UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)	 	 	 	
 	 	 	 	
x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2007	
 	 	 	 	 	
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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x             Accelerated filer o             Non-accelerated filer o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes o    No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
As of October 19, 2007, there were 48,999,283 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 and nine months ended
September 30, 2007 and 2006	 	3	
 	 	 	 	 	
 	 	Consolidated Statements of Condition –September 30, 2007,
December 31, 2006, and September 30, 2006	 	4	
 	 	 	 	 	
 	 	Consolidated Statements of Shareholders’ Equity – Nine months ended
September 30, 2007 and 2006	 	5	
 	 	 	 	 	
 	 	Consolidated Statements of Cash Flows – Nine months ended September 30, 2007 and 2006	 	6	
 	 	 	 	 	
 	 	Notes to Consolidated Financial Statements (Unaudited)	 	7	
 	 	 	 	 	
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	15	
 	 	 	 	 	
Item 3.	 	Quantitative and Qualitative Disclosures About Market Risk	 	44	
 	 	 	 	 	
Item 4.	 	Controls and Procedures	 	44	
 	 	 	 	 	
Part II - Other Information	 	 	
 	 	 	 	 	
Item 2.	 	Unregistered Sales of Equity Securities and Use of Proceeds	 	44	
 	 	 	 	 	
Item 5.	 	Other Information	 	44	
 	 	 	 	 	
Item 6.	 	Exhibits	 	44	
 	 	 	 	 	
Signatures	 	45	
 	 	 	
Exhibit Index	 	46	

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 30,	 	September 30,	 	
(dollars in thousands, except per share amounts)	 	2007	 	2006 1	 	2007	 	2006 1	 	
Interest Income	 	 	 	 	 	 	 	 	 	
Interest and Fees on Loans and Leases	 	$	112,787	 	$	110,065	 	$	335,111	 	$	313,824	 	
Income on Investment Securities	 	 	 	 	 	 	 	 	 	
Trading	 	1,114	 	-	 	4,089	 	-	 	
Available-for-Sale	 	33,486	 	31,949	 	96,010	 	94,010	 	
Held-to-Maturity	 	3,616	 	4,558	 	11,495	 	13,973	 	
Deposits	 	1,086	 	50	 	1,240	 	148	 	
Funds Sold	 	1,103	 	66	 	2,694	 	361	 	
Other	 	364	 	272	 	1,061	 	816	 	
Total Interest Income	 	153,556	 	146,960	 	451,700	 	423,132	 	
Interest Expense	 	 	 	 	 	 	 	 	 	
Deposits	 	37,613	 	28,464	 	104,689	 	72,753	 	
Securities Sold Under Agreements to Repurchase	 	11,726	 	11,959	 	35,277	 	29,651	 	
Funds Purchased	 	1,654	 	2,270	 	4,029	 	6,815	 	
Short-Term Borrowings	 	87	 	82	 	265	 	212	 	
Long-Term Debt	 	3,920	 	3,835	 	11,869	 	11,293	 	
Total Interest Expense	 	55,000	 	46,610	 	156,129	 	120,724	 	
Net Interest Income	 	98,556	 	100,350	 	295,571	 	302,408	 	
Provision for Credit Losses	 	4,070	 	2,785	 	10,064	 	7,615	 	
Net Interest Income After Provision for Credit Losses	 	94,486	 	97,565	 	285,507	 	294,793	 	
Noninterest Income	 	 	 	 	 	 	 	 	 	
Trust and Asset Management	 	15,146	 	14,406	 	47,114	 	43,791	 	
Mortgage Banking	 	3,848	 	2,394	 	9,698	 	7,950	 	
Service Charges on Deposit Accounts	 	11,919	 	10,723	 	33,958	 	30,550	 	
Fees, Exchange, and Other Service Charges	 	16,465	 	16,266	 	49,082	 	46,666	 	
Investment Securities Gains, Net	 	789	 	19	 	1,380	 	19	 	
Insurance	 	7,446	 	6,713	 	18,548	 	16,423	 	
Other	 	5,629	 	6,366	 	20,450	 	17,261	 	
Total Noninterest Income	 	61,242	 	56,887	 	180,230	 	162,660	 	
Noninterest Expense	 	 	 	 	 	 	 	 	 	
Salaries and Benefits	 	44,944	 	43,133	 	134,937	 	133,730	 	
Net Occupancy	 	10,267	 	9,998	 	29,773	 	29,017	 	
Net Equipment	 	4,871	 	5,285	 	14,529	 	15,115	 	
Professional Fees	 	2,369	 	2,638	 	7,511	 	5,665	 	
Other	 	18,999	 	18,751	 	56,655	 	55,838	 	
Total Noninterest Expense	 	81,450	 	79,805	 	243,405	 	239,365	 	
Income Before Provision for Income Taxes	 	74,278	 	74,647	 	222,332	 	218,088	 	
Provision for Income Taxes	 	26,499	 	27,727	 	79,489	 	88,642	 	
Net Income	 	$	47,779	 	$	46,920	 	$	142,843	 	$	129,446	 	
Basic Earnings Per Share	 	$	0.98	 	$	0.94	 	$	2.90	 	$	2.57	 	
Diluted Earnings Per Share	 	$	0.96	 	$	0.92	 	$	2.86	 	$	2.52	 	
Dividends Declared Per Share	 	$	0.41	 	$	0.37	 	$	1.23	 	$	1.11	 	
Basic Weighted Average Shares	 	48,913,293	 	49,960,617	 	49,204,295	 	50,407,013	 	
Diluted Weighted Average Shares	 	49,663,049	 	50,879,937	 	50,001,594	 	51,453,496	 	
 
1Basic earnings per share for the three and nine months ended September 30, 2006 was corrected from $0.95 and $2.58, respectively. Diluted
earnings per share for the three and nine months ended September 30, 2006 was corrected from $0.93 and $2.53, respectively. In addition, basic
weighted average shares for the three and nine months ended September 30, 2006 was corrected from 49,586,947 and 50,180,280, respectively.
Diluted weighted average shares for the three and nine months ended September 30, 2006 was corrected from 50,506,267 and 51,226,763,
respectively. Corrections were first reported in the fourth quarter of 2006.	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
3

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Condition (Unaudited)
 	 	September 30,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	2006	 	
Assets	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	35,471	 	$	4,990	 	$	5,238	 	
Funds Sold	 	-	 	50,000	 	-	 	
Investment Securities	 	 	 	 	 	 	 	
Trading	 	92,831	 	-	 	-	 	
Available-for-Sale	 	 	 	 	 	 	 	
Portfolio	 	1,935,383	 	1,846,742	 	1,973,719	 	
Pledged as Collateral	 	656,599	 	751,135	 	678,914	 	
Held-to-Maturity (Fair Value of $299,191; $360,719; and $385,891)	 	307,653	 	371,344	 	397,520	 	
Loans Held for Sale	 	8,016	 	11,942	 	15,336	 	
Loans and Leases	 	6,599,915	 	6,623,167	 	6,489,057	 	
Allowance for Loan and Lease Losses	 	(90,998	)	(90,998	)	(90,795	)	
  Net Loans and Leases	 	6,508,917	 	6,532,169	 	6,398,262	 	
Total Earning Assets	 	9,544,870	 	9,568,322	 	9,468,989	 	
Cash and Noninterest-Bearing Deposits	 	344,267	 	398,342	 	283,621	 	
Premises and Equipment	 	120,318	 	125,925	 	127,521	 	
Customers’ Acceptances	 	1,967	 	1,230	 	673	 	
Accrued Interest Receivable	 	52,652	 	49,284	 	49,339	 	
Foreclosed Real Estate	 	105	 	407	 	409	 	
Mortgage Servicing Rights	 	28,407	 	19,437	 	18,995	 	
Goodwill	 	34,959	 	34,959	 	34,959	 	
Other Assets	 	422,050	 	373,909	 	386,709	 	
Total Assets	 	$	10,549,595	 	$	10,571,815	 	$	10,371,215	 	
 	 	 	 	 	 	 	 	
Liabilities	 	 	 	 	 	 	 	
Deposits	 	 	 	 	 	 	 	
Noninterest-Bearing Demand	 	$	1,894,933	 	$	1,993,794	 	$	1,879,644	 	
Interest-Bearing Demand	 	1,530,982	 	1,642,375	 	1,608,774	 	
Savings	 	2,711,169	 	2,690,846	 	2,596,940	 	
Time	 	1,738,082	 	1,696,379	 	1,601,765	 	
Total Deposits	 	7,875,166	 	8,023,394	 	7,687,123	 	
Funds Purchased	 	191,900	 	60,140	 	160,600	 	
Short-Term Borrowings	 	10,749	 	11,058	 	11,290	 	
Securities Sold Under Agreements to Repurchase	 	1,087,511	 	1,047,824	 	1,099,260	 	
Long-Term Debt	 	235,350	 	260,288	 	265,268	 	
Banker’s Acceptances	 	1,967	 	1,230	 	673	 	
Retirement Benefits Payable	 	41,125	 	48,309	 	72,651	 	
Accrued Interest Payable	 	18,526	 	22,718	 	18,659	 	
Taxes Payable and Deferred Taxes	 	271,089	 	277,202	 	280,611	 	
Other Liabilities	 	84,515	 	100,232	 	91,608	 	
Total Liabilities	 	9,817,898	 	9,852,395	 	9,687,743	 	
Shareholders’ Equity	 	 	 	 	 	 	 	
Common Stock ($.01 par value; authorized 500,000,000 shares; issued / outstanding: September 2007 - 57,005,602 / 49,068,275; December 2006 - 56,848,609 / 49,777,654; and September 2006 - 56,848,799 / 49,809,709)	 	567	 	566	 	566	 	
Capital Surplus	 	482,586	 	475,178	 	471,908	 	
Accumulated Other Comprehensive Loss	 	(28,359	)	(39,084	)	(49,422	)	
Retained Earnings	 	671,451	 	630,660	 	605,976	 	
Treasury Stock, at Cost (Shares: September 2007 - 7,937,327;	 	 	 	 	 	 	 	
December 2006 - 7,070,955; and September 2006 - 7,039,090)	 	(394,548	)	(347,900	)	(345,556	)	
Total Shareholders’ Equity	 	731,697	 	719,420	 	683,472	 	
Total Liabilities and Shareholders’ Equity	 	$	10,549,595	 	$	10,571,815	 	$	10,371,215	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
4

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
 	 	 	 	 	 	 	 	Accum.	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Other	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	Compre-	 	 	 	Deferred	 	 	 	Compre-	 	
 	 	 	 	Common	 	Capital	 	hensive	 	Retained	 	Stock	 	Treasury	 	hensive	 	
(dollars in thousands)	 	Total	 	Stock	 	Surplus	 	Loss	 	Earnings	 	Grants	 	Stock	 	Income	 	
Balance as of December 31, 2006	 	$	719,420	 	$	566	 	$	475,178	 	$	(39,084	)	$	630,660	 	$	-	 	$	(347,900	)	 	 	
Cumulative-Effect Adjustment of a Change in Accounting Principle, Net of Tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140”	 	5,126	 	-	 	-	 	5,279	 	(153	)	-	 	-	 	 	 	
FSP No. 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction”	 	(27,106	)	-	 	-	 	-	 	(27,106	)	-	 	-	 	 	 	
FIN 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”	 	(7,247	)	-	 	-	 	-	 	(7,247	)	-	 	-	 	 	 	
Comprehensive Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	 	142,843	 	-	 	-	 	-	 	142,843	 	-	 	-	 	$	142,843	 	
Other Comprehensive Income, Net of Tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Change in Unrealized Gains and Losses on Investment Securities
Available-for-Sale	 	4,809	 	-	 	-	 	4,809	 	-	 	-	 	-	 	4,809	 	
  Amortization of Prior Service Credit and Net Actuarial Loss	 	637	 	-	 	-	 	637	 	-	 	-	 	-	 	637	 	
Total Comprehensive Income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	148,289	 	
Share-Based Compensation	 	4,464	 	-	 	4,464	 	-	 	-	 	-	 	-	 	 	 	
Tax Benefits related to Share-Based Compensation	 	2,624	 	-	 	2,624	 	-	 	-	 	-	 	-	 	 	 	
Common Stock Issued under Purchase and Equity Compensation Plans
(628,252 shares)	 	16,321	 	1	 	320	 	-	 	(6,611	)	-	 	22,611	 	 	 	
Common Stock Repurchased (1,335,305 shares)	 	(69,259	)	-	 	-	 	-	 	-	 	-	 	(69,259	)	 	 	
Cash Dividends Paid	 	(60,935	)	-	 	-	 	-	 	(60,935	)	-	 	-	 	 	 	
Balance as of September 30, 2007	 	$	731,697	 	$	567	 	$	482,586	 	$	(28,359	)	$	671,451	 	$	-	 	$	(394,548	)	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance as of December 31, 2005	 	$	693,352	 	$	565	 	$	473,338	 	$	(47,818	)	$	546,591	 	$	(11,080	)	$	(268,244	)	 	 	
Comprehensive Income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income	 	129,446	 	-	 	-	 	-	 	129,446	 	-	 	-	 	$	129,446	 	
Other Comprehensive Income, Net of Tax:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
  Change in Unrealized Gains and Losses on Investment Securities
Available-for-Sale	 	(1,604	)	-	 	-	 	(1,604	)	-	 	-	 	-	 	(1,604	)	
Total Comprehensive Income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	127,842	 	
Share-Based Compensation	 	4,017	 	-	 	4,017	 	-	 	-	 	-	 	-	 	 	 	
Tax Benefits related to Share-Based Compensation	 	5,412	 	-	 	5,412	 	-	 	-	 	-	 	-	 	 	 	
Common Stock Issued under Purchase and Equity Compensation Plans
(730,432 shares)	 	21,337	 	1	 	(10,859	)	-	 	(13,764	)	11,080	 	34,879	 	 	 	
Common Stock Repurchased (2,194,534 shares)	 	(112,191	)	-	 	-	 	-	 	-	 	-	 	(112,191	)	 	 	
Cash Dividends Paid	 	(56,297	)	-	 	-	 	-	 	(56,297	)	-	 	-	 	 	 	
Balance as of September 30, 2006	 	$	683,472	 	$	566	 	$	471,908	 	$	(49,422	)	$	605,976	 	$	-	 	$	(345,556	)	 	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
5

 
Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Cash Flows
 	 	Nine Months Ended	 	
 	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	
Operating Activities	 	 	 	 	 	
Net Income	 	$	142,843	 	$	129,446	 	
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:	 	 	 	 	 	
Provision for Credit Losses	 	10,064	 	7,615	 	
Depreciation and Amortization	 	11,006	 	12,292	 	
Amortization of Deferred Loan and Lease Fees	 	(1,354	)	(2,350	)	
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net	 	2,250	 	3,086	 	
Change in Fair Value of Mortgage Servicing Rights	 	2,221	 	-	 	
Share-Based Compensation	 	4,464	 	4,017	 	
Benefit Plan Contributions	 	(8,404	)	(1,278	)	
Deferred Income Taxes	 	(81,991	)	19,475	 	
Net Gains on Investment Securities	 	(1,380	)	(19	)	
Net Change in Trading Securities	 	71,349	 	-	 	
Proceeds from Sales of Loans Held for Sale	 	253,217	 	242,040	 	
Originations of Loans Held for Sale	 	(249,291	)	(239,461	)	
Tax Benefits from Share-Based Compensation	 	(2,624	)	(5,412	)	
Net Change in Other Assets and Other Liabilities	 	532	 	(28,363	)	
Net Cash Provided by Operating Activities	 	152,902	 	141,088	 	
 	 	 	 	 	 	
Investing Activities	 	 	 	 	 	
Investment Securities Available-for-Sale:	 	 	 	 	 	
Proceeds from Prepayments and Maturities	 	418,107	 	319,846	 	
Proceeds from Sales	 	50,012	 	25,020	 	
Purchases	 	(611,015	)	(464,103	)	
Investment Securities Held-to-Maturity:	 	 	 	 	 	
Proceeds from Prepayments and Maturities	 	63,193	 	76,183	 	
Purchases	 	-	 	(20,250	)	
Net Change in Loans and Leases	 	(28,176	)	(326,376	)	
Premises and Equipment, Net	 	(5,399	)	(5,900	)	
Net Cash Used In Investing Activities	 	(113,278	)	(395,580	)	
 	 	 	 	 	 	
Financing Activities	 	 	 	 	 	
Net Change in Deposits	 	(148,228	)	(220,345	)	
Net Change in Short-Term Borrowings	 	171,138	 	384,213	 	
Proceeds from Long-Term Debt	 	-	 	25,000	 	
Repayments of Long-Term Debt	 	(25,000	)	(2,500	)	
Tax Benefits from Share-Based Compensation	 	2,624	 	5,412	 	
Proceeds from Issuance of Common Stock	 	16,442	 	21,341	 	
Repurchase of Common Stock	 	(69,259	)	(112,191	)	
Cash Dividends Paid	 	(60,935	)	(56,297	)	
Net Cash (Used In) Provided by Financing Activities	 	(113,218	)	44,633	 	
 	 	 	 	 	 	
Net Change in Cash and Cash Equivalents	 	(73,594	)	(209,859	)	
Cash and Cash Equivalents at Beginning of Period	 	453,332	 	498,718	 	
Cash and Cash Equivalents at End of Period	 	$	379,738	 	$	288,859	 	
Supplemental Information	 	 	 	 	 	
Cash Paid for:	 	 	 	 	 	
Interest	 	$	160,321	 	$	112,975	 	
Income Taxes	 	73,981	 	63,935	 	
Non-Cash Investing and Financing Activities:	 	 	 	 	 	
Transfers from Investment Securities-Available-for-Sale to Trading	 	164,180	 	-	 	
Transfers from Loans to Foreclosed Real Estate	 	243	 	514	 	
 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).
 
6

 
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 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 footnotes required by GAAP for complete financial statements. In the opinion of management, the consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods.
 
Certain prior period 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, 2006. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.
 
Mortgage Servicing Rights
 
Effective January 1, 2007, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 156,  “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140.”   SFAS No. 156 requires all separately recognized servicing assets and liabilities to be initially measured at fair value, if practicable. In adopting the provisions of SFAS No. 156, the Company recorded an increase in the value of mortgage servicing rights of $8.0 million and a net of tax increase to retained earnings of $5.1 million. Also, as permitted by SFAS No. 156, the Company reclassified investment securities with a carrying value of $164.2 million (“Designated Securities”) from the available-for-sale portfolio to the trading portfolio. Concurrently, the Company reclassified unrealized losses of $5.3 million, net of tax, previously recorded as a component of accumulated other comprehensive loss, to retained earnings. The Designated Securities are recorded at fair value on the Company’s statement of condition, with realized and unrealized gains and losses recorded as the change in fair value of Designated Securities in mortgage banking income. The change in fair value of Designated Securities is intended to offset changes in valuation assumptions affecting the recorded value of the Company’s mortgage servicing rights. The net after-tax cumulative-effect adjustment to adopt the provisions of SFAS No. 156 was to reduce retained earnings by $0.2 million as of January 1, 2007. The fair value measurement provisions of SFAS No. 156 were adopted for subsequent re-measurements of the Company’s mortgage servicing rights.
 
7

 
Leveraged Leases
 
Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Staff Position (“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,”  which amends SFAS No. 13, “Accounting for Leases.”   The timing of cash flows relating to income taxes generated by a leveraged lease is an important assumption that affects the periodic income recognized by the lessor for that lease transaction. Under the provisions of FSP No. 13-2, a change or projected change in the timing of cash flows relating to income taxes generated by a leveraged lease transaction requires a recalculation of the total and periodic income related to the leveraged lease transaction. During the years 1998 through 2002, the Company entered into one leveraged lease transaction known as a Lease In-Lease Out (“LILO”) transaction and five leveraged lease transactions known as Sale In-Lease Out (“SILO”) transactions. As of January 1, 2007, these LILO and SILO transactions were in various stages of review by the Internal Revenue Service (the “IRS”). Management expected that the outcome of these reviews would change the projected timing of cash flows from these leveraged leases. As a result, in adopting the provisions of FSP No. 13-2 on January 1, 2007, the Company recorded an after-tax cumulative-effect adjustment to reduce retained earnings by $27.1 million. This adjustment represented a $42.7 million reduction in the carrying value of lease financing balances and a $15.6 million reduction in deferred income taxes payable. The provisions of FSP No. 13-2 also provide that subsequent changes in the timing of projected cash flows that results in a change in the net investment of a leveraged lease is to be recorded as a gain or loss in the Company’s results of operations in the period in which the assumption is changed.
 
During the second quarter of 2007, the Company reached an agreement with the IRS as to the terms of settlement of the issues related to the Company’s LILO transaction. See Note 4 for further discussion on the matter. There has been no change in the status of the IRS review of the Company’s SILO transactions.
 
