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Business Segments
 9 Months Ended
Sep. 30, 2023
Segment Reporting [Abstract]  
Business Segments

Note 10. Business Segments

 

The Company’s business segments are defined as Consumer Banking, Commercial Banking, and Treasury and Other. The Company’s internal management accounting process measures the performance of these business segments. This process, which is not necessarily comparable with the process used by 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, 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. Previously reported results have been reclassified to conform to the current reporting structure.

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 the Company’s assumptions that are subject to change based on changes in current interest rates and market conditions. Funds transfer pricing also serves to transfer interest rate risk to Treasury. However, the other business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions within guidelines.

The provision for credit losses for the Consumer Banking and Commercial Banking business segments reflects the actual net charge-offs of those business segments. The amount of the consolidated provision for loan and lease losses is based on the CECL methodology that the Company had adopted and used to estimate our consolidated Allowance. The residual provision for credit losses to arrive at the consolidated provision for credit losses is included in Treasury and Other.

Noninterest income and expense includes allocations from support units to business units. These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage.

The provision for income taxes is allocated to business segments using a 26% effective income tax rate. However, the provision for income taxes for our Commercial Leasing portfolio (included in the Commercial Banking segment) and Auto Leasing portfolio and Pacific Century Life Insurance business unit (both included in the Consumer Banking segment) are assigned their actual effective income tax rates due to the unique relationship that income taxes have with their products. The residual income tax expense or benefit to arrive at the consolidated effective tax rate is included in Treasury and Other.

 

Consumer Banking

 

Consumer Banking offers a broad range of financial products and services, including loan, deposit and insurance products; private banking and international client banking services; trust services; investment management; and institutional investment advisory services. Consumer Banking also provides a full service brokerage offering equities, mutual funds, life insurance, and annuity products. Loan and lease products include residential mortgage loans, home equity lines of credit, automobile loans and leases, overdraft lines of credit, installment loans, small business loans and leases, and credit cards. Deposit products include checking, savings, and time deposit accounts. Private banking and personal trust groups assist individuals and families in building and preserving their wealth by providing investment, credit, and trust services to high-net-worth individuals. The investment management group manages portfolios utilizing a variety of investment products. Also within Consumer Banking, institutional client services offer investment advice to corporations, government entities, and foundations. Products and services from Consumer Banking are delivered to customers through 51 branch locations and 320 ATMs throughout Hawaii and the Pacific Islands, a customer service center, e-Bankoh (online banking service), a customer service center, and a mobile banking service.

 

Commercial Banking

Commercial Banking offers products including corporate banking, commercial real estate loans, commercial lease financing, auto dealer financing, and deposit products. Commercial lending and deposit products are offered to middle-market and large companies in Hawaii and the Pacific Islands. In addition, Commercial Banking offers deposit products to government entities in Hawaii. Commercial real estate mortgages focus on customers that include investors, developers, and builders predominantly domiciled in Hawaii. Commercial Banking also includes international banking and provides merchant services to its customers.

 

Treasury and Other

Treasury consists of corporate asset and liability management activities, including interest rate risk management and a foreign currency 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, and short and long-term borrowings. The primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, and foreign exchange income related to customer-driven currency requests from merchants and island visitors. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with the elimination of intercompany transactions.

Other organizational units (Technology, Operations, Marketing, Human Resources, Finance, Credit and Risk Management, and Corporate and Regulatory Administration) provide a wide-range of support to the Company’s other income earning segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.

Selected business segment financial information as of and for the three and nine months ended September 30, 2023, and September 30, 2022, were as follows:

 

(dollars in thousands)

 

Consumer
Banking

 

Commercial
Banking

 

Treasury
and Other

 

 

Consolidated
Total

 

Three Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

Net Interest Income (Loss)

 

$

100,913

 

$

53,823

 

$

(33,799

)

 

$

120,937

 

Provision for Credit Losses

 

 

1,974

 

 

74

 

 

(48

)

 

 

2,000

 

Net Interest Income (Loss) After Provision for Credit Losses

 

 

98,939

 

 

53,749

 

 

(33,751

)

 

 

118,937

 

Noninterest Income

 

 

31,027

 

 

8,483

 

 

10,824

 

 

