision for Credit Losses	 	107,222	 	76,485	 	6,991	 	323	 	191,021	 	
Noninterest Income	 	52,370	 	20,246	 	38,601	 	7,771	 	118,988	 	
Noninterest Expense	 	(82,443	)	(45,238	)	(31,202	)	(3,072	)	(161,955	)	
Income Before Provision for Income Taxes	 	77,149	 	51,493	 	14,390	 	5,022	 	148,054	 	
Provision for Income Taxes	 	(28,539	)	(18,935	)	(5,324	)	(192	)	(52,990	)	
Allocated Net Income	 	$	48,610	 	$	32,558	 	$	9,066	 	$	4,830	 	$	95,064	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 20071	 	$	3,638,207	 	$	3,108,240	 	$	230,134	 	$	3,745,987	 	$	10,722,568	 	
 
1 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 June 30, 2008:
 
Assets and Liabilities Measured at Fair Value on Recurring Basis (Unaudited)	
 	 	Quoted Prices in	 	 	 	Significant	 	 	 	
 	 	Active Markets for	 	Significant Other	 	Unobservable	 	 	 	
 	 	Identical Assets	 	Observable Inputs	 	Inputs	 	 	 	
(dollars in thousands)	 	(Level 1)	 	(Level 2)	 	(Level 3)	 	Total	 	
Investment Securities Trading	 	$	-	 	$	94,347	 	$	-	 	$	94,347	 	
Investment Securities Available-for-Sale	 	1,676	 	2,619,814	 	25,016	 	2,646,506	 	
Mortgage Servicing Rights	 	-	 	-	 	30,272	 	30,272	 	
Other Assets	 	6,501	 	-	 	-	 	6,501	 	
Net Derivative Assets and Liabilities	 	(80	)	371	 	326	 	617	 	
Total Assets at Fair Value	 	$	8,097	 	$	2,714,532	 	$	55,614	 	$	2,778,243	 	
 	 	 	 	 	 	 	 	 	 	
Long-Term Debt	 	$	-	 	$	-	 	$	121,326	 	$	121,326	 	
Total Liabilities at Fair Value	 	$	-	 	$	-	 	$	121,326	 	$	121,326	 	
 
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For the three and six months ended June 30, 2008, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
 
 	 	Investment	 	Mortgage	 	Net Derivative	 	 	 	
 	 	Securities	 	Servicing	 	Assets and	 	 	 	
Assets (Unaudited)        (dollars in thousands)	 	Available-for-Sale 1	 	Rights 2	 	Liabilities 3	 	Total	 	
Three Months Ended June 30, 2008	 	 	 	 	 	 	 	 	 	
Balance as of April 1, 2008	 	$	95,219	 	$	27,149	 	$	810	 	$	123,178	 	
Realized and Unrealized Net Gains (Losses):	 	 	 	 	 	 	 	 	 	
Included in Net Income	 	-	 	1,459	 	1,121	 	2,580	 	
Included in Other Comprehensive Income	 	(200	)	-	 	-	 	(200	)	
Purchases, Sales, Issuances, and Settlements, Net	 	(70,003	)	1,664	 	(1,605	)	(69,944	)	
Balance as of June 30, 2008	 	$	25,016	 	$	30,272	 	$	326	 	$	55,614	 	
 	 	 	 	 	 	 	 	 	 	
Total Unrealized Net Gains Included in Net Income	 	 	 	 	 	 	 	 	 	
Related to Assets Still Held as of June 30, 2008	 	$	-	 	$	2,201	 	$	326	 	$	2,527	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities (Unaudited)        (dollars in thousands)	 	Long-Term Debt 4	 	Total	 	 	 	 	 	
Three Months Ended June 30, 2008	 	 	 	 	 	 	 	 	 	
Balance as of April 1, 2008	 	$	128,932	 	$	128,932	 	 	 	 	 	
Unrealized Net Gains Included in Net Income	 	(1,606	)	(1,606	)	 	 	 	 	
Purchases, Sales, Issuances, and Settlements, Net	 	(6,000	)	(6,000	)	 	 	 	 	
Balance as of June 30, 2008	 	$	121,326	 	$	121,326	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Total Unrealized Net Gains Included in Net Income	 	 	 	 	 	 	 	 	 	
Related to Liabilities Still Held as of June 30, 2008	 	$	(1,416	)	$	(1,416	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
 	 	Investment	 	Mortgage	 	Net Derivative	 	 	 	
 	 	Securities	 	Servicing	 	Assets and	 	 	 	
Assets (Unaudited)        (dollars in thousands)	 	Available-for-Sale 1	 	Rights 2	 	Liabilities 3	 	Total	 	
Six Months Ended June 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	 	-	 	(899	)	2,893	 	1,994	 	
Included in Other Comprehensive Income	 	1,028	 	-	 	-	 	1,028	 	
Purchases, Sales, Issuances, and Settlements, Net	 	(194,992	)	3,583	 	(2,680	)	(194,089	)	
Balance as of June 30, 2008	 	$	25,016	 	$	30,272	 	$	326	 	$	55,614	 	
 	 	 	 	 	 	 	 	 	 	
Total Unrealized Net Gains Included in Net Income	 	 	 	 	 	 	 	 	 	
Related to Assets Still Held as of June 30, 2008	 	$	-	 	$	653	 	$	326	 	$	979	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities (Unaudited)        (dollars in thousands)	 	Long-Term Debt 4	 	Total	 	 	 	 	 	
Six Months Ended June 30, 2008	 	 	 	 	 	 	 	 	 	
Balance as of January 1, 2008	 	$	129,032	 	$	129,032	 	 	 	 	 	
Unrealized Net Gains Included in Net Income	 	(1,706	)	(1,706	)	 	 	 	 	
Purchases, Sales, Issuances, and Settlements, Net	 	(6,000	)	(6,000	)	 	 	 	 	
Balance as of June 30, 2008	 	$	121,326	 	$	121,326	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	
Total Unrealized Net Gains Included in Net Income	 	 	 	 	 	 	 	 	 	
Related to Liabilities Still Held as of June 30, 2008	 	$	(1,512	)	$	(1,512	)	 	 	 	 	

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 six months ended June 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 six months ended June 30, 2008, there were no adjustments to fair value for the Company’s loans held for sale 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, 20071	 	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 June 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 June 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 six months ended June 30, 2008, the Company recorded a gain of $1.6 million and $1.7 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 June 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)	 	June 30, 2008	 	June 30, 2008	 	Principal Balance	 	
Long-Term Debt Reported at Fair Value	 	$	121,326	 	$	118,971	 	$	2,355	 	

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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
 
The following is a reconciliation of the statutory federal income tax rate to the effective tax rate for the three and six months ended June 30, 2008 and 2007.
 
 	 	Three Months Ended	 	Six Months Ended	 	 	
 	 	June 30,	 	June 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	 	5.14	 	 	3.67	 	 	4.77	 	 	3.75	 	 	 	
Foreign Tax Credits	 	-	 	 	(0.72	)	 	-	 	 	(1.08	)	 	 	
Low Income Housing Investments	 	(0.10	)	 	(0.14	)	 	(0.21	)	 	(0.15	)	 	 	
Bank-Owned Life Insurance	 	(0.85	)	 	(0.94	)	 	(0.85	)	 	(0.90	)	 	 	
Leveraged Leases	 	(0.51	)	 	(1.15	)	 	(4.90	)	 	(0.50	)	 	 	
Other	 	(1.65	)	 	(0.47	)	 	(0.95	)	 	(0.33	)	 	 	
Effective Tax Rate	 	37.03	  %	 	35.25	  %	 	32.86	  %	 	35.79	  %	 	 	
 
The lower effective tax rate for the six months ended June 30, 2008 compared to the six months ended June 30, 2007 was primarily due to the sale of the Company’s equity interest in an aircraft leveraged lease in March 2008.  The pre-tax gain from this 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 and is reflected in the leveraged lease line item in the table above.
 
Note 7.  Contingencies
 
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.
 
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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 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
 
·      Integration
 
·      People
 
·      Brand
 
·      Discipline

 

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Plan Financial Objectives and Financial Results
 
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.  The following summarizes our Plan financial objectives compared with our financial results for the second quarter and first six months of 2008:
 
Plan Financial Objectives and Financial Results
 	 	Plan	 	Three
Months
Ended	 	Six Months
Ended	 	
Performance
Ratios	 	Financial
Objectives	 	June 30,
2008	 	June 30,
2008	 	
Average ROA	 	Above 1.70%	 	1.85 %	2.01 %	
Average ROE	 	Above 25.00%	 	24.82 %	27.33 %	
Efficiency	 	Approaching	 	 	 	
Ratio	 	50.00%	 	50.01 %	49.80 %	
Operating Leverage	 	Positive	 	(11.62) %	16.01 %	
 
For the second quarter of 2008, net income was $48.3 million, an increase of $0.6 million or 1% from the second quarter of 2007.  Diluted earnings per share were $1.00, an increase of $0.05 or 5% from the second quarter of 2007.  Our strong performance in the second quarter of 2008 was primarily due to an increase in net interest margin and growth in substantially all noninterest income categories.  Our Provision for Credit Losses (the “Provision”) increased in the second quarter of 2008 compared to the same period in 2007.  Overall credit quality of our loans and leases remains solid despite a slowing economy and continued exposure to the airline industry.
 
For the first six months of 2008, net income was $105.5 million, an increase of $10.4 million or 11% from the first six months of 2007.  Diluted earnings per share were $2.18, an increase of $0.29 or 15% from the first six months of 2007.  Our strong financial performance for the first six months of 2008 was enhanced by two transactions recorded in the first quarter of 2008:
 
·      Pre-tax gains of $13.7 million 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; and
 
·      Pre-tax gains of $11.6 million 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.
 
Partially offsetting these gains, were accruals for the following transactions recorded in the first quarter of 2008:
 
·      $9.0 million for employees related to cash awards to purchase our stock and earnings-based incentive compensation;
 
·      $1.0 million related to the call premium on our Bancorp Hawaii Capital Trust I Capital Securities (“Capital Securities”); and
 
·      $2.3 million in contributions to the Bank of Hawaii Charitable Foundation and other charitable organizations.
 
In addition, we increased our Allowance for Loan and Lease Losses (the “Allowance”) by recording a Provision of $21.6 million, which exceeded net charge-offs by $11.5 million for the first six months of 2008.  The increase in the Allowance, a result of our quarterly evaluation of the adequacy of the Allowance, reflects increased risk in our commercial aircraft leasing, small business, and unsecured consumer lending portfolios.
 
We also increased our reserves for legal contingencies by $3.0 million in the first six months of 2008.  This increase was due to our on-going evaluation of potential losses related to pending litigation, claims, and assessments.

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Table 1 presents our financial highlights for the three and six months ended June 30, 2008 and 2007 and as of June 30, 2008, December 31, 2007, and June 30, 2007.
 
Financial Highlights (Unaudited)	 	 	 	 	 	 	 	Table 1	 	
 	 	 	Three Months Ended	 	 	Six Months Ended	 	
 	 	 	June 30,	 	 	June 30,	 	
(dollars in thousands, except per share amounts)	 	2008	 	2007	 	2008	 	2007	 	
For the Period:	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	107,168	 	$	98,878	 	$	209,348	 	$	197,015	 	
Total Noninterest Income	 	60,539	 	58,028	 	146,664	 	118,988	 	
Total Noninterest Expense	 	83,862	 	79,832	 	177,294	 	161,955	 	
Net Income	 	48,282	 	47,729	 	105,497	 	95,064	 	
Basic Earnings Per Share	 	1.01	 	0.97	 	2.20	 	1.93	 	
Diluted Earnings Per Share	 	1.00	 	0.95	 	2.18	 	1.89	 	
Dividends Declared Per Share	 	0.44	 	0.41	 	0.88	 	0.82	 	
 	 	 	 	 	 	 	 	 	 	
Net Income to Average Total Assets	 	1.85	%	1.84	%	2.01	%	1.84	%	
Net Income to Average Shareholders’ Equity	 	24.82	 	26.30	 	27.33	 	26.64	 	
Efficiency Ratio1	 	50.01	 	50.88	 	49.80	 	51.25	 	
Operating Leverage2	 	(11.62	)	0.13	 	16.01	 	3.90	 	
Net Interest Margin3	 	4.41	 	4.12	 	4.29	 	4.09	 	
Dividend Payout Ratio4	 	43.56	 	42.27	 	40.00	 	42.49	 	
 	 	 	 	 	 	 	 	 	 	
Average Loans and Leases	 	$	6,531,587	 	$	6,532,736	 	$	6,559,753	 	$	6,547,212	 	
Average Assets	 	10,504,421	 	10,383,030	 	10,574,162	 	10,432,130	 	
Average Deposits	 	7,958,171	 	7,810,089	 	7,955,360	 	7,865,469	 	
Average Shareholders’ Equity	 	782,429	 	727,887	 	776,293	 	719,549	 	
Average Shareholders’ Equity to Average Assets	 	7.45	%	7.01	%	7.34	%	6.90	%	
 	 	 	 	 	 	 	 	 	 	
Market Price Per Share of Common Stock:	 	 	 	 	 	 	 	 	 	
Closing	 	$	47.80	 	$	51.64	 	$	47.80	 	$	51.64	 	
High	 	57.37	 	55.00	 	57.37	 	55.00	 	
Low	 	46.62	 	50.64	 	40.95	 	50.11	 	

 	 	 	 	June 30,	 	December 31,	 	June 30,	 	
 	 	 	 	2008	 	2007	 	2007	 	
As of Period End:	 	 	 	 	 	 	 	 	 	
Loans and Leases	 	 	 	$	6,518,128	 	$	6,580,861	 	$	6,566,126	 	
Total Assets	 	 	 	10,371,149	 	10,472,942	 	10,722,568	 	
Total Deposits	 	 	 	7,903,990	 	7,942,372	 	8,314,404	 	
Long-Term Debt	 	 	 	205,351	 	235,371	 	260,329	 	
Total Shareholders’ Equity	 	 	 	767,558	 	750,255	 	708,806	 	
 	 	 	 	 	 	 	 	 	 	
Non-Performing Assets	 	 	 	$	6,680	 	$	5,286	 	$	6,314	 	
 	 	 	 	 	 	 	 	 	 	
Allowance to Loans and Leases Outstanding	 	 	 	1.57	%	1.38	%	1.39	%	
Leverage Ratio	 	 	 	7.04	 	7.04	 	7.02	 	
 	 	 	 	 	 	 	 	 	 	
Book Value Per Common Share	 	 	 	$	16.01	 	$	15.44	 	$	14.34	 	
 	 	 	 	 	 	 	 	 	 	
Full-Time Equivalent Employees	 	 	 	2,534	 	2,594	 	2,571	 	
Branches and Offices	 	 	 	84	 	83	 	83	 	
 
1 Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and total noninterest income).
2 Operating leverage is defined as the percentage change in income before the provision for credit losses and the provision for income taxes. Measures are presented on a linked quarter basis.
3 Net interest margin is defined as net interest income, on a 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.

