株探米国株
日本語 英語
エドガーで原本を確認する
0001046025False00010460252024-04-252024-04-25

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 25, 2024
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
incorporation or organization)		   (I.R.S. Employer
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 NASDAQ

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 25, 2024, Heritage Financial Corporation (“Heritage”) issued a press release announcing its financial results for the quarter ended March 31, 2024.
A copy of the release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

Item 7.01    Regulation FD Disclosure
Heritage is filing an investor slide presentation that it reviewed in conjunction with its earnings release conference call on April 25, 2024.
A copy of the presentation materials is furnished herewith as Exhibit 99.2 and is incorporated herein by reference.

Item 8.01    Other Events
On April 25, 2024, Heritage issued a press release announcing a regular quarterly cash dividend of $0.23 per common share. The dividend will be paid on May 22, 2024 to shareholders of record at the close of business on May 8, 2024. In addition, Heritage announced that the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common shares or approximately 1.7 million shares. The number, timing and price of shares repurchased will depend on business and market conditions, and other factors, including opportunities to deploy the Company's capital.     
A copy of the release is furnished herewith as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01     Financial Statements and Exhibits
(d) Exhibits
The following exhibit is being filed herewith and this list shall constitute the exhibit index:
Exhibit 99.1  
Exhibit 99.2
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 25, 2024 /S/    JEFFREY J. DEUEL
Jeffrey J. Deuel
President and Chief Executive Officer
(Duly Authorized Officer)


EX-99.1 2 a8-kexhibit991q124.htm EX-99.1 Document


hfwarevisedlogoa01a02.jpg
FOR IMMEDIATE RELEASE
DATE: April 25, 2024

HERITAGE FINANCIAL ANNOUNCES FIRST QUARTER 2024 RESULTS AND DECLARES REGULAR CASH DIVIDEND

•Net income was $5.7 million, or $0.16 per diluted share, for the first quarter of 2024 compared to $6.2 million, or $0.18 per diluted share, for the fourth quarter of 2023.
Significant items in the first quarter of 2024 results include a loss on sale of securities of $10.0 million, or $0.22 per diluted share, and costs relating to expense management measures of $1.1 million, or $0.02 per diluted share.
•Loans receivable increased $92.5 million, or 2.1% (8.4% annualized), during the first quarter of 2024.
•Net interest margin was 3.32% for the first quarter of 2024 compared to 3.41% for the fourth quarter of 2023.
•Cost of total deposits was 1.19% for the first quarter of 2024 compared to 1.01% for the fourth quarter of 2023.
Declared a regular cash dividend of $0.23 per share on April 24, 2024.
•Approved a new stock repurchase program authorizing the repurchase of up to 5% of the Company's outstanding shares, or approximately 1.7 million shares.

Olympia, WA - Heritage Financial Corporation (NASDAQ GS: HFWA) (the “Company” or “Heritage”), the parent company of Heritage Bank (the "Bank"), today reported net income of $5.7 million for the first quarter of 2024 compared to $6.2 million for the fourth quarter of 2023 and $20.5 million for the first quarter of 2023. Diluted earnings per share for the first quarter of 2024 were $0.16 compared to $0.18 for the fourth quarter of 2023 and $0.58 for the first quarter of 2023.
In the first quarter of 2024, the Company incurred a pre-tax loss of $10.0 million on the sale of investment securities due to the strategic repositioning of its balance sheet, which affected diluted earnings per share by $0.22 for the quarter. The Company sold $144.0 million in investment securities with an estimated weighted average book yield of 2.37% and purchased $33.1 million of investment securities with an estimated weighted average book yield of 6.05%. The remaining proceeds from sales were invested in interest earning deposits with a current yield of 5.40%. As a result of these actions, we anticipate an estimated annualized improvement of $4.6 million in interest income. Similar actions were taken during the fourth quarter of 2023 for which we incurred a pre-tax loss of $10.0 million and estimated annualized improvement of $5.3 million in interest income. Further, approximately $1.1 million of severance costs were incurred in the first quarter of 2024 as part of expense management initiatives, which affected diluted earnings per share by $0.02 for the quarter.
Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, "We are pleased with our continued accomplishments in the first quarter including strong loan growth, repositioning of our balance sheet and expense management measures, which will strengthen our earnings in future periods. Although negatively impacting current earnings, we believe these actions will enhance our sustainable long-term returns for our shareholders." The following table provides financial highlights at the dates and for the periods indicated:

1

Financial Highlights
As of or for the Quarter Ended
March 31, 2024 December 31,
2023		 March 31,
2023
(Dollars in thousands, except per share amounts)
Net income $ 5,748  $ 6,233  $ 20,457 
Pre-tax, pre-provision income(1)
 $ 8,260  $ 8,001  $ 26,495 
Diluted earnings per share $ 0.16  $ 0.18  $ 0.58 
Return on average assets(2)
 0.33  % 0.35  % 1.17  %
Pre-tax, pre-provision return on average assets(1)(2)
 0.47  % 0.44  % 1.52  %
Return on average common equity(2)
 2.73  % 3.04  % 10.21  %
Return on average tangible common equity(1)(2)
 4.07  % 4.69  % 15.05  %
Net interest margin(2)
 3.32  % 3.41  % 3.91  %
Cost of total deposits(2)
 1.19  % 1.01  % 0.31  %
Efficiency ratio 83.0  % 84.2  % 61.1  %
Noninterest expense to average total assets(2)
 2.29  % 2.37  % 2.39  %
Total assets $ 7,091,283  $ 7,174,957  $ 7,236,806 
Loans receivable, net $ 4,378,429  $ 4,287,628  $ 4,083,003 
Total deposits $ 5,532,327  $ 5,599,872  $ 5,789,022 
Loan to deposit ratio(3)
 80.0  % 77.4  % 71.3  %
Book value per share $ 24.43  $ 24.44  $ 23.53 
Tangible book value per share(1)
 $ 17.36  $ 17.40  $ 16.48 
(1) See Non-GAAP Financial Measures section herein.
(2) Annualized.
(3) Loans receivable divided by total deposits.

Balance Sheet
Total investment securities decreased $143.3 million, or 7.6%, to $1.73 billion at March 31, 2024 from $1.87 billion at December 31, 2023. As previously discussed, the Company sold $144.0 million in investment securities at a loss of $10.0 million during the first quarter of 2024. These funds were redeployed in investment purchases of $33.1 million, loans and interest earning deposits. The following table summarizes the Company's investment securities at the dates indicated:
  March 31, 2024 December 31, 2023
$ Change in Carrying Value
  Amortized Cost
Net Unrealized Gain (Loss)
 Fair Value Amortized Cost Net Unrealized Loss Fair Value
  (Dollars in thousands)
Investment securities available for sale:
U.S. government and agency securities $ 16,001  $ (2,584) $ 13,417  $ 16,047  $ (2,297) $ 13,750  $ (333)
Municipal securities 83,788  (11,833) 71,955  92,231  (12,706) 79,525  (7,570)
Residential CMO and MBS(1)
 519,152  (42,410) 476,742  555,518  (43,469) 512,049  (35,307)
Commercial CMO and MBS(1)
 443,537  (34,069) 409,468  538,910  (34,652) 504,258  (94,790)
Corporate obligations 11,658  (467) 11,191  7,745  (132) 7,613  3,578 
Other asset-backed securities 13,653  84  13,737  17,336  (178) 17,158  (3,421)
Total $ 1,087,789  $ (91,279) $ 996,510  $ 1,227,787  $ (93,434) $ 1,134,353  $ (137,843)
2

March 31, 2024 December 31, 2023
$ Change in Carrying Value
Amortized Cost Net
Unrecognized Loss		 Fair Value Amortized Cost Net
Unrecognized Loss		 Fair Value
(Dollars in thousands)
Investment securities held to maturity:
U.S. government and agency securities $ 151,110  $ (29,980) $ 121,130  $ 151,075  $ (27,701) $ 123,374  $ 35 
Residential CMO and MBS(1)
 262,359  (17,439) 244,920  267,204  (14,101) 253,103  (4,845)
Commercial CMO and MBS(1)
 320,537  (37,586) 282,951  321,163  (35,190) 285,973  (626)
Total $ 734,006  $ (85,005) $ 649,001  $ 739,442  $ (76,992) $ 662,450  $ (5,436)
Total investment securities $ 1,821,795  $ (176,284) $ 1,645,511  $ 1,967,229  $ (170,426) $ 1,796,803 
(1) U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations.
Loans receivable increased $92.5 million, or 2.1%, to $4.43 billion at March 31, 2024 from $4.34 billion at December 31, 2023. New loans funded in the first quarter of 2024 and fourth quarter of 2023 totaled $101.7 million and $113.4 million, respectively. Loan prepayments decreased slightly during the first quarter of 2024 to $39.1 million, compared to $42.8 million during the fourth quarter of 2023.
Commercial and industrial loans increased $42.1 million, or 5.9%, due primarily to new loan production of $37.4 million during the first quarter of 2024 and advances on outstanding commitments. Commercial and multifamily construction loans increased $36.7 million, or 10.9%, due primarily to advances on outstanding commitments. The following table summarizes the Company's loans receivable, net at the dates indicated:
March 31, 2024 December 31, 2023 Change
Balance % of Total Balance % of Total $ %
(Dollars in thousands)
Commercial business:
Commercial and industrial $ 760,391  17.2  % $ 718,291  16.6  % $ 42,100  5.9  %
Owner-occupied commercial real estate ("CRE") 951,583  21.5  958,620  22.1  (7,037) (0.7)
Non-owner occupied CRE 1,702,665  38.4  1,697,574  39.1  5,091  0.3 
Total commercial business 3,414,639  77.1  3,374,485  77.8  40,154  1.2 
Residential real estate
 386,357  8.7  375,342  8.7  11,015  2.9 
Real estate construction and land development:
Residential
 84,081  1.9  78,610  1.8  5,471  7.0 
Commercial and multifamily
 372,532  8.4  335,819  7.7  36,713  10.9 
Total real estate construction and land development 456,613  10.3  414,429  9.5  42,184  10.2 
Consumer 170,556  3.9  171,371  4.0  (815) (0.5)
Loans receivable 4,428,165  100.0  % 4,335,627  100.0  % 92,538  2.1 
Allowance for credit losses on loans (49,736) (47,999) (1,737) 3.6 
Loans receivable, net $ 4,378,429  $ 4,287,628  $ 90,801  2.1  %
Total deposits decreased $67.5 million, or 1.2%, to $5.53 billion at March 31, 2024 from $5.60 billion at December 31, 2023. Certificates of deposit increased $86.7 million, or 12.5%, to $779.7 million at March 31, 2024 from $693.0 million at December 31, 2023 primarily due to transfers from non-maturity deposit accounts as customers moved balances to higher yielding accounts.
The following table summarizes the Company's total deposits at the dates indicated:
March 31, 2024 December 31, 2023 Change
Balance
 % of Total Balance % of Total $ %
(Dollars in thousands)
Noninterest demand deposits $ 1,637,111  29.5  % $ 1,715,847  30.7  % $ (78,736) (4.6) %
Interest bearing demand deposits 1,552,584  28.1  1,608,745  28.7  (56,161) (3.5)
3

