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What changed in HERITAGE FINANCIAL CORP /WA/'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of HERITAGE FINANCIAL CORP /WA/'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+398 added−402 removedSource: 10-K (2026-02-27) vs 10-K (2025-02-27)

Top changes in HERITAGE FINANCIAL CORP /WA/'s 2025 10-K

398 paragraphs added · 402 removed · 325 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

132 edited+42 added−49 removed81 unchanged
Biggest changeThe supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective banking agencies, which results in examination reports and ratings that are not publicly available and that can impact the conduct and growth of their businesses.
Biggest changeThese developments may be favorable to the operations of the Company or the Bank; however, future changes in laws, regulations, or supervisory priorities and their impacts on the Company’s or the Bank’s business, remain uncertain. The supervisory framework applicable to U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective banking agencies.
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB and PCAOB, securities laws administered by the SEC and state securities authorities, and anti-money and sanctions laundering laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact on our business.
Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB and PCAOB, securities laws administered by the SEC and state securities authorities and anti-money laundering and sanctions laws enforced by the U.S. Department of the Treasury (“Treasury”) have an impact on our business.
The U.S. federal bank regulatory agencies adopted the U.S. Basel III regulatory capital reforms, and, at the same time, effected changes required by the Dodd-Frank Act, in regulations that were effective (with certain phase-ins) in 2015 (the “Basel III Rule”).
The U.S. federal bank regulatory agencies adopted the U.S. Basel III regulatory capital reforms, and, at the same time, effected changes required by the Dodd-Frank Act, in regulations that were effective in 2015 (with certain phase-ins) (the “Basel III Rule”).
Capital Requirements. Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “–The Role of Capital” above. Liquidity Requirements. Liquidity is a measure of the ability and ease with which bank assets may be converted to meet financial obligations such as deposits or other funding sources.
Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see “–The Role of Capital” above. Liquidity Requirements. Liquidity is a measure of the ability and ease with which bank assets may be converted to meet financial obligations, such as deposits or other funding sources.
Consumer Financial Services. The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws.
The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws.
The Bank must also comply with certain state consumer protection laws and requirements in the states in which it operates. Website Access to Company Reports We post reports required to be filed with the SEC on our website, www.hf-wa.com, as soon as reasonably practicable after filing them. Copies of the required reports are available free of charge through our website.
The Bank also must comply with certain state consumer protection laws and requirements in the states in which it operates. Website Access to Company Reports We post reports required to be filed with the SEC on our website, www.hf-wa.com, as soon as reasonably practicable after filing them. Copies of the required reports are available free of charge through our website.
Code of Ethics We have adopted a Code of Ethics that applies to our directors, officers and employees, as well as those engaged by the Company, but who are not employees, such as contractors and those engaged through external agencies. We have posted a copy of our Code of Ethics at www.hf-wa.com in the section titled Overview: Governance Documents.
Code of Ethics We have adopted a Code of Ethics that applies to our directors, officers and employees, as well as those engaged by the Company, but who are not employees, such as contractors and those engaged through external agencies. We have posted a copy of our Code of Ethics at www.hf-wa.com in the section titled Governance: Governance Documents.
The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category.
The deposit accounts of the Bank are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor, per ownership category.
Community Bank Capital Simplification. Community banking organizations have long raised concerns with federal banking agencies about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, the U.S. Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion as part of the Economic Growth Act.
Community Bank Capital Simplification. Community banking organizations have long raised concerns with federal banking agencies about the regulatory burden, complexity and costs associated with certain provisions of the Basel III Rule. In response, the Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion as part of the Economic Growth Act.
Both full-time and part-time employees accrue vacation time ranging from two and five weeks, dependent on factors such as position and tenure. Employee Wellness and Wellbeing Our corporate culture places a strong emphasis on the wellbeing of our employees, recognizing its pivotal role in cultivating a vibrant and productive workforce. To support holistic wellbeing, we offer a range of resources.
Both full-time and part-time employees accrue vacation time ranging from two and five weeks, depending on factors such as position and tenure. Employee Wellness and Wellbeing Our corporate culture places a strong emphasis on the wellbeing of our employees, recognizing its pivotal role in cultivating a vibrant and productive workforce. To support holistic wellbeing, we offer a range of resources.
“Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements. We are required to maintain consolidated capital in accordance with Federal Reserve capital adequacy requirements.
“Control” is conclusively determined to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may be presumed to arise under certain circumstances between 10% and 24.99% ownership. Capital Requirements. We are required to maintain consolidated capital in accordance with Federal Reserve capital adequacy requirements.
We have a strong corporate culture, which is supported by our commitment to internal development and promotion from within as well as the retention of management and officers in key roles. There have been no material changes to our business strategy during the years ended December 31, 2024 and 2023.
We have a strong corporate culture, which is supported by our commitment to internal development and promotion from within as well as the retention of management and officers in key roles. There have been no material changes to our business strategy during the years ended December 31, 2025 and 2024.
These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank. The Bank may be required to seek approval from the DFI, the FDIC and other banking or financial services agencies before engaging in certain acquisitions or mergers under applicable state and federal law.
These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank. The Bank may be required to obtain approval from the DFI, the FDIC and other applicable banking or financial services agencies before engaging in certain acquisitions or mergers under applicable state and federal law.
Competition We compete for loans and deposits with other commercial banks, credit unions and other providers of financial services, including finance companies, online-only banks, mutual funds, insurance companies, and, more recently, with Fintech companies that rely on technology to provide financial services. Many of our competitors have substantially greater resources than we do.
Competition We compete for loans and deposits with other commercial banks, credit unions and other providers of financial services, including finance companies, online-only banks, mutual funds, insurance companies, and with Fintech companies that rely on technology to provide financial services. Many of our competitors have substantially greater resources than we do.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various banking agencies, including the DFI, the Federal Reserve, the FDIC and the Consumer Financial Protection Bureau (“CFPB”).
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various banking agencies, including the DFI, the Federal Reserve, the FDIC and federal and state consumer financial protection agencies.
The concept of a banking organization being “well-capitalized” is part of a regulatory enforcement regime that provides the federal banking agencies with broad power to take “prompt corrective action” to resolve the problems of depository institutions based on the capital level of each particular institution.
The concept of a banking organization being “adequately capitalized” or “well capitalized” is part of a regulatory enforcement regime that provides the federal banking agencies with broad power to take “prompt corrective action” to resolve the problems of depository institutions based on the capital level of each particular institution.
In addition, federal law and regulations may affect the terms on which any person who is a director or officer of the Company or the Bank, or a principal shareholder of the Company, may obtain credit from banks with which the Bank maintains a correspondent relationship. Safety and Soundness Standards/Risk Management.
In addition, federal law and regulations may govern the terms on which any person who is a director or officer of the Company or the Bank, or a principal shareholder of the Company, may obtain credit from banks with which the Bank maintains a correspondent relationship. Safety and Soundness Standards/Risk Management.
Our common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Exchange Act. Consequently, we are subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. Corporate Governance.
Our common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Exchange Act. Consequently, we are subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. Corporate Governance/Incentive Compensation.
Under the final rule, a community banking organization is eligible to elect to comply with its capital requirements under the CBLR framework if it has: (i) less than 11 Table of Contents $10 billion in total consolidated assets; (ii) limited amounts of certain assets and off-balance sheet exposures; and (iii) a CBLR greater than 9%.
Under the final rule, a community banking organization is eligible to elect to comply with its capital requirements under the CBLR framework if it has: (i) less than $10 billion in total consolidated assets; (ii) limited amounts of certain assets and off-balance sheet exposures; and (iii) a CBLR greater than 9%.
The minimums have been expressed in terms of ratios of “capital” divided by “total assets.” Beginning in 1989, the capital guidelines for U.S. banking organizations have been based upon international capital accords (known as “Basel” accords) adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. federal banking agencies on an interagency basis.
The minimums have been expressed in terms of ratios of “capital” divided by “total assets.” 10 Table of Contents Beginning in 1989, the capital guidelines for U.S. banking organizations have been based upon international capital accords (known as the “Basel” accords) adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as interpreted and implemented by the U.S. federal banking agencies on an interagency basis.
We have not currently elected to operate as a financial holding company. Change in Control. Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator.
We have not currently elected to operate as a financial holding company. Change in Control. Federal law prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank agencies.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking... as to be a proper incident thereto.” This authority permits us to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services.
The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking... as to be a proper incident thereto.” This authority permits the Company to engage in a variety of banking-related businesses, including, among other things, the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage services.
We collaborate with a third party consultant periodically to evaluate hiring, promotion and other pay practices to ensure continued equity and fairness. 18 Table of Contents Incentive plan goals and results are aligned with strategic Company objectives and are approved by the Compensation Committee of the Board.
We collaborate with a third party consultant periodically to evaluate hiring, promotion and other pay practices to ensure continued equity and fairness. Incentive plan goals and results are aligned with strategic Company objectives and are approved by the Compensation Committee of the Board.
In recognition of our commitment to employee engagement, the Company earned a spot among the top 100 Best Places to Work in Washington and Oregon by the Puget Sound and Portland Business Journals based on the 2024 employee engagement survey. The company received similar recognition in 2023.
In recognition of our commitment to employee engagement, the Company earned a spot among the top 100 Best Places to Work in Washington and Oregon by the Puget Sound and Portland Business Journals based on the 2025 employee engagement survey. The company received similar recognitions in both 2023 and 2024.
In addition, we reviewed over 65% of our CRE loan portfolio during the year ended December 31, 2024 for various performance related criteria and stress-test loans for potential changes in interest rates, occupancy and collateral values. 8 Table of Contents The Company may enter into non-hedging interest rate swap contracts with commercial customers to accommodate their business needs.
In addition, we reviewed over 65% of our CRE loan portfolio during the year ended December 31, 2025 for various performance related criteria and stress-test loans for potential changes in interest rates, occupancy and collateral values. The Company may enter into non-hedging interest rate swap contracts with commercial customers to accommodate their business needs.
In reaction to the global financial crisis and particularly following the passage of the Dodd-Frank Act, we experienced heightened regulatory requirements and scrutiny.
In response to the global financial crisis and particularly following the passage of the Dodd-Frank Act, we experienced heightened regulatory requirements and scrutiny.
Our commitment to open communication extends to providing employees with avenues for confidential and anonymous reporting. We offer a whistleblower hotline/website, enabling employees to report financial and workplace concerns to key leadership, including the Board Chair, Audit Committee Chair, Chief Executive Officer, Chief Operations Officer, Chief Risk Officer and Chief Human Resources Officer.
Our commitment to open communication extends to providing employees with avenues for confidential and anonymous reporting. We offer a whistleblower hotline/website, enabling employees to report financial and workplace concerns to key leadership, including the Board Chair, Audit Committee Chair, Chief Executive Officer, Chief Risk Officer, Chief Human Resources Officer and Director of Internal Audit.
For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits.
For example, a well capitalized banking organization may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain activities; (ii) receive expedited processing of other required notices or applications; and (iii) accept, roll-over or renew brokered deposits.
In markets where we wish to enter or expand our business, we also periodically consider opening de novo branches, typically in conjunction with hiring commercial lending and 6 Table of Contents deposit teams. In the past, we have successfully integrated acquired institutions and opened de novo branches.
In markets where we wish to enter or expand our business, we also periodically consider opening de novo branches, typically in conjunction with hiring commercial lending and deposit teams. In the past, we have successfully integrated acquired institutions and opened de novo branches.
Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
Bank holding companies that meet certain eligibility requirements and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that: (i) the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such 12 Table of Contents financial activity; or (ii) the Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally.
As of December 31, 2024, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well-capitalized. As of December 31, 2024, we were also in compliance with the capital conservation buffer. Prompt Corrective Action.
As of December 31, 2025, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Basel III Rule requirements to be well capitalized. As of December 31, 2025, the Company and the Bank also were in compliance with the capital conservation buffer. Prompt Corrective Action.
In addition to our focus on underwriting, we believe the strength of our balance sheet provides us with the flexibility to manage through a variety of scenarios including additional growth-related activities. As of December 31, 2024, our on-balance sheet liquidity position was $117.1 million in cash and cash equivalents and $1.47 billion in total investment securities. See also Item 7.
In addition to our focus on underwriting, we believe the strength of our balance sheet provides us with the flexibility to manage through a variety of scenarios including additional growth-related activities. As of December 31, 2025, our on-balance sheet liquidity position was $233.1 million in cash and cash equivalents and $1.28 billion in total investment securities. See also Item 7.
The Bank is a member of a FHLB, which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances.
Federal Home Loan Bank System. The Bank is a member of an FHLB, which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances.
Recognition and appreciation We host “Celebrate Great,” an active internal peer recognition platform enabling managers and employees to express appreciation and recognize their co-workers and teams. Throughout 2024, more than 3,700 e-cards were posted on Celebrate Great, with 32 individuals or teams receiving “Bravo” awards and 11 employees receiving “Standing Ovation” awards for their exceptional work.
Recognition and appreciation We host “Celebrate Great,” an active internal peer recognition platform enabling managers and employees to express appreciation and recognize their co-workers and teams. Throughout 2025, more than 3,290 e-cards were posted on Celebrate Great, with 32 individuals or teams receiving “Bravo” awards and 31 employees receiving “Standing Ovation” awards for their exceptional work.
For institutions like the Bank that are not considered large and highly complex banking organizations, the risk-based assessment is based on examination ratings and financial ratios. The total base assessment rates, effective as of January 1, 2023, currently range from 2.5 basis points to 32 basis points.
For institutions like the Bank that are not considered large and highly complex banking organizations, the risk-based assessment is based on examination ratings and financial ratios. The total base assessment rates, effective as of January 1, 2023, generally range from 2.5 basis points (for the lowest risk institutions) to 32 basis points or beyond (for higher risk institutions).
Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company and to “related interests” of such directors, officers and principal shareholders under state and federal law.
Certain limitations and reporting requirements also apply to extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company and to “related interests” of such directors, officers and principal shareholders under state and federal law.
The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments.
The Dodd-Frank Act further permits well capitalized and well managed banks to establish new interstate branches or to acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments. Affiliate and Insider Transactions.
They also impact the Bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition, the Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information.
They also limit the Bank’s ability to share certain information with affiliates and non-affiliates for marketing or nonmarketing purposes. In addition, the Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information.
Noncompliance with safety and soundness may also constitute grounds for other enforcement action by the federal banking agencies, including cease and desist orders and civil money penalty assessments. During the past decade, the banking agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions they supervise.
Noncompliance with safety and soundness principles may also constitute grounds for other enforcement action by the federal banking agencies, including cease and desist orders and civil money penalty assessments. The federal banking agencies have emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions.
Recognizing the unique perspectives each employee brings, we value their contributions to making us the leading commercial community bank in the Pacific Northwest. We focus on inclusion and belonging with a DEI Officer certified by the National Diversity Council (“NDC”) as well as a dedicated Diversity Council comprised of employees and members of management across different functional areas.
Recognizing the unique perspectives each employee brings, we value their contributions to making us the leading commercial community bank in the Pacific Northwest. We focus on inclusion and belonging with a dedicated Diversity Council comprised of employees and members of management across different functional areas and a DEI officer role.
Dividend Payments. The Bank pays dividends to the Company. Under the Washington Commercial Bank Act, Washington state-chartered banks may not declare or pay any dividend in an amount greater than its retained earnings, without approval from the DFI.
Under the Washington Commercial Bank Act, Washington state-chartered banks may not declare or pay any dividend in an amount greater than its retained earnings, without approval from the DFI.
The banking agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations.
The banking agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine that such operations are unsafe or unsound, violate applicable law or are otherwise inconsistent with laws and regulations.
Not only did it increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain 10 Table of Contents regulatory adjustments.
Not only did it increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, by requiring that capital instruments be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital (“CET1”), which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings and CET1 minority interests, subject to certain regulatory adjustments and deductions.
The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. In addition to approval from the Federal Reserve, prior approval for acquisitions may be required from other agencies, such as the DFI or other agencies that regulate the target company of an acquisition.
The BHCA does not place formal territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. In addition to approval from the Federal Reserve, prior approval for the establishment or acquisition of nonbank subsidiaries of a bank holding company may be required from other agencies, such as the DFI or other agencies that regulate such nonbank entity.
As a Washington state-chartered FDIC-insured bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFI, the chartering authority for Washington banks, and the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like the Bank, are not members of the Federal Reserve System (nonmember banks). Deposit Insurance.
As a Washington state-chartered FDIC-insured bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the DFI, its chartering authority, and the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like the Bank, are not members of the Federal Reserve System. 13 Table of Contents Deposit Insurance Assessments.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2024. Notwithstanding the availability of funds for dividends, however, the FDIC and the DFI may prohibit the payment of dividends by the Bank if either or both determine such payment would constitute an unsafe or unsound practice.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2025. Notwithstanding the availability of funds for dividends, however, the FDIC and the DFI may prohibit the payment of dividends by the Bank if either agency determines that such payment would constitute an unsafe or unsound practice.
The Dodd-Frank Act also directed the Federal Reserve, together with the federal banking and financial services agencies, to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.
The Dodd-Frank Act also directed the Federal Reserve, in coordination with other federal banking and financial services agencies, to promulgate rules prohibiting excessive incentive-based compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded.
The Basel III Rule requires banking organizations to maintain minimum capital ratios as follows: • A ratio of Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets; • A ratio of Tier 1 Capital equal to 6% of risk-weighted assets; • A ratio of Total Capital (Tier 1 plus Tier 2) equal to 8% of risk-weighted assets; and • A leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.
The Basel III Rule requires banking organizations to maintain minimum capital ratios to be deemed “adequately capitalized” as follows: • A ratio of CET1 equal to 4.5% of risk-weighted assets; • A ratio of Tier 1 Capital equal to 6% of risk-weighted assets; • A ratio of Total Capital (Tier 1 plus Tier 2 Capital) equal to 8% of risk-weighted assets; and • A leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% of risk-weighted assets in all circumstances.
Although these tests do not apply to the Bank, we continue to review our liquidity risk management policies in light of regulatory requirements and industry developments.
Although these tests do not apply to the Bank, we continue to review our liquidity risk management policies in light of regulatory requirements and industry developments. Dividend Payments. The Bank pays dividends to the Company.
The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).
The Basel III Rule also changed the definition of regulatory capital by establishing more stringent criteria for instruments to qualify as Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations).
As of December 31, 2024, the regulatory capital ratios of the Bank were in excess of the levels required for “well-capitalized” status, and our consolidated common equity tier 1 capital ratio, leverage ratio, Tier 1 capital ratio, and total capital ratio were 12.0%, 10.0%, 12.4% and 13.3%, respectively. Focus on deposit growth.
As of December 31, 2025, the regulatory capital ratios of the Bank were in excess of the levels required for “well-capitalized” status, and our consolidated common equity tier 1 capital ratio, leverage ratio, Tier 1 capital ratio, and total capital ratio were 12.7%, 10.8%, 13.1% and 14.1%, respectively. Focus on deposit growth.
Our primary focus is to maintain a high level of non-maturity deposits to internally fund our loan growth with a low reliance on maturity (certificate) deposits. At December 31, 2024, our non-maturity deposits were 82.8% of our total deposits.
