Business Segments

The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking (referred to as “Retail Banking” in the Company’s prior quarterly Form 10-Q and annual Form 10-K filings); (2) Commercial Banking; and (3) Other. These segments are defined by the type of customers and the related products and services provided, and reflect how financial information is currently evaluated by management. Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain balance sheet and income statement items. Because of the interrelationships among the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.

The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. The Consumer and Business Banking segment also originates commercial loans through the Company’s branch network. However, since a portion of these commercial business loans are referred to the Commercial Banking segment, they are maintained and reported in the Commercial Banking segment. Other products and services provided by the Consumer and Business Banking segment include wealth management, treasury management, and foreign exchange services.

The Commercial Banking segment primarily generates commercial loans and deposits through commercial lending offices located in the U.S. and Greater China. Commercial loan products include commercial loans and lines of credit, trade finance loans and letters of credit, CRE loans, construction lending, affordable housing loans and letters of credit, asset-based lending, and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity hedging risk management.

The remaining centralized functions, including the 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, the Consumer and Business Banking and Commercial Banking segments.

The Company utilizes an internal reporting process to measure the performance of the three operating segments within the Company. The internal reporting process derives operating segment results by utilizing allocation methodologies for revenue and expenses. Net interest income of each segment represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing process. The process charges a cost to fund loans and allocates credits for funds provided from deposits using internal funds transfer pricing rates, which are based on market interest rates and other factors. With the increase in market interest rates during 2018, the costs charged to the segments for the funding of loans increased, as did the credits allocated to the segments for deposit balances. The treasury function within the Other segment is responsible for liquidity and interest rate management of the Company. Therefore, the net spread between the total internal funds transfer pricing charges and credits is recorded as part of net interest income in the Other segment.

The Company’s internal funds transfer pricing process is managed by the treasury function within the Other segment. The 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. Noninterest income and noninterest expense directly attributable to a segment are 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. Charge-offs are allocated to the respective segment directly associated with the loans that are charged off, and the remaining provision for credit losses is allocated to each segment based on loan volume. The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate expenses and indirect expenses incurred by the Other segment are allocated to the Consumer and Business Banking and the Commercial Banking segments, except certain treasury-related expenses and insignificant unallocated expenses.

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 years ended December 31, 2018, 2017 and 2016:




($ in thousands)	Consumer and Business Banking			Commercial Banking			Other			Total
Year Ended December 31, 2018
Interest income	$	466,504		$	1,063,658		$	121,541		$	1,651,703
Charge for funds used	(245,487		)	(535,445		)	(54,174		)	(835,106		)
Interest spread on funds used	221,017			528,213			67,367			816,597
Interest expense	(149,032		)	(52,613		)	(63,550		)	(265,195		)
Credit on funds provided	655,230			130,050			49,826			835,106
Interest spread on funds provided	506,198			77,437			(13,724		)	569,911
Net interest income before provision for credit losses	$	727,215		$	605,650		$	53,643		$	1,386,508
Provision for credit losses	$	9,364		$	54,891		$	—		$	64,255
Noninterest income	$	85,607		$	110,287		$	15,015		$	210,909
Noninterest expense	$	336,412		$	228,627		$	149,427		$	714,466
Segment income (loss) before income taxes	$	467,046		$	432,419		$	(80,769	)	$	818,696
Segment net income	$	334,255		$	309,926		$	59,520		$	703,701
As of December 31, 2018
Segment assets	$	10,587,621		$	23,761,469		$	6,693,266		$	41,042,356




($ in thousands)	Consumer and Business Banking			Commercial Banking			Other			Total
Year Ended December 31, 2017
Interest income	$	364,906		$	844,303		$	115,910		$	1,325,119
Charge for funds used	(142,619		)	(326,902		)	(64,256		)	(533,777		)
Interest spread on funds used	222,287			517,401			51,654			791,342
Interest expense	(76,770		)	(24,603		)	(38,677		)	(140,050		)
Credit on funds provided	445,304			61,019			27,454			533,777
Interest spread on funds provided	368,534			36,416			(11,223		)	393,727
Net interest income before provision for credit losses	$	590,821		$	553,817		$	40,431		$	1,185,069
Provision for credit losses	$	1,812		$	44,454		$	—		$	46,266
Noninterest income	$	54,451		$	110,089		$	93,208		$	257,748
Noninterest expense	$	319,645		$	193,161		$	148,645		$	661,451
Segment income (loss) before income taxes	$	323,815		$	426,291		$	(15,006	)	$	735,100
Segment net income	$	190,404		$	251,834		$	63,386		$	505,624
As of December 31, 2017
Segment assets	$	9,316,587		$	21,431,472		$	6,373,504		$	37,121,563




($ in thousands)	Consumer and Business Banking			Commercial Banking			Other			Total
Year Ended December 31, 2016
Interest income	$	315,146		$	726,013		$	96,322		$	1,137,481
Charge for funds used	(95,970		)	(216,849		)	(47,646		)	(360,465		)
Interest spread on funds used	219,176			509,164			48,676			777,016
Interest expense	(60,180		)	(16,892		)	(27,771		)	(104,843		)
Credit on funds provided	300,446			38,636			21,383			360,465
Interest spread on funds provided	240,266			21,744			(6,388		)	255,622
Net interest income before (reversal of) provision for credit losses	$	459,442		$	530,908		$	42,288		$	1,032,638
(Reversal of) provision for credit losses	$	(4,356	)	$	31,835		$	—		$	27,479
Noninterest income	$	51,251		$	95,556		$	35,471		$	182,278
Noninterest expense	$	306,386		$	171,805		$	137,058		$	615,249
Segment income (loss) before income taxes	$	208,663		$	422,824		$	(59,299	)	$	572,188
Segment net income	$	122,256		$	248,474		$	60,947		$	431,677
As of December 31, 2016
Segment assets	$	7,821,610		$	19,128,510		$	7,838,720		$	34,788,840