XML 21 R12.htm IDEA: XBRL DOCUMENT v3.23.3
Loans Receivable
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Loans Receivable Loans Receivable
The Bank originates loans in the ordinary course of business and has also acquired loans through mergers and acquisitions. Accrued interest receivable was excluded from disclosures presenting the Bank's amortized cost of loans receivable as it was deemed insignificant. In addition to originating loans, the Bank may also purchase loans through pool purchases, participation purchases and syndicated loan purchases.
(a) Loan Origination/Risk Management
The Bank categorizes the individual loans in the total loan portfolio into four segments: commercial business; residential real estate; real estate construction and land development; and consumer. Within these segments are classes of loans for which management monitors and assesses credit risk in the loan portfolios. A detailed description of the portfolio segments and classes is contained in the 2022 Annual Form 10-K.
The Bank has certain lending policies and guidelines in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and guidelines on a regular basis. A reporting system
supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and criticized loans. The Bank also conducts internal loan reviews and validates the credit risk assessment on a periodic basis and presents the results of these reviews to management. The loan review process complements and reinforces the risk identification and assessment decisions made by loan officers and credit personnel.
The amortized cost of loans receivable, net of ACL on loans, consisted of the following portfolio segments and classes at the dates indicated:
September 30, 2023December 31, 2022
(Dollars in thousands)
Commercial business:
Commercial and industrial$691,318 $693,568 
Owner-occupied CRE953,779 937,040 
Non-owner occupied CRE1,690,099 1,586,632 
Total commercial business3,335,196 3,217,240 
Residential real estate377,448 343,631 
Real estate construction and land development:
Residential
70,804 80,074 
Commercial and multifamily
310,024 214,038 
Total real estate construction and land development380,828 294,112 
Consumer173,386 195,875 
Loans receivable4,266,858 4,050,858 
ACL on loans(46,947)(42,986)
Loans receivable, net$4,219,911 $4,007,872 
Balances included in the amortized cost of loans receivable:
Unamortized net discount on acquired loans$(2,036)$(2,501)
Unamortized net deferred fee$(10,949)$(10,016)
(b) Concentrations of Credit
Most of the Bank’s lending activity occurs within its primary market areas which are concentrated along the I-5 corridor from Whatcom County, Washington to Lane County, Oregon, as well as Yakima County in Washington and Ada County in Idaho. Additionally, the Bank's loan portfolio is concentrated in commercial business loans, which include commercial and industrial, owner-occupied and nonowner-occupied CRE, and commercial and multifamily real estate construction and land development loans. Commercial business loans are generally considered as having a more inherent risk of default than residential real estate loans or other consumer loans. Also, the commercial loan balance per borrower is typically larger than that for residential real estate loans and consumer loans, implying higher potential losses on an individual loan basis.
(c) Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Bank’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade of the loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) nonperforming loans, (v) past due status, and (vi) the general economic conditions of the United States of America, and specifically the states of Washington and Oregon.
The Bank utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 10. Risk grades are aggregated to create the risk categories of Pass for grades 1 to 6, Special Mention or "SM" for grade 7, Substandard or "SS" for grade 8, Doubtful for grade 9 and Loss for grade 10. Descriptions of the general characteristics of the risk grades, including qualitative information on how the risk grades relate to the risk of loss, are contained in the 2022 Annual Form 10-K. Numerical loan grades for loans are established at the origination of the loan. Changes to loan grades are considered at the time new information about the performance of a loan becomes available, including the receipt of updated financial information from the borrower, results of annual term loan reviews and scheduled loan reviews. For consumer loans, the Bank follows the FDIC’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default. Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement. Credit deterioration is evidenced by delinquency, direct communications with the borrower or other borrower information that becomes known to management. Credit improvements are evidenced by known facts regarding the borrower or the collateral property.
