HERITAGE FINANCIAL CORP /WA/

Loan Portfolio

Changes by loan type

The Company originates a wide variety of loans with a focus on commercial business loans. In addition to originating loans, the Company may also acquire loans through pool purchases, participation purchases and syndicated loan purchases.

The following table provides information about our loan portfolio by type of loan at the dates indicated:

Loans receivable increased $939.0 million, or 19.6%, to $5.72 billion at March 31, 2026, from $4.78 billion at December 31, 2025 due primarily to loans acquired in the Merger. New loans funded during the three months ended March 31, 2026 were $97.0 million, which was in line with new loans funded during the same period in 2025 of $95.8 million. Loan prepayments were $72.5 million and loan payoffs were $46.5 million during the three months ended March 31, 2026.

The following table summarizes the composition of acquired loans at the Merger closing date of January 31, 2026:

The following table provides information about owner occupied CRE and non-owner occupied CRE loans by collateral type at the dates indicated:

Office loans represented the largest segment of owner-occupied and non-owner occupied CRE loans, totaling $675.7 million, or 18.4% of total CRE loans, at March 31, 2026. Of this total, $311.6 million, or 46.1%, were owner-occupied CRE loans. Owner-occupied CRE loans have a lower risk profile than non-owner occupied CRE loans, as there is less tenant rollover risk and they generally include guarantees from the company occupying the space as well as the owners of the company.

Loans classified as nonaccrual and nonperforming assets

The following table provides information about our nonaccrual loans and nonperforming assets at the dates indicated:

(1) At March 31, 2026 and December 31, 2025, $4.2 million and $2.4 million, respectively, of nonaccrual loans, were guaranteed by government agencies.

The following table provides the changes in nonaccrual loans during the three months ended March 31, 2026:

Nonaccrual loans decreased $6.0 million to $15.0 million at March 31, 2026, compared to $21.0 million at December 31, 2025. Payoffs during the three months ended March 31, 2026 consisted of three loans totaling $7.8 million, including one $5.8 million residential construction loan and one $1.5 million CRE non-owner occupied loan. These payoffs were partially offset by the migration $3.4 million in loans to nonaccrual status including three commercial and industrial loans totaling $2.6 million. Olympic did not have any nonaccrual loans as of the acquisition date of January 31, 2026.

Accruing loans past due 90 days or more included one $67,000 consumer loan that is well secured and in the process of collection.