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 has been 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. 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, 2012, 2011 and 2010
	Business Banking						Commercial Banking						Commercial Real Estate						Discretionary Portfolio
	2012		2011		2010		2012		2011		2010		2012		2011		2010		2012			2011		2010
Net interest income(a)	$	347,067	$	334,811	$	315,407	$	753,678	$	655,407	$	582,231	$	531,398	$	467,683	$	384,147	$	66,303		$	63,030	$	23,347
Noninterest income		103,283		95,429		95,443		253,808		249,150		217,368		133,120		99,409		85,200		(76,113	)		98,770		(34,383	)

		450,350		430,240		410,850		1,007,486		904,557		799,599		664,518		567,092		469,347		(9,810	)		161,800		(11,036	)
Provision for credit losses		22,245		45,689		74,443		15,781		29,823		47,675		4,238		58,474		45,781		44,305			59,309		55,810
Amortization of core deposit and other intangible assets		—		—		—		—		—		—		—		—		—		—			—		—
Depreciation and other amortization		122		140		276		567		553		552		11,004		9,054		7,339		2,065			2,859		3,733
Other noninterest expense		179,428		177,172		169,878		262,820		248,428		219,471		190,879		154,042		124,674		31,006			32,262		26,256

Income (loss) before taxes		248,555		207,239		166,253		728,318		625,753		531,901		458,397		345,522		291,553		(87,186	)		67,370		(96,835	)
Income tax expense (benefit)		101,484		84,532		67,687		296,894		256,311		217,734		149,321		105,709		88,466		(54,071	)		7,975		(58,269	)

Net income (loss)	$	147,071	$	122,707	$	98,566	$	431,424	$	369,442	$	314,167	$	309,076	$	239,813	$	203,087	$	(33,115	)	$	59,395	$	(38,566	)

Average total assets (in millions)	$	4,909	$	5,192	$	4,843	$	19,946	$	17,650	$	15,461	$	16,437	$	15,025	$	13,194	$	16,583		$	14,170	$	14,690

Capital expenditures (in millions)	$	—	$	—	$	1	$	—	$	—	$	3	$	—	$	—	$	1	$	—		$	—	$	—


							For the Years Ended December 31, 2012, 2011 and 2010
	Residential Mortgage Banking						Retail Banking						All Other									Total
	2012		2011		2010		2012		2011		2010		2012			2011			2010			2012		2011		2010
Net interest income(a)	$	78,058	$	63,951	$	71,599	$	902,906	$	851,332	$	839,828	$	(80,894	)	$	(46,458	)	$	50,967		$	2,598,516	$	2,389,756	$	2,267,526
Noninterest income		402,211		184,249		195,540		349,571		366,042		380,015		501,390			489,863			168,917			1,667,270		1,582,912		1,108,100

		480,269		248,200		267,139		1,252,477		1,217,374		1,219,843		420,496			443,405			219,884			4,265,786		3,972,668		3,375,626
Provision for credit losses		17,169		36,375		49,110		95,345		101,679		109,978		4,917			(61,349	)		(14,797	)		204,000		270,000		368,000
Amortization of core deposit and other intangible assets		—		—		—		—		—		—		60,631			61,617			58,103			60,631		61,617		58,103
Depreciation and other amortization		46,902		44,349		46,171		32,734		33,713		31,350		50,536			45,495			34,838			143,930		136,163		124,259
Other noninterest expense		195,604		151,945		160,131		751,916		744,905		698,540		693,046			771,534			333,525			2,304,699		2,280,288		1,732,475

Income (loss) before taxes		220,594		15,531		11,727		372,482		337,077		379,975		(388,634	)		(373,892	)		(191,785	)		1,552,526		1,224,600		1,092,789
Income tax expense (benefit)		85,671		2,403		587		151,616		137,161		154,680		(207,887	)		(228,970	)		(114,257	)		523,028		365,121		356,628

Net income (loss)	$	134,923	$	13,128	$	11,140	$	220,866	$	199,916	$	225,295	$	(180,747	)	$	(144,922	)	$	(77,528	)	$	1,029,498	$	859,479	$	736,161

Average total assets (in millions)	$	2,451	$	1,958	$	2,217	$	11,705	$	11,940	$	12,079	$	7,952		$	8,042		$	5,896		$	79,983	$	73,977	$	68,380

Capital expenditures (in millions)	$	1	$	—	$	1	$	15	$	25	$	33	$	76		$	45		$	31		$	92	$	70	$	70

(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 $26,391,000 in 2012, $25,876,000 in 2011 and $24,023,000 in 2010 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. The Discretionary Portfolio segment includes securities, residential mortgage loans and other assets; short-term and long-term borrowed funds; brokered certificates of deposit and interest rate swap agreements related thereto; and Cayman Islands branch deposits. This segment also provides foreign exchange services to customers. The Residential Mortgage Banking segment originates and services residential mortgage 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. This segment also originated loans to developers of residential real estate properties. Residential mortgage 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, telephone banking and Internet banking. 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
	2012			2011			2010
	(In thousands)
Revenues	$	(71,452	)	$	(64,239	)	$	(41,508	)
Expenses		(17,313	)		(14,146	)		(15,527	)
Income taxes (benefit)		(22,029	)		(20,383	)		(10,572	)
Net income (loss)		(32,110	)		(29,710	)		(15,409	)

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.