What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-27 compared with 2025-02-27 · 99 added, 92 removed, 555 unchanged (26% of the section changed)

27 unchanged sentences

Professional services expense consists primarily of third party service providers such as auditors, consultants and lawyers.

Results of operations may also be significantly affected by general and local economic and competitive conditions, changes in accounting, tax and regulatory rules, governmental policies and actions of regulatory authorities, including changes resulting from inflation and the governmental actions taken to address this issue, as well as changes in policies driven by the new presidential administration.

Net income is also impacted by growth of operations through organic growth or acquisitions.

See also "Cautionary Note Regarding Forward-Looking Statements."

Recent Acquisition

On January 31, 2026, the Company its acquisition of Olympic Bancorp, Inc., a bank holding company headquartered in Port Orchard, Washington, whereby Olympic merged with and into the Company, and subsequently Kitsap Bank, Olympic's wholly-owned banking subsidiary, merged with and into the Bank.

Pursuant to the terms of the merger agreement, Olympic shareholders received 45.0 shares of Heritage common stock for each share of Olympic common stock based on a fixed exchange ratio.

Olympic's principal activity was the ownership and operation of Kitsap Bank, a state-chartered banking institution that operated sixteen branches in Washington at the time of closing.

The Company accounts for these transactions under the acquisition method of accounting, and thus, the financial position and results of operations of acquired institutions prior to the consummation date are not included in the accompanying consolidated financial statements.

The acquisition method of accounting requires assets purchased and liabilities assumed to be recorded at their respective fair values at the date of acquisition.

The Company determines the fair value of core deposit intangibles, securities, premises and equipment, loans, other assets and liabilities, deposits and borrowings with the assistance of third party valuations, appraisals, and third party advisors.

The estimated fair values are subject to refinement for up to one year after deal consummation as additional information becomes available relative to the closing date fair values.

Results of Operations

Net income was $43.3 million, or $1.24 per diluted common share, for the year ended December 31, 2024 down from $61.8 million, or $1.75 per diluted common share, for the year ended December 31, 2023.

Net income decreased $18.5 million, or 30.0%, compared to the year ended December 31, 2023 due primarily to a decrease in net interest income of $15.8 million to $209.4 million from $225.2 million and an increase in losses on sales of investment securities of $10.5 million to $22.7 million from $12.2 million, largely as a result of investment portfolio repositioning, which decreased noninterest income.

These decreases were partially offset by a decrease in noninterest expense of $8.3 million.

During the year ended December 31, 2024, the company also restructured its BOLI portfolio, incurring additional tax expense of $2.4 million and other costs of $508,000 related to the surrender of certain BOLI policies.

Net income was $67.5 million, or $1.96 per diluted common share, for the year ended December 31, 2025 up from $43.3 million, or $1.24 per diluted common share, for the year ended December 31, 2024.

Net income increased $24.3 million, or 56.1%, compared to the year ended December 31, 2024 due primarily to an increase in net interest income of $15.0 million to $224.4 million from $209.4 million and a decrease in losses on sales of investment securities of $12.0 million to $10.7 million from $22.7 million, largely as a result of a smaller amount of investment portfolio repositioning in 2025 compared to 2024, which increased noninterest income.

These increases were partially offset by an increase in noninterest expense of $7.3 million.

Net Interest Income and Margin Overview

5 unchanged sentences

and asset quality.

Market rates impact the results of the Company's net interest income, including the significant changes in the federal funds target rate that have been made by the Federal Reserve since 2022 in response to inflationary pressures.

Market rates impact the results of the Company's net interest income, including the changes in the federal funds target rate that have been made by the Federal Reserve.

