EAST WEST BANCORP INC

The Company organizes its operations into three reportable operating segments: (1) Consumer and Business Banking; (2) Commercial Banking; and (3) Other. These segments are defined by the type of customers served, and the related products and services provided. For a description of the Company’s internal management reporting process, including the segment cost allocation methodology, see Note 17 — Business Segments to the Consolidated Financial Statements in this Form 10-K.

Segment net interest income represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for funding charges or credits through the Company’s internal funds transfer pricing (“FTP”) process.

The following table presents the results by operating segment for the periods indicated:

Consumer and Business Banking

The Consumer and Business Banking segment primarily provides financial products and services to consumer and commercial customers through the Company’s domestic branch network and digital banking platform. This segment offers consumer and commercial deposits, mortgage and home equity loans, and other products and services. It also originates commercial loans for small- and medium-sized enterprises through the Company’s branch network. Other products and services provided by this segment include wealth management, treasury management, interest rate risk hedging and foreign exchange services.

The following table presents additional financial information for the Consumer and Business Banking segment for the periods indicated:

Consumer and Business Banking segment net income decreased by $12 million or 2% year-over-year to $596 million in 2023, due to an increase in noninterest expense, partially offset by an increase in net interest income. Net interest income before provision for credit losses increased $68 million or 6% year-over-year to $1.2 billion. This increase was primarily driven by higher deposit FTP credits due to the year-over-year increase in market rates. Noninterest expense increased by $80 million or 20%, to $478 million, primarily due to higher deposit insurance premiums and regulatory assessments from the FDIC charge in the fourth quarter of 2023 and allocated corporate overhead expenses.

Commercial Banking

The Commercial Banking segment primarily generates commercial loan and deposit products. Commercial loan products include CRE lending, construction finance, commercial business lending, working capital lines of credit, trade finance, letters of credit, affordable housing lending, asset-based lending, asset-backed finance, project finance and equipment financing. Commercial deposit products and other financial services include treasury management, foreign exchange services, and interest rate and commodity risk hedging.

The following table presents additional financial information for the Commercial Banking segment for the periods indicated:

Commercial Banking segment net income decreased by $29 million or 6% year-over-year to $478 million in 2023. This decrease was primarily driven by higher noninterest expense and provision for credit losses, partially offset by higher net interest income. Net interest income before provision for credit losses increased by $100 million or 11% to $993 million, driven by higher loan interest income from commercial loan growth. Provision for credit losses increased by $60 million or 130% year-over-year to $107 million, primarily driven by loan growth and changes to the macroeconomic outlook. Noninterest expense increased by $69 million or 22% to $383 million, primarily due to higher deposit insurance premiums and regulatory assessments from the FDIC charge in the fourth quarter of 2023, deposit account expense, and allocated corporate overhead expenses.

Other

Centralized functions, including the corporate 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, namely the Consumer and Business Banking and the Commercial Banking segments.

The following table presents additional financial information for the Other segment for the periods indicated:

The Other segment reported segment loss before income taxes of $63 million and segment net income of $86 million, reflecting an income tax benefit of $149 million in 2023. The decrease in segment loss before income taxes was primarily driven by higher net interest income. The $98 million year-over-year increase in net interest income was primarily driven by a higher yield on interest-bearing cash and deposits with banks and debt securities in 2023, partially offset by higher costs of borrowings.

The income tax expense or benefit in the Other segment consists of the remaining unallocated income tax expense or benefit after allocating income tax expense to the two core segments, and reflects the impact of tax credit investment activity. Income tax expense is allocated to the Consumer and Business Banking and the Commercial Banking segments by applying statutory income tax rates to the segment income before income taxes. Tax credit investment amortization is allocated to the Other segment.