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 15 — Business Segments to the Consolidated Financial Statements in this Form 10-Q.

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 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 $5 million or 3% year-over-year to $138 million for the first quarter of 2024. This decrease was primarily driven by a decrease in net interest income and an increase in noninterest expense, partially offset by a decrease in provision for credit losses. Net interest income before provision for credit losses decreased by $12 million or 4% year-over-year to $292 million for the first quarter of 2024. This decrease was primarily driven by a higher cost of interest-bearing deposits and continued deposit mix shift. Provision for credit losses decreased by $12 million or 83% year-over-year to $3 million for the first quarter of 2024. This decrease was primarily driven by the substantial residential mortgage loan growth from the Bridge To Home Ownership program that required higher provision for credit losses in the first quarter of 2023. Noninterest expense increased $5 million or 5% year-over-year to $119 million for the first quarter of 2024, primarily due to an increase in deposit insurance premiums and regulatory assessments largely resulting from the FDIC charge.

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 $9 million or 7% year-over-year to $126 million for the first quarter of 2024. This decrease was due to higher noninterest expense and provision for credit losses, partially offset by higher net interest income. Net interest income before provision for credit losses increased $24 million or 10% year-over-year to $260 million for the first quarter of 2024. This increase was primarily due to higher loan interest income from commercial loan growth. Provision for credit losses increased $17 million or 350% year-over-year to $22 million for the first quarter of 2024, primarily driven by continued caution regarding the CRE market outlook. Noninterest expense increased $19 million or 22% year-over-year to $106 million for the first quarter of 2024, primarily due to higher compensation and employee benefits, deposit insurance premiums and regulatory assessments, and deposit account expense.

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 $1 million and segment net income of $22 million, reflecting an income tax benefit of $23 million for the first quarter of 2024. The decrease in segment net income was primarily driven by lower net interest income, partially offset by an increase in noninterest income. The $46 million decrease in net interest income before provision for credit losses was primarily driven by the higher cost of BTFP borrowings. Noninterest income increased by $17 million for the first quarter of 2024, mainly due to a $10 million write-off of an impaired AFS debt security during the first quarter of 2023 and an increase in foreign exchange income.

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.