Table of Contents

 

 

 

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 June 30, 2010

 

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No o

 

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

 

Large accelerated filer x

 

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

 

Smaller reporting company o

 

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

Yes o  No x

 

As of July 20, 2010, there were 48,265,874 shares of common stock outstanding.

 

 

 



Table of Contents

 

Bank of Hawaii Corporation

Form 10-Q

Index

 

 

 

Page

 

 

 

Part I - Financial Information

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Consolidated Statements of Income –
Three and six months ended June 30, 2010 and 2009

2

 

 

 

 

Consolidated Statements of Condition –
June 30, 2010, December 31, 2009, and June 30, 2009

3

 

 

 

 

Consolidated Statements of Shareholders’ Equity –
Six months ended June 30, 2010 and 2009

4

 

 

 

 

Consolidated Statements of Cash Flows –
Six months ended June 30, 2010 and 2009

5

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

 

 

 

Item 4.

Controls and Procedures

46

 

 

 

Part II - Other Information

 

 

 

 

Item 1A.

Risk Factors

47

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

 

 

 

Item 6.

Exhibits

47

 

 

 

Signatures

 

48

 

1



Table of Contents

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

(dollars in thousands, except per share amounts)

 

2010

 

2009

 

 

 

2010

 

2009

 

Interest Income

 

 

 

 

 

 

 

 

 

 

 

Interest and Fees on Loans and Leases

 

$

71,997

 

$

83,342

 

 

 

$

149,268

 

$

169,934

 

Income on Investment Securities

 

 

 

 

 

 

 

 

 

 

 

Trading

 

 

 

 

 

 

594

 

Available-for-Sale

 

44,989

 

38,155

 

 

 

88,830

 

70,456

 

Held-to-Maturity

 

1,700

 

2,369

 

 

 

3,563

 

4,936

 

Deposits

 

3

 

5

 

 

 

16

 

15

 

Funds Sold

 

396

 

526

 

 

 

705

 

1,103

 

Other

 

277

 

276

 

 

 

554

 

552

 

Total Interest Income

 

119,362

 

124,673

 

 

 

242,936

 

247,590

 

Interest Expense

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

7,930

 

14,481

 

 

 

16,237

 

31,506

 

Securities Sold Under Agreements to Repurchase

 

6,472

 

6,477

 

 

 

12,901

 

13,129

 

Funds Purchased

 

6

 

5

 

 

 

13

 

10

 

Long-Term Debt

 

1,026

 

859

 

 

 

2,204

 

3,032

 

Total Interest Expense

 

15,434

 

21,822

 

 

 

31,355

 

47,677

 

Net Interest Income

 

103,928

 

102,851

 

 

 

211,581

 

199,913

 

Provision for Credit Losses

 

15,939

 

28,690

 

 

 

36,650

 

53,577

 

Net Interest Income After Provision for Credit Losses

 

87,989

 

74,161

 

 

 

174,931

 

146,336

 

Noninterest Income

 

 

 

 

 

 

 

 

 

 

 

Trust and Asset Management

 

11,457

 

11,881

 

 

 

23,165

 

23,513

 

Mortgage Banking

 

3,752

 

5,443

 

 

 

7,216

 

14,121

 

Service Charges on Deposit Accounts

 

14,856

 

12,910

 

 

 

28,670

 

26,296

 

Fees, Exchange, and Other Service Charges

 

15,806

 

15,410

 

 

 

30,310

 

30,386

 

Investment Securities Gains, Net

 

14,951

 

12

 

 

 

34,972

 

68

 

Insurance

 

2,291

 

4,744

 

 

 

5,006

 

10,385

 

Other

 

5,761

 

9,432

 

 

 

11,317

 

25,428

 

Total Noninterest Income

 

68,874

 

59,832

 

 

 

140,656

 

130,197

 

Noninterest Expense

 

 

 

 

 

 

 

 

 

 

 

Salaries and Benefits

 

47,500

 

44,180

 

 

 

92,064

 

91,208

 

Net Occupancy

 

