| SEGMENT REPORTING AND REVENUE |
12. SEGMENT REPORTING AND REVENUE
Operating Segments
Effective January 1, 2023, the Company made an organizational change to move certain lines of business in the wealth management division that primarily serve Wholesale Banking customers from the Consumer Banking segment to the Wholesale Banking segment. As a result, the Company reallocated $9.6 million of goodwill from the Consumer Banking segment to the Wholesale Banking segment and restated its prior segment information for the year ended December 31, 2022, based on this organizational change. Goodwill was evaluated for impairment prior to and immediately following the organizational change. Refer to Note 4 “Goodwill and Intangible Assets” within this Item 1 “Financial Statements” of this Quarterly Report for additional information. In addition, effective January 1, 2023, the Company restated its prior segment operating results for the three and nine months ended September 30, 2022, resulting in a reallocation of noninterest income ($3.0 million and $9.5 million, respectively) and noninterest expense ($4.0 million and $12.1 million, respectively) from the Consumer Banking segment to the Wholesale Banking segment.
As of September 30, 2023, the Company’s operating segments include the following:
|
● |
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 equipment finance subsidiary, which has nationwide exposure. The private banking and trust businesses also reside in the Wholesale Banking segment.
|
|
● |
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 investment management and advisory services businesses.
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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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Segment Reporting Methodology
The Company’s segment reporting is based on a “management approach” as described in Note 1 “Summary of Significant Accounting Policies” of the Company’s 2022 Form 10-K. 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. For additional information on the methodologies used in preparing the operating segment results, refer to Note 17 “Segment Reporting and Revenue” in the Company’s 2022 Form 10-K.
Segment Results
The following tables present the Company’s operating segment results for the three months and nine months ended September 30, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Banking |
|
Consumer Banking |
|
Corporate Other (1) |
|
Total |
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
68,049 |
|
$ |
63,912 |
|
$ |
19,980 |
|
$ |
151,941 |
Provision for credit losses |
|
|
9,310 |
|
|
(4,319) |
|
|
— |
|
|
4,991 |
Net interest income after provision for credit losses |
|
|
58,739 |
|
|
68,231 |
|
|
19,980 |
|
|
146,950 |
Noninterest income |
|
|
9,468 |
|
|
13,722 |
|
|
3,904 |
|
|
27,094 |
Noninterest expenses |
|
|
40,039 |
|
|
54,994 |
|
|
13,475 |
|
|
108,508 |
Income before income taxes |
|
$ |
28,168 |
|
$ |
26,959 |
|
$ |
10,409 |
|
$ |
65,536 |
Three Months Ended September 30, 2022 (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
77,625 |
|
$ |
58,749 |
|
$ |
14,341 |
|
$ |
150,715 |
Provision for credit losses |
|
|
8,470 |
|
|
(2,058) |
|
|
— |
|
|
6,412 |
Net interest income after provision for credit losses |
|
|
69,155 |
|
|
60,807 |
|
|
14,341 |
|
|
144,303 |
Noninterest income |
|
|
8,453 |
|
|
11,939 |
|
|
5,192 |
|
|
25,584 |
Noninterest expenses |
|
|
40,164 |
|
|
54,740 |
|
|
5,019 |
|
|
99,923 |
Income before income taxes |
|
$ |
37,444 |
|
$ |
18,006 |
|
$ |
14,514 |
|
$ |
69,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Banking |
|
Consumer Banking |
|
Corporate Other (1) |
|
Total |
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
201,722 |
|
$ |
190,806 |
|
$ |
64,941 |
|
$ |
457,469 |
Provision for credit losses |
|
|
25,853 |
|
|
(2,947) |
|
|
5 |
|
|
22,911 |
Net interest income after provision for credit losses |
|
|
175,869 |
|
|
193,753 |
|
|
64,936 |
|
|
434,558 |
Noninterest income |
|
|
25,743 |
|
|
38,188 |
|
|
(3,013) |
|
|
60,918 |
Noninterest expenses |
|
|
123,207 |
|
|
168,971 |
|
|
30,264 |
|
|
322,442 |
Income before income taxes |
|
$ |
78,405 |
|
$ |
62,970 |
|
$ |
31,659 |
|
$ |
173,034 |
Nine Months Ended September 30, 2022 (2) |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
221,979 |
|
$ |
157,918 |
|
$ |
40,516 |
|
$ |
420,413 |
Provision for credit losses |
|
|
12,844 |
|
|
(100) |
|
|
27 |
|
|
12,771 |
Net interest income after provision for credit losses |
|
|
209,135 |
|
|
158,018 |
|
|
40,489 |
|
|
407,642 |
Noninterest income |
|
|
25,967 |
|
|
45,135 |
|
|
22,921 |
|
|
94,023 |
Noninterest expenses |
|
|
118,216 |
|
|
165,523 |
|
|
20,273 |
|
|
304,012 |
Income before income taxes |
|
$ |
116,886 |
|
$ |
37,630 |
|
$ |
43,137 |
|
$ |
197,653 |
(1) For the three and nine months ended September 30, 2023, noninterest expenses include $8.7 million ($8.7 million included within other expenses and ($67,000) included within salaries and benefits) and $12.6 million ($9.8 million included within other expenses and $2.8 million included within salaries and benefits), respectively, in expenses associated with strategic cost saving initiatives, principally composed of severance costs related to headcount reductions, costs related to modifying certain third-party vendor contracts, and charges for exiting certain leases.
