8-K
HERITAGE FINANCIAL CORP /WA/ (HFWA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
Date of Report (Dated of earliest event reported): April 24, 2025
HERITAGE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Commission File Number 000-29480
| Washington | 91-1857900 | ||
|---|---|---|---|
| (State or other jurisdiction of<br>incorporation or organization) | (I.R.S. Employer<br>Identification No.) | ||
| 201 Fifth Avenue SW, | Olympia | WA | 98501 |
| (Address of principal executive offices) | (Zip Code) |
(360) 943-1500
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12 (b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered |
|---|---|---|
| Common stock, no par value | HFWA | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1934 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition
On April 24, 2025, Heritage Financial Corporation (“Heritage”) issued a press release announcing its first quarter 2025 results.
A copy of the release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference. The information furnished pursuant to this Item and the related exhibit is being “furnished” and will not, except to the extent required by applicable law or regulation, be deemed “filed” by Heritage for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.
Item 7.01 Regulation FD Disclosure
Heritage is filing an investor presentation that it reviewed in conjunction with its earnings release conference call on April 24, 2025.
A copy of the presentation materials is attached hereto as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference. The information furnished pursuant to this Item and the related exhibit is being “furnished” and will not, except to the extent required by applicable law or regulation, be deemed “filed” by Heritage for purposes of Section 18 of the Exchange Act, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as may be expressly set forth by specific reference in such filing.
Item 8.01 Other Events
On April 24, 2025, Heritage issued a press release announcing a regular quarterly cash dividend of $0.24 per common share. The dividend will be paid on May 21, 2025 to shareholders of record at the close of business on May 7, 2025.
A copy of the release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
| Exhibit 99.1 | Press Release announcing first quarter 2025 results and declares regular cash dividend of $0.24 per share dated April 24, 2025 |
|---|---|
| Exhibit 99.2 | First Quarter 2025 Investor Presentation |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HERITAGE FINANCIAL CORPORATION | |
|---|---|
| Date: | |
| April 24, 2025 | /S/ JEFFREY J. DEUEL |
| Jeffrey J. Deuel | |
| Chief Executive Officer | |
| (Duly Authorized Officer) |
Document
f
FOR IMMEDIATE RELEASE
DATE: April 24, 2025
HERITAGE FINANCIAL ANNOUNCES FIRST QUARTER 2025 RESULTS AND DECLARES REGULAR CASH DIVIDEND OF $0.24 PER SHARE
First Quarter 2025 Highlights
•Net income was $13.9 million, or $0.40 per diluted share, compared to $11.9 million, or $0.34 per diluted share, for the fourth quarter of 2024.
•Results included a pre-tax loss on sale of securities of $3.9 million resulting in a negative impact of $0.09 per diluted share, which is the same impact as for the fourth quarter of 2024.
•Net interest margin increased to 3.44%, from 3.36% for the fourth quarter of 2024.
•Deposits increased $160.7 million, or 2.8% (11.4% annualized).
•Cost of interest bearing deposits decreased to 1.92%, from 1.98% for the fourth quarter of 2024.
•Expanded into Spokane, Washington with the hiring of three experienced commercial bankers.
•Declared a regular cash dividend of $0.24 per share on April 23, 2025.
Olympia, WA - Heritage Financial Corporation (Nasdaq GS: HFWA) (the “Company", ”we," or "us"), the parent company of Heritage Bank (the "Bank"), today reported net income of $13.9 million for the first quarter of 2025, compared to $11.9 million for the fourth quarter of 2024 and $5.7 million for the first quarter of 2024. Diluted earnings per share for the first quarter of 2025 were $0.40 compared to $0.34 for the fourth quarter of 2024 and $0.16 for the first quarter of 2024.
In the first quarter of 2025, the Company incurred a pre-tax loss of $3.9 million on the sale of investment securities in connection with the strategic repositioning of its balance sheet, which decreased diluted earnings per share by $0.09 for the quarter. The Company sold $60.9 million of investment securities with a book yield of 2.60%. Proceeds were used to purchase $28.2 million in investment securities with a book yield of 4.55% and fund new loans originated during the quarter.
Jeff Deuel, Chief Executive Officer of the Company, commented, "We are very pleased with our operating results for the first quarter, which included solid deposit growth, margin expansion and lower cost of deposits. In addition, we have maintained strong credit quality metrics including low levels of net charge-offs and nonaccrual loan balances. We continue to strategically reposition our balance sheet to improve future profitability and invest in new production teams with the most recent in the Spokane market, where we see significant opportunity to grow our business. Although these actions may impact current earnings, we believe future earnings will be enhanced and we are optimistic that the combination of our strong balance sheet and prudent risk management will provide sustainable long-term returns for our shareholders."
Financial Highlights
The following table provides financial highlights at the dates and for the periods indicated:
| As of or for the Quarter Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | March 31,<br>2024 | |||||||
| (Dollars in thousands, except per share amounts) | |||||||||
| Net income | $ | 13,911 | $ | 11,928 | $ | 5,748 | |||
| Diluted earnings per share | $ | 0.40 | $ | 0.34 | $ | 0.16 | |||
| Return on average assets(2) | 0.79 | % | 0.66 | % | 0.33 | % | |||
| Return on average common equity(2) | 6.51 | 5.46 | 2.73 | ||||||
| Return on average tangible common equity(1)(2) | 9.22 | 7.81 | 4.07 | ||||||
| Adjusted return on average tangible common equity(1)(2) | 11.21 | 11.59 | 9.34 | ||||||
| Net interest margin(2) | 3.44 | 3.36 | 3.29 | ||||||
| Cost of total deposits(2) | 1.38 | 1.39 | 1.19 | ||||||
| Efficiency ratio | 71.9 | 69.3 | 83.0 | ||||||
| Adjusted efficiency ratio(1) | 67.3 | 64.4 | 68.9 | ||||||
| Noninterest expense to average total assets(2) | 2.36 | 2.20 | 2.29 | ||||||
| Total assets | $ | 7,129,862 | $ | 7,106,278 | $ | 7,091,283 | |||
| Loans receivable | 4,764,848 | 4,802,123 | 4,428,165 | ||||||
| Total deposits | 5,845,335 | 5,684,613 | 5,532,327 | ||||||
| Loan to deposit ratio(3) | 81.5 | % | 84.5 | % | 80.0 | % | |||
| Book value per share | $ | 25.85 | $ | 25.40 | $ | 24.43 | |||
| Tangible book value per share(1) | 18.70 | 18.22 | 17.36 |
(1) Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.
(2) Annualized.
(3) Loans receivable divided by total deposits.
Balance Sheet
Cash and cash equivalents increased $131.6 million to $248.7 million at March 31, 2025 from $117.1 million at December 31, 2024 primarily due to deposit growth during the quarter.
Total investment securities decreased $53.8 million, or 3.7%, to $1.41 billion at March 31, 2025 from $1.47 billion at December 31, 2024. As previously noted, the Company sold $60.9 million of investment securities at a pre-tax loss of $3.9 million during the quarter as part of its strategic balance sheet repositioning. In addition, there were investment maturities and repayments of $36.8 million during the first quarter of 2025. The decrease was partially offset by investment security purchases of $28.2 million during the first quarter of 2025 and a $15.5 million decrease in unrealized losses on available for sale securities, due primarily to changes in market rates.
The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated:
| March 31, 2025 | December 31, 2024 | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance | % of<br>Total | Balance | % of<br>Total | % | |||||||
| (Dollars in thousands) | |||||||||||
| Investment securities available for sale, at fair value: | |||||||||||
| U.S. government and agency securities | $ | 11,436 | 0.8 | % | $ | 12,544 | 0.9 | % | (8.8) | % | |
| Municipal securities | 50,725 | 3.6 | 50,942 | 3.5 | (217) | (0.4) | |||||
| Residential CMO and MBS(1) | 356,860 | 25.2 | 369,331 | 25.2 | (12,471) | (3.4) | |||||
| Commercial CMO and MBS(1) | 275,840 | 19.6 | 309,741 | 21.0 | (33,901) | (10.9) | |||||
| Corporate obligations | 11,830 | 0.8 | 11,770 | 0.8 | 60 | 0.5 | |||||
| Other asset-backed securities | 9,651 | 0.7 | 10,066 | 0.7 | (415) | (4.1) | |||||
| Total | $ | 716,342 | 50.7 | % | $ | 764,394 | 52.1 | % | (6.3) | % |
All values are in US Dollars.
| March 31, 2025 | December 31, 2024 | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance | % of<br>Total | Balance | % of<br>Total | % | |||||||
| (Dollars in thousands) | |||||||||||
| Investment securities held to maturity, at amortized cost: | |||||||||||
| U.S. government and agency securities | $ | 151,246 | 10.7 | % | $ | 151,216 | 10.3 | % | — | % | |
| Residential CMO and MBS(1) | 239,351 | 16.9 | 244,309 | 16.6 | (4,958) | (2.0) | |||||
| Commercial CMO and MBS(1) | 306,964 | 21.7 | 307,760 | 21.0 | (796) | (0.3) | |||||
| Total | $ | 697,561 | 49.3 | % | $ | 703,285 | 47.9 | % | (0.8) | % | |
| Total investment securities | $ | 1,413,903 | 100.0 | % | $ | 1,467,679 | 100.0 | % | (3.7) | % |
All values are in US Dollars. (1) U.S. government agency and government-sponsored enterprise CMO and MBS
Loans receivable decreased $37.3 million, or 0.8%, to $4.76 billion at March 31, 2025 from $4.80 billion at December 31, 2024. New loans funded declined during the first quarter of 2025 to $95.8 million, as compared to $181.0 million during the fourth quarter of 2024; however, new loan commitments increased during the first quarter of 2025 to $201.0 million compared to $179.4 million during the first quarter of 2024 and reflect the seasonality of loan originations. Loan prepayments increased to $79.9 million during the quarter, compared to $44.4 million the prior quarter. Loan payoffs also increased to $47.5 million, compared to $23.8 million the prior quarter.
Commercial and industrial loans increased $8.1 million, or 1.0%, due primarily to new loan production of $25.6 million during the quarter, partially offset by pay downs on outstanding balances. Owner-occupied commercial real estate ("CRE") loans decreased $18.0 million, or 1.8%, due primarily to pay downs on outstanding balances, offset partially by new loan production of $23.3 million during the quarter. Non-owner occupied CRE loans increased $6.7 million, or 0.3%, due primarily to new loan production of $33.3 million during the quarter, offset by pay downs on outstanding balances. Residential construction and commercial and multifamily construction loans decreased $26.2 million or 5.5% due to pay downs on outstanding balances.
The following table summarizes the Company's loans receivable at the dates indicated:
| March 31, 2025 | December 31, 2024 | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance | % of Total | Balance | % of Total | % | |||||||
| (Dollars in thousands) | |||||||||||
| Commercial business: | |||||||||||
| Commercial and industrial | $ | 850,764 | 17.9 | % | $ | 842,672 | 17.5 | % | 1.0 | % | |
| Owner-occupied CRE | 985,272 | 20.7 | 1,003,243 | 20.9 | (17,971) | (1.8) | |||||
| Non-owner occupied CRE | 1,915,788 | 40.1 | 1,909,107 | 39.9 | 6,681 | 0.3 | |||||
| Total commercial business | 3,751,824 | 78.7 | 3,755,022 | 78.3 | (3,198) | (0.1) | |||||
| Residential real estate | 393,301 | 8.3 | 402,954 | 8.4 | (9,653) | (2.4) | |||||
| Real estate construction and land development: | |||||||||||
| Residential | 76,108 | 1.6 | 83,890 | 1.7 | (7,782) | (9.3) | |||||
| Commercial and multifamily | 377,100 | 7.9 | 395,553 | 8.2 | (18,453) | (4.7) | |||||
| Total real estate construction and land development | 453,208 | 9.5 | 479,443 | 9.9 | (26,235) | (5.5) | |||||
| Consumer | 166,515 | 3.5 | 164,704 | 3.4 | 1,811 | 1.1 | |||||
| Loans receivable | $ | 4,764,848 | 100.0 | % | $ | 4,802,123 | 100.0 | % | (0.8) |
All values are in US Dollars.