Loan grades relate to the likelihood of losses in that the higher the grade, the greater the loss potential. Loans with a pass grade may have some estimated inherent losses, but to a lesser extent than the other loan grades. The SM loan grade is
transitory in that the Bank is waiting on additional information to determine the likelihood and extent of any potential loss. The likelihood of loss for SM graded loans, however, is greater than Watch graded loans because there has been measurable credit deterioration. Loans with a SS grade have further credit deterioration and include both accrual loans and nonaccrual loans. For Doubtful and Loss graded loans, the Bank is almost certain of the losses and the outstanding principal balances are generally charged off to the realizable value.
The following tables present the amortized cost of loans receivable by risk grade and origination year, and the gross charge-offs by loan class and origination year, at the dates indicated. The Bank adopted the vintage disclosure requirements of ASU 2022-02 prospectively as described in Note 1 beginning January 1, 2023.
September 30, 2023Revolving Loans
Revolving Loans Converted(1)
Loans Receivable
Term Loans
Amortized Cost Basis by Origination Year
20232022202120202019Prior
(Dollars in thousands)
Commercial business:
Commercial and industrial
Pass$72,204 $157,851 $80,225 $72,575 $44,139 $87,318 $141,690 $290 $656,292 
SM— 201 254 1,748 4,413 3,911 846 — 11,373 
SS— 1,239 2,667 1,541 1,220 5,137 11,849 — 23,653 
Total72,204 159,291 83,146 75,864 49,772 96,366 154,385 290 691,318 
Owner-occupied CRE
Pass67,181 139,102 161,632 84,403 149,576 311,216 — — 913,110 
SM— — 3,565 2,012 710 16,108 — — 22,395 
SS— — 3,090 658 — 14,526 — — 18,274 
Total67,181 139,102 168,287 87,073 150,286 341,850 — — 953,779 
Non-owner occupied CRE
Pass137,013 260,502 206,919 154,132 242,200 647,754 — — 1,648,520 
SM— 601 8,217 — 575 19,479 — — 28,872 
SS— — — — — 12,707 — — 12,707 
Total137,013 261,103 215,136 154,132 242,775 679,940 — — 1,690,099 
Total commercial business
Pass276,398 557,455 448,776 311,110 435,915 1,046,288 141,690 290 3,217,922 
SM— 802 12,036 3,760 5,698 39,498 846 — 62,640 
SS— 1,239 5,757 2,199 1,220 32,370 11,849 — 54,634 
Total276,398 559,496 466,569 317,069 442,833 1,118,156 154,385 290 3,335,196 
Commercial business gross charge-offs
Current period
— — 15 61 — 100 — — 176 
Residential real estate
Pass(1)
37,158 139,887 143,647 24,868 15,134 16,590 — — 377,284 
SS— — — — — 164 — — 164 
Total37,158 139,887 143,647 24,868 15,134 16,754 — — 377,448 
Real estate construction and land development:
Residential
Pass26,212 30,529 5,024 1,488 822 732 — — 64,807 
SS997 319 4,495 — — 186 — — 5,997 
Total27,209 30,848 9,519 1,488 822 918 — — 70,804 
Commercial and multifamily
Pass26,072 158,782 106,134 5,391 764 3,369 — — 300,512 
SM— — — 3,452 5,687 373 — — 9,512 
Total26,072 158,782 106,134 8,843 6,451 3,742 — — 310,024 
September 30, 2023Revolving Loans
Revolving Loans Converted(1)
Loans Receivable
Term Loans
Amortized Cost Basis by Origination Year
20232022202120202019Prior
(Dollars in thousands)
Total real estate construction and land development
Pass52,284 189,311 111,158 6,879 1,586 4,101 — — 365,319 
SM— — — 3,452 5,687 373 — — 9,512 
SS997 319 4,495 — — 186 — — 5,997 
Total53,281 189,630 115,653 10,331 7,273 4,660 — — 380,828 
Consumer
Pass1,713 2,314 332 7,016 18,305 23,514 117,681 653 171,528 
SS— — — 150 286 1,023 375 24 1,858 
Total1,713 2,314 332 7,166 18,591 24,537 118,056 677 173,386 
Consumer gross charge-offs:
Current period
7 10 12 21 54 122 194 — 420 
Loans receivable
Pass367,553 888,967 703,913 349,873 470,940 1,090,493 259,371 943 4,132,053 
SM— 802 12,036 7,212 11,385 39,871 846 — 72,152 
SS997 1,558 10,252 2,349 1,506 33,743 12,224 24 62,653 
Total$368,550 $891,327 $726,201 $359,434 $483,831 $1,164,107 $272,441 $967 $4,266,858 
Gross charge-offs:
Total
$7 $10 $27 $82 $54 $222 $194 $— $596 
(1) Represents the loans receivable balance at September 30, 2023 which was converted from a revolving loan to a non-revolving amortizing loan during the nine months ended September 30, 2023.
