UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)
 
x	 	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2008	
 	 	 	
 	 	or	
 	 	 	
o	 	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                            to	
 
Commission File Number: 1-6887
 
BANK OF HAWAII CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware	 	99-0148992	
(State of incorporation)	 	(I.R.S. Employer Identification No.)	
 
130 Merchant Street, Honolulu, Hawaii	 	96813	
(Address of principal executive offices)	 	(Zip Code)	
 
1-888-643-3888
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x	 	No  o	
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer	x	 	Accelerated filer	o	
Non-accelerated filer o (Do not check if a smaller reporting company)	 	Smaller reporting company	o	

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o	 	No  x	
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
As of April 18, 2008, there were 47,931,531 shares of common stock outstanding.

 
Bank of Hawaii Corporation
Form 10-Q
Index
 
 	 	Page	
Part I - Financial Information	 	 	
 	 	 	
Item 1.	Financial Statements (Unaudited)	 	 	
 	 	 	 	
 	Consolidated Statements of Income – Three months ended March 31, 2008 and 2007	 	2	
 	 	 	 	
 	Consolidated Statements of Condition –March 31, 2008, December 31, 2007, and March 31, 2007	 	3	
 	 	 	 	
 	Consolidated Statements of Shareholders’ Equity –Three months ended March 31, 2008 and 2007	 	4	
 	 	 	 	
 	Consolidated Statements of Cash Flows –Three months ended March 31, 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	 	14	
 	 	 	 	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	 	41	
 	 	 	 	
Item 4.	Controls and Procedures	 	41	
 	 	 	 	
Part II - Other Information	 	 	
 	 	 	 	
Item 1A.	Risk Factors	 	41	
 	 	 	 	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	 	41	
 	 	 	 	
Item 5.	Other Information	 	41	
 	 	 	 	
Item 6.	Exhibits	 	41	
 	 	 	 	
Signatures	 	42	
 
1

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
 	 	Three Months Ended
March 31,	 	
(dollars in thousands, except per share amounts)	 	2008	 	2007	 	
Interest Income	 	 	 	 	 	
Interest and Fees on Loans and Leases	 	$	104,413	 	$	110,298	 	
Income on Investment Securities	 	 	 	 	 	
Trading	 	1,160	 	1,618	 	
Available-for-Sale	 	34,251	 	30,961	 	
Held-to-Maturity	 	3,239	 	4,052	 	
Deposits	 	195	 	58	 	
Funds Sold	 	992	 	1,058	 	
Other	 	426	 	333	 	
Total Interest Income	 	144,676	 	148,378	 	
Interest Expense	 	 	 	 	 	
Deposits	 	27,465	 	33,375	 	
Securities Sold Under Agreements to Repurchase	 	10,617	 	11,886	 	
Funds Purchased	 	633	 	923	 	
Short-Term Borrowings	 	34	 	87	 	
Long-Term Debt	 	3,747	 	3,970	 	
Total Interest Expense	 	42,496	 	50,241	 	
Net Interest Income	 	102,180	 	98,137	 	
Provision for Credit Losses	 	14,427	 	2,631	 	
Net Interest Income After Provision for Credit Losses	 	87,753	 	95,506	 	
Noninterest Income	 	 	 	 	 	
Trust and Asset Management	 	15,086	 	15,833	 	
Mortgage Banking	 	4,297	 	3,371	 	
Service Charges on Deposit Accounts	 	12,083	 	10,967	 	
Fees, Exchange, and Other Service Charges	 	16,101	 	16,061	 	
Investment Securities Gains, Net	 	130	 	16	 	
Insurance	 	7,130	 	6,215	 	
Other	 	31,298	 	8,497	 	
Total Noninterest Income	 	86,125	 	60,960	 	
Noninterest Expense	 	 	 	 	 	
Salaries and Benefits	 	55,473	 	45,406	 	
Net Occupancy	 	10,443	 	9,811	 	
Net Equipment	 	4,321	 	4,787	 	
Professional Fees	 	2,613	 	2,543	 	
Other	 	20,582	 	19,576	 	
Total Noninterest Expense	 	93,432	 	82,123	 	
Income Before Provision for Income Taxes	 	80,446	 	74,343	 	
Provision for Income Taxes	 	23,231	 	27,008	 	
Net Income	 	$	57,215	 	$	47,335	 	
Basic Earnings Per Share	 	$	1.19	 	$	0.96	 	
Diluted Earnings Per Share	 	$	1.18	 	$	0.94	 	
Dividends Declared Per Share	 	$	0.44	 	$	0.41	 	
Basic Weighted Average Shares	 	47,965,722	 	49,427,933	 	
Diluted Weighted Average Shares	 	48,628,427	 	50,263,419	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
2

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Condition (Unaudited)
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Assets	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	55,916	 	$	4,870	 	$	5,594	 	
Funds Sold	 	240,000	 	15,000	 	97,000	 	
Investment Securities	 	 	 	 	 	 	 	
Trading	 	99,966	 	67,286	 	158,469	 	
Available-for-Sale	 	2,672,286	 	2,563,190	 	2,438,532	 	
Held-to-Maturity (Fair Value of $277,536; $287,644; and $340,636)	 	277,256	 	292,577	 	349,663	 	
Loans Held for Sale	 	13,096	 	12,341	 	19,238	 	
Loans and Leases	 	6,579,337	 	6,580,861	 	6,507,152	 	
Allowance for Loan and Lease Losses	 	(99,998	)	(90,998	)	(90,998	)	
Net Loans and Leases	 	6,479,339	 	6,489,863	 	6,416,154	 	
Total Earning Assets	 	9,837,859	 	9,445,127	 	9,484,650	 	
Cash and Noninterest-Bearing Deposits	 	314,863	 	368,402	 	365,517	 	
Premises and Equipment	 	116,683	 	117,177	 	123,309	 	
Customers’ Acceptances	 	992	 	1,112	 	839	 	
Accrued Interest Receivable	 	46,316	 	45,261	 	49,477	 	
Foreclosed Real Estate	 	294	 	184	 	462	 	
Mortgage Servicing Rights	 	27,149	 	27,588	 	27,005	 	
Goodwill	 	34,959	 	34,959	 	34,959	 	
Other Assets	 	443,686	 	433,132	 	405,739	 	
Total Assets	 	$	10,822,801	 	$	10,472,942	 	$	10,491,957	 	
 	 	 	 	 	 	 	 	
Liabilities	 	 	 	 	 	 	 	
Deposits	 	 	 	 	 	 	 	
Noninterest-Bearing Demand	 	$	2,000,226	 	$	1,935,639	 	$	1,973,631	 	
Interest-Bearing Demand	 	1,649,705	 	1,634,675	 	1,618,615	 	
Savings	 	2,728,873	 	2,630,471	 	2,648,495	 	
Time	 	1,724,051	 	1,741,587	 	1,712,196	 	
Total Deposits	 	8,102,855	 	7,942,372	 	7,952,937	 	
Funds Purchased	 	23,800	 	75,400	 	72,400	 	
Short-Term Borrowings	 	9,726	 	10,427	 	3,462	 	
Securities Sold Under Agreements to Repurchase	 	1,231,962	 	1,029,340	 	1,050,393	 	
Long-Term Debt (includes $128,932 carried at fair value as of March 31, 2008)	 	239,389	 	235,371	 	260,308	 	
Banker’s Acceptances	 	992	 	1,112	 	839	 	
Retirement Benefits Payable	 	29,755	 	29,984	 	48,363	 	
Accrued Interest Payable	 	18,322	 	20,476	 	17,893	 	
Taxes Payable and Deferred Taxes	 	300,188	 	278,218	 	293,326	 	
Other Liabilities	 	99,065	 	99,987	 	81,005	 	
Total Liabilities	 	10,056,054	 	9,722,687	 	9,780,926	 	
Shareholders’ Equity	 	 	 	 	 	 	 	
Common Stock ($.01 par value; authorized 500,000,000 shares;
issued / outstanding: March 2008 - 56,995,352 / 47,990,432; December 2007 - 56,995,447 / 48,589,645; and March 2007 - 56,930,753 / 49,638,731)	 	568	 	567	 	566	 	
Capital Surplus	 	487,139	 	484,790	 	478,123	 	
Accumulated Other Comprehensive Income (Loss)	 	5,553	 	(5,091	)	(27,356	)	
Retained Earnings	 	720,540	 	688,638	 	620,034	 	
Treasury Stock, at Cost (Shares: March 2008 - 9,004,920;
December 2007 - 8,405,802; and March 2007 - 7,292,022)	 	(447,053	)	(418,649	)	(360,336	)	
Total Shareholders’ Equity	 	766,747	 	750,255	 	711,031	 	
Total Liabilities and Shareholders’ Equity	 	$	10,822,801	 	$	10,472,942	 	$	10,491,957	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
3

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
(dollars in thousands)	 	Total	 	Common
Stock	 	Capital
Surplus	 	Accum.
Other
Compre-
hensive
Income
(Loss)	 	Retained
Earnings	 	Treasury
Stock	 	Compre-
hensive
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	 	57,215	 	—	 	—	 	—	 	57,215	 	—	 	$	57,215	 	
Other Comprehensive Income, Net of Tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in Unrealized Gains and Losses on Investment Securities Available-for-Sale	 	10,595	 	—	 	—	 	10,595	 	—	 	—	 	10,595	 	
Amortization of Net Loss for Pension and Postretirement Plans	 	49	 	—	 	—	 	49	 	—	 	—	 	49	 	
Total Comprehensive Income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	67,859	 	
Share-Based Compensation	 	1,751	 	—	 	1,751	 	—	 	—	 	—	 	 	 	
Net Tax Benefits related to Share-Based Compensation	 	583	 	—	 	583	 	—	 	—	 	—	 	 	 	
Common Stock Issued under Purchase and Equity Compensation Plans (95,360 shares)	 	3,182	 	1	 	15	 	—	 	(1,378	)	4,544	 	 	 	
Common Stock Repurchased (686,313 shares)	 	(32,948	)	—	 	—	 	—	 	—	 	(32,948	)	 	 	
Cash Dividends Paid	 	(21,199	)	—	 	—	 	—	 	(21,199	)	—	 	 	 	
Balance as of March 31, 2008	 	$	766,747	 	$	568	 	$	487,139	 	$	5,553	 	$	720,540	 	$	(447,053	)	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
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	 	47,335	 	—	 	—	 	—	 	47,335	 	—	 	$	47,335	 	
Other Comprehensive Income, Net of Tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in Unrealized Gains and Losses on Investment Securities Available-for-Sale	 	6,241	 	—	 	—	 	6,241	 	—	 	—	 	6,241	 	
Amortization of Net Loss for Pension and Postretirement Plans	 	208	 	—	 	—	 	208	 	—	 	—	 	208	 	
Total Comprehensive Income	 	 	 	 	 	 	 	 	 	 	 	 	 	$	53,784	 	
Share-Based Compensation	 	1,317	 	—	 	1,317	 	—	 	—	 	—	 	 	 	
Net Tax Benefits related to Share-Based Compensation	 	1,491	 	—	 	1,491	 	—	 	—	 	—	 	 	 	
Common Stock Issued under Purchase and Equity Compensation Plans (255,918 shares)	 	5,352	 	—	 	137	 	—	 	(3,044	)	8,259	 	 	 	
Common Stock Repurchased (394,247 shares)	 	(20,695	)	—	 	—	 	—	 	—	 	(20,695	)	 	 	
Cash Dividends Paid	 	(20,411	)	—	 	—	 	—	 	(20,411	)	—	 	 	 	
Balance as of March 31, 2007	 	$	711,031	 	$	566	 	$	478,123	 	$	(27,356	)	$	620,034	 	$	(360,336	)	 	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
4

