Segment Information

12 Months Ended

Dec. 31, 2019


NOTE 24 – Segment Information

Public companies are required to report (i) certain financial and descriptive information about “reportable operating segments,” as defined, and (ii) certain enterprise-wide financial information about products and services, geographic areas and major customers. Operating segment information is reported using a “management approach” that is based on the way management organizes the segments for purposes of making operating decisions and assessing performance.

People’s United’s operations are divided into three primary operating segments that represent its core businesses: Commercial Banking; Retail Banking; and Wealth Management. In addition, the Treasury area manages People’s United’s securities portfolio, short-term investments, brokered deposits, wholesale borrowings and the funding center.

The Company’s operating segments have been aggregated into two reportable segments: Commercial Banking and Retail Banking. These reportable segments have been identified and organized based on the nature of the underlying products and services applicable to each segment, the type of customers to whom those products and services are offered and the distribution channel through which those products and services are made available. With respect to the Company’s traditional wealth management activities, this presentation results in the allocation of the Company’s insurance business and certain trust activities to the Commercial Banking segment, and the allocation of the Company’s brokerage business and certain other trust activities to the Retail Banking segment.

Commercial Banking consists principally of commercial real estate lending, commercial and industrial lending, and commercial deposit gathering activities. This segment also includes equipment financing operations, as well as cash management, correspondent banking, municipal banking, institutional trust services, corporate trust, commercial insurance services provided by PUIA and private banking.

Retail Banking includes, as its principal business lines, consumer lending (including residential mortgage and home equity lending) and consumer deposit gathering activities. This segment also includes brokerage, financial advisory services, investment management services and life insurance provided by PSI, investment advisory services and financial management and planning services provided by PUA and non-institutional trust services.

People’s United’s segment disclosure is based on an internal profitability reporting system, which generates information by operating segment based on a series of management estimates and allocations regarding funds transfer pricing (“FTP”), the provision for loan losses, non-interest expense and income taxes. These estimates and allocations, some of which are subjective in nature, are subject to periodic review and refinement. Any changes in estimates and allocations that may affect the reported results of any segment will not affect the consolidated financial position or results of operations of People’s United as a whole.

FTP, which is used in the calculation of each operating segment’s net interest income, measures the value of funds used in and provided by an operating segment. The difference between the interest income on earning assets and the interest expense on funding liabilities, and the corresponding FTP charge for interest income or credit for interest expense, results in net spread income. For fixed-term assets and liabilities, the FTP rate is assigned at the time the asset or liability is originated by reference to the Company’s FTP yield curve, which is updated daily. For non-maturity-term assets and liabilities, the FTP rate is determined based upon the underlying characteristics, or behavior, of each particular product and results in the use of a historical rolling average FTP rate determined over a period that is most representative of the average life of the particular asset or liability. While the Company’s FTP methodology serves to remove IRR from the operating segments and better facilitate pricing decisions, thereby allowing management to assess the longer-term profitability of an operating segment more effectively, it may, in sustained periods of low and/or high interest rates, result in a measure of operating segment net interest income that is not reflective of current interest rates.

A five-year rolling average net charge-off rate is used as the basis for the provision for loan losses for the respective operating segment in order to present a level of portfolio credit cost that is representative of the Company’s historical experience, without presenting the potential volatility from year-to-year changes in credit conditions. While this method of allocation allows management to assess the longer-term profitability of an operating segment more effectively, it may result in a measure of an operating segment’s provision for loan losses that does not reflect actual incurred losses for the periods presented.

People’s United allocates a majority of non-interest expenses to each operating segment using a full-absorption costing process (i.e. all expenses are fully-allocated to the segments). Direct and indirect costs are analyzed and pooled by process and assigned to the appropriate operating segment and corporate overhead costs are allocated to the operating segments. Income tax expense is allocated to each operating segment using a constant rate, based on an estimate of the consolidated effective income tax rate for the year. Average total assets and average total liabilities are presented for each reportable segment due to management’s reliance, in part, on such average balances for purposes of assessing segment performance. Average total assets of each reportable segment include allocated goodwill and intangible assets, both of which are reviewed for impairment at least annually.

