Business Segments

9 Months Ended

Sep. 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. 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, cash 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 financings. Commercial deposit products and other financial services include cash 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, 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. 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 allocated to the segment directly associated with the loans 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 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, which are based on the market interest rates of terms tied to those of the underlying loans or deposits and adjusted for other factors. The internal FTP rates increase as the market interest rates increase, and vice versa. Therefore, the net spread between the total internal FTP charges and credits is recorded as part of net interest income in the Other segment.

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 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 at the time of accrual. For comparability, segment information for the three and nine months ended September 30, 2018 have been restated to conform to the current presentation. During the third quarter of 2019, the Company enhanced its FTP methodology related to deposits by setting a minimum floor rate for the FTP credits paid by the Other segment to the Consumer and Business Banking, as well as the Commercial Banking segments in consideration of the flattened and inverted yield curve. For consistency in the application of this change, the Company adjusted the segment reporting results for the three months ended March 31 and June 30, 2019, which increased segment net income for the Consumer and Business Banking, as well as the Commercial Banking segments, and, correspondingly, reduced net income for Other segment. This change in FTP methodology related to deposits had no impact on 2018 segment results.

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, 2019 and 2018:




($ 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
Three Months Ended September 30, 2018
Net interest income before provision for credit losses	$	182,272	$	149,770	$	16,678		$	348,720
Provision for credit losses	705		9,837		—			10,542
Noninterest Income	13,137		27,861		5,504			46,502
Noninterest expense	87,640		57,376		34,799			179,815
Segment income (loss) before income taxes	107,064		110,418		(12,617		)	204,865
Segment net income	$	76,711	$	79,344	$	15,247		$	171,302
As of September 30, 2018
Segment assets	$	10,194,291	$	22,930,768	$	5,917,654		$	39,042,713




($ 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




($ in thousands)	Consumer and Business Banking		Commercial Banking		Other			Total
Nine Months Ended September 30, 2018
Net interest income before provision for credit losses	$	538,568	$	448,128	$	30,396		$	1,017,092
Provision for credit losses	7,212		39,084		—			46,296
Noninterest income	72,170		86,043		11,001			169,214
Noninterest expense	259,416		179,251		87,702			526,369
Segment income (loss) before income taxes	344,110		315,836		(46,305		)	613,641
Segment net income	$	246,555	$	226,798	$	57,330		$	530,683
As of September 30, 2018
Segment assets	$	10,194,291	$	22,930,768	$	5,917,654		$	39,042,713