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 $964.5 million, or 20.2%, to $5.75 billion at June 30, 2026, from $4.78 billion at December 31, 2025 due primarily to loans acquired in the Merger. New loans funded during the six months ended June 30, 2026 were $259.1 million, which was higher than new loans funded during the same period in 2025 of $235.7 million. Loan prepayments were $175.0 million and loan payoffs were $96.4 million during the six months ended June 30, 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 $685.0 million, or 18.3% of total CRE loans, at June 30, 2026. Of this total, $316.0 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 June 30, 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 six months ended June 30, 2026:

Nonaccrual loans decreased $5.5 million to $15.5 million at June 30, 2026, compared to $21.0 million at December 31, 2025. Payoffs during the six months ended June 30, 2026 consisted of eight loans totaling $13.0 million, including one $5.8 million residential construction loan, two CRE non-owner occupied loans totaling $2.0 million, three commercial business loans totaling $5.0 million, and two consumer loans totaling $0.2 million. These payoffs were partially offset by the migration of $9.4 million in loans to nonaccrual status including six commercial and industrial loans totaling $8.1 million and two residential loans totaling $1.0 million. Olympic had no nonaccrual loans as of the acquisition date of January 31, 2026.