Segment Reporting

6 Months Ended

Jun. 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 Corporation allocates net interest income using an internal funds transfer pricing ("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 recorded in the Risk Management and Shared Services segment.

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).

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.

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.

Information about the Corporation’s segments is presented below.



Segment Income Statement Data
($ in Thousands)	Corporate and Commercial Specialty			Community, Consumer, and Business			Risk Management and Shared Services			Consolidated Total
Three Months Ended June 30, 2018
Net interest income	$	107,330		$	114,620		$	4,413		$	226,362
Noninterest income	14,194			76,250			2,399			92,842
Total revenue	121,524			190,870			6,812			319,204
Credit provision^(a)	11,126			4,880			(12,006		)	4,000
Noninterest expense	41,775			138,553			30,929			211,258
Income (loss) before income taxes	68,623			47,437			(12,111		)	103,947
Income tax expense (benefit)	13,454			9,962			(8,661		)	14,754
Net income (loss)	$	55,169		$	37,475		$	(3,450	)	$	89,192
Return on average allocated capital (ROCET1)^(b)	17.9		%	22.7		%	(3.9		)%	14.0		%
Three Months Ended June 30, 2017
Net interest income	$	89,871		$	90,131		$	3,817		$	183,819
Noninterest income	12,497			65,809			4,104			82,410
Total revenue	102,368			155,940			7,921			266,229
Credit provision^(a)	11,470			5,764			(5,234		)	12,000
Noninterest expense	39,418			125,242			11,656			176,316
Income (loss) before income taxes	51,480			24,934			1,499			77,913
Income tax expense (benefit)	16,363			8,727			(5,160		)	19,930
Net income	$	35,117		$	16,207		$	6,659		$	57,983
Return on average allocated capital (ROCET1)^(b)	12.5		%	11.0		%	4.5		%	10.6		%



Segment Balance Sheet Data
($ in Thousands)	Corporate and Commercial Specialty		Community, Consumer, and Business		Risk Management and Shared Services		Consolidated Total
Three Months Ended June 30, 2018
Average earning assets	$	12,066,538	$	10,402,680	$	7,943,487	$	30,412,705
Average loans	12,054,347		10,399,458		551,624		23,005,428
Average deposits	7,621,977		13,736,251		2,288,021		23,646,250
Average allocated capital (CET1)^(b)	$	1,236,918	$	663,172	$	588,411	$	2,488,501
Three Months Ended June 30, 2017
Average earning assets	$	10,853,881	$	9,510,571	$	6,380,103	$	26,744,555
Average loans	10,841,858		9,508,683		171,449		20,521,990
Average deposits	6,447,190		11,574,028		3,501,931		21,523,149
Average allocated capital (CET1)^(b)	$	1,125,494	$	588,880	$	385,451	$	2,099,825


(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 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.