Our primary focus is to maintain a high level of non-maturity deposits to internally fund our loan growth with a low reliance on maturity (certificate) deposits. At December 31, 2025, our non-maturity deposits were 84.1% of our total deposits.
Since the launch of these programs in April 2024, 33 Heritage Bankers have received their Leadership Certification through one of these programs. The Company leverages an online succession planning tool to further identify next-generation leaders and establish development plans for these individuals. Over time, we expect this process to increase generational representation across all levels, including leadership positions.
During 2025, 37 Heritage Bankers received their Leadership Certification through one of these programs. The Company leverages an online succession planning tool to further identify next-generation leaders and establish development plans for these individuals. Over time, we expect this process to increase generational representation across all levels, including leadership positions.
We also originate loans that are guaranteed by the U.S. SBA, for which the Bank is a “preferred lender,” the USDA and the Federal Agricultural Mortgage Corporation. Before extending credit to a business, we review and analyze the borrower’s management ability, financial history, including cash flow of the borrower and all guarantors, and anticipated liquidation value of the collateral.
SBA, for which the Bank is a “preferred lender,” the USDA and the Federal Agricultural Mortgage Corporation. Before extending credit to a business, we review and analyze the borrower’s management ability, financial history, including cash flow of the borrower and all guarantors, and anticipated liquidation value of the collateral.
All Washington banks are required to pay supervisory assessments to the DFI to fund the operations of that agency as well as other examination fees. The amount of the assessment is calculated on the basis of the Bank’s total assets. During the year ended December 31, 2024, the Bank paid supervisory assessments to the DFI totaling approximately $0.2 million.
All Washington banks are required to pay supervisory assessments to the DFI to fund the operations of that agency as well as other examination fees. The amount of the assessment is calculated on the basis of the Bank’s total assets. During the year ended December 31, 2025, the Bank paid supervisory assessments to the DFI totaling approximately $235,000. Capital Requirements.
As of December 31, 2024, the Company’s generational representation consisted of 17% Baby Boomers (born 1945 to 1964), 37% Gen X-ers (born 1965 to 1980), 35% Millennials (born 1981 to 1996), and 10% Gen Z-ers (born 1997 to 2010). Management and the Board review leadership succession annually.
As of December 31, 2025, the Company’s generational representation consisted of 16% Baby Boomers (born 1945 to 1964), 37% Gen X-ers (born 1965 to 1980), 34% Millennials (born 1981 to 1996), and 12% Gen Z-ers (born 1997 to 2010). Management and the Board review leadership succession annually.
All advances from the FHLB are required to be fully collateralized as determined by the FHLB. Community Reinvestment Act Requirements. The CRA requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods.
All advances from the FHLB are required to be fully collateralized, as determined by the FHLB. Community Reinvestment Act Requirements. The CRA imposes on the Bank a continuing and affirmative obligation, consistent with safe and sound operations, to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods.
In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
These standards generally prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals.
In its October 2024 semiannual update, the FDIC stated that the reserve ratio likely will reach the statutory minimum by the September 30, 2028 deadline and that no adjustments to the base assessment rates are currently projected.
In its May 2025 report, the FDIC stated that the reserve ratio likely will reach the statutory minimum by the September 30, 2028 deadline and that no adjustments to the base assessment rates are currently projected.
Residential Real Estate Loans, Originations and Sales At December 31, 2024, residential real estate loans totaled $403.0 million, or 8.4% of our loans receivable. The majority of our residential real estate loans are secured by single-family residences located in our primary market areas.
Residential Real Estate Loans, Originations and Sales At December 31, 2025, residential real estate loans totaled $358.8 million, or 7.5% of our loans receivable. The majority of our residential real estate loans are secured by single-family residences located in our primary market areas.
Under the BHCA, we are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of our operations and such additional information regarding us and the Bank as the Federal Reserve may require. Acquisitions, Activities and Financial Holding Company Election.
Under the BHCA, we are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of our operations and such additional information regarding us and the Bank as the Federal Reserve may require. Acquisitions and Activities. The primary purpose of a bank holding company is to control and manage banks.
Real Estate Construction and Land Development At December 31, 2024, we had $479.4 million, or 9.9% of our loans receivable, in real estate construction and land development loans, including residential construction loans and commercial and multifamily construction loans. We originate residential construction loans to builders for the construction of pre-sold homes and speculative residential properties.
Real Estate Construction and Land Development At December 31, 2025, we had $343.3 million, or 7.2% of our loans receivable, in real estate construction and land development loans, including residential construction loans and commercial and multifamily construction loans. We originate residential construction loans to builders for the construction of pre-sold homes and speculative residential properties.
The Economic Growth Act eliminated questions about the applicability of certain Dodd-Frank Act reforms to community bank systems, including relieving them of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds. These reforms have been favorable to our operations.
The Economic Growth Act eliminated questions about the applicability of certain Dodd-Frank Act reforms to community banking organizations, including relieving us of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule’s complicated prohibitions on proprietary trading and ownership of private funds.
The purpose of the conservation buffer is to ensure that banking institutions maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.
The purpose of the conservation buffer is to ensure that banking organizations maintain a cushion of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the capital conservation buffer increases the minimum ratios described above to 7% for CET1, 8.5% for Tier 1 Capital and 10.5% for Total Capital. Well Capitalized Requirements.
Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF.
Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries from engaging 14 Table of Contents as principal in any activity that is not permitted for a national bank unless they meet, and continue to meet, minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF.
On December 18, 2015, and again in recent years, the federal banking agencies have issued statements to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards.
In recent years, the federal banking agencies have issued statements to reinforce prudent risk-management practices related to CRE lending, in response to observed growth in many CRE markets, increased competitive pressures, rising CRE concentrations, and an easing of CRE underwriting standards.
Heritage Bank is headquartered in Olympia, Washington and conducts business from its 50 branch offices located throughout Washington State, the greater Portland, Oregon area, Eugene, Oregon and Boise, Idaho as of December 31, 2024. Heritage Bank also does business under the Whidbey Island Bank name on Whidbey Island, Washington. The deposits of the Bank are insured by the FDIC.
Heritage Bank is headquartered in Olympia, Washington and conducts business from its 50 branch offices located throughout Washington State, the greater Portland, Oregon area, Eugene, Oregon and Boise, Idaho and its one loan production office in Spokane, Washington as of December 31, 2025. Heritage Bank also does business under the Whidbey Island Bank name on Whidbey Island, Washington.
Well-Capitalized Requirements. The ratios described above are minimum standards in order for banking organizations to be considered “adequately capitalized.” Banking agencies uniformly encourage banking organizations to hold more capital and be “well-capitalized” and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements.
The ratios described above represent minimum standards for banking organizations to be considered “adequately capitalized.” Banking agencies uniformly encourage banking organizations to maintain capital levels above these minimums and to be classified as “well capitalized.” To that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital in excess of minimum regulatory requirements.
The BHCA generally prohibits us from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries.
The BHCA generally prohibits us from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any nonbanking entity, and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions.
Higher capital levels also could be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.
For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities.
The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company.
The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company.
Our business consists primarily of commercial lending and deposit relationships with small and medium-sized businesses and their owners in our market areas and attracting deposits from the general public. We also make real estate construction and land development loans and consumer loans.
Our business consists primarily of commercial lending and deposit relationships with small and medium-sized businesses and their owners in our market areas and attracting deposits from the general public.
FDIC-insured institutions, such as banks, as well as their holding companies (i.e., banking organizations) are required to hold more capital than other businesses, which directly affects our earnings capabilities.
The Role of Capital Regulatory capital represents the net assets of a banking organization available to absorb losses. FDIC-insured institutions, such as banks, as well as their holding companies (i.e., banking organizations) are required to hold more capital than other businesses, which directly affects our earnings capabilities.
In addition, banking organizations that want to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction also must maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer.
In addition, banking organizations that want to make capital distributions (including dividends and share repurchases) and pay discretionary bonuses to executive officers without restriction must maintain 2.5% in CET1 in the form of a capital conservation buffer.
Federal law permits state banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. Federal Home Loan Bank System.
With respect to interstate merger and acquisitions, federal law permits state banks to merge with out-of-state banks subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law requirements that the merging bank has been in existence for a minimum period of time (not to exceed five years), prior to the merger.
Consumer At December 31, 2024, we had $164.7 million, or 3.4% of our loans receivable, in consumer loans. We originate consumer loans and lines of credit that are both secured and unsecured. For additional information, see Item 1A. Risk Factors—Credit Risks this Form 10-K.
Consumer At December 31, 2025, we had $170.4 million, or 3.6% of our loans receivable, in consumer loans. We originate consumer loans and lines of credit that are both secured and unsecured. For additional information, see Item 1A.
We seek to achieve our business goals through the following strategies: Expand geographically as opportunities present themselves. We are committed to continuing the controlled expansion of our franchise through strategic acquisitions designed to increase our market share and enhance franchise value.
Our commitment defines our relationships, sets expectations for our actions and directs decision-making in these four fundamental areas. We seek to achieve our business goals through the following strategies: Expand geographically as opportunities present themselves. We are committed to continuing the controlled expansion of our franchise through strategic acquisitions designed to increase our market share and enhance franchise value.
It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above. As of December 31, 2024: (i) the Bank was not subject to a directive from the FDIC or the DFI to increase its capital and (ii) the Bank was well-capitalized, as defined by FDIC regulations.
Under the Basel III Rule, a banking organization may be considered “well capitalized,” while not complying with the capital conservation buffer described above. As of December 31, 2025: (i) the Bank was not subject to a directive from the FDIC or the DFI to increase its capital; and (ii) the Bank was well capitalized, as defined by FDIC regulations.
The objectives of the Company's DEI plan include: • Workforce Diversity: Recruit from a diverse, qualified group of potential applicants to secure a high-performing workforce drawn from all segments of the communities we serve. • Workplace Inclusion: Promote a culture and develop long-term strategies that encourage collaboration, inclusion, flexibility and fairness to enable individuals to contribute to their full potential.
Hiring Managers complete required training on lawful interviewing and selection techniques using objective, job-related criteria and removing unconscious bias from the selection process. 17 Table of Contents The objectives of the Company's DEI plan include: • Workforce Diversity: Recruit from a diverse, qualified group of potential applicants to secure a high-performing workforce drawn from all segments of the communities we serve. • Workplace Inclusion: Promote a culture and develop long-term strategies that encourage collaboration, inclusion, flexibility and fairness to enable individuals to contribute to their full potential.
As a bank holding company, we are registered with, and subject to regulation, supervision and enforcement by, the Federal Reserve under the BHCA. We are legally obligated to act as a source of financial and managerial strength to the Bank and to commit resources to support the Bank in circumstances where we might not otherwise do so.
We are legally obligated to act as a source of financial and managerial strength to the Bank and to commit resources to support the Bank in circumstances where we might not otherwise do so.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny such events could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. The Company has a continuing need for technological change, and may not have the resources to effectively implement new technologies or may experience operational challenges when implementing new technologies.
Biggest changeEven if the Company is able to replace them, it may result in higher costs or losses of customers. Any such events could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
The loss of any of the members of the Company’s executive management team or any other key personnel, including successful individuals employed by banks or other businesses that the Company may acquire, to a new or existing competitor or otherwise, could have an adverse impact on the Company’s ability to retain valuable relationships and some of its customers could choose to use the services of a competitor instead of the Company’s services.
The loss of any of the members of the Company’s executive management team or other key personnel, including successful individuals employed by banks or other businesses that the Company may acquire, to a new or existing competitor or otherwise, could have an adverse impact on the Company’s ability to retain valuable relationships and some of its customers could choose to use the services of a competitor instead of the Company’s services.
The Company’s third party partners’ inability to anticipate, or failure to adequately mitigate, breaches of security could result in a number of negative events, including losses to the Company or its customers, loss of business or customers, damage to the Company’s reputation, the incurrence of additional expenses, disruption to the Company’s business, additional regulatory scrutiny or penalties or the Company’s exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
The Company’s third party partners’ inability to anticipate, or failure to adequately mitigate, breaches of security could result in a number of negative events, including losses to the Company or its customers, loss of business or customers, damage to the Company’s reputation, additional expenses, disruption to the Company’s business, additional regulatory scrutiny or penalties or the Company’s exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Legal actions could include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. The Company may also, from time to time, be the subject of subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding the Company’s current or prior business activities.
Legal actions could include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages. The Company may also, from time to time, be the subject of subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding the Company’s current or prior business or acquisition activities.
If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, the Company may be unable to obtain funding at favorable terms, which may have an adverse effect on our net interest margin.
If a significant portion of our deposits were to be withdrawn within a short period of time such that additional sources of funding would be required to meet withdrawal demands, the Company may be unable to obtain funding on favorable terms, which may have an adverse effect on our net interest margin.
Cumulative effects of inflation, labor shortages or employee turnover, supply chain constraints and the threat of new tariffs, mass deportations and changes in tax regulations implemented by the new Presidential administration may adversely affect commercial and industrial loans, especially if general economic conditions worsen.
Cumulative effects of inflation, labor shortages or employee turnover, supply chain constraints and the threat of new tariffs, mass deportations and changes in tax regulations implemented by the current Presidential administration may adversely affect commercial and industrial loans, especially if general economic conditions worsen.
The occurrence of any of these events in the future could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. Legal, Accounting and Compliance Risks The Company’s risk management framework may not be effective in mitigating risks or losses to the Company.
The occurrence of any of these events could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. Legal, Accounting and Compliance Risks The Company’s risk management framework may not be effective in mitigating risks or losses to the Company.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in the Company’s reporting materially different results than would have been reported under a different alternative.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in the reporting of materially different results than would have been reported under a different alternative.
Acquiring other financial institutions involve risks commonly associated with acquisitions, including: • potential exposure to unknown or contingent liabilities of the banks and businesses the Company acquires; • exposure to potential asset and credit quality issues of the acquired bank or related business; • difficulty and expense of integrating the operations, culture and personnel of banks and businesses the Company acquires, including higher than expected deposit attrition; • potential disruption to the Company’s business; • potential restrictions on the Company’s business resulting from the regulatory approval process; • an inability to realize the expected revenue increases, costs savings, gains in market share or other anticipated benefits; • potential diversion of the Company’s management’s time and attention; and • the possible loss of key employees and customers of the banks and businesses the Company acquires.
Acquiring other financial institutions involve risks commonly associated with acquisitions, including: • potential exposure to unknown or contingent liabilities of the banks and businesses the Company acquires; • exposure to potential asset and credit quality issues of the acquired bank or related business; • difficulty and expense of integrating the operations, culture and personnel of banks and businesses the Company acquires, including higher than expected deposit attrition; • potential disruption to the Company’s business; • potential restrictions on the Company’s business resulting from the regulatory approval process; • an inability to realize the expected revenue increases, costs savings, gains in market share or other anticipated benefits; • an inability to successfully integrate the employees, customers and operations of the acquired bank or related business; • potential diversion of the Company’s management’s time and attention; and • the possible loss of key employees and customers of the banks and businesses the Company acquires.
In the normal course of business, from time to time, the Company has in the past and may in the future be named as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company’s current or prior business activities.
In the normal course of business, from time to time, the Company has in the past and may in the future be named as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with the Company’s current or prior business or acquisition activities.
Although the Company has historically paid dividends to its shareholders and currently intends to maintain or increase its dividend levels in future quarters, the Company has no obligation to continue doing so and may change its dividend policy at any time without notice to the Company’s shareholders.
Although the Company has historically paid dividends to its shareholders and currently intends to maintain or increase its dividend levels in future quarters, the Company has no obligation to continue doing so and may change its dividend policy at any time without providing notice to the Company’s shareholders.
The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in the area in which the real estate is located and some of these values have been negatively affected by the recent rise in prevailing interest rates.
The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in the area in which the real estate is located and some of these values have been negatively affected by the rise in prevailing interest rates.
During 2024, the Company is not aware of having experienced any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information having a material impact on the Company as a result of a direct cyber security breach or other act on the Bank; however, some of the Company’s customers and third party vendors may have been affected by such breaches, which could increase their risks of identity theft and other fraudulent activity that could involve customer accounts at the Bank.
During 2025, the Company is not aware of having experienced any misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information having a material impact on the Company as a result of a direct cyber security breach or other act on the Bank; however, some of the Company’s customers and third party vendors may have been affected by such breaches, which could increase their risks of identity theft and other fraudulent activity that could involve customer accounts at the Bank.
If the Company chooses to raise capital by selling shares of common stock for any reason, the issuance would have a dilutive effect on the holders of the Company’s common stock and could have a material negative effect on the market price of the Company’s common stock.
If the Company chooses to raise capital by selling shares of common stock for any reason, the issuance could have a dilutive effect on the holders of the Company’s common stock and could have a material negative effect on the market price of the Company’s common stock.
Accordingly, a risk exists that the Company will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to the Company’s customers.
Accordingly, a risk exists that the Company will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to customers.
If material weaknesses or other deficiencies occur, the Company’s ability to report its financial results accurately and timely could be impaired, which could result in late filings of the Company’s annual and quarterly reports under the Exchange Act, restatements of its consolidated financial statements, a decline in stock price, suspension or delisting of the Company’s common stock, and could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
If material weaknesses or other deficiencies occur, the Company’s ability to report its financial results accurately and timely could be impaired, which could result in late filings of reports under the Exchange Act, restatements of consolidated financial statements, a decline in stock price, suspension or delisting of the Company’s common stock, and could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Breaches of information security also may occur through intentional or unintentional acts by those having access to the Company’s systems or the confidential information of the Company’s customers, including employees.
Breaches of information security also may occur through intentional or unintentional acts by those having access to the Company’s systems or the confidential information of its customers, including employees.
The Company intends to continue to take advantage of opportunities to acquire other financial institutions, whether in whole or in part, however, the Company may not be able to identify suitable acquisition targets, or may not succeed in seizing such opportunities when they arise or in integrating any such companies within the Company’s existing business framework following acquisition.
Although the Company intends to continue to take advantage of opportunities to acquire other financial institutions, whether in whole or in part, the Company may not be able to identify suitable acquisition targets, or may not succeed in seizing such opportunities when they arise or in integrating any such companies within the Company’s existing business framework following acquisition.
Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. Severe weather, natural disasters, pandemics, acts of war or terrorism or other adverse external events could significantly impact the Company’s business.
Adverse economic conditions and government policy responses to such conditions could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. Severe weather, natural disasters, pandemics, military conflicts, acts of war or terrorism or other adverse external events could significantly impact the Company’s business.
The Company has developed relationships with certain individuals and businesses that have resulted in a concentration of large loans to a small number of borrowers. As of December 31, 2024, the Company’s 10 largest borrowing relationships accounted for approximately 6.5% of the total loan portfolio.
The Company has developed relationships with certain individuals and businesses that have resulted in a concentration of large loans to a small number of borrowers. As of December 31, 2025, the Company’s 10 largest borrowing relationships accounted for approximately 6.5% of the total loan portfolio.
This risk is affected by, among other things: • the cash flow of the borrower, guarantors and/or the project being financed; • the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan; • the character and creditworthiness of a particular borrower or guarantor; • changes in economic and industry conditions; and • the duration of the loan.
This risk is affected by, among other things: • the cash flows of the borrower, guarantors and/or the project being financed; • the changes and uncertainties as to the future value of the collateral, in the case of a collateralized loan; • the character and creditworthiness of a particular borrower or guarantor; • changes in economic and industry conditions; and • the duration of the loan.
