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Loans Receivable

9 Months Ended

Sep. 30, 2024

The Company 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 Company's amortized cost of loans receivable as it was deemed insignificant. In addition to originating loans, the Company may also purchase loans through pool purchases, participation purchases and syndicated loan purchases.

(a) Loan Origination/Risk Management

The Company 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 2023 Annual Form 10-K.

The Company 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 Company 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, 2024		December 31, 2023
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	824,134	$	718,291
Owner-occupied CRE	987,084		958,620
Non-owner occupied CRE	1,835,609		1,697,574
Total commercial business	3,646,827		3,374,485
Residential real estate	408,982		375,342
Real estate construction and land development:
Residential	79,325		78,610
Commercial and multifamily	378,322		335,819
Total real estate construction and land development	457,647		414,429
Consumer	166,023		171,371
Loans receivable	4,679,479		4,335,627
ACL on loans	(51,391)		(47,999)
Loans receivable, net	$	4,628,088	$	4,287,628

Balances included in the amortized cost of loans receivable:
Unamortized net discount on acquired loans	$	(1,182)	$	(1,923)
Unamortized net deferred fee	$	(9,613)	$	(11,063)

(b) Concentrations of Credit

Most of the Company’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 in Yakima County, Washington and Ada County, Idaho. Additionally, the Company'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 and commercial and multifamily real estate construction and land development 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.

As part of the on-going monitoring of the credit quality of the Company’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, Oregon and Idaho.

The Company 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 2023 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 Company 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 Company 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 Pass 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 Company is almost certain of the losses and the outstanding principal balances are generally charged off to the realizable value. There were no loans graded Doubtful or Loss as of September 30, 2024 and December 31, 2023.

The following tables present the amortized cost of loans receivable by risk grade and origination year at the dates indicated:


	September 30, 2024
	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans Converted(1)		Loans Receivable
	2024		2023		2022		2021		2020		Prior
	(Dollars in thousands)
Commercial business:
Commercial and industrial
Pass	$	147,830	$	133,134	$	130,593	$	56,034	$	58,485	$	89,182	$	153,789	$	556	$	769,603
SM	—		—		6,508		245		1,152		5,350		18,738		—		31,993
SS	—		235		882		456		3,397		6,255		8,089		3,224		22,538
Total	147,830		133,369		137,983		56,735		63,034		100,787		180,616		3,780		824,134
Owner-occupied CRE
Pass	88,176		87,012		138,532		149,002		80,640		414,842		—		—		958,204
SM	—		—		—		2,400		879		10,535		—		—		13,814
SS	—		—		—		2,957		641		11,468		—		—		15,066
Total	88,176		87,012		138,532		154,359		82,160		436,845		—		—		987,084
Non-owner occupied CRE
Pass	94,285		173,846		318,395		242,336		154,332		801,586		—		105		1,784,885
SM	—		—		—		8,035		—		33,245		—		—		41,280
SS	—		—		588		—		—		8,856		—		—		9,444
Total	94,285		173,846		318,983		250,371		154,332		843,687		—		105		1,835,609
Total commercial business
Pass	330,291		393,992		587,520		447,372		293,457		1,305,610		153,789		661		3,512,692
SM	—		—		6,508		10,680		2,031		49,130		18,738		—		87,087
SS	—		235		1,470		3,413		4,038		26,579		8,089		3,224		47,048
Total	330,291		394,227		595,498		461,465		299,526		1,381,319		180,616		3,885		3,646,827
Residential real estate
Pass	34,334		52,628		137,906		133,643		22,050		27,479		—		—		408,040

SS	—		—		—		788		—		154		—		—		942
Total	34,334		52,628		137,906		134,431		22,050		27,633		—		—		408,982
Real estate construction and land development:
Residential
Pass	26,604		35,564		8,425		—		1,001		980		1		—		72,575

SS	—		1,000		—		5,750		—		—		—		—		6,750
Total	26,604		36,564		8,425		5,750		1,001		980		1		—		79,325
Commercial and multifamily
Pass	18,476		153,295		165,558		9,931		—		3,446		—		—		350,706
SM	—		—		893		—		5,175		5,923		—		—		11,991
SS	—		—		—		15,625		—		—		—		—		15,625
Total	18,476		153,295		166,451		25,556		5,175		9,369		—		—		378,322
Total real estate construction and land development
Pass	45,080		188,859		173,983		9,931		1,001		4,426		1		—		423,281
SM	—		—		893		—		5,175		5,923		—		—		11,991
SS	—		1,000		—		21,375		—		—		—		—		22,375
Total	45,080		189,859		174,876		31,306		6,176		10,349		1		—		457,647
Consumer
Pass	1,751		1,588		1,695		364		3,861		23,989		130,514		649		164,411

