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 on August 1, 2019, the Company completed the sale of its correspondent channel. The mortgage segment incurred $112 and $1,995 in restructuring and miscellaneous charges during the three and nine months ended September 30, 2019 related to these sales.

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



Three Months Ended September 30, 2019	Banking		Mortgage			Consolidated
Net interest income	$	58,350	$	(45	)	$	58,305
Provision for loan loss	1,831		—			1,831
Mortgage banking income	10,693		23,591			34,284
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(5,091		)	(5,091		)
Other noninterest income	8,952		—			8,952
Depreciation and amortization	1,255		125			1,380
Amortization of intangibles	1,197		—			1,197
Other noninterest mortgage banking expense	8,087		15,561			23,648
Other noninterest expense⁽²⁾	36,598		112			36,710
Income before income taxes	$	29,027	$	2,657		$	31,684
Income tax expense						7,718
Net income						$	23,966
Total assets	$	5,730,492	$	358,403		$	6,088,895
Goodwill	168,486		—			168,486


(1)	Included in mortgage banking income.


(2)	Included $295 in merger costs in the Banking segment related to the Atlantic Capital branch acquisition and the pending Farmers National merger and $112 in the Mortgage segment related to mortgage business restructuring charges.



Three Months Ended September 30, 2018	Banking		Mortgage			Consolidated
Net interest income	$	52,733	$	22		$	52,755
Provision for loan loss	1,818		—			1,818
Mortgage banking income	7,417		21,933			29,350
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(2,701		)	(2,701		)
Other noninterest income	7,706		—			7,706
Depreciation and amortization	896		117			1,013
Amortization of intangibles	777		—			777
Other noninterest mortgage banking expense	6,383		18,704			25,087
Other noninterest expense	30,336		—			30,336
Income before income taxes	$	27,646	$	433		$	28,079
Income tax expense						6,702
Net income						$	21,377
Total assets	$	4,637,097	$	421,070		$	5,058,167
Goodwill	137,090		100			137,190


(1)	Included in mortgage banking income.



Nine Months Ended September 30, 2019	Banking		Mortgage			Consolidated
Net interest income	$	168,322	$	22		$	168,344
Provision for loan loss	4,103		—			4,103
Mortgage banking income	20,530		64,982			85,512
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(10,772		)	(10,772		)
Other noninterest income	25,423		—			25,423
Depreciation and amortization	3,431		399			3,830
Amortization of intangibles	3,180		—			3,180
Other noninterest mortgage banking expense	15,090		50,608			65,698
Other noninterest expense⁽²⁾	107,452		1,995			109,447
Income before income taxes	$	81,019	$	1,230		$	82,249
Income tax expense						20,007
Net income						62,242
Total assets	$	5,730,492	$	358,403		$	6,088,895
Goodwill⁽³⁾	168,486		—			168,486


(1)	Included in mortgage banking income.


(2)	Included $4,699 in merger costs in the Banking segment related to the Atlantic Capital branch acquisition and the pending Farmers National merger and $1,995 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.



Nine Months Ended September 30, 2018	Banking		Mortgage			Consolidated
Net interest income	$	153,173	$	(472	)	$	152,701
Provision for loan loss	3,198		—			3,198
Mortgage banking income	20,419		67,437			87,856
Change in fair value of mortgage servicing rights, net of hedging⁽¹⁾	—		(6,192		)	(6,192		)
Other noninterest income	21,729		—			21,729
Depreciation and amortization	2,864		387			3,251
Amortization of intangibles	2,432		—			2,432
Other noninterest mortgage banking expense	17,129		56,926			74,055
Other noninterest expense⁽²⁾	89,984		—			89,984
Income before income taxes	$	79,714	$	3,460		$	83,174
Income tax expense						19,978
Net income						63,196
Total assets	$	4,637,097	$	421,070		$	5,058,167
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 is eliminated in consolidation, had a prime interest rate of 5.00% and 5.25% as of September 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 $2,875 and $8,723 for the three and nine months ended September 30, 2019, respectively, and $3,997 and $13,022 for the three and nine months ended September 30, 2018, respectively.