22. Segment information

Reportable segments have been determined based upon the Company’s internal profitability reporting system, which is organized by strategic business unit. 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 reportable segments are Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking.

The financial information of the Company’s segments was compiled utilizing the accounting policies described in note 1 with certain exceptions. The more significant of these exceptions are described herein. The Company allocates interest income or interest expense using a methodology that charges users of funds (assets) interest expense and credits providers of funds (liabilities) with income based on the maturity, prepayment and/or repricing characteristics of the assets and liabilities. The net effect of this allocation is recorded in the “All Other” category. A provision for credit losses is allocated to segments in an amount based largely on actual net charge-offs incurred by the segment during the period plus or minus an amount necessary to adjust the segment’s allowance for credit losses due to changes in loan balances. In contrast, the level of the consolidated provision for credit losses is determined using the methodologies described in notes 1 and 5. Indirect fixed and variable 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 expenses and bankwide expense accruals (including amortization of core deposit and other intangible assets associated with acquisitions of financial institutions) are generally not allocated to segments. Income taxes are allocated to segments based on the Company’s marginal statutory tax rate 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 GAAP. As a result, reported segment results 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 reported segment financial data. During 2016, the Company revised its funds transfer pricing allocation related to borrowings and to the residential real estate loans obtained in the acquisition of Hudson City, retroactive to 2015. Accordingly, segment financial information for the year ended December 31, 2015 has been reclassified to conform to the current methodology. As a result, net interest income, income tax expense and net income increased in the Discretionary Portfolio segment and decreased in the “All Other” category by $12 million, $5 million and $7 million, respectively, for the year ended December 31, 2015 from that which was previously reported.

Information about the Company’s segments is presented in the accompanying table. Income statement amounts are in thousands of dollars. Balance sheet amounts are in millions of dollars.

	For the Years Ended December 31, 2016, 2015 and 2014
	Business Banking									Commercial Banking						Commercial Real Estate									Discretionary Portfolio
	2016			2015			2014			2016		2015		2014		2016			2015			2014			2016		2015		2014
Net interest income(a)	$	354,333		$	338,855		$	345,773		$	785,874	$	753,604	$	746,344	$	608,385		$	577,922		$	555,358		$	345,926	$	97,626	$	74,204
Noninterest income		108,783			108,195			105,149			274,923		290,142		254,295		179,706			142,948			125,087			26,075		28,114		27,464
		463,116			447,050			450,922			1,060,797		1,043,746		1,000,639		788,091			720,870			680,445			372,001		125,740		101,668
Provision for credit losses		12,709			15,513			18,883			34,903		25,089		33,213		(3,447	)		(8,003	)		(7,339	)		32,925		7,599		16,547
Amortization of core deposit and other intangible assets		—			—			—			—		—		—		—			—			—			—		—		—
Depreciation and other amortization		404			407			405			520		566		588		20,120			19,247			16,300			472		679		891
Other noninterest expense		292,124			264,163			263,734			327,616		288,303		284,091		204,965			169,688			169,039			95,300		49,839		33,522
Income (loss) before taxes		157,879			166,967			167,900			697,758		729,788		682,747		566,453			539,938			502,445			243,304		67,623		50,708
Income tax expense (benefit)		64,533			68,209			68,630			286,062		298,758		279,819		216,095			199,297			186,485			79,766		8,351		2,365
Net income (loss)	$	93,346		$	98,758		$	99,270		$	411,696	$	431,030	$	402,928	$	350,358		$	340,641		$	315,960		$	163,538	$	59,272	$	48,343
Average total assets (in millions)	$	5,456		$	5,339		$	5,278		$	25,592	$	24,143	$	22,860	$	21,131		$	18,827		$	17,405		$	40,867	$	26,648	$	20,798
Capital expenditures (in millions)	$	—		$	—		$	2		$	—	$	—	$	—	$	—		$	—		$	—		$	—	$	—	$	—

