| SEGMENT REPORTING AND REVENUE |
17. SEGMENT REPORTING AND REVENUE
Operating Segments
Historically, the Company has had only one reportable operating segment, the Bank. In the third quarter of 2022, however, the Company completed system conversions that allow its chief operating decision makers to evaluate the business, establish the overall business strategy, allocate resources, and assess business performance within two reportable operating segments—Wholesale Banking and Consumer Banking—while corporate support functions such as corporate treasury and others will be included in Corporate Other. Goodwill was evaluated for impairment prior to re-allocating to the new reportable operating segments based on relative fair value.
As of December 31, 2022, the Company’s operating segments include the following:
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Wholesale Banking: The Wholesale Banking segment provides loan and deposit services, as well as treasury management and capital market services to wholesale customers primarily throughout Virginia, Maryland, North Carolina, and South Carolina. These customers include commercial real estate and commercial and industrial customers. This segment also includes the Company’s public finance subsidiary and the equipment finance subsidiary, which has nationwide exposure.
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● |
Consumer Banking: The Consumer Banking segment provides loan and deposit services to consumers and small businesses throughout Virginia, Maryland, and North Carolina. Consumer Banking includes the home loan division and the wealth management division, which consists of private banking, trust, investment management, and advisory services.
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● |
Corporate Other: Corporate Other includes the Company’s Corporate Treasury functions, such as management of the investment securities portfolio, long-term debt, short-term liquidity and funding activities, balance sheet risk management, and other corporate support functions, as well as intercompany eliminations.
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The Company restated its segment information for the year ended December 31, 2021 under the new basis with two reportable operating segments; however, the Company determined that it is impracticable to restate segment information for the year ended December 31, 2020. Therefore, no such disclosures are presented for 2020, when the Company’s only reportable operating segment was the Bank.
Segment Reporting Methodology
The Company’s segment reporting is based on a “management approach” as described in Note 1 “Summary of Significant Accounting Policies.” Inter-segment transactions are recorded at cost and eliminated as part of the consolidation process. A management fee for operations and administrative support services is charged to all subsidiaries and eliminated in the consolidated totals.
The following is additional information on the methodologies used in preparing the operating segment results:
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Net interest income: Interest income from LHFI and interest expense from deposits are reflected within respective operating segments. The Company uses a funds transfer pricing methodology which utilizes the matched funding approach to allocate a cost of funds used or credit for funds provided to all operating segment loans and deposits.
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● |
Provision for credit losses: Provision for credit losses is assigned to operating segments based on the Company’s allowance methodology, driven by loan pool level information.
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● |
Noninterest income: Noninterest fees and other revenue associated with loans or customers are included within each operating segment.
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● |
Noninterest expense: Certain noninterest expenses incurred by corporate support functions are allocated based on assumptions regarding the extent to which each operating segment actually uses the services.
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● |
Goodwill: Goodwill is assigned to reportable operating segments based on the relative fair value of each segment.
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Segment Results
The following tables present the Company’s operating segment results for the years ended December 31, 2022 and 2021 (dollars in thousands):
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Wholesale Banking |
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Consumer Banking |
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Corporate Other |
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Total |
Year Ended December 31, 2022 |
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|
|
|
|
|
|
|
|
|
|
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Net interest income |
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$ |
296,040 |
|
$ |
228,550 |
|
$ |
59,671 |
|
$ |
584,261 |
Provision for credit losses |
|
|
11,517 |
|
|
7,472 |
|
|
39 |
|
|
19,028 |
Net interest income after provision for credit losses |
|
|
284,523 |
|
|
221,078 |
|
|
59,632 |
|
|
565,233 |
Noninterest income |
|
|
24,094 |
|
|
69,362 |
|
|
25,067 |
|
|
118,523 |
Noninterest expenses |
|
|
143,065 |
|
|
238,117 |
|
|
22,620 |
|
|
403,802 |
Income before income taxes |
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$ |
165,552 |
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$ |
52,323 |
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$ |
62,079 |
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$ |
279,954 |
Year Ended December 31, 2021 |
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|
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|
|
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Net interest income |
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$ |
297,950 |
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$ |
225,630 |
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$ |
27,680 |
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$ |
551,260 |
Provision for credit losses |
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(34,225) |
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(26,663) |
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— |
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(60,888) |
Net interest income after provision for credit losses |
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|
332,175 |
|
|
252,293 |
|
|
27,680 |
|
|
612,148 |
Noninterest income |
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|
14,002 |
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|
85,008 |
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|
26,796 |
|
|
125,806 |
Noninterest expenses |
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|
130,220 |
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|
237,590 |
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|
51,385 |
|
|
419,195 |
Income before income taxes |
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$ |
215,957 |
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$ |
99,711 |
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$ |
3,091 |
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$ |
318,759 |
The following table presents the Company’s operating segment results for key balance sheet metrics as of December 31, 2022 and 2021 (dollars in thousands):
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Wholesale Banking |
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Consumer Banking |
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Corporate Other |
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Total |
As of December 31, 2022 |
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LHFI, net of deferred fees and costs(1) |
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$ |
11,339,660 |
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$ |
3,126,615 |
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$ |
(17,133) |
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$ |
14,449,142 |
Goodwill |
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629,630 |
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295,581 |
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— |
|
|
925,211 |
Deposits |
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5,870,061 |
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9,983,266 |
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78,350 |
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15,931,677 |
As of December 31, 2021 |
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LHFI, net of deferred fees and costs(1) |
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$ |
10,242,918 |
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$ |
2,976,200 |
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$ |
(23,275) |
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$ |
13,195,843 |
Goodwill |
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629,630 |
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305,930 |
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— |
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|
935,560 |
Deposits |
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6,114,078 |
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10,366,792 |
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130,198 |
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16,611,068 |
(1) Corporate Other includes acquisition accounting fair value adjustments
Revenue
The majority of the Company’s noninterest income is being accounted for in accordance with ASC 606, Revenue from Contracts with Customers and comes from short term contracts associated with fees for services provided on deposit accounts and credit cards from the Consumer and Wholesale Banking segments, as well as fiduciary and asset management fees from the Consumer Banking segment. Typically, the duration of a contract does not extend beyond the services performed; therefore, the Company concluded that discussion regarding contract balances is immaterial.