Total deposits increased $160.7 million, or 2.8%, to $5.85 billion at March 31, 2025 from $5.68 billion at December 31, 2024. Non-maturity deposits increased by $152.7 million, or 3.2%, from December 31, 2024 due primarily to new accounts opened during the quarter and transfers of funds into existing accounts. Certificates of deposit increased $8.0 million, or 0.8%, to $985.3 million at March 31, 2025 from $977.3 million at December 31, 2024, primarily due to new accounts opened during the quarter.
The following table summarizes the Company's total deposits at the dates indicated:
| March 31, 2025 | December 31, 2024 | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance | % of Total | Balance | % of Total | % | |||||||
| (Dollars in thousands) | |||||||||||
| Noninterest demand deposits | $ | 1,621,890 | 27.7 | % | $ | 1,654,955 | 29.1 | % | (2.0) | % | |
| Interest bearing demand deposits | 1,525,522 | 26.1 | 1,464,129 | 25.8 | 61,393 | 4.2 | |||||
| Money market accounts | 1,281,891 | 21.9 | 1,166,901 | 20.5 | 114,990 | 9.9 | |||||
| Savings accounts | 430,749 | 7.4 | 421,377 | 7.4 | 9,372 | 2.2 | |||||
| Total non-maturity deposits | 4,860,052 | 83.1 | 4,707,362 | 82.8 | 152,690 | 3.2 | |||||
| Certificates of deposit | 985,283 | 16.9 | 977,251 | 17.2 | 8,032 | 0.8 | |||||
| Total deposits | $ | 5,845,335 | 100.0 | % | $ | 5,684,613 | 100.0 | % | 2.8 | % |
All values are in US Dollars.
Total borrowings decreased $118.6 million to $264.4 million at March 31, 2025 from $383.0 million at December 31, 2024. All outstanding borrowings at March 31, 2025 were with the Federal Home Loan Bank ("FHLB") and mature within one year.
Total stockholders' equity increased $18.0 million, or 2.1%, to $881.5 million at March 31, 2025 compared to $863.5 million at December 31, 2024 due primarily to $13.9 million of net income recognized for the quarter and an $11.9 million decrease in accumulated other comprehensive loss as a result of changes in market rates, offset partially by $8.3 million in dividends paid to common shareholders.
The Company and Bank continued to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as “well-capitalized” at March 31, 2025.
The following table summarizes the capital ratios for the Company at the dates indicated:
| March 31,<br>2025 | December 31,<br>2024 | |
|---|---|---|
| Stockholders' equity to total assets | 12.4% | 12.2% |
| Tangible common equity to tangible assets (1) | 9.3 | 9.0 |
| Common equity tier 1 capital ratio (2) | 12.2 | 12.0 |
| Leverage ratio (2) | 10.2 | 10.0 |
| Tier 1 capital ratio (2) | 12.6 | 12.4 |
| Total capital ratio (2) | 13.6 | 13.3 |
(1) Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.
(2) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.
Allowance for Credit Losses and Provision for Credit Losses
The allowance for credit losses ("ACL") on loans as a percentage of loans receivable was 1.09% at March 31, 2025 and December 31, 2024. During the first quarter of 2025, the Company recorded a $9,000 reversal of provision for credit losses on loans, compared to a $1.1 million provision for credit losses on loans during the fourth quarter of 2024. The reversal of provision for credit losses on loans during the quarter was due primarily to a decline in loan balances. Net charge-offs for the first quarter of 2025 were $299,000.
During the first quarter of 2025, the Company recorded a $60,000 provision for credit losses on unfunded commitments compared to a $79,000 provision during the fourth quarter of 2024. The provision for credit losses on unfunded commitments during the first quarter of 2025 was due primarily to an increase in the unfunded exposure on loans.
The following table provides detail on the changes in the ACL on loans and the ACL on unfunded commitments, and the related provision for (reversal of) credit losses for the periods indicated:
| As of or for the Quarter Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2025 | December 31, 2024 | March 31, 2024 | ||||||||||||||||
| ACL on Loans | ACL on Unfunded | Total | ACL on Loans | ACL on Unfunded | Total | ACL on Loans | ACL on Unfunded | Total | ||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| Balance, beginning of period | $ | 52,468 | $ | 587 | $ | 53,055 | $ | 51,391 | $ | 508 | $ | 51,899 | $ | 47,999 | $ | 1,288 | $ | 49,287 |
| (Reversal of) provision for credit losses | (9) | 60 | 51 | 1,104 | 79 | 1,183 | 1,704 | (312) | 1,392 | |||||||||
| (Net charge-offs) / recoveries | (299) | — | (299) | (27) | — | (27) | 33 | — | 33 | |||||||||
| Balance, end of period | $ | 52,160 | $ | 647 | $ | 52,807 | $ | 52,468 | $ | 587 | $ | 53,055 | $ | 49,736 | $ | 976 | $ | 50,712 |
Credit Quality
The percentage of classified loans to loans receivable remained stable at 1.4% at March 31, 2025 and December 31, 2024. Classified loans include loans rated substandard or worse.
The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
| March 31, 2025 | December 31, 2024 | |||||||
|---|---|---|---|---|---|---|---|---|
| Balance | % of Total | Balance | % of Total | |||||
| (Dollars in thousands) | ||||||||
| Risk Rating: | ||||||||
| Pass | $ | 4,586,757 | 96.2 | % | $ | 4,623,080 | 96.3 | % |
| Special Mention | 113,704 | 2.4 | 110,725 | 2.3 | ||||
| Substandard | 64,387 | 1.4 | 68,318 | 1.4 | ||||
| Total | $ | 4,764,848 | 100.0 | % | $ | 4,802,123 | 100.0 | % |
Changes in nonaccrual loans during the periods indicated were as follows:
| Quarter Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | March 31,<br>2024 | |||||||
| (Dollars in thousands) | |||||||||
| Balance, beginning of period | $ | 4,079 | $ | 4,301 | $ | 4,468 | |||
| Additions | 832 | 160 | 593 | ||||||
| Net principal payments and transfers to accruing status | (214) | (250) | (269) | ||||||
| Payoffs | (38) | (132) | — | ||||||
| Charge-offs | (221) | — | — | ||||||
| Balance, end of period | $ | 4,438 | $ | 4,079 | $ | 4,792 | |||
| Nonaccrual loans to loans receivable | 0.09 | % | 0.08 | % | 0.11 | % |
Liquidity
Total liquidity sources available at March 31, 2025 were $2.54 billion. This includes on- and off-balance sheet liquidity. The Company has access to FHLB advances and the Federal Reserve Bank ("FRB") Discount Window. The Company's available liquidity sources at March 31, 2025 represented a coverage ratio of 43.5% of total deposits and 109.3% of estimated uninsured deposits.
The following table summarizes the Company's available liquidity:
| Quarter Ended | ||||
|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | |||
| (Dollars in thousands) | ||||
| On-balance sheet liquidity | ||||
| Cash and cash equivalents | $ | 248,660 | $ | 117,100 |
| Unencumbered investment securities available for sale (1) | 698,132 | 746,163 | ||
| Total on-balance sheet liquidity | $ | 946,792 | $ | 863,263 |
| Off-balance sheet liquidity | ||||
| FRB borrowing availability | $ | 365,624 | $ | 360,104 |
| FHLB borrowing availability (2) | 1,084,304 | 976,288 | ||
| Fed funds line borrowing availability with correspondent banks | 145,000 | 145,000 | ||
| Total off-balance sheet liquidity | $ | 1,594,928 | $ | 1,481,392 |
| Total available liquidity | $ | 2,541,720 | $ | 2,344,655 |
(1) Investment securities available for sale at fair value.
(2) Includes FHLB total borrowing availability of $1.35 billion at March 31, 2025 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.20 billion.
Net Interest Margin and Net Interest Income
The net interest margin increased eight basis points to 3.44% during the first quarter of 2025 from 3.36% during the fourth quarter of 2024.
The yield on interest earning assets increased two basis points to 4.95% for the first quarter of 2025 compared to 4.93% for the fourth quarter of 2024 due to the change in mix of earning assets to higher yielding assets as average loan balances increased by $76.2 million while average balances of investment securities declined by $86.7 million. The yield on loans receivable decreased two basis points to 5.45% during the first quarter of 2025 compared to 5.47% during the fourth quarter of 2024 as loans indexed to Prime or SOFR repriced at lower rates due to reductions in the federal funds rate occurring late in the fourth quarter of 2024.
The cost of interest bearing deposits decreased six basis points to 1.92% for the first quarter of 2025 from 1.98% for the fourth quarter of 2024. This decrease was primarily due to a decrease in certificate of deposit rates during the quarter.
Net interest income decreased $73,000, or 0.1%, during the first quarter of 2025 compared to the fourth quarter of 2024 due primarily to the first quarter of 2025 including fewer days than the fourth quarter of 2024. Total interest expense decreased $1.5 million during the quarter offset by a decrease in total interest income of $1.6 million.
The net interest margin increased 15 basis points to 3.44% from 3.29% compared to the same period in the prior year. Net interest income increased $2.2 million, or 4.2%, during the first quarter of 2025 compared to the first quarter of 2024. The increase was due primarily to an increase in yields earned on interest earning assets following increases in market interest rates and a decrease in borrowing interest expense due to lower average borrowing balances, partially offset by an increase in deposit interest expense resulting from increased deposit average balances and rates.
The following table provides relevant net interest income information for the periods indicated:
| Quarter Ended | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31, 2025 | December 31, 2024 | March 31, 2024 | ||||||||||||||||
| Average<br>Balance | Interest<br>Earned/<br>Paid | Average<br>Yield/<br>Rate (1) | Average<br>Balance | Interest<br>Earned/<br>Paid | Average<br>Yield/<br>Rate (1) | Average<br>Balance | Interest<br>Earned/<br>Paid | Average<br>Yield/<br>Rate (1) | ||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| Interest Earning Assets: | ||||||||||||||||||
| Loans receivable (2)(3) | $ | 4,793,917 | $ | 64,436 | 5.45 | % | $ | 4,717,748 | $ | 64,864 | 5.47 | % | $ | 4,352,130 | $ | 57,862 | 5.35 | % |
| Taxable securities | 1,427,976 | 11,739 | 3.33 | 1,514,210 | 12,510 | 3.29 | 1,810,709 | 14,834 | 3.29 | |||||||||
| Nontaxable securities (3) | 15,686 | 139 | 3.59 | 16,138 | 146 | 3.60 | 21,302 | 181 | 3.42 | |||||||||
| Interest earning deposits | 96,118 | 1,052 | 4.44 | 119,275 | 1,440 | 4.80 | 108,733 | 1,476 | 5.46 | |||||||||
| Total interest earning assets | 6,333,697 | 77,366 | 4.95 | % | 6,367,371 | 78,960 | 4.93 | % | 6,292,874 | 74,353 | 4.75 | % | ||||||
| Noninterest earning assets | 769,530 | 781,923 | 799,578 | |||||||||||||||
| Total assets | $ | 7,103,227 | $ | 7,149,294 | $ | 7,092,452 | ||||||||||||
| Interest Bearing Liabilities: | ||||||||||||||||||
| Certificates of deposit | $ | 980,336 | $ | 9,670 | 4.00 | % | $ | 947,929 | $ | 10,070 | 4.23 | % | $ | 733,816 | $ | 7,671 | 4.20 | % |
| Quarter Ended | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| March 31, 2025 | December 31, 2024 | March 31, 2024 | ||||||||||||||||
| Average<br>Balance | Interest<br>Earned/<br>Paid | Average<br>Yield/<br>Rate (1) | Average<br>Balance | Interest<br>Earned/<br>Paid | Average<br>Yield/<br>Rate (1) | Average<br>Balance | Interest<br>Earned/<br>Paid | Average<br>Yield/<br>Rate (1) | ||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| Savings accounts | 426,321 | 293 | 0.28 | 432,287 | 280 | 0.26 | 475,075 | 230 | 0.19 | |||||||||
| Interest bearing demand and money market accounts | 2,705,686 | 9,526 | 1.43 | 2,631,577 | 9,622 | 1.45 | 2,659,999 | 8,487 | 1.28 | |||||||||
| Total interest bearing deposits | 4,112,343 | 19,489 | 1.92 | 4,011,793 | 19,972 | 1.98 | 3,868,890 | 16,388 | 1.70 | |||||||||
| Junior subordinated debentures | 22,086 | 471 | 8.65 | 22,019 | 512 | 9.25 | 21,800 | 547 | 10.09 | |||||||||
| Borrowings | 320,286 | 3,716 | 4.71 | 373,493 | 4,713 | 5.02 | 500,660 | 5,888 | 4.73 | |||||||||
| Total interest bearing liabilities | 4,454,715 | 23,676 | 2.16 | % | 4,407,305 | 25,197 | 2.27 | % | 4,391,350 | 22,823 | 2.09 | % | ||||||
| Noninterest demand deposits | 1,631,268 | 1,703,357 | 1,657,132 | |||||||||||||||
| Other noninterest bearing liabilities | 150,615 | 170,324 | 197,023 | |||||||||||||||
| Stockholders’ equity | 866,629 | 868,308 | 846,947 | |||||||||||||||
| Total liabilities and stockholders’ equity | $ | 7,103,227 | $ | 7,149,294 | $ | 7,092,452 | ||||||||||||
| Net interest income and spread | $ | 53,690 | 2.79 | % | $ | 53,763 | 2.66 | % | $ | 51,530 | 2.66 | % | ||||||
| Net interest margin | 3.44 | % | 3.36 | % | 3.29 | % |
(1) Annualized; average balances are calculated using daily balances.