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 	 	Three Months Ended
March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	
Operating Activities	 	 	 	 	 	
Net Income	 	$	57,215	 	$	47,335	 	
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:	 	 	 	 	 	
Provision for Credit Losses	 	14,427	 	2,631	 	
Depreciation and Amortization	 	3,504	 	3,695	 	
Amortization of Deferred Loan and Lease Fees	 	(448	)	(384	)	
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net	 	578	 	806	 	
Share-Based Compensation	 	1,751	 	1,317	 	
Benefit Plan Contributions	 	(515	)	(346	)	
Deferred Income Taxes	 	(40,610	)	(34,226	)	
Net Gain on Investment Securities	 	(130	)	(16	)	
Net Change in Trading Securities	 	(32,680	)	5,711	 	
Proceeds from Sales of Loans Held for Sale	 	144,837	 	72,793	 	
Originations of Loans Held for Sale	 	(145,592	)	(80,089	)	
Tax Benefits from Share-Based Compensation	 	(669	)	(1,512	)	
Net Change in Other Assets and Other Liabilities	 	44,304	 	(9,513	)	
Net Cash Provided by Operating Activities	 	45,972	 	8,202	 	
 	 	 	 	 	 	
Investing Activities	 	 	 	 	 	
Investment Securities Available-for-Sale:	 	 	 	 	 	
Proceeds from Prepayments and Maturities	 	252,970	 	157,784	 	
Proceeds from Sales	 	125,000	 	—	 	
Purchases	 	(470,716	)	(145,196	)	
Investment Securities Held-to-Maturity:	 	 	 	 	 	
Proceeds from Prepayments and Maturities	 	15,207	 	21,485	 	
Net Change in Loans and Leases	 	(3,456	)	71,049	 	
Premises and Equipment, Net	 	(3,010	)	(1,079	)	
Net Cash (Used in) Provided by Investing Activities	 	(84,005	)	104,043	 	
 	 	 	 	 	 	
Financing Activities	 	 	 	 	 	
Net Change in Deposits	 	160,483	 	(70,457	)	
Net Change in Short-Term Borrowings	 	150,321	 	7,233	 	
Tax Benefits from Share-Based Compensation	 	669	 	1,512	 	
Proceeds from Issuance of Common Stock	 	3,214	 	5,352	 	
Repurchase of Common Stock	 	(32,948	)	(20,695	)	
Cash Dividends Paid	 	(21,199	)	(20,411	)	
Net Cash Provided by (Used in) Financing Activities	 	260,540	 	(97,466	)	
 	 	 	 	 	 	
Net Change in Cash and Cash Equivalents	 	222,507	 	14,779	 	
Cash and Cash Equivalents at Beginning of Period	 	388,272	 	453,332	 	
Cash and Cash Equivalents at End of Period	 	$	610,779	 	$	468,111	 	
Supplemental Information	 	 	 	 	 	
Cash Paid for:	 	 	 	 	 	
Interest	 	$	44,650	 	$	55,066	 	
Income Taxes	 	2,289	 	3,489	 	
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	 	462	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
5

 
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 three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.
 
Fair Value Measurements
 
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements,” which became effective for the Company on January 1, 2008, established a framework for measuring fair value, while expanding fair value measurement disclosures.  SFAS No. 157 established a fair value hierarchy that distinguishes between independent observable inputs and unobservable inputs based on the best information available.  SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities, the effect of these measurements on earnings for the period, and the inputs used to measure fair value.  In February 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) FAS 157-1 to exclude SFAS No. 13,  “Accounting for Leases,”  and its related interpretive accounting pronouncements that address leasing transactions, from the scope of SFAS No. 157.  In February 2008, the FASB also issued FSP FAS 157-2 to allow entities to electively defer the effective date of SFAS No. 157 for nonfinancial assets and liabilities, except for those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009.  The Company will apply the fair value measurement provisions of SFAS No. 157 to its nonfinancial assets and liabilities 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.
 
6

 
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 implementation 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.  Management is currently evaluating the effect that the provisions of SFAS No. 161 will have on the Company’s financial statements.
 
7

 
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 months ended March 31, 2008 and 2007 are presented in the following table:
 
Pension Plans and Postretirement Benefit Plan (Unaudited)
 	 	Pension Benefits	 	Postretirement Benefits	 	
 	 	Three Months Ended March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2008	 	2007	 	
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	 	
 
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 months ended March 31, 2008, the Company contributed $0.1 million to its pension plans and $0.4 million 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.
 
8

 
Selected financial information for each business segment is presented below for the three months ended March 31, 2008 and 2007.
 
Business Segment Selected Financial Information (Unaudited)
 	 	Retail	 	Commercial	 	Investment	 	 	 	Consolidated	 	
(dollars in thousands)	 	Banking	 	Banking	 	Services	 	Treasury	 	Total	 	
Three Months Ended March 31, 2008	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	58,423	 	$	42,835	 	$	3,870	 	$	(2,948	)	$	102,180	 	
Provision for Credit Losses	 	2,922	 	3,256	 	—	 	8,249	 	14,427	 	
Net Interest Income (Loss) After Provision for Credit Losses	 	55,501	 	39,579	 	3,870	 	(11,197	)	87,753	 	
Noninterest Income	 	28,546	 	22,249	 	18,261	 	17,069	 	86,125	 	
Noninterest Expense	 	(43,769	)	(24,721	)	(16,863	)	(8,079	)	(93,432	)	
Income Before Provision for Income Taxes	 	40,278	 	37,107	 	5,268	 	(2,207	)	80,446	 	
Provision for Income Taxes	 	(14,903	)	(13,736	)	(1,949	)	7,357	 	(23,231	)	
Allocated Net Income	 	$	25,375	 	$	23,371	 	$	3,319	 	$	5,150	 	$	57,215	 	
Total Assets as of March 31, 2008	 	$	3,681,693	 	$	3,066,272	 	$	232,882	 	$	3,841,954	 	$	10,822,801	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Three Months Ended March 31, 2007  1	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	54,401	 	$	39,171	 	$	3,525	 	$	1,040	 	$	98,137	 	
Provision for Credit Losses	 	1,545	 	1,098	 	—	 	(12	)	2,631	 	
Net Interest Income After Provision for Credit Losses	 	52,856	 	38,073	 	3,525	 	1,052	 	95,506	 	
Noninterest Income	 	25,580	 	12,213	 	19,147	 	4,020	 	60,960	 	
Noninterest Expense	 	(41,334	)	(22,920	)	(15,683	)	(2,186	)	(82,123	)	
Income Before Provision for Income Taxes	 	37,102	 	27,366	 	6,989	 	2,886	 	74,343	 	
Provision for Income Taxes	 	(13,727	)	(9,873	)	(2,586	)	(822	)	(27,008	)	
Allocated Net Income	 	$	23,375	 	$	17,493	 	$	4,403	 	$	2,064	 	$	47,335	 	
Total Assets as of March 31, 2007 1	 	$	3,597,814	 	$	3,039,943	 	$	211,239	 	$	3,642,961	 	$	10,491,957	 	
 
1Certain prior period information has been reclassified to conform to current presentation.
 
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.
 
9

 
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 March 31, 2008:
 
 	 	Quoted Prices in	 	 	 	Significant	 	 	 	
 	 	Active Markets for	 	Significant Other	 	Unobservable	 	 	 	
 	 	Identical Assets	 	Observable Inputs	 	Inputs	 	 	 	
(Unaudited)	(dollars in thousands)	 	(Level 1)	 	(Level 2)	 	(Level 3)	 	Total	 	
Investment Securities Trading	 	$	—	 	$	99,966	 	$	—	 	$	99,966	 	
Investment Securities Available-for-Sale	 	1,998	 	2,575,069	 	95,219	 	2,672,286	 	
Mortgage Servicing Rights	 	—	 	—	 	27,149	 	27,149	 	
Other Assets	 	5,971	 	—	 	—	 	5,971	 	
Net Derivative Assets and Liabilities	 	(202	)	1,596	 	810	 	2,204	 	
Total Assets at Fair Value	 	$	7,767	 	$	2,676,631	 	$	123,178	 	$	2,807,576	 	
 	 	 	 	 	 	 	 	 	 	
Long-Term Debt	 	$	—	 	$	—	 	$	128,932	 	$	128,932	 	
Total Liabilities at Fair Value	 	$	—	 	$	—	 	$	128,932	 	$	128,932	 	

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	 	 	 	
(Unaudited) 	(dollars in thousands)	 	Available-for-Sale 1	 	Rights 2	 	Liabilities 3	 	Total	 	
Assets as of January 1, 2008	 	$	218,980	 	$	27,588	 	$	113	 	$	246,681	 	
Realized and Unrealized Net Gains (Losses):	 	 	 	 	 	 	 	 	 	
Included in Net Income	 	—	 	(2,358	)	(1,076	)	(3,434	)	
Included in Other Comprehensive Income	 	1,228	 	—	 	—	 	1,228	 	
Purchases, Sales, Issuances, and Settlements, Net	 	(124,989	)	1,919	 	1,773	 	(121,297	)	
Assets as of March 31, 2008	 	$	95,219	 	$	27,149	 	$	810	 	$	123,178	 	
 	 	 	 	 	 	 	 	 	 	
Total Unrealized Net Gains (Losses) Related to Assets Still Held as of March 31, 2008	 	$	—	 	$	(1,548	)	$	810	 	$	(738	)	

 	 	Long-Term	 	 	 	
(Unaudited) 	(dollars in thousands)	 	Debt 4	 	Total	 	
Liabilities as of January 1, 2008	 	$	129,032	 	$	129,032	 	
Unrealized Net Gains Included in Net Income	 	(100	)	(100	)	
Liabilities as of March 31, 2008	 	$	128,932	 	$	128,932	 	
 	 	 	 	 	 	
Total Unrealized Net Gains Related to Liabilities Still Held as of March 31, 2008	 	$	(100	)	$	(100	)	

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 months ended March 31, 2008.
 
10

 
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 months ended March 31, 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, 2007 1	 	Upon Adoption	 	January 1, 2008	 	
Long-Term Debt	 	$	124,822	 	$	4,210	 	$	129,032	 	
Pre-Tax Cumulative-Effect of Adopting the Fair Value Option	 	 	 	4,210	 	 	 	
Increase in Deferred Tax Asset	 	 	 	(1,474	)	 	 	
After-Tax Cumulative-Effect of Adopting the Fair Value Option	 	 	 	$	2,736	 	 	 	

1         Includes unamortized discount and deferred costs, which were removed from the statement of condition with the cumulative-effect adjustment to implement 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 March 31, 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 March 31, 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 months ended March 31, 2008, the Company recorded a gain of $0.1 million 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 March 31, 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)	 	March 31, 2008	 	March 31, 2008	 	Principal Amount	 	
Long-Term Debt Reported at Fair Value	 	$	128,932	 	$	124,971	 	$	3,961	 	

11

 
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 months ended March 31, 2008 and 2007.
 
Effective Tax Rate (Unaudited)
 	 	Three Months Ended
March 31,	 	
 	 	2008	 	2007	 	
Statutory Federal Income Tax Rate	 	35.00	%	35.00	%	
Increase (Decrease) in Income Tax Rate Resulting From:	 	 	 	 	 	
State Income Tax, Net of Federal Income Tax	 	4.42	 	3.83	 	
Foreign Tax Credits	 	—	 	(1.43	)	
Low Income Housing Investments	 	(0.32	)	(0.17	)	
Bank-Owned Life Insurance	 	(0.85	)	(0.85	)	
Leveraged Leases	 	(8.51	)	0.14	 	
Other	 	(0.86	)	(0.19	)	
Effective Tax Rate	 	28.88	%	36.33	%	
 
The lower effective tax rate for the three months ended March 31, 2008 compared to the three months ended March 31, 2007 was primarily due to the sale of the Company’s equity interest in an aircraft leveraged lease.  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, 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.
 