The following table provides the federal funds target rate history and changes since December 15, 2022 :

Change Date Rate (%) Rate Change (%)

December 31, 2021 0.00% - 0.25% N/A

March 17, 2022 0.25% - 0.50% 0.25 %

May 5, 2022 0.75% - 1.00% 0.50 %

June 16, 2022 1.50% - 1.75% 0.75 %

July 28, 2022 2.25% - 2.50% 0.75 %

September 22, 2022 3.00% - 3.25% 0.75 %

November 3, 2022 3.75% - 4.00% 0.75 %

December 15, 2022 4.25% - 4.50% 0.50 %

6 unchanged sentences

December 19, 2024 4.25% - 4.50% (0.25) %

September 18, 2025 4.00% - 4.25% (0.25) %

October 30, 2025 3.75% - 4.00% (0.25) %

December 11, 2025 3.50% - 3.75% (0.25) %

Average Balances, Yields and Rates Paid

4 unchanged sentences

Interest Earning Assets:

Loans receivable, net (2)(3)

Loans receivable (2)(3)

$ 4,773,760 $ 262,900 5.51 % $ 4,536,499 $ 247,472 5.46 % $ 4,201,737 $ 217,284 5.17 %

12 unchanged sentences

Junior subordinated debentures 22,201 1,872 8.43 21,910 2,139 9.76 21,615 2,074 9.60

Year Ended December 31,

2024 2023 2022

(Dollars in thousands)

Securities sold under agreement to repurchase — — — — — — 32,976 153 0.46

8 unchanged sentences

(1) Average balances are calculated using daily balances.

Average yield/rate is annualized.

(2) Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield.

Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $3.6 million, $3.3 million and $7.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.

(2) Average loans receivable, includes loans held for sale and loans classified as nonaccrual, which carry a zero yield.

Interest earned on loans receivable, includes the amortization of net deferred loan fees of $3.7 million, $3.6 million and $3.3 million for the years ended December 31, 2025, 2024 and 2023, respectively.

(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

17 unchanged sentences

Junior subordinated debentures 28 (295) (267)

Securities sold under agreement to repurchase (77) (76) (153)

Borrowings (12,731) (1,786) (14,517)

23 unchanged sentences

Total interest income increased $4.5 million, or 1.5%, to $314.2 million for the year ended December 31, 2025 compared to $309.7 million for the year ended December 31, 2024.

The increase was primarily due to a 40 basis point increase in the yield on interest earning assets to 4.93% for the year ended December 31, 2024, compared to 4.53% for the year ended December 31, 2023 following increases in market interest rates and secondarily due to a change in the mix of earning assets to higher yielding loan balances.

Total interest expense increased $41.0 million, or 69.2%, to $100.3 million for the year ended December 31, 2024 compared to $59.3 million for the year ended December 31, 2023 due primarily to increased costs of interest bearing deposits resulting from competitive rate pressures as well as customers transferring balances from non-maturity deposits to higher rate certificates of deposits and an increase in borrowing balances and rates.

The total cost of interest bearing liabilities increased 87 basis points to 2.27% for the year ended December 31, 2024, compared to 1.40% for the year ended December 31, 2023.

The net interest margin decreased 25 basis points to 3.33% for the year ended December 31, 2024 compared to 3.58% for the year ended December 31, 2023.

The decrease in net interest margin was due primarily to increases in the average cost of interest bearing liabilities as a result of upward market pressure related to deposit rates and an increase in borrowing balances and rates.

This was partially offset by increases in average yields on total interest earning assets as a result of increases in market interest rates.

The increase was primarily due to a 12 basis point increase in the yield on interest earning assets to 5.01% for the year ended December 31, 2025, compared to 4.89% for the year ended December 31, 2024 due primarily to a change in the mix of earning assets to higher yielding loan balances.

Total interest expense decreased $10.5 million, or 10.5%, to $89.8 million for the year ended December 31, 2025 compared to $100.3 million for the year ended December 31, 2024 due primarily to a decrease in borrowing rates and average balances, offset partially by an increase in average balances of interest bearing deposits.

The total cost of interest bearing liabilities

decreased 23 basis points to 2.04% for the year ended December 31, 2025, compared to 2.27% for the year ended December 31, 2024.

Net interest margin increased 27 basis points to 3.58% for the year ended December 31, 2025 compared to 3.31% for the year ended December 31, 2024.

