HERITAGE FINANCIAL CORP /WA/ 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and the Board of Directors of Heritage Financial Corporation Olympia, Washington Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying Consolidated Statements of Financial Condition of Heritage Financial Corporation and Subsidiaries (the "Company") as of December 31, 2025 and 2024, the related Consolidated Statements of Income, Comprehensive Income (Loss), Stockholders’ Equity, and Cash Flows, for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in the 2013 Internal Control – Integrated Framework issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, 51 Table of Contents and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses on Loans – Qualitative Allowance As described in Note (1) Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements and Note (4) Allowance for Credit Losses on Loans to the consolidated financial statements, the Company’s consolidated allowance for credit losses (“ACL”) on loans was $52.6 million at December 31, 2025 and provision for credit losses on loans was $1.5 million for the year then ended. The evaluation of ACL on loans is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management utilizes its best judgment and information available to recognize estimated losses on loans, future additions to the allowance may be necessary based on further declines in local and national economic conditions. The Company primarily uses a historic loss, open pool credit loss methodology to calculate the ACL on loans, which the Company has applied to identified loan segments with similar risk characteristics. The allowance for collectively evaluated loans is comprised of the baseline loss allowance, the macroeconomic allowance, and the qualitative allowance. The baseline loss allowance begins with the baseline loss rates calculated using average quarterly historical loss information for an economic cycle. The baseline loss rates are applied to each loan’s estimated cash flows over the life of the loan under the remaining life method to determine the baseline loss estimate for each loan. The Company uses macroeconomic scenarios from independent third parties. These scenarios are based on past events, current conditions, the likelihood of future events occurring and include consideration of the forecasted direction of the economic and business environment and its likely impact on the estimated allowance as compared to the historical losses over the reasonable and supportable time frame. Management also considers other qualitative risk factors to further adjust the estimated ACL on loans through a qualitative allowance. Qualitative adjustments primarily relate to certain segments of the loan portfolio deemed by management to be of a higher-risk profile where management believes the quantitative component of the Company’s ACL model may not have fully captured the associated impact to the ACL. Qualitative adjustments also relate to heightened uncertainty as to future macroeconomic conditions and the related impact on the loan segments. The subjective nature of the qualitative risk factor adjustments requires significant judgment by management both in the selection of qualitative factors to apply, if any, and the magnitude of the adjustment once selected. The audit procedures over the qualitative allowance utilized in management’s methodology involved especially challenging and subjective auditor judgment. Therefore, we identified auditing the ACL qualitative allowance as a critical audit matter. Our audit procedures to address this critical audit matter primarily included the following: • Tested the operating effectiveness of controls over application of the qualitative factors, including: ◦ The Company’s ACL committee’s review and approval of the qualitative risk factor adjustments used to derive the qualitative allowance for the ACL on loans, and the relevance and reliability of the data used therein. ◦ Management’s controls over the completeness and accuracy of the data utilized in the qualitative allowance for the ACL on loans. • Substantively tested management’s application of the macroeconomic sensitive model and related factors including: ◦ Evaluated the reasonableness of management’s judgments used in the determination of the qualitative risk factor adjustments by loan segment and the resulting allocation to the qualitative allowance for the ACL on loans. ◦ Evaluated the reliability and relevance of data used as a basis for the qualitative risk factor adjustments. ◦ Tested the completeness and accuracy of the data utilized in management’s ACL methodology to derive the qualitative allowance for the ACL on loans. /s/ Crowe LLP We have served as the Company's auditor since 2012. Sacramento, California February 27, 2026 52 Table of Contents HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except share data) December 31, 2025 December 31, 2024 ASSETS Cash on hand and in banks $ 52,587 $ 58,821 Interest earning deposits 180,502 58,279 Cash and cash equivalents 233,089 117,100 Investment securities available for sale, at fair value, net (amortized cost of $ 647,505 and $ 835,592 , respectively) 607,522 764,394 Investment securities held to maturity, at amortized cost, net (fair value of $ 625,287 and $ 623,452 , respectively) 674,107 703,285 Total investment securities 1,281,629 1,467,679 Loans receivable 4,783,266 4,802,123 Allowance for credit losses on loans ( 52,584 ) ( 52,468 ) Loans receivable, net 4,730,682 4,749,655 Premises and equipment, net 74,690 71,580 Federal Home Loan Bank stock, at cost 5,163 21,538 Bank owned life insurance 105,974 111,699 Accrued interest receivable 19,280 19,483 Prepaid expenses and other assets 273,925 303,452 Other intangible assets, net 1,979 3,153 Goodwill 240,939 240,939 Total assets $ 6,967,350 $ 7,106,278 LIABILITIES AND STOCKHOLDERS' EQUITY Non-interest bearing deposits $ 1,597,650 $ 1,654,955 Interest bearing deposits 4,322,549 4,029,658 Total deposits 5,920,199 5,684,613 Borrowings 20,000 383,000 Junior subordinated debentures 22,350 22,058 Accrued expenses and other liabilities 83,297 153,080 Total liabilities 6,045,846 6,242,751 Commitments and contingencies (Note 18) Stockholders’ equity: Preferred stock, no par value, 2,500,000 shares authorized; no shares issued and outstanding, respectively — — Common stock, no par value, 50,000,000 shares authorized; 33,963,500 and 33,990,827 shares issued and outstanding, respectively 531,100 531,674 Retained earnings 421,619 387,097 Accumulated other comprehensive loss, net ( 31,215 ) ( 55,244 ) Total stockholders’ equity 921,504 863,527 Total liabilities and stockholders’ equity $ 6,967,350 $ 7,106,278 See accompanying Notes to Consolidated Financial Statements. 53 Table of Contents HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except shares and per share data) Year Ended December 31, 2025 2024 2023 INTEREST INCOME: Interest and fees on loans $ 262,900 $ 247,472 $ 217,284 Taxable interest on investment securities 44,966 54,972 58,509 Nontaxable interest on investment securities 549 651 1,854 Interest on interest earning deposits 5,821 6,617 6,818 Total interest income 314,236 309,712 284,465 INTEREST EXPENSE: Deposits 79,336 75,069 39,350 Junior subordinated debentures 1,872 2,139 2,074 Securities sold under agreement to repurchase — — 153 Borrowings 8,623 23,140 17,733 Total interest expense 89,831 100,348 59,310 Net interest income 224,405 209,364 225,155 Provision for credit losses 1,968 6,282 4,280 Net interest income after provision for credit losses 222,437 203,082 220,875 NONINTEREST INCOME: Service charges and other fees 12,005 11,285 10,966 Card revenue 7,742 7,752 8,340 Loss on sale of investment securities, net ( 10,741 ) ( 22,742 ) ( 12,231 ) Gain on sale of loans, net — 26 343 Interest rate swap fees 496 409 230 Bank owned life insurance income 4,378 2,967 2,934 Gain on sale of other assets, net 8 1,552 2 Other income 7,844 6,224 8,079 Total noninterest income 21,732 7,473 18,663 NONINTEREST EXPENSE: Compensation and employee benefits 104,023 98,527 100,083 Occupancy and equipment 18,881 19,289 19,156 Data processing 14,998 14,899 17,116 Marketing 1,251 988 1,930 Professional services 4,258 2,515 4,227 State/municipal business and use taxes 4,907 4,889 4,059 Federal deposit insurance premium 3,207 3,260 3,312 Amortization of intangible assets 1,174 1,640 2,434 Other expense 12,867 12,289 14,306 Total noninterest expense 165,566 158,296 166,623 Income before income taxes 78,603 52,259 72,915 Income tax expense 11,071 9,001 11,160 Net income $ 67,532 $ 43,258 $ 61,755 Basic earnings per share $ 1.99 $ 1.26 $ 1.76 Diluted earnings per share $ 1.96 $ 1.24 $ 1.75 Dividends declared per share $ 0.96 $ 0.92 $ 0.88 Average number of basic shares outstanding 33,996,149 34,465,323 35,022,247 Average number of diluted shares outstanding 34,456,904 34,899,036 35,258,189 See accompanying Notes to Consolidated Financial Statements. 54 Table of Contents HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Dollars in thousands) Year Ended December 31, 2025 2024 2023 Net income $ 67,532 $ 43,258 $ 61,755 Change in fair value of investment securities available for sale, net of tax of $ 4,591 , $( 290 ) and $ 4,850 , respectively 15,883 ( 217 ) 18,075 Amortization of net unrealized gain for the reclassification of investment securities available for sale to held to maturity, net of tax of $( 66 ), $( 73 ) and $( 69 ), respectively ( 230 ) ( 260 ) ( 248 ) Reclassification adjustment for net loss from sale of investment securities available for sale included in income, net of tax benefit of $ 2,365 , $ 5,033 and $ 2,684 , respectively 8,376 17,709 9,547 Other comprehensive income 24,029 17,232 27,374 Comprehensive income $ 91,561 $ 60,490 $ 89,129 See accompanying Notes to Consolidated Financial Statements. 55 Table of Contents HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except shares and per share data) Year Ended December 31, 2025 Number of common shares Common stock Retained earnings AOCI Total stockholders’ equity Balance at December 31, 2024 33,990,827 $ 531,674 $ 387,097 $ ( 55,244 ) $ 863,527 Restricted stock units vested 208,461 — Stock-based compensation expense 4,943 4,943 Common stock repurchased ( 235,788 ) ( 5,517 ) ( 5,517 ) Net income 67,532 67,532 Other comprehensive income, net of tax 24,029 24,029 Cash dividends declared on common stock ($ 0.96 per share) ( 33,010 ) ( 33,010 ) Balance at December 31, 2025 33,963,500 $ 531,100 $ 421,619 $ ( 31,215 ) $ 921,504 Year Ended December 31, 2024 Number of common shares Common stock Retained earnings AOCI Total stockholders’ equity Balance at December 31, 2023 34,906,233 $ 549,748 $ 375,989 $ ( 72,476 ) $ 853,261 Restricted stock units vested 168,204 — Stock-based compensation expense 4,344 4,344 Common stock repurchased ( 1,083,610 ) ( 22,418 ) ( 22,418 ) Net income 43,258 43,258 Other comprehensive income, net of tax 17,232 17,232 Cash dividends declared on common stock ($ 0.92 per share) ( 32,150 ) ( 32,150 ) Balance at December 31, 2024 33,990,827 $ 531,674 $ 387,097 $ ( 55,244 ) $ 863,527 Year Ended December 31, 2023 Number of common shares Common stock Retained earnings AOCI Total stockholders’ equity Balance at December 31, 2022 35,106,697 $ 552,397 $ 345,346 ( 99,850 ) $ 797,893 Restricted stock units vested 162,752 — Stock-based compensation expense 4,325 4,325 Common stock repurchased ( 363,216 ) ( 6,974 ) ( 6,974 ) Net income 61,755 61,755 Other comprehensive income, net of tax 27,374 27,374 Cash dividends declared on common stock ($ 0.88 per share) ( 31,112 ) ( 31,112 ) Balance at December 31, 2023 34,906,233 $ 549,748 $ 375,989 $ ( 72,476 ) $ 853,261 See accompanying Notes to Consolidated Financial Statements. 56 Table of Contents HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Year Ended December 31, 2025 2024 2023 Cash flows from operating activities: Net income $ 67,532 $ 43,258 $ 61,755 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and accretion 956 1,591 3,170 Provision for credit losses 1,968 6,282 4,280 Stock-based compensation expense 4,943 4,344 4,325 Amortization of intangible assets 1,174 1,640 2,434 Amortization of tax credit investments 24,656 19,853 16,456 Origination of mortgage loans held for sale — ( 1,318 ) ( 14,833 ) Proceeds from sale of mortgage loans held for sale — 1,344 15,176 Deferred income tax benefit ( 17,939 ) ( 15,291 ) ( 13,204 ) Bank owned life insurance income ( 4,378 ) ( 2,967 ) ( 2,934 ) Gain on sale of mortgage loans held for sale, net — ( 26 ) ( 343 ) Loss on sale of investment securities, net 10,741 22,742 12,231 Gain on sale of premises and equipment — ( 1,480 ) — Gain on sale of branch — — ( 610 ) Other 5,166 ( 15,489 ) 21,620 Net cash provided by operating activities 94,819 64,483 109,523 Cash flows from investing activities: Loan originations and purchases, net of payments 21,597 ( 464,585 ) ( 280,664 ) Maturities and repayments of investment securities available for sale 125,309 130,488 178,855 Maturities and repayments of investment securities held to maturity 28,486 35,236 26,063 Purchase of investment securities available for sale ( 88,169 ) ( 33,132 ) ( 178,396 ) Proceeds from sales of investment securities available for sale 141,682 273,633 219,700 Purchase of premises and equipment ( 9,156 ) ( 3,459 ) ( 10,376 ) Proceeds from sales of assets held for sale — 7,459 — Proceeds from redemption of Federal Home Loan Bank stock 40,516 47,552 50,318 Purchases of Federal Home Loan Bank stock ( 24,141 ) ( 64,904 ) ( 45,588 ) Proceeds from sales of premises and equipment 52 81 78 Purchases of bank owned life insurance ( 136 ) ( 18,531 ) ( 1,382 ) Proceeds from bank owned life insurance death benefit 502 1,157 20 Proceeds from surrender of bank owned life insurance 13,554 29,790 — Capital contributions to tax credit partnerships ( 63,346 ) ( 26,688 ) ( 38,248 ) Net cash paid related to branch divestiture — — ( 13,826 ) Net cash provided (used) by investing activities 186,750 ( 85,903 ) ( 93,446 ) Cash flows from financing activities: Net increase (decrease) in deposits 235,586 84,741 ( 310,303 ) Proceeds from borrowings 536,400 1,458,743 1,889,700 Repayment of borrowings ( 899,400 ) ( 1,575,743 ) ( 1,389,700 ) Common stock cash dividends paid ( 32,649 ) ( 31,776 ) ( 30,820 ) Net decrease in securities sold under agreement to repurchase — — ( 46,597 ) Repurchase of common stock ( 5,517 ) ( 22,418 ) ( 6,974 ) Net cash (used) provided by financing activities ( 165,580 ) ( 86,453 ) 105,306 Net increase (decrease) in cash and cash equivalents 115,989 ( 107,873 ) 121,383 57 Table of Contents Year Ended December 31, 2025 2024 2023 Cash and cash equivalents at beginning of period 117,100 224,973 103,590 Cash and cash equivalents at end of period $ 233,089 $ 117,100 $ 224,973 Supplemental disclosures of cash flow information: Cash paid for interest $ 90,145 $ 112,222 $ 46,135 Cash paid for income taxes, net of refunds 2,692 1,770 3,198 Supplemental non-cash disclosures of cash flow information: Investment in LIHTC partnerships and related funding commitment 326 100 37,007 ROU assets obtained in exchange for new operating lease liabilities 3,937 3,504 6,880 Transfers of premises and equipment classified as held for sale to prepaid expenses and other assets from premises and equipment, net 93 — 5,974 Transfer of bank owned life insurance to prepaid expenses and other assets due to surrender of policies — 4,507 — Transfer of bank owned life insurance to prepaid expenses and other assets due to death benefit accrued, but not received 759 — 700 See accompanying Notes to Consolidated Financial Statements. 58 Table of Contents HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2025, 2024 and 2023 (1) Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements (a) Description of Business The Company is primarily engaged in the business of planning, directing and coordinating the business activities of its wholly-owned subsidiary, the Bank. The Bank is headquartered in Olympia, Washington and conducts business from its 50 branch offices and one loan production office located throughout Washington State, the greater Portland, Oregon area, Eugene, Oregon, and Boise, Idaho as of December 31, 2025. The Bank’s business consists primarily of commercial lending and deposit relationships with small and medium-sized businesses and their owners in its market areas and attracting deposits from the general public. The Bank also makes real estate construction and land development loans, consumer loans and originates home equity loans on residential properties primarily located in its market areas. The Bank's deposits are insured by the FDIC, subject to applicable limitations. (b) Basis of Presentation The accompanying audited Consolidated Financial Statements have been prepared in accordance with GAAP for annual financial information and pursuant to the rules and regulations of the SEC. To prepare the audited Consolidated Financial Statements in conformity with GAAP, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided. Management believes that the judgments, estimates, and assumptions used in the preparation of the Consolidated Financial Statements were appropriate based on the facts and circumstances at the time. Actual results, however, could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to management's estimate of the ACL on investment securities, management's estimate of the ACL on loans, management's estimate of the ACL on unfunded commitments, management's evaluation of goodwill impairment and management's estimate of the fair value of financial instruments. The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany balances and transactions among the Company and the Bank have been eliminated in consolidation. (c) Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks and interest earning deposits due substantially from the FRB. Cash equivalents have a maturity of 90 days or less at the time of purchase. Investment Securities Investment securities for which the Company has the positive intent and ability to hold to maturity are classified as held to maturity and are carried at amortized cost. Investment securities held primarily for the purpose of selling in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses included in income. Investment securities not classified as held to maturity or trading are classified as available for sale and are reported at fair value with unrealized gains and losses, net of income taxes, as a separate component