(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 $753,000, $878,000 and $809,000 for the first quarter of 2025, fourth quarter of 2024 and first quarter of 2024, respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.
Noninterest Income
Noninterest income increased $613,000 to $3.9 million during the first quarter of 2025 from $3.3 million during the fourth quarter of 2024. The increase was due primarily to an increase in bank owned life insurance ("BOLI") income as the fourth quarter of 2024 BOLI income included $508,000 in costs related to a BOLI restructuring. Interest rate swap fees declined due to lower activity during the first quarter of 2025.
Noninterest income increased $6.8 million from the same period in 2024 due primarily to the decrease in loss resulting from the above-referenced sale of investment securities recognized in the first quarter of 2025 as part of the strategic repositioning of the balance sheet, compared to the loss recognized in the same quarter in 2024 in connection with the prior balance sheet repositioning transaction.
The following table presents the key components of noninterest income and the change for the periods indicated:
| Quarter Ended | Quarter Over Quarter Change | Prior Year Quarter Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | March 31,<br>2024 | % | % | ||||||||
| (Dollars in thousands) | ||||||||||||
| Service charges and other fees | $ | 2,975 | $ | 2,892 | $ | 2,788 | 2.9 | % | 6.7 | % | ||
| Card revenue | 1,733 | 1,849 | 1,839 | (116) | (6.3) | (106) | (5.8) | |||||
| Loss on sale of investment securities | (3,887) | (3,903) | (9,973) | 16 | 0.4 | 6,086 | 61.0 | |||||
| Gain on sale of loans, net | — | — | 26 | — | — | (26) | (100.0) | |||||
| Interest rate swap fees | — | 357 | — | (357) | (100.0) | — | — | |||||
| Bank owned life insurance income | 918 | 256 | 920 | 662 | 258.6 | (2) | (0.2) | |||||
| Gain on sale of other assets, net | 3 | 23 | — | (20) | (87.0) | 3 | — | |||||
| Other income | 2,161 | 1,816 | 1,500 | 345 | 19.0 | 661 | 44.1 | |||||
| Total noninterest income (loss) | $ | 3,903 | $ | 3,290 | $ | (2,900) | 18.6 | % | 234.6 | % |
All values are in US Dollars.
Noninterest Expense
Noninterest expense increased $1.8 million, or 4.7%, during the first quarter of 2025 from the fourth quarter of 2024 due primarily to an increase in compensation and employee benefits due to an increase in benefit costs and higher payroll taxes paid in the first quarter each year.
Noninterest expense increased $1.0 million, or 2.5%, during the first quarter of 2025 compared to the same period in 2024. Data processing expense increased due to annual cost increases and a $230,000 refund recognized in the first quarter of 2024 related to a contract termination.
The following table presents the key components of noninterest expense and the change for the periods indicated:
| Quarter Ended | Quarter Over Quarter Change | Prior Year Quarter Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | March 31,<br>2024 | % | % | ||||||||
| (Dollars in thousands) | ||||||||||||
| Compensation and employee benefits | $ | 25,799 | $ | 24,236 | $ | 25,476 | 6.4 | % | 1.3 | % | ||
| Occupancy and equipment | 4,926 | 4,742 | 4,932 | 184 | 3.9 | (6) | (0.1) | |||||
| Data processing | 3,897 | 4,020 | 3,331 | (123) | (3.1) | 566 | 17.0 | |||||
| Marketing | 335 | 405 | 211 | (70) | (17.3) | 124 | 58.8 | |||||
| Professional services | 734 | 663 | 567 | 71 | 10.7 | 167 | 29.5 | |||||
| State/municipal business and use taxes | 1,220 | 1,180 | 1,300 | 40 | 3.4 | (80) | (6.2) | |||||
| Federal deposit insurance premium | 812 | 829 | 795 | (17) | (2.1) | 17 | 2.1 | |||||
| Amortization of intangible assets | 303 | 399 | 421 | (96) | (24.1) | (118) | (28.0) | |||||
| Other expense | 3,357 | 3,066 | 3,337 | 291 | 9.5 | 20 | 0.6 | |||||
| Total noninterest expense | $ | 41,383 | $ | 39,540 | $ | 40,370 | 4.7 | % | 2.5 | % |
All values are in US Dollars.
Income Tax Expense
Income tax expense decreased $2.2 million during the first quarter of 2025 to $2.2 million compared to $4.4 million for the fourth quarter of 2024. The decrease in income tax expense during the first quarter of 2025 compared to the prior quarter was primarily due to additional tax expense of $2.4 million related to the BOLI restructuring during the fourth quarter of 2024.
Income tax expense increased $1.1 million in the first quarter of 2025 compared to same period in 2024 due to higher pre-tax income during the first quarter of 2025.
The following table presents the income tax expense and related metrics and the change for the periods indicated:
| Quarter Ended | Change | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | March 31,<br>2024 | Quarter Over Quarter | Prior Year Quarter | |||||||||||
| (Dollars in thousands) | |||||||||||||||
| Income before income taxes | $ | 16,159 | $ | 16,330 | $ | 6,868 | $ | (171) | $ | 9,291 | |||||
| Income tax expense | $ | 2,248 | $ | 4,402 | $ | 1,120 | $ | (2,154) | $ | 1,128 | |||||
| Effective income tax rate | 13.9 | % | 27.0 | % | 16.3 | % | (13.1) | % | (2.4) | % |
Dividends
On April 23, 2025, the Company’s Board of Directors declared a quarterly cash dividend of $0.24 per share. The dividend is payable on May 21, 2025 to shareholders of record as of the close of business on May 7, 2025.
Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on Thursday, April 24, 2025 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 817868 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through May 1, 2025 by dialing (866) 813-9403 -- access code 202025.
About Heritage Financial Corporation
Heritage Financial Corporation is an Olympia, Washington-based bank holding company with Heritage Bank, a full-service commercial bank, as its sole wholly-owned banking subsidiary. Heritage Bank has a network of 50 branches and one loan production office in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island, Washington. The Company's stock is traded on the Nasdaq Global Select Market under the symbol “HFWA.” More information about Heritage Financial Corporation can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.
Contact
Jeff Deuel, Chief Executive Officer, (360) 943-1500
Bryan McDonald, President, (360) 943-1500
Don Hinson, Executive Vice President and Chief Financial Officer, (360) 943-1500
Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believes," "expects," "anticipates," "estimates," “forecasts,” "intends," “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” "will," “should,” "would," and "could," as well as the negative of such words. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to, the following: potential adverse impacts to economic conditions nationally or in our local market areas, other markets where we have lending relationships, or other aspects of our business operations or financial markets including, without limitation, as a result of credit quality deterioration, pronounced and sustained reductions in real estate market values, employment levels, labor shortages, a potential recession or slowed economic growth; effects on the U.S. economy resulting from the threat or implementation of, or changes to existing, policies and executive orders, including tariffs, immigration policy, regulatory and other governmental agencies, foreign policy, and tax regulations; changes in the interest rate environment which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the level and impact of inflation and the current and future monetary policies of the Board of Governors of the Federal Reserve System in response thereto; legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax law, in regulatory policies and principles, or the interpretation and prioritization of such rules and regulations; credit and interest rate risks associated with our business, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits and deposit concentrations; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; fluctuations in the value of our investment securities; credit risks and risks from concentrations (by type of geographic area, collateral and industry) within our loan portfolio; disruptions, security breaches, insider fraud, cybersecurity incidents or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform our critical processing functions for our business, including sophisticated attacks using artificial intelligence and similar tools; rapid technological change in the financial services industry; increased competition in the financial services industry from non-banks such as credit unions and financial technology companies, including digital asset service providers; our ability to adapt successfully to technological changes to compete effectively in the marketplace, including as a result of competition from other commercial banks, mortgage banking firms, credit unions, securities brokerage firms, insurance companies, and financial technology companies; effects of critical accounting policies and judgments, including the use of estimates in determining the fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement, costs, effects and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; loss of, or inability to attract, key personnel; the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business and the businesses of our clients; the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; our success at managing and responding to the risks involved in the foregoing items; and other factors described in our latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”) which are available on our website at www.hf-wa.com and on the SEC's website at www.sec.gov. We caution readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to us and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. We do not undertake and specifically disclaim any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except shares)
| March 31, 2025 | December 31,<br>2024 | |||
|---|---|---|---|---|
| Assets | ||||
| Cash on hand and in banks | $ | 89,072 | $ | 58,821 |
| Interest earning deposits | 159,588 | 58,279 | ||
| Cash and cash equivalents | 248,660 | 117,100 | ||
| Investment securities available for sale, at fair value (amortized cost of $772,086 and $835,592, respectively) | 716,342 | 764,394 | ||
| Investment securities held to maturity, at amortized cost (fair value of $632,648 and $623,452, respectively) | 697,561 | 703,285 | ||
| Total investment securities | 1,413,903 | 1,467,679 | ||
| Loans receivable | 4,764,848 | 4,802,123 | ||
| Allowance for credit losses on loans | (52,160) | (52,468) | ||
| Loans receivable, net | 4,712,688 | 4,749,655 | ||
| Premises and equipment, net | 71,079 | 71,580 | ||
| Federal Home Loan Bank stock, at cost | 16,160 | 21,538 | ||
| Bank owned life insurance | 112,656 | 111,699 | ||
| Accrued interest receivable | 19,651 | 19,483 | ||