10,154

 

10,008

 

 

 

20,298

 

20,336

 

Net Equipment

 

4,366

 

4,502

 

 

 

8,924

 

8,818

 

Professional Fees

 

2,091

 

4,005

 

 

 

4,083

 

6,554

 

FDIC Insurance

 

3,107

 

8,987

 

 

 

6,207

 

10,801

 

Other

 

18,700

 

17,902

 

 

 

36,048

 

39,800

 

Total Noninterest Expense

 

85,918

 

89,584

 

 

 

167,624

 

177,517

 

Income Before Provision for Income Taxes

 

70,945

 

44,409

 

 

 

147,963

 

99,016

 

Provision for Income Taxes

 

24,381

 

13,403

 

 

 

48,663

 

31,970

 

Net Income

 

$

46,564

 

$

31,006

 

 

 

$

99,300

 

$

67,046

 

Basic Earnings Per Share

 

$

0.97

 

$

0.65

 

 

 

$

2.07

 

$

1.41

 

Diluted Earnings Per Share

 

$

0.96

 

$

0.65

 

 

 

$

2.05

 

$

1.40

 

Dividends Declared Per Share

 

$

0.45

 

$

0.45

 

 

 

$

0.90

 

$

0.90

 

Basic Weighted Average Shares

 

48,080,485

 

47,682,604

 

 

 

47,997,996

 

47,624,521

 

Diluted Weighted Average Shares

 

48,415,602

 

47,948,531

 

 

 

48,352,082

 

47,876,509

 

 

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

 

2



Table of Contents

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Condition (Unaudited)

 

 

June 30,

 

December 31,

 

June 30,

 

(dollars in thousands)

 

2010

 

2009

 

2009

 

Assets

 

 

 

 

 

 

 

Interest-Bearing Deposits

 

$

4,062

 

$

8,755

 

$

4,537

 

Funds Sold

 

355,891

 

291,546

 

656,000

 

Investment Securities

 

 

 

 

 

 

 

Available-for-Sale

 

5,980,759

 

5,330,834

 

4,292,911

 

Held-to-Maturity (Fair Value of $161,441; $186,668; and $214,484)

 

153,190

 

181,018

 

209,807

 

Loans Held for Sale

 

13,179

 

16,544

 

40,994

 

Loans and Leases

 

5,440,911

 

5,759,785

 

6,149,911

 

Allowance for Loan and Lease Losses

 

(147,358

)

(143,658

)

(137,416

)

Net Loans and Leases

 

5,293,553

 

5,616,127

 

6,012,495

 

Total Earning Assets

 

11,800,634

 

11,444,824

 

11,216,744

 

Cash and Noninterest-Bearing Deposits

 

343,514

 

254,766

 

294,022

 

Premises and Equipment

 

108,394

 

110,976

 

112,681

 

Customers’ Acceptances

 

412

 

1,386

 

2,084

 

Accrued Interest Receivable

 

41,420

 

45,334

 

43,042

 

Foreclosed Real Estate

 

3,192

 

3,132

 

438

 

Mortgage Servicing Rights

 

25,646

 

25,970

 

24,731

 

Goodwill

 

31,517

 

31,517

 

34,959

 

Other Assets

 

501,116

 

496,922

 

465,994

 

Total Assets

 

$

12,855,845

 

$

12,414,827

 

$

12,194,695

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits

 

 

 

 

 

 

 

Noninterest-Bearing Demand

 

$

2,214,803

 

$

2,252,083

 

$

2,109,270

 

Interest-Bearing Demand

 

1,615,464

 

1,609,413

 

1,589,300

 

Savings

 

4,423,473

 

4,405,969

 

4,054,039

 

Time

 

1,070,919

 

1,142,211

 

1,267,052

 

Total Deposits

 

9,324,659

 

9,409,676

 

9,019,661

 

Funds Purchased

 

9,832

 

8,888

 

8,670

 

Short-Term Borrowings

 

7,000

 

6,900

 

10,000

 

