Reportable Operating Segments

6 Months Ended

Jun. 30, 2016

Reportable Operating Segments

Reportable Operating Segments

16. 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 accounting 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 loan and lease losses to each segment based on management’s estimate of the inherent loss content in each of the specific loan and lease portfolios.

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, automobile loans and leases, personal 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 62 banking locations throughout the State of Hawaii, Guam, and Saipan.

Commercial Banking

Commercial Banking offers products that include corporate banking, residential and commercial real estate loans, commercial lease financing, auto dealer financing, 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 currency requests from merchants and island visitors 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 table presents selected business segment financial information for the periods indicated:

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Three Months Ended June 30, 2016
Net interest income (expense)	$	103,771	$	28,212	$	(11,556)	$	120,427
Provision for loan and lease losses		(696)		(1,204)		—		(1,900)
Net interest income (expense) after provision for loan and lease losses		103,075		27,008		(11,556)		118,527
Noninterest income		22,525		16,671		7,175		46,371
Noninterest expense		(54,266)		(13,106)		(11,101)		(78,473)
Income before provision for income taxes		71,334		30,573		(15,482)		86,425
(Provision) benefit for income taxes		(26,067)		(11,145)		5,647		(31,565)
Net income (loss)	$	45,267	$	19,428	$	(9,835)	$	54,860

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Six Months Ended June 30, 2016
Net interest income (expense)	$	206,196	$	55,805	$	(24,262)	$	237,739
Provision for loan and lease losses		(952)		(1,648)		—		(2,600)
Net interest income (expense) after provision for loan and lease losses		205,244		54,157		(24,262)		235,139
Noninterest income		46,155		33,019		40,716		119,890
Noninterest expense		(109,402)		(24,884)		(29,251)		(163,537)
Income (loss) before provision for income taxes		141,997		62,292		(12,797)		191,492
(Provision) benefit for income taxes		(53,055)		(23,241)		5,195		(71,101)
Net income (loss)	$	88,942	$	39,051	$	(7,602)	$	120,391

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Three Months Ended June 30, 2015
Net interest income (expense)	$	99,667	$	31,947	$	(12,672)	$	118,942
Provision for loan and lease losses		(1,060)		(1,190)		—		(2,250)
Net interest income (expense) after provision for loan and lease losses		98,607		30,757		(12,672)		116,692
Noninterest income		24,029		15,811		12,275		52,115
Noninterest expense		(51,007)		(14,503)		(15,705)		(81,215)
Income before provision for income taxes		71,629		32,065		(16,102)		87,592
(Provision) benefit for income taxes		(27,109)		(12,154)		6,229		(33,034)
Net income (loss)	$	44,520	$	19,911	$	(9,873)	$	54,558

					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Six Months Ended June 30, 2015
Net interest income (expense)	$	197,826	$	59,104	$	(25,377)	$	231,553
Provision for loan and lease losses		(2,285)		(2,565)		—		(4,850)
Net interest income (expense) after provision for loan and lease losses		195,541		56,539		(25,377)		226,703
Noninterest income		48,542		35,129		24,042		107,713
Noninterest expense		(101,829)		(27,088)		(31,013)		(159,930)
Income (loss) before provision for income taxes		142,254		64,580		(32,348)		174,486
(Provision) benefit for income taxes		(53,640)		(24,344)		12,178		(65,806)
Net income (loss)	$	88,614	$	40,236	$	(20,170)	$	108,680