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HFWA
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HERITAGE FINANCIAL ANNOUNCES FOURTH QUARTER AND ANNUAL 2024 RESULTS AND DECLARES REGULAR CASH DIVIDEND OF $0.24 PER SHARE

1. Net income rose to $11.9 million in Q4 2024, up from $11.4 million. 2. Net interest margin improved to 3.39%, increasing net interest income for two quarters. 3. Incurred $3.9 million loss on securities sales, impacting earnings per share. 4. BOLI restructuring added $2.4 million in tax costs, affecting reported earnings. 5. Dividend increased to $0.24, indicating financial stability amidst restructuring.

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Why Bullish?

The overall increase in net income and dividends shows basic growth, which can positively influence HFWA's stock. Past performance suggests that consistent earnings growth can attract more investors.

How important is it?

The financial performance directly affects investor sentiment and stock price, significantly impacting HFWA. Navigating restructuring while maintaining financial health is vital for future performance.

Why Short Term?

Immediate impacts are likely due to recent results and dividend announcements. Historical trends show stocks often respond quickly to quarterly earnings reports.

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HFWAFHLB
Fourth Quarter 2024 Highlights Net income was $11.9 million, or $0.34 per diluted share, compared to $11.4 million, or $0.33 per diluted share, for the third quarter of 2024. Results included a pre-tax loss on sale of securities of $3.9 million and $2.9 million in total after-tax costs related to BOLI restructuring, resulting in an aggregate negative impact of $0.17 per diluted share. Loans receivable increased $122.6 million, or 2.6% (10.5% annualized). Net interest margin increased to 3.39%, from 3.33% for the third quarter of 2024. Cost of total deposits decreased to 1.39%, from 1.42% for the third quarter of 2024. Declared a regular cash dividend of $0.24 per share on January 22, 2025, an increase of 4.3% from the $0.23 regular cash dividend per share declared in the fourth quarter of 2024. , /PRNewswire/ -- Heritage Financial Corporation (Nasdaq GS: HFWA) (the "Company", "we," or "us"), the parent company of Heritage Bank (the "Bank"), today reported net income of $11.9 million for the fourth quarter of 2024, compared to $11.4 million for the third quarter of 2024 and $6.2 million for the fourth quarter of 2023. Diluted earnings per share for the fourth quarter of 2024 were $0.34 compared to $0.33 for the third quarter of 2024 and $0.18 for the fourth quarter of 2023. Net income for the year ended 2024 totaled $43.3 million, or $1.24 per diluted share, compared to $61.8 million, or $1.75 per diluted share for the year ended 2023. In the fourth quarter of 2024, 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 $35.6 million of investment securities with a book yield of 1.88%. Proceeds were used to fund higher yielding loan growth for the quarter. For the year ended 2024, the Company incurred pre-tax losses of $22.7 million on the sale of investment securities in connection with the strategic balance sheet repositioning efforts, which decreased diluted earnings per share by $0.51 for the year. In addition, the Company restructured its bank owned life insurance ("BOLI") portfolio during the fourth quarter of 2024, incurring additional tax expense related to the sale of BOLI of $2.4 million and other costs totaling $508,000 included in BOLI income which decreased diluted earnings per share by $0.08 for the quarter. Jeff Deuel, Chief Executive Officer of the Company, commented, "We are very pleased with our operating results for the fourth quarter, which included strong loan growth, margin expansion and lower cost of deposits. In addition to an increase in net interest margin, we also saw an increase in net interest income for the second consecutive quarter.  We continue to strategically reposition our balance sheet to improve future profitability.  