| Prepaid expenses and other assets | 291,276 | 303,452 | ||
| Other intangible assets, net | 2,850 | 3,153 | ||
| Goodwill | 240,939 | 240,939 | ||
| Total assets | $ | 7,129,862 | $ | 7,106,278 |
| Liabilities and Stockholders' Equity | ||||
| Non-interest bearing deposits | 1,621,890 | 1,654,955 | ||
| Interest bearing deposits | 4,223,445 | 4,029,658 | ||
| Total deposits | 5,845,335 | 5,684,613 | ||
| Borrowings | 264,400 | 383,000 | ||
| Junior subordinated debentures | 22,131 | 22,058 | ||
| Accrued expenses and other liabilities | 116,481 | 153,080 | ||
| Total liabilities | 6,248,347 | 6,242,751 | ||
| Common stock | 532,124 | 531,674 | ||
| Retained earnings | 392,737 | 387,097 | ||
| Accumulated other comprehensive loss, net | (43,346) | (55,244) | ||
| Total stockholders' equity | 881,515 | 863,527 | ||
| Total liabilities and stockholders' equity | $ | 7,129,862 | $ | 7,106,278 |
| Shares outstanding | 34,105,516 | 33,990,827 |
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
| Quarter Ended | ||||||
|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | March 31,<br>2024 | ||||
| Interest Income | ||||||
| Interest and fees on loans | $ | 64,436 | $ | 64,864 | $ | 57,862 |
| Taxable interest on investment securities | 11,739 | 12,510 | 14,834 | |||
| Nontaxable interest on investment securities | 139 | 146 | 181 | |||
| Interest on interest earning deposits | 1,052 | 1,440 | 1,476 | |||
| Total interest income | 77,366 | 78,960 | 74,353 | |||
| Interest Expense | ||||||
| Deposits | 19,489 | 19,972 | 16,388 | |||
| Junior subordinated debentures | 471 | 512 | 547 | |||
| Borrowings | 3,716 | 4,713 | 5,888 | |||
| Total interest expense | 23,676 | 25,197 | 22,823 | |||
| Net interest income | 53,690 | 53,763 | 51,530 | |||
| Provision for credit losses | 51 | 1,183 | 1,392 | |||
| Net interest income after provision for credit losses | 53,639 | 52,580 | 50,138 | |||
| Noninterest Income | ||||||
| Service charges and other fees | 2,975 | 2,892 | 2,788 | |||
| Card revenue | 1,733 | 1,849 | 1,839 | |||
| Loss on sale of investment securities, net | (3,887) | (3,903) | (9,973) | |||
| Gain on sale of loans, net | — | — | 26 | |||
| Interest rate swap fees | — | 357 | — | |||
| Bank owned life insurance income | 918 | 256 | 920 | |||
| Gain on sale of other assets, net | 3 | 23 | — | |||
| Other income | 2,161 | 1,816 | 1,500 | |||
| Total noninterest income (loss) | 3,903 | 3,290 | (2,900) | |||
| Noninterest Expense | ||||||
| Compensation and employee benefits | 25,799 | 24,236 | 25,476 | |||
| Occupancy and equipment | 4,926 | 4,742 | 4,932 | |||
| Data processing | 3,897 | 4,020 | 3,331 | |||
| Marketing | 335 | 405 | 211 | |||
| Professional services | 734 | 663 | 567 | |||
| State/municipal business and use taxes | 1,220 | 1,180 | 1,300 | |||
| Federal deposit insurance premium | 812 | 829 | 795 | |||
| Amortization of intangible assets | 303 | 399 | 421 | |||
| Other expense | 3,357 | 3,066 | 3,337 | |||
| Total noninterest expense | 41,383 | 39,540 | 40,370 | |||
| Income before income taxes | 16,159 | 16,330 | 6,868 | |||
| Income tax expense | 2,248 | 4,402 | 1,120 | |||
| Net income | $ | 13,911 | $ | 11,928 | $ | 5,748 |
| Basic earnings per share | $ | 0.41 | $ | 0.35 | $ | 0.17 |
| Diluted earnings per share | $ | 0.40 | $ | 0.34 | $ | 0.16 |
| Dividends declared per share | $ | 0.24 | $ | 0.23 | $ | 0.23 |
| Average shares outstanding - basic | 34,012,490 | 34,109,339 | 34,825,471 | |||
| Average shares outstanding - diluted | 34,506,238 | 34,553,139 | 35,227,138 |
HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Nonperforming Assets and Credit Quality Metrics:
| Quarter Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31, 2025 | December 31,<br>2024 | March 31,<br>2024 | |||||||
| Allowance for Credit Losses on Loans: | |||||||||
| Balance, beginning of period | $ | 52,468 | $ | 51,391 | $ | 47,999 | |||
| (Reversal of) provision for credit losses on loans | (9) | 1,104 | 1,704 | ||||||
| Charge-offs: | |||||||||
| Commercial business | (222) | (4) | (77) | ||||||
| Consumer | (154) | (92) | (123) | ||||||
| Total charge-offs | (376) | (96) | (200) | ||||||
| Recoveries: | |||||||||
| Commercial business | 26 | 48 | 217 | ||||||
| Consumer | 51 | 21 | 16 | ||||||
| Total recoveries | 77 | 69 | 233 | ||||||
| Net (charge-offs) recoveries | (299) | (27) | 33 | ||||||
| Balance, end of period | $ | 52,160 | $ | 52,468 | $ | 49,736 | |||
| Net charge-offs on loans to average loans receivable (1) | 0.03 | % | — | % | — | % |
(1) Annualized.
| March 31, 2025 | December 31,<br>2024 | |||||
|---|---|---|---|---|---|---|
| Nonperforming Assets: | ||||||
| Nonaccrual loans: | ||||||
| Commercial business | $ | 3,455 | $ | 3,919 | ||
| Residential real estate | 832 | — | ||||
| Consumer | 151 | 160 | ||||
| Total nonaccrual loans | 4,438 | 4,079 | ||||
| Accruing loans past due 90 days or more | — | 1,195 | ||||
| Total nonperforming loans | 4,438 | 5,274 | ||||
| Other real estate owned | — | — | ||||
| Nonperforming assets | $ | 4,438 | $ | 5,274 | ||
| ACL on loans to: | ||||||
| Loans receivable | 1.09 | % | 1.09 | % | ||
| Nonaccrual loans | 1,175.30 | 1,286.30 | ||||
| Nonaccrual loans to loans receivable | 0.09 | 0.08 | ||||
| Nonperforming loans to loans receivable | 0.09 | 0.11 | ||||
| Nonperforming assets to total assets | 0.06 | 0.07 |
HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
| Quarter Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | September 30,<br>2024 | June 30,<br>2024 | March 31,<br>2024 | |||||||||||
| Earnings: | |||||||||||||||
| Net interest income | $ | 53,690 | $ | 53,763 | $ | 52,958 | $ | 51,113 | $ | 51,530 | |||||
| Provision for credit losses | 51 | 1,183 | 2,439 | 1,268 | 1,392 | ||||||||||
| Noninterest income (loss) | 3,903 | 3,290 | 1,837 | 5,246 | (2,900) | ||||||||||
| Noninterest expense | 41,383 | 39,540 | 39,290 | 39,096 | 40,370 | ||||||||||
| Net income | 13,911 | 11,928 | 11,423 | 14,159 | 5,748 | ||||||||||
| Basic earnings per share | $ | 0.41 | $ | 0.35 | $ | 0.33 | $ | 0.41 | $ | 0.17 | |||||
| Diluted earnings per share | $ | 0.40 | $ | 0.34 | $ | 0.33 | $ | 0.41 | $ | 0.16 | |||||
| Average Balances: | |||||||||||||||
| Loans receivable (2) | $ | 4,793,917 | $ | 4,717,748 | $ | 4,606,856 | $ | 4,466,499 | $ | 4,352,130 | |||||
| Total investment securities | 1,443,662 | 1,530,348 | 1,622,011 | 1,704,607 | 1,832,011 | ||||||||||
| Total interest earning assets | 6,333,697 | 6,367,371 | 6,379,251 | 6,292,645 | 6,292,874 | ||||||||||
| Total assets | 7,103,227 | 7,149,294 | 7,182,921 | 7,106,791 | 7,092,452 | ||||||||||
| Total interest bearing deposits | 4,112,343 | 4,011,793 | 3,997,496 | 3,916,977 | 3,868,890 | ||||||||||
| Total noninterest demand deposits | 1,631,268 | 1,703,357 | 1,677,984 | 1,638,262 | 1,657,132 | ||||||||||
| Stockholders' equity | 866,629 | 868,308 | 857,799 | 843,438 | 846,947 | ||||||||||
| Financial Ratios: | |||||||||||||||
| Return on average assets (3) | 0.79 | % | 0.66 | % | 0.63 | % | 0.80 | % | 0.33 | % | |||||
| Return on average common equity (3) | 6.51 | 5.46 | 5.30 | 6.75 | 2.73 | ||||||||||
| Return on average tangible common equity (1)(3) | 9.22 | 7.81 | 7.62 | 9.74 | 4.07 | ||||||||||
| Adjusted return on average tangible common equity (1)(3) | 11.21 | 11.59 | 10.42 | 10.74 | 9.34 | ||||||||||
| Efficiency ratio | 71.9 | 69.3 | 71.7 | 69.4 | 83.0 | ||||||||||
| Adjusted efficiency ratio (1) | 67.3 | 64.4 | 65.2 | 67.1 | 68.9 | ||||||||||
| Noninterest expense to average total assets (3) | 2.36 | 2.20 | 2.18 | 2.21 | 2.29 | ||||||||||
| Net interest spread (3) | 2.79 | 2.66 | 2.59 | 2.58 | 2.66 | ||||||||||
| Net interest margin (3) | 3.44 | 3.36 | 3.30 | 3.27 | 3.29 |
(1) Represents a non-GAAP financial measure. See “Non-GAAP Financial Measures” section for a reconciliation to the comparable GAAP financial measure.
(2) Average loans receivable includes loans held for sale.
(3) Annualized.
HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
| As of or for the Quarter Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | September 30,<br>2024 | June 30,<br>2024 | March 31,<br>2024 | |||||||||||
| Select Balance Sheet: | |||||||||||||||
| Total assets | $ | 7,129,862 | $ | 7,106,278 | $ | 7,153,363 | $ | 7,059,857 | $ | 7,091,283 | |||||
| Loans receivable | 4,764,848 | 4,802,123 | 4,679,479 | 4,532,615 | 4,428,165 | ||||||||||
| Total investment securities | 1,413,903 | 1,467,679 | 1,572,179 | 1,658,590 | 1,730,516 | ||||||||||
| Total deposits | 5,845,335 | 5,684,613 | 5,708,492 | 5,515,652 | 5,532,327 | ||||||||||
| Noninterest demand deposits | 1,621,890 | 1,654,955 | 1,682,219 | 1,599,367 | 1,637,111 | ||||||||||
| Stockholders' equity | 881,515 | 863,527 | 874,514 | 850,507 | 847,580 | ||||||||||
| Financial Measures: | |||||||||||||||
| Book value per share | $ | 25.85 | $ | 25.40 | $ | 25.61 | $ | 24.66 | $ | 24.43 | |||||
| Tangible book value per share (1) | 18.70 | 18.22 | 18.45 | 17.56 | 17.36 | ||||||||||
| Stockholders' equity to total assets | 12.4 | % | 12.2 | % | 12.2 | % | 12.0 | % | 12.0 | % | |||||
| Tangible common equity to tangible assets (1) | 9.3 | 9.0 | 9.1 | 8.9 | 8.8 | ||||||||||
| Loans to deposits ratio | 81.5 | 84.5 | 82.0 | 82.2 | 80.0 | ||||||||||
| Regulatory Capital Ratios:(2) | |||||||||||||||
| Common equity tier 1 capital ratio | 12.2 | % | 12.0 | % | 12.3 | % | 12.6 | % | 12.6 | % | |||||
| Leverage ratio | 10.2 | 10.0 | 9.9 | 10.1 | 10.0 | ||||||||||
| Tier 1 capital ratio | 12.6 | 12.4 | 12.7 | 13.0 | 13.0 | ||||||||||
| Total capital ratio | 13.6 | 13.3 | 13.6 | 13.9 | 13.9 | ||||||||||
| Credit Quality Metrics: | |||||||||||||||
| ACL on loans to: | |||||||||||||||
| Loans receivable | 1.09 | % | 1.09 | % | 1.10 | % | 1.13 | % | 1.12 | % | |||||
| Nonaccrual loans | 1,175.3 | 1,286.3 | 1,194.9 | 1,338.7 | 1,037.9 | ||||||||||
| Nonaccrual loans to loans receivable | 0.09 | 0.08 | 0.09 | 0.08 | 0.11 | ||||||||||
| Nonperforming loans to loans receivable | 0.09 | 0.11 | 0.21 | 0.18 | 0.17 | ||||||||||
| Nonperforming assets to total assets | 0.06 | 0.07 | 0.13 | 0.12 | 0.10 | ||||||||||
| Net charge-offs (recoveries) on loans to average loans receivable (3) | 0.03 | 0.00 | 0.22 | 0.00 | 0.00 | ||||||||||
| Criticized Loans by Credit Quality Rating: | |||||||||||||||
| Special mention | $ | 113,704 | $ | 110,725 | $ | 99,078 | $ | 93,694 | $ | 102,232 | |||||
| Substandard | 64,387 | 68,318 | 71,977 | 82,496 | 70,183 | ||||||||||
| Other Metrics: | |||||||||||||||
| Number of branches | 50 | 50 | 50 | 50 | 50 | ||||||||||
| Deposits per branch | $ | 116,907 | $ | 113,692 | $ | 114,170 | $ | 110,313 | $ | 110,647 | |||||
| Average number of full-time equivalent employees | 757 | 751 | 749 | 748 | 765 | ||||||||||
| Average assets per full-time equivalent employee | 9,383 | 9,520 | 9,590 | 9,501 | 9,271 |
(1) See Non-GAAP Financial Measures section herein.