The increase in net interest margin was due primarily to an increase in average yields on total interest earning assets, including a change in mix of assets to higher yielding loans from lower yielding investments and interest earning deposits and a decrease in the average cost of interest bearing liabilities .

Provision for Credit Losses Overview

The aggregate of the provision for (reversal of) credit losses on loans and on unfunded commitments is presented in the Consolidated Statements of Income as the "Provision for (reversal of) credit losses." The ACL on unfunded commitments is included in the Consolidated Statements of Financial Condition within "Accrued expenses and other liabilities."

The aggregate of the provision for (reversal of) credit losses on loans and on unfunded commitments is presented in the Consolidated Statements of Income as the "Provision for credit losses." The ACL on unfunded commitments is included in the Consolidated Statements of Financial Condition within "Accrued expenses and other liabilities."

The following table presents the provision for (reversal of) credit losses for the periods indicated:

3 unchanged sentences

Provision for credit losses on loans $ 1,508 $ 6,983 $ (5,475) (78.4) %

Reversal of provision for credit losses on unfunded commitments (701) (456) (245) 53.7

Provision for (reversal of) credit losses on unfunded commitments 460 (701) 1,161 (165.6)

Provision for credit losses $ 1,968 $ 6,282 $ (4,314) (68.7) %

The provision for credit losses on loans recognized during the year ended December 31, 2025 was due primarily to $1.4 million in charge-offs recognized.

The provision for credit losses on loans recognized during the year ended December 31, 2024 was due primarily to growth in balances of collectively evaluated loans.

The ACL on loans to loans receivable decreased to 1.09% at December 31, 2024, compared to 1.11% at December 31, 2023 due to changes in the loan mix as loan growth occurred in segments requiring a lower calculated reserve as a percentage of loans.

The reversal of provision for credit losses on unfunded commitments recognized during the year ended December 31, 2024 was due primarily to an increase in utilization rates on lines of credit and a decrease in the unfunded exposure on construction loans.

The provision for credit losses on unfunded commitments recognized during the year ended December 31, 2025 was due primarily to a decrease in utilization rates on lines of credit, offset partially by an increase in the unfunded exposure on construction loans.

Noninterest Income Overview

9 unchanged sentences

Interest rate swap fees 496 409 87 21.3

Bank owned life insurance income 2,967 2,934 33 1.1

BOLI income 4,378 2,967 1,411 47.6

Gain on sale of other assets, net 8 1,552 (1,544) (99.5)

1 unchanged sentence

Total noninterest income $ 21,732 $ 7,473 $ 14,259 190.8 %

Nonintere st income decreased $11.2 million, or 60.0%, during the year ended December 31, 2024 compared to the same period in 2023.

This decline was primarily driven by a pre-tax loss of $22.7 million incurred on the sale of investment securities available for sale during the year ended December 31, 2024, compared to a pre-tax loss of $12.2 million incurred during the same period in 2023.

Nonintere st income in creased $14.3 million, or 190.8%, during the year ended December 31, 2025 compared to the same period in 2024.

This increase was primarily driven by a lower pre-tax loss of $10.7 million incurred on the sale of investment securities available for sale during the year ended December 31, 2025, compared to a pre-tax loss of $22.7 million incurred during the same period in 2024.

The loss on the sale of investment securities in 2025 was a consequence of strategically repositioning the Company's investment portfolio, involving the sale of $152.4 million in investment securities, with the aim of enhancing future earnings.

Card revenue declined due to lower deposit transaction volumes.

The decrease in other income during the year ended December 31, 2024 was primarily due to a one-time sale of Visa Inc.

Class B common stock of $1.6 million and a $610,000 gain on sale of the Ellensburg branch recognized during the year ended December 31, 2023.

Gain on sale of loans, net declined as the Company is no longer originating mortgage loans for sale.

These decreases were partially offset by an increase in the gain on sale of other assets, net due to a $1.5 million gain on the sale of an administrative building recognized during the year ended December 31, 2024 and an increase in service charges due primarily to an increase in service charge income on commercial deposit accounts.