Although these actions reduce reported earnings, we are seeing the benefits to our core earnings 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 December 31,2024 September 30,2024 December 31,2023 (Dollars in thousands, except per share amounts) Net income $          11,928 $          11,423 $            6,233 Pre-tax, pre-provision income(1) $          17,513 $          15,505 $            8,001 Diluted earnings per share $              0.34 $              0.33 $              0.18 Return on average assets(2) 0.66 % 0.63 % 0.35 % Pre-tax, pre-provision return on average assets(1)(2) 0.97 % 0.86 % 0.44 % Return on average common equity(2) 5.46 % 5.30 % 3.04 % Return on average tangible common equity(1)(2) 7.81 % 7.62 % 4.69 % Adjusted return on average tangible common equity(1)(2) 11.59 % 10.42 % 10.21 % Net interest margin(2) 3.39 % 3.33 % 3.41 % Cost of total deposits(2) 1.39 % 1.42 % 1.01 % Efficiency ratio 69.3 % 71.7 % 84.2 % Adjusted efficiency ratio(1) 64.4 % 65.2 % 70.4 % Noninterest expense to average total assets(2) 2.20 % 2.18 % 2.37 % Total assets $     7,106,278 $     7,153,363 $     7,174,957 Loans receivable, net $     4,749,655 $     4,628,088 $     4,287,628 Total deposits $     5,684,613 $     5,708,492 $     5,599,872 Loan to deposit ratio(3) 84.5 % 82.0 % 77.4 % Book value per share $            25.40 $            25.61 $            24.44 Tangible book value per share(1) $            18.22 $            18.45 $            17.40 (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 decreased $58.5 million, or 33.3%, to $117.1 million at December 31, 2024 from $175.6 million at September 30, 2024 primarily due to an increase in loans. Total investment securities decreased $104.5 million, or 6.6%, to $1.47 billion at December 31, 2024 from $1.57 billion at September 30, 2024. As previously noted, the Company sold $35.6 million of investment securities at a pre-tax loss of $3.9 million as part of its strategic balance sheet repositioning. In addition, there were investment maturities and repayments of $54.2 million during the fourth quarter of 2024 and a $15.0 million increase 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: December 31, 2024 September 30, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Investment securities available for sale, at fair value: U.S. government and agency securities $         12,544 0.9 % $         13,054 0.8 % $         (510) (3.9) % Municipal securities 50,942 3.5 61,263 3.9 (10,321) (16.8) Residential CMO and MBS(1) 369,331 25.2 427,048 27.2 (57,717) (13.5) Commercial CMO and MBS(1) 309,741 21.0 328,861 20.9 (19,120) (5.8) Corporate obligations 11,770 0.8 11,706 0.7 64 0.5 Other asset-backed securities 10,066 0.7 10,847 0.7 (781) (7.2) Total $       764,394 52.1 % $       852,779 54.2 % $   (88,385) (10.4) % Investment securities held to maturity, at amortized cost: U.S. government and agency securities $       151,216 10.3 % $       151,181 9.6 % $             35 — % Residential CMO and MBS(1) 244,309 16.6 249,589 15.9 (5,280) (2.1) Commercial CMO and MBS(1) 307,760 21.0 318,630 20.3 (10,870) (3.4) Total $       703,285 47.9 % $       719,400 45.8 % $   (16,115) (2.2) % Total investment securities $   1,467,679 100.0 % $   1,572,179 100.0 % $ (104,500) (6.6) % (1) U.S. government agency and government-sponsored enterprise CMO and MBS Loans receivable increased $122.6 million, or 2.6%, to $4.80 billion at December 31, 2024 from $4.68 billion at September 30, 2024. New loans funded in the fourth quarter and third quarter of 2024 totaled $181.0 million and $176.9 million, respectively. Loan prepayments were similar to the prior quarter at $44.4 million during the fourth quarter of 2024, compared to $44.8 million during the prior quarter. Commercial and industrial loans increased $18.5 million, or 2.2%, due primarily to new loan production of $56.3 million during the quarter, offset by pay downs on outstanding balances. Owner-occupied commercial real estate ("CRE") loans increased $16.2 million, or 1.6%, due primarily to new loan production of $32.0 million during the quarter, offset partially by pay downs on outstanding balances. Non-owner occupied CRE loans increased $73.5 million, or 4.0%, due primarily to new loan production of $74.7 million during the quarter and the transfer of $22.3 million of commercial and multifamily construction loans upon completion of construction. Commercial and multifamily construction loans increased $17.2 million or 4.6% due primarily to advances on outstanding commitments. The following table summarizes the Company's loans receivable, net at the dates indicated: December 31, 2024 September 30, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Commercial business: Commercial and industrial $       842,672 17.5 % $       824,134 17.6 % $         18,538 2.2 % Owner-occupied CRE 1,003,243 20.9 987,084 