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 Consumer direct and Correspondent delivery channels. Additionally, the Mortgage segment includes the servicing of residential 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.

During the three months ended March 31, 2019, the Company's Board of Directors approved management's strategic plan to exit both its Third party origination ('TPO') and Correspondent channels. As such, the Company entered an agreement to sell its TPO channel, which is expected to close during the second quarter of 2019. The mortgage segment incurred $1,054 in restructuring and miscellaneous charges during the first quarter of 2019 related to these plans.

The following tables provides segment financial information for the three months ended March 31, 2019 and 2018 as follows:



Three Months Ended March 31, 2019	Banking		Mortgage			Consolidated
Net interest income	$	52,993	$	23		$	53,016
Provision for loan loss	1,391		—			1,391
Mortgage banking income	4,386		18,516			22,902
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(1,881		)	(1,881		)
Other noninterest income	8,018		—			8,018
Depreciation	1,042		130			1,172
Amortization of intangibles	729		—			729
Other noninterest mortgage banking expense	2,831		17,356			20,187
Other noninterest expense⁽²⁾	31,959		1,054			33,013
Income before income taxes	27,445		(1,882		)	25,563
Income tax expense						5,975
Net income						$	19,588
Total assets	$	4,987,744	$	347,412		$	5,335,156
Goodwill	137,090		100			137,190


(1)	Included in mortgage banking income.


(2)	Included $621 in merger and conversion expenses in banking segment related to the ACBI branch acquisition and $1,054 in mortgage segment related to mortgage business restructuring charges.



Three Months Ended March 31, 2018	Banking		Mortgage			Consolidated
Net interest income	$	48,771	$	(342	)	$	48,429
Provision for loan loss	317		—			317
Mortgage banking income	6,108		22,076			28,184
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(1,713		)	(1,713		)
Other noninterest income	6,804		—			6,804
Depreciation and amortization	978		128			1,106
Amortization of intangibles	853		—			853
Other noninterest mortgage banking expense	5,097		18,782			23,879
Other noninterest expense⁽²⁾	30,313		—			30,313
Income before income taxes	24,125		1,111			25,236
Income tax expense						5,482
Net income						$	19,754
Total assets	$	4,220,543	$	504,873		$	4,725,416
Goodwill	137,090		100			137,190


(1)	Included in mortgage banking income.


(2)	Included $1,193 in merger and conversion expenses.

Our Banking segment provides our Mortgage segment with a 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 5.50% and 4.75% as of March 31, 2019 and 2018, respectively, and further limited based on interest income earned by the Mortgage segment. 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 $2,558 and $4,508 for the three months ended March 31, 2019 and 2018, respectively.