 

50,334

 

Noninterest Expense

 

 

(81,377

)

 

(18,937

)

 

(5,287

)

 

 

(105,601

)

Income (Loss) Before Provision for Income Taxes

 

 

48,589

 

 

43,295

 

 

(28,214

)

 

 

63,670

 

Provision for Income Taxes

 

 

(12,582

)

 

(10,987

)

 

7,802

 

 

 

(15,767

)

Net Income (Loss)

 

$

36,007

 

$

32,308

 

$

(20,412

)

 

$

47,903

 

Total Assets as of September 30, 2023

 

$

8,584,221

 

$

5,719,577

 

$

9,245,987

 

 

$

23,549,785

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2022 1

 

 

 

 

 

 

 

 

 

 

Net Interest Income (Loss)

 

$

85,658

 

$

56,251

 

$

(254

)

 

$

141,655

 

Provision for Credit Losses

 

 

1,148

 

 

(1

)

 

(1,147

)

 

 

—

 

Net Interest Income After Provision for Credit Losses

 

 

84,510

 

 

56,252

 

 

893

 

 

 

141,655

 

Noninterest Income

 

 

30,974

 

 

(911

)

 

597

 

 

 

30,660

 

Noninterest Expense

 

 

(83,408

)

 

(17,330

)

 

(5,011

)

 

 

(105,749

)

Income (Loss) Before Provision for Income Taxes

 

 

32,076

 

 

38,011

 

 

(3,521

)

 

 

66,566

 

Provision for Income Taxes

 

 

(8,067

)

 

(9,206

)

 

3,508

 

 

 

(13,765

)

Net Income (Loss)

 

$

24,009

 

$

28,805

 

$

(13

)

 

$

52,801

 

Total Assets as of September 30, 2022 1

 

$

8,399,068

 

$

5,486,330

 

$

9,248,642

 

 

$

23,134,040

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

Net Interest Income (Loss)

 

$

298,512

 

$

164,202

 

$

(81,474

)

 

$

381,240

 

Provision for Credit Losses

 

 

6,035

 

 

59

 

 

406

 

 

 

6,500

 

Net Interest Income (Loss) After Provision for Credit Losses

 

 

292,477

 

 

164,143

 

 

(81,880

)

 

 

374,740

 

Noninterest Income

 

 

94,126

 

 

25,072

 

 

15,128

 

 

 

134,326

 

Noninterest Expense

 

 

(247,543

)

 

(58,528

)

 

(15,485

)

 

 

(321,556

)

Income (Loss) Before Provision for Income Taxes

 

 

139,060

 

 

130,687

 

 

(82,237

)

 

 

187,510

 

Provision for Income Taxes

 

 

(35,838

)

 

(32,490

)

 

21,624

 

 

 

(46,704

)

Net Income (Loss)

 

$

103,222

 

$

98,197

 

$

(60,613

)

 

$

140,806

 

Total Assets as of September 30, 2023

 

$

8,584,221

 

$

5,719,577

 

$

9,245,987

 

 

$

23,549,785

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2022 1

 

 

 

 

 

 

 

 

 

 

Net Interest Income

 

$

232,646

 

$

152,394

 

$

14,780

 

 

$

399,820

 

Provision for Credit Losses

 

 

3,463

 

 

(200

)

 

(11,263

)

 

 

(8,000

)

Net Interest Income After Provision for Credit Losses

 

 

229,183

 

 

152,594

 

 

26,043

 

 

 

407,820

 

Noninterest Income

 

 

94,811

 

 

17,650

 

 

3,908

 

 

 

116,369

 

Noninterest Expense

 

 

(247,854

)

 

(53,014

)

 

(11,694

)

 

 

(312,562

)

Income Before Provision for Income Taxes

 

 

76,140

 

 

117,230

 

 

18,257

 

 

 

211,627

 

Provision for Income Taxes

 

 

(19,114

)

 

(28,654

)

 

638

 

 

 

(47,130

)

Net Income

 

$

57,026

 

$

88,576

 

$

18,895

 

 

$

164,497

 

Total Assets as of September 30, 2022 1

 

$

8,399,068

 

$

5,486,330

 

$

9,248,642

 

 

$

23,134,040

 

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