BOLI income increased $1.4 million due primarily to an increase in revenue earned as a result of restructuring the BOLI portfolio which occurred at the end of 2024.

Service charge income increased $720,000 due primarily to an increase in service charges on business deposit accounts.

Other income increased primarily due to an increase in wealth management income, FHLB dividends received and merchant VISA fee income.

These increases were partially offset by a decrease in the gain on sale of other assets, net due to a $1.5 million gain on the sale of an administrative building recognized during the year ended December 31, 2024.

Noninterest Expense Overview

13 unchanged sentences

Total noninterest expense $ 165,566 $ 158,296 $ 7,270 4.6 %

Noninterest expense decreased $8.3 million, or 5.0%, during the year ended December 31, 2024 compared to the same period in 2023.

Compensation and employee benefits decreased $1.6 million due primarily to a decrease in the average number of full-time equivalent employees to 751 as of December 31, 2024, compared to 803 as of December 31, 2023, in connection with expense management initiatives.

These expense management initiatives also impacted data processing expense, which decreased primarily due to a decline in ongoing costs resulting from prior technology-related contract renewals and terminations and decreased marketing and other expense.

Professional services expense decreased during the year ended December 31, 2024 due primarily to a $1.5 million expense related to renewal of the core vendor contract recognized during the prior year.

Amortization of intangible assets decreased due to the full amortization of the core deposit intangible related to a prior acquisition.

This was offset partially by an increase in state/municipal business and use tax expense due primarily to an increase in gross revenue.

Noninterest expense increased $7.3 million, or 4.6%, during the year ended December 31, 2025 compared to the same period in 2024.

Compensation and employee benefits increased $5.5 million due primarily to annual merit increases in base pay, an increase in benefit costs and an increase in incentive compensation.

Professional services increased $1.7 million due primarily to costs associated with the acquisition of Olympic and consulting costs related to technology-related contract renewals.

The increases were partially offset by a $466,000 reduction in the amortization of intangible assets due to the full amortization of the core deposit intangible related to a prior acquisition and a $408,000 decrease in occupancy expense due primarily to lower depreciation expense as compared to the prior year.

Income Tax Expense Overview

7 unchanged sentences

Effective income tax rate 14.1 % 17.2 % (3.1) % (18.0) %

Income tax expense decreased during the year ended December 31, 2024 primarily due to lower pre-tax income.

This decrease was partially offset by additional tax expense of $2.4 million related to the surrender of certain BOLI policies as part of a BOLI restructuring which occurred in the fourth quarter of 2024.

The effective income tax rate increased due primarily to the additional tax expense related to the surrender of BOLI policies.

Income tax expense increased during the year ended December 31, 2025 due primarily to higher pre-tax income.

The Company also incurred additional tax expense of $2.4 million related to the surrender of certain BOLI policies as part of a BOLI restructuring in the fourth quarter of 2024.

The effective income tax rate decreased during the year ended December 31, 2025 due primarily to the additional tax expense related to the previously discussed surrender of BOLI policies recognized in the prior year.

Financial Condition Overview

7 unchanged sentences

Loans receivable, net 4,730,682 4,749,655 (18,973) (0.4)

December 31, Change

2025 2024 $ %

Premises and equipment, net 74,690 71,580 3,110 4.3

12 unchanged sentences

Total liabilities 6,045,846 6,242,751 (196,905) (3.2)

December 31, Change

2024 2023 $ %

Common stock 531,100 531,674 (574) (0.1)

3 unchanged sentences

Total liabilities and stockholders' equity $ 6,967,350 $ 7,106,278 $ (138,928) (2.0) %

Total assets decreased due primarily to decreases in investment securities and cash and cash equivalents offset partially by an increase in loans receivable.

Total assets decreased due primarily to decreases in investment securities offset partially by an increase in cash and cash equivalents.

Total liabilities decreased due primarily to a decrease in borrowings and accrued expenses and other liabilities offset partially by an increase in deposits.

