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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2025 or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 000-29480

HERITAGE FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Washington

91-1857900

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

201 Fifth Avenue SW,

Olympia

98501

(Address of principal executive offices)

(Zip Code)

(360) 943-1500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, no par value	HFWA	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:

As of October 29, 2025, there were 33,956,738 shares of the registrant's common stock, no par value per share, outstanding.

Table of Contents

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

September 30, 2025

TABLE OF CONTENTS


			Page
GLOSSARY OF ACRONYMS, ABBREVIATIONS AND TERMS			3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			4

PART I.	FINANCIAL INFORMATION		6
ITEM 1.	FINANCIAL STATEMENTS		6
	CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) AS OF SEPTEMBER 30, 2025 AND DECEMBER 31, 2024		6
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024		7
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024		8
	CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024		9
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024		11
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)		13
	NOTE 1.	DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS	13
	NOTE 2.	INVESTMENT SECURITIES	14
	NOTE 3.	LOANS RECEIVABLE	17
	NOTE 4.	ALLOWANCE FOR CREDIT LOSSES ON LOANS	28

	NOTE 5.	GOODWILL AND OTHER INTANGIBLE ASSETS	31
	NOTE 6.	DERIVATIVE FINANCIAL INSTRUMENTS	32
	NOTE 7.	STOCKHOLDERS’ EQUITY	32
	NOTE 8.	FAIR VALUE MEASUREMENTS	33

	NOTE 9.	INVESTMENTS IN TAX CREDIT STRUCTURES	37
	NOTE 10.	INCOME TAXES	38
	NOTE 11.	COMMITMENTS AND CONTINGENCIES	38
	NOTE 12.	SEGMENT INFORMATION	38
	NOTE 13.	PROPOSED MERGER	39
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		39
	OVERVIEW		39
	RESULTS OF OPERATIONS		40
		NET INCOME OVERVIEW	40
		NET INTEREST INCOME AND MARGIN OVERVIEW	40
		PROVISION FOR CREDIT LOSSES OVERVIEW	44
		NONINTEREST INCOME OVERVIEW	45
		NONINTEREST EXPENSE OVERVIEW	46
		INCOME TAX EXPENSE OVERVIEW	47
	FINANCIAL CONDITION OVERVIEW		47
		INVESTMENT ACTIVITIES OVERVIEW	48
		LOAN PORTFOLIO OVERVIEW	49
		ALLOWANCE FOR CREDIT LOSSES ON LOANS OVERVIEW	51
		DEPOSITS OVERVIEW	51
		BORROWINGS OVERVIEW	52
		STOCKHOLDERS' EQUITY OVERVIEW	52
	REGULATORY REQUIREMENTS OVERVIEW		52
	LIQUIDITY AND CAPITAL RESOURCES		53

Table of Contents


	CRITICAL ACCOUNTING ESTIMATES	54

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
ITEM 4.	CONTROLS AND PROCEDURES	55
PART II.	OTHER INFORMATION	55
ITEM 1.	LEGAL PROCEEDINGS	55
ITEM 1A.	RISK FACTORS	55
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	57
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	57
ITEM 4.	MINE SAFETY DISCLOSURES	57
ITEM 5.	OTHER INFORMATION	57
ITEM 6.	EXHIBITS	57
	SIGNATURES	59

GLOSSARY OF ACRONYMS, ABBREVIATIONS, AND TERMS

The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q. As used throughout this report, the terms "Heritage," “we,” “our,” “us” or the "Company" refer to Heritage Financial Corporation and its consolidated subsidiaries, unless the context otherwise requires.


2024 Annual Form 10-K			Company's Annual Report on Form 10-K for the year ended December 31, 2024
ACL			Allowance for Credit Losses
AOCI			Accumulated Other Comprehensive Income (loss), net
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Bank			Heritage Bank
Board			Heritage Financial Corporation Board of Directors
BOLI			Bank Owned Life Insurance
CECL			Current Expected Credit Loss
CMO			Collateralized Mortgage Obligations
CODM			Chief Operating Decision Maker
CRA			Community Reinvestment Act
CRE			Commercial Real Estate
DFI			Division of Banks of the Washington State Department of Financial Institutions
Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
Federal Reserve			Board of Governors of the Federal Reserve System
FHLB			Federal Home Loan Bank of Des Moines
FRB			Federal Reserve Bank
GAAP			U.S. Generally Accepted Accounting Principles
LIHTC			Low-Income Housing Tax Credit
MBS			Mortgage-Backed Securities
Olympic			Olympic Bancorp, Inc.
SEC			Securities and Exchange Commission
SM			Special Mention
SS			Substandard

Unfunded Commitments			Off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments
USDA			United States Department of Agriculture

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” These statements relate to our financial condition, results of operations, beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance or business. The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information then actually known to the Company. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements whether as a result of new information, future events or otherwise. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results for future periods to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect our operating results and stock price performance. These risks include, but are not limited to:

•potential adverse impacts to economic conditions nationally or in our local market areas, other markets where we have lending relationships, or other aspects of our business operations or financial markets including, without limitation, as a result of credit quality deterioration, pronounced and sustained reductions in real estate market values, employment levels, labor shortages, and a potential recession or slowed economic growth;

•changes in the interest rate environment, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity;

•the level and impact of inflation and the current and future monetary policies of the Federal Reserve in response thereto;

•legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax law, in regulatory policies and principles, or the interpretation and prioritization of such rules and regulations;

•effects on the U.S. economy resulting from the threat or implementation of new, or changes to existing, policies, regulations, regulatory and other governmental agencies and executive orders, including tariffs, immigration, DEI and ESG initiatives, consumer protection, foreign policy, and tax regulations;

•credit and interest rate risks associated with our business, customers, borrowings, repayment, investment, and deposit practices;

•fluctuations in deposits and deposit concentrations;

•liquidity issues, including our ability to borrow funds or raise additional capital, if necessary;

•fluctuations in the value of our investment securities;

•credit risks and risks from concentrations (by type of geographic area, collateral, and industry) within our loan portfolio;

•disruptions, security breaches, insider fraud, cybersecurity incidents, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform critical processing functions for our business, including sophisticated attacks using artificial intelligence and similar tools;

•rapid technological changes implemented by us and other parties including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers, including the development and implementation of tools incorporating artificial intelligence;

•increased competition in the financial services industry from non-banks such as credit unions and financial technology companies, including digital asset service providers;

•our ability to adapt successfully to technological changes to compete effectively in the marketplace, including as a result of competition from other commercial banks, mortgage banking firms, credit unions, securities brokerage firms, insurance companies, and financial technology companies;

•our ability to implement our organic and acquisition growth strategies, including the pending acquisition of Olympic;

•the credit risks of lending activities, including changes in the level and trend of loan delinquencies write-offs and changes in our ACL on loans and provision for credit losses on loans that may be affected by deterioration in the housing and CRE markets, which may lead to increased losses and nonperforming assets in our loan portfolio, or may result in our ACL on loans no longer being adequate to cover actual losses, and require us to increase our ACL on loans;

•the relative differences between short-term and long-term interest rates, deposit interest rates, our net interest margin and funding sources;

•the impact of repricing and competitors' pricing initiatives on loan and deposit products;

•fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas;

•the effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time that resulted in prior bank failures;

•the extensive regulatory framework that applies to us;

•results of examinations by the bank regulators, including the possibility that any such regulatory authority may, among other things, initiate an enforcement action against the Company or our bank subsidiary which could require us to increase our ACL on loans, write-down assets, change our regulatory capital position, affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements on us, any of which could affect our ability to continue our growth through mergers, acquisitions or similar transactions and adversely affect our liquidity and earnings;

•the quality and composition of our securities portfolio and the impact of any adverse changes with respect thereto, including market liquidity within the securities markets;

•the concentration of large deposits from certain customers, who have balances above current FDIC insurance limits;

•our ability to attract and retain deposits;

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•the overall health of local and national real estate markets;

•the level of nonperforming assets on our balance sheet;

•effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;

•the commencement, costs, effects and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject;

•potential impairment to the goodwill we recorded in connection with our past acquisitions, including the pending acquisition of Olympic;

•loss of, or inability to attract, key personnel;

•the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business and the businesses of our customers;

•the composition of our executive management team;

•our ability to control operating costs and expenses;

•the effectiveness of our risk management framework;

•difficulties in reducing risk associated with our loans;

•staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;

•our ability to implement our business strategies and manage our growth;

•future goodwill impairment due to changes in our business, market conditions, or other factors;

•our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames or at all, and any goodwill charges related thereto and costs or difficulties relating to integration matters, including but not limited to customer and employee retention, which might be greater than expected;

•risks related to acquiring assets in or entering markets in which we have not previously operated and may not be familiar;

•changes in consumer spending, borrowing and savings habits;

•our ability to pay dividends on our common stock;

•other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services;

•the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks;

•our success at managing and responding to the risks involved in the foregoing items; and

•other factors described in our 2024 Annual Form 10-K, this Quarterly Report on Form 10-Q and other documents filed with or furnished to the SEC, which are available on our website at www.hf-wa.com and on the SEC's website at www.sec.gov.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

(Dollars in thousands, except share data)


	September 30, 2025		December 31, 2024
ASSETS
Cash on hand and in banks	$	74,030	$	58,821
Interest earning deposits	171,461		58,279
Cash and cash equivalents	245,491		117,100
Investment securities available for sale, at fair value, net (amortized cost of $674,108 and $835,592, respectively)	631,231		764,394
Investment securities held to maturity, at amortized cost, net (fair value of $628,049 and $623,452, respectively)	681,626		703,285
Total investment securities	1,312,857		1,467,679