of other comprehensive income. The Company determines the appropriate classification of investment securities at the time of purchase and reassesses the classification at each reporting date. Any subsequent reassessment of classification and transfer of investment securities available for sale to held to maturity are completed at the amortized cost basis plus or minus the amount of any remaining unrealized holding gain or loss reported in AOCI of the individual investment securities available for sale. The unrealized holding gain or loss at the date of the transfer continues to be recognized in AOCI, but that gain or loss is amortized over the remaining life of the security using the interest method. When the Company acquires another entity, all investment securities are recorded at fair value and classified as available for sale at the acquisition date. Realized gains and losses on sales of investment securities are recorded on the trade date in "Loss on sale of investment securities, net" in the Consolidated Statements of Income and determined using the specific identification method. Premiums and discounts on investment securities available for sale and held to maturity are amortized or accreted into income using the interest method. An investment security available for sale or held to maturity is placed on nonaccrual status at the time any principal or payments become more than 90 days delinquent and classified as past due after 30 days of nonpayment. Interest accrued, but not received for an investment security classified as nonaccrual is reversed against interest income during the period that the investment security is placed on nonaccrual status. ACL on Investment Securities Available for Sale Management evaluates the need for an ACL on investment securities available for sale on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For investment securities available for sale in an unrealized loss position, the Company first assesses whether it intends to sell or it is more likely than not that it will be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through a provision for credit loss against income. For investment securities available for sale that do not meet the aforementioned criteria, the Company evaluates whether the decline 59 Table of Contents in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL on investment securities available for sale is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any unrealized decline in fair value that has not been recorded through an ACL on investment securities available for sale is recognized in other comprehensive income (loss). Accrued interest receivable on investment securities available for sale is excluded from the estimate of expected credit losses. Changes in the ACL on investment securities available for sale are recorded as provision for credit losses expense. Losses are charged against the ACL when management believes the uncollectibility of an investment security available for sale is confirmed or when either of the criteria regarding intent or requirement to sell is met. ACL on Investment Securities Held to Maturity The Company measures expected credit losses on investment securities held to maturity on a pooled, collective basis by major investment security type with similar risk characteristics. A historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lives of the investment securities on those historical credit losses. Expected credit losses on investment securities in the held to maturity portfolio that do not share similar risk characteristics with any of the pools are individually measured based on net realizable value, or the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the investment securities. Accrued interest receivable on investment securities held to maturity is excluded from the estimate of expected credit losses. Changes in the ACL on investment securities held to maturity are recorded as provision for credit losses expense. Losses are charged against the ACL when management believes the uncollectibility of an investment security held to maturity is confirmed. Loans Held for Sale Mortgage loans held for sale are carried at the lower of amortized cost or fair value. Any loan that management does not have the intent and ability to hold for the foreseeable future or until maturity or payoff is classified as held for sale at the time of origination, purchase, securitization or when such decision is made. Unrealized losses on loans held for sale are recorded as a valuation allowance and included in "Other expense" in the Consolidated Statements of Income . Loans Receivable Loans receivable includes loans originated, indirect loans purchased by the Company and loans acquired in business combinations that management has the intent and ability to hold for the foreseeable future or until maturity or payoff and is reported at amortized cost. Amortized cost is the outstanding principal balance, net of purchased premiums and discounts and net deferred loan origination fees and costs. Interest on loans is calculated using the interest method based on the daily balance of the principal amount outstanding and is credited to interest income as earned. Accrued interest receivable for loans receivable is reported within "Accrued interest receivable" in the Consolidated Statements of Financial Condition. The Company's policies for loans receivable generally do not differ by loan segments or classes unless specified in the following policies. Acquired Loans: Acquired loans are recorded at their fair value at acquisition date net of an ACL on loans expected to be incurred over the life of the loan. The initial ACL on acquired loans is determined using the same methodology as originated loans. For non-PCD loans, the initial ACL on loans is recorded through earnings as a provision for credit losses. For PCD loans, the initial ACL is incorporated into the calculation of the fair value of net assets acquired on the merger date and the net of the PCD loan purchase price and the initial ACL becomes the initial amortized cost basis. The difference between the initial amortized cost basis and the par value of PCD loans is the noncredit discount or premium for PCD loans. The noncredit discount or premium for PCD loans and both the noncredit and credit discount or premium for non-PCD loans are accreted through the "Interest and fees on loans" line item in the Consolidated Statements of Income over the life of the loan using the interest method for non-revolving credits or the straight-line method, which approximates the effective interest method, for revolving credits. Any unrecognized discount or premium for a purchased loan that is subsequently repaid in full is recognized immediately into income. Subsequent changes to the ACL on loans for acquired loans are recorded through earnings as a provision for credit losses. Delinquent Loans : Loans are considered past due or delinquent when principal or interest payments are past due 30 days or more. Delinquent loans generally remain on accrual status between 30 days and 89 days past due. Nonaccrual and Charged-off Loans : Loans for which the accrual of interest has been discontinued are designated as nonaccrual loans. The accrual of interest is generally discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Loans are placed on nonaccrual at an earlier date if collection of the contractual principal or interest is doubtful. All interest accrued, but not collected, on loans deemed nonaccrual during the period is reversed against interest income in that period. Interest payments received on nonaccrual loans are generally accounted for on the cost-recovery method whereby the interest payment is applied to the principal balances. Loans may be returned to accrual status when improvements in credit quality eliminate the doubt as to the full collectability of both interest and principal and a period of sustained performance has occurred. 60 Table of Contents Loans are generally charged off to their net realizable value if collection of the contractual principal or interest as scheduled in the loan agreement is doubtful. Consumer loans are typically charged off no later than 90 days past due. Deferred Loan Origination Fees and Costs Direct loan origination fees and costs on originated loans and premiums and discounts on acquired loans are deferred and subsequently amortized or accreted as a yield adjustment over the expected life of the loan without prepayment considerations utilizing the interest method, except revolving loans for which the straight-line method is used. When a loan is paid off prior to maturity, the remaining net deferred balance is immediately recognized into interest income. In the event loans are sold, the unamortized net deferred balance is recognized as a component of the gain or loss on the sale of loans. ACL on Loans The ACL on loans is a valuation account that is deducted from the amortized cost of loans receivable to present the net amount expected to be collected. Loans are debited against the ACL on loans when management believes the uncollectibility of a loan balance is confirmed and subsequent recoveries, if any, are credited to the ACL on loans. The Company records the changes in the ACL on loans through earnings as a "Provision for credit losses" in the Consolidated Statements of Income. Management has adopted a historic loss, open pool CECL methodology to calculate the ACL on loans. Under this methodology, loans are either collectively evaluated if they share similar risk characteristics, including performing modified loans, or individually evaluated if they do not share similar risk characteristics, including nonaccrual loans. The allowance for individually evaluated loans is calculated using either the collateral value method, which considers the likely source of repayment as the value of the collateral less estimated costs to sell, or the net present value method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. Nonaccrual modified loans are individually evaluated for credit loss except when the original interest rate is used to discount the expected cash flows, not the rate specified in the restructuring. The allowance for collectively evaluated loans is comprised of the baseline loss allowance, the macroeconomic allowance and the qualitative allowance. The baseline loss allowance begins with the baseline loss rates calculated using the Company's average quarterly historical loss information for an economic cycle. The Company evaluates the historical period on a quarterly basis with the assumption that economic cycles have historically lasted between 10 and 15 years. The baseline loss rates are applied to each loan's estimated cash flows over the life of the loan under the remaining life method to determine the baseline loss estimate for each loan. Estimated cash flows consider the principal and interest in accordance with the contractual term of the loan and estimated prepayments. Contractual cash flows are based on the amortized cost and are adjusted for balances guaranteed by governmental entities, such as SBA or USDA, resulting in the unguaranteed amortized cost. The contractual term excludes expected extensions, renewals and modifications unless the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Prepayments are established for each segment based on historical averages for the segment, which management believes is an accurate representation of future prepayment activity. Management reviews the adequacy of the prepayment assumption on an annual basis. The macroeconomic allowance includes consideration of the forecasted direction of the economic and business environment and its likely impact on the estimated allowance as compared to the historical losses over the reasonable and supportable time frame. The Company uses macroeconomic scenarios from independent third parties. These scenarios are based on past events, current conditions, the likelihood of future events occurring and include consideration of the forecasted direction of the economic and business environment and its likely impact on the estimated allowance as compared to the historical losses over the reasonable and supportable time frame. Economic forecast models for the current period are uploaded to the model, which targets certain forecasted macroeconomic factors, such as unemployment rate, gross domestic product, housing price index, commercial real estate price index, and certain rate and market indices. Macroeconomic factor multipliers are determined through regression analysis and applied to loss rates for each segment of loans with similar risk characteristics. Each of the forecasted segment balances is impacted by a mix of these macroeconomic factors. Further, each of the macroeconomic factors is utilized differently by segment, including the application of lagged factors and various transformations such as percent change year over year. A macroeconomic sensitive model is developed for each segment given the current and forecasted conditions and a macroeconomic multiplier is calculated for each forecast period considering the forecasted losses as compared to the long-term average actual losses of the dataset. The impact of those macroeconomic factors on each segment, both positive and negative, using the reasonable and supportable period, are added to the calculated baseline loss allowance. After the reasonable and supportable period, forecasted loss rates revert to historical baseline loss levels over the predetermined reversion period on a straight-line basis. The Company’s ACL model also includes adjustments for qualitative factors, where appropriate. Since historical information (such as historical net losses and economic cycles) may not always, by themselves, provide a sufficient basis for determining future expected credit losses, the Company periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions, (ii) organization specific risks such as credit concentrations, collateral specific risks, regulatory risks, and external factors that may ultimately impact credit quality, (iii) potential model limitations such as those identified through back-testing, underwriting changes, acquisition of new portfolios and changes in portfolio segmentation, and (iv) management’s overall assessment of the adequacy of the ACL, including an assessment of model data inputs used to determine the ACL. Qualitative adjustments primarily relate to certain segments of the loan portfolio deemed by management to be of a higher-risk profile where management believes the quantitative component of the Company’s ACL model may not have fully captured the associated impact to the ACL. Qualitative adjustments also relate to heightened uncertainty as to future macroeconomic 61 Table of Contents conditions and the related impact on the loan segments. Management reviews the need for an appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods. In general, management's estimate of the ACL on loans uses relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The evaluation of ACL on loans is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. While management utilizes its best judgment and information available to recognize estimated losses on loans, future additions to the allowance may be necessary based on declines in local and national economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL on loans. Such agencies may require the Company to adjust the allowance based on their judgments about information available to them at the time of their examinations. The Company believes the ACL on loans is appropriate given all the above considerations. ACL on Unfunded Commitments The Company estimates expected credit losses on unfunded, off-balance sheet commitments over the contractual period in which the Company is exposed to credit risk from a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. The allowance methodology for unfunded commitments is similar to the ACL on loans, but additionally includes considerations of the current utilization of the commitment and an estimate of the future utilization as determined appropriate by historical commitment utilization and the Company's estimates of future utilization given current economic forecasts. The ACL for unfunded commitments is recorded in "Accrued expenses and other liabilities" in the Consolidated Statements of Financial Condition and changes are recognized through earnings in the "Provision for credit losses" in the Consolidated Statements of Income. ACL on Accrued Interest Receivable Accrued interest receivable on investment securities and loans receivable are excluded from their estimates of credit losses. Additionally, no allowance has been established for accrued interest receivable on investment securities and loans receivable as interest accrued, but not received, is reversed timely in accordance with the policies stated above. Provision for Credit Losses The provision for credit losses as presented in the Consolidated Statements of Income includes the provision for credit losses on loans, the provision for credit losses on unfunded commitments and the provision for credit losses on investment securities. Mortgage Banking Operations The Bank originated and sold certain residential real estate loans on a servicing-released basis. The Company recognized a gain or loss on sale to the extent that the sale proceeds of the loan sold differed from the net book value at the time of sale. Income from residential real estate loans brokered to other lenders was recognized into income on date of loan closing. In 2024, the Bank ceased the origination of residential real estate loans. Other Real Estate Owned Other real estate owned is recorded at the estimated fair value (less the costs to sell) at the date of acquisition, not to exceed net realizable value, and any resulting write-down is charged against the ACL on loans. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the properly to satisfy the loan through completion of a deed in lieu of foreclosure or similar legal agreement. After acquisition, all costs incurred in maintaining the property are expensed except for costs relating to the development and improvement of the property which are capitalized to the extent of the property’s net realizable value. If the estimated realizable value of the other real estate owned property declines after the acquisition date, the valuation adjustment is charged to "Other real estate owned, net" in the Consolidated Statements of Income. Premises and Equipment Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the lease period, whichever is shorter. The estimated useful lives used to compute depreciation and amortization for buildings and building improvements, including leasehold improvements, is 15 to 39 years; and for furniture, fixtures and equipment is three to seven years . The Company reviews premises and equipment, including leasehold improvements, for impairment whenever events or changes in the circumstances indicate that the undiscounted cash flows for the property are less than its carrying value. If identified, an impairment loss is recognized through a charge to earnings based on the fair value of the property. Federal Home Loan Bank Stock The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors and may invest in additional amounts. FHLB stock is carried at cost and is classified as a restricted security. 62 Table of Contents Bank Owned Life Insurance The Company's BOLI policies insure the lives of certain current or former Company officers and name the Company as beneficiary. Noninterest income is generated tax-free (subject to certain limitations) from the increase in the policies' underlying investments made by the insurance company. The Company records BOLI at the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Other Intangible Assets Other intangible assets represent core deposit intangibles acquired in business combinations. The fair value of the core deposit intangible stemming from any given business combination is based on the present value of the expected cost savings attributable to the core deposit funding, relative to an alternative source of funding. The core deposit intangibles are amortized on an accelerated basis following a pattern of the economic benefits of the core deposit intangible over an estimated useful life of the deposit relationships acquired. The Company evaluates such identifiable intangibles for impairment annually or more frequently if an indication of impairment exists. Goodwill The Company’s goodwill represents the excess of the purchase price over the fair value of net assets acquired in certain mergers and acquisitions. Goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (single reporting unit) on an annual basis or more frequently if an indication of impairment exists between the annual tests. For the goodwill impairment assessment, the Company either assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not the fair value of the reporting unit is less than its carrying value and a quantitative test is needed or opts to bypass the qualitative analysis and performs a quantitative analysis only. The quantitative analysis requires the Company to make assumptions and judgments regarding the fair value of the reporting unit. If the implied fair value of goodwill is less than the recorded goodwill, an impairment charge would be recorded for the difference. Income Taxes The Company and the Bank file a United States consolidated federal income tax return and Oregon and Idaho state income tax returns. Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the periods in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the amounts expected to be realized. Deferred tax assets are reported in "Prepaid expenses and other assets" in the Consolidated Statements of Financial Condition. We hold equity investments in certain structures which deliver tax benefits, including LIHTC investments and a Solar Tax Credit investment. For those LIHTC investments that qualify for application of the proportional amortization method, we apply such method. Under the proportional amortization method, such investment is amortized in proportion to the allocation of tax benefits received in each period, and the investment amortization and the tax benefits are presented on a net basis within “Income tax expense” on our Consolidated Statements of Income. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in "Income tax expense" in the Consolidated Statements of Income as the amounts are generally insignificant each year. Operating Leases The Company has only identified leases classified as operating leases. Operating leases are recorded as ROU assets and ROU liabilities within "Prepaid expenses and other assets" and "Accrued expenses and other liabilities", respectively, in the Consolidated Statements of Financial Condition. ROU assets represent the Company's right to use an underlying asset for the lease term and ROU liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and ROU liabilities are recognized at the lease agreement commencement date based on the present value of lease payments over the lease term. The lease term incorporates options to extend the lease when it is reasonably certain that the Company will exercise that option. As the Company's leases typically do not provide an implicit rate; the Company uses its incremental borrowing rate based on the information available at the operating lease commencement date in determining the present value of lease payments. The operating lease ROU asset is further reduced by any lease pre-payments made and lease incentives. The leases may contain various provisions for increases in rental rates based either on changes in the published Consumer Price Index or a predetermined escalation schedule and such variable lease payments are recognized as lease expense as they are incurred. The majority of the Company's leases include variable lease payments such as real estate taxes, maintenance, insurance and other similar costs in addition to the base rent. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not separate non-lease components from lease components and excludes operating leases with a term of twelve months or less from being capitalized as ROU assets and ROU liabilities. The Company follows a policy to capitalize 63 Table of Contents lease agreements with total contractual lease payments of $ 25,000 or more. The Company does not account for any leases at a portfolio level. Stock-Based Compensation The Company maintains two stock-based incentive plans, which are discussed in more detail in Note (15) Stock-Based Compensation. Since 2011, the Company has only granted restricted stock unit awards. With respect to these restricted stock unit awards, compensation cost is recognized when awards are granted to employees and directors based on their fair value at the date of grant. Compensation cost is generally recognized over the requisite service period, generally defined as the vesting period, on a straight-line basis. Compensation cost for restricted stock unit awards with market-based vesting is recognized over the service period to the extent the restricted stock unit awards are expected to vest. Forfeitures are recognized as they occur. The market price of the Company’s common stock at the date of grant is used to determine the fair value of the restricted stock unit awards. Certain restricted stock unit awards are subject to performance-based vesting as well as other approved vesting conditions and cliff-vest based on those conditions, and the fair value for those awards is estimated using a Monte Carlo simulation pricing model. The assumptions used in the Monte Carlo simulation pricing model include the expected term based on the valuation date and the remaining contractual term of the award; the risk-free interest rate based on the Treasury curve at the valuation date of the award; the expected dividend yield based on expected dividend equivalents being payable to the holders; and the expected stock price volatility over the expected term based on the historical volatility over the equivalent historical term. I nvestments in Tax Credit Structures The Company has equity investments in LIHTC partnerships, which are indirect federal subsidies that finance low-income housing projects. As a limited liability investor in these partnerships, the Company receives tax benefits in the form of tax deductions from partnership operating losses and federal income tax credits. The federal income tax credits are earned over a 10-year period as a result of the investment properties meeting certain criteria and are subject to recapture for noncompliance with such criteria over a 15-year period. The Company accounts for the LIHTCs under the proportional amortization method and amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the Consolidated Statements of Income as a component of "Income tax expense". The Company reports the carrying value of the equity investments in the unconsolidated LIHTCs as Prepaid expenses and other assets and the unfunded contingent commitments related to the equity investments as Accrued expenses and other liabilities on the Company’s Statements of Financial Condition. The maximum exposure to loss in the LIHTCs is the amount of equity invested and credit extended by the Company. Loans to these entities are underwritten in substantially the same manner as other loans and are secured. The Company has evaluated the variable interests held by the Company in each LIHTC investment and determined the Company does not have controlling financial interests in such investments and is not the primary beneficiary. The Company has an equity investment in a solar tax credit investment. As a limited liability investor in this partnership, the Company receives tax benefits in the form of tax deductions from partnership operating losses and federal income tax credits. The Company accounts for the solar tax credits under the deferral method where the tax credit is recognized over the useful life of the asset in the Consolidated Statements of Income as a component of "Income tax expense". The Company has evaluated the variable interest held by the Company and determined that the Company does not have controlling financial interests in such investment and is not the primary beneficiary. Deferred Compensation Plans The Company maintains a Deferred Compensation Plan in which certain executive officers participate. Under the Deferred Compensation Plan, participants are permitted to elect to defer compensation, and the Company has the discretion to make additional contributions to the Deferred Compensation Plan on behalf of any participant based on a number of factors. Such discretionary contributions are generally approved by the Compensation Committee of the Board. The notional account balances of participants under the Deferred Compensation Plan earn interest on an annual basis. The applicable interest rate is the Moody’s Seasoned Aaa Corporate Bond Yield as of January 1 of each year. Generally, a participant’s account is payable upon the earliest of the participant’s separation from service with the Company, the participant’s death or disability, or a specified date that is elected by the participant in accordance with applicable rules of the Internal Revenue Code, as amended. Additionally, in conjunction with the Company's merger with Premier Commercial Bancorp in 2018, the Company assumed the Salary Continuation Plan. The Salary Continuation Plan is an unfunded non-qualified deferred compensation plan for select former Premier Commercial executive officers. Under the Salary Continuation Plan, the Company will pay each participant, or their beneficiary, specified amounts over specified periods beginning with the individual's termination of service due to retirement subject to early termination provisions. The Company’s obligation to make payments under the Deferred Compensation Plan and the Salary Continuation Plan is a general obligation of the Company and is to be paid from the Company’s general assets. As such, participants are general unsecured creditors of the Company with respect to their participation under both plans. The Company records a liability within "Accrued expenses and other liabilities" in the Consolidated Statements of Financial Condition and records the expense as "Compensation and employee benefits" in the Consolidated Statements of Income in a systematic and rational manner. Since the amounts earned under the Deferred Compensation Plan are generally based on the Company’s annual performance, the Company records deferred compensation expense each year for an amount calculated based on that year’s financial performance. Earnings per Share Basic earnings per common share is net income allocated to common shareholders divided by the weighted average number of common shares outstanding during the period. All outstanding unvested share-based payment awards that contain rights to 64 Table of Contents nonforfeitable dividends are considered participating securities for this calculation. Dividends and undistributed earnings allocated to participating securities are excluded from net income allocated to common shareholders and participating securities are excluded from weighted average common shares outstanding. Diluted earnings per common share is calculated using the treasury stock method and includes the dilutive effect of unvested restricted stock units. Earnings and dividends per share are restated for all stock splits and stock dividends through the date of issuance of the financial statements. Derivative Financial Instruments The Company utilizes interest rate swap derivative contracts to facilitate the respective risk management strategies of its commercial customers whereby it enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution, such that the Company minimizes its net risk exposure. Because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company’s results of operations. These interest rate swaps are not designated as hedging instruments. The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. Credit risk for derivatives with the customer is controlled through the credit approval process, amount limits, and monitoring procedures and is concentrated within our primary market areas. Credit risk for derivatives with third parties is concentrated among four well-known broker dealers. Fee income related to interest rate swap derivative contract transactions is recorded in "Interest rate swap fees" in the Consolidated Statements of Income. The fair value of derivative positions outstanding is included in "Prepaid expenses and other assets" and "Accrued expenses and other liabilities" in the Consolidated Statements of Financial Condition. The gains and losses due to changes in fair value and all cash flows are included in "Other income" in the Consolidated Statements of Income, but typically net to zero based on the identical back-to-back interest rate swaps unless a credit valuation adjustment is recorded to appropriately reflect nonperformance risk in the fair value measurement. Various factors impact changes in the credit valuation adjustments over time, including changes in the risk ratings of the parties to the contracts, as well as changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments. Advertising Expenses Advertising costs are expensed as incurred. Costs related to production of advertising are considered incurred when the advertising is first used. Operating Segments While the Company’s CODM monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis as operating results for all segments are similar. Accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating segment. Revenue from Contracts with Customers The Company's revenues are primarily composed of interest income on financial instruments, such as loans and investment securities. The Company's revenue derived from contracts with customers are generally presented in "Service charges and other fees", "Card revenue" and "Other income" in the Consolidated Statement of Income and includes the following: • Service Charges on Deposit Accounts: The Company earns fees from its deposit customers from a variety of deposit products and services. Non-transaction based fees such as account maintenance fees and monthly statement fees are considered to be provided to the customer under a day-to-day contract with ongoing renewals. Revenues for these non-transaction fees are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Transaction-based fees such as non-sufficient fund charges, stop payment charges and wire fees are recognized at the time the transaction is executed as the contract duration does not extend beyond the service performed. • Wealth Management: The Company earns fees from contracts with customers for fiduciary and brokerage activities. Revenues are generally recognized monthly and are generally based on a percentage of the customer’s assets under management or based on investment or insurance solutions that are implemented for the customer. • Merchant Processing Services and Debit and Credit Card Fees: The Company earns fees from cardholder transactions conducted through third party payment network providers which consist of (i) interchange fees earned from the payment network as a debit and credit card issuer, (ii) referral fee income, and (iii) ongoing merchant fees earned for referring customers to the payment processing provider. These fees are recognized when the transaction occurs, but may settle on a daily or monthly basis. (d) Recently Issued or Adopted Accounting Pronouncements FASB ASU 2023-06 , Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, was issued in October 2023 to clarify or improve disclosure and presentation requirements on a variety of topics and align the requirements in the FASB accounting standard codification with the Securities and Exchange Commission regulations. The amendments will be effective for the Company only if the SEC removes the related disclosure requirement from its existing regulations no later than June 30, 2027. If the SEC timely removes such a related requirement from its existing regulations, the corresponding amendments within the ASU will become effective for the Company on the same date with early 65 Table of Contents adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its business operations or Consolidated Statements of Financial Condition. FASB ASU 2024-03 , Disaggregation of Income Statement Expenses, was issued in November 2024. This ASU will require public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. The amendments in this ASU are effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its business operations or Consolidated Statements of Financial Condition. FASB ASU 2025-06 , Intangibles-Goodwill and Other-Internal-Use Software: Targeted Improvements to the Accounting for Internal-Use Software , was issued in