12

 
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.  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 contributed $3.0 billion into an escrow account to cover litigation claims and settlements as discussed below.
 
In November 2007, Visa announced that it had reached an agreement with American Express, related to its claim that Visa and its member banks had illegally blocked American Express from the bank-issued card business in the United States.  The Company was not a named defendant in the lawsuit and, therefore, was not directly liable for any amount of the settlement.  However, according to an interpretation of Visa’s by-laws, the Company and other Visa U.S.A., Inc. (a wholly-owned subsidiary of Visa) members are obligated to indemnify Visa for certain losses, including the settlement of the American Express matter.  The Company’s indemnification obligation is limited to its proportionate interest in Visa U.S.A., Inc.  In December 2007, as a result of Visa’s agreement with American Express, the Company established a liability of $4.3 million for this indemnification obligation.  However, as a result of Visa’s IPO and funding of the escrow account, the Company reversed the $4.3 million liability previously established and recorded a credit to other noninterest expense in March 2008.
 
Other litigation covered by the Company’s indemnification of Visa and expected to be settled from the escrow account include: 1) a lawsuit filed by Discover Financial Services, Inc. (“Discover”) claiming that Visa prevented banks from issuing payment cards on the Discover network; 2) class action lawsuits filed on behalf of merchants who accept payment cards against Visa U.S.A., Inc. claiming that the setting of interchange is unlawful, among other claims; and 3) a consumer class action lawsuit against Visa U.S.A., Inc., Visa International, and MasterCard alleging unfair competition.  In December 2007, the Company established a liability of $1.3 million related to the indemnification of Visa in the Discover lawsuit.  However, as a result of Visa’s IPO and funding of the escrow account, the Company reversed the $1.3 million liability previously established and recorded a credit to other noninterest expense in March 2008.  Management cannot reasonably estimate the liability to Visa, if any, for the costs of the class action lawsuits as of March 31, 2008.
 
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.
 
13

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.

14

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	

Plan Financial Objectives and Financial Results
 
Our Plan was prepared with the expectation that economic growth 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 first quarter of 2008:
 
Plan Financial Objectives and Financial Results
 	 	 	 	Three Months	 	
Performance	 	Plan Financial	 	Ended	 	
Ratios	 	Objectives	 	March 31, 2008	 	
Average ROA	 	Above 1.70%	 	2.16%	 	
Average ROE	 	Above 25.00%	 	29.88%	 	
Efficiency Ratio	 	Approaching 50.00%	 	49.62%	 	
Operating Leverage	 	Positive	 	40.13%	 	
 
For the first quarter of 2008, net income was $57.2 million, an increase of $9.9 million or 21% from the first quarter of 2007. 
For the first quarter of 2008, diluted earnings per share were $1.18, an increase of $0.24 or 26% from the first quarter of 2007.
 
Our strong financial performance for the first quarter of 2008 was enhanced by two transactions:
 
·                  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, we accrued for the following transactions in the first quarter of 2008:
 
·                  $9.0 million related to cash awards to purchase our stock and earnings-based incentive compensation;
 
·                  $2.3 million contribution to the Bank of Hawaii Charitable Foundation and other charitable organizations; and
 
·                  $1.0 million related to the call premium on our Bancorp Hawaii Capital Trust I Capital Securities (“Capital Securities”).
 
In addition, we increased our Allowance for Loan and Lease Losses (the “Allowance”) by recording a Provision for Loan and Lease Losses (the “Provision”) of $14.4 million in the first quarter 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.  The Provision exceeded our net charge-offs of loans and leases for the first quarter of 2008 by $9.0 million.
 
Reserves for legal contingencies were increased by $3.0 million in the first quarter of 2008.  This increase was due to management’s on-going evaluation of potential losses related to pending litigation, claims, and assessments against us.

15

 
Table 1 presents our financial highlights and performance ratios for the three months ended March 31, 2008 and 2007 and as of March 31, 2008, December 31, 2007, and March 31, 2007.
 
Financial Highlights (Unaudited)	 	Table 1	 	
 	 	Three Months Ended
March 31,	 	
(dollars in thousands, except per share amounts)	 	2008	 	2007	 	
For the Period:	 	 	 	 	 	
Net Interest Income	 	$	102,180	 	$	98,137	 	
Total Noninterest Income	 	86,125	 	60,960	 	
Total Noninterest Expense	 	93,432	 	82,123	 	
Net Income	 	57,215	 	47,335	 	
Basic Earnings Per Share	 	1.19	 	0.96	 	
Diluted Earnings Per Share	 	1.18	 	0.94	 	
Dividends Declared Per Share	 	0.44	 	0.41	 	
 	 	 	 	 	 	
Net Income to Average Total Assets	 	2.16	%	1.83	%	
Net Income to Average Shareholders’ Equity	 	29.88	 	27.00	 	
Efficiency Ratio 1	 	49.62	 	51.62	 	
Operating Leverage 2	 	40.13	 	6.72	 	
Net Interest Margin 3	 	4.17	 	4.07	 	
Dividend Payout Ratio 4	 	36.97	 	42.71	 	
Leverage Ratio 5	 	6.99	 	6.80	 	
 	 	 	 	 	 	
Average Loans and Leases	 	$	6,587,918	 	$	6,561,848	 	
Average Assets	 	10,643,904	 	10,481,773	 	
Average Deposits	 	7,952,546	 	7,921,463	 	
Average Shareholders’ Equity	 	770,157	 	711,118	 	
Average Shareholders’ Equity to Average Assets	 	7.24	%	6.78	%	
 	 	 	 	 	 	
Market Price Per Share of Common Stock:	 	 	 	 	 	
Closing	 	$	49.56	 	$	53.03	 	
High	 	52.93	 	54.81	 	
Low	 	40.95	 	50.11	 	
 
 	 	March 31,	 	December 31,	 	March 31,	 	
 	 	2008	 	2007	 	2007	 	
As of Period End:	 	 	 	 	 	 	 	
Loans and Leases	 	$	6,579,337	 	$	6,580,861	 	$	6,507,152	 	
Total Assets	 	10,822,801	 	10,472,942	 	10,491,957	 	
Total Deposits	 	8,102,855	 	7,942,372	 	7,952,937	 	
Long-Term Debt	 	239,389	 	235,371	 	260,308	 	
Total Shareholders’ Equity	 	766,747	 	750,255	 	711,031	 	
 	 	 	 	 	 	 	 	
Non-Performing Assets	 	$	6,045	 	$	5,286	 	$	5,836	 	
 	 	 	 	 	 	 	 	
Allowance to Loans and Leases Outstanding	 	1.52	%	1.38	%	1.40	%	
 	 	 	 	 	 	 	 	
Book Value Per Common Share	 	$	15.98	 	$	15.44	 	$	14.32	 	
 	 	 	 	 	 	 	 	
Full-Time Equivalent Employees	 	2,538	 	2,594	 	2,578	 	
Branches and Offices	 	83	 	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 provision for credit losses and 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 for the quarter.
5        Tier 1 Capital includes $26.4 million in Capital Securities of which the call option was exercised, but the liability was not extinguished as of March 31, 2008.
 
16

Recent Accounting Changes
 
We began applying 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 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 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 the Company’s statements of income and condition.

 

 
Analysis of Statements of Income
 
Net Interest Income
 
Net interest income, on a taxable equivalent basis, increased by $4.0 million or 4% in the first quarter of 2008 compared to the first quarter of 2007.
 
The increase in net interest income, on a taxable equivalent basis, in the first quarter of 2008 was primarily due to decreased funding costs.  Rates paid on interest-bearing deposits decreased by 45 basis points in the first quarter of 2008 compared to the first quarter of 2007.  Also contributing to the lower funding costs was the 84 basis point decrease in rates paid on securities sold under agreements to repurchase for the first quarter of 2008 compared to the first quarter of 2007.  Partially offsetting the decrease in funding costs was a similar decrease in yields on our loans and leases, which declined by 42 basis points for the first quarter of 2008 compared to the first quarter of 2007.  Lower yields in our commercial and industrial loans and home equity loans were primarily driven by the decline in benchmark interest rates from December 31, 2007.  Yields on available-for-sale investment securities increased by 16 basis points in the first quarter of 2008 compared to the first quarter of 2007, reflecting our reinvestment in higher yielding securities.
 
Our net interest margin increased by 10 basis points to 4.17% in the first quarter of 2008, as a result of lower funding costs and the effects of a steeper yield curve.
 
Despite the decrease in funding costs in the first quarter of 2008, average interest-bearing demand and savings deposit balances collectively increased by $63.7 million or 2% in the first quarter of 2008 compared to the first quarter of 2007.  Increases in these categories were the result of customers moving their deposits to more liquid accounts.  A contributing market factor for this increase was the volatility in the financial markets and a decline in the equity markets in the first quarter of 2008.  The increase in savings deposit balances was also partially due to a successful bonus-rate savings campaign in the first quarter of 2008 which resulted in the opening of new accounts.

17

Average balances in securities sold under agreements to repurchase increased by $94.5 million or 9% in the first quarter of 2008 compared to the first quarter of 2007.  Securities sold under agreements to repurchase serves as one source of short- to medium-term financing for us.  The increase in interest-bearing liabilities by $152.8 million or 2% from the first quarter of 2007 funded the growth in our average earning assets.  Although average loans and leases remained relatively stable from the first quarter of 2007,
average investment securities, excluding trading securities, increased by $103.0 million or 4%.
 
Average balances, related income and expenses, and resulting yields and rates, on a taxable equivalent basis, are presented in Table 2 for the first quarter of 2008 and 2007.  An analysis of the change in net interest income, on a taxable equivalent basis, for the first quarter of 2008 from the first quarter of 2007, is presented in Table 3.