Loans receivable	4,769,160		4,802,123
Allowance for credit losses on loans	(53,974)		(52,468)
Loans receivable, net	4,715,186		4,749,655
Premises and equipment, net	70,382		71,580
Federal Home Loan Bank stock, at cost	10,473		21,538
Bank owned life insurance	105,464		111,699
Accrued interest receivable	19,146		19,483
Prepaid expenses and other assets	289,677		303,452
Other intangible assets, net	2,264		3,153
Goodwill	240,939		240,939
Total assets	$	7,011,879	$	7,106,278
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest bearing deposits	$	1,617,909	$	1,654,955
Interest bearing deposits	4,239,555		4,029,658
Total deposits	5,857,464		5,684,613
Borrowings	138,000		383,000
Junior subordinated debentures	22,277		22,058

Accrued expenses and other liabilities	90,074		153,080
Total liabilities	6,107,815		6,242,751
Commitments and contingencies (Note 11)
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; 33,956,738 and 33,990,827 shares issued and outstanding, respectively	529,949		531,674
Retained earnings	407,561		387,097
Accumulated other comprehensive loss, net	(33,446)		(55,244)
Total stockholders’ equity	904,064		863,527
Total liabilities and stockholders’ equity	$	7,011,879	$	7,106,278

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except shares and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
INTEREST INCOME:
Interest and fees on loans	$	66,422	$	64,138	$	196,231	$	182,608
Taxable interest on investment securities	11,102		13,472		34,420		42,462
Nontaxable interest on investment securities	138		159		414		505
Interest on interest earning deposits	1,846		2,048		4,309		5,177
Total interest income	79,508		79,817		235,374		230,752
INTEREST EXPENSE:
Deposits	20,121		20,256		59,760		55,097
Junior subordinated debentures	474		541		1,417		1,627

Borrowings	1,542		6,062		8,153		18,427
Total interest expense	22,137		26,859		69,330		75,151
Net interest income	57,371		52,958		166,044		155,601
Provision for credit losses	1,775		2,439		2,782		5,099
Net interest income after provision for credit losses	55,596		50,519		163,262		150,502
NONINTEREST INCOME:
Service charges and other fees	3,046		2,788		8,953		8,393
Card revenue	2,209		2,134		5,950		5,903
Loss on sale of investment securities, net	—		(6,945)		(10,741)		(18,839)
Gain on sale of loans, net	—		—		—		26
Interest rate swap fees	96		—		115		52
Bank owned life insurance income	1,008		860		3,206		2,711
Gain on sale of other assets, net	—		1,480		8		1,529
Other income	1,966		1,520		6,254		4,408
Total noninterest income	8,325		1,837		13,745		4,183
NONINTEREST EXPENSE:
Compensation and employee benefits	26,082		24,367		77,348		74,291
Occupancy and equipment	4,665		4,850		14,431		14,547
Data processing	3,754		3,964		11,317		10,879
Marketing	284		128		955		583
Professional services	1,332		490		3,188		1,852
State/municipal business and use taxes	1,235		1,249		3,660		3,709
Federal deposit insurance premium	796		824		2,418		2,431
Amortization of intangible assets	284		399		889		1,241
Other expense	3,183		3,019		9,877		9,223
Total noninterest expense	41,615		39,290		124,083		118,756
Income before income taxes	22,306		13,066		52,924		35,929
Income tax expense	3,137		1,643		7,629		4,599
Net income	$	19,169	$	11,423	$	45,295	$	31,330
Basic earnings per share	$	0.56	$	0.33	$	1.33	$	0.91
Diluted earnings per share	$	0.55	$	0.33	$	1.31	$	0.90
Dividends declared per share	$	0.24	$	0.23	$	0.72	$	0.69
Average number of basic shares outstanding	33,953,810		34,322,069		34,009,010		34,584,851
Average number of diluted shares outstanding	34,413,386		34,658,674		34,481,877		35,002,375

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Net Income	$	19,169	$	11,423	$	45,295	$	31,330
Change in fair value of investment securities available for sale, net of tax of $1,074, $6,146, $3,955, and $3,884 respectively	3,804		21,627		13,626		14,466
Amortization of net unrealized gain for the reclassification of investment securities available for sale to held to maturity, net of tax of $(17), $(18), $(58), and $(53) respectively	(61)		(64)		(204)		(190)
Reclassification adjustment for net loss from sale of investment securities available for sale included in income, net of tax benefit of $0, $1,537, $2,365, and $4,169 respectively	—		5,408		8,376		14,670
Other comprehensive income	3,743		26,971		21,798		28,946
Comprehensive income	$	22,912	$	38,394	$	67,093	$	60,276

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(Dollars in thousands, except shares and per share data)


	Three Months Ended September 30, 2025
	Number of common shares	Common stock		Retained earnings		AOCI		Total stockholders’ equity
Balance at June 30, 2025	33,953,194	$	528,758	$	396,643	$	(37,189)	$	888,212
Restricted stock units vested	3,544							—
Stock-based compensation expense		1,215						1,215
Common stock repurchased		(24)						(24)
Net income				19,169				19,169
Other comprehensive income, net of tax						3,743		3,743
Cash dividends declared on common stock ($0.24 per share)				(8,251)				(8,251)
Balance at September 30, 2025	33,956,738	$	529,949	$	407,561	$	(33,446)	$	904,064