Total stockholders' equity increased due primarily to net income as well as an increase in AOCI as a result of a decrease in other comprehensive income (loss), net of tax, which was positively impacted by the fair value of our investment securities available for sale as well as the sale of securities at a loss.

Total stockholders' equity increased due primarily to net income as well as a decrease in accumulated other comprehensive loss, which was positively impacted by the fair value of our investment securities available for sale as well as the sale of securities at a loss.

The changes are discussed in more detail in the sections below.

18 unchanged sentences

Total 607,522 47.4 764,394 52.1 (156,872) (20.5)

December 31, 2025 December 31, 2024 Change

Total Balance % of

(Dollars in thousands)

Investment securities held to maturity, at amortized cost:

57 unchanged sentences

Total $ 4,783,266 100.0 % $ 4,802,123 100.0 % $ (18,857) (0.4) %

Loans receivable increased $466.5 million, or 10.8%, to $4.80 billion at December 31, 2024 from $4.34 billion at December 31, 2023.

New loans funded in the year ended December 31, 2024 totaled $626.2 million and loan prepayments were $176.7 million.

Non-owner occupied CRE loans increased $211.5 million, or 12.5%, due primarily to new loan production during the year ended December 31, 2024 and advances on outstanding commitments.

Commercial and industrial loans increased $124.4 million, or 17.3%, due primarily to new loan production of $232.5 million during the year ended December 31, 2024, offset by pay downs on outstanding balances.

Commercial and multifamily construction loans increased $59.7 million, or 17.8%, during the year ended December 31, 2024 due primarily to new loan commitments of $149.3 million and advances on new and outstanding commitments.

Residential real estate loans increased $27.6 million, or 7.4%, due primarily to loan purchases during the year ended December 31, 2024.

Loans receivable decreased $18.9 million, or 0.4%, to $4.78 billion at December 31, 2025 from $4.80 billion at December 31, 2024.

New loans funded in the year ended December 31, 2025 totaled $583.3 million.

Prepaid and closed loans were elevated in 2025 at $520.3 million, compared to $312.3 million in the prior year.

Commercial and industrial loans decreased $24.7 million, or 2.9%, due primarily to pay downs on outstanding balances, partially offset by new loan production of $138.7 million during the year ended December 31, 2025.

Owner-occupied CRE loans increased $31.6 million, or 3.1%, due to new loan production of $137.2 million during the year ended December 31, 2025, partially offset by pay downs on outstanding balances.

Non-owner occupied CRE loans increased $148.7 million, or 7.8%, due primarily to transfers from commercial and multifamily construction loans and new loan production of $218.3 million, partially offset by pay downs on outstanding balances.

Residential real estate loans decreased $44.1 million, or 10.9%, due to pay downs on outstanding balances.

The Company did not originate or purchase residential real estate loans during the year ended December 31, 2025.

Residential construction loans increased $11.5 million, or 13.7%, due primarily to new loan production and advances on current loans.

Commercial and multifamily construction loans decreased $147.6 million, or 37.3%, during the year ended December 31, 2025 due primarily to transfers to non-owner occupied CRE loans and paydowns on outstanding balances.

Owner-occupied CRE and non-owner occupied CRE loans increased $180.3 million to $3.09 billion at December 31, 2025 compared to $2.91 billion at December 31, 2024 .

13 unchanged sentences

Single purpose 134,290 4.3 125,430 4.3 8,860 7.1

December 31, 2025 December 31, 2024 Change

Amortized Cost % of CRE Loans Amortized Cost % of CRE Loans $ %

(Dollars in thousands)

Recreational / school 83,047 2.7 68,416 2.3 14,631 21.4

2 unchanged sentences

Office loans represented the l argest segment of owner-occupied and non-owner occupied CRE loans totaling $588.8 million, or 19.0% of the total owner-occupied CRE and non-owner occupied CRE at December 31, 2025.

Of this total, $291.5 million, or 51.5%, were owner-occupied CRE loans which have a lower risk profile as there is less tenant rollover risk, 81.0% have recourse to the owners and 24.6% of loans are borrowers in the health care and social assistance sectors, who are less likely to reduce office space.

