Reportable Operating Segments

3 Months Ended

Mar. 31, 2025

Reportable Operating Segments

Reportable Operating Segments

17. Reportable Operating Segments

The Company’s operations are organized into three business segments – Retail Banking, Commercial Banking, and Treasury and Other. These segments reflect how discrete financial information is currently evaluated by the chief operating decision maker and how performance is assessed and resources allocated. The Company’s internal management process measures the performance of these business segments. This process, which is not necessarily comparable with similar information for 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.

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.

The Company allocates the provision for credit losses from the Treasury and Other business segment (which is comprised of many of the Company’s support units) to the Retail and Commercial business segments. These allocations are based on direct costs incurred by the Retail and Commercial business segments.

Noninterest income and expense includes allocations from support units to the business segments. These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage. Income tax expense is allocated to each business segment based on the consolidated effective income tax rate for the period shown.

Business Segments

Retail Banking

Retail Banking offers a broad range of financial products and services to consumers and small businesses. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings, and time deposit accounts. Retail Banking also offers wealth management services. Products and services from Retail Banking are delivered to customers through 48 banking locations throughout the State of Hawaii, Guam and Saipan.

Commercial Banking

Commercial Banking offers products that include corporate banking related products, commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products and credit cards. Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally and internationally.

Treasury and Other

Treasury consists of corporate asset and liability management activities including interest rate risk management. The segment’s assets and liabilities (and related interest income and expense) consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings and bank-owned properties. The primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income related to customer-driven cross-border wires for business and personal reasons and management of bank-owned properties. 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, Credit and Risk Management, Human Resources, Finance, Administration, Marketing, 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.

The following tables present selected business segment financial information for the periods indicated.

	Three Months Ended
	March 31, 2025
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Interest income	$	84,412	$	107,271	$	43,467	$	235,150
Intersegment interest allocations (1)		(63,010)		(77,131)		140,141		—
Total interest income		21,402		30,140		183,608		235,150
Interest expense		(54,881)		(13,934)		(5,809)		(74,624)
Intersegment interest allocations (1)		163,361		26,336		(189,697)		—
Total interest expense		108,480		12,402		(195,506)		(74,624)
Net interest income (expense)		129,882		42,542		(11,898)		160,526
Provision for credit losses		(4,691)		(5,309)		(500)		(10,500)
Net interest income (expense) after provision for credit losses		125,191		37,233		(12,398)		150,026
Noninterest income		26,651		17,755		6,071		50,477
Salaries and employee benefits		(24,612)		(4,791)		(30,701)		(60,104)
Contracted services and professional fees		(3,053)		(3,870)		(7,916)		(14,839)
Occupancy		(7,295)		(495)		(310)		(8,100)
Equipment		(1,395)		(449)		(12,027)		(13,871)
Card rewards program		—		(7,919)		—		(7,919)
Other segment items (2)		(36,770)		(2,247)		20,290		(18,727)
Noninterest expense		(73,125)		(19,771)		(30,664)		(123,560)
Income (loss) before (provision) benefit for income taxes		78,717		35,217		(36,991)		76,943
(Provision) benefit for income taxes		(18,774)		(6,961)		8,040		(17,695)
Net income (loss)	$	59,943	$	28,256	$	(28,951)	$	59,248
Other Segment Disclosures:
Depreciation and amortization (3)	$	1,048	$	68	$	4,412	$	5,528
Segment earning assets		7,323,191		6,974,197		6,687,259		20,984,647

	Three Months Ended
	March 31, 2024
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Interest income	$	84,223	$	116,775	$	43,954	$	244,952
Intersegment interest allocations (1)		(62,197)		(83,239)		145,436		—
Total interest income		22,026		33,536		189,390		244,952
Interest expense		(58,372)		(15,313)		(16,840)		(90,525)
Intersegment interest allocations (1)		164,403		27,158		(191,561)		—
Total interest expense		106,031		11,845		(208,401)		(90,525)
Net interest income (expense)		128,057		45,381		(19,011)		154,427
(Provision) benefit for credit losses		(3,379)		(3,713)		792		(6,300)
Net interest income (expense) after (provision) benefit for credit losses		124,678		41,668		(18,219)		148,127
Noninterest income		26,035		17,958		7,378		51,371
Salaries and employee benefits		(25,238)		(4,996)		(29,028)		(59,262)
Contracted services and professional fees		(2,881)		(4,389)		(8,469)		(15,739)
Occupancy		(7,416)		(491)		966		(6,941)
Equipment		(1,308)		(361)		(11,744)		(13,413)
Card rewards program		—		(8,508)		—		(8,508)
Other segment items (2)		(39,797)		(6,940)		21,787		(24,950)
Noninterest expense		(76,640)		(25,685)		(26,488)		(128,813)
Income (loss) before (provision) benefit for income taxes		74,073		33,941		(37,329)		70,685
(Provision) benefit for income taxes		(17,928)		(7,273)		8,736		(16,465)
Net income (loss)	$	56,145	$	26,668	$	(28,593)	$	54,220
Other Segment Disclosures:
Depreciation and amortization (3)	$	1,136	$	68	$	3,713	$	4,917
Segment earning assets		7,474,076		6,880,199		7,263,325		21,617,600

(1) Intersegment interest allocations are the result of funds transfer-pricing methodologies that are utilized to allocate a cost for the funding of assets and a credit for the collection of deposits to all business segment assets and liabilities.

(2) Other segment items included in segment net income includes advertising and marketing, regulatory assessment and fees, allocations and transfer pricing on non-earning assets, liabilities and equity, and other miscellaneous and administrative fees.

(3) The amounts of depreciation and amortization disclosed by reportable segment are included within equipment, occupancy, other segment items, and noninterest income.