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Recent Accounting Changes
 
We applied the provisions of the following new accounting pronouncements on January 1, 2008:
 
·                 Statement of Financial Accounting Standards (“SFAS”) No. 157,  “Fair Value Measurements;”
·     SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115;” and
·     SEC Staff Accounting Bulletin (“SAB”) No. 109,  “Written Loan Commitments Recorded at Fair Value Through Earnings.”
 
SFAS No. 157 had no impact on retained earnings and is not expected to have a material impact on our statements of income and condition. We have not made material changes to our valuation methodologies as previously disclosed in our financial statements included in our Annual Report on Form 10-K for	 	the year ended December 31, 2007. Our financial assets and liabilities do not require the use of a significant amount of unobservable (Level 3) inputs to estimate fair value.
 
SFAS No. 159 had the effect of reducing retained earnings by $2.7 million as of January 1, 2008, as we elected the fair value option for our subordinated notes. See Notes 1 and 4 to our Consolidated Financial Statements (Unaudited) for more information on our application of SFAS No. 157 and 159.
 
SAB No. 109 had the effect of accelerating gain 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 implementation of SAB No. 109 did not have a material impact on our statements of income and condition.	
 
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Analysis of Statements of Income
 
Net Interest Income
 
Average balances, related income and expenses, and resulting yields and rates, on a taxable equivalent basis, are presented in Table 2 for the three and six months ended June 30, 2008 and 2007.  An analysis of the change in net interest income, on a taxable equivalent basis, for the first six months of 2008 compared to the same period in 2007, is presented in Table 3.
 
Average Balances and Interest Rates - Taxable Equivalent Basis (Unaudited)	 	 	 	 	 	 	 	Table 2	 	
 	 	Three Months Ended	 	Three Months Ended	 	Six Months Ended	 	Six Months Ended	 	
 	 	June 30, 2008	 	June 30, 2007 1	 	June 30, 2008	 	June 30, 2007 1	 	
 	 	Average	 	Income/	 	Yield/	 	Average	 	Income/	 	Yield/	 	Average	 	Income/	 	Yield/	 	Average	 	Income/	 	Yield/	 	
(dollars in millions)	 	Balance	 	Expense	 	Rate	 	Balance	 	Expense	 	Rate	 	Balance	 	Expense	 	Rate	 	Balance	 	Expense	 	Rate	 	
Earning Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	33.0	 	$	0.2	 	2.45	%	$	8.0	 	$	0.1	 	4.83	%	$	30.2	 	$	0.4	 	2.62	%	$	6.3	 	$	0.2	 	4.89	%	
Funds Sold	 	81.9	 	0.4	 	2.03	 	40.6	 	0.5	 	5.19	 	110.1	 	1.4	 	2.54	 	60.8	 	1.6	 	5.20	 	
Investment Securities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Trading	 	97.6	 	1.2	 	4.96	 	137.1	 	1.4	 	3.96	 	96.7	 	2.4	 	4.90	 	149.5	 	3.0	 	3.98	 	
Available-for-Sale	 	2,649.9	 	35.6	 	5.37	 	2,486.9	 	31.8	 	5.11	 	2,640.8	 	70.0	 	5.31	 	2,470.1	 	62.9	 	5.10	 	
Held-to-Maturity	 	269.6	 	3.1	 	4.50	 	339.3	 	3.8	 	4.51	 	277.5	 	6.3	 	4.52	 	350.1	 	7.9	 	4.50	 	
Loans Held for Sale	 	9.3	 	0.1	 	5.78	 	13.6	 	0.2	 	6.34	 	9.9	 	0.3	 	5.59	 	10.5	 	0.3	 	6.27	 	
Loans and Leases2	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	1,060.7	 	14.3	 	5.42	 	1,053.3	 	19.5	 	7.43	 	1,062.9	 	30.9	 	5.84	 	1,064.6	 	39.3	 	7.44	 	
Commercial Mortgage	 	663.0	 	10.1	 	6.15	 	620.0	 	10.6	 	6.85	 	656.0	 	20.5	 	6.30	 	618.3	 	20.9	 	6.82	 	
Construction	 	177.3	 	2.5	 	5.76	 	253.8	 	5.0	 	7.93	 	188.5	 	5.9	 	6.27	 	249.7	 	9.8	 	7.95	 	
Commercial Lease Financing	 	470.6	 	4.1	 	3.50	 	461.3	 	4.4	 	3.77	 	474.2	 	8.1	 	3.43	 	461.8	 	7.5	 	3.23	 	
Residential Mortgage	 	2,509.1	 	38.2	 	6.09	 	2,499.5	 	38.3	 	6.12	 	2,514.2	 	76.8	 	6.11	 	2,497.9	 	76.5	 	6.12	 	
Home Equity	 	968.7	 	14.1	 	5.86	 	941.4	 	17.9	 	7.62	 	969.8	 	30.1	 	6.24	 	941.8	 	35.6	 	7.62	 	
Automobile	 	423.1	 	8.6	 	8.16	 	424.2	 	8.6	 	8.16	 	430.9	 	17.5	 	8.17	 	425.3	 	17.1	 	8.12	 	
Other3	 	259.1	 	5.9	 	9.11	 	279.2	 	7.5	 	10.83	 	263.3	 	12.3	 	9.43	 	287.8	 	15.3	 	10.75	 	
Total Loans and Leases	 	6,531.6	 	97.8	 	6.01	 	6,532.7	 	111.8	 	6.86	 	6,559.8	 	202.1	 	6.18	 	6,547.2	 	222.0	 	6.82	 	
Other	 	79.6	 	0.5	 	2.46	 	79.4	 	0.4	 	1.83	 	79.5	 	0.9	 	2.30	 	79.4	 	0.7	 	1.76	 	
Total Earning Assets4	 	9,752.5	 	138.9	 	5.71	 	9,637.6	 	150.0	 	6.23	 	9,804.5	 	283.8	 	5.80	 	9,673.9	 	298.6	 	6.20	 	
Cash and Noninterest-Bearing Deposits	 	272.9	 	 	 	 	 	275.3	 	 	 	 	 	283.5	 	 	 	 	 	292.8	 	 	 	 	 	
Other Assets	 	479.0	 	 	 	 	 	470.1	 	 	 	 	 	486.2	 	 	 	 	 	465.4	 	 	 	 	 	
Total Assets	 	$	10,504.4	 	 	 	 	 	$	10,383.0	 	 	 	 	 	$	10,574.2	 	 	 	 	 	$	10,432.1	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Demand	 	$	1,617.0	 	1.2	 	0.29	 	$	1,581.0	 	4.1	 	1.03	 	$	1,615.7	 	3.4	 	0.43	 	$	1,591.7	 	8.3	 	1.05	 	
Savings	 	2,805.5	 	6.5	 	0.94	 	2,627.8	 	12.6	 	1.93	 	2,748.6	 	15.8	 	1.15	 	2,633.8	 	25.1	 	1.92	 	
Time	 	1,646.5	 	12.5	 	3.07	 	1,707.9	 	17.0	 	3.99	 	1,696.9	 	28.5	 	3.38	 	1,719.9	 	33.7	 	3.94	 	
Total Interest-Bearing Deposits	 	6,069.0	 	20.2	 	1.34	 	5,916.7	 	33.7	 	2.28	 	6,061.2	 	47.7	 	1.58	 	5,945.4	 	67.1	 	2.28	 	
Short-Term Borrowings	 	61.2	 	0.3	 	1.82	 	116.9	 	1.5	 	5.23	 	70.4	 	1.0	 	2.67	 	98.4	 	2.6	 	5.17	 	
Securities Sold Under Agreements to Repurchase	 	1,060.2	 	7.5	 	2.81	 	1,040.6	 	11.7	 	4.46	 	1,112.2	 	18.1	 	3.24	 	1,055.1	 	23.5	 	4.46	 	
Long-Term Debt	 	224.3	 	3.5	 	6.18	 	260.3	 	4.0	 	6.12	 	232.0	 	7.2	 	6.22	 	260.3	 	7.9	 	6.12	 	
Total Interest-Bearing Liabilities	 	7,414.7	 	31.5	 	1.70	 	7,334.5	 	50.9	 	2.78	 	7,475.8	 	74.0	 	1.98	 	7,359.2	 	101.1	 	2.76	 	
Net Interest Income	 	 	 	$	107.4	 	 	 	 	 	$	99.1	 	 	 	 	 	$	209.8	 	 	 	 	 	$	197.5	 	 	 	
Interest Rate Spread	 	 	 	 	 	4.01	%	 	 	 	 	3.45	%	 	 	 	 	3.82	%	 	 	 	 	3.44	%	
Net Interest Margin	 	 	 	 	 	4.41	%	 	 	 	 	4.12	%	 	 	 	 	4.29	%	 	 	 	 	4.09	%	
Noninterest-Bearing Demand Deposits	 	1,889.2	 	 	 	 	 	1,893.4	 	 	 	 	 	1,894.2	 	 	 	 	 	1,920.1	 	 	 	 	 	
Other Liabilities	 	418.1	 	 	 	 	 	427.2	 	 	 	 	 	427.9	 	 	 	 	 	433.3	 	 	 	 	 	
Shareholders' Equity	 	782.4	 	 	 	 	 	727.9	 	 	 	 	 	776.3	 	 	 	 	 	719.5	 	 	 	 	 	
Total Liabilities and Shareholders' Equity	 	$	10,504.4	 	 	 	 	 	$	10,383.0	 	 	 	 	 	$	10,574.2	 	 	 	 	 	$	10,432.1	 	 	 	 	 	

1 Certain prior period information has been reclassified to conform to the current presentation.
2 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.
3 Comprised of other consumer revolving credit, installment, and consumer lease financing.
4 Interest income includes taxable equivalent basis adjustments, based upon a federal statutory tax rate of 35%, of $239,000 and $236,000 for the three months ended June 30, 2008 and 2007, respectively, and $477,000 and $449,000 for the six months ended June 30, 2008 and 2007, respectively.
 
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Analysis of Change in Net Interest Income - Taxable Equivalent Basis (Unaudited)	Table  3	
 	Six Months Ended June 30, 2008	
 	Compared to June 30, 2007	
(dollars in millions)	Volume1	Rate1	Time1	Total	
Change in Interest Income:	 	 	 	 	
Interest-Bearing Deposits	$                  0.3	$             (0.1)	$                  -	$               0.2	
Funds Sold	0.9	(1.1)	-	(0.2)	
Investment Securities	 	 	 	 	
   Trading	(1.2)	0.6	-	(0.6)	
   Available-for-Sale	4.4	2.7	-	7.1	
   Held-to-Maturity 	(1.6)	-	-	(1.6)	
Loans and Leases	 	 	 	 	
   Commercial and Industrial	(0.1)	(8.5)	0.2	(8.4)	
   Commercial Mortgage	1.2	(1.7)	0.1	(0.4)	
   Construction	(2.1)	(1.9)	0.1	(3.9)	
   Commercial Lease Financing	0.2	0.4	-	0.6	
   Residential Mortgage	0.5	(0.2)	-	0.3	
   Home Equity	1.0	(6.7)	0.2	(5.5)	
   Automobile	0.2	0.1	0.1	0.4	
   Other2	(1.3)	(1.8)	0.1	(3.0)	
Total Loans and Leases	(0.4)	(20.3)	0.8	(19.9)	
Other	-	0.2	-	0.2	
Total Change in Interest Income	2.4	(18.0)	0.8	(14.8)	
 	 	 	 	 	
Change in Interest Expense:	 	 	 	 	
Interest-Bearing Deposits	 	 	 	 	
   Demand	0.1	(5.1)	0.1	(4.9)	
   Savings	1.1	(10.5)	0.1	(9.3)	
   Time	(0.4)	(5.0)	0.2	(5.2)	
Total Interest-Bearing Deposits	0.8	(20.6)	0.4	(19.4)	
Short-Term Borrowings	(0.6)	(1.0)	-	(1.6)	
Securities Sold Under Agreements to Repurchase	1.2	(6.7)	0.1	(5.4)	
Long-Term Debt	(0.9)	0.2	-	(0.7)	
Total Change in Interest Expense	0.5	(28.1)	0.5	(27.1)	
 	 	 	 	 	
Change in Net Interest Income	$                  1.9	$              10.1	$               0.3	$             12.3	
 
1 The changes for each category of interest income and expense are allocated between the portion of changes attributable to the variance in volume, rate, and time for that category.
2 Comprised of other consumer revolving credit, installment, and consumer lease financing.

The increase in net interest income, on a taxable equivalent basis, and net interest margin was the result of lower funding costs and the effects of a steeper yield curve in 2008.   
 
Rates paid on interest-bearing deposits decreased by 94 basis points in the second quarter of 2008 and by 70 basis points in the first six months of 2008 compared to the same periods in 2007.  Also contributing to our lower funding costs was a decrease in rates paid on securities sold under agreements to repurchase by 165 basis points in the second quarter of 2008 and by 122 basis points in the first six months of 2008 compared to the same periods in 2007.  Decreased funding costs were reflective of lower short-term interest rates over this period.
 
Yields on our available-for-sale investment securities were 26 basis points higher in the second quarter of 2008 and 21 basis points higher in the first six months of 2008 compared to the same periods in 2007.  These increases reflected our ability to reinvest funds in higher yielding investment securities.  Partially offsetting the decrease in funding costs and higher yields on investment securities was a decrease in yields on our loans and leases.  Yields on our loans and leases decreased by 85 basis points in the second quarter of 2008 and by 64 basis points in the first six months of 2008 compared to the same periods in 2007.  Lower yields in our commercial and industrial and home equity loans were primarily driven by the decline in short-term interest rates over this period.