(2) As discussed above, the segment operating results for the three and nine months ended September 30, 2022 include a reallocation from Consumer Banking to Wholesale Banking.
The following table presents the Company’s operating segment results for key balance sheet metrics as of September 30, 2023 and December 31, 2022 (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Banking |
|
Consumer Banking |
|
Corporate Other |
|
Total |
As of September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
LHFI, net of deferred fees and costs (1) |
|
$ |
12,343,799 |
|
$ |
2,953,367 |
|
$ |
(13,546) |
|
$ |
15,283,620 |
Goodwill |
|
|
639,180 |
|
|
286,031 |
|
|
— |
|
|
925,211 |
Deposits |
|
|
6,537,472 |
|
|
9,726,079 |
|
|
522,954 |
|
|
16,786,505 |
As of December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
LHFI, net of deferred fees and costs (1)(2) |
|
$ |
11,476,258 |
|
$ |
2,990,017 |
|
$ |
(17,133) |
|
$ |
14,449,142 |
Goodwill (3) |
|
|
639,180 |
|
|
286,031 |
|
|
— |
|
|
925,211 |
Deposits (4) |
|
|
6,128,729 |
|
|
9,724,598 |
|
|
78,350 |
|
|
15,931,677 |
(1) Corporate Other includes acquisition accounting fair value adjustments.
(2) Wholesale Banking includes a $136.6 million reallocation from Consumer Banking due to the January 1, 2023 organizational change discussed above.
(3) Wholesale Banking includes a $9.6 million reallocation from Consumer Banking due to the January 1, 2023 organizational change discussed above.
(4) Wholesale Banking includes a $258.7 million reallocation from Consumer Banking due to the January 1, 2023 organizational change discussed above.
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 and Wholesale Banking segments. Refer to Note 17 “Segment Reporting and Revenue” in the Company’s 2022 Form 10-K for additional information on the Company’s contract balances, performance obligations, and mortgage banking income.
Noninterest income disaggregated by major source for the three and nine months ended September 30, 2023 and 2022, consisted of the following (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
September 30, |
|
September 30, |
|
September 30, |
|
September 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposit Service Charges (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Overdraft fees |
|
$ |
5,210 |
|
$ |
3,831 |
|
$ |
14,873 |
|
$ |
14,130 |
Maintenance fees & other |
|
|
3,347 |
|
|
2,953 |
|
|
9,704 |
|
|
8,291 |
Other service charges, commissions, and fees (1) |
|
|
2,632 |
|
|
1,770 |
|
|
6,071 |
|
|
5,134 |
Interchange fees(1) |
|
|
2,314 |
|
|
2,461 |
|
|
7,098 |
|
|
6,539 |
Fiduciary and asset management fees (1): |
|
|
|
|
|
|
|
|
|
|
|
|
Trust asset management fees |
|
|
3,120 |
|
|
3,035 |
|
|
9,329 |
|
|
9,726 |
Registered advisor management fees |
|
|
— |
|
|
— |
|
|
— |
|
|
5,088 |
Brokerage management fees |
|
|
1,429 |
|
|
1,099 |
|
|
3,840 |
|
|
3,515 |
Mortgage banking income |
|
|
666 |
|
|
1,390 |
|
|
1,969 |
|
|
6,707 |
Loss on sale of securities |
|
|
(27,594) |
|
|
— |
|
|
(40,992) |
|
|
(2) |
Bank owned life insurance income |
|
|
2,973 |
|
|
3,445 |
|
|
8,671 |
|
|
8,858 |
Loan-related interest rate swap fees |
|
|
2,695 |
|
|
2,050 |
|
|
6,450 |
|
|
8,510 |
Other operating income (2) |
|
|
30,302 |
|
|
3,550 |
|
|
33,905 |
|
|
17,527 |
Total noninterest income |
|
$ |
27,094 |
|
$ |
25,584 |
|
$ |
60,918 |
|
$ |
94,023 |
(1) Income within scope of ASC 606, Revenue from Contracts with Customers.