The Company’s success is dependent, to a large degree, upon the continued service and skills of the Company’s executive management team and its employees.
The Company’s success is dependent, to a large degree, upon the continued service and skills of the Company’s executive management team and employees.
Legislators and regulators are also increasingly adopting or revising privacy, information security and data protection laws, including with respect to the use of artificial intelligence by financial institutions and their service providers, that potentially could have a significant impact on the Company’s current and planned privacy, data protection and information security-related practices, the Company’s collection, use, sharing, retention and safeguarding of consumer or employee information and some of the Company’s current or 29 Table of Contents planned business activities.
Legislators and regulators are also increasingly adopting or revising privacy, information security and data protection laws, including with respect to the use of artificial intelligence by financial institutions and their service providers, that potentially could have a significant impact on the Company’s current and planned privacy, data protection and information security-related practices, the Company’s collection, use, sharing, retention and safeguarding of consumer or employee information and some of the Company’s current or planned business activities.
Even if the Company is able to report its financial statements accurately and in a timely manner, any disclosure of material weaknesses in the Company’s future filings with the SEC could cause the Company’s reputation to be harmed and the Company’s stock price to decline significantly.
Even if the Company is able to report its financial statements accurately and in a timely manner, any disclosure of material weaknesses in the Company’s future filings could cause the Company’s reputation to be harmed and the Company’s stock price to decline significantly.
In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that the Company uses to prevent fraudulent transactions and to protect data about us, our customers and underlying transactions, as well as the technology used by our customers to access our systems.
In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third party technologies or other developments could result in a compromise or breach of the technology, processes and controls that the Company uses to prevent fraudulent transactions and to protect data about us, our customers and underlying transactions, as well as the technology used by our customers to access our systems.
Financial institutions generally have also been subjected to increased scrutiny from regulatory authorities, which has resulted, and may continue to result in, increased costs of doing business, and may in the future, result in decreased revenues and net income, reduce the Company’s ability to compete effectively, to attract and retain customers, or make it less attractive for the Company to continue providing certain products and services.
Financial institutions generally have also been subjected to increased scrutiny from regulatory authorities, which has 28 Table of Contents resulted, and may continue to result in, increased costs of doing business, and may in the future, result in decreased revenues and net income, reduce the Company’s ability to compete effectively, to attract and retain customers, or make it less attractive for the Company to continue providing certain products and services.
Severe weather, natural disasters, effects of climate change, widespread disease or pandemics, acts of war or terrorism, civil unrest or other adverse external events could have a significant impact on the Company’s ability to conduct business.
Severe weather, natural disasters, effects of climate change, widespread disease or pandemics, military conflicts, acts of war or terrorism, civil unrest or other adverse external events could have a significant impact on the Company’s ability to conduct business.
The process for determining whether a write-down is required usually requires complex, subjective judgments, which could subsequently prove to have been wrong, about the future financial performance and liquidity of the issuer, the fair value of any collateral underlying the security and whether and the extent to which the principal and interest on the security will ultimately be paid in accordance with its payment terms.
The process for determining whether a write-down is required involves complex, subjective judgments, which could subsequently prove to have been wrong, about the future financial performance and liquidity of the issuer, the fair value of any collateral underlying the security and whether and the extent to which the principal and interest on the security will ultimately be paid in accordance with its payment terms.
The Company’s ability to execute on acquisition opportunities may require the Company to raise additional capital and to increase the Company’s capital position to support the growth of the Company’s franchise. It will also depend on market conditions over which the Company has no control.
The Company’s ability to execute on acquisition opportunities may require it to raise additional capital and to increase its capital position to support franchise growth. It will also depend on market conditions over which the Company has no control.
In recent periods, there continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector, due to insider fraud or cyber criminals targeting commercial bank accounts and as a result of increasingly sophisticated methods of conducting cyber-attacks, including those employing artificial intelligence.
In recent periods, there continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector, due to both insider fraud and cyber criminals targeting commercial bank accounts, and as a result of increasingly sophisticated methods of conducting cyber-attacks, including those employing artificial intelligence tools.
In addition, economic conditions in foreign countries and weakening global trade due to increased anti-globalization sentiment and tariff activity could affect the stability of global financial markets, which could hinder the economic growth of the U.S.
In addition, economic conditions in foreign countries and weakening global trade due to increased anti-globalization sentiment, international conflicts, and tariff activity could affect the stability of global financial markets, which could hinder the economic growth of the U.S.
Management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s judgment of the most appropriate manner to report the Company’s financial condition and results of operations.
Management must exercise judgment in selecting and applying many of these accounting policies and methods to comply with GAAP and reflect management’s judgment of the most appropriate manner to report the Company’s financial condition and results of operations.
Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by the Company or its customers, denial or degradation of service attacks and malware or other cyber-attacks.
Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by the Company or its customers by insiders or third parties, denial or degradation of service attacks and malware or other cyber-attacks.
Along with other risks inherent in these loans, such as the deterioration of the underlying businesses or property securing these loans, this high concentration of borrowers presents a risk to the Company’s lending operations.
Along with other risks inherent in these loans, such as the deterioration of the underlying businesses or properties securing these loans, this high concentration of borrowers presents a risk to the Company’s lending operations.
If customers move money out of bank deposit accounts and into investments (or 22 Table of Contents similar deposit products at other institutions that may provide a higher rate of return), the Company could lose a relatively low-cost source of funds, increasing funding costs and reducing net interest income.
If customers move money out of bank deposit accounts and into investments (or similar deposit products at other institutions that may provide a higher rate of return), the Company could lose a relatively low-cost source of funds, increasing funding costs and reducing net interest income.
Decreases in the fair value of investment securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders’ equity, specifically AOCI, which is increased or decreased by the amount of change in the estimated fair value of our securities available for sale, net of deferred income taxes.
Decreases in the fair value of investment securities available for sale resulting from 19 Table of Contents increases in interest rates could have an adverse effect on stockholders’ equity, specifically AOCI, which is increased or decreased by the amount of change in the estimated fair value of our securities available for sale, net of deferred income taxes.
The Company’s access to funding sources in amounts adequate to finance or capitalize the Company’s activities or on terms that are acceptable to the Company could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
The Company’s access to funding sources in amounts adequate to finance or capitalize the Company’s activities or on favorable terms, could be impaired by factors that affect the Company directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
The loss of the services of any senior executive or other key personnel, the inability to recruit and retain qualified personnel in the future or the failure to develop and implement a viable succession plan could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
The loss of the services of any senior executive or other key personnel, the inability to recruit and retain qualified personnel in the future or the failure to develop and implement a viable 25 Table of Contents succession plan could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Adverse changes affecting real estate values, including decreases in office occupancy due to the shift to remote and hybrid working environments following the COVID-19 pandemic, could increase the credit risk associated with the Company’s loan portfolio, significantly impair the value of property pledged as collateral on loans and affect the Company’s ability to sell the collateral upon foreclosure without a loss or additional losses or the Company’s ability to sell those loans on the secondary market.
Adverse changes affecting real estate values, including decreases in office occupancy due to the shift to remote and hybrid working environments, could increase the credit risk associated with the Company’s loan portfolio, significantly impair the value of property pledged as collateral on loans and affect the Company’s ability to sell the collateral upon foreclosure without a loss or additional losses or the Company’s ability to sell those loans on the secondary market.
In addition, the ability of the Board to issue shares of preferred stock without any action on the part of the Company’s shareholders may impede a takeover of the Company and prevent a transaction perceived to be favorable to the Company’s shareholders. The Company’s business and operations may be adversely affected by weak economic conditions and global trade.
In addition, the ability of the Board to issue shares of preferred stock without any action on the part of the Company’s shareholders may impede a takeover of the Company and prevent a transaction perceived to be favorable to the Company’s shareholders. 26 Table of Contents The Company’s business and operations may be adversely affected by weak economic conditions and global trade.
If the Company or its third party partners offer artificial intelligence enabled products that are controversial because of their purported or real impact on human rights, privacy, or other issues, the Company may experience competitive harm, potential legal liability and brand or reputational 24 Table of Contents harm.
If the Company or its third party partners offer artificial intelligence enabled products that are controversial because of their purported or real impact on human rights, privacy, or other issues, the Company may experience competitive harm, potential legal liability and brand or reputational harm.
According to statements made by the FDIC staff and the leadership of the federal banking agencies, customers with larger uninsured deposit account balances often are small- to mid-sized businesses that rely upon deposit funds for payment of operational expenses and, as a result, are more likely to closely monitor the financial condition and performance of their depository institutions.
According to statements made by the FDIC staff and leadership of the federal banking agencies, customers with larger uninsured deposit account balances often are small- to mid-sized businesses that rely upon deposit funds for payment of operational expenses and are therefore more likely to closely monitor the financial condition and performance of their depository institutions.
The Company’s involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in the Company’s favor, could also cause significant harm to the Company’s reputation and divert 28 Table of Contents management attention from the operation of the Company’s business.
The Company’s involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in the Company’s favor, could also cause significant harm to the Company’s reputation and divert management attention from the operation of the Company’s business.
Increases in interest rates generally decrease the fair value of securities available for sale, adversely impacting stockholders’ equity. In recent periods, the company has realized losses on the sale of investment securities in connection with strategic balance sheet repositioning transactions.
Increases in interest rates generally decrease the fair value of securities available for sale, adversely impacting stockholders’ equity. The company has previously realized losses on the sale of investment securities in connection with strategic balance sheet repositioning transactions.
The obligations associated with being a public company require significant resources and management attention, which divert time and attention from the Company’s business operations. As a public company, the Company is subject to the reporting requirements of the Exchange Act and SOX.
The obligations associated with being a public company require significant resources and management attention, which divert time and attention from the Company’s business operations. 27 Table of Contents As a public company, the Company is subject to the reporting requirements of the Exchange Act and SOX.
In addition, if charge-offs in future periods exceed the ACL on loans, we will need additional provisions to increase the ACL on loans. Any increases in the allowance for credit losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.
In addition, if charge-offs in future periods exceed the ACL on loans, we will need additional provisions to increase the ACL on loans. Any increases in the ACL will result in a decrease in net income and, most likely, capital, and may have a material negative effect on our financial condition and results of operations.
In addition, failures of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt the Company’s operations or adversely affect its reputation.
In addition, 24 Table of Contents failures of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt the Company’s operations or adversely affect its reputation.
Negative changes in the economy affecting real estate values and liquidity, as well as environmental factors, could impair the value of collateral securing the Company’s real estate loans and result in loan and other losses. At December 31, 2024, approximately 79.1% of the Company’s total loan portfolio was comprised of loans with real estate as the primary component of collateral.
Negative changes in the economy affecting real estate values and liquidity, as well as environmental factors, could impair the value of collateral securing the Company’s real estate loans and result in loan and other losses. At December 31, 2025, approximately 79.3% of the Company’s total loan portfolio was comprised of loans with real estate as the primary component of collateral.
Many of the Company’s loans are to commercial borrowers, which have a higher degree of risk than other types of loans. Commercial and industrial loans represented 17.5% of the Company’s total loan portfolio at December 31, 2024. These loans can be larger in size and involve greater risks than other types of lending.
Many of the Company’s loans are to commercial borrowers, which have a higher degree of risk than other types of loans. Commercial and industrial loans represented 17.1% of the Company’s total loan portfolio at December 31, 2025. These loans can be larger in size and involve greater risks than other types of lending.
In addition, even if suitable targets are identified, the Company expects to compete for such businesses with other potential bidders, some of which may have greater financial resources than the 23 Table of Contents Company, which may adversely affect the Company’s ability to make acquisitions at attractive prices.
In addition, even if suitable targets are identified, the Company expects to compete for such businesses with other bidders, some of which may have greater financial resources than the Company, which may adversely affect the Company’s ability to make acquisitions at attractive prices.
The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect the Company and the Company’s customers against fraud and security breaches and to maintain the confidence of the Company’s customers.
The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect the Company and its customers against fraud and security breaches and to maintain customer confidence.
If the Company fails to 19 Table of Contents offer interest at a sufficient level to keep its non-maturity interest-bearing deposits, core deposits may be reduced, which would require the Company to obtain funding in other ways or risk slowing future asset growth.
If the Company fails to offer interest at a sufficient level to keep its non-maturity interest-bearing deposits, core deposits may be reduced, which would require the Company to obtain funding in other ways or risk slowing future asset growth.
If the Company is unable to meet the demands required of the Company as a public company, the Company may be unable to report its financial results accurately, or report them within the timeframes required by law or stock exchange regulations and could be subject to sanctions or investigations by the SEC or other regulatory authorities.
If the Company is unable to meet the demands required of a public company, it may be unable to report its financial results accurately or within the timeframes required by law or stock exchange regulations and could be subject to sanctions or investigations by the SEC or other authorities.
The Company expects that regulators will hold the Company responsible for deficiencies in oversight and control of its third party relationships and in the performance of the parties with 25 Table of Contents which the Company has these relationships.
The Company expects that regulators will hold the Company responsible for deficiencies in oversight and control of its third party relationships and in the performance of the parties with which the Company has these relationships.
While a key element of the Company’s business strategy is to grow the Company’s banking franchise and increase the Company’s market share through organic growth, the Company has historically supplemented its organic growth through acquisitions of other financial institutions.
While a key element of the Company’s business strategy is to grow the Company’s banking franchise and increase the Company’s market share through organic growth, the Company has historically supplemented its organic growth through acquisitions of other financial institutions, including the recent acquisition of Olympic.
Certain accounting policies are critical to presenting the Company’s financial condition and results of operations. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts 27 Table of Contents could be reported under different conditions or using different assumptions or estimates.
Certain accounting policies are critical to presenting the Company’s financial condition and results of operations and require management to make difficult, subjective or complex judgments about uncertain matters. Materially different amounts could be reported under different conditions or using different assumptions or estimates.
If real estate values decline, it is also more likely that the Company would be required to increase the Company’s allowance for credit losses, which would have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
If real estate values decline, it is also more likely that the Company would be required to increase the Company’s ACL, which would have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
If our estimates are incorrect, the ACL on loans may not be sufficient to cover expected losses in our loan portfolio, resulting in the need for increases in our ACL on loans through the provision for credit losses.
If our estimates are incorrect, the ACL on loans may not be sufficient to cover expected losses in our loan portfolio, resulting in the need for 20 Table of Contents increases in our ACL on loans through the provision for credit losses.
The Company does not know what market rates will be throughout 2025, including the frequency and significance with which the target range for the federal funds rate may be changed in 2025.
The Company does not know what market rates will be throughout 2026, including the frequency and significance, if any, with which the target range for the federal funds rate may be changed in 2026.
Information pertaining to the Company and its customers is maintained, and transactions are executed, on networks and systems maintained by the Company and certain third party partners, such as the Company’s online banking, mobile banking, record-keeping or accounting systems.
Information pertaining to the Company and its customers is maintained, and transactions are executed, on networks and systems maintained by the Company and third party partners, including online banking, mobile banking, record-keeping or accounting systems.
Regulatory capital requirements could increase from current levels, which could require the Company to raise additional capital or contract the Company’s operations.
Regulatory capital requirements 22 Table of Contents could increase from current levels, which could require the Company to raise additional capital or contract the Company’s operations.
The federal bank agencies expect FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. As of December 31, 2024, the Bank did not exceed these guidelines.
The federal bank agencies expect FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk.
The Company’s commercial and industrial loans are primarily made based on the identified cash flow of the 21 Table of Contents borrower and secondarily on the collateral underlying the loans. Most often, this collateral consists of accounts receivable, inventory and equipment.
The Company’s commercial and industrial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. This collateral generally consists of accounts receivable, inventory and equipment.
As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits.
In the event of financial distress, uninsured depositors historically have been more likely to withdraw deposits.
Uncertainty about the federal fiscal policymaking process, the medium- and long-term fiscal outlook of the federal government, potential imposition of tariffs and changes in future tax rates is a concern for businesses, consumers and investors.
Uncertainty about the federal fiscal policymaking process, the medium- and long-term fiscal outlook of the federal government, the imposition of tariffs, disputes between the presidential administration and the Federal Reserve, immigration enforcement and changes in future tax rates is a concern for businesses, consumers and investors.
Complying with these standards requires consistent monitoring of and periodic enhancements to the design and operation of the Company’s internal control over financial reporting as well as additional financial reporting and accounting staff with appropriate training and experience in GAAP and SEC rules and regulations.
Compliance requires consistent monitoring of and periodic enhancements to the design and operation of the Company’s internal control over financial reporting, as well as financial reporting and accounting staff with appropriate training and experience in relevant rules and regulations.
It may be difficult for the Company to replace some of its third party vendors, particularly vendors providing the Company’s core banking and information services, in a timely manner if they are unwilling or unable to provide the Company with these services in the future for any reason and even if the Company is able to replace them, it may be at higher cost or result in the loss of customers.
It may be difficult for the Company to replace some of its third party vendors, particularly vendors providing the Company’s core banking and information services, in a timely manner if they are unwilling or unable to provide these services in the future for any reason.
The widespread adoption of new technologies, including mobile banking services, artificial intelligence, digital assets and payment systems, could require the Company in the future to make substantial expenditures to modify or adapt the Company’s existing products and services as it grows and develops new products to satisfy the Company’s customers’ expectations, remain competitive and comply with regulatory rules and guidance.
The widespread adoption of new technologies could require the Company in the future to make substantial expenditures to modify or adapt its existing products and services as it grows and develops new products to satisfy customers’ expectations, remain competitive and comply with regulatory rules and guidance.
This spread may be exacerbated by higher prevailing interest rates. In addition, because our available for sale securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated.
Interest rates paid for borrowings generally exceed the interest rates paid on deposits, which spread may be exacerbated during a time of higher prevailing interest rates. In addition, because our available for sale securities lose value when interest rates rise, after-tax proceeds resulting from the sale of such assets may be diminished during periods when interest rates are elevated.
Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of higher prevailing interest rates, such as the present period. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited. Further, interest rates paid for borrowings generally exceed the interest rates paid on deposits.
Moreover, obtaining adequate funding to meet our deposit obligations may be more challenging during periods of higher prevailing interest rates. Our ability to attract depositors during a time of actual or perceived distress or instability in the marketplace may be limited.
As a financial institution, the Company is susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against the Company, its customers or third parties with whom it interacts, which may result in financial losses or increased costs to the Company or its customers, disclosure or misuse of the Company’s information or its customer information, misappropriation of assets, privacy breaches against the Company’s customers, litigation or damage to the Company’s reputation.
The occurrence of fraudulent activity, breaches or failures of the Company’s information security controls or cybersecurity related incidents could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects. 23 Table of Contents As a financial institution, the Company is susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against the Company, its customers or third parties with whom it interacts, which may result in financial losses or increased costs to the Company or its customers, disclosure or misuse of the Company’s information or its customer information, misappropriation of assets, privacy breaches against the Company’s customers, litigation or damage to the Company’s reputation.
These factors include, but are not limited to, changes in interest rates, rating agency downgrades or the Company’s own analysis of the value of the securities, defaults by the issuers or individual mortgagors with respect to the underlying securities and instability in the credit markets.
