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Business Segments
 9 Months Ended
Sep. 30, 2024
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 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 the Leasing business unit (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 and lease financing, deposit, and brokerage and insurance products; private banking and international client banking services; trust services; investment management; and

institutional investment advisory services. 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. Brokerage and insurance offerings include equities, mutual funds, life insurance, and annuity products. Private banking (including international client banking) and 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 and the institutional client services group offers investment advice to corporations, government entities, and foundations. Products and services from Consumer Banking are delivered to customers through 50 branch locations and 317 ATMs throughout Hawai‘i and the Pacific Islands, a customer service center, e-Bankoh (online banking service), and a mobile banking service.

 

Commercial Banking

Commercial Banking offers products including commercial and industrial loans, commercial real estate loans, commercial lease financing, auto dealer financing, merchant services, deposit products and cash management services. Commercial lending and lease financing, deposit products, and cash management and merchant services are offered to middle-market and large companies in Hawai‘i and the Pacific Islands. Commercial Banking also offers lease financing and deposit products to government entities in Hawai‘i. Commercial real estate mortgages focus on investors, developers, and builders predominantly domiciled in Hawai‘i. Commercial Banking includes international banking which services Japanese, Korean, and Chinese commercial businesses owned by a foreign individual or entity, a U.S. corporate subsidiary of a foreign owner, or businesses where management prefers to speak a foreign language.

 

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 and Other, 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, 2024 and 2023, were as follows:

 

(dollars in thousands)

 

Consumer
Banking

 

Commercial
Banking

 

Treasury
and Other

 

 

Consolidated
Total

 

Three Months Ended September 30, 2024

 

 

 

 

 

 

 

 

 

 

Net Interest Income (Expense)

 

$

97,919

 

$

50,556

 

$

(30,857

)

 

$

117,618

 

Provision for Credit Losses

 

 

3,058

 

 

772

 

 

(830

)

 

 

3,000

 

Net Interest Income (Expense) After Provision for Credit Losses

 

 

94,861

 

 

49,784

 

 

(30,027

)

 

 

114,618

 

Noninterest Income

 

 

34,133

 

 

7,786

 

 

3,191

 

 

 

45,110

 

Noninterest Expense

 

 

(84,712

)

 

(18,825

)

 

(3,555

)

 

 

(107,092

)

Income (Loss) Before Provision for Income Taxes

 

 

44,282

 

 

38,745

 

 

(30,391

)

 

 

52,636

 

Provision for Income Taxes

 

 

(11,289

)

 

(9,816

)

 

8,827

 

 

 

(12,278

)

Net Income (Loss)

 

$

32,993

 

$

28,929

 

$

(21,564

)

 

$

40,358

 

Total Assets as of September 30, 2024

 

$

8,308,389

 

$

5,952,321

 

$

9,538,464

 

 

$

23,799,174

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2023 1

 

 

 

 

 

 

 

 

 

 

Net Interest Income (Expense)

 

$

98,984

 

$

52,066

 

$

(30,113

)

 

$

120,937

 

Provision for Credit Losses

 

 

1,974

 

 

74

 

 

(48

)

 

 

2,000

 

Net Interest Income (Expense) After Provision for Credit Losses

 

 

97,010

 

 

51,992

 

 

(30,065

)

 

 

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

 

 

46,660

 

 

41,538

 

 

(24,528

)

 

 

63,670

 

Provision for Income Taxes

 

 

(12,073

)

 

(10,523

)

 

6,829

 

 

 

(15,767

)

Net Income (Loss)

 

$

34,587

 

$

31,015

 

$

(17,699

)

 

$

47,903

 

Total Assets as of September 30, 2023

 

$

8,584,796

 

$

5,719,577

 

$

9,245,412

 

 

$

23,549,785

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2024

 

 

 

 

 

 

 

 

 

 

Net Interest Income (Expense)

 

$

293,118

 

$

152,934

 

$

(99,650

)

 

$

346,402

 

Provision for Credit Losses

 

 

8,218

 

 

1,239

 

 

(2,057

)

 

 

7,400

 

Net Interest Income (Expense) After Provision for Credit Losses

 

 

284,900

 

 

151,695

 

 

(97,593

)

 

 

339,002

 

Noninterest Income

 

 

99,768

 

 

21,278

 

 

8,436

 

 

 

129,482

 

Noninterest Expense

 

 

(254,428

)

 

(55,478

)

 

(12,271

)

 

 

(322,177

)

Income (Loss) Before Provision for Income Taxes

 

 

130,240

 

 

117,495

 

 

(101,428

)

 

 

146,307

 

Provision for Income Taxes

 

 

(33,154

)

 

(29,711

)

 

27,390

 

 

 

(35,475

)

Net Income (Loss)

 

$

97,086

 

$

87,784

 

$

(74,038

)

 

$

110,832

 

Total Assets as of September 30, 2024

 

$

8,308,389

 

$

5,952,321

 

$

9,538,464

 

 

$

23,799,174

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2023 1

 

 

 

 

 

 

 

 

 

 

Net Interest Income (Expense)

 

$

293,681

 

$

159,864

 

$

(72,305

)

 

$

381,240

 

Provision for Credit Losses

 

 

6,035

 

 

59

 

 

406

 

 

 

6,500

 

Net Interest Income (Expense) After Provision for Credit Losses

 

 

287,646

 

 

159,805

 

 

(72,711

)

 

 

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

 

 

134,229

 

 

126,349

 

 

(73,068

)

 

 

187,510

 

Provision for Income Taxes

 

 

(34,566

)

 

(31,345

)

 

19,207

 

 

 

(46,704

)

Net Income (Loss)

 

$

99,663

 

$

95,004

 

$

(53,861

)

 

$

140,806

 

Total Assets as of September 30, 2023

 

$

8,584,796

 

$

5,719,577

 

$

9,245,412

 

 

$

23,549,785

 

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