Securities Sold Under Agreements to Repurchase

 

2,081,393

 

1,618,717

 

1,799,794

 

Long-Term Debt

 

40,300

 

90,317

 

91,432

 

Banker’s Acceptances

 

412

 

1,386

 

2,084

 

Retirement Benefits Payable

 

35,669

 

37,435

 

54,286

 

Accrued Interest Payable

 

5,078

 

7,026

 

7,765

 

Taxes Payable and Deferred Taxes

 

228,660

 

229,140

 

226,936

 

Other Liabilities

 

109,831

 

109,369

 

128,182

 

Total Liabilities

 

11,842,834

 

11,518,854

 

11,348,810

 

Shareholders’ Equity

 

 

 

 

 

 

 

Common Stock ($.01 par value; authorized 500,000,000 shares;
issued / outstanding: June 30, 2010 - 57,100,287 / 48,264,157;
December 31, 2009 - 57,028,239 / 48,018,943;
and June 30, 2009 - 57,028,940 / 47,881,083)

 

570

 

569

 

569

 

Capital Surplus

 

497,082

 

494,318

 

491,784

 

Accumulated Other Comprehensive Income (Loss)

 

61,220

 

6,925

 

(1,870

)

Retained Earnings

 

895,565

 

843,521

 

811,121

 

Treasury Stock, at Cost (Shares: June 30, 2010 - 8,836,130;
December 31, 2009 - 9,009,296; and June 30, 2009 - 9,147,857)

 

(441,426

)

(449,360

)

(455,719

)

Total Shareholders’ Equity

 

1,013,011

 

895,973

 

845,885

 

Total Liabilities and Shareholders’ Equity

 

$

12,855,845

 

$

12,414,827

 

$

12,194,695

 

 

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

 

3



Table of Contents

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)

 

 

 

 

 

 

 

 

Accum.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compre-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

hensive

 

 

 

 

 

 

Compre-

 

 

 

 

 

Common

 

Capital

 

Income

 

Retained

 

Treasury

 

 

hensive

 

(dollars in thousands)

 

Total

 

Stock

 

Surplus

 

(Loss)

 

Earnings

 

Stock

 

 

Income

 

Balance as of December 31, 2009

 

$

895,973

 

$

569

 

$

494,318

 

$

6,925

 

$

843,521

 

$

(449,360

)

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

99,300

 

 

 

 

99,300

 

 

 

$

99,300

 

Other Comprehensive Income, Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Unrealized Gains and Losses
on Investment Securities Available-for-Sale

 

53,534

 

 

 

53,534

 

 

 

 

53,534

 

Amortization of Net Losses Related to Defined Benefit Plans

 

761

 

 

 

761

 

 

 

 

761

 

Total Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

153,595

 

Share-Based Compensation

 

1,545

 

 

1,545

 

 

 

 

 

 

 

Common Stock Issued under Purchase and Equity
Compensation Plans and Related Tax Benefits (312,707 shares)

 

8,532

 

1

 

1,219

 

 

(3,902

)

11,214

 

 

 

 

Common Stock Repurchased (67,493 shares)

 

(3,280

)

 

 

 

 

(3,280

)

 

 

 

Cash Dividends Paid

 

(43,354

)

 

 

 

(43,354

)

 

 

 

 

Balance as of June 30, 2010

 

$

1,013,011

 

$

570

 

$

497,082

 

$

61,220

 

$

895,565

 

$

(441,426

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2008

 

$

790,704

 

$

568

 

$

492,515

 

$

(28,888

)

$

787,924

 

$

(461,415

)

 

 

 

Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

67,046

 

 

 

 

67,046

 

 

 

$

67,046

 

Other Comprehensive Income, Net of Tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in Unrealized Gains and Losses
on Investment Securities Available-for-Sale

 

26,302

 

 

 

26,302

 

 

 

 

26,302

 

Amortization of Net Losses Related to Defined Benefit Plans

 

716

 

 

 

716

 

 

 

 

716

 

Total Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

94,064

 

Share-Based Compensation

 

