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Note 13 - Business Segments
 6 Months Ended
Jun. 30, 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 June 30, 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. Noninterest expense includes allocated overhead expense from general corporate activities. Allocation is determined based on a combination of segment assets and FTEs.  For the three and six months ended June 30, 2025 and 2024, the Home Lending segment included allocated overhead expenses of $1.8 million and $3.7 million, compared to $1.5 million and $3.0 million, respectively. 

 

 

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 and six months ended June 30, 2025 and 2024:

 

  

At or For the Three Months Ended June 30, 2025

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $36,083  $8,955  $45,038 

Interest income - other interest earnings assets

  3,665   —   3,665 

Total interest income by segment

  39,748   8,955   48,703 
             

Gain on sale of loans

  —   1,972   1,972 

Other income

  2,623   575   3,198 

Intersegment income

  (325)  325   — 

Total noninterest income by segment

  2,298   2,872   5,170 
             

Total income by segment

  42,046   11,827   53,873 
             

Expense:

            

Interest expense - deposits

  14,518   2   14,520 

Interest expense - borrowings

  1,585   —   1,585 

Interest expense - subordinated note

  385   101   486 

Interest expense - intersegment

  (5,919)  5,919   — 

Total interest expense by segment

  10,569   6,022   16,591 
             

Provision for credit losses by segment

  1,849   172   2,021 
             

Salaries and benefits

  7,869   1,986   9,855 

Overhead allocation

  6,185   1,829   8,014 

Other segment items (1)

  6,260   1,373   7,633 

Total noninterest expense by segment

  20,314   5,188   25,502 
             

Income before provision for income taxes by segment

  9,314   445   9,759 

Provision for income taxes by segment

  1,938   93   2,031 

Net income by segment

 $7,376  $352  $7,728 
             

Other segment disclosures:

            

Segment assets

 $2,494,452  $681,561  $3,176,013 

FTEs

  452   115   567 

 

 

  

At or For the Three Months Ended June 30, 2024

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $34,757  $7,649  $42,406 

Interest income - other interest earnings assets

  3,534   —   3,534 

Total interest income by segment

  38,291   7,649   45,940 
             

Gain on sale of loans

  —   2,463   2,463 

Gain on sale of investments

  151   —   151 

Other income

  2,408   846   3,254 

Intersegment income

  (290)  290   — 

Total noninterest income by segment

  2,269   3,599   5,868 
             

Total income by segment

  40,560   11,248   51,808 
             

Expense:

            

Interest expense - deposits

  13,250   2   13,252 

Interest expense - borrowings

  1,801   —   1,801 

Interest expense - subordinated note

  389   97   486 

Interest expense - intersegment

  (5,200)  5,200   — 

Total interest expense by segment

  10,240   5,299   15,539 
             

Provision for credit losses by segment

  1,214   (137)  1,077 
             

Salaries and benefits

  7,512   2,077   9,589 

Overhead allocation

  5,197   1,510   6,707 

Other segment items (1)

  6,334   1,227   7,561 

Total noninterest expense by segment

  19,043   4,814   23,857 
             

Income before provision for income taxes by segment

  10,063   1,272   11,335 

Provision for income taxes by segment

  2,113   263   2,376 

Net income by segment

 $7,950  $1,009  $8,959 
             

Other segment disclosures:

            

Segment assets

 $2,335,935  $605,442  $2,941,377 

FTEs

  450   121   571 

 

 

 

  

At or For the Six Months Ended June 30, 2025

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $71,011  $17,329  $88,340 

Interest income - other interest earnings assets

  7,150   —   7,150 

Total interest income by segment

  78,161   17,329   95,490 
             

Gain on sale of loans

  —   3,672   3,672 

Other income

  5,195   1,429   6,624 

Intersegment income

  (652)  652   — 

Total noninterest income by segment

  4,543   5,753   10,296 
             

Total income by segment

  82,704   23,082   105,786 
             

Expense:

            

Interest expense - deposits

  27,574   4   27,578 

Interest expense - borrowings

  3,848   —   3,848 

Interest expense - subordinated note

  771   200   971 

Interest expense - intersegment

  (11,617)  11,617   — 

Total interest expense by segment

  20,576   11,821   32,397 
             

Provision for credit losses by segment

  3,170   443   3,613 
             

Salaries and benefits

  15,539   4,258   19,797 

Overhead allocation

  11,562   3,653   15,215 

Other segment items (1)

  13,388   2,156   15,544 

Total noninterest expense by segment

  40,489   10,067   50,556 
             

Income before provision for income taxes by segment

  18,469   751   19,220 

Provision for income taxes by segment

  3,314   157   3,471 

Net income by segment

 $15,155  $594  $15,749 
             

Other segment disclosures:

            

Segment assets

 $2,494,452  $681,561  $3,176,013 

FTEs

  452   115   567 

 

  

At or For the Six Months Ended June 30, 2024

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $68,847  $14,556  $83,403 

Interest income - other interest earnings assets

  7,417   —   7,417 

Total interest income by segment

  76,264   14,556   90,820 
             

Gain on sale of loans

  —   4,301   4,301 

Gain on sale of MSRs

  7,359   856   8,215 

Loss on sale of investment securities

  (7,847)  —   (7,847)

Other income

  4,623   1,687   6,310 

Intersegment income

  527   (527)  — 

Total noninterest income by segment

  4,662   6,317   10,979 
             

Total income by segment

  80,926   20,873   101,799 
             

Expense:

            

Interest expense - deposits

  26,130   4   26,134 

Interest expense - borrowings

  2,968   —   2,968 

Interest expense - subordinated note

  783   188   971 

Interest expense - intersegment

  (9,754)  9,754   — 

Total interest expense by segment

  20,127   9,946   30,073 
             

Provision for credit losses by segment

  2,465   11   2,476 
             

Salaries and benefits

  15,093   4,088   19,181 

Overhead allocation

  10,238   3,035   13,273 

Other segment items (1)

  12,720   2,212   14,932 

Total noninterest expense by segment

  38,051   9,335   47,386 
             

Income before provision for income taxes by segment

  20,283   1,581   21,864 

Provision for income taxes by segment

  4,182   326   4,508 

Net income by segment

 $16,101  $1,255  $17,356 
             

Other segment disclosures:

            

Segment assets

 $2,335,935  $605,442  $2,941,377 

FTEs

  450   121   571 

 

(1)

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