	Nine Months Ended September 30, 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	198,988							—
Stock-based compensation expense		3,748						3,748
Common stock repurchased	(233,077)	(5,473)						(5,473)
Net income				45,295				45,295
Other comprehensive income, net of tax						21,798		21,798
Cash dividends declared on common stock ($0.72 per share)				(24,831)				(24,831)
Balance at September 30, 2025	33,956,738	$	529,949	$	407,561	$	(33,446)	$	904,064


	Three Months Ended September 30, 2024
	Number of common shares	Common stock		Retained earnings		AOCI		Total stockholders’ equity
Balance at June 30, 2024	34,496,197	$	541,294	$	379,714	$	(70,501)	$	850,507
Restricted stock units vested	5,723							—
Stock-based compensation expense		1,153						1,153
Common stock repurchased	(348,381)	(7,530)						(7,530)
Net income				11,423				11,423
Other comprehensive income, net of tax						26,971		26,971
Cash dividends declared on common stock ($0.23 per share)				(8,010)				(8,010)
Balance at September 30, 2024	34,153,539	$	534,917	$	383,127	$	(43,530)	$	874,514

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	Nine Months Ended September 30, 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	165,418							—
Stock-based compensation expense		3,223						3,223
Common stock repurchased	(918,112)	(18,054)						(18,054)
Net income				31,330				31,330
Other comprehensive income, net of tax						28,946		28,946
Cash dividends declared on common stock ($0.69 per share)				(24,192)				(24,192)
Balance at September 30, 2024	34,153,539	$	534,917	$	383,127	$	(43,530)	$	874,514

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)


	Nine Months Ended September 30,
	2025		2024
Cash flows from operating activities:
Net income	$	45,295	$	31,330
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	678		1,136
Provision for credit losses	2,782		5,099
Stock-based compensation expense	3,748		3,223
Amortization of intangible assets	889		1,241
Origination of mortgage loans held for sale	—		(1,318)
Proceeds from sale of mortgage loans held for sale	—		1,344
Deferred income tax expense	913		899
Bank owned life insurance income	(3,206)		(2,711)

Gain on sale of mortgage loans held for sale, net	—		(26)
Loss on sale of investment securities available for sale, net	10,741		18,839

Gain on sale of premises and equipment	—		(1,480)

Other	4,994		(13,712)
Net cash provided by operating activities	66,834		43,864
Cash flows from investing activities:
Loan originations and purchases, net of payments	35,113		(342,880)
Maturities and repayments of investment securities available for sale	94,976		92,146
Maturities and repayments of investment securities held to maturity	21,098		19,393
Purchase of investment securities available for sale	(84,669)		(33,132)

Purchase of premises and equipment	(3,448)		(2,657)
Purchase of bank owned life insurance	(39)		(39)
Proceeds from bank owned life insurance death benefit	502		1,157
Proceeds from surrender of bank owned life insurance	5,091		—
Purchases of Federal Home Loan Bank stock	(21,036)		(58,829)

Proceeds from sales of investment securities available for sale	141,682		241,968
Proceeds from redemption of Federal Home Loan Bank stock	32,101		46,022
Proceeds from sales of assets held for sale	—		7,459
Proceeds from sales of premises and equipment	52		50
Capital contributions to tax credit partnerships	(57,745)		(12,568)

Net cash provided (used) by investing activities	163,678		(41,910)
Cash flows from financing activities:
Net increase in deposits	172,851		108,620
Proceeds from borrowings	467,400		1,319,710
Repayment of borrowings	(712,400)		(1,437,710)
Common stock cash dividends paid	(24,499)		(23,921)

Repurchase of common stock	(5,473)		(18,054)
Net cash used by financing activities	(102,121)		(51,355)
Net increase (decrease) in cash and cash equivalents	128,391		(49,401)
Cash and cash equivalents at beginning of period	117,100		224,973
Cash and cash equivalents at end of period	$	245,491	$	175,572

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	Nine Months Ended September 30,
	2025		2024
Supplemental disclosures of cash flow information:
Cash paid for interest	$	69,716	$	84,048
Cash paid for income taxes, net of refunds	1,125		1,345

Supplemental non-cash disclosures of cash flow information:


Investment in LIHTC partnership and related funding commitment	142		100
Right of use assets obtained in exchange for new operating lease liabilities	3,240		3,214

Transfers of premises and equipment classified as held for sale to prepaid expenses and other assets from premises and equipment, net	93		—
Transfer of bank owned life insurance to prepaid expenses and other assets due to surrender of policies	8,463		—

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

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HERITAGE FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(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. 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, and 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 unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. It is recommended these unaudited Condensed Consolidated Financial Statements and accompanying Notes be read with the audited Consolidated Financial Statements and the accompanying Notes included in the 2024 Annual Form 10-K. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

The accompanying Condensed Consolidated Financial Statements presented for the year end December 31, 2024 were derived from audited financial statements and do not include all disclosures required by GAAP.

To prepare unaudited Condensed 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 the judgments, estimates and assumptions used in the preparation of the unaudited Condensed Consolidated Financial Statements are 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 unaudited Condensed 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. Certain prior year amounts in the Consolidated Statements of Income have been reclassified to conform to the current year’s presentation. Reclassifications had no effect on the prior year's net income or stockholders’ equity.

The significant accounting policies used in preparation of the unaudited Condensed Consolidated Financial Statements are disclosed in greater detail in the 2024 Annual Form 10-K. There have not been any material changes in the Company's significant accounting policies during the nine months ended September 30, 2025 from those contained in the 2024 Annual Form 10-K.

(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 SEC 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 related requirement from its existing regulations, the corresponding amendments within the ASU will become effective for the Company on the same date 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 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures (Topic 280), was issued in November 2023. This ASU was issued to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The ASU applies to all public entities that are required to report segment information in accordance with ASC 280. For public companies, amendments in this ASU became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. This ASU only impacts the Company's disclosure requirements and the adoption of this ASU did not have a material impact on its business operations or Consolidated Statements of Financial Condition.

FASB ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, was issued in December 2023. The amendments in this ASU require a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both

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percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all periods presented. The Company expects this ASU to only impact its disclosure requirements and 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 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements, was issued in March 2024. This update contains amendments in the Codification that remove references to various Concepts Statements. In most cases, the references were extraneous and not required to understand or apply the guidance. In other instances, the references were used in previous Statements to provide guidance in certain topical areas. The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively to all new transactions recognized on or after the date that the entity first applies the amendments, or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. If applied retrospectively, an entity shall adjust the opening period of retained earnings as of the beginning of the comparative period presented. 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 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.

(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 Bank’s lending activities.

There were no investment securities classified as trading at September 30, 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:


	September 30, 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	$	—	$	(1,634)	$	11,642
Municipal securities	59,581		19		(8,403)		51,197
Residential CMO and MBS(1)	321,733		1,487		(24,483)		298,737
Commercial CMO and MBS(1)	265,917		696		(10,618)		255,995
Corporate obligations	7,000		63		(44)		7,019
Other asset-backed securities	6,601		40		—		6,641
Total	$	674,108	$	2,305	$	(45,182)	$	631,231

(1) U.S. government agency and government-sponsored enterprise CMO and MBS.

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	September 30, 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	$	151,297	$	—	$	(21,846)	$	129,451
Residential CMO and MBS(1)	224,654		88		(10,188)		214,554
Commercial CMO and MBS(1)	305,675		22		(21,653)		284,044
Total	$	681,626	$	110	$	(53,687)	$	628,049

(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.

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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.


	September 30, 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	$	500	$	501	$	—	$	—
Due after one year through five years	8,938		8,770		—		—
Due after five years through ten years	39,423		35,540		101,554		89,544
Due after ten years	30,996		25,047		49,743		39,907
Total investment securities due at a single maturity date	79,857		69,858		151,297		129,451
MBS(1)	594,251		561,373		530,329		498,598
Total investment securities	$	674,108	$	631,231	$	681,626	$	628,049

(1) MBS, 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 September 30, 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:


	September 30, 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	$	—	$	—		$	11,642	$	(1,634)	$	11,642	$	(1,634)
Municipal securities	1,247		—		*	45,486		(8,403)		46,733		(8,403)
Residential CMO and MBS(1)	1,775		(7)			181,249		(24,476)		183,024		(24,483)
Commercial CMO and MBS(1)	6,939		(6)			154,811		(10,612)		161,750		(10,618)
Corporate obligations	—		—			3,956		(44)		3,956		(44)
Other asset-backed securities	1,444		—		*	—		—		1,444		—		*
Total	$	11,405	$	(13)		$	397,144	$	(45,169)	$	408,549	$	(45,182)

* Unrealized losses less than one thousand dollars

(1) 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)
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.

The Company evaluated investment securities available for sale as of September 30, 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

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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 either September 30, 2025 or 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 September 30, 2025 and December 31, 2024.

The Company also evaluated investment securities held to maturity for current expected credit losses as of September 30, 2025 and December 31, 2024. There were no investment securities held to maturity classified as nonaccrual or past due as of September 30, 2025 and 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 forecast 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 September 30, 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:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
	(Dollars in thousands)
Gross realized gains	$	—	$	—	$	—	$	—
Gross realized losses	—		(6,945)		(10,741)		(18,839)
Net realized losses	$	—	$	(6,945)	$	(10,741)	$	(18,839)

(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:


	September 30, 2025				December 31, 2024
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in thousands)
State and local governments public deposits	$	226,998	$	217,525	$	236,047	$	220,104
FRB	399,815		360,030		434,534		373,410
Other securities pledged	55,447		51,059		53,296		48,169
Total	$	682,260	$	628,614	$	723,877	$	641,683

(f) Accrued Interest Receivable

Accrued interest receivable excluded from the amortized cost of investment securities available for sale totaled $2.3 million and $2.7 million at September 30, 2025 and December 31, 2024, respectively. Accrued interest receivable excluded from the amortized cost on investment securities held to maturity totaled $2.1 million and $2.2 million at September 30, 2025 and December 31, 2024, respectively.

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 nine months ended September 30, 2025 and 2024.

(3)Loans Receivable

The Company originates loans in the ordinary course of business and has also 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. A detailed description of the portfolio segments and classes is contained in the 2024 Annual Form 10-K.

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The Company has certain lending policies and guidelines in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and guidelines on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and criticized loans. The Company also conducts internal loan reviews and validates the credit risk assessment on a periodic basis and presents the results of these reviews to management. The loan review process complements and reinforces the risk identification and assessment decisions made by loan officers and credit personnel.

The amortized cost of loans receivable, net of ACL on loans, consisted of the following portfolio segments and classes at the dates indicated:


	September 30, 2025		December 31, 2024
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	819,076	$	842,672
Owner-occupied CRE	1,022,727		1,003,243
Non-owner occupied CRE	1,938,190		1,909,107
Total commercial business	3,779,993		3,755,022
Residential real estate	374,875		402,954
Real estate construction and land development:
Residential	90,440		83,890
Commercial and multifamily	351,196		395,553
Total real estate construction and land development	441,636		479,443
Consumer	172,656		164,704
Loans receivable	4,769,160		4,802,123
ACL on loans	(53,974)		(52,468)
Loans receivable, net	$	4,715,186	$	4,749,655

Balances included in the amortized cost of loans receivable:
Unamortized net discount on acquired loans	$	(743)	$	(1,095)
Unamortized net deferred fee	$	(11,018)	$	(10,110)

(b) Concentrations of Credit

Most of the Company’s lending activity occurs within its primary market areas which are concentrated along the I-5 corridor from Whatcom County, Washington to Lane County, Oregon, as well as Yakima 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 loans, 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 for commercial loans than that for residential real estate loans and consumer loans, implying higher potential losses on an individual loan basis.

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to (i) the risk grade of the loans, (ii) the level of classified loans, (iii) net charge-offs, (iv) nonperforming loans, (v) past due status, and (vi) the general economic conditions of the United States of America, and specifically the states of Washington, Oregon and Idaho.

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 10. Risk grades are aggregated to create the risk categories of Pass for grades 1 to 6, Special Mention or "SM" for grade 7, Substandard or "SS" for grade 8, Doubtful for grade 9 and Loss for grade 10. Descriptions of the general characteristics of the risk grades, including qualitative information on how the risk grades relate to the risk of loss, are contained in the 2024 Annual Form 10-K. Numerical loan grades for loans are established at the origination of the loan. Changes to loan grades are considered at the time new information about the performance of a loan becomes available, including the receipt of updated financial information from the borrower, results of annual term loan reviews and scheduled loan reviews. For consumer loans, the Company follows the FDIC’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default. Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement. Credit deterioration is evidenced by delinquency,

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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 September 30, 2025 and December 31, 2024.

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


	September 30, 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	$	96,164	$	176,964	$	102,821	$	81,760	$	39,470	$	104,801	$	143,640	$	1,826	$	747,446
SM	1,253		5,406		11,178		7,218		1,524		1,483		17,930		2,451		48,443
SS	—		—		1,862		6,910		25		5,967		8,282		141		23,187
Total	97,417		182,370		115,861		95,888		41,019		112,251		169,852		4,418		819,076
Owner-occupied CRE
Pass	88,339		112,982		88,435		133,200		140,576		425,266		936		—		989,734
SM	—		—		3,804		1,204		4,734		6,453		—		—		16,195
SS	—		—		—		—		—		16,798		—		—		16,798
Total	88,339		112,982		92,239		134,404		145,310		448,517		936		—		1,022,727
Non-owner occupied CRE
Pass	141,469		173,149		173,819		336,021		228,382		828,260		—		38		1,881,138
SM	—		—		2,845		—		7,846		23,631		—		—		34,322
SS	—		—		—		570		—		22,160		—		—		22,730
Total	141,469		173,149		176,664		336,591		236,228		874,051		—		38		1,938,190
Total commercial business
Pass	325,972		463,095		365,075		550,981		408,428		1,358,327		144,576		1,864		3,618,318
SM	1,253		5,406		17,827		8,422		14,104		31,567		17,930		2,451		98,960
SS	—		—		1,862		7,480		25		44,925		8,282		141		62,715
Total	327,225		468,501		384,764		566,883		422,557		1,434,819		170,788		4,456		3,779,993
Residential real estate
Pass	—		26,401		47,789		127,594		126,690		44,969		—		—		373,443

SS	—		—		—		898		392		142		—		—		1,432
Total	—		26,401		47,789		128,492		127,082		45,111		—		—		374,875
Real estate construction and land development:
Residential
Pass	38,736		31,507		10,389		1,844		—		1,000		229		—		83,705