Income Taxes
 
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109.”   FIN 48 established a recognition threshold and measurement attributes for income tax positions recognized in the Company’s financial statements in accordance with SFAS No. 109,  “Accounting for Income Taxes.”   In evaluating a tax position for recognition, FIN 48 requires that the Company judgmentally evaluate whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of related appeals or litigation processes, based on the technical merits of the position. If the tax position meets the more-likely-than-not recognition threshold, the tax position is measured and recognized in the Company’s financial statements as the largest amount of tax benefit that, in management’s judgment, is greater than 50% likely of being realized upon ultimate settlement. Effective January 1, 2007, the Company also adopted the provisions of FSP No. FIN 48-1,  “Definition of Settlement in FASB Interpretation No. 48,”  which provides guidance on how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing a liability for previously unrecognized tax benefits in the statement of condition. In adopting the provisions of FIN 48 and FSP No. FIN 48-1 on January 1, 2007, the Company recorded an after-tax cumulative-effect adjustment to reduce retained earnings by $7.2 million.
 
See Note 4 for further discussion on the Company’s FIN 48 tax positions as of January 1, 2007 and September 30, 2007.
 
8

 
Future Application of Accounting Pronouncements
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which is effective for the Company on January 1, 2008. SFAS No. 157 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. Management is currently evaluating the effect that the provisions of SFAS No. 157 will have on the Company’s statements of income and condition.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,”  which is effective for the Company on January 1, 2008. SFAS No. 159 provides entities with an option to report selected financial assets and financial liabilities, on an instrument by instrument basis, at fair value, with the objective of reducing both the complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Management is currently evaluating the effect that the provisions of SFAS No. 159 will have on the Company’s statements of income and condition.
 
Note 2. Mortgage Banking
 
The Company’s portfolio of residential mortgage loans serviced for third parties was $2.5 billion as of September 30, 2007 and 2006. The Company’s mortgage servicing activities includes collecting principal, interest, and escrow payments from borrowers; making tax and insurance payments on behalf of the borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest payments to investors. The Company’s residential mortgage loan servicing portfolio is comprised primarily of fixed rate loans concentrated in Hawaii.
 
Mortgage servicing rights are recognized as assets when mortgage loans are sold and the rights to service those loans are retained. As of December 31, 2006, the Company recorded its mortgage servicing rights at their relative fair values on the date the loans were sold and were carried at the lower of the initial recorded value, adjusted for amortization, or fair value. As of January 1, 2007, the Company adopted the provisions of SFAS No. 156 which requires all separately recognized servicing assets to be initially measured at fair value, if practicable. As of January 1, 2007, the Company identified its entire balance of mortgage servicing rights as one class of servicing assets for this measurement. The table below reconciles the balance of the Company’s mortgage servicing rights as of December 31, 2006 and January 1, 2007.
 
(Unaudited)     (dollars in thousands)	 	 	 	
Balance as of December 31, 2006	 	$	19,437	 	
Cumulative-Effect of a Change in Accounting Principle	 	8,007	 	
Balance as of January 1, 2007	 	$	27,444	 	
 
9

 
The changes in the fair value of the Company’s mortgage servicing rights for the three and nine months ended September 30, 2007 were as follows:
 
 	 	Three Months Ended	 	Nine Months Ended	 	
(Unaudited)     (dollars in thousands)	 	September 30, 2007	 	September 30, 2007	 	
Beginning of Period, Fair Value	 	$	29,112	 	$	27,444	 	
Origination of Mortgage Servicing Rights	 	916	 	3,184	 	
Change in Fair Value of Mortgage Servicing Rights:	 	 	 	 	 	
Due to Change in Valuation Assumptions1	 	(433	)	736	 	
Due to Paydowns and Other2	 	(1,188	)	(2,957	)	
Total Change in Fair Value of Mortgage Servicing Rights	 	(1,621	)	(2,221	)	
End of Period, Fair Value	 	$	28,407	 	$	28,407	 	
 
1 Principally represents changes in discount rates and loan repayment rate assumptions, mostly due to changes in interest rates.
2Principally represents changes due to the realization of expected cash flows over time.
 
The Company estimates the fair value of its mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The model uses factors such as loan repayment rates, costs to service, ancillary income, impound account balances, and interest rate assumptions in its calculations. Risks inherent in the valuation of mortgage servicing rights include changes in interest rates, higher than expected loan repayment rates, and the delayed receipt of cash flows, among other factors. The key assumptions used in estimating the fair value of the Company’s mortgage servicing rights as of September 30, 2007 were as follows:
 
 	 	As of	 	
(Unaudited)	 	September 30, 2007	 	
Weighted-Average Constant Prepayment Rate1	 	10.79	%	 	
Weighted-Average Life (in years)	 	6.10	 	 	
Weighted-Average Note Rate	 	5.82	%	 	
Weighted-Average Discount Rate	 	8.57	%	 	
 
1Represents annualized loan repayment rate assumption.
 
For the three and nine months ended September 30, 2007 and 2006, the Company’s mortgage banking income was comprised of the following:
 
Mortgage Banking Income (Unaudited)
 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 30,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	2007	 	2006	 	
Mortgage Origination and Servicing Activities	 	 	 	 	 	 	 	 	 	
Servicing Income	 	$	1,515	 	$	1,550	 	$	4,553	 	$	4,618	 	
Gains on the Sale of Residential Mortgage Loans	 	1,085	 	1,150	 	3,510	 	3,792	 	
Mortgage Loan Fees	 	635	 	410	 	1,857	 	1,528	 	
Change in Fair Value of Mortgage Servicing Rights	 	 	 	 	 	 	 	 	 	
Due to Paydowns and Other	 	(1,188	)	-	 	(2,957	)	-	 	
Other	 	-	 	10	 	57	 	-	 	
Total Mortgage Origination and Servicing Activities	 	2,047	 	3,120	 	7,020	 	9,938	 	
Mortgage Servicing Rights and Fair Value Activities	 	 	 	 	 	 	 	 	 	
Change in Fair Value of Mortgage Servicing Rights
Due to Change in Valuation Assumptions	 	(433	)	-	 	736	 	-	 	
Change in Fair Value of Designated Securities1,2	 	2,257	 	-	 	1,914	 	-	 	
Gains (Losses) on Derivative Financial Instruments	 	(23	)	(57	)	28	 	(118	)	
Amortization of Mortgage Servicing Rights	 	-	 	(669	)	-	 	(1,870	)	
Total Mortgage Servicing Rights and Fair Value Activities	 	1,801	 	(726	)	2,678	 	(1,988	)	
Total Mortgage Banking Income	 	$	3,848	 	$	2,394	 	$	9,698	 	$	7,950	 	
 
1Designated Securities were comprised of mortgage-backed securities in the Company’s investment trading portfolio, which were used to manage the volatility of the fair value of the mortgage servicing rights.
2Realized investment trading gains and losses were not material for the three and nine months ended September 30, 2007.
 
10

 
The fair value of the Company’s mortgage servicing rights is sensitive to changes in interest rates and their effect on loan repayment rates. A sensitivity analysis of the Company’s fair value of mortgage servicing rights to changes in the constant prepayment rate and the discount rate is presented in the following table:
 
Sensitivity Analysis (Unaudited)
 	 	As of	 	
(dollars in thousands)	 	September 30, 2007	 	
Constant Prepayment Rate	 	 	 	
Decrease in fair value from 25 basis points (“bps”) adverse change	 	$	(273)	 	
Decrease in fair value from 50 bps adverse change	 	(541)	 	
Discount Rate	 	 	 	
Decrease in fair value from 25 bps adverse change	 	(274)	 	
Decrease in fair value from 50 bps adverse change	 	(543)	 	

This analysis generally cannot be extrapolated because the relationship of a change in one key assumption to the change in the fair value of the Company’s mortgage servicing rights usually is not linear. The calculation of the fair value of mortgage servicing rights is dynamic in nature, in that changes in one key assumption may result in changes in other assumptions, which may magnify or counteract the sensitivity analysis presented in the table above.
 
Note 3. Pension Plans and Postretirement Benefit Plan
 
The components of net periodic benefit cost for the Company’s pension plans and the postretirement benefit plan for the three and nine months ended September 30, 2007 and 2006 are presented in the following table:
 
Pension Plans and Postretirement Benefit Plan (Unaudited)
 	 	Pension Benefits	 	 	Postretirement Benefits	 	
(dollars in thousands)	 	2007	 	2006	 	 	2007	 	2006	 	
Three Months Ended September 30,	 	 	 	 	 	 	 	 	 	 	
Service Cost	 	$	-	 	$	-	 	 	$	178	 	$	290	 	
Interest Cost	 	1,223	 	1,170	 	 	412	 	480	 	
Expected Return on Plan Assets	 	(1,373	)	(1,261	)	 	-	 	-	 	
Amortization of Unrecognized Net Transition Obligation	 	-	 	-	 	 	-	 	147	 	
Prior Service Credit	 	-	 	-	 	 	(50	)	-	 	
Recognized Net Actuarial Losses (Gains)	 	450	 	469	 	 	(75	)	(36	)	
Net Periodic Benefit Cost	 	$	300	 	$	378	 	 	$	465	 	$	881	 	
 	 	 	 	 	 	 	 	 	 	 	
Nine Months Ended September 30,	 	 	 	 	 	 	 	 	 	 	
Service Cost	 	$	-	 	$	-	 	 	$	488	 	$	870	 	
Interest Cost	 	3,669	 	3,510	 	 	1,202	 	1,440	 	
Expected Return on Plan Assets	 	(4,119	)	(3,783	)	 	-	 	-	 	
Amortization of Unrecognized Net Transition Obligation	 	-	 	-	 	 	-	 	440	 	
Prior Service Credit	 	-	 	-	 	 	(150	)	-	 	
Recognized Net Actuarial Losses (Gains)	 	1,350	 	1,406	 	 	(225	)	(106	)	
Net Periodic Benefit Cost	 	$	900	 	$	1,133	 	 	$	1,315	 	$	2,644	 	
 
11

 
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 $7.7 million that the Company expects to contribute to the pension plans and the $1.3 million that it expects to contribute to the postretirement benefit plan for the year ending December 31, 2007. For the three and nine months ended September 30, 2007, the Company contributed $2.8 million and $7.6 million, respectively, to its pension plans. For the three and nine months ended September 30, 2007, the Company contributed $0.3 million and $0.8 million, respectively, to its postretirement benefit plan.
 
Note 4. Income Taxes
 
The following is a reconciliation of the statutory Federal income tax rate to the Company’s effective income tax rate for the three and nine months ended September 30, 2007 and 2006.
 
 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 30,	 	September 30,	 	
(Unaudited)	 	2007	 	2006	 	2007	 	2006	 	
Statutory Federal Income Tax Rate	 	35.00	%	35.00	%	35.00	%	35.00	%	
Increase (Decrease) in Income Tax Rate Resulting From:	 	 	 	 	 	 	 	 	 	
State Income Tax, Net of Federal Income Tax	 	3.13	 	3.08	 	3.54	 	3.31	 	
Foreign Tax Credits	 	(1.07	)	-	 	(1.08	)	-	 	
Low Income Housing Investments	 	(0.14	)	(0.19	)	(0.14	)	(0.19	)	
Bank-Owned Life Insurance	 	(0.92	)	(0.79	)	(0.91	)	(0.71	)	
Leveraged Leases	 	(0.08	)	0.11	 	(0.36	)	3.35	 	
Other	 	(0.24	)	(0.07	)	(0.30	)	(0.11	)	
Effective Income Tax Rate	 	35.68	%	37.14	%	35.75	%	40.65	%	
 
Income earned by the Company is subject to U.S. Federal taxation and to state and territorial taxation in Hawaii and Guam, respectively. Nominal amounts of income are subject to taxation by other states and territories as well as some foreign countries.
 
As noted in Note 1, the Company reached an agreement with the IRS to effectively settle the matter related to the LILO transaction in June 2007. The effective settlement with the IRS resulted in a change in the timing of projected cash flows from the LILO transaction. In January 2007, in adopting the provisions of FSP No. 13-2, the Company recalculated the total and periodic income from the LILO transaction assuming an entire disallowance of income tax deductions taken on previously filed tax returns based on a tax court case, involving another taxpayer, which concluded in January 2007. With the effective settlement of the LILO transaction at a disallowance percentage of less than its original estimate, the Company recalculated the total and periodic income from the LILO transaction from the inception of the lease through June 30, 2007. In the second quarter of 2007, the Company recorded a $1.5 million credit, which was comprised of a $1.1 million credit to lease financing interest income and a $0.4 million net credit to the provision for income taxes, as a result of the June 2007 change in the disallowance assumption. The Company expects to pay the settlement of the LILO transaction with the IRS and adjust related asset and liability accounts in the fourth quarter of 2007. The Company is currently appealing issues raised by the IRS in the examination of its income tax returns filed for 1998 through 2002 related to the Company’s five SILO transactions. The IRS continues to review the Company’s SILO transactions. The IRS is currently in the process of examining income tax returns filed for 2003 and 2004. The State of Hawaii is currently in the process of examining income tax returns filed for 2002 through 2004.
 
12

 
As summarized in Note 1, FIN 48 established the threshold and measurement attributes for income tax positions recognized in the Company’s financial statements in accordance with SFAS No. 109. FIN 48 requires the Company to record a liability, referred to as an unrecognized tax benefit (“UTB”), for the entire amount of benefit taken in a prior or future income tax return when the Company determines that a tax position has a less than 50% likelihood of being accepted by the taxing authority. If the Company determines that the likelihood of a tax position being accepted is greater than 50%, but less than 100%, the Company records a liability for UTBs in the amount it believes may be disallowed by the taxing authority.
 
As of December 31, 2006, prior to adopting the provisions of FIN 48, the Company had recorded the equivalent of $116.4 million of UTBs in its statement of condition. On January 1, 2007, in adopting the provisions of FIN 48, the Company increased its liability for UTBs to $130.6 million, of which $7.2 million was recorded as a cumulative-effect adjustment to reduce retained earnings, primarily due to the accrual of interest expense. As of January 1, 2007, of the $130.6 million in the Company’s liability for UTBs, $29.3 million was related to UTBs that if reversed would have an impact on the Company’s effective tax rate. As of September 30, 2007, there were no material changes in the Company’s liability for UTBs or in the amount, that if reversed, would have an impact on the Company’s effective tax rate. With respect to the Company’s appeals of its five SILO transactions, it is reasonably possible that the amount of the liability for UTBs may decrease if facts and circumstances related to the IRS appeals change within the next twelve months. However, management is currently not able to estimate a range of possible change in the amount of the liability for UTBs recorded as of September 30, 2007.
 
The Company classifies interest and penalties, if any, related to the liability for UTBs as a component of the provision for income taxes. As of January 1, 2007, after recording the cumulative-effect adjustment to adopt the provisions of FIN 48, the Company had accrued $21.7 million for the payment of possible interest and penalties. During the three and nine month periods ended September 30, 2007, the amount recorded by the Company as an estimate of additional interest and penalties in the provision for income taxes was not material.
 
Note 5. Business Segments
 
The Company’s business segments are 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.
 
13

 
Selected financial information for each segment is presented below for the three and nine months ended September 30, 2007 and 2006.
 
Business Segment Selected Financial Information (Unaudited)
 	 	Retail	 	Commercial	 	Investment	 	 	 	Consolidated	 	
(dollars in thousands)	 	Banking	 	Banking	 	Services	 	Treasury	 	Total	 	
Three Months Ended September 30, 2007	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	60,219	 	$	34,953	 	$	5,584	 	$	(2,200	)	$	98,556	 	
Provision for Credit Losses	 	2,975	 	1,284	 	(1	)	(188	)	4,070	 	
Net Interest Income (Loss) After Provision for Credit Losses	 	57,244	 	33,669	 	5,585	 	(2,012	)	94,486	 	
Noninterest Income	 	26,600	 	10,928	 	18,328	 	5,386	 	61,242	 	
Noninterest Expense	 	(43,304	)	(19,807	)	(17,046	)	(1,293	)	(81,450	)	
Income Before Provision for Income Taxes	 	40,540	 	24,790	 	6,867	 	2,081	 	74,278	 	
Provision for Income Taxes	 	(15,000	)	(9,174	)	(2,541	)	216	 	(26,499	)	
Allocated Net Income	 	$	25,540	 	$	15,616	 	$	4,326	 	$	2,297	 	$	47,779	 	
Total Assets as of September 30, 2007	 	$	4,014,879	 	$	2,739,558	 	$	231,585	 	$	3,563,573	 	$	10,549,595	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Three Months Ended September 30, 2006 1	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	58,345	 	$	33,996	 	$	5,339	 	$	2,670	 	$	100,350	 	
Provision for Credit Losses	 	2,609	 	480	 	-	 	(304	)	2,785	 	
Net Interest Income After Provision for Credit Losses	 	55,736	 	33,516	 	5,339	 	2,974	 	97,565	 	
Noninterest Income	 	25,243	 	11,929	 	17,344	 	2,371	 	56,887	 	
Noninterest Expense	 	(43,030	)	(19,739	)	(15,432	)	(1,604	)	(79,805	)	
Income Before Provision for Income Taxes	 	37,949	 	25,706	 	7,251	 	3,741	 	74,647	 	
Provision for Income Taxes	 	(14,039	)	(9,682	)	(2,683	)	(1,323	)	(27,727	)	
Allocated Net Income	 	$	23,910	 	$	16,024	 	$	4,568	 	$	2,418	 	$	46,920	 	
Total Assets as of September 30, 2006 1	 	$	3,931,999	 	$	2,692,163	 	$	219,715	 	$	3,527,338	 	$	10,371,215	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Nine Months Ended September 30, 2007	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income (Loss)	 	$	176,902	 	$	104,028	 	$	16,661	 	$	(2,020	)	$	295,571	 	
Provision for Credit Losses	 	8,867	 	1,409	 	(1	)	(211	)	10,064	 	
Net Interest Income (Loss) After Provision for Credit Losses	 	168,035	 	102,619	 	16,662	 	(1,809	)	285,507	 	
Noninterest Income	 	79,560	 	30,095	 	57,417	 	13,158	 	180,230	 	
Noninterest Expense	 	(128,979	)	(60,330	)	(49,730	)	(4,366	)	(243,405	)	
Income Before Provision for Income Taxes	 	118,616	 	72,384	 	24,349	 	6,983	 	222,332	 	
Provision for Income Taxes	 	(43,889	)	(26,614	)	(9,009	)	23	 	(79,489	)	
Allocated Net Income	 	$	74,727	 	$	45,770	 	$	15,340	 	$	7,006	 	$	142,843	 	
Total Assets as of September 30, 2007	 	$	4,014,879	 	$	2,739,558	 	$	231,585	 	$	3,563,573	 	$	10,549,595	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Nine Months Ended September 30, 2006 1	 	 	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	172,637	 	$	100,725	 	$	16,316	 	$	12,730	 	$	302,408	 	
Provision for Credit Losses	 	6,965	 	1,218	 	999	 	(1,567	)	7,615	 	
Net Interest Income After Provision for Credit Losses	 	165,672	 	99,507	 	15,317	 	14,297	 	294,793	 	
Noninterest Income	 	74,149	 	28,242	 	52,651	 	7,618	 	162,660	 	
Noninterest Expense	 	(126,851	)	(58,892	)	(48,886	)	(4,736	)	(239,365	)	
Income Before Provision for Income Taxes	 	112,970	 	68,857	 	19,082	 	17,179	 	218,088	 	
Provision for Income Taxes	 	(41,797	)	(34,263	)	(7,051	)	(5,531	)	(88,642	)	
Allocated Net Income	 	$	71,173	 	$	34,594	 	$	12,031	 	$	11,648	 	$	129,446	 	
Total Assets as of September 30, 2006 1	 	$	3,931,999	 	$	2,692,163	 	$	219,715	 	$	3,527,338	 	$	10,371,215	 	
 
1Certain prior period information has been reclassified to conform to the current presentation.
 
14

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Forward-Looking Statements
 
This report may contain, and other statements made by the Company in connection with this report may contain, forward-looking statements concerning, among other things, the Company’s business outlook, the economic and business environment in the Company’s service areas and elsewhere, credit quality, and other financial and business matters in future periods. The Company’s 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 for a variety of reasons, 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 the Company serves; 5) changes in accounting standards; 6) changes in tax laws or regulations or the interpretation of such laws and regulations; 7) changes in the Company’s credit quality or risk profile that may increase or decrease the required level of the reserve for credit losses; 8) changes in market interest rates that may affect the Company’s credit markets and ability to maintain its net interest margin; 9) unpredictable costs and other consequences of legal, tax, or regulatory matters; 10) changes to the amount and timing of proposed common stock repurchases; and 11) geopolitical risk, military or terrorist activity, natural disaster, adverse weather, public health and other conditions impacting the Company and its 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, 2006, and subsequent periodic and current reports, filed with the U.S. Securities and Exchange Commission. 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. The Company does not undertake an obligation to update forward-looking statements to reflect later events or circumstances.
 