March 31, 2024 December 31, 2023 Change
Balance
 % of Total Balance % of Total $ %
(Dollars in thousands)
Money market accounts 1,099,983  19.9  1,094,351  19.5  5,632  0.5 
Savings accounts 462,974  8.4  487,956  8.7  (24,982) (5.1)
Total non-maturity deposits 4,752,652  85.9  4,906,899  87.6  (154,247) (3.1)
Certificates of deposit 779,675  14.1  692,973  12.4  86,702  12.5 
Total deposits $ 5,532,327  100.0  % $ 5,599,872  100.0  % $ (67,545) (1.2) %
Total borrowings were $500 million at March 31, 2024 and December 31, 2023. All borrowings were from the Federal Reserve Bank ("FRB") Bank Term Funding Program. Borrowings totaling $400 million mature in May 2024 while the remaining $100 million mature in January 2025.
Total stockholders' equity decreased $5.7 million, or 0.7%, to $847.6 million at March 31, 2024 compared to $853.3 million at December 31, 2023 due primarily to $8.1 million in dividends paid to common shareholders and $6.1 million in common stock repurchases offset partially by $5.7 million of net income recognized for the quarter and a $1.8 million decrease in accumulated other comprehensive loss, net.
The Company and Bank continue to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as “well-capitalized.” The following table summarizes capital ratios for the Company at the dates indicated:
March 31, 2024 December 31,
2023		 Change
Stockholders' equity to total assets 12.0  % 11.9  % 0.1  %
Tangible common equity to tangible assets (1)
 8.8  8.8  — 
Common equity tier 1 capital ratio (2)
 12.6  12.9  (0.3)
Leverage ratio (2)
 10.0  10.0  — 
Tier 1 capital ratio (2)
 13.0  13.3  (0.3)
Total capital ratio (2)
 13.9  14.1  (0.2)
(1) See Non-GAAP Financial Measures section herein.
(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 1.12% at March 31, 2024 compared to 1.11% at December 31, 2023. During both the first quarter of 2024 and the fourth quarter of 2023, the Company recorded a $1.7 million provision for credit losses on loans. The provision for credit losses on loans during the first quarter of 2024 was primarily driven by loan growth during the quarter.
During the first quarter of 2024, the Company recorded a $312,000 reversal of provision for credit losses on unfunded commitments compared to a $246,000 reversal of provision for credit losses on unfunded commitments during the fourth quarter of 2023. The reversal of provision for credit losses on unfunded commitments during the first quarter of 2024 was due primarily to a $50.0 million decrease in the unfunded exposure on construction loans.
The following table provides detail on the changes in the ACL on loans and the ACL on unfunded, and the related provision for (reversal of) credit losses for the periods indicated:
As of or for the Quarter Ended
March 31, 2024 December 31, 2023 March 31, 2023
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 $ 47,999  $ 1,288  $ 49,287  $ 46,947  $ 1,534  $ 48,481  $ 42,986  $ 1,744  $ 44,730 
Provision for (reversal of) credit losses 1,704  (312) 1,392  1,670  (246) 1,424  1,713  112  1,825 
Net recoveries (net charge-offs) 33  —  33  (618) —  —  (618) (230) —  (230)
Balance, end of period $ 49,736  $ 976  $ 50,712  $ 47,999  $ 1,288  $ 49,287  $ 44,469  $ 1,856  $ 46,325 

4

Credit Quality
The percentage of classified loans to loans receivable was unchanged at March 31, 2024 and December 31, 2023. Classified loans include loans rated substandard or worse. Total loans designated as special mention increased by $22.2 million to $102.2 million at March 31, 2024, compared to $80.0 million at December 31, 2023. This increase was primarily due to the downgrade of a $15.1 million commercial and multifamily construction loan and a $5.5 million commercial and industrial loan from pass to special mention. The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
March 31, 2024 December 31, 2023
Balance % of Total Balance % of Total
(Dollars in thousands)
Risk Rating:
Pass $ 4,255,750  96.1  % $ 4,185,893  96.6  %
Special Mention 102,232  2.3  79,977  1.8 
Substandard 70,183  1.6  69,757  1.6 
Total $ 4,428,165  100.0  % $ 4,335,627  100.0  %
Nonaccrual loans to loans receivable was 0.11% and 0.10% at March 31, 2024 and December 31, 2023, respectively. Changes in nonaccrual loans during the periods indicated were as follows:
Quarter Ended
March 31, 2024 December 31,
2023		 March 31,
2023
(In thousands)
Balance, beginning of period $ 4,468  $ 3,065  $ 5,906 
Additions 593  2,149  468 
Net principal payments and transfers to accruing status (269) (333) (909)
Payoffs —  (413) (650)
Balance, end of period $ 4,792  $ 4,468  $ 4,815 

Liquidity
Total liquidity sources available at March 31, 2024 were $2.50 billion. This includes internal as well as external sources of liquidity. The Company has access to FHLB advances and the FRB Discount Window. The Company's available liquidity sources at March 31, 2024 represented a coverage ratio of 45.2% of total deposits and 122.3% of estimated uninsured deposits.
The following table summarizes the Company's available liquidity:
Quarter Ended
March 31, 2024 December 31,
2023
(Dollars in thousands)
FRB borrowing availability $ 71,300  $ 319,492 
FHLB borrowing availability(1)
 1,384,631  1,417,518 
Unencumbered investment securities available for sale(2)
 708,378  756,258 
Cash and cash equivalents 189,647  224,973 
Fed funds line borrowing availability with correspondent banks 145,000  145,000 
Total available liquidity
 $ 2,498,956  $ 2,863,241 
(1) Includes FHLB total borrowing availability of $1.38 billion at March 31, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.23 billion.
(2) Investment securities available for sale at fair value.

Net Interest Income and Net Interest Margin
Net interest income decreased $2.3 million, or 4.3%, during the first quarter of 2024 compared to the fourth quarter of 2023 due primarily to an increase of $2.4 million in interest expense. Net interest margin decreased nine basis points to 3.32% during the first quarter of 2024 from 3.41% during the fourth quarter of 2023.
5