 
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Despite the decrease in funding costs in 2008, average interest-bearing demand and savings deposit balances collectively increased by $213.7 million or 5% in the second quarter of 2008 and by $138.8 million or 3% in the first six months of 2008 compared to the same periods in 2007.  Increases in these categories were the result of customers moving their deposits to more liquid accounts.  The increase in savings deposit balances was also due to a successful Bonus-Rate Savings Plus campaign in the first quarter of 2008 which resulted in the opening of new accounts.  The growth in our average earning assets in 2008 from 2007 was largely funded from the increase in our interest-bearing deposits.  Although average loans and leases remained relatively stable from 2007, average investment securities, excluding trading securities, increased by $93.3 million or 3% in the second quarter of 2008 and by $98.1 million or 3% in the first six months of 2008 compared to the same periods in 2007.
 
Provision for Credit Losses
 
The Provision reflects our judgment of the expense or benefit necessary to maintain 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 Allowance is determined through detailed quarterly analyses of our loan and lease portfolio.  The Allowance is based on our loss experience, changes in the economic environment, as well as an ongoing assessment of our credit quality.  We recorded a Provision of $7.2 million in the second quarter of 2008 compared to a Provision of $3.4 million in the second quarter of 2007.  We recorded a Provision of $21.6 million in the first six months of 2008 compared to a Provision of $6.0 million in the first six months of 2007.  The higher Provision recorded in the second quarter of 2008 and the first six months of 2008, a result of our quarterly evaluation of the adequacy of the Allowance, reflects increased risk in our commercial aircraft leasing, small business, and unsecured consumer lending portfolios.  Our commercial aircraft leasing portfolio, in particular, has been adversely affected by high oil prices.  For further discussion on the Allowance, see the “Corporate Risk Profile – Reserve
for Credit Losses” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). 
 
Noninterest Income
 
Noninterest income increased by $2.5 million or 4% in the second quarter of 2008 and by $27.7 million or 23% in the first six months of 2008 compared to the same periods in 2007, with the first six months of 2008 significantly impacted by the transactions described in the Overview above.
 
Trust and asset management income decreased by $0.7 million or 4% in the second quarter of 2008 compared to the same period in 2007, primarily due to a $0.8 million decrease in fees from accounts under management, which were adversely affected by the decline in the equity markets over this period.  Trust and asset management income decreased by $1.4 million or 4% in the first six months of 2008 compared to the same period in 2007, primarily due to a similar decrease in fees from accounts under management.  Total trust assets under administration were $12.1 billion as of June 30, 2008 and $13.2 billion as of June 30, 2007.   
 
Mortgage banking income increased by $0.3 million or 10% in the second quarter of 2008 compared to the same period in 2007.  This was primarily due to a $0.2 million increase in the estimated fair value of our mortgage servicing rights as a result of lower mortgage loan prepayment rates and a higher level of loan sales.  Loan sales were $117.0 million in the second quarter of 2008, a $10.6 million or 10% increase compared to the same period in 2007.  We were also favorably impacted by a $0.2 million change in the fair value of our derivative written loan commitments and forward sales commitments over this period of time.  Mortgage banking income increased by $1.2 million or 20% in the first six months of 2008 compared to the same period in 2007.  This was primarily due to a $1.9 million net increase in the gains related to derivative written loan commitments and a $0.9 million increase in the gain on sale of mortgage loans.  Loan sales were $261.8 million in the

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first six months of 2008, an $82.7 million increase compared to the same period in 2007.  The increase in mortgage loan sales were primarily due to higher refinancing activity in the first six months of 2008 compared to the same period in 2007, a result of lower interest rates on mortgage-based products.  These increases were partially offset by a $1.3 million decrease in the net change in the estimated fair value of our mortgage rights and our trading securities.
 
Service charges on deposit accounts increased by $1.3 million or 12% in the second quarter of 2008 and by $2.5 million or 11% in the first six months of 2008 compared to the same periods in 2007.  The increase in the second quarter of 2008 compared to the same period in 2007 was primarily due to a $1.2 million increase in account analysis fees on analyzed business checking accounts as a result of lower earnings credit rates on customer accounts.  Also contributing to the increase was a $0.3 million increase in overdraft fees as a result of fee schedule changes implemented in the third quarter of 2007, as well as an increase in the number of transactional deposit accounts.  The increase in the first six months of 2008 compared to the same period in 2007 was also attributable to a $1.9 million increase in account analysis fees and a $0.9 million increase in overdraft fees.
 
Fees, exchange, and other service charges increased by $0.6 million or 4% in the second quarter of 2008 and by $0.7 million or 2% in the first six months of 2008 compared to the same periods in 2007.  The increase in the second quarter of 2008 compared to the same period in 2007 was primarily due to a $0.5 million increase in debit card income resulting from higher transactional volume from new and existing debit cardholders.  The increase was also attributable to a $0.4 million increase in fees from facilitating interest rate swaps on behalf of our customers.  These increases were partially offset by a $0.3 million decrease in ATM fees as a result of lower transaction volume.  The increase in the first six months of 2008 compared to the same period in 2007 was primarily due to a $1.1 million increase in debit card income, partially offset
by a $0.6 million decrease in ATM fees.
 
Insurance income increased by $0.7 million or 14% in the second quarter of 2008 and by $1.6 million or 15% in the first six months of 2008 compared to the same periods in 2007.  The increase in the second quarter of 2008 was primarily due to a $0.5 million increase in both income from annuity and life insurance products and contingent commission income.  The increase in the first six months of 2008 compared to the same period in 2007 was primarily due to a $1.2 million increase in contingent commission income and a $0.9 million increase in income from annuity and life insurance products.
 
Other noninterest income increased by $0.7 million or 11% in the second quarter of 2008 and by $23.5 million in the first six months of 2008 compared to the same periods in 2007.  The increase in the second quarter of 2008 compared to the same period in 2007 was primarily due to the change in estimated fair value of our subordinated notes.  The increase in the first six months of 2008 compared to the same period in 2007 was 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 in March 2008.  See Note 7 to the Consolidated Financial Statements (Unaudited) for more information on the mandatory redemption of our Visa shares.  See Note 5 to the Consolidated Financial Statements (Unaudited) for more information on the sale of our equity interest in the aircraft lease. 

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Noninterest Expense
 
Noninterest expense increased by $4.0 million or 5% in the second quarter of 2008 and by $15.3 million or 9% in the first six months of 2008 compared to the same periods in 2007.
Table 4 presents the components of salaries and benefits expense for the second quarter and first six months of 2008 and 2007.

 
Salaries and Benefits (Unaudited)	Table 4	
 	 	Three Months Ended	 	 	Six Months Ended	
 	 	June 30,	 	 	June 30,	
(dollars in thousands)	2008	2007	 	2008	2007	
Salaries	$         30,019	$      29,220	 	$      58,922	$     57,344	
Incentive Compensation	4,122	3,794	 	10,389	7,413	
Cash for Stock Grants	-	-	 	4,640	-	
Share-Based Compensation	1,124	1,333	 	2,772	2,560	
Commission Expense	1,992	2,161	 	3,865	4,154	
Retirement and Other Benefits	3,499	3,365	 	8,725	7,134	
Payroll Taxes	2,491	2,247	 	5,905	5,769	
Medical, Dental, and Life Insurance	2,470	2,263	 	4,969	4,501	
Separation Expense	267	204	 	1,270	1,118	
Total Salaries and Benefits	$         45,984	$      44,587	 	$    101,457	$     89,993	

Salaries and benefits expense increased in the second quarter of 2008 compared to the same period in 2007 primarily due to a $0.9 million increase in salaries from annual merit increases and related payroll taxes.  Also contributing to the increase in salaries and benefits expense was a $0.5 million reversal of our Money Purchase Plan forfeiture reserves made in the second quarter of 2007, which lowered 2007 expense.  
 
Salaries and benefits expense increased in the first six months of 2008 compared to the same period in 2007 primarily due to the accrual of $9.0 million related to cash awards to purchase our stock and earnings-based incentive compensation expense in the first quarter of 2008.  Of this amount, $4.6 million of the increase related to a change in our practice of equity compensation for senior management.  Instead of restricted stock, senior officers, other than executive officers, generally received or will receive cash grants to encourage them to purchase our common stock.  Of the $4.6 million accrual, we paid $2.3 million in cash to senior officers in the second quarter of 2008 with the remaining balance expected to be paid by December 31, 2008.  Salaries and benefits expense also increased over this period due to a $1.6 million increase in salaries from annual merit increases and related payroll taxes.  Also contributing to the increase in salaries and benefits expense was a $1.0 million reversal of our Money
Purchase Plan forfeiture reserves made during the first six months of 2007, which lowered 2007 expense. 
 
Net occupancy increased by $1.6 million or 17% in the second quarter of 2008 and by $2.3 million or 12% in the first six months of 2008 compared to the same periods in 2007.  The increase in the second quarter of 2008 compared to the same period of 2007 was primarily due to a $0.8 million increase in net rental expense related in part to a new branch and a $0.5 million increase in utilities expense.  The increase from the first six months of 2007 was also due to increases in net rental and utilities expenses.
 
Other noninterest expense increased by $1.4 million or 8% in the second quarter of 2008 compared to the second quarter of 2007.  The increase in other noninterest expense was primarily due to:
 
·     $0.4 million increase in merchant transaction and card processing fees due to higher volume;
 
·     $0.3 million increase in directors’ fees due to the change in market value of the directors’ deferred compensation plan assets;

 
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·     $0.3 million increase related to the reversal of typhoon-related accruals in the second quarter of 2007 for the Pacific Islands; and
 
·     $0.3 million increase in our airline mileage reward program expenses due to higher volume.
 
These increases in the second quarter of 2008 compared to the same period in 2007 were partially offset by a $0.6 million increase in the adjustment to reduce our captive insurance claim reserves. 
 
Other noninterest expense increased by $2.4 million or 6% in the first six months of 2008 compared to the same period in 2007.  The increase in other noninterest expense was primarily due to:
 
·      $3.0 million increase in our reserves for legal contingencies;
 
·      $1.0 million related to the call premium on our Capital Securities;
 
·     $2.3 million in contributions to the Bank of Hawaii Charitable Foundation and other charitable organizations;
 
·     $0.8 million increase in our airline mileage reward program expenses due to higher volume; and
 
·     $0.6 million increase in merchant transaction and card processing fees due to higher volume.
 
These increases in the first six months of 2008 compared to the same period in 2007 were partially offset by the reversal of $5.6 million in previously recorded Visa contingency accruals described in the Overview above. 
 
See Note 7 to the Consolidated Financial Statements (Unaudited) for more discussion on the reversal of our Visa contingency accruals. 
 
Provision for Income Taxes
 
See Note 6 to the Consolidated Financial Statements (Unaudited) for information on the provision for income taxes.

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Analysis of Statements of Condition
 
Investment Securities
 
Table 5 presents the amortized cost and estimated fair value of our available-for-sale and held-to-maturity investment securities as of June 30, 2008, December 31, 2007, and June 30, 2007.
 
Investment Securities (Unaudited)	 	Table 5	 	
 	 	Amortized	 	Fair	 	
(dollars in thousands)	 	Cost	 	Value	 	
June 30, 2008	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	1,648	 	$	1,676	 	
Debt Securities Issued by States and Political Subdivisions	 	47,885	 	47,811	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	250,776	 	249,863	 	
Mortgage-Backed Securities Issued by	 	 	 	 	 	
U.S. Government-Sponsored Enterprises	 	2,007,001	 	2,003,432	 	
Non-Agencies	 	323,935	 	309,222	 	
Total Mortgage-Backed Securities	 	2,330,936	 	2,312,654	 	
Other Debt Securities	 	34,339	 	34,502	 	
Total	 	$	2,665,584	 	$	2,646,506	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	6	 	$	6	 	
Mortgage-Backed Securities Issued by U.S. Government-Sponsored Enterprises	 	260,586	 	255,899	 	
Total	 	$	260,592	 	$	255,905	 	
 	 	 	 	 	 	
December 31, 2007	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	3,295	 	$	3,325	 	
Debt Securities Issued by States and Political Subdivisions	 	47,620	 	47,910	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	294,223	 	295,464	 	
Mortgage-Backed Securities Issued by	 	 	 	 	 	
U.S. Government-Sponsored Enterprises	 	1,678,828	 	1,684,471	 	
Non-Agencies	 	312,973	 	304,440	 	
Total Mortgage-Backed Securities	 	1,991,801	 	1,988,911	 	
Other Debt Securities	 	228,421	 	227,580	 	
Total	 	$	2,565,360	 	$	2,563,190	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	6	 	$	6	 	
Mortgage-Backed Securities Issued by U.S. Government-Sponsored Enterprises	 	292,571	 	287,638	 	
Total	 	$	292,577	 	$	287,644	 	
June 30, 20071	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	4,041	 	$	4,017	 	
Debt Securities Issued by States and Political Subdivisions	 	47,550	 	46,801	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	333,125	 	330,820	 	
Mortgage-Backed Securities Issued by	 	 	 	 	 	
U.S. Government-Sponsored Enterprises	 	1,529,642	 	1,493,675	 	
Non-Agencies	 	336,921	 	326,544	 	
Total Mortgage-Backed Securities	 	1,866,563	 	1,820,219	 	
Other Debt Securities	 	258,337	 	253,811	 	
Total	 	$	2,509,616	 	$	2,455,668	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	30	 	$	30	 	
Mortgage-Backed Securities Issued by U.S. Government-Sponsored Enterprises	 	327,088	 	313,559	 	
Total	 	$	327,118	 	$	313,589	 	
 
1 Certain prior period information has been reclassified to conform to the current presentation.

 

The carrying value of our investment securities, excluding trading securities, was $2.9 billion as of June 30, 2008 and December 31, 2007, and $2.8 billion as of June 30, 2007. Investment securities with a carrying value of $1.8 billion
as of June 30, 2008 and 2007, and $1.7 billion as of December 31, 2007, which approximates fair value, were pledged to secure deposits of governmental entities and

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securities sold under agreements to repurchase. Investment securities pledged where the secured party has the right to sell or repledge the investment securities were $727.7 million as of June 30, 2008, $650.4 million as of December 31, 2007, and $772.3 million as of June 30, 2007.
As of June 30, 2008, the par 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:

Investment Securities Issued by the Federal National Mortgage Association
and the Federal Home Loan Mortgage Corporation (Unaudited)	 	Table 6	 	
(dollars in thousands)	 	Par Value	 	
June 30, 2008	 	 	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	 	 	
Federal National Mortgage Association	$	 	209,807	 	
Federal Home Loan Mortgage Corporation	 	15,000	 	
Subtotal	 	224,807	 	
Mortgage-Backed Securities Issued by U.S. Government-Sponsored Enterprises	 	 	 	
Federal National Mortgage Association	 	997,144	 	
Federal Home Loan Mortgage Corporation	 	907,835	 	
Subtotal	 	1,904,979	 	
Total	$	 	2,129,786	 	

As of June 30, 2008, we did not own any preferred stock of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.
 
