Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities as of March 31, 2015 and December 31, 2014 were as follows:



(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2015
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	350,177	$	5,610	$	(136	)	$	355,651
Debt Securities Issued by States and Political Subdivisions	727,980		25,068		(580		)	752,468
Debt Securities Issued by Corporations	288,225		665		(2,945		)	285,945
Mortgage-Backed Securities:
Residential - Government Agencies	417,962		10,325		(896		)	427,391
Residential - U.S. Government-Sponsored Enterprises	279,708		3,866		—			283,574
Commercial - Government Agencies	172,040		—		(5,883		)	166,157
Total Mortgage-Backed Securities	869,710		14,191		(6,779		)	877,122
Total	$	2,236,092	$	45,534	$	(10,440	)	$	2,271,186
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	518,849	$	4,592	$	(69	)	$	523,372
Debt Securities Issued by States and Political Subdivisions	248,674		16,435		—			265,109
Debt Securities Issued by Corporations	162,867		1,948		(913		)	163,902
Mortgage-Backed Securities:
Residential - Government Agencies	2,706,237		50,307		(10,118		)	2,746,426
Residential - U.S. Government-Sponsored Enterprises	361,273		6,145		—			367,418
Commercial - Government Agencies	308,453		4,052		(725		)	311,780
Total Mortgage-Backed Securities	3,375,963		60,504		(10,843		)	3,425,624
Total	$	4,306,353	$	83,479	$	(11,825	)	$	4,378,007

December 31, 2014
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	325,365	$	5,933	$	(40	)	$	331,258
Debt Securities Issued by States and Political Subdivisions	723,474		21,941		(1,445		)	743,970
Debt Securities Issued by Corporations	298,272		546		(3,985		)	294,833
Mortgage-Backed Securities:
Residential - Government Agencies	452,493		10,986		(1,043		)	462,436
Residential - U.S. Government-Sponsored Enterprises	276,390		2,262		(191		)	278,461
Commercial - Government Agencies	186,813		—		(8,581		)	178,232
Total Mortgage-Backed Securities	915,696		13,248		(9,815		)	919,129
Total	$	2,262,807	$	41,668	$	(15,285	)	$	2,289,190
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	498,767	$	2,008	$	(1,159	)	$	499,616
Debt Securities Issued by States and Political Subdivisions	249,559		15,459		—			265,018
Debt Securities Issued by Corporations	166,686		109		(3,442		)	163,353
Mortgage-Backed Securities:
Residential - Government Agencies	2,862,369		45,407		(20,636		)	2,887,140
Residential - U.S. Government-Sponsored Enterprises	379,365		3,635		(15		)	382,985
Commercial - Government Agencies	309,933		241		(3,791		)	306,383
Total Mortgage-Backed Securities	3,551,667		49,283		(24,442		)	3,576,508
Total	$	4,466,679	$	66,859	$	(29,043	)	$	4,504,495

The table below presents an analysis of the contractual maturities of the Company’s investment securities as of March 31, 2015. Debt securities issued by government agencies (Small Business Administration securities) and mortgage-backed securities are disclosed separately in the table below as these investment securities may prepay prior to their scheduled contractual maturity dates.



(dollars in thousands)	Amortized Cost		Fair Value
Available-for-Sale:
Due in One Year or Less	$	90,025	$	90,886
Due After One Year Through Five Years	349,765		351,442
Due After Five Years Through Ten Years	541,657		554,898
Due After Ten Years	95,040		102,294
	1,076,487		1,099,520

Debt Securities Issued by Government Agencies	289,895		294,544
Mortgage-Backed Securities:
Residential - Government Agencies	417,962		427,391
Residential - U.S. Government-Sponsored Enterprises	279,708		283,574
Commercial - Government Agencies	172,040		166,157
Total Mortgage-Backed Securities	869,710		877,122
Total	$	2,236,092	$	2,271,186

Held-to-Maturity:
Due in One Year or Less	$	89,760	$	90,447
Due After One Year Through Five Years	439,937		444,139
Due After Five Years Through Ten Years	224,823		232,586
Due After Ten Years	175,870		185,211
	930,390		952,383
Mortgage-Backed Securities:
Residential - Government Agencies	2,706,237		2,746,426
Residential - U.S. Government-Sponsored Enterprises	361,273		367,418
Commercial - Government Agencies	308,453		311,780
Total Mortgage-Backed Securities	3,375,963		3,425,624
Total	$	4,306,353	$	4,378,007

Investment securities with carrying values of $2.6 billion and $2.8 billion as of March 31, 2015 and December 31, 2014, respectively, were pledged to secure deposits of governmental entities and securities sold under agreements to repurchase.

The table below presents the gains and losses from the sales of investment securities for the three months ended March 31, 2015 and 2014.



	Three Months Ended March 31,
(dollars in thousands)	2015		2014
Gross Gains on Sales of Investment Securities	$	10,231	$	2,160
Gross Losses on Sales of Investment Securities	—		—
Net Gains on Sales of Investment Securities	$	10,231	$	2,160

The Company’s investment securities in an unrealized loss position, segregated by continuous length of impairment, were as follows:



	Less Than 12 Months					12 Months or Longer					Total
(dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
March 31, 2015
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	30,513	$	(106	)	$	5,335	$	(30	)	$	35,848	$	(136	)
Debt Securities Issued by States and Political Subdivisions	98,931		(580		)	—		—			98,931		(580		)
Debt Securities Issued by Corporations	24,260		(740		)	167,931		(2,205		)	192,191		(2,945		)
Mortgage-Backed Securities:
Residential - Government Agencies	12,826		(9		)	11,598		(887		)	24,424		(896		)
Commercial - Government Agencies	—		—			166,157		(5,883		)	166,157		(5,883		)
Total Mortgage-Backed Securities	12,826		(9		)	177,755		(6,770		)	190,581		(6,779		)
Total	$	166,530	$	(1,435	)	$	351,021	$	(9,005	)	$	517,551	$	(10,440	)
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	19,980	$	(3	)	$	30,205	$	(66	)	$	50,185	$	(69	)
Debt Securities Issued by Corporations	—		—			77,905		(913		)	77,905		(913		)
Mortgage-Backed Securities:
Residential - Government Agencies	331,511		(1,507		)	502,727		(8,611		)	834,238		(10,118		)
Commercial - Government Agencies	—		—			103,151		(725		)	103,151		(725		)
Total Mortgage-Backed Securities	331,511		(1,507		)	605,878		(9,336		)	937,389		(10,843		)
Total	$	351,491	$	(1,510	)	$	713,988	$	(10,315	)	$	1,065,479	$	(11,825	)

December 31, 2014
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	1,729	$	(2	)	$	5,546	$	(38	)	$	7,275	$	(40	)
Debt Securities Issued by States and Political Subdivisions	78,068		(305		)	94,543		(1,140		)	172,611		(1,445		)
Debt Securities Issued by Corporations	73,829		(1,171		)	180,335		(2,814		)	254,164		(3,985		)
Mortgage-Backed Securities:
Residential - Government Agencies	3,025		(8		)	12,215		(1,035		)	15,240		(1,043		)
Residential - U.S. Government-Sponsored Enterprises	103,824		(191		)	—		—			103,824		(191		)
Commercial - Government Agencies	—		—			178,232		(8,581		)	178,232		(8,581		)
Total Mortgage-Backed Securities	106,849		(199		)	190,447		(9,616		)	297,296		(9,815		)
Total	$	260,475	$	(1,677	)	$	470,871	$	(13,608	)	$	731,346	$	(15,285	)
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	70,016	$	(134	)	$	144,222	$	(1,025	)	$	214,238	$	(1,159	)
Debt Securities Issued by Corporations	46,196		(349		)	82,109		(3,093		)	128,305		(3,442		)
Mortgage-Backed Securities:
Residential - Government Agencies	280,967		(1,207		)	845,911		(19,429		)	1,126,878		(20,636		)
Residential - U.S. Government-Sponsored Enterprises	45,754		(15		)	—		—			45,754		(15		)
Commercial - Government Agencies	124,594		(179		)	171,091		(3,612		)	295,685		(3,791		)
Total Mortgage-Backed Securities	451,315		(1,401		)	1,017,002		(23,041		)	1,468,317		(24,442		)
Total	$	567,527	$	(1,884	)	$	1,243,333	$	(27,159	)	$	1,810,860	$	(29,043	)

The Company does not believe that the investment securities that were in an unrealized loss position as of March 31, 2015, which were comprised of 119 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. As of March 31, 2015 and December 31, 2014, the gross unrealized losses reported for mortgage-backed securities were primarily related to investment securities issued by the Government National Mortgage Association. 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 basis, which may be at maturity.

Interest income from taxable and non-taxable investment securities for the three months ended March 31, 2015 and 2014 were as follows:



	Three Months Ended March 31,
(dollars in thousands)	2015		2014
Taxable	$	29,292	$	33,427
Non-Taxable	5,313		5,222
Total Interest Income from Investment Securities	$	34,605	$	38,649

As of March 31, 2015, included in the Company's investment securities portfolio were debt securities issued by political subdivisions within the State of Hawaii of $604.3 million, representing 59% of the total fair value of the Company's municipal debt securities. Of the entire Hawaii municipal bond portfolio, 91% were credit-rated Aa2 or better by Moody's while most of the remaining Hawaii municipal bonds were credit-rated A2 or better by at least one nationally recognized statistical rating organization. Approximately 77% of the Company's Hawaii municipal bond holdings were general obligation issuances. As of March 31, 2015, there were no other holdings of municipal debt securities that were issued by a single state or political subdivision which comprised more than 10% of the total fair value of the Company's municipal debt securities.

As of March 31, 2015, the carrying value of the Company’s Federal Home Loan Bank of Seattle ("FHLB Seattle") and Federal Reserve Bank stock was as follows:



(dollars in thousands)	March 31, 2015		December 31, 2014
Federal Home Loan Bank Stock	$	44,463	$	47,075
Federal Reserve Bank Stock	19,419		19,299
Total	$	63,882	$	66,374

These securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

On February 27, 2015, the FHLB Seattle and the Federal Home Loan Bank of Des Moines announced that the members of both banks have ratified the Merger Agreement approved by their boards of directors in September 2014. The combined bank will be headquartered in Des Moines and maintain a western regional office in Seattle. Pending certain closing conditions, the merger is anticipated to become effective by mid-year 2015. The merger is not expected to have a material impact on the Company's Consolidated Financial Statements or the Company's dealings with the combined bank.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A common shares. This conversion will not occur until the settlement of certain litigation which is indemnified by Visa members such as the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account not be sufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank's Class B conversion ratio to unrestricted Class A shares. As of March 31, 2015, the conversion ratio was 1.6483.

During the first quarter of 2015, the Company recorded a $10.1 million net gain on the sale of 95,000 Visa Class B shares. Concurrent with these sales, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa further reduces the conversion ratio. Based on the existing transfer restriction and the uncertainty of the outcome of certain litigation relating to Visa, the remaining 297,814 Class B shares (490,887 Class A equivalents) that the Company owns are carried at a zero cost basis. The Company also contributed 4,700 Visa Class B restricted shares to the Bank of Hawaii Foundation during first quarter of 2015. The contribution had no impact on noninterest expense; however, the contribution favorably impacted our effective tax rate in 2015.