The cost of interest bearing deposits increased 22 basis points to 1.70% for the first quarter of 2024 from 1.48% for the fourth quarter of 2023. This increase was primarily due to customers transferring balances from non-maturity deposits to higher rate certificates of deposit.
The yield on interest earning assets increased nine basis points to 4.79% for the first quarter of 2024 compared to 4.70% for the fourth quarter of 2023. The yield on loans receivable, net increased six basis points to 5.41% during the first quarter of 2024 compared to 5.35% during the fourth quarter of 2023 due to higher rates on new and renewed loans. The yield on taxable securities increased 14 basis points to 3.29% during the first quarter of 2024 compared to 3.15% during the fourth quarter of 2023 due to sales in the fourth quarter of 2023 and first quarter of 2024 of lower yielding investments offset by purchases of higher yielding investments.
Net interest income decreased $8.3 million, or 13.9%, during the first quarter of 2024 compared to the first quarter of 2023 and the net interest margin decreased 59 basis points to 3.32% from 3.91% during this same period. The decrease was due primarily to an increase in interest expense resulting from increased deposit rates and borrowing expense partially offset by an increase in yields earned on interest earning assets following increases in market interest rates.
The following table provides relevant net interest income information for the periods indicated:
  Quarter Ended
  March 31, 2024 December 31, 2023 March 31, 2023
  Average
Balance		 Interest
Earned/
Paid
Average
Yield/
Rate (1)
 Average
Balance		 Interest
Earned/
Paid
Average
Yield/
Rate (1)
 Average
Balance		 Interest
Earned/
Paid
Average
Yield/
Rate (1)
(Dollars in thousands)
Interest Earning Assets:
Loans receivable, net (2)(3)
 $ 4,303,394  $ 57,862  5.41  % $ 4,233,743  $ 57,092  5.35  % $ 4,039,395  $ 50,450  5.07  %
Taxable securities 1,810,709  14,834  3.29  1,824,205  14,488  3.15  2,007,339  14,657  2.96 
Nontaxable securities (3)
 21,302  181  3.42  37,382  300  3.18  82,893  586  2.87 
Interest earning deposits 108,733  1,476  5.46  174,475  2,382  5.42  83,376  972  4.73 
Total interest earning assets 6,244,138  74,353  4.79  % 6,269,805  74,262  4.70  % 6,213,003  66,665  4.35  %
Noninterest earning assets 848,314  871,071  848,956 
Total assets $ 7,092,452  $ 7,140,876  $ 7,061,959 
Interest Bearing Liabilities:
Certificates of deposit $ 733,816  $ 7,671  4.20  % $ 638,101  $ 6,261  3.89  % $ 350,206  $ 1,224  1.42  %
Savings accounts 475,075  230  0.19  497,484  231  0.18  601,166  142  0.10 
Interest bearing demand and money market accounts 2,659,999  8,487  1.28  2,713,482  7,846  1.15  2,829,198  3,162  0.45 
Total interest bearing deposits 3,868,890  16,388  1.70  3,849,067  14,338  1.48  3,780,570  4,528  0.49 
Junior subordinated debentures 21,800  547  10.09  21,729  553  10.10  21,501  482  9.09 
Securities sold under agreement to repurchase —  —  —  17,511  5  0.11  43,202  47  0.44 
Borrowings 500,660  5,888  4.73  459,784  5,495  4.74  145,605  1,766  4.92 
Total interest bearing liabilities 4,391,350  22,823  2.09  % 4,348,091  20,391  1.86  % 3,990,878  6,823  0.69  %
Noninterest demand deposits 1,657,132  1,772,261  2,068,688 
Other noninterest bearing liabilities 197,023  207,141  189,893 
Stockholders’ equity 846,947  813,383  812,500 
Total liabilities and stockholders’ equity $ 7,092,452  $ 7,140,876  $ 7,061,959 
Net interest income and spread $ 51,530  2.70  % $ 53,871  2.84  % $ 59,842  3.66  %
Net interest margin 3.32  % 3.41  % 3.91  %
(1)Annualized; average balances are calculated using daily balances.
(2) Average loans receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $809,000, $832,000 and $752,000 for the first quarter of 2024, fourth quarter of 2023 and first quarter of 2023, respectively.
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis.

Noninterest Income
Noninterest income increased $247,000 to a loss of $2.9 million during the first quarter of 2024 from a loss of $3.1 million during the fourth quarter of 2023. The losses for both the first quarter of 2024 and the fourth quarter of 2023 were due to strategic repositioning of the investment portfolio which resulted in a $10.0 million loss on the sale of investment securities during both periods.
6

Card revenue decreased $105,000 during the first quarter of 2024 compared to the fourth quarter of 2023 due to annual incentives of $250,000 recognized in the fourth quarter of 2023. Bank owned life insurance income increased $266,000 due to the recognition of death benefits during the first quarter of 2024.
Noninterest income decreased $11.2 million from the same period in 2023 due primarily to a $10.0 million pre-tax loss on the sale of investment securities available for sale. The decline in other income was due to the gain on sale of Visa Inc. Class B common stock of $1.6 million recognized in the first quarter of 2023.
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, 2024 December 31,
2023		 March 31,
2023		 $ % $ %
(Dollars in thousands)
Service charges and other fees $ 2,788  $ 2,804  $ 2,624  $ (16) (0.6) % $ 164  6.3  %
Card revenue 1,839  1,944  2,000  (105) (5.4) (161) (8.1)
Loss on sale of investment securities (9,973) (10,005) (286) 32  (0.3) (9,687) 3387.1 
Gain on sale of loans, net 26  36  49  (10) (27.8) (23) (46.9)
Interest rate swap fees —  —  53  —  —  (53) (100.0)
Bank owned life insurance income 920  654  709  266  40.7  211  29.8 
Gain on sale of other assets, net —  —  2  —  —  (2) (100.0)
Other income 1,500  1,420  3,107  80  5.6  (1,607) (51.7)
Total noninterest income (loss)
 $ (2,900) $ (3,147) $ 8,258  $ 247  (7.8) % $ (11,158) (135.1) %

Noninterest Expense
Noninterest expense decreased $2.4 million, or 5.5%, during the first quarter of 2024 from the fourth quarter of 2023. The decline was primarily due to decreases in data processing, professional services and marketing expenses, partially offset by an increase in compensation and employee benefits. Data processing expenses decreased due primarily to reduced ongoing expenses following technology-related contract renewals and terminations occurring in the fourth quarter of 2023, as well as a $320,000 accrual for the early termination of a technology-related contract expensed during the same period. Marketing expenses decreased due to expense management efforts during the first quarter of 2024. Professional services decreased primarily because of a $1.5 million expense for negotiation fees related to renewal of the core vendor contract during the fourth quarter of 2023. Compensation and employee benefits expenses increased during the first quarter of 2024 compared to the prior quarter, primarily due to $1.1 million in severance costs resulting from staff reductions.
Noninterest expense decreased $1.2 million, or 3.0%, during the first quarter of 2024 compared to the same period in 2023, primarily due to a decrease in data processing expense. Data processing expenses decreased primarily due to a decline in ongoing costs resulting from prior technology-related contract renewals and terminations. Amortization of intangible assets decreased due to a reduction in core deposit intangible expense. Marketing expenses decreased due to expense management efforts during the first quarter of 2024. The decrease was partially offset by an increase in state/municipal business and use tax due to an increase in gross revenue.
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, 2024 December 31,
2023		 March 31,
2023		 $ % $ %
(Dollars in thousands)
Compensation and employee benefits $ 25,476  $ 24,758  $ 25,536  $ 718  2.9  % $ (60) (0.2) %
Occupancy and equipment 4,932  4,784  4,892  148  3.1  40  0.8 
Data processing 3,537  4,863  4,342  (1,326) (27.3) (805) (18.5)
Marketing 211  698  402  (487) (69.8) (191) (47.5)
Professional services 567  2,266  628  (1,699) (75.0) (61) (9.7)
State/municipal business and use taxes
 1,300  909  1,008  391  43.0  292  29.0 
Federal deposit insurance premium 795  847  850  (52) (6.1) (55) (6.5)
7

Quarter Ended Quarter Over Quarter Change Prior Year Quarter Change
March 31, 2024 December 31,
2023		 March 31,
2023		 $ % $ %
(Dollars in thousands)
Amortization of intangible assets 421  593  623  (172) (29.0) (202) (32.4)
Other expense 3,131  3,005  3,324  126  4.2  (193) (5.8)
Total noninterest expense $ 40,370  $ 42,723  $ 41,605  $ (2,353) (5.5) % $ (1,235) (3.0) %

Income Tax Expense
Income tax expense increased during the first quarter of 2024 compared to the fourth quarter of 2023, and decreased compared to the first quarter of 2023. The increase in income tax expense during the current quarter compared to the prior quarter was primarily due to an increase in the effective income tax rate during the first quarter of 2024. The effective income tax rate was lower during the fourth quarter of 2023 due to a downward adjustment to the annualized effective tax rate as a result of lower pre-tax income in the fourth quarter of 2023. The decrease in pre-tax income increased the impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits. The effective income tax rate for the year ended December 31, 2023 was 15.3%. The decrease in income tax expense during the first quarter of 2024 compared to the same quarter in 2023 was due to lower pre-tax income.
The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter Ended Change
March 31, 2024 December 31,
2023		 March 31,
2023
Quarter Over Quarter
Prior Year Quarter
(Dollars in thousands)
Income before income taxes $ 6,868  $ 6,577  $ 24,670  $ 291  $ (17,802)
Income tax expense $ 1,120  $ 344  $ 4,213  $ 776  $ (3,093)
Effective income tax rate 16.3  % 5.2  % 17.1  % 11.1  % (0.8) %

Dividends
On April 24, 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable on May 22, 2024 to shareholders of record as of the close of business on May 8, 2024.

Stock Repurchase Program
On April 24, 2024, the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common shares or approximately 1.7 million shares. The number, timing and price of shares repurchased will depend on business and market conditions, and other factors, including opportunities to deploy the Company's capital.
The new stock repurchase program supersedes the previous stock repurchase program, which was authorized in March 2020 and allowed for the buyback of approximately 1.8 million shares. The previous program was substantially completed during the quarter ended March 31, 2024.

Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on Thursday, April 25, 2024 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 070217 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through May 2, 2024 by dialing (866) 813-9403 -- access code 294191.
About Heritage Financial
Heritage Financial Corporation is an Olympia-based bank holding company with Heritage Bank, a full-service commercial bank, as its sole wholly-owned banking subsidiary. Heritage Bank has a branch network of 50 banking offices in Washington, Oregon and Idaho. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island. Heritage’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
Jeffrey J. Deuel, President and Chief Executive Officer, (360) 943-1500
Donald J. Hinson, Executive Vice President and Chief Financial Officer, (360) 943-1500

8

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 "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." 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 the Company’s actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: changes in general economic conditions nationally or in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth, or increased political instability due to acts of war; changes in the interest rate environment, including prior increases in the Board of Governors of the Federal Reserve System (the “Federal Reserve”) benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing elevated inflation and the current and future monetary policies of the Federal Reserve in response thereto; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; the effects of any federal government shutdown; changes in the interest rate environment; the quality and composition of our securities portfolio and the impact of any adverse changes including market liquidity within the securities markets; legislative and regulatory changes, including changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules; credit and interest rate risks associated with the Company’s businesses, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; 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; and other factors described in Heritage's 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.heritagebanknw.com and on the SEC's website at www.sec.gov. The Company cautions 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 the Company 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. The Company does not undertake and specifically disclaims 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.
9

HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollars in thousands, except shares)
March 31, 2024 December 31,
2023
Assets
Cash on hand and in banks $ 52,947  $ 55,851 
Interest earning deposits 136,700  169,122 
Cash and cash equivalents 189,647  224,973 
Investment securities available for sale, at fair value (amortized cost of $1,087,789 and $1,227,787, respectively)
 996,510  1,134,353 
Investment securities held to maturity, at amortized cost (fair value of $649,001 and $662,450, respectively)
 734,006  739,442 
Total investment securities 1,730,516  1,873,795 
Loans receivable 4,428,165  4,335,627 
Allowance for credit losses on loans (49,736) (47,999)
Loans receivable, net 4,378,429  4,287,628 
Premises and equipment, net 74,092  74,899 
Federal Home Loan Bank stock, at cost 4,303  4,186 
Bank owned life insurance 125,615  125,655 
Accrued interest receivable 19,898  19,518 
Prepaid expenses and other assets 323,472  318,571 
Other intangible assets, net 4,372  4,793 
Goodwill 240,939  240,939 
Total assets $ 7,091,283  $ 7,174,957 
Liabilities and Stockholders' Equity
Non-interest bearing deposits
 1,637,111  1,715,847 
Interest bearing deposits
 3,895,216  3,884,025 
Total deposits
 5,532,327  5,599,872 
Borrowings 500,000  500,000 
Junior subordinated debentures 21,838  21,765 
Accrued expenses and other liabilities 189,538  200,059 
Total liabilities 6,243,703  6,321,696 
Common stock 544,636  549,748 
Retained earnings 373,629  375,989 
Accumulated other comprehensive loss, net (70,685) (72,476)
Total stockholders' equity 847,580  853,261 
Total liabilities and stockholders' equity $ 7,091,283  $ 7,174,957 
Shares outstanding 34,689,843  34,906,233 

10

HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
Quarter Ended
March 31,
2024		 December 31,
2023		 March 31,
2023
Interest Income
Interest and fees on loans $ 57,862  $ 57,092  $ 50,450 
Taxable interest on investment securities 14,834  14,488  14,657 
Nontaxable interest on investment securities 181  300  586 
Interest on interest earning deposits 1,476  2,382  972 
Total interest income 74,353  74,262  66,665 
Interest Expense
Deposits 16,388  14,338  4,528 
Junior subordinated debentures 547  553  482 
Securities sold under agreement to repurchase —  5  47 
Borrowings 5,888  5,495  1,766 
Total interest expense 22,823  20,391  6,823 
Net interest income 51,530  53,871  59,842 
Provision for credit losses 1,392  1,424  1,825 
Net interest income after provision for credit losses 50,138  52,447  58,017 
Noninterest Income
Service charges and other fees 2,788  2,804  2,624 
Card revenue 1,839  1,944  2,000 
Loss on sale of investment securities, net (9,973) (10,005) (286)
Gain on sale of loans, net 26  36  49 
Interest rate swap fees —  —  53 
Bank owned life insurance income 920  654  709 
Gain on sale of other assets, net —  —  2 
Other income 1,500  1,420  3,107 
Total noninterest income (loss) (2,900) (3,147) 8,258 
Noninterest Expense
Compensation and employee benefits 25,476  24,758  25,536 
Occupancy and equipment 4,932  4,784  4,892 
Data processing 3,537  4,863  4,342 
Marketing 211  698  402 
Professional services 567  2,266  628 
State/municipal business and use taxes 1,300  909  1,008 
Federal deposit insurance premium 795  847  850 
Amortization of intangible assets 421  593  623 
Other expense 3,131  3,005  3,324 
Total noninterest expense 40,370  42,723  41,605 
Income before income taxes 6,868  6,577  24,670 
Income tax expense 1,120  344  4,213 
Net income $ 5,748  $ 6,233  $ 20,457 
Basic earnings per share $ 0.17  $ 0.18  $ 0.58 
Diluted earnings per share $ 0.16  $ 0.18  $ 0.58 
Dividends declared per share $ 0.23  $ 0.22  $ 0.22 
Average shares outstanding - basic 34,825,471 34,902,029 35,108,390
Average shares outstanding - diluted 35,227,138 35,084,635 35,445,340
11


HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands)
Nonperforming Assets and Credit Quality Metrics:
Quarter Ended
March 31, 2024 December 31,
2023		 March 31,
2023
Allowance for Credit Losses on Loans:
Balance, beginning of period $ 47,999  $ 46,947  $ 42,986 
Provision for credit losses on loans 1,704  1,670  1,713 
Charge-offs:
Commercial business (77) (543) (161)
Consumer (123) (166) (153)
Total charge-offs (200) (709) (314)
Recoveries:
Commercial business 217  30  51 
Consumer 16  61  33 
Total recoveries 233  91  84 
Net recoveries (charge-offs) 33  (618) (230)
Balance, end of period $ 49,736  $ 47,999  $ 44,469 
Net charge-offs on loans to average loans receivable, net(1)
 —  % 0.06  % 0.02  %
(1) Annualized.
March 31, 2024 December 31,
2023
Nonperforming Assets:
Nonaccrual loans:
Commercial business $ 4,792  $ 4,468 
Total nonaccrual loans 4,792  4,468 
Accruing loans past due 90 days or more
 2,628  1,293 
Total nonperforming loans
 7,420  5,761 
Other real estate owned —  — 
Nonperforming assets $ 7,420  $ 5,761 
ACL on loans to:
Loans receivable 1.12  % 1.11  %
Nonaccrual loans 1,037.90  % 1,074.28  %
Nonaccrual loans to loans receivable
 0.11  % 0.10  %
Nonperforming loans to loans receivable
 0.17  % 0.13  %
Nonperforming assets to total assets 0.10  % 0.08  %

12

HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
  Quarter Ended
  March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023		 March 31,
2023
Earnings:        
Net interest income $ 51,530  $ 53,871  $ 55,618  $ 55,824  $ 59,842 
Provision for credit losses 1,392  1,424  (878) 1,909  1,825 
Noninterest income (loss)
 (2,900) (3,147) 6,271  7,281  8,258 
Noninterest expense 40,370  42,723  40,970  41,325  41,605 
Net income 5,748  6,233  18,219  16,846  20,457 
Pre-tax, pre-provision net income (3)
 8,260  8,001  20,919  21,780  26,495 
Basic earnings per share $ 0.17  $ 0.18  $ 0.52  $ 0.48  $ 0.58 
Diluted earnings per share $ 0.16  $ 0.18  $ 0.51  $ 0.48  $ 0.58 
Average Balances:    
Loans receivable, net (1)
 $ 4,303,394  $ 4,233,743  $ 4,201,554  $ 4,145,556  $ 4,039,395 
Total investment securities 1,832,011  1,861,587  1,992,303  2,061,100  2,090,232 
Total interest earning assets 6,244,138  6,269,805  6,363,043  6,297,410  6,213,003 
Total assets 7,092,452  7,140,876  7,212,732  7,142,865  7,061,959 
Total interest bearing deposits 3,868,890  3,849,067  3,841,148  3,755,005  3,780,570 
Total noninterest demand deposits 1,657,132  1,772,261  1,859,374  1,900,640  2,068,688 
Stockholders' equity 846,947  813,383  821,494  824,742  812,500 
Financial Ratios:    
Return on average assets (2)
 0.33  % 0.35  % 1.00  % 0.95  % 1.17  %
Pre-tax, pre-provision return on average assets (2)(3)
 0.47  0.44  1.15  1.22  1.52 
Return on average common equity (2)
 2.73  3.04  8.80  8.19  10.21 
Return on average tangible common equity (2) (3)
 4.07  4.69  12.90  12.04  15.05 
Efficiency ratio 83.0  84.2  66.2  65.5  61.1 
Noninterest expense to average total assets (2)
 2.29  2.37  2.25  2.32  2.39 
Net interest spread (2)
 2.70  2.84  2.95  3.11  3.66 
Net interest margin (2)
 3.32  3.41  3.47  3.56  3.91 
(1) Average loans receivable, net includes loans held for sale.
(2) Annualized.
(3) See Non-GAAP Financial Measures section herein.













13

HERITAGE FINANCIAL CORPORATION
QUARTERLY FINANCIAL STATISTICS (Unaudited)
(Dollars in thousands, except per share amounts)
  As of or for the Quarter Ended
  March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023		 March 31,
2023
Select Balance Sheet:      
Total assets $ 7,091,283  $ 7,174,957  $ 7,150,588  $ 7,115,410  $ 7,236,806 
Loans receivable, net 4,378,429  4,287,628  4,219,911  4,204,936  4,083,003 
Total investment securities 1,730,516  1,873,795  1,894,392  2,030,826  2,078,235 
Deposits 5,532,327  5,599,872  5,635,187  5,595,543  5,789,022 
Noninterest demand deposits 1,637,111  1,715,847  1,789,293  1,857,492  1,982,909 
Stockholders' equity 847,580  853,261  813,546  819,733  826,082 
Financial Measures:  
Book value per share $ 24.43  $ 24.44  $ 23.31  $ 23.39  $ 23.53 
Tangible book value per share (1)
 17.36  17.40  16.25  16.34  16.48 
Stockholders' equity to total assets 12.0  % 11.9  % 11.4  % 11.5  % 11.4  %
Tangible common equity to tangible assets (1)
 8.8  8.8  8.2  8.3  8.3 
Loans to deposits ratio 80.0  77.4  75.7  76.0  71.3 
Regulatory Capital Ratios:(2)
Common equity tier 1 capital ratio
 12.6  % 12.9  % 12.9  % 12.8  % 12.9  %
Leverage ratio
 10.0  10.0  9.9  9.9  9.9 
Tier 1 capital ratio
 13.0  13.3  13.3  13.2  13.3 
Total capital ratio
 13.9  14.1  14.1  14.1  14.1 
Credit Quality Metrics:  
ACL on loans to:
Loans receivable 1.12  % 1.11  % 1.10  % 1.09  % 1.08  %
Nonperforming loans 1,037.9  1,074.3  1,531.7  1,002.3  923.6 
Nonaccrual loans to loans receivable
 0.11  0.10  0.07  0.11  0.12 
Nonperforming loans to loans receivable 0.17  0.13  0.12  0.16  0.17 
Nonperforming assets to total assets 0.10  0.08  0.07  0.10  0.10 
Net charge-offs (recoveries) on loans to average loans receivable, net(3)
 —  0.06  (0.11) —  0.02 
Criticized Loans by Credit Quality Rating:
Special mention $ 102,232  $ 79,977  $ 72,152  $ 84,623  $ 96,832 
Substandard 70,183  69,757  62,653  58,653  48,824 
Other Metrics:
Number of banking offices 50  50  50  51  51 
Deposits per branch $ 110,647  $ 111,997  $ 112,704  $ 109,717  $ 113,510 
Average number of full-time equivalent employees 765  803  821  813  809 
Average assets per full-time equivalent employee 9,271  8,893  8,785  8,786  8,729 
(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.
14

