Segment Reporting

9 Months Ended

Sep. 30, 2023

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

As defined in ASC 280, Segment Reporting, an operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision makers to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. We evaluate performance based on an internal performance measurement accounting system, which provides line of business results. This system uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income and expense. A primary objective of this measurement system and related internal financial reporting practices are to produce consistent results that reflect the underlying financial impact of the segments on the Company and to provide a basis of support for strategic decision making. The accounting policies applicable to our segments are those that apply to our preparation of the accompanying Consolidated Financial Statements. Based on these criteria, we have identified three segments: the community bank, CCBX, and treasury & administration. The community bank segment includes all community banking activities, with a primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides banking as a service (“BaaS”) that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment has 22 partners as of September 30, 2023. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments.

The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The Company continues to evaluate its methodology on allocating items to the Company’s various segments to support strategic business decisions by the Company’s executive leadership. Income and expenses that are specific to a segment are directly posted to each segment. Additionally, certain

indirect expenses are allocated to each segment utilizing various metrics, such as number of employees, utilization of space, and allocations based on loan and deposit balances. We have implemented a transfer pricing process that credits or charges the community bank and CCBX segments with intrabank interest income or expense for the difference in average loans and average deposits, with the treasury & administration segment as the offset for those entries.

	Nine Months Ended September 30, 2023								Nine Months Ended September 30, 2022
	Community Bank		CCBX		Treasury & Administration		Consolidated		Community Bank		CCBX		Treasury & Administration		Consolidated
	(dollars in thousands; unaudited)
Net interest income, before    intrabank transfer	$	66,887	$	102,311	$	9,872	$	179,070	$	56,011	$	58,172	$	4,160	$	118,343
Interest income (expense)    intrabank transfer	(6,605)		11,234		(4,629)		—		872		2,051		(2,923)		—
Provision for credit    losses - loans	1,045		122,254		—		123,299		214		45,250		—		45,464
(Recapture)/Provision for    unfunded commitments	(203)		107		—		(96)		—		—		—		—
Noninterest income(1)	3,866		138,094		521		142,481		4,052		77,681		136		81,869
Noninterest expense	28,748		102,192		22,134		153,074		23,735		77,792		18,144		119,671
Net income before income taxes	34,558		27,086		(16,370)		45,274		36,986		14,862		(16,771)		35,077
Income taxes	7,409		5,807		(3,509)		9,707		7,982		3,207		(3,619)		7,570
Net Income	$	27,149	$	21,279	$	(12,861)	$	35,567	$	29,004	$	11,655	$	(13,152)	$	27,507
(1)For the nine months ended September 30, 2023, CCBX noninterest income includes credit enhancements of $119.3 million, fraud enhancements of $6.4 million and BaaS program income of $11.9 million. For the nine months ended September 30, 2022, CCBX noninterest income includes credit enhancements of $45.2 million, fraud enhancements of $22.8 million and BaaS program income of $9.3 million.