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Note 13 - Business Segments
 9 Months Ended
Sep. 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 September 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 nine months ended September 30, 2025 and 2024, the Home Lending segment included allocated overhead expenses of $1.8 million and $5.5 million, compared to $1.8 million and $4.8 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 nine months ended September 30, 2025 and 2024:

 

  

At or For the Three Months Ended September 30, 2025

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $37,419  $9,245  $46,664 

Interest income - other interest earnings assets

  4,309   —   4,309 

Total interest income by segment

  41,728   9,245   50,973 
             

Gain on sale of loans

  63   2,376   2,439 

Other income

  2,338   817   3,155 

Intersegment income

  (323)  323   — 

Total noninterest income by segment

  2,078   3,516   5,594 
             

Total income by segment

  43,806   12,761   56,567 
             

Expense:

            

Interest expense - deposits

  14,857   6   14,863 

Interest expense - borrowings

  1,935   —   1,935 

Interest expense - subordinated note

  384   101   485 

Interest expense - intersegment

  (6,259)  6,259   — 

Total interest expense by segment

  10,917   6,366   17,283 
             

Provision for credit losses by segment

  2,150   159   2,309 
             

Salaries and benefits

  8,032   1,803   9,835 

Overhead allocation

  5,761   1,810   7,571 

Other segment items (1)

  6,342   1,640   7,982 

Total noninterest expense by segment

  20,135   5,253   25,388 
             

Income before provision for income taxes by segment

  10,604   983   11,587 

Provision for income taxes by segment

  (2,203)  (207)  (2,410)

Net income by segment

 $8,401  $776  $9,177 
             

Other segment disclosures:

            

Segment assets

 $2,546,789  $662,036  $3,208,825 

FTEs

  460   115   575 

 

 

  

At or For the Three Months Ended September 30, 2024

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $35,591  $8,209  $43,800 

Interest income - other interest earnings assets

  3,243   —   3,243 

Total interest income by segment

  38,834   8,209   47,043 
             

Gain on sale of loans

  —   2,523   2,523 

Gain on sale of MSRs

  (372)  513   141 

Gain on sale of investment securities

  11   —   11 

Other income

  2,433   859   3,292 

Intersegment income

  185   (185)  — 

Total noninterest income by segment

  2,257   3,710   5,967 
             

Total income by segment

  41,091   11,919   53,010 
             

Expense:

            

Interest expense - deposits

  13,485   1   13,486 

Interest expense - borrowings

  1,828   —   1,828 

Interest expense - subordinated note

  384   101   485 

Interest expense - intersegment

  (5,475)  5,475   — 

Total interest expense by segment

  10,222   5,577   15,799 
             

Provision for credit losses by segment

  1,331   182   1,513 
             

Salaries and benefits

  7,464   2,094   9,558 

Overhead allocation

  6,040   1,762   7,802 

Other segment items (1)

  6,695   1,777   8,472 

Total noninterest expense by segment

  20,199   5,633   25,832 
             

Income before provision for income taxes by segment

  9,339   527   9,866 

(Provision) benefit for income taxes by segment

  (71)  491   420 

Net income by segment

 $9,268  $1,018  $10,286 
             

Other segment disclosures:

            

Segment assets

 $2,358,004  $614,665  $2,972,669 

FTEs

  442   117   559 

 

 

 

  

At or For the Nine Months Ended September 30, 2025

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $108,430  $26,574  $135,004 

Interest income - other interest earnings assets

  11,459   —   11,459 

Total interest income by segment

  119,889   26,574   146,463 
             

Gain on sale of loans

  63   6,048   6,111 

Other income

  7,533   2,246   9,779 

Intersegment income

  (975)  975   — 

Total noninterest income by segment

  6,621   9,269   15,890 
             

Total income by segment

  126,510   35,843   162,353 
             

Expense:

            

Interest expense - deposits

  42,430   10   42,440 

Interest expense - borrowings

  5,783   —   5,783 

Interest expense - subordinated note

  1,155   301   1,456 

Interest expense - intersegment

  (17,876)  17,876   — 

Total interest expense by segment

  31,492   18,187   49,679 
             

Provision for credit losses by segment

  5,320   602   5,922 
             

Salaries and benefits

  23,571   6,061   29,632 

Overhead allocation

  17,323   5,463   22,786 

Other segment items (1)

  19,731   3,796   23,527 

Total noninterest expense by segment

  60,625   15,320   75,945 
             

Income before provision for income taxes by segment

  29,073   1,734   30,807 

Provision for income taxes by segment

  (5,517)  (364)  (5,881)

Net income by segment

 $23,556  $1,370  $24,926 
             

Other segment disclosures:

            

Segment assets

 $2,546,789  $662,036  $3,208,825 

FTEs

  460   115   575 

 

  

At or For the Nine Months Ended September 30, 2024

 

Income:

 

Commercial and Consumer Banking

  

Home Lending

  

Total

 

Interest income - loans receivable, including fees

 $104,438  $22,765  $127,203 

Interest income - other interest earnings assets

  10,660   —   10,660 

Total interest income by segment

  115,098   22,765   137,863 
             

Gain on sale of loans

  —   6,824   6,824 

Gain on sale of MSRs

  6,987   1,369   8,356 

Loss on sale of investment securities

  (7,836)  —   (7,836)

Other income

  7,056   2,546   9,602 

Intersegment income

  712   (712)  — 

Total noninterest income by segment

  6,919   10,027   16,946 
             

Total income by segment

  122,017   32,792   154,809 
             

Expense:

            

Interest expense - deposits

  39,615   5   39,620 

Interest expense - borrowings

  4,796   —   4,796 

Interest expense - subordinated note

  1,167   289   1,456 

Interest expense - intersegment

  (15,229)  15,229   — 

Total interest expense by segment

  30,349   15,523   45,872 
             

Provision for credit losses by segment

  3,796   193   3,989 
             

Salaries and benefits

  22,557   6,182   28,739 

Overhead allocation

  16,278   4,797   21,075 

Other segment items (1)

  19,415   3,989   23,404 

Total noninterest expense by segment

  58,250   14,968   73,218 
             

Income before provision for income taxes by segment

  29,622   2,108   31,730 

(Provision) benefit for income taxes by segment

  (4,253)  165   (4,088)

Net income by segment

 $25,369  $2,273  $27,642 
             

Other segment disclosures:

            

Segment assets

 $2,358,004  $614,665  $2,972,669 

FTEs

  442   117   559 

 

(1)

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