BUSINESS SEGMENTS

9 Months Ended

Sep. 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 nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30, 2013
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	97,488		$	166,442		$	17,776		$	281,706
Charge for funds used	(23,351		)	(29,241		)	(15,270		)	(67,862		)
Interest spread on funds used	74,137			137,201			2,506			213,844
Interest expense	(11,570		)	(3,456		)	(12,430		)	(27,456		)
Credit on funds provided	52,257			9,803			5,802			67,862
Interest spread on funds provided	40,687			6,347			(6,628		)	40,406
Net interest income	$	114,824		$	143,548		$	(4,122	)	$	254,250
Provision for loan losses	$	1,168		$	2,403		$	—		$	3,571
Depreciation, amortization and accretion	5,214			1,911			15,033			22,158
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit (loss)	36,498			76,255			(3,847		)	108,906
Segment assets	7,523,832			11,145,584			5,829,419			24,498,835

	Three Months Ended September 30, 2012
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	87,603		$	151,458		$	15,101		$	254,162
Charge for funds used	(20,983		)	(29,088		)	12,117			(37,954		)
Interest spread on funds used	66,620			122,370			27,218			216,208
Interest expense	(13,986		)	(5,959		)	(12,309		)	(32,254		)
Credit on funds provided	31,231			3,115			3,608			37,954
Interest spread on funds provided	17,245			(2,844		)	(8,701		)	5,700
Net interest income	$	83,865		$	119,526		$	18,517		$	221,908
Provision for loan losses	$	12,097		$	6,403		$	—		$	18,500
Depreciation, amortization and accretion	2,001			(6,979		)	9,647			4,669
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	14,223			73,168			17,812			105,203
Segment assets	6,366,341			10,121,984			5,324,840			21,813,165

	Nine Months Ended September 30, 2013
	Retail			Commercial
	Banking			Lending			Other			Total
	(In thousands)
Interest income	$	274,255		$	453,670		$	47,557		$	775,482
Charge for funds used	(61,236		)	(85,197		)	(5,841		)	(152,274		)
Interest spread on funds used	213,019			368,473			41,716			623,208
Interest expense	(35,923		)	(11,773		)	(36,601		)	(84,297		)
Credit on funds provided	120,675			19,137			12,462			152,274
Interest spread on funds provided	84,752			7,364			(24,139		)	67,977
Net interest income	$	297,771		$	375,837		$	17,577		$	691,185
Provision for loan losses	$	7,734		$	9,164		$	—		$	16,898
Depreciation, amortization and accretion	13,500			2,537			45,030			61,067
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	87,918			208,450			30,918			327,286
Segment assets	7,523,832			11,145,584			5,829,419			24,498,835

	Nine Months Ended September 30, 2012
	Retail			Commercial
	Banking			Lending			Other			Total
	(In thousands)
Interest income	$	266,224		$	446,572		$	61,778		$	774,574
Charge for funds used	(65,392		)	(88,759		)	31,545			(122,606		)
Interest spread on funds used	200,832			357,813			93,323			651,968
Interest expense	(43,752		)	(18,221		)	(38,618		)	(100,591		)
Credit on funds provided	100,002			9,531			13,073			122,606
Interest spread on funds provided	56,250			(8,690		)	(25,545		)	22,015
Net interest income	$	257,082		$	349,123		$	67,778		$	673,983
Provision for loan losses	$	29,385		$	22,715		$	—		$	52,100
Depreciation, amortization and accretion	16,401			3,679			29,263			49,343
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	54,465			196,852			66,075			317,392
Segment assets	6,366,341			10,121,984			5,324,840			21,813,165