21.1 16,159 1.6 Non-owner occupied CRE 1,909,107 39.9 1,835,609 39.3 73,498 4.0 Total commercial business 3,755,022 78.3 3,646,827 78.0 108,195 3.0 Residential real estate 402,954 8.4 408,982 8.7 (6,028) (1.5) Real estate construction and land development: Residential 83,890 1.7 79,325 1.7 4,565 5.8 Commercial and multifamily 395,553 8.2 378,322 8.1 17,231 4.6 Total real estate construction and land development 479,443 9.9 457,647 9.8 21,796 4.8 Consumer 164,704 3.4 166,023 3.5 (1,319) (0.8) Loans receivable 4,802,123 100.0 % 4,679,479 100.0 % 122,644 2.6 Allowance for credit losses on loans (52,468) (51,391) (1,077) 2.1 Loans receivable, net $    4,749,655 $    4,628,088 $       121,567 2.6 % Total deposits decreased $23.9 million, or 0.4%, to $5.68 billion at December 31, 2024 from $5.71 billion at September 30, 2024. Non-maturity deposits decreased by $55.6 million, or 1.2%, from September 30, 2024 due primarily to customers moving balances to higher yielding accounts. Certificates of deposit increased $31.7 million, or 3.4%, to $977.3 million at December 31, 2024 from $945.6 million at September 30, 2024, primarily due to new accounts opened during the quarter offset partially by a decrease of $25.0 million in brokered certificates of deposit. Average total deposits increased $39.7 million to $5.72 billion for the fourth quarter of 2024, from $5.68 billion for the third quarter of 2024. The following table summarizes the Company's total deposits at the dates indicated: December 31, 2024 September 30, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Noninterest demand deposits $    1,654,955 29.1 % $    1,682,219 29.5 % $        (27,264) (1.6) % Interest bearing demand deposits 1,464,129 25.8 1,489,316 26.1 (25,187) (1.7) Money market accounts 1,166,901 20.5 1,148,720 20.1 18,181 1.6 Savings accounts 421,377 7.4 442,677 7.8 (21,300) (4.8) Total non-maturity deposits 4,707,362 82.8 4,762,932 83.5 (55,570) (1.2) Certificates of deposit 977,251 17.2 945,560 16.5 31,691 3.4 Total deposits $    5,684,613 100.0 % $    5,708,492 100.0 % $        (23,879) (0.4) % Total borrowings increased $1.0 million to $383.0 million at December 31, 2024 from $382.0 million at September 30, 2024. Average borrowings decreased $78.9 million to $373.5 million for the fourth quarter of 2024, from $452.4 million for the third quarter of 2024. Borrowings of $100.0 million from the Bank Term Funding Program were paid off during the quarter. All outstanding borrowings at December 31, 2024 are with the Federal Home Loan Bank ("FHLB") and mature within one year. Total stockholders' equity decreased $11.0 million, or 1.3%, to $863.5 million at December 31, 2024 compared to $874.5 million at September 30, 2024 due primarily to a $11.7 million increase in accumulated other comprehensive loss as a result of changes in market rates, $8.0 million in dividends paid to common shareholders and $4.4 million in common stock repurchases, offset partially by $11.9 million of net income recognized for the quarter. 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 December 31, 2024. The following table summarizes the capital ratios for the Company at the dates indicated: December 31,2024 September 30,2024 Stockholders' equity to total assets 12.2 % 12.2 % Tangible common equity to tangible assets (1) 9.0 9.1 Common equity tier 1 capital ratio (2) 12.0 12.3 Leverage ratio (2) 10.0 9.9 Tier 1 capital ratio (2) 12.4 12.7 Total capital ratio (2) 13.3 13.6 (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 December 31, 2024 compared to 1.10% at September 30, 2024. During the fourth quarter of 2024, the Company recorded a $1.1 million provision for credit losses on loans, compared to a $2.7 million provision for credit losses on loans during the third quarter of 2024. The provision for credit losses on loans during the quarter was due primarily to loan growth. Net charge-offs for the fourth quarter of 2024 were $27,000. During the fourth quarter of 2024, the Company recorded a $79,000 provision for credit losses on unfunded commitments compared to a $266,000 reversal of the provision for credit losses on unfunded commitments during the third quarter of 2024. The provision for credit losses on unfunded commitments during the fourth quarter of 2024 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 December 31, 2024 September 30, 2024 December 31, 2023 ACL on Loans ACL onUnfunded Total ACL on Loans ACL on Unfunded Total ACL on Loans ACL on Unfunded Total (Dollars in thousands) Balance, beginning of period $ 51,391 $          508 $ 51,899 $ 51,219 $          774 $ 51,993 $ 46,947 $      1,534 $ 48,481 Provision for (reversal of) credit losses 1,104 79 1,183 2,705 (266) 2,439 1,670 (246) 1,424 Net charge-offs (27) — (27) (2,533) — (2,533) (618) — (618) Balance, end of period $ 52,468 $          587 $ 53,055 $ 51,391 $          508 $ 51,899 $ 47,999 $      1,288 $ 49,287 Credit Quality The percentage of classified loans to loans receivable improved to 1.4% at December 31, 2024 compared to 1.5% at September 30, 2024. Classified loans include loans rated substandard or worse. The decrease was due primarily to payoffs and principal payments on substandard loans. Total loans designated as special mention increased by $11.6 million to $110.7 million at December 31, 2024 compared to $99.1 million at September 30, 2024. The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated: December 31, 2024 September 30, 2024 Balance % of Total Balance % of Total (Dollars in thousands) Risk Rating: Pass $    4,623,080 96.3 % $    4,508,424 96.4 % Special Mention 110,725 2.3 99,078 2.1 Substandard 68,318 1.4 71,977 1.5 Total $    4,802,123 100.0 % $    4,679,479 100.0 % Nonaccrual loans to loans receivable were 0.08% and 0.09% at December 31, 2024 and September 30, 2024, respectively. Changes in nonaccrual loans during the periods indicated were as follows: Quarter Ended December 31,2024 September 30,2024 December 31,2023 (Dollars in thousands) Balance, beginning of period $               4,301 $               3,826 $               3,065 Additions 160 4,990 2,149 Net principal payments and transfers to accruing status (250) (173) (333) Payoffs (132) (1,832) (413) Charge-offs — (2,510) — Balance, end of period $               4,079 $               4,301 $               4,468 Liquidity Total liquidity sources available at December 31, 2024 were $2.34 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 December 31, 2024 represented a coverage ratio of 41.2% of total deposits and 103.1% of estimated uninsured deposits. The following table summarizes the Company's available liquidity: Quarter Ended December 31,2024 September 30,2024 (Dollars in thousands) On-balance sheet liquidity Cash and cash equivalents $           117,100 $           175,572 Unencumbered investment securities available for sale (1) 746,163 848,224 Total on-balance sheet liquidity $           863,263 $        1,023,796 Off-balance sheet liquidity FRB borrowing availability $           360,104 $           287,739 FHLB borrowing availability (2) 976,288 1,068,085 Fed funds line borrowing availability with correspondent banks 145,000 145,000 Total off-balance sheet liquidity $        1,481,392 $        1,500,824 Total available liquidity $        2,344,655 $        2,524,620 (1) Investment securities available for sale at fair value. (2) Includes FHLB total borrowing availability of $1.36 billion at December 31, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.22 billion. Net Interest Income and Net Interest Margin Net interest income increased $0.8 million, or 1.5%, during the fourth quarter of 2024 compared to the third quarter of 2024, due primarily to a $1.7 million decrease in interest expense, offset partially by a $0.9 million decrease in interest income. Net interest margin increased six basis points to 3.39% during the fourth quarter of 2024 from 3.33% during the third quarter of 2024. The yield on interest earning assets decreased 5 basis points to 4.97% for the fourth quarter of 2024 compared to 5.02% for the third quarter of 2024. The yield on loans receivable, net, decreased 7 basis points to 5.53% during the fourth quarter of 2024 compared to 5.60% during the third quarter of 2024 as loans indexed to Prime or SOFR repriced at lower rates due to reductions in the federal funds rate. The cost of interest bearing deposits decreased 4 basis points to 1.98% for the fourth quarter of 2024 from 2.02% for the third quarter of 2024. This decrease was primarily due to a decrease in deposit rates during the quarter. Net interest income decreased $0.8 million, or 0.2%, during the fourth quarter of 2024 compared to the fourth quarter of 2023 and the net interest margin decreased 2 basis points to 3.39% from 3.41% 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 December 31, 2024 September 30, 2024 December 31, 2023 Average Balance Interest Earned/ Paid AverageYield/Rate (1) Average