SS	—		—		25		—		107		689		310		481		1,612
Total	1,751		1,588		1,720		364		3,968		24,678		130,824		1,130		166,023


	September 30, 2024
	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans Converted(1)		Loans Receivable
	2024		2023		2022		2021		2020		Prior
	(Dollars in thousands)
Loans receivable
Pass	411,456		637,067		901,104		591,310		320,369		1,361,504		284,304		1,310		4,508,424
SM	—		—		7,401		10,680		7,206		55,053		18,738		—		99,078
SS	—		1,235		1,495		25,576		4,145		27,422		8,399		3,705		71,977
Total	$	411,456	$	638,302	$	910,000	$	627,566	$	331,720	$	1,443,979	$	311,441	$	5,015	$	4,679,479

(1) Represents the loans receivable balance at September 30, 2024 which was converted from a revolving loan to a non-revolving amortizing loan during the nine months ended September 30, 2024.


	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans Converted(1)		Loans Receivable
	2023		2022		2021		2020		2019		Prior
	(Dollars in thousands)
Commercial business:
Commercial and industrial
Pass	$	120,973	$	150,854	$	74,231	$	66,364	$	40,307	$	76,924	$	141,740	$	188	$	671,581
SM	—		2,495		104		292		4,556		1,458		9,124		—		18,029
SS	—		1,215		2,734		3,548		1,076		7,875		12,168		65		28,681
Total	120,973		154,564		77,069		70,204		45,939		86,257		163,032		253		718,291
Owner-occupied CRE
Pass	90,775		138,505		159,490		82,296		146,869		299,609		—		—		917,544
SM	—		—		2,219		2,775		705		16,266		—		—		21,965
SS	—		—		4,908		654		—		13,549		—		—		19,111
Total	90,775		138,505		166,617		85,725		147,574		329,424		—		—		958,620
Non-owner-occupied CRE
Pass	153,239		260,431		216,811		157,424		239,928		628,489		—		—		1,656,322
SM	—		—		8,172		—		570		19,300		—		—		28,042
SS	—		598		—		—		—		12,612		—		—		13,210
Total	153,239		261,029		224,983		157,424		240,498		660,401		—		—		1,697,574
Total commercial business
Pass	364,987		549,790		450,532		306,084		427,104		1,005,022		141,740		188		3,245,447
SM	—		2,495		10,495		3,067		5,831		37,024		9,124		—		68,036
SS	—		1,813		7,642		4,202		1,076		34,036		12,168		65		61,002
Total	364,987		554,098		468,669		313,353		434,011		1,076,082		163,032		253		3,374,485
Residential real estate
Pass	36,321		141,201		141,430		24,108		15,022		16,297		—		—		374,379

SS	—		—		801		—		—		162		—		—		963
Total	36,321		141,201		142,231		24,108		15,022		16,459		—		—		375,342
Real estate construction and land development:
Residential
Pass	41,663		24,760		1,050		1,289		804		719		1		—		70,286
SM	—		—		2,139		—		—		—		—		—		2,139
SS	1,000		319		4,866		—		—		—		—		—		6,185
Total	42,663		25,079		8,055		1,289		804		719		1		—		78,610


	December 31, 2023
	Term Loans Amortized Cost Basis by Origination Year												Revolving Loans		Revolving Loans Converted(1)		Loans Receivable
	2023		2022		2021		2020		2019		Prior
	(Dollars in thousands)
Commercial and multifamily
Pass	42,499		187,827		91,460		337		749		3,145		—		—		326,017
SM	—		—		—		3,777		5,660		365		—		—		9,802
SS	—		—		—		—		—		—		—		—		—
Total	42,499		187,827		91,460		4,114		6,409		3,510		—		—		335,819
Total real estate construction and land development
Pass	84,162		212,587		92,510		1,626		1,553		3,864		1		—		396,303
SM	—		—		2,139		3,777		5,660		365		—		—		11,941
SS	1,000		319		4,866		—		—		—		—		—		6,185
Total	85,162		212,906		99,515		5,403		7,213		4,229		1		—		414,429
Consumer
Pass	1,897		1,980		293		6,221		15,841		20,402		122,007		1,123		169,764

SS	—		—		—		134		207		893		333		40		1,607
Total	1,897		1,980		293		6,355		16,048		21,295		122,340		1,163		171,371
Loans receivable
Pass	487,367		905,558		684,765		338,039		459,520		1,045,585		263,748		1,311		4,185,893
SM	—		2,495		12,634		6,844		11,491		37,389		9,124		—		79,977
SS	1,000		2,132		13,309		4,336		1,283		35,091		12,501		105		69,757
Total	$	488,367	$	910,185	$	710,708	$	349,219	$	472,294	$	1,118,065	$	285,373	$	1,416	$	4,335,627

(1) Represents the loans receivable balance at December 31, 2023 which was converted from a revolving loan to non-revolving amortizing loan during the year ended December 31, 2023.

