Columbia Financial, Inc./MD/

Forward-Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risk factors and uncertainties, including, but not limited to, those set forth in Item 1A of Columbia Financial-Delaware's Annual Report on Form 10-K for the year ended December 31, 2025, as supplemented by its subsequent Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, as well as its impact on fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in regulation and legislation impacting rent-regulation, including recent rent freezes and expanded tenant protections in New York City, changes in interest rates, higher inflation and their impact on national and local economic conditions, the Company's ability to successfully implement its business strategy, acquisitions and the integration of acquired businesses, the impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts, the impact of changing political conditions or federal government shutdowns, the adequacy of loan loss reserves, the impact of legal, judicial and regulatory proceedings or investigations, competitive pressures from other financial institutions and financial services companies, credit risk management, asset-liability management, the financial and securities markets, the impact of failures or disruptions in or breaches of the Company's operational or security systems, data or infrastructure, or those of third parties, including as a result of cyber attacks or campaigns, and the availability of and costs associated with sources of liquidity.

In addition, with respect to the Company’s acquisition of Northfield on July 20, 2026, such risks, uncertainties and assumptions, include, among others, the following: (i) the possibility that the anticipated benefits of the proposed transaction, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of changes in, or problems arising from, general economic and market conditions, interest and exchange rates, monetary policy, laws and regulations and their enforcement, and the degree of competition in the geographic and business areas in which the combined company operates; (ii) the possibility that the integration of the two companies may be more difficult, time-consuming or costly than expected; and (iii) the impact of purchase accounting with respect to the transaction, or any change in the assumptions used regarding the assets acquired and liabilities assumed to determine their fair value and credit marks.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date made. The Company also advises readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not have any obligation to update any forward-looking statements to reflect any subsequent events or circumstances after the date of this statement.

Comparison of Financial Condition at September 30, 2026 and December 31, 2025

Total assets increased $6.5 billion, or 59.4%, to $17.6 billion at September 30, 2026 from $11.0 billion at December 31, 2025. The increase in total assets was primarily attributable to increases in cash and cash equivalents of $118.0 million, debt securities available for sale of $1.7 billion, debt securities held to maturity of $516.0 million, loans held-for-sale of $211.4 million, loans receivable, net, of $3.4 billion, bank-owned life insurance of $191.8 million and other assets of $157.6 million, mainly due to assets acquired in the Northfield merger.

Cash and cash equivalents increased $118.0 million, or 34.6%, to $458.8 million at September 30, 2026 from $340.8 million at December 31, 2025. The increase was primarily attributable to proceeds raised through the offering and cash and cash equivalents of $76.0 million acquired in the Northfield acquisition.

Debt securities available for sale increased $1.7 billion, or 151.0%, to $2.8 billion at September 30, 2026 from $1.1 billion at December 31, 2025. The increase was primarily attributable to $1.2 billion of securities acquired in the Northfield acquisition, and purchases of $1.7 billion of securities, consisting primarily of U.S. government obligations and mortgage-backed securities which were purchased with proceeds from the second-step conversion offering. These increases were partially offset by sales of securities with an amortized cost of $643.3 million which were acquired in the Northfield acquisition and the sale of an additional $213.9 million of seasoned securities sold as part of a balance sheet repositioning transaction, which resulted in a realized loss of $40.8 million for the quarter ended September 30, 2026. The Company sold predominantly fixed rate, low-yielding debt securities and used the proceeds to repay high costing borrowings acquired from Northfield and purchase higher-yielding debt securities to improve net interest rate margin in the future. The increase in debt securities available for sale also included a decrease of $33.9 million in the unrealized loss on securities available for sale.

Debt securities held to maturity increased $516.0 million, or 130.2%, to $912.2 million at September 30, 2026 from $396.2 million at December 31, 2025. The increase was attributable to purchases of securities of $542.8 million, consisting primarily of U.S. government obligations and mortgage-backed securities, partially offset by maturities on securities of $14.9 million, and repayments on securities of $13.1 million.

