Business Segments

6 Months Ended

Jun. 30, 2022

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 methodology that we use 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 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, 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, personal 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 54 branch locations and 310 ATMs throughout Hawaii and the Pacific Islands, e-Bankoh (on-line 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, Customer Experience, 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 six months ended June 30, 2022, and June 30, 2021, were as follows:

(dollars in thousands)	Consumer Banking			Commercial Banking			Treasury and Other			Consolidated Total
Three Months Ended June 30, 2022
Net Interest Income	$	75,868		$	49,562		$	7,472		$	132,902
Provision for Credit Losses		502			(1	)		(3,001	)		(2,500	)
Net Interest Income After Provision for Credit Losses		75,366			49,563			10,473			135,402
Noninterest Income		31,953			8,279			1,926			42,158
Noninterest Expense		(82,740	)		(17,026	)		(3,173	)		(102,939	)
Income Before Provision for Income Taxes		24,579			40,816			9,226			74,621
Provision for Income Taxes		(6,162	)		(10,145	)		(1,452	)		(17,759	)
Net Income	$	18,417		$	30,671		$	7,774		$	56,862
Total Assets as of June 30, 2022	$	8,179,647		$	5,337,656		$	9,715,396		$	23,232,699
Three Months Ended June 30, 2021
Net Interest Income	$	71,167		$	49,038		$	3,309		$	123,514
Provision for Credit Losses		987			197			(17,284	)		(16,100	)
Net Interest Income After Provision for Credit Losses		70,180			48,841			20,593			139,614
Noninterest Income		32,600			6,575			5,256			44,431
Noninterest Expense		(72,868	)		(15,742	)		(7,917	)		(96,527	)
Income Before Provision for Income Taxes		29,912			39,674			17,932			87,518
Provision for Income Taxes		(7,365	)		(9,703	)		(2,917	)		(19,985	)
Net Income	$	22,547		$	29,971		$	15,015		$	67,533
Total Assets as of June 30, 2021	$	7,479,986		$	5,127,431		$	10,064,766		$	22,672,183
Six Months Ended June 30, 2022
Net Interest Income	$	146,103		$	95,911		$	16,151		$	258,165
Provision for Credit Losses		2,185			(198	)		(9,987	)		(8,000	)
Net Interest Income After Provision for Credit Losses		143,918			96,109			26,138			266,165
Noninterest Income		63,922			18,477			3,310			85,709
Noninterest Expense		(164,438	)		(35,695	)		(6,680	)		(206,813	)
Income Before Provision for Income Taxes		43,402			78,891			22,768			145,061
Provision for Income Taxes		(10,872	)		(19,342	)		(3,151	)		(33,365	)
Net Income	$	32,530		$	59,549		$	19,617		$	111,696
Total Assets as of June 30, 2022	$	8,179,647		$	5,337,656		$	9,715,396		$	23,232,699
Six Months Ended June 30, 2021
Net Interest Income	$	140,929		$	96,181		$	6,973		$	244,083
Provision for Credit Losses		3,853			247			(34,500	)		(30,400	)
Net Interest Income After Provision for Credit Losses		137,076			95,934			41,473			274,483
Noninterest Income		66,298			14,433			6,670			87,401
Noninterest Expense		(151,049	)		(31,419	)		(12,924	)		(195,392	)
Income Before Provision for Income Taxes		52,325			78,948			35,219			166,492
Provision for Income Taxes		(12,839	)		(19,261	)		(6,910	)		(39,010	)
Net Income	$	39,486		$	59,687		$	28,309		$	127,482
Total Assets as of June 30, 2021	$	7,479,986		$	5,127,431		$	10,064,766		$	22,672,183