(2) Current quarter ratios are estimates pending completion and filing of the Company’s regulatory reports.
(3) Annualized.
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
This earnings release contains certain financial measures not presented in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company’s capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the non-GAAP financial measures used in this earnings release to the comparable GAAP financial measures are presented below.
The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company’s capital levels.
| March 31,<br>2025 | December 31,<br>2024 | September 30,<br>2024 | June 30,<br>2024 | March 31,<br>2024 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: | |||||||||||||||
| Total stockholders' equity (GAAP) | $ | 881,515 | $ | 863,527 | $ | 874,514 | $ | 850,507 | $ | 847,580 | |||||
| Exclude intangible assets | (243,789) | (244,092) | (244,491) | (244,890) | (245,311) | ||||||||||
| Tangible common equity (non-GAAP) | $ | 637,726 | $ | 619,435 | $ | 630,023 | $ | 605,617 | $ | 602,269 | |||||
| Total assets (GAAP) | $ | 7,129,862 | $ | 7,106,278 | $ | 7,153,363 | $ | 7,059,857 | $ | 7,091,283 | |||||
| Exclude intangible assets | (243,789) | (244,092) | (244,491) | (244,890) | (245,311) | ||||||||||
| Tangible assets (non-GAAP) | $ | 6,886,073 | $ | 6,862,186 | $ | 6,908,872 | $ | 6,814,967 | $ | 6,845,972 | |||||
| Stockholders' equity to total assets (GAAP) | 12.4 | % | 12.2 | % | 12.2 | % | 12.0 | % | 12.0 | % | |||||
| Tangible common equity to tangible assets (non-GAAP) | 9.3 | % | 9.0 | % | 9.1 | % | 8.9 | % | 8.8 | % | |||||
| Shares outstanding | 34,105,516 | 33,990,827 | 34,153,539 | 34,496,197 | 34,689,843 | ||||||||||
| Book value per share (GAAP) | $ | 25.85 | $ | 25.40 | $ | 25.61 | $ | 24.66 | $ | 24.43 | |||||
| Tangible book value per share (non-GAAP) | $ | 18.70 | $ | 18.22 | $ | 18.45 | $ | 17.56 | $ | 17.36 |
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company’s ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated. The Company believes that presenting an adjusted return on tangible common equity ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers.
| Quarter Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | September 30,<br>2024 | June 30,<br>2024 | March 31,<br>2024 | |||||||||||
| Return on Average Tangible Common Equity, annualized: | |||||||||||||||
| Net income (GAAP) | $ | 13,911 | $ | 11,928 | $ | 11,423 | $ | 14,159 | $ | 5,748 | |||||
| Add amortization of intangible assets | 303 | 399 | 399 | 421 | 421 | ||||||||||
| Exclude tax effect of adjustment | (64) | (84) | (84) | (88) | (88) | ||||||||||
| Tangible net income (non-GAAP) | $ | 14,150 | $ | 12,243 | $ | 11,738 | $ | 14,492 | $ | 6,081 | |||||
| Tangible net income (non-GAAP) | $ | 14,150 | $ | 12,243 | $ | 11,738 | $ | 14,492 | $ | 6,081 | |||||
| Exclude loss on sale of investment securities, net | 3,887 | 3,903 | 6,945 | 1,921 | 9,973 | ||||||||||
| Exclude gain on sale of premises and equipment | (3) | (23) | (1,480) | (49) | — | ||||||||||
| Exclude tax effect of adjustment | (816) | (815) | (1,148) | (393) | (2,094) | ||||||||||
| Exclude BOLI restructuring costs included in BOLI Income | — | 508 | — | — | — | ||||||||||
| Exclude tax expense related to BOLI restructuring | — | 2,371 | — | — | — | ||||||||||
| Adjusted tangible net income (non-GAAP) | $ | 17,218 | $ | 18,187 | $ | 16,055 | $ | 15,971 | $ | 13,960 | |||||
| Average stockholders' equity (GAAP) | $ | 866,629 | $ | 868,308 | $ | 857,799 | $ | 843,438 | $ | 846,947 | |||||
| Exclude average intangible assets | (243,945) | (244,302) | (244,706) | (245,106) | (245,536) | ||||||||||
| Average tangible common stockholders' equity (non-GAAP) | $ | 622,684 | $ | 624,006 | $ | 613,093 | $ | 598,332 | $ | 601,411 | |||||
| Return on average common equity, annualized (GAAP) | 6.51 | % | 5.46 | % | 5.30 | % | 6.75 | % | 2.73 | % | |||||
| Return on average tangible common equity, annualized (non-GAAP) | 9.22 | % | 7.81 | % | 7.62 | % | 9.74 | % | 4.07 | % | |||||
| Adjusted return on average tangible common equity, annualized (non-GAAP) | 11.21 | % | 11.59 | % | 10.42 | % | 10.74 | % | 9.34 | % |
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
The Company believes that presenting an adjusted efficiency ratio provides useful and comparative information to assess trends in the Company's core operations reflected in the current quarter’s results and facilitate the comparison of our performance with the performance of our peers.
| Quarter Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br>2025 | December 31,<br>2024 | September 30,<br>2024 | June 30,<br>2024 | March 31,<br>2024 | |||||||||||
| Adjusted Efficiency Ratio : | |||||||||||||||
| Total noninterest expense (GAAP) | $ | 41,383 | $ | 39,540 | $ | 39,290 | $ | 39,096 | $ | 40,370 | |||||
| Net interest income (GAAP) | $ | 53,690 | $ | 53,763 | $ | 52,958 | $ | 51,113 | $ | 51,530 | |||||
| Total noninterest income (GAAP) | $ | 3,903 | $ | 3,290 | $ | 1,837 | $ | 5,246 | $ | (2,900) | |||||
| Exclude loss on sale of investment securities, net | 3,887 | 3,903 | 6,945 | 1,921 | 9,973 | ||||||||||
| Exclude gain on sale of premises and equipment | (3) | (23) | (1,480) | (49) | — | ||||||||||
| Exclude BOLI restructuring costs included in BOLI Income | — | 508 | — | — | — | ||||||||||
| Adjusted total noninterest income (non-GAAP) | $ | 7,787 | $ | 7,678 | $ | 7,302 | $ | 7,118 | $ | 7,073 | |||||
| Efficiency ratio (GAAP) | 71.9 | % | 69.3 | % | 71.7 | % | 69.4 | % | 83.0 | % | |||||
| Adjusted efficiency ratio (non-GAAP) | 67.3 | % | 64.4 | % | 65.2 | % | 67.1 | % | 68.9 | % |
17
investorpresentationq125
INVESTOR PRESENTATION Q1 2025
2 This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believes," "expects," "anticipates," "estimates," “forecasts,” "intends," “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” "will," “should,” "would," and "could," as well as the negative of such words. Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements include, but are not limited to, the following: • potential adverse impacts to economic conditions nationally or in our local market areas, other markets where Heritage Financial Corporation (the "Company") has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of credit quality deterioration, pronounced and sustained reductions in real estate market values, employment levels, labor shortages and potential recession or slowed economic growth; • changes in the interest rate environment, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; • the level and impact of inflation and the current and future monetary policies of the Board of Governors of the Federal Reserve System in response thereto; • the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; • legislative or regulatory changes that adversely affect our business, including changes in banking, securities, and tax law, in regulatory policies and principles, or the interpretation and prioritization of such rules and regulations; • effects on the U.S. economy resulting from the implementation of proposed policies and executive orders, including the imposition of tariffs, changes to immigration policy, changes to regulatory and other government agencies and changes to tax regulations; • credit and interest rate risks associated with the Company’s businesses, customers, borrowings, repayment, investment, and deposit practices; • fluctuations in deposits and deposit concentrations; • liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; • fluctuations in the value of our investment securities; • credit risks and risks from concentrations (by type of geographic area, collateral and industry) within our loan portfolio; • disruptions, security breaches, insider fraud, cybersecurity incidents or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform critical processing functions for our business, including sophisticated attacks using artificial intelligence and similar tools; • rapid technological change in the financial services industry; • increased competition in the financial services industry from non-banks such as credit unions and Fintech companies, including digital asset service providers; • our ability to adapt successfully to technological changes to compete effectively in the marketplace, including as a result of competition from other commercial banks, mortgage banking firms, credit unions, securities brokerage firms, insurance companies, and financial technology companies; • effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; • the commencement, costs, effects and outcome of litigation and other legal proceedings and regulatory actions against us or to which the Company may become subject; • loss of, or inability to attract, key personnel; • the effects of climate change, severe weather events, natural disasters, pandemics, epidemics and other public health crises, acts of war or terrorism, and other external events on our business and the businesses of our clients; • the impact of bank failures or adverse developments at other banks and related negative publicity about the banking industry in general on investor and depositor sentiment regarding the stability and liquidity of banks; and • our success at managing and responding to the risks involved in the foregoing items. You should also consider the risks, assumptions and uncertainties set forth in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2024, as well as those set forth in other reports we file with or furnish to the Securities and Exchange Commission (the “SEC”) which are available on our website at www.hf-wa.com and on the SEC's website at www.sec.gov. These risks, assumptions and uncertainties should be considered in evaluating any forward-looking statements, and undue reliance should not be placed on such statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise. Except as otherwise indicated, this presentation speaks as of March 31, 2025. The delivery of this presentation shall not, under any circumstances, create any implication that there has been no change in the affairs of the Company after such date. Certain of the information contained herein may be derived from information provided by industry sources. We believe that such information is accurate and that the sources from which it has been obtained are reliable. We cannot guarantee the accuracy of such information, however, and we have not independently verified such information. Non-GAAP Financial Information The Company reports its results in accordance with United States generally accepted accounting principles (“GAAP”). However, management believes that certain non-GAAP performance measures used in managing the business may provide meaningful information about underlying trends in its business. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP. Slides containing a discussion and reconciliation of non-GAAP financial measures are contained in the Appendix - Reconciliation of Non-GAAP Financial Measures and Quarterly Financial Statistics hereto. All dollars amounts presented throughout the entire presentation are in millions unless otherwise noted, except per share amounts. Percentages presented may not total 100% due to rounding. All tables and charts are as of March 31, 2025 unless otherwise indicated. FORWARD LOOKING STATEMENTS
HERITAGE FINANCIAL CORPORATION OVERVIEW
4 OVERVIEW General Overview Nasdaq symbol HFWA Stock price(2) $21.88 Market capitalization(2) $744 million Institutional ownership(2) 81.2% Headquarters Olympia, WA # of branches 50 Year established 1927 Q1 2025 Financial Highlights Assets $7.1 billion Deposits $5.8 billion Loans receivable $4.8 billion Net income $13.9 million Net interest margin 3.44% ROAE(3) 6.51% ROATCE(1)(4) 9.22% Adjusted ROATCE(1)(4) 11.21% Efficiency ratio 71.9% Adjusted efficiency ratio(1) 67.3% Leverage ratio 10.2% Total capital ratio 13.6% Map obtained from S&P Global Market Intelligence; certain locations of branches overlap on the map. (1) Represents a non-GAAP financial measure (2) Market information as of April 21, 2025. (3) Return on average equity (4) Return on average tangible common equity Metropolitan Statistical Areas Seattle-Tacoma-Bellevue, WA Portland-Vancouver-Hillsboro, OR-WA Eugene-Springfield, OR Boise–Nampa, ID Heritage Location Spokane
