BUSINESS SEGMENTS

3 Months Ended

Mar. 31, 2014

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 acquisition of MetroCorp has been reflected in the three business operating segments as applicable, as of March 31, 2014.

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 months ended March 31, 2014 and 2013:

	Three Months Ended March 31, 2014
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	98,724		$	169,076		$	18,373		$	286,173
Charge for funds used	(16,045		)	(21,328		)	(23,123		)	(60,496		)
Interest spread on funds used	82,679			147,748			(4,750		)	225,677
Interest expense	(11,711		)	(3,280		)	(13,216		)	(28,207		)
Credit on funds provided	48,193			8,436			3,867			60,496
Interest spread on funds provided	36,482			5,156			(9,349		)	32,289
Net interest income	$	119,161		$	152,904		$	(14,099	)	$	257,966
Provision for loan losses	$	2,652		$	4,281		$	—		$	6,933
Depreciation, amortization and accretion	2,571			(3,328		)	14,293			13,536
Goodwill	354,163			104,304			—			458,467
Segment pre-tax profit (loss)	50,084			84,735			(23,129		)	111,690
Segment assets	7,877,996			13,661,149			5,861,881			27,401,026

	Three Months Ended March 31, 2013
	Retail			Commercial
	Banking			Banking			Other			Total
	(In thousands)
Interest income	$	82,839		$	140,060		$	15,524		$	238,423
Charge for funds used	(19,983		)	(28,073		)	9,273			(38,783		)
Interest spread on funds used	62,856			111,987			24,797			199,640
Interest expense	(12,644		)	(4,378		)	(12,110		)	(29,132		)
Credit on funds provided	32,395			3,623			2,765			38,783
Interest spread on funds provided	19,751			(755		)	(9,345		)	9,651
Net interest income	$	82,607		$	111,232		$	15,452		$	209,291
Provision for loan losses	$	3,680		$	647		$	—		$	4,327
Depreciation, amortization and accretion	2,420			(2,819		)	15,396			14,997
Goodwill	320,566			16,872			—			337,438
Segment pre-tax profit	18,927			66,681			20,902			106,510
Segment assets	6,665,478			10,464,086			5,972,391			23,101,955