Factors beyond the Company’s control can influence and cause potential adverse changes to the fair value of securities in the Company’s portfolio including, but not limited to, changes in interest rates, rating agency downgrades or the Company’s own analysis of the value of the securities and defaults by issuers or individual mortgagors with respect to the underlying securities and instability in the credit markets.
If the Bank does not receive regulatory approval or if its 26 Table of Contents earnings are not sufficient to make dividend payments to the Company while maintaining adequate capital levels, the Company’s ability to pay dividends could be materially and adversely impacted.
If the Bank does not receive regulatory approval or if its earnings are not sufficient to make dividend payments to the Company while maintaining adequate capital levels, the Company’s ability to pay dividends could be materially and adversely impacted. Future issuances of common stock could result in dilution, which could cause the Company’s common stock price to decline.
Any decline in available funding could adversely impact the Company’s ability to continue to implement its strategic plan, including originating loans and investing in securities, or to fulfill obligations such as paying expenses, repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
Any decline in available funding could adversely impact the Company’s ability to continue to implement its strategic plan or to fulfill its financial obligations, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.
There is uncertainty surrounding potential legal, regulatory and policy changes by new presidential administrations in the United States that may directly affect financial institutions and the global economy.
There is uncertainty surrounding potential legal, regulatory and policy changes by new presidential administrations in the United States that may directly affect financial institutions and the global economy. Changes in federal policy and at regulatory agencies occur over time through policy and personnel changes following elections and changes in federal administration.
The Company may not be able to maintain a strong core deposit base or other low cost funding sources. The Company depends primarily on core deposits from its customers, which consist of noninterest demand deposits, interest bearing demand deposits, money market accounts, savings accounts and certificates of deposit as its primary source of funding for lending activities.
The Company depends primarily on its ability to maintain and grow core deposits from its customers, which consist of noninterest demand deposits, interest bearing demand deposits, money market accounts, savings accounts and certificates of deposit as its primary source of funding for lending activities.
Currently, there are 50,000,000 shares of common stock authorized in the Company’s Articles of Incorporation, which may be increased by a vote of the holders of a majority of the Company’s shares of common stock.
The Company is generally not restricted from issuing additional shares of common stock up to the amount authorized in its Articles of Incorporation. Currently, there are 50,000,000 shares of common stock authorized in the Company’s Articles of Incorporation, which may be increased by a vote of the holders of a majority of the Company’s shares of common stock.
The Company could recognize additional losses on securities held in the Company’s securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate. Factors beyond the Company’s control can influence and cause potential adverse changes to the fair value of securities in the Company’s portfolio.
The Company could recognize additional losses on securities held in the Company’s securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate.
Because the Company’s information technology and telecommunications systems interface with and depend on third party systems, the Company could experience service denials if demand for such services exceeds capacity or such third party systems fail or experience interruptions.
The Company could also experience service denials if demand for such services exceeds capacity or such third party systems fail or experience interruptions.
The resolution of nonperforming assets requires significant time commitments from management, which increase the Company’s loan administration costs and adversely affects its efficiency ratio and can be detrimental to the performance of their other responsibilities.
The resolution of nonperforming assets requires significant time commitments from management, which increase the 21 Table of Contents Company’s loan administration costs and adversely affect its efficiency ratio.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeInstances where a risk is identified as inadequately controlled are promptly reported to Management requiring formal remediation activities that are tracked and reported to the Risk and Technology Committee of the Board, until measures are implemented to reduce the risk to an acceptable level Identification of risks is a multifaceted process, encompassing diverse activities such as the execution of formal risk assessments, as described above, management self-disclosures, monitoring of regulatory and interagency authorities, engagement with professional and industry forums, internal and external audits, collaboration with third-party professional services, policy reviews and walkthroughs, adherence to best practice frameworks, leveraging subject matter expertise and industry experience, and maintaining a collaborative relationship with third party service providers/vendors.
Biggest changeIdentification of risks is a multifaceted process, encompassing diverse activities such as the execution of formal risk assessments, as described above, management self-disclosures, monitoring of regulatory and interagency authorities, engagement with professional and industry forums, internal and external audits, collaboration with third-party professional services, policy reviews and walkthroughs, adherence to best practice frameworks, leveraging subject matter expertise and industry experience, and maintaining a collaborative relationship with third party service providers/vendors.
Although third party service providers that the Bank engages have encountered cybersecurity events or incidents during the year ended December 31, 2024, the Bank’s investigation of each event or incident has shown that these occurrences have not resulted in a material impact on our systems, computing environments, customers, or data.
Although third party service providers that the Bank engages have encountered cybersecurity events or incidents during the year ended December 31, 2025, the Bank’s investigation of each event or incident has shown that these occurrences have not resulted in a material impact on our systems, computing environments, customers, or data.
Annually, the Information and Cyber Security Policy and Program and Risk Assessments are presented for approval to the Board to ensure the program is representative and supportive of the Bank’s risk appetite and security testing expectations. Risks identified are subject to rigorous controls, ensuring both design and operational effectiveness and adherence to regulatory requirements.
Annually, the Information and Cyber Security Policy and Program and Risk Assessments are presented for approval to the Board to ensure the program is representative and supportive of regulatory requirements and the Bank’s risk appetite. Risks identified are subject to rigorous controls, ensuring both design and operational effectiveness and adherence to regulatory requirements.
Daily operational activities are in place to ensure the achievement and implementation of security requirements, including the management of the Bank’s security architecture, monitoring for potential security events or incidents, and the reporting and 30 Table of Contents response to detected threats in our technology environments.
Daily operational activities are in place to ensure the achievement and implementation of security requirements, including the management of the Bank’s security architecture, monitoring for potential security events or incidents, and the reporting and response to detected threats in our technology environments.
Its purpose is to foster a security culture within the Company through active participation in planning and managing threat and security risk activities. 31 Table of Contents All committee activities are reported to the Risk and Technology Committee through committee minutes and formal activity reports provided by the Technology and Risk Management Director.
Its purpose is to foster a security culture within the Company through active participation in planning and managing threat and security risk activities. All committee activities are reported to the Risk and Technology Committee through committee minutes and formal activity reports provided by the Technology and Risk Management Director.
Additionally, the Risk and Technology Committee Chair provides a verbal summarized report to the full Board following each quarterly meeting, and as needed on an interim basis to address developing risk. All Risk and Technology Committee reports are available to the full Board for review.
Additionally, the Risk and Technology Committee Chair provides a verbal summarized report to the full Board following each quarterly meeting, and as needed on an 30 Table of Contents interim basis to address developing risk. All Risk and Technology Committee reports are available to the full Board for review.
This position fulfills the role and responsibilities of a Chief Information Security Officer and reports to the Chief Risk Officer who in turn reports independently to the Chair of the Risk and Technology Committee. Additional layers of oversight are integrated into the program through the Director of Internal Audit, who conducts independent audits of critical information technology and cybersecurity activities.
This position reports to the Chief Risk Officer who in turn reports independently to the Chair of the Risk and Technology Committee. Additional layers of oversight are integrated into the program through the Director of Internal Audit, who conducts independent audits of critical information technology and cybersecurity activities.
In the event critical matters arise between scheduled meetings, the Chief Risk Officer promptly notifies the Board and Risk and Technology Committee. To further ensure independence and effectiveness, the Board has delegated authority for the Information and Cybersecurity Policy and Program, including the referenced reports, to the Technology Risk Management Director.
To further ensure independence and effectiveness, the Board has delegated authority for the Information and Cybersecurity Policy and Program, including the referenced reports, to the Technology Risk Management Director, who is also designated as the Chief Information Security Officer.
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Instances where a risk is identified as inadequately controlled are promptly reported to Management requiring formal dispositioning and/or remediation activities and those activities are tracked and reported to the Risk and Technology Committee of the Board, until measures are implemented to reduce the risk to an acceptable level.
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In the event critical matters arise between scheduled meetings, the Chief Risk Officer promptly notifies the Board and Risk and Technology Committee.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The main office of the Company and the Bank is located at 201 Fifth Avenue SW, in downtown Olympia, Washington. In addition to this main office, which includes a full-service banking office, the Company has three administrative office locations in Tacoma, Everett and Burlington, Washington.
Biggest changeITEM 2. PROPERTIES The main office of the Company and the Bank is located at 201 Fifth Avenue SW, in downtown Olympia, Washington. In addition to this main office, which includes a full-service banking office, the Company has three administrative office locations in Tacoma, Everett and Burlington, Washington and one loan production office in Spokane, Washington.
The Bank's branch network at December 31, 2024 was comprised of 50 branches located throughout Washington, Oregon and Idaho. The Company leases 24 properties and owns 29 properties at December 31, 2024.
The Bank's branch network at December 31, 2025 was comprised of 50 branches located throughout Washington, Oregon and Idaho. The Company leased 24 properties and owned 30 properties at December 31, 2025.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFinancial Statements and Supplementary Data of this Form 10-K for additional information regarding dividend restrictions. 32 Table of Contents Purchases of Equity Securities by the Issuer The following table sets forth information about the Company’s purchases of its outstanding common stock during the quarter ended December 31, 2024: Period Total number of shares purchased (1) Average price paid per share (1) Total number of shares purchased as part of publicly announced programs Maximum number of shares that may yet be purchased under the program October 1, 2024—October 31, 2024 — — — 1,155,452 November 1, 2024— November 30, 2024 20,000 25.44 20,000 1,135,452 December 1, 2024—December 31, 2024 145,498 26.50 144,930 990,522 Total 165,498 $ 26.37 164,930 990,522 (1) Of the common shares repurchased by the Company between October 1, 2024 and December 31, 2024, 568 shares represented the cancellation of stock to pay withholding taxes on vested restricted stock awards or units and were not repurchased pursuant to the publicly announced stock repurchase program.
Biggest changePurchases of Equity Securities by the Issuer The following table sets forth information about the Company’s purchases of its outstanding common stock during the quarter ended December 31, 2025: Period Total number of shares purchased (1) Average price paid per share (1) Total number of shares purchased as part of publicly announced programs Maximum number of shares that may yet be purchased under the program October 1, 2025—October 31, 2025 — — 796,832 November 1, 2025— November 30, 2025 — — 796,832 December 1, 2025—December 31, 2025 1,716 25.43 796,832 Total 1,716 $ 25.43 — 796,832 (1) Of the common shares repurchased by the Company between October 1, 2025 and December 31, 2025, 1,716 shares represented the cancellation of stock to pay withholding taxes on vested restricted stock awards or units and were not repurchased pursuant to the publicly announced stock repurchase program.
Under the terms of the securities, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances existed through the date of filing of this Form 10-K. See Note (9) Junior Subordinated Debentures of the Notes to Consolidated Financial Statements included in Item 8.
Under the terms of the debt, the Company may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances existed through the date of filing of this Form 10-K. See Note (9) Junior Subordinated Debentures of the Notes to Consolidated Financial Statements included in Item 8.
SmallCap Banks Index is comparative peer index comprised of banks and related holding companies within the same market capitalization range as the Company. The graph assumes the value of the investment in Company’s common stock and each index was $100 on December 31, 2019, and all dividends were reinvested. .
SmallCap Banks Index is a comparative peer index comprised of banks and related holding companies within the same market capitalization range as the Company. The graph assumes the value of the investment in the Company’s common stock and in each index was $100 on December 31, 2020, and all dividends were reinvested. .
See “Supervision And Regulation—Supervision and Regulation of the Company—Dividend Payments” and “Supervision And Regulation—Supervision and Regulation of the Bank—Dividend Payments” above, for additional detail regarding restrictions on the payment of dividends by the Company and the Bank. The Company also has certain contractual restrictions on its ability to pay dividends. The Company has acquired debt securities through transactions.
See “Supervision And Regulation—Supervision and Regulation of the Company—Dividend Payments” and “Supervision And Regulation—Supervision and Regulation of the Bank—Dividend Payments” above, for additional detail regarding restrictions on the payment of dividends by the Company and the Bank. The Company also has certain contractual restrictions on its ability to pay dividends. The Company has assumed debt obligations through acquisition transactions.
Shareholders At February 18, 2025, we had approximately 1,039 shareholders of record (which does not include the number of beneficial owners of stock in nominee or street name through various brokerage firms). Dividends The Company has historically paid cash dividends to its common shareholders.
Shareholders At February 17, 2026, we had approximately 1,096 shareholders of record (which does not include the number of beneficial owners of stock in nominee or street name through various brokerage firms). Dividends The Company has historically paid cash dividends to its common shareholders.
Performance Graph The following graph shows the five-year comparison of the cumulative total return to shareholders of the Company’s common stock as compared to the Nasdaq Composite Index and the S&P U.S. SmallCap Banks Index during the five-year period beginning December 31, 2019 and ending December 31, 2024.
Performance Graph The following graph shows the five-year comparison of the cumulative total return to shareholders of the Company’s common 32 Table of Contents stock as compared to the Nasdaq Composite Index and the S&P U.S. SmallCap Banks Index during the five-year period beginning December 31, 2020 and ending December 31, 2025.
On January 22, 2025, the Board declared a regular quarterly dividend of $0.24 per common share payable on February 20, 2025 to shareholders of record at the close of business on February 6, 2025.
On January 16, 2026, the Board declared a regular quarterly dividend of $0.24 per common share payable on February 11, 2026 to shareholders of record at the close of business on January 28, 2026.
Years Ended December 31, Index 2019 2020 2021 2022 2023 2024 Heritage Financial Corporation $ 100 $ 85.94 $ 92.71 $ 119.90 $ 87.66 $ 105.05 Nasdaq Composite Index 100 144.92 177.06 119.45 172.77 223.87 S&P U.S. SmallCap Banks Index 100 90.82 126.43 111.47 112.03 132.44 *Information for the graph was provided by S&P Global Market Intelligence.
Years Ended December 31, Index 2020 2021 2022 2023 2024 2025 Heritage Financial Corporation $ 100 $ 107.88 $ 139.52 $ 102.00 $ 122.24 $ 122.94 Nasdaq Composite Index 100 122.18 82.43 119.22 154.48 187.14 S&P U.S. SmallCap Banks Index 100 139.21 122.74 123.35 145.82 160.37 *Information for the graph was provided by S&P Global Market Intelligence. ITEM 6. [RESERVED]
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Financial Statements and Supplementary Data of this Form 10-K for additional information regarding dividend restrictions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table provides the federal funds target rate history and changes since December 31, 2021 : Change Date Rate (%) Rate Change (%) December 31, 2021 0.00% - 0.25% N/A March 17, 2022 0.25% - 0.50% 0.25 % May 5, 2022 0.75% - 1.00% 0.50 % June 16, 2022 1.50% - 1.75% 0.75 % July 28, 2022 2.25% - 2.50% 0.75 % September 22, 2022 3.00% - 3.25% 0.75 % November 3, 2022 3.75% - 4.00% 0.75 % December 15, 2022 4.25% - 4.50% 0.50 % February 2, 2023 4.50% - 4.75% 0.25 % March 23, 2023 4.75% - 5.00% 0.25 % May 4, 2023 5.00% - 5.25% 0.25 % July 27, 2023 5.25% - 5.50% 0.25 % September 19, 2024 4.75% - 5.00% (0.50) % November 8, 2024 4.50% - 4.75% (0.25) % December 19, 2024 4.25% - 4.50% (0.25) % Average Balances, Yields and Rates Paid The following table provides relevant net interest income information for the periods indicated: Year Ended December 31, 2024 2023 2022 Average Balance (1) Interest Earned/ Paid Average Yield/ Rate Average Balance (1) Interest Earned/ Paid Average Yield/ Rate Average Balance (1) Interest Earned/ Paid Average Yield/ Rate (Dollars in thousands) Interest Earning Assets: Loans receivable, net (2)(3) $ 4,485,531 $ 247,472 5.52 % $ 4,155,722 $ 217,284 5.23 % $ 3,852,604 $ 174,275 4.52 % Taxable securities 1,653,295 54,972 3.32 1,937,603 58,509 3.02 1,646,058 40,627 2.47 Nontaxable securities (3) 18,425 651 3.53 63,051 1,854 2.94 135,004 3,488 2.58 Interest earning deposits 125,036 6,617 5.29 129,807 6,818 5.25 913,374 9,067 0.99 Total interest earning assets 6,282,287 309,712 4.93 % 6,286,183 284,465 4.53 % 6,547,040 227,457 3.47 % Noninterest earning assets 850,759 853,841 774,415 Total assets $ 7,133,046 $ 7,140,024 $ 7,321,455 Interest Bearing Liabilities: Certificates of Deposit $ 857,079 $ 36,922 4.31 % $ 491,653 $ 14,554 2.96 % $ 313,712 $ 1,407 0.45 % Savings accounts 451,528 920 0.20 543,096 701 0.13 646,565 381 0.06 Interest bearing demand and money market accounts 2,640,487 37,227 1.41 2,771,981 24,095 0.87 3,036,031 4,984 0.16 Total interest bearing deposits 3,949,094 75,069 1.90 3,806,730 39,350 1.03 3,996,308 6,772 0.17 Junior subordinated debentures 21,910 2,139 9.76 21,615 2,074 9.60 21,322 1,156 5.42 35 Table of Contents Year Ended December 31, 2024 2023 2022 Average Balance (1) Interest Earned/ Paid Average Yield/ Rate Average Balance (1) Interest Earned/ Paid Average Yield/ Rate Average Balance (1) Interest Earned/ Paid Average Yield/ Rate (Dollars in thousands) Securities sold under agreement to repurchase — — — 32,976 153 0.46 46,209 138 0.30 Borrowings 456,448 23,140 5.07 369,665 17,733 4.80 137 6 4.38 Total interest bearing liabilities 4,427,452 100,348 2.27 % 4,230,986 59,310 1.40 % 4,063,976 8,072 0.20 % Noninterest bearing demand deposits 1,669,301 1,899,317 2,326,178 Other noninterest bearing liabilities 182,121 191,679 119,359 Stockholders’ equity 854,172 818,042 811,942 Total liabilities and stock-holders’ equity $ 7,133,046 $ 7,140,024 $ 7,321,455 Net interest income and spread $ 209,364 2.66 % $ 225,155 3.13 % $ 219,385 3.27 % Net interest margin 3.33 % 3.58 % 3.35 % (1) Average balances are calculated using daily balances.
