Business Segments

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Business Segments

Business Segments

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. The segments 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. The information presented is not indicative of how the segments would perform if they operated as independent entities due to the interrelationships among the segments.

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. 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 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 and land loans, 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 risk hedging.

The remaining 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 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 revenues 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. Noninterest income and noninterest expense directly attributable to a business segment are assigned to that 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 income, and loan and deposit volume. Charge-offs are booked to the segment directly associated with the loans charged off, and the provision for credit losses is booked to segments based on related loans for which allowances are evaluated. The Company’s internal reporting process utilizes a full-allocation methodology. Under this methodology, corporate and indirect expenses incurred by the Other segment are allocated to the Consumer and Business Banking and the Commercial Banking segments, except certain corporate treasury-related expenses and insignificant unallocated expenses.

The corporate treasury function within the Other segment is responsible for liquidity and interest rate management of the Company. The Company’s internal FTP process is also managed by the corporate 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 FTP 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 FTP rates. FTP charges for loans are determined based on a matched cost of funds, which is tied to the pricing and term characteristics of the loans. FTP credits for deposits are based on matched funding credit rates, which are tied to the implied or stated maturity of the deposits. FTP credits for deposits reflect the long-term value generated by the deposits. The net spread between the total internal FTP charges and credits is recorded as part of net interest income in the Other segment. The FTP process transfers the corporate interest rate risk exposure to the treasury function within the Other segment, where such exposures are centrally managed.

The Company’s internal FTP assumptions and methodologies are reviewed at least annually to ensure that the process is reflective of current market conditions. During the third quarter of 2019, the Company enhanced its FTP methodology related to deposits by setting a minimum floor rate using the short-term FHLB rate as a reference rate for the FTP credits paid for deposits in the event of flattened and inverted yield curves in the market. The process is effective in the current market conditions as of September 30, 2020. Effective January 1, 2020, in connection with the adoption of ASU 2016-13, Financial Instruments — Credit Losses (Topic 326), the provision for credit losses is booked by segment based on segment loans against which an allowance is recorded instead of being allocated to segments based on loan volume.

The following tables present the operating results and other key financial measures for the individual operating segments as of and for the three and nine months ended September 30, 2020 and 2019:

($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Three Months Ended September 30, 2020
Net interest income before (reversal of) provision for credit losses	$	120,969	$	162,884	$	40,277	$	324,130
(Reversal of) provision for credit losses	(3,470)		13,470		—		10,000
Noninterest income	17,426		28,984		3,170		49,580
Noninterest expense	81,419		61,863		24,368		167,650
Segment income before income taxes	60,446		116,535		19,079		196,060
Segment net income	$	43,310	$	83,340	$	32,887	$	159,537
As of September 30, 2020
Segment assets	$	12,838,625	$	26,526,173	$	11,006,679	$	50,371,477

($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Three Months Ended September 30, 2019
Net interest income before provision for credit losses	$	170,183	$	166,106	$	33,518	$	369,807
Provision for credit losses	4,251		34,033		—		38,284
Noninterest income	15,103		33,731		2,640		51,474
Noninterest expense	86,489		62,246		27,895		176,630
Segment income before income taxes	94,546		103,558		8,263		206,367
Segment net income	$	67,592	$	74,111	$	29,713	$	171,416
As of September 30, 2019
Segment assets	$	11,277,171	$	24,885,849	$	7,111,639	$	43,274,659

($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Nine Months Ended September 30, 2020
Net interest income before provision for credit losses	$	398,486	$	530,181	$	101,945	$	1,030,612
Provision for credit losses	9,908		176,405		—		186,313
Noninterest income	47,771		95,327		19,168		162,266
Noninterest expense	248,547		196,889		88,786		534,222
Segment income before income taxes	187,802		252,214		32,327		472,343
Segment net income	$	134,563	$	180,649	$	88,501	$	403,713
As of September 30, 2020
Segment assets	$	12,838,625	$	26,526,173	$	11,006,679	$	50,371,477

($ in thousands)	Consumer and Business Banking		Commercial Banking		Other		Total
Nine Months Ended September 30, 2019
Net interest income before provision for credit losses	$	536,153	$	477,755	$	85,686	$	1,099,594
Provision for credit losses	8,880		71,228		—		80,108
Noninterest income	43,378		91,931		11,055		146,364
Noninterest expense	258,051		200,093		83,071		541,215
Segment income before income taxes	312,600		298,365		13,670		624,635
Segment net income	$	223,478	$	213,331	$	49,011	$	485,820
As of September 30, 2019
Segment assets	$	11,277,171	$	24,885,849	$	7,111,639	$	43,274,659