The Company’s performance obligations on revenue from deposit accounts and interchange fees from the Consumer and Wholesale Banking segments are generally satisfied immediately, when the transaction occurs, or by month-end. Performance obligations on revenue from fiduciary and asset management fees from the Consumer Banking segment are generally satisfied monthly or quarterly. For a majority of fee income on deposit accounts, the Company is a principal controlling the promised good or service before transferring it to the customer. For income related to most wealth management income, however, the Company is an agent responsible for arranging for the provision of goods and services by another party.
Mortgage banking income is earned from the Consumer Banking segment when the originated loans are sold to an investor on the secondary market. The loans are classified as LHFS before being sold. Additionally, the changes in fair value of the LHFS, loan commitments, and related derivatives are included in mortgage banking income.
Noninterest income disaggregated by major source for the years ended December 31, 2022, 2021, and 2020 consisted of the following (dollars in thousands):
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2022 |
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2021 |
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2020 |
Noninterest income: |
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Deposit Service Charges (1): |
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Overdraft fees |
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$ |
18,749 |
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$ |
17,126 |
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$ |
17,792 |
Maintenance fees & other |
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11,303 |
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9,996 |
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7,459 |
Other service charges, commissions, and fees (1) |
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6,765 |
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6,595 |
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6,292 |
Interchange fees (1) |
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9,110 |
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8,279 |
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7,184 |
Fiduciary and asset management fees (1): |
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Trust asset management fees |
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12,720 |
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12,571 |
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10,804 |
Registered advisor management fees |
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5,088 |
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9,856 |
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8,657 |
Brokerage management fees |
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4,606 |
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5,135 |
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|
4,189 |
Mortgage banking income |
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7,085 |
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21,022 |
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|
25,857 |
Bank owned life insurance income |
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11,507 |
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11,488 |
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|
9,554 |
Loan-related interest rate swap fees |
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12,174 |
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|
5,620 |
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|
15,306 |
Other operating income (2)(3)(4) |
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19,416 |
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|
18,118 |
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|
18,392 |
Total noninterest income |
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$ |
118,523 |
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$ |
125,806 |
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$ |
131,486 |
| (1) |
Income within scope of ASC 606, Revenue from Contracts with Customers. |
| (2) |
For the year ended December 31, 2020, includes $12.3 million gains on securities transactions and a $1.8 million loss related to the termination of a cash flow hedge.
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| (3) |
For the year ended December 31, 2021, includes a $5.1 million gain on sale of Visa, Inc. Class B common stock.
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| (4) |
For the year ended December 31, 2022, includes a $9.1 million gain related to the sale of DHFB.
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The following tables present noninterest income disaggregated by reportable operating segment for the years ended December 31, 2022 and 2021 (dollars in thousands):
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Wholesale Banking |
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Consumer Banking |
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Corporate Other(1)(2) |
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Total |
Year Ended December 31, 2022 |
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Noninterest income: |
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Deposit service charges |
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$ |
6,781 |
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$ |
23,271 |
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$ |
— |
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$ |
30,052 |
Other service charges and fees |
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1,763 |
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|
5,002 |
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— |
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|
6,765 |
Fiduciary and asset management fees |
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— |
|
|
22,414 |
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|
— |
|
|
22,414 |
Mortgage banking income |
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— |
|
|
7,085 |
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— |
|
|
7,085 |
Other income |
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|
15,550 |
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|
11,590 |
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|
25,067 |
|
|
52,207 |
Total noninterest income |
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$ |
24,094 |
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$ |
69,362 |
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$ |
25,067 |
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$ |
118,523 |
Year Ended December 31, 2021 |
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|
|
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|
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Noninterest income: |
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|
|
|
|
|
|
|
|
|
|
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Deposit service charges |
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$ |
6,009 |
|
$ |
21,113 |
|
$ |
— |
|
$ |
27,122 |
Other service charges and fees |
|
|
1,689 |
|
|
4,906 |
|
|
— |
|
|
6,595 |
Fiduciary and asset management fees |
|
|
— |
|
|
27,562 |
|
|
— |
|
|
27,562 |
Mortgage banking income |
|
|
— |
|
|
21,022 |
|
|
— |
|
|
21,022 |
Other income |
|
|
6,304 |
|
|
10,405 |
|
|
26,796 |
|
|
43,505 |
Total noninterest income |
|
$ |
14,002 |
|
$ |
85,008 |
|
$ |
26,796 |
|
$ |
125,806 |
(1) |
Other income primarily consists of income from BOLI and equity investment income. |
(2) |
Other income includes a $9.1 million gain related to the sale of DHFB for the year ended December 31, 2022 and a $5.1 million gain on sale of Visa Inc. Class B common stock for the year ended December 31, 2021. |
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