Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities as of September 30, 2015 and December 31, 2014 were as follows:



(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2015
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	363,780	$	5,042	$	(165	)	$	368,657
Debt Securities Issued by States and Political Subdivisions	715,515		22,107		(412		)	737,210
Debt Securities Issued by Corporations	313,166		390		(2,995		)	310,561
Mortgage-Backed Securities:
Residential - Government Agencies	341,457		8,244		(1,232		)	348,469
Residential - U.S. Government-Sponsored Enterprises	407,568		4,693		—			412,261
Commercial - Government Agencies	105,735		—		(3,171		)	102,564
Total Mortgage-Backed Securities	854,760		12,937		(4,403		)	863,294
Total	$	2,247,221	$	40,476	$	(7,975	)	$	2,279,722
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	499,731	$	4,613	$	—		$	504,344
Debt Securities Issued by States and Political Subdivisions	246,884		15,917		—			262,801
Debt Securities Issued by Corporations	155,175		1,691		(823		)	156,043
Mortgage-Backed Securities:
Residential - Government Agencies	2,335,710		39,593		(11,588		)	2,363,715
Residential - U.S. Government-Sponsored Enterprises	619,545		6,864		(4		)	626,405
Commercial - Government Agencies	264,723		4,321		(739		)	268,305
Total Mortgage-Backed Securities	3,219,978		50,778		(12,331		)	3,258,425
Total	$	4,121,768	$	72,999	$	(13,154	)	$	4,181,613

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 September 30, 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	$	128,506	$	129,124
Due After One Year Through Five Years	450,881		454,110
Due After Five Years Through Ten Years	436,542		447,542
Due After Ten Years	73,243		77,701
	1,089,172		1,108,477

Debt Securities Issued by Government Agencies	303,289		307,951
Mortgage-Backed Securities:
Residential - Government Agencies	341,457		348,469
Residential - U.S. Government-Sponsored Enterprises	407,568		412,261
Commercial - Government Agencies	105,735		102,564
Total Mortgage-Backed Securities	854,760		863,294
Total	$	2,247,221	$	2,279,722

Held-to-Maturity:
Due in One Year or Less	$	9,994	$	10,008
Due After One Year Through Five Years	500,499		505,481
Due After Five Years Through Ten Years	286,833		295,665
Due After Ten Years	104,464		112,034
	901,790		923,188
Mortgage-Backed Securities:
Residential - Government Agencies	2,335,710		2,363,715
Residential - U.S. Government-Sponsored Enterprises	619,545		626,405
Commercial - Government Agencies	264,723		268,305
Total Mortgage-Backed Securities	3,219,978		3,258,425
Total	$	4,121,768	$	4,181,613

Investment securities with carrying values of $2.5 billion and $2.8 billion as of September 30, 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 and nine months ended September 30, 2015 and 2014.



	Three Months Ended September 30,					Nine Months Ended September 30,
(dollars in thousands)	2015			2014		2015			2014
Gross Gains on Sales of Investment Securities	$	1,504		$	1,858	$	11,821		$	6,097
Gross Losses on Sales of Investment Securities	(1,480		)	—		(1,480		)	—
Net Gains on Sales of Investment Securities	$	24		$	1,858	$	10,341		$	6,097

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
September 30, 2015
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	33,551	$	(156	)	$	5,072	$	(9	)	$	38,623	$	(165	)
Debt Securities Issued by States and Political Subdivisions	55,896		(412		)	—		—			55,896		(412		)
Debt Securities Issued by Corporations	101,626		(1,392		)	143,489		(1,603		)	245,115		(2,995		)
Mortgage-Backed Securities:
Residential - Government Agencies	34,152		(115		)	9,832		(1,117		)	43,984		(1,232		)
Commercial - Government Agencies	—		—			102,564		(3,171		)	102,564		(3,171		)
Total Mortgage-Backed Securities	34,152		(115		)	112,396		(4,288		)	146,548		(4,403		)
Total	$	225,225	$	(2,075	)	$	260,957	$	(5,900	)	$	486,182	$	(7,975	)
Held-to-Maturity:
Debt Securities Issued by Corporations	$	—	$	—		$	74,246	$	(823	)	$	74,246	$	(823	)
Mortgage-Backed Securities:
Residential - Government Agencies	380,442		(2,777		)	440,675		(8,811		)	821,117		(11,588		)
Residential - U.S. Government-Sponsored Enterprises	14,425		(4		)	—		—			14,425		(4		)
Commercial - Government Agencies	27,251		(359		)	55,578		(380		)	82,829		(739		)
Total Mortgage-Backed Securities	422,118		(3,140		)	496,253		(9,191		)	918,371		(12,331		)
Total	$	422,118	$	(3,140	)	$	570,499	$	(10,014	)	$	992,617	$	(13,154	)

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 September 30, 2015, which were comprised of 125 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 September 30, 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 and nine months ended September 30, 2015 and 2014 were as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2015		2014		2015		2014
Taxable	$	25,569	$	31,053	$	82,638	$	96,796
Non-Taxable	5,312		5,300		15,953		15,841
Total Interest Income from Investment Securities	$	30,881	$	36,353	$	98,591	$	112,637

As of September 30, 2015, included in the Company's investment securities portfolio were debt securities issued by political subdivisions within the State of Hawaii of $579.0 million, representing 58% 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. Of the Company's total Hawaii municipal bond holdings, 77% were general obligation issuances. As of September 30, 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 September 30, 2015 and December 31, 2014, the carrying value of the Company’s Federal Home Loan Bank of Des Moines (“FHLB Des Moines”) stock and Federal Reserve Bank stock was as follows:



(dollars in thousands)	September 30, 2015		December 31, 2014
Federal Home Loan Bank Stock	$	20,000	$	47,075
Federal Reserve Bank Stock	19,836		19,299
Total	$	39,836	$	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.

Effective May 31, 2015, FHLB Des Moines completed its previously announced merger with the Federal Home Loan Bank of Seattle (“FHLB Seattle”). The continuing bank, FHLB Des Moines, remains headquartered in Des Moines with a western regional office in Seattle. Prior to the merger, the Company held stock in FHLB Seattle. Pursuant to the terms of the Merger Agreement, each share of FHLB Seattle stock was converted into one share of FHLB Des Moines stock. In addition, upon the merger, the Company's excess FHLB stock was redeemed and the Company’s membership effectively transferred to FHLB Des Moines. The merger did not have a material impact on the Company's Consolidated Financial Statements or the Company's dealings with the continuing 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, including 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 September 30, 2015, the conversion ratio was 1.6483.

During the first nine months 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 the Visa litigation mentioned above, the remaining 288,714 Class B shares (475,887 Class A equivalents) that the Company owns are carried at a zero cost basis. The Company also contributed 13,800 Visa Class B restricted shares to the Bank of Hawaii Foundation during the first nine months of 2015. The contribution had no impact on noninterest expense; however, the contribution favorably impacted our effective tax rate in 2015.