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 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 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 measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the GAAP and non-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,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023		 March 31,
2023
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share:
Total stockholders' equity (GAAP) $ 847,580  $ 853,261  $ 813,546  $ 819,733  $ 826,082 
Exclude intangible assets (245,311) (245,732) (246,325) (246,920) (247,543)
Tangible common equity (non-GAAP) $ 602,269  $ 607,529  $ 567,221  $ 572,813  $ 578,539 
Total assets (GAAP) $ 7,091,283  $ 7,174,957  $ 7,150,588  $ 7,115,410  $ 7,236,806 
Exclude intangible assets (245,311) (245,732) (246,325) (246,920) (247,543)
Tangible assets (non-GAAP) $ 6,845,972  $ 6,929,225  $ 6,904,263  $ 6,868,490  $ 6,989,263 
Stockholders' equity to total assets (GAAP) 12.0  % 11.9  % 11.4  % 11.5  % 11.4  %
Tangible common equity to tangible assets (non-GAAP)
 8.8  % 8.8  % 8.2  % 8.3  % 8.3  %
Shares outstanding 34,689,843  34,906,233  34,901,076  35,047,800  35,108,120 
Book value per share (GAAP) $ 24.43  $ 24.44  $ 23.31  $ 23.39  $ 23.53 
Tangible book value per share (non-GAAP) $ 17.36  $ 17.40  $ 16.25  $ 16.34  $ 16.48 























15

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.
Quarter Ended
March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023		 March 31,
2023
Return on Average Tangible Common Equity, annualized:
Net income (GAAP) $ 5,748  $ 6,233  $ 18,219  $ 16,846  $ 20,457 
Add amortization of intangible assets 421  593  595  623  623 
Exclude tax effect of adjustment (88) (125) (125) (131) (131)
Tangible net income (non-GAAP) $ 6,081  $ 6,701  $ 18,689  $ 17,338  $ 20,949 
Average stockholders' equity (GAAP) $ 846,947  $ 813,383  $ 821,494  $ 824,742  $ 812,500 
Exclude average intangible assets (245,536) (246,022) (246,663) (247,278) (247,922)
Average tangible common stockholders' equity (non-GAAP) $ 601,411  $ 567,361  $ 574,831  $ 577,464  $ 564,578 
Return on average common equity, annualized (GAAP) 2.73  % 3.04  % 8.80  % 8.19  % 10.21  %
Return on average tangible common equity, annualized (non-GAAP) 4.07  % 4.69  % 12.90  % 12.04  % 15.05  %
The Company believes that presenting pre-tax pre-provision income, which reflects its profitability before income taxes and provision for credit losses, and the pre-tax, pre-provision return on average assets are useful measurements in assessing its operating income and expenses by removing the volatility that may be associated with credit loss provisions.
Quarter Ended
March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023		 March 31,
2023
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized:
Net income (GAAP) $ 5,748  $ 6,233  $ 18,219  $ 16,846  $ 20,457 
Add income tax expense 1,120  344  3,578  3,025  4,213 
Add (subtract) provision for (reversal of) credit losses 1,392  1,424  (878) 1,909  1,825 
Pre-tax, pre-provision income (non-GAAP) $ 8,260  $ 8,001  $ 20,919  $ 21,780  $ 26,495 
Average total assets (GAAP) $ 7,092,452  $ 7,140,876  $ 7,212,732  $ 7,142,865  $ 7,061,959 
Return on average assets, annualized (GAAP) 0.33  % 0.35  % 1.00  % 0.95  % 1.17  %
Pre-tax, pre-provision return on average assets (non-GAAP) 0.47  % 0.44  % 1.15  % 1.22  % 1.52  %

16
EX-99.2 3 investorpresentationq124.htm EX-99.2 investorpresentationq124
INVESTOR PRESENTATION Q1 2024

 
2 This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words “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.” These statements relate to Heritage Financial Corporation’s (“we”, “us”, “our”, or the “Company”) financial condition, results of operations, beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance or business. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause our actual results for future periods to differ materially from those expressed in any forward-looking statements by, or on behalf of, the Company and could negatively affect the Company’s operating results and stock price performance. Factors that may cause such a difference include, but are not limited to: • potential adverse impacts to economic conditions nationally or in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company’s business operations or financial markets, including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth; • changes in the interest rate environment, including past increases in the Federal Reserve benchmark rate and the duration at which increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; • the impact of continuing 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; • the effects of any federal government shutdown; • 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 of regulatory capital or other rules; • credit and interest rate risks associated with the Company’s businesses, customers, borrowings, repayment, investment, and deposit practices; • fluctuations in deposits; • liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; • disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; • 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; and • 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. Further 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, 2023, as well as those set forth in other reports we file with or furnish to the Securities and Exchange Commission. 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. 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 at the end of this presentation. All dollars throughout the entire presentation are in millions unless otherwise noted, except per share amounts. FORWARD LOOKING STATEMENTS

 
COMPANY OVERVIEW

 
4 OVERVIEW Overview NASDAQ symbol HFWA Stock price $18.12 Market capitalization $628 million Institutional ownership 78.5% Headquarters Olympia, WA # of branches 50 Year established 1927 Q1 2024 Financial Highlights Assets $7.1 billion Deposits $5.5 billion Loans receivable $4.4 billion Net income (GAAP) $5.7 million Pre-tax, pre-provision income (non-GAAP) $8.3 million Net interest margin 3.32% ROAE (GAAP) 2.73% ROATCE (non-GAAP) 4.07% Efficiency ratio (GAAP) 83.0% Adjusted efficiency ratio (non-GAAP) 68.9% Leverage ratio 10.0% Total capital ratio 13.9% – Map obtained from S&P Global Market Intelligence; certain locations of branches overlap on the map. – Market information as of April 22, 2024. – Refer to Appendix for calculation of non-GAAP financial measure. – Return on average equity ("ROAE"). – Return on average tangible common equity ("ROATCE"). Metropolitan Statistical Areas Seattle-Tacoma-Bellevue, WA Portland-Vancouver-Hillsboro, OR-WA Eugene-Springfield, OR Boise–Nampa, Idaho Heritage Branch

 
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 in and adjacent to our current footprint including our recent branch openings in Eugene, Oregon and Boise, Idaho 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 Average assets per full-time equivalent employee increased to $9.3 million at March 31, 2024 compared to $8.9 million at December 31, 2023 Generate stable profitability and risk adjusted returns Ÿ Reduced noninterest expense to average assets to 2.29% in Q1 2024 as compared to 2.39% at Q1 2023. Ÿ Five-year growth in tangible book value (non-GAAP) of $3.33, or 23.7%, to $17.36 at March 31, 2024 from $14.03 at March 31, 2019 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 0.11% at March 31, 2024. Focus on core deposits is key to franchise value over the long term Ÿ 29.5% noninterest demand deposits to total deposits Ÿ 1.19% cost of total deposits; top 20% performance among US publicly traded banks in Q4 2023 Proactive capital management Ÿ History of increasing regular dividends and utilizing special dividends to manage capital Ÿ Strong capital ratios: Leverage ratio = 10.0%; Total capital ratio = 13.9% – Refer to Appendix for calculation of non-GAAP financial measures. – Comparable cost of total deposits information provided by S&P Global Market Intelligence for the fourth quarter of 2023 quarter of 2024 and includes banks nationwide with shares on NASDAQ or NYSE and total assets less than $100 billion; excluding pending merger targets. – Current quarter capital ratios are estimates pending completion and filing of the Company's regulatory reports.

