Business Segments

The Company utilizes an internal reporting system to measure the performance of various operating segments within the Bank and the Company. The Company has identified three operating segments for purposes of management reporting: (1) Retail Banking; (2) Commercial Banking; and (3) Other. These three business segments meet the criteria of an operating segment: the segment engages in business activities from which it earns revenues and incurs expenses; its operating results are regularly reviewed by the Company’s chief operating decision maker to render decisions about resources to be allocated to the segments and assess its performance; and discrete financial information is available.

The Retail Banking segment focuses primarily on deposit operations through the Bank’s branch network. The Commercial Banking segment primarily generates commercial loans and deposits through domestic commercial lending offices located in the U.S. and foreign commercial lending offices in China and Hong Kong. Furthermore, the Commercial Banking segment offers a wide variety of international finance, trade finance, and cash management services and products. The remaining centralized functions, including treasury activities of the Company and eliminations of inter-segment amounts have been aggregated and included in the Other segment, which provides broad administrative support to the two core segments.

Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain operating and administrative costs and the provision for credit losses. Net interest income is allocated based on the Company’s internal funds transfer pricing system, which assigns a cost of funds or a credit for funds to assets or liabilities based on their type, maturity or repricing characteristics. Noninterest income and noninterest expense directly attributable to a segment is assigned to the related business segment. Indirect costs, including technology-related costs and corporate overhead, are allocated based on that segment’s estimated usage using factors, including but not limited to, full-time equivalent employees, net interest margin, and loan and deposit volume. The provision for credit losses is based on charge-offs for the period as well as an allocation of the remaining consolidated provision expense based on the average loan balances for each segment during the period.

The Company’s internal funds transfer pricing process is formulated with the goal of encouraging loan and deposit growth that is consistent with the Company’s overall profitability objectives, as well as to provide a reasonable and consistent basis for the measurement of its business segments’ net interest margins and profitability. The Company’s internal funds transfer pricing assumptions and methodologies are reviewed at least annually to ensure that the process is reflective of current market conditions. The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate expenses and expenses incurred by the Other segment are allocated to the Retail Banking and Commercial Banking segments, except certain treasury-related expenses and an insignificant amount of other residual unallocated expenses.

In reporting segment income after taxes prior to the fourth quarter of 2017, the Company applied the consolidated effective tax rate to all of its business segments, and allocated the amortization of tax credit and other investments, along with the tax benefit, from the Other segment to the Retail Banking and Commercial Banking segments. In the fourth quarter of 2017, the Company changed its methodology to measure the after-tax income of the Retail Banking and Commercial Banking segments using the applicable statutory tax rates, with the Other segment receiving the residual tax expense or benefit to arrive at the consolidated effective tax rate. With this change, the amortization of tax credit and other investments, as well as with the tax benefit, which had previously been allocated to each segment, are now only allocated to the Other segment. The Company has also allocated indirect costs to noninterest expense by segment for management reporting. In addition, operating segment income, which had previously been presented on a before-tax basis only, has been revised to be presented on both a before and an after-tax basis.

Changes in the Company’s management structure and allocation or reporting methodologies may result in changes in the measurement of operating segment results. For comparability, results for prior year periods are generally reclassified for such changes, unless it is deemed not practicable to do so.

The following tables present the operating results and other key financial measures for the individual operating segments as of and for the three and six months ended June 30, 2018 and 2017:




($ in thousands)	Retail Banking			Commercial Banking			Other			Total
Three Months Ended June 30, 2018
Interest income	$	110,808		$	261,567		$	27,936		$	400,311
Charge for funds used	(56,915		)	(126,782		)	(16,674		)	(200,371		)
Interest spread on funds used	53,893			134,785			11,262			199,940
Interest expense	(31,991		)	(11,635		)	(15,006		)	(58,632		)
Credit on funds provided	158,446			30,728			11,197			200,371
Interest spread on funds provided (used)	126,455			19,093			(3,809		)	141,739
Net interest income before provision for credit losses	$	180,348		$	153,878		$	7,453		$	341,679
Provision for credit losses	$	3,414		$	12,122		$	—		$	15,536
Noninterest income	$	14,585		$	30,744		$	2,939		$	48,268
Noninterest expense	$	86,144		$	56,706		$	34,569		$	177,419
Segment income (loss) before income taxes	$	105,375		$	115,794		$	(24,177	)	$	196,992
Segment income after income taxes	$	75,496		$	83,210		$	13,643		$	172,349
As of June 30, 2018:
Segment assets	$	9,816,103		$	22,199,992		$	6,056,859		$	38,072,954