As of June 30, 2008, all of our mortgage-backed securities issued by private issuers (“non-agencies”) were prime jumbo, AAA-rated, with an average current amortized loan-to-value ratio of 59%. As of June 30, 2008, 97% of the fair value of our mortgage-backed securities issued by non-agencies was originated prior to 2006.
Loans past due 90 days or more, underlying the mortgage-backed securities issued by non-agencies, represented approximately 56 basis points of the par value outstanding or approximately $1.8 million as of June 30, 2008. As of June 30, 2008, there were no “sub-prime” or “Alt-A” securities in our mortgage-backed securities portfolio.
 
Table 7 presents our temporarily impaired investment securities as of June 30, 2008, December 31, 2007, and June 30, 2007.

Temporarily Impaired Investment Securities (Unaudited)	 	Table 7	 	
 	 	Temporarily Impaired	 	Temporarily Impaired	 	 	 	 	 	
 	 	Less Than 12 Months	 	12 Months or Longer	 	Total	 	
 	 	 	 	Gross	 	 	 	Gross	 	 	 	Gross	 	
 	 	 	 	Unrealized	 	 	 	Unrealized	 	 	 	Unrealized	 	
(dollars in thousands)	 	Fair Value	 	Losses	 	Fair Value	 	Losses	 	Fair Value	 	Losses	 	
June 30, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt Securities Issued by States and	 	 	 	 	 	 	 	 	 	 	 	 	 	
Political Subdivisions	 	$	30,207	 	$	(214	)	$	573	 	$	(14	)	$	30,780	 	$	(228	)	
Debt Securities Issued by U.S.	 	 	 	 	 	 	 	 	 	 	 	 	 	
Government-Sponsored Enterprises	 	164,315	 	(1,062	)	887	 	(10	)	165,202	 	(1,072	)	
Mortgage-Backed Securities Issued by	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Government-Sponsored Enterprises	 	1,079,508	 	(16,204	)	121,512	 	(3,646	)	1,201,020	 	(19,850	)	
Non-Agencies	 	140,517	 	(4,267	)	147,233	 	(10,800	)	287,750	 	(15,067	)	
Total Mortgage-Backed Securities	 	1,220,025	 	(20,471	)	268,745	 	(14,446	)	1,488,770	 	(34,917	)	
Total Temporarily Impaired Investment   Securities June 30, 2008	 	$	1,414,547	 	$	(21,747	)	$	270,205	 	$	(14,470	)	$	1,684,752	 	$	(36,217	)	
December 31, 2007	 	$	150,249	 	$	(616	)	$	1,325,002	 	$	(21,445	)	$	1,475,251	 	$	(22,061	)	
June 30, 2007	 	$	679,516	 	$	(7,455	)	$	1,878,594	 	$	(62,165	)	$	2,558,110	 	$	(69,620	)	
 
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Our temporarily impaired investment securities and related gross unrealized losses increased as of June 30, 2008 compared to December 31, 2007 primarily due to a rise in interest rates on mortgage-based products over this period of time. This rise in interest rates on mortgage-based products adversely affected the fair value of our mortgage-backed securities. The decrease in our temporarily impaired investment securities and related gross unrealized losses as of June 30, 2008 compared to June 30, 2007 was primarily due to the run-off and pay-downs on investment securities as well as decreasing interest rates on mortgage-based products over this period of time.
 
The gross unrealized losses reported for mortgage-backed securities are primarily related to investment securities issued by U.S. government-sponsored enterprises, such as the Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation. The gross unrealized losses reported for mortgage-backed securities also include investment securities issued by non-agencies. We do not believe that the investment securities that were in an unrealized loss position as of June 30, 2008, which was comprised of 172 securities, represent an other-than-temporary impairment. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. We have both the intent and ability to hold the investment securities for a period of time necessary to recover the amortized cost.
 
Loans and Leases
 
Table 8 presents the composition of our loan and lease portfolio by major categories.

Loan and Lease Portfolio Balances (Unaudited)	 	Table 8	 	
 	 	June 30,	 	March 31,	 	December 31,	 	September 30,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2008	 	2007	 	2007 1	 	2007 1	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	1,052,319	 	$	1,079,772	 	$	1,054,355	 	$	1,065,258	 	$	1,065,155	 	
Commercial Mortgage	 	680,784	 	650,638	 	634,483	 	627,329	 	619,668	 	
Construction	 	168,678	 	190,521	 	208,670	 	254,062	 	261,478	 	
Lease Financing	 	471,443	 	465,945	 	481,882	 	478,988	 	480,358	 	
Total Commercial	 	2,373,224	 	2,386,876	 	2,379,390	 	2,425,637	 	2,426,659	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	2,509,133	 	2,530,207	 	2,508,261	 	2,510,313	 	2,505,073	 	
Home Equity	 	966,108	 	967,146	 	972,995	 	953,713	 	938,261	 	
Automobile	 	413,338	 	430,920	 	443,011	 	440,525	 	425,672	 	
Other2	 	256,325	 	264,188	 	277,204	 	269,727	 	270,461	 	
Total Consumer	 	4,144,904	 	4,192,461	 	4,201,471	 	4,174,278	 	4,139,467	 	
Total Loans and Leases	 	$	6,518,128	 	$	6,579,337	 	$	6,580,861	 	$	6,599,915	 	$	6,566,126	 	
 
1 Certain prior period information has been reclassified to conform to the current presentation.
2 Comprised of other revolving credit, installment, and lease financing.

Loans and leases represent our largest category of interest earning assets and the largest source of revenue.
 
The decrease in total commercial loans and leases from December 31, 2007 was primarily due to a $40.0 million decrease in construction loans and a $10.4 million decrease in lease financing due to the exercise of an early buy-out option by one of our aircraft lessees in March 2008. This was partially offset by a $46.3 million increase in commercial mortgage loans from December 31, 2007. The changes in construction and commercial mortgage loans from December 31, 2007 were consistent with our strategy to reduce our construction
lending exposure and to grow our commercial secured mortgage loan portfolio. The decrease in consumer loans and leases from December 31, 2007 was in all categories except mortgage lending, consistent with a slowing economy in Hawaii and our continued disciplined underwriting approach.
 
The decrease in total commercial loans and leases from June 30, 2007 was primarily due to a $92.8 million decrease in construction loans and a $12.8 million decrease in commercial and industrial loans. This was partially offset by a $61.1 million increase in commercial mortgage loans from

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June 30, 2007.  As previously noted, our strategy has been to reduce our construction lending exposure and to grow our commercial secured mortgage portfolio.  The slight increase in total consumer loans and leases from June 30, 2007 was primarily due to a $27.8 million increase in home equity loans and a $4.1 million increase in residential mortgage loans, reflecting lower trending interest rates over this period of time. This was partially offset by a $14.1 million decrease in other
consumer loans, reflecting the effects that the slowing economy in Hawaii has had on consumers, and a $12.3 million decrease in automobile loans, reflecting a reduction of risk given the lower demand for automobile loans.
 
Table 9 presents the composition of our loan and lease portfolio by geographic area and by major categories.

Geographic Distribution of Loan and Lease Portfolio (Unaudited)	 	Table 9	 	
 	 	June 30,	 	March 31,	 	December 31,	 	September 30,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2008	 	2007 1	 	2007 1	 	2007 1	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Hawaii	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	705,468	 	$	718,457	 	$	695,141	 	$	677,242	 	$	669,887	 	
Commercial Mortgage	 	597,322	 	564,719	 	548,423	 	531,920	 	522,844	 	
Construction	 	157,642	 	178,958	 	197,762	 	239,765	 	246,612	 	
Lease Financing	 	62,623	 	55,498	 	55,697	 	51,839	 	52,445	 	
Mainland U.S.2	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	200,618	 	205,122	 	202,203	 	233,931	 	229,231	 	
Commercial Mortgage	 	4,808	 	4,953	 	5,129	 	5,569	 	5,709	 	
Construction	 	9,045	 	10,278	 	9,932	 	14,088	 	14,866	 	
Lease Financing	 	389,573	 	391,303	 	395,419	 	396,471	 	397,307	 	
Guam	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	71,340	 	74,736	 	75,239	 	64,063	 	74,799	 	
Commercial Mortgage	 	74,226	 	76,220	 	76,301	 	85,098	 	86,449	 	
Construction	 	1,991	 	1,285	 	976	 	209	 	-	 	
Other Pacific Islands	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	15,942	 	16,693	 	17,771	 	18,535	 	19,140	 	
Commercial Mortgage	 	2,365	 	2,529	 	2,629	 	2,776	 	2,815	 	
Foreign3	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	58,951	 	64,764	 	64,001	 	71,487	 	72,098	 	
Commercial Mortgage	 	2,063	 	2,217	 	2,001	 	1,966	 	1,851	 	
Lease Financing	 	19,247	 	19,144	 	30,766	 	30,678	 	30,606	 	
Total Commercial	 	2,373,224	 	2,386,876	 	2,379,390	 	2,425,637	 	2,426,659	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Hawaii	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	2,281,164	 	2,296,061	 	2,269,670	 	2,269,128	 	2,260,948	 	
Home Equity	 	912,467	 	911,064	 	915,820	 	895,629	 	877,251	 	
Automobile	 	282,843	 	294,410	 	308,706	 	313,712	 	312,716	 	
Other4	 	189,087	 	193,915	 	201,323	 	190,775	 	191,151	 	
Mainland U.S.2	 	 	 	 	 	 	 	 	 	 	 	
Home Equity	 	31,881	 	35,445	 	37,878	 	39,870	 	43,563	 	
Automobile	 	49,792	 	48,667	 	40,679	 	30,632	 	16,269	 	
Guam	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	219,757	 	225,503	 	230,017	 	232,238	 	235,206	 	
Home Equity	 	18,413	 	17,148	 	15,671	 	14,531	 	13,526	 	
Automobile	 	72,428	 	78,403	 	83,491	 	84,849	 	84,190	 	
Other4	 	33,078	 	34,679	 	36,767	 	37,765	 	37,325	 	
Other Pacific Islands	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	8,212	 	8,643	 	8,574	 	8,947	 	8,919	 	
Home Equity	 	3,347	 	3,489	 	3,626	 	3,683	 	3,921	 	
Automobile	 	8,275	 	9,440	 	10,135	 	11,332	 	12,497	 	
Other4	 	34,157	 	35,588	 	39,090	 	41,166	 	41,985	 	
Foreign3	 	 	 	 	 	 	 	 	 	 	 	
Other4	 	3	 	6	 	24	 	21	 	-	 	
Total Consumer	 	4,144,904	 	4,192,461	 	4,201,471	 	4,174,278	 	4,139,467	 	
Total Loans and Leases	 	$	6,518,128	 	$	6,579,337	 	$	6,580,861	 	$	6,599,915	 	$	6,566,126	 	

1 Certain prior period information has been reclassified to conform to the current presentation.
2 For secured loans and leases, classification as Mainland U.S. is made based on where the collateral is located.  For unsecured loans and leases, classification as Mainland U.S. is made based on the location where the majority of the borrower’s business operations are conducted.
3 Loans and leases classified as Foreign represents those which are recorded in the Company’s international business units.
4 Comprised of other revolving credit, installment, and lease financing.
 
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Our commercial and consumer lending activities are concentrated primarily in Hawaii and the Pacific Islands.  Our commercial loan and lease portfolio to borrowers based on the mainland U.S. includes participation in shared national credits and leveraged lease financing.  Our consumer loan and lease portfolio includes limited lending activities on the mainland U.S.

Other Assets
 
Table 10 presents the major components of other assets as of June 30, 2008, December 31, 2007, and June 30, 2007.

 
Other Assets (Unaudited)	 	 	 	 	 	Table 10	 	
 	 	June 30,	 	December 31,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Bank-Owned Life Insurance	 	$	192,716	 	$	188,888	 	$	184,909	 	
Federal Home Loan Bank and Federal Reserve Bank Stock	 	79,635	 	79,494	 	79,415	 	
Low Income Housing and Other Equity Investments	 	33,176	 	36,376	 	25,932	 	
Accounts Receivable	 	20,747	 	26,748	 	24,416	 	
Federal Tax Deposit	 	61,000	 	61,000	 	61,000	 	
Other	 	41,992	 	40,626	 	37,503	 	
Total Other Assets	 	$	429,266	 	$	433,132	 	$	413,175	 	

The decrease in other assets from December 31, 2007 was primarily due to a $6.0 million decrease in accounts receivable due to the receipt of sales proceeds from a real estate transaction which occurred in the fourth quarter of 2007.   A $3.2 million decrease in low income housing and other equity investments, due to current year amortization, also contributed to the decrease in other assets.  Partially offsetting this decrease was a $3.8 million increase in Bank-Owned Life Insurance (“BOLI”) assets from current year earnings.
 
The increase in other assets from June 30, 2007 was primarily due to a $7.8 million increase in BOLI assets, a $7.2 million increase in low income housing and other equity investments, and a $4.5 million increase in other assets.  The increase in low income housing and other equity investments was primarily due to $14.7 million in funding of new low income housing investments during the second half of 2007, partially offset by $7.5 million in amortization.  The increase in other assets was primarily due to higher balances in customer-related receivable accounts which have equal and off-setting amounts recorded in other liabilities.
 
We continue to maintain the federal tax deposit with the Internal Revenue Service (the “IRS”) relating to their review of our Lease In-Lease Out (“LILO”) and Sale In-Lease Out (“SILO”) transactions.  The placement of the deposit with the
IRS limited the potential accrual of additional interest, the rate on which is higher than alternative funding costs.
 
