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Note 13 - Business Segments
 3 Months Ended
Mar. 31, 2025
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

NOTE 13 – 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 operations, 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 a 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 March 31, 2025, 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 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 MSRs 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 three months ended March 31, 2025 and 2024:

 

   

At or For the Three Months Ended March 31, 2025

  

Income:

  

Commercial and Consumer Banking

    

Home Lending

    

Total

  

Interest income - loans receivable, including fees

   $ 34,928     $ 8,375     $ 43,303  

Interest income - other interest earnings assets

     3,485       —       3,485  

Total interest income by segment

     38,413       8,375       46,788  
                         

Gain on sale of loans

     —       1,700       1,700  

Other income

     2,572       854       3,426  

Intersegment income

     (327 )     327       —  

Total noninterest income by segment

     2,245       2,881       5,126  
                         

Total income by segment

     40,658       11,256       51,914  
                         

Expense:

                        

Interest expense - deposits

     13,056       2       13,058  

Interest expense - borrowings

     2,263       —       2,263  

Interest expense - subordinated note

     386       99       485  

Interest expense - intersegment

     (5,698 )     5,698       —  

Total interest expense by segment

     10,007       5,799       15,806  
                         

Provision for credit losses by segment

     1,321       271       1,592  
                         

Salaries and benefits

     7,670       2,273       9,943  

Overhead allocation

     5,377       1,824       7,201  

Other segment items (1)

     7,128       783       7,911  

Total noninterest expense by segment

     20,175       4,880       25,055  
                         

Income before provision for income taxes by segment

     9,155       306       9,461  

Provision for income taxes by segment

     (1,376 )     (64 )     (1,440 )

Net income by segment

   $ 7,779     $ 242     $ 8,021  
                         

Other segment disclosures:

                        

Segment assets

   $ 2,424,808     $ 641,270     $ 3,066,078  

FTEs

     454       113       567  

 

   

At or For the Three Months Ended March 31, 2024

  

Income:

  

Commercial and Consumer Banking

    

Home Lending

    

Total

  

Interest income - loans receivable, including fees

   $ 34,090     $ 6,907     $ 40,997  

Interest income - other interest earnings assets

     3,883       —       3,883  

Total interest income by segment

     37,973       6,907       44,880  
                         

Gain on sale of loans

     —       1,838       1,838  

Gain on sale of MSRs

     7,873       342       8,215  

Loss on sale of investment securities

     (7,998 )     —       (7,998 )

Other income

     2,215       841       3,056  

Intersegment income

     303       (303 )     —  

Total noninterest income by segment

     2,393       2,718       5,111  
                         

Total income by segment

     40,366       9,625       49,991  
                         

Expense:

                        

Interest expense - deposits

     12,880       2       12,882  

Interest expense - borrowings

     1,167       —       1,167  

Interest expense - subordinated note

     394       91       485  

Interest expense - intersegment

     (4,554 )     4,554       —  

Total interest expense by segment

     9,887       4,647       14,534  
                         

Provision for credit losses by segment

     1,251       148       1,399  
                         

Salaries and benefits

     7,581       2,011       9,592  

Overhead allocation

     5,041       1,525       6,566  

Other segment items (1)

     6,386       985       7,371  

Total noninterest expense by segment

     19,008       4,521       23,529  
                         

Income before provision for income taxes by segment

     10,220       309       10,529  

Provision for income taxes by segment

     (2,069 )     (63 )     (2,132 )

Net income by segment

   $ 8,151     $ 246     $ 8,397  
                         

Other segment disclosures:

                        

Segment assets

   $ 2,410,777     $ 618,400     $ 3,029,177  

FTEs

     439       131       570  

 

(1)

Other segment items include operations, occupancy, data processing, loan costs, professional and board fees, marketing and advertising, and (recovery) impairment of MSRs.