										For the Years Ended December 31, 2016, 2015 and 2014
	Residential Mortgage Banking									Retail Banking						All Other									Total
	2016			2015			2014			2016		2015		2014		2016			2015			2014			2016		2015		2014
Net interest income(a)	$	70,655		$	63,939		$	67,482		$	1,074,125	$	917,041	$	908,828	$	230,589		$	93,600		$	(21,543	)	$	3,469,887	$	2,842,587	$	2,676,446
Noninterest income		342,858			336,099			331,366			323,176		324,953		336,042		570,475			594,586			599,870			1,825,996		1,825,037		1,779,273
		413,513			400,038			398,848			1,397,301		1,241,994		1,244,870		801,064			688,186			578,327			5,295,883		4,667,624		4,455,719
Provision for credit losses		(3,617	)		(5,225	)		(1,508	)		120,437		72,953		77,158		(3,910	)		62,074			(12,954	)		190,000		170,000		124,000
Amortization of core deposit and other intangible assets		—			—			—			—		—		—		42,613			26,424			33,824			42,613		26,424		33,824
Depreciation and other amortization		30,264			27,883			47,086			37,657		35,291		37,788		68,541			64,852			61,848			157,978		148,925		164,906
Other noninterest expense		258,141			233,651			216,556			776,123		682,594		668,919		892,625			959,345			854,883			2,846,894		2,647,583		2,490,744
Income (loss) before taxes		128,725			143,729			136,714			463,084		451,156		461,005		(198,805	)		(424,509	)		(359,274	)		2,058,398		1,674,692		1,642,245
Income tax expense (benefit)		49,047			55,151			52,172			188,438		183,638		187,647		(140,657	)		(218,379	)		(201,119	)		743,284		595,025		575,999
Net income (loss)	$	79,678		$	88,578		$	84,542		$	274,646	$	267,518	$	273,358	$	(58,148	)	$	(206,130	)	$	(158,155	)	$	1,315,114	$	1,079,667	$	1,066,246
Average total assets (in millions)	$	2,569		$	2,918		$	3,076		$	11,840	$	11,035	$	10,449	$	16,885		$	12,870		$	12,277		$	124,340	$	101,780	$	92,143
Capital expenditures (in millions)	$	—		$	—		$	—		$	46	$	14	$	14	$	62		$	68		$	57		$	108	$	82	$	73

(a)

Net interest income is the difference between actual taxable-equivalent interest earned on assets and interest paid on liabilities by a segment and a funding charge (credit) based on the Company’s internal funds transfer pricing methodology. Segments are charged a cost to fund any assets (e.g. loans) and are paid a funding credit for any funds provided (e.g. deposits). The taxable-equivalent adjustment aggregated $26,962,000 in 2016, $24,463,000 in 2015 and $23,642,000 in 2014 and is eliminated in “All Other” net interest income and income tax expense (benefit).

The Business Banking segment provides deposit, lending, cash management and other financial services to small businesses and professionals through the Company’s banking office network and several other delivery channels, including business banking centers, telephone banking, Internet banking and automated teller machines. The Commercial Banking segment provides a wide range of credit products and banking services to middle-market and large commercial customers, mainly within the markets the Company serves. Among the services provided by this segment are commercial lending and leasing, letters of credit, deposit products and cash management services. The Commercial Real Estate segment provides credit services which are secured by various types of multifamily residential and commercial real estate and deposit services to its customers. Activities of this segment include the origination, sales and servicing of commercial real estate loans. Commercial real estate loans held for sale are included in the Commercial Real Estate Segment. The Discretionary Portfolio segment includes securities; residential real estate loans and other assets; short-term and long-term borrowed funds; brokered deposits; and Cayman Islands branch deposits. This segment also provides foreign exchange services to customers. Residential real estate loans obtained in the Hudson City acquisition on November 1, 2015 are included in this segment. The Residential Mortgage Banking segment originates and services residential real estate loans for consumers and sells substantially all of those loans in the secondary market to investors or to the Discretionary Portfolio segment. The segment periodically purchases servicing rights to loans that have been originated by other entities. Residential real estate loans held for sale are included in the Residential Mortgage Banking segment. The Retail Banking segment offers a variety of services to consumers through several delivery channels that include banking offices, automated teller machines, and telephone, mobile and Internet banking. Consumer loans and deposits obtained in the acquisition of Hudson City have been included in this segment. The “All Other” category includes other operating activities of the Company that are not directly attributable to the reported segments; the difference between the provision for credit losses and the calculated provision allocated to the reportable segments; goodwill and core deposit and other intangible assets resulting from acquisitions of financial institutions; merger-related gains and expenses resulting from acquisitions; the net impact of the Company’s internal funds transfer pricing methodology; eliminations of transactions between reportable segments; certain nonrecurring transactions; the residual effects of unallocated support systems and general and administrative expenses; and the impact of interest rate risk management strategies. The amount of intersegment activity eliminated in arriving at consolidated totals was included in the “All Other” category as follows:

	Year Ended December 31
	2016			2015			2014
	(In thousands)

Revenues	$	(48,625	)	$	(48,972	)	$	(49,800	)
Expenses		(40,422	)		(13,332	)		(12,014	)
Income taxes (benefit)		(3,338	)		(14,503	)		(15,375	)
Net income (loss)		(4,865	)		(21,137	)		(22,411	)

The Company conducts substantially all of its operations in the United States. There are no transactions with a single customer that in the aggregate result in revenues that exceed ten percent of consolidated total revenues.