Deposits
 
As of June 30, 2008, total deposits were $7.9 billion, a decrease of $38.4 million or less than 1% from December 31, 2007 and a decrease of $410.4 million or 5% from June 30, 2007.  Core deposit balances (comprised of noninterest-bearing demand, interest-bearing demand, and savings accounts) increased by $123.8 million or 2% from December 31, 2007 and decreased by $250.6 million or 4% from June 30, 2007.
 
The increase in our core deposit balances from December 31, 2007 was primarily due to customers moving their balances to more liquid accounts.  This is consistent with the Bank’s strategy to emphasize growth in core deposits.  A contributing market factor for this increase was the volatility in the financial markets and a decline in the equity markets over this period of time.
 
The decrease in our core deposit balances from June 30, 2007 was primarily due to short-term commercial deposits that were largely withdrawn in the third quarter of 2007.

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Table 11 presents the composition of our savings deposits as of June 30, 2008, December 31, 2007, and June 30, 2007.
 
Savings Deposits (Unaudited)	 	 	 	 	 	Table 11	 	
 	 	June 30,	 	December 31,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Money Market	 	$	1,045,790	 	$	1,061,808	 	$	1,378,722	 	
Regular Savings	 	1,735,292	 	1,568,663	 	1,544,446	 	
Total Savings Deposits	 	$	2,781,082	 	$	2,630,471	 	$	2,923,168	 	
 
Table 12 presents our average balance of time deposits of $100,000 or more for the three months ended June 30, 2008, December 31, 2007, and June 30, 2007, and for the six months ended June 30, 2008 and 2007.
 
Average Time Deposits of $100,000 or More (Unaudited)	 	Table 12	 	
 	 	Three Months Ended	 	Six Months Ended	 	
(dollars in thousands)	 	June 30, 2008	 	December 31, 2007	 	June 30, 2007	 	June 30, 2008	 	June 30, 2007	 	
Average Time Deposits	 	$	948,729	 	$	983,389	 	$	960,960	 	$	978,908	 	$	973,817	 	

 
Borrowings and Long-Term Debt
 
Borrowings, including funds purchased and other short-term borrowings, were $79.6 million as of June 30, 2008.  This represented a decrease of $6.2 million or 7% from December 31, 2007 and a decrease of $26.7 million or 25% from June 30, 2007.  These decreases were due to a reduction in short-term funding needs.
 
Long-term debt was $205.4 million as of June 30, 2008.  This represented a decrease of $30.0 million or 13% from December 31, 2007 and a decrease of $55.0 million or 21% from June 30, 2007.  The decrease in long-term debt from December 31, 2007 was primarily due to the redemption of our remaining $26.4 million in Capital Securities and $6.0 million in subordinated notes in the second quarter of 2008.  This was partially offset by the adoption of SFAS No. 159 on January 1, 2008, which resulted in a $4.2 million carrying value
 
adjustment to fair value on our subordinated notes.  See Notes 1 and 4 to the Consolidated Financial Statements (Unaudited) for more information on our adoption of SFAS No. 159.  The decrease in long-term debt from June 30, 2007 was primarily due to the maturity of a $25.0 million Federal Home Loan Bank of Seattle (“FHLB”) advance in the third quarter of 2007 and the redemption of our remaining Capital Securities and subordinated notes.  Further discussion on borrowings is included in the “Corporate Risk Profile – Liquidity Management” section of MD&A.
 
Securities Sold Under Agreements to Repurchase
 
Table 13 presents the composition of our securities sold under agreements to repurchase as of June 30, 2008, December 31, 2007, and June 30, 2007.

 
Securities Sold Under Agreements to Repurchase (Unaudited)	 	 	 	 	 	Table 13	 	
 	 	June 30,	 	December 31,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Government Entities	 	$	378,518	 	$	429,340	 	$	310,302	 	
Private Institutions	 	650,000	 	600,000	 	600,000	 	
Total Securities Sold Under Agreements to Repurchase	 	$	1,028,518	 	$	1,029,340	 	$	910,302	 	

Securities sold under agreements to repurchase as of June 30, 2008 were relatively unchanged from the balance as of December 31, 2007.  The increase in securities sold under
agreements to repurchase from June 30, 2007 was due to additional placements with government entities and private institutions that provided for sources of liquidity used to repay

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long-term debt, a more expensive source of funds.  As of June 30, 2008, the weighted average maturity was 82 days for our securities sold under agreements to repurchase with government entities and 8.93 years for securities sold under agreements to repurchase with private institutions, subject to the private institutions’ right to terminate agreements at earlier specified dates which could decrease the weighted average maturity to 311 days.  As of June 30, 2008, $425.0 million of securities sold under agreements to repurchase placed with private institutions were indexed to the London Inter Bank Offering Rate (“LIBOR”) with the remaining $225.0 million at fixed interest rates.  If the agreements with private institutions are not terminated by the specified dates, the interest rates on the agreements become fixed, at rates ranging from 2.98% to 5.00%, for the remaining term of the respective agreements.  As of June 30, 2008, the weighted average interest rate for outstanding agreements with private institutions was 2.74%.
 
Shareholders’ Equity
 
As of June 30, 2008, shareholders’ equity was $767.6 million, an increase of $17.3 million or 2% from December 31, 2007 and a $58.8 million or 8% increase from June 30, 2007.  The increase in shareholders’ equity from December 31, 2007 was primarily due to current period earnings of $105.5 million, partially offset by $45.2 million in common stock repurchases and $42.3 million in cash dividends paid.  Further discussion on our capital structure is included in the “Corporate Risk Profile – Capital Management” section of MD&A.
 
Analysis of Business Segments
 
Our business segments are Retail Banking, Commercial Banking, Investment Services, and Treasury.  Our 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, 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.
 
We evaluate several performance measures of the business segments, the most important of which are net income less a charge for the cost of allocated capital (“NIACC”) and risk adjusted return on capital (“RAROC”).  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, 11% for 2007) 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 reflect 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.  Allocated net income for each business segment includes a Provision.  For business segment reporting purposes, the Provision is reversed and is replaced by an economic provision.  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 consolidated NIACC was $29.9 million for the second quarter of 2008 compared to $26.6 million for the same period in 2007.  The increase in NIACC in the second quarter of 2008 was primarily due to an increase in net interest income and noninterest income, partially offset by an increase in noninterest expense and the provision for income taxes.  Our consolidated NIACC was $73.5 million for the first six months of 2008 compared to $52.8 million for the same period

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in 2007.  The increase in NIACC for the first six months of 2008 was primarily due to an increase in net interest income as well as the previously noted gains related to Visa and the sale of our equity interest in an aircraft lease.  This was partially offset by accruals made in the first quarter of 2008 related to employee incentives, charitable contributions, the call premium on our Capital Securities, and legal contingency accruals.  The increase in the Provision did not impact NIACC since it is replaced by an economic provision.  For the second
quarter of 2008 and for the first six months of 2008, the economic provision was relatively unchanged compared to the same periods in 2007.
 
Tables 14a and 14b summarize our NIACC and RAROC for the second quarter of 2008 and for the first six months of 2008 compared to the same periods in 2007.

 
Business Segments Selected Financial Information (Unaudited)	 	Table 14a	 	
 	 	Retail	 	Commercial	 	Investment	 	 	 	 	 	Consolidated	 	
(dollars in thousands)	 	Banking	 	Banking	 	Services	 	Total	 	Treasury	 	Total	 	
Three Months Ended June 30, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	59,555	 	$	43,264	 	$	3,938	 	$	106,757	 	$	411	 	$	107,168	 	
Provision for Credit Losses	 	2,571	 	4,652	 	(1	)	7,222	 	(50	)	7,172	 	
Net Interest Income After Provision for Credit Losses	 	56,984	 	38,612	 	3,939	 	99,535	 	461	 	99,996	 	
Noninterest Income	 	27,270	 	9,997	 	19,019	 	56,286	 	4,253	 	60,539	 	
Noninterest Expense	 	(43,335	)	(23,544	)	(16,363	)	(83,242	)	(620	)	(83,862	)	
Income Before Provision for Income Taxes	 	40,919	 	25,065	 	6,595	 	72,579	 	4,094	 	76,673	 	
Provision for Income Taxes	 	(15,140	)	(9,286	)	(2,440	)	(26,866	)	(1,525	)	(28,391	)	
Allocated Net Income	 	25,779	 	15,779	 	4,155	 	45,713	 	2,569	 	48,282	 	
Allowance Funding Value	 	(221	)	(865	)	(14	)	(1,100	)	1,100	 	-	 	
Provision for Credit Losses	 	2,571	 	4,652	 	(1	)	7,222	 	(50	)	7,172	 	
Economic Provision	 	(1,945	)	(3,257	)	(82	)	(5,284	)	(1	)	(5,285	)	
Tax Effect of Adjustments	 	(150	)	(196	)	36	 	(310	)	(387	)	(697	)	
Income Before Capital Charge	 	26,034	 	16,113	 	4,094	 	46,241	 	3,231	 	49,472	 	
Capital Charge	 	(4,749	)	(4,036	)	(1,444	)	(10,229	)	(9,328	)	(19,557	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	21,285	 	$	12,077	 	$	2,650	 	$	36,012	 	$	(6,097	)	$	29,915	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RAROC (ROE for the Company)	 	55	% 	40	% 	28	% 	45	% 	19	%	25	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 2008	 	$	3,649,376	 	$	2,998,013	 	$	242,443	 	$	6,889,832	 	$	3,481,317	 	$	10,371,149	 	

Three Months Ended June 30, 2007 1	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	55,606	 	$	40,668	 	$	3,466	 	$	99,740	 	$	(862	)	$	98,878	 	
Provision for Credit Losses	 	1,258	 	2,115	 	-	 	3,373	 	(10	)	3,363	 	
Net Interest Income (Loss) After Provision	 	 	 	 	 	 	 	 	 	 	 	 	 	
  for Credit Losses	 	54,348	 	38,553	 	3,466	 	96,367	 	(852	)	95,515	 	
Noninterest Income	 	26,790	 	8,033	 	19,454	 	54,277	 	3,751	 	58,028	 	
Noninterest Expense	 	(41,109	)	(22,318	)	(15,519	)	(78,946	)	(886	)	(79,832	)	
Income Before Provision for Income Taxes	 	40,029	 	24,268	 	7,401	 	71,698	 	2,013	 	73,711	 	
Provision for Income Taxes	 	(14,812	)	(9,061	)	(2,738	)	(26,611	)	629	 	(25,982	)	
Allocated Net Income	 	25,217	 	15,207	 	4,663	 	45,087	 	2,642	 	47,729	 	
Allowance Funding Value	 	(155	)	(824	)	(10	)	(989	)	989	 	-	 	
Provision for Credit Losses	 	1,258	 	2,115	 	-	 	3,373	 	(10	)	3,363	 	
Economic Provision	 	(1,823	)	(3,167	)	(83	)	(5,073	)	-	 	(5,073	)	
Tax Effect of Adjustments	 	266	 	694	 	34	 	994	 	(361	)	633	 	
Income Before Capital Charge	 	24,763	 	14,025	 	4,604	 	43,392	 	3,260	 	46,652	 	
Capital Charge	 	(5,083	)	(4,356	)	(1,529	)	(10,968	)	(9,047	)	(20,015	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	19,680	 	$	9,669	 	$	3,075	 	$	32,424	 	$	(5,787	)	$	26,637	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RAROC (ROE for the Company)	 	54	% 	36	%	33	% 	44	% 	11	%	26	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 20071	 	$	3,638,207	 	$	3,108,240	 	$	230,134	 	$	6,976,581	 	$	3,745,987	 	$	10,722,568	 	
 
1 Certain prior period information has been reclassified to conform to the current presentation.
 
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Business Segments Selected Financial Information (Unaudited)	 	Table 14b	 	
 	 	Retail	 	Commercial	 	Investment	 	 	 	 	 	Consolidated	 	
(dollars in thousands)	 	Banking	 	Banking	 	Services	 	Total	 	Treasury	 	Total	 	
Six Months Ended June 30, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	117,979	 	$	86,099	 	$	7,808	 	$	211,886	 	$	(2,538	)	$	209,348	 	
Provision for Credit Losses	 	10,523	 	11,878	 	(1	)	22,400	 	(801	)	21,599	 	
Net Interest Income (Loss) After Provision	 	 	 	 	 	 	 	 	 	 	 	 	 	
  for Credit Losses	 	107,456	 	74,221	 	7,809	 	189,486	 	(1,737	)	187,749	 	
Noninterest Income	 	55,817	 	32,246	 	37,280	 	125,343	 	21,321	 	146,664	 	
Noninterest Expense	 	(87,104	)	(48,265	)	(33,226	)	(168,595	)	(8,699	)	(177,294	)	
Income Before Provision for Income Taxes	 	76,169	 	58,202	 	11,863	 	146,234	 	10,885	 	157,119	 	
Provision for Income Taxes	 	(28,182	)	(21,587	)	(4,389	)	(54,158	)	2,536	 	(51,622	)	
Allocated Net Income	 	47,987	 	36,615	 	7,474	 	92,076	 	13,421	 	105,497	 	
Allowance Funding Value	 	(397	)	(1,710	)	(27	)	(2,134	)	2,134	 	-	 	
Provision for Credit Losses	 	10,523	 	11,878	 	(1	)	22,400	 	(801	)	21,599	 	
Economic Provision	 	(4,088	)	(6,492	)	(165	)	(10,745	)	(1	)	(10,746	)	
Tax Effect of Adjustments	 	(2,234	)	(1,360	)	71	 	(3,523	)	(492	)	(4,015	)	
Income Before Capital Charge	 	51,791	 	38,931	 	7,352	 	98,074	 	14,261	 	112,335	 	
Capital Charge	 	(9,528	)	(8,133	)	(2,919	)	(20,580	)	(18,285	)	(38,865	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	42,263	 	$	30,798	 	$	4,433	 	$	77,494	 	$	(4,024	)	$	73,470	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RAROC (ROE for the Company)	 	55	% 	48	% 	25	% 	48	% 	38	%	27	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 2008	 	$	3,649,376	 	$	2,998,013	 	$	242,443	 	$	6,889,832	 	$	3,481,317	 	$	10,371,149	 	