(2) Includes a $27.7 million gain related to the sale-leaseback transaction for the three and nine months ended September 30, 2023, and a $9.1 million gain related to the sale of DHFB for the nine months ended September 30, 2022.
The following tables present noninterest income disaggregated by reportable operating segment for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Banking |
|
Consumer Banking |
|
Corporate Other (1)(2) |
|
Total |
Three Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit service charges |
|
|
$ |
2,184 |
|
$ |
6,373 |
|
$ |
— |
|
$ |
8,557 |
Other service charges and fees |
|
|
|
399 |
|
|
2,233 |
|
|
— |
|
|
2,632 |
Fiduciary and asset management fees |
|
|
|
3,050 |
|
|
1,499 |
|
|
— |
|
|
4,549 |
Mortgage banking income |
|
|
|
— |
|
|
666 |
|
|
— |
|
|
666 |
Other income |
|
|
|
3,835 |
|
|
2,951 |
|
|
3,904 |
|
|
10,690 |
Total noninterest income |
|
|
$ |
9,468 |
|
$ |
13,722 |
|
$ |
3,904 |
|
$ |
27,094 |
Three Months Ended September 30, 2022 (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit service charges |
|
|
$ |
1,783 |
|
$ |
5,001 |
|
$ |
— |
|
$ |
6,784 |
Other service charges and fees |
|
|
|
513 |
|
|
1,257 |
|
|
— |
|
|
1,770 |
Fiduciary and asset management fees |
|
|
|
2,960 |
|
|
1,174 |
|
|
— |
|
|
4,134 |
Mortgage banking income |
|
|
|
— |
|
|
1,390 |
|
|
— |
|
|
1,390 |
Other income |
|
|
|
3,197 |
|
|
3,117 |
|
|
5,192 |
|
|
11,506 |
Total noninterest income |
|
|
$ |
8,453 |
|
$ |
11,939 |
|
$ |
5,192 |
|
$ |
25,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale Banking |
|
Consumer Banking |
|
Corporate Other (1)(2) |
|
Total |
Nine Months Ended September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit service charges |
|
|
$ |
6,268 |
|
$ |
18,309 |
|
$ |
— |
|
$ |
24,577 |
Other service charges and fees |
|
|
|
1,140 |
|
|
4,931 |
|
|
— |
|
|
6,071 |
Fiduciary and asset management fees |
|
|
|
9,118 |
|
|
4,051 |
|
|
— |
|
|
13,169 |
Mortgage banking income |
|
|
|
— |
|
|
1,969 |
|
|
— |
|
|
1,969 |
Other income |
|
|
|
9,217 |
|
|
8,928 |
|
|
(3,013) |
|
|
15,132 |
Total noninterest income |
|
|
$ |
25,743 |
|
$ |
38,188 |
|
$ |
(3,013) |
|
$ |
60,918 |
Nine Months Ended September 30, 2022 (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit service charges |
|
|
$ |
4,990 |
|
$ |
17,431 |
|
$ |
— |
|
$ |
22,421 |
Other service charges and fees |
|
|
|
1,342 |
|
|
3,792 |
|
|
— |
|
|
5,134 |
Fiduciary and asset management fees |
|
|
|
9,501 |
|
|
8,828 |
|
|
— |
|
|
18,329 |
Mortgage banking income |
|
|
|
— |
|
|
6,707 |
|
|
— |
|
|
6,707 |
Other income |
|
|
|
10,134 |
|
|
8,377 |
|
|
22,921 |
|
|
41,432 |
Total noninterest income |
|
|
$ |
25,967 |
|
$ |
45,135 |
|
$ |
22,921 |
|
$ |
94,023 |
(1) For the three and nine months ended September 30, 2022, other income primarily includes a $9.1 million gain related to the sale of DHFB and income from BOLI.
(2) For the three and nine months ended September 30, 2023, other income primarily includes a $27.7 million gain related to the sale-leaseback transaction, losses incurred on the sale of AFS securities ($27.6 million and $41.0 million, respectively), and income from BOLI.
(3) As discussed above, noninterest income for the three and nine months ended September 30, 2022 includes a reallocation from Consumer Banking to Wholesale Banking.
|