Business Segments

6 Months Ended

Jun. 30, 2020

Business Segments

Business Segments

NOTE 10: Business Segments

The Corporation operates in a decentralized fashion in three principal business segments: community banking, mortgage banking and consumer finance. Revenues from community banking operations consist primarily of interest earned on loans and investment securities and fees earned on deposit accounts and debit card interchange activity. Previously, the community banking segment was referred to as the retail banking segment. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, mortgage banking fee income related to loan originations, and interest earned on mortgage loans held for sale. Revenues from consumer finance consist primarily of interest earned on purchased retail installment sales contracts.

C&F Wealth Management derives revenues from offering wealth management services and insurance products through third-party service providers.  The Corporation’s revenues and expenses are comprised primarily of interest expense associated with the Corporation’s trust preferred capital notes, general corporate expenses, and changes in the value of the rabbi trust and deferred compensation liability related to its nonqualified deferred compensation plan.  The results of C&F Wealth Management and the Corporation are not significant to the Corporation on a consolidated basis and are included in “Other.”

	Three Months Ended June 30, 2020
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Revenues:
Interest income	$	14,894	$	1,097	$	9,689	$	—	$	(2,096)	$	23,584
Gains on sales of loans		—		4,605		—		—		—		4,605
Other noninterest income		2,221		2,387		80		2,535		—		7,223
Total operating income		17,115		8,089		9,769		2,535		(2,096)		35,412
Expenses:
Provision for loan losses		1,400		—		2,200		—		—		3,600
Interest expense		2,718		280		2,090		338		(2,096)		3,330
Salaries and employee benefits		7,640		2,272		2,134		2,308		—		14,354
Depreciation and amortization		829		73		45		43		—		990
Other noninterest expenses		5,020		2,166		1,057		205		—		8,448
Total operating expenses		17,607		4,791		7,526		2,894		(2,096)		30,722
Income (loss) before income taxes		(492)		3,298		2,243		(359)		—		4,690
Income tax expense (benefit)		(560)		977		605		(75)		—		947
Net income (loss)	$	68	$	2,321	$	1,638	$	(284)	$	—	$	3,743
Total assets	$	1,860,367	$	192,987	$	301,372	$	21,834	$	(393,356)	$	1,983,204
Capital expenditures	$	1,568	$	32	$	305	$	—	$	—	$	1,905

	Three Months Ended June 30, 2019
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Revenues:
Interest income	$	15,419	$	669	$	10,365	$	2	$	(2,179)	$	24,276
Gains on sales of loans		—		2,955		—		—		—		2,955
Other noninterest income		2,893		1,335		110		909		—		5,247
Total operating income		18,312		4,959		10,475		911		(2,179)		32,478
Expenses:
Provision for loan losses		110		—		1,700		—		—		1,810
Interest expense		2,493		409		2,618		310		(2,179)		3,651
Salaries and employee benefits		6,873		1,611		2,069		942		—		11,495
Depreciation and amortization		758		59		50		(35)		—		832
Other noninterest expenses		4,382		1,276		1,361		203		—		7,222
Total operating expenses		14,616		3,355		7,798		1,420		(2,179)		25,010
Income (loss) before income taxes		3,696		1,604		2,677		(509)		—		7,468
Income tax expense (benefit)		625		422		728		(149)		—		1,626
Net income (loss)	$	3,071	$	1,182	$	1,949	$	(360)	$	—	$	5,842
Total assets	$	1,386,332	$	101,554	$	309,705	$	19,696	$	(249,291)	$	1,567,996
Capital expenditures	$	566	$	52	$	32	$	67	$	—	$	717

