Revenue from Contracts with Customers

9 Months Ended

Sep. 30, 2020

Revenue from Contracts with Customers

Revenue from Contracts with Customers

14. Revenue from Contracts with Customers

Revenue Recognition

In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is

distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Disaggregation of Revenue

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The Company has restated the selected financial information for the three and nine months ended September 30, 2019 in order to conform with the current presentation. See “Note 18. Reportable Operating Segments” in the notes to the unaudited interim consolidated financial statements.

The following table summarizes the Company’s revenues, which includes net interest income on financial instruments and noninterest income, disaggregated by type of service and business segments for the periods indicated:

		Three Months Ended September 30, 2020
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	102,803	$	32,757	$	(1,558)	$	134,002
Service charges on deposit accounts		5,734		332		457		6,523
Credit and debit card fees		—		12,259		1,236		13,495
Other service charges and fees		5,433		570		321		6,324
Trust and investment services income		8,664		—		—		8,664
Other		325		2,084		176		2,585
Not in scope of Topic 606(1)		4,493		1,434		5,380		11,307
Total noninterest income		24,649		16,679		7,570		48,898
Total revenue	$	127,452	$	49,436	$	6,012	$	182,900

		Nine Months Ended September 30, 2020
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	288,832	$	100,265	$	11,410	$	400,507
Service charges on deposit accounts		19,290		1,009		1,101		21,400
Credit and debit card fees		—		35,268		3,110		38,378
Other service charges and fees		14,887		1,209		1,175		17,271
Trust and investment services income		26,919		—		—		26,919
Other		567		4,689		476		5,732
Not in scope of Topic 606(1)		11,534		10,355		12,193		34,082
Total noninterest income		73,197		52,530		18,055		143,782
Total revenue	$	362,029	$	152,795	$	29,465	$	544,289

(1) Most of the Company’s revenue is not within the scope of ASU No. 2014-09, Revenue from Contracts with Customers. The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities and derivative financial instruments.

		Three Months Ended September 30, 2019
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	104,977	$	35,911	$	2,193	$	143,081
Service charges on deposit accounts		7,772		304		478		8,554
Credit and debit card fees		—		14,623		1,718		16,341
Other service charges and fees		5,155		306		537		5,998
Trust and investment services income		8,698		—		—		8,698
Other		138		726		191		1,055
Not in scope of Topic 606(1)		2,185		1,488		5,661		9,334
Total noninterest income		23,948		17,447		8,585		49,980
Total revenue	$	128,925	$	53,358	$	10,778	$	193,061

		Nine Months Ended September 30, 2019
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	319,912	$	105,567	$	8,304	$	433,783
Service charges on deposit accounts		22,136		924		1,677		24,737
Credit and debit card fees		—		43,564		5,135		48,699
Other service charges and fees		15,429		1,543		1,659		18,631
Trust and investment services income		26,247		—		—		26,247
Other		493		2,996		729		4,218
Not in scope of Topic 606(1)		6,887		5,533		10,873		23,293
Total noninterest income		71,192		54,560		20,073		145,825
Total revenue	$	391,104	$	160,127	$	28,377	$	579,608

(1) Most of the Company’s revenue is not within the scope of ASU No. 2014-09, Revenue from Contracts with Customers. The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities and derivative financial instruments.

For the three and nine months ended September 30, 2020 and 2019, substantially all of the Company’s revenues under the scope of Topic 606 were related to performance obligations satisfied at a point in time.

The following is a discussion of revenues within the scope of Topic 606.

Service Charges on Deposit Accounts

Service charges on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers. Charges include, but are not limited to, overdraft fees, non-sufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrent with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date.

Credit and Debit Card Fees

Credit and debit card fees primarily represent revenues earned from interchange fees, ATM fees and merchant processing fees. Interchange and network revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result of surcharges assessed to non-FHB customers who use an FHB ATM. Merchant processing fees are primarily earned on transactions in which FHB is the acquiring bank. Such fees are generally recognized concurrently with the delivery of services on a daily basis.

Trust and Investment Services Fees

Trust and investment services fees represent revenue earned by directing, holding and managing customers’ assets. Fees are generally computed based on a percentage of the previous period’s value of assets under management. The transaction price (i.e., percentage of assets under management) is established at the inception of each contract. Trust and investment services fees also include fees collected when the Company acts as agent or personal representative and executes security transactions, performs collection and disbursement of income, and completes investment management and other administrative tasks.

Other Fees

Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuance of checks and insurance commissions. Such fees are recognized concurrent with the event or on a monthly basis.

Contract Balances

A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. In prior years, the Company received signing bonuses from two vendors which are being amortized over the term of the respective contracts. As of September 30, 2020 and December 31, 2019, the Company had contract liabilities of $1.2 million and $1.8 million, respectively, which it expects to recognize over the remaining term of the respective contracts with the vendors. For the three and nine months ended September 30, 2020, the Company’s recognized revenues and contract liabilities decreased by approximately $0.2 million and $0.6 million, respectively, due to the passage of time. For the three and nine months ended September 30, 2019, the Company’s recognized revenues and contract liabilities decreased by approximately $0.2 million and $0.6 million, respectively, due to the passage of time.  There were no changes in contract liabilities due to changes in transaction price estimates.

A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of September 30, 2020 and December 31, 2019, there were no receivables from contracts with customers or contract assets recorded on the Company’s consolidated balance sheets.

Other

Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of September 30, 2020 and December 31, 2019. The Company also did not have any material contract acquisition costs or use any significant judgments or estimates in recognizing revenue for financial reporting purposes.