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. 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 the first quarter of 2019, the Company's Board of Directors approved management's strategic plan to exit its wholesale mortgage delivery channels. On June 7, 2019, the Company completed the sale of its third party origination ("TPO") channel and completed the sale of its correspondent channel on August 1, 2019. The mortgage segment incurred $829 and $1,883 in restructuring and miscellaneous charges during the three and six months ended June 30, 2019 related to these sales.

The following tables provide segment financial information for the three and six months ended June 30, 2019 and 2018 as follows:



Three Months Ended June 30, 2019	Banking		Mortgage			Consolidated
Net interest income	$	56,979	$	44		$	57,023
Provision for loan loss	881		—			881
Mortgage banking income	5,451		22,875			28,326
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(3,800		)	(3,800		)
Other noninterest income	8,453		—			8,453
Depreciation and amortization	1,134		144			1,278
Amortization of intangibles	1,254		—			1,254
Other noninterest mortgage banking expense	4,172		17,691			21,863
Other noninterest expense⁽²⁾	38,895		829			39,724
Income before income taxes	$	24,547	$	455		$	25,002
Income tax expense						6,314
Net income						18,688
Total assets	$	5,552,893	$	387,509		$	5,940,402
Goodwill⁽³⁾	168,486		—			168,486


(1)	Included in mortgage banking income.


(2)	Included $3,783 in merger costs in the Banking segment related to the Atlantic Capital branch acquisition and $829 in the Mortgage segment related to mortgage business restructuring charges.


(3)	Recognized $100 of impairment of goodwill related to the sale of the third party origination channel in the Mortgage segment. See Note 6. Goodwill and intangible assets.



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, net of hedging⁽¹⁾	—		(1,778		)	(1,778		)
Other noninterest income	7,219		—			7,219
Depreciation and amortization	990		142			1,132
Amortization of intangibles	802		—			802
Other noninterest mortgage banking expense	5,649		19,440			25,089
Other noninterest expense⁽²⁾	29,335		—			29,335
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.


(2)	Included $671 in offering costs in the Banking segment related to the follow-on secondary offering.



Six Months Ended June 30, 2019	Banking		Mortgage			Consolidated
Net interest income	$	109,972	$	67		$	110,039
Provision for loan loss	2,272		—			2,272
Mortgage banking income	9,837		41,391			51,228
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(5,681		)	(5,681		)
Other noninterest income	16,471		—			16,471
Depreciation and amortization	2,176		274			2,450
Amortization of intangibles	1,983		—			1,983
Other noninterest mortgage banking expense	7,003		35,047			42,050
Other noninterest expense⁽²⁾	70,854		1,883			72,737
Income before income taxes	$	51,992	$	(1,427	)	$	50,565
Income tax expense						12,289
Net income						38,276
Total assets	$	5,552,893	$	387,509		$	5,940,402
Goodwill⁽³⁾	168,486		—			168,486


(1)	Included in mortgage banking income.


(2)	Included $4,404 in merger costs in the Banking segment related to the Atlantic Capital branch acquisition and $1,883 in the Mortgage segment related to mortgage business restructuring charges.


(3)	Recognized $100 of impairment of goodwill related to the sale of the third party origination channel in the Mortgage segment. See Note 6. Goodwill and intangible assets.



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
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(3,491		)	(3,491		)
Other noninterest income	14,023		—			14,023
Depreciation and amortization	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⁾	59,648		—			59,648
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.


(2)	Included $1,193 in merger costs related to the acquisition of the Clayton Banks and $671 in offering costs in the Banking segment related to the follow-on secondary offering.

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 5.00% as of June 30, 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 $3,290 and $4,517 for the three months ended June 30, 2019 and 2018, respectively, and $5,848 and $9,025 for the six months ended June 30, 2019 and 2018, respectively.