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. Effective January 1, 2015, the Company made certain changes to its methodology for measuring segment profit and loss. Those changes in the measurement of segment profitability were largely the result of updated funds transfer pricing and various cost allocation reviews. The most significant changes to the funds transfer pricing resulted from ascribing a longer duration to non-maturity deposits, which significantly benefitted the Retail Banking segment. The cost allocation review having the largest impact related to a branch cost study. That study consisted of transaction reviews and time studies which resulted in a higher cost allocation from the Retail Banking segment to the Business Banking segment. As described in note 1, effective January 1, 2015, the Company made an accounting policy election to account for its investments in qualified affordable housing projects using the proportional amortization method. That election resulted in the restatement of prior period financial statements to remove losses associated with qualified affordable housing projects from “other noninterest expense” and include the amortization of the initial cost of the investment in income tax expense. In 2015, the Company changed its internal profitability reporting to move a builder and developer lending unit from the Residential Mortgage Banking segment to the Commercial Real Estate segment. Accordingly, financial information presented herein for 2014 and 2013 has been restated to reflect those changes to provide segment information on a comparable basis, as noted in the following tables.


	Year ended December 31, 2014
	Net income (loss) as previously reported			Impact of changes			Net income (loss) as restated
	(in thousands)
Business Banking	$	119,809		$	(20,539	)	$	99,270
Commercial Banking		411,139			(8,211	)		402,928
Commercial Real Estate		316,129			(169	)		315,960
Discretionary Portfolio		48,098			245			48,343
Residential Mortgage Banking		95,006			(10,464	)		84,542
Retail Banking		119,916			153,442			273,358
All Other		(43,851	)		(114,304	)		(158,155	)

Total	$	1,066,246		$	—		$	1,066,246


	Year ended December 31, 2013
	Net income (loss) as previously reported			Impact of changes			Net income (loss) as restated
	(in thousands)
Business Banking	$	111,040		$	(9,975	)	$	101,065
Commercial Banking		391,340			16,053			407,393
Commercial Real Estate		321,793			7,493			329,286
Discretionary Portfolio		29,968			2,268			32,236
Residential Mortgage Banking		99,392			(7,069	)		92,323
Retail Banking		182,401			138,549			320,950
All Other		2,546			(147,319	)		(144,773	)

Total	$	1,138,480		$	—		$	1,138,480

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, 2015, 2014 and 2013
	Business Banking						Commercial Banking						Commercial Real Estate								Discretionary Portfolio
	2015		2014		2013		2015		2014		2013		2015			2014			2013		2015		2014		2013
Net interest income(a)	$	338,855	$	345,773	$	365,786	$	753,604	$	746,344	$	785,987	$	577,922		$	555,358		$	590,009	$	86,083	$	74,204	$	69,020
Noninterest income		108,195		105,149		102,613		290,142		254,295		263,925		142,948			125,087			130,833		28,114		27,464		(3,824	)

		447,050		450,922		468,399		1,043,746		1,000,639		1,049,912		720,870			680,445			720,842		114,197		101,668		65,196
Provision for credit losses		15,513		18,883		26,550		25,089		33,213		76,791		(8,003	)		(7,339	)		6,613		7,599		16,547		17,129
Amortization of core deposit and other intangible assets		—		—		—		—		—		—		—			—			—		—		—		—
Depreciation and other amortization		407		405		198		566		588		564		19,247			16,300			14,314		679		891		1,330
Other noninterest expense		264,163		263,734		270,759		288,303		284,091		289,582		169,688			169,039			173,345		49,839		33,522		27,313

Income (loss) before taxes		166,967		167,900		170,892		729,788		682,747		682,975		539,938			502,445			526,570		56,080		50,708		19,424
Income tax expense (benefit)		68,209		68,630		69,827		298,758		279,819		275,582		199,297			186,485			197,284		3,654		2,365		(12,812	)

Net income (loss)	$	98,758	$	99,270	$	101,065	$	431,030	$	402,928	$	407,393	$	340,641		$	315,960		$	329,286	$	52,426	$	48,343	$	32,236

Average total assets (in millions)	$	5,339	$	5,278	$	5,107	$	24,143	$	22,860	$	21,710	$	18,827		$	17,405		$	17,305	$	26,648	$	20,798	$	16,630

Capital expenditures (in millions)	$	—	$	2	$	1	$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—	$	—


										For the Years Ended December 31, 2015, 2014 and 2013
	Residential Mortgage Banking									Retail Banking						All Other									Total
	2015			2014			2013			2015		2014		2013		2015			2014			2013			2015		2014		2013
Net interest income(a)	$	63,939		$	67,482		$	83,574		$	917,041	$	908,828	$	962,214	$	105,143		$	(21,543	)	$	(183,361	)	$	2,842,587	$	2,676,446	$	2,673,229
Noninterest income		336,099			331,366			325,454			324,953		336,042		373,628		594,586			599,870			672,576			1,825,037		1,779,273		1,865,205

		400,038			398,848			409,028			1,241,994		1,244,870		1,335,842		699,729			578,327			489,215			4,667,624		4,455,719		4,538,434
Provision for credit losses		(5,225	)		(1,508	)		(10,906	)		72,953		77,158		72,502		62,074			(12,954	)		(3,679	)		170,000		124,000		185,000
Amortization of core deposit and other intangible assets		—			—			—			—		—		—		26,424			33,824			46,912			26,424		33,824		46,912
Depreciation and other amortization		27,883			47,086			48,698			35,291		37,788		34,599		64,852			61,848			57,120			148,925		164,906		156,823
Other noninterest expense		233,651			216,556			221,984			682,594		668,919		687,275		959,345			854,883			713,873			2,647,583		2,490,744		2,384,131

Income (loss) before taxes		143,729			136,714			149,252			451,156		461,005		541,466		(412,966	)		(359,274	)		(325,011	)		1,674,692		1,642,245		1,765,568
Income tax expense (benefit)		55,151			52,172			56,929			183,638		187,647		220,516		(213,682	)		(201,119	)		(180,238	)		595,025		575,999		627,088

Net income (loss)	$	88,578		$	84,542		$	92,323		$	267,518	$	273,358	$	320,950	$	(199,284	)	$	(158,155	)	$	(144,773	)	$	1,079,667	$	1,066,246	$	1,138,480

Average total assets (in millions)	$	2,918		$	3,076		$	2,651		$	11,035	$	10,449	$	10,997	$	12,870		$	12,277		$	9,262		$	101,780	$	92,143	$	83,662

Capital expenditures (in millions)	$	—		$	—		$	—		$	14	$	14	$	40	$	68		$	57		$	89		$	82	$	73	$	130

(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 $24,463,000 in 2015, $23,642,000 in 2014 and $24,971,000 in 2013 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 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 have been 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, telephone banking 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
	2015			2014			2013
	(In thousands)
Revenues	$	(48,972	)	$	(49,800	)	$	(50,128	)
Expenses		(13,332	)		(12,014	)		(16,235	)
Income taxes (benefit)		(14,503	)		(15,375	)		(13,791	)
Net income (loss)		(21,137	)		(22,411	)		(20,102	)

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.