Average Balances and Interest Rates - Taxable Equivalent Basis (Unaudited)	 	Table 2	 	
 	 	Three Months Ended	 	Three Months Ended	 	
 	 	March 31, 2008	 	March 31, 2007 1	 	
 	 	Average	 	Income/	 	Yield/	 	Average	 	Income/	 	Yield/	 	
(dollars in millions)	 	Balance	 	Expense	 	Rate	 	Balance	 	Expense	 	Rate	 	
Earning Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	27.5	 	$	0.2	 	2.82	%	$	4.7	 	$	0.1	 	4.99	%	
Funds Sold	 	138.2	 	1.0	 	2.84	 	81.2	 	1.1	 	5.21	 	
Investment Securities	 	 	 	 	 	 	 	 	 	 	 	 	 	
Trading	 	95.7	 	1.2	 	4.85	 	161.9	 	1.6	 	4.00	 	
Available-for-Sale	 	2,631.6	 	34.5	 	5.24	 	2,453.2	 	31.2	 	5.08	 	
Held-to-Maturity	 	285.6	 	3.2	 	4.54	 	361.0	 	4.0	 	4.49	 	
Loans Held for Sale	 	10.5	 	0.1	 	5.43	 	7.3	 	0.1	 	6.17	 	
Loans and Leases 2	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	1,065.1	 	16.6	 	6.26	 	1,076.0	 	19.8	 	7.45	 	
Commercial Mortgage	 	649.1	 	10.4	 	6.45	 	616.5	 	10.3	 	6.78	 	
Construction	 	199.5	 	3.3	 	6.73	 	245.7	 	4.8	 	7.97	 	
Commercial Lease Financing	 	477.9	 	4.0	 	3.35	 	462.1	 	3.1	 	2.69	 	
Residential Mortgage	 	2,519.3	 	38.6	 	6.13	 	2,496.3	 	38.2	 	6.12	 	
Home Equity	 	970.8	 	16.0	 	6.61	 	942.2	 	17.7	 	7.62	 	
Automobile	 	438.7	 	8.9	 	8.18	 	426.5	 	8.5	 	8.08	 	
Other 3	 	267.4	 	6.5	 	9.73	 	296.5	 	7.8	 	10.67	 	
Total Loans and Leases	 	6,587.8	 	104.3	 	6.35	 	6,561.8	 	110.2	 	6.77	 	
Other	 	79.5	 	0.4	 	2.15	 	79.4	 	0.3	 	1.68	 	
Total Earning Assets4	 	9,856.4	 	144.9	 	5.89	 	9,710.5	 	148.6	 	6.16	 	
Cash and Noninterest-Bearing Deposits	 	294.1	 	 	 	 	 	310.5	 	 	 	 	 	
Other Assets	 	493.4	 	 	 	 	 	460.7	 	 	 	 	 	
Total Assets	 	$	10,643.9	 	 	 	 	 	$	10,481.7	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	 	 	 	 	 	 	 	 	 	 	 	 	
Demand	 	$	1,614.3	 	2.3	 	0.57	 	$	1,602.4	 	4.3	 	1.08	 	
Savings	 	2,691.8	 	9.2	 	1.38	 	2,640.0	 	12.5	 	1.91	 	
Time	 	1,747.2	 	16.0	 	3.67	 	1,732.1	 	16.6	 	3.90	 	
Total Interest-Bearing Deposits	 	6,053.3	 	27.5	 	1.82	 	5,974.5	 	33.4	 	2.27	 	
Short-Term Borrowings	 	79.7	 	0.7	 	3.31	 	79.7	 	1.0	 	5.08	 	
Securities Sold Under Agreements to Repurchase	 	1,164.2	 	10.6	 	3.63	 	1,069.7	 	11.9	 	4.47	 	
Long-Term Debt	 	239.8	 	3.7	 	6.26	 	260.3	 	3.9	 	6.12	 	
Total Interest-Bearing Liabilities	 	7,537.0	 	42.5	 	2.26	 	7,384.2	 	50.2	 	2.75	 	
Net Interest Income	 	 	 	$	102.4	 	 	 	 	 	$	98.4	 	 	 	
Interest Rate Spread	 	 	 	 	 	3.63	%	 	 	 	 	3.41	%	
Net Interest Margin	 	 	 	 	 	4.17	%	 	 	 	 	4.07	%	
Noninterest-Bearing Demand Deposits	 	1,899.2	 	 	 	 	 	1,947.0	 	 	 	 	 	
Other Liabilities	 	437.5	 	 	 	 	 	439.4	 	 	 	 	 	
Shareholders’ Equity	 	770.2	 	 	 	 	 	711.1	 	 	 	 	 	
Total Liabilities and Shareholders’ Equity	 	$	10,643.9	 	 	 	 	 	$	10,481.7	 	 	 	 	 	
 
1        Certain prior period information has been reclassified to conform to 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 $238,000 and $213,000 for the three months ended March 31, 2008 and 2007, respectively.
 
18

 
Analysis of Change in Net Interest Income - Taxable Equivalent Basis (Unaudited)	Table 3	 	
 	 	Three Months Ended March 31, 2008	 	
 	 	compared to March 31, 2007	 	
(dollars in millions)	 	Volume 1	 	Rate 1	 	Time 1	 	Total	 	
Change in Interest Income:	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	0.2	 	$	(0.1	)	$	—	 	$	0.1	 	
Funds Sold	 	0.5	 	(0.6	)	—	 	(0.1	)	
Investment Securities	 	 	 	 	 	 	 	 	 	
Trading	 	(0.7	)	0.3	 	—	 	(0.4	)	
Available-for-Sale	 	2.3	 	1.0	 	—	 	3.3	 	
Held-to-Maturity	 	(0.9	)	0.1	 	—	 	(0.8	)	
Loans and Leases	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	(0.2	)	(3.2	)	0.2	 	(3.2	)	
Commercial Mortgage	 	0.5	 	(0.5	)	0.1	 	0.1	 	
Construction	 	(0.9	)	(0.7	)	0.1	 	(1.5	)	
Commercial Lease Financing	 	0.1	 	0.8	 	—	 	0.9	 	
Residential Mortgage	 	0.3	 	0.1	 	—	 	0.4	 	
Home Equity	 	0.6	 	(2.5	)	0.2	 	(1.7	)	
Automobile	 	0.2	 	0.1	 	0.1	 	0.4	 	
Other 2	 	(0.7	)	(0.7	)	0.1	 	(1.3	)	
Total Loans and Leases	 	(0.1	)	(6.6	)	0.8	 	(5.9	)	
Other	 	—	 	0.1	 	—	 	0.1	 	
Total Change in Interest Income	 	1.3	 	(5.8	)	0.8	 	(3.7	)	
 	 	 	 	 	 	 	 	 	 	
Change in Interest Expense:	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	 	 	 	 	 	 	 	 	
Demand	 	—	 	(2.1	)	0.1	 	(2.0	)	
Savings	 	0.2	 	(3.6	)	0.1	 	(3.3	)	
Time	 	0.2	 	(1.0	)	0.2	 	(0.6	)	
Total Interest-Bearing Deposits	 	0.4	 	(6.7	)	0.4	 	(5.9	)	
Short-Term Borrowings	 	—	 	(0.3	)	—	 	(0.3	)	
Securities Sold Under Agreements to Repurchase	 	1.0	 	(2.4	)	0.1	 	(1.3	)	
Long-Term Debt	 	(0.3	)	0.1	 	—	 	(0.2	)	
Total Change in Interest Expense	 	1.1	 	(9.3	)	0.5	 	(7.7	)	
 	 	 	 	 	 	 	 	 	 	
Change in Net Interest Income	 	$	0.2	 	$	3.5	 	$	0.3	 	$	4.0	 	

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.

Provision for Credit Losses
 
The Provision reflects our judgment of the expense or benefit necessary to establish 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 $14.4 million in the first quarter of 2008 and a Provision of $2.6 million in
the first quarter of 2007.  The increase in the Allowance in the first quarter 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.  The Provision in 2008 and 2007 was recorded in order to maintain the Allowance at levels considered appropriate to cover credit losses inherent in the lending process.  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”).

19

Noninterest Income
 
Noninterest income increased by $25.2 million or 41% in the first quarter of 2008 compared to the first quarter of 2007, with growth in all categories except trust and asset management income.
 
Trust and asset management income decreased by $0.7 million or 5% in the first quarter of 2008 compared to the first quarter of 2007, primarily due to a $0.4 million decrease in fees from accounts under management.  Although we generated $0.2 million in fees from new accounts under management, our management fees are also affected by the market value of assets under administration.  Total trust assets under administration were $12.4 billion as of March 31, 2008 and $13.0 billion as of March 31, 2007.  The lower value of trust assets under administration was consistent with the decline in the equity markets over this period of time.
 
Mortgage banking income increased by $0.9 million or 27% in the first quarter of 2008 compared to the first quarter of 2007.  The increase was primarily due to higher loan origination and loan application volume.  Residential mortgage loan originations were $284.3 million in the first quarter of 2008, a $80.2 million or 39% increase compared to the first quarter of 2007.  The increase in loan origination volume over this period was primarily due to refinancing activity as a result of lower interest rates.  Gains related to the servicing value inherent in our loans at the commitment date and gains on originated mortgage servicing rights collectively increased by $1.7 million in the first quarter of 2008 compared to the first quarter of 2007.  Gains on the sale of residential mortgage loans also increased by $0.9 million in the first quarter of 2008 compared to the first quarter of 2007.  Loan sales were $144.8 million in the first quarter of 2008, a $72.0 million increase compared to the first quarter of 2007.  These increases were partially offset by a $1.2 million decrease in the net change in the estimated fair value of our mortgage servicing rights and our trading securities (“Designated Securities”).  Our Designated Securities are used to economically hedge the change in fair value of our mortgage servicing rights.  The decrease in the fair value of our mortgage servicing rights occurred as mortgage rates decreased over this period
resulting in higher realized and expected prepayment speeds.  The fair value of our Designated Securities increased over this time period as we experienced decreases in interest rates.  Losses in the value of our derivative written loan commitments in the first quarter of 2008 compared to the first quarter of 2007 also contributed to a $0.6 million decrease in mortgage banking income.
 
Service charges on deposit accounts increased by $1.1 million or 10% in the first quarter of 2008 compared to the first quarter of 2007.  This was primarily due to a $0.7 million increase in account analysis fees on analyzed business checking accounts as a result of lower earnings credit rates on customer accounts.  The increase in service charges on deposit accounts was also due to $0.6 million in higher 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.
 
Insurance income increased by $0.9 million or 15% in the first quarter of 2008 compared to the first quarter of 2007.  This was primarily due to a $0.8 million increase in contingent commission income and a $0.3 million increase in income from annuity and life insurance products.
 
Other noninterest income increased by $22.8 million in the first quarter of 2008 compared to the first quarter of 2007.  This 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.  The lessee in the aircraft lease exercised its early buyout option which resulted in a gain in the first quarter of 2008.  See Note 5 to the Consolidated Financial Statements (Unaudited) for more information on the sale of our equity interest in the aircraft lease.  In the first quarter of 2007, we recognized a $2.3 million gain on the sale of leased equipment.  See the “Corporate Risk Profile – Credit Risk” section in MD&A for more discussion on our remaining air transportation credit exposure.

20

Noninterest Expense
 
Noninterest expense increased by $11.3 million or 14% in the first quarter of 2008 compared to the first quarter of 2007.
 
Table 4 presents the components of salaries and benefits expense for the first quarter of 2008 and 2007.
 
Salaries and Benefits (Unaudited)	 	Table 4	 	
 	 	Three Months Ended
March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	
Salaries	 	$	28,903	 	$	28,124	 	
Incentive Compensation	 	6,267	 	3,619	 	
Cash for Stock Grants	 	4,640	 	—	 	
Share-Based Compensation	 	1,648	 	1,227	 	
Commission Expense	 	1,873	 	1,993	 	
Retirement and Other Benefits	 	5,226	 	3,769	 	
Payroll Taxes	 	3,414	 	3,522	 	
Medical, Dental, and Life Insurance	 	2,499	 	2,238	 	
Separation Expense	 	1,003	 	914	 	
Total Salaries and Benefits	 	$	55,473	 	$	45,406	 	
 
Salaries and benefits expense increased primarily due to the accrual of $9.0 million related to cash awards to purchase our stock and earnings-based incentive compensation in the first quarter of 2008 compared to the first quarter of 2007.  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 will receive cash grants to encourage them to purchase common stock.  We expect that these cash grants
to senior officers will be paid in the second quarter of 2008.  Also contributing to higher salaries and benefits in the first quarter of 2008 were $0.9 million related to merit increases to base salaries.
 
Other noninterest expense increased by $1.0 million or 5% in the first quarter of 2008 compared to the first quarter of 2007.  The net increase in noninterest expense was primarily due to:
 
·                  $3.0 million increase in our legal contingency accruals;
 
·                  $2.3 million contribution to the Bank of Hawaii Charitable Foundation and other charitable organizations;
 
·                  $1.0 million increase related to the call premium accrual on our Capital Securities;
 
·                  $0.5 million increase in our mileage program travel expense; and
 
·                  $5.6 million reversal of previously recorded contingency accruals related to Visa legal matters.
 
See Note 7 to the Consolidated Financial Statements (Unaudited) for more discussion on the reversal of the Visa contingency accruals.
 
Provision for Income Taxes
 
See Note 6 to the Consolidated Financial Statements (Unaudited) for information on the provision for income taxes.

21

 
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 March 31, 2008, December 31, 2007, and March 31, 2007.
 
