January 2024
Yakima Federal Savings and Loan Association held its Annual Meeting virtually on January 17th, 2024. The President, as the managing officer of the Association, provides a full report on the financial condition of the Association, its progress for the preceding year and outlines a program for the succeeding year. Here are highlights from our President’s Annual Meeting report.
I will begin by saying that 2023 was a year of challenges, expected and unexpected.
As expected, the Federal Open Market Committee, or FOMC, continued their pattern of interest rate increases during their periodic meetings. The Fed Funds rate was increased in February, March, May and July by .25% each time. This brought the higher limit rate to 5.50%. With the last increase this past July, now six months ago, speculation is that this may be the peak. The next question is when will the FOMC start cutting rates? Most economists are predicting the start of rate cuts in 2024 with some suggesting a first rate cut in March and others suggesting May.
An unexpected challenge came in March 2023 when two banks failed in quick succession. The first was Silicon Valley Bank in California on Friday, March 10. This was followed by Signature Bank in New York on Sunday, March 12. While Yakima Federal’s business model is very different from these two banks, we found ourselves needing to respond quickly to customer questions about our financial strength and the safety of their deposits. An initial message was posted on our website on March 10 with expanded information added the next Monday. We emailed this same message to all of our customers for whom we have an email address.
Executive Vice President Dan Gaulke and I were quoted in a Yakima Herald Republic article published Tuesday, March 14 assuring the community that local area financial institutions are safe and strong. As suggested by our regulators, we confirmed our contingency funding options and in the coming months, established a borrowing relationship with the Federal Reserve Bank. We also joined the IntraFi network which allows us to place deposits so that our customers are eligible for FDIC coverage beyond that provided here at Yakima Federal. We also created a new video spot touting our strength and longevity. We did our best to position Yakima Federal to ride out the wave of negative bank publicity. However, I am sure this bit of banking turmoil contributed to the deposit outflow we experienced last year.
We ended 2023 with deposits totaling $1,437,449,884. This is a decrease of $56.5 million during the year or minus 3.8%. Our experience with deposit outflow was better than most banks in our Washington State peer group. After removing one bank that acquired Umpqua Bank branches and another than provides banking as a service, our peer group bank deposits were down on average just over 6% as of the end of September.
The balances held in Savings and Certificate accounts increased $118.4 million while checking, savings and money market accounts decreased $178 million. We also placed $3 million using the IntraFi network for which we received reciprocal deposits.
On the lending side of our business, the overall dollar volume of new loans was about 63% what we produced in 2022. Higher interest rates was the primary factor limiting loan production. Of the 251 first mortgage loans we did make, 51% were for Purchase, 36% for Construction and the remaining 13% Refinance. Home equity loan production increased last year with 83 loans and $8.2 million in fixed rate and term loans and $3.5 million in 28 new Home Equity Lines of Credit. We also funded six commercial real estate loans for $8.8 million. One bright spot is that with the small number of loans being re-financed, our Conventional Loan Portfolio increased $53.1 million or 7.9%.
At year end our assets totaled $2.08 billion, an increase of $57.4 million during the year. This is due to our use of the Bank Term Funding program, a new Federal Reserve Bank lending facility, late in the year. Year over year, our gross income increased while our operating expenses decreased. We added $16.9 MM to our Net Worth and ended the year with a net worth to assets ratio of 24.7%.
For Branch improvement projects, we completed a roof replacement and exterior painting at the Orchard Park location on the corner of South 72nd Avenue and Tieton Drive in Yakima. All of the Drive-Thru equipment was also upgraded.
And we refreshed our lower level employee breakroom and restrooms at the Downtown Yakima location which houses a branch and all of our back-office and administrative staff, over 50 people. This was long overdue and our staff are enjoying the updated spaces.
Digital projects completed include the negotiation of our core processing contract renewal with more favorable terms and additional digital products and services planned for our customers. We replaced server hardware that runs our network. Our network communication was also upgraded for improved capacity.
In 2024, we look forward to implementation of a new online and mobile banking platform in the first half of the year. This new product should improve the customer digital experience and also support small business online banking. We are also standing up a Customer Care Center with staff trained to assist customers that call on the phone or initiate a chat session online. This should not only improve remote channel customer experience but allow our frontline employees to focus more on the person-to-person customer service we are known for. We continue to make progress towards the modernization of the in-person new account opening process and hope to make good strides in this area.
We predict another light year for lending volume though we are hopeful that there will be increasing movement in the housing market. Interest rates reached a high point last October and now seem to have come full circle with our loan rates near where they were to start 2023. If the FOMC comes through with some rate cuts we should see loan rates a bit lower which will be more attractive to those ready to move in the market either with a home purchase, new construction or a refinance.
Deposit levels may also benefit from the lowering of interest rates, making it easier for us to compete with treasury bills, money market funds and brokered CDs.
We believe our Net Interest Margin will compress a bit more before improving which results in our budget predicting less in bottom line net income. Regardless we will continue to grow our capital and maintain a capital to assets ratio among the highest of all US Banks.
I have one employee promotion to announce. Dan Gaulke has been promoted to the role of Association President effective January 1, 2024. This promotion is in line with our succession plan leading to my planned retirement next year. Dan started his Yakima Federal career shortly after he graduated from Washington State University over 33 years ago. Over the years he has held positions as Internal Auditor, Compliance Officer and Chief Financial Officer as he moved up the corporate officer ranks.
Knowing that 2023 was my final year as president of Yakima Federal, I’d like to repeat the opening line from my 2017 message and thank the members of the Board of Yakima Federal Savings and Loan for the opportunity to service as the Association President and CEO. It has been quite an honor. I would also like to acknowledge our supportive staff and loyal customers. Yakima Federal is grateful for your service and your patronage. Thank you.
Leanne Antonio
CEO/Board Chair
