Business Segments

6 Months Ended

Jun. 30, 2019

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 and the related products and services provided, and reflect how financial information is currently evaluated by management. Operating segment results are based on the Company’s internal management reporting process, which reflects assignments and allocations of certain balance sheet and income statement items. Because of the interrelationships among the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.

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

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

The remaining centralized functions, including the 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, the Consumer and Business Banking and the Commercial Banking segments.

The Company utilizes an internal reporting process to measure the performance of the three operating segments within the Company. The internal reporting process derives operating segment results by utilizing allocation methodologies for revenue and expenses. Net interest income of each segment 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 process charges a cost to fund loans (“FTP charges for loans”) and allocates credits for funds provided from deposits (“FTP credits for deposits”) using internal funds transfer pricing rates, which are based on market interest rates and other factors. The internal funds transfer pricing rates, which are applied to both FTP charges for loans and FTP credits for deposits, increase as the market interest rates increase, and vice versa. The treasury function within the Other segment is responsible for liquidity and interest rate management of the Company. Therefore, the net spread between the total internal funds transfer pricing charges and credits is recorded as part of net interest income in the Other segment.

The Company’s internal funds transfer pricing process is managed by the treasury function within the Other segment. The 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’ net interest margins and profitability. 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. Noninterest income and noninterest expense directly attributable to a segment are assigned to the related business segment. Indirect costs, including technology-related costs and corporate overhead, are allocated based on a segment’s estimated usage using factors, including but not limited to, full-time equivalent employees, net interest margin, and loan and deposit volume. Charge-offs are allocated to the respective segment directly associated with the loans that are charged off, and the remaining provision for credit losses is allocated to each segment based on loan volume. The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate expenses and indirect expenses incurred by the Other segment are allocated to the Consumer and Business Banking and the Commercial Banking segments, except certain treasury-related expenses and insignificant unallocated expenses.

During the first quarter of 2019, the Company enhanced its segment cost allocation methodology related to stock compensation expense and bonus accrual. Effective first quarter of 2019, stock compensation expense is allocated to all three segments, whereas it was previously recorded in the Other segment as a corporate expense. In addition, bonus expense is now allocated at a more granular level at the segment level. For comparability, segment information for the three and six months ended June 30, 2018 has been restated to conform to the current presentation.

The following tables present the operating results and other key financial measures for the individual operating segments as of and for the three and six months ended June 30, 2019 and 2018:




($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Three Months Ended June 30, 2019
Net interest income before provision for credit losses	$	151,352	$	151,222	$	64,752	$	367,326
Provision for credit losses	$	1,616	$	17,629	$	—	$	19,245
Noninterest income	$	14,503	$	33,656	$	4,600	$	52,759
Noninterest expense	$	83,656	$	67,303	$	26,704	$	177,663
Segment income before income taxes	$	80,583	$	99,946	$	42,648	$	223,177
Segment net income	$	57,612	$	71,565	$	21,203	$	150,380
As of June 30, 2019
Segment assets	$	11,013,898	$	25,001,894	$	6,876,566	$	42,892,358




($ in thousands)	Consumer and Business Banking		Commercial Banking		Other			Total
Three Months Ended June 30, 2018
Net interest income before provision for credit losses	$	180,348	$	153,878	$	7,453		$	341,679
Provision for credit losses	$	3,414	$	12,122	$	—		$	15,536
Noninterest income	$	14,585	$	30,744	$	2,939		$	48,268
Noninterest expense	$	84,459	$	60,573	$	32,387		$	177,419
Segment income (loss) before income taxes	$	107,060	$	111,927	$	(21,995	)	$	196,992
Segment net income	$	76,710	$	80,425	$	15,214		$	172,349
As of June 30, 2018
Segment assets	$	9,816,103	$	22,199,992	$	6,027,101		$	38,043,196




($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Six Months Ended June 30, 2019
Net interest income before provision for credit losses	$	317,540	$	298,462	$	113,785	$	729,787
Provision for credit losses	$	4,629	$	37,195	$	—	$	41,824
Noninterest income	$	28,275	$	58,200	$	8,415	$	94,890
Noninterest expense	$	171,562	$	137,847	$	55,176	$	364,585
Segment income before income taxes	$	169,624	$	181,620	$	67,024	$	418,268
Segment net income	$	121,267	$	130,064	$	63,073	$	314,404
As of June 30, 2019
Segment assets	$	11,013,898	$	25,001,894	$	6,876,566	$	42,892,358




($ in thousands)	Consumer and Business Banking		Commercial Banking		Other			Total
Six Months Ended June 30, 2018
Net interest income before provision for credit losses	$	356,296	$	298,358	$	13,718		$	668,372
Provision for credit losses	$	6,507	$	29,247	$	—		$	35,754
Noninterest income	$	59,033	$	58,182	$	5,497		$	122,712
Noninterest expense	$	171,776	$	121,875	$	52,903		$	346,554
Segment income (loss) before income taxes	$	237,046	$	205,418	$	(33,688	)	$	408,776
Segment net income	$	169,844	$	147,454	$	42,083		$	359,381
As of June 30, 2018
Segment assets	$	9,816,103	$	22,199,992	$	6,027,101		$	38,043,196