SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2012

SEGMENT INFORMATION

SEGMENT INFORMATION

24. SEGMENT INFORMATION

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

The Company identified three business divisions as meeting the criteria of an operating segment:  Retail Banking, Commercial Banking, and Other. The residential lending segment was combined with the Retail Banking segment due to the consumer-centric nature of the products and services offered by the two segments as well as the synergistic relationship between the two units in generating consumer mortgage loans. The remaining centralized functions, including the former treasury segment, and eliminations on intersegment amounts were aggregated and included in “Other.” The objective of combining certain segments under a new reporting structure was to better align the Company’s service structure with its customer base, and to provide a platform to more efficiently manage the complexities and challenges impacting the Company’s business environment.

The Retail Banking segment focuses primarily on retail operations through the Bank’s branch network. The Commercial Banking segment, which includes commercial real estate, primarily generates commercial loans through the efforts of the commercial lending offices located in the Bank’s northern and southern California production offices. Furthermore, the Company’s Commercial Banking segment also offers a wide variety of international finance and trade services and products. The remaining centralized functions, including treasury activities 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 Company’s funds transfer pricing assumptions are intended to promote core deposit growth and to reflect the current risk profiles of various loan categories within the credit portfolio. Transfer pricing assumptions and methodologies are reviewed at least annually to ensure that the Company’s process is reflective of current market conditions. The transfer pricing process is formulated with the goal of incenting loan and deposit growth that is consistent with the Company’s overall growth objectives as well as provide a reasonable and consistent basis for the measurement of the Company’s business segments and product net interest margins. Changes to the Company’s transfer pricing assumptions and methodologies are approved by the Asset Liability Committee.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of capital, certain operating and administrative costs and the provision for loan losses. Net interest income is 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, including depreciation and amortization, directly attributable to a segment are assigned to that business. Indirect costs, including overhead expense, are allocated to the segments based on several factors, including, but not limited to, full-time equivalent employees, loan volume and deposit volume. The provision for credit losses is allocated based on actual charge-offs for the period as well as average loan balances for each segment during the period. The Company evaluates overall performance based on profit or loss from operations before income taxes excluding nonrecurring gains and losses.

Changes in our management structure or reporting methodologies may result in changes in the measurement of operating segment results. Results for prior periods are generally restated for comparability for changes in management structure or reporting methodologies unless it is not deemed 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, 2012, 2011, and 2010.

	Year Ended December 31, 2012
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	356,244		$	617,041		$	77,810		$	1,051,095
Charge for funds used	(85,811		)	(118,688		)	44,407			(160,092		)
Interest spread on funds used	270,433			498,353			122,217			891,003
Interest expense	(57,401		)	(23,226		)	(51,541		)	(132,168		)
Credit on funds provided	130,713			13,138			16,241			160,092
Interest spread on funds provided	73,312			(10,088		)	(35,300		)	27,924
Net interest income	$	343,745		$	488,265		$	86,917		$	918,927
Provision for loan losses	$	28,729		$	36,455		$	—		$	65,184
Depreciation, amortization and accretion (1)	12,869			(13,277		)	44,159			43,751
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	74,836			266,168			84,588			425,592
Segment assets	6,552,217			10,421,160			5,562,733			22,536,110
	Year Ended December 31, 2011
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	358,853		$	619,766		$	101,829		$	1,080,448
Charge for funds used	(94,098		)	(142,056		)	3,690			(232,464		)
Interest spread on funds used	264,755			477,710			105,519			847,984
Interest expense	(85,356		)	(31,407		)	(60,659		)	(177,422		)
Credit on funds provided	202,080			13,863			16,521			232,464
Interest spread on funds provided	116,724			(17,544		)	(44,138		)	55,042
Net interest income	$	381,479		$	460,166		$	61,381		$	903,026
Provision for loan losses	$	27,888		$	67,118		$	—		$	95,006
Depreciation, amortization and accretion (1)	43,899			62,803			21,552			128,254
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	102,217			227,766			53,351			383,334
Segment assets	6,530,138			10,157,195			5,281,334			21,968,667
	Year Ended December 31, 2010
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	355,198		$	659,703		$	80,930		$	1,095,831
Charge for funds used	(113,121		)	(156,303		)	29,514			(239,910		)
Interest spread on funds used	242,077			503,400			110,444			855,921
Interest expense	(112,703		)	(24,756		)	(63,658		)	(201,117		)
Credit on funds provided	209,040			14,346			16,524			239,910
Interest spread on funds provided	96,337			(10,410		)	(47,134		)	38,793
Net interest income	$	338,414		$	492,990		$	63,310		$	894,714
Provision for loan losses	$	73,021		$	127,138		$	—		$	200,159
Depreciation, amortization and accretion (1)	59,060			100,546			2,810			162,416
Goodwill	320,566			16,872			—			337,438
Segment pre-tax (loss) profit	(4,992		)	157,932			102,969			255,909
Segment assets	6,580,118			9,856,661			4,263,758			20,700,537

(1) Includes amortization and accretion related to the FDIC indemnification asset.