	Six Months Ended June 30, 2020
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Revenues:
Interest income	$	30,809	$	1,758	$	19,790	$	—	$	(3,995)	$	48,362
Gains on sales of loans		—		8,281		—		—		—		8,281
Other noninterest income		4,853		3,998		197		1,247		—		10,295
Total operating income		35,662		14,037		19,987		1,247		(3,995)		66,938
Expenses:
Provision for loan losses		2,400		—		3,850		—		—		6,250
Interest expense		5,862		585		4,376		677		(3,995)		7,505
Salaries and employee benefits		15,700		4,117		4,377		977		—		25,171
Depreciation and amortization		1,635		145		91		86		—		1,957
Other noninterest expenses		10,020		3,817		2,398		514		—		16,749
Total operating expenses		35,617		8,664		15,092		2,254		(3,995)		57,632
Income (loss) before income taxes		45		5,373		4,895		(1,007)		—		9,306
Income tax expense (benefit)		(593)		1,509		1,327		(319)		—		1,924
Net income (loss)	$	638	$	3,864	$	3,568	$	(688)	$	—	$	7,382
Total assets	$	1,860,367	$	192,987	$	301,372	$	21,834	$	(393,356)	$	1,983,204
Capital expenditures	$	2,320	$	326	$	807	$	—	$	—	$	3,453

	Six Months Ended June 30, 2019
	Community		Mortgage		Consumer
(Dollars in thousands)	Banking		Banking		Finance		Other		Eliminations		Consolidated
Revenues:
Interest income	$	29,743	$	1,019	$	20,510	$	4	$	(4,049)	$	47,227
Gains on sales of loans		—		5,091		—		—		—		5,091
Other noninterest income		5,331		2,173		239		2,471		—		10,214
Total operating income		35,074		8,283		20,749		2,475		(4,049)		62,532
Expenses:
Provision for loan losses		110		—		4,095		—		—		4,205
Interest expense		4,668		572		5,169		595		(4,049)		6,955
Salaries and employee benefits		13,851		2,758		4,254		2,539		—		23,402
Depreciation and amortization		1,593		121		102		10		—		1,826
Other noninterest expenses		8,450		2,458		2,684		406		—		13,998
Total operating expenses		28,672		5,909		16,304		3,550		(4,049)		50,386
Income (loss) before income taxes		6,402		2,374		4,445		(1,075)		—		12,146
Income tax expense (benefit)		1,041		625		1,211		(344)		—		2,533
Net income (loss)	$	5,361	$	1,749	$	3,234	$	(731)	$	—	$	9,613
Total assets	$	1,386,332	$	101,554	$	309,705	$	19,696	$	(249,291)	$	1,567,996
Capital expenditures	$	1,288	$	76	$	40	$	67	$	—	$	1,471

During the three months ended June 30, 2020, the Corporation recorded merger related expenses of $439,000 ($347,000 after income taxes), in connection with its acquisition of Peoples, all of which was allocated to the community banking segment and recorded as $50,000 of salaries and benefits expense and $389,000 of other noninterest expense.  During the six months ended June 30, 2020, the Corporation recorded merger related expenses of $1.40 million ($1.13 million after income taxes), in connection with its acquisition of Peoples, of which $1.30 million ($1.03 million after income taxes) was allocated to the community banking segment and recorded as $119,000 of salaries and benefits expense, $879,000 of other noninterest expense and a loss on disposal of equipment of $298,000 included in other noninterest income.  The remainder was recorded as other noninterest expense at the holding company.

The community banking segment extends two warehouse lines of credit to the mortgage banking segment, providing a portion of the funds needed to originate mortgage loans. The community banking segment charges the mortgage banking segment interest at the daily FHLB advance rate plus a spread ranging from 50 basis points to 175 basis points. The community banking segment also provides the consumer finance segment with a portion of the funds needed to purchase

loan contracts by means of variable rate notes that carry interest at one-month LIBOR plus 200 basis points, with a floor of 3.5 percent and fixed rate notes that carry interest at rates ranging from 2.0 percent to 8.0 percent. The community banking segment acquires certain residential real estate loans from the mortgage banking segment at prices similar to those paid by third-party investors. These transactions are eliminated to reach consolidated totals. Certain corporate overhead costs incurred by the community banking segment are not allocated to the mortgage banking, consumer finance and other segments.