Segment Reporting

3 Months Ended

Mar. 31, 2019

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 2018 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 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, the interest rate environment evolves, 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 2018 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 CDI 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 2018 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 March 31,
	2019			2018
	($ in Thousands)
Net interest income	$	115,909		$	104,435
Net intersegment interest income (expense)	(22,622		)	(8,477		)
Segment net interest income	93,287			95,958
Noninterest income	11,445			12,683
Total revenue	104,733			108,641
Credit provision	13,485			10,598
Noninterest expense	38,788			39,250
Income (loss) before income taxes	52,460			58,793
Income tax expense (benefit)	10,003			11,426
Net income	$	42,457		$	47,367
Allocated goodwill	$	524,525		$	519,779



	Community, Consumer, and Business
	Three Months Ended March 31,
	2019		2018
	($ in Thousands)
Net interest income	$	88,072	$	86,395
Net intersegment interest income (expense)	23,442		17,148
Segment net interest income	111,514		103,543
Noninterest income	74,223		74,036
Total revenue	185,737		177,579
Credit provision	5,033		4,966
Noninterest expense	130,863		127,144
Income (loss) before income taxes	49,841		45,469
Income tax expense (benefit)	10,443		9,549
Net income	$	39,398	$	35,920
Allocated goodwill	$	644,419	$	633,377

Information about the Corporation’s segments is presented below: (continued)



	Risk Management and Shared Services
	Three Months Ended March 31,
	2019			2018
	($ in Thousands)
Net interest income	$	11,567		$	19,041
Net intersegment interest income (expense)	(821		)	(8,671		)
Segment net interest income	10,746			10,370
Noninterest income	5,533			3,661
Total revenue	16,280			14,031
Credit provision	(12,518		)	(15,563		)
Noninterest expense^(a)	21,893			46,571
Income (loss) before income taxes	6,905			(16,977		)
Income tax expense (benefit)	1,947			(3,146		)
Net income	$	4,958		$	(13,831	)
Allocated goodwill	$	—		$	—



	Consolidated Total
	Three Months Ended March 31,
	2019		2018
	($ in Thousands)
Net interest income	$	215,547	$	209,871
Net intersegment interest income (expense)	—		—
Segment net interest income	215,547		209,871
Noninterest income	91,202		90,380
Total revenue	306,749		300,251
Credit provision	6,000		—
Noninterest expense	191,671		212,965
Income (loss) before income taxes	109,078		87,285
Income tax expense (benefit)	22,392		17,829
Net income	$	86,686	$	69,456
Allocated goodwill	$	1,168,944	$	1,153,156

(a) For the three months ended March 31, 2019 and 2018, the Risk Management and Shared Services segment includes approximately $632 thousand and $21 million, respectively, of acquisition related noninterest expense.