944

 

 

944

 

 

 

 

 

 

 

Common Stock Issued under Purchase and Equity
Compensation Plans and Related Tax Benefits (152,582 shares)

 

4,087

 

1

 

(1,675

)

 

(791

)

6,552

 

 

 

 

Common Stock Repurchased (24,870 shares)

 

(856

)

 

 

 

 

(856

)

 

 

 

Cash Dividends Paid

 

(43,058

)

 

 

 

(43,058

)

 

 

 

 

Balance as of June 30, 2009

 

$

845,885

 

$

569

 

$

491,784

 

$

(1,870

)

$

811,121

 

$

(455,719

)

 

 

 

 

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

 

4



Table of Contents

 

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 

 

Six Months Ended

 

 

 

June 30,

 

(dollars in thousands)

 

2010

 

2009

 

Operating Activities

 

 

 

 

 

Net Income

 

$

99,300

 

$

67,046

 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

Provision for Credit Losses

 

36,650

 

53,577

 

Depreciation and Amortization

 

6,702

 

6,794

 

Amortization of Deferred Loan and Lease Fees

 

(1,147

)

(1,216

)

Amortization and Accretion of Premiums/Discounts on Investment Securities, Net

 

17,964

 

1,723

 

Share-Based Compensation

 

1,545

 

944

 

Benefit Plan Contributions

 

(2,184

)

(1,453

)

Deferred Income Taxes

 

(4,975

)

(15,978

)

Gains on Sale of Insurance Business

 

 

(852

)

Net Gains on Sales of Leases

 

(1,614

)

(13,204

)

Net Gains on Investment Securities

 

(34,972

)

(68

)

Net Change in Trading Securities

 

 

91,500

 

Proceeds from Sales of Loans Held for Sale

 

232,574

 

670,158

 

Originations of Loans Held for Sale

 

(220,497

)

(672,979

)

Tax Benefits from Share-Based Compensation

 

(1,585

)

(61

)

Net Change in Other Assets and Other Liabilities

 

(31,441

)

(5,862

)

Net Cash Provided by Operating Activities

 

96,320

 

180,069

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

Investment Securities Available-for-Sale:

 

 

 

 

 

Proceeds from Prepayments and Maturities

 

846,480

 

752,929

 

Proceeds from Sales

 

618,108

 

24,258

 

Purchases

 

(2,006,953

)

(2,511,199

)

Investment Securities Held-to-Maturity:

 

 

 

 

 

Proceeds from Prepayments and Maturities

 

27,731

 

29,609

 

Proceeds from Sale of Insurance Business

 

 

1,879

 

Net Change in Loans and Leases

 

279,973

 

370,636

 

Premises and Equipment, Net

 

(4,120

)

(3,355

)

Net Cash Used in Investing Activities

 

(238,781

)

(1,335,243

)

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

Net Change in Deposits

 

(85,017

)

727,563

 

Net Change in Short-Term Borrowings

 

463,720

 

768,995

 

Repayments of Long-Term Debt

 

(50,000

)

(143,971

)

Tax Benefits from Share-Based Compensation

 

1,585

 

61

 

Proceeds from Issuance of Common Stock

 

7,207

 

4,517

 

Repurchase of Common Stock

 

(3,280

)

(856

)

Cash Dividends Paid

 

(43,354

)

(43,058

)

Net Cash Provided by Financing Activities

 

290,861

 

1,313,251

 

 

 

 

 

 

 

Net Change in Cash and Cash Equivalents

 

148,400

 

158,077

 

Cash and Cash Equivalents at Beginning of Period

 

555,067

 

796,482

 

Cash and Cash Equivalents at End of Period

 

$

703,467

 

$

954,559

 

Supplemental Information

 

 

 

 

 

Cash Paid for Interest

 

$

33,303

 

$

53,749

 

Cash Paid for Income Taxes

 

89,949

 

45,565

 

Non-Cash Investing Activities:

 

 

 

 

 

Transfer from Loans to Foreclosed Real Estate

 

60

 

92

 

Transfers from Loans to Loans Held for Sale

 

8,713

 

16,634

 

 

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

 

5



Table of Contents

 

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, Guam, and other Pacific Islands.  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 accompanying notes required by GAAP for complete financial statements.  In the opinion of management, the consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods.