 
6 PROFITABILITY IMPROVEMENT MEASURES Q4 2023 Investment Activity Q1 2024 Investment Activity Loss on sale Estimated Profitability Improvement (Annualized) Loss on sale Estimated Profitability Improvement (Annualized) Investment sales $(10.0) $(3.9) $(10.0) $(3.4) Investment purchases 8.6 2.0 Investment of cash proceeds in interest earning deposits 0.6 6.0 Total Pre-Tax Financial Impact $(10.0) $5.3 $(10.0) $4.6 Estimated EPS Impact $(0.22) $0.12 $(0.22) $0.10 Balance Sheet Repositioning • In the Q1 2024, the Company sold $144.0 million in investment securities with an estimated weighted average book yield of 2.37% and purchased $33.1 million of investment securities with an estimated weighted average book yield of 6.05%. • In Q4 2023, the Company sold $151.8 million in investment securities with an estimated weighted average book yield of 2.41% and purchased $140.7 million of investment securities with an estimated weighted average book yield of 6.08%. See below for additional details. Q4 2023 Expense Q1 2024 Expense Estimated Profitability Improvement (Annualized) Contract renewal costs resulting in lower annual cost on renewed contract $(1.5) $1.3 Contract cancellations resulting in annual cost savings on canceled contracts (0.3) 0.5 Severance costs resulting in lower compensation expense due to reduced FTE (0.2) (1.1) 3.5 Total Pre-Tax Financial Impact $(2.0) $(1.1) $5.3 Estimated EPS Impact $(0.04) $(0.02) $0.12 Expense Management Measures Costs relating to expense management measures totaling $2.0 million were recognized in the fourth quarter relating to contract renewal negotiations, contract cancellations and severance payments. In the first quarter of 2024, an additional $1.1 million of severance costs were recognized due to staff reductions. See below for additional details.

 
7 $106,526 $88,444 $75,384 $73,503 Median household income 4.8% 4.0% 16.2% 4.7% 3.9% 12.9% 3.7% 7.2% 18.9% 3.9% 2.1% 13.4% Seattle MSA Portland MSA Boise MSA USA Unemployment rate 2023-2028 Projected Population Growth 2023-2028 Projected Median Household Income Growth STRONG AND DIVERSE ECONOMIC LANDSCAPE Major Employers in the Pacific Northwest – Economic 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 February 2024. 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 is based upon branch or office location. – Loan information is provided gross of deferred fees and/or costs and acquired discount and/or premium. Loans by MSA Seattle WA $2,201 49.7% Portland OR-WA $641 14.5% Mount Vernon WA $249 5.6% Olympia WA $178 4.0% Yakima WA $113 2.6% Bellingham WA $193 4.4% Other $853 19.3% Deposits by MSA Seattle WA $2,447 44.2% Portland OR-WA $776 14.0% Mount Vernon WA $288 5.2% Olympia WA $518 9.4% Oak Harbor WA $545 9.9% Longview WA $164 3.0% Yakima WA $222 4.0% Bellingham WA $176 3.2% Other $396 7.2%

 
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. • Long-term goal to build a PNW regional commercial community bank; potential opportunities for M&A and production team lift-outs in OR and ID in addition to WA. • Significant number of banks remaining in HFWA footprint; further consolidation is expected. – 10 banks between $200 million and $500 million in assets – 18 banks between $500 million and $1.0 billion in assets – 16 banks between $1.0 billion and $3.5 billion in assets • Financial parameters 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 $7,091 $1,747 $1,079 $15.02 $15.68 $16.08 $16.88 $20.63 $22.10 $22.85 $24.34 $22.73 $24.44 $24.43 $10.73 $11.41 $11.86 $12.70 $13.54 $15.07 $15.77 $17.19 $15.66 $17.40 $17.36 Organic Assets Acquired Assets Book value per share (GAAP) Tangible book value per share (non-GAAP) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Q1 2024 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 – Refer to Appendix for calculation of non-GAAP financial measures.

 
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 our Capital Markets Group as result of the added expertise 2017 • Added a commercial banking team in Portland, Oregon • 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 a 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 2023 • Expanded into a new market with addition of commercial banking team and full service branch in Boise, Idaho (branch opened January 10, 2023) Bank Acquisitions and Team Additions Bank Acquisition Team Addition

 
FINANCIAL UPDATE

 
13 LOAN PORTFOLIO Loan Portfolio Composition $232 $196 $171 $171$165 $344 $375 $386 $227 $294 $414 $457 $768 $693 $718 $760 $2,424 $2,524 $2,657 $2,655 Consumer Residential real estate Construction & land development Commercial and Industrial (C&I) Commercial real estate (CRE) 2021 2022 2023 Q1 2024 New Commitments Originated $15 $23 $17 $18 $20$23 $27 $11 $3 $14 $228 $212 $217 $187 $133 Consumer Residential Commercial (C&I and CRE) Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024

 
14 Construction Commitments $488 $686 $769 $762 $227 $294 $414 $457 $261 $392 $355 $305 Outstanding Balance Available Credit 2021 2022 2023 Q1 2024 LOC Utilization Rates 25.2% 29.8% 28.2% 31.9% 46.5% 42.9% 53.8% 60.0% 31.4% 31.1% 31.1% 31.7% Utilization Rate - Consumer LOCs Utilization Rate - Construction LOCs Utilization Rate - Commercial and Industrial Loan LOCs 2021 2022 2023 Q1 2024 LINE OF CREDIT ("LOC") UTILIZATION

 
15 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 03/31/24 Real estate, rental and leasing $1,850 4.4 Health care and social assistance 334 4.5 Accommodation and food services 180 5.1 Retail trade 149 4.5 Construction 126 4.7 Other services (except Public administration) 109 4.7 Manufacturing 91 4.9 All other industries 576 4.5 Total $3,415 4.5 CRE Loans only by Collateral Type Collateral Type Amount WARR at 03/31/24 Office $551 4.3 Industrial 418 4.4 Retail store / shopping center 284 4.6 Multi-family 309 4.4 Mixed use property 153 4.5 Motel / hotel 145 5.0 Single purpose 118 4.6 Warehouse 147 4.5 Mini-storage 171 4.2 Recreational / school 73 5.0 Other 286 4.6 Total $2,655 4.5 – Categorized by NAICS code. – WARR = Weighted average risk rating. Office - Owner-occupied CRE 10.4% Office - Non-owner occupied CRE 10.4% Industrial 15.7% Retail store / shopping center 10.7% Multi-family 11.6% Mixed use property 5.7% Motel / hotel 5.5% Single purpose 4.5% Warehouse 5.5% Mini-storage 6.4% Recreational / school 2.7% Other 10.9% Real estate, rental and leasing 54.2% Health care and social assistance 9.8% Accommodation and food services 5.3% Retail trade 4.4% Construction 3.7% Other Services (except Public administration) 3.2% Manufacturing 2.7% All other industries 16.7%

 
16 CHANGES IN LOANS RECEIVABLE $4,336 $102 $(39) $(33) $62 $4,428 Loans receivable at December 31, 2023 Loans originated Prepayments Maturities / Payoffs Net advances/ payments Loans receivable at March 31, 2024 $4,051 $484 $(197) $(122) $120 $4,336 Loans receivable at December 31, 2022 Loans originated Prepayments Payoffs Net advances/ payments Loans receivable at December 31, 2023 Change in loans - Q1 2024 Change in loans - 2023

 
17 CRE OFFICE CRE Office Loans by Size Size WARR # of Loans Balance Average Balance >$10 Million 3.4 4 $ 66,304 $ 16,576 $5-$10 Million 4.3 16 101,409 6,338 $2-$5 Million 4.4 43 129,476 3,011 <$2 Million 4.6 475 253,648 534 TOTAL 4.3 538 $ 550,837 $ 1,024 Quality of CRE Office Portfolio: • 82.4% of loans have recourse to owner • 50.2% of loans are owner occupied which are considered to have a lower risk profile • 24.2% of loans for health care and social assistance who are less likely to reduce office space CRE Office Loans by Industry Type Health Care and Social Assistance 24.2% Professional, Scientific, and Technical Services 3.3% Finance and Insurance 2.9% Other Services (except Public Administration) 2.5% Accommodation and Food Services 1.1% All Other 66.0% – Dollars in thousands unless otherwise noted. – WARR (weighted average risk rating) as of 3/31/24 and based upon amortized cost. – Wtd Avg Rate (weighted average rate) based upon amortized cost.

 
18 Net charge-offs (recoveries) on loans to average loans, annualized 0.01% (0.03)% (0.01)% 0.02% 0.00% (0.11)% 0.06% 0.00% 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Nonaccrual Loans $24 $6 $4 $5 Nonaccrual loans Nonaccrual loans to loans receivable 2021 2022 2023 Q1 2024 0.62% 0.15% 0.10% 0.11% NONACCRUAL LOANS AND NET CHARGE-OFFS

 
19 CRITICIZED LOANS $183 $135 $150 $172 $24 $89 $60 $65 $65 $71 $69 $80 $102 Substandard - nonaccrual Substandard - accrual Special mention 2021 2022 2023 Q1 2024 Criticized Loans by Loan Segment Commercial & industrial 30.8% Owner- occupied CRE 20.6% Non-owner occupied CRE 28.9% Residential real estate 0.6% Construction & land development 18.3% Consumer 0.8% Criticized Loans by Collateral Type Motel/Hotel 11.8% Office 10.6% Multi-Family 11.5% Retail Store/Shopping Center 6.2% Mixed Use Property 8.1% Elder Care 7.8% Farm-Bldgs/Land 4.3% Industrial 4.7% Duplex/Tri-Plex/4-Plex 3.1% Other CRE 14.5% Non-CRE 17.4% $6 $4 $5

 
20 ACL on Loans $42,361 $42,986 $47,999 $49,736 1.11% 1.06% 1.11% 1.12% ACL on loans ($) ACL on loans / Loans (%) 2021 2022 2023 Q1 2024 ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOANS $47,999 $1,780 $(183) $158 $(18) $49,736 December 31, 2023 Change in loan balance Change in collective rate Change in rate and balance Individually evaluated loans March 31, 2024 Change in ACL on Loans - Q1 2024 *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% 2.61% 2.72% 3.71% 2.79% 2.28% 2.14% Heritage Peer Median 2018 2019 2020 2021 2022 2023 NCOs to Average Loans 0.06% 0.09% 0.07% 0.01% (0.03)% (0.01)% 0.12% 0.12% 0.09% 0.13% 0.03% 0.10% Heritage Peer Median 2018 2019 2020 2021 2022 2023 *Most current data available as of December 31, 2023 *Criticized loans includes loans graded Special Mention or worse *Peer Median is the median of 20 identified peer banks ranging in asset size from $4 billion to $15 billion. *NCOs - Net charge-offs (recoveries) Proactive Credit Management • Heritage proactively downgrades loans that are experiencing financial difficulty. This does not however, translate into higher charge- offs. • Criticized loans to total loans higher than peer median since 2018 • NCOs recognized during the same period were lower than peer median.