Biggest changeThe following table provides the federal funds target rate history and changes since December 15, 2022 : 34 Table of Contents Change Date Rate (%) Rate Change (%) December 15, 2022 4.25% - 4.50% 0.50 % February 2, 2023 4.50% - 4.75% 0.25 % March 23, 2023 4.75% - 5.00% 0.25 % May 4, 2023 5.00% - 5.25% 0.25 % July 27, 2023 5.25% - 5.50% 0.25 % September 19, 2024 4.75% - 5.00% (0.50) % November 8, 2024 4.50% - 4.75% (0.25) % December 19, 2024 4.25% - 4.50% (0.25) % September 18, 2025 4.00% - 4.25% (0.25) % October 30, 2025 3.75% - 4.00% (0.25) % December 11, 2025 3.50% - 3.75% (0.25) % Average Balances, Yields and Rates Paid The following table provides relevant net interest income information for the periods indicated: Year Ended December 31, 2025 2024 2023 Average Balance (1) Interest Earned/ Paid Average Yield/ Rate Average Balance (1) Interest Earned/ Paid Average Yield/ Rate Average Balance (1) Interest Earned/ Paid Average Yield/ Rate (Dollars in thousands) Interest Earning Assets: Loans receivable (2)(3) $ 4,773,760 $ 262,900 5.51 % $ 4,536,499 $ 247,472 5.46 % $ 4,201,737 $ 217,284 5.17 % Taxable securities 1,350,278 44,966 3.33 1,653,295 54,972 3.32 1,937,603 58,509 3.02 Nontaxable securities (3) 15,449 549 3.55 18,425 651 3.53 63,051 1,854 2.94 Interest earning deposits 135,603 5,821 4.29 125,036 6,617 5.29 129,807 6,818 5.25 Total interest earning assets 6,275,090 314,236 5.01 % 6,333,255 309,712 4.89 % 6,332,198 284,465 4.49 % Noninterest earning assets 752,048 799,791 807,826 Total assets $ 7,027,138 $ 7,133,046 $ 7,140,024 Interest Bearing Liabilities: Certificates of Deposit $ 966,429 $ 36,266 3.75 % $ 857,079 $ 36,922 4.31 % $ 491,653 $ 14,554 2.96 % Savings accounts 426,124 1,154 0.27 451,528 920 0.20 543,096 701 0.13 Interest bearing demand and money market accounts 2,796,909 41,916 1.50 2,640,487 37,227 1.41 2,771,981 24,095 0.87 Total interest bearing deposits 4,189,462 79,336 1.89 3,949,094 75,069 1.90 3,806,730 39,350 1.03 Junior subordinated debentures 22,201 1,872 8.43 21,910 2,139 9.76 21,615 2,074 9.60 Securities sold under agreement to repurchase — — — — — — 32,976 153 0.46 Borrowings 185,544 8,623 4.65 456,448 23,140 5.07 369,665 17,733 4.80 Total interest bearing liabilities 4,397,207 89,831 2.04 % 4,427,452 100,348 2.27 % 4,230,986 59,310 1.40 % Noninterest bearing demand deposits 1,623,952 1,669,301 1,899,317 Other noninterest bearing liabilities 118,300 182,121 191,679 Stockholders’ equity 887,679 854,172 818,042 Total liabilities and stock-holders’ equity $ 7,027,138 $ 7,133,046 $ 7,140,024 Net interest income and spread $ 224,405 2.97 % $ 209,364 2.62 % $ 225,155 3.09 % Net interest margin 3.58 % 3.31 % 3.56 % (1) Average balances are calculated using daily balances.
At December 31, 2024, the Bank also had uncommitted federal funds line of credit agreements with other financial institutions totaling $145.0 million. No balances were outstanding under these agreements as of either December 31, 2024 or 2023. Availability of lines of credit is subject to federal funds balances available for loan and continued borrower eligibility.
At December 31, 2025, the Bank also had uncommitted federal funds line of credit agreements with other financial institutions totaling $145.0 million. No balances were outstanding under these agreements as of either December 31, 2025 or December 31, 2024. Availability of lines of credit is subject to federal funds balances available for loan and continued borrower eligibility.
Assuming continued payment during 2025 at this rate, our average total dividend paid each quarter would be approximately $8.2 million based on the current number of our outstanding shares (assuming no increases or decreases in the number of shares). From time to time, our Board has authorized stock repurchase plans.
Assuming continued payment during 2026 at this rate, our average total dividend paid each quarter would be approximately $8.2 million based on the current number of our outstanding shares (assuming no increases or decreases in the number of shares). From time to time, our Board has authorized stock repurchase plans.
The Company performed its annual goodwill impairment test during the fourth quarter of 2024 which consisted of a qualitative assessment and determined that it is more likely than not that the fair value of the reporting unit exceeded the carrying value, such that the Company's goodwill was not considered impaired for the year ended December 31, 2024.
The Company performed its annual goodwill impairment test during the fourth quarter of 2025 which consisted of a qualitative assessment and determined that it is more likely than not that the fair value of the reporting unit exceeded the carrying value, such that the Company's goodwill was not considered impaired for the year ended December 31, 2025.
Results of operations may also be significantly affected by general and local economic and competitive conditions, changes in accounting, tax and regulatory rules, governmental policies and actions of regulatory authorities, including changes resulting from inflation and the governmental actions taken to address this issue, as well as changes in policies driven by the new presidential administration.
Results of operations may also be significantly affected by general and local economic and competitive conditions, changes in accounting, tax and regulatory rules, governmental policies and actions of regulatory authorities, including changes resulting from inflation and the governmental actions taken to address this issue, as well as changes in policies driven by the current presidential administration.
For a discussion of 2023 results compared to 2022 results, refer to Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 27, 2024.
For a discussion of 2024 results compared to 2023 results, refer to Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 27, 2025.
In this qualitative assessment, the Company evaluates events and circumstances which may include, but are not limited to: the general economic environment; banking industry and market conditions; a significant adverse change in legal factors; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset group within the reporting unit; and an adverse action or assessment by a regulator.
In this qualitative assessment, the Company evaluates events and circumstances which may include, but are not limited to: the general economic environment; banking industry and market 48 Table of Contents conditions; a significant adverse change in legal factors; significant decline in our stock price and market capitalization; unanticipated competition; the testing for recoverability of a significant asset group within the reporting unit; and an adverse action or assessment by a regulator.
Under the stock repurchase program, the Company may 46 Table of Contents repurchase shares of common stock from time to time in open market or privately negotiated transactions. The number, timing and price of shares repurchased will depend on business and market conditions, regulatory requirements, availability of funds and other factors, including opportunities to deploy the Company's capital.
Under the stock repurchase program, the Company may repurchase shares of common stock from time to time in open market or privately negotiated transactions. The number, timing and price of shares repurchased will depend on business and market conditions, regulatory requirements, availability of funds and other factors, including opportunities to deploy the Company's capital.
At December 31, 2024, we had outstanding loan commitments of $1.18 billion, primarily relating to undisbursed loans in process and unused credit lines as discussed in Note (18) Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Form 10-K.
At December 31, 2025, we had outstanding loan commitments of $1.20 billion, primarily relating to undisbursed loans in process and unused credit lines as discussed in Note (18) Commitments and Contingencies of the Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Form 10-K.
Loan commitments represent potential growth in the loan portfolio and lending activities. The current level of commitments is proportionally consistent with our historical experience and does not represent a departure from traditional operations. As of December 31, 2024, we had $17.8 million of purchase obligations under contracts with our key vendors to provide services, mainly information technology related contracts.
Loan commitments represent potential growth in the loan portfolio and lending activities. The current level of commitments is proportionally consistent with our historical experience and does not represent a departure from traditional operations. As of December 31, 2025, we had $22.8 million of purchase obligations under contracts with our key vendors to provide services, mainly information technology related contracts.
Our core profitability depends primarily on our net interest income. Net interest income is the difference between interest income, which is the income that we earn on interest earning assets, consisting primarily of loans and investment securities, and interest expense, which is the amount we pay on our interest bearing liabilities, consisting primarily of deposits and borrowings.
Net interest income is the difference between interest income, which is the income that we earn on interest earning assets, consisting primarily of loans and investment securities, and interest expense, which is the amount we pay on our interest bearing liabilities, consisting primarily of deposits and borrowings.
No assurances can be given that any dividends will be paid on our common stock in future periods or that, if paid, such dividends will not be reduced in amount. Our current quarterly common stock dividend rate is $0.24 per share, as approved by our Board on January 22, 2025.
No assurances can be given that any dividends will be paid on our common stock in future periods or that, if paid, such dividends will not be reduced in amount. Our current quarterly common stock dividend rate is $0.24 per share, as approved by our Board on January 16, 2026.
In addition, as of December 31, 2024, we had $27.6 million of commitments under operating lease agreements. We maintain sufficient cash and cash equivalents and investment securities to meet short-term liquidity needs and also actively monitor our long-term liquidity position to ensure the availability of capital resources for contractual obligations, strategic loan growth objectives and to fund operations.
In addition, as of December 31, 2025, we had $25.3 million of commitments under operating lease agreements. We maintain sufficient cash and cash equivalents and investment securities to meet short-term liquidity needs and also actively monitor our long-term liquidity position to ensure the availability of capital resources for contractual obligations, strategic loan growth objectives and to fund operations.
During the year ended December 31, 2024, the Company incurred a pre-tax loss of $22.7 million on the sale of investment securities available for sale due to the aforementioned strategic repositioning of its investment portfolio.
During the year ended December 31, 2025, the Company incurred a pre-tax loss of $10.7 million on the sale of investment securities available for sale due to the aforementioned strategic repositioning of its investment portfolio.
Average yield/rate is annualized. (2) Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $3.6 million, $3.3 million and $7.4 million for the years ended December 31, 2024, 2023 and 2022, respectively.
(2) Average loans receivable, includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, includes the amortization of net deferred loan fees of $3.7 million, $3.6 million and $3.3 million for the years ended December 31, 2025, 2024 and 2023, respectively.
The Company's current stock repurchase program authorizes us to repurchase up to 5% of the Company's outstanding common shares, or 1,734,492 in total, of which 990,522 shares remained available for future repurchases as of December 31, 2024.
The Company's current stock repurchase program authorizes us to repurchase up to 5% of the Company's outstanding common shares, or 1,734,492 in total, of which 796,832 shares remained available for future repurchases as of December 31, 2025.
The Bank is subject to strict regulatory capital ratios, and may not be able to issue dividends to the Company in an amount sufficient to maintain our current or anticipated dividend practices.
The primary source of the Company's liquidity is dividends from the Bank to the Company. The Bank is subject to strict regulatory capital ratios, and may not be able to issue dividends to the Company in an amount sufficient to maintain our current or anticipated dividend practices.
The changes are discussed in more detail in the sections below. Investment Activities Overview Our investment policy is established by the Board and monitored by the Risk Committee of the Board. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring undue interest rate and credit risk, and complements the Company's lending activities.
Investment Activities Overview Our investment policy is established by the Board and monitored by the Risk Committee of the Board. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring undue interest rate and credit risk, and complements the Company's lending activities.
AOCI has no effect on our regulatory capital ratios as the Company opted to exclude it from its common equity tier 1 capital. Cash dividends and stock repurchases partially offset the increase in stockholders' equity during the year ended December 31, 2024.
Accumulated other comprehensive income (loss) has no effect on our regulatory capital ratios as the Company opted to exclude it from its common equity tier 1 capital. Cash dividends and stock repurchases partially offset the increase in stockholders' equity during the year ended December 31, 2025.
On April 24, 2024, the Board authorized the repurchase of up to 5% of the Company's outstanding common shares, or 1,734,492 shares in total, under a new stock repurchase program.
On April 24, 2024, the Board authorized the repurchase of up to 5% of the Company's outstanding common shares, or 1,734,492 shares in total.
The reversal of provision for credit losses on unfunded commitments recognized during the year ended December 31, 2024 was due primarily to an increase in utilization rates on lines of credit and a decrease in the unfunded exposure on construction loans.
The provision for credit losses on unfunded commitments recognized during the year ended December 31, 2025 was due primarily to a decrease in utilization rates on lines of credit, offset partially by an increase in the unfunded exposure on construction loans.
Management’s discussion focuses on 2024 results compared to 2023 results.
Management’s discussion focuses on 2025 results compared to 2024 results.
This decline was primarily driven by a pre-tax loss of $22.7 million incurred on the sale of investment securities available for sale during the year ended December 31, 2024, compared to a pre-tax loss of $12.2 million incurred during the same period in 2023.
This increase was primarily driven by a lower pre-tax loss of $10.7 million incurred on the sale of investment securities available for sale during the year ended December 31, 2025, compared to a pre-tax loss of $22.7 million incurred during the same period in 2024.
Total investment securities decreased $406.1 million to $1.47 billion at December 31, 2024 from $1.87 billion at December 31, 2023 due to sales of investment securities available for sale in connection with a strategic repositioning of the Company's investment portfolio, as well as maturities and repayments of $165.7 million, offset partially by purchases of investment securities available for sale.
Total investment securities decreased $186.1 million to $1.28 billion at December 31, 2025 from $1.47 billion at December 31, 2024 due to sales of investment securities available for sale in connection with a strategic repositioning of the Company's investment portfolio, as well as maturities and repayments of $153.8 million, offset partially by purchases of investment securities available for sale.
Market rates impact the results of the Company's net interest income, including the significant changes in the federal funds target rate that have been made by the Federal Reserve since 2022 in response to inflationary pressures.
Market rates impact the results of the Company's net interest income, including the changes in the federal funds target rate that have been made by the Federal Reserve.
Of this total, $291.5 million, or 51.5%, were owner-occupied CRE loans which have a lower risk profile as there is less tenant rollover risk, 81.0% have recourse to the owners and 24.6% of loans are borrowers in the health care and social assistance sectors, who are less likely to reduce office space.
Of this total, $288.9 million, or 49.1%, consisted of owner-occupied CRE loans which have a lower risk profile as there is less tenant rollover risk, 82.0% have recourse to the owners and 24.8% of loans are to borrowers in the health care and social assistance sectors, who are less likely to reduce office space.
Liquidity and Capital Resources Liquidity Liquidity refers to the Company’s ability to provide funds at an acceptable cost to meet loan demand and deposit withdrawals, as well as contingency plans to meet unanticipated funding needs or loss of funding sources. These objectives can be met from either our assets or liabilities.
Liquidity and Capital Resources Liquidity Liquidity refers to the Company’s ability to provide funds at an acceptable cost to meet loan demand and deposit withdrawals, as well as contingency plans to meet unanticipated funding needs or loss of funding sources.
At December 31, 2024, under these credit facilities based on pledged loan collateral, the Bank had $976.3 million of available credit capacity. The Bank had $383.0 million in outstanding borrowings from the FHLB at December 31, 2024, and none at December 31, 2023.
At December 31, 2025, under these credit facilities based on pledged loan collateral, the Bank had $1.3 billion of available credit capacity. The Bank had $20.0 million in outstanding borrowings from the FHLB at December 31, 2025, compared to $383.0 million in outstanding borrowings from the FHLB at December 31, 2024.
(2) Includes FHLB borrowing availability of $1.36 billion at December 31, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.22 billion. Capital Resources The Company pays dividends to its shareholders. The primary source of the Company's liquidity is dividends from the Bank to the Company.
(2) Includes FHLB borrowing availability of $1.31 billion at December 31, 2025 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.15 billion. 47 Table of Contents Capital Resources The Company pays dividends to its shareholders.
The provision for credit losses on loans of $7.0 million recognized during the year ended December 31, 2024 was due primarily to growth in balances of collectively evaluated loans and secondarily to $2.5 million in charge-offs.
The provision for credit losses on loans recognized during the year ended December 31, 2024 was due primarily to growth in balances of collectively evaluated loans.
Total stockholders' equity increased due primarily to net income as well as an increase in AOCI as a result of a decrease in other comprehensive income (loss), net of tax, which was positively impacted by the fair value of our investment securities available for sale as well as the sale of securities at a loss.
Total stockholders' equity increased due primarily to net income as well as a decrease in accumulated other comprehensive loss, which was positively impacted by the fair value of our investment securities available for sale as well as the sale of securities at a loss. The changes are discussed in more detail in the sections below.
Allowance for Credit Losses on Loans Overview The following table provides information regarding changes in our ACL on loans for the years indicated: At or For the Years Ended December 31, 2024 2023 2022 (Dollars in thousands) ACL on loans at the beginning of the period $ 47,999 $ 42,986 $ 42,361 Charge-offs: Commercial business (2,953) (719) (316) Residential real estate — — (30) Consumer (538) (586) (547) Total charge-offs (3,491) (1,305) (893) Recoveries: Commercial business 855 1,372 929 Residential real estate — — 3 Real estate construction and land development — — 384 Consumer 122 210 765 Total recoveries 977 1,582 2,081 Net (charge-offs) recoveries (2,514) 277 1,188 Provision for (reversal of) credit losses on loans 6,983 4,736 (563) ACL on loans at the end of period $ 52,468 $ 47,999 $ 42,986 44 Table of Contents At or For the Years Ended December 31, 2024 2023 2022 (Dollars in thousands) Credit quality ratios: ACL on loans to: Loans receivable 1.09 % 1.11 % 1.06 % Nonaccrual loans 1286.30 1074.28 727.84 Nonaccrual loans to loans receivable 0.08 % 0.10 % 0.15 % Balances at the end of the period: Loans receivable $ 4,802,123 $ 4,335,627 $ 4,050,858 Nonaccrual loans 4,079 4,468 5,906 Average balances outstanding during the period: (1) Commercial business $ 3,522,065 $ 3,289,564 $ 3,188,238 Residential real estate 399,857 369,297 250,780 Real estate construction and land development 446,713 362,919 242,528 Consumer 167,830 179,454 212,306 Total $ 4,536,465 $ 4,201,234 $ 3,893,852 Net charge-offs (recoveries) during the period to average balances outstanding during the period: 2024 2023 2022 Commercial business 0.06 % (0.02) % (0.02) % Residential real estate — — 0.01 Real estate construction and land development — — (0.16) Consumer 0.25 0.21 (0.10) Total 0.06 % (0.01) % (0.03) % (1) Average balances exclude the ACL on loans and loans held for sale, but include loans classified as nonaccrual.
Allowance for Credit Losses on Loans Overview The following table provides information regarding changes in our ACL on loans for the years indicated: At or For the Years Ended December 31, 2025 2024 2023 (Dollars in thousands) ACL on loans at the beginning of the period $ 52,468 $ 47,999 $ 42,986 Charge-offs: Commercial business (1,436) (2,953) (719) Residential real estate (27) — — Consumer (485) (538) (586) Total charge-offs (1,948) (3,491) (1,305) Recoveries: Commercial business 403 855 1,372 Residential real estate 1 — — Consumer 152 122 210 Total recoveries 556 977 1,582 Net (charge-offs) recoveries (1,392) (2,514) 277 Provision for credit losses on loans 1,508 6,983 4,736 ACL on loans at the end of period $ 52,584 $ 52,468 $ 47,999 Credit quality ratios: ACL on loans to: Loans receivable 1.10 % 1.09 % 1.11 % Nonaccrual loans 250.69 1286.30 1074.28 Nonaccrual loans to loans receivable 0.44 % 0.08 % 0.10 % Balances at the end of the period: Loans receivable $ 4,783,266 $ 4,802,123 $ 4,335,627 Nonaccrual loans 20,976 4,079 4,468 Average balances outstanding during the period: (1) Commercial business $ 3,788,025 $ 3,522,065 $ 3,289,564 Residential real estate 382,502 399,857 369,297 44 Table of Contents At or For the Years Ended December 31, 2025 2024 2023 (Dollars in thousands) Real estate construction and land development 433,049 446,713 362,919 Consumer 170,184 167,830 179,454 Total $ 4,773,760 $ 4,536,465 $ 4,201,234 Net charge-offs (recoveries) during the period to average balances outstanding during the period: 2025 2024 2023 Commercial business 0.03 % 0.06 % (0.02) % Residential real estate 0.01 — — Real estate construction and land development — — — Consumer 0.20 0.25 0.21 Total 0.03 % 0.06 % (0.01) % (1) Average balances exclude the ACL on loans and loans held for sale, but include loans classified as nonaccrual.
During the year ended December 31, 2024, financing activities used $86.5 million of funds resulting primarily from a decrease in short-term borrowings of $117.0 million, $31.8 million in dividend payments and $22.4 million in repurchases of common stock, offset partially by an increase in deposits of $84.7 million.