 

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

 

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, 2009.  Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

 

Use of Estimates in the Preparation of Financial Statements

 

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

 

Fair Value Measurements and Disclosures

 

In January 2010, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures About Fair Value Measurements,” which added disclosure requirements about transfers in and out of Levels 1 and 2, clarified existing fair value disclosure requirements about the appropriate level of disaggregation, and clarified that a description of valuation techniques and inputs used to measure fair value was required for recurring and nonrecurring Level 2 and 3 fair value measurements.  The Company adopted certain provisions of this ASU in preparing the Consolidated Financial Statements for the period ended March 31, 2010.  The adoption of these provisions, which was subsequently codified into Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures,” only affected the disclosure requirements for fair value measurements and as a result had no impact on the Company’s statements of income and condition.  See Note 11 to the Consolidated Financial Statements for the disclosures required by this ASU.

 

This ASU also requires that Level 3 activity about purchases, sales, issuances, and settlements be presented on a gross basis rather than as a net number as currently permitted.  This provision of the ASU is effective for the Company’s reporting period ending March 31, 2011.  As this provision amends only the disclosure requirements for fair value measurements, the adoption will have no impact on the Company’s statements of income and condition.

 

Future Application of Accounting Pronouncements

 

In July 2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which will require the Company to provide a greater level of disaggregated information about the credit quality of the Company’s loans and leases and the Allowance for Loan and Lease Losses (the “Allowance”).  This ASU will also require the Company to disclose additional information related to credit quality indicators, past due information, and information related to loans modified in a troubled debt restructuring.  The provisions of this ASU are effective for the Company’s reporting period ending December 31, 2010.  As this ASU amends only the disclosure requirements for loans and leases and the Allowance, the adoption will have no impact on the Company’s statements of income and condition.

 

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Table of Contents

 

Note 2.  Investment Securities

 

The amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s investment securities as of June 30, 2010, December 31, 2009, and June 30, 2009 were as follows:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

(dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Value

 

June 30, 2010

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

647,860

 

$

25,300

 

$

(16

)

$

673,144

 

Debt Securities Issued by States and Political Subdivisions

 

51,738

 

1,889

 

(13

)

53,614

 

Debt Securities Issued by U.S. Government-Sponsored Enterprises

 

750

 

24

 

 

774

 

Mortgage-Backed Securities Issued by
Government Agencies

 

4,993,799

 

102,993

 

(5,169

)

5,091,623

 

U.S. Government-Sponsored Enterprises

 

155,081

 

6,523

 

 

161,604

 

Total Mortgage-Backed Securities

 

5,148,880

 

109,516

 

(5,169

)

5,253,227

 

Total

 

$

5,849,228

 

$

136,729

 

$

(5,198

)

$

5,980,759

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

 

Mortgage-Backed Securities Issued by
Government Agencies

 

$

53,136

 

$

3,612

 

$

 

$

56,748

 

U.S. Government-Sponsored Enterprises

 

100,054

 

4,639

 

 

104,693

 

Total

 

$

153,190

 

$

8,251

 

$

 

$

161,441

 

 

 

 

 

 

 

 

 

 

 

December 31, 2009

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

711,223

 

$

11,248

 

$

(1,679

)

$

720,792

 

Debt Securities Issued by States and Political Subdivisions

 

52,742

 

1,391

 

(17

)

54,116

 

Debt Securities Issued by U.S. Government-Sponsored Enterprises

 

751

 

41

 

 

792

 

Mortgage-Backed Securities Issued by
Government Agencies

 

4,015,816

 

26,900

 

(20,029

)

4,022,687

 

U.S. Government-Sponsored Enterprises

 

509,225

 

23,276

 

(54

)

532,447

 

Total Mortgage-Backed Securities

 