Loans held-for-sale increased to $211.4 million, at September 30, 2026 from zero at December 31, 2025. A portion of the loans held-for-sale acquired in the Northfield acquisition along with $9.1 million of residential real estate loans originated by Columbia Bank were transferred to loans held-for-sale at fair value and were subsequently sold in October 2026.

Loans receivable, net, increased $3.4 billion, or 41.9%, to $11.7 billion at September 30, 2026 from $8.2 billion at December 31, 2025, primarily due to $3.5 billion of loans acquired in the Northfield acquisition excluding loans held-for sale. One-to-four family real estate loans, multifamily loans, commercial real estate loans, construction loans, commercial business loans and home equity loans and advances increased $84.0 million, $2.0 billion, $774.9 million, $33.1 million, $253.3 million, and $193.8 million, respectively. The allowance for credit losses for loans increased $51.4 million to $118.6 million at September 30, 2026 from $67.2 million at December 31, 2025, primarily due to the Northfield acquisition and organic loan growth during the nine months ended September 30, 2026. As part of the merger with Northfield, the Company acquired $3.5 billion in loans, net of purchase accounting adjustments related to interest rates. The allowance for credit losses increased due to the day 1 Northfield CECL adjustment of $47.1 million recorded as part of the Northfield acquisition.

Bank-owned life insurance increased $191.8 million, or 67.7%, to $474.9 million at September 30, 2026 from $283.1 million at December 31, 2025, as the Company acquired $187.1 million in bank-owned life insurance policies in the Northfield acquisition, and $8.7 million of income was recognized from bank-owned life insurance for the nine months ended September 30, 2026.

Other assets increased $157.6 million, or 47.0%, to $493.3 million at September 30, 2026 from $335.7 million at December 31, 2025 primarily due to $137.9 million in other assets acquired as part of the Northfield acquisition, an increase in net pension assets of $27.0 million, and an increase of $16.6 million in swap contracts.

Total liabilities increased $4.5 billion, or 46.0%, to $14.4 billion at September 30, 2026 from $9.9 billion at December 31, 2025. The increase was primarily attributable to an increase in total deposits of $4.1 billion, primarily due to the addition of Northfield deposits, an increase in borrowings of $312.8 million, and an increase in accrued expenses and other liabilities of $85.9 million. The increase in total deposits consisted of increases in non-interest-bearing demand deposits, interest-bearing demand deposits, money market accounts, savings and club accounts, and certificates of deposits of $810.1 million, $1.4 billion, $254.3 million, $767.6 million and $868.5 million respectively. The increase in each category of deposits largely reflected the impact of deposits acquired from Northfield while also reflecting an increase related to the impact of continuing business development and competitive pricing strategies. The increase in accrued expenses and other liabilities included $76.9 million acquired from Northfield, which primarily consisted of lease liabilities, accrued expenses and benefit plan related liabilities, and an increase in collateral pledged for interest rate swaps. The $312.8 million increase in borrowings was driven by borrowings acquired from Northfield which included a net increase in short-term borrowings of $175.0 million, coupled with new long-term borrowings of $161.8 million, and long-term subordinated debentures assumed from Northfield totaling $62.0 million, partially offset by repayments of $82.0 million in maturing long-term borrowings. Included in these borrowings were $646.4 million assumed in the Northfield acquisition, of which $195.6 million were subsequently prepaid, resulting in a $196,000 loss on extinguishment of debt.

Total stockholders’ equity increased $2.0 billion, or 172.8%, with a balance of $3.2 billion at September 30, 2026 from $1.2 billion and December 31, 2025. The increase in stockholders' equity reflected $1.6 billion in capital stock issued in the Company's second-step conversion coupled with $406.2 million in capital stock issued in conjunction with the acquisition of Northfield. The increase also included net income of $32.8 million, partially offset by dividends declared and paid of $12.9 million.