 
22 Average Deposit Balances and Cost of Total Deposits $6,090 $6,322 $5,706 $5,849 $5,656 $5,701 $5,621 $5,526 0.10% 0.11% 0.69% 0.31% 0.61% 0.83% 1.01% 1.19% 0.49% 0.92% 1.23% 1.48% 1.70% 0.16% 0.17% 1.03% Average deposits Cost of total deposits Cost of int-bearing deposits 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 DEPOSITS Deposit Composition 36.7% 35.5% 30.6% 29.5% 30.4% 30.9% 28.7% 28.1% 17.5% 17.9% 19.5% 19.9% 10.0% 10.5% 8.7% 8.4% 5.4% 5.2% 12.4% 14.1% Noninterest demand deposits Interest bearing demand deposits Money market accounts Savings accounts Certificates of deposit 2021 2022 2023 Q1 2024

 
23 DEPOSIT COMPOSITION Customer Deposits by Relationship Size $632 $281 $1,301 $1,466 $1,852 Over $10MM $5MM-$10MM $1MM-5MM $250K-$1MM Less than $250K Consumer Accounts vs. Business Accounts 27% 59% 14% Consumer Commercial CDs Insured vs. Uninsured 37% 63% Insured Uninsured Estimated balances as of March 31, 2024 Deposit portfolio as of March 31, 2024: • Majority of deposits are to customers with relationships of $1 million or less. • Uninsured deposits at 37% of total deposits. 13% of uninsured deposits are public deposits that are 100% pledged. • Mix of commercial and consumer accounts.

 
24 Investment Balances and Investment Yield $1,278 $2,098 $1,874 $2,078 $2,031 $1,894 $1,874 $1,731 $757 $1,203 $178 $141 2.13% 2.48% 3.02% 2.96% 2.98% 2.99% 3.15% 3.30% Portfolio yield New purchases 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 INVESTMENT PORTFOLIO Portfolio Duration 4.85 4.93 4.80 6.76 4.08 3.37 4.90 4.80 4.80 4.80 4.80 2.79 3.10 3.48 2.33 Duration - total portfolio Duration - new purchases only 2021 2022 2023 Q1 2023 Q2 2023* Q3 2023 Q4 2023 Q1 2024 *No investments were purchased during Q2 2023.

 
25 $40 $43 $40 $48 $45 $42 $43 $58 $72 $57 $48 $59 $26 $29 $26 $35 $32 $29 $30 $46 $60 $45 $36 $48 $14 $14 $14 $13 $13 $13 $13 $12 $12 $12 $12 $11 Interest Principal Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Q1 2027 INVESTMENT CASHFLOWS Investment cashflows are estimated to be $595 million through Q1 of 2027. – Cashflow estimates based on third-party bond accounting service

 
26 INVESTMENT PORTFOLIO HTM Investment by Type US government and agencies 18.7% Residential CMO and MBS 37.7% Commercial CMO and MBS 43.6% – Available for sale ("AFS") and held to maturity ("HTM") investment securities balances and percentages are presented at fair value as of March 31, 2024 unless otherwise noted. Strong Credit Quality of Portfolio: AFS Securities • 90.4% of AFS in U.S. government and agency securities • Only 1.1% in AFS are rated less than AA HTM Securities • All HTM investments are U.S. government and agency securities • 77% HTM Portfolio pledged for public deposits and Federal Reserve Bank borrowings AFS Investments Pledged 28.9% 71.1% Pledged Not pledged AFS Investment by Type US government and agencies 1.3% Municipal securities 7.2% Residential CMO and MBS 47.8% Commercial CMO and MBS 41.2% Other asset-backed securities 1.4%

 
27 Net Interest Margin 3.23% 3.35% 3.58% 3.91% 3.56% 3.47% 3.41% 3.32% NIM 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 NET INTEREST MARGIN Change in Net Interest Margin QTD Q4 2023 vs. QTD Q1 2024 3.41% 0.12% 0.02% (0.05)% (0.15)% (0.03)% 3.32% QTD Q4 2023 Loans Investments Interest earning deposits Deposits Borrowings QTD Q1 2024

 
28 Adjustable Rate Loans - Repricing Schedule $923 $139 $210 $221 $186 $215 $135 8.03% 4.53% 3.93% 3.89% 5.41% 6.12% 4.49% 8.09% 6.98% 6.85% 6.80% 6.74% 6.75% 6.96% Floating and Adjustable Rate Loans Wtd Avg Rate Wtd Avg Rate if Repriced 3/31/24 < 3 Months 3 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years > 5 Years LOAN MATURITY AND REPRICING – Wtd Avg Rate if Repriced 3/31/24 assumes same index and margin – Wtd Avg Rate (weighted average rate) as of 3/31/24 and based upon amortized cost. Repricing period signifies either the next scheduled reprice date or maturity for adjustable rate loans Adjustable Rate Loans • $2.0 billion in total • 54% tied to FHLB index, 21% tied to Prime, 25% tied to SOFR Fixed Rate Loans - Maturity Schedule $62 $116 $143 $145 $209 $187 $1,528 4.69% 4.45% 4.48% 4.32% 4.52% 4.97% 4.18% Fixed Rate Loans Wtd Avg Rate < 3 Months 3 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years > 5 Years Fixed Rate Loans • $2.4 billion in total

 
29 $98.0 $81.9 $61.8 $91.1 $98.0 $77.2 Net income (GAAP) PTPP income (non-GAAP) 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 $20.5 $16.8 $18.2 $6.2 $5.7 $26.5 $21.8 $20.9 $8.0 $8.3 PROFITABILITY TRENDS ROAE (GAAP) and ROATCE (non-GAAP) Noninterest Expense/Avg. Assets ROAA (GAAP) and PTPP ROAA (non-GAAP) 1.38% 1.12% 0.86% 1.17% 0.95% 1.00% 0.35% 0.33% 1.28% 1.34% 1.08% 1.52% 1.22% 1.15% 0.44% 0.47% ROAA (GAAP) PTPP ROAA (non-GAAP) 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Net Income (GAAP) and PTPP Income (non- GAAP), in millions 17.05% 14.94% 11.15% 15.05% 12.04% 12.90% 4.69% 4.07% 11.64% 10.08% 7.55% 10.21% 8.19% 8.80% 3.04% 2.73% ROAE (GAAP) ROATCE (non-GAAP) 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 2.09% 2.06% 2.33% 2.39% 2.32% 2.25% 2.37% 2.29% 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 – Refer to Appendix for calculation of non-GAAP financial measures – ROAA - Return on average assets – PTPP - Pre-tax, pre-provision – ROAE - Return on average equity – ROATCE - Return on average tangible common equity

 
30 Total Risk Based Capital 14.8% 14.0% 14.1% 13.9% 10.0% 10.0% 10.0% 10.0% 4.8% 4.0% 4.1% 3.9% Well-capitalized Excess capital 2021 2022 2023 Q1 2024 – Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. – Refer to Appendix for calculation of non-GAAP financial measures. – Well-capitalized represents FDIC well-capitalized ratio threshold for banks. The minimum capital ratio requirement for Tier 1 leverage and Total risk based capital is 4.0% and 8.0%, respectively. Tier 1 Leverage Ratio 8.7% 9.7% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 3.7% 4.7% 5.0% 5.0% Well-capitalized Excess capital 2021 2022 2023 Q1 2024 CAPITAL RATIOS Equity Ratios 11.5% 11.4% 11.9% 12.0% 8.4% 8.2% 8.8% 8.8% Stockholders' equity to total assets (GAAP) Tangible common equity ("TCE") to tangible assets (non-GAAP) 2021 2022 2023 Q1 2024

 
31 LIQUIDITY POSITION – At fair value – Includes FHLB borrowing availability of $1.38 billion at March 31, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.23 billion Liquidity position at March 31, 2024: • Sufficient liquidity to cover estimated uninsured deposits of $2.0 billion. • Access to brokered deposits of $698 million per internal company policy. Liquidity Sources $3,088 $2,752 $2,721 $2,863 $2,499 $815 $1,217 $1,202 $1,418 $1,385 $641 $410 $373 $319 $71 $1,116 $872 $780 $756 $708 $301 $108 $221 $225 $190 $215 $145 $145 $145 $145 137.5% 129.5% 131.9% 136.3% 122.3% FHLB borrowing availability FRB borrowing availability Unencumbered investment securities available for sale Cash and cash equivalents Fed funds lines % of uninsured deposits covered by liquidity sources Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024