Overview
 
2007+ Plan
 
In January 2007, the Company introduced its 2007+ Plan to its shareholders, customers, and employees. The 2007+ Plan emphasizes growth in revenues, integration of service delivery and business units, development of people, enhancement of the Bank of Hawaii brand, and discipline in managing risk and financial performance. The 2007+ Plan does not contemplate near-term expansion beyond the Company’s current footprint.
 
The Company’s 2007+ Plan is based on moderate growth in revenues and consistent positive operating leverage. Performance objectives include an annual return on assets above 1.7%, return on equity above 25%, and an efficiency ratio approaching 50%, and is based on a stable economy and a return to a more traditional interest rate environment. The Company’s 2007+ Plan will be reevaluated periodically and updated as market events and business developments dictate.
 
For the three and nine months ended September 30, 2007, the Company has met its financial performance objectives, despite a challenging interest rate environment during this period. In an effort to better serve customers and to increase revenue growth potential, the Company announced plans for an International Banking Center located in Waikiki. The Bank’s current international operations are spread throughout several branches.
 
15

 
Effective September 1, 2007, Peter Ho, vice chairman and chief banking officer, assumed responsibility for the Company’s Retail Banking segment in addition to his responsibilities for overseeing the Commercial Banking and Investment Services segments. This change is consistent with the Company’s 2007+ Plan to further integrate the management of the business units and to increase opportunities for employees.
 
Earnings Summary
 
The Company reported strong financial performance for the three and nine months ended September 30, 2007 compared to the same periods in 2006. The Company had growth in noninterest income while controlling increases to noninterest expense. These positive factors offset the continued decrease of net interest margin the Company has experienced as a result of the challenging interest rate environment. Overall credit quality of the Company remains strong and the Hawaii economy remains stable.
 
16

 
Table 1 presents the Company’s financial highlights and performance ratios for the three and nine months ended September 30, 2007 and 2006 and as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
Financial Highlights (Unaudited)	 	 	 	Table 1	 	
 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 30,	 	September 30,	 	
(dollars in thousands, except per share amounts)	 	2007	 	2006 1	 	2007	 	2006 1	 	
For the Period:	 	 	 	 	 	 	 	 	 	
Net Interest Income	 	$	98,556	 	$	100,350	 	$	295,571	 	$	302,408	 	
Total Noninterest Income	 	61,242	 	56,887	 	180,230	 	162,660	 	
Net Income	 	47,779	 	46,920	 	142,843	 	129,446	 	
Basic Earnings Per Share	 	0.98	 	0.94	 	2.90	 	2.57	 	
Diluted Earnings Per Share	 	0.96	 	0.92	 	2.86	 	2.52	 	
Dividends Declared Per Share	 	0.41	 	0.37	 	1.23	 	1.11	 	
 	 	 	 	 	 	 	 	 	 	
Net Income to Average Total Assets	 	1.79	%	1.81	%	1.82	%	1.70	%	
Net Income to Average Shareholders’ Equity	 	26.02	 	27.09	 	26.43	 	24.99	 	
Net Interest Margin 2	 	4.03	 	4.20	 	4.07	 	4.29	 	
Operating Leverage 3	 	 	 	 	 	2.97	 	3.68	 	
Efficiency Ratio 4	 	50.97	 	50.75	 	51.16	 	51.47	 	
 	 	 	 	 	 	 	 	 	 	
Average Assets	 	$	10,576,565	 	$	10,309,314	 	$	10,480,803	 	$	10,190,904	 	
Average Loans and Leases	 	6,570,261	 	6,470,883	 	6,554,979	 	6,324,492	 	
Average Deposits	 	8,015,594	 	7,731,993	 	7,916,061	 	7,734,242	 	
Average Shareholders’ Equity	 	728,372	 	687,172	 	722,522	 	692,643	 	
Average Shareholders’ Equity to Average Assets	 	6.89	%	6.67	%	6.89	%	6.80	%	
 	 	 	 	 	 	 	 	 	 	
Market Price Per Share of Common Stock:	 	 	 	 	 	 	 	 	 	
Closing	 	$	52.85	 	$	48.16	 	$	52.85	 	$	48.16	 	
High	 	55.84	 	50.75	 	55.84	 	55.15	 	
Low	 	46.05	 	47.00	 	46.05	 	47.00	 	
 
 	 	September 30,	 	December 31,	 	September 30,	 	
 	 	2007	 	2006	 	2006	 	
As of Period End:	 	 	 	 	 	 	 	
Net Loans and Leases	 	$	6,508,917	 	$	6,532,169	 	$	6,398,262	 	
Total Assets	 	10,549,595	 	10,571,815	 	10,371,215	 	
Total Deposits	 	7,875,166	 	8,023,394	 	7,687,123	 	
Long-Term Debt	 	235,350	 	260,288	 	265,268	 	
Total Shareholders’ Equity	 	731,697	 	719,420	 	683,472	 	
 	 	 	 	 	 	 	 	
Non-Performing Assets	 	$	4,260	 	$	6,407	 	$	5,442	 	
 	 	 	 	 	 	 	 	
Allowance to Loans and Leases Outstanding	 	1.38	%	1.37	%	1.40	%	
Dividend Payout Ratio 5	 	41.84	 	39.81	 	39.36	 	
Leverage Ratio	 	6.95	 	7.06	 	6.90	 	
 	 	 	 	 	 	 	 	
Book Value Per Common Share	 	$	14.91	 	$	14.45	 	$	13.72	 	
 	 	 	 	 	 	 	 	
Full-Time Equivalent Employees	 	2,572	 	2,586	 	2,589	 	
Branches and Offices	 	84	 	86	 	86	 	
 
1	Certain prior period information has been reclassified to conform to current presentation. In addition, basic earnings per share for the three and nine months ended September 30, 2006 was corrected from $0.95 and $2.58, respectively. Diluted earnings per share for the three and nine months ended September 30, 2006 was corrected from $0.93 and $2.53, respectively. Corrections were first reported in the fourth quarter of 2006.	
2	Net interest margin is defined as net interest income, on a taxable equivalent basis, as a percentage of average earning assets.	
3	Operating leverage is defined as the percentage change in income before provision for credit losses and the provision for income taxes.	
4	Efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and total noninterest income).	
5	Dividend payout ratio is defined as dividends declared per share divided by basic earnings per share for the quarter.	
 
17

 
Recent Accounting Changes
 
The Company adopted several new accounting pronouncements on January 1, 2007. Note 1 to the Consolidated Financial Statements (Unaudited), which is incorporated herein by reference, provides additional information on the adoption of these recently issued accounting pronouncements as well as the future application of accounting pronouncements not yet adopted by the Company.
 
Analysis of Statements of Income
 
Net Interest Income
 
Net interest income, on a taxable equivalent basis, decreased by $1.7 million or 2% and by $6.6 million or 2% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006.  The Company’s net interest margin decreased by 17 and 22 basis points for the three and nine months ended September 30, 2007, respectively, as a result of the prolonged effects of the inverted or flat yield curve.
 
The decrease in net interest income, on a taxable equivalent basis, in 2007 was primarily due to the Company’s increased funding costs. Rates paid on interest-bearing deposits increased by 48 and 64 basis points for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. Partially offsetting the increase in the Company’s funding costs was an increase in the yields on the Company’s loans, leases, and investment securities. Yields on loans and leases increased by 6 and 20 basis points for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. The higher yields in the Company’s loan and lease portfolio were primarily driven by the re-pricing of variable rate residential mortgage and home equity loans during 2006 and 2007. Yields on the Company’s available-for-sale investment securities increased by 31 and 27 basis points for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006, primarily due to a generally rising interest rate environment in 2006 and 2007.
 
The increase in the Company’s funding costs in 2007 was also affected by an increase in average savings and time deposit balances and average balances of securities sold under agreements to repurchase. Average savings and time deposits collectively increased by $395.4 million or 9% and by $302.2 million or 7% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. Customers have shifted their balances from noninterest-bearing demand accounts to higher yielding savings and time deposit accounts. Average balances in securities sold under agreements to repurchase increased by $10.7 million or 1% and by $163.3 million or 19% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. Securities sold under agreement to repurchase have served as one source of funding the Company’s growth in loans in leases over this period of time. The increase in the Company’s interest-bearing liabilities was offset by an increase in average loans and leases by $99.4 million or 2% and by $230.5 million or 4% for the three and nine months ended September 30, 2007, respectively, compared to the same periods 2006, with growth in substantially all loan categories.
 
Average balances, related income and expenses, and resulting yields and rates, on a taxable equivalent basis, are presented in Table 2 for the three and nine months ended September 30, 2007 and 2006. An analysis of the change in net interest income, on a taxable equivalent basis, from the nine months ended September 30, 2006 to the nine months ended September 30, 2007, is presented in Table 3.
 
18

 
Average Balances and Interest Rates - Taxable Equivalent Basis (Unaudited)	Table 2	
 
 	 	Three Months Ended
September 30, 2007	 	Three Months Ended
September 30, 2006  1	 	Nine Months Ended
September 30, 2007	 	Nine Months Ended
September 30, 2006  1	 	
 	 	Average	 	Income/	 	Yield/	 	Average	 	Income/	 	Yield/	 	Average	 	Income/	 	Yield/	 	Average	 	Income/	 	Yield/	 	
(dollars in millions)	 	Balance	 	Expense	 	Rate	 	Balance	 	Expense	 	Rate	 	Balance	 	Expense	 	Rate	 	Balance	 	Expense	 	Rate	 	
Earning Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	79.8	 	$	1.1	 	5.35	%	$	4.9	 	$	0.1	 	4.12	%	$	31.1	 	$	1.2	 	5.29	%	$	5.3	 	$	0.1	 	3.74	%	
Funds Sold	 	86.2	 	1.1	 	5.01	 	5.1	 	0.1	 	5.09	 	69.3	 	2.7	 	5.12	 	10.0	 	0.4	 	4.77	 	
Investment Securities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Trading	 	111.3	 	1.1	 	4.00	 	-	 	-	 	-	 	136.6	 	4.1	 	3.99	 	-	 	-	 	-	 	
Available-for-Sale	 	2,556.7	 	33.7	 	5.28	 	2,583.0	 	32.1	 	4.97	 	2,499.3	 	96.7	 	5.16	 	2,578.9	 	94.5	 	4.89	 	
Held-to-Maturity	 	318.0	 	3.6	 	4.55	 	413.3	 	4.5	 	4.41	 	339.3	 	11.5	 	4.52	 	428.7	 	14.0	 	4.35	 	
Loans Held for Sale	 	7.3	 	0.1	 	6.78	 	8.1	 	0.1	 	6.45	 	9.4	 	0.5	 	6.41	 	9.6	 	0.5	 	6.24	 	
Loans and Leases 2	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	1,048.9	 	19.7	 	7.45	 	1,024.3	 	19.3	 	7.46	 	1,059.3	 	59.0	 	7.45	 	975.0	 	53.0	 	7.27	 	
Construction	 	262.2	 	5.3	 	8.00	 	232.2	 	4.9	 	8.30	 	253.9	 	15.1	 	7.97	 	184.2	 	11.2	 	8.16	 	
Commercial Mortgage	 	627.6	 	10.8	 	6.82	 	614.0	 	10.5	 	6.77	 	621.4	 	31.7	 	6.82	 	595.1	 	29.6	 	6.65	 	
Residential Mortgage	 	2,502.4	 	38.5	 	6.15	 	2,454.6	 	36.8	 	6.01	 	2,499.5	 	114.9	 	6.13	 	2,442.2	 	108.7	 	5.93	 	
Other Revolving Credit and Installment	 	685.8	 	16.2	 	9.35	 	705.6	 	16.4	 	9.21	 	690.8	 	47.9	 	9.27	 	716.3	 	48.6	 	9.07	 	
Home Equity	 	946.2	 	18.3	 	7.67	 	937.2	 	17.9	 	7.59	 	943.3	 	53.9	 	7.64	 	914.9	 	50.2	 	7.33	 	
Lease Financing	 	497.2	 	3.9	 	3.15	 	503.0	 	4.1	 	3.27	 	486.8	 	12.1	 	3.32	 	496.8	 	12.0	 	3.23	 	
Total Loans and Leases	 	6,570.3	 	112.7	 	6.82	 	6,470.9	 	109.9	 	6.76	 	6,555.0	 	334.6	 	6.82	 	6,324.5	 	313.3	 	6.62	 	
Other	 	79.4	 	0.4	 	1.83	 	79.4	 	0.3	 	1.37	 	79.4	 	1.1	 	1.78	 	79.4	 	0.8	 	1.37	 	
Total Earning Assets 3	 	9,809.0	 	153.8	 	6.25	 	9,564.7	 	147.1	 	6.13	 	9,719.4	 	452.4	 	6.21	 	9,436.4	 	423.6	 	5.99	 	
Cash and Noninterest-Bearing Deposits	 	285.3	 	 	 	 	 	296.5	 	 	 	 	 	290.3	 	 	 	 	 	310.7	 	 	 	 	 	
Other Assets	 	482.3	 	 	 	 	 	448.1	 	 	 	 	 	471.1	 	 	 	 	 	443.8	 	 	 	 	 	
Total Assets	 	$	10,576.6	 	 	 	 	 	$	10,309.3	 	 	 	 	 	$	10,480.8	 	 	 	 	 	$	10,190.9	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Liabilities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Demand	 	$	1,557.7	 	4.0	 	1.01	 	$	1,618.9	 	4.1	 	1.01	 	$	1,580.2	 	12.3	 	1.04	 	$	1,628.3	 	11.4	 	0.93	 	
Savings	 	2,837.5	 	15.9	 	2.23	 	2,641.4	 	10.6	 	1.59	 	2,702.5	 	41.1	 	2.03	 	2,698.5	 	27.1	 	1.34	 	
Time	 	1,742.0	 	17.7	 	4.03	 	1,542.7	 	13.8	 	3.53	 	1,727.3	 	51.3	 	3.97	 	1,429.1	 	34.3	 	3.20	 	
Total Interest-Bearing Deposits	 	6,137.2	 	37.6	 	2.43	 	5,803.0	 	28.5	 	1.95	 	6,010.0	 	104.7	 	2.33	 	5,755.9	 	72.8	 	1.69	 	
Short-Term Borrowings	 	138.8	 	1.8	 	4.91	 	179.1	 	2.4	 	5.14	 	112.0	 	4.3	 	5.06	 	192.1	 	7.0	 	4.83	 	
Securities Sold Under Agreements to Repurchase	 	1,016.5	 	11.7	 	4.54	 	1,005.8	 	11.9	 	4.69	 	1,042.1	 	35.2	 	4.49	 	878.8	 	29.6	 	4.49	 	
Long-Term Debt	 	251.9	 	3.9	 	6.21	 	248.7	 	3.8	 	6.16	 	257.5	 	11.9	 	6.15	 	244.7	 	11.3	 	6.16	 	
Total Interest-Bearing Liabilities	 	7,544.4	 	55.0	 	2.89	 	7,236.6	 	46.6	 	2.55	 	7,421.6	 	156.1	 	2.81	 	7,071.5	 	120.7	 	2.28	 	
Net Interest Income	 	 	 	$	98.8	 	 	 	 	 	$	100.5	 	 	 	 	 	$	296.3	 	 	 	 	 	$	302.9	 	 	 	
Interest Rate Spread	 	 	 	 	 	3.36	%	 	 	 	 	3.58	%	 	 	 	 	3.40	%	 	 	 	 	3.71	%	
Net Interest Margin	 	 	 	 	 	4.03	%	 	 	 	 	4.20	%	 	 	 	 	4.07	%	 	 	 	 	4.29	%	
Noninterest-Bearing Demand Deposits	 	1,878.4	 	 	 	 	 	1,929.0	 	 	 	 	 	1,906.0	 	 	 	 	 	1,978.3	 	 	 	 	 	
Other Liabilities	 	425.4	 	 	 	 	 	456.5	 	 	 	 	 	430.7	 	 	 	 	 	448.5	 	 	 	 	 	
Shareholders’ Equity	 	728.4	 	 	 	 	 	687.2	 	 	 	 	 	722.5	 	 	 	 	 	692.6	 	 	 	 	 	
Total Liabilities and Shareholders’ Equity	 	$	10,576.6	 	 	 	 	 	$	10,309.3	 	 	 	 	 	$	10,480.8	 	 	 	 	 	$	10,190.9	 	 	 	 	 	
 
1Certain prior period information has been reclassified to conform to current presentation.	
2Non-performing loans and leases are included in the respective category of average loans and leases outstanding. Income, if any, on such loans and leases is recognized on a cash basis.	
3Interest income includes taxable equivalent basis adjustments, based upon a federal statutory tax rate of 35%, of $237,000 and $173,000 for the three months ended September 30, 2007 and 2006, respectively, and $686,000 and $510,000 for the nine months ended September 30, 2007 and 2006, respectively.	
 
19

 
Analysis of Change in Net Interest Income - Taxable Equivalent Basis (Unaudited)	Table 3	
 
 	 	Nine Months Ended September 30, 2007	 	
 	 	compared to September 30, 2006	 	
(dollars in millions)	 	Volume 1	 	Rate 1	 	Total	 	
Change in Interest Income:	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	$	1.0	 	$	0.1	 	$	1.1	 	
Funds Sold	 	2.3	 	-	 	2.3	 	
Investment Securities	 	 	 	 	 	 	 	
Trading	 	4.1	 	-	 	4.1	 	
Available-for-Sale	 	(3.0	)	5.2	 	2.2	 	
Held-to-Maturity	 	(3.0	)	0.5	 	(2.5	)	
Loans and Leases	 	 	 	 	 	 	 	
Commercial and Industrial	 	4.7	 	1.3	 	6.0	 	
Construction	 	4.2	 	(0.3	)	3.9	 	
Commercial Mortgage	 	1.3	 	0.8	 	2.1	 	
Residential Mortgage	 	2.5	 	3.7	 	6.2	 	
Other Revolving Credit and Installment	 	(1.8	)	1.1	 	(0.7	)	
Home Equity	 	1.6	 	2.1	 	3.7	 	
Lease Financing	 	(0.2	)	0.3	 	0.1	 	
Total Loans and Leases	 	12.3	 	9.0	 	21.3	 	
Other	 	-	 	0.3	 	0.3	 	
Total Change in Interest Income	 	13.7	 	15.1	 	28.8	 	
 	 	 	 	 	 	 	 	
Change in Interest Expense:	 	 	 	 	 	 	 	
Interest-Bearing Deposits	 	 	 	 	 	 	 	
Demand	 	(0.4	)	1.3	 	0.9	 	
Savings	 	0.1	 	13.9	 	14.0	 	
Time	 	7.9	 	9.1	 	17.0	 	
Total Interest-Bearing Deposits	 	7.6	 	24.3	 	31.9	 	
Short-Term Borrowings	 	(3.0	)	0.3	 	(2.7	)	
Securities Sold Under Agreements to Repurchase	 	5.6	 	-	 	5.6	 	
Long-Term Debt	 	0.6	 	-	 	0.6	 	
Total Change in Interest Expense	 	10.8	 	24.6	 	35.4	 	
 	 	 	 	 	 	 	 	
Change in Net Interest Income	 	$	2.9	 	$	(9.5	)	$	(6.6	)	
 
1The changes for each category of interest income and expense are allocated between the portion of changes attributable to the variance in volume and rate for that category.	
 
Provision for Credit Losses
 
The provision for credit losses (the “Provision”) reflects management’s judgment of the expense or benefit necessary to establish the appropriate amount of the allowance for loan and lease losses (the “Allowance”). The Provision is determined through detailed analyses of the Company’s loan and lease portfolio. For the three months ended September 30, 2007 and 2006, the Company recorded a Provision of $4.1 million and $2.8 million, respectively. For the nine months ended September 30, 2007 and 2006, the Company recorded a Provision of $10.1 million and $7.6 million, respectively. The Provision in 2007 and 2006 was recorded by the Company 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”).
 
20

 
Noninterest Income
 
Noninterest income increased by $4.4 million or 8% and by $17.6 million or 11% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006, with growth in substantially all categories.
 
Trust and asset management income increased by $0.7 million or 5% and by $3.3 million or 8% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. For the three months ended September 30, 2007, compared to the same period in 2006, the increase in trust and asset management income was primarily due to a $0.3 million increase in asset management fees, a $0.1 million increase in testamentary trust fees, and a $0.1 million increase in revocable and irrevocable trust fees. For the nine months ended September 30, 2007, compared to the same period in 2006, the increase in trust and asset management income was primarily due to a $1.3 million increase in asset management fees, a $0.6 million increase in agency fees, a $0.5 million increase in testamentary trust fees, and a $0.3 million increase in revocable and irrevocable trust fees. Trust and asset management fees are somewhat correlated with the market value of assets under administration by the Company. Total trust assets under administration by the Company were $13.1 billion and $12.9 billion as of September 30, 2007 and 2006, respectively.
 
