Business Segments

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

The Retail Banking segment focuses primarily on deposit operations through the Bank’s branch network. The Commercial Banking segment, primarily generates commercial loans and deposits through domestic commercial lending offices in the U.S. and foreign commercial lending offices in China and Hong Kong. Furthermore, the Commercial Banking segment offers a wide variety of international finance, trade finance, and cash management services and products. The remaining centralized functions, including 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.

Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain operating and administrative costs and the provision for credit losses. Net interest income is allocated 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 directly attributable to a segment is 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. The provision for credit losses is based on charge-offs for the period as well as an allocation of the remaining consolidated provision expense based on the average loan balances for each segment during the period.

The Company’s internal funds transfer pricing 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 and product net interest margins. 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. Changes in the Company’s management structure and allocation or reporting methodologies may result in changes in the measurement of operating segment results. Results for prior year periods are generally reclassified for comparability for changes in management structure and allocation or reporting methodologies unless it is deemed not practicable to do so.

The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate expenses and expenses of the Other segment, except certain Treasury-related transactions and an insignificant amount of other residual unallocated expenses, are allocated to the Retail Banking and Commercial Banking segments. In previously reporting segment income after taxes, the Company applied the consolidated effective tax rate to all of its business segments, and allocated the amortization of tax credit and other investments from the Other segment to the Retail Banking and Commercial Banking segments. The Company has recently changed its methodology to measure the after-tax income of the Retail Banking and Commercial Banking segments using the applicable statutory tax rates, with the Other segment receiving the residual tax expense or benefit to arrive at the consolidated effective tax rate. With this change, the amortization of tax credit and other investments which had previously been allocated to each segment is now allocated to the Other segment only, along with the tax benefit. The Company has also allocated indirect costs to noninterest expense by segment for management reporting. In addition, operating segment profitability, which had previously been presented on an income before income tax basis only, has now been revised to be presented both on income before and income after tax basis.

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, 2017, 2016 and 2015:




($ in thousands)	Retail 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	$	55,093		$	110,104		$	93,209		$	258,406
Noninterest expense	$	320,287		$	193,176		$	148,646		$	662,109
Segment income (loss) before income taxes	$	323,815		$	426,291		$	(15,006	)	$	735,100
Segment income after income taxes	$	190,404		$	251,834		$	63,386		$	505,624
As of December 31, 2017:
Segment assets	$	9,316,587		$	21,431,472		$	6,402,190		$	37,150,249




($ in thousands)	Retail 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	$	51,435		$	96,010		$	35,473		$	182,918
Noninterest expense	$	306,570		$	172,259		$	137,060		$	615,889
Segment income (loss) before income taxes	$	208,663		$	422,824		$	(59,299	)	$	572,188
Segment income after income taxes	$	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




($ in thousands)	Retail Banking			Commercial Banking			Other			Total
Year ended December 31, 2015:
Interest income	$	331,755		$	654,966		$	67,094		$	1,053,815
Charge for funds used	(86,769		)	(163,601		)	(66,773		)	(317,143		)
Interest spread on funds used	244,986			491,365			321			736,672
Interest expense	(53,088		)	(18,025		)	(32,263		)	(103,376		)
Credit on funds provided	261,117			36,251			19,775			317,143
Interest spread on funds provided	208,029			18,226			(12,488		)	213,767
Net interest income (loss) before (reversal of) provision for credit losses	$	453,015		$	509,591		$	(12,167	)	$	950,439
(Reversal of) provision for credit losses	$	(5,835	)	$	20,052		$	—		$	14,217
Noninterest income	$	46,265		$	71,867		$	65,251		$	183,383
Noninterest expense	$	276,144		$	159,987		$	104,753		$	540,884
Segment income (loss) before income taxes	$	228,971		$	401,419		$	(51,669	)	$	578,721
Segment income after income taxes	$	134,383		$	236,459		$	13,835		$	384,677
As of December 31, 2015:
Segment assets	$	7,095,737		$	17,923,319		$	7,331,866		$	32,350,922