Of this total, $288.9 million, or 49.1%, consisted of owner-occupied CRE loans which have a lower risk profile as there is less tenant rollover risk, 82.0% have recourse to the owners and 24.8% of loans are to borrowers in the health care and social assistance sectors, who are less likely to reduce office space.

Multi-family loans increased $105.9 million, or 25.5% to $520.6 million from $414.7 million December 31, 2024 due primarily to conversion of multi-family construction loans to permanent loans.

The average individual loan balance of owner-occupied CRE and non-owner occupied CRE was $1.4 million at December 31, 2025.

29 unchanged sentences

302,105 56,729 358,834

Have predetermined interest rates (1)

Have floating or adjustable interest rates (1)

(Dollars in thousands)

Real estate construction and land development:

5 unchanged sentences

(1) Includes $258.7 million of commercial business loans with floating or adjustable interest rates in which the Company entered into non-hedge interest rate swap contracts with the borrower and a third party.

Under these derivative contract arrangements, the Company effectively earns a variable rate of interest based on the one-month SOFR plus a margin, except for interest rate swap contracts on construction loans that earn fixed rates until the end of the construction period and the variable rate swap becomes effective.

Under these derivative contract arrangements, the Company effectively earns a variable rate of interest based on the one-month SOFR plus a margin.

Loans classified as nonaccrual, performing modified loans and nonperforming assets

The following tables provide information about our nonaccrual loans, performing modified loans and nonperforming assets at the dates indicated:

The following tables provide information about our nonaccrual loans, nonperforming assets and performing modified loans at the dates indicated:

December 31, 2025 December 31, 2024 $ %

2 unchanged sentences

Commercial business $ 6,886 $ 3,919 $ 2,967 75.7 %

Residential real estate

1,196 — 1,196 100.0

Real estate construction and land development 12,408 — 12,408 100.0

Consumer 486 160 326 203.8

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Balance, end of period $ 20,976 $ 4,079 $ 16,897 414.2 %

Nonaccrual loans decreased $0.4 million, or 8.7%, due primarily to ongoing collection efforts.

Additions during the year ended December 31, 2024 were due primarily to one $5.0 million owner occupied CRE loan of which $2.5 million was charged off.

Payoffs during the year ended December 31, 2024 were due primarily to the payoff of one commercial and industrial loan relationship.

Nonaccrual loans increased $16.9 million, or 414.2%, due primarily to the migration of two residential construction loans totaling $6.7 million, one $6.0 million commercial and multifamily construction loan, one $1.7 million commercial and industrial loan, and three non-owner occupied CRE loans totaling $3.9 million during the year ended December 31, 2025.

These additions were partially offset by principal payments of $3.5 million including a $2.0 million pay down of one owner-occupied CRE loan.

Allowance for Credit Losses on Loans Overview

10 unchanged sentences

Residential real estate

Real estate construction and land development — — 384

Consumer 152 122 210

1 unchanged sentence

Net (charge-offs) recoveries (1,392) (2,514) 277

Provision for (reversal of) credit losses on loans 6,983 4,736 (563)

Provision for credit losses on loans 1,508 6,983 4,736

ACL on loans at the end of period $ 52,584 $ 52,468 $ 47,999

At or For the Years Ended December 31,

2024 2023 2022

(Dollars in thousands)

Credit quality ratios:

12 unchanged sentences

Residential real estate 382,502 399,857 369,297

At or For the Years Ended December 31,

2025 2024 2023

(Dollars in thousands)

Real estate construction and land development 433,049 446,713 362,919

9 unchanged sentences

(1) Average balances exclude the ACL on loans and loans held for sale, but include loans classified as nonaccrual.

The provision for credit losses on loans of $7.0 million recognized during the year ended December 31, 2024 was due primarily to growth in balances of collectively evaluated loans and secondarily to $2.5 million in charge-offs.