Mortgage banking income increased by $1.5 million or 61% and by $1.7 million or 22% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. The increase for the three months ended September 30, 2007, compared to the same period in 2006, was primarily a result of the net change in the fair value of the mortgage servicing rights and the Designated Securities used to manage the volatility of the fair value of the mortgage servicing rights. Additionally, the increase in mortgage banking income was due to the discontinuation of the amortization of mortgage servicing rights in 2007. For the nine months ended September 30, 2007, the increase in mortgage banking income was primarily due to the discontinuation of the amortization of mortgage servicing rights in 2007.
 
Service charges on deposit accounts increased by $1.2 million or 11% and by $3.4 million or 11% for the three and nine months ended September 30, 2007, respectively, compared to same periods in 2006. The increase in both periods, compared to the same periods in 2006, was primarily due to an increase in the number of accounts subject to overdraft fees.
 
Fees, exchange, and other service charges increased by $0.2 million or 1% and by $2.4 million or 5% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. For the three months ended September 30, 2007, compared to the same period in 2006, the increase in fees, exchange, and other service charges was primarily due to a $0.6 million increase in interchange income as a result of increased transactional volume from new and existing debit cardholders. This increase was partially offset by a $0.2 million decrease in ATM fees and a $0.1 million decrease in business valuation fees. For the nine months ended September 30, 2007, compared to the same period in 2006, the increase in fees, exchange, and other service charges was primarily due to a $2.1 million increase in interchange income, partially offset by a $0.3 million decrease in ATM fees. The decrease in ATM fees for the three and nine months ended September 30, 2007 was partially due to an increase in the number of military personnel deployments over this period.
 
21

 
Insurance income increased by $0.7 million or 11% and by $2.1 million or 13% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. For the three months ended September 30, 2007, compared to the same period in 2006, the increase in insurance income was primarily due to higher contingent commission income. For the nine months ended September 30, 2007, compared to the same period in 2006, the increase in insurance income was primarily due to a $0.9 million increase in contingent commission income, a $0.6 million increase in income from annuity and life insurance products, and a $0.6 million increase in insurance commission and brokerage income as a result of higher levels of written premiums.
 
Other noninterest income decreased by $0.7 million or 12% and increased by $3.2 million or 18% for the three and nine months ended September 30, 2007, respectively, compared to same periods in 2006. For the three months ended September 30, 2007, compared to the same period in 2006, the decrease in other noninterest income was primarily due to the reduction in gains from the sale of leveraged leased assets. For the nine months ended September 30, 2007, compared to the same period in 2006, the increase in other noninterest income was primarily due to a $1.3 million increase in income from Bank-Owned Life Insurance (“BOLI”), a $0.6 million increase in mutual fund and securities income, a $0.6 million increase in fees and commissions, and a $0.4 million increase in gains from the sale of leveraged leased assets.
 
Noninterest Expense
 
Noninterest expense increased by $1.6 million or 2% and by $4.0 million or 2% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006.
 
Table 4 presents the components of salaries and benefits expense for the three and nine months ended September 30, 2007 and 2006.
 
Salaries and Benefits (Unaudited)	Table 4	
 
 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 30,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	2007	 	2006	 	
Salaries	 	$	28,882	 	$	27,829	 	$	86,226	 	$	82,280	 	
Incentive Compensation	 	4,364	 	3,697	 	11,777	 	11,862	 	
Share-Based Compensation	 	1,601	 	1,211	 	4,161	 	4,323	 	
Commission Expense	 	1,546	 	1,721	 	5,700	 	5,476	 	
Retirement and Other Benefits	 	3,865	 	4,454	 	10,999	 	14,522	 	
Payroll Taxes	 	2,116	 	2,117	 	7,885	 	7,799	 	
Medical, Dental, and Life Insurance	 	2,324	 	1,620	 	6,825	 	5,966	 	
Separation Expense	 	246	 	484	 	1,364	 	1,502	 	
Total Salaries and Benefits	 	$	44,944	 	$	43,133	 	$	134,937	 	$	133,730	 	
 
Salaries and benefits expense increased by $1.8 million or 4% and by $1.2 million or 1% for the three and nine months ended September 30, 2007, respectively, compared to same periods in 2006.  For the three months ended September 30, 2007, compared to the same period in 2006, the increase in salaries and benefits expense was primarily due to a $0.9 million increase in salaries expense as a result of annual increases and a $0.6 million increase in group medical insurance expense. For the nine months ended September 30, 2007, compared to the same period in 2006, the increase in salaries and benefits was primarily due to a $3.2 million increase in salaries expense as a result of annual increases and a $0.8 million increase in group medical insurance expense. These increases in salaries and benefits expense were partially offset by a decrease in retirement and other benefits resulting from a $1.3 million decrease in postretirement benefits expense and a $1.6 million decrease in the Company’s value sharing accrual.
 
22

 
Professional fees decreased by $0.3 million or 10% and increased by $1.8 million or 33% for the three and nine months ended September 30, 2007, respectively, compared to the same periods in 2006. For the three months ended September 30, 2007, compared to the same period in 2006, the decrease in professional fees was primarily due to a $0.2 million reduction in consulting services. For the nine months ended September 30, 2007, compared to the same period in 2006, the increase in professional fees was primarily due to the reversal of legal expenses recorded in 2006.
 
Provision for Income Taxes
 
Note 4 to the Consolidated Financial Statements (Unaudited), which is incorporated herein by reference, provides an effective tax rate reconciliation for the three and nine months ended September 30, 2007 and also provides more information on the Company’s Lease In-Lease Out (“LILO”) transaction.
 
The Company’s effective tax rate was 35.75% and 40.65% for the nine months ended September 30, 2007 and 2006, respectively.  The lower effective tax rate for the nine months ended September 30, 2007, compared to the same period in 2006, was primarily due to an $8.2 million charge recorded in the provision for income taxes in the second quarter of 2006 related to a change in tax law.  Also contributing to the lower effective tax rate in 2007 was the effective settlement of the LILO transaction with the Internal Revenue Service (the “IRS”) in the second quarter of 2007. The effective tax rates in 2006 and 2007 were also favorably impacted by tax credits realized from the Company’s investments in the State of Hawaii’s Qualified High Technology Business (“QHTB”) investment program.
 
23

 
Analysis of Statements of Condition
 
Investment Securities
 
Table 5 presents the amortized cost and approximate fair value of the Company’s available-for-sale and held-to-maturity investment securities as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
Investment Securities (Unaudited)	Table 5	
 
 	 	Amortized	 	Fair	 	
(dollars in thousands)	 	Cost	 	Value	 	
September 30, 2007	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	4,043	 	$	4,054	 	
Debt Securities Issued by States and Political Subdivisions	 	47,663	 	47,625	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	378,633	 	379,336	 	
Mortgage-Backed Securities	 	1,960,487	 	1,935,059	 	
Other Debt Securities	 	228,348	 	225,908	 	
Total	 	$	2,619,174	 	$	2,591,982	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	6	 	$	6	 	
Mortgage-Backed Securities	 	307,647	 	299,185	 	
Total	 	$	307,653	 	$	299,191	 	
 	 	 	 	 	 	
December 31, 2006	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	19,036	 	$	18,940	 	
Debt Securities Issued by States and Political Subdivisions	 	38,833	 	38,780	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	258,938	 	257,896	 	
Mortgage-Backed Securities	 	1,990,893	 	1,955,144	 	
Other Debt Securities	 	333,131	 	327,117	 	
Total	 	$	2,640,831	 	$	2,597,877	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	30	 	$	31	 	
Mortgage-Backed Securities	 	371,314	 	360,688	 	
Total	 	$	371,344	 	$	360,719	 	
 	 	 	 	 	 	
September 30, 2006	 	 	 	 	 	
Available-for-Sale:	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	4,610	 	$	4,579	 	
Debt Securities Issued by States and Political Subdivisions	 	38,096	 	38,146	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	260,225	 	259,857	 	
Mortgage-Backed Securities	 	2,061,675	 	2,023,711	 	
Other Debt Securities	 	333,213	 	326,340	 	
Total	 	$	2,697,819	 	$	2,652,633	 	
Held-to-Maturity:	 	 	 	 	 	
Debt Securities Issued by States and Political Subdivisions	 	$	30	 	$	31	 	
Mortgage-Backed Securities	 	397,490	 	385,860	 	
Total	 	$	397,520	 	$	385,891	 	
 
The carrying value of the Company’s available-for-sale and held-to-maturity investment securities was $2.9 billion, $3.0 billion, and $3.1 billion as of September 30, 2007, December 31, 2006, and September 30, 2006, respectively. Investment securities with a carrying value of $1.8 billion as of September 30, 2007 and $2.0 billion as of December 31, 2006 and September 30, 2006, which approximates fair value, were pledged to secure deposits of governmental entities and securities sold under agreements to repurchase.
 
24

 
As of September 30, 2007, the fair value of the Company’s mortgage-backed securities was $2.3 billion, of which $314.9 million or 14% was invested in non-agency mortgage-backed securities.  These securities are all prime jumbo AAA-rated, with an average original loan-to-value ratio of 65%, and were originated between 2003 and 2005.  There are no sub-prime or Alt-A securities in the Company’s non-agency mortgage-backed securities portfolio.  Alt-A loans are a classification of mortgage loans where the risk profile of the borrower falls between prime and sub-prime.
 
Table 6 presents the Company’s temporarily impaired investment securities as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
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	 	
September 30, 2007	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt Securities Issued by the U.S. Treasury and Government Agencies	 	$	-	 	$	-	 	$	2,289	 	$	(6	)	$	2,289	 	$	(6)	 	
Debt Securities Issued by States and Political Subdivisions	 	17,637	 	(69	)	15,348	 	(99	)	32,985	 	(168)	 	
Debt Securities Issued by U.S. Government-Sponsored Enterprises	 	12,955	 	(22	)	32,665	 	(25	)	45,620	 	(47)	 	
Mortgage-Backed Securities	 	260,854	 	(1,538	)	1,183,440	 	(28,785	)	1,444,294	 	(30,323)	 	
Other Debt Securities	 	-	 	-	 	532,300	 	(10,558	)	532,300	 	(10,558)	 	
Total Temporarily Impaired
Investment Securities
September 30, 2007	 	$	291,446	 	$	(1,629	)	$	1,766,042	 	$	(39,473	)	$	2,057,488	 	$	(41,102)	 	
December 31, 2006	 	$	357,014	 	$	(2,771	)	$	2,188,561	 	$	(54,928	)	$	2,545,575	 	$	(57,699)	 	
September 30, 2006	 	$	210,523	 	$	(2,466	)	$	2,299,818	 	$	(58,680	)	$	2,510,341	 	$	(61,146)	 	

The Company’s temporarily impaired investment securities had gross unrealized losses of $41.1 million as of September 30, 2007, a decrease of $16.6 million or 29% and a decrease of $20.0 million or 33% from December 31, 2006 and September 30, 2006, respectively. The decrease in the Company’s temporarily impaired investment securities and related gross unrealized losses from December 31, 2006 to September 30, 2007 was primarily due to changes in interest rates over this time period. A lower interest rate environment as of September 30, 2007, compared to December 31, 2006, favorably impacted the fair value of the Company’s investment securities as of September 30, 2007. The decrease in the Company’s temporarily impaired investment securities and related gross unrealized losses from September 30, 2006 to September 30, 2007 was primarily due to run-off and pay-downs on investment securities as well as the timing of purchasing new investment securities.
 
The Company does not believe that gross unrealized losses as of September 30, 2007 represent an other-than-temporary impairment. The gross unrealized losses reported for mortgage-backed securities relate primarily to investment securities issued by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and private institutions. The gross unrealized losses of temporarily impaired investment securities as of September 30, 2007, which represented 1% of the amortized cost basis of the Company’s total investment securities, 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.
 
25

 
Loans and Leases
 
Table 7 presents the composition of the Company’s loan and lease portfolio by major categories and Table 8 presents the composition of the Company’s loan and lease portfolio by geographic area.
 
Loan and Lease Portfolio Balances (Unaudited)	Table 7	
 
 	 	September 30,	 	June 30,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2007	 	2006	 	2006	 	
Commercial	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	1,065,258	 	$	1,065,155	 	$	1,093,392	 	$	994,531	 	
Commercial Mortgage	 	627,058	 	619,668	 	611,334	 	635,552	 	
Construction	 	254,062	 	261,478	 	249,263	 	238,995	 	
Lease Financing	 	478,988	 	480,358	 	508,997	 	489,183	 	
Total Commercial	 	2,425,366	 	2,426,659	 	2,462,986	 	2,358,261	 	
Consumer	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	2,510,584	 	2,505,073	 	2,493,110	 	2,464,240	 	
Home Equity	 	953,713	 	938,261	 	944,873	 	942,743	 	
Other Revolving Credit and Installment	 	693,058	 	677,750	 	700,896	 	701,759	 	
Lease Financing	 	17,194	 	18,383	 	21,302	 	22,054	 	
Total Consumer	 	4,174,549	 	4,139,467	 	4,160,181	 	4,130,796	 	
Total Loans and Leases	 	$	6,599,915	 	$	6,566,126	 	$	6,623,167	 	$	6,489,057	 	
 
Total loans and leases outstanding remained relatively stable at $6.6 billion as of September 30, 2007 and December 31, 2006. Total commercial loans and leases decreased by $37.6 million and total consumer loans and leases increased by $14.4 million, respectively, from December 31, 2006 to September 30, 2007. The decrease in total commercial loans and leases was primarily due to the Company’s adoption of FSP No. 13-2, which had the effect of reducing commercial lease financing balances by $42.7 million as of January 1, 2007. The decrease in commercial loans and leases was also due to the Company’s decision to exit certain commercial credits classified in the commercial and industrial category and the pay-off in 2007 of certain bridge and short-term loans originated during the fourth quarter of 2006. These decreases were partially offset by an increase in commercial mortgage and construction loan balances. The increase in total consumer loans and leases was primarily due to increases in residential mortgage and home equity loans which is reflective of the stable Hawaii real estate market. These increases were partially offset by decreases in other revolving credit and installment and lease financing balances.
 
Total loans and leases outstanding increased by $110.9 million or 2% from September 30, 2006 to September 30, 2007. Total commercial and total consumer loans and leases increased by $67.1 million and $43.8 million, respectively. The increase in commercial loans and leases was primarily due to growth in commercial and industrial loans to Hawaii-based middle market companies.  This increase was partially offset by decreases in commercial mortgage and lease financing balances.  The increase in consumer loans and leases was primarily due to growth in residential mortgage and home equity loans, reflecting lower loan repayment rates and a stable Hawaii real estate market over this period of time.
 
26

 
Geographic Distribution of Loan and Lease Portfolio (Unaudited)	Table 8	
 
 	 	September 30,	 	June 30,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2007	 	2006 1	 	2006 1	 	
Commercial	 	 	 	 	 	 	 	 	 	
Hawaii	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	708,342	 	$	675,987	 	$	721,585	 	$	643,632	 	
Commercial Mortgage	 	526,566	 	524,736	 	522,645	 	528,432	 	
Construction	 	239,765	 	246,613	 	234,913	 	233,045	 	
Lease Financing	 	45,564	 	47,324	 	49,064	 	41,063	 	
Mainland U.S. 2	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	208,931	 	229,231	 	220,227	 	204,287	 	
Commercial Mortgage	 	10,652	 	3,817	 	4,030	 	10,378	 	
Construction	 	14,088	 	14,865	 	12,066	 	3,632	 	
Lease Financing	 	396,471	 	397,307	 	426,085	 	415,811	 	
Guam	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	64,063	 	74,799	 	69,245	 	60,209	 	
Commercial Mortgage	 	85,098	 	86,449	 	81,576	 	93,506	 	
Construction	 	209	 	-	 	2,279	 	2,305	 	
Lease Financing	 	6,275	 	5,121	 	1,569	 	124	 	
Other Pacific Islands	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	18,535	 	19,140	 	26,202	 	30,172	 	
Commercial Mortgage	 	2,776	 	2,815	 	3,083	 	3,236	 	
Construction	 	-	 	-	 	5	 	13	 	
Lease Financing	 	-	 	-	 	-	 	2	 	
Foreign 3	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	65,387	 	65,998	 	56,133	 	56,231	 	
Commercial Mortgage	 	1,966	 	1,851	 	-	 	-	 	
Lease Financing	 	30,678	 	30,606	 	32,279	 	32,183	 	
Total Commercial	 	2,425,366	 	2,426,659	 	2,462,986	 	2,358,261	 	
Consumer	 	 	 	 	 	 	 	 	 	
Hawaii	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	2,269,400	 	2,260,948	 	2,253,633	 	2,224,523	 	
Home Equity	 	909,448	 	877,251	 	877,624	 	871,469	 	
Other Revolving Credit and Installment	 	487,293	 	485,484	 	516,955	 	517,379	 	
Lease Financing	 	17,194	 	18,383	 	21,302	 	22,054	 	
Mainland U.S. 2	 	 	 	 	 	 	 	 	 	
Home Equity	 	26,051	 	43,563	 	51,038	 	55,818	 	
Other Revolving Credit and Installment	 	30,632	 	16,269	 	363	 	-	 	
Guam	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	232,238	 	235,206	 	230,485	 	230,508	 	
Home Equity	 	14,531	 	13,526	 	11,951	 	11,056	 	
Other Revolving Credit and Installment	 	122,614	 	121,515	 	124,621	 	122,188	 	
Other Pacific Islands	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	8,946	 	8,919	 	8,992	 	9,209	 	
Home Equity	 	3,683	 	3,921	 	4,260	 	4,400	 	
Other Revolving Credit and Installment	 	52,498	 	54,482	 	58,408	 	61,642	 	
Foreign 3	 	 	 	 	 	 	 	 	 	
Other Revolving Credit and Installment	 	21	 	-	 	549	 	550	 	
Total Consumer	 	4,174,549	 	4,139,467	 	4,160,181	 	4,130,796	 	
Total Loans and Leases	 	$	6,599,915	 	$	6,566,126	 	$	6,623,167	 	$	6,489,057	 	
 
1Certain prior period information has been reclassified to conform to current presentation.	
2For 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.	
3Loans and leases classified as Foreign represents those which are recorded in the Company’s international business units.	
 
The Company’s commercial loan and lease portfolio is concentrated primarily in Hawaii. However, the Company’s commercial loan and lease portfolio does include loans and leases to borrowers based on the mainland U.S., including participation in shared national credits and leveraged lease financing. The Company’s consumer loan and lease portfolio is concentrated in Hawaii and the Pacific Islands, with limited lending activities on the mainland U.S.
 
27

 
Mortgage Servicing Rights
 
Note 2 to the Consolidated Financial Statements (Unaudited), which is incorporated herein by reference, provides information on the changes in the fair value of the mortgage servicing rights for the three and nine months ended September 30, 2007.
 
Other Assets
 
Table 9 presents the major components of the Company’s other assets as of September 30, 2007, December 31, 2006, and September 30, 2006.

Other Assets (Unaudited)	Table 9	
 
 	 	September 30,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006 1	 	2006 1	 	
Bank-Owned Life Insurance	 	$	186,880	 	$	156,115	 	$	154,851	 	
Federal Home Loan Bank and Federal Reserve Bank Stock	 	79,416	 	79,415	 	79,415	 	
Low Income Housing Investments and Other Equity Investment	 	32,726	 	21,898	 	23,376	 	
Accounts Receivable	 	24,005	 	23,216	 	22,947	 	
Federal Tax Deposit	 	61,000	 	61,000	 	61,000	 	
Other	 	38,023	 	32,265	 	45,120	 	
Total Other Assets	 	$	422,050	 	$	373,909	 	$	386,709	 	
 
1 Certain prior period information has been reclassified to conform to current presentation.
 
The increase in the Company’s other assets from September 30, 2006 and December 31, 2006 to September 30, 2007 was primarily due to an additional $25.0 million placement of BOLI in the first quarter of 2007. Also contributing to the increase in the Company’s other assets from September 30, 2006 and December 31, 2006 to September 30, 2007 was the funding of $15.8 million in new low income housing investments.
 
The Company continues to maintain a federal tax deposit of $61.0 million relating to the IRS review of the Company’s LILO and Sale In-Lease Out (“SILO”) transactions. The placement of the deposits with the IRS reduced the accrual of additional interest and penalties, which was higher than the Company’s funding costs, associated with the potential underpayment of income taxes related to these transactions. During the second quarter of 2007, the Company reached an agreement with the IRS that effectively settled the matter related to the Company’s LILO transaction. The Company expects that the federal tax deposit will be reduced when the final adjustments are processed by the IRS. There has been no change in the status of the IRS review of the Company’s SILO transactions. Management believes that the Company has adequate reserves for potential tax exposures related to SILO transactions under review by the IRS as of September 30, 2007.
 