Six Months Ended June 30, 20071	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	110,025	 	$	79,698	 	$	6,991	 	$	196,714	 	$	301	 	$	197,015	 	
Provision for Credit Losses	 	2,803	 	3,213	 	-	 	6,016	 	(22	)	5,994	 	
Net Interest Income After Provision for Credit Losses	 	107,222	 	76,485	 	6,991	 	190,698	 	323	 	191,021	 	
Noninterest Income	 	52,370	 	20,246	 	38,601	 	111,217	 	7,771	 	118,988	 	
Noninterest Expense	 	(82,443	)	(45,238	)	(31,202	)	(158,883	)	(3,072	)	(161,955	)	
Income Before Provision for Income Taxes	 	77,149	 	51,493	 	14,390	 	143,032	 	5,022	 	148,054	 	
Provision for Income Taxes	 	(28,539	)	(18,935	)	(5,324	)	(52,798	)	(192	)	(52,990	)	
Allocated Net Income	 	48,610	 	32,558	 	9,066	 	90,234	 	4,830	 	95,064	 	
Allowance Funding Value	 	(300	)	(1,582	)	(20	)	(1,902	)	1,902	 	-	 	
Provision for Credit Losses	 	2,803	 	3,213	 	-	 	6,016	 	(22	)	5,994	 	
Economic Provision	 	(3,692	)	(6,441	)	(164	)	(10,297	)	(1	)	(10,298	)	
Tax Effect of Adjustments	 	440	 	1,780	 	68	 	2,288	 	(697	)	1,591	 	
Income Before Capital Charge	 	47,861	 	29,528	 	8,950	 	86,339	 	6,012	 	92,351	 	
Capital Charge	 	(10,167	)	(8,835	)	(3,062	)	(22,064	)	(17,506	)	(39,570	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	37,694	 	$	20,693	 	$	5,888	 	$	64,275	 	$	(11,494	)	$	52,781	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RAROC (ROE for the Company)	 	52	% 	37	% 	32	% 	43	% 	9	%	27	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of June 30, 20071	 	$	3,638,207	 	$	3,108,240	 	$	230,134	 	$	6,976,581	 	$	3,745,987	 	$	10,722,568	 	
 
1 Certain prior period information has been reclassified to conform to the current presentation.

Retail Banking
 
Retail Banking offers a broad range of financial products and services to consumers and small businesses.  Loan products include residential mortgage loans, home equity lines of credit, personal 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 72 Hawaii branch locations, 417 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 and casualty insurance products.

 
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Financial measures improved for the second quarter of 2008 compared to the same period in 2007 primarily due to higher net interest income and noninterest income, partially offset by higher noninterest expense.  The $3.9 million increase in net interest income was primarily due to a reduction in funding costs and growth in average loan balances.  These positive factors were partially offset by a decrease in average deposit balances.  The $0.5 million increase in noninterest income was primarily due to higher fee income from an increase in the number of transactional deposit accounts as well as debit card transactions.  Noninterest expense increased by $2.2 million primarily due to higher debit card and occupancy expense.  Retail Banking’s economic provision and capital charge remained relatively unchanged in the second quarter of 2008 compared to the same period in 2007.
 
Financial measures improved for the first six months of 2008 compared to the same period in 2007 primarily due to an increase in net interest income and noninterest income, partially offset by higher noninterest expense.  The $8.0 million increase in net interest income was primarily due to lower funding costs on the segment’s deposit portfolio, and growth in average loan balances.  These positive factors were partially offset by a decrease in average deposit balances.  The $3.4 million increase in noninterest income was primarily due to higher fee income from the growth in transaction volume and in the number of transactional deposit accounts.  Also contributing to the increase in noninterest income was higher interchange income from debit card transactions and an increase in mortgage banking income.  Noninterest expense increased by $4.7 million primarily due to increased debit card, occupancy, and salaries expense, as well as higher allocated expenses related to earnings-based incentive compensation accruals that were recorded in the first quarter of 2008.  Retail Banking’s capital charge decreased slightly for the first six months of 2008 compared to the same period in 2007 primarily due to a decrease in the capital charge rate.
 
Commercial Banking
 
Commercial Banking offers a broad range of financial products and services including corporate and commercial real estate
loans, lease financing, auto dealer financing, automobile loans and leases, deposit and cash management products, and wholesale property and casualty insurance products.  Lending, deposit, and cash management services are offered to middle-market and large companies in Hawaii.  Commercial real estate mortgages are focused on customers that include investors, developers, and builders domiciled in Hawaii.  Commercial Banking also includes international banking and operations at our 12 branches in the Pacific Islands.
 
Financial measures improved for the second quarter of 2008 compared to the same period in 2007 primarily due to an increase in net interest income and noninterest income.  The $2.6 million increase in net interest income was primarily due to a reduction in funding costs along with growth in our International Banking deposit portfolio.  The $2.0 million increase in noninterest income was primarily due to higher account analysis fees as a result of lower earnings credit rates on customer accounts, income from facilitating interest rate swaps on behalf of our customers, and fee income on our wholesale property and casualty insurance products.  Noninterest expense increased by $1.2 million primarily due to higher salaries and benefits, other operating, and allocated expenses.
 
Financial measures improved for the first six months of 2008 compared to the same period in 2007 primarily due to an increase in noninterest income and net interest income.  The $12.0 million increase in noninterest income was primarily due to the $11.6 million gain on the sale of our equity interest in an aircraft lease, higher account analysis fee income, and fee income on our wholesale property and casualty insurance products.  The $6.4 million increase in net interest income was primarily due to a reduction in funding costs along with growth in our International Banking deposit portfolio.  Noninterest expense increased by $3.0 million primarily due to higher salaries and benefits, other operating, and allocated expenses.  The increase in the Provision allocated to the segment was primarily due to a $2.1 million recovery recorded in 2007 related to a leveraged lease with a major airline, which lowered 2007 expense.

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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 for the second quarter of 2008 compared to the same period in 2007 primarily due to an increase in noninterest expense.  The $0.8 million increase in noninterest expense was primarily related to salaries and benefits.  Net interest income was higher d ue to a reduction in funding costs and due to a shift in balances from lower margin time deposit accounts into savings accounts.  The decline in noninterest income was primarily due to lower mutual fund investment advisory fees, a result of the lower market value of assets under administration.
 
Financial measures decreased for the first six months of 2008 compared to the same period in 2007 primarily due to a decrease in noninterest income and an increase in noninterest expense.  The $1.3 million decrease in noninterest income was primarily due to  lower mutual fund investment advisory fees, a result of the lower market value of assets under administration.   The $2.0 million increase in noninterest expense was primarily due to higher salaries and benefits and allocated expenses related to earnings-based incentive compensation accruals that were recorded in the first quarter of 2008.
 
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 BOLI and foreign exchange income related to customer driven currency requests from merchants and island visitors.  The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with eliminations of intercompany transactions.
 
NIACC decreased slightly for the second quarter of 2008 compared to the same period in 2007 primarily due to a higher provision for income taxes, which was partially offset by higher net interest income and noninterest income.  The $1.3 million increase in net interest income was primarily due to a reduction in loan funding charges allocated to the business segments, partially offset by an increase in the average balance of available-for-sale investment securities and decreases in the cost of securities sold under agreements to repurchase and funds purchased.  The $0.5 million increase in noninterest income was primarily due to the change in the estimated fair value of our subordinated notes.  The $0.3 million increase in the capital charge for the second quarter of 2008 was primarily due to an increase in excess equity held by the Company.  The increase in RAROC for the second quarter of 2008 compared to the same period in 2007 was primarily due to lower allocated equity to the segment in 2008.
 
Financial measures improved for the first six months of 2008 compared to the same period in 2007 primarily due to a $13.6 million increase in noninterest income which was primarily due to the $13.7 million gain from the mandatory redemption of our Visa shares.  This increase was partially offset by a $2.8 million decrease in net interest income, and a $5.6 million increase in noninterest expense.   The $2.8 million decrease in net interest income was primarily due to a reduction in loan funding charges allocated to the business segments, partially offset by an increase in the average balance of available-for-sale investment securities and a decrease in the cost of securities sold under

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agreements to repurchase.  The $5.6 million increase in noninterest expense was primarily due to several accruals (cash awards to purchase our stock, legal contingencies, and a contribution to the Bank of Hawaii Charitable Foundation and other charitable organizations), partially offset by the reversal of the previously recorded contingency accruals related to Visa.  The capital charge increased by $0.8 million for the second quarter of 2008 compared to the same period in 2007 primarily due to an increase in excess equity held by the Company.
 
Other organizational units (Technology, Operations, Marketing, Human Resources, Finance, Credit and Risk Management, and Corporate and Regulatory Administration) included in Treasury provided 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.
 
Corporate Risk Profile
 
Credit Risk
 
Our overall credit risk position remained solid during the second quarter of 2008, with low, albeit increasing, levels of non-performing assets.  Our credit risk profile reflects our continued disciplined underwriting approach.  During the second quarter of 2008, signs of slowing in the Hawaii economy became more prominent.  Reduced airline capacity and the exit of cruise ships from the local market are resulting in lower visitor arrivals.  Trends in the construction and real
estate industries are also softening.  Unemployment levels are trending upward from record low levels.  With higher oil prices resulting in rising energy prices as well as food costs, inflation is expected to be higher than in prior periods.  The slowing economy in Hawaii may result in higher delinquencies and loss rates in our loan and lease portfolio, with the primary impact expected in our small business and unsecured consumer lending portfolios.
 
Table 15 summarizes our air transportation credit exposure.  As of June 30, 2008, included in our commercial lending portfolio are nine leveraged leases on aircraft that were originated in the 1990’s and prior.  Outstanding credit exposure related to these leveraged leases was $72.3 million as of June 30, 2008.  Our air transportation credit exposure decreased in the first quarter of 2008 due to the previously mentioned sale of our equity interest in an aircraft lease.  However, relative to our total loan and lease portfolio, domestic air transportation carriers continue to demonstrate a higher risk profile due to fuel costs, pension plan obligations, and marginal pricing power.  We believe that higher fuel costs, coupled with a slowing mainland economy, will place additional pressure on the financial health of air transportation carriers for the foreseeable future.  In the evaluation of the Reserve for Credit Losses (the “Reserve”), we continue to consider the ongoing financial concerns about the air transportation industry.

Air Transportation Credit Exposure 1 (Unaudited)	 	 	 	 	 	 	 	Table 15	 	
 	 	June 30,	 	March 31,	 	December 31,	 	September 30,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2008	 	2007	 	2007	 	2007	 	
Passenger Carriers Based In the United States	 	$	60,603	 	$	61,190	 	$	64,947	 	$	64,867	 	$	65,607	 	
Passenger Carriers Based Outside the United States	 	7,161	 	7,258	 	19,078	 	19,162	 	19,246	 	
Cargo Carriers	 	13,568	 	13,472	 	13,390	 	13,326	 	13,279	 	
Total Air Transportation Credit Exposure	 	$	81,332	 	$	81,920	 	$	97,415	 	$	97,355	 	$	98,132	 	
 
1 Exposure includes loans, leveraged leases, and operating leases.
 
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Non-Performing Assets
 
Table 16 presents information on non-performing assets (“NPAs”) and accruing loans and leases past due 90 days or more.
 
Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More (Unaudited)	 	Table 16	 	
 	 	June 30,	 	March 31,	 	December 31,	 	September 30,	 	June 30,	 	
(dollars in thousands)	 	2008	 	2008	 	2007	 	20071	 	20071	 	
Non-Performing Assets	 	 	 	 	 	 	 	 	 	 	 	
Non-Accrual Loans and Leases	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	1,119	 	$	794	 	$	598	 	$	359	 	$	265	 	
Commercial Mortgage	 	-	 	-	 	112	 	123	 	130	 	
Lease Financing	 	329	 	504	 	297	 	-	 	914	 	
Total Commercial	 	1,448	 	1,298	 	1,007	 	482	 	1,309	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	3,784	 	3,235	 	2,681	 	3,237	 	3,844	 	
Home Equity	 	1,189	 	1,187	 	1,414	 	436	 	899	 	
Other2	 	30	 	31	 	-	 	-	 	214	 	
Total Consumer	 	5,003	 	4,453	 	4,095	 	3,673	 	4,957	 	
Total Non-Accrual Loans and Leases	 	6,451	 	5,751	 	5,102	 	4,155	 	6,266	 	
Foreclosed Real Estate	 	229	 	294	 	184	 	105	 	48	 	
Total Non-Performing Assets	 	$	6,680	 	$	6,045	 	$	5,286	 	$	4,260	 	$	6,314	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Accruing Loans and Leases Past Due 90 Days or More	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	-	 	$	24	 	$	-	 	$	-	 	$	-	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	2,601	 	3,892	 	4,884	 	639	 	188	 	
Home Equity	 	201	 	328	 	413	 	115	 	60	 	
Automobile	 	625	 	865	 	1,174	 	734	 	397	 	
Other2	 	756	 	725	 	1,112	 	944	 	761	 	
Total Consumer	 	4,183	 	5,810	 	7,583	 	2,432	 	1,406	 	
Total Accruing Loans and Leases Past Due 90 Days or More	 	$	4,183	 	$	5,834	 	$	7,583	 	$	2,432	 	$	1,406	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total Loans and Leases	 	$	6,518,128	 	$	6,579,337	 	$	6,580,861	 	$	6,599,915	 	$	6,566,126	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases	 	0.10	% 	0.09	% 	0.08	% 	0.06	% 	0.10	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate	 	0.10	%	0.09	%	0.08	%	0.06	%	0.10	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases	 	0.06	%	0.05	%	0.04	%	0.02	%	0.05	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Foreclosed Real Estate	 	0.13	%	0.11	%	0.10	%	0.09	%	0.12	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases	 	0.17	%	0.18	%	0.20	%	0.10	%	0.12	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Quarter to Quarter Changes in Non-Performing Assets
Balance at Beginning of Quarter	 	$	6,045	 	$	5,286	 	$	4,260	 	$	6,314	 	$	5,836	 	
Additions	 	2,900	 	2,614	 	1,866	 	662	 	2,279	 	
Reductions	 	 	 	 	 	 	 	 	 	 	 	
Payments	 	(630	)	(386	)	(256	)	(1,741	)	(804	)	
Return to Accrual Status	 	(943	)	(944	)	(214	)	(787	)	(473	)	
Sales of Foreclosed Real Estate	 	-	 	-	 	(161	)	(48	)	(326	)	
Charge-offs/Write-downs	 	(692	)	(525	)	(209	)	(140	)	(198	)	
Total Reductions	 	(2,265	)	(1,855	)	(840	)	(2,716	)	(1,801	)	
Balance at End of Quarter	 	$	6,680	 	$	6,045	 	$	5,286	 	$	4,260	 	$	6,314	 	
 
1 Certain prior period information has been reclassified to conform to the current presentation.
2 Comprised of other revolving credit, installment, and lease financing.
 
