HERITAGE FINANCIAL CORP /WA/

(10)Investments in Tax Credit 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. For the Company’s accounting policies on tax credit investments, see Note 1 - Description of Business, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Pronouncements included in Item 8. Financial Statements And Supplementary Data in our 2025 Annual Form 10-K.

LIHTC Investments

The carrying values of investments in unconsolidated LIHTC investments were $145.1 million and $162.8 million as of September 30, 2026 and December 31, 2025, respectively, as a component ofprepaid expense and other assets on the Condensed Consolidated Statements of Financial Condition. LIHTCs are accounted for using the proportional amortization method. During both the three months ended September 30, 2026 and 2025, the Company recognized proportional amortization of $5.9 million, and during the nine months ended September 30, 2026 and 2025, the Company recognized proportional amortization of $17.7 million and $17.8 million, respectively, as a component ofincome tax in the Condensed Consolidated Statements of Income.

Total unfunded contingent commitments related to the Company's LIHTC investments totaled $13.2 million and $18.1 million at September 30, 2026 and December 31, 2025, respectively, as a component of accrued expenses and other liabilities in the Condensed Consolidated Statements of Financial Condition. The Company expects to fund LIHTC commitments totaling $1.4 million during the remaining three months of the year ending December 31, 2026 and $2.7 million during the year ending December 31, 2027, with the remaining commitments of $9.1 million to be funded by December 31, 2041.

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 September 30, 2026 or December 31, 2025.

Solar Tax Credit Investment

The Solar Tax Credit investment is accounted for using the equity method. During the three and nine months ended September 30, 2026 and 2025, the Company recordedno amortization expense in connection with the Solar Tax Credit investment.