Deposits
 
As of September 30, 2007, total deposits were $7.9 billion, a decrease of $148.2 million or 2% and an increase of $188.0 million or 2% from December 31, 2006 and September 30, 2006, respectively.  Although the number of noninterest-bearing demand deposit accounts increased, balances decreased by $98.9 million from December 31, 2006, primarily due to customers moving their balances to higher yielding products. Time deposits increased by $41.7 million and $136.3 million from December 31, 2006 and September 30, 2006, respectively, largely due to a migration of retail deposits to higher yielding time deposits.
 
28

 
Table 10 presents the composition of savings deposits as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
Savings Deposits (Unaudited)	Table 10	
 
 	 	September 30,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	2006	 	
Money Market	 	$	1,141,863	 	$	1,138,089	 	$	1,040,114	 	
Regular Savings	 	1,569,306	 	1,552,757	 	1,556,826	 	
Total Savings Deposits	 	$	2,711,169	 	$	2,690,846	 	$	2,596,940	 	
 
Table 11 presents the Company’s average balance of time deposits of $100,000 or more.
 
Average Time Deposits of $100,000 or More (Unaudited)	Table 11	
 
 	 	Three Months Ended	 	 	Nine Months Ended	 	
 	 	September 30,	 	December 31,	 	September 30,	 	September 30,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006 1	 	2006 1	 	2007	 	2006 1	 	
Average Time Deposits	 	$	975,301	 	$	914,009	 	$	835,927	 	$	974,428	 	$	772,481	 	

1 Certain prior period information has been reclassified to conform to current presentation.
 
Securities Sold Under Agreements to Repurchase
 
Securities sold under agreements to repurchase were $1.1 billion as of September 30, 2007, an increase of $39.7 million or 4% from December 31, 2006 and a decrease of $11.7 million or 1% from September 30, 2006.  The increase from December 31, 2006 was primarily due to additional securities sold under agreements to repurchase placed with government entities that provided the Company with sources of liquidity, partially offset by the paydowns of securities sold under agreements to repurchase placed with private entities. The decrease from September 30, 2006 was primarily due to paydowns of securities sold under agreements to repurchase placed with government entities. As of September 30, 2007, total securities sold under agreements to repurchase placed with private entities were $600.0 million, of which $500.0 million were indexed to the London Inter Bank Offering Rate (“LIBOR”) and $100.0 million were at fixed interest rates. The remaining terms of the private entity agreements range from eight to 14 years. However, the private entities have the right to terminate the agreements on predetermined dates. If the private entity agreements that are indexed to LIBOR are not terminated by predetermined dates, the interest rates on the agreements become fixed, at rates ranging from 4.00% to 5.00%, for the remaining term of the respective agreements.  As of September 30, 2007, the weighted average interest rate for the Company’s outstanding private entity agreements was 4.37%.
 
Table 12 presents the composition of securities sold under agreements to repurchase as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
Securities Sold Under Agreements to Repurchase (Unaudited)	Table 12	
 
 	 	September 30,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	2006	 	
Government Entities	 	$	487,511	 	$	372,824	 	$	499,260	 	
Private Entities	 	600,000	 	675,000	 	600,000	 	
Total Securities Sold Under Agreements to Repurchase	 	$	1,087,511	 	$	1,047,824	 	$	1,099,260	 	
 
29

 
Borrowings and Long-Term Debt
 
Borrowings, including funds purchased and other short-term borrowings, were $202.6 million as of September 30, 2007, an increase of $131.5 million from December 31, 2006 and an increase of $30.8 million or 18% from September 30, 2006. The increase in these borrowing instruments from December 31, 2006 was used to replace other more expensive sources of funding.
 
Long-term debt was $235.4 million as of September 30, 2007, a decrease of $24.9 million or 10% and $29.9 million or 11% from December 31, 2006 and September 30, 2006, respectively. The decrease in long-term debt from December 31, 2006 was due to the maturity of a $25.0 million Federal Home Loan Bank of Seattle (“FHLB”) advance in the third quarter of 2007. The decrease in long-term debt from September 30, 2006 was due to the repurchase of $5.0 million in Bancorp Hawaii Capital Trust I’s capital securities in the fourth quarter of 2006 in addition to the aforementioned maturity of the $25.0 million FHLB advance in the third quarter of 2007. Further discussion of the Company’s borrowings is included in the “Corporate Risk Profile – Liquidity Management” section of MD&A.
 
Shareholders’ Equity
 
As of September 30, 2007, the Company’s shareholders’ equity was $731.7 million.  This represented a $12.3 million or 2% increase from December 31, 2006 and a $48.2 million or 7% increase from September 30, 2006.  The increase in the Company’s shareholders’ equity from December 31, 2006 to September 30, 2007 was primarily due to net income for the nine months ended September 30, 2007 of $142.8 million and common stock issued under purchase and equity compensation plans of $16.3 million. The increase in shareholders’ equity was partially offset by $69.3 million in common stock repurchases, $60.9 million in cash dividends paid, and $34.5 million in reductions to retained earnings as a result of the Company’s adoption of several new accounting pronouncements on January 1, 2007. Further discussion of the Company’s capital structure is included in the “Corporate Risk Profile – Capital Management” section of MD&A.
 
30

 
Analysis of Business Segments
 
The Company’s business segments are 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, 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.
 
The Company evaluates 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 management’s estimate of a shareholder’s minimum required rate of return on the cost of capital invested (currently 11%) by the business segment’s allocated equity.  The Company assumes a cost of capital that is equal to a risk-free rate plus a risk premium.  RAROC is the ratio of economic net income to risk-adjusted equity.  Equity is allocated to each business segment based on an assessment of its inherent risk.  The net interest income of the business segments reflects the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities on a proportionate basis.  The basis for the allocation of net interest income is a function of management decisions and assumptions that are subject to change based on changes in current interest rate and market conditions.  Funds transfer pricing also serves to transfer interest rate risk to the Treasury segment.  However, the other business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions within guidelines.  The business segments are charged an economic provision which is a statistically derived estimate of average annual expected credit losses over an economic cycle.
 
On a consolidated basis, the Company considers NIACC a measure of shareholder value creation. For the nine months ended September 30, 2007, consolidated NIACC was $79.8 million, compared to $66.8 million for the same period in 2006.  The increase in NIACC was primarily due to the impact of the aforementioned $8.2 million charge recorded in the provision for income taxes in the second quarter of 2006 related to a change in tax law.
 
31

 
Table 13 summarizes NIACC and RAROC results for the Company’s business segments for the three and nine months ended September 30, 2007 and 2006.
 
Business Segment Selected Financial Information (Unaudited)	Table 13	
 
 	 	Retail	 	Commercial	 	Investment	 	 	 	 	 	Consolidated	 	
(dollars in thousands)	 	Banking	 	Banking	 	Services	 	Total	 	Treasury	 	Total	 	
Three Months Ended September 30, 2007	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allocated Net Income	 	$	25,540	 	$	15,616	 	$	4,326	 	$	45,482	 	$	2,297	 	$	47,779	 	
Allowance Funding Value	 	(258	)	(732	)	(11	)	(1,001	)	1,001	 	-	 	
Provision for Credit Losses	 	2,975	 	1,284	 	(1	)	4,258	 	(188	)	4,070	 	
Economic Provision	 	(3,032	)	(2,063	)	(88	)	(5,183	)	-	 	(5,183	)	
Tax Effect of Adjustments	 	116	 	559	 	37	 	712	 	(300	)	412	 	
Income Before Capital Charge	 	25,341	 	14,664	 	4,263	 	44,268	 	2,810	 	47,078	 	
Capital Charge	 	(5,508	)	(3,944	)	(1,632	)	(11,084	)	(8,948	)	(20,032	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	19,833	 	$	10,720	 	$	2,631	 	$	33,184	 	$	(6,138	)	$	27,046	 	
RAROC (ROE for the Company)	 	50	%	41	%	28	%	 	 	9	%	26	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Three Months Ended September 30, 2006 1	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allocated Net Income	 	$	23,910	 	$	16,024	 	$	4,568	 	$	44,502	 	$	2,418	 	$	46,920	 	
Allowance Funding Value	 	(202	)	(660	)	(9	)	(871	)	871	 	-	 	
Provision for Credit Losses	 	2,609	 	480	 	-	 	3,089	 	(304	)	2,785	 	
Economic Provision	 	(3,105	)	(2,158	)	(98	)	(5,361	)	-	 	(5,361	)	
Tax Effect of Adjustments	 	258	 	865	 	40	 	1,163	 	(210	)	953	 	
Income Before Capital Charge	 	23,470	 	14,551	 	4,501	 	42,522	 	2,775	 	45,297	 	
Capital Charge	 	(5,426	)	(3,914	)	(1,511	)	(10,851	)	(8,047	)	(18,898	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	18,044	 	$	10,637	 	$	2,990	 	$	31,671	 	$	(5,272	)	$	26,399	 	
RAROC (ROE for the Company)	 	47	%	41	%	32	%	 	 	7	%	27	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nine Months Ended September 30, 2007	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allocated Net Income	 	$	74,727	 	$	45,770	 	$	15,340	 	$	135,837	 	$	7,006	 	$	142,843	 	
Allowance Funding Value	 	(708	)	(2,163	)	(31	)	(2,902	)	2,902	 	-	 	
Provision for Credit Losses	 	8,867	 	1,409	 	(1	)	10,275	 	(211	)	10,064	 	
Economic Provision	 	(8,900	)	(6,327	)	(251	)	(15,478	)	(1	)	(15,479	)	
Tax Effect of Adjustments	 	274	 	2,620	 	105	 	2,999	 	(995	)	2,004	 	
Income Before Capital Charge	 	74,260	 	41,309	 	15,162	 	130,731	 	8,701	 	139,432	 	
Capital Charge	 	(16,407	)	(11,957	)	(4,785	)	(33,149	)	(26,453	)	(59,602	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	57,853	 	$	29,352	 	$	10,377	 	$	97,582	 	$	(17,752	)	$	79,830	 	
RAROC (ROE for the Company)	 	50	%	38	%	35	%	 	 	9	%	26	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nine Months Ended September 30, 2006 1	 	 	 	 	 	 	 	 	 	 	 	 	 	
Allocated Net Income	 	$	71,173	 	$	34,594	 	$	12,031	 	$	117,798	 	$	11,648	 	$	129,446	 	
Allowance Funding Value	 	(589	)	(1,809	)	(25	)	(2,423	)	2,423	 	-	 	
Provision for Credit Losses	 	6,965	 	1,218	 	999	 	9,182	 	(1,567	)	7,615	 	
Economic Provision	 	(9,341	)	(6,628	)	(286	)	(16,255	)	(1	)	(16,256	)	
Tax Effect of Adjustments	 	1,097	 	2,671	 	(254	)	3,514	 	(316	)	3,198	 	
Income Before Capital Charge	 	69,305	 	30,046	 	12,465	 	111,816	 	12,187	 	124,003	 	
Capital Charge	 	(16,258	)	(12,282	)	(4,727	)	(33,267	)	(23,892	)	(57,159	)	
Net Income (Loss) After Capital Charge (NIACC)	 	$	53,047	 	$	17,764	 	$	7,738	 	$	78,549	 	$	(11,705	)	$	66,844	 	
RAROC (ROE for the Company)	 	47	%	27	%	29	%	 	 	12	%	25	%	
 
1Certain prior period information has been reclassified to conform to the current presentation.	
 
32

 
Retail Banking
 
The Retail Banking segment offers a broad range of financial products and services to consumers and small businesses.  Loan and lease products include residential mortgage loans, home equity lines of credit, automobile loans and leases, and installment loans.  Deposit products include checking, savings, and time deposit accounts.  The Retail Banking segment also provides merchant services to its small business customers.  Products and services from the Retail Banking segment are delivered to customers through 71 Hawaii branch locations, 465 ATMs throughout Hawaii and the Pacific Islands, e-Bankoh (on-line banking service), and a 24-hour telephone banking service. This segment also offers retail property and casualty insurance products.
 
The segment’s key financial measures increased for the three and nine months ended September 30, 2007, compared to the same periods in 2006.  The segment experienced higher noninterest income, primarily as a result of higher fee income from transaction volume, and growth in the number of transactional deposit accounts and interchange income from debit card sales. The increase in net interest income was due to an increase in the earnings credit on the segment’s deposit portfolio which partially offset lower deposit levels. These positive trends were partially offset by an increase in noninterest expense primarily resulting from higher debit card volume and salaries expense.
 
Commercial Banking
 
The Commercial Banking segment offers products including corporate banking and commercial real estate loans, lease financing, auto dealer financing, 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 primarily domiciled in Hawaii. The Commercial Banking segment also includes the Company’s operations at 12 branches in the Pacific Islands (Guam, nearby islands, and American Samoa).
 
The segment’s key financial measures for the three months ended September 30, 2007, compared to the same period in 2006, remained relatively unchanged. The improvement in the segment’s key financial measures for the nine months ended September 30, 2007  was primarily due to higher net interest income and noninterest income and a charge recorded in the second quarter of 2006 related to a change in tax law.
 
The improvement in net interest income for the three and nine months ended September 30, 2007, compared to the same periods in 2006, was primarily due to higher earnings credit rates on the segment’s transaction deposits, partially offset by growth in interest cost due to higher average balances in savings and time deposits. The decrease in noninterest income for the three months ended September 30, 2007, compared to the same period in 2006, was primarily due to a gain on a terminated lease recognized in the third quarter of 2006. The increase in noninterest income for the nine months ended September 30, 2007, compared to the same period in 2006, was primarily due to higher insurance commission income. The increase in noninterest expense for the three and nine months ended September 30, 2007, compared to the same periods in 2006, was primarily due to higher salaries and allocated expenses.
 
33

 
Investment Services
 
The Investment Services segment includes private banking, trust services, asset management, and institutional investment 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.
 
The decline in the segment’s key financial measures for the three months ended September 30, 2007, compared to the same period in 2006, was primarily due to higher noninterest expense, mainly in salaries and other operating expenses. The improvement in the segment’s key financial measures for the nine months ended September 30, 2007, compared to the same period in 2006,  was  primarily due to an increase in noninterest income.
 
Trust and asset management fee income increased for the three and nine months ended September 30, 2007, compared to the same periods in 2006,  primarily due to improved market conditions, resulting in increases in both average market values of assets under management and investment advisory fees on money market accounts. The increase in noninterest income was also due to growth in fee income on products offered through the full service brokerage business.
 
Treasury
 
The Treasury segment consists of corporate asset and liability management activities, including interest rate risk management and 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-term 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. Additionally, the change in fair value of the Company’s mortgage servicing rights, related to changes in the weighted-average constant prepayment rate and the weighted average discount rate assumptions, is allocated to the Treasury segment. The net residual effect of transfer pricing of assets and liabilities is included in Treasury, along with eliminations of inter-company transactions.
 
The decline in the segment’s key financial measures for the three and nine months ended September 30, 2007, compared to the same periods in 2006, was primarily due to a decrease in net interest income. The decrease in net interest income was primarily due to higher funding costs associated with the Company’s deposit portfolio. Increased volume and associated rates of short-term borrowings also contributed to the decrease in net interest income for the nine months ended September 2007. Noninterest income for the three and nine months ended September 2007 increased over 2006, partially offsetting the decrease in net interest income. Noninterest income increased primarily due to the net fair value adjustment of the Company’s mortgage servicing rights and investment trading portfolio as well as an increase in BOLI income.
 
34

 
Corporate Risk Profile
 
Credit Risk
 
The Company’s credit risk position remained strong and stable during the nine months ended September 30, 2007 with lower levels of internally criticized loans and leases and non-performing assets. The Company’s non-accrual loans and leases decreased to $4.2 million as of September 30, 2007 from $5.9 million as of December 31, 2006, primarily due to reductions in the residential mortgage as well as the commercial and industrial loan categories. The ratio of non-accrual loans and leases to total loans and leases was 0.06% as of September 30, 2007, slightly lower than the ratio of 0.09% as of December 31, 2006 and 0.08% as of September 30, 2006.
 
The Company’s favorable credit risk profile reflected a stable economy in Hawaii and Guam, as well as disciplined commercial and retail underwriting and portfolio management. The quality of the Hawaii-based portfolio was complimented by stable construction and real estate industries and continued strength in domestic visitor arrivals, despite higher energy costs and increasing inflationary trends. The Company does not offer payment-option adjustable rate mortgage loans or products with negative amortization.
 
Relative to the Company’s total loan and lease portfolio, domestic airline carriers continued to demonstrate a higher risk profile due to fuel costs, pension plan obligations, and marginal pricing power. In the evaluation of the Reserve for Credit Losses (the “Reserve”), management continues to consider the ongoing financial concerns about the airline industry. Table 14 below summarizes the Company’s air transportation credit exposures as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
Air Transportation Credit Exposure 1 (Unaudited)	Table 14	
 
 	 	September 30, 2007	 	December 31, 2006	 	September 30, 2006	 	
 	 	 	 	Unused	 	Total	 	Total	 	Total	 	
(dollars in thousands)	 	Outstanding	 	Commitments	 	Exposure	 	Exposure	 	Exposure	 	
Passenger Carriers Based In the U.S.	 	$	64,867	 	$	-	 	$	64,867	 	$	68,035	 	$	68,045	 	
Passenger Carriers Based Outside the U.S.	 	19,162	 	-	 	19,162	 	19,406	 	19,475	 	
Cargo Carriers	 	13,326	 	-	 	13,326	 	13,240	 	13,240	 	
Total Air Transportation Credit Exposure	 	$	97,355	 	$	-	 	$	97,355	 	$	100,681	 	$	100,760	 	
 
1 Exposures include loans, leveraged leases, and operating leases.
 
35

 
Non-Performing Assets
 
Table 15 presents information on the Company’s 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	
 
 	 	September 30,	 	June 30,	 	March 31,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2007	 	2007	 	2006	 	2006	 	
Non-Performing Assets	 	 	 	 	 	 	 	 	 	 	 	
Non-Accrual Loans and Leases	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	$	359	 	$	265	 	$	273	 	$	769	 	$	400	 	
Commercial Mortgage	 	123	 	130	 	38	 	40	 	44	 	
Lease Financing	 	-	 	914	 	-	 	31	 	-	 	
Total Commercial	 	482	 	1,309	 	311	 	840	 	444	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	3,237	 	3,844	 	4,345	 	4,914	 	4,253	 	
Home Equity	 	436	 	899	 	476	 	164	 	254	 	
Other Revolving Credit and Installment	 	-	 	214	 	242	 	-	 	-	 	
Total Consumer	 	3,673	 	4,957	 	5,063	 	5,078	 	4,507	 	
Total Non-Accrual Loans and Leases	 	4,155	 	6,266	 	5,374	 	5,918	 	4,951	 	
Foreclosed Real Estate	 	105	 	48	 	462	 	407	 	409	 	
Other Investments	 	-	 	-	 	-	 	82	 	82	 	
Total Non-Performing Assets	 	$	4,260	 	$	6,314	 	$	5,836	 	$	6,407	 	$	5,442	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Accruing Loans and Leases Past Due 90 Days or More	 	 	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	 	 	
Lease Financing	 	$	-	 	$	-	 	$	4	 	$	-	 	$	-	 	
Consumer	 	 	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	639	 	188	 	706	 	519	 	882	 	
Home Equity	 	115	 	60	 	219	 	331	 	62	 	
Other Revolving Credit and Installment	 	1,678	 	1,158	 	1,441	 	1,954	 	2,044	 	
Lease Financing	 	-	 	-	 	10	 	10	 	-	 	
Total Consumer	 	2,432	 	1,406	 	2,376	 	2,814	 	2,988	 	
Total Accruing Loans and Leases Past Due 90 Days or More	 	$	2,432	 	$	1,406	 	$	2,380	 	$	2,814	 	$	2,988	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Total Loans and Leases	 	$	6,599,915	 	$	6,566,126	 	$	6,507,152	 	$	6,623,167	 	$	6,489,057	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases	 	0.06	%	0.10	%	0.08	%	0.09	%	0.08	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Performing Assets to Total Loans and Leases, Foreclosed Real Estate, and Other Investments	 	0.06	%	0.10	%	0.09	%	0.10	%	0.08	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases	 	0.10	%	0.12	%	0.13	%	0.14	%	0.13	%	
 	 	 	 	 	 	 	 	 	 	 	 	
Quarter to Quarter Changes in Non-Performing Assets	 	 	 	 	 	 	 	 	 	 	 	
Balance at Beginning of Quarter	 	$	6,314	 	$	5,836	 	$	6,407	 	$	5,442	 	$	5,377	 	
Additions	 	662	 	2,279	 	1,548	 	2,427	 	1,507	 	
Reductions	 	 	 	 	 	 	 	 	 	 	 	
Payments	 	(1,741	)	(804	)	(1,150	)	(255	)	(848	)	
Return to Accrual Status	 	(787	)	(473	)	(435	)	(897	)	(382	)	
Sales of Foreclosed Assets	 	(48	)	(326	)	(56	)	(112	)	(20	)	
Charge-offs/Write-downs	 	(140	)	(198	)	(478	)	(198	)	(192	)	
Total Reductions	 	(2,716	)	(1,801	)	(2,119	)	(1,462	)	(1,442	)	
Balance at End of Quarter	 	$	4,260	 	$	6,314	 	$	5,836	 	$	6,407	 	$	5,442	 	

36

 
NPAs consisted of non-accrual loans and leases, foreclosed real estate, and other non-performing investments.  The Company’s NPAs were $4.3 million as of September 30, 2007, a $2.1 million and $1.2 million decrease from December 31, 2006 and September 30, 2006, respectively. The decrease in NPAs from 2006 was primarily due to lower levels of non-accrual residential mortgage loans in 2007.
 