Investment Securities (Unaudited)	Table 5	 	
(dollars in thousands)	 	Amortized Cost	 	Fair Value	 	
March 31, 2008	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	1,946	 	$	1,998	 	
Debt Securities Issued by States and Political Subdivisions	 	48,840	 	49,586	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	350,658	 	352,490	 	
Mortgage-Backed Securities Issued by	 	 	 	 	 	
U.S. Government-Sponsored Enterprises	 	1,809,715	 	1,837,191	 	
Non-Agencies	 	342,457	 	326,245	 	
Total Mortgage-Backed Securities	 	2,152,172	 	2,163,436	 	
Other Debt Securities	 	104,284	 	104,776	 	
Total	 	$	2,657,900	 	$	2,672,286	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	6	 	$	6	 	
Mortgage-Backed Securities Issued by U.S. Government-Sponsored Enterprises	 	277,250	 	277,530	 	
Total	 	$	277,256	 	$	277,536	 	
 	 	 	 	 	 	
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	 	
 	 	 	 	 	 	
March 31, 2007	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	4,039	 	$	4,017	 	
Debt Securities Issued by States and Political Subdivisions	 	47,152	 	47,116	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	325,239	 	324,789	 	
Mortgage-Backed Securities Issued by	 	 	 	 	 	
U.S. Government-Sponsored Enterprises	 	1,424,763	 	1,411,029	 	
Non-Agencies	 	350,872	 	344,777	 	
Total Mortgage-Backed Securities	 	1,775,635	 	1,755,806	 	
Other Debt Securities	 	311,420	 	306,804	 	
Total	 	$	2,463,485	 	$	2,438,532	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	30	 	$	31	 	
Mortgage-Backed Securities Issued by U.S. Government-Sponsored Enterprises	 	349,633	 	340,605	 	
Total	 	$	349,663	 	$	340,636	 	

The carrying value of our investment securities, excluding trading securities, was $2.9 billion as of March 31, 2008 and December 31, 2007, and $2.8 billion as of March 31, 2007.  Investment securities with a carrying value of $1.9 billion as of March 31, 2008, $1.7 billion as of December 31, 2007, and $1.8 billion as of March 31, 2007, which approximates fair value, were pledged to secure deposits of governmental
entities and securities sold under agreements to repurchase.  Investment securities pledged where the secured party has the right to sell or repledge the investment securities were $766.1 million as of March 31, 2008, $650.4 million as of December 31, 2007, and $765.6 million as of March 31, 2007.

 
22

As of March 31, 2008, all of our mortgage-backed securities issued by non-agencies were prime jumbo, AAA-rated, with an average current amortized loan-to-value ratio of 60%.  As of March 31, 2008, 97% of the fair value of our mortgage-backed securities issued by non-agencies was originated prior to 2006 and the weighted average credit support was 4.65%.  Loans past due 90 days or more, underlying the mortgage-backed securities issued by non-agencies, represented approximately 47 basis points of par value outstanding or
approximately $1.6 million as of March 31, 2008.  As of March 31, 2008, there were no “sub-prime” or “Alt-A” securities in our mortgage-backed securities.
 
Table 6 presents our temporarily impaired investment securities as of March 31, 2008, December 31, 2007, and March 31, 2007.

 
Temporarily Impaired Investment Securities (Unaudited)	 	Table 6	 	
 	 	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	 	
March 31, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	2,773	 	$	(32	)	$	1,142	 	$	(18	)	$	3,915	 	$	(50	)	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	1,584	 	(13	)	1,205	 	(12	)	2,789	 	(25	)	
Mortgage-Backed Securities Issued by U.S. Government-Sponsored Enterprises	 	257,088	 	(1,022	)	133,226	 	(1,421	)	390,314	 	(2,443	)	
Non-Agencies	 	153,400	 	(5,031	)	152,808	 	(11,554	)	306,208	 	(16,585	)	
Total Mortgage-Backed Securities	 	410,488	 	(6,053	)	286,034	 	(12,975	)	696,522	 	(19,028	)	
Total Temporarily Impaired Investment Securities	 	 	 	 	 	 	 	 	 	 	 	 	 	
March 31, 2008	 	$	414,845	 	$	(6,098	)	$	288,381	 	$	(13,005	)	$	703,226	 	$	(19,103	)	
December 31, 2007	 	$	150,249	 	$	(616	)	$	1,325,002	 	$	(21,445	)	$	1,475,251	 	$	(22,061	)	
March 31, 2007	 	$	79,696	 	$	(346	)	$	2,196,416	 	$	(39,778	)	$	2,276,112	 	$	(40,124	)	

The decrease in our temporarily impaired investment securities and related gross unrealized losses as of March 31, 2008 compared to December 31, 2007 was primarily due to changes in interest rates over this time period.  A lower interest rate environment as of March 31, 2008, compared to December 31, 2007, favorably impacted the fair value of investment securities as of March 31, 2008.  The decrease in our temporarily impaired investment securities and related gross unrealized losses as of March 31, 2008 compared to March 31, 2007 was primarily due to the run-off and pay-downs on investment securities as well as favorable interest rate movements over this time period.
 
The gross unrealized losses reported for mortgage-backed securities relate 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 private issuers (“non-agencies”).  We do not believe that the investment securities that were in an unrealized loss position as of March 31, 2008, which was comprised of 74 securities, represent an other-than-temporary impairment.  Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.  The Company has both the intent and ability to hold the investment securities for a period of time necessary to recover the amortized cost.

23

 
Loans and Leases
 
Table 7 presents the composition of our loan and lease portfolio by major categories.
 
Loan and Lease Portfolio Balances (Unaudited)	 	Table 7	 	
 	 	March 31,	 	December 31,	 	September 30,	 	June 30,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007 1	 	2007 1	 	2007 1	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	1,079,772	 	$	1,054,355	 	$	1,065,258	 	$	1,065,155	 	$	1,042,174	 	
Commercial Mortgage	 	650,638	 	634,483	 	627,329	 	619,668	 	611,784	 	
Construction	 	190,521	 	208,670	 	254,062	 	261,478	 	245,951	 	
Lease Financing	 	465,945	 	481,882	 	478,988	 	480,358	 	460,837	 	
Total Commercial	 	2,386,876	 	2,379,390	 	2,425,637	 	2,426,659	 	2,360,746	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	2,530,207	 	2,508,261	 	2,510,313	 	2,505,073	 	2,495,141	 	
Home Equity	 	967,146	 	972,995	 	953,713	 	938,261	 	938,135	 	
Automobile	 	430,920	 	443,011	 	440,525	 	425,672	 	424,062	 	
Other2	 	264,188	 	277,204	 	269,727	 	270,461	 	289,068	 	
Total Consumer	 	4,192,461	 	4,201,471	 	4,174,278	 	4,139,467	 	4,146,406	 	
Total Loans and Leases	 	$	6,579,337	 	$	6,580,861	 	$	6,599,915	 	$	6,566,126	 	$	6,507,152	 	
 
1  Certain prior period information has been reclassified to conform to current presentation.	
2  Comprised of other revolving credit, installment, and lease financing.	

The increase in total commercial loans and leases from December 31, 2007 was primarily due to a $25.4 million increase in the commercial and industrial loan category, which lends primarily to corporations, middle market, and small businesses in Hawaii.  This was partially offset by a $15.9 million decrease in lease financing balances primarily due to the exercise of an early buy-out option by one of our aircraft lessees.  The decrease in consumer loans and leases from December 31, 2007 occurred in all categories except mortgage lending, consistent with signs of slowing in the Hawaii economy.
 
The increase in total commercial loans and leases from March 31, 2007 was primarily due to the increase in commercial and industrial and commercial mortgage loans, which were made primarily to companies that conduct business in Hawaii.  These increases were partially offset by the decrease in construction loans, which was a result of the movement of loans from the construction loan category into the commercial mortgage category as development projects were completed.  The increase in total consumer loans and leases from March 31, 2007 was primarily due to the increase in residential mortgage and home equity loans reflecting lower trending interest rates over this period.

24

 
Table 8 presents the composition of our loan and lease portfolio by geographic area as of March 31, 2008, December 31, 2007, and March 31, 2007.
 
Geographic Distribution of Loan and Lease Portfolio (Unaudited)	 	 	 	 	 	Table 8	 	
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007 1	 	2007 1	 	
Commercial	 	 	 	 	 	 	 	
Hawaii	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	718,457	 	$	695,141	 	$	688,151	 	
Commercial Mortgage	 	564,719	 	548,423	 	522,212	 	
Construction	 	178,958	 	197,762	 	230,966	 	
Lease Financing	 	55,498	 	55,697	 	50,798	 	
Mainland U.S. 2	 	 	 	 	 	 	 	
Commercial and Industrial	 	205,122	 	202,203	 	192,796	 	
Commercial Mortgage	 	4,953	 	5,129	 	5,850	 	
Construction	 	10,278	 	9,932	 	12,730	 	
Lease Financing	 	391,303	 	395,419	 	379,486	 	
Guam	 	 	 	 	 	 	 	
Commercial and Industrial	 	74,736	 	75,239	 	65,427	 	
Commercial Mortgage	 	76,220	 	76,301	 	80,761	 	
Construction	 	1,285	 	976	 	2,252	 	
Other Pacific Islands	 	 	 	 	 	 	 	
Commercial and Industrial	 	16,693	 	17,771	 	21,256	 	
Commercial Mortgage	 	2,529	 	2,629	 	2,961	 	
Construction	 	—	 	—	 	3	 	
Foreign 3	 	 	 	 	 	 	 	
Commercial and Industrial	 	64,764	 	64,001	 	74,544	 	
Commercial Mortgage	 	2,217	 	2,001	 	—	 	
Lease Financing	 	19,144	 	30,766	 	30,553	 	
Total Commercial	 	2,386,876	 	2,379,390	 	2,360,746	 	
Consumer	 	 	 	 	 	 	 	
Hawaii	 	 	 	 	 	 	 	
Residential Mortgage	 	2,296,061	 	2,269,670	 	2,251,564	 	
Home Equity	 	911,064	 	915,820	 	873,375	 	
Automobile	 	294,410	 	308,706	 	319,775	 	
Other 4	 	193,915	 	201,323	 	206,670	 	
Mainland U.S. 2	 	 	 	 	 	 	 	
Home Equity	 	35,445	 	37,878	 	47,688	 	
Automobile	 	48,667	 	40,679	 	6,612	 	
Guam	 	 	 	 	 	 	 	
Residential Mortgage	 	225,503	 	230,017	 	234,663	 	
Home Equity	 	17,148	 	15,671	 	12,868	 	
Automobile	 	78,403	 	83,491	 	84,163	 	
Other 4	 	34,679	 	36,767	 	39,098	 	
Other Pacific Islands	 	 	 	 	 	 	 	
Residential Mortgage	 	8,643	 	8,574	 	8,914	 	
Home Equity	 	3,489	 	3,626	 	4,204	 	
Automobile	 	9,440	 	10,135	 	13,512	 	
Other 4	 	35,588	 	39,090	 	42,205	 	
Foreign 3	 	 	 	 	 	 	 	
Other 4	 	6	 	24	 	1,095	 	
Total Consumer	 	4,192,461	 	4,201,471	 	4,146,406	 	
Total Loans and Leases	 	$	6,579,337	 	$	6,580,861	 	$	6,507,152	 	
 
1  	Certain prior period information has been reclassified to conform to 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.	

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.

25

 
Other Assets
 
Table 9 presents the major components of our other assets as of March 31, 2008, December 31, 2007, and March 31, 2007.
 