4,525,041

 

50,176

 

(20,083

)

4,555,134

 

Total

 

$

5,289,757

 

$

62,856

 

$

(21,779

)

$

5,330,834

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

 

Mortgage-Backed Securities Issued by
Government Agencies

 

$

59,542

 

$

1,879

 

$

 

$

61,421

 

U.S. Government-Sponsored Enterprises

 

121,476

 

3,771

 

 

125,247

 

Total

 

$

181,018

 

$

5,650

 

$

 

$

186,668

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

 

 

 

 

 

 

 

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

Debt Securities Issued by the U.S. Treasury and Government Agencies

 

$

792,566

 

$

8,549

 

$

(2,329

)

$

798,786

 

Debt Securities Issued by States and Political Subdivisions

 

88,083

 

951

 

(184

)

88,850

 

Debt Securities Issued by U.S. Government-Sponsored Enterprises

 

751

 

57

 

 

808

 

Mortgage-Backed Securities Issued by
Government Agencies

 

1,858,334

 

15,729

 

(11,841

)

1,862,222

 

U.S. Government-Sponsored Enterprises

 

1,257,907

 

44,481

 

(7

)

1,302,381

 

Private-Label Mortgage-Backed Securities

 

235,771

 

79

 

(21,300

)

214,550

 

Total Mortgage-Backed Securities

 

3,352,012

 

60,289

 

(33,148

)

3,379,153

 

Other Debt Securities

 

25,084

 

231

 

(1

)

25,314

 

Total

 

$

4,258,496

 

$

70,077

 

$

(35,662

)

$

4,292,911

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

 

Mortgage-Backed Securities Issued by
Government Agencies

 

$

65,986

 

$

1,316

 

$

 

$

67,302

 

U.S. Government-Sponsored Enterprises

 

143,821

 

3,394

 

(33

)

147,182

 

Total

 

$

209,807

 

$

4,710

 

$

(33

)

$

214,484

 

 

7



Table of Contents

 

The table below presents an analysis of the contractual maturities of the Company’s investment securities as of June 30, 2010. Mortgage-backed securities are disclosed separately in the table below as these investment securities may prepay prior to their scheduled contractual maturity dates.

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

(dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Fair Value

 

Available-for-Sale:

 

 

 

 

 

 

 

 

 

Due in One Year or Less

 

$

62,368

 

$

126

 

$

 

$

62,494

 

Due After One Year Through Five Years

 

289,120

 

3,831

 

(9

)

292,942

 

Due After Five Years Through Ten Years

 

92,639

 

3,885

 

(7

)

96,517

 

Due After Ten Years

 

256,221

 

19,371

 

(13

)

275,579

 

 

 

700,348

 

27,213

 

(29

)

727,532

 

Mortgage-Backed Securities issued by
Government Agencies

 

4,993,799

 

102,993

 

(5,169

)

5,091,623

 

U.S. Government-Sponsored Enterprises

 

155,081

 

6,523

 

 

161,604

 

Total Mortgage-Backed Securities

 

5,148,880

 

109,516

 

(5,169

)

5,253,227

 

Total

 

$

5,849,228

 

$

136,729

 

$

(5,198

)

$

5,980,759

 

 

 

 

 

 

 

 

 

 

 

Held-to-Maturity:

 

 

 

 

 

 

 

 

 

Mortgage-Backed Securities issued by
Government Agencies

 

$

53,136

 

$

3,612

 

$

 

$

56,748

 

U.S. Government-Sponsored Enterprises

 

100,054

 

4,639

 

 

104,693

 

Total

 

$

153,190

 

$

8,251

 

$

 

$

161,441

 

 

Investment securities with carrying values of $3.2 billion as of June 30, 2010, $2.7 billion as of December 31, 2009, and $2.8 billion as of June 30, 2009, were pledged to secure deposits of governmental entities and securities sold under agreements to repurchase.