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The changes in NPAs by category from December 31, 2007 and June 30, 2007 reflect normal delinquency and resolution activity consistent with the slowing economy in Hawaii.
 
Included in NPAs are loans and leases that we consider 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, as well as those loans or leases whose terms have been modified in a troubled debt restructuring. Impaired loans were $0.2 million as of June 30, 2008 and less than $0.1 million as of December 31, 2007. We had no impaired loans and leases as of June 30, 2007.
 
Credit quality in our commercial and mortgage-related consumer lending portfolios remained solid in the second quarter of 2008. Residential mortgage and home equity lending comprise the largest components of our consumer lending portfolio. As of June 30, 2008, the weighted average credit score for our residential mortgage loans was 756, with a
significant portion of this portfolio having a loan-to-value ratio of 80% or less. As of June 30, 2008, the weighted average credit score for our home equity loans was 747, with the majority of the portfolio having a loan-to-value ratio of 80% or less.
 
Loans and Leases Past Due 90 Days or More and Still Accruing Interest
 
The changes in loans and leases past due 90 days or more and still accruing interest from December 31, 2007 and June 30, 2007 reflect normal delinquency and resolution activity consistent with the slowing economy in Hawaii. We do not expect to incur material losses on these loans.
 
Due to the low volume of NPAs and accruing loans and leases past due 90 days or more, we anticipate some degree of variability in the balances in these categories from period to period and do not consider modest changes to be indicative of significant asset quality trends.

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Reserve for Credit Losses
 
Table 17 presents the activity in our Reserve for the three and six months ended June 30, 2008 and 2007.
 
Reserve for Credit Losses (Unaudited)	 	 	 	 	 	 	 	Table 17	 	
 	 	 	Three Months Ended
June 30,	 	 	Six Months Ended
June 30,	 	
(dollars in thousands)	 	2008	 	2007 1	 	2008	 	2007 1	 	
Balance at Beginning of Period	 	$	105,167	 	$	96,167	 	$	96,167	 	$	96,167	 	
Loans and Leases Charged-Off	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	(1,396	)	(738	)	(2,785	)	(1,543	)	
Lease Financing	 	(142	)	-	 	(276	)	(22	)	
Consumer	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	(133	)	(47	)	(133	)	(47	)	
Home Equity	 	(473	)	(240	)	(1,279	)	(342	)	
Automobile	 	(2,187	)	(2,346	)	(5,102	)	(5,428	)	
Other2	 	(1,954	)	(1,849	)	(4,757	)	(4,481	)	
Total Loans and Leases Charged-Off	 	(6,285	)	(5,220	)	(14,332	)	(11,863	)	
Recoveries on Loans and Leases Previously Charged-Off	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	201	 	315	 	1,187	 	592	 	
Commercial Mortgage	 	-	 	36	 	-	 	121	 	
Lease Financing	 	2	 	6	 	5	 	2,087	 	
Consumer	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	17	 	54	 	95	 	189	 	
Home Equity	 	26	 	55	 	47	 	120	 	
Automobile	 	700	 	713	 	1,496	 	1,384	 	
Other2	 	667	 	678	 	1,403	 	1,376	 	
Total Recoveries on Loans and Leases Previously Charged-Off	 	1,613	 	1,857	 	4,233	 	5,869	 	
Net Loans and Leases Charged-Off	 	(4,672	)	(3,363	)	(10,099	)	(5,994	)	
Provision for Credit Losses	 	7,172	 	3,363	 	21,599	 	5,994	 	
Balance at End of Period3	 	$	107,667	 	$	96,167	 	$	107,667	 	$	96,167	 	
 	 	 	 	 	 	 	 	 	 	
Components	 	 	 	 	 	 	 	 	 	
Allowance for Loan and Lease Losses	 	$	102,498	 	$	90,998	 	$	102,498	 	$	90,998	 	
Reserve for Unfunded Commitments	 	5,169	 	5,169	 	5,169	 	5,169	 	
Total Reserve for Credit Losses	 	$	107,667	 	$	96,167	 	$	107,667	 	$	96,167	 	
 	 	 	 	 	 	 	 	 	 	
Average Loans and Leases Outstanding	 	$	6,531,587	 	$	6,532,736	 	$	6,559,753	 	$	6,547,212	 	
 	 	 	 	 	 	 	 	 	 	
Ratio of Net Loans and Leases Charged-Off to	 	 	 	 	 	 	 	 	 	
Average Loans and Leases Outstanding (annualized)	 	0.29	%	0.21	%	0.31	%	0.18	%	
Ratio of Allowance for Loan and Lease Losses to Loans and Leases Outstanding	 	1.57	%	1.39	%	1.57	%	1.39	%	

1 Certain prior period information has been reclassified to conform to the current presentation.
2 Comprised of other revolving credit, installment, and lease financing.
3 Included in this analysis is activity related to the Company’s reserve for unfunded commitments, which is separately recorded in other liabilities in the Consolidated Statements of Condition (Unaudited).

We maintain a Reserve which consists of two components, the Allowance and a Reserve for Unfunded Commitments (“Unfunded Reserve”).  The Reserve provides for the risk of credit losses inherent in the loan and lease portfolio and is based on loss estimates derived from a comprehensive quarterly evaluation.  The evaluation reflects analyses of individual borrowers and historical loss experience,
supplemented as necessary by credit judgment that considers observable trends, conditions, other relevant environmental and economic factors.
 
The level of the Allowance is adjusted by recording an expense or recovery through the Provision.  The level of the Unfunded Reserve is adjusted by recording an expense or recovery in

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other noninterest expense.  The Provision exceeded net charge-offs of loans and leases for the second quarter of 2008 by $2.5 million and by $11.5 million for the first six months of 2008.  The increase in the Allowance during the first six months of 2008 reflects increased risk in our commercial aircraft leasing, small business, and unsecured consumer lending portfolios.
 
Although we determine the amount of each component of the Allowance separately, the Allowance as a whole was considered appropriate by management as of June 30, 2008, based on our ongoing analysis of estimated probable credit losses, credit risk profiles, economic conditions, coverage ratios, and other relevant factors.
 
The Reserve for Unfunded Commitments
 
The Unfunded Reserve remained unchanged from December 31, 2007 and June 30, 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.
 
Market Risk
 
Market risk is the potential of loss arising from adverse changes in interest rates and prices.  We are exposed to market risk in the normal course of conducting our business activities.  Financial products that expose us to market risk include investment securities, loans and leases, deposits, debt, and derivative financial instruments.  Our market risk management process involves measuring, monitoring, controlling, and adjusting levels of risk 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.  In the management of market risks, activities are categorized into “trading” and “non-trading.”
 
Our trading activities include trading securities that are used to manage the market risk exposure of our mortgage servicing rights which are recorded at estimated fair value on the statement of condition.  Our trading activities also include
foreign currency and foreign exchange contracts that expose us to a small degree of foreign currency risk.  Foreign currency and foreign exchange contracts are primarily executed on behalf of our customers and at times for our own account.  We also enter into interest rate swap agreements with customers to assist them in managing their interest rate risk.  However, we mitigate this risk by entering into equal and offsetting interest rate swap agreements with third parties.
 
Our non-trading activities include normal business transactions that expose our balance sheet to varying degrees of market risk.  Our primary market risk exposure is interest rate risk.  A key element in the process of managing market risk involves oversight by senior management and the Board of Directors as to the level of such risk.  The Board of Directors reviews and approves risk management policies, including risk limits and guidelines, and delegates oversight functions to the Asset/Liability Management Committee (“ALCO”).  The ALCO, consisting of senior business and finance officers, monitors market risk exposure and, as market conditions dictate, modifies positions as deemed appropriate.  The ALCO may also direct the use of derivative financial instruments to manage market risk.
 
Interest Rate Risk
 
The objective of the 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.
 
Our statement of condition is sensitive to changes in the general level of interest rates.  This interest rate risk arises primarily from normal business activities of gathering deposits and extending loans and leases.  Many other factors also affect 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. government and its agencies, particularly the Board of

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Governors of the Federal Reserve System (the “FRB”).  The monetary policies of the FRB influence, to a significant extent, the overall growth of loans, investment securities, deposits as well as 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 ALCO, measure short-term and long-term sensitivities to changes in interest rates.  The ALCO utilizes several techniques to manage interest rate risk, which include shifting balance sheet mix or altering the interest rate characteristics of assets and liabilities, changing product pricing strategies, or modifying characteristics of our investment securities portfolio.  We are also authorized to use derivative financial instruments.  However, our use of derivative financial instruments has been limited over the past several years due to the natural on-balance sheet hedge arising out of offsetting interest rate exposures from loans and 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 the ALCO.  For example, we continue to utilize our trading portfolio to offset the change in estimated fair value of our mortgage servicing rights.  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 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.  This model is used to estimate and measure the balance sheet’s sensitivity to changes in interest rates. 
These estimates are based on assumptions regarding 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, management believes that these assumptions are reasonable.  As a result, the simulation model attempts to capture the dynamic nature of the balance sheet and provide a sophisticated estimate rather than a precise prediction of exposure to changes in interest rates.
 
We utilize net interest income simulations to analyze short-term income sensitivities to changes in interest rates.  Table 18 presents, as of June 30, 2008 and 2007, an estimate of the change in net interest income during a quarterly time frame that would result from a gradual 100 and 200 basis point increase or decrease in interest rates, moving in a parallel fashion over the entire yield curve, over the next 12-month period, relative to the measured base case scenario for net interest income without any change in strategy.  Based on the net interest income simulation as of June 30, 2008, our net interest income sensitivity to changes in interest rates as of June 30, 2008 was greater than our sensitivity to changes in interest rates as of June 30, 2007 due to the decline in interest rates.  In lower rate scenarios, limited deposit repricing will adversely impact overall net interest income.  In higher rates scenarios, liabilities are expected to reprice slightly faster than assets.  Additionally, to analyze the impact of changes in interest rates in a more realistic manner, non-parallel rate scenarios are also simulated.  These non-parallel rate scenarios indicate that net interest income may decrease from the base case scenario should the yield curve become flat or inverted for a period of time.  Conversely, if the yield curve should steepen further, net interest income may increase.

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Net Interest Income Sensitivity Profile (Unaudited)	 	 	 	 	 	 	 	Table 18  	
 	 	Change in Net Interest Income Per Quarter	
(dollars in thousands)	 	June 30, 2008	 	June 30, 2007	 	
Change in Interest Rates (basis points)	 	 	 	 	 	 	 	 	 	
+200	 	$	(539	)	(0.5	)  %	$	(199	)	(0.2	)  %	
+100	 	(108	)	(0.1	)	(99	)	(0.1	)	
-100	 	(1,185	)	(1.1	)	(298	)	(0.3	)	
-200	 	(2,478	)	(2.3	)	(1,093	)	(1.1	)	

We also use a Market Value of Portfolio Equity (“MVPE”) sensitivity analysis to estimate the net present value change in our assets, liabilities, and off-balance sheet arrangements from changes in interest rates.  The MVPE was approximately $1.8 billion as of June 30, 2008 and approximately $1.9 billion in June 30, 2007.  Table 19 presents, as of June 30, 2008 and 2007, an estimate of the change in the MVPE sensitivity 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 June 30, 2008, compared to June 30, 2007, primarily as a result of lower interest rates and a steeper yield curve.

Further enhancing the MVPE sensitivity analysis are value-at-risk, key rate analysis, duration of equity, 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 exposure to changes in interest rates.  Based on the additional analyses, we estimate our greatest exposure is in scenarios where medium-term and long-term rates rise while short-term rates remain unchanged and when the spread between U.S. Treasury and LIBOR rates decrease (“spread narrowing”).

 
Market Value of Equity Sensitivity Profile (Unaudited)	 	 	 	 	 	 	 	Table 19  	
 	 	 	Change in Market Value of Equity	
(dollars in thousands)	 	June 30, 2008	 	June 30, 2007	 	
Change in Interest Rates (basis points)	 	 	 	 	 	 	 	 	 	
+200	 	$	(185,348	)	(10.6	)  %	$	(162,316	)	(8.6	)  %	
+100	 	(79,522	)	(4.5	)	(77,137	)	(4.1	)	
-100	 	(17,573	)	(1.0	)	19,358	 	1.0	 	
-200	 	(153,445	)	(8.7	)	(50,923	)	(2.7	)	

Liquidity Management
 
Liquidity is managed in an effort to ensure that we have continuous access to sufficient, reasonably priced funding to conduct our business and satisfy obligations in a normal manner.
 
Cash and noninterest-bearing deposits, interest-bearing deposits, and funds sold provide us with readily available liquid resources.  Investment securities in our available-for-sale portfolio are also a near-term source of asset liquidity, although we do not have the intent to sell such investment securities that are currently in a gross unrealized loss position. 
Asset liquidity is further enhanced by our ability to sell residential mortgage loans in the secondary market.
 
Core deposit balances have historically provided a sizable source of relatively stable and low-cost funds.  We are also able to utilize funds purchased, short-term borrowings, and securities sold under agreements to repurchase as a mechanism to fund growth in our loan and lease portfolio.
 
We are a member of the FHLB, which provides an additional source of short-term and long-term funding.  Outstanding borrowings from the FHLB were $50.0 million as of June 30, 2008 and December 31, 2007 with a weighted average

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interest rate of 4.00% and $75.0 million as of June 30, 2007 with a weighted average interest rate of 3.73%.
 
Additionally, a $1.0 billion senior and subordinated bank note program is available.  Under this program, we may issue additional notes provided that the aggregate amount outstanding does not exceed $1.0 billion.  The unpaid principal amount of our subordinated notes outstanding under this bank note program was $119.0 million as of June 30, 2008 and $124.9 million as of December 31, 2007 and June 30, 2007.  These subordinated notes bear a fixed interest rate of 6.875% and will mature in March 2009.
 