During the year ended December 31, 2025, financing activities used $165.6 million of funds resulting primarily from a decrease in short-term borrowings of $363.0 million, $32.6 million in dividend payments and $5.5 million in repurchases of common stock, offset partially by an increase in deposits of $235.6 million.
Net income decreased $18.5 million, or 30.0%, compared to the year ended December 31, 2023 due primarily to a decrease in net interest income of $15.8 million to $209.4 million from $225.2 million and an increase in losses on sales of investment securities of $10.5 million to $22.7 million from $12.2 million, largely as a result of investment portfolio repositioning, which decreased noninterest income.
Net income increased $24.3 million, or 56.1%, compared to the year ended December 31, 2024 due primarily to an increase in net interest income of $15.0 million to $224.4 million from $209.4 million and a decrease in losses on sales of investment securities of $12.0 million to $10.7 million from $22.7 million, largely as a result of a smaller amount of investment portfolio repositioning in 2025 compared to 2024, which increased noninterest income.
The total cost of interest bearing liabilities increased 87 basis points to 2.27% for the year ended December 31, 2024, compared to 1.40% for the year ended December 31, 2023. The net interest margin decreased 25 basis points to 3.33% for the year ended December 31, 2024 compared to 3.58% for the year ended December 31, 2023.
The total cost of interest bearing liabilities 36 Table of Contents decreased 23 basis points to 2.04% for the year ended December 31, 2025, compared to 2.27% for the year ended December 31, 2024. Net interest margin increased 27 basis points to 3.58% for the year ended December 31, 2025 compared to 3.31% for the year ended December 31, 2024.
The following table provides the estimated uninsured portion of certificates of deposit that are in excess of the FDIC insurance limit, by remaining time until maturity at December 31, 2024, by account, with a maturity of: (Dollars in thousands) Three months or less $ 141,310 Over three months through six months 172,544 Over six months through twelve months 54,050 Over twelve months 4,880 Total $ 372,784 Stockholders' Equity Overview The Company’s stockholders' equity to assets ratio was 12.2% and 11.9% at December 31, 2024 and 2023, respectively.
The following table provides the estimated uninsured portion of certificates of deposit that are in excess of the FDIC insurance limit, by remaining time until maturity at December 31, 2025, by account, with a maturity of: (Dollars in thousands) Three months or less $ 205,742 Over three months through six months 114,151 Over six months through twelve months 15,227 Over twelve months 1,704 Total $ 336,824 Stockholders' Equity Overview The Company’s stockholders' equity to assets ratio was 13.2% and 12.2% at December 31, 2025 and 2024, respectively.
The increase was primarily due to a 40 basis point increase in the yield on interest earning assets to 4.93% for the year ended December 31, 2024, compared to 4.53% for the year ended December 31, 2023 following increases in market interest rates and secondarily due to a change in the mix of earning assets to higher yielding loan balances.
The increase was primarily due to a 12 basis point increase in the yield on interest earning assets to 5.01% for the year ended December 31, 2025, compared to 4.89% for the year ended December 31, 2024 due primarily to a change in the mix of earning assets to higher yielding loan balances.
While management utilizes its best judgment and information available at the time of evaluation to recognize credit losses on loans, future additions to the allowance 48 Table of Contents may be necessary based on declines in local and national economic conditions or other factors.
While management utilizes its best judgment and information available at the time of evaluation to recognize credit losses on loans, future additions to the allowance may be necessary based on declines in local and national economic conditions or other factors. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL on loans.
The loss on the sale of investment securities in 2024 was a consequence of strategically repositioning the Company's investment portfolio, involving the sale of $296.4 million in investment securities, with the aim of enhancing future earnings. Card revenue declined due to lower deposit transaction volumes.
The loss on the sale of investment securities in 2025 was a consequence of strategically repositioning the Company's investment portfolio, involving the sale of $152.4 million in investment securities, with the aim of enhancing future earnings.
Our business consists primarily of commercial lending and deposit relationships with small- to medium-sized businesses and their owners in our market areas, as well as attracting deposits from the general public. We also make real estate construction and land development loans, consumer loans and residential real estate loans on single family properties located primarily in our markets.
Our business consists primarily of commercial lending and deposit relationships with small- to medium-sized businesses and their owners in our market areas, as well as attracting deposits from the general public.
Provision for Credit Losses Overview The aggregate of the provision for (reversal of) credit losses on loans and on unfunded commitments is presented in the Consolidated Statements of Income as the "Provision for (reversal of) credit losses." The ACL on unfunded commitments is included in the Consolidated Statements of Financial Condition within "Accrued expenses and other liabilities." The following table presents the provision for (reversal of) credit losses for the periods indicated: Year Ended December 31, Change 2024 2023 $ % (Dollars in thousands) Provision for credit losses on loans $ 6,983 $ 4,736 $ 2,247 47.4 % Reversal of provision for credit losses on unfunded commitments (701) (456) (245) 53.7 Provision for credit losses $ 6,282 $ 4,280 $ 2,002 46.8 % 37 Table of Contents The provision for credit losses on loans recognized during the year ended December 31, 2024 was due primarily to growth in balances of collectively evaluated loans.
Provision for Credit Losses Overview The aggregate of the provision for (reversal of) credit losses on loans and on unfunded commitments is presented in the Consolidated Statements of Income as the "Provision for credit losses." The ACL on unfunded commitments is included in the Consolidated Statements of Financial Condition within "Accrued expenses and other liabilities." The following table presents the provision for (reversal of) credit losses for the periods indicated: Year Ended December 31, Change 2025 2024 $ % (Dollars in thousands) Provision for credit losses on loans $ 1,508 $ 6,983 $ (5,475) (78.4) % Provision for (reversal of) credit losses on unfunded commitments 460 (701) 1,161 (165.6) Provision for credit losses $ 1,968 $ 6,282 $ (4,314) (68.7) % The provision for credit losses on loans recognized during the year ended December 31, 2025 was due primarily to $1.4 million in charge-offs recognized.
These lines of credit are intended to support short-term liquidity needs and the agreements may restrict consecutive day usage.
These lines of credit are intended to support short-term liquidity needs and the agreements may restrict consecutive day usage. Management believes it has adequate resources and funding potential to meet our foreseeable liquidity requirements.
The following table provides the changes to stockholders' equity during the periods indicated: Year Ended December 31, Change 2024 2023 $ % (Dollars in thousands) Balance, beginning of period $ 853,261 $ 797,893 $ 55,368 6.9 % Net income 43,258 61,755 (18,497) (30.0) Dividends declared (32,150) (31,112) (1,038) 3.3 Other comprehensive income (loss), net of tax 17,232 27,374 (10,142) (37.0) Common stock repurchased (22,418) (6,974) (15,444) 221.5 Stock-based compensation expense 4,344 4,325 19 0.4 Balance, end of period $ 863,527 $ 853,261 $ 10,266 1.2 % Stockholders' equity increased for the year ended December 31, 2024 primarily as a result of net income and an increase in AOCI as a result of a decrease in other comprehensive income (loss), net of tax, which was positively impacted by the fair value of our investment securities available for sale and losses recognized on investment sales.
The following table provides the changes to stockholders' equity during the periods indicated: Year Ended December 31, Change 2025 2024 $ % (Dollars in thousands) Balance, beginning of period $ 863,527 $ 853,261 $ 10,266 1.2 % Net income 67,532 43,258 24,274 56.1 Dividends declared (33,010) (32,150) (860) 2.7 Other comprehensive income, net of tax 24,029 17,232 6,797 39.4 Common stock repurchased (5,517) (22,418) 16,901 (75.4) Stock-based compensation expense 4,943 4,344 599 13.8 Balance, end of period $ 921,504 $ 863,527 $ 57,977 6.7 % Stockholders' equity increased for the year ended December 31, 2025 primarily as a result of net income and a decrease in other comprehensive loss, net of tax, which was positively impacted by the fair value of our investment securities available for sale and losses recognized on investment sales.
Commercial and industrial loans increased $124.4 million, or 17.3%, due primarily to new loan production of $232.5 million during the year ended December 31, 2024, offset by pay downs on outstanding balances.
Commercial and industrial loans decreased $24.7 million, or 2.9%, due primarily to pay downs on outstanding balances, partially offset by new loan production of $138.7 million during the year ended December 31, 2025.
Based on pledged investment collateral, the Bank had available lines of credit from the FRB of approximately $360.1 million as of December 31, 2024. The Bank had no outstanding borrowings from the FRB at December 31, 2024 and $500.0 million in outstanding borrowings under the BTFP at December 31, 2023.
In addition, the Bank has access to the FRB Discount Window. Based on pledged investment collateral, the Bank had available lines of credit from the FRB of approximately $346.3 million as of December 31, 2025. The Bank had no outstanding borrowings from the FRB at December 31, 2025 and December 31, 2024.
The Company also repurchased 31,850 and 32,792 shares during the years ended December 31, 2024 and December 31, 2023, respectively, which represented the cancellation of stock to pay withholding taxes on vested restricted stock awards or units. As of December 31, 2024, 990,522 shares remained available for future repurchases under the April 2024 stock repurchase program.
The Company also repurchased 42,098 and 31,850 shares during the years ended December 31, 2025 and December 31, 2024, respectively, which represented the cancellation of stock to pay withholding taxes on vested restricted stock awards or units.
Income Tax Expense Overview The following table presents the income tax expense and related metrics and the change for the periods indicated: Year Ended December 31, 2024 Compared to 2023 Change 2024 2023 $ % (Dollars in thousands) Income before income taxes $ 52,259 $ 72,915 $ (20,656) (28.3) % Income tax expense $ 9,001 $ 11,160 $ (2,159) (19.3) % Effective income tax rate 17.2 % 15.3 % 1.9 % 12.4 % Income tax expense decreased during the year ended December 31, 2024 primarily due to lower pre-tax income.
Income Tax Expense Overview The following table presents the income tax expense and related metrics and the change for the periods indicated: Year Ended December 31, 2025 Compared to 2024 Change 2025 2024 $ % (Dollars in thousands) Income before income taxes $ 78,603 $ 52,259 $ 26,344 50.4 % Income tax expense $ 11,071 $ 9,001 $ 2,070 23.0 % Effective income tax rate 14.1 % 17.2 % (3.1) % (18.0) % Income tax expense increased during the year ended December 31, 2025 due primarily to higher pre-tax income.
The following tables provide the changes in net interest income for the periods indicated due to changes in average asset and liability balances (volume), changes in average yields/rates (rate) and changes attributable to the combined effect of volume and rates allocated proportionately to the absolute value of changes due to volume and changes due to rates: Year Ended December 31, 2024 Compared to 2023 Increase (Decrease) Due to changes in Volume Yield/Rate Total (Dollars in thousands) Interest Earning Assets: Loans receivable, net $ 17,806 $ 12,382 $ 30,188 Taxable securities (9,099) 5,562 (3,537) Nontaxable securities (1,518) 315 (1,203) Interest earning deposits (252) 51 (201) Total interest income 6,937 18,310 25,247 Interest Bearing Liabilities: Certificates of deposit 13,871 8,497 22,368 Savings accounts (134) 353 219 Interest bearing demand and money market accounts (1,193) 14,325 13,132 Total interest bearing deposits 12,544 23,175 35,719 Junior subordinated debentures 28 37 65 Securities sold under agreement to repurchase (77) (76) (153) Borrowings 4,354 1,053 5,407 Total interest expense 16,849 24,189 41,038 Net interest income $ (9,912) $ (5,879) $ (15,791) 36 Table of Contents Year Ended December 31, 2023 Compared to 2022 Increase (Decrease) Due to changes in Volume Yield/Rate Total (Dollars in thousands) Interest Earning Assets: Loans receivable, net $ 14,429 $ 28,580 $ 43,009 Taxable securities 7,907 9,975 17,882 Nontaxable securities (2,063) 429 (1,634) Interest earning deposits (13,339) 11,090 (2,249) Total interest income 6,934 50,074 57,008 Interest Bearing Liabilities: Certificates of deposit 1,209 11,938 13,147 Savings accounts (70) 390 320 Interest bearing demand and money market accounts (470) 19,581 19,111 Total interest bearing deposits 669 31,909 32,578 Junior subordinated debentures 16 902 918 Securities sold under agreement to repurchase (46) 61 15 Borrowings 17,727 — 17,727 Total interest expense 18,366 32,872 51,238 Net interest income $ (11,432) $ 17,202 $ 5,770 Total interest income increased $25.2 million, or 8.9%, to $309.7 million for the year ended December 31, 2024 compared to $284.5 million for the year ended December 31, 2023.
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis. 35 Table of Contents The following tables provide the changes in net interest income for the periods indicated due to changes in average asset and liability balances (volume), changes in average yields/rates (rate) and changes attributable to the combined effect of volume and rates allocated proportionately to the absolute value of changes due to volume and changes due to rates: Year Ended December 31, 2025 Compared to 2024 Increase (Decrease) Due to changes in Volume Yield/Rate Total (Dollars in thousands) Interest Earning Assets: Loans receivable, net $ 13,045 $ 2,383 $ 15,428 Taxable securities (10,090) 84 (10,006) Nontaxable securities (106) 4 (102) Interest earning deposits 527 (1,323) (796) Total interest income 3,376 1,148 4,524 Interest Bearing Liabilities: Certificates of deposit 4,409 (5,065) (656) Savings accounts (54) 288 234 Interest bearing demand and money market accounts 2,272 2,417 4,689 Total interest bearing deposits 6,627 (2,360) 4,267 Junior subordinated debentures 28 (295) (267) Borrowings (12,731) (1,786) (14,517) Total interest expense (6,076) (4,441) (10,517) Net interest income $ 9,452 $ 5,589 $ 15,041 Year Ended December 31, 2024 Compared to 2023 Increase (Decrease) Due to changes in Volume Yield/Rate Total (Dollars in thousands) Interest Earning Assets: Loans receivable, net $ 17,806 $ 12,382 $ 30,188 Taxable securities (9,099) 5,562 (3,537) Nontaxable securities (1,518) 315 (1,203) Interest earning deposits (252) 51 (201) Total interest income 6,937 18,310 25,247 Interest Bearing Liabilities: Certificates of deposit 13,871 8,497 22,368 Savings accounts (134) 353 219 Interest bearing demand and money market accounts (1,193) 14,325 13,132 Total interest bearing deposits 12,544 23,175 35,719 Junior subordinated debentures 28 37 65 Securities sold under agreement to repurchase (77) (76) (153) Borrowings 4,354 1,053 5,407 Total interest expense 16,849 24,189 41,038 Net interest income $ (9,912) $ (5,879) $ (15,791) Total interest income increased $4.5 million, or 1.5%, to $314.2 million for the year ended December 31, 2025 compared to $309.7 million for the year ended December 31, 2024.
Unanticipated changes in any of these inputs could have a significant impact on our financial condition and results of operations. For additional information regarding the ACL on loans, its relation to the provision for credit losses and its risk related to asset quality and lending activity, see Item 1A.
For additional information regarding the ACL on loans, its relation to the provision for credit losses and its risk related to asset quality and lending activity, see Item 1A.
Management believes it has adequate resources and funding potential to meet our foreseeable liquidity requirements. 47 Table of Contents The following table summarizes the Company's available liquidity as of the dates indicated: December 31, 2024 December 31, 2023 (Dollars in thousands) On-balance sheet liquidity Cash and cash equivalents $ 117,100 $ 224,973 Unencumbered investment securities available for sale (1) 746,163 756,258 Total on-balance sheet liquidity $ 863,263 $ 981,231 Off-balance sheet liquidity FRB borrowing availability $ 360,104 $ 319,492 FHLB borrowing availability (2) 976,288 1,417,518 Fed funds line borrowing availability with correspondent banks 145,000 145,000 Total off-balance sheet liquidity $ 1,481,392 $ 1,882,010 Total available liquidity $ 2,344,655 $ 2,863,241 (1) Investment securities available for sale at fair value.
The following table summarizes the Company's available liquidity as of the dates indicated: December 31, 2025 December 31, 2024 (Dollars in thousands) On-balance sheet liquidity Cash and cash equivalents $ 233,089 $ 117,100 Unencumbered investment securities available for sale (1) 606,968 746,163 Total on-balance sheet liquidity $ 840,057 $ 863,263 Off-balance sheet liquidity FRB borrowing availability $ 346,307 $ 360,104 FHLB borrowing availability (2) 1,285,640 976,288 Fed funds line borrowing availability with correspondent banks 145,000 145,000 Total off-balance sheet liquidity $ 1,776,947 $ 1,481,392 Total available liquidity $ 2,617,004 $ 2,344,655 (1) Investment securities available for sale at fair value.
Noninterest Income Overview The following table presents the change in the key components of noninterest income for the periods indicated: Year Ended December 31, Change 2024 2023 $ % (Dollars in thousands) Service charges and other fees $ 11,285 $ 10,966 $ 319 2.9 % Card revenue 7,752 8,340 (588) (7.1) Loss on sale of investment securities, net (22,742) (12,231) (10,511) 85.9 Gain on sale of loans, net 26 343 (317) (92.4) Interest rate swap fees 409 230 179 77.8 Bank owned life insurance income 2,967 2,934 33 1.1 Gain on sale of other assets, net 1,552 2 1,550 77,500.0 Other income 6,224 8,079 (1,855) (23.0) Total noninterest income $ 7,473 $ 18,663 $ (11,190) (60.0) % Nonintere st income decreased $11.2 million, or 60.0%, during the year ended December 31, 2024 compared to the same period in 2023.
Noninterest Income Overview The following table presents the change in the key components of noninterest income for the periods indicated: Year Ended December 31, Change 2025 2024 $ % (Dollars in thousands) Service charges and other fees $ 12,005 $ 11,285 $ 720 6.4 % Card revenue 7,742 7,752 (10) (0.1) Loss on sale of investment securities, net (10,741) (22,742) 12,001 (52.8) Gain on sale of loans, net — 26 (26) (100.0) Interest rate swap fees 496 409 87 21.3 BOLI income 4,378 2,967 1,411 47.6 Gain on sale of other assets, net 8 1,552 (1,544) (99.5) Other income 7,844 6,224 1,620 26.0 Total noninterest income $ 21,732 $ 7,473 $ 14,259 190.8 % Nonintere st income in creased $14.3 million, or 190.8%, during the year ended December 31, 2025 compared to the same period in 2024.
Under these derivative contract arrangements, the Company effectively earns a variable rate of interest based on the one-month SOFR plus a margin, except for interest rate swap contracts on construction loans that earn fixed rates until the end of the construction period and the variable rate swap becomes effective.
Under these derivative contract arrangements, the Company effectively earns a variable rate of interest based on the one-month SOFR plus a margin.
Net increases in loan balances from both loan originations and purchases used $464.6 million of cash, while investment securities sales and maturities, net of purchases provided $406.2 million in cash. Liquidity may also be affected by liabilities as a result of changes in deposits and borrowings. These activities are included in financing activities in the Consolidated Statements of Cash Flows.
Liquidity may also be affected by liabilities as a result of changes in deposits and borrowings. These activities are included in financing activities in the Consolidated Statements of Cash Flows.
This decrease was partially offset by additional tax expense of $2.4 million related to the surrender of certain BOLI policies as part of a BOLI restructuring which occurred in the fourth quarter of 2024. The effective income tax rate increased due primarily to the additional tax expense related to the surrender of BOLI policies.
