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Note 21 - Business Segments
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

NOTE 21 – BUSINESS SEGMENTS

 

The Company’s reportable segments are determined by the Chief Financial Officer (“CFO”), who is the designated chief operating decision maker or CODM, based upon information provided about the Company's products and services offered, primarily distinguished between commercial and consumer banking and home lending.  They are also distinguished by the level of information provided to the CFO, who uses such information to review performance of various components of business for each branch and home lending office, which are aggregated if operating performance, products/services, and customers are similar.  The CFO evaluates the financial performance of the Company's business components such as by evaluating revenue streams, significant expenses, and budget to actual results in assessing the performance of the Company's segments and in the determination of allocating resources.  The CFO uses revenue streams to evaluate product pricing and significant expenses to assess performance of each segment to evaluate compensation of certain employees.  Segment pretax profit or loss is used to assess the performance of the banking segment by monitoring the margin between interest revenue and interest expense.  Segment pretax profit or loss is used to assess the performance of the home lending segment by monitoring the premium received on loans sales.  Loans, investments, and deposits provide the revenues in the commercial and consumer banking operation, and servicing fees and loan sales provide the revenues in home lending.  Interest expense, provisions for credit losses, and payroll provide the significant expenses in commercial and consumer banking, and cost of loan sales and payroll provide the significant expenses in home lending.  All operations are domestic and the Company has no major customers providing greater than 10% of total segment revenue. The Company does not have any material intra-entity sales or transfers, aside from certain allocations of interest expense and loan servicing cost from the commercial and consumer banking segment to the home lending segment. 

 

 

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.

 

Segment assets are primarily allocated by loan origination channel. The home lending segment is limited to residential mortgage and home equity loans originated through the home lending platform. The home lending segment additionally includes related accrued interest receivable and the Company's MSR assets. The commercial and consumer banking segment includes the remainder of the loan portfolio, the assets of the retail branch network and administrative buildings, as well as the investment portfolio and other assets of the Bank.  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, 2024, 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 (“FHA”), US Department of Veterans Affairs (“VA”), and United States Department of Agriculture (“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

 

Accounting policies for segments are consistent with those described in “Note 1 – Basis of Presentation and Summary of Significant Accounting Policies.” Segment performance is evaluated using net income.  Indirect expenses are allocated based on segment assets and full-time equivalent employees (“FTEs”).  Transactions among segments are made at fair value.  Information reported internally for performance assessment by the CFO follows, inclusive of reconciliations of significant segment totals to the financial statements at or for the years indicated:

 

 

  

At or For the Year Ended December 31, 2024

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $139,996  $30,861  $170,857 

Interest income - other interest earnings assets

  13,980   —   13,980 

Total interest income by segment

  153,976   30,861   184,837 
             

Gain on sale of loans

  —   8,557   8,557 

Gain on sale of MSRs

  6,473   1,883   8,356 

Other income

  1,856   2,787   4,643 

Intersegment income

  898   (898)  — 

Total noninterest income by segment

  9,227   12,329   21,556 
             

Total income by segment

  163,203   43,190   206,393 
             

Expense:

            

Interest expense - deposits

  53,156   7   53,163 

Interest expense - borrowings

  6,627   —   6,627 

Interest expense - subordinated note

  1,555   387   1,942 

Interest expense - intersegment

  (20,666)  20,666   — 

Total interest expense by segment

  40,672   21,060   61,732 
             

Provision for credit losses by segment

  5,393   118   5,511 
             

Salaries and benefits

  26,609   8,470   35,079 

Overhead allocation

  22,464   6,559   29,023 

Other segment items (1)

  28,542   4,925   33,467 

Total noninterest expense by segment

  77,615   19,954   97,569 
             

Income before (provision) benefit for income taxes by segment

  39,523   2,058   41,581 

(Provision) benefit for income taxes by segment

  (6,733)  176   (6,557)

Net income by segment

 $32,790  $2,234  $35,024 
             

Other segment disclosures:

            

Segment assets

 $2,410,777  $618,400  $3,029,177 

FTEs

  447   115   562 

 

 

 

  

At or For the Year Ended December 31, 2023

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $127,947  $26,998  $154,945 

Interest income - other interest earnings assets

  12,247   —   12,247 

Total interest income by segment

  140,194   26,998   167,192 
             

Gain on sale of loans

  —   6,711   6,711 

Other income

  9,178   4,601   13,779 

Intersegment income

  1,190   (1,190)  — 

Total noninterest income by segment

  10,368   10,122   20,490 
             

Total income by segment

  150,562   37,120   187,682 
             

Expense:

            

Interest expense - deposits

  36,743   8   36,751 

Interest expense - borrowings

  5,196   —   5,196 

Interest expense - subordinated note

  1,581   361   1,942 

Interest expense - intersegment

  (15,063)  15,063   — 

Total interest expense by segment

  28,457   15,432   43,889 
             

Provision for credit losses by segment

  3,494   1,280   4,774 
             

Salaries and benefits

  25,623   9,749   35,372 

Overhead allocation

  21,266   6,109   27,375 

Other segment items (1)

  26,878   4,122   31,000 

Total noninterest expense by segment

  73,767   19,980   93,747 
             

Income before provision for income taxes by segment

  44,844   428   45,272 

Provision for income taxes by segment

  (9,132)  (87)  (9,219)

Net income by segment

 $35,712  $341  $36,053 
             

Other segment disclosures:

            

Segment assets

 $2,420,930  $551,739  $2,972,669 

FTEs

  447   123   570 

 

 

 

  

At or For the Year Ended December 31, 2022

 
  

Commercial

         
  

and Consumer

         

Income:

 

Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $92,799  $18,849  $111,648 

Interest income - other interest earnings assets

  7,046   —   7,046 

Total interest income by segment

  99,845   18,849   118,694 
             

Gain on sale of loans

  358   7,559   7,917 

Other income

  8,553   1,638   10,191 

Intersegment income

  1,247   (1,247)  — 

Total noninterest income by segment

  10,158   7,950   18,108 
             

Total income by segment

  110,003   26,799   136,802 
             

Expense:

            

Interest expense - deposits

  9,413   7   9,420 

Interest expense - borrowings

  3,052   —   3,052 

Interest expense - subordinated note

  1,609   333   1,942 

Interest expense - intersegment

  (7,587)  7,587   — 

Total interest expense by segment

  6,487   7,927   14,414 
             

Provision for credit losses by segment

  5,064   1,153   6,217 
             

Salaries and benefits

  25,798   9,588   35,386 

Corporate overhead allocation

  16,904   6,216   23,120 

Other segment items (1)

  17,021   3,656   20,677 

Total noninterest expense by segment

  59,723   19,460   79,183 
             

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

  38,729   (1,741)  36,988 

(Provision) benefit for income taxes by segment

  (7,684)  345   (7,339)

Net income (loss) by segment

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

Other segment disclosures:

            

Segment assets

 $2,150,956  $481,944  $2,632,900 

FTEs

  405   132   537 

________________________

(1)

Other segments items include operations, occupancy, data processing, gain (loss) on sale of OREO, loan costs, professional and board fees, marketing and advertising, and (recovery) impairment of MSRs.