($ in thousands)	Retail Banking			Commercial Banking			Other			Total
Three Months Ended June 30, 2017
Interest income	$	88,752		$	205,873		$	28,150		$	322,775
Charge for funds used	(33,139		)	(77,750		)	(14,517		)	(125,406		)
Interest spread on funds used	55,613			128,123			13,633			197,369
Interest expense	(18,377		)	(5,184		)	(9,123		)	(32,684		)
Credit on funds provided	106,094			12,623			6,689			125,406
Interest spread on funds provided (used)	87,717			7,439			(2,434		)	92,722
Net interest income before (reversal of) provision for credit losses	$	143,330		$	135,562		$	11,199		$	290,091
(Reversal of) provision for credit losses	$	(664	)	$	11,349		$	—		$	10,685
Noninterest income	$	13,641		$	26,584		$	7,019		$	47,244
Noninterest expense	$	79,950		$	44,551		$	44,464		$	168,965
Segment income (loss) before income taxes	$	77,685		$	106,246		$	(26,246	)	$	157,685
Segment income after income taxes	$	45,679		$	62,766		$	9,885		$	118,330
As of June 30, 2017:
Segment assets	$	8,438,706		$	20,456,579		$	7,022,332		$	35,917,617




($ in thousands)	Retail Banking			Commercial Banking			Other			Total
Six Months Ended June 30, 2018
Interest income	$	215,518		$	501,144		$	55,522		$	772,184
Charge for funds used	(106,188		)	(238,148		)	(35,001		)	(379,337		)
Interest spread on funds used	109,330			262,996			20,521			392,847
Interest expense	(56,931		)	(20,814		)	(26,067		)	(103,812		)
Credit on funds provided	303,897			56,176			19,264			379,337
Interest spread on funds provided (used)	246,966			35,362			(6,803		)	275,525
Net interest income before provision for credit losses	$	356,296		$	298,358		$	13,718		$	668,372
Provision for credit losses	$	6,507		$	29,247		$	—		$	35,754
Noninterest income	$	59,033		$	58,182		$	5,497		$	122,712
Noninterest expense	$	168,112		$	121,726		$	56,716		$	346,554
Segment income (loss) before income taxes	$	240,710		$	205,567		$	(37,501	)	$	408,776
Segment income after income taxes	$	172,464		$	147,572		$	39,345		$	359,381
As of June 30, 2018:
Segment assets	$	9,816,103		$	22,199,992		$	6,056,859		$	38,072,954




($ in thousands)	Retail Banking			Commercial Banking			Other			Total
Six Months Ended June 30, 2017
Interest income	$	169,777		$	398,292		$	57,375		$	625,444
Charge for funds used	(60,877		)	(142,259		)	(42,684		)	(245,820		)
Interest spread on funds used	108,900			256,033			14,691			379,624
Interest expense	(34,560		)	(10,282		)	(18,389		)	(63,231		)
Credit on funds provided	208,640			24,666			12,514			245,820
Interest spread on funds provided (used)	174,080			14,384			(5,875		)	182,589
Net interest income before (reversal of) provision for credit losses	$	282,980		$	270,417		$	8,816		$	562,213
(Reversal of) provision for credit losses	$	(286	)	$	18,039		$	—		$	17,753
Noninterest income	$	27,205		$	52,318		$	83,549		$	163,072
Noninterest expense	$	152,794		$	98,924		$	70,125		$	321,843
Segment income before income taxes	$	157,677		$	205,772		$	22,240		$	385,689
Segment income after income taxes	$	92,714		$	121,562		$	73,790		$	288,066
As of June 30, 2017:
Segment assets	$	8,438,706		$	20,456,579		$	7,022,332		$	35,917,617