SS	—		—		985		—		5,750		—		—		—		6,735
Total	38,736		31,507		11,374		1,844		5,750		1,000		229		—		90,440
Commercial and multifamily
Pass	46,791		74,893		112,764		89,920		1,365		2,613		—		—		328,346
SM	—		—		—		889		—		311		—		—		1,200
SS	—		—		—		—		15,625		6,025		—		—		21,650
Total	46,791		74,893		112,764		90,809		16,990		8,949		—		—		351,196

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	September 30, 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)
Total real estate construction and land development
Pass	85,527		106,400		123,153		91,764		1,365		3,613		229		—		412,051
SM	—		—		—		889		—		311		—		—		1,200
SS	—		—		985		—		21,375		6,025		—		—		28,385
Total	85,527		106,400		124,138		92,653		22,740		9,949		229		—		441,636
Consumer
Pass	1,207		342		692		1,207		265		15,102		150,593		1,403		170,811

SS	—		—		426		35		—		742		402		240		1,845
Total	1,207		342		1,118		1,242		265		15,844		150,995		1,643		172,656
Loans receivable
Pass	412,706		596,238		536,709		771,546		536,748		1,422,011		295,398		3,267		4,574,623
SM	1,253		5,406		17,827		9,311		14,104		31,878		17,930		2,451		100,160
SS	—		—		3,273		8,413		21,792		51,834		8,684		381		94,377
Total	$	413,959	$	601,644	$	557,809	$	789,270	$	572,644	$	1,505,723	$	322,012	$	6,099	$	4,769,160

(1) Represents the loans receivable balance at September 30, 2025 which was converted from a revolving loan to a non-revolving amortizing loan during the nine months ended September 30, 2025.


	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

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	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)
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
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 non-revolving amortizing loan during the year ended December 31, 2024.

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


	Nine Months Ended September 30, 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	$	286	$	429	$	—	$	79	$	—	$	871
Residential real estate	—		—		—		27		—		—		—		27

Consumer	—		10		19		2		—		97		282		410
Total	$	—	$	87	$	305	$	458	$	—	$	176	$	282	$	1,308


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


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

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(d) Nonaccrual Loans

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


	September 30, 2025
	Nonaccrual without ACL		Nonaccrual with ACL		Total Nonaccrual
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	1,033	$	2,385	$	3,418


Total commercial business	1,033		2,385		3,418
Residential real estate	1,290		—		1,290
Real estate construction and land development:
Residential	6,735		—		6,735
Commercial and multifamily	6,025		—		6,025
Total real estate construction and land development	12,760		—		12,760
Consumer	144		—		144
Total	$	15,227	$	2,385	$	17,612


	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 tables present the reversal of interest income on loans due to the write-off of accrued interest receivable upon the initial classification of loans as nonaccrual loans and the interest income recognized due to payment in full or sale of previously classified nonaccrual loans during the periods indicated:


	Three Months Ended September 30,
	2025				2024
	Interest Income Reversed		Interest Income Recognized		Interest Income Reversed		Interest Income Recognized
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	(37)	$	8	$	—	$	126
Owner-occupied CRE	—		60		(28)		—

Total commercial business	(37)		68		(28)		126
Residential real estate	(5)		—		—		—
Real estate construction and land development:
Residential	(178)		—		—		—



Total	$	(220)	$	68	$	(28)	$	126

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	Nine Months Ended September 30,
	2025				2024
	Interest Income Reversed		Interest Income Recognized		Interest Income Reversed		Interest Income Recognized
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	(59)	$	27	$	(27)	$	339
Owner-occupied CRE	—		60		(28)		144
Non-owner occupied CRE	—		—		—		—
Total commercial business	(59)		87		(55)		483
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	—		—		—		—
Total	$	(424)	$	87	$	(55)	$	483

For the three and nine months ended September 30, 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:


	September 30, 2025
	30-89 Days		90 Days or Greater		Total Past Due		Current		Loans Receivable
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	13,559	$	2,267	$	15,826	$	803,250	$	819,076
Owner-occupied CRE	225		—		225		1,022,502		1,022,727
Non-owner occupied CRE	3,425		3,238		6,663		1,931,527		1,938,190
Total commercial business	17,209		5,505		22,714		3,757,279		3,779,993
Residential real estate	—		1,290		1,290		373,585		374,875
Real estate construction and land development:
Residential	—		5,750		5,750		84,690		90,440
Commercial and multifamily	—		—		—		351,196		351,196
Total real estate construction and land development	—		5,750		5,750		435,886		441,636
Consumer	503		100		603		172,053		172,656
Total	$	17,712	$	12,645	$	30,357	$	4,738,803	$	4,769,160


	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

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	December 31, 2024
	30-89 Days		90 Days or Greater		Total Past Due		Current		Loans Receivable
	(Dollars in thousands)
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

As of September 30, 2025 there was $3.3 million of loans 90 days or more past due and still accruing interest, of which $3.2 million was non-owner occupied CRE. There was $1.2 million of loans 90 days or more past due and still accruing interest as of December 31, 2024, all of which were commercial and industrial.