The following tables present the gross charge-offs by loan class and origination year, for the periods indicated:


	Nine Months Ended September 30, 2024
	Current Period Gross Charge-offs by Origination Year												Revolving Loans		Total Gross Charge-Offs
	2024		2023		2022		2021		2020		Prior
	(Dollars in thousands)
Commercial business	$	—	$	313	$	—	$	—	$	—	$	2,636	$	—	$	2,949


Consumer	—		6		22		—		11		139		268		446
Total	$	—	$	319	$	22	$	—	$	11	$	2,775	$	268	$	3,395


	Nine Months Ended September 30, 2023
	Current Period Gross Charge-offs by Origination Year												Revolving Loans		Total Gross Charge-Offs
	2023		2022		2021		2020		2019		Prior
	(Dollars in thousands)
Commercial business	$	—	$	—	$	15	$	61	$	—	$	100	$	—	$	176


Consumer	7		10		12		21		54		122		194		420
Total	$	7	$	10	$	27	$	82	$	54	$	222	$	194	$	596

(d) Nonaccrual Loans

The following tables present the amortized cost of nonaccrual loans at the dates indicated:


	September 30, 2024
	Nonaccrual without ACL		Nonaccrual with ACL		Total Nonaccrual
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	1,134	$	718	$	1,852


	September 30, 2024
	Nonaccrual without ACL		Nonaccrual with ACL		Total Nonaccrual
	(Dollars in thousands)
Owner-occupied CRE	2,449		—		2,449








Total	$	3,583	$	718	$	4,301


	December 31, 2023
	Nonaccrual without ACL		Nonaccrual with ACL		Total Nonaccrual
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	1,706	$	2,557	$	4,263
Owner-occupied CRE	—		205		205








Total	$	1,706	$	2,762	$	4,468

The following tables present 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 periods indicated:


	Three Months Ended September 30,
	2024				2023
	Interest Income Reversed		Interest Income Recognized		Interest Income Reversed		Interest Income Recognized
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	—	$	126	$	(10)	$	18
Owner-occupied CRE	(28)		—		—		—








Total	$	(28)	$	126	$	(10)	$	18


	Nine Months Ended September 30,
	2024				2023
	Interest Income Reversed		Interest Income Recognized		Interest Income Reversed		Interest Income Recognized
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	(27)	$	339	$	(24)	$	48
Owner-occupied CRE	(28)		144		—		—








Total	$	(55)	$	483	$	(24)	$	48

For the three and nine months ended September 30, 2024 and 2023, 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 Company 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, 2024
	30-89 Days		90 Days or Greater		Total Past Due		Current		Loans Receivable
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	1,496	$	6,132	$	7,628	$	816,506	$	824,134
Owner-occupied CRE	—		—		—		987,084		987,084


	September 30, 2024
	30-89 Days		90 Days or Greater		Total Past Due		Current		Loans Receivable
	(Dollars in thousands)
Non-owner occupied CRE	—		—		—		1,835,609		1,835,609
Total commercial business	1,496		6,132		7,628		3,639,199		3,646,827
Residential real estate	—		—		—		408,982		408,982
Real estate construction and land development:
Residential	—		—		—		79,325		79,325
Commercial and multifamily	—		—		—		378,322		378,322
Total real estate construction and land development	—		—		—		457,647		457,647
Consumer	461		352		813		165,210		166,023
Total	$	1,957	$	6,484	$	8,441	$	4,671,038	$	4,679,479


	December 31, 2023
	30-89 Days		90 Days or Greater		Total Past Due		Current		Loans Receivable
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	2,289	$	3,857	$	6,146	$	712,145	$	718,291
Owner-occupied CRE	—		189		189		958,431		958,620
Non-owner occupied CRE	1,489		—		1,489		1,696,085		1,697,574
Total commercial business	3,778		4,046		7,824		3,366,661		3,374,485
Residential real estate	162		—		162		375,180		375,342
Real estate construction and land development:
Residential	—		319		319		78,291		78,610
Commercial and multifamily	—		—		—		335,819		335,819
Total real estate construction and land development	—		319		319		414,110		414,429
Consumer	615		87		702		170,669		171,371
Total	$	4,555	$	4,452	$	9,007	$	4,326,620	$	4,335,627

Loans 90 days or more past due and still accruing interest were $5.3 million and $1.3 million as of September 30, 2024 and December 31, 2023, respectively. Loans 90 days past due and still accruing interest as of September 30, 2024 were comprised of $5.0 million in commercial and industrial loans $0.3 million in consumer loans.