Other Assets (Unaudited)	 	 	 	 	 	Table 9	 	
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007 1	 	
Bank-Owned Life Insurance	 	$	190,852	 	$	188,888	 	$	182,924	 	
Federal Home Loan Bank and Federal Reserve Bank Stock	 	79,494	 	79,494	 	79,415	 	
Low Income Housing Investments and Other Equity Investment	 	36,133	 	36,376	 	21,980	 	
Accounts Receivable	 	25,265	 	26,748	 	21,446	 	
Federal Tax Deposit	 	61,000	 	61,000	 	61,000	 	
Other	 	50,942	 	40,626	 	38,974	 	
Total Other Assets	 	$	443,686	 	$	433,132	 	$	405,739	 	
 
1  Certain prior period information has been reclassified to conform to current presentation.

The increase in other assets from December 31, 2007 was primarily due to higher balances in customer-related receivable accounts which have equal and off-setting amounts recorded in other liabilities.  The increase in other assets from March 31, 2007 was primarily due to the funding of $15.8 million in new low income housing investments and continued growth in Bank-Owned Life Insurance (“BOLI”) assets from earnings.
 
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 reduced the accrual of additional interest and penalties, which was higher than our funding costs, associated with the potential underpayment of income taxes related to these transactions.  During the second quarter of 2007, we reached an agreement with the IRS that effectively settled the matter related to the Company’s LILO transaction.  We expect that the federal tax deposit will be reduced when the final adjustments are processed by the IRS.
Deposits
 
As of March 31, 2008, total deposits were $8.1 billion, an increase of $160.5 million or 2% from December 31, 2007 and an increase of $149.9 million or 2% from March 31, 2007.  Core deposit balances (comprised of noninterest-bearing demand, interest-bearing demand, and savings accounts) increased by $178.0 million or 3% from December 31, 2007 and increased by $138.1 million or 2% from March 31, 2007.  The increase in our core deposit balances was primarily due to customers moving their balances to more liquid accounts.  A contributing market factor for this increase was the volatility in the financial markets and a decline in the equity markets in the first quarter of 2008.  We also benefited from a successful bonus-rate savings campaign during the first quarter of 2008.  Time deposits remained relatively stable at $1.7 billion as of March 31, 2008, December 31, 2007, and March 31, 2007, despite declining short-term interest rates over this period.

26

 
Table 10 presents the composition of our savings deposits as of March 31, 2008, December 31, 2007, and March 31, 2007.
 
Savings Deposits (Unaudited)	 	 	 	 	 	Table 10	 	
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Money Market	 	$	1,048,154	 	$	1,061,808	 	$	1,078,666	 	
Regular Savings	 	1,680,719	 	1,568,663	 	1,569,829	 	
Total Savings Deposits	 	$	2,728,873	 	$	2,630,471	 	$	2,648,495	 	
 
Table 11 presents our average balance of time deposits of $100,000 or more as of March 31, 2008, December 31, 2007, and March 31, 2007.
 
Average Time Deposits of $100,000 or More (Unaudited)	 	 	Table 11	 	
 	 	Three Months Ended	 	
(dollars in thousands)	 	March 31, 2008	 	December 31, 2007	 	March 31, 2007 1	 	
Average Time Deposits	 	$	1,009,007	 	$	983,389	 	$	986,814	 	

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

Borrowings and Long-Term Debt
 
Borrowings, including funds purchased and other short-term borrowings, were $33.5 million as of March 31, 2008.  This represented a decrease of $52.3 million or 61% from December 31, 2007 and a decrease of $42.3 million or 56% from March 31, 2007.  The decreases in these borrowing instruments were primarily due to additional liquidity from our core deposits and borrowings from securities sold under agreements to repurchase.
 
Long-term debt was $239.4 million as of March 31, 2008.  This represented an increase of $4.0 million or 2% from December 31, 2007 and a decrease of $20.9 million or 8% from March 31, 2007.  The increase from December 31, 2007 was primarily due to 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 SFAS No. 159.  Also, in March 2008, we exercised our call option and issued notification to the holders of our $26.4 million in Capital Securities.  As a result, we accrued for a $1.0 million call premium in March 2008.  We expect that this liability will be extinguished on or about May 15, 2008.  The decrease in long-term debt from March 31, 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.  Further discussion of borrowings is included in the “Corporate Risk Profile – Liquidity Management” section of MD&A.
 
Securities Sold Under Agreements to Repurchase
 
Table 12 presents the composition of our securities sold under agreements to repurchase as of March 31, 2008, December 31, 2007, and March 31, 2007.

Securities Sold Under Agreements to Repurchase (Unaudited)	Table 12	
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Government Entities	 	$	581,962	 	$	429,340	 	$	350,393	 	
Private Institutions	 	650,000	 	600,000	 	700,000	 	
Total Securities Sold Under Agreements to Repurchase	 	$	1,231,962	 	$	1,029,340	 	$	1,050,393	 	

27

The increase in securities sold under agreements to repurchase from December 31, 2007 and March 31, 2007 was primarily due to additional placements with government entities that provided for additional sources of liquidity.  As of March 31, 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.  The remaining terms of the agreements with private institutions range from five to 13 years.  However, the private institutions have the right to terminate the agreements on predetermined dates.  If the agreements with private institutions are not terminated by the predetermined 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 March 31, 2008, the weighted average interest rate for outstanding agreements with private institutions was 3.15%.
 
Shareholders’ Equity
 
As of March 31, 2008, shareholders’ equity was $766.7 million, an increase of $16.5 million or 2% from December 31, 2007 and a $55.7 million or 8% increase from March 31, 2007.  The increase in shareholders’ equity from December 31, 2007 was primarily due to current period earnings of $57.2 million and the change in our investment securities available-for-sale, net of tax, of $10.6 million, which was attributable to a lower interest rate environment as of March 31, 2008 compared to December 31, 2007.  The increase in shareholders’ equity was partially offset by $32.9 million in common stock repurchases and by $21.2 million in cash dividends paid.  Further discussion of 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 management accounting process measures the performance of the business segments based on the management structure of the Company.  This process, which is not necessarily comparable with similar information for any other financial
institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the Provision, and capital.  This process is dynamic and requires certain allocations based on judgment and other subjective factors.  Unlike financial accounting, there is no comprehensive, authoritative guidance for management accounting that is equivalent to U.S. generally accepted accounting principles.
 
We evaluate several performance measures of the business segments, the most important of which are net income after capital charge (“NIACC”) and risk adjusted return on capital (“RAROC”).  NIACC is economic net income less a charge for the cost of allocated capital.  The cost of allocated capital is determined by multiplying our estimate of a shareholder’s minimum required rate of return on the cost of capital invested (10% for 2008, 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

28

NIACC was $43.6 million for the first quarter of 2008 compared to $26.1 million for first quarter of 2007.  The increase in NIACC was primarily due to the previously noted gains related to Visa as well as the gains related to 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 first quarter of 2008, the economic provision was relatively flat compared to the first quarter of 2007.
 
Table 13 summarizes our NIACC and RAROC for the first quarter of 2008 and 2007.

Business Segment Selected Financial Information (Unaudited)	 	 	 	 	 	 	 	 	Table 13	 	
 	 	Retail	 	Commercial	 	Investment	 	 	 	 	 	Consolidated	 	
(dollars in thousands)	 	Banking	 	Banking	 	Services	 	Total	 	Treasury	 	Total	 	
Three Months Ended March 31, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	58,423	 	$	42,835	 	$	3,870	 	$	105,128	 	$	(2,948	)	$	102,180	 	
Provision for Credit Losses	 	2,922	 	3,256	 	—	 	6,178	 	8,249	 	14,427	 	
Net Interest Income (Loss) After Provision for Credit Losses	 	55,501	 	39,579	 	3,870	 	98,950	 	(11,197	)	87,753	 	
Noninterest Income	 	28,546	 	22,249	 	18,261	 	69,056	 	17,069	 	86,125	 	
Noninterest Expense	 	(43,769	)	(24,721	)	(16,863	)	(85,353	)	(8,079	)	(93,432	)	
Income (Loss) Before Provision for Income Taxes	 	40,278	 	37,107	 	5,268	 	82,653	 	(2,207	)	80,446	 	
Provision for Income Taxes	 	(14,903	)	(13,736	)	(1,949	)	(30,588	)	7,357	 	(23,231	)	
Allocated Net Income	 	25,375	 	23,371	 	3,319	 	52,065	 	5,150	 	57,215	 	
Allowance Funding Value	 	(176	)	(845	)	(13	)	(1,034	)	1,034	 	—	 	
Provision for Credit Losses	 	2,922	 	3,256	 	—	 	6,178	 	8,249	 	14,427	 	
Economic Provision	 	(2,143	)	(3,236	)	(83	)	(5,462	)	(1	)	(5,463	)	
Tax Effect of Adjustments	 	(223	)	305	 	35	 	117	 	(3,434	)	(3,317	)	
Income Before Capital Charge	 	25,755	 	22,851	 	3,258	 	51,864	 	10,998	 	62,862	 	
Capital Charge	 	(4,778	)	(4,097	)	(1,475	)	(10,350	)	(8,955	)	(19,305	)	
Net Income After Capital Charge (NIACC)	 	$	20,977	 	$	18,754	 	$	1,783	 	$	41,514	 	$	2,043	 	$	43,557	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RAROC (ROE for the Company)	 	54%	 	56%	 	22%	 	50%	 	56%	 	30%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of March 31, 2008	 	$	3,681,693	 	$	3,066,272	 	$	232,882	 	$	6,980,847	 	$	3,841,954	 	$	10,822,801	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three Months Ended March 31, 2007 1	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	54,401	 	$	39,171	 	$	3,525	 	$	97,097	 	$	1,040	 	$	98,137	 	
Provision for Credit Losses	 	1,545	 	1,098	 	—	 	2,643	 	(12	)	2,631	 	
Net Interest Income After Provision for Credit Losses	 	52,856	 	38,073	 	3,525	 	94,454	 	1,052	 	95,506	 	
Noninterest Income	 	25,580	 	12,213	 	19,147	 	56,940	 	4,020	 	60,960	 	
Noninterest Expense	 	(41,334	)	(22,920	)	(15,683	)	(79,937	)	(2,186	)	(82,123	)	
Income Before Provision for Income Taxes	 	37,102	 	27,366	 	6,989	 	71,457	 	2,886	 	74,343	 	
Provision for Income Taxes	 	(13,727	)	(9,873	)	(2,586	)	(26,186	)	(822	)	(27,008	)	
Allocated Net Income	 	23,375	 	17,493	 	4,403	 	45,271	 	2,064	 	47,335	 	
Allowance Funding Value	 	(146	)	(757	)	(10	)	(913	)	913	 	—	 	
Provision for Credit Losses	 	1,545	 	1,098	 	—	 	2,643	 	(12	)	2,631	 	
Economic Provision	 	(1,869	)	(3,275	)	(81	)	(5,225	)	—	 	(5,225	)	
Tax Effect of Adjustments	 	174	 	1,085	 	34	 	1,293	 	(333	)	960	 	
Income Before Capital Charge	 	23,079	 	15,644	 	4,346	 	43,069	 	2,632	 	45,701	 	
Capital Charge	 	(5,084	)	(4,479	)	(1,533	)	(11,096	)	(8,459	)	(19,555	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	17,995	 	$	11,165	 	$	2,813	 	$	31,973	 	$	(5,827	)	$	26,146	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
RAROC (ROE for the Company)	 	51%	 	39%	 	32%	 	43%	 	8%	 	27%	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets as of March 31, 2007 1	 	$	3,597,814	 	$	3,039,943	 	$	211,239	 	$	6,848,996	 	$	3,642,961	 	$	10,491,957	 	
 
1  Certain prior period information has been reclassified to conform to current presentation.
 
29

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 71 Hawaii branch locations, 411 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.
 
Financial measures improved for the first quarter of 2008 compared to the first quarter of 2007 primarily due to higher net interest income and noninterest income.  The $4.0 million increase in net interest income was primarily due to a reduction in funding costs coupled with an increase in the earnings credit on the segment’s deposit portfolio, which was partially offset by lower average deposit balances.  The $3.0 million increase in noninterest income was primarily due to higher mortgage banking income from an increase in mortgage loan originations.  Also contributing to the favorable variance was higher fee income from an increase in the number of transactional deposit accounts as well as debit card transactions.  These positive trends were partially offset by a $2.4 million increase in noninterest expense, primarily resulting from higher debit card and salaries expense as well as higher allocated expenses related to cash awards to purchase our stock and earnings-based incentive compensation that were accrued for in the first quarter of 2008.  Retail Banking’s economic provision and capital charge remained relatively unchanged for the first quarter of 2008 compared to the first quarter of 2007.
 