The ACL on loans to loans receivable decreased to 1.09% as December 31, 2024, compared to 1.11% at December 31, 2023 due to changes in the loan mix as loan growth occurred in segments requiring a lower calculated reserve as a percentage of loans as well as a reduction in the baseline loss rates applied and weighted average life of the residential real estate and real estate construction and land development segments which contributed to a decrease in the ACL as a % of loans in these loan segments.

The ACL on loans to loans receivable increased to 1.10% at December 31, 2025, compared to 1.09% at December 31, 2024 primarily to an increase in the weighted average life of residential real estate and real estate construction and land development loans which increased the ACL as a percentage of loans in these segments.

The following table presents the ACL on loans by loan portfolio segment at the indicated dates:

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Total deposits increased $235.6 million, or 4.1%, to $5.92 billion at December 31, 2025, compared to $5.68 billion at December 31, 2024.

Certificates of deposit increased $284.3 million, or 41.0%, to $977.3 million from $693.0 million and money market accounts increased $72.6 million, or 6.6%, to $1.17 billion from $1.09 billion primarily due to transfers from lower yielding non-maturity deposit accounts as customers moved balances to higher yielding accounts.

Non-maturity deposits increased by $275.0 million, or 5.8%, due primarily to a $168.0 million increase in money market accounts and a $163.1 million increase in interest bearing demand accounts from new accounts opened and transfers of funds from existing noninterest bearing demand deposit accounts into these higher yielding accounts.

The decline in certificates of deposit of $39.4 million, or 4.0%, was due primarily to a decline in brokered deposits.

Total deposits include uninsured deposits of approximately $2.43 billion and $2.27 billion at December 31, 2025 and 2024, respectively, calculated in accordance with FDIC guidelines.

Uninsured deposits included $267.8 million and $256.4 of fully collateralized deposits as of December 31, 2024 and December 31, 2023.

Uninsured deposits included $286.4 million and $267.8 million of fully collateralized deposits as of December 31, 2025 and December 31, 2024, respectively.

The Bank does not hold any foreign deposits.

15 unchanged sentences

Dividends declared (33,010) (32,150) (860) 2.7

Other comprehensive income (loss), net of tax

17,232 27,374 (10,142) (37.0)

Other comprehensive income, net of tax 24,029 17,232 6,797 39.4

Common stock repurchased (5,517) (22,418) 16,901 (75.4)

1 unchanged sentence

Balance, end of period $ 921,504 $ 863,527 $ 57,977 6.7 %

Stockholders' equity increased for the year ended December 31, 2024 primarily as a result of net income and an increase in AOCI as a result of a decrease in other comprehensive income (loss), net of tax, which was positively impacted by the fair value of our investment securities available for sale and losses recognized on investment sales.

AOCI has no effect on our regulatory capital ratios as the Company opted to exclude it from its common equity tier 1 capital.

Stockholders' equity increased for the year ended December 31, 2025 primarily as a result of net income and a decrease in other comprehensive loss, net of tax, which was positively impacted by the fair value of our investment securities available for sale and losses recognized on investment sales.

Accumulated other comprehensive income (loss) has no effect on our regulatory capital ratios as the Company opted to exclude it from its common equity tier 1 capital.

Cash dividends and stock repurchases partially offset the increase in stockholders' equity during the year ended December 31, 2025.

On April 24, 2024, the Board authorized the repurchase of up to 5% of the Company's outstanding common shares, or 1,734,492 shares in total, under a new stock repurchase program.

On April 24, 2024, the Board authorized the repurchase of up to 5% of the Company's outstanding common shares, or 1,734,492 shares in total.

The stock repurchase program does not obligate the Company to repurchase any shares of its common stock, and other than repurchases that have been completed to date, there is no assurance that the Company will make any repurchases in the future.

Under the stock repurchase program, the Company may

repurchase shares of common stock from time to time in open market or privately negotiated transactions.

Under the stock repurchase program, the Company may repurchase shares of common stock from time to time in open market or privately negotiated transactions.

The number, timing and price of shares repurchased will depend on business and market conditions, regulatory requirements, availability of funds and other factors, including opportunities to deploy the Company's capital.