December 31, 2022
Revolving Loans
Revolving Loans Converted(1)
Loans Receivable
Term Loans
Amortized Cost Basis by Origination Year
20222021202020192018Prior
(Dollars in thousands)
Commercial business:
Commercial and industrial
Pass$168,818 $94,653 $82,554 $61,160 $33,957 $74,181 $146,795 $172 $662,290 
SM212 109 443 4,637 362 4,447 5,433 — 15,643 
SS773 188 1,710 3,465 559 5,098 3,674 168 15,635 
Total169,803 94,950 84,707 69,262 34,878 83,726 155,902 340 693,568 
Owner-occupied CRE
Pass134,432 167,927 93,834 157,096 62,876 282,212 — — 898,377 
SM— 1,744 — — 2,540 16,664 — 247 21,195 
SS— — 671 — 3,722 13,075 — — 17,468 
Total134,432 169,671 94,505 157,096 69,138 311,951 — 247 937,040 
Non-owner-occupied CRE
Pass240,151 189,300 160,930 258,778 121,369 561,645 — — 1,532,173 
SM— 8,349 — 4,172 — 12,190 — — 24,711 
SS— — — — 3,627 26,121 — — 29,748 
Total240,151 197,649 160,930 262,950 124,996 599,956 — — 1,586,632 
December 31, 2022
Revolving Loans
Revolving Loans Converted(1)
Loans Receivable
Term Loans
Amortized Cost Basis by Origination Year
20222021202020192018Prior
(Dollars in thousands)
Total commercial business
Pass543,401 451,880 337,318 477,034 218,202 918,038 146,795 172 3,092,840 
SM212 10,202 443 8,809 2,902 33,301 5,433 247 61,549 
SS773 188 2,381 3,465 7,908 44,294 3,674 168 62,851 
Total544,386 462,270 340,142 489,308 229,012 995,633 155,902 587 3,217,240 
Residential real estate
Pass132,510 149,934 24,668 16,803 4,207 15,337 — — 343,459 
SS— — — — — 172 — — 172 
Total132,510 149,934 24,668 16,803 4,207 15,509 — — 343,631 
Real estate construction and land development:
Residential
Pass45,521 26,675 2,891 3,061 871 1,055 — — 80,074 
Commercial and multifamily
Pass71,168 123,626 6,272 1,084 2,562 995 — — 205,707 
SM— — 2,213 5,687 — — — — 7,900 
SS— — — 37 — 394 — — 431 
Total71,168 123,626 8,485 6,808 2,562 1,389 — — 214,038 
Total real estate construction and land development
Pass116,689 150,301 9,163 4,145 3,433 2,050 — — 285,781 
SM— — 2,213 5,687 — — — — 7,900 
SS— — — 37 — 394 — — 431 
Total116,689 150,301 11,376 9,869 3,433 2,444 — — 294,112 
Consumer
Pass3,379 509 9,848 27,370 15,563 19,855 116,605 435 193,564 
SS— — 168 559 320 1,120 44 100 2,311 
Total3,379 509 10,016 27,929 15,883 20,975 116,649 535 195,875 
Loans receivable
Pass795,979 752,624 380,997 525,352 241,405 955,280 263,400 607 3,915,644 
SM212 10,202 2,656 14,496 2,902 33,301 5,433 247 69,449 
SS773 188 2,549 4,061 8,228 45,980 3,718 268 65,765 
Total$796,964 $763,014 $386,202 $543,909 $252,535 $1,034,561 $272,551 $1,122 $4,050,858 
(1) Represents the loans receivable balance at December 31, 2022 which was converted from a revolving loan to non-revolving amortizing loan during the year ended December 31, 2022.
(d) Nonaccrual Loans
The following tables present the amortized cost of nonaccrual loans at the dates indicated:
September 30, 2023
Nonaccrual without ACLNonaccrual with ACLTotal Nonaccrual
(Dollars in thousands)
Commercial business:
Commercial and industrial$2,172 $686 $2,858 
Owner-occupied CRE— 207 207 
Total$2,172 $893 $3,065 
December 31, 2022
Nonaccrual without ACLNonaccrual with ACLTotal Nonaccrual
(Dollars in thousands)
Commercial business:
Commercial and industrial$4,503 $1,154 $5,657 
Owner-occupied CRE— 212 212 
Total commercial business4,503 1,366 5,869 
Real estate construction and land development:
Commercial and multifamily
— 37 37 
Total$4,503 $1,403 $5,906 
The following table presents the reversal of interest income on loans due to the write-off of accrued interest receivable upon the initial classification of loans as nonaccrual loans and the interest income recognized due to payment in full or sale of previously classified nonaccrual loans during the following periods:
Three Months Ended September 30,
20232022
Interest Income ReversedInterest Income RecognizedInterest Income ReversedInterest Income Recognized
(Dollars in thousands)
Commercial business:
Commercial and industrial$(10)$18 $— $31 
Total$(10)$18 $— $31 

Nine Months Ended September 30,
20232022
Interest Income ReversedInterest Income RecognizedInterest Income ReversedInterest Income Recognized
(Dollars in thousands)
Commercial business:
Commercial and industrial$(24)$48 $(14)$260 
Owner-occupied CRE— — — 53 
Non-owner occupied CRE— — — 774 
Total commercial business(24)48 (14)1,087 
Residential real estate— — — 19 
Consumer— — — 68 
Total$(24)$48 $(14)$1,174 
For the three and nine months ended September 30, 2023 and 2022, no interest income was recognized subsequent to a loan’s classification as nonaccrual, except as indicated in the tables above due to payment in full or sale.
(e) Past due loans
The Bank performs an aging analysis of past due loans using policies consistent with regulatory reporting requirements with categories of 30-89 days past due and 90 or more days past due. The following tables present the amortized cost of past due loans at the dates indicated:
September 30, 2023
30-89 Days90 Days or
Greater		Total Past 
Due		CurrentLoans Receivable
(Dollars in thousands)
Commercial business:
Commercial and industrial$1,126 $2,883 $4,009 $687,309 $691,318 
September 30, 2023
30-89 Days90 Days or
Greater		Total Past 
Due		CurrentLoans Receivable
(Dollars in thousands)
Owner-occupied CRE426 635 1,061 952,718 953,779 
Non-owner occupied CRE— — — 1,690,099 1,690,099 
Total commercial business1,552 3,518 5,070 3,330,126 3,335,196 
Residential real estate
— — — 377,448 377,448 
Real estate construction and land development:
Residential
505 — 505 70,299 70,804 
Commercial and multifamily
— — — 310,024 310,024 
Total real estate construction and land development505 — 505 380,323 380,828 
Consumer635 325 960 172,426 173,386 
Total$2,692 $3,843 $6,535 $4,260,323 $4,266,858 
December 31, 2022
30-89 Days90 Days or
Greater		Total Past 
Due		CurrentLoans Receivable
(Dollars in thousands)
Commercial business:
Commercial and industrial$822 $6,104 $6,926 $686,642 $693,568 
Owner-occupied CRE— 189 189 936,851 937,040 
Non-owner occupied CRE— — — 1,586,632 1,586,632 
Total commercial business822 6,293 7,115 3,210,125 3,217,240 
Residential real estate
3,066 — 3,066 340,565 343,631 
Real estate construction and land development:
Residential
— — — 80,074 80,074 
Commercial and multifamily
— — — 214,038 214,038 
Total real estate construction and land development— — — 294,112 294,112 
Consumer1,561 — 1,561 194,314 195,875 
Total$5,449 $6,293 $11,742 $4,039,116 $4,050,858 
Loans 90 days or more past due and still accruing interest were $2.2 million and $1.6 million as of September 30, 2023 and December 31, 2022, respectively.