September 2025. The amendment removed references to prescriptive and sequential software development stages throughout Subtopic 350-40 so that guidance is neutral to software development methods in determining when internal-use software is capitalizable. The new standard is effective for annual periods beginning after December 15, 2027, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its business operations or Consolidated Statements of Financial Condition. FASB ASU 2025-08 , Financial Instruments-Credit Losses: Purchased Loans , was issued in November 2025. The ASU makes significant changes to the accounting for certain acquired seasoned loans subject to the current expected credit loss model (CECL). It does not change the existing models for originated assets, purchased credit deteriorated assets (PCD) or other acquired assets. The ASU creates a new model for certain purchased loans expanding the gross-up approach to a newly created category “purchased seasoned loans” (PSL) which will decrease the accretion on acquired loans classified as PSL. The new standard is effective for annual periods beginning after December 15, 2026 and interim reporting periods within those annual period. Early adoption is permitted. The company is currently evaluating the impact of this ASU on the Company's consolidated financial statements, including impact on the accounting related to the acquisition of Olympic Bancorp which closed on January 31, 2026. (2) Investment Securities The Company’s investment policy is designed primarily to provide and maintain liquidity, generate a favorable return on assets without incurring undue interest rate and credit risk and complement the Company’s lending activities. There were no investment securities classified as trading at December 31, 2025 or December 31, 2024. (a) Investment Securities by Classification, Type and Maturity The following tables present the amortized cost and fair value of investment securities and the corresponding amounts of gross unrealized and unrecognized gains and losses, including the corresponding amounts of gross unrealized gains and losses on investment securities available for sale recognized in AOCI, at the dates indicated: December 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) Investment securities available for sale: U.S. government and agency securities $ 13,276 $ — $ ( 1,574 ) $ 11,702 Municipal securities 59,355 22 ( 7,954 ) 51,423 Residential CMO and MBS (1) 297,010 1,298 ( 23,040 ) 275,268 Commercial CMO and MBS (1) 260,953 917 ( 9,706 ) 252,164 Corporate obligations 10,500 72 ( 40 ) 10,532 Other asset-backed securities 6,411 30 ( 8 ) 6,433 Total $ 647,505 $ 2,339 $ ( 42,322 ) $ 607,522 (1) U.S. government agency and government-sponsored enterprise CMO and MBS. 66 Table of Contents December 31, 2025 Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value (Dollars in thousands) Investment securities held to maturity: U.S. government and agency securities $ 151,319 $ — $ ( 20,870 ) $ 130,449 Residential CMO and MBS (1) 217,707 303 ( 8,923 ) 209,087 Commercial CMO and MBS (1) 305,081 22 ( 19,352 ) 285,751 Total $ 674,107 $ 325 $ ( 49,145 ) $ 625,287 (1) U.S. government agency and government-sponsored enterprise CMO and MBS. December 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Dollars in thousands) Investment securities available for sale: U.S. government and agency securities $ 14,934 $ — $ ( 2,390 ) $ 12,544 Municipal securities 61,169 12 ( 10,239 ) 50,942 Residential CMO and MBS (1) 407,520 711 ( 38,900 ) 369,331 Commercial CMO and MBS (1) 330,249 134 ( 20,642 ) 309,741 Corporate obligations 11,700 181 ( 111 ) 11,770 Other asset-backed securities 10,020 47 ( 1 ) 10,066 Total $ 835,592 $ 1,085 $ ( 72,283 ) $ 764,394 (1) U.S. government agency and government-sponsored enterprise CMO and MBS . December 31, 2024 Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value (Dollars in thousands) Investment securities held to maturity: U.S. government and agency securities $ 151,216 $ — $ ( 28,874 ) $ 122,342 Residential CMO and MBS (1) 244,309 — ( 18,563 ) 225,746 Commercial CMO and MBS (1) 307,760 27 ( 32,423 ) 275,364 Total $ 703,285 $ 27 $ ( 79,860 ) $ 623,452 (1) U.S. government agency and government-sponsored enterprise CMO and MBS. 67 Table of Contents The following table presents the amortized cost and fair value of investment securities by contractual maturity at the date indicated. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. December 31, 2025 Securities Available for Sale Securities Held to Maturity Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) Due in one year or less $ 570 $ 570 $ — $ — Due after one year through five years 8,797 8,650 — — Due after five years through ten years 42,839 39,179 101,562 90,246 Due after ten years 30,925 25,258 49,757 40,203 Total investment securities due at a single maturity date 83,131 73,657 151,319 130,449 MBS and Other asset-backed securities (1) 564,374 533,865 522,788 494,838 Total investment securities $ 647,505 $ 607,522 $ 674,107 $ 625,287 (1) MBS and Other asset-backed securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their payment speed. There were no holdings of investment securities of any one issuer, other than the U.S. government and its agencies, in an amount greater than 10% of stockholders’ equity, at December 31, 2025 and December 31, 2024. (b) Unrealized Losses on Investment Securities Available for Sale The following tables present the gross unrealized losses and fair value of the Company’s investment securities available for sale for which an ACL on investment securities available for sale has not been recorded, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position at the dates indicated: December 31, 2025 Less than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousands) U.S. government and agency securities $ — $ — $ 11,702 $ ( 1,574 ) $ 11,702 $ ( 1,574 ) Municipal securities (1) 1,241 — 45,785 ( 7,954 ) 47,026 ( 7,954 ) Residential CMO and MBS (2) 2,330 ( 9 ) 169,621 ( 23,031 ) 171,951 ( 23,040 ) Commercial CMO and MBS (2) 6,881 ( 7 ) 152,683 ( 9,699 ) 159,564 ( 9,706 ) Corporate obligations — — 3,960 ( 40 ) 3,960 ( 40 ) Other asset-backed securities 1,397 ( 8 ) — — 1,397 ( 8 ) Total $ 11,849 $ ( 24 ) $ 383,751 $ ( 42,298 ) $ 395,600 $ ( 42,322 ) (1) The unrealized loss on municipal securities in a continuous unrealized loss position less than 12 months was less than one thousand dollars. (2) U.S. government agency and government-sponsored enterprise CMO and MBS. December 31, 2024 Less than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses (Dollars in thousands) U.S. government and agency securities $ — $ — $ 12,544 $ ( 2,390 ) $ 12,544 $ ( 2,390 ) Municipal securities — — 45,157 ( 10,239 ) 45,157 ( 10,239 ) Residential CMO and MBS (1) 25,126 ( 321 ) 232,903 ( 38,579 ) 258,029 ( 38,900 ) Commercial CMO and MBS (1) 17,772 ( 86 ) 270,897 ( 20,556 ) 288,669 ( 20,642 ) Corporate obligations — — 3,890 ( 111 ) 3,890 ( 111 ) 68 Table of Contents December 31, 2024 Less than 12 Months 12 Months or Longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Other asset-backed securities 1,568 ( 1 ) — — 1,568 ( 1 ) Total $ 44,466 $ ( 408 ) $ 565,391 $ ( 71,875 ) $ 609,857 $ ( 72,283 ) (1) U.S. government agency and government-sponsored enterprise CMO and MBS. (c) ACL on Investment Securities The Company evaluated investment securities available for sale as of December 31, 2025 and December 31, 2024 and determined that any declines in fair value were attributable to changes in interest rates relative to where these investments fall within the yield curve and individual characteristics. Management monitors published credit ratings for adverse changes for all rated investment securities and none of these securities had a below investment grade credit rating as of both December 31, 2025 and December 31, 2024. In addition, the Company does not intend to sell these securities nor does the Company consider it more likely than not that it will be required to sell these securities before the recovery of the amortized cost basis, which may be upon maturity. Therefore, no ACL on investment securities available for sale was recorded as of December 31, 2025 or December 31, 2024. The Company also evaluated investment securities held to maturity for current expected credit losses as of December 31, 2025 and December 31, 2024. There were no investment securities held to maturity classified as nonaccrual or past due as of December 31, 2025 or December 31, 2024 and all were issued by the U.S. government and its agencies and either explicitly or implicitly guaranteed by the U.S. government, highly rated by major credit rating agencies and had a long history of no credit losses. Accordingly, the Company did not measure expected credit losses on investment securities held to maturity since the historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that nonpayment of the amortized cost basis is zero. Therefore, no ACL on investment securities held to maturity was recorded as of December 31, 2025 or December 31, 2024. (d) Realized Gains and Losses The following table presents the gross realized gains and losses on the sale of investment securities available for sale determined using the specific identification method for the dates indicated: Year ended December 31, 2025 2024 2023 (Dollars in thousands) Gross realized gains $ — $ — $ 36 Gross realized losses ( 10,741 ) ( 22,742 ) ( 12,267 ) Net realized gains/(losses) $ ( 10,741 ) $ ( 22,742 ) $ ( 12,231 ) (e) Pledged Securities The following table summarizes the amortized cost and fair value of investment securities that were pledged as collateral for the following obligations at the dates indicated: December 31, 2025 December 31, 2024 Amortized Cost Fair Value Amortized Cost Fair Value (Dollars in thousands) State and local governments public deposits $ 224,069 $ 216,012 $ 236,047 $ 220,104 FRB 395,364 358,480 434,534 373,410 Other securities pledged 55,291 51,349 53,296 48,169 Total $ 674,724 $ 625,841 $ 723,877 $ 641,683 (f) Accrued Interest Receivable Accrued interest receivable excluded from the amortized cost of investment securities available for sale totaled $ 2.2 million and $ 2.7 million at December 31, 2025 and December 31, 2024, respectively. Accrued interest receivable excluded from the amortized cost on investment securities held to maturity totaled $ 2.2 million at December 31, 2025 and December 31, 2024. No amounts of accrued interest receivable on investment securities available for sale or held to maturity were reversed against interest income on investment securities during the years ended December 31, 2025, 2024, and 2023. (g) Non-Marketable Securities At December 31, 2022, as a member bank of Visa U.S.A., the Company held 6,549 shares of Visa Inc. Class B common stock. These shares had a carrying value of zero and were restricted from resale to non-member banks of Visa U.S.A. until their 69 Table of Contents conversion into Class A (voting) shares upon the termination of Visa Inc.'s Covered Litigation escrow account. During the year ended December 31, 2023, the Company sold all of its shares of Visa Inc. Class B common stock and recognized a $ 1.6 million gain which was included in "Other income" in the Consolidated Statements of Income. (3) Loans Receivable The Company originates loans in the ordinary course of business and has acquired loans through mergers and acquisitions. In addition to originating loans, the Company may also purchase loans through pool purchases, participation purchases and syndicated loan purchases. Accrued interest receivable was excluded from disclosures presenting the Company's amortized cost of loans receivable as it was deemed insignificant. (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. 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: December 31, 2025 December 31, 2024 (Dollars in thousands) Commercial business: Commercial and industrial $ 818,000 $ 842,672 Owner-occupied CRE 1,034,829 1,003,243 Non-owner occupied CRE 2,057,844 1,909,107 Total commercial business 3,910,673 3,755,022 Residential real estate 358,834 402,954 Real estate construction and land development: Residential 95,350 83,890 Commercial and multifamily 247,975 395,553 Total real estate construction and land development 343,325 479,443 Consumer 170,434 164,704 Loans receivable 4,783,266 4,802,123 ACL on loans ( 52,584 ) ( 52,468 ) Loans receivable, net $ 4,730,682 $ 4,749,655 Balances included in the amortized cost of loans receivable: Unamortized net discount on acquired loans $ ( 694 ) $ ( 1,095 ) Unamortized net deferred fee $ ( 11,152 ) $ ( 10,110 ) A discussion of the risk characteristics of each loan portfolio segment is as follows: Commercial Business : Commercial and industrial. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may include a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. Commercial and industrial loans carry more risk than other loans because the borrowers’ cash flow is less predictable and in the event of a default the amount of loss is potentially greater and more difficult to quantify because the value of the collateral securing these loans may fluctuate, may be uncollectible or may be obsolete or of limited use, among other things. 70 Table of Contents Owner-occupied and non-owner occupied CRE. The Company originates CRE loans primarily within its primary market areas. These loans are subject to underwriting standards and processes similar to commercial and industrial loans in that these loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate properties. CRE lending typically involves higher loan principal amounts and payments on loans and repayment is dependent on successful operation and management of the properties. The value of the real estate securing these loans can be adversely affected by conditions in the real estate market or the economy. There is some common risk characteristics with owner-occupied CRE loans and non-owner occupied CRE loans. However, owner-occupied CRE loans are generally considered to have a slightly lower risk profile as we typically have the guarantee of the owner-occupant and can underwrite risk using the complete financial information on the entity that occupies the property. Residential Real Estate : The majority of the Company’s residential real estate loans are secured by one-to-four family residences located in its primary market areas. The Company’s underwriting standards require that residential real estate loans maintained in the portfolio generally are owner-occupied and do not exceed 80 % of the lower of appraised value at origination or cost of the underlying collateral. Terms of maturity typically range from 15 to 30 years. In 2024, the Bank ceased the origination of residential real estate loans; however, the Company may purchase pools of residential real estate loans. All purchased loans adhere to the Company's underwriting standards. Real Estate Construction and Land Development : The Company originates construction loans for residential and for commercial and multifamily properties. The residential construction loans generally include construction of custom single-family homes whereby the homeowner is the borrower. The Company also provides financing to builders for the construction of pre-sold residential homes and, in selected cases, to builders for the construction of speculative single-family residential property. Construction loans are typically short-term in nature and priced with variable rates of interest. Construction loans may also be originated as a construction-to-permanent financing loan whereby upon completion of the construction phase, the loan is automatically converted to a permanent term loan. Construction lending can involve a higher level of risk than other types of lending because funds are advanced partially based upon the value of the project, which is uncertain prior to the project’s completion. Because of the uncertainties inherent in estimating construction costs as well as the market value of a completed project and the effects of governmental regulation of real property, the Company’s estimates with regard to the total funds required to complete a project and the related loan-to-value ratio may vary from actual results. As a result, construction loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project and the ability of the borrower to sell or lease the property or refinance the indebtedness. If the Company’s estimate of the value of a project at completion proves to be overstated, it may have inadequate security for repayment of the loan and may incur a loss if the borrower does not repay the loan. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being dependent upon successful completion of the construction project, market interest rate changes, government regulation of real property, general economic conditions and the availability of long-term financing. Consumer : The Company originates consumer loans and lines of credit that are both secured and unsecured. The underwriting process for these loans ensures a qualifying primary and secondary source of repayment. Underwriting standards for home equity loans are significantly influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80 %, collection remedies, the number of such loans a borrower can have at one time and documentation requirements. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed. The majority of consumer loans are for relatively small amounts disbursed among many individual borrowers which reduces the overall credit risk for this segment. To further reduce the risk, trend reports are reviewed by management on a regular basis. (b) Concentrations of Credit As of December 31, 2025, most of the Company’s lending activity occurred 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 and Spokane 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 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 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. A description of the general characteristics of the risk grades is as follows: 71 Table of Contents • Grades 1 to 5: These grades are considered “Pass” and include loans with negligible to above average, but acceptable, risk. These borrowers generally have strong to acceptable capital levels and consistent earnings and debt service capacity. Loans with the higher grades within the “Pass” category may include borrowers who are experiencing unusual operating difficulties, but have acceptable payment performance to date. Increased monitoring of financial information and/or collateral may be appropriate. Loans with this grade show no immediate loss exposure. • Grade 6: This grade includes "Watch" loans. The grade is intended to be utilized on a temporary basis for pass grade borrowers where a potentially significant risk-modifying action is anticipated in the near term and are considered Pass grade for reporting purposes. • Grade 7: This grade includes "Special Mention" ("SM") loans and is intended to highlight loans deemed by management to have some elevated risks that deserve management's close attention. Loans with this grade show signs of deteriorating profits and capital and the borrower might not be strong enough to sustain a major setback. The borrower is typically higher than normally leveraged and outside support might be modest and likely illiquid. The loan is at risk of further credit decline unless active measures are taken to correct the situation. • Grade 8: This grade includes “Substandard” ("SS") loans in accordance with regulatory guidelines, which the Company has determined have a high credit risk. These loans also have well-defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. The borrower may have shown serious negative trends in financial ratios and performance. Such loans may be dependent upon collateral liquidation, a secondary source of repayment or an event outside of the normal course of business. • Grade 9: This grade includes “Doubtful” loans in accordance with regulatory guidelines and the Company has determined these loans to have excessive credit risk. Such loans are placed on nonaccrual status and may be dependent upon collateral having a value that is difficult to determine or upon some near-term event which lacks certainty. Additionally, these loans generally have been partially charged off for the amount considered uncollectible. • Grade 10: This grade includes “Loss” loans in accordance with regulatory guidelines and the Company has determined these loans have the highest risk of loss. Such loans are charged off or charged down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. 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 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 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 December 31, 2025 or 2024. The following tables present the amortized cost of loans receivable by risk grade and origination year at the dates indicated. December 31, 2025 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans Converted (1) Loans Receivable 2025 2024 2023 2022 2021 Prior (Dollars in thousands) Commercial business: Commercial and industrial Pass $ 132,722 $ 147,339 $ 91,315 $ 93,265 $ 35,392 $ 92,265 $ 148,902 $ 2,760 $ 743,960 SM — 4,940 1,113 6,512 1,141 545 4,181 481 18,913 SS 1,207 2,104 18,270 7,299 62 6,920 18,626 639 55,127 Total 133,929 154,383 110,698 107,076 36,595 99,730 171,709 3,880 818,000 Owner-occupied CRE Pass 125,339 115,937 83,969 129,824 134,443 403,824 6,042 — 999,378 72 Table of Contents December 31, 2025 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans Converted (1) Loans Receivable 2025 2024 2023 2022 2021 Prior Revolving Loans Revolving Loans Converted (1) Loans Receivable SM — — 3,785 — 4,694 6,539 — — 15,018 SS — — 3,014 — — 17,419 — — 20,433 Total 125,339 115,937 90,768 129,824 139,137 427,782 6,042 — 1,034,829 Non-owner occupied CRE Pass 220,384 186,195 221,889 352,919 226,420 789,404 — — 1,997,211 SM — — 2,832 — 7,798 25,374 — — 36,004 SS — — — — — 24,629 — — 24,629 Total 220,384 186,195 224,721 352,919 234,218 839,407 — — 2,057,844 Total commercial business Pass 478,445 449,471 397,173 576,008 396,255 1,285,493 154,944 2,760 3,740,549 SM — 4,940 7,730 6,512 13,633 32,458 4,181 481 69,935 SS 1,207 2,104 21,284 7,299 62 48,968 18,626 639 100,189 Total 479,652 456,515 426,187 589,819 409,950 1,366,919 177,751 3,880 3,910,673 Residential real estate Pass — 21,697 43,453 125,709 124,512 41,166 — — 356,537 SS — — 194 806 1,158 139 — — 2,297 Total — 21,697 43,647 126,515 125,670 41,305 — — 358,834 Real estate construction and land development: Residential Pass 56,428 19,381 8,990 1,289 — 1,000 1,549 — 88,637 SS — — 963 — 5,750 — — — 6,713 Total 56,428 19,381 9,953 1,289 5,750 1,000 1,549 — 95,350 Commercial and multifamily Pass 71,519 74,178 43,396 49,163 1,359 1,477 — — 241,092 SM — — — 886 — 301 — — 1,187 SS — — — — — 5,696 — — 5,696 Total 71,519 74,178 43,396 50,049 1,359 7,474 — — 247,975 Total real estate construction and land development Pass 127,947 93,559 52,386 50,452 1,359 2,477 1,549 — 329,729 SM — — — 886 — 301 — — 1,187 SS — — 963 — 5,750 5,696 — — 12,409 Total 127,947 93,559 53,349 51,338 7,109 8,474 1,549 — 343,325 Consumer Pass 680 218 602 1,158 248 13,319 149,834 2,447 168,506 SS — — 423 25 — 658 500 322 1,928 Total 680 218 1,025 1,183 248 13,977 150,334 2,769 170,434 Loans receivable Pass 607,072 564,945 493,614 753,327 522,374 1,342,455 306,327 5,207 4,595,321 SM — 4,940 7,730 7,398 13,633 32,759 4,181 481 71,122 SS 1,207 2,104 22,864 8,130 6,970 55,461 19,126 961 116,823 Total $ 608,279 $ 571,989 $ 524,208 $ 768,855 $ 542,977 $ 1,430,675 $ 329,634 $ 6,649 $ 4,783,266 (1) Represents the loans receivable balance at December 31, 2025 which was converted from a revolving loan to a non-revolving amortizing loan during the year ended December 31, 2025. 73 Table of Contents December 31, 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 $ 204,107 $ 127,603 $ 125,220 $ 51,126 $ 53,115 $ 78,039 $ 147,861 $ 491 $ 787,562 SM 161 4,482 6,495 502 1,117 4,490 13,555 2,352 33,154 SS — 235 857 315 2,516 4,337 12,331 1,365 21,956 Total 204,268 132,320 132,572 51,943 56,748 86,866 173,747 4,208 842,672 Owner-occupied CRE Pass 116,031 93,567 136,496 147,540 81,161 389,801 534 — 965,130 SM — 2,719 1,215 4,121 871 15,298 — — 24,224 SS — — — 1,182 637 12,070 — — 13,889 Total 116,031 96,286 137,711 152,843 82,669 417,169 534 — 1,003,243 Non-owner-occupied CRE Pass 168,040 174,993 338,983 238,933 149,804 790,691 — 24 1,861,468 SM — — — 7,988 — 32,925 — — 40,913 SS — — 584 — — 6,142 — — 6,726 Total 168,040 174,993 339,567 246,921 149,804 829,758 — 24 1,909,107 Total commercial business Pass 488,178 396,163 600,699 437,599 284,080 1,258,531 148,395 515 3,614,160 SM 161 7,201 7,710 12,611 1,988 52,713 13,555 2,352 98,291 SS — 235 1,441 1,497 3,153 22,549 12,331 1,365 42,571 Total 488,339 403,599 609,850 451,707 289,221 1,333,793 174,281 4,232 3,755,022 Residential real estate Pass 32,857 52,317 135,115 132,150 21,909 26,838 — — 401,186 SS — — 832 786 — 150 — — 1,768 Total 32,857 52,317 135,947 132,936 21,909 26,988 — — 402,954 Real estate construction and land development: Residential Pass 34,078 34,436 6,415 — 1,000 955 256 — 77,140 SS — 1,000 — 5,750 — — — — 6,750 Total 34,078 35,436 6,415 5,750 1,000 955 256 — 83,890 Commercial and multifamily Pass 37,022 169,816 147,789 9,865 — 3,002 — — 367,494 SM — — 893 — 5,655 5,886 — — 12,434 SS — — — 15,625 — — — — 15,625 Total 37,022 169,816 148,682 25,490 5,655 8,888 — — 395,553 Total real estate construction and land development Pass 71,100 204,252 154,204 9,865 1,000 3,957 256 — 444,634 SM — — 893 — 5,655 5,886 — — 12,434 SS — 1,000 — 21,375 — — — — 22,375 Total 71,100 205,252 155,097 31,240 6,655 9,843 256 — 479,443 Consumer Pass 1,882 1,513 1,477 339 3,196 20,518 133,355 820 163,100 SS — — 25 — 115 609 60 795 1,604 Total 1,882 1,513 1,502 339 3,311 21,127 133,415 1,615 164,704 74 Table of Contents December 31, 2024 Term Loans Amortized Cost Basis by Origination Year Revolving Loans Revolving Loans Converted (1) Loans Receivable 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted (1) Loans Receivable Loans receivable Pass 594,017 654,245 891,495 579,953 310,185 1,309,844 282,006 1,335 4,623,080 SM 161 7,201 8,603 12,611 7,643 58,599 13,555 2,352 110,725 SS — 1,235 2,298 23,658 3,268 23,308 12,391 2,160 68,318 Total $ 594,178 $ 662,681 $ 902,396 $ 616,222 $ 321,096 $ 1,391,751 $ 307,952 $ 5,847 $ 4,802,123 (1) Represents the loans receivable balance at December 31, 2024 which was converted from a revolving loan to a non-revolving amortizing loan during the year ended December 31, 2024. The following tables present the gross charge-offs by loan class and origination year, for the periods indicated: Year Ended December 31, 2025 Current Period Gross Charge-offs by Origination Year Revolving Loans Total Gross Charge-Offs 2025 2024 2023 2022 2021 Prior (Dollars in thousands) Commercial business $ — $ 77 $ 285 $ 429 $ — $ 645 $ — $ 1,436 Residential real estate — — — 27 — — — 27 Consumer — 10 20 12 — 117 326 485 Total $ — $ 87 $ 305 $ 468 $ — $ 762 $ 326 $ 1,948 Year Ended December 31, 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 $ — $ — $ 4 $ 2,636 $ — $ 2,953 Consumer — 6 22 — 11 168 331 538 Total $ — $ 319 $ 22 $ — $ 15 $ 2,804 $ 331 $ 3,491 (d) Nonaccrual Loans The following tables present the amortized cost of nonaccrual loans at the dates indicated: December 31, 2025 Nonaccrual without ACL Nonaccrual with ACL Total Nonaccrual (Dollars in thousands) Commercial business: Commercial and industrial $ 853 $ 2,086 $ 2,939 Non-owner occupied CRE 3,947 — 3,947 Total commercial business 4,800 2,086 6,886 Residential real estate 1,196 — 1,196 Real estate construction and land development: Residential 6,713 — 6,713 Commercial and multifamily 5,695 — 5,695 Total real estate construction and land development 12,408 — 12,408 Consumer 486 — 486 Total $ 18,890 $ 2,086 $ 20,976 75 Table of Contents December 31, 2024 Nonaccrual without ACL Nonaccrual with ACL Total Nonaccrual (Dollars in thousands) Commercial business: Commercial and industrial $ 1,002 $ 667 $ 1,669 Owner-occupied CRE 2,250 — 2,250 Total commercial business 3,252 667 3,919 Consumer 160 — 160 Total $ 3,412 $ 667 $ 4,079 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: Year Ended December 31, 2025 2024 Interest Income Reversed Interest Income Recognized Interest Income Reversed Interest Income Recognized (Dollars in thousands) Commercial business: Commercial and industrial $ ( 69 ) $ 42 $ ( 27 ) $ 461 Owner-occupied CRE — 60 ( 28 ) 144 Non-owner occupied CRE ( 8 ) — — — Total commercial business ( 77 ) 102 ( 55 ) 605 Residential real estate ( 33 ) — — — Real estate construction and land development: Residential ( 178 ) — — — Commercial and multifamily ( 154 ) — — — Total real estate construction and land development ( 332 ) — — — Consumer ( 9 ) — ( 5 ) — Total $ ( 451 ) $ 102 $ ( 60 ) $ 605 For each of the years ended December 31, 2025 and 2024, 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: December 31, 2025 30-89 Days 90 Days or Greater Total Past Due Current Loans Receivable (Dollars in thousands) Commercial business: Commercial and industrial $ 7,115 $ 1,973 $ 9,088 $ 808,912 $ 818,000 Owner-occupied CRE 735 — 735 1,034,094 1,034,829 Non-owner occupied CRE 1,955 3,947 5,902 2,051,942 2,057,844 Total commercial business 9,805 5,920 15,725 3,894,948 3,910,673 Residential real estate 425 1,389 1,814 357,020 358,834 Real estate construction and land development: Residential — 6,714 6,714 88,636 95,350 76 Table of Contents December 31, 2025 30-89 Days 90 Days or Greater Total Past Due Current Loans Receivable (Dollars in thousands) Commercial and multifamily — 5,695 5,695 242,280 247,975 Total real estate construction and land development — 12,409 12,409 330,916 343,325 Consumer 505 345 850 169,584 170,434 Total $ 10,735 $ 20,063 $ 30,798 $ 4,752,468 $ 4,783,266 December 31, 2024 30-89 Days 90 Days or Greater Total Past Due Current Loans Receivable (Dollars in thousands) Commercial business: Commercial and industrial $ 659 $ 2,471 $ 3,130 $ 839,542 $ 842,672 Owner-occupied CRE 1,426 — 1,426 1,001,817 1,003,243 Non-owner occupied CRE — — — 1,909,107 1,909,107 Total commercial business 2,085 2,471 4,556 3,750,466 3,755,022 Residential real estate 832 — 832 402,122 402,954 Real estate construction and land development: Residential — — — 83,890 83,890 Commercial and multifamily — — — 395,553 395,553 Total real estate construction and land development — — — 479,443 479,443 Consumer 339 160 499 164,205 164,704 Total $ 3,256 $ 2,631 $ 5,887 $ 4,796,236 $ 4,802,123 The following table present loans 90 days or more past due and still accruing interest: December 31, 2025 December 31, 2024 (Dollars in thousands) Commercial business: Commercial and industrial $ — $ 1,195 Total commercial business — 1,195 Real estate construction and land development: Residential 194 — Total real estate construction and land development 194 — Total $ 194 $ 1,195 (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 b alances representing the amortized cost of the loan classified by the primary collateral category of each loan if multiple collateral sources secure the loan : December 31, 2025 CRE Farmland Residential Real Estate Equipment Total (Dollars in thousands) Commercial business: Commercial and industrial $ — $ 482 $ — $ 61 $ 543 Non-owner occupied CRE 3,947 — — — 3,947 Total commercial business 3,947 482 — 61 4,490 Residential real estate — — 1,196 — 1,196 77 Table of Contents December 31, 2025 CRE Farmland Residential Real Estate Equipment Total (Dollars in thousands) Real estate construction and land development: Residential — — 6,713 — 6,713 Commercial and multifamily 5,695 — — — 5,695 Total real estate construction and land development 5,695 — 6,713 — 12,408 Consumer — — 486 — 486 Total $ 9,642 $ 482 $ 8,395 $ 61 $ 18,580 December 31, 2024 CRE Farmland Residential Real Estate Equipment Total (Dollars in thousands) Commercial business: Commercial and industrial $ — $ 389 $ 613 $ — $ 1,002 Owner-occupied CRE 2,250 — — — 2,250 Total commercial business 2,250 389 613 — 3,252 Consumer — — 160 — 160 Total $ 2,250 $ 389 $ 773 $ — $ 3,412 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 year ended December 31, 2025, 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 amortized cost of loans that were experiencing both financial difficulty and modified during the periods indicated: Year Ended December 31, 2025 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 $ 13,180 $ 60 $ 13,240 1.62 % Owner-occupied CRE 1,502 224 1,726 0.17 Non-owner occupied CRE — 219 219 0.01 Total commercial business 14,682 503 15,185 0.39 Real estate construction and land development: Residential 6,713 — 6,713 7.04 Commercial and multifamily 6,581 — 6,581 2.65 Total real estate construction and land development 13,294 — 13,294 3.87 Consumer 121 — 121 0.07 Total $ 28,097 $ 503 $ 28,600 0.60 % 78 Table of Contents Year Ended December 31, 2024 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 $ 20,962 $ 200 $ 21,162 2.51 % Total commercial business 20,962 200 21,162 0.56 Real estate construction and land development: Residential 6,750 — 6,750 8.05 Commercial and multifamily 5,655 15,625 21,280 5.38 Total real estate construction and land development 12,405 15,625 28,030 5.85 Consumer 44 — 44 0.03 Total $ 33,411 $ 15,825 $ 49,236 1.03 % The following tables present the financial effect of the loan modifications presented in the preceding table during the periods indicated: Year Ended December 31, 2025 Weighted Average % of Interest Rate Reductions Weighted Average Years of Term Extensions Commercial business: Commercial and industrial ( 3.30 ) % 1.00 Owner-occupied CRE ( 1.80 ) 1.41 Non-owner occupied CRE ( 1.40 ) 2.17 Total commercial business ( 1.80 ) 1.07 Real estate construction and land development: Residential — 0.75 Commercial and multifamily — 0.86 Total real estate construction and land development — 0.81 Consumer — 1.30 Total ( 1.80 ) % 0.95 Year Ended December 31, 2024 Weighted Average % of Interest Rate Reductions Weighted Average Years of Term Extensions Commercial business: Commercial and industrial 1.10 % 0.85 Total commercial business 1.10 0.85 Real estate construction and land development: Residential — 0.17 Commercial and multifamily 1.50 1.25 Total real estate construction and land development 1.50 0.99 Consumer — 1.78 Total 1.50 % 0.93 At December 31, 2025, there were $ 7.1 million in commitments to lend additional funds to borrowers experiencing financial difficulty whose terms had been modified during the year ended December 31, 2025. At December 31, 2024, there were $ 4.3 million in commitments to lend additional funds to borrowers experiencing financial difficulty whose terms had been modified during the year ended December 31, 2024. The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to 79 Table of Contents 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. At December 31, 2025, there were three loans at a total of $ 6.8 million that were 90 days past due or in default that had been modified due to term extension in the past 12 months, of which $ 6.7 million was residential construction and $ 0.1 million was consumer. There were no loans 90 days past due or in default that have been modified in the past 12 months at December 31, 2024. The following tables present the performance of loans that have been modified within the previous twelve months: December 31, 2025 Current 30-89 Days 90 Days or Greater Nonaccrual Total (Dollars in thousands) Commercial business: Commercial and industrial $ 4,278 $ — $ — $ 113 $ 4,391 Owner-occupied CRE 1,726 — — — 1,726 Non-owner occupied CRE 219 — — — 219 Total commercial business 6,223 — — 113 6,336 Real estate construction and land development: Residential — — — 6,713 6,713 Commercial and multifamily 886 — — — 886 Total real estate construction and land development 886 — — 6,713 7,599 Consumer 15 — — 106 121 Total $ 7,124 $ — $ — $ 6,932 $ 14,056 December 31, 2024 Current 30-89 Days 90 Days or Greater Nonaccrual Total (Dollars in thousands) Commercial business: Commercial and industrial $ 10,519 $ — $ — $ — $ 10,519 Total commercial business 10,519 — — — 10,519 Real estate construction and land development: Residential 6,750 — — — 6,750 Total real estate construction and land development 6,750 — — — 6,750 Consumer 32 12 — — 44 Total $ 17,301 $ 12 $ — $ — $ 17,313 (h) Related Party Loans In the ordinary course of business, the Company has granted loans to certain directors, executive officers and their affiliates. The following table presents the activity in related party loans during the periods indicated: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Balance outstanding at the beginning of year $ 6,460 $ 6,749 $ 6,879 Principal additions — — 122 Principal reductions ( 297 ) ( 289 ) ( 252 ) Balance outstanding at the end of year $ 6,163 $ 6,460 $ 6,749 All related party loans were performing in accordance with the underlying loan agreements as of both December 31, 2025 and December 31, 2024. The Company had $ 175,000 and $ 143,000 of unfunded commitments to related parties as of December 31, 2025 and December 31, 2024, respectively. 