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 respective segments.

The Company allocates expenses to the reportable segments based on various factors, including the volume and number 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 originated, aggregated, sold, and serviced 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 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 tables provide a summary of the Company’s segment results for the periods indicated on an internally managed accounting basis:


	For the Three Months Ended September 30, 2017
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Net interest income	$	273,265		$	3,078		$	276,343
Provision for loan losses		44,585			—			44,585
Non-Interest Income:
Third party⁽¹⁾		99,596			1,973			101,569
Gain on sale of mortgage banking operations		—			7,359			7,359
Inter-segment		(2,411	)		2,411			—

Total non-interest income		97,185			11,743			108,928

Non-interest expense⁽²⁾		146,869			15,365			162,234

Income (loss) before income tax expense		178,996			(544	)		178,452
Income tax expense (benefit)		68,200			(216	)		67,984

Net income (loss)	$	110,796		$	(328	)	$	110,468

Identifiable segment assets (period-end)	$	48,457,891		$	—		$	48,457,891

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.


	For the Three Months Ended September 30, 2016
(in thousands)	Banking Operations			Residential Mortgage Banking		Total Company
Net interest income	$	314,081		$	4,342	$	318,423
Recovery of loan losses		(55	)		—		(55	)
Non-Interest Income:
Third party ⁽¹⁾		27,131			13,464		40,595
Inter-segment		(4,863	)		4,863		—

Total non-interest income		22,268			18,327		40,595

Non-interest expense ⁽²⁾		144,504			17,181		161,685

Income before income tax expense		191,900			5,488		197,388
Income tax expense		69,905			2,184		72,089

Net income	$	121,995		$	3,304	$	125,299

Identifiable segment assets (period-end)	$	48,478,288		$	984,332	$	49,462,620

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.

The following tables provide a summary of the Company’s segment results for the periods indicated on an internally managed accounting basis:


	For the Nine Months Ended September 30, 2017
(in thousands)	Banking Operations			Residential Mortgage Banking		Total Company
Net interest income	$	850,486		$	8,543	$	859,029
Provision for loan losses		34,316			—		34,316
Non-Interest Income:
Third party⁽¹⁾		163,221			20,957		184,178
Gain on sale of mortgage banking operations		—			7,359		7,359
Inter-segment		(10,222	)		10,222		—

Total non-interest income		152,999			38,538		191,537

Non-interest expense⁽²⁾		445,910			47,032		492,942

Income before income tax expense		523,259			49		523,308
Income tax expense		193,608			20		193,628

Net income	$	329,651		$	29	$	329,680

Identifiable segment assets (period-end)	$	48,457,891		$	—	$	48,457,891

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.


	For the Nine Months Ended September 30, 2016
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Net interest income	$	960,661		$	11,201		$	971,862
Provision for loan losses		664			—			664
Non-Interest Income:
Third party ⁽¹⁾		87,616			25,582			113,198
Inter-segment		(13,292	)		13,292			—

Total non-interest income		74,324			38,874			113,198

Non-interest expense ⁽²⁾		430,706			50,338			481,044

Income (loss) before income tax expense		603,615			(263	)		603,352
Income tax expense (benefit)		221,817			(133	)		221,684

Net income (loss)	$	381,798		$	(130	)	$	381,668

Identifiable segment assets (period-end)	$	48,478,288		$	984,332		$	49,462,620

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.