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 (“FTP”) process.

The following tables present 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 tables present additional financial information for the Consumer and Business Banking segment for the periods indicated:

Consumer and Business Banking segment net income decreased $5 million or 3% year-over-year to $152 million for the second quarter of 2024, and $10 million or 3% year-over-year to $289 million for the first half of 2024. The decreases in both periods were primarily driven by a decrease in net interest income, partially offset by a decrease in provision for credit losses. Net interest income before provision for credit losses decreased $14 million or 5% year-over-year to $293 million for the second quarter of 2024, and $27 million or 4% year-over-year to $585 million for the first half of 2024. These decreases were primarily driven by a higher cost of interest-bearing deposits and a continued shift to interest-bearing products in the deposit mix. Provision for credit losses decreased $9 million or 159% year-over-year to $3 million in reversal of provision for credit losses for the second quarter of 2024, and $21 million or 103% year-over-year to $1 million in reversal of provision for credit losses for the first half of 2024. These decreases were primarily driven by the improvement in the macroeconomic outlook in the residential mortgage loan sector in the second quarter of 2024.

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 tables present additional financial information for the Commercial Banking segment for the periods indicated:

Commercial Banking segment net income decreased $13 million or 9% year-over-year to $126 million for the second quarter of 2024. This decrease was primarily due to higher provision for credit losses, partially offset by higher noninterest income. Provision for credit losses increased $20 million or 97% year-over-year to $40 million for the second quarter of 2024, primarily driven by higher net charge-offs in the C&I and CRE portfolios. Noninterest income increased $8 million or 19% year-over-year to $51 million for the second quarter of 2024, primarily driven by higher deposit account fees, foreign exchange income and lending fees.

Commercial Banking segment net income decreased $21 million or 8% year-over-year to $252 million for the first half of 2024. This decrease was primarily due to higher provision for credit losses and noninterest expense, partially offset by revenue growth. Net interest income before provision for credit losses increased $21 million or 4% year-over-year to $521 million for the first half of 2024. This increase was primarily driven by higher loan interest income from commercial loan growth. Provision for credit losses increased $37 million or 146% year-over-year to $63 million for the first half of 2024, primarily driven by higher net charge-offs in the C&I and CRE portfolios. Noninterest income increased $11 million or 13% year-over-year to $97 million for the first half of 2024, mainly driven by higher deposit account fees and lending fees. Noninterest expense increased $23 million or 13% year-over-year to $198 million for the first half of 2024, primarily due to higher compensation and employee benefits, deposit account expense, and deposit insurance premiums and regulatory assessments.

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 tables present additional financial information for the Other segment for the periods indicated:

The Other segment reported segment loss before income taxes of $30 million and segment net income of $10 million, reflecting an income tax benefit of $40 million for the second quarter of 2024. The decrease in segment net income was primarily driven by lower income tax benefit, partially offset by lower noninterest expense. Noninterest expense decreased $30 million, primarily due to lower amortization of tax credit and CRA investments from the expanded use of PAM since the adoption of ASU 2022-02 on January 1, 2024. For additional information on the PAM, see Note 2 — Current Accounting Developments and Summary of Significant Accounting Policiesand Note 8 — Affordable Housing Partnership, Tax Credit and Community Reinvestment Act Investments, Net.

The Other segment reported segment loss before income taxes of $31 million and segment net income of $32 million, reflecting an income tax benefit of $63 million for the first half of 2024. The decrease in segment net income was primarily driven by lower net interest income and income tax benefit, partially offset by lower noninterest expense and higher noninterest income. The $43 million decrease in net interest income before provision for credit losses was primarily driven by lower FTP spread income absorbed by the Other segment, partially offset by higher yields on interest-bearing cash and deposits with banks and debt securities. Noninterest income increased $15 million for the first half 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. Noninterest expense decreased $26 million, primarily due to lower amortization of tax credit and CRA investments from the aforementioned adoption of ASU 2022-02 on January 1, 2024.

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.