80 Table of Contents (i) Commercial Loan Sales and Servicing The following table presents the details of loans serviced for others at the dates indicated: December 31, 2025 December 31, 2024 (Dollars in thousands) Loans serviced for others with participating interest, gross loan balance $ 3,641 $ 5,663 Loans serviced for others with participating interest, participation balance owned by Company (1) 648 1,110 (1) Included in the balance of "Loans receivable " in the Consolidated Statements of Financial Condition. The Company recognized $ 61,000 , $ 94,000 and $ 135,000 of servicing income for the years ended December 31, 2025, 2024 and 2023, respectively. (j) Accrued interest receivable on loans receivable Accrued interest receivable on loans receivable totaled $ 14.8 million and $ 14.5 million at December 31, 2025 and December 31, 2024, respectively, and is excluded from the calculation of the ACL on loans as interest accrued , but not received, is reversed timely. (k) Foreclosure proceedings in process At December 31, 2025, there were two home equity loans valued at a total of $ 1.2 million, secured by residential real estate, for which formal foreclosure proceedings were in process. At December 31, 2024, there was one home equity loan valued at $ 160,000 secured by residential real estate for which formal foreclosure proceedings were in process. (4) Allowance for Credit Losses on Loans The following tables detail the activity in the ACL on loans by segment and class for the periods indicated: Year Ended December 31, 2025 Beginning Balance Charge-offs Recoveries Provision for (Reversal of) Credit Losses Ending Balance (Dollars in thousands) Commercial business: Commercial and industrial $ 9,766 $ ( 1,436 ) $ 262 $ 710 $ 9,302 Owner-occupied CRE 12,819 — 141 137 13,097 Non-owner occupied CRE 15,708 — — 1,305 17,013 Total commercial business 38,293 ( 1,436 ) 403 2,152 39,412 Residential real estate 3,464 ( 27 ) 1 270 3,708 Real estate construction and land development: Residential 779 — — 258 1,037 Commercial and multifamily 7,877 — — ( 1,290 ) 6,587 Total real estate construction and land development 8,656 — — ( 1,032 ) 7,624 Consumer 2,055 ( 485 ) 152 118 1,840 Total $ 52,468 $ ( 1,948 ) $ 556 $ 1,508 $ 52,584 81 Table of Contents Year Ended December 31, 2024 Beginning Balance Charge-offs Recoveries Provision for (Reversal of) Credit Losses Ending Balance (Dollars in thousands) Commercial business: Commercial and industrial $ 11,128 $ ( 443 ) $ 496 $ ( 1,415 ) $ 9,766 Owner-occupied CRE 8,999 ( 2,510 ) 359 5,971 12,819 Non-owner occupied CRE 11,176 — — 4,532 15,708 Total commercial business 31,303 ( 2,953 ) 855 9,088 38,293 Residential real estate 3,473 — — ( 9 ) 3,464 Real estate construction and land development: Residential 1,643 — — ( 864 ) 779 Commercial and multifamily 9,233 — — ( 1,356 ) 7,877 Total real estate construction and land development 10,876 — — ( 2,220 ) 8,656 Consumer 2,347 ( 538 ) 122 124 2,055 Total $ 47,999 $ ( 3,491 ) $ 977 $ 6,983 $ 52,468 Year Ended December 31, 2023 Beginning Balance Charge-offs Recoveries (Reversal of) Provision for Credit Losses Ending Balance (Dollars in thousands) Commercial business: Commercial and industrial $ 13,962 $ ( 719 ) $ 1,372 $ ( 3,487 ) $ 11,128 Owner-occupied CRE 7,480 — — 1,519 8,999 Non-owner occupied CRE 9,276 — — 1,900 11,176 Total commercial business 30,718 ( 719 ) 1,372 ( 68 ) 31,303 Residential real estate 2,872 — — 601 3,473 Real estate construction and land development: Residential 1,654 — — ( 11 ) 1,643 Commercial and multifamily 5,409 — — 3,824 9,233 Total real estate construction and land development 7,063 — — 3,813 10,876 Consumer 2,333 ( 586 ) 210 390 2,347 Total $ 42,986 $ ( 1,305 ) $ 1,582 $ 4,736 $ 47,999 The following table details the activity in the ACL on unfunded commitments during the periods indicated: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Balance, beginning of period $ 587 $ 1,288 $ 1,744 Provision for (reversal of) credit losses on unfunded commitments 460 ( 701 ) ( 456 ) Balance, end of period $ 1,047 $ 587 $ 1,288 82 Table of Contents (5) Premises and Equipment The following table presents a summary of premises and equipment at the dates indicated: Year Ended December 31, 2025 2024 (Dollars in thousands) Land $ 20,803 $ 18,721 Buildings and building improvements 68,433 64,623 Furniture, fixtures and equipment 29,996 28,819 Total premises and equipment 119,232 112,163 Less: Accumulated depreciation ( 44,542 ) ( 40,583 ) Premises and equipment, net $ 74,690 $ 71,580 Total depreciation expense on premises and equipment was $ 5.8 million, $ 6.6 million and $ 6.3 million for the years ended December 31, 2025, 2024 and 2023, respectively. (6) Goodwill and Other Intangible Assets (a) Goodwill The Company’s goodwill represents the excess of the purchase price over the fair value of net assets acquired in the following mergers: Premier Commercial Bancorp and Puget Sound Bancorp in 2018; Washington Banking Company in 2014; Valley Community Bancshares in 2013; Western Washington Bancorp in 2006; and North Pacific Bank in 1998. The Company’s goodwill is assigned to the Bank and is evaluated for impairment at the Bank level (reporting unit). There were no additions to goodwill during the years ended December 31, 2025, 2024, and 2023. On January 31, 2026, the Company completed its acquisition of Olympic Bancorp, Inc., which resulted in an increase in the Company’s goodwill. Refer to Footnote 22 Subsequent Merger Transactions for additional information related to the acquisition. At December 31, 2025, the Company's analysis concluded the fair value of the reporting unit exceeded the carrying value so the Company's goodwill was not considered impaired. Similarly, no goodwill impairment charges were recorded for the years ended December 31, 2024 and 2023. Even though there was no goodwill impairment at December 31, 2025, changes in economic environment, operations of the reporting unit or other adverse events could result in future impairment charges which could have a material impact on the Company's operating results. (b) Other Intangible Assets Other intangible assets represent core deposit intangibles acquired in business combinations with estimated useful lives of ten years . There were no additions during the years ended December 31, 2025, 2024, and 2023. The following table presents the changes in carrying value of other intangible assets at the dates indicated: Year Ended December 31, 2025 2024 (Dollars in thousands) Gross Carrying Value $ 30,455 30,455 Accumulated amortization ( 28,476 ) ( 27,302 ) Net carrying value $ 1,979 $ 3,153 The following table presents the estimated aggregate amortization of other intangible assets at the dates indicated: December 31, 2025 Estimated amortization expense 2026 $ 1,005 2027 821 2028 153 Total $ 1,979 83 Table of Contents (7) Derivative Financial Instruments The following table presents the notional amounts and estimated fair values of derivatives at the dates indicated: December 31, 2025 December 31, 2024 Notional Amounts Estimated Fair Value Notional Amounts Estimated Fair Value (Dollars in thousands) Non-hedging interest rate derivatives: Interest rate swap asset (1) $ 276,349 $ 14,434 $ 299,236 $ 23,867 Interest rate swap liability (1) 276,349 ( 14,434 ) 299,236 ( 23,867 ) (1) The estimated net fair value of derivatives with customers was $( 11.4 ) million and $( 22.7 ) million as of December 31, 2025 and December 31, 2024, respectively. The estimated net fair value of derivatives with third parties was $ 11.4 million and $ 22.7 million as of December 31, 2025 and December 31, 2024, respectively. Generally, the gains and losses of the interest rate derivatives offset each other due to the back-to-back nature of the contracts. As such, the settlement values of the Company's net derivative assets with customers had no change as of December 31, 2025 and December 31, 2024 due to the change in the credit valuation adjustment. (8) Deposits The following table summarizes the Company's deposits at the dates indicated: December 31, 2025 2024 Amount Amount (Dollars in thousands) Noninterest demand deposits $ 1,597,650 $ 1,654,955 Interest bearing demand deposits 1,627,259 1,464,129 Money market accounts 1,334,904 1,166,901 Savings accounts 422,523 421,377 Certificates of deposit 937,863 977,251 Total deposits $ 5,920,199 $ 5,684,613 Deposit accounts overdrawn and reclassified to loans receivable were $ 340,000 and $ 313,000 as of December 31, 2025 and 2024, respectively. Accrued interest payable on deposits was $ 149,000 and $ 214,000 as of December 31, 2025 and 2024, respectively and is included in "Accrued expenses and other liabilities" in the Consolidated Statements of Financial Condition. Scheduled maturities of certificates of deposit for years after December 31, 2025 are as follows, in thousands: 2026 $ 917,944 2027 12,049 2028 5,287 2029 1,278 2030 1,285 Thereafter 20 Total $ 937,863 Certificates of deposit issued in denominations equal to or in excess of $250,000 totaled $ 443.6 million and $ 450.8 million as of December 31, 2025 and December 31, 2024, respectively. Deposits received from related parties as of December 31, 2025 and December 31, 2024 totaled $ 4.9 million and $ 4.1 million, respectively. (9) Junior Subordinated Debentures As part of the acquisition of Washington Banking Company on May 1, 2014, the Company assumed junior subordinated debentures with a total fair value of $ 18.1 million at the merger date. At December 31, 2025 and December 31, 2024, the balance of the junior subordinated debentures, net of unaccreted discount, was $ 22.4 million and $ 22.1 million, respectively. Washington Banking Master Trust, a Delaware statutory business trust (the "Trust"), was a wholly-owned subsidiary of the Washington Banking Company created for the exclusive purposes of issuing and selling capital securities and utilizing sale 84 Table of Contents proceeds to acquire junior subordinated debentures issued by the Washington Banking Company. During 2007, the Trust issued $ 25.0 million of trust preferred securities with a 30 -year maturity, callable after the fifth year. The trust preferred securities have a quarterly adjustable rate based upon the three-month SOFR plus 1.56 %. On the merger date, the Company acquired the Trust, which retained the Washington Banking Master Trust name, and assumed the performance and observance of the covenants under the indenture related to the trust preferred securities. The adjustable rate of the trust preferred securities at December 31, 2025 and December 31, 2024 was 5.54 % and 6.18 %, respectively. The junior subordinated debentures are the sole assets of the Trust and payments under the junior subordinated debentures are the sole revenues of the Trust. All the common securities of the Trust are owned by the Company. The Company has fully and unconditionally guaranteed the capital securities along with all obligations of the Trust under the trust agreements. For financial reporting purposes, the Company's investment in the Master Trust is accounted for under the equity method and is included in "Prepaid expenses and other assets" in the Consolidated Statements of Financial Condition. The junior subordinated debentures issued and guaranteed by the Company and held by the Master Trust are reflected as "Junior subordinated debentures" in the Consolidated Statements of Financial Condition. As of December 31, 2025, the junior subordinated debentures qualified as additional tier 1 capital of the Company under the Federal Reserve's capital adequacy guidelines. (10) Other Borrowings (a) FHLB At year end, advances from the FHLB were as follows: December 31, 2025 2024 Amount Amount (Dollars in thousands) Fixed rate $ 20,000 $ 348,000 Variable rate — 35,000 Total $ 20,000 $ 383,000 At December 31, 2025, the Company had a fixed rate advance of $ 20.0 million with a rate of 4.16 % which matures in 2026. The FHLB functions as a member-owned cooperative providing credit for member financial institutions. Advances are made pursuant to several different programs. Each credit program has its own interest rate and range of maturities. Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. Limitations on the amount of advances are based on a percentage of the Bank's assets or on the FHLB’s assessment of the institution’s creditworthiness. The advances were collateralized by $ 1,306 million and $ 1,359 million of loans under a blanket lien arrangement at December 31, 2025 and December 31, 2024, respectively. At December 31, 2025, the Bank maintained a credit facility with the FHLB with available borrowing capacity of $ 1,286 million. Advances from the FHLB may be collateralized by FHLB stock owned by the Bank, deposits at the FHLB, certain commercial and residential real estate loans, investment securities or other assets. In accordance with the pledge agreement, the Company must maintain unencumbered collateral in an amount equal to varying percentages ranging from 100 % to 160 % of outstanding advances depending on the type of collateral. (b) FRB The Bank maintains a credit facility with the FRB through the Discount Window with available borrowing capacity of $ 346.3 million as of December 31, 2025. The Bank had no FRB borrowings outstanding at December 31, 2025 and December 31, 2024. Any advances on the credit facility would be secured by either investment securities or certain types of the Bank's loans receivable. (c) Federal Funds Purchased The Bank maintains advance lines with four correspondent banks to purchase federal funds totaling $ 145.0 million as of December 31, 2025. The lines generally mature annually or renewed annually. As of December 31, 2025 and December 31, 2024, there were no federal funds purchased. (d) Related Party Borrowings The Company did no t have any borrowings from related parties as of December 31, 2025 or December 31, 2024. 85 Table of Contents (11) Leases The Company's noncancelable operating lease agreements relate to certain banking offices, back-office operational facilities, office equipment and sublease agreements. The majority of the leases contain renewal options and provisions for increases in rental rates based on an agreed upon index or predetermined escalation schedule. As of December 31, 2025 and December 31, 2024, the Company’s operating lease ROU asset was $ 19.8 million and $ 22.4 million, respectively, and is included in " Prepaid expenses and other assets " in the Consolidated Statements of Financial Condition. The related operating lease ROU liability was $ 22.4 million and $ 24.9 million, respectively and is included in " Accrued expenses and other liabilities " in the Consolidated Statements of Financial Condition. In addition, the Company has one operating sublease agreement in which the Company is the intermediate lessor. The operating sublease is for five years with rental increases on a predetermined escalation schedule with a projected future cash flow of $ 900,000 at December 31, 2025. The Company did not have any leases designated as finance leases at December 31, 2025. The table below summarizes the information about our leases during the periods or at period end presented: Year Ended December 31, 2025 2024 (Dollars in thousands) Operating lease cost $ 5,564 $ 5,458 Short-term lease cost 110 61 Variable lease cost 1,283 1,255 Sublease income ( 396 ) ( 393 ) Total net lease cost during the period $ 6,561 $ 6,381 Operating cash used for amounts included in the measurement of lease liabilities during the period $ 5,309 $ 4,890 ROU assets obtained in exchange for lease liabilities during the period 3,937 3,504 Weighted average remaining lease term of operating leases, in years, at period end 6.0 5.8 Weighted average discount rate of operating leases, at period end 3.59 % 3.24 % The following table presents the lease payment obligations as of December 31, 2025 as outlined in the Company’s lease agreements for each of the next five years and thereafter, in thousands: 2026 $ 4,846 2027 5,154 2028 3,355 2029 2,957 2030 2,722 Thereafter 6,248 Total lease payments 25,282 Imputed interest ( 2,899 ) ROU liability $ 22,383 (12) Employee Benefit Plans (a) Heritage Financial Corporation 401(k) Profit Sharing Plan and Trust Eligible employees of the Company and Bank may participate in the Plan. The Company funds certain Plan costs as they are incurred. All eligible employees may participate in the Plan commencing with the first of the month following the start of employment or concurrent to their hire date if starting the first of the month. Participants may contribute a portion of their salary, which is matched by the Company at 50 %, not to be greater than 3 % of eligible compensation, up to Internal Revenue Service limits. All participants are 100 % vested in all accounts at all times. Employer matching contributions for the years ended December 31, 2025, 2024 and 2023 were $ 1.9 million, $ 1.8 million and $ 1.9 million, respectively. The Plan may make profit sharing and discretionary contributions which are completely discretionary. Participants are eligible for profit sharing contributions upon credit of 1,000 hours of service during the plan year, the attainment of 18 years of age and employment on the last day of the year. Employees are 100 % vested in profit sharing contributions at all times. For the years ended December 31, 2025, 2024 and 2023, the Company made no employer profit sharing contributions. 