2 unchanged sentences

At the time the April 2024 stock repurchase program was authorized, 3,910 shares remained available for purchase under the March 2020 stock repurchase program.

The Company repurchased 1,051,760 and 330,424 shares of its common stock under the Company's stock repurchase plan during the years ended December 31, 2024 and December 31, 2023, respectively.

The Company also repurchased 31,850 and 32,792 shares during the years ended December 31, 2024 and December 31, 2023, respectively, which represented the cancellation of stock to pay withholding taxes on vested restricted stock awards or units.

The Company repurchased 193,690 and 1,051,760 shares of its common stock under the its stock repurchase plan during the years ended December 31, 2025 and December 31, 2024, respectively.

As of December 31, 2025, 796,832 shares remained available for future repurchases under the April 2024 stock repurchase program.

The Company also repurchased 42,098 and 31,850 shares during the years ended December 31, 2025 and December 31, 2024, respectively, which represented the cancellation of stock to pay withholding taxes on vested restricted stock awards or units.

Liquidity and Capital Resources

3 unchanged sentences

These activities are generally included as investing activities in the Consolidated Statements of Cash Flows.

Net cash used by investing activities was $85.9 million during the year ended December 31, 2024.

Net increases in loan balances from both loan originations and purchases used $464.6 million of cash, while investment securities sales and maturities, net of purchases provided $406.2 million in cash.

Net cash provided by investing activities was $186.8 million during the year ended December 31, 2025.

Investment securities sales and maturities, net of purchases provided $207.3 million in cash and decreases in loan balances provided $21.6 million of cash during the year ended December 31, 2025, offset partially by $63.3 million in capital contributions to tax credit partnerships.

Liquidity may also be affected by liabilities as a result of changes in deposits and borrowings.

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We maintain credit facilities with the FHLB, which provide for advances that in the aggregate would equal the lesser of 45% of the Bank’s assets or adjusted qualifying collateral (subject to a sufficient level of ownership of FHLB stock).

At December 31, 2024, under these credit facilities based on pledged loan collateral, the Bank had $976.3 million of available credit capacity.

The Bank had $383.0 million in outstanding borrowings from the FHLB at December 31, 2024, and none at December 31, 2023.

In addition, the Bank has access to the FRB Discount Window and had access to the BTFP at December 31, 2023 and 2024, until the FRB ceased making new loans under the BTFP on March 11, 2024.

At December 31, 2025, under these credit facilities based on pledged loan collateral, the Bank had $1.3 billion of available credit capacity.

The Bank had $20.0 million in outstanding borrowings from the FHLB at December 31, 2025, compared to $383.0 million in outstanding borrowings from the FHLB at December 31, 2024.

In addition, the Bank has access to the FRB Discount Window.

Based on pledged investment collateral, the Bank had available lines of credit from the FRB of approximately $346.3 million as of December 31, 2025.

The Bank had no outstanding borrowings from the FRB at December 31, 2024 and $500.0 million in outstanding borrowings under the BTFP at December 31, 2023.

The Bank had no outstanding borrowings from the FRB at December 31, 2025 and December 31, 2024.

At December 31, 2025, the Bank also had uncommitted federal funds line of credit agreements with other financial institutions totaling $145.0 million.

No balances were outstanding under these agreements as of either December 31, 2024 or 2023.

No balances were outstanding under these agreements as of either December 31, 2025 or December 31, 2024.

Availability of lines of credit is subject to federal funds balances available for loan and continued borrower eligibility.

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Management's estimates for these inputs are based on past events and current conditions, are inherently subjective and are susceptible to significant revision as new or different information becomes available.

While management utilizes its best judgment and information available at the time of evaluation to recognize credit losses on loans, future additions to the allowance

may be necessary based on declines in local and national economic conditions or other factors.

While management utilizes its best judgment and information available at the time of evaluation to recognize credit losses on loans, future additions to the allowance may be necessary based on declines in local and national economic conditions or other factors.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL on loans.

11 unchanged sentences

the general economic environment;

banking industry and market conditions;

banking industry and market

a significant adverse change in legal factors;

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis