BUSINESS SEGMENTS

6 Months Ended

Jun. 30, 2013

BUSINESS SEGMENTS

BUSINESS SEGMENTS

NOTE 15 — BUSINESS SEGMENTS

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 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 intersegment 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 to provide a reasonable and consistent basis for the measurement of the Company’s business segments and product net interest margins. 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 for the three and six months ended June 30, 2013 and 2012:

	Three Months Ended June 30, 2013
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	93,928		$	147,168		$	14,257		$	255,353
Charge for funds used	(17,901		)	(27,883		)	156			(45,628		)
Interest spread on funds used	76,027			119,285			14,413			209,725
Interest expense	(11,708		)	(3,940		)	(12,061		)	(27,709		)
Credit on funds provided	36,022			5,711			3,895			45,628
Interest spread on funds provided	24,314			1,771			(8,166		)	17,919
Net interest income	$	100,341		$	121,056		$	6,247		$	227,644
Provision for loan losses	$	2,886		$	6,114		$	—		$	9,000
Depreciation, amortization and accretion	5,865			3,445			14,602			23,912
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	32,493			65,514			13,863			111,870
Segment assets	7,035,908			10,903,753			5,368,745			23,308,406

	Three Months Ended June 30, 2012
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	92,369		$	152,148		$	21,845		$	266,362
Charge for funds used	(22,149		)	(29,922		)	10,508			(41,563		)
Interest spread on funds used	70,220			122,226			32,353			224,799
Interest expense	(14,218		)	(5,196		)	(13,791		)	(33,205		)
Credit on funds provided	33,731			3,292			4,540			41,563
Interest spread on funds provided	19,513			(1,904		)	(9,251		)	8,358
Net interest income	$	89,733		$	120,322		$	23,102		$	233,157
Provision for loan losses	$	10,375		$	5,125		$	—		$	15,500
Depreciation, amortization and accretion	2,466			(6,474		)	10,013			6,005
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	18,483			63,257			22,654			104,394
Segment assets	6,516,382			10,058,264			4,951,088			21,525,734

	Six Months Ended June 30, 2013
	Retail			Commercial
	Banking			Lending			Other			Total
	(In thousands)
Interest income	$	176,767		$	287,228		$	29,781		$	493,776
Charge for funds used	(37,885		)	(55,956		)	9,429			(84,412		)
Interest spread on funds used	138,882			231,272			39,210			409,364
Interest expense	(24,353		)	(8,317		)	(24,171		)	(56,841		)
Credit on funds provided	68,418			9,334			6,660			84,412
Interest spread on funds provided	44,065			1,017			(17,511		)	27,571
Net interest income	$	182,947		$	232,289		$	21,699		$	436,935
Provision for loan losses	$	6,566		$	6,761		$	—		$	13,327
Depreciation, amortization and accretion	8,286			626			29,997			38,909
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	51,420			132,195			34,765			218,380
Segment assets	7,035,908			10,903,753			5,368,745			23,308,406

	Six Months Ended June 30, 2012
	Retail			Commercial
	Banking			Lending			Other			Total
	(In thousands)
Interest income	$	178,622		$	295,113		$	46,677		$	520,412
Charge for funds used	(44,409		)	(59,671		)	19,428			(84,652		)
Interest spread on funds used	134,213			235,442			66,105			435,760
Interest expense	(29,766		)	(12,262		)	(26,309		)	(68,337		)
Credit on funds provided	68,771			6,416			9,465			84,652
Interest spread on funds provided	39,005			(5,846		)	(16,844		)	16,315
Net interest income	$	173,218		$	229,596		$	49,261		$	452,075
Provision for loan losses	$	17,289		$	16,311		$	—		$	33,600
Depreciation, amortization and accretion	14,399			10,658			19,617			44,674
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	40,242			123,684			48,263			212,189
Segment assets	6,516,382			10,058,264			4,951,088			21,525,734