(f) Collateral-dependent Loans
The following tables present the type of collateral securing loans individually evaluated for credit losses and for which the repayment was expected to be provided substantially through the operation or sale of the collateral at the dates indicated, with balances representing the amortized cost of the loan classified by the primary collateral category of each loan if multiple collateral sources secure the loan:
September 30, 2023
CREFarmlandResidential Real EstateEquipmentTotal
(Dollars in thousands)
Commercial business:
Commercial and industrial$260 $389 $630 $541 $1,820 
Owner-occupied CRE189 — — — 189 
Total$449 $389 $630 $541 $2,009 
December 31, 2022
CREFarmlandResidential Real EstateEquipmentTotal
(Dollars in thousands)
Commercial business:
Commercial and industrial$1,239 $1,977 $929 $— $4,145 
Owner-occupied CRE189 — — — 189 
Total$1,428 $1,977 $929 $— $4,334 
There have been no significant changes to the collateral securing loans individually evaluated for credit losses and for which repayment was expected to be provided substantially through the operation or sale of the collateral during the nine months ended September 30, 2023, except changes due to additions or removals of loans in this classification.
(g) Modification of Loans
In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis.
Modifications of loans to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.
The following table presents loan modifications by type of modification at amortized cost that were modified as a result of experiencing both financial difficulty and modified during the period indicated:
Three Months Ended September 30, 2023
Term ExtensionTerm Extension & Int. Rate ReductionTotal Modified Loans% of Modified Loans to Loans Receivable, net
(Dollars in thousands)
Commercial business:
Commercial and industrial$313 $— $313 0.05 %
Non-owner occupied CRE— 239 239 0.01 
Total$313 $239 $552 0.01 %
Nine Months Ended September 30, 2023
Term ExtensionTerm Extension & Int. Rate ReductionTotal Modified Loans% of Modified Loans to Loans Receivable, net
(Dollars in thousands)
Commercial business:
Commercial and industrial$6,516 $— $6,516 0.94 %
Non-owner occupied CRE2,716 239 2,955 0.17 
Total commercial business9,232 239 9,471 0.28 
Real estate construction and land development:
Commercial and multifamily
3,452 — 3,452 1.11 %
Consumer28 17 45 0.03 %
Total$12,712 $256 $12,968 0.30 %
The following tables present the financial effect of the loan modifications presented in the preceding table during the periods indicated:
Three Months Ended September 30, 2023Nine Months Ended September 30, 2023
Weighted Average % of Interest Rate ReductionsWeighted Average Years of Term ExtensionsWeighted Average % of Interest Rate ReductionsWeighted Average Years of Term Extensions
Commercial business:
Commercial and industrial— %1.82— %0.58
Owner-occupied CRE— %— %
Non-owner occupied CRE3.00 2.003.00 1.09
Total commercial business3.00 1.903.00 0.74
Real estate construction and land development:
Commercial and multifamily
— — 0.42
Consumer— 1.00 2.62
Total3.00 %1.903.00 %0.66
There were no modified loans included in the tables above that were past due or on nonaccrual as of September 30, 2023.
There were no modified loans made during the three and nine months ended September 30, 2023, that subsequently defaulted.
(h) Accrued interest receivable on loans receivable
Accrued interest receivable on loans receivable totaled $12.5 million and $11.3 million at September 30, 2023 and December 31, 2022, respectively, and is excluded from the calculation of the ACL on loans as interest accrued, but not received, is reversed timely.
(i) Foreclosure proceedings in process
At September 30, 2023, there were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process.