86 Table of Contents (b) Employment Agreements and Change in Control Agreements The Company has entered into employment agreements with certain officers that provide severance benefits following a termination of the applicable officer by the Company without “cause” or a resignation by the applicable officer for “good reason.” If such termination or resignation occurs in connection with a change in control of the Company, the employment agreements provide for an enhanced severance benefit. Additionally, the Company has entered into change in control agreements with certain officers that provide severance benefits following a termination of the applicable officer by the Company without “cause” or a resignation by the applicable officer for “good reason” in connection with a change in control of the Company. (c) Deferred Compensation Plan The Company has a Deferred Compensation Plan that provides its directors and select executive officers with the opportunity to defer current compensation. The Company records a liability within "Accrued expenses and other liabilities" in the Consolidated Statements of Financial Condition and records the expense as "Compensation and employee benefits" in the Consolidated Statements of Income. The expense incurred for the deferred compensation for the years ended December 31, 2025, 2024, and 2023 was $ 1,137,000 , $ 604,000 , and $ 409,000 , respectively. As a result, the Company recorded a deferred compensation liability of $ 5.4 million and $ 4.7 million at December 31, 2025 and 2024, respectively. (d) Salary Continuation Plan In conjunction with the Company's merger with Premier Commercial Bancorp in 2018, the Company assumed an unfunded salary continuation plan for select former Premier Commercial executive officers. The following table presents a summary of the changes in the Salary Continuation Plan during the periods indicated: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Obligation, at the beginning of the year $ 2,514 $ 2,837 $ 3,576 Benefits paid ( 475 ) ( 467 ) ( 881 ) Expenses incurred 102 144 142 Obligation, at the end of the year $ 2,141 $ 2,514 $ 2,837 (13) Stockholders’ Equity (a) Earnings Per Common Share The following table illustrates the calculation of weighted average shares used for earnings per common share computations for the periods indicated: Year Ended December 31, 2025 2024 2023 (Dollars in thousands, except shares) Net income allocated to common shareholders $ 67,532 $ 43,258 $ 61,755 Basic: Weighted average common shares outstanding 33,996,149 34,465,323 35,022,247 Diluted: Basic weighted average common shares outstanding 33,996,149 34,465,323 35,022,247 Effect of potentially dilutive common shares (1) 460,755 433,713 235,942 Total diluted weighted average common shares outstanding 34,456,904 34,899,036 35,258,189 Potentially dilutive shares that were excluded from the computation of diluted earnings per share because to do so would be anti-dilutive (2) 17,136 27,526 171,010 (1) Represents the effect of the vesting of restricted stock units. (2) Anti-dilution occurs when the unrecognized compensation cost per share of a restricted stock unit exceeds the market price of the Company’s stock. 87 Table of Contents (b) Dividends The timing and amount of cash dividends paid on the Company's common stock depends on the Company’s earnings, capital requirements, financial condition and other relevant factors. Dividends on common stock from the Company depend substantially upon receipt of dividends from the Bank, which is the Company’s predominant source of income. The following table summarizes the Company's dividend activity during the most recent three year period: Declared Cash Dividend per Share Record Date Paid Date January 25, 2023 $ 0.22 February 8, 2023 February 22, 2023 April 19, 2023 $ 0.22 May 4, 2023 May 18, 2023 July 19, 2023 $ 0.22 August 2, 2023 August 16, 2023 October 18, 2023 $ 0.22 November 1, 2023 November 15, 2023 January 24, 2024 $ 0.23 February 8, 2024 February 22, 2024 April 24, 2024 $ 0.23 May 8, 2024 May 22, 2024 July 24, 2024 $ 0.23 August 7, 2024 August 21, 2024 October 23, 2024 $ 0.23 November 6, 2024 November 20, 2024 January 22, 2025 $ 0.24 February 6, 2025 February 20, 2025 April 23, 2025 $ 0.24 May 7, 2025 May 21, 2025 July 23, 2025 $ 0.24 August 6, 2025 August 20, 2025 October 22, 2025 $ 0.24 November 5, 2025 November 19, 2025 The FDIC and the DFI have the authority under their supervisory powers to prohibit the payment of dividends by the Bank to the Company. Additionally, current guidance from the Federal Reserve provides, among other things, that dividends per share on the Company’s common stock generally should not exceed earnings per share, measured over the previous four fiscal quarters. Current regulations allow the Company and the Bank to pay dividends on their common stock if the Company’s or the Bank’s regulatory capital would not be reduced below the statutory capital requirements set by the Federal Reserve and the FDIC. See “Supervision And Regulation—Supervision and Regulation of the Company—Dividend Payments” and “Supervision And Regulation—Supervision and Regulation of the Bank—Dividend Payments” above, for additional detail regarding restrictions on the payment of dividends by the Company and the Bank. (c) Stock Repurchase Program The Company has implemented various stock repurchase programs since March 1999. 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, with 796,832 shares remaining available for repurchase at December 31, 2025. 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 further repurchases going forward. 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. The Company may, in its discretion, begin, suspend or terminate repurchases at any time prior to the Program’s expiration, without any prior notice. This stock repurchase program superseded the Company’s previous stock repurchase program authorized in March 2020 which authorized the repurchase of up to 5% of the Company’s common shares, or 1,799,054 shares in total. (14) Fair Value Measurements Fair value is the price that would be received to sell an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1 : Valuations for assets and liabilities traded in active exchange markets, or interest in open-end mutual funds that allow the Company to sell its ownership interest back to the fund at net asset value on a daily basis. Valuations are obtained from readily available pricing sources for market transactions involving identical assets, liabilities, or funds. Level 2 : Valuations for assets and liabilities traded in less active dealer or broker markets, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or valuations using methodologies with observable inputs. Level 3 : Valuations for assets and liabilities that are derived from other valuation methodologies, such as option pricing models, discounted cash flow models and similar techniques using unobservable inputs, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. 88 Table of Contents (a) Recurring and Nonrecurring Basis The Company used the following methods and significant assumptions to measure the fair value of certain assets on a recurring and nonrecurring basis: Investment Securities : The fair values of all investment securities are based upon the assumptions that market participants would use in pricing the security. If available, fair values of investment securities are determined by quoted market prices (Level 1). For investment securities where quoted market prices are not available, fair values are calculated based on market prices on similar securities (Level 2). For investment securities where quoted prices or market prices of similar securities are not available, fair values are calculated by using observable and unobservable inputs such as discounted cash flows or other market indicators (Level 3). Investment security valuations are obtained from third party pricing services. Collateral-Dependent Loans : Collateral-dependent loans are identified for the calculation of the ACL on loans. The fair value used to measure credit loss for this type of loan is commonly based on recent real estate appraisals which are generally obtained at least every 18 months or earlier if there are changes to risk characteristics of the underlying loan. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. The Company also incorporates an estimate of cost to sell the collateral when the sale is probable. Such adjustments may be significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value based on the borrower’s financial statements or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the customer and customer’s business (Level 3). Individually evaluated loans are analyzed for credit loss on a quarterly basis and the ACL on loans is adjusted as required based on the results. Appraisals on collateral-dependent loans are performed by certified general appraisers for commercial properties or certified residential appraisers for residential properties whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company's internal appraisal department reviews and approves the assumptions and approaches utilized in the appraisal as well as the resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Derivative Financial Instruments : The Company obtains broker or dealer quotes to value its interest rate derivative contracts, which use valuation models using observable market data as of the measurement date (Level 2), and incorporates credit valuation adjustments to reflect nonperformance risk in the measurement of fair value (Level 3). Although the Company has determined that the majority of the inputs used to value its interest rate swap derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as borrower risk ratings, to evaluate the likelihood of default by itself and its counterparties. As of December 31, 2025 and December 31, 2024, the Company assessed the significance of the impact of the credit valuation adjustment on the overall valuation of its interest rate swap derivatives and determined the credit valuation adjustment was not significant to the overall valuation of its interest rate swap derivatives. As a result, the Company has classified its interest rate swap derivative valuations in Level 2 of the fair value hierarchy. Recurring Basis The following tables summarize the balances of assets and liabilities measured at fair value on a recurring basis at the dates indicated: December 31, 2025 Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets Investment securities available for sale: U.S. government and agency securities $ 11,702 $ — $ 11,702 $ — Municipal securities 51,423 — 51,423 — Residential CMO and MBS (1) 275,268 — 275,268 — Commercial CMO and MBS (1) 252,164 — 252,164 — Corporate obligations 10,532 — 10,532 — Other asset-backed securities 6,433 — 6,433 — Total investment securities available for sale 607,522 — 607,522 — Equity security 265 265 — — Derivative assets - interest rate swaps 14,434 — 14,434 — 89 Table of Contents December 31, 2025 Total Level 1 Level 2 Level 3 (Dollars in thousands) Liabilities Derivative liabilities - interest rate swaps $ 14,434 $ — $ 14,434 $ — (1) U.S. government agency and government-sponsored enterprise CMO and MBS. December 31, 2024 Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets Investment securities available for sale: U.S. government and agency securities $ 12,544 $ — $ 12,544 $ — Municipal securities 50,942 — 50,942 — Residential CMO and MBS (1) 369,331 — 369,331 — Commercial CMO and MBS (1) 309,741 — 309,741 — Corporate obligations 11,770 — 11,770 — Other asset-backed securities 10,066 — 10,066 — Total investment securities available for sale 764,394 — 764,394 — Equity security 297 297 — — Derivative assets - interest rate swaps 23,867 — 23,867 — Liabilities Derivative liabilities - interest rate swaps $ 23,867 $ — $ 23,867 $ — (1) U.S. government agency and government-sponsored enterprise CMO and MBS. Nonrecurring Basis The Company may be required to measure certain financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. The following tables presents assets measured at fair value on a nonrecurring basis at the dates indicated: Fair Value at December 31, 2025 Total Level 1 Level 2 Level 3 Collateral-dependent loans: Residential real estate 806 — — 806 Total assets measured at fair value on a nonrecurring basis $ 806 $ — $ — $ 806 Fair Value at December 31, 2024 Total Level 1 Level 2 Level 3 Collateral-dependent loans: Commercial business: Owner-occupied CRE $ 2,250 $ — $ — $ 2,250 Total commercial business 2,250 — — 2,250 Consumer 160 — — 160 Total assets measured at fair value on a nonrecurring basis $ 2,410 $ — $ — $ 2,410 90 Table of Contents The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the dates indicated: December 31, 2025 Fair Value Valuation Technique(s) Unobservable Input(s) Range of Inputs Weighted Average (1) (Dollars in thousands) Collateral-dependent loans $ 806 Market approach Adjustments to reflect current conditions and selling costs 10.0 % - 10.0 % 10.0 % (1) Weighted by net discount to net appraisal fair value December 31, 2024 Fair Value Valuation Technique(s) Unobservable Input(s) Range of Inputs Weighted Average (1) (Dollars in thousands) Collateral-dependent loans $ 2,410 Market approach Adjustments to reflect current conditions and selling costs 10.0 % - 10.0 % 10.0 % (1) Weighted by net discount to net appraisal fair value (b) Fair Value of Financial Instruments Broadly traded markets do not exist for most of the Company’s financial instruments; therefore, the fair value calculations attempt to incorporate the effect of current market conditions at a specific time. These determinations are subjective in nature, involve uncertainties and matters of significant judgment and do not include tax ramifications; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments. There may be inherent weaknesses in any calculation technique and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Company. The following tables present the carrying value amount of the Company’s financial instruments and their corresponding estimated fair values at the dates indicated: December 31, 2025 Carrying Value Fair Value Fair Value Measurements Using: Level 1 Level 2 Level 3 (Dollars in thousands) Financial Assets: Cash and cash equivalents $ 233,089 $ 233,089 $ 233,089 $ — $ — Investment securities available for sale 607,522 607,522 — 607,522 — Investment securities held to maturity 674,107 625,287 — 625,287 — Loans receivable, net 4,730,682 4,740,417 — — 4,740,417 Derivative assets - interest rate swaps 14,434 14,434 — 14,434 — Equity security 265 265 265 — — Financial Liabilities: Non-maturity deposits $ 4,982,336 $ 4,982,336 $ 4,982,336 $ — $ — Certificates of deposit 937,863 942,011 — 942,011 — Borrowings 20,000 20,044 — 20,044 — Junior subordinated debentures 22,350 21,102 — — 21,102 Derivative liabilities - interest rate swaps 14,434 14,434 — 14,434 — December 31, 2024 Carrying Value Fair Value Fair Value Measurements Using: Level 1 Level 2 Level 3 (Dollars in thousands) Financial Assets: Cash and cash equivalents $ 117,100 $ 117,100 $ 117,100 $ — $ — Investment securities available for sale 764,394 764,394 — 764,394 — 91 Table of Contents December 31, 2024 Carrying Value Fair Value Fair Value Measurements Using: Carrying Value Fair Value Level 1 Level 2 Level 3 (Dollars in thousands) Investment securities held to maturity 703,285 623,452 — 623,452 — Loans receivable, net 4,749,655 4,694,516 — — 4,694,516 Derivative assets - interest rate swaps 23,867 23,867 — 23,867 — Equity security 297 297 297 — — Financial Liabilities: Non-maturity deposits $ 4,707,362 $ 4,707,362 $ 4,707,362 $ — $ — Certificates of deposit 977,251 985,602 — 985,602 — Borrowings 383,000 383,222 — 383,222 — Junior subordinated debentures 22,058 20,357 — — 20,357 Derivative liabilities - interest rate swaps 23,867 23,867 — 23,867 — (15) Stock-Based Compensation On May 3, 2023, based upon the recommendation of the Compensation Committee of the Board, the Company's shareholders approved the Heritage Financial Corporation 2023 Omnibus Equity Plan (the "Equity Plan"), which provides for the issuance of up to 1,250,000 shares of the Company's common stock in the form of various types of stock-based awards. As of December 31, 2025, there were 731,499 shares available for future issuance under the Equity Plan. The Equity Plan replaced the Heritage Financial Corporation 2014 Omnibus Equity Plan (the "2014 Plan"). Upon shareholder approval of the Equity Plan by the Company’s shareholders, the 2014 Plan was frozen so that no future awards could be made thereunder. All outstanding awards under the 2014 Plan remain in full force and effect, and are governed by the terms of the 2014 Plan and the related award agreements. (a) Restricted Stock Units Time-based restricted stock unit awards generally vest ratably over three years , participate in dividend equivalents and are subject to service conditions in accordance with each award agreement. Performance-based restricted stock unit awards have a three-year cliff vesting schedule, participate in dividend equivalents and are additionally subject to performance-based vesting. The conditions of the grants allow for an actual payout ranging between no payout and 150 % of target. The payout level is calculated based on the Company's return on tangible common equity and three-year total shareholder return relative to a defined peer group of banks. The fair value of each performance-based restricted stock unit award, inclusive of the performance metrics, was determined using a Monte Carlo simulation and will be recognized over the vesting period. The Monte Carlo simulation model uses the same input assumptions as the Black-Scholes model; however, it also further incorporates into the fair value determination the possibility that the performance metrics may not be satisfied. Compensation costs related to these awards are recognized regardless of whether the performance metrics are satisfied, provided that the requisite service has been provided. The Company used the following assumptions to estimate the fair value of performance-based restricted stock unit awards granted for the periods indicated: Year Ended December 31, 2025 2024 2023 Shares issued 23,788 25,394 15,112 Expected Term in Years 2.8 2.8 2.9 Weighted-Average Risk Free Interest Rate 4.0 % 4.5 % 4.4 % Weighted Average Fair Value 25.24 17.76 23.85 Range of peer company volatilities 22.6 %- 73.8 % 22.9 %- 71.3 % 25.8 %- 107.5 % Company volatility 32.8 % 31.2 % 35.8 % Expected volatilities in the model were estimated using a historical period consistent with the performance period of approximately three years . The risk-free interest rate was based on Treasury rates for a term commensurate with the expected life of the grant. For the years ended December 31, 2025, 2024 and 2023, the Company recognized compensation expense related to restricted stock unit awards of $ 4.9 million, $ 4.3 million, and $ 4.3 million respectively, and a related tax benefit of $ 1.1 million, $ 961,000 , and $ 949,000 , respectively. As of December 31, 2025, the total unrecognized compensation expense related to non-vested restricted stock unit awards was $ 6.5 million and the related weighted-average period over which the compensation expense is 92 Table of Contents expected to be recognized was approximately 1.8 years. The vesting date fair value of the restricted stock unit awards that vested during the years ended December 31, 2025, 2024 and 2023 was $ 4.9 million, $ 3.1 million and $ 3.5 million, respectively. The following table summarizes the unit activity for the periods indicated: Units Weighted-Average Grant Date Fair Value Nonvested at December 31, 2022 378,892 $ 25.42 Granted 225,107 25.53 Vested ( 162,752 ) 25.05 Forfeited ( 33,359 ) 26.08 Nonvested at December 31, 2023 407,888 25.59 Granted 272,201 18.41 Vested ( 168,204 ) 24.52 Forfeited ( 31,500 ) 23.64 Nonvested at December 31, 2024 480,385 22.02 Granted 216,307 24.24 Vested ( 208,461 ) 22.60 Forfeited ( 14,403 ) 23.19 Nonvested at December 31, 2025 473,828 $ 22.74 (16) Investments in Tax Credits Structures The Company's tax credit investments include LIHTC investments and a Solar Tax Credit investment. LIHTC investments promote qualified affordable housing projects, some of which also support the Company’s regulatory compliance with the CRA. The Company’s investments in these entities generate a return primarily through the realization of federal income tax credits and other tax benefits, such as tax deductions from operating losses of the investments, over specified time periods. These tax credits and deductions are recognized as a reduction to income tax expense. The Company's accounting policies on tax credit investments are the same as those described in Note (1) Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements. LIHTC Investments The carrying values of investments in unconsolidated LIHTCs were $ 162.8 million and $ 187.2 million as of December 31, 2025 and 2024, respectively, as a component of prepaid expense and other assets in the Consolidated Statements of Financial Condition. LIHTCs are accounted for using the proportional amortization method. During the years ended December 31, 2025, 2024 and 2023 the Company recognized proportional amortization of $ 24.8 million, $ 20.0 million and $ 16.5 million, respectively as a component of income tax in the Consolidated Statements of Income and as amortization of tax credit investments in the Consolidated Statements of Cash Flows. Total unfunded contingent commitments related to the Company’s LIHTC investments totaled $ 18.1 million and $ 81.2 million at December 31, 2025 and 2024, respectively, as a component of accrued expenses and other liabilities in the Consolidated Statements of Financial Condition. The Company expects to fund LIHTC commitments totaling $ 7.2 million during the year ending December 31, 2026 and $ 1.9 million during the year ending December 31, 2027, with the remaining commitments of $ 9.1 million to be funded by December 31, 2041. The Company recognized tax credits and other benefits from its LIHTC investments of $ 29.5 million, $ 24.0 million and $ 20.3 million during the years ended December 31, 2025, 2024 and 2023, respectively. There were no significant modifications or events that resulted in a change in the nature or change in the underlying project for the Company's LIHTC investments at December 31, 2025, 2024 and 2023. There were no impairment losses on the Company’s LIHTC investments during the years ended December 31, 2025, 2024 and 2023. Solar Tax Credit Investment The Solar Tax Credit investment is accounted for using the equity method. The Company recognized amortization expense of $ 101,000 for both of the years ended December 31, 2025 and 2024, respectively, and $ 21,000 for the year ended December 31, 2023 which was included within other expense in the Consolidated Statements of Income. 93 Table of Contents (17) Income Taxes Income before provision for income taxes consisted of the following: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) United States $ 78,603 $ 52,259 $ 72,915 Income tax expense (benefit) consisted of the following for the periods indicated: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Current Expense Federal $ 27,768 $ 23,314 $ 23,213 State 1,242 978 1,151 Total Current tax expense 29,010 24,292 24,364 Deferred Expense Federal ( 17,675 ) ( 14,979 ) ( 13,099 ) State ( 264 ) ( 312 ) ( 105 ) Total Deferred tax expense (benefit) ( 17,939 ) ( 15,291 ) ( 13,204 ) Total Income tax expense $ 11,071 $ 9,001 $ 11,160 The effective tax rate was 14.1 % for the December 31, 2025 compared to an effective tax rate of 17.2 % and 15.3 % for the years ended December 31, 2024 and 2023, respectively. The decrease in the effective tax rate during the year ended December 31, 2025 was due primarily to the additional tax expense related to the surrender of BOLI recognized in the prior year. The following table presents the reconciliation of income taxes computed at the Federal statutory income tax rate of 21% to the actual effective rate for the periods indicated: Year Ended December 31, 2025 2024 2023 Amount Percent Amount Percent Amount Percent (Dollars in thousands) Income tax expense at Federal statutory tax rate $ 16,507 21.0 % $ 10,975 21.0 % $ 15,312 21.0 % State tax, net of Federal tax benefit (1) 773 1.0 526 1.0 827 1.1 Tax Credits (2) LIHTCs and tax benefits ( 29,462 ) ( 37.5 ) ( 23,966 ) ( 46.2 ) ( 20,255 ) ( 27.7 ) Solar tax credit — — — — ( 4,466 ) ( 6.1 ) Amortization of LIHTCs 24,756 31.5 19,952 38.5 16,456 22.6 Amortization of solar tax credits — — — — 5,060 6.9 Other Tax-exempt instruments ( 1,075 ) ( 1.4 ) ( 850 ) ( 1.6 ) ( 1,311 ) ( 1.8 ) BOLI surrender 515 0.7 2,371 4.5 — — Effects of BOLI ( 859 ) ( 1.1 ) ( 571 ) ( 1.1 ) ( 564 ) ( 0.8 ) Other, net ( 84 ) ( 0.1 ) 564 1.1 101 0.1 Income tax expense $ 11,071 14.1 % $ 9,001 17.2 % $ 11,160 15.3 % (1) State taxes in Oregon made up the majority (greater than 50 percent) of the tax effect in this category. (2) Federal tax credits are provided for under the Solar Tax Credits and LIHTC programs as described in Note (1) Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements. 94 Table of Contents Income taxes paid, net of refunds were as follows: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Federal $ 1,565 $ 1,330 $ 1,920 State and local: Idaho 80 25 — Oregon 812 385 930 All other states & local 235 30 348 Total income taxes paid, net of refunds $ 2,692 $ 1,770 $ 3,198 The following table presents major components of the deferred income tax asset (liability) resulting from differences between financial reporting and tax basis at the dates indicated: December 31, 2025 December 31, 2024 (Dollars in thousands) Deferred tax assets: Allowance for credit losses $ 11,861 $ 11,684 Accrued compensation 3,688 3,112 Stock compensation 1,100 807 Market discount on acquired loans 402 511 Foregone interest on nonaccrual loans 376 275 Net operating loss carryforward acquired 104 124 ROU lease liability 4,950 5,488 Net unrealized losses on investment securities 8,835 15,568 Tax credit carryforward 40,582 24,561 Other deferred tax assets 341 328 Total deferred tax assets 72,239 62,458 Deferred tax liabilities: Deferred loan fees, net ( 1,244 ) ( 1,314 ) Premises and equipment ( 1,000 ) ( 1,296 ) FHLB stock ( 218 ) ( 217 ) Goodwill and other intangible assets ( 425 ) ( 599 ) Junior subordinated debentures ( 752 ) ( 813 ) ROU lease asset ( 4,372 ) ( 4,938 ) Other deferred tax liabilities ( 21 ) ( 122 ) Total deferred tax liabilities ( 8,032 ) ( 9,299 ) Deferred tax asset, net $ 64,207 $ 53,159 In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. A valuation allowance is required to be recognized for the portion of the deferred tax asset that will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2025, based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management expects to realize the benefits of these deductible differences. At December 31, 2025 and December 31, 2024, the Company had a federal net operating loss carryforward of $ 494,000 and $ 593,000 , respectively, that does not expire. The Company is limited to the amount of the net operating loss carryforward that it can deduct each year under Section 382 of the Internal Revenue Code. Due to sufficient earnings history and other positive evidence, management has no t recorded a valuation allowance on the federal net operating loss carryforward as of December 31, 2025 and December 31, 2024. At December 31, 2025, the Company had a federal tax credit carryforward of $ 40.6 million that expires in 2044. Due to sufficient earnings history and other positive evidence, management has not recorded a valuation allowance on the tax credit carryforward as of December 31, 2025. 95 Table of Contents As of December 31, 2025 and December 31, 2024, the Company had no unrecognized tax benefits. While the Company had no unrecognized tax benefits as of December 31, 2025 and 2024, in the event recording interest and penalties is necessary, they will be recorded as part of income tax expense. The Company has qualified under provisions of the Internal Revenue Code to compute income taxes after deductions of additions to the bad debt reserves when it was registered as a Savings Bank. At December 31, 2025, the Company had a taxable temporary difference of approximately $ 2.8 million that arose before 1988 (base-year amount). In accordance with FASB ASC 740, an estimated deferred tax liability of $ 588,000 has not been recognized for the temporary difference. Management does not expect this temporary difference to reverse in the foreseeable future. The Company and its Bank subsidiary file a United States consolidated federal income tax return, Oregon State and local income tax returns, and Idaho State tax return. The tax years subject to examination by the Internal Revenue Service are the years ended December 31, 2025, 2024, 2023 and 2022. (18) Commitments and Contingencies (a) Commitments to Extend Credit In the ordinary course of business, the Company may enter into various types of transactions that include commitments to extend credit that are not included in its Consolidated Financial Statements. The Company applies the same credit standards to these commitments as it uses in all its lending activities and has included these commitments in its lending risk evaluations. The majority of the commitments presented below are variable rate. Loan commitments can be either revolving or non-revolving. The Company’s exposure to credit and market risk under commitments to extend credit is represented by the amount of these commitments. The following table presents outstanding commitments to extend credit, including letters of credit, at the dates indicated: December 31, 2025 December 31, 2024 (Dollars in thousands) Commercial business: Commercial and industrial $ 554,438 $ 591,863 Owner-occupied CRE 12,169 14,778 Non-owner occupied CRE 38,954 23,100 Total commercial business 605,561 629,741 Real estate construction and land development: Residential 56,487 28,353 Commercial and multifamily 199,742 174,606 Total real estate construction and land development 256,229 202,959 Consumer 339,999 348,373 Total outstanding commitments $ 1,201,789 $ 1,181,073 (19) Regulatory Capital Requirements The Company is a bank holding company under the supervision of the Federal Reserve. Bank holding companies are subject to capital adequacy requirements of the Federal Reserve under the Bank Holding Company Act of 1956, as amended, and the regulations of the Federal Reserve. The Bank is a federally insured institution and thereby is subject to the capital requirements established by the FDIC. The Federal Reserve capital requirements generally parallel the FDIC requirements. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect in the Consolidated Financial Statements and operations. Additionally, the Company and the Bank are required to maintain a capital conservation buffer of common equity Tier 1 capital above 2.5% to avoid restrictions on certain activities including payment of dividends, stock repurchases and discretionary bonuses to executive officers. Management believes that as of December 31, 2025, the Company and the Bank met all capital adequacy requirements to which they were subject. As of December 31, 2025 and December 31, 2024, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since that notification that management believes have changed the Bank's categories. The following table summarizes the Company's consolidated and the Bank's capital ratios compared to the regulatory "adequately capitalized" capital ratios and the regulatory minimum capital ratios needed to qualify as a "well capitalized" institution, as calculated under regulatory guideline at the dates presented: 96 Table of Contents Actual Adequately Capitalized Well-Capitalized (1) (Dollars in thousands) December 31, 2025 Total capital ratio Company $ 786,057 14.1 % $ 446,102 8.0 % $ 557,628 10.0 % Bank 775,354 13.9 445,750 8.0 557,187 10.0 Tier 1 capital ratio Company 732,473 13.1 334,577 6.0 446,102 8.0 Bank 721,770 13.0 334,312 6.0 445,750 8.0 Common equity Tier 1 capital ratio Company 710,123 12.7 250,933 4.5 362,458 6.5 Bank 721,770 13.0 205,734 4.5 362,172 6.5 Leverage ratio Company 732,473 10.8 270,061 4.0 337,576 5.0 Bank 721,770 10.7 269,879 4.0 337,348 5.0 December 31, 2024 Total capital ratio Company $ 749,854 13.3 % $ 450,307 8.0 % $ 562,884 10.0 % Bank 742,222 13.2 450,002 8.0 562,503 10.0 Tier 1 capital ratio Company 698,412 12.4 337,730 6.0 450,307 8.0 Bank 690,780 12.3 337,502 6.0 450,002 8.0 Common equity Tier 1 capital ratio Company 676,354 12.0 253,298 4.5 365,874 6.5 Bank 690,780 12.3 253,126 4.5 365,627 6.5 Leverage ratio Company 698,412 10.0 278,910 4.0 348,637 5.0 Bank 690,780 9.9 278,749 4.0 348,436 5.0 (1) The ratios to meet the requirements to be deemed “well-capitalized” under prompt corrective action regulations are only applicable to the Bank. However, the Company manages its capital position as if the requirements apply to the consolidated Company and has presented the ratios as if they also applied on a consolidated basis. As of December 31, 2024, the capital measures reflected the revised CECL capital transition provisions adopted by the Federal Reserve and the FDIC that provided banking organizations that implemented CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. 97 Table of Contents (20) Heritage Financial Corporation (Parent Company Only) Following are the condensed financial statements of the Parent Company, excluding the Bank. HERITAGE FINANCIAL CORPORATION (PARENT COMPANY ONLY) Condensed Statements of Financial Condition December 31, 2025 December 31, 2024 (Dollars in thousands) ASSETS Cash and cash equivalents $ 7,000 $ 4,732 Investment in subsidiary bank 933,152 877,952 Other assets 4,407 3,812 Total assets $ 944,559 $ 886,496 LIABILITIES AND STOCKHOLDERS’ EQUITY Junior subordinated debentures $ 22,350 $ 22,058 Other liabilities 705 911 Total stockholders’ equity 921,504 863,527 Total liabilities and stockholders’ equity $ 944,559 $ 886,496 HERITAGE FINANCIAL CORPORATION (PARENT COMPANY ONLY) Condensed Statements of Income Year Ended December 31, 2025 2024 2023 (Dollars in thousands) INTEREST INCOME: Interest on interest earning deposits $ 12 $ 13 $ 26 INTEREST EXPENSE: Junior subordinated debentures 1,872 2,139 2,074 Net interest expense ( 1,860 ) ( 2,126 ) ( 2,048 ) NONINTEREST INCOME: Dividends from subsidiary bank 44,000 46,000 43,500 Equity in undistributed income of subsidiary bank 31,171 4,260 24,963 Other income 27 51 192 Total noninterest income 75,198 50,311 68,655 NONINTEREST EXPENSE: Professional services 838 524 455 Other expense 7,124 6,393 6,282 Total noninterest expense 7,962 6,917 6,737 Income before income taxes 65,376 41,268 59,870 Income tax benefit ( 2,156 ) ( 1,990 ) ( 1,885 ) Net income $ 67,532 $ 43,258 $ 61,755 Comprehensive Income $ 91,561 $ 60,490 $ 89,129 98 Table of Contents HERITAGE FINANCIAL CORPORATION (PARENT COMPANY ONLY) Condensed Statements of Cash Flows Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Cash flows from operating activities: Net income $ 67,532 $ 43,258 $ 61,755 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiary bank ( 31,171 ) ( 4,260 ) ( 24,963 ) Stock-based compensation expense 4,943 4,344 4,325 Net change in other assets and other liabilities ( 870 ) ( 168 ) ( 497 ) Net cash provided by operating activities 40,434 43,174 40,620 Cash flows from financing activities: Common stock cash dividends paid ( 32,649 ) ( 31,776 ) ( 30,820 ) Repurchase of common stock ( 5,517 ) ( 22,418 ) ( 6,974 ) Net cash used in financing activities ( 38,166 ) ( 54,194 ) ( 37,794 ) Net (decrease) increase in cash and cash equivalents 2,268 ( 11,020 ) 2,826 Cash and cash equivalents at the beginning of year 4,732 15,752 12,926 Cash and cash equivalents at the end of year $ 7,000 $ 4,732 $ 15,752 (21) Segment Information The Company has one reportable operating segment, commercial banking. The Company's reportable segment is determined by the President and Chief Executive Officer, who is the designated CODM. While the CODM monitors information provided about the Company's various products and services offered, the Company's financial performance is evaluated on a company-wide basis. The CODM will evaluate the financial performance of the Company's business components by evaluating revenue streams, significant expenses, and budget to actual results in assessing the Company's segment and in the determination of allocating resources. The CODM uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets. The CODM uses consolidated net income to benchmark the Company against its competitors. The benchmarking analysis coupled with monitoring of budget to actual results are used in assessment of performance and in establishing compensation. Loans, investments, and deposits provide the revenues of the banking operation. Interest expense, provisions for credit losses, and payroll provide the significant expenses in the banking operation. All operations are domestic. Accounting policies for the Company's one reportable segment are the same as those described in Note (1) Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements. Segment performance is evaluated using consolidated net income which is also reported on the Consolidated Statements of Income as net income. The measure of segment assets is reported on the Consolidated Statements of Financial Condition as total assets. (22) Subsequent Merger Transaction On January 31, 2026, the Company completed 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. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.