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-interestexpenses, 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 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 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 June 30, 2017
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Net interest income	$	284,944		$	2,825		$	287,769
Recovery of loan losses		(6,261	)		—			(6,261	)
Non-Interest Income:
Third party⁽¹⁾		41,756			8,681			50,437
Inter-segment		(4,052	)		4,052			—

Total non-interest income		37,704			12,733			50,437

Non-interest expense⁽²⁾		148,105			15,660			163,765

Income (loss) before income tax expense		180,804			(102	)		180,702
Income tax expense (benefit)		65,488			(41	)		65,447

Net income (loss)	$	115,316		$	(61	)	$	115,255

Identifiable segment assets (period-end)	$	47,770,885		$	576,773		$	48,347,658

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.


	For the Three Months Ended June 30, 2016
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Net interest income	$	321,663		$	3,910		$	325,573
Provision for loan losses		895			—			895
Non-interest income:
Third party ⁽¹⁾		29,899			7,467			37,366
Inter-segment		(4,317	)		4,317			—

Total non-interest income		25,582			11,784			37,366
Non-interest expense ⁽²⁾		144,152			16,759			160,911

Income (loss) before income tax expense		202,198			(1,065	)		201,133
Income tax expense (benefit)		75,097			(424	)		74,673

Net income (loss)	$	127,101		$	(641	)	$	126,460

Identifiable segment assets (period-end)	$	48,137,359		$	898,388		$	49,035,747

(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 Six Months Ended June 30, 2017
(in thousands)	Banking Operations			Residential Mortgage Banking		Total Company
Net interest income	$	577,221		$	5,465	$	582,686
Recovery of loan losses		(10,269	)		—		(10,269	)
Non-Interest Income:
Third party⁽¹⁾		63,625			18,984		82,609
Inter-segment		(7,811	)		7,811		—

Total non-interest income		55,814			26,795		82,609

Non-interest expense⁽²⁾		299,041			31,667		330,708

Income before income tax expense		344,263			593		344,856
Income tax expense		125,408			236		125,644

Net income	$	218,855		$	357	$	219,212

Identifiable segment assets (period-end)	$	47,770,885		$	576,773	$	48,347,658

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.


	For the Six Months Ended June 30, 2016
(in thousands)	Banking Operations			Residential Mortgage Banking			Total Company
Net interest income	$	646,580		$	6,859		$	653,439
Provision for loan losses		719			—			719
Non-Interest Income:
Third party⁽¹⁾		60,485			12,118			72,603
Inter-segment		(8,429	)		8,429			—

Total non-interest income		52,056			20,547			72,603

Non-interest expense⁽²⁾		286,202			33,157			319,359

Income before income tax expense		411,715			(5,751	)		405,964
Income tax expense (benefit)		151,912			(2,317	)		149,595

Net income (loss)	$	259,803		$	(3,434	)	$	256,369

Identifiable segment assets (period-end)	$	48,137,359		$	898,388		$	49,035,747

(1)	Includes ancillary fee income.

(2)	Includes both direct and indirect expenses.