Segment Reporting

9 Months Ended

Sep. 30, 2018

The Corporation utilizes a risk-based internal profitability measurement system to provide strategic business unit reporting. The profitability measurement system is based on internal management methodologies designed to produce consistent results and reflect the underlying economics of the units. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar. The three reportable segments are Corporate and Commercial Specialty; Community, Consumer, and Business; and Risk Management and Shared Services. The financial information of the Corporation’s segments has been compiled utilizing the

accounting policies described in the Corporation’s 2017 Annual Report on Form 10-K, with certain exceptions. The more significant of these exceptions are described herein.

The reportable segment results are presented based on the Corporation's internal management accounting process. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to U.S. generally accepted accounting principles. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in previously reported segment financial data. Additionally, the information presented is not indicative of how the segments would perform if they operated as independent entities.

To determine financial performance of each segment, the Corporation allocates funds transfer pricing ("FTP") assignments, the provision for credit losses, certain noninterest expenses, income tax, and equity to each segment. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and business or product lines within the segments change. Also, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically reviewed.

The Corporation allocates net interest income using an internal FTP methodology that charges users of funds (assets) and credits providers of funds (liabilities, primarily deposits) based on the maturity, prepayment and / or repricing characteristics of the assets and liabilities. The net effect of this allocation is offset in the Risk Management and Shared Services segment to ensure consolidated totals reflect the Corporation's net interest income. The net FTP allocation is reflected as net intersegment income (expense) in the accompanying tables.

A credit provision is allocated to segments based on the expected long-term annual net charge off rates attributable to the credit risk of loans managed by the segment during the period. In contrast, the level of the consolidated provision for credit losses is determined based on an incurred loss model using the methodologies described in the Corporation’s 2017 Annual Report on Form 10-K to assess the overall appropriateness of the allowance for loan losses. The net effect of the credit provision is recorded in Risk Management and Shared Services. Indirect expenses incurred by certain centralized support areas are allocated to segments based on actual usage (for example, volume measurements) and other criteria. Certain types of administrative expense and bank-wide expense accruals (including amortization of core deposit and other intangible assets associated with acquisitions) are generally not allocated to segments. Income taxes are allocated to segments based on the Corporation’s estimated effective tax rate, with certain segments adjusted for any tax-exempt income or non-deductible expenses. Equity is allocated to the segments based on regulatory capital requirements and in proportion to an assessment of the inherent risks associated with the business of the segment (including interest, credit and operating risk).

A brief description of each business segment is presented below. A more in-depth discussion of these segments can be found in the Segment Reporting footnote in the Corporation’s 2017 Annual Report on Form 10-K.

The Corporate and Commercial Specialty segment serves a wide range of customers including larger businesses, developers, not-for-profits, municipalities, and financial institutions. The Community, Consumer, and Business segment serves individuals, as well as small and mid-sized businesses. The Risk Management and Shared Services segment includes key shared operational functions and also includes residual revenue and expenses, representing the difference between actual amounts incurred and the amounts allocated to operating segments, including interest rate risk residuals (FTP mismatches) and credit risk and provision residuals (long-term credit charge mismatches). In addition, the Risk Management and Shared Services segment includes certain unallocated expenses related to Bank Mutual's shared services and operations prior to system conversion in late June 2018. All acquisition related costs are included in the Risk Management and Shared Services segment.

Information about the Corporation’s segments is presented below.



	Corporate and Commercial Specialty
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	($ in Thousands)
Net interest income	$	113,298		$	93,114		$	339,718		$	270,256
Net intersegment interest income (expense)	(13,018		)	(758		)	(36,151		)	1,359
Segment net interest income	100,280			92,356			303,567			271,615
Noninterest income	12,280			12,278			39,156			36,768
Total revenue	112,560			104,634			342,723			308,383
Credit provision^(a)	11,232			9,499			32,955			32,549
Noninterest expense	41,828			39,681			122,853			116,578
Income (loss) before income taxes	59,500			55,454			186,914			159,256
Income tax expense (benefit)	12,098			19,070			36,978			53,082
Net income	$	47,402		$	36,384		$	149,937		$	106,174
Return on average allocated capital (ROCET1)^(b)	15.5		%	12.8		%	16.6		%	12.7		%

Average earning assets	$	11,981,760		$	10,923,762		$	11,814,674		$	10,846,418
Average loans	11,974,090			10,916,829			11,804,458			10,837,933
Average deposits	8,695,170			7,398,970			8,127,134			6,759,105
Average allocated capital (CET1)^(b)	1,215,331			1,125,181			1,207,925			1,121,800
Allocated goodwill							524,525			428,000



