Note (11)—Segment reporting:

The Company and the Bank are engaged in the business of banking and provide a full range of financial services. The Company determines reportable segments based on the significance of the segment’s operating results to the overall Company, the products and services offered, customer characteristics, processes and service delivery of the segments and the regular financial performance review and allocation of resources by the Chief Executive Officer (“CEO”), the Company’s chief operating decision maker. The Company has identified two distinct reportable segments—Banking and Mortgage. The Company’s primary segment is Banking, which provides a full range of deposit and lending products and services to corporate, commercial and consumer customers. The Company offers full-service conforming residential mortgage products, including conforming residential loans and services through the Mortgage segment utilizing mortgage offices outside of the geographic footprint of the Banking operations as well as internet and correspondent delivery channels. Additionally, the Mortgage Segment includes the servicing of residential retail mortgage loans and the packaging and securitization of loans to governmental agencies. The residential mortgage products and services originated in our Banking footprint and related revenues and expenses are included in our Banking segment. The Company’s mortgage division represents a distinct reportable segment which differs from the Company’s primary business of commercial and retail banking.

The financial performance of the Mortgage segment is assessed based on results of operations reflecting direct revenues and expenses and allocated expenses. This approach gives management a better indication of the operating performance of the segment. When assessing the Banking segment’s financial performance, the CEO utilizes reports with indirect revenues and expenses including but not limited to the investment portfolio, electronic delivery channels and areas that primarily support the banking segment operations. Therefore, these are included in the results of the Banking segment. Other indirect revenue and expenses related to general administrative areas are also included in the internal financial results reports of the Banking segment utilized by the CEO for analysis and are thus included for Banking segment reporting. The Mortgage segment utilizes funding sources from the Banking segment in order to fund mortgage loans that are ultimately sold on the secondary market. The Mortgage segment uses the proceeds from loan sales to repay obligations due to the Banking segment.

The following tables provides segment financial information for the three and six months ended June 30, 2018 and 2017 follows:

Three Months Ended June 30, 2018	Banking		Mortgage			Consolidated
Net interest income	$	51,669	$	(152	)	$	51,517
Provision for loan loss		1,063		—			1,063
Mortgage banking income		6,894		23,428			30,322
Change in fair value of mortgage servicing rights⁽¹⁾		—		(1,778	)		(1,778	)
Other noninterest income		7,164		—			7,164
Depreciation		990		142			1,132
Amortization of intangibles		802		—			802
Other noninterest mortgage banking expense		5,649		19,440			25,089
Other noninterest expense		29,280		—			29,280
Income before income taxes		27,943		1,916			29,859
Income tax expense							7,794
Net income							22,065
Total assets	$	4,443,469	$	479,780		$	4,923,249
Goodwill		137,090		100			137,190
(1)Included in mortgage banking income, net of hedging gains/losses, on the Consolidated Unaudited Statements of Income.

Three Months Ended June 30, 2017	Banking			Mortgage			Consolidated
Net interest income	$	29,999		$	428		$	30,427
Provision for loan loss		(865	)		—			(865	)
Mortgage banking income		7,118			24,961			32,079
Change in fair value of mortgage servicing rights⁽¹⁾		—			(1,840	)		(1,840	)
Other noninterest income		5,418			—			5,418
Depreciation		861			130			991
Amortization of intangibles		123			—			123
Loss on sale of mortgage servicing rights		—			249			249
Other noninterest mortgage banking expense		5,368			19,423			24,791
Other noninterest expense⁽²⁾		22,982			—			22,982
Income before income taxes		14,066			3,747			17,813
Income tax expense								6,574
Net income								11,239
Total assets	$	2,878,437		$	468,133		$	3,346,570
Goodwill		46,767			100			46,867

(1)	Included in mortgage banking income on the Consolidated Unaudited Statements of Income.

(2)	Included $767 in merger and conversion expenses related to the merger with the Clayton Banks.

Six Months Ended June 30, 2018	Banking		Mortgage			Consolidated
Net interest income	$	100,440	$	(494	)	$	99,946
Provision for loan loss		1,380		—			1,380
Mortgage banking income		13,002		45,504			58,506
Net, change in fair value of mortgage servicing rights⁽¹⁾		—		(3,491	)		(3,491	)
Other noninterest income		13,968		—			13,968
Depreciation		1,968		270			2,238
Amortization of intangibles		1,655		—			1,655
Other noninterest mortgage banking expense		10,746		38,222			48,968
Other noninterest expense⁽²⁾		59,593		—			59,593
Income before income taxes		52,068		3,027			55,095
Income tax expense							13,276
Net income							41,819
Total assets	$	4,443,469	$	479,780		$	4,923,249
Goodwill		137,090		100			137,190

(1)	Included in mortgage banking income on the Consolidated Unaudited Statements of Income.

(2)	Included $1,193 in merger and conversion expenses related to the merger with the Clayton Banks.

Six Months Ended June 30, 2017	Banking			Mortgage			Consolidated
Net interest income	$	59,855		$	823		$	60,678
Provision for loan loss		(1,122	)		—			(1,122	)
Mortgage banking income		12,784			44,876			57,660
Net, change in fair value of mortgage servicing rights⁽¹⁾		—			(2,341	)		(2,341	)
Other noninterest income		11,425			—			11,425
Depreciation and amortization		1,725			268			1,993
Amortization of intangibles		515			—			515
Loss on sale of mortgage servicing rights		—			249			249
Other noninterest mortgage banking expense		10,204			36,955			47,159
Other noninterest expense⁽²⁾		45,637			—			45,637
Income before income taxes		27,105			5,886			32,991
Income tax expense								11,999
Net income								20,992
Total assets	$	2,878,437		$	468,133		$	3,346,570
Goodwill		46,767			100			46,867

(1)	Included in mortgage banking income, net of hedging gains/losses, on the Consolidated Unaudited Statements of Income.

(2)	Included $1,254 in merger and conversion expenses related to the merger with the Clayton Banks.

Our Banking segment provides our Mortgage segment with an intercompany warehouse line of credit that is used to fund mortgage loans held for sale. The warehouse line of credit, which eliminated in consolidation, had a prime interest rate of 5.00% and 4.25% as of June 30, 2018 and 2017, respectively. The amount of interest paid by our Mortgage segment to our Banking segment under this warehouse line of credit is recorded as interest income to our Banking segment and as interest expense to our Mortgage segment, both of which are included in the calculation of net interest income for each segment. The amount of interest paid by our Mortgage segment to our Banking segment under this warehouse line of credit was $4,517 and $3,831 and $9,025 and $7,382 for the three and six months ended June 30, 2018 and 2017, respectively.

For more information regarding the Company’s segment reporting, see “Business segment highlights” and Note 21 “Segment reporting” in the notes to the consolidated financial statements in the Company’s Form 10-K filed with SEC on March 16, 2018.