Comparison of Results of Operations for the Three Months Ended September 30, 2026 and September 30, 2025

Net income of $5.2 million was recorded for the quarter ended September 30, 2026, a decrease of $9.6 million compared to net income of $14.9 million for the quarter ended September 30, 2025. The decrease in net income was primarily attributable to a $23.8 million decrease in non-interest income and a $52.4 million increase in non-interest expense, partially offset by a $57.0 million increase in net interest income, a $512,000 decrease in provision for credit losses and a $9.1 million decrease in income tax expense. Net income for the quarter ended September 30, 2026 included a bargain purchase gain of $25.7 million related to the Northfield merger, partially offset by loss on the sale of securities of $40.8 million, loss on the sale of loans of $7.6 million, merger-related expenses of $30.6 million, severance expense of $1.5 million, and a loss on extinguishment of debt $196,000, which decreased net income by $35.4 million, net of tax.

Net interest income was $114.4 million for the quarter ended September 30, 2026, an increase of $57.0 million, or 99.3%, from $57.4 million for the quarter ended September 30, 2025. The increase in net interest income was primarily attributable to a $72.2 million increase in interest income partially offset by a $15.2 million increase in interest expense on deposits and borrowings. The increase in interest income was primarily due to an increase in the average balance of total interest-earning assets coupled with an increase in average yields on loans, while the increase in interest expense was primarily due to an increase in the average balance of both deposits and borrowings. Accretion of loan yield adjustments for the quarter ended September 30, 2026 totaled $6.8 million. Prepayment penalties, which are included in interest income on loans, totaled $771,000 for the quarter ended September 30, 2026, compared to $767,000 for the quarter ended September 30, 2025.

The average yield on loans for the quarter ended September 30, 2026 increased 33 basis points to 5.37%, as compared to 5.04% for the quarter ended September 30, 2025. Interest income on loans increased due to an increase in both the average balance and yield on loans. The average yield on securities for the quarter ended September 30, 2026 increased 55 basis points to 3.96%, as compared to 3.41% for the quarter ended September 30, 2025. The average yield on other interest-earning assets for the quarter ended September 30, 2026 decreased 137 basis points to 3.87%, as compared to 5.24% for the quarter ended September 30, 2025, mainly due to an increase in the average balance of other interest-earning assets invested in lower earning interest-bearing cash accounts, coupled with a 91 basis point decrease in the dividend rate received on Federal Home Loan Bank stock.

Total interest expense was $78.3 million for the quarter ended September 30, 2026, an increase of $15.2 million, or 24.2%, from $63.0 million for the quarter ended September 30, 2025. The increase in interest expense was primarily attributable to increases in the average balance of interest-bearing deposits and borrowings partially offset by a 31 basis point decrease in the average cost of interest-bearing deposits coupled with a 17 basis point decrease in the average cost of borrowings. Interest expense on deposits increased $13.3 million, or 26.8%, primarily due to the increase in the average balances as a result of the Northfield acquisition during the quarter ended September 30, 2026. Interest expense on borrowings increased $2.0 million, or 14.7%, for the quarter ended September 30, 2026 as compared to the quarter ended September 30, 2025 due to an increase in the average balance of borrowings, partially offset by a decrease in the average cost of borrowings.

The Company's net interest margin for the quarter ended September 30, 2026 increased 67 basis points to 2.96% when compared to 2.29%, for the quarter ended September 30, 2025, mostly due to a decrease in the average cost of interest-bearing liabilities. The weighted average yield on interest-earning assets increased 18 basis point to 4.99% for the quarter ended September 30, 2026 as compared to 4.81% for the quarter ended September 30, 2025. The average cost of interest-bearing liabilities decreased 33 basis points to 2.81% for the quarter ended September 30, 2026 as compared to 3.14% for the quarter ended September 30, 2025.

The provision for credit losses on loans for the quarter ended September 30, 2026 was $1.8 million, a decrease of $512,000, or 21.8%, from $2.3 million for the quarter ended September 30, 2025. The decrease in the provision for credit losses was primarily attributable to lower net charge-offs, partially offset by an increase in loan balances.