	Community, Consumer, and Business
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	($ in Thousands)
Net interest income	$	91,323		$	81,058		$	268,137		$	236,407
Net intersegment interest income (expense)	21,951			9,894			63,301			33,603
Segment net interest income	113,275			90,952			331,438			270,011
Noninterest income	73,838			67,867			224,109			198,546
Total revenue	187,113			158,819			555,547			468,557
Credit provision^(a)	5,280			5,046			15,125			15,317
Noninterest expense	139,653			120,241			405,338			361,580
Income (loss) before income taxes	42,180			33,532			135,084			91,660
Income tax expense (benefit)	8,861			11,736			28,371			32,081
Net income	$	33,319		$	21,796		$	106,713		$	59,579
Return on average allocated capital (ROCET1)^(b)	20.0		%	14.7		%	21.9		%	13.6		%

Average earning assets	$	10,456,159		$	9,608,242		$	10,333,412		$	9,418,173
Average loans	10,453,485			9,602,098			10,329,888			9,414,880
Average deposits	13,716,862			11,788,606			13,518,903			11,568,220
Average allocated capital (CET1)^(b)	662,017			588,841			652,745			584,774
Allocated goodwill							644,397			544,006



	Risk Management and Shared Services
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	($ in Thousands)
Net interest income	$	14,770		$	15,951		$	47,770		$	47,552
Net intersegment interest income (expense)	(8,933		)	(9,136		)	(27,150		)	(34,963		)
Segment net interest income	5,837			6,814			20,620			12,589
Noninterest income	2,183			5,750			8,257			12,822
Total revenue	8,019			12,564			28,876			25,411
Credit provision^(a)	(21,512		)	(9,545		)	(49,081		)	(21,866		)
Noninterest expense^(c)	22,932			17,505			100,445			49,276
Income (loss) before income taxes	6,599			4,604			(22,488		)	(1,999		)
Income tax expense (benefit)	1,390			(2,217		)	(10,416		)	(15,500		)
Net income	$	5,209		$	6,821		$	(12,072	)	$	13,501
Return on average allocated capital (ROCET1)^(b)	1.8		%	4.4		%	(4.2		)%	2.2		%

Average earning assets	$	8,036,951		$	6,927,791		$	7,912,853		$	6,587,401
Average loans	546,142			380,210			554,824			248,165
Average deposits	2,283,886			3,253,869			2,355,566			3,486,354
Average allocated capital (CET1)^(b)	635,924			405,653			603,684			387,388



	Consolidated Total
	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	($ in Thousands)
Net interest income	$	219,392		$	190,122		$	655,625		$	554,215
Net intersegment interest income (expense)	—			—			—			—
Segment net interest income	219,392			190,122			655,625			554,215
Noninterest income	88,300			85,895			271,522			248,136
Total revenue	307,692			276,017			927,146			802,351
Credit provision^(a)	(5,000		)	5,000			(1,000		)	26,000
Noninterest expense	204,413			177,427			628,636			527,434
Income (loss) before income taxes	108,279			93,590			299,510			248,917
Income tax expense (benefit)	22,349			28,589			54,932			69,663
Net income	$	85,929		$	65,001		$	244,578		$	179,254
Return on average allocated capital (ROCET1)^(b)	13.2		%	11.7		%	12.9		%	11.0		%

Average earning assets	$	30,474,870		$	27,459,795		$	30,060,938		$	26,851,992
Average loans	22,973,717			20,899,137			22,689,170			20,500,978
Average deposits	24,695,918			22,441,445			24,001,604			21,813,679
Average allocated capital (CET1)^(b)	2,513,272			2,119,675			2,464,354			2,093,962
Allocated goodwill							1,168,922			972,006


(a)	The consolidated credit provision is equal to the actual reported provision for credit losses.

(b)

The Federal Reserve establishes capital adequacy requirements for the Corporation, including common equity Tier 1. For segment reporting purposes, the return on common equity Tier 1 ("ROCET1") reflects return on average allocated common equity Tier 1. The ROCET1 for the Risk Management and Shared Services segment and the Consolidated Total is inclusive of the annualized effect of the preferred stock dividends.

(c)

For the three months ended September 30, 2018, the Risk Management and Shared Services segment includes approximately $2 million of acquisition related noninterest expense. For the nine months ended September 30, 2018, the Risk Management and Shared Services segment includes approximately $30 million of acquisition related noninterest expense.