Revenue from Contracts with Customers

9 Months Ended

Sep. 30, 2023

Revenue from Contracts with Customers

Revenue from Contracts with Customers

13. Revenue from Contracts with Customers

Revenue Recognition

In accordance with Topic 606, Revenue from Contracts with Customers, 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

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, 2023
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	119,070	$	45,913	$	(7,835)	$	157,148
Service charges on deposit accounts		6,724		714		86		7,524
Credit and debit card fees		—		13,990		1,152		15,142
Other service charges and fees		6,461		425		529		7,415
Trust and investment services income		9,742		—		—		9,742
Other		86		2,599		(48)		2,637
Not in scope of Topic 606(1)		1,821		1,130		686		3,637
Total noninterest income		24,834		18,858		2,405		46,097
Total revenue	$	143,904	$	64,771	$	(5,430)	$	203,245

		Nine Months Ended September 30, 2023
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	332,227	$	128,348	$	23,759	$	484,334
Service charges on deposit accounts		19,723		2,002		276		22,001
Credit and debit card fees		—		42,044		3,687		45,731
Other service charges and fees		18,681		1,268		1,592		21,541
Trust and investment services income		28,804		—		—		28,804
Other		413		6,449		2,037		8,899
Not in scope of Topic 606(1)		5,277		4,069		6,146		15,492
Total noninterest income		72,898		55,832		13,738		142,468
Total revenue	$	405,125	$	184,180	$	37,497	$	626,802

(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, derivative financial instruments and bank-owned life insurance.

		Three Months Ended September 30, 2022
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	117,060	$	39,586	$	6,090	$	162,736
Service charges on deposit accounts		6,421		621		47		7,089
Credit and debit card fees		—		15,831		1,312		17,143
Other service charges and fees		6,081		509		472		7,062
Trust and investment services income		9,800		—		—		9,800
Other		93		1,250		304		1,647
Not in scope of Topic 606(1)		2,085		1,637		(606)		3,116
Total noninterest income		24,480		19,848		1,529		45,857
Total revenue	$	141,540	$	59,434	$	7,619	$	208,593

		Nine Months Ended September 30, 2022
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income(1)	$	318,476	$	111,500	$	11,779	$	441,755
Service charges on deposit accounts		19,155		1,380		898		21,433
Credit and debit card fees		—		44,099		3,734		47,833
Other service charges and fees		18,950		1,708		1,327		21,985
Trust and investment services income		27,442		—		—		27,442
Other		396		6,708		849		7,953
Not in scope of Topic 606(1)		4,337		5,023		(4,632)		4,728
Total noninterest income		70,280		58,918		2,176		131,374
Total revenue	$	388,756	$	170,418	$	13,955	$	573,129

(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, derivative financial instruments and bank-owned life insurance.

For the three and nine months ended September 30, 2023 and 2022, 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. The Company received signing bonuses from two vendors in prior years, which are being amortized over the term of the respective contracts. As of September 30, 2023 and December 31, 2022, the Company had contract liabilities of $2.1 million and $2.7 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, 2023, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million and $0.6 million due to the passage of time. For the three and nine months ended September 30, 2022, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million and $0.7 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, 2023 and December 31, 2022, there were no material receivables from contracts with customers or contract assets recorded on the Company’s unaudited interim consolidated balance sheets.

Other

Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of September 30, 2023 and December 31, 2022. 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.