5 COMPANY STRATEGY Allocate capital to organically grow our core banking business Ÿ Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and Portland markets as well as other key markets including our recent branch openings in Eugene, Oregon and Boise, Idaho and loan production office in Spokane, Washington Ÿ Disciplined approach to concentration risk and active portfolio management Improve operational efficiencies and rationalize branch network Ÿ Focused on achieving increased efficiencies with operational scale, internal focus on improving processes and technology solutions Ÿ Closed/Consolidated 36 branches since the beginning of 2010, including 12 branches in 2021 and one branch in 2023 Ÿ Full-time equivalent employee decreased to 757 at March 31, 2025 compared to 803 at December 31, 2023 Generate stable profitability and risk adjusted returns Ÿ Adjusted return on average tangible common equity(1) ("ROATCE") averaged 12.7% from 2022 to 2024. Ÿ Five-year growth in tangible book value(1) of $3.60, or 23.8%, to $18.70 at March 31, 2025 from $15.10 at March 31, 2020 Remain active and disciplined in M&A Ÿ Five acquisitions in Washington and Oregon since 2013 Ÿ Target metrics = IRR of >15% with earnbacks < 3 years Maintain conservative underwriting standards and actively manage the loan portfolio Ÿ Long track record of strong underwriting with conservative risk profile Ÿ Disciplined approach to concentration risk Ÿ Nonaccrual loans to loans receivable at 0.09% at March 31, 2025 Focus on core deposits to increase franchise value over the long term Ÿ 27.7% noninterest demand deposits to total deposits at March 31, 2025 Ÿ 1.38% cost of total deposits; top 10% performance among US publicly traded banks in Q4 2024 Engage in proactive capital management Ÿ History of increasing regular dividends and utilizing special dividends to manage capital Ÿ In April 2024, approved a stock repurchase plan up to 5% of the Company's outstanding common shares or approximately 1.7 million shares Ÿ Strong capital ratios: leverage ratio(3) = 10.2%; total capital ratio(3) = 13.6% (1) Represents a non-GAAP financial measure (2) Comparable cost of total deposits provided by S&P Global Market Intelligence for the fourth quarter of 2024 and includes banks nationwide with shares on Nasdaq or NYSE with total assets less than $100 billion excluding pending merger targets (3) Current quarter capital ratios are estimates pending completion and filing of the Company's regulatory reports
6 PROFITABILITY IMPROVEMENT MEASURES 2023 TOTAL 2024 TOTAL Q1 2025 GRAND TOTAL Quarterly Impact Investments Sold (Book Value) $161.8 $296.4 $60.9 $519.1 Weighted Average Book Yield of Sales 2.41% 2.23% 2.60% 2.33% Investments Purchased $140.7 $33.1 $28.2 $202.0 Weighted Average Book Yield of Purchases 6.08% 6.05% 4.55% 5.86% Loss on Sale of Investments $10.0 $22.7 $3.9 $36.6 Quarterly Estimated EPS Impact $(0.22) $(0.51) $(0.09) $(0.82) Estimated Annualized Profitability Improvement Estimated Annualized Pre-Tax Financial Impact $5.4 $11.9 $1.7 $19.0 Estimated Annualized EPS Impact $0.12 $0.26 $0.04 $0.42 Balance Sheet Repositioning The Company has completed investment sales over the past several quarters as part of strategic repositioning of the balance sheet. Estimated annualized profitability improvements assumes all proceeds invested in new loan fundings or investment purchases.
7 $113,456 $94,748 $86,463 $78,770 Median household income 4.1% 3.5% 9.9% 5.0% 0.3% 9.7% 3.8% 7.3% 13.3% 4.0% 2.4% 8.8% Seattle MSA Portland MSA Boise MSA USA Unemployment rate 2025-2030 Projected Population Growth 2025-2030 Projected Median Household Income Growth STRONG AND DIVERSE ECONOMIC LANDSCAPE Major Employers in the Pacific Northwest Data obtained from www.bls.gov, www.bea.gov and S&P Global Market Intelligence Unemployment data reflects the BLS's latest monthly Economic New Release - Employment & Unemployment Economic data as of January 2025 MSA Tie-out of websites used: https://www.bls.gov/web/metro/laulrgma.htm https://www.bls.gov/web/laus/laumstcm.htm https://data.bls.gov/timeseries/LNS14000000 https://www.zippia.com/advice/largest-companies-in-washington/https://www.zippia.com/advice/largest-companies-in-oregon/
8 LOANS AND DEPOSITS BY LOCATION MSA = Metropolitan or Micropolitan Statistical Area Location based upon branch or office location Loans by MSA Seattle WA $2,336 49.0% Portland OR-WA $705 14.8% Mount Vernon WA $261 5.5% Olympia WA $186 3.9% Yakima WA $101 2.1% Bellingham WA $183 3.9% Other $993 20.8% Deposits by MSA Seattle WA $2,583 44.2% Portland OR-WA $866 14.8% Mount Vernon WA $333 5.7% Olympia WA $497 8.5% Longview WA $149 2.5% Oak Harbor WA $547 9.4% Yakima WA $226 3.9% Bellingham WA $176 3.0% Other $468 8.0%
9 POTENTIAL GROWTH OPPORTUNITIES Map obtained from S&P Global Market Intelligence Certain locations of bank headquarters overlap on the map Financial information as of the most recent quarter publicly available Excluding banks with pending mergers and acquisitions • Long-term goal to build a Pacific Northwest ("PNW") regional commercial community bank; potential opportunities for M&A and production team lift-outs in WA, OR and ID. • Significant number of banks remaining in HFWA footprint; further consolidation is expected. – 10 banks between $200 million and $500 million in assets – 16 banks between $500 million and $1.0 billion in assets – 14 banks between $1.0 billion and $3.5 billion in assets • Target metrics include 15% IRR and earnback of < 3 years. Bank headquarters
10 $1,712 $3,651 $3,879 $4,113 $4,238 $5,553 $6,615 $7,432 $6,980 $7,175 $7,106 $7,130 $1,747 $1,079 $15.02 $15.68 $16.08 $16.88 $20.63 $22.10 $22.85 $24.34 $22.73 $24.44 $25.40 $25.85 $10.73 $11.41 $11.86 $12.70 $13.54 $15.07 $15.77 $17.19 $15.66 $17.40 $18.22 $18.70 Organic Assets Acquired Assets Book value per share Tangible book value per share (1) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Q1 2025 Acquired Puget Sound Bancorp $639MM in assets Premier Commercial Bancorp $440MM in assets HISTORICAL GROWTH ORGANIC AND ACQUISITIVE Merged with Washington Banking Company $1.7B in assets (1) Represents a non-GAAP financial measure
11 GROWTH STRATEGY YEAR ACTIVITY 2013 • Acquired Valley Community Bancshares - $254MM in assets • Acquired Northwest Commercial Bank - $65MM in assets 2014 • Merged with Washington Banking Company - $1.7B in assets 2015 • Added a commercial banking team in Seattle, Washington • Formed Capital Markets Group as result of the added expertise 2017 • Added commercial banking team in the greater Portland, Oregon area • Expanded expertise in non-profit lending and added a commercial position focused on deposit production 2018 • Acquired Puget Sound Bancorp - $639MM in assets • Acquired Premier Commercial Bancorp - $440MM in assets 2019 • Added commercial banking team in the greater Portland, Oregon area • Expanded expertise in the dental and healthcare fields 2022 • Added new commercial banking team in Vancouver, Washington • Added new commercial banking team in Portland, Oregon • Expanded into a new market with addition of commercial banking team and full service branch in Eugene, Oregon (branch opened August 2022) 2023 • Expanded into a new market with addition of commercial banking team and full service branch in Boise, Idaho (branch opened January 2023) 2024 • Expanded Builder Banking team with hiring of new SVP, Director of Builder Banking and sales position in greater Seattle, Washington area. 2025 • Expanded into a new market with addition of commercial banking team and loan production office in Spokane, Washington in January 2025 Bank Acquisitions and Team Additions Bank Acquisition Team Addition
FINANCIAL UPDATE
13 LOAN PORTFOLIO Loan Portfolio Composition $196 $171 $165 $167 $344 $375 $403 $393$294 $414 $479 $453 $693 $718 $843 $851$937 $959 $1,003 $985 $1,587 $1,698 $1,909 $1,916 Consumer Residential real estate Construction & land development Commercial and Industrial (C&I) Owner-occupied CRE Non-owner occupied CRE 2022 2023 2024 Q1 2025 New Loan Commitments $20 $25 $24 $21 $18$14 $27 $2 $— $— $39 $63 $35 $85 $64$60 $87 $128 $101 $59 $34 $68 $90 $130 $60 Consumer Residential real estate Construction & land development Commercial and Industrial (C&I) Commercial Real Estate (CRE) Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025
14 Construction Commitments $686 $769 $682 $666 $294 $414 $479 $453 $392 $355 $203 $213 Outstanding Balance Available Credit 2022 2023 2024 Q1 2025 LOC Utilization Rates 29.8% 28.2% 29.7% 30.7% 42.9% 53.8% 70.2% 68.0% 31.1% 31.1% 31.6% 32.3% Utilization Rate - Consumer LOCs Utilization Rate - Construction LOCs Utilization Rate - C&I LOCs 2022 2023 2024 Q1 2025 LINE OF CREDIT ("LOC") UTILIZATION
15 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 03/31/25 Real estate, rental and leasing $2,070 4.5 Health care and social assistance 335 4.3 Accommodation and food services 187 5.1 Retail trade 151 4.7 Construction 155 4.8 Other services (except Public administration) 122 4.6 Manufacturing 95 4.7 All other industries 637 4.4 Total $3,752 4.5 CRE Loans only by Collateral Type Collateral Type Amount WARR at 03/31/25 Office $572 4.3 Industrial 499 4.5 Retail store / shopping center 301 4.6 Multi-family 441 4.6 Mixed use property 155 4.6 Motel / hotel 144 5.0 Single purpose 126 4.7 Warehouse 134 4.5 Mini-storage 160 4.1 Recreational / school 72 5.0 Other 296 4.6 Total $2,900 4.5 WARR = Weighted average risk rating Categorized by NAICS code. Office - Owner-occupied CRE 10.3% Office - Non-owner occupied CRE 9.4% Industrial 17.2% Retail store / shopping center 10.4% Multi-family 15.2% Mixed use property 5.3% Motel / hotel 4.9% Single purpose 4.4% Warehouse 4.6% Mini-storage 5.5% Recreational / school 2.5% Other 10.3% Real estate, rental and leasing 55.2% Health care and social assistance 8.9% Accommodation and food services 5.0% Retail trade 4.0% Construction 4.1% Other Services (except Public administration) 3.3% Manufacturing 2.5% All other industries 17.0%
16 CHANGES IN LOANS RECEIVABLE $4,802 $96 $(80) $(47) $(6) $4,765 Loans receivable at December 31, 2024 Loans originated Prepayments Maturities / Payoffs Net advances/ payments Loans receivable at March 31, 2025 $4,336 $626 $(177) $(136) $153 $4,802 Loans receivable at December 31, 2023 Loans originated Prepayments Maturities / Payoffs Net advances/ payments Loans receivable at December 31, 2024 Change in loans - Q1 2025 Change in loans - 2024
17 CRE OFFICE CRE Office Loans by Size Size WARR(2) # of Loans Total Balance(1) Average Balance Per Loan(1) >$10 Million 3.3 5 $ 75,187 $ 15,037 $5-$10 Million 4.0 15 94,011 6,267 $2-$5 Million 4.6 47 135,925 2,892 <$2 Million 4.6 459 266,805 581 TOTAL 4.3 526 $ 571,928 $ 1,087 Quality of CRE Office Portfolio: • 81.0% of loans have recourse to owner • 52.0% of loans are owner occupied which are considered to have a lower risk profile • 24.9% of loans are borrowers in the health care and social assistance sectors, who are less likely to reduce office space CRE Office Loans by Industry Type Health Care and Social Assistance 24.9% Professional, Scientific, and Technical Services 3.2% Finance and Insurance 2.7% Other Services (except Public Administration) 2.9% Accommodation and Food Services 1.1% All Other 65.2% (1) Dollars in thousands (2) Weighted average risk rating
18 Net charge-offs (recoveries) on loans to average loans, annualized (0.03)% (0.01)% 0.06% 0.00% 0.00% 0.22% 0.00% 0.03% 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 (0.10)% 0.00% 0.10% 0.20% 0.30% Nonaccrual Loans $6 $4 $4 $4 Nonaccrual loans Nonaccrual loans to loans receivable 2022 2023 2024 Q1 2025 0.15% 0.10% 0.08% 0.09% NONACCRUAL LOANS AND NET CHARGE-OFFS
19 CRITICIZED LOANS $135 $150 $179 $178 $60 $65 $64 $60 $69 $80 $111 $114 Substandard - nonaccrual Substandard - accrual Special mention 2022 2023 2024 Q1 2025 Criticized Loans by Loan Segment Commercial & industrial 26.7% Owner- occupied CRE 18.6% Non-owner occupied CRE 33.2% Residential real estate 1.0% Construction & land development 19.6% Consumer 0.9% Criticized Loans by Collateral Type Motel/Hotel 9.1% Office 8.1% Multi-Family 13.6%Retail Store/Shopping Center 9.0% Mixed Use Property 9.1% Elder Care 5.9% Farm-Bldgs/Land 1.9% Industrial 3.7% Duplex/Tri-Plex/4-Plex 3.2% Other CRE 19.8% Non-CRE 16.6% $6 $4 $4 $4
20 ACL on Loans $42,986 $47,999 $52,468 $52,160 1.06% 1.11% 1.09% 1.09% ACL on loans ($) ACL on loans / Loans (%) 2022 2023 2024 Q1 2025 ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOANS $52,468 $(710) $424 $(7) $(15) $52,160 December 31, 2024 Change in loan balance Change in collective rate Change in rate and balance Individually evaluated loans March 31, 2025 Change in ACL on Loans - Q1 2025 Dollars in thousands
21 CRITICIZED LOANS AND NET CHARGE-OFF HISTORY Criticized Loans to Total Loans 3.63% 3.79% 6.50% 4.81% 3.34% 3.45% 3.73% 2.19% 2.05% 3.47% 2.63% 1.96% 2.32% 2.66% Heritage Peer Median 2018 2019 2020 2021 2022 2023 2024 Net Chargeoffs to Average Loans 0.06% 0.09% 0.07% 0.01% (0.03)% (0.01)% 0.06% 0.07% 0.11% 0.05% 0.03% 0.02% 0.07% 0.05% Heritage Peer Median 2018 2019 2020 2021 2022 2023 2024 (1) Criticized loans includes loans graded special mention or worse (2) Peer Median is the median of 17 identified peer banks ranging in asset size from $4 billion to $15 billion and is as of December 31, 2024 Proactive Credit Management • Heritage proactively downgrades loans that are experiencing financial difficulty. • Criticized loans(1) to total loans higher than peer median(2) since 2018 • NCOs recognized during the same period were generally lower than peer median.