Non-interest (loss) income was $(13.9) million for the quarter ended September 30, 2026, a decrease of $23.8 million, or 241.0%, from $9.9 million for the quarter ended September 30, 2025, mainly due to a $40.8 million increase in the loss on securities transactions coupled with a $7.6 million loss on transfer of loans to held-for-sale as previously discussed. These decreases were partially offset by a bargain purchase gain of $25.7 million, net of tax, resulting from the Northfield acquisition.

Non-interest expense was $97.5 million for the quarter ended September 30, 2026, an increase of $52.4 million, or 116.3%, from $45.1 million for the quarter ended September 30, 2025. The increase was primarily attributable to an increase in compensation and employee benefits expense of $14.2 million, an increase in occupancy expense of $2.6 million, an increase in merger-related expenses of $30.6 million, and an increase in amortization of intangible assets of $2.9 million due to the Northfield acquisition. The increase in compensation and employee benefits expense was due to an increase in the number of employees and related employee benefits due to the Northfield acquisition and annual merit increases. The increase in occupancy expense was due to the costs related to the Northfield acquisition.

An income tax benefit of $4.1 million was recorded for the quarter ended September 30, 2026, a decrease of $9.1 million, as compared to income tax expense of $5.0 million for the quarter ended September 30, 2025, mainly due to lower pre-tax income partially offset by non-deductible merger-related expenses.

Comparison of Results of Operations for the Nine Months Ended September 30, 2026 and September 30, 2025

Net income of $32.8 million was recorded for the nine months ended September 30, 2026, a decrease of $3.3 million, or 9.0%, compared to net income of $36.1 million for the nine months ended September 30, 2025. The decrease in net income was primarily attributable to a $24.8 million decrease in non-interest income, and a $60.6 million increase in non-interest expense partially offset by a $76.3 million increase in net interest income, a $645,000 decrease in provision for credit losses, and a $5.2 million decrease in income tax expense. Net income for the nine months ended September 30, 2026 included a bargain purchase gain of $25.7 million related to the Northfield merger, partially offset by loss on the sale of securities of $40.8 million, loss on the sale of loans of $7.6 million, merger-related expenses of $33.3 million, severance expense of $1.5 million, and a loss on extinguishment of debt $196,000, which decreased net income by $37.8 million, net of tax.

Net interest income was $237.7 million for the nine months ended September 30, 2026, an increase of $76.3 million, or 47.3%, from $161.4 million for the nine months ended September 30, 2025. The increase in net interest income was primarily attributable to a $84.7 million increase in interest income partially offset by a $8.4 million increase in interest expense on deposits and borrowings. The increase in interest income was primarily due to an increase in the average balance of loans coupled with an increase in the average yield on loans. Accretion of loan yield adjustments for the nine months ended September 30, 2026 totaled $6.8 million, mainly related to the Northfield acquisition. Prepayment penalties, which are included in interest income on loans, totaled $1.5 million for the nine months ended September 30, 2026, compared to $1.6 million for the nine months ended September 30, 2025.

The average yield on loans for the nine months ended September 30, 2026 increased 20 basis points to 5.16%, as compared to 4.96% for the nine months ended September 30, 2025. Interest income on loans increased due to an increase in both the average balance and yield on loans. The average yield on securities for the nine months ended September 30, 2026 increased 23 basis points to 3.70%, as compared to 3.47% for the nine months ended September 30, 2025. The average yield on other interest-earning assets for the nine months ended September 30, 2026 decreased 126 basis points to 4.13%, as compared to 5.39% for the nine months ended September 30, 2025, mainly due to an increase in the average balance of other interest-earning assets invested in lower earning interest-bearing cash accounts, coupled with a lower dividend rate received on Federal Home Loan Bank stock.

Total interest expense was $196.1 million for the nine months ended September 30, 2026, an increase of $8.4 million, or 4.5%, from $187.7 million for the nine months ended September 30, 2025. The increase in interest expense was primarily attributable to an increase in the average balances of interest-bearing deposits and borrowings, partially offset by a 30 basis point decrease in the average cost of interest-bearing deposits coupled with a 27 basis point decrease in the average cost of borrowings mainly related to the Northfield acquisition. Interest expense on deposits increased $6.2 million, or 4.2%, for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, due to an increase in the average balance of deposits, while interest expense on borrowings increased $2.2 million, or 5.7%, for the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025, due to the increase in the average balance of borrowings.

The Company's net interest margin for the nine months ended September 30, 2026 increased 46 basis points to 2.66% when compared to 2.20% for the nine months ended September 30, 2025, due to an increase in the average yield on interest-earning assets coupled with a decrease in the average cost of interest-bearing liabilities. The weighted average yield on interest-earning assets increased 10 basis points to 4.85% for the nine months ended September 30, 2026 as compared to 4.75% for the nine months ended September 30, 2025. The average cost of interest-bearing liabilities decreased 30 basis points to 2.87% for the nine months ended September 30, 2026 as compared to 3.17% for the nine months ended September 30, 2025.

The provision for credit losses for the nine months ended September 30, 2026 was $7.1 million, a decrease of $645,000, or 8.3% from $7.7 million for the nine months ended September 30, 2025. The decrease in the provision for credit losses was primarily attributable to a decrease in net charge-offs, which totaled $2.9 million for the nine months ended September 30, 2026 as compared to $5.2 million for the nine months ended September 30, 2025, partially offset by an increase in loan balances.

Non-interest income was $3.7 million for the nine months ended September 30, 2026, a decrease of $24.8 million, or 87.1%, from $28.5 million for the nine months ended September 30, 2025. The decrease was primarily attributable to a $40.8 million increase in the loss on securities transactions, coupled with a $7.7 million increase in the loss on transfer of loans. These decreases were partially offset by a bargain purchase gain of $25.7 million, net of tax, resulting from the Northfield acquisition, a $2.7 million increase in bank-owned life insurance due to income from the acquisition of such policies in the Northfield acquisition, death benefit claims in the 2026 period, and income related to the transition and exchange into higher yielding bank-owned life insurance policies.

Non-interest expense was $194.4 million for the nine months ended September 30, 2026, an increase of $60.6 million, or 45.3%, from $133.8 million for the nine months ended September 30, 2025. The increase was primarily attributable to an increase in compensation and employee benefits expense of $19.8 million, an increase in occupancy expense of $4.0 million, an increase in data processing and software expenses of $2.7 million and an increase in merger-related expenses of $33.3 million, partially offset by a decrease of $2.6 million in professional fees. The increase in compensation and employee benefits expense was due to an increase in the number of employees and related employee benefits due to the Northfield acquisition and annual merit increases. The increase in occupancy expense was due to the costs related to the Northfield branches acquired.

Income tax expense was $7.0 million for the nine months ended September 30, 2026, a decrease of $5.2 million, as compared to income tax expense of $12.3 million for the nine months ended September 30, 2025, mainly due to a decrease in pre-tax income partially offset by non-deductible merger-related expenses.

Asset Quality

The Company's non-performing loans at September 30, 2026, excluding purchased credit deteriorated ("PCD") loans, totaled $36.5 million, or 0.31% of total gross loans, as compared to $38.0 million, or 0.46% of total gross loans, at December 31, 2025. The $1.5 million decrease in non-performing loans was primarily attributable to a decrease in non-performing one-to-four family loans of $5.4 million. This decrease was mainly due to the transfer of $4.9 million of non-performing one-to-four family loans to loans held-for-sale in September 2026, that were sold in October 2026, a decrease in non-performing commercial business loans of $2.8 million, and a decrease in non-performing construction loans of $4.1 million. The decrease in non-performing construction loans was due to one loan of $5.9 million being transferred to other real estate owned in March 2026 and subsequently sold in September 2026. These decreases were partially offset by an increase of $11.6 million in commercial real estate loans, which included a $10.6 million loan on a six-story mixed use building, located in Philadelphia, Pennsylvania, which contains apartments and commercial/storage space designated as non-performing during the 2026 period. Non-performing assets as a percentage of total assets totaled 0.21% at September 30, 2026, as compared to 0.34% at December 31, 2025.

For the quarter ended September 30, 2026, net charge-offs totaled $1.5 million, as compared to net charge-offs of $1.2 million for the quarter ended September 30, 2025. For the nine months ended September 30, 2026, net charge-offs totaled $2.9 million, as compared to net charge-offs of $5.2 million for the nine months ended September 30, 2025. Charge-offs for the nine months ended September 30, 2025 included $3.2 million in charge-offs related to PCD equipment finance loans purchased in May 2025.

The Company's allowance for credit losses on loans was $118.6 million, or 1.02% of total gross loans, at September 30, 2026, compared to $67.2 million, or 0.82% of total gross loans, at December 31, 2025. The increase in the allowance for credit losses for loans was primarily due to the day 1 Northfield CECL adjustment of $47.1 million recorded as part of the Northfield acquisition.

Critical Accounting Policies

The Company considers certain accounting policies to be critically important to the fair presentation of its Consolidated Statements of Financial Condition and Consolidated Statements of Income. These policies require management to make significant judgments and assumptions on matters which by their nature have elements of uncertainty. The sensitivity of the Company’s consolidated financial statements to these critical accounting policies, and the assumptions, estimates and judgments applied, could have a material impact on its financial condition and results of operations. These assumptions, estimates and judgments we use can be influenced by a number of factors, including the general economic environment. The Company has identified the following as critical accounting policies:

▪Adequacy of the allowance for credit losses

▪Valuation of deferred tax assets

▪Business combinations- fair value of acquired assets and liabilities

▪Valuation of retirement and post-retirement benefits

The determination of the allowance for credit losses (“ACL”) on loans is considered a critical accounting estimate by management because of the high degree of judgment involved in determining qualitative loss factors, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment. The ACL is maintained at a level management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. The ACL consists of two elements: (1) identification of loans that must be individually analyzed for impairment and (2) establishment of an ACL for loans collectively analyzed.

Portfolio segments are defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Management developed segments for estimating losses based on the type of borrower and collateral which is generally based upon federal call report segmentation. The segments have been combined or sub-segments have been added as needed to ensure loans of similar risk profiles are appropriately pooled.

We maintain a loan review system that provides a periodic review of the loan portfolio and the identification of individually analyzed loans. The ACL for individually analyzed loans is based on the fair value of collateral or cash flows. While management uses current information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations.

The ACL quantitative allowance for each segment is measured using a discounted cash flow methodology incorporating an econometric, probability of default (“PD”) and loss given default (“LGD”) with distinct segment-specific multi-variate regression models applied. Expected credit losses are estimated over the life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. Contractual cash flows over the contractual life of the loans are the basis for the modeled cash flows, adjusted for model defaults and expected prepayments and discounted at the loan-level effective interest rate. The contractual term excludes expected extensions, renewals, and modifications.

Management estimates the ACL using relevant and reliable information from internal and external sources, related to past events, current conditions, and a reasonable and supportable forecast. Historical credit loss experience for both the Company and its segment-specific peers provides the basis for the estimate of expected credit losses. Credit losses over a defined period are converted to PD rate curves through the use of segment-specific LGD risk factors that convert default rates to loss severity based on industry-level, observed relationships between the two variables for each segment, primarily due to the nature of the underlying collateral. These risk factors were assessed for reasonableness against the Company’s own loss experience and adjusted in certain cases when the relationship between the Company’s historical default and loss severity deviates from that of the wider industry. The historical PD curves, together with corresponding economic conditions, establish a quantitative relationship between economic conditions and loan performance through an economic cycle.