 
SHAREHOLDER RETURN

 
33 TOTAL SHAREHOLDER RETURN Stock Summary Ticker HFWA Exchange NASDAQ Stock price $18.12 Market capitalization (in millions) $628.0 Dividend yield (regular dividend only) 5.08% Average Daily Volume (3 month) Average daily volume (shares) 210,595 Average daily volume ($000s) $3,816 52-Week High and Low Price 52-week high (December 14, 2023) 22.55 52-week low (May 4, 2023) 14.85 Per Share Tangible book value per share $17.36 EPS - 2024E $1.71 EPS - 2025E $1.91 Number of research analysts 6 Valuation Ratios Price / Tangible book value 104.4% Price / 2024E EPS 10.6x Price / 2025E EPS 9.5x Dividends Per Share Declared $0.53 $0.72 $0.61 $0.72 $0.84 $0.80 $0.81 $0.84 $0.88 $0.23 $0.10 $0.11 $0.12 $0.15 $0.18 $0.20 $0.20 $0.21 $0.22 $0.23 $0.11 $0.12 $0.13 $0.15 $0.18 $0.20 $0.20 $0.21 $0.22 $0.11 $0.12 $0.13 $0.15 $0.19 $0.20 $0.20 $0.21 $0.22 $0.11 $0.12 $0.13 $0.17 $0.19 $0.20 $0.21 0.21 0.22 $0.10 $0.25 $0.10 $0.10 $0.10 Q1 Q2 Q3 Q4 Special dividends 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Diluted Earnings Per Share – Market information as of April 22, 2024. – Earnings per share and Valuation ratios are based on analysts consensus – Dividend information as of April 24, 2024. $1.25 $1.30 $1.39 $1.49 $1.83 $1.29 $2.73 $2.30 $1.75 $0.16 $0.32 $0.30 $0.31 $0.27 $0.45 $0.34 $0.70 $0.56 $0.58 $0.16 $0.29 $0.30 $0.40 $0.35 $0.43 -$0.17 $0.90 $0.52 0.48$0.32 $0.37 $0.35 $0.42 $0.48 $0.46 $0.58 $0.59 0.51 $0.32 $0.33 $0.33 $0.45 $0.47 $0.66 $0.55 $0.64 0.18 Q1 Q2 Q3 Q4 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

 
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND QUARTERLY FINANCIAL STATISTICS

 
35 NON-GAAP FINANCIAL MEASURES 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 PTPP Income and PTPP ROAA: Net income (GAAP) $ 98,035 $ 81,875 $ 61,755 $ 20,457 $ 16,846 $ 18,219 $ 6,233 $ 5,748 Exclude income tax expense 22,472 17,561 11,160 4,213 3,025 3,578 344 1,120 Exclude provision for (reversal of provision for) credit losses (29,372) (1,426) 4,280 1,825 1,909 (878) 1,424 1,392 PTPP income (non-GAAP) $ 91,135 $ 98,010 $ 77,195 $ 26,495 $ 21,780 $ 20,919 $ 8,001 $ 8,260 Average total assets $ 7,126,250 $ 7,321,455 $ 7,140,024 $ 7,061,959 $ 7,142,865 $7,212,732 $7,140,876 $7,092,452 ROAA, annualized (GAAP) 1.38 % 1.12 % 0.86 % 1.17 % 0.95 % 1.00 % 0.35 % 0.33 % PTPP ROAA, annualized (non-GAAP) 1.28 % 1.34 % 1.08 % 1.52 % 1.22 % 1.15 % 0.44 % 0.47 % ROATCE: Net income (GAAP) $ 98,035 $ 81,875 $ 61,755 $ 20,457 $ 16,846 $ 18,219 $ 6,233 $ 5,748 Add amortization of intangible assets 3,111 2,750 2,434 623 623 595 593 421 Exclude tax effect of adjustment (653) (578) (511) (131) (131) (125) (125) (88) Tangible net income (non-GAAP) $ 100,493 $ 84,047 $ 63,678 $ 20,949 $ 17,338 $ 18,689 $ 6,701 $ 6,081 Average stockholders' equity (GAAP) $ 842,067 $ 811,942 $ 818,042 $ 812,500 $ 824,742 $ 821,494 $ 813,383 $ 846,947 Exclude average intangible assets (252,540) (249,566) (246,965) (247,922) (247,278) (246,663) (246,022) (245,536) Average tangible common stockholders' equity (non- GAAP) $ 589,527 $ 562,376 $ 571,077 $ 564,578 $ 577,464 $ 574,831 $ 567,361 $ 601,411 ROAE, annualized (GAAP) 11.64 % 10.08 % 7.55 % 10.21 % 8.19 % 8.80 % 3.04 % 2.73 % ROATCE, annualized (non-GAAP) 17.05 % 14.94 % 11.15 % 15.05 % 12.04 % 12.90 % 4.69 % 4.07 % – Dollars in thousands – ROAA - Return on average assets – PTPP - Pre-tax, pre-provision – ROATCE - Return on average tangible common equity

 
36 NON-GAAP FINANCIAL MEASURES 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Efficiency Ratio and Adjusted Efficiency Ratio Total noninterest expense (GAAP) $ 149,269 $ 150,966 $ 166,623 $ 41,605 $ 41,325 $ 40,970 $ 42,723 $ 40,370 Net interest income (GAAP) $ 205,789 $ 219,385 $ 225,155 $ 59,842 $ 55,824 $ 55,618 $ 53,871 $ 51,530 Total noninterest income (GAAP) $ 34,615 $ 29,591 $ 18,663 $ 8,258 $ 7,281 $ 6,271 $ (3,147) $ (2,900) Exclude (gain) loss on sale of investment securities, net (29) 256 12,231 286 — 1,940 10,005 9,973 Exlude gain on sale of branch including related deposits, net — — (610) — — (610) — — Exclude gain on sale of premise and equipment (4,440) (403) — — — — — — Adjusted total non interest income (non-GAAP) $ 30,146 $ 29,444 $ 30,284 $ 8,544 $ 7,281 $ 7,601 $ 6,858 $ 7,073 Efficiency ratio (GAAP) 62.09 % 60.63 % 68.34 % 61.09 % 65.49 % 66.20 % 84.23 % 83.01 % Adjusted efficiency ratio (non-GAAP) 63.27 % 60.67 % 65.23 % 60.84 % 65.49 % 64.81 % 70.35 % 68.89 % – Dollars in thousands

 
37 2014 2015 2016 2017 2018 2019 2020 2022 2023 Tangible Book Value Per Share: Total stockholders' equity (GAAP) $ 454,506 $ 469,970 $ 481,763 $ 505,305 $ 760,723 $ 809,311 $ 820,439 $ 797,893 $ 853,261 Exclude intangible assets (129,918) (127,818) (126,403) (125,117) (261,553) (257,552) (254,027) (248,166) (245,732) Tangible common equity (non-GAAP) $ 324,588 $ 342,152 $ 355,360 $ 380,188 $ 499,170 $ 551,759 $ 566,412 $ 549,727 $ 607,529 Shares outstanding 30,259,838 29,975,439 29,954,931 29,927,746 36,874,055 36,618,729 35,912,243 35,106,697 34,906,233 Book value per share (GAAP) $ 15.02 $ 15.68 $ 16.08 $ 16.88 $ 20.63 $ 22.10 $ 22.85 $ 22.73 $ 24.44 Tangible book value per share (non-GAAP) $ 10.73 $ 11.41 $ 11.86 $ 12.70 $ 13.54 $ 15.07 $ 15.77 $ 15.66 $ 17.40 Moved to 2nd slide 2024 Q1 Total stockholders' equity (GAAP) $ 847,580 Exclude intangible assets (245,311) Tangible common equity (non-GAAP) $ 602,269 Shares outstanding 34,689,843 Book value per share (GAAP) $ 24.43 Tangible book value per share (non-GAAP) $ 17.36 NON-GAAP FINANCIAL MEASURES – Dollars in thousands

 
38 As of Period End or for the Three Months Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 Profitability: Net income (GAAP) $ 20,457 $ 16,846 $ 18,219 $ 6,233 $ 5,748 Pre-tax, pre-provision net income (non-GAAP) $ 26,495 $ 21,780 $ 20,919 $ 8,001 $ 8,260 Diluted earnings per share $ 0.58 $ 0.48 $ 0.51 $ 0.18 $ 0.16 Return on average assets (GAAP) 1.17 % 0.95 % 1.00 % 0.35 % 0.33 % Pre-tax, pre-provision return on average assets (non-GAAP) 1.52 1.22 1.15 0.44 0.47 Return on average common equity (GAAP) 10.21 8.19 8.80 3.04 2.73 Return on average tangible common equity (non-GAAP) 15.05 12.04 12.90 4.69 4.07 Net interest margin 3.91 3.56 3.47 3.41 3.32 Efficiency ratio (GAAP) 61.1 65.5 66.2 84.2 83.0 Adjusted efficiency ratio (non-GAAP) 60.8 % 65.5 % 64.8 % 70.4 % 68.9 % Noninterest expense to average total assets 2.39 % 2.32 % 2.25 % 2.37 % 2.29 % Balance Sheet: Total assets $ 7,236,806 $ 7,115,410 $ 7,150,588 $ 7,174,957 $ 7,091,283 Loans receivable, net 4,083,003 4,204,936 4,219,911 4,287,628 4,378,429 Total deposits $ 5,789,022 $ 5,595,543 $ 5,635,187 $ 5,599,872 $ 5,532,327 Loan to deposit ratio 71.3 % 76.0 % 75.7 % 77.4 % 80.0 % Capital: Book value per share (GAAP) $ 23.53 $ 23.39 $ 23.31 $ 24.44 $ 24.43 Tangible book value per share (non-GAAP) $ 16.48 $ 16.34 $ 16.25 $ 17.40 $ 17.36 Leverage ratio 9.9 % 9.9 % 9.9 % 10.0 % 10.0 % Total capital ratio 14.1 % 14.1 % 14.1 % 14.1 % 13.9 % Credit Quality: Nonperforming assets to total assets 0.10 % 0.10 % 0.07 % 0.08 % 0.10 % ACL on loans to loans receivable (GAAP) 1.08 1.09 1.10 1.11 1.12 – Dollars in thousands – Refer to Appendix for calculation of non-GAAP financial measure. QUARTERLY FINANCIAL STATISTICS