22 Average Deposit Balances and Cost of Total Deposits $6,322 $5,706 $5,618 $5,526 $5,555 $5,675 $5,715 $5,744 0.11% 0.69% 1.34% 1.19% 1.34% 1.42% 1.39% 1.38% 1.70% 1.89% 2.02% 1.98% 1.92% 0.17% 1.03% 1.90% Average deposits Cost of total deposits Cost of int-bearing deposits 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 DEPOSITS Deposit Composition 35.5% 30.6% 29.1% 27.7% 30.9% 28.7% 25.8% 26.1% 17.9% 19.5% 20.5% 21.9% 10.5% 8.7% 7.4% 7.4% 5.2% 12.4% 17.2% 16.9% Noninterest demand deposits Interest bearing demand deposits Money market accounts Savings accounts Certificates of deposit 2022 2023 2024 Q1 2025
23 DEPOSIT COMPOSITION Customer Deposits by Relationship Size $805 $349 $1,383 $1,494 $1,814 Over $10MM $5MM-$10MM $1MM-5MM $250K-$1MM Less than $250K Consumer Accounts vs. Business Accounts 25% 58% 17% Consumer Commercial CDs Insured vs. Uninsured 40% 60% Insured Uninsured Deposit portfolio as of March 31, 2025: • Majority of deposits are to customers with relationships of $1 million or less. • Uninsured deposits at 40% of total deposits. 12% of uninsured deposits are public deposits that are 100% pledged. • Mix of commercial and consumer accounts.
24 Investment Balances and Investment Yield $2,098 $1,874 $1,468 $1,731 $1,659 $1,572 $1,468 $1,414 $1,203 $178 $33 $33 $28 2.48% 3.02% 3.33% 3.30% 3.38% 3.34% 3.29% 3.34% Portfolio yield New purchases 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 INVESTMENT PORTFOLIO Portfolio Duration 4.93 4.85 4.55 4.08 3.37 2.33 4.80 4.81 4.56 4.55 4.59 2.33 4.04 Duration - total portfolio Duration - new purchases only (1) 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 (1) No investments were purchased during Q2 2024, Q3 2024 or Q4 2024
25 $37 $36 $37 $45 $55 $56 $42 $56 $41 $33 $28 $56 $26 $25 $26 $34 $44 $46 $32 $47 $32 $24 $19 $48 $11 $11 $11 $11 $11 $10 $10 $9 $9 $9 $9 $8 Interest Principal Q2 2025 Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Q1 2027 Q2 2027 Q3 2027 Q4 2027 Q1 2028 INVESTMENT CASHFLOWS Investment cashflows(1) are estimated to be $522 million through Q1 of 2028. (1) Cashflow estimates based on third-party bond accounting service
26 INVESTMENT PORTFOLIO HTM Investment by Type US government and agencies 19.9% Residential CMO and MBS 35.7% Commercial CMO and MBS 44.4% Available for sale ("AFS") and held to maturity ("HTM") investment securities percentages are based on fair value as of March 31, 2025 unless otherwise noted Strong Credit Quality of Portfolio: AFS Securities • 90.0% of AFS in U.S. government and agency securities • Only 1.7% of AFS are rated less than AA HTM Securities • All HTM investments are U.S. government and agency securities • 100% HTM portfolio pledged for public deposits and Federal Reserve Bank borrowings AFS Investments Pledged 2.5% 97.5% Pledged Not pledged AFS Investment by Type US government and agencies 1.6% Municipal securities 7.1% Residential CMO and MBS 49.8% Commercial CMO and MBS 38.5% Corporate obligations 1.7% Other asset-backed securities 1.3%
27 Net Interest Margin 3.33% 3.56% 3.31% 3.29% 3.27% 3.30% 3.36% 3.44% 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 NET INTEREST MARGIN Quarterly Change in Net Interest Margin 3.36% 0.08% (0.03)% (0.02)% —% 0.05% 3.44% QTD Q4 2024 Loans Investments Interest earning deposits Deposits Borrowings QTD Q1 2025 Net Interest Income $219,385 $225,155 $209,364 $51,530 $51,113 $52,958 $53,763 $53,690 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025
28 Adjustable Rate Loans - Repricing Schedule $1,065 $157 $195 $166 $238 $347 $117 6.89% 4.30% 3.99% 5.69% 6.21% 6.10% 4.97% 6.93% 6.68% 6.50% 6.32% 6.51% 6.38% 6.71% Floating and Adjustable Rate Loans Wtd Avg Rate (1) Wtd Avg Rate if Repriced (2) < 3 Months 3 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years > 5 Years LOAN MATURITY AND REPRICING (1) Weighted Average Rate as of March 31, 2025 and repricing period signifies the sooner of the next scheduled reprice date or maturity (2) Weighted Average Rate if Repriced as of March 31, 2025 and assumes same index and margin Adjustable Rate Loans • $2.3 billion in total • 52% tied to FHLB index, 21% tied to Prime, 27% tied to SOFR Fixed Rate Loans - Maturity Schedule $63 $193 $130 $207 $182 $343 $1,354 5.15% 5.21% 4.77% 4.86% 5.14% 5.22% 4.36% Fixed Rate Loans Wtd Avg Rate (1) < 3 Months 3 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years > 5 Years Fixed Rate Loans • $2.5 billion in total
29 PROFITABILITY TRENDS ROAA and Adjusted ROAA(1) 1.12% 0.86% 0.61% 0.33% 0.80% 0.63% 0.66% 0.79% 1.12% 0.99% 0.88% 0.77% 0.89% 0.87% 0.99% 0.97% ROAA Adjusted ROAA (1) 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Noninterest Expense/Avg. Assets 2.06% 2.33% 2.22% 2.29% 2.21% 2.18% 2.20% 2.36% 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 ROAA = Return on average assets (1) Represents a non-GAAP financial measure
30 $81.9 $61.8 $43.3 $81.8 $70.9 $62.9 Net income Adjusted Net income (1) 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 $5.7 $14.2 $11.4 $11.9 $13.9 $13.6 $15.6 $15.7 $17.9 $17.0 PROFITABILITY TRENDS ROAE, ROATCE(1) and Adjusted ROATCE(1) Net Income and Adjusted Net Income(1), in millions 14.92% 12.76% 10.53% 9.34% 10.74% 10.42% 11.59% 11.21%14.94% 11.15% 7.31% 4.07% 9.74% 7.62% 7.81% 9.22% 10.08% 7.55% 5.06% 2.73% 6.75% 5.30% 5.46% 6.51% ROAE ROATCE (1) Adjusted ROATCE (1) 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 ROAE = Return on average equity ROATCE = Return on average tangible common equity (1) Represents a non-GAAP financial measure
31(1) Represents a non-GAAP financial measure (2) Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports CAPITAL RATIOS Equity Ratios 11.4% 11.9% 12.2% 12.4% 8.2% 8.8% 9.0% 9.3% Stockholders' equity to total assets (GAAP) Tangible common equity to tangible assets(1) 2022 2023 2024 Q1 2025 12.8% 12.9% 12.0% 12.2% 9.7% 10.0% 10.0% 10.2% 14.0% 14.1% 13.3% 13.6% Total Risk Based Capital Tier 1 Leverage Ratio Common Equity Tier 1 2022 2023 2024 Q1 2025 Regulatory Capital Ratios(2)
32 LIQUIDITY POSITION (1) Includes FHLB borrowing availability of $1.35 billion at March 31, 2025 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.20 billion Liquidity position at March 31, 2025: • Sufficient liquidity to cover estimated uninsured deposits of $2.3 billion. • Access to brokered deposits of $768 million per internal company policy. Liquidity Sources $2,499 $2,408 $2,525 $2,345 $2,542 $1,385 $943 $1,068 $976 $1,084 $71 $279 $288 $360 $366 $708 $927 $848 $746 $698 $190 $114 $176 $117 $249 $145 $145 $145 $145 $145 122.3% 116.2% 112.6% 103.1% 109.3% FHLB borrowing availability (1) FRB borrowing availability Unencumbered investment securities available for sale at fair value Cash and cash equivalents Fed funds lines % of uninsured deposits covered by liquidity sources Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025
SHAREHOLDER RETURN
34 TOTAL SHAREHOLDER RETURN Stock Summary(2) Ticker HFWA Exchange Nasdaq Stock price $21.88 Market capitalization (in millions) $743.8 Dividend yield (regular dividend only) 4.39 % Average Daily Volume (3 month) Average daily volume (shares) 208,082 Average daily volume ($000s) $4,553 52-Week High and Low Price 52-week high (November 25, 2024) $27.58 52-week low (June 17, 2024) $16.55 Per Share Tangible book value per share(1) $18.70 EPS - 2025E $2.02 EPS - 2026E $2.29 Number of research analysts 6 Valuation Ratios Price / Tangible book value(1) 117.0 % Price / 2025E EPS 10.8 Price / 2026E EPS 9.6 Dividends Per Share Declared(3) 0.72 0.61 0.72 0.84 0.80 0.81 0.84 0.88 0.92 0.48 $0.11 $0.12 $0.15 $0.18 $0.20 $0.20 $0.21 $0.22 $0.23 $0.24 $0.12 $0.13 $0.15 $0.18 $0.20 $0.20 $0.21 $0.22 $0.23 $0.24 $0.12 $0.13 $0.15 $0.19 $0.20 $0.20 $0.21 $0.22 $0.23 $0.12 $0.13 $0.17 $0.19 $0.20 $0.21 $0.21 $0.22 $0.23 $0.25 $0.10 $0.10 $0.10 Q1 Q2 Q3 Q4 Special dividends 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025(1) Represents a non-GAAP financial measure (2) Market information as of April 21, 2025 and earnings per share and valuation ratios are based on analysts consensus (3) Dividend information as of April 23, 2025 $2.31 $2.01 $1.80$2.31 $1.75 $1.24 $0.39 $0.45 $0.45 $0.51 $0.49 $0.16 $0.41 $0.33 $0.34 $0.40 Diluted EPS Adjusted Diluted EPS(1) 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Diluted EPS and Adjusted Diluted EPS(1)