 

Gross gains on the sales of investment securities were $15.0 million and less than $0.1 million for the three months ended June 30, 2010 and 2009, respectively, and were $35.0 million and $0.1 million for the six months ended June 30, 2010 and 2009, respectively.  Gross losses on the sales of investment securities were not material for the three and six months ended June 30, 2010 and 2009.  Realized gains and losses on investment securities were recorded in noninterest income using the specific identification method.

 

8



Table of Contents

 

The Company’s temporarily impaired investment securities as of June 30, 2010, December 31, 2009, and June 30, 2009 were as follows:

 

 

 

Less Than 12 Months

 

 

 

12 Months or Longer

 

 

 

Total

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

Unrealized

 

 

 

 

 

Unrealized

 

 

 

 

 

Unrealized

 

(dollars in thousands)

 

Fair Value

 

Losses

 

 

 

Fair Value

 

Losses

 

 

 

Fair Value

 

Losses

 

June 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by
the U.S. Treasury and Government Agencies

 

$

 

$

 

 

 

$

1,553

 

$

(16

)

 

 

$

1,553

 

$

(16

)

Debt Securities Issued by
States and Political Subdivisions

 

 

 

 

 

320

 

(13

)

 

 

320

 

(13

)

Mortgage-Backed Securities Issued by
Government Agencies

 

643,794

 

(5,169

)

 

 

 

 

 

 

643,794

 

(5,169

)

Total Temporarily Impaired Investment Securities

 

$

643,794

 

$

(5,169

)

 

 

$

1,873

 

$

(29

)

 

 

$

645,667

 

$

(5,198

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by
the U.S. Treasury and Government Agencies

 

$

347,324

 

$

(1,656

)

 

 

$

1,703

 

$

(23

)

 

 

$

349,027

 

$

(1,679

)

Debt Securities Issued by
States and Political Subdivisions

 

878

 

(5

)

 

 

322

 

(12

)

 

 

1,200

 

(17

)

Mortgage-Backed Securities Issued by
Government Agencies

 

2,171,588

 

(20,029

)

 

 

 

 

 

 

2,171,588

 

(20,029

)

U.S. Government-Sponsored Enterprises

 

8,982

 

(54

)

 

 

 

 

 

 

8,982

 

(54

)

Total Mortgage-Backed Securities

 

2,180,570

 

(20,083

)

 

 

 

 

 

 

2,180,570

 

(20,083

)

Total Temporarily Impaired Investment Securities

 

$

2,528,772

 

$

(21,744

)

 

 

$

2,025

 

$

(35

)

 

 

$

2,530,797

 

$

(21,779

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Securities Issued by
the U.S. Treasury and Government Agencies

 

$

100,915

 

$

(2,287

)

 

 

$

1,780

 

$

(42

)

 

 

$

102,695

 

$

(2,329

)

Debt Securities Issued by
States and Political Subdivisions

 

32,453

 

(170

)

 

 

320

 

(14

)

 

 

32,773

 

(184

)

Mortgage-Backed Securities Issued by
Government Agencies

 

897,348

 

(11,841

)

 

 

 

 

 

 

897,348

 

(11,841

)

U.S. Government-Sponsored Enterprises

 

17,969

 

(40

)

 

 

 

 

 

 

17,969

 

(40

)

Private-Label Mortgage-Backed Securities

 

2,724

 

(506

)

 

 

187,340

 

(20,794

)

 

 

190,064

 

(21,300

)

Total Mortgage-Backed Securities

 

918,041

 

(12,387

)

 

 

187,340

 

(20,794

)

 

 

1,105,381

 

(33,181

)

Other Debt Securities

 

 

 

 

 

34

 

(1

)

 

 

34

 

(1

)

Total Temporarily Impaired Investment Securities

 

$

1,051,409

 

$

(14,844

)

 

 

$

189,474

 

$

(20,851

)

 

 

$

1,240,883

 

$

(35,695

)

 

The Company does not believe that the investment securities that were in an unrealized loss position as of June 30, 2010, which were comprised of 41 securities, represent an other-than-temporary impairment.  Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.  The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost bases, which may be at maturity.