(f) Collateral-dependent Loans

The following tables present the type of collateral securing loans individually evaluated for credit losses and for which the repayment was expected to be provided substantially through the operation or sale of the collateral at the dates indicated, with balances representing the amortized cost of the loan classified by the primary collateral category of each loan if multiple collateral sources secure the loan:


	September 30, 2025
	CRE		Farmland		Residential Real Estate		Equipment		Total
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	—	$	373	$	960	$	68	$	1,401


Total commercial business	—		373		960		68		1,401
Residential real estate	—		—		1,290		—		1,290
Real estate construction and land development:
Residential	—		—		6,735		—		6,735
Commercial and multifamily	6,025		—		—		—		6,025
Total real estate construction and land development	6,025		—		6,735		—		12,760
Consumer	—		—		144		—		144
Total	$	6,025	$	373	$	9,129	$	68	$	15,595


	December 31, 2024
	CRE		Farmland		Residential Real Estate		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 nine months ended September 30, 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

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economic loss and to avoid foreclosure or repossession of collateral. In some cases, the Company provides multiple types of modifications on one loan. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

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


	Three Months Ended September 30, 2025
	Term Extension		Term Extension & Int. Rate Reduction		Total Modified Loans		% of Modified Loans to Loans Receivable
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	13,199	$	13	$	13,212	1.61	%


Total commercial business	13,199		13		13,212		0.35

Real estate construction and land development:
Residential	6,735		—		6,735		7.45
Commercial and multifamily	15,625		—		15,625		4.45
Total real estate construction and land development	22,360		—		22,360		5.06
Consumer	9		—		9		0.01
Total	$	35,568	$	13	$	35,581	0.75	%


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

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

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

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



	Nine Months Ended September 30, 2025
	Term Extension		Term Extension & Int. Rate Reduction		Total Modified Loans		% of Modified Loans to Loans Receivable

	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	16,716	$	13	$	16,729	2.04	%
Owner-occupied CRE	1,517		—		1,517		0.15
Non-owner occupied CRE	669		—		669		0.03

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	Nine Months Ended September 30, 2025
	Term Extension		Term Extension & Int. Rate Reduction		Total Modified Loans		% of Modified Loans to Loans Receivable

Total commercial business	18,902		13		18,915		0.50

Real estate construction and land development:
Residential	6,735		—		6,735		7.45
Commercial and multifamily	22,539		—		22,539		6.42
Total real estate construction and land development	29,274		—		29,274		6.63
Consumer	9		—		9		0.01
Total	$	48,185	$	13	$	48,198	1.01	%



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

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

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

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

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

Three Months Ended
September 30, 2025

Weighted Average Years of Term Extensions

Commercial business:

Commercial and industrial

0.78

Total commercial business

0.78

Real estate construction and land development:

Residential

0.75

Commercial and multifamily

1.00

Total real estate construction and land development

0.93

Consumer

5.33

Total

0.87

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Three Months Ended
September 30, 2024

Weighted Average Years of Term Extensions

Commercial business:

Commercial and industrial

0.59

Non-owner occupied CRE

0.83

Total commercial business

0.66

Real estate construction and land development:

Residential

0.17

Total real estate construction and land development

0.17

Consumer

2.17

Total

0.46



	Nine Months Ended September 30, 2025
		Weighted Average Years of Term Extensions
Commercial business:
Commercial and industrial		0.81
Owner-occupied CRE		1.50
Non-owner occupied CRE		0.42
Total commercial business		0.85

Real estate construction and land development:
Residential		0.75
Commercial and multifamily		0.89
Total real estate construction and land development		0.86
Consumer		5.33
Total		0.86



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

Non-owner occupied CRE		0.83
Total commercial business		0.77

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

At September 30, 2025, there were $5.4 million in commitments to lend additional funds to borrowers experiencing financial difficulty whose terms had been modified during the nine months ended September 30, 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 understand the effectiveness of its modification efforts.

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The Company considers a modified loan in payment default if the borrower is 90 or more days past due. At September 30, 2025, there were two loans valued at a total of $6.5 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 $5.8 million was residential construction and $0.7 million was non-owner occupied CRE. There were no loans 90 days past due or in default that had been modified in the past 12 months at December 31, 2024.

The following tables present the performance of loans that have been modified with the previous twelve months:


	September 30, 2025
	Current		30-89 Days		90 Days or Greater		Nonaccrual		Total
	(Dollars in thousands)
Commercial business:
Commercial and industrial	$	3,734	$	—	$	—	$	—	$	3,734
Owner-occupied CRE	1,517		—		—		—		1,517
Non-owner occupied CRE	—		—		668		—		668
Total commercial business	5,251		—		668		—		5,919

Real estate construction and land development:
Residential	—		—		—		6,735		6,735
Commercial and multifamily	889		—		—		6,025		6,914
Total real estate construction and land development	889		—		—		12,760		13,649
Consumer	16

HERITAGE FINANCIAL CORP /WA/ 10-Q