Included in NPAs are loans considered impaired.  Impaired loans are defined as those which the Company believes it is probable it will not collect all amounts due according to the contractual terms of the loan agreement.  Impaired loans were $0.2 million as of September 30, 2007 and 2006 and $0.4 million as of December 31, 2006. The decrease in impaired loans from December 31, 2006 was primarily due to the charge-off of a $0.4 million commercial and industrial loan during the first quarter of 2007.
 
Table 16 presents information on the Company’s commercial and consumer NPAs as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
Commercial and Consumer Non-Performing Assets (Unaudited)	Table 16	
 
 	 	September 30,	 	December 31,	 	September 30,	 	
 	 	2007	 	2006	 	2006	 	
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases and Other Investments	 	0.02	%	0.04	%	0.02%	 	
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Foreclosed Real Estate	 	0.09	%	0.13	%	0.12%	 	
 
As summarized in Table 16, the Company’s credit quality on its commercial and consumer lending portfolios remained strong.  Residential mortgage and home equity lending comprise the largest components of the Company’s consumer lending portfolio.  As of September 30, 2007, the weighted average credit score for the Company’s residential mortgage loans was 755 and a significant portion of this portfolio had a loan-to-value ratio of 80% or less.  As of September 30, 2007, the weighted average credit score for the Company’s home equity loans was 748 and the majority of the portfolio had a loan-to-value ratio of 80% or less.  As of September 30, 2007, the Company’s home equity portfolio had an annualized loss rate of 0.08%.
 
Loans and Leases Past Due 90 Days or More and Still Accruing Interest
 
Consisting primarily of personal unsecured lines of credit and residential mortgages loans, accruing loans and leases past due 90 days or more were $2.4 million as of September 30, 2007, a decrease of $0.4 million from December 31, 2006 and a decrease of $0.6 million from September 30, 2006.  The decrease in accruing loans and leases past due 90 days or more from December 31, 2006 to September 30, 2007 was primarily due to the resolution of other revolving credit and installment loans.  The decrease in accruing loans and leases past due 90 days or more from September 30, 2006 to September 30, 2007 was primarily due to a decrease in past due loans in both the residential mortgage and other revolving credit and installment categories.
 
Due to the low volume of NPAs and accruing loans and leases past due 90 days or more, management anticipates some degree of variability in the balances in these categories from period to period and does not consider modest changes to be indicative of significant asset quality trends.
 
37

 
Reserve for Credit Losses
 
Table 17 presents the activity in the Company’s Reserve for the three and nine months ended September 30, 2007 and 2006.
 
Reserve for Credit Losses (Unaudited)	Table 17	
 
 	 	Three Months Ended	 	Nine Months Ended	 	
 	 	September 30,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006 1	 	2007	 	2006 1	 	
Balance at Beginning of Period	 	$	96,167	 	$	96,167	 	$	96,167	 	$	96,167	 	
Loans and Leases Charged-Off	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	(715	)	(593	)	(2,258	)	(1,653	)	
Lease Financing	 	(123	)	-	 	(145	)	-	 	
Consumer	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	-	 	-	 	(47	)	(39	)	
Home Equity	 	(422	)	(211	)	(764	)	(438	)	
Other Revolving Credit and Installment	 	(4,597	)	(3,982	)	(14,506	)	(12,703	)	
Lease Financing	 	(7	)	(18	)	(7	)	(30	)	
Total Loans and Leases Charged-Off	 	(5,864	)	(4,804	)	(17,727	)	(14,863	)	
Recoveries on Loans and Leases Previously Charged-Off	 	 	 	 	 	 	 	 	 	
Commercial	 	 	 	 	 	 	 	 	 	
Commercial and Industrial	 	326	 	325	 	918	 	2,064	 	
Commercial Mortgage	 	35	 	84	 	156	 	509	 	
Lease Financing	 	2	 	1	 	2,089	 	1	 	
Consumer	 	 	 	 	 	 	 	 	 	
Residential Mortgage	 	14	 	223	 	203	 	464	 	
Home Equity	 	69	 	120	 	189	 	308	 	
Other Revolving Credit and Installment	 	1,345	 	1,250	 	4,094	 	3,870	 	
Lease Financing	 	3	 	16	 	14	 	32	 	
Total Recoveries on Loans and Leases Previously Charged-Off	 	1,794	 	2,019	 	7,663	 	7,248	 	
Net Loans and Leases Charged-Off	 	(4,070	)	(2,785	)	(10,064	)	(7,615	)	
Provision for Credit Losses	 	4,070	 	2,785	 	10,064	 	7,615	 	
Balance at End of Period 2	 	$	96,167	 	$	96,167	 	$	96,167	 	$	96,167	 	
 	 	 	 	 	 	 	 	 	 	
Components	 	 	 	 	 	 	 	 	 	
Allowance for Loan and Lease Losses	 	$	90,998	 	$	90,795	 	$	90,998	 	$	90,795	 	
Reserve for Unfunded Commitments	 	5,169	 	5,372	 	5,169	 	5,372	 	
Total Reserve for Credit Losses	 	$	96,167	 	$	96,167	 	$	96,167	 	$	96,167	 	
 	 	 	 	 	 	 	 	 	 	
Average Loans and Leases Outstanding	 	$	6,570,261	 	$	6,470,883	 	$	6,554,979	 	$	6,324,492	 	
 	 	 	 	 	 	 	 	 	 	
Ratio of Net Loans and Leases Charged-Off to	 	 	 	 	 	 	 	 	 	
Average Loans and Leases Outstanding (annualized)	 	0.25%	 	0.17%	 	0.21%	 	0.16%	 	
Ratio of Allowance for Loan and Lease Losses to Loans and Leases Outstanding	 	1.38%	 	1.40%	 	1.38%	 	1.40%	 	

1	 	Certain prior period information has been reclassified to conform to current presentation.	
2	 	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).	
 
The Company maintains 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.
 
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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. After considering the evaluation criteria above and net charge-offs for the period, the Company recorded a Provision of $4.1 million and $10.1 million for the three and nine months ended September 30, 2007, respectively. As a result, the Allowance and the Unfunded Reserve were unchanged from December 31, 2006, reflecting a relatively stable asset quality environment during this period. The ratio of the Allowance to total loans and leases outstanding was 1.38% as of September 30, 2007, an increase of one basis point from December 31, 2006 due to a slight decrease in loans and leases outstanding.
 
Market Risk
 
Market risk is the potential of loss arising from adverse changes in interest rates and prices. The Company is exposed to market risk in the normal course of conducting its business activities. Financial products that expose the Company to market risk include investment securities, loans and leases, deposits, debt, and derivative financial instruments. The Company’s market risk management process involves measuring, monitoring, controlling, and adjusting levels of risk that can significantly impact the Company’s 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 “other than trading.”
 
The Company’s trading activities include trading securities that are used to manage the market risk exposure of the Company’s mortgage servicing rights which are recorded at fair value on the statement of condition since January 1, 2007. The Company’s trading activities also include foreign currency and foreign exchange contracts that expose the Company to a small degree of foreign currency risk. Foreign currency and foreign exchange contracts are primarily executed on behalf of customers and at times for the Company’s own account. The Company also enters into interest rate swap agreements with customers to assist them in managing their interest rate risk. However, the Company mitigates this risk by entering into equal and offsetting interest rate swap agreements with highly rated third parties.
 
The Company’s other than trading activities include normal business transactions that expose the Company’s balance sheet profile to varying degrees of market risk. The Company’s 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 assumed by the Company. 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 the Company’s market risk exposure and, as market conditions dictate, modifies positions as deemed appropriate. The ALCO may also direct the Company to use derivative financial instruments to manage market risk.
 
Interest Rate Risk
 
The objective of the Company’s interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
 
The Company’s statement of condition is sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from the Company’s normal business activities of gathering deposits and extending loans and leases. Many other factors also affect the Company’s exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships, and repricing characteristics of financial instruments.
 
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The earnings of the Company 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, leases, investment securities, and deposits and the level of interest rates earned on assets and paid for liabilities. The nature and impact of future changes in monetary policies are generally not predictable.
 
In managing interest rate risk, the Company, through the ALCO, measures 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, modifying characteristics of the investment securities portfolio, or using derivative financial instruments. The Company’s use of derivative financial instruments has generally been limited over the past several years. This is due to the natural on-balance sheet hedge arising out of offsetting interest rate exposures from loans, leases, 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, during the nine months ended September 30, 2007, the Company utilized its trading portfolio to offset the change in fair value of its 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, the Company may use different techniques to manage interest rate risk.
 
A key element in the Company’s 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 sensitivity to changes in interest rates. These estimates are based on assumptions about the behavior of loan, lease, 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 embedded options. 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.
 
The Company utilizes net interest income simulations to analyze short-term income sensitivities to changes in interest rates. Table 18 presents, as of September 30, 2007 and 2006, 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 September 30, 2007, the Company’s statement of condition was approximately neutral to parallel changes in interest rates. Net interest income sensitivity to changes in interest rates as of September 30, 2007 was less sensitive as compared to the sensitivity profile of the Company as of September 30, 2006. 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 inverted for a period of time. Conversely, if the yield curve should steepen, net interest income may increase.
 
Net Interest Income Sensitivity Profile (Unaudited)	Table 18	
 
 	 	Change in Net Interest Income Per Quarter	 	
(dollars in thousands)	 	September 30, 2007	 	September 30, 2006	 	
Change in Interest Rates (basis points)	 	 	 	 	 	 	 	 	 	
+200	 	$	(860)	 	(0.9)	%	 	$	(985)	 	(1.0)	%	 	
+100	 	(326)	 	(0.3)	 	 	(394)	 	(0.4)	 	 	
-100	 	(69)	 	(0.1)	 	 	(197)	 	(0.2)	 	 	
-200	 	(366)	 	(0.4)	 	 	(985)	 	(1.0)	 	 	

40

 
The Company also uses a Market Value of Portfolio Equity (“MVPE”) sensitivity to estimate the net present value change in the Company’s assets, liabilities, and off-balance sheet arrangements from changes in interest rates. The MVPE was approximately $1.8 billion as of September 30, 2007 and 2006. Table 19 presents, as of September 30, 2007 and 2006, 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 -200 basis point interest rate change scenario, but increased in the -100, +100, and +200 basis point interest rate change scenarios as of September 30, 2007, compared to September 30, 2006, primarily as a result of an increase in the duration of the Company’s residential mortgage loan assets.  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, the Company obtains better overall insight for managing its exposure to changes in interest rates. Based on the additional analyses, the Company estimates its greatest exposure is in scenarios where medium term rates rise on a relative basis more than short-term and long-term rates.
 
Market Value of Equity Sensitivity Profile (Unaudited)	Table 19	
 
 	 	Change in Market Value of Equity	 	
(dollars in thousands)	 	September 30, 2007	 	September 30, 2006	 	
Change in Interest Rates (basis points)	 	 	 	 	 	 	 	 	 	
+200	 	$	(197,636	)	(11.2	)%	$	(164,648	)	(9.2	)%	
+100	 	(88,877	)	(5.0	)	(72,414	)	(4.0	)	
-100	 	26,105	 	1.5	 	5,767	 	0.3	 	
-200	 	(43,640	)	(2.5	)	(87,037	)	(4.8	)	

Liquidity Management
 
Liquidity is managed in an effort to ensure that the Company has continuous access to sufficient, reasonably priced funding to conduct its business and satisfy obligations in a normal manner.
 
Cash and noninterest-bearing deposits, interest-bearing deposits, and funds sold provide the Company with readily available liquid resources. Investment securities in the Company’s available-for-sale portfolio are also a near-term source of asset liquidity, although the Company does not have the intent to sell such investment securities that are currently in a gross unrealized loss position. Asset liquidity is further enhanced by the Company’s ability to sell residential mortgage loans in the secondary market.
 
Core customer deposits have historically provided a sizable source of relatively stable and low-cost funds. The Company is also able to utilize funds purchased, short-term borrowings, and securities sold under agreements to repurchase as a mechanism to fund growth in the Company’s loan and lease portfolio.
 
The Bank is a member of the FHLB, which provides an additional source of short-term and long-term funding. Outstanding borrowings from the FHLB were $50.0 million as of September 30, 2007 at a weighted average interest rate of 4.00%. Outstanding borrowings from the FHLB were $75.0 million as of December 31, 2006 and September 30, 2006.
 
Additionally, the Bank maintains a $1.0 billion senior and subordinated bank note program. Under this facility, the Bank may issue additional notes provided that the aggregate amount outstanding does not exceed $1.0 billion. Subordinated notes outstanding under this bank note program were $124.9 million as of September 30, 2007 and December 31, 2006, and $124.8 million as of September 30, 2006 at a fixed interest rate of 6.875%.
 
41

 
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 the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt correction 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 September 30, 2007, the Parent and the Bank were “well capitalized” under this regulatory framework. There have been no conditions or events since September 30, 2007 that management believes have changed either the Parent’s or the Bank’s capital classifications.
 
As of September 30, 2007, the Company had subordinated debt of $124.9 million, of which $25.0 million qualified as total capital for regulatory capital purposes. Also, as of September 30, 2007, the Company had $26.4 million of capital securities outstanding, all of which qualified as Tier 1 capital for regulatory capital purposes. The capital securities were classified as long-term debt in the Consolidated Statements of Condition as of September 30, 2007.
 
As of September 30, 2007, the Company’s shareholders’ equity was $731.7 million.  This represented a $12.3 million or 2% increase from December 31, 2006 and a $48.2 million or 7% increase from September 30, 2006.  The increase in the Company’s shareholders’ equity from December 31, 2006 to September 30, 2007 was primarily due to net income for the nine months ended September 30, 2007 of $142.8 million and common stock issued under purchase and equity compensation plans of $16.3 million. The increase in shareholders’ equity was partially offset by $69.3 million in common stock repurchases, $60.9 million in cash dividends paid, and $34.5 million in reductions to retained earnings as a result of the Company’s adoption of several new accounting pronouncements on January 1, 2007.
 
For the nine months ended September 30, 2007, 1.3 million shares of common stock were repurchased under the share repurchase program at an average cost of $51.86 per share, totaling $67.0 million.  From the beginning of the share repurchase program in July 2001 through September 30, 2007, the Company repurchased a total of 43.8 million shares of common stock and returned over $1.5 billion to its shareholders at an average cost of $34.87 per share. On October 19, 2007, the Company’s Board of Directors increased the authorization under the share repurchase program by an additional $100.0 million. This new authorization, combined with the previously announced authorization of $1.55 billion, brings the total share repurchase authority to $1.65 billion.  From October 1, 2007 through October 19, 2007, the Company repurchased an additional 82,100 shares of common stock at an average cost of $52.12 per share for a total of $4.3 million, resulting in remaining buyback authority under the share repurchase program of $120.1 million.
 
On October 19, 2007, the Company’s Board of Directors declared and raised the quarterly cash dividend to $0.44 per share on the Company’s outstanding shares.  The dividend will be payable on December 14, 2007 to shareholders of record at the close of business on November 30, 2007.
 
42

 
Table 20 presents the Company’s regulatory capital and ratios as of September 30, 2007, December 31, 2006, and September 30, 2006.
 
Regulatory Capital and Ratios (Unaudited)	Table 20	
 
 	 	September 30,	 	December 31,	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	2006	 	
Regulatory Capital	 	 	 	 	 	 	 	
Shareholders’ Equity	 	$	731,697	 	$	719,420	 	$	683,472	 	
 	Add:	8.25% Capital Securities of Bancorp Hawaii Capital Trust I	 	26,425	 	26,425	 	31,425	 	
 	Less:	Goodwill	 	34,959	 	34,959	 	34,959	 	
 	 	Adjustment to Initially Apply FASB Statement No. 158, Net of Tax	 	6,731	 	6,958	 	-	 	
 	 	Unrealized Valuation on Investment Securities Available-for-Sale and Other Adjustments	 	(17,403	)	(27,491	)	(28,899	)	
Tier 1 Capital	 	733,835	 	731,419	 	708,837	 	
Allowable Reserve for Credit Losses	 	90,058	 	91,585	 	90,723	 	
Qualifying Subordinated Debt	 	24,979	 	49,942	 	49,937	 	
Unrealized Gains on Investment Securities Available-for-Sale	 	32	 	17	 	20	 	
Total Regulatory Capital	 	$	848,904	 	$	872,963	 	$	849,517	 	
 	 	 	 	 	 	 	 	
Risk-Weighted Assets 1	 	$	7,198,547	 	$	7,322,255	 	$	7,252,299	 	
 	 	 	 	 	 	 	 	
Key Regulatory Capital Ratios	 	 	 	 	 	 	 	
Tier 1 Capital Ratio	 	10.19	%	9.99	%	9.77	%	
Total Capital Ratio	 	11.79	 	11.92	 	11.71	 	
Leverage Ratio	 	6.95	 	7.06	 	6.90	 	
 
1Risk-weighted assets for the period ended September 30, 2006 was corrected from $7,252,429. There was no impact to the Company’s regulatory capital ratios, as previously reported.	
 
Off-Balance Sheet Arrangements, Credit Commitments, and Contractual Obligations
 
Off-Balance Sheet Arrangements
 
The Company does 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.
 
Credit Commitments
 
The Company’s credit commitments as of September 30, 2007 were as follows:
 
Credit Commitments (Unaudited)	Table 21	
 
 	 	Less Than	 	 	 	 	 	After 5	 	 	 	
(dollars in thousands)	 	One Year	 	1-3 Years	 	4-5 Years	 	Years	 	Total	 	
Unfunded Commitments to Extend Credit	 	$	797,432	 	$	248,962	 	$	424,404	 	$	1,255,216	 	$	2,726,014	 	
Standby Letters of Credit	 	87,867	 	4,151	 	-	 	-	 	92,018	 	
Commercial Letters of Credit	 	25,559	 	-	 	-	 	-	 	25,559	 	
Total Credit Commitments	 	$	910,858	 	$	253,113	 	$	424,404	 	$	1,255,216	 	$	2,843,591	 	
 
Contractual Obligations
 
The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a material effect on the contractual obligations table presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.
 
43

 
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 September 30, 2007. 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 September 30, 2007. 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 third quarter of 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Part II - Other Information
 
Item 2.                                   Unregistered Sales of Equity Securities and Use of Proceeds
 
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	 	
July 1 - 31, 2007	 	170,895	 	 	$	50.43	 	170,000	 	 	$	43,592,739	 	
August 1 - 31, 2007	 	262,170	 	 	50.11	 	257,500	 	 	30,691,558	 	
September 1 - 30, 2007	 	122,551	 	 	51.78	 	122,500	 	 	24,348,119	 	
Total	 	555,616	 	 	50.58	 	550,000	 	 	 	 	

1The months of July, August, and September 2007 included 895, 4,670, and 51 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 Company’s common stock on the dates of purchase.	
2The Company repurchased shares during the third quarter of 2007 pursuant to its ongoing share repurchase program that was first announced in July 2001. On October 19, 2007, the Company’s Board of Directors increased the authorization under the share repurchase program by an additional $100.0 million. This new authorization, combined with the previously announced authorization of $1.55 billion, brings the total repurchase authority to $1.65 billion. As of October 19, 2007, $120.1 million remained of the total $1.65 billion total repurchase amount authorized by the Company’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.
 
