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. 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. The net effects of these allocations are recorded in the “All Other” category. 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. During 2017, the Company revised its funds transfer pricing allocation related to certain deposit categories. Accordingly, financial information presented herein for 2016 and 2015 has been reclassified to provide segment information on a comparable basis, as noted in the following tables.

	For the Year Ended December 31, 2016
	Net Interest Income as Previously Reported		Impact of Changes			Net Interest Income as Reclassified		Net Income (Loss) as Previously Reported			Impact of Changes			Net Income (Loss) as Reclassified
	(In thousands)

Business Banking	$	354,333		17,556			371,889	$	93,346			10,412			103,758
Commercial Banking		785,874		(535	)		785,339		411,696			(317	)		411,379
Commercial Real Estate		608,385		—			608,385		350,358			—			350,358
Discretionary Portfolio		345,926		—			345,926		163,538			—			163,538
Residential Mortgage Banking		70,655		(40,846	)		29,809		79,678			(24,225	)		55,453
Retail Banking		1,074,125		33,263			1,107,388		274,646			19,727			294,373
All Other		230,589		(9,438	)		221,151		(58,148	)		(5,597	)		(63,745	)
Total	$	3,469,887		—			3,469,887	$	1,315,114			—			1,315,114

	For the Year Ended December 31, 2015
	Net Interest Income as Previously Reported		Impact of Changes			Net Interest Income as Reclassified		Net Income (Loss) as Previously Reported			Impact of Changes			Net Income (Loss) as Reclassified
	(In thousands)

Business Banking	$	338,855		18,523			357,378	$	98,758			10,986			109,744
Commercial Banking		753,604		(242	)		753,362		431,030			(144	)		430,886
Commercial Real Estate		577,922		—			577,922		340,641			—			340,641
Discretionary Portfolio		97,626		—			97,626		59,272			—			59,272
Residential Mortgage Banking		63,939		(23,970	)		39,969		88,578			(14,216	)		74,362
Retail Banking		917,041		34,699			951,740		267,518			20,579			288,097
All Other		93,600		(29,010	)		64,590		(206,130	)		(17,205	)		(223,335	)
Total	$	2,842,587		—			2,842,587	$	1,079,667			—			1,079,667

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, 2017, 2016 and 2015
	Business Banking								Commercial Banking						Commercial Real Estate									Discretionary Portfolio
	2017		2016			2015			2017		2016		2015		2017			2016			2015			2017		2016		2015
Net interest income(a)	$	393,948	$	371,889		$	357,378		$	809,301	$	785,339	$	753,362	$	649,378		$	608,385		$	577,922		$	277,095	$	345,926	$	97,626
Noninterest income		112,512		108,783			108,195			283,447		274,923		290,142		169,966			179,706			142,948			23,851		26,075		28,114
		506,460		480,672			465,573			1,092,748		1,060,262		1,043,504		819,344			788,091			720,870			300,946		372,001		125,740
Provision for credit losses		15,598		12,709			15,513			11,876		34,903		25,089		(7,524	)		(3,447	)		(8,003	)		31,119		32,925		7,599
Amortization of core deposit and other intangible assets		—		—			—			—		—		—		1,060			—			—			—		—		—
Depreciation and other amortization		393		404			407			509		520		566		24,410			20,120			19,247			279		472		679
Other noninterest expense		294,493		292,124			264,163			339,936		327,616		288,303		207,493			204,965			169,688			76,021		95,300		49,839
Income (loss) before taxes		195,976		175,435			185,490			740,427		697,223		729,546		593,905			566,453			539,938			193,527		243,304		67,623
Income tax expense (benefit)		80,043		71,677			75,746			303,556		285,844		298,660		229,770			216,095			199,297			58,559		79,766		8,351
Net income (loss)	$	115,933	$	103,758		$	109,744		$	436,871	$	411,379	$	430,886	$	364,135		$	350,358		$	340,641		$	134,968	$	163,538	$	59,272
Average total assets (in millions)	$	5,602	$	5,456		$	5,339		$	26,573	$	25,592	$	24,143	$	22,741		$	21,131		$	18,827		$	37,203	$	40,867	$	26,648
Capital expenditures (in millions)	$	—	$	—		$	—		$	—	$	—	$	—	$	1		$	—		$	—		$	—	$	—	$	—

	For the Years Ended December 31, 2017, 2016 and 2015
	Residential Mortgage Banking								Retail Banking						All Other									Total
	2017		2016			2015			2017		2016		2015		2017			2016			2015			2017		2016		2015
Net interest income(a)	$	30,328	$	29,809		$	39,969		$	1,210,066	$	1,107,388	$	951,740	$	410,928		$	221,151		$	64,590		$	3,781,044	$	3,469,887	$	2,842,587
Noninterest income		321,589		342,858			336,099			329,833		323,176		324,953		609,945			570,475			594,586			1,851,143		1,825,996		1,825,037
		351,917		372,667			376,068			1,539,899		1,430,564		1,276,693		1,020,873			791,626			659,176			5,632,187		5,295,883		4,667,624
Provision for credit losses		1,254		(3,617	)		(5,225	)		107,412		120,437		72,953		8,265			(3,910	)		62,074			168,000		190,000		170,000
Amortization of core deposit and other intangible assets		—		—			—			—		—		—		30,306			42,613			26,424			31,366		42,613		26,424
Depreciation and other amortization		32,011		30,264			27,883			38,234		37,657		35,291		69,923			68,541			64,852			165,759		157,978		148,925
Other noninterest expense		247,639		258,141			233,651			758,153		776,123		682,594		1,019,465			892,625			959,345			2,943,200		2,846,894		2,647,583
Income (loss) before taxes		71,013		87,879			119,759			636,100		496,347		485,855		(107,086	)		(208,243	)		(453,519	)		2,323,862		2,058,398		1,674,692
Income tax expense (benefit)		25,446		32,426			45,397			258,934		201,974		197,758		(40,752	)		(144,498	)		(230,184	)		915,556		743,284		595,025
Net income (loss)	$	45,567	$	55,453		$	74,362		$	377,166	$	294,373	$	288,097	$	(66,334	)	$	(63,745	)	$	(223,335	)	$	1,408,306	$	1,315,114	$	1,079,667
Average total assets (in millions)	$	2,355	$	2,569		$	2,918		$	12,702	$	11,840	$	11,035	$	13,684		$	16,885		$	12,870		$	120,860	$	124,340	$	101,780
Capital expenditures (in millions)	$	—	$	—		$	—		$	34	$	46	$	14	$	44		$	62		$	68		$	79	$	108	$	82

(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 $34,570,000 in 2017, $26,962,000 in 2016 and $24,463,000 in 2015 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. Commercial real estate loans held for sale are included in the Commercial Real Estate Segment. 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 are included in this segment. The Residential Mortgage Banking segment originates and services residential real estate loans for consumers and sells substantially all originated 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, and telephone, mobile 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
	2017			2016			2015
	(In thousands)

Revenues	$	(43,941	)	$	(48,625	)	$	(48,972	)
Expenses		(32,623	)		(40,422	)		(13,332	)
Income taxes (benefit)		(4,606	)		(3,338	)		(14,503	)
Net income (loss)		(6,712	)		(4,865	)		(21,137	)

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.