 

As of June 30, 2010, the gross unrealized losses reported for mortgage-backed securities related to investment securities issued by the Government National Mortgage Association.

 

9



Table of Contents

 

Note 3.  Mortgage Servicing Rights

 

The Company’s portfolio of residential mortgage loans serviced for third parties was $3.1 billion as of June 30, 2010 and December 31, 2009, and $3.0 billion as of June 30, 2009.  All of the Company’s residential mortgage loans sold to third parties are sold on a non-recourse basis.  The Company’s mortgage servicing activities include 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.  Servicing income, including late and ancillary fees, was $2.1 million and $1.9 million for the three months ended June 30, 2010 and 2009, respectively, and $4.1 million and $3.8 million for the six months ended June 30, 2010 and 2009, respectively.  Servicing income is recorded as a component of mortgage banking income in the Company’s Consolidated Statements of Income.  The Company’s residential mortgage loan servicing portfolio is comprised primarily of fixed rate loans concentrated in Hawaii.

 

For the three and six months ended June 30, 2010 and 2009, the change in the fair value of the Company’s mortgage servicing rights accounted for under the fair value measurement method was as follows:

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

(dollars in thousands)

 

2010

 

2009

 

 

 

2010

 

2009

 

Balance at Beginning of Period

 

$

14,807

 

$

17,904

 

 

 

$

15,332

 

$

19,553

 

Changes in Fair Value:

 

 

 

 

 

 

 

 

 

 

 

Due to Change in Valuation Assumptions 1

 

(554

)

198

 

 

 

(646

)

107

 

Due to Paydowns and Other 2

 

(413

)

(1,269

)

 

 

(846

)

(2,827

)

Total Changes in Fair Value of Mortgage Servicing Rights

 

(967

)

(1,071

)

 

 

(1,492

)

(2,720

)

Balance at End of Period

 

$

13,840

 

$

16,833

 

 

 

$

13,840

 

$

16,833

 

 

1        Principally represents changes in discount rates and loan repayment rate assumptions, mostly due to changes in interest rates.

2        Principally represents changes due to loan payoffs.

 

 

For the three and six months ended June 30, 2010 and 2009, the change in the carrying value of the Company’s mortgage servicing rights accounted for under the amortization method, net of a valuation allowance, was as follows:

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

June 30,

 

(dollars in thousands)

 

2010

 

2009

 

 

 

2010

 

2009

 

Balance at Beginning of Period

 

$

11,275

 

$

5,624

 

 

 

$

10,638

 

$

1,796

 

Servicing Rights that Resulted From Asset Transfers

 

896

 

2,444

 

 

 

1,841

 

6,367

 

Amortization

 

(365

)

(170

)

 

 

(673

)

(265

)

Balance at End of Period

 

$

11,806

 

$

7,898

 

 

 

$

11,806

 

$

7,898

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation Allowance:

 

 

 

 

 

 

 

 

 

 

 

Balance at Beginning of Period

 

$

 

$

 

 

 

$

 

$

292

 

Recoveries

 

 

 

 

 

 

(292

)

Balance at End of Period

 

$

 

$

 

 

 

$

 

$

 

Mortgage Servicing Rights Accounted for Under
the Amortization Method, Net of a Valuation Allowance

 

$

11,806

 

$

7,898

 

 

 

$

11,806

 

$

7,898

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Mortgage Servicing Rights Accounted for  
Under the Amortization Method

 

 

 

 

 

 

 

 

 

 

 

Beginning of Period

 

$

16,453

 

$

6,158

 

 

 

$

14,853

 

$

1,504

 

End of Period

 

$

15,044

 

$

10,301

 

 

 

$

15,044

 

$

10,301

 

 

10



Table of Contents

 

The key assumptions used in estimating the fair value of the Company’s mortgage servicing rights as of June 30, 2010, December 31, 2009, and June 30, 2009 were as follows:

 

 

 

June 30,

 

December 31,

 

June 30,

 

 

 

2010

 

2009

 

2009