The Company also incurred additional tax expense of $2.4 million related to the surrender of certain BOLI policies as part of a BOLI restructuring in the fourth quarter of 2024.
The Company repurchased 1,051,760 and 330,424 shares of its common stock under the Company's stock repurchase plan during the years ended December 31, 2024 and December 31, 2023, respectively.
The Company repurchased 193,690 and 1,051,760 shares of its common stock under the its stock repurchase plan during the years ended December 31, 2025 and December 31, 2024, respectively. As of December 31, 2025, 796,832 shares remained available for future repurchases under the April 2024 stock repurchase program.
Total deposits include uninsured deposits of approximately $2.27 billion and $2.10 billion at December 31, 2024 and 2023, respectively, calculated in accordance with FDIC guidelines. Uninsured deposits included $267.8 million and $256.4 of fully collateralized deposits as of December 31, 2024 and December 31, 2023. The Bank does not hold any foreign deposits.
Uninsured deposits included $286.4 million and $267.8 million of fully collateralized deposits as of December 31, 2025 and December 31, 2024, respectively. The Bank does not hold any foreign deposits.
The following table presents the ACL on loans by loan portfolio segment at the indicated dates: December 31, 2024 December 31, 2023 ACL on Loans ACL as a % of Loans in Loan Category % of Loans in Loan Category to Total Loans ACL on Loans ACL as a % of Loans in Loan Category % of Loans in Loan Category to Total Loans (Dollars in thousands) Commercial business $ 38,293 1.02 % 78.3 % $ 31,303 0.93 % 77.8 % Residential real estate 3,464 0.86 8.4 3,473 0.93 8.7 Real estate construction and land development 8,656 1.81 9.9 10,876 2.62 9.5 Consumer 2,055 1.25 3.4 2,347 1.37 4.0 Total ACL on loans $ 52,468 1.09 % 100.0 % $ 47,999 1.11 % 100.0 % 45 Table of Contents Deposits Overview The following table summarizes the Company's deposits at the dates indicated: December 31, 2024 December 31, 2023 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Noninterest demand deposits $ 1,654,955 29.1 % $ 1,715,847 30.6 % $ (60,892) (3.5) % Interest bearing demand deposits 1,464,129 25.8 1,608,745 28.7 (144,616) (9.0) Money market accounts 1,166,901 20.5 1,094,351 19.5 72,550 6.6 Savings accounts 421,377 7.4 487,956 8.7 (66,579) (13.6) Total non-maturity deposits 4,707,362 82.8 4,906,899 87.5 (199,537) (4.1) Certificates of deposit 977,251 17.2 692,973 12.5 284,278 41.0 Total deposits $ 5,684,613 100.0 % $ 5,599,872 100.0 % $ 84,741 1.5 % Total deposits increased $84.7 million, or 1.5%, to $5.68 billion at December 31, 2024, compared to $5.60 billion at December 31, 2023.
The following table presents the ACL on loans by loan portfolio segment at the indicated dates: December 31, 2025 December 31, 2024 ACL on Loans ACL as a % of Loans in Loan Category % of Loans in Loan Category to Total Loans ACL on Loans ACL as a % of Loans in Loan Category % of Loans in Loan Category to Total Loans (Dollars in thousands) Commercial business $ 39,412 1.01 % 81.7 % $ 38,293 1.02 % 78.3 % Residential real estate 3,708 1.03 7.5 3,464 0.86 8.4 Real estate construction and land development 7,624 2.22 7.2 8,656 1.81 9.9 Consumer 1,840 1.08 3.6 2,055 1.25 3.4 Total ACL on loans $ 52,584 1.10 % 100.0 % $ 52,468 1.09 % 100.0 % Deposits Overview The following table summarizes the Company's deposits at the dates indicated: December 31, 2025 December 31, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Noninterest demand deposits $ 1,597,650 27.0 % $ 1,654,955 29.1 % $ (57,305) (3.5) % Interest bearing demand deposits 1,627,259 27.5 1,464,129 25.8 163,130 11.1 Money market accounts 1,334,904 22.5 1,166,901 20.5 168,003 14.4 Savings accounts 422,523 7.1 421,377 7.4 1,146 0.3 Total non-maturity deposits 4,982,336 84.1 4,707,362 82.8 274,974 5.8 Certificates of deposit 937,863 15.9 977,251 17.2 (39,388) (4.0) Total deposits $ 5,920,199 100.0 % $ 5,684,613 100.0 % $ 235,586 4.1 % Total deposits increased $235.6 million, or 4.1%, to $5.92 billion at December 31, 2025, compared to $5.68 billion at December 31, 2024.
Financial Condition Overview The table below provides a comparison of changes in key components of the Company's financial condition for the periods indicated: December 31, Change 2024 2023 $ % (Dollars in thousands) Assets Cash and cash equivalents $ 117,100 $ 224,973 $ (107,873) (47.9) % Investment securities available for sale, at fair value, net 764,394 1,134,353 (369,959) (32.6) Investment securities held to maturity, at amortized cost, net 703,285 739,442 (36,157) (4.9) Loans receivable, net 4,749,655 4,287,628 462,027 10.8 Premises and equipment, net 71,580 74,899 (3,319) (4.4) Federal Home Loan Bank stock, at cost 21,538 4,186 17,352 414.5 Bank owned life insurance 111,699 125,655 (13,956) (11.1) Accrued interest receivable 19,483 19,518 (35) (0.2) Prepaid expenses and other assets 303,452 318,571 (15,119) (4.7) Other intangible assets, net 3,153 4,793 (1,640) (34.2) Goodwill 240,939 240,939 — — Total assets $ 7,106,278 $ 7,174,957 $ (68,679) (1.0) % Liabilities and Stockholders' Equity Total deposits 5,684,613 5,599,872 $ 84,741 1.5 Borrowings 383,000 500,000 (117,000) (23.4) Junior subordinated debentures 22,058 21,765 293 1.3 Accrued expenses and other liabilities 153,080 200,059 (46,979) (23.5) Total liabilities 6,242,751 6,321,696 (78,945) (1.2) 39 Table of Contents December 31, Change 2024 2023 $ % Common stock 531,674 549,748 (18,074) (3.3) Retained earnings 387,097 375,989 11,108 3.0 Accumulated other comprehensive loss, net (55,244) (72,476) 17,232 (23.8) Total stockholders' equity 863,527 853,261 10,266 1.2 Total liabilities and stockholders' equity $ 7,106,278 $ 7,174,957 $ (68,679) (1.0) % Total assets decreased due primarily to decreases in investment securities and cash and cash equivalents offset partially by an increase in loans receivable.
Financial Condition Overview The table below provides a comparison of changes in key components of the Company's financial condition for the periods indicated: December 31, Change 2025 2024 $ % (Dollars in thousands) Assets Cash and cash equivalents $ 233,089 $ 117,100 $ 115,989 99.1 % Investment securities available for sale, at fair value, net 607,522 764,394 (156,872) (20.5) Investment securities held to maturity, at amortized cost, net 674,107 703,285 (29,178) (4.1) Loans receivable, net 4,730,682 4,749,655 (18,973) (0.4) 38 Table of Contents December 31, Change 2025 2024 $ % Premises and equipment, net 74,690 71,580 3,110 4.3 Federal Home Loan Bank stock, at cost 5,163 21,538 (16,375) (76.0) Bank owned life insurance 105,974 111,699 (5,725) (5.1) Accrued interest receivable 19,280 19,483 (203) (1.0) Prepaid expenses and other assets 273,925 303,452 (29,527) (9.7) Other intangible assets, net 1,979 3,153 (1,174) (37.2) Goodwill 240,939 240,939 — — Total assets $ 6,967,350 $ 7,106,278 $ (138,928) (2.0) % Liabilities and Stockholders' Equity Total deposits 5,920,199 5,684,613 $ 235,586 4.1 Borrowings 20,000 383,000 (363,000) (94.8) Junior subordinated debentures 22,350 22,058 292 1.3 Accrued expenses and other liabilities 83,297 153,080 (69,783) (45.6) Total liabilities 6,045,846 6,242,751 (196,905) (3.2) Common stock 531,100 531,674 (574) (0.1) Retained earnings 421,619 387,097 34,522 8.9 Accumulated other comprehensive loss, net (31,215) (55,244) 24,029 (43.5) Total stockholders' equity 921,504 863,527 57,977 6.7 Total liabilities and stockholders' equity $ 6,967,350 $ 7,106,278 $ (138,928) (2.0) % Total assets decreased due primarily to decreases in investment securities offset partially by an increase in cash and cash equivalents.
The ACL on loans to loans receivable decreased to 1.09% as December 31, 2024, compared to 1.11% at December 31, 2023 due to changes in the loan mix as loan growth occurred in segments requiring a lower calculated reserve as a percentage of loans as well as a reduction in the baseline loss rates applied and weighted average life of the residential real estate and real estate construction and land development segments which contributed to a decrease in the ACL as a % of loans in these loan segments.
The ACL on loans to loans receivable increased to 1.10% at December 31, 2025, compared to 1.09% at December 31, 2024 primarily to an increase in the weighted average life of residential real estate and real estate construction and land development loans which increased the ACL as a percentage of loans in these segments.
Loan Portfolio Overview 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.
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 owner occupied CRE and non-owner occupied CRE loans by collateral type at the dates indicated: December 31, 2024 December 31, 2023 Change Amortized Cost % of CRE Loans Amortized Cost % of CRE Loans $ % (Dollars in thousands) Owner occupied and non-owner occupied CRE loans by collateral type: Office $ 565,892 19.4 % $ 555,822 20.9 % $ 10,070 1.8 % Industrial 513,615 17.6 418,651 15.8 94,964 22.7 Multi-family 414,728 14.2 305,499 11.5 109,229 35.8 Retail store / shopping center 304,562 10.5 285,926 10.8 18,636 6.5 Mini-storage 161,390 5.5 171,778 6.5 (10,388) (6.0) Mixed use property 156,627 5.4 154,674 5.8 1,953 1.3 Warehouse 139,341 4.8 149,176 5.6 (9,835) (6.6) Motel / hotel 165,420 5.7 142,172 5.4 23,248 16.4 Single purpose 125,430 4.3 123,344 4.6 2,086 1.7 Recreational / school 68,416 2.3 67,791 2.6 625 0.9 Other 296,929 10.3 281,361 10.5 15,568 5.5 Total $ 2,912,350 100.0 % $ 2,656,194 100.0 % $ 256,156 9.6 % Office loans represented the l argest segment of owner-occupied and non-owner occupied CRE loans totaling $565.9 million, or 19.4% of the total owner-occupied CRE and non-owner occupied CRE at December 31, 2024.
The following table provides information about owner occupied CRE and non-owner occupied CRE loans by collateral type at the dates indicated: December 31, 2025 December 31, 2024 Change Amortized Cost % of CRE Loans Amortized Cost % of CRE Loans $ % (Dollars in thousands) Owner occupied and non-owner occupied CRE loans by collateral type: Office $ 588,772 19.0 % $ 565,892 19.4 % $ 22,880 4.0 % Industrial 541,664 17.5 513,615 17.6 28,049 5.5 Multi-family 520,602 16.8 414,728 14.2 105,874 25.5 Retail store / shopping center 338,939 11.0 304,562 10.5 34,377 11.3 Mini-storage 155,130 5.0 161,390 5.5 (6,260) (3.9) Mixed use property 156,853 5.1 156,627 5.4 226 0.1 Warehouse 133,544 4.3 139,341 4.8 (5,797) (4.2) Motel / hotel 124,612 4.0 165,420 5.7 (40,808) (24.7) Single purpose 134,290 4.3 125,430 4.3 8,860 7.1 41 Table of Contents December 31, 2025 December 31, 2024 Change Amortized Cost % of CRE Loans Amortized Cost % of CRE Loans $ % (Dollars in thousands) Recreational / school 83,047 2.7 68,416 2.3 14,631 21.4 Other 315,220 10.3 296,929 10.3 18,291 6.2 Total $ 3,092,673 100.0 % $ 2,912,350 100.0 % $ 180,323 6.2 % Office loans represented the l argest segment of owner-occupied and non-owner occupied CRE loans totaling $588.8 million, or 19.0% of the total owner-occupied CRE and non-owner occupied CRE at December 31, 2025.
Asset liquidity sources consist of the repayments and maturities of loans, sales of loans, maturities of investment securities and sales of investment securities available for sale. These activities are generally included as investing activities in the Consolidated Statements of Cash Flows. Net cash used by investing activities was $85.9 million during the year ended December 31, 2024.
These objectives can be met from either our assets or liabilities. 46 Table of Contents Asset liquidity sources consist of the repayments and maturities of loans, sales of loans, maturities of investment securities and sales of investment securities available for sale. These activities are generally included as investing activities in the Consolidated Statements of Cash Flows.
The following table provides information regarding our investment securities at the dates indicated: December 31, 2024 December 31, 2023 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Investment securities available for sale, at fair value: U.S. government and agency securities $ 12,544 0.9 % $ 13,750 0.7 % $ (1,206) (8.8) % Municipal securities 50,942 3.5 79,525 4.2 (28,583) (35.9) Residential CMO and MBS (1) 369,331 25.2 512,049 27.3 (142,718) (27.9) Commercial CMO and MBS (1) 309,741 21.0 504,258 27.0 (194,517) (38.6) Corporate obligations 11,770 0.8 7,613 0.4 4,157 54.6 Other asset-backed securities 10,066 0.7 17,158 0.9 (7,092) (41.3) Total 764,394 52.1 1,134,353 60.5 (369,959) (32.6) Investment securities held to maturity, at amortized cost: U.S. government and agency securities $ 151,216 10.3 % $ 151,075 8.1 % $ 141 0.1 Residential CMO and MBS (1) 244,309 16.6 267,204 14.3 (22,895) (8.6) Commercial CMO and MBS (1) 307,760 21.0 321,163 17.1 (13,403) (4.2) Total 703,285 47.9 739,442 39.5 (36,157) (4.9) Total investment securities $ 1,467,679 100.0 % $ 1,873,795 100.0 % $ (406,116) (21.7) % (1) U.S. government agency and government-sponsored enterprise CMO and MBS obligations.
The following table provides information regarding our investment securities at the dates indicated: December 31, 2025 December 31, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Investment securities available for sale, at fair value: U.S. government and agency securities $ 11,702 0.9 % $ 12,544 0.9 % $ (842) (6.7) % Municipal securities 51,423 4.0 50,942 3.5 481 0.9 Residential CMO and MBS (1) 275,268 21.5 369,331 25.2 (94,063) (25.5) Commercial CMO and MBS (1) 252,164 19.7 309,741 21.0 (57,577) (18.6) Corporate obligations 10,532 0.8 11,770 0.8 (1,238) (10.5) Other asset-backed securities 6,433 0.5 10,066 0.7 (3,633) (36.1) Total 607,522 47.4 764,394 52.1 (156,872) (20.5) 39 Table of Contents December 31, 2025 December 31, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Investment securities held to maturity, at amortized cost: U.S. government and agency securities $ 151,319 11.8 % $ 151,216 10.3 % $ 103 0.1 Residential CMO and MBS (1) 217,707 17.0 244,309 16.6 (26,602) (10.9) Commercial CMO and MBS (1) 305,081 23.8 307,760 21.0 (2,679) (0.9) Total 674,107 52.6 703,285 47.9 (29,178) (4.1) Total investment securities $ 1,281,629 100.0 % $ 1,467,679 100.0 % $ (186,050) (12.7) % (1) U.S. government agency and government-sponsored enterprise CMO and MBS obligations.
Noninterest Expense Overview The following table presents changes in the key components of noninterest expense for the periods indicated: Year Ended December 31, Change 2024 2023 $ % (Dollars in thousands) Compensation and employee benefits $ 98,527 $ 100,083 $ (1,556) (1.6) % Occupancy and equipment 19,289 19,156 133 0.7 Data processing 14,899 17,116 (2,217) (13.0) Marketing 988 1,930 (942) (48.8) Professional services 2,515 4,227 (1,712) (40.5) State/municipal business and use tax 4,889 4,059 830 20.4 Federal deposit insurance premium 3,260 3,312 (52) (1.6) Amortization of intangible assets 1,640 2,434 (794) (32.6) Other expense 12,289 14,306 (2,017) (14.1) Total noninterest expense $ 158,296 $ 166,623 $ (8,327) (5.0) % 38 Table of Contents Noninterest expense decreased $8.3 million, or 5.0%, during the year ended December 31, 2024 compared to the same period in 2023.
These increases were partially offset by a decrease in the gain on sale of other assets, net due to a $1.5 million gain on the sale of an administrative building recognized during the year ended December 31, 2024. 37 Table of Contents Noninterest Expense Overview The following table presents changes in the key components of noninterest expense for the periods indicated: Year Ended December 31, Change 2025 2024 $ % (Dollars in thousands) Compensation and employee benefits $ 104,023 $ 98,527 $ 5,496 5.6 % Occupancy and equipment 18,881 19,289 (408) (2.1) Data processing 14,998 14,899 99 0.7 Marketing 1,251 988 263 26.6 Professional services 4,258 2,515 1,743 69.3 State/municipal business and use tax 4,907 4,889 18 0.4 Federal deposit insurance premium 3,207 3,260 (53) (1.6) Amortization of intangible assets 1,174 1,640 (466) (28.4) Other expense 12,867 12,289 578 4.7 Total noninterest expense $ 165,566 $ 158,296 $ 7,270 4.6 % Noninterest expense increased $7.3 million, or 4.6%, during the year ended December 31, 2025 compared to the same period in 2024.
The following table provides information about our loan portfolio by type of loan at the dates indicated: December 31, 2024 December 31, 2023 Change Amortized Cost % of Loans Receivable Amortized Cost % of Loans Receivable $ % (Dollars in thousands) Commercial business: Commercial and industrial $ 842,672 17.5 % $ 718,291 16.6 % $ 124,381 17.3 % Owner-occupied CRE 1,003,243 20.9 958,620 22.1 44,623 4.7 Non-owner occupied CRE 1,909,107 39.9 1,697,574 39.1 211,533 12.5 Total commercial business 3,755,022 78.3 3,374,485 77.8 380,537 11.3 Residential real estate 402,954 8.4 375,342 8.7 27,612 7.4 Real estate construction and land development: Residential 83,890 1.7 78,610 1.8 5,280 6.7 Commercial and multifamily 395,553 8.2 335,819 7.7 59,734 17.8 Total real estate construction and land development 479,443 9.9 414,429 9.5 65,014 15.7 Consumer 164,704 3.4 171,371 4.0 (6,667) (3.9) Total $ 4,802,123 100.0 % $ 4,335,627 100.0 % $ 466,496 10.8 % Loans receivable increased $466.5 million, or 10.8%, to $4.80 billion at December 31, 2024 from $4.34 billion at December 31, 2023.