Commercial Banking
 
Commercial Banking offers products including corporate banking 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 first quarter of 2008 compared to the first quarter of 2007 primarily due to an increase in noninterest income and net interest income.  The $10.0 million increase in noninterest income was primarily due to an $11.6 million gain on the sale of our equity interest in an aircraft lease and higher fee income on our wholesale property and casualty insurance products.  The $3.7 million improvement in net interest income was due to a reduction in funding costs along with growth in the International Banking deposit portfolio.  Noninterest expense increased by $1.8 million primarily due to higher allocated expenses related to cash awards to purchase our stock and earnings-based incentive compensation that were accrued for in the first quarter of 2008.
 
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 first quarter of 2008 compared to the first quarter of 2007 primarily due to a decrease in noninterest income and an increase in noninterest expense.

30

The $0.9 million decrease in noninterest income was primarily due to a decrease in fees from accounts under management.  The decrease in fees was consistent with the decline in the equity markets over this period of time.  The $1.2 million increase in noninterest expense was primarily due to higher allocated expenses related to cash awards to purchase our stock and earnings-based incentive compensation that were accrued for 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 inter-company transactions.
 
Financial measures improved for the first quarter of 2008 compared to the first quarter of 2007 primarily due to an increase in noninterest income, partially offset by a decrease in net interest income and an increase in noninterest expense.  The $13.0 million increase in noninterest income was primarily due to the $13.7 million gain from the mandatory redemption of our Visa shares.  The $4.0 million decrease in net interest income was primarily due to a reduction in loan funding charges allocated to the businesses, partially offset by an increase in the volume of available-for-sale investments and a decrease in the cost of short-term borrowings.  The $5.9 million increase in noninterest expense was primarily due to various accruals (cash awards to purchase our stock and earnings-based incentive compensation, 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 Visa liability.  The capital charge increased by $0.5 million for the first quarter of 2008 compared to the first quarter of 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 strong during the first quarter of 2008, with low, albeit increasing, levels of internally criticized loans and leases and non-performing assets.  During the first quarter of 2008, we have experienced higher than expected delinquencies and migration to loss in segments of our loan portfolio.
 
Our credit risk profile reflects the relative strength of the Hawaii economy.  There are signs that the local economy is slowing, as economic forecasts are now projecting slow to almost no growth in 2008.  Visitor arrivals are expected to decline for the second consecutive year.  Unemployment is expected to increase from record low levels.  Trends in the construction and real estate industries are also softening.  The slowing economy in Hawaii is expected to result in higher delinquencies and loss rates in our small business and unsecured consumer based portfolios.
 
Table 14 summarizes our air transportation credit exposure as of March 31, 2008, December 31, 2007, and March 31, 2007.  As of March 31, 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 leases was $72.7 million as of March 31, 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

31

 
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.  The current downturn in the financial markets and the sudden bankruptcies of several

air transportation carriers are examples of national macro economic conditions that are placing additional strains on air transportation carriers.  In the evaluation of the Reserve for Credit Losses (the “Reserve”), management continues to consider the ongoing financial concerns about the air transportation industry.

Air Transportation Credit Exposure 1 (Unaudited)	 	 	 	 	 	Table 14	 	
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Passenger Carriers Based In the United States	 	$	61,190	 	$	64,947	 	$	65,731	 	
Passenger Carriers Based Outside the United States	 	7,258	 	19,078	 	19,326	 	
Cargo Carriers	 	13,472	 	13,390	 	13,254	 	
Total Air Transportation Credit Exposure	 	$	81,920	 	$	97,415	 	$	98,311	 	
 
1  Exposure includes loans, leveraged leases, and operating leases.	
 
32

 
Non-Performing Assets
 
Table 15 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 15	 	
 	 	March 31,	 	December 31,	 	September 30,	 	June 30,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007 1	 	2007 1	 	2007 1	 	
Non-Performing Assets	 	 	 	 	 	 	 	 	 	 	 	
Non-Accrual Loans and Leases	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	794	 	$	598	 	$	359	 	$	265	 	$	273	 	
Commercial Mortgage	 	—	 	112	 	123	 	130	 	38	 	
Lease Financing	 	504	 	297	 	—	 	914	 	—	 	
Total Commercial	 	1,298	 	1,007	 	482	 	1,309	 	311	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	3,235	 	2,681	 	3,237	 	3,844	 	4,345	 	
Home Equity	 	1,187	 	1,414	 	436	 	899	 	476	 	
Other 2	 	31	 	—	 	—	 	214	 	242	 	
Total Consumer	 	4,453	 	4,095	 	3,673	 	4,957	 	5,063	 	
Total Non-Accrual Loans and Leases	 	5,751	 	5,102	 	4,155	 	6,266	 	5,374	 	
Foreclosed Real Estate	 	294	 	184	 	105	 	48	 	462	 	
Total Non-Performing Assets	 	$	6,045	 	$	5,286	 	$	4,260	 	$	6,314	 	$	5,836	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Accruing Loans and Leases Past Due 90 Days or More	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	24	 	$	—	 	$	—	 	$	—	 	$	—	 	
Lease Financing	 	—	 	—	 	—	 	—	 	4	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	3,892	 	4,884	 	639	 	188	 	706	 	
Home Equity	 	328	 	413	 	115	 	60	 	219	 	
Automobile	 	865	 	1,174	 	734	 	397	 	533	 	
Other 2	 	725	 	1,112	 	944	 	761	 	918	 	
Total Consumer	 	5,810	 	7,583	 	2,432	 	1,406	 	2,376	 	
Total Accruing Loans and Leases Past Due 90 Days or More	 	$	5,834	 	$	7,583	 	$	2,432	 	$	1,406	 	$	2,380	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total Loans and Leases	 	$	6,579,337	 	$	6,580,861	 	$	6,599,915	 	$	6,566,126	 	$	6,507,152	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases	 	0.09	%	0.08	%	0.06	%	0.10	%	0.08	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate	 	0.09	%	0.08	%	0.06	%	0.10	%	0.09	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases	 	0.05	%	0.04	%	0.02	%	0.05	%	0.01	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Foreclosed Real Estate	 	0.11	%	0.10	%	0.09	%	0.12	%	0.13	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases	 	0.18	%	0.20	%	0.10	%	0.12	%	0.13	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Quarter to Quarter Changes in Non-Performing Assets	 	 	 	 	 	 	 	 	 	 	 	
Balance at Beginning of Quarter	 	$	5,286	 	$	4,260	 	$	6,314	 	$	5,836	 	$	6,407	 	
Additions	 	2,614	 	1,866	 	662	 	2,279	 	1,548	 	
Reductions	 	 	 	 	 	 	 	 	 	 	 	
Payments	 	(386	)	(256	)	(1,741	)	(804	)	(1,150	)	
Return to Accrual Status	 	(944	)	(214	)	(787	)	(473	)	(435	)	
Sales of Foreclosed Real Estate	 	—	 	(161	)	(48	)	(326	)	(56	)	
Charge-offs/Write-downs	 	(525	)	(209	)	(140	)	(198	))	(478	)	
Total Reductions	 	(1,855	)	(840	)	(2,716	)	(1,801	)	(2,119	)	
Balance at End of Quarter	 	$	6,045	 	$	5,286	 	$	4,260	 	$	6,314	 	$	5,836	 	
 
1  Certain prior period information has been reclassified to conform to current presentation.	
2  Comprised of other revolving credit, installment, and lease financing.	
 
33

NPAs are comprised of non-accrual loans and leases and foreclosed real estate.  The $0.8 million increase in NPAs from December 31, 2007 was primarily due to additions to non-accrual status of $1.0 million in residential mortgage loans, $0.2 million in commercial and industrial loans, and $0.3 million in commercial leases, secured by equipment, in the first quarter of 2008.  The $0.2 million increase in NPAs from March 31, 2007 was primarily due to the additions to non-accrual status of $1.1 million in home equity loans and $0.5 million in commercial leases, secured by equipment, over this period.  This was partially offset by the return to accrual status of $2.6 million in residential mortgage loans over this period.  We do not expect to incur material losses on these loans and leases.
 
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.  Impaired loans and leases were less than $0.1 million as of March 31, 2008 and $0.1 million as of December 31, 2007.  We had no impaired loans and leases as of March 31, 2007.
 
Credit quality in our commercial and mortgage-related consumer lending portfolios remained strong in the first quarter of 2008.  Residential mortgage and home equity lending comprise the largest components of our consumer lending portfolio.  As of March 31, 2008, the weighted average credit score for our residential mortgage loans was
754, with a significant portion of this portfolio having a loan-to-value ratio of 80% or less.  As of March 31, 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
 
Consisting primarily of residential mortgage loans, automobile loans, and consumer unsecured lines of credit, accruing loans and leases past due 90 days or more were $5.8 million as of March 31, 2008, a decrease of $1.7 million from December 31, 2007 and an increase of $3.5 million from March 31, 2007.  The decrease in accruing loans and leases past due 90 days or more from December 31, 2007 was primarily due to the resolution of six residential mortgage loans and numerous other revolving credit and installment loans in the first quarter of 2008.  The increase in accruing loans and leases past due 90 days or more from March 31, 2007 was primarily due to the addition of 11 residential mortgage loans over this period.  We do not expect to incur material losses on these loans.  Commercial loans past due 90 days or more as of March 31, 2008 were nominal.
 
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.

34

 
Reserve for Credit Losses
 
Table 16 presents the activity in our Reserve for the first quarter of 2008, the fourth quarter of 2007, and the first quarter of 2007.
 
Reserve for Credit Losses (Unaudited)	 	 	 	 	 	Table 16	 	
 	 	 	 	Three Months Ended	 	 	 	
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007 1	 	2007 1	 	
Balance at Beginning of Period	 	$	96,167	 	$	96,167	 	$	96,167	 	
Loans and Leases Charged-Off	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	
Commercial and Industrial	 	(1,389	)	(1,008	)	(805	)	
Lease Financing	 	(134	)	—	 	(22	)	
Consumer	 	 	 	 	 	 	 	
Residential Mortgage	 	—	 	(122	)	—	 	
Home Equity	 	(806	)	(333	)	(102	)	
Automobile	 	(2,915	)	(2,697	)	(3,081	)	
Other 2	 	(2,803	)	(3,023	)	(2,633	)	
Total Loans and Leases Charged-Off	 	(8,047	)	(7,183	)	(6,643	)	
Recoveries on Loans and Leases Previously Charged-Off	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	
Commercial and Industrial	 	986	 	285	 	277	 	
Commercial Mortgage	 	—	 	—	 	85	 	
Lease Financing	 	3	 	3	 	2,081	 	
Consumer	 	 	 	 	 	 	 	
Residential Mortgage	 	78	 	18	 	135	 	
Home Equity	 	21	 	170	 	65	 	
Automobile	 	796	 	602	 	671	 	
Other 2	 	736	 	662	 	698	 	
Total Recoveries on Loans and Leases Previously Charged-Off	 	2,620	 	1,740	 	4,012	 	
Net Loans and Leases Charged-Off	 	(5,427	)	(5,443	)	(2,631	)	
Provision for Credit Losses	 	14,427	 	5,443	 	2,631	 	
Balance at End of Period 3	 	$	105,167	 	$	96,167	 	$	96,167	 	
 	 	 	 	 	 	 	 	
Components	 	 	 	 	 	 	 	
Allowance for Loan and Lease Losses	 	$	99,998	 	$	90,998	 	$	90,998	 	
Reserve for Unfunded Commitments	 	5,169	 	5,169	 	5,169	 	
Total Reserve for Credit Losses	 	$	105,167	 	$	96,167	 	$	96,167	 	
 	 	 	 	 	 	 	 	
Average Loans and Leases Outstanding	 	$	6,587,918	 	$	6,581,183	 	$	6,561,848	 	
 	 	 	 	 	 	 	 	
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (annualized)	 	0.33	%	0.33	%	0.16	%	
Ratio of Allowance for Loan and Lease Losses to Loans and Leases Outstanding	 	1.52	%	1.38	%	1.40	%	
 
1  	Certain prior period information has been reclassified to conform to 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.