The "Other" category includes the residual financial impact from the allocation of revenues and expenses (including the provision for loan losses) and certain revenues and expenses not attributable to a particular segment; assets and liabilities not attributable to a particular segment; reversal of the FTE adjustment since net interest income for each segment is presented on an FTE basis; and the FTP impact from excess capital. The "Other" category also includes (i) gains of $7.6 million, net of expenses, resulting from the sale of eight branches in central Maine and $3.3 million on a sale-leaseback transaction, both for the year ended December 31, 2019, and $10.0 million of security losses in each of the years ended December 31, 2018 and 2017 incurred in response to tax reform-related benefits recognized in each period (all included in non-interest income); and (ii) merger-related expenses totaling $49.1 million, $11.4 million and $30.6 million for the years ended December 31, 2019, 2018 and 2017, respectively, and a $16.5 million charge for the year ended December 31, 2019 associated with the complete write-down of an acquisition-related intangible asset stemming from the liquidation of the Company's public mutual funds (all included in non-interest expense). The increases in average total assets and average total liabilities in 2019 compared to 2018 primarily reflect the recognition of ROU assets and corresponding operating lease liabilities upon adoption of the FASB leasing standard on January 1, 2019 (see Notes 1 and 6 to the Consolidated Financial Statements for a further discussion regarding the accounting for leases).

The following tables provide selected financial information for People’s United’s reportable segments:


Year ended December 31, 2019 (in millions)	Commercial Banking		Retail Banking		Total Reportable Segments		Treasury		Other		Total Consolidated
Net interest income (loss)	$	807.1	$	555.1	$	1,362.2	$	66.5	$	(16.4)	$	1,412.3
Provision for loan losses	44.1		8.9		53.0		—		(24.7)		28.3
Total non-interest income	206.5		195.9		402.4		14.1		14.6		431.1
Total non-interest expense	448.7		600.2		1,048.9		13.8		100.0		1,162.7
Income (loss) before income tax expense (benefit)	520.8		141.9		662.7		66.8		(77.1)		652.4
Income tax expense (benefit)	104.3		28.5		132.8		13.5		(14.3)		132.0
Net income (loss)	$	416.5	$	113.4	$	529.9	$	53.3	$	(62.8)	$	520.4
Average total assets	$	29,746.8	$	12,560.9	$	42,307.7	$	7,882.3	$	1,468.0	$	51,658.0
Average total liabilities	11,490.2		23,397.7		34,887.9		9,011.9		686.9		44,586.7


Year ended December 31, 2018 (in millions)	Commercial Banking		Retail Banking		Total Reportable Segments		Treasury		Other		Total Consolidated
Net interest income (loss)	$	699.2	$	467.2	$	1,166.4	$	93.0	$	(23.4)	$	1,236.0
Provision for loan losses	38.7		9.0		47.7		—		(17.7)		30.0
Total non-interest income	177.8		186.7		364.5		8.3		(6.4)		366.4
Total non-interest expense	383.7		565.3		949.0		17.8		29.3		996.1
Income (loss) before income tax expense (benefit)	454.6		79.6		534.2		83.5		(41.4)		576.3
Income tax expense (benefit)	85.0		14.9		99.9		15.8		(7.5)		108.2
Net income (loss)	$	369.6	$	64.7	$	434.3	$	67.7	$	(33.9)	$	468.1
Average total assets	$	25,956.7	$	10,103.3	$	36,060.0	$	7,955.8	$	1,013.9	$	45,029.7
Average total liabilities	9,305.0		20,699.1		30,004.1		8,544.3		444.1		38,992.5


Year ended December 31, 2017 (in millions)	Commercial Banking		Retail Banking		Total Reportable Segments		Treasury		Other		Total Consolidated
Net interest income (loss)	$	631.0	$	403.9	$	1,034.9	$	107.4	$	(41.8)	$	1,100.5
Provision for loan losses	43.7		13.4		57.1		—		(31.1)		26.0
Total non-interest income	165.0		183.4		348.4		11.2		(6.7)		352.9
Total non-interest expense	357.1		547.0		904.1		15.6		40.6		960.3
Income (loss) before income tax expense (benefit)	395.2		26.9		422.1		103.0		(58.0)		467.1
Income tax expense (benefit)	110.0		7.5		117.5		28.6		(16.2)		129.9
Net income (loss)	$	285.2	$	19.4	$	304.6	$	74.4	$	(41.8)	$	337.2
Average total assets	$	24,533.9	$	9,695.1	$	34,229.0	$	7,512.1	$	840.5	$	42,581.6
Average total liabilities	7,938.6		20,202.8		28,141.4		8,450.6		398.0		36,990.0