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Signatures
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:   October 24, 2007	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	 	

45

 
Exhibit Index
 
Exhibit Number
 
10	 	Bank of Hawaii Corporation Change-In-Control Retention Plan	
 	 	 	
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	
 
46

Exhibit 10
 
BANK OF HAWAII CORPORATION
CHANGE-IN-CONTROL RETENTION PLAN
 
July 17, 2007

 
BANK OF HAWAII CORPORATION
CHANGE-IN-CONTROL RETENTION PLAN
 
TABLE OF CONTENTS
 
Article 1.	 	Establishment and Purpose	 	1	
 	 	 	 	 	
Article 2.	 	Definitions	 	1	
 	 	 	 	 	
Article 3.	 	Participation	 	5	
 	 	 	 	 	
Article 4.	 	Benefits	 	6	
 	 	 	 	 	
Article 5.	 	Termination for Cause	 	6	
 	 	 	 	 	
Article 6.	 	Other Benefits	 	7	
 	 	 	 	 	
Article 7.	 	Benefits in the Event of Death	 	7	
 	 	 	 	 	
Article 8.	 	Legal Fees	 	7	
 	 	 	 	 	
Article 9.	 	Tax Withholding	 	7	
 	 	 	 	 	
Article 10.	 	Restrictive Covenants	 	8	
 	 	 	 	 	
Article 11.	 	Administration	 	8	
 	 	 	 	 	
Article 12.	 	Claims Procedures	 	9	
 	 	 	 	 	
Article 13.	 	Amendment or Termination	 	10	
 	 	 	 	 	
Article 14.	 	Successors	 	10	
 	 	 	 	 	
Article 15.	 	Third Party Beneficiaries	 	10	
 	 	 	 	 	
Article 16.	 	Indemnification	 	10	
 	 	 	 	 	
Article 17.	 	Incapacity	 	10	
 	 	 	 	 	
Article 18.	 	Funding	 	11	
 	 	 	 	 	
Article 19.	 	FDIC Limitations	 	11	
 	 	 	 	 	
Article 20.	 	Nonassignment	 	11	
 	 	 	 	 	
Article 21.	 	Enforceability and Controlling Law	 	11	
 	 	 	 	 	
APPENDIX A	Benefits for Executive Vice Presidents	 	 	
 	 	 	 	 	
APPENDIX B	Benefits for Vice Chairpersons and Above	 	 	

 
BANK OF HAWAII CORPORATION
CHANGE-IN-CONTROL RETENTION PLAN
 
Article 1.                                            Establishment and Purpose
 
1.1                               Establishment of Plan. Effective as of the date of adoption by the Human Resources and Compensation Committee of its Board of Directors, Bank of Hawaii Corporation, a Delaware corporation, (the “Company”) establishes this retention compensation plan to be known as the Bank of Hawaii Corporation Change-in-Control Retention Plan (the ”Plan”). This Plan supersedes and replaces the Bank of Hawaii Corporation Key Executive Severance Plan, effective as of April 27, 1983, (the “Prior Plan”). Under the Prior Plan, the Company entered into Key Executive Change-in-Control Severance Agreements and Executive Change-in-Control Severance Agreements (collectively, “Prior Agreements”) with certain executive officers of the Company and its subsidiaries. An executive covered by a Prior Agreement shall have no rights under the Prior Plan and Prior Agreement as of the date the executive agrees in writing to be covered by this Plan.
 
1.2                               Purpose of Plan. The purpose of the Plan is to advance the interests of the Company and its shareholders by ensuring that the Company will have the continued employment, dedication, and focused attention of its executive officers notwithstanding the possibility, threat, or occurrence of a Change in Control of the Company. The Plan is intended to provide the Company’s executives with a level of economic security in the event of a Change in Control that protects the compensation and benefit expectations of the executives and is competitive with other organizations.
 
Article 2.                                            Definitions
 
Whenever used in the Plan, the following terms shall have the meanings set forth below unless a different meaning is clearly required by the context.
 
2.1                               “Base Salary” means the Participant’s annual gross base salary from the Company or a Subsidiary for the applicable Fiscal Year before any deductions, exclusions, deferrals, or contributions on a tax-qualified or non-tax-qualified basis under any plan or program of the Company or a Subsidiary, and excluding bonuses, incentive compensation, special fees or awards, commissions, allowances, any form of premium pay, and amounts designated by the Company or a Subsidiary as payment toward or reimbursement of expenses. If a Participant is employed for less than a complete Fiscal Year, Base Salary for the Fiscal Year shall be the annualized gross base salary (subject to the adjustments described in the preceding sentence) based on the Participant’s highest base salary rate during such Fiscal Year. Base Salary shall be determined under this Section 2.1 in accordance with the personnel records and established practices and procedures of the Company.
 
2.2                               “Beneficial Owner” or “Beneficial Ownership” has the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
 
2.3                               “Board” means the Board of Directors of the Company.

 
2.4                               “Cause” means the occurrence of any one or more of the following:
 
a.	 	The Participant’s willful failure to perform his or her duties for the Company (other than any such failure resulting from the Participant’s Disability), after written demand for substantial performance has been delivered to the Participant by the Committee that specifically identifies how the Participant has not substantially performed his or her duties, and the Participant fails to remedy the situation within fifteen (15) business days of such written demand from the Committee;	
 	 	 	
b.	 	Gross negligence in the performance of the Participant’s duties;	
 	 	 	
c.	 	The Participant’s conviction of, or plea of nolo contendere, to any felony whatsoever or any other crime involving the personal enrichment of the Participant at the expense of the Company;	
 	 	 	
d.	 	The Participant’s willful engagement in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise;	
 	 	 	
e.	 	A material violation of any federal or state banking law or regulation;	
 	 	 	
f.	 	A material violation of any provision of the Company’s codes of conduct; or	
 	 	 	
g.	 	Willful violation of any of the covenants contained in Article 10, as applicable.	
 	 	 	
2.5                               “Change in Control” means the first to occur of the following events:
 
a.	 	The acquisition by any individual, entity, or group (other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company) of Beneficial Ownership of twenty-five percent (25%) or more of the combined voting power of the Company’s then outstanding securities entitled to vote for the election of the directors of the Company;	
 	 	 	
b.	 	The consummation of a reorganization, merger, or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company, excluding, however, a corporate transaction pursuant to which all or substantially all of the individuals or entities who are the Beneficial Owners of the Company immediately prior to the corporate transaction will beneficially own, directly or indirectly, more than sixty percent (60%) of the outstanding shares of common stock of the resulting entity and of the combined voting power of the outstanding securities entitled to vote for the election of directors of such entity; or	
 
2.

 
c.                                       Individuals who, as of April 30, 2004, constitute the Board (the  “Incumbent Board”) cease for any reason to constitute at least a majority of such Board, provided that any individual who becomes a director of the Company subsequent to April 30, 2004, whose election or nomination for election by the Company’s shareholders was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board, and provided further that any individual who was initially elected as a director of the Company as a result of an actual or threatened election contest or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall not be deemed a member of the Incumbent Board.
 
2.6                               “Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
 
2.7                               “Committee” means the Human Resources and Compensation Committee of the Board or any other committee appointed by the Board to be responsible for the administration of the Plan.
 
2.8                               “Company” means Bank of Hawaii Corporation, a Delaware corporation, or any successor thereto that is subject to the Plan as provided in Article 14.
 
2.9                               “Confidential Information” means any information with respect to the conduct or details of the business of the Company and its Subsidiaries, including, without limitation, information relating to its commercial and retail banking services, mortgage banking services, commercial and consumer loans, merchant credit card services, investments and capital market transactions and strategies, methods of operation, customer and borrower lists, customer account information, deposits, outstanding loans, products (existing and proposed), prices, fees, costs, plans, technology, inventions, trade secrets, know-how, software, marketing methods, policies, personnel, suppliers, competitors, markets, or other specialized information or proprietary matters of the Company and its Subsidiaries.
 
2.10                        “Date of Termination” means the date of a Qualifying Termination.
 
2.11                        “Disability” or “Disabled” means the Participant (a) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (b) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company. In addition to the foregoing, a Participant shall be deemed Disabled as of the date the Social Security Administration determines the Participant to be totally disabled.
 
2.12                        “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor act thereto.
 
3.

 
2.13                        “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
 
2.14                        “Fiscal Year” means the calendar year.
 
2.15                        “Good Reason” means the occurrence of one or more of the following after a Change in Control without the Participant’s express written consent :
 
a.                                       A material diminution in the Participant’s Base Salary;
 
b.                                       A material diminution in the Participant’s authority, duties, or responsibilities;
 
c.                                       A material diminution in the authority, duties, or responsibilities of the supervisor to whom the Participant is required to report, including, to the extent applicable, a requirement that the Participant report to a corporate officer or employee instead of reporting directly to the Board ;
 
d.                                       A material diminution in the budget over which the Participant retains authority;
 
e.                                       A material change in the geographic location at which the Participant must perform his or her services (which for this purpose means the Participant is required to relocate to a different Hawaiian Island or a place that is more than 50 miles from where the Participant was based immediately prior to the Change in Control);
 
f.                                         Any other action or inaction that constitutes a material breach by the Company of this Plan or a written employment agreement with the Participant (or other agreement as to the terms of employment between the Company and the Participant); or
 
A Participant must give the Company written notice that a “Good Reason” event has occurred within ninety (90) days of its occurrence. The notice must provide a reasonably detailed description of the facts that constitute a “Good Reason” event. The Company shall have thirty (30) business days to remedy the “Good Reason” event.
 
2.16                        “Participant” means an executive officer of the Company or a Subsidiary who has been approved as a Participant by the Committee in accordance with Article 3.
 
2.17                        “Person” has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.
 
2.18                        “Plan” means the Bank of Hawaii Corporation Change-in-Control Retention Plan as set forth herein and amended from time to time.
 
4.

 
2.19                        “Qualifying Termination” means within twenty-four (24) months following a Change in Control, (a) the Participant’s employment is involuntarily terminated by the Company and its Subsidiaries without Cause, or (b) the Participant terminates employment from the Company and its Subsidiaries for Good Reason. The twenty-four month period will be extended by one additional month if the thirty-day cure period in Section 2.15 is triggered in the twenty-third or twenty-fourth month following a Change in Control. It is intended that any Qualifying Termination shall be an “involuntary Separation from Service,” as defined in Treasury Regulation Section 1.409A-1(n).
 
2.20                        “Separation from Service” or “Separates from Service” has the meaning ascribed to such term in Treasury Regulation Section 1.409A-1(h) and generally means termination of employment from the Company and its Subsidiaries.
 
2.21                        “Subsidiary” means any corporation, partnership, joint venture, limited liability company, or other entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns directly or indirectly at least 50% of the total combined voting power of another corporation or other entity in such chain.
 
Article 3.                                            Participation
 
3.1                               Participation Agreement. An executive officer of the Company or a Subsidiary shall become eligible to participate in the Plan upon the Committee’s designation of the executive officer as a Participant. The Participant’s “Effective Date of Participation” shall be the date the Participant acknowledges in writing his or her participation in the Plan.
 
3.2                               End of Participation. Upon Separation from Service prior to a Change in Control, a Participant shall cease to be a Participant and shall no longer be eligible for benefits under this Plan. If a Participant enters into a separation agreement or employment agreement with the Company that designates a date prior to Separation from Service on which the Participant’s participation in this Plan shall cease, the separation agreement or employment agreement shall control. Subject to any applicable separation or employment agreement, prior to a Participant’s Separation from Service, the Committee may in good faith determine that a Participant has ceased to be in the class of executives eligible for coverage under the Plan, in which case the Committee may terminate the Participant’s participation in the Plan effective upon written notification to the Participant of such determination. However, notwithstanding the foregoing, a Participant’s participation in the Plan may not be involuntarily terminated (except by reason of a Separation from Service prior to a Change in Control or because of a termination for Cause at any time) (a) after the Committee has actual knowledge that a third party has taken steps reasonably calculated to effect a Change in Control (including, but not limited to, the commencement of a tender offer for the voting stock of the Company or the circulation of a proxy to the Company’s shareholders) and until the Committee determines in good faith that such third party has fully abandoned or terminated its efforts to effect a Change in Control, or (b) within twenty-four (24) months after a Change in Control.
 
5.

 
Article 4.                                            Benefits
 
4.1                               Right to Benefits. Following a Qualifying Termination, a Participant shall have the rights and be entitled to the benefits described in Sections 4.2 through 4.5.
 
4.2                               Severance, Welfare, Outplacement, Noncompetition, and Gross-Up Benefits. A Participant serving in the position of Executive Vice President or other executive position below the level of Vice Chairperson as of the Participant’s Effective Date of Participation shall be entitled to the severance, welfare, outplacement, and noncompetition benefits described in Appendix A attached hereto and incorporated herein by this reference. A Participant serving in the position of Vice Chairperson or above as of the Participant’s Effective Date of Participation shall be entitled to the severance, welfare, outplacement, relocation, noncompetition, and gross-up benefits described in Appendix B attached hereto and incorporated herein by this reference.
 
4.3                               EIP Benefits. Any contingent award granted to a Participant prior to a Change in Control under the Bank of Hawaii Corporation Executive Incentive Plan (the “EIP”), or any successor or other incentive bonus plan, shall be governed by the provisions of the EIP or other incentive bonus plan.
 
4.4                               Equity Compensation. Any awards granted to a Participant prior to a Change in Control under the Bank of Hawaii Corporation 2004 Stock and Incentive Compensation Plan (the “2004 Stock Plan”), or any successor or other equity compensation plan, shall be governed by the provisions of the 2004 Stock Plan or other equity compensation plan.
 
4.5                               Other Incentive Compensation. Any awards granted to a Participant prior to a Change in Control under an incentive compensation plan of the Company or a Subsidiary other than the EIP or 2004 Stock Plan shall be governed by the provisions of the applicable plan.
 
4.6                               Company’s Covenant with Respect to Benefit Opportunities. Following a Change in Control, the Company agrees that it shall not materially reduce a Participant’s opportunities with respect to incentive compensation, equity compensation, or employee benefits, unless the reduction applies to executive officers of the Company generally.
 
Article 5.                                            Termination for Cause
 
Nothing in this Plan shall be construed to prevent the Company or its Subsidiaries from terminating a Participant’s employment for any reason or for no reason. However, if the Company or a Subsidiary (including any successor to the Company or a Subsidiary) wishes to terminate a Participant’s employment for Cause after a Change in Control, the Company (or any successor to the Company) must give the Participant a written notice (“Notice of Termination”) that identifies the specific clause in the definition of Cause on which the termination is based and provides a reasonably detailed description of the facts that permit termination under that clause. If the Company (or any successor to the Company) terminates a Participant’s employment without providing a Notice of Termination, the termination shall be deemed to be a termination without Cause. If the Company or a Subsidiary terminates a Participant for Cause, the Participant shall not be entitled to the benefits described in Section 4.2. (The Participant’s rights to the benefits described in Sections 4.3, 4.4, and 4.5 depend on the terms of the applicable plans.)
 
6.

 
Article 6.                                            Other Benefits
 
Neither the provisions of this Plan nor the benefits provided hereunder shall reduce any amounts otherwise payable to the Participant under any other benefit, incentive, retirement, or equity compensation plan, or any employment agreement, or other plan or arrangement of the Company or its Subsidiaries.
 
Article 7.                                            Benefits in the Event of Death
 
In the event of the death of the Participant after becoming entitled to benefits under this Plan, any benefits that would have been paid to the Participant shall be paid to the Participant’s designated beneficiary(ies). The beneficiary(ies) of the Participant under the Bank of Hawaii Retirement Savings Plan (or successor plan) shall be deemed to be the Participant’s designated beneficiary(ies) under this Plan, unless a beneficiary or beneficiaries are otherwise designated by the Participant in written form delivered and acceptable to the Committee prior to the Participant’s death. A Participant may make or change such designation at any time. In the event of the death of a Participant prior to becoming entitled to benefits under this Plan, no benefits shall be paid to the Participant’s beneficiary(ies), estate, or any other person on behalf of the Participant.
 
Article 8.                                            Legal Fees
 
If a Participant takes action to enforce the terms of the Plan against the Company and if such enforcement action is successful with respect to one or more material points (whether by decision of a court or arbitrator or by settlement between the Participant and the Company), the Company shall reimburse the Participant for the reasonable legal fees and expenses incurred by the Participant in connection with such action up to a maximum of $50,000. The Company shall make the reimbursement as soon as administratively practicable after the matter is finally resolved but no later than the 15th day of the third month following the month in which the matter is finally resolved (whether by non-appealable decision by a court or arbitrator, by a legally binding settlement between the Participant and the Company, or because the Company concedes that an amount is payable). For purposes of this paragraph, a Participant will be deemed to have succeeded with respect to a material point if the Participant obtains a monetary award or settlement from the Company that is more than de minimis.
 
Article 9.                                            Tax Withholding
 
Notwithstanding anything herein to the contrary, the payment of any amount under this Plan shall be subject to such income, employment tax, and other withholding as the Company determines is required under applicable law.
 
7.

 
Article 10.                                     Restrictive Covenants
 
In consideration of the benefits of participation in this Plan, the Participant agrees that, while the Participant is employed by the Company or a Subsidiary and for twelve (12) months following the Participant’s Date of Termination, the Participant shall be bound by the following restrictions:
 
10.1                        Nondisclosure. Unless required or otherwise permitted by law, the Participant shall not disclose to others or use for the benefit of any person or entity other than the Company and its Subsidiaries any Confidential Information or any summary or derivative of that information.
 
10.2                        Noncompetition. The Participant shall not, either directly or indirectly, engage in or invest in, own, manage, operate, finance, control, be employed by, work as a consultant or contractor for, or otherwise be associated with any Financial Institution doing business in Hawaii; provided, however, that the Participant may purchase or otherwise acquire up to one percent of any class of securities of any such Financial Institution (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Exchange Act. The term “Financial Institution” means any commercial bank, savings institution, securities brokerage, mortgage company, insurance broker, or other company or organization that competes in Hawaii with the Company or any of its Subsidiaries.
 
10.3                        Nonsolicitation of Business. The Participant shall not solicit business of the same or similar type being carried on by the Company or its Subsidiaries from any company, person, or entity known by the Participant to be a customer of the Company or its Subsidiaries, whether or not the Participant had personal contact with such company, person, or entity by reason of the Participant’s employment with the Company or a Subsidiary.
 
10.4                        Nonsolicitation of Employees. The Participant shall not, whether for the Participant’s own account or the account of any other person, solicit (other than general, non-targeted solicitation), employ, or otherwise engage as an employee, independent contractor, or otherwise, any person who is an employee of the Company or its Subsidiaries or in any manner induce or attempt to induce any employee of the Company or its Subsidiaries to terminate his or her employment.
 
10.5                        Nondisparagement. The Participant shall not publicly denigrate or in any manner undertake to publicly discredit the Company or its Subsidiaries or any person or operation associated with the Company or its Subsidiaries.
 
Article 11.                                     Administration
 
The Committee shall have the responsibility and authority to administer the Plan. The Plan has been designed to comply with the provisions of Section 409A of the Code, and the Committee shall administer the Plan accordingly.
 
8.

 
Article 12.                                     Claims Procedures
 
Any individual (a “Claimant”) who has not received benefits under the Plan that he or she believes should be paid may make a claim for such benefits as follows:
 
12.1                        Written Claim. The Claimant shall initiate a claim by submitting to the Company a written claim for the benefits.
 
12.2                        Timing of Company Response. The Committee shall respond to the Claimant within 90 days after receiving the claim. If the Committee determines that special circumstances require additional time for processing the claim, the Committee may extend the response period by an additional 90 days by notifying the Claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Committee expects to render its decision.
 
12.3                        Notice of Decision. If the Committee denies part or all of the claim, the Committee shall notify the Claimant in writing of such denial. The Committee shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (a) the specific reasons for the denial; (b) a reference to the specific provisions of the Plan on which the denial is based; (c) a description of any additional information or material necessary for the Claimant to perfect the claim and an explanation of why it is needed; (d) an explanation of the Plan’s review procedures and the time limits applicable to such procedures; and (e) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review.
 
12.4                        Review Procedure. If the Committee denies part or all of the claim, the Claimant shall have the opportunity for a full and fair review by the Committee of the denial. To initiate the review, the Claimant, within 60 days after receiving the Committee’s notice of denial, must file with the Committee a written request for review. The Claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Committee shall also provide the Claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits. In considering the claim on review, the Committee shall take into account all materials and information the Claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.
 
12.5                        Committee Response. The Committee shall respond in writing to the Claimant within 60 days after receiving the request for review. If the Committee determines that special circumstances require additional time for processing the claim, the Committee may extend the response period by an additional 60 days by notifying the Claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Committee expects to render its decision. The Committee shall notify the Claimant in writing of its decision on review. The Committee shall write the notification in a manner calculated to be understood by the Claimant. The notification shall set forth: (a) the specific reasons for the denial; (b) a reference to the specific provisions of the Plan on which the denial is based; (c) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits, and (d) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA after exhausting all administrative claims and review procedures in this Article 12.
 
9.

 
Article 13.                                     Amendment or Termination
 
The Committee may amend or terminate the Plan at any time and in any manner without the consent of any Participant or other affected individual, provided that any amendment or termination shall not adversely affect the benefits payable (or to be paid) to a Participant whose Date of Termination occurred prior to the date of such amendment or termination. Notwithstanding the foregoing, for a period of two years following a Change in Control, the Plan may not be terminated or amended in any manner adverse to a Participant without the written consent of the Participant. Furthermore, in the event the Committee has knowledge that a third party has taken steps reasonably calculated to effect a Change in Control including, but not limited to, the commencement of a tender offer for the voting stock of the Company or the circulation of a proxy to the Company’s shareholders, then this Plan shall remain irrevocably in effect until the Committee, in good faith, determines that such third party has fully abandoned or terminated its effort to effect a Change in Control.
 
