Segment Reporting

9 Months Ended

Sep. 30, 2013

Segment Reporting

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’s overall objective is to maximize shareholder value by, among other means, optimizing return on equity and managing risk. Capital is assigned to each segment, the total 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 segment. Capital allocations are made to cover the following risk categories: credit risk, liquidity risk, interest rate risk, option risk, basis risk, market risk, and operational risk.

The Company allocates expenses to the reportable segments based on various factors, including the volume and amount 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 individual and business customers 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, sells, aggregates, and services one-to-four family mortgage loans. Mortgage loan products include conventional and jumbo fixed- and adjustable-rate loans for the purpose of purchasing or refinancing one-to-four family residential properties. 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 from the sale of such loans.

The following table provides a summary of the Company’s segment results for the three months ended September 30, 2013, on an internally managed accounting basis:

	For the Three Months Ended September 30, 2013
(in thousands)	Banking     Operations			Residential Mortgage Banking			Total     Company
Net interest income		$	289,198		$	5,033		$	294,231
Provisions for loan losses			14,467			--			14,467
Non-Interest Income:
Third party(1)			33,699			17,025			50,724
Inter-segment			(4,578)			4,578			--
Total non-interest income			29,121			21,603			50,724
Non-interest expense(2)			132,391			17,936			150,327
Income before income tax expense			171,461			8,700			180,161
Income tax expense			62,674			3,287			65,961
Net income		$	108,787		$	5,413		$	114,200
Identifiable segment assets (period-end)		$	45,073,642		$	690,491		$	45,764,133

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the nine months ended September 30, 2013, on an internally managed accounting basis:

	For the Nine Months Ended September 30, 2013
(in thousands)	Banking     Operations			Residential Mortgage Banking			Total     Company
Net interest income		$	850,939		$	18,352		$	869,291
Provisions for loan losses			33,587			--			33,587
Non-interest income:
Third party(1)			112,256			67,764			180,020
Inter-segment			(12,795)			12,795			--
Total non-interest income			99,461			80,559			180,020
Non-interest expense(2)			398,519			59,569			458,088
Income before income tax expense			518,294			39,342			557,636
Income tax expense			187,341			14,903			202,244
Net income		$	330,953		$	24,439		$	355,392
Identifiable segment assets (period-end)		$	45,073,642		$	690,491		$	45,764,133

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the three months ended September 30, 2012, on an internally managed accounting basis:

	For the Three Months Ended September 30, 2012
(in thousands)	Banking     Operations			Residential Mortgage Banking			Total     Company
Net interest income		$	276,255		$	8,695		$	284,950
Provisions for loan losses			12,820			--			12,820
Non-interest income:
Third party(1)			28,451			53,206			81,657
Inter-segment			(3,558)			3,558			--
Total non-interest income			24,893			56,764			81,657
Non-interest expense(2)			133,855			19,466			153,321
Income before income tax expense			154,473			45,993			200,466
Income tax expense			54,145			17,523			71,668
Net income		$	100,328		$	28,470		$	128,798
Identifiable segment assets (period-end)		$	42,600,483		$	1,493,312		$	44,093,795

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.

The following table provides a summary of the Company’s segment results for the nine months ended September 30, 2012, on an internally managed accounting basis:

	For the Nine Months Ended September 30, 2012
(in thousands)	Banking     Operations			Residential Mortgage Banking			Total     Company
Net interest income		$	846,709		$	23,311		$	870,020
Provisions for loan losses			61,268			--			61,268
Non-interest income:
Third party(1)			93,839			148,019			241,858
Inter-segment			(10,782)			10,782			--
Total non-interest income			83,057			158,801			241,858
Non-interest expense(2)			400,952			57,975			458,927
Income before income tax expense			467,546			124,137			591,683
Income tax expense			166,124			47,296			213,420
Net income		$	301,422		$	76,841		$	378,263
Identifiable segment assets (period-end)		$	42,600,483		$	1,493,312		$	44,093,795

(1) Includes ancillary fee income.

(2) Includes both direct and indirect expenses.