Segment Reporting

9 Months Ended

Sep. 30, 2015

Segment Reporting

Note 13. Segment Reporting

The Company’s operations are divided into two reportable business segments: Banking Operations and Residential Mortgage Banking. These operating segments have been identified based on the Company’s organizational structure. The segments require unique technology and marketing strategies, and offer different products and services. While the Company is managed as an integrated organization, individual executive managers are held accountable for the operations of these business segments.

The Company measures and presents information for internal reporting purposes in a variety of ways. The internal reporting system presently used by management in the planning and measurement of operating activities, and to which most managers are held accountable, is based on organizational structure.

The management accounting process uses various estimates and allocation methodologies to measure the performance of the operating segments. To determine financial performance for each segment, the Company allocates capital, funding charges and credits, certain non-interest expenses, and income tax provisions to each segment, as applicable. Allocation methodologies are subject to periodic adjustment as the internal management accounting system is revised and/or as business or product lines within the segments change. In addition, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically revised.

The Company seeks to maximize shareholder value by, among other means, optimizing the return on stockholders’ equity and managing risk. Capital is assigned to each segment, the combination of which is equivalent to the Company’s consolidated total, on an economic basis, using management’s assessment of the inherent risks associated with the segment. Capital allocations are made to cover the following risk categories: credit risk, liquidity risk, interest rate risk, option risk, basis risk, market risk, and operational risk.

The Company allocates expenses to the reportable segments based on various factors, including the volume and amount of loans produced and the number of full-time equivalent employees. Income taxes are allocated to the various segments based on taxable income and statutory rates applicable to the segment.

Banking Operations Segment

The Banking Operations segment serves consumers and businesses by offering and servicing a variety of loan and deposit products and other financial services.

Residential Mortgage Banking Segment

The Residential Mortgage Banking segment originates, aggregates, sells, and services one-to-four family mortgage loans. Mortgage loan products consist primarily of agency-conforming fixed- and adjustable-rate loans and, to a lesser extent, jumbo hybrid loans, for the purpose of purchasing or refinancing one-to-four family homes. The Residential Mortgage Banking segment earns interest on loans held in the warehouse and non-interest income from the origination and servicing of loans. It also recognizes gains or losses on the sale of such loans.

The following table provides a summary of the Company’s segment results for the three months ended September 30, 2015, on an internally managed accounting basis:

	For the Three Months Ended September 30, 2015
(in thousands)	Banking     Operations			Residential Mortgage Banking		Total     Company
Net interest income			$275,990		$  3,422			$279,412
Recovery of loan losses			(9,028)		--			(9,028)
Non-interest income:
Third party(1)			29,587		8,000			37,587
Inter-segment			(3,513)		3,513			--
Total non-interest income			26,074		11,513			37,587
Non-interest expense(2)			130,832		16,476			147,308
Income before income tax expense			180,260		(1,541)			178,719
Income tax expense			64,654		(623)			64,031
Net income (loss)			$115,606		$   (918)			$114,688
Identifiable segment assets (period-end)		$	48,342,734		$702,748		$	49,045,482

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the nine months ended September 30, 2015, on an internally managed accounting basis:

	For the Nine Months Ended September 30, 2015
(in thousands)	Banking     Operations				Residential Mortgage Banking		Total     Company
Net interest income			$845,281			$11,996			$857,277
Recovery of loan losses			(8,687	)		--			(8,687	)
Non-interest income:
Third party(1)			108,096			43,626			151,722
Inter-segment			(11,744	)		11,744			--
Total non-interest income			96,352			55,370			151,722
Non-interest expense(2)			406,459			49,615			456,074
Income before income tax expense			543,861			17,751			561,612
Income tax expense			196,790			7,171			203,961
Net income			$347,071			$10,580			$357,651
Identifiable segment assets (period-end)		$	48,342,734			$702,748		$	49,045,482

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the three months ended September 30, 2014, on an internally managed accounting basis:

	For the Three Months Ended September 30, 2014
(in thousands)	Banking     Operations				Residential Mortgage Banking			Total     Company
Net interest income		$	285,185			$	3,844		$	289,029
Recovery of loan losses			(3,945	)			--			(3,945	)
Non-interest income:
Third party (1)			23,989				17,297			41,286
Inter-segment			(3,033	)			3,033			--
Total non-interest income			20,956				20,330			41,286
Non-interest expense (2)			130,344				14,851			145,195
Income before income tax expense			179,742				9,323			189,065
Income tax expense			65,329				3,478			68,807
Net income			$114,413				$  5,845			$120,258
Identifiable segment assets (period-end)		$	48,016,992				$662,780		$	48,679,772

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the nine months ended September 30, 2014, on an internally managed accounting basis:

	For the Nine Months Ended September 30, 2014
(in thousands)	Banking     Operations				Residential Mortgage Banking			Total     Company
Net interest income		$	846,440			$	10,231		$	856,671
Recovery of loan losses			(18,387	)			--			(18,387	)
Non-interest income:
Third party (1)			82,451				48,663			131,114
Inter-segment			(10,583	)			10,583			--
Total non-interest income			71,868				59,246			131,114
Non-interest expense (2)			395,098				44,258			439,356
Income before income tax expense			541,597				25,219			566,816
Income tax expense			203,217				9,399			212,616
Net income			$338,380				$15,820			$354,200
Identifiable segment assets (period-end)		$	48,016,992			$	662,780		$	48,679,772

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.