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Note 21 - Business Segments
 12 Months Ended
Dec. 31, 2023
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

NOTE 21 – BUSINESS SEGMENTS

 

The Company’s business segments are determined based on the products and services provided, as well as the nature of the related business activities, and they reflect the way financial information is currently evaluated by management. This process is dynamic and is based on management’s current view of the Company’s operations and is not necessarily comparable with similar information for other financial institutions. The Company defines its business segments by product type and customer segment which it has organized into two lines of business: commercial and consumer banking and home lending.

 

The Company uses various management accounting methodologies to assign certain income statement items to the responsible operating segment, including:

 

●

a funds transfer pricing (“FTP”) system, which allocates interest income credits and funding charges between the segments, assigning to each segment a funding credit for its liabilities, such as deposits, and a charge to fund its assets;

 

●

a cost per loan serviced allocation based on the number of loans being serviced on the balance sheet and the number of loans serviced for third parties;

 

●

an allocation based upon the approximate square footage utilized by the home lending segment in Company owned locations;

 

●

an allocation of charges for services rendered to the segments by centralized functions, such as corporate overhead, which are generally based on the number of full-time employees (“FTEs”) in each segment; and

 

●

an allocation of the Company’s consolidated income taxes which are based on the effective tax rate applied to the segment’s pretax income or loss.

 

A description of the Company’s business segments and the products and services that they provide is as follows:

 

Commercial and Consumer Banking Segment

 

The commercial and consumer banking segment provides diversified financial products and services to our commercial and consumer customers through Bank branches, online banking platforms, mobile banking apps, and telephone banking. These products and services include deposit products; residential, consumer, business and commercial real estate lending portfolios and cash management services. The Company originates consumer loans, commercial and multi-family real estate loans, construction loans for residential and multi-family construction, and commercial business loans. At December 31, 2023, the Company’s retail deposit branch network consisted of 27 branches in the Pacific Northwest. This segment is also responsible for the management of the investment portfolio and other assets of the Bank.

 

Home Lending Segment

 

The home lending segment originates one-to-four-family residential mortgage loans primarily for sale in the secondary markets as well as loans held for investment. A majority of these mortgage loans are sold to or securitized by FNMA, FHLMC, GNMA or the FHLB of Des Moines, while the Company generally retains the right to service these loans. Loans originated under the guidelines of the Federal Housing Administration or (“FHA”), US Department of Veterans Affairs or VA, and United States Department of Agriculture or USDA are generally sold servicing released or servicing retained to a correspondent bank or mortgage company. The Company has the option to sell loans on a servicing-released or servicing-retained basis to securitizers and correspondent lenders. A small percentage of its loans are brokered to other lenders. On occasion, the Company may sell a portion of its MSR portfolio and may sell small pools of loans initially originated to be held in the loan portfolio. The Company manages the loan funding and the interest rate risk associated with the secondary market loan sales and the retained one-to-four-family MSRs within this business segment. One-to-four-family loans originated for investment and held in this segment are allocated to the home lending segment with a corresponding provision expense and FTP for cost of funds.

 

Segment Financial Results

 

The tables below summarize the financial results for each segment based on the factors mentioned above within each segment at or for the years indicated:

 

   

At or For the Year Ended December 31, 2023

  
   

Commercial

                  
   

and Consumer

                  

Condensed income statement:

  

Banking

    

Home Lending

    

Total

  

Net interest income (1)

   $ 111,737     $ 11,566     $ 123,303  

Provision for credit losses

     (3,494 )     (1,280 )     (4,774 )

Noninterest income (2)

     10,368       10,122       20,490  

Noninterest expense (3)

     (73,767 )     (19,980 )     (93,747 )

Income before provision for income taxes

     44,844       428       45,272  

Provision for income taxes

     (9,132 )     (87 )     (9,219 )

Net income

   $ 35,712     $ 341     $ 36,053  

Total average assets for period ended

   $ 2,315,806     $ 527,442     $ 2,843,248  

FTEs

     447       123       570  

 

   

At or For the For the Year Ended December 31, 2022

  
   

Commercial

                  
   

and Consumer

                  

Condensed income statement:

  

Banking

    

Home Lending

    

Total

  

Net interest income (1)

   $ 93,358     $ 10,922     $ 104,280  

Provision for credit losses

     (5,064 )     (1,153 )     (6,217 )

Noninterest income (2)

     10,158       7,950       18,108  

Noninterest expense (3)

     (59,723 )     (19,460 )     (79,183 )

Income (loss) before (provision) benefit for income taxes

     38,729       (1,741 )     36,988  

(Provision) benefit for income taxes

     (7,684 )     345       (7,339 )

Net income (loss)

   $ 31,045     $ (1,396 )   $ 29,649  

Total average assets for period ended

   $ 2,018,263     $ 417,431     $ 2,435,694  

FTEs

     405       132       537  

 

   

At or For the Year Ended December 31, 2021

  
   

Commercial

                  
   

and Consumer

                  

Condensed income statement:

  

Banking

    

Home Lending

    

Total

  

Net interest income (1)

   $ 78,306     $ 8,343     $ 86,649  

(Provision for) recovery of loan losses

     (2,613 )     2,113       (500 )

Noninterest income (2)

     8,545       28,968       37,513  

Noninterest expense(3)

     (56,557 )     (19,685 )     (76,242 )

Income before provision for income taxes

     27,681       19,739       47,420  

Provision for income taxes

     (5,842 )     (4,166 )     (10,008 )

Net income

   $ 21,839     $ 15,573     $ 37,412  

Total average assets for period ended

   $ 1,779,850     $ 409,363     $ 2,189,213  

FTEs

     384       152       536  

__________________________

(1)

Net interest income is the difference between interest earned on assets and the cost of liabilities to fund those assets. Interest earned includes actual interest earned on segment assets and, if the segment has excess liabilities, interest credits for providing funding to the other segment. The cost of liabilities includes interest expense on segment liabilities and, if the segment does not have enough liabilities to fund its assets, a funding charge based on the cost of assigned liabilities to fund segment assets. All material revenues in each segment are from external customers.

 

(2)

Noninterest income includes activity from certain residential mortgage loans that were initially originated for sale and measured at fair value, and subsequently transferred to loans held for investment. Gains and losses from changes in fair value for these loans are reported in earnings as a component of noninterest income. For the years ended  December 31, 2023, 2022, and 2021, the Company recorded net increases in fair value of $447,000, net decreases of $1.7 million, and net decreases of $29,000, respectively.  As of  December 31, 2023, 2022, and 2021, there were $15.1 million, $14.0 million, and $17.8 million, respectively, in residential mortgage loans recorded at fair value as they were previously transferred from loans held for sale to loans held for investment. All material revenues in each segment are from external customers.    

  

(3)

Noninterest expense includes allocated overhead expense from general corporate activities.  Allocation is determined based on a combination of segment assets and FTEs.  For the years ended  December 31, 2023, 2022, and 2021, the Home Lending segment included allocated overhead expenses of $6.1 million, $6.2 million, and $7.3 million, respectively.