Article 14.                                     Successors
 
The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business or assets of the Company or of any division or Subsidiary thereof to assume expressly and agree to perform the Company’s obligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place.
 
Article 15.                                     Third Party Beneficiaries
 
This Plan shall inure to the benefit of and be enforceable by the Participant’s personal or legal representatives, executors, administrators, successors, heirs, and assigns.
 
Article 16.                                     Indemnification
 
In addition to such other rights of indemnification as they may have as members of the Board, the Company shall indemnify the members of the Board and the Committee against all reasonable expenses, including attorneys’ fees, actually and reasonably incurred in connection with the defense of any action, suit, or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action or failure to act under or in connection with the Plan, and against all amounts reasonably paid by them in settlement thereof or paid by them in satisfaction of a judgment in any such action, suit, or proceeding, if such members acted in good faith and in a manner that they believed to be in, and not opposed to, the best interests of the Company.
 
Article 17.                                     Incapacity
 
If the Committee finds that any person to whom a benefit is payable under this Plan is legally, physically, or mentally incapable of personally receiving and receipting for such payment, the Committee may direct that such benefit be paid to any person, persons, or institutions who have custody of such person, or are providing necessities of life (including, without limitation, food, shelter, clothing, medical, or custodial care) to such person, to the extent deemed appropriate by the Committee. Any such payment shall constitute a full discharge of the liability of the Company to the extent thereof.
 
10.

 
Article 18.                                     Funding
 
The amounts payable under this Plan shall be paid in cash from the general assets of the Company, and a Participant shall have no right, title, or interest in or to investments, if any, which the Company may make to aid it in meeting its obligations under this Plan. Title to and beneficial ownership of any such investments shall at all times remain in the Company. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind. To the extent that any person acquires a right to receive a payment under this Plan, such right shall be no greater than the right of an unsecured creditor.
 
Article 19.                                     FDIC Limitations
 
If any payment or benefit under this Plan would otherwise be a golden parachute payment within the meaning of Section 18(k) of the Federal Deposit Insurance Act (a “Golden Parachute Payment”) that is prohibited by applicable law, then the payments and benefits will be reduced to the greatest amount that can be paid to the Participant without there being a prohibited Golden Parachute Payment. To the extent reasonably practicable, the Company shall seek the approval of the Federal Deposit Insurance Corporation and/or the State of Hawaii Division of Financial Institutions and any other bank regulatory body, as necessary, to make any payment to the Participant that would otherwise constitute a Golden Parachute Payment.
 
Article 20.                                     Nonassignment
 
The interests of a Participant hereunder may not be sold, transferred, assigned, pledged, or hypothecated. No Participant may borrow against his/her interest in the Plan.
 
Article 21.                                     Enforceability and Controlling Law
 
If any provision of this Plan is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue in full force and effect. Except to the extent preempted by ERISA, the provisions of this Plan shall be construed, administered, and enforced according to the laws of the State of Hawaii without giving effect to the conflict of laws principles.
 
11.

 
APPENDIX A
 
BANK OF HAWAII CORPORATION
CHANGE-IN-CONTROL RETENTION PLAN
 
Benefits for Executive Vice Presidents
 
1.             Entitlement to Benefits
 
A Participant covered by this Appendix A shall be entitled to the benefits described in this Appendix A if the Participant has a Qualifying Termination.
 
2.             Severance Benefits
 
a.             Base Salary and Bonus. The Company shall pay the Participant the following severance benefit:
 
i.              An amount equal to one (1) times the Participant’s highest annual Base Salary earned at any time during the two (2) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries; plus
 
ii.            An amount equal to one (1) times (a) the Participant’s annual bonus target percentage under the Bank of Hawaii Corporation Executive Incentive Plan (or any successor or alternative plan or arrangement providing for an annual incentive bonus) during the Fiscal Year in which the Participant’s Date of Termination occurs, multiplied by (b) the Participant’s highest annual Base Salary earned at any time during the two (2) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries.
 
b.             Cash in Lieu of Continuing Health and Welfare Benefits. In lieu of continuing health and welfare benefits (other than COBRA coverage) under any of the Company’s or a Subsidiary’s plans after the Participant’s Date of Termination, the Company shall pay the Participant an amount equal to two (2) times the cost of annual COBRA premiums for the medical, dental, and vision plan coverage that the Company and its Subsidiaries provided to the Participant immediately prior to the Participant’s Date of Termination. If the Participant was not covered by a medical, dental, or vision plan immediately prior to the Participant’s Date of Termination, the cash payment shall be based on the average annual COBRA premiums for the plan(s) then offered by the Company to employees generally.
 
c.             Time and Form of Payment. The Company shall pay the benefits described in this Section 2 to the Participant in a lump sum in the month following the Participant’s Date of Termination.

 
3.             Outplacement Benefits
 
The Company shall reimburse the Participant for the reasonable expenses incurred by the Participant for outplacement services. The maximum amount of reimbursement shall not exceed $15,000, as adjusted for inflation after 2007 in accordance with the consumer price index for the Honolulu metropolitan area. If the Company provides the outplacement services in-kind (by contracting with an outplacement services provider), the outplacement services must be completed by the end of the second full calendar year following the Participant’s Date of Termination. If, with the Company’s permission, the Participant contracts on his or her own for outplacement services, the Participant must incur the expenses by the end of the second full calendar year following the Participant’s Date of Termination, and the Company shall reimburse the Participant as the expenses are incurred and substantiated, but no later than December 31 of the third full calendar year following the Participant’s Date of Termination.
 
4.             Payment for Noncompetition
 
a.             Amount. If the Participant refrains from competing against the Company for twelve (12) months following the Participant’s Date of Termination, as required under Section 10.2 of the Plan, the Company shall pay the Participant the following amount:
 
i.              An amount equal to one (1) times the Participant’s highest annual Base Salary earned at any time during the two (2) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries; plus
 
ii.            An amount equal to one (1) times (a) the Participant’s annual bonus target percentage under the Bank of Hawaii Corporation Executive Incentive Plan (or any successor or alternative plan or arrangement providing for an annual incentive bonus) during the Fiscal Year in which the Participant’s Date of Termination occurs, multiplied by (b) the Participant’s highest annual Base Salary earned at any time during the two (2) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries.
 
b.             Time and Form of Payment. The Company shall make the payment described in this Section 4 to the Participant in a lump sum in the thirteenth month following the Participant’s Date of Termination.
 
5.             Parachute Payments
 
a.             Best Net Treatment. If it is determined that any payment, award, benefit, or distribution by the Company or its Subsidiaries (or by an entity which effectuates a Change in Control or any of its affiliated entities) to or for the benefit of the Participant pursuant to the terms of this Plan or otherwise, including, without limitation, the lapse or termination of any
 
A-2

 
restriction on or the vesting or exercisability of any equity compensation award (collectively, the “Benefit Payments”) would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law (such tax or taxes, together with any interest and penalties, hereafter collectively referred to as the “Excise Tax”), then the Cash Compensation Benefits payable under Section 2 of this Appendix A shall be reduced so that the value of the aggregate Benefit Payments that the Participant is entitled to receive shall be one dollar ($1) less than the maximum amount the Participant may receive without becoming subject to the Excise Tax. However, such reduction in Benefit Payments shall apply if, and only if, the Participant is in a better net position after the reduction than the Participant would be in if the Participant received the total Benefit Payments without reduction but had to pay the Excise Tax.
 
b.             Determination. All determinations required to be made under this Section 5 shall be made by an outside “Big 4” or similar accounting firm chosen and paid by the Company (the “Accounting Firm”). Within fifteen (15) calendar days after the date of the Change in Control, the Participant shall direct the Accounting Firm to make its determination in accordance with Section 1.280G-1 of the Treasury Regulations, and within fifteen (15) calendar days after the Accounting Firm receives such direction, it shall submit its determination and detailed supporting calculations (collectively, the “Determination”) to both the Company and the Participant. The Accounting Firm shall furnish the Participant with an opinion (addressed to both the Participant and the Company) as to the effect of this Section 5 on the Participant’s Benefit Payments. The Determination by the Accounting Firm shall be binding upon the Company and the Participant absent manifest error.
 
c.             Subsequent Imposition of Excise Tax. If, notwithstanding a reduction under Section 5.a, the Internal Revenue Service or other taxing authority determines that the Benefit Payments as reduced are subject to the Excise Tax, the Company shall pay the Participant an additional payment or payments (the “Gross-Up Payments”) in an amount such that, after payment by the Participant of all taxes (including, without limitation, any income and employment taxes and any interest and penalties imposed with respect thereto) and any Excise Tax imposed upon the Gross-Up Payments, the Participant retains an amount of the Gross-Up Payments equal to the Excise Tax imposed upon the Benefit Payments. The Gross-Up Payments shall be paid as soon as administratively practicable after the Internal Revenue Service or other taxing authority makes its final determination but no later than the last day of the calendar year following the calendar year in which the Participant remits the tax to the Internal Revenue Service or other taxing authority.
 
A-3

 
APPENDIX B
 
BANK OF HAWAII CORPORATION
CHANGE-IN-CONTROL RETENTION PLAN
 
Benefits for Vice Chairpersons and Above
 
1.             Entitlement to Benefits
 
A Participant covered by this Appendix B shall be entitled to the benefits described in this Appendix B if the Participant has a Qualifying Termination.
 
2.             Severance Benefits
 
a.             Base Salary and Bonus. The Company shall pay the Participant the following severance benefit:
 
i.              An amount equal to two (2) times the Participant’s highest annual Base Salary earned at any time during the three (3) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries; plus
 
ii.            An amount equal to two (2) times (a) the Participant’s annual bonus target percentage under the Bank of Hawaii Corporation Executive Incentive Plan (or any successor or alternative plan or arrangement providing for an annual incentive bonus) during the Fiscal Year in which the Participant’s Date of Termination occurs, multiplied by (b) the Participant’s highest annual Base Salary earned at any time during the three (3) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries.
 
b.             Cash in Lieu of Continuing Health and Welfare Benefits. In lieu of continuing health and welfare benefits (other than COBRA coverage) under any of the Company’s or a Subsidiary’s plans after the Participant’s Date of Termination, the Company shall pay the Participant an amount equal to three (3) times the cost of annual COBRA premiums for the medical, dental, and vision plan coverage that the Company and its Subsidiaries provided to the Participant immediately prior to the Participant’s Date of Termination. If the Participant was not covered by a medical, dental, or vision plan immediately prior to the Participant’s Date of Termination, the cash payment shall be based on the average annual COBRA premiums for the plan(s) then offered by the Company to employees generally.
 
c.             Time and Form of Payment. The Company shall pay the benefits described in this Section 2 to the Participant in a lump sum in the month following the Participant’s Date of Termination.

 
3.             Outplacement Benefits
 
The Company shall reimburse the Participant for the reasonable expenses incurred by the Participant for outplacement services. The maximum amount of reimbursement shall not exceed $20,000, as adjusted for inflation after 2007 in accordance with the consumer price index for the Honolulu metropolitan area. If the Company provides the outplacement services in-kind (by contracting with an outplacement services provider), the outplacement services must be completed by the end of the second full calendar year following the Participant’s Date of Termination. If, with the Company’s permission, the Participant contracts on his or her own for outplacement services, the Participant must incur the expenses by the end of the second full calendar year following the Participant’s Date of Termination, and the Company shall reimburse the Participant as the expenses are incurred and substantiated, but no later than December 31 of the third full calendar year following the Participant’s Date of Termination.
 
4.             Relocation Benefits
 
a.             Reasonable Moving Expenses. The Company shall reimburse the Participant for the reasonable moving expenses incurred by the Participant in relocating his or her primary residence within twenty-four (24) months following a Qualifying Termination. The Company shall not provide relocation benefits in excess of the benefits customarily provided by the Company to transferred employees prior to the Change in Control as part of the Company’s relocation practices and policies, and shall not reimburse expenses that are reimbursable by another employer. Reasonable moving expenses shall be limited to expenses for the movement of household goods, shipment of automobiles, airfare, and other travel expenses in connection with house-hunting activities in the new location of residence, expenses for the sale of the Participant’s primary residence, any loss on the sale of the Participant’s primary residence, and expenses for the purchase of a primary residence at the new location. The maximum reimbursement for real estate transaction expenses (e.g., any loss on the sale of the Participant’s primary residence, expenses for the sale of the former primary residence, and expenses for the purchase of the new primary residence) shall not exceed a total of $100,000. The maximum reimbursement for all other reasonable moving expenses shall not exceed a total of $50,000. The moving expenses must be incurred within twenty-four (24) months following a Qualifying Termination. The Company shall reimburse the moving expenses as they are incurred and substantiated, but no later than December 31 of the third full calendar year following the Participant’s Date of Termination.
 
b.             Income Tax Gross-Up. To the extent the reimbursement of reasonable moving expenses is taxable compensation to the Participant, the Company shall gross-up the reimbursement for any federal, state, and local income taxes owing on the reimbursement. Any income tax gross-up payment shall be made concurrent with or as soon as administratively possible after the Participant pays the tax, but no later than December 31 of the calendar year following the calendar year in which the Participant remits the tax to the taxing authority.
 
B-2

 
5.             Payment for Noncompetition
 
a.             Amount. If the Participant refrains from competing against the Company for twelve (12) months following the Participant’s Date of Termination, as required under Section 10.2 of the Plan, the Company shall pay the Participant the following amount:
 
i.              An amount equal to one (1) times the Participant’s highest annual Base Salary earned at any time during the three (3) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries; plus
 
ii.            An amount equal to one (1) times (a) the Participant’s annual bonus target percentage under the Bank of Hawaii Corporation Executive Incentive Plan (or any successor or alternative plan or arrangement providing for an annual incentive bonus) during the Fiscal Year in which the Participant’s Date of Termination occurs, multiplied by (b) the Participant’s highest annual Base Salary earned at any time during the three (3) complete Fiscal Years immediately preceding the Participant’s Date of Termination or, if shorter, during the Participant’s entire period of employment with the Company and its Subsidiaries.
 
Time and Form of Payment. The Company shall make the payment described in this Section 5 to the Participant in a lump sum in the thirteenth month following the Participant’s Date of Termination.
 
6.             Gross-Up Payment
 
a.             Entitlement. If it is determined that any payment, award, benefit, or distribution by the Company or its Subsidiaries (or by an entity which effectuates a Change in Control or any of its affiliated entities) to or for the benefit of the Participant pursuant to the terms of this Plan or otherwise, including, without limitation, the lapse or termination of any restriction on or the vesting or exercisability of any equity compensation award (collectively, the “Benefit Payments”) would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provision thereto) or to any similar tax imposed by state or local law (such tax or taxes, together with any interest and penalties, hereafter collectively referred to as the “Excise Tax”), then the Company shall pay the Participant an additional payment or payments (the “Gross-Up Payments”) in an amount such that, after payment by the Participant of all taxes (including, without limitation, any income and employment taxes and any interest and penalties imposed with respect thereto) and any Excise Tax imposed upon the Gross-Up Payments, the Participant retains an amount of the Gross-Up Payments equal to the Excise Tax imposed upon the Benefit Payments.
 
B-3

 
b.             Reduction in Benefit Payments to Avoid Excise Tax. Notwithstanding Section 6.a of this Appendix B, if the total Benefit Payments payable to or for the benefit of the Participant is less than one hundred ten percent (110%) of the maximum amount the Participant could receive without becoming subject to the Excise Tax (the “Maximum Amount”), then the Cash Compensation Benefits payable under Section 2 of this Appendix B shall be reduced so that the total Benefit Payments do not exceed the Maximum Amount.
 
c.             Determination. All determinations required to be made under this Section 6, including whether a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be made by an outside “Big 4” or similar accounting firm chosen and paid by the Company (the “Accounting Firm”). Within fifteen (15) calendar days after the date of the Change in Control and at such other times as may be appropriate, the Participant shall direct the Accounting Firm to make its determination in accordance with Section 1.280G-1 of the Treasury Regulations, and within fifteen (15) calendar days after the Accounting Firm receives such direction, it shall submit its determination and detailed supporting calculations (collectively, the “Determination”) to both the Company and the Participant. If the Accounting Firm determines that no Excise Tax is payable by the Participant, it shall furnish the Participant with an opinion (addressed to both the Participant and the Company) or other evidence reasonably acceptable to the Participant that the Participant has substantial authority not to report any Excise Tax on the Participant’s federal income tax return. The Determination by the Accounting Firm shall be binding upon the Company and the Participant absent manifest error.
 
d.             Cooperation with Accounting Firm. The Company and the Participant shall each provide the Accounting Firm access to and copies of any books, records, and documents in their possession that are reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm, in connection with the preparation and issuance of the Determination under this Section 6.
 
e.             Tax Return Filing. The Participant shall file the Participant’s federal, state, and local income tax returns on a consistent basis with the Determination of the Accounting Firm. The Participant shall make proper payment of the amount of any Excise Tax, and at the request of the Company, provide to the Company evidence of such payment.
 
f.              Internal Revenue Service Claims. The Participant shall notify the Company in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Company of a Gross-Up Payment (or an increased Gross-Up Payment). Such notification shall be given as promptly as practicable but no later than ten (10) business days after the Participant actually receives notice of such claim. The Participant shall further apprise the Company of the nature of such claim and the date on which such claim is requested to be paid (in each case, to the extent known by the Participant). The Participant shall not pay such claim prior to the earlier of (a) the expiration of the 30-calendar-day period following the date on which the Participant gives notice to the Company, or (b) the date that any payment of an amount with respect to such claim is due. If the Company notifies the Participant in writing prior to the expiration of such period that it desires to contest such claim, the Participant shall (i) provide the Company with any written records or documents in the
 
B-4

 
Participant’s possession relating to such claim reasonably requested by the Company, (ii) take such action in connection with contesting such claim as the Company will reasonably request in writing from time to time, including without limitation accepting legal representation with respect to such claim by an attorney selected by the Company who is competent in the subject matter, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company will bear and pay directly all costs and expenses (including interest and penalties) incurred in connection with such contest and will indemnify and hold harmless the Participant, on an after-tax basis, from and against any Excise Tax or income tax, including interest and penalties with respect thereto. The Company’s control of any contested claim will be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Participant shall be solely responsible to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.
 
g.             Timing of Gross-Up Payment. The Company shall pay any Gross-Up Payment to the Participant as soon as administratively practicable after the Determination by the Accounting Firm or subsequent determination by the Internal Revenue Service or other taxing authority but no later than the last day of the calendar year following the calendar year in which the Participant remits the tax to the Internal Revenue Service or other taxing authority.
 
B-5

Exhibit 12
 
Bank of Hawaii Corporation and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges (Unaudited)
 
 	 	Nine Months Ended	 	
 	 	September 30,	 	
(dollars in thousands)	 	2007	 	2006	 	
Earnings:	 	 	 	 	 	
Income Before Provision for Income Taxes	 	$	222,332	 	$	218,088	 	
Add:	Fixed Charges Including Interest on Deposits	 	156,129	 	120,724	 	
 	Interest on FIN 48 Liabilities	 	(200)	 	-	 	
Total Earnings Including Fixed Charges and Interest on Deposits and Interest on FIN 48 Liabilities	 	378,261	 	338,812	 	
Less:	Interest on Deposits	 	104,689	 	72,753	 	
 	Interest on FIN 48 Liabilities	 	(200)	 	-	 	
Total Earnings Excluding Interest on Deposits and Interest on FIN 48 Liabilities	 	$	273,772	 	$	266,059	 	
 	 	 	 	 	 	
Fixed Charges:	 	 	 	 	 	
Fixed Charges Including Interest on Deposits	 	$	156,129	 	$	120,724	 	
Add:	Interest on FIN 48 Liabilities	 	(200)	 	-	 	
Total Fixed Charges Including Interest on Deposits and Interest on FIN 48 Liabilities	 	155,929	 	120,724	 	
Less:	Interest on Deposits	 	104,689	 	72,753	 	
 	Interest on FIN 48 Liabilities	 	(200)	 	-	 	
Total Fixed Charges Excluding Interest on Deposits and Interest on FIN 48 Liabilities	 	$	51,440	 	$	47,971	 	
 	 	 	 	 	 	
Ratio of Earnings to Fixed Charges:	 	 	 	 	 	
Including Interest on Deposits and Interest on FIN 48 Liabilities	 	2.4x	 	2.8x	 	
Excluding Interest on Deposits and Interest on FIN 48 Liabilities	 	5.3x	 	5.5x	 	

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: October 24, 2007	 	
 	  /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: October 24, 2007	 	
 	/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 September 30, 2007 (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: October 24, 2007	 	 	

 	  /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.