35

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 other noninterest expense.  Based on our ongoing assessment of the credit quality of the loan and lease portfolio and the economic environment, we recorded a Provision of $14.4 million in the first quarter of 2008.  The Provision exceeded net charge-offs of loans and leases for the first quarter of 2008 by $9.0 million.  The increase in the Allowance reflects increased risk in our air transportation exposure, small business, and other unsecured consumer 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 March 31, 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 March 31, 2007.  The process used to determine the Unfunded Reserve is consistent with the process for determining the Allowance, as adjusted for estimated funding probabilities or loan and lease equivalency factors.
 
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 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

36

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 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 17 presents, as of March 31, 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 March 31, 2008, our balance sheet was asset sensitive to parallel changes in interest rates (i.e. the yields on our assets were more sensitive to changes in interest rates than our liabilities).  As a result, our net interest income sensitivity to changes in interest rates as of March 31, 2008 was more sensitive as compared to our sensitivity profile as of March 31, 2007.  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.

37

 
Net Interest Income Sensitivity Profile (Unaudited)	 	 	 	Table 17	 	
 	 	Change in Net Interest Income Per Quarter	 	
(dollars in thousands)	 	March 31, 2008	 	March 31, 2007	 	
Change in Interest Rates (basis points)	 	 	 	 	 	 	 	 	 	
+200	 	$	1,130	 	1.1	%	$	(697)	 	(0.7)	%	
+100	 	925	 	0.9	 	(299)	 	(0.3)	 	
-100	 	(2,158)	 	(2.1	)	(498)	 	(0.5)	 	
-200	 	(3,596)	 	(3.5	)	(1,393)	 	(1.4)	 	

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 $1.6 billion as of March 31, 2008 and approximately $2.0 billion in March 31, 2007.  Table 18 presents, as of March 31, 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 decreased in the higher interest rate change scenarios, but increased in the lower interest rate change scenarios as of March 31, 2008, compared to March 31, 2007, primarily as a
result of lower short-term interest rates.  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 short-term and medium-term rates rise on a relative basis more than long-term rates (“curve flattening”) and when the spread between U.S. Treasury and LIBOR rates increase (“spread widening”).

Market Value of Equity Sensitivity Profile (Unaudited)	 	Table 18	 	
 	 	Change in Market Value of Equity	 	
(dollars in thousands)	 	March 31, 2008	 	March 31, 2007	 	
Change in Interest Rates (basis points)	 	 	 	 	 	 	 	 	 	
+200	 	$	(121,625)	 	(7.4)	%	$	(146,057)	 	(7.9)	%	
+100	 	(41,569)	 	(2.5)	 	(62,713)	 	(3.4)	 	
-100	 	(53,937)	 	(3.3)	 	(4,487)	 	(0.2)	 	
-200	 	(140,697)	 	(8.5)	 	(108,796)	 	(5.9)	 	

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

38

FHLB were $50.0 million as of March 31, 2008 and December 31, 2007 with a weighted average interest rate of 4.00% and $75.0 million as of March 31, 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 $125.0 million as of March 31, 2008, December 31, 2007, and March 31, 2007.  These subordinated notes accrue interest at a fixed rate of 6.875%.
 
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 March 31, 2008, the Parent and the Bank were “well capitalized” under this regulatory framework.  There have been no conditions or events since March 31, 2008 that management believes have changed either the Parent’s or the Bank’s capital classifications.
 
As of March 31, 2008, the fair value of our subordinated notes of $128.9 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 March 31, 2008.  Also, as previously discussed, we exercised our option to call our remaining $26.4 million of Capital Securities in March 2008.  The Capital Securities are recorded as a component of long-term debt in the statements of condition.  We expect that this liability will be extinguished on or about May 15, 2008.  In accordance with regulatory capital guidelines, the Capital Securities qualifies as Tier 1 Capital as of March 31, 2008.
 
As of March 31, 2008, our leverage ratio was 6.99%.  We actively manage our capital toward a 7.00% leverage ratio.  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 quarter of 2008, 0.7 million shares of common stock were repurchased under our share repurchase program at an average cost of $48.03 per share, totaling $31.4 million.  From the beginning of our share repurchase program in July 2001 through March 31, 2008, we repurchased a total of 45.0 million shares of common stock and returned nearly $1.6 billion to our shareholders at an average cost of $35.27 per share.  From April 1, 2008 through April 18, 2008, we repurchased an additional 65,000 shares of common stock at an average price of $48.90 per share for a total of $3.2 million, resulting in remaining buyback authority under our share repurchase program of $59.8 million.

39

 
Table 19 presents our regulatory capital and ratios as of March 31, 2008, December 31, 2007, and March 31, 2007.
 
Regulatory Capital and Ratios (Unaudited)	 	 	 	 	 	Table 19	 	
 	 	March 31,	 	December 31,	 	March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	2007	 	
Regulatory Capital	 	 	 	 	 	 	 	
Shareholders’ Equity	 	$	766,747	 	$	750,255	 	$	711,031	 	
Add:	Capital Securities of Bancorp Hawaii Capital Trust I	 	26,425	 	26,425	 	26,425	 	
Less:	Adjustment to Initially Apply FASB Statement No. 159, Net of Tax	 	(2,736	)	—	 	—	 	
 	Goodwill	 	34,959	 	34,959	 	34,959	 	
 	Postretirement Benefit Liability Adjustments	 	8,522	 	8,647	 	6,878	 	
 	Net Unrealized Gains (Losses) on Investment Securities
Available-for-Sale	 	9,208	 	(1,388	)	(15,971	)	
Tier 1 Capital	 	743,219	 	734,462	 	711,590	 	
Allowable Reserve for Credit Losses	 	88,352	 	88,716	 	90,912	 	
Qualifying Subordinated Debt	 	—	 	24,982	 	24,973	 	
Unrealized Gains on Investment Securities Available-for-Sale	 	97	 	59	 	20	 	
Total Regulatory Capital	 	$	831,668	 	$	848,219	 	$	827,495	 	
 	 	 	 	 	 	 	 	
Risk-Weighted Assets	 	$	7,051,323	 	$	7,089,846	 	$	7,267,673	 	
 	 	 	 	 	 	 	 	
Key Regulatory Capital Ratios	 	 	 	 	 	 	 	
Tier 1 Capital Ratio	 	10.54	%	10.36	%	9.79	%	
Total Capital Ratio	 	11.79	 	11.96	 	11.39	 	
Leverage Ratio	 	6.99	 	7.04	 	6.80	 	

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 March 31, 2008 were as follows:

Credit Commitments (Unaudited)	 	 	 	 	 	 	 	 	 	Table 20	 	
 	 	Less Than	 	 	 	 	 	After 5	 	 	 	
(dollars in thousands)	 	One Year	 	1-3 Years	 	4-5 Years	 	Years	 	Total	 	
Unfunded Commitments to Extend Credit	 	$	675,610	 	$	343,870	 	$	298,813	 	$	1,257,392	 	$	2,575,685	 	
Standby Letters of Credit	 	92,766	 	4,021	 	—	 	—	 	96,787	 	
Commercial Letters of Credit	 	28,189	 	—	 	—	 	—	 	28,189	 	
Total Credit Commitments	 	$	796,565	 	$	347,891	 	$	298,813	 	$	1,257,392	 	$	2,700,661	 	
 
40

 
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 March 31, 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 March 31, 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 first 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 Company’s repurchases of equity securities for the first quarter of 2008 were as follows:
 
Issuer Purchases of Equity Securities (Unaudited)
 	 	 	 	 	 	Total Number of Shares	 	Approximate Dollar Value	 	
 	 	Total Number	 	 	 	Purchased as Part of	 	of Shares that May Yet Be	 	
 	 	of Shares	 	Average Price	 	Publicly Announced Plans	 	Purchased Under the	 	
Period	 	Purchased 1	 	Paid Per Share	 	or Programs	 	Plans or Programs 2	 	
January 1 - 31, 2008	 	232,041	 	$	47.09	 	215,000	 	$	84,230,473	 	
February 1 - 29, 2008	 	272,006	 	48.78	 	259,900	 	71,542,654	 	
March 1 - 31, 2008	 	182,266	 	48.20	 	178,000	 	62,963,949	 	
Total	 	686,313	 	$	48.06	 	652,900	 	 	 	

1	The months of January, February, and March 2008 included 17,041, 12,106, and 4,266 mature shares, respectively, purchased from employees in connection with 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 first quarter of 2008 pursuant to its ongoing share repurchase program that was first announced in July 2001. As of April 18, 2008, $59.8 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.	
 
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.
 
41

 
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:   April 23, 2008	Bank of Hawaii Corporation	

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

 	By:	/s/ Daniel C. Stevens	
 	 	Daniel C. Stevens	
 	 	Chief Financial Officer	
 
42

 
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)
 
 	 	Three Months Ended
March 31,	 	
(dollars in thousands)	 	2008	 	2007	 	
Earnings:	 	 	 	 	 	
Income Before Provision for Income Taxes	 	$	80,446	 	$	74,343	 	
Add:	Fixed Charges Including Interest on Deposits	 	42,496	 	50,241	 	
 	Interest on FIN 48 Liabilities	 	—	 	600	 	
Total Earnings Including Fixed Charges and Interest on Deposits and Interest on FIN 48 Liabilities	 	122,942	 	125,184	 	
Less:	Interest on Deposits	 	27,465	 	33,375	 	
 	Interest on FIN 48 Liabilities	 	—	 	600	 	
Total Earnings Excluding Interest on Deposits and Interest on FIN 48 Liabilities	 	$	95,477	 	$	91,209	 	
 	 	 	 	 	 	
Fixed Charges:	 	 	 	 	 	
Fixed Charges Including Interest on Deposits	 	$	42,496	 	$	50,241	 	
Add:	Interest on FIN 48 Liabilities	 	—	 	600	 	
Total Fixed Charges Including Interest on Deposits and Interest on FIN 48 Liabilities	 	42,496	 	50,841	 	
Less:	Interest on Deposits	 	27,465	 	33,375	 	
 	Interest on FIN 48 Liabilities	 	—	 	600	 	
Total Fixed Charges Excluding Interest on Deposits and Interest on FIN 48 Liabilities	 	$	15,031	 	$	16,866	 	
 	 	 	 	 	 	
Ratio of Earnings to Fixed Charges:	 	 	 	 	 	
Including Interest on Deposits and Interest on FIN 48 Liabilities	 	2.9	x	2.5	x	
Excluding Interest on Deposits and Interest on FIN 48 Liabilities	 	6.4	x	5.4	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:  April 23, 2008
 
 	 	  /s/ Allan R. Landon	
 	 	Allan R. Landon	
 	 	Chairman of the Board,	
 	 	Chief Executive Officer and President	

Exhibit 31.2
 
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)
Under the Securities Exchange Act of 1934
 
I, Daniel C. Stevens, 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:  April 23, 2008
 	 	  /s/ Daniel C. Stevens	
 	 	Daniel C. Stevens	
 	 	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 March 31, 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:  April 23, 2008

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

 	/s/   Daniel C. Stevens	
 	Daniel C. Stevens	
 	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.