Capital Management
 
The Parent 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 Parent 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 June 30, 2008, the Parent and the Bank were “well capitalized” under this regulatory framework.  There have been no conditions or events since June 30, 2008 that management believes have changed either the Parent’s or the Bank’s capital classifications.
 
As of June 30, 2008, the fair value of our subordinated notes of $121.3 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 June 30, 2008.  During the second quarter of 2008, we redeemed our remaining $26.4 million of Capital Securities which were recorded as a component of long-term debt in our statements of condition.
 
As of June 30, 2008, our leverage ratio was 7.04%.  We actively manage our capital toward a leverage ratio that is adjusted periodically in consideration of market conditions.  We are currently targeting a leverage ratio of 7.25% by the end of the third quarter of 2008.  Our ability to manage toward this leverage ratio is aided by our strong capital structure, strong earnings and core deposit base, alternative sources of liquidity, and our ongoing share repurchase program.
 
For the first six months of 2008, 0.9 million shares of common stock were repurchased under our share repurchase program at an average cost of $48.96 per share, totaling $42.7 million.  From the beginning of our share repurchase program in July 2001 through June 30, 2008, we repurchased a total of 45.2 million shares of common stock and returned nearly $1.6 billion to our shareholders at an average cost of $35.35 per share.  From July 1, 2008 through July 25, 2008, we repurchased an additional 181,000 shares of common stock at an average price of $45.19 per share for a total of $8.2 million, resulting in remaining buyback authority under our share repurchase program of $43.4 million.
 
In July 2008, our Board of Directors declared a quarterly cash dividend of $0.44 per share on our outstanding shares.  The dividend will be payable on September 15, 2008 to our shareholders of record at the close of business on August 29, 2008.

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Table 20 presents our regulatory capital and ratios as of June 30, 2008, December 31, 2007, and June 30, 2007.
 
Regulatory Capital and Ratios (Unaudited)	 	 	 	 	 	Table 20	 	 	
 	 	June 30,	 	December 31,	 	June 30,	 	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	 	
Regulatory Capital	 	 	 	 	 	 	 	 	
Shareholders’ Equity	 	$	767,558	 	$	750,255	 	$	708,806	 	 	
Add:	Capital Securities of Bancorp Hawaii Capital Trust I	 	-	 	26,425	 	26,425	 	 	
Less:	Cumulative Change in Fair Value of Financial Liabilities	 	 	 	 	 	 	 	 	
 	Accounted for Under the Fair Value Option	 	(1,838)	 	-	 	-	 	 	
 	Goodwill	 	34,959	 	34,959	 	34,959	 	 	
 	Postretirement Benefit Liability Adjustments	 	8,398	 	8,647	 	6,798	 	 	
 	Net Unrealized Losses on Investment Securities	 	 	 	 	 	 	 	 	
 	Available-for-Sale	 	(12,207)	 	(1,388)	 	(34,527)	 	 	
Tier 1 Capital	 	738,246	 	734,462	 	728,001	 	 	
Allowable Reserve for Credit Losses	 	84,898	 	88,716	 	91,368	 	 	
Qualifying Subordinated Debt	 	-	 	24,982	 	24,976	 	 	
Unrealized Gains on Investment Securities Available-for-Sale	 	57	 	59	 	9	 	 	
Total Regulatory Capital	 	$	823,201	 	$	848,219	 	$	844,354	 	 	
 	 	 	 	 	 	 	 	 	
Risk-Weighted Assets	 	$	6,769,036	 	$	7,089,846	 	$	7,304,650	 	 	
 	 	 	 	 	 	 	 	 	
Key Regulatory Capital Ratios	 	 	 	 	 	 	 	 	
Tier 1 Capital Ratio	 	10.91	%	10.36	%	9.97	 	%	
Total Capital Ratio	 	12.16	 	11.96	 	11.56	 	 	
Leverage Ratio	 	7.04	 	7.04	 	7.02	 	 	

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 as entities often referred to as variable-interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.
 
Contractual Obligations
 
Our contractual obligations have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2007.
 
Credit Commitments
 
Our credit commitments as of June 30, 2008 were as follows:

Credit Commitments (Unaudited)	 	 	 	 	 	 	 	 	 	Table 21	 	
 	 	Less Than	 	 	 	 	 	After 5	 	 	 	
(dollars in thousands)	 	One Year	 	1-3 Years	 	4-5 Years	 	Years	 	Total	 	
Unfunded Commitments to Extend Credit	 	$	631,818	 	$	389,616	 	$	270,468	 	$	1,262,582	 	$	2,554,484	 	
Standby Letters of Credit	 	81,522	 	4,830	 	-	 	-	 	86,352	 	
Commercial Letters of Credit	 	27,326	 	-	 	-	 	-	 	27,326	 	
Total Credit Commitments	 	$	740,666	 	$	394,446	 	$	270,468	 	$	1,262,582	 	$	2,668,162	 	
 
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Item 3.            Quantitative and Qualitative Disclosures About Market Risk
 
See the “Market Risk” section of MD&A.
 
Item 4.            Controls and Procedures
 
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2008.  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2008.  There were no changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the second quarter of 2008 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II - Other Information
 
Item 1A.         Risk Factors
 
There are no material changes from the risk factors set forth under Part 1, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007.
 
Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds
 
The Parent’s repurchases of equity securities for the second quarter of 2008 were as follows:
 
Issuer Purchases of Equity Securities (Unaudited)	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Total Number of Shares	 	Approximate Dollar Value	 	
 	 	 	 	 	 	 	 	Purchased as Part of	 	of Shares that May Yet Be	 	
 	 	Total Number of	 	 	Average Price	 	 	Publicly Announced Plans	 	Purchased Under the	 	
Period	 	Shares Purchased 1	 	 	Paid Per Share	 	 	or Programs	 	Plans or Programs 2	 	
April 1 - 30, 2008	 	90,623	 	 	$	50.06	 	 	87,500	 	 	$	58,593,379	 	
May 1 - 31, 2008	 	58,340	 	 	55.14	 	 	52,500	 	 	55,702,692	 	
June 1 - 30, 2008	 	80,464	 	 	51.40	 	 	80,000	 	 	51,590,035	 	
Total	 	229,427	 	 	$	51.82	 	 	220,000	 	 	 	 	

1 The months of April, May, and June 2008 included 3,123, 5,840, and 464 shares, respectively, purchased from employees in connection with income tax withholdings related to stock option exercises. 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 second quarter of 2008 pursuant to its ongoing share repurchase program that was first announced in July 2001. As of July 25, 2008, $43.4 million remained of the total $1.65 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.
 
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Item 4.            Submission of Matters to a Vote of Security Holders
 
At the annual shareholders meeting held on April 25, 2008, the following matters were submitted to a vote of the shareholders:
 
a.	 	Amendment of the Company’s Certificate of Incorporation to Provide for Annual Election of All Directors	
 	 	 	 	 	 	
 	 	Votes cast for:	 	42,032,311	 	
 	 	Votes cast against:	 	838,424	 	
 	 	Abstentions:	 	105,009	 	
 	 	 	 	 	 	
b.	 	Election of Directors *	 	 	 	
 	 	 	 	 	 	
 	 	S. Haunani Apoliona	 	 	 	
 	 	Votes cast for:	 	42,227,859	 	
 	 	Votes withheld:	 	747,885	 	
 	 	 	 	 	 	
 	 	Mary G. F. Bitterman	 	 	 	
 	 	Votes cast for:	 	42,249,547	 	
 	 	Votes withheld:	 	726,197	 	
 	 	 	 	 	 	
 	 	Michael J. Chun	 	 	 	
 	 	Votes cast for:	 	42,451,794	 	
 	 	Votes withheld:	 	523,950	 	
 	 	 	 	 	 	
 	 	Clinton R. Churchill	 	 	 	
 	 	Votes cast for:	 	42,404,738	 	
 	 	Votes withheld:	 	571,006	 	
 	 	 	 	 	 	
 	 	David A. Heenan	 	 	 	
 	 	Votes cast for:	 	42,267,558	 	
 	 	Votes withheld:	 	708,186	 	
 	 	 	 	 	 	
 	 	Robert Huret	 	 	 	
 	 	Votes cast for:	 	42,433,876	 	
 	 	Votes withheld:	 	541,868	 	
 	 	 	 	 	 	
 	 	Allan R. Landon	 	 	 	
 	 	Votes cast for:	 	42,322,129	 	
 	 	Votes withheld:	 	653,615	 	
 	 	 	 	 	 	
 	 	Kent T. Lucien	 	 	 	
 	 	Votes cast for:	 	42,338,293	 	
 	 	Votes withheld:	 	637,451	 	
 	 	 	 	 	 	
 	 	Martin A. Stein	 	 	 	
 	 	Votes cast for:	 	42,332,737	 	
 	 	Votes withheld:	 	643,007	 	
 
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 	 	Donald M. Takaki	 	 	 	
 	 	Votes cast for:	 	42,388,904	 	
 	 	Votes withheld:	 	586,840	 	
 	 	 	 	 	 	
 	 	Barbara J. Tanabe	 	 	 	
 	 	Votes cast for:	 	42,416,415	 	
 	 	Votes withheld:	 	559,329	 	
 	 	 	 	 	 	
 	 	Robert W. Wo, Jr.	 	 	 	
 	 	Votes cast for:	 	42,410,072	 	
 	 	Votes withheld:	 	565,672	 	
 	 	 	 	 	 	
c.	 	Ratification of Ernst and Young LLP as independent registered public accountants for the fiscal year ending December 31, 2008.	
 	 	 	 	 	 	
 	 	Votes cast for:	 	41,931,142	 	
 	 	Votes cast against:	 	970,174	 	
 	 	Abstentions:	 	74,427	 	
 
* The directors are elected by a plurality of the votes cast; therefore, votes cast in the election could not be recorded against or as an abstention, nor could broker non-votes be recorded.
 
Item 5.            Other Information
 
None.
 
Item 6.            Exhibits
 
A list of exhibits to this Form 10-Q is set forth on the Exhibit Index and is incorporated herein by reference.
 
47

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Signatures
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:	July 30, 2008	Bank of Hawaii Corporation	

 	By:	/s/ Allan R. Landon	 	
 	 	Allan R. Landon	
 	 	Chairman of the Board and	
 	 	Chief Executive Officer	

 	By:	/s/ Kent T. Lucien	 	
 	 	Kent T. Lucien	
 	 	Chief Financial Officer	

48

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Exhibit Index

Exhibit Number	
 	 	 	
12	 	Computation of Ratio of Earnings to Fixed Charges (Unaudited)	
 	 	 	
31.1	 	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) Under the Securities Exchange Act of 1934	
 	 	 	
31.2	 	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) Under the Securities Exchange Act of 1934	
 	 	 	
32	 	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	

Exhibit 12
 
Bank of Hawaii Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges (Unaudited)

 	 	 	Six Months Ended
June 30,	 	
(dollars in thousands)	 	2008	 	2007	 	
Earnings:	 	 	 	 	 	
Income Before Provision for Income Taxes	 	$	157,119	 	$	148,054	 	
Add:	Fixed Charges Including Interest on Deposits	 	73,963	 	101,129	 	
 	Interest on FIN 48 Liabilities	 	-	 	600	 	
Total Earnings Including Fixed Charges and Interest on Deposits
and Interest on FIN 48 Liabilities	 	231,082	 	249,783	 	
Less:	Interest on Deposits	 	47,703	 	67,076	 	
 	Interest on FIN 48 Liabilities	 	-	 	600	 	
Total Earnings Excluding Interest on Deposits	 	 	 	 	 	
 	and Interest on FIN 48 Liabilities	 	$	 183,379	 	$	 182,107	 	
 	 	 	 	 	 	
Fixed Charges:	 	 	 	 	 	
Fixed Charges Including Interest on Deposits	 	$	73,963	 	$	101,129	 	
Add:	Interest on FIN 48 Liabilities	 	-	 	600	 	
Total Fixed Charges Including Interest on Deposits
and Interest on FIN 48 Liabilities	 	73,963	 	101,729	 	
Less:	Interest on Deposits	 	47,703	 	67,076	 	
 	Interest on FIN 48 Liabilities	 	-	 	600	 	
Total Fixed Charges Excluding Interest on Deposits	 	 	 	 	 	
 	and Interest on FIN 48 Liabilities	 	$	 26,260	 	$	 34,053	 	
 	 	 	 	 	 	
Ratio of Earnings to Fixed Charges:	 	 	 	 	 	
Including Interest on Deposits and Interest on FIN 48 Liabilities	 	3.1	  x	2.5	x	
Excluding Interest on Deposits and Interest on FIN 48 Liabilities	 	7.0	  x	5.3	 	x	

Exhibit 31.1
 
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
Under the Securities Exchange Act of 1934
 
I, Allan R. Landon, certify that:
 
1.              I have reviewed this quarterly report on Form 10-Q of Bank of Hawaii Corporation;
 
2.              Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.              The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)             Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)            Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)             Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)            Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.              The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
 
a)             All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)            Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: July 30, 2008	 	
 	  /s/ Allan R. Landon	 	
 	Allan R. Landon	
 	Chairman of the Board and	
 	Chief Executive Officer	

Exhibit 31.2
 
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
Under the Securities Exchange Act of 1934
 
I, Kent T. Lucien, certify that:
 
1.     I have reviewed this quarterly report on Form 10-Q of Bank of Hawaii Corporation;
 
2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.               The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c)              Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)             Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.               The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
 
a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  July 30, 2008	 	
 	  /s/ Kent T. Lucien	 	
 	Kent T. Lucien	
 	Chief Financial Officer	

Exhibit 32
 
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

We hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Form 10-Q of Bank of Hawaii Corporation for the quarterly period ended June 30, 2008 (the “Periodic Report”):
 
·                  fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
·                  the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Bank of Hawaii Corporation for the dates and periods covered by the Periodic Report.

Date:  July 30, 2008

 	/s/ Allan R. Landon	 	
 	Allan R. Landon	
 	Chairman of the Board and	
 	Chief Executive Officer	

 	/s/ Kent T. Lucien	 	
 	Kent T. Lucien	
 	Chief Financial Officer	

 
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Periodic Report or as a separate disclosure document.