Using the historical relationship between economic conditions and loan performance, management’s expectation of future loan performance is incorporated using a single economic forecast of macroeconomic variables (i.e., unemployment, gross domestic product, vacancy, and home price index). This forecast is applied over a period that management has determined to be reasonable and supportable. Beyond the period over which management can develop or source a reasonable and supportable forecast, the model reverts to long-term average historical loss rates using a straight-line, time-based methodology. The Company's current forecast period is six quarters, with a four-quarter reversion period to long-term average historical loss rates.

After quantitative considerations, management applies additional qualitative adjustments that consider the expected impact of certain factors not fully captured in the quantitative reserve. Qualitative adjustments include but are not limited to concentrations of large loan balances, delinquency trends, change in collateral values within segments, and other considerations.

The ACL is established through the provision for credit losses that are charged to income, which is based upon an evaluation of estimated losses in the current loan portfolio, including the evaluation of individually analyzed loans. Charge-offs against the ACL are taken on loans where management determines that the collection of loan principal and interest is unlikely. Recoveries made on loans that have been charged-off are credited to the ACL. Although we believe we have established and maintained the ACL on loans at appropriate levels, changes in reserves may be necessary if actual economic and other conditions differ substantially from the forecast used in estimating the ACL.

Our financial results are affected by the changes in and the level of the ACL. This process involves our analysis of internal and external variables, and it requires that we exercise judgment to estimate an appropriate ACL. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved should we experience sizable loan losses in any particular period and/or significant changes in assumptions or economic condition. We believe the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment, increasing vacancy rates, and increases in interest rates in the absence of economic improvement or any other such factors. Any one or a combination of these events may adversely affect a borrower's ability to repay its loan, resulting in increased delinquencies and loan losses. Accordingly, we have recorded loan credit losses at a level which is estimated to represent the current risk in the loan portfolio.

Most of our non-performing assets are collateral dependent loans which are written down to the fair value of the collateral less estimated costs to sell. We continue to assess the collateral of these loans and obtain updated appraisals on these loans on an annual basis. To the extent the property values decline, there could be additional losses on these non-performing assets, which may be material. Management considered these market conditions in deriving the estimated ACL. Should economic difficulties occur, the ultimate amount of loss could vary from our current estimate.

The determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities, utilization against carry-back years, and projections of future taxable income. These estimates are subject to management’s judgment. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period enacted. Management believes, based on current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize federal deferred tax assets and the benefits from certain state temporary differences. No valuation allowance was deemed necessary at September 30, 2026 and December 31, 2025. Based upon projections of future taxable income and the ability to carryforward operating losses indefinitely, management believes it is more likely than not the Company will realize the remaining deferred tax assets.

Business combinations are generally accounted for under the acquisition method of accounting whereby assets acquired and liabilities assumed in business combinations are recorded at their estimated fair value as of the acquisition date. The determination of fair value may involve the use of internal or third-party valuation specialists to assist in the determination of the fair value of certain assets and liabilities at the acquisition date, including loans, core deposit intangibles and time deposits. The excess of the fair values over the cost of acquisition is recognized as a bargain purchase gain. A description of the valuation methodologies used to estimate the fair values of the significant assets acquired and liabilities assumed can be found in Note 3 "Acquisition" within the notes to the consolidated financial statements.

The Company provides certain health care and life insurance benefits, along with a split dollar BOLI death benefit, to eligible retired employees. The cost of retiree health care and other benefits during the employees' period of active service are accrued monthly. The accounting guidance requires the following: (a) recognize in the statement of financial position the over funded or underfunded status of a defined benefit post-retirement plan measured as the difference between the fair value of plan assets and the benefit obligations; (b) measure a plan's assets and its obligations that determine its funded status as of the end of the Company's fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income (loss), net of tax, the actuarial gain and losses and the prior service costs and credits that arise during the period. These assets and liabilities and expenses are based upon actuarial assumptions including interest rates, rates of increase in compensation, expected rate of return on plan assets and the length of time we will have to provide those benefits. Actual results may differ from these assumptions. These assumptions are reviewed and updated at least annually, and management believes the estimates are reasonable.