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND QUARTERLY FINANCIAL STATISTICS
36 NON-GAAP FINANCIAL MEASURES Dollars in thousands 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Adjusted Net Income and Adjusted Return on Average Assets ("ROAA"): Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Exclude (gain) loss on sale of investment securities, net 256 12,231 22,742 9,973 1,921 6,945 3,903 3,887 Exclude gain on sale of branch including related deposits, net — (610) — — — — — — Exclude gain on sale of premise and equipment (403) — (1,552) — (49) (1,480) (23) (3) Exclude tax effect of adjustments 31 (2,440) (4,450) (2,094) (393) (1,148) (815) (816) Exclude BOLI restructuring costs included in BOLI Income $ — $ — $ 508 $ — $ — $ — $ 508 $ — Exclude tax expense related to BOLI restructuring — — 2,371 — — — 2,371 — Adjusted net income (non-GAAP) $ 81,759 $ 70,936 $ 62,877 $ 13,627 $ 15,638 $ 15,740 $ 17,872 $ 16,979 Average total assets $ 7,321,455 $ 7,140,024 $ 7,133,046 $7,092,452 $7,106,791 $7,182,921 $7,149,294 $7,103,227 ROAA, annualized (GAAP) 1.12 % 0.86 % 0.61 % 0.33 % 0.80 % 0.63 % 0.66 % 0.79 % Adjusted ROAA, annualized (non-GAAP) 1.12 % 0.99 % 0.88 % 0.77 % 0.89 % 0.87 % 0.99 % 0.97 %
37 NON-GAAP FINANCIAL MEASURES 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Return on Average Tangible Common Equity ("ROATCE") and Adjusted ROATCE: Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Add amortization of intangible assets 2,750 2,434 1,640 421 421 399 399 303 Exclude tax effect of adjustment (578) (511) (344) (88) (88) (84) (84) (64) Tangible net income (non-GAAP) $ 84,047 $ 63,678 $ 44,554 $ 6,081 $ 14,492 $ 11,738 $ 12,243 $ 14,150 Tangible net income (non-GAAP) $ 84,047 $ 63,678 $ 44,554 $ 6,081 $ 14,492 $ 11,738 $ 12,243 $ 14,150 Exclude (gain) loss on sale of investment securities, net 256 12,231 22,742 9,973 1,921 6,945 3,903 3,887 Exclude gain on sale of branch including related deposits, net — (610) — — — — — — Exclude gain on sale of premise and equipment (403) — (1,552) — (49) (1,480) (23) (3) Exclude tax effect of adjustments 31 (2,440) (4,450) (2,094) (393) (1,148) (815) (816) Exclude BOLI restructuring costs included in BOLI Income — — 508 — — — 508 — Exclude tax expense related to BOLI restructuring — — 2,371 — — — 2,371 — Adjusted tangible net income (non-GAAP) $ 83,931 $ 72,859 $ 64,173 $ 13,960 $ 15,971 $ 16,055 $ 18,187 $ 17,218 Average stockholders' equity (GAAP) $ 811,942 $ 818,042 $ 854,172 $ 846,947 $ 843,438 $ 857,799 $ 868,308 $ 866,629 Exclude average intangible assets (249,566) (246,965) (244,910) (245,536) (245,106) (244,706) (244,302) (243,945) Average tangible common stockholders' equity (non- GAAP) $ 562,376 $ 571,077 $ 609,262 $ 601,411 $ 598,332 $ 613,093 $ 624,006 $ 622,684 ROAE, annualized (GAAP) 10.08 % 7.55 % 5.06 % 2.73 % 6.75 % 5.30 % 5.46 % 6.51 % ROATCE, annualized (non-GAAP) 14.94 % 11.15 % 7.31 % 4.07 % 9.74 % 7.62 % 7.81 % 9.22 % Adjusted ROATCE, annualized (non-GAAP) 14.92 % 12.76 % 10.53 % 9.34 % 10.74 % 10.42 % 11.59 % 11.21 % Dollars in thousands
38 NON-GAAP FINANCIAL MEASURES 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Diluted Earnings per Share and Adjusted Diluted Earnings per Share: Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Exclude (gain) loss on sale of investment securities, net 256 12,231 22,742 9,973 1,921 6,945 3,903 3,887 Exclude gain on sale of branch including related deposits, net — (610) — — — — — — Exclude gain on sale of premise and equipment (403) — (1,552) — (49) (1,480) (23) (3) Exclude tax effect of adjustments 31 (2,440) (4,450) (2,094) (393) (1,148) (815) (816) Exclude BOLI restructuring costs included in BOLI Income — — 508 — — — 508 — Exclude tax expense related to BOLI restructuring — — 2,371 — — — 2,371 — Adjusted net income (non-GAAP) $ 81,759 $ 70,936 $ 62,877 $ 13,627 $ 15,638 $ 15,740 $ 17,872 $ 16,979 Average number of diluted shares outstanding 35,463,896 35,258,189 34,899,036 35,227,138 34,919,395 34,658,674 34,553,139 34,506,238 Diluted earnings per share (GAAP) $ 2.31 $ 1.75 $ 1.24 $ 0.16 $ 0.41 $ 0.33 $ 0.34 $ 0.40 Adjusted diluted earnings per share (non-GAAP) $ 2.31 $ 2.01 $ 1.80 $ 0.39 $ 0.45 $ 0.45 $ 0.51 $ 0.49 Dollars in thousands
39 2016 2017 2018 2019 2020 2021 2022 2023 2024 Tangible Book Value Per Share: Total stockholders' equity (GAAP) $ 481,763 $ 505,305 $ 760,723 $ 809,311 $ 820,439 $ 854,432 $ 797,893 $ 853,261 $ 863,527 Exclude intangible assets (126,403) (125,117) (261,553) (257,552) (254,027) (250,916) (248,166) (245,732) (244,092) Tangible common equity (non-GAAP) $ 355,360 $ 380,188 $ 499,170 $ 551,759 $ 566,412 $ 603,516 $ 549,727 $ 607,529 $ 619,435 Shares outstanding 29,954,931 29,927,746 36,874,055 36,618,729 35,912,243 35,105,779 35,106,697 34,906,233 33,990,827 Book value per share (GAAP) $ 16.08 $ 16.88 $ 20.63 $ 22.10 $ 22.85 $ 24.34 $ 22.73 $ 24.44 $ 25.40 Tangible book value per share (non-GAAP) $ 11.86 $ 12.70 $ 13.54 $ 15.07 $ 15.77 $ 17.19 $ 15.66 $ 17.40 $ 18.22 Moved to 2nd slide Tangible Book Value Per Share (cont'd): 2025 Q1 Total stockholders' equity (GAAP) $ 881,515 Exclude intangible assets (243,789) Tangible common equity (non-GAAP) $ 637,726 Shares outstanding 34,105,516 Book value per share (GAAP) $ 25.85 Tangible book value per share (non-GAAP) $ 18.70 NON-GAAP FINANCIAL MEASURES Dollars in thousands
40 NON-GAAP FINANCIAL MEASURES Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Efficiency Ratio and Adjusted Efficiency Ratio Total noninterest expense (GAAP) $ 40,370 $ 39,096 $ 39,290 $ 39,540 $ 41,383 Net interest income (GAAP) $ 51,530 $ 51,113 $ 52,958 $ 53,763 $ 53,690 Total noninterest income (GAAP) $ (2,900) $ 5,246 $ 1,837 $ 3,290 $ 3,903 Exclude (gain) loss on sale of investment securities, net 9,973 1,921 6,945 3,903 3,887 Exclude gain on sale of branch including related deposits, net — — — — — Exclude gain on sale of premise and equipment — (49) (1,480) (23) (3) Exclude BOLI restructuring costs included in BOLI Income — — — 508 — Adjusted total non interest income (non-GAAP) $ 7,073 $ 7,118 $ 7,302 $ 7,678 $ 7,787 Efficiency ratio (GAAP) 83.01 % 69.37 % 71.70 % 69.30 % 71.85 % Adjusted efficiency ratio (non-GAAP) 68.89 % 67.14 % 65.20 % 64.35 % 67.31 % Dollars in thousands
41 As of Period End or for the Three Months Ended March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 March 31, 2025 Profitability: Net income $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Adjusted net income(1) $ 13,627 $ 15,638 $ 15,740 $ 17,872 $ 16,979 Diluted earnings per share $ 0.16 $ 0.41 $ 0.33 $ 0.34 $ 0.40 Adjusted diluted earnings per share (1) $ 0.39 $ 0.45 $ 0.45 $ 0.51 $ 0.49 Return on average assets 0.33 % 0.80 % 0.63 % 0.66 % 0.79 % Adjusted return on average assets(1) 0.77 % 0.89 % 0.87 % 0.99 % 0.97 % Return on average common equity 2.73 % 6.75 % 5.30 % 5.46 % 6.51 % Return on average tangible common equity(1) 4.07 % 9.74 % 7.62 % 7.81 % 9.22 % Adjusted return on average tangible common equity(1) 9.34 % 10.74 % 10.42 % 11.59 % 11.21 % Net interest margin 3.29 % 3.27 % 3.30 % 3.36 % 3.44 % Efficiency ratio 83.0 % 69.4 % 71.7 % 69.3 % 71.9 % Adjusted efficiency ratio(1) 68.9 % 67.1 % 65.2 % 64.4 % 67.3 % Noninterest expense to average total assets 2.29 % 2.21 % 2.18 % 2.20 % 2.36 % Balance Sheet: Total assets $ 7,091,283 $ 7,059,857 $ 7,153,363 $ 7,106,278 $ 7,129,862 Loans receivable $ 4,428,165 $ 4,532,615 $ 4,679,479 $ 4,802,123 $ 4,764,848 Total deposits $ 5,532,327 $ 5,515,652 $ 5,708,492 $ 5,684,613 $ 5,845,335 Loan to deposit ratio 80.0 % 82.2 % 82.0 % 84.5 % 81.5 % Capital: Book value per share $ 24.43 $ 24.66 $ 25.61 $ 25.40 $ 25.85 Tangible book value per share(1) $ 17.36 $ 17.56 $ 18.45 $ 18.22 $ 18.70 Leverage ratio 10.0 % 10.1 % 9.9 % 10.0 % 10.2 % Total capital ratio 13.9 % 13.9 % 13.6 % 13.3 % 13.6 % Credit Quality: Nonperforming assets to total assets 0.10 % 0.12 % 0.13 % 0.07 % 0.06 % ACL on loans to loans receivable 1.12 % 1.13 % 1.10 % 1.09 % 1.09 % Dollars in thousands (1) Represents a non-GAAP financial measure QUARTERLY FINANCIAL STATISTICS