The following table provides information about our loan portfolio by type of loan at the dates indicated: December 31, 2025 December 31, 2024 Change Amortized Cost % of Loans Receivable Amortized Cost % of Loans Receivable $ % (Dollars in thousands) Commercial business: Commercial and industrial $ 818,000 17.1 % $ 842,672 17.5 % $ (24,672) (2.9) % Owner-occupied CRE 1,034,829 21.6 1,003,243 20.9 31,586 3.1 Non-owner occupied CRE 2,057,844 43.0 1,909,107 39.9 148,737 7.8 Total commercial business 3,910,673 81.7 3,755,022 78.3 155,651 4.1 Residential real estate 358,834 7.5 402,954 8.4 (44,120) (10.9) Real estate construction and land development: Residential 95,350 2.0 83,890 1.7 11,460 13.7 Commercial and multifamily 247,975 5.2 395,553 8.2 (147,578) (37.3) Total real estate construction and land development 343,325 7.2 479,443 9.9 (136,118) (28.4) Consumer 170,434 3.6 164,704 3.4 5,730 3.5 Total $ 4,783,266 100.0 % $ 4,802,123 100.0 % $ (18,857) (0.4) % Loans receivable decreased $18.9 million, or 0.4%, to $4.78 billion at December 31, 2025 from $4.80 billion at December 31, 2024.
Net income is also impacted by growth of operations through organic growth or acquisitions. See also "Cautionary Note Regarding Forward-Looking Statements." Results of Operations Net income was $43.3 million, or $1.24 per diluted common share, for the year ended December 31, 2024 down from $61.8 million, or $1.75 per diluted common share, for the year ended December 31, 2023.
Results of Operations Net income was $67.5 million, or $1.96 per diluted common share, for the year ended December 31, 2025 up from $43.3 million, or $1.24 per diluted common share, for the year ended December 31, 2024.
Commercial and multifamily construction loans increased $59.7 million, or 17.8%, during the year ended December 31, 2024 due primarily to new loan commitments of $149.3 million and advances on new and outstanding commitments. Residential real estate loans increased $27.6 million, or 7.4%, due primarily to loan purchases during the year ended December 31, 2024.
The Company did not originate or purchase residential real estate loans during the year ended December 31, 2025. Residential construction loans increased $11.5 million, or 13.7%, due primarily to new loan production and advances on current loans.
Total interest expense increased $41.0 million, or 69.2%, to $100.3 million for the year ended December 31, 2024 compared to $59.3 million for the year ended December 31, 2023 due primarily to increased costs of interest bearing deposits resulting from competitive rate pressures as well as customers transferring balances from non-maturity deposits to higher rate certificates of deposits and an increase in borrowing balances and rates.
Total interest expense decreased $10.5 million, or 10.5%, to $89.8 million for the year ended December 31, 2025 compared to $100.3 million for the year ended December 31, 2024 due primarily to a decrease in borrowing rates and average balances, offset partially by an increase in average balances of interest bearing deposits.
Loans classified as nonaccrual, performing modified loans and nonperforming assets The following tables provide information about our nonaccrual loans, performing modified loans and nonperforming assets at the dates indicated: Change December 31, 2024 December 31, 2023 $ % (Dollars in thousands) Nonaccrual loans: (1) Commercial business $ 3,919 $ 4,468 $ (549) (12.3) % Consumer 160 — 160 100.0 Total nonaccrual loans 4,079 4,468 (389) (8.7) Accruing loans past due 90 days or more 1,195 1,293 (98) (7.6) Total nonperforming loans 5,274 5,761 (487) (8.5) Other real estate owned — — — — Total nonperforming assets $ 5,274 $ 5,761 $ (487) (8.5) % Credit quality ratios: Nonaccrual loans to loans receivable 0.08 % 0.10 % (0.02) % (20.0) % Nonperforming loans to loans receivable 0.11 0.13 (0.02) (15.4) Nonperforming assets to total assets 0.07 0.08 (0.01) (12.5) (1) At December 31, 2024 and December 31, 2023, $1.0 million, and $3.2 million, respectively, of nonaccrual loans were guaranteed by government agencies. 43 Table of Contents Year Ended December 31, Change 2024 2023 $ % (Dollars in thousands) Modified loans: Commercial business $ 21,162 $ 19,969 $ 1,193 6.0 % Real estate construction and land development 28,030 9,643 18,387 190.7 Consumer 44 41 3 7.3 Total performing modified loans $ 49,236 $ 29,653 $ 19,583 66.0 % The following table provides the changes in nonaccrual loans during the periods indicated: Year Ended December 31, Change 2024 2023 $ % (Dollars in thousands) Balance, beginning of period $ 4,468 $ 5,906 $ (1,438) (24.3) % Additions 6,292 3,057 3,235 105.8 Net principal payments, sales and transfers to accruing status (1,175) (1,508) 333 (22.1) Payoffs (2,733) (2,987) 254 (8.5) Charge-offs (2,773) — (2,773) 100.0 Balance, end of period $ 4,079 $ 4,468 $ (389) (8.7) % Nonaccrual loans decreased $0.4 million, or 8.7%, due primarily to ongoing collection efforts.
Loans classified as nonaccrual, performing modified loans and nonperforming assets The following tables provide information about our nonaccrual loans, nonperforming assets and performing modified loans at the dates indicated: Change December 31, 2025 December 31, 2024 $ % (Dollars in thousands) Nonaccrual loans: (1) Commercial business $ 6,886 $ 3,919 $ 2,967 75.7 % Residential real estate 1,196 — 1,196 100.0 Real estate construction and land development 12,408 — 12,408 100.0 Consumer 486 160 326 203.8 Total nonaccrual loans 20,976 4,079 16,897 414.2 Accruing loans past due 90 days or more 194 1,195 (1,001) (83.8) Total nonperforming loans 21,170 5,274 15,896 301.4 Other real estate owned — — — — Total nonperforming assets $ 21,170 $ 5,274 $ 15,896 301.4 % Credit quality ratios: Nonaccrual loans to loans receivable 0.44 % 0.08 % 0.36 % 450.0 % Nonperforming loans to loans receivable 0.44 0.11 0.33 300.0 Nonperforming assets to total assets 0.30 0.07 0.23 328.6 (1) At December 31, 2025 and December 31, 2024, $2.4 million, and $1.0 million, respectively, of nonaccrual loans were guaranteed by government agencies.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL on loans. Such agencies may require the Company make adjustments to the allowance based on their interpretation of information available to them at the time of their examinations.
Such agencies may require the Company make adjustments to the allowance based on their interpretation of information available to them at the time of their examinations. Unanticipated changes in any of these inputs could have a significant impact on our financial condition and results of operations.
The decrease in net interest margin was due primarily to increases in the average cost of interest bearing liabilities as a result of upward market pressure related to deposit rates and an increase in borrowing balances and rates.
The increase in net interest margin was due primarily to an increase in average yields on total interest earning assets, including a change in mix of assets to higher yielding loans from lower yielding investments and interest earning deposits and a decrease in the average cost of interest bearing liabilities .
The Company sold $296.4 million in investment securities with an estimated weighted average book yield of 2.23% and purchased $33.1 million of investment securities with an estimated weighted average book yield of 6.05%.
The Company sold $152.4 million in investment securities with an estimated weighted average book yield of 2.62% and purchased $88.2 million of investment securities with an estimated weighted average book yield of 4.89%. The remaining proceeds were used for other balance sheet initiatives such as the funding of higher yielding loan growth.
New loans funded in the year ended December 31, 2024 totaled $626.2 million and loan prepayments were $176.7 million. 41 Table of Contents Non-owner occupied CRE loans increased $211.5 million, or 12.5%, due primarily to new loan production during the year ended December 31, 2024 and advances on outstanding commitments.
Owner-occupied CRE loans increased $31.6 million, or 3.1%, due to new loan production of $137.2 million during the year ended December 31, 2025, partially offset by pay downs on outstanding balances.
Owner-occupied CRE and non-owner occupied CRE loans increased $256.2 million to $2.91 billion at December 31, 2024 compared to $2.66 billion at December 31, 2023 .
Commercial and multifamily construction loans decreased $147.6 million, or 37.3%, during the year ended December 31, 2025 due primarily to transfers to non-owner occupied CRE loans and paydowns on outstanding balances. Owner-occupied CRE and non-owner occupied CRE loans increased $180.3 million to $3.09 billion at December 31, 2025 compared to $2.91 billion at December 31, 2024 .
The average individual loan balance of owner-occupied CRE and non-owner occupied CRE was $1.3 million at December 31, 2024. See also Item 1. Business - Commercial Business Lending of this Form 10-K for CRE underwriting standards.
Multi-family loans increased $105.9 million, or 25.5% to $520.6 million from $414.7 million December 31, 2024 due primarily to conversion of multi-family construction loans to permanent loans. The average individual loan balance of owner-occupied CRE and non-owner occupied CRE was $1.4 million at December 31, 2025. See also Item 1.
The remaining proceeds were used for other balance sheet initiatives such as the funding of higher yielding loan growth. 40 Table of Contents The following table provides the weighted average yield of the Company's investment portfolio at December 31, 2024 calculated based upon the fair values of our investment securities available for sale and held to maturity, and excluding any income tax benefits of tax-exempt bonds: In one year or less After one year through five years After five years through ten years After ten years Total Fair Value Yield Fair Value Yield Fair Value Yield Fair Value Yield Fair Value Yield (Dollars in thousands) Investment securities available for sale: U.S. government and agency securities $ — — % $ 4,688 3.04 % $ 1,374 1.43 % $ 6,482 2.32 % $ 12,544 2.47 % Municipal securities — — 1,423 4.37 18,273 3.26 31,246 2.93 50,942 3.07 Residential CMO and MBS (1) 14 1.59 530 3.14 30,452 3.98 338,335 3.51 369,331 3.54 Commercial CMO and MBS (1) 18,767 3.35 174,725 3.87 102,478 1.98 13,771 4.95 309,741 3.21 Corporate obligations — — — — 11,770 8.32 — — 11,770 8.32 Other asset-backed securities — — — — 1,435 6.44 8,631 5.92 10,066 5.99 Total $ 18,781 3.35 % $ 181,366 3.85 % $ 165,782 2.91 % $ 398,465 3.53 % $ 764,394 3.46 % Investment securities held to maturity: U.S. government and agency securities $ — — % $ — — % $ 78,092 2.08 % $ 44,250 2.17 % $ 122,342 2.11 % Residential CMO and MBS (1) — — — — 34,292 3.34 191,454 4.03 225,746 3.92 Commercial CMO and MBS (1) — — 137,045 3.03 125,435 1.75 12,884 3.79 275,364 2.45 Total $ — — % $ 137,045 3.03 % $ 237,819 2.07 % $ 248,588 3.63 % $ 623,452 2.89 % (1) U.S. government agency and government-sponsored enterprise CMO and MBS obligations.
The following table provides the weighted average yield of the Company's investment portfolio at December 31, 2025 calculated based upon the fair values of our investment securities available for sale and held to maturity, and excluding any income tax benefits of tax-exempt bonds: In one year or less After one year through five years After five years through ten years After ten years Total Fair Value Yield Fair Value Yield Fair Value Yield Fair Value Yield Fair Value Yield (Dollars in thousands) Investment securities available for sale: U.S. government and agency securities $ — — % $ 4,868 3.04 % $ 6,834 2.32 % $ — — % $ 11,702 2.59 % Municipal securities 571 5.81 3,781 4.16 21,813 3.36 25,258 2.58 51,423 3.03 Residential CMO and MBS (1) 6 1.93 — — 25,708 4.07 249,554 3.42 275,268 3.48 Commercial CMO and MBS (1) 12,647 3.46 133,831 4.13 96,477 2.44 9,209 4.64 252,164 3.44 Corporate obligations — — — — 10,532 6.33 — — 10,532 6.33 Other asset-backed securities — — — — — — 6,433 5.11 6,433 5.11 Total $ 13,224 3.56 % $ 142,480 4.10 % $ 161,364 3.04 % $ 290,454 3.41 % $ 607,522 3.47 % Investment securities held to maturity: U.S. government and agency securities $ — — % $ — — % $ 90,246 2.14 % $ 40,203 2.12 % $ 130,449 2.13 % Residential CMO and MBS (1) — — — — 29,197 3.27 179,890 4.03 209,087 3.92 Commercial CMO and MBS (1) — — 168,589 2.88 104,291 1.77 12,871 3.52 285,751 2.49 Total $ — — % $ 168,589 2.88 % $ 223,734 2.10 % $ 232,964 3.62 % $ 625,287 2.87 % (1) U.S. government agency and government-sponsored enterprise CMO and MBS obligations. 40 Table of Contents Loan Portfolio Overview Changes by loan type The Company originates a wide variety of loans with a focus on commercial business loans.
Certificates of deposit increased $284.3 million, or 41.0%, to $977.3 million from $693.0 million and money market accounts increased $72.6 million, or 6.6%, to $1.17 billion from $1.09 billion primarily due to transfers from lower yielding non-maturity deposit accounts as customers moved balances to higher yielding accounts.
Non-maturity deposits increased by $275.0 million, or 5.8%, due primarily to a $168.0 million increase in money market accounts and a $163.1 million increase in interest bearing demand accounts from new accounts opened and transfers of funds from existing noninterest bearing demand deposit accounts into these higher yielding accounts.
Removed
These decreases were partially offset by a decrease in noninterest expense of $8.3 million.
Added
We also make real estate construction and land development loans, consumer loans and residential real estate loans on single family properties located primarily in our markets. 33 Table of Contents Our core profitability depends primarily on our net interest income.
Removed
During the year ended December 31, 2024, the company also restructured its BOLI portfolio, incurring additional tax expense of $2.4 million and other costs of $508,000 related to the surrender of certain BOLI policies. 34 Table of Contents Net Interest Income and Margin Overview One of the Company's key sources of revenue is net interest income.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+2 added−2 removed15 unchanged
Biggest changeThe following table summarizes the estimated effect on net interest income over a 12 month period measured against a flat rate (no interest rate change) scenario for the periods indicated: December 31, 2024 December 31, 2023 $ Change in Net Interest Income % Change in Net Interest Income $ Change in Net Interest Income % Change in Net Interest Income Change in Interest Rates (Basis Points) (Dollars in thousands) +300(shock) $ (8,112) (3.5) % $ (6,343) (2.8) % +200(shock) (218) (0.1) 1,438 0.6 +100(shock) 658 0.3 1,644 0.7 +0(flat) — — — — -100(shock) (72) — 1,861 0.8 -200(shock) (2,624) (1.1) 1,549 0.7 -300(shock) (8,195) (3.6) (1,233) (0.6) The Company’s balance sheet sensitivity to changes in market rates remains somewhat neutral, meaning results are similar in the rates up and down scenarios over a twelve month time horizon.
Biggest changeThe following table summarizes the estimated effect on net interest income over a 12 month period measured against a flat rate (no interest rate change) scenario for the periods indicated: December 31, 2025 December 31, 2024 $ Change in Net Interest Income % Change in Net Interest Income $ Change in Net Interest Income % Change in Net Interest Income Change in Interest Rates (Basis Points) (Dollars in thousands) +300(shock) $ (2,025) (0.8) % $ (8,112) (3.5) % +200(shock) 4,586 1.9 (218) (0.1) +100(shock) 3,399 1.4 658 0.3 +0(flat) — — — — -100(shock) (2,442) (1.0) (72) — -200(shock) (7,769) (3.3) (2,624) (1.1) -300(shock) (11,646) (4.9) (8,195) (3.6) 49 Table of Contents The Company’s balance sheet sensitivity to changes in market rates is slightly asset sensitive in parallel rate shocks over a twelve month timeframe compared to more of a neutral balance sheet in prior year results when market rates were higher.
Mitigation of the various risk elements that represent 50 Table of Contents compliance, strategic and/or reputation risk is achieved through initiatives to help management better understand and report on various indicators and causes of these risks, including those related to the development of new products and business initiatives. 51 Table of Contents
Mitigation of the various risk elements that represent compliance, strategic and/or reputation risk is achieved through initiatives to help management better understand and report on various indicators and causes of these risks, including those related to the development of new products and business initiatives. 50 Table of Contents
In order to measure the interest rate risk sensitivity as of December 31, 2024, this simulation model uses a “static balance sheet” assumption, meaning the size and mix of the balance sheet remains the same as maturing cash flows from assets and liabilities 49 Table of Contents are reinvested into the same categories at the current level of interest rates.
In order to measure the interest rate risk sensitivity as of December 31, 2025, this simulation model uses a “static balance sheet” assumption, meaning the size and mix of the balance sheet remains the same as maturing cash flows from assets and liabilities are reinvested into the same categories at the current level of interest rates.
Liquidity risk Economic conditions have made liquidity risk, primarily funding liquidity risk, a more prevalent concern among financial institutions in recent years. In general, liquidity risk is the risk of being unable to fund obligations to creditors, including, in the case of financial institutions, obligations to depositors, as such obligations become due and/or fund the acquisition of assets.
In general, liquidity risk is the risk of being unable to fund obligations to creditors, including, in the case of financial institutions, obligations to depositors, as such obligations become due and/or fund the acquisition of assets.
Additionally, for all of the various interest rate scenarios modeled and measured by management as presented in the preceding table, the results at December 31, 2024 were well within established risk tolerances as established by policy. The simulation results noted above do not incorporate any management actions that might moderate the negative consequences of interest rate deviations.
The simulation results are within the Board-established policy limits for all listed scenarios. Additionally, for all of the various interest rate scenarios modeled and measured by management as presented in the preceding table, the results at December 31, 2025 were well within established risk tolerances as established by policy.
In addition, the simulation results noted above contain various assumptions such as a static balance sheet, and the rate that deposit interest rates change as market interest rates change. Therefore, these simulation results do not likely reflect actual results, but continue to serve as estimates of interest rate risk.
The simulation results noted above do not incorporate any management actions that might moderate the negative consequences of interest rate deviations. In addition, the simulation results noted above contain various assumptions such as a static balance sheet, and the rate that deposit interest rates change as market interest rates change.
As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the preceding table. For example, although certain of the Company’s assets and liabilities may have similar maturities or repricing time frames, they may react in different degrees to changes in market interest rates.
For example, although certain of the Company’s assets and liabilities may have similar maturities or repricing time frames, they may react in different degrees to changes in market interest rates. In addition, the interest rates on certain of the Company’s asset and liability categories may precede, or lag behind, changes in market interest rates.
Further, a change in Treasury rates accompanied by a change in the shape of the treasury yield curve could result in different estimations from those presented herein. Accordingly, the results in the preceding table should not be relied upon as indicative of actual results in the event of changing market interest rates.
Also, the actual rates of prepayments on loans and investments could vary significantly from the assumptions utilized in deriving the results as presented in the preceding table. Further, a change in Treasury rates accompanied by a change in the shape of the treasury yield curve could result in different estimations from those presented herein.
Removed
Current results are similar to prior year results when the Company's modeled balance sheet results first shifted from an asset sensitive position to more of a neutral position. The simulation results are within the Board-established policy limits for all listed scenarios.
Added
Therefore, these simulation results do not likely reflect actual results, but continue to serve as estimates of interest rate risk. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the preceding table.
Removed
In addition, the interest rates on certain of the Company’s asset and liability categories may precede, or lag behind, changes in market interest rates. Also, the actual rates of prepayments on loans and investments could vary significantly from the assumptions utilized in deriving the results as presented in the preceding table.
Added
Accordingly, the results in the preceding table should not be relied upon as indicative of actual results in the event of changing market interest rates. Liquidity risk Economic conditions have made liquidity risk, primarily funding liquidity risk, a more prevalent concern among financial institutions in recent years.

Other HFWA 10-K year-over-year comparisons