(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, 2024
	CRE		Farmland		Residential Real Estate		Equipment		Total
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	—	$	389	$	613	$	—	$	1,002
Owner-occupied CRE	2,449		—		—		—		2,449








Total	$	2,449	$	389	$	613	$	—	$	3,451


	December 31, 2023
	CRE		Farmland		Residential Real Estate		Equipment		Total
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	260	$	389	$	621	$	304	$	1,574
Owner-occupied CRE	189		—		—		—		189








Total	$	449	$	389	$	621	$	304	$	1,763

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, 2024, except changes due to additions or removals of loans in this classification.

(g) Modification of Loans

Occasionally, the Company modifies loans to borrowers in financial distress by providing modifications of loans which 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. In some cases, the Company provides multiple types of concessions on one loan. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

The following tables present the amortized cost of loans that were experiencing both financial difficulty and modified during the periods indicated:


	Three Months Ended September 30, 2024
	Term Extension		Total Modified Loans		% of Modified Loans to Loans Receivable, net
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	7,041	$	7,041	0.85	%

Non-owner occupied CRE	2,657		2,657		0.14
Total commercial business	9,698		9,698		0.27

Real estate construction and land development:
Residential	6,750		6,750		8.51

Total real estate construction and land development	6,750		6,750		1.47
Consumer	10		10		0.01
Total	$	16,458	$	16,458	0.35	%


	Three Months Ended September 30, 2023
		Term Extension		Combination Term Extension and Interest Rate Reduction(1)		Total 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 commercial business		313		239		552		0.02






Total		$	313	$	239	$	552	0.01	%


	Nine Months Ended September 30, 2024
	Term Extension		Total Modified Loans		% of Modified Loans to Loans Receivable, net

	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	20,611	$	20,611	2.50	%

Non-owner occupied CRE	2,658		2,658		0.14
Total commercial business	23,269		23,269		0.64

Real estate construction and land development:
Residential	6,750		6,750		8.51	%
Commercial and multifamily	20,800		20,800		5.50	%
Total real estate construction and land development	27,550		27,550		6.02	%
Consumer	39		39		0.02	%
Total	$	50,858	$	50,858	1.09	%


	Nine Months Ended September 30, 2023
	Term Extension		Term Extension & Int. Rate Reduction		Total 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 CRE	2,716		239		2,955		0.17
Total commercial business	9,232		239		9,471		0.28

Real estate construction and land development:

Commercial and multifamily	3,452		—		3,452		1.11	%
Total real estate construction and land development	3,452		—		3,452		0.91	%
Consumer	28		17		45		0.03	%
Total	$	12,712	$	256	$	12,968	0.30	%

The following tables present the financial effects of the loan modifications presented in the preceding tables during the periods indicated:

Three Months Ended
September 30, 2024

Weighted Average Years of Term Extensions

Commercial business:

Commercial and industrial

0.59

Non-owner occupied CRE

0.83

Total commercial business

0.66

Real estate construction and land development:

Residential

0.17

Total real estate construction and land development

0.17

Consumer

2.17

Total

0.46


	Three Months Ended September 30, 2023
	Weighted Average % of Interest Rate Reductions		Weighted Average Years of Term Extensions
Commercial business:
Commercial and industrial	—	%	1.82

Non-owner occupied CRE	3.00		2.00







Total	3.00	%	1.90


															Nine Months Ended September 30, 2024
															Weighted Average Years of Term Extensions
Commercial business:
Commercial and industrial															0.76

Non-owner occupied CRE															0.83
Total commercial business															0.77

Real estate construction and land development:
Residential															0.17
Commercial and multifamily															0.69
Total real estate construction and land development															0.56
Consumer															1.52
Total															0.66


	Nine Months Ended September 30, 2023
	Weighted Average % of Interest Rate Reductions		Weighted Average Years of Term Extensions
Commercial business:
Commercial and industrial	—	%	0.58

Non-owner occupied CRE	3.00		1.09
Total commercial business	3.00		0.74

Real estate construction and land development:

Commercial and multifamily	—		0.42
Total real estate construction and land development	—		0.42
Consumer	1.00		2.62
Total	3.00	%	0.66

At September 30, 2024, there were $5.4 million in commitments to lend additional funds to borrowers experiencing financial difficulty whose terms have been modified during the nine months ended September 30, 2024. At December 31, 2023, there were $6.6 million in commitments to lend additional funds to borrowers experiencing financial difficulty whose terms have been modified during the year ended December 31, 2023.

The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The Company considers a modified loan as a payment default if the borrower is 90 or more days past due. There were no loans 90 days past due or in default that have been modified in the past 12 months.

(h) Accrued interest receivable on loans receivable

Accrued interest receivable on loans receivable totaled $14.8 million and $13.3 million at September 30, 2024 and December 31, 2023, 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, 2024, there was one home equity loan valued at $160,000, secured by residential real estate for which formal foreclosure proceedings were in process. At December 31, 2023, there were no home equity loans secured by residential real estate for which formal foreclosure proceedings were in process.