Balance Interest Earned/ Paid AverageYield/Rate (1) Average Balance Interest Earned/ Paid AverageYield/Rate (1) (Dollars in thousands) Interest Earning Assets: Loans receivable, net (2)(3) $ 4,665,113 $ 64,864 5.53 % $ 4,555,090 $ 64,138 5.60 % $ 4,233,743 $ 57,092 5.35 % Taxable securities 1,514,210 12,510 3.29 1,604,529 13,472 3.34 1,824,205 14,488 3.15 Nontaxable securities (3) 16,138 146 3.60 17,482 159 3.62 37,382 300 3.18 Interest earning deposits 119,275 1,440 4.80 150,384 2,048 5.42 174,475 2,382 5.42 Total interest earning assets 6,314,736 78,960 4.97 % 6,327,485 79,817 5.02 % 6,269,805 74,262 4.70 % Noninterest earning assets 834,558 855,436 871,071 Total assets $ 7,149,294 $ 7,182,921 $ 7,140,876 Interest Bearing Liabilities: Certificates of deposit $    947,929 $ 10,070 4.23 % $    906,743 $ 10,052 4.41 % $    638,101 $   6,261 3.89 % Savings accounts 432,287 280 0.26 445,926 220 0.20 497,484 231 0.18 Interest bearing demand and money market accounts 2,631,577 9,622 1.45 2,644,827 9,984 1.50 2,713,482 7,846 1.15 Total interest bearing deposits 4,011,793 19,972 1.98 3,997,496 20,256 2.02 3,849,067 14,338 1.48 Junior subordinated debentures 22,019 512 9.25 21,946 541 9.81 21,729 553 10.10 Securities sold under agreement to repurchase — — — — — — 17,511 5 0.11 Borrowings 373,493 4,713 5.02 452,364 6,062 5.33 459,784 5,495 4.74 Total interest bearing liabilities 4,407,305 25,197 2.27 % 4,471,806 26,859 2.39 % 4,348,091 20,391 1.86 % Noninterest demand deposits 1,703,357 1,677,984 1,772,261 Other noninterest bearing liabilities 170,324 175,332 207,141 Stockholders' equity 868,308 857,799 813,383 Total liabilities and stockholders' equity $ 7,149,294 $ 7,182,921 $ 7,140,876 Net interest income and spread $ 53,763 2.70 % $ 52,958 2.63 % $ 53,871 2.84 % Net interest margin 3.39 % 3.33 % 3.41 % (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 $878,000, $938,000 and $832,000 for the fourth quarter of 2024, third quarter of 2024 and fourth 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 $1.5 million to $3.3 million during the fourth quarter of 2024 from $1.8 million during the third quarter of 2024. The increase was due primarily to the decrease in loss resulting from the above-referenced sale of investment securities recognized in the fourth quarter of 2024 as part of the strategic repositioning of the balance sheet, compared to the loss recognized in the prior quarter in connection with the prior balance sheet repositioning transaction.  The increase was partially offset by a decrease in gain on sale of other assets, net which was due to the $1.5 million gain on sale of an administrative building recognized during the third quarter of 2024. Noninterest income increased $6.4 million from the same period in 2023 due primarily to the decrease in loss resulting from the above-referenced sale of investment securities recognized in the fourth quarter of 2024 as part of the strategic repositioning of the balance sheet, compared to the loss recognized in the same quarter in 2023 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 December 31,2024 September 30,2024 December 31,2023 $ % $ % (Dollars in thousands) Service charges and other fees $         2,892 $         2,788 $         2,804 $       104 3.7 % $         88 3.1 % Card revenue 1,849 2,134 1,944 (285) (13.4) (95) (4.9) Loss on sale of investment securities (3,903) (6,945) (10,005) 3,042 43.8 6,102 61.0 Gain on sale of loans, net — — 36 — — (36) (100.0) Interest rate swap fees 357 — — 357 — 357 — Bank owned life insurance income 256 860 654 (604) (70.2) (398) (60.9) Gain on sale of other assets, net 23 1,480 — (1,457) (98.4) 23 — Other income 1,816 1,520 1,420 296 19.5 396 27.9 Total noninterest income (loss) $         3,290 $         1,837 $       (3,147) $    1,453 79.1 % $    6,437 204.5 % Noninterest Expense Noninterest expense increased $0.3 million, or 0.6%, during the fourth quarter of 2024 from the third quarter of 2024. Marketing expense and professional services expense increased compared to the prior quarter, primarily due to timing of services performed. Noninterest expense decreased $3.2 million, or 7.5%, during the fourth quarter of 2024 compared to the same period in 2023. Compensation and employee benefit expense decreased primarily to a decrease in full-time equivalent employees to 751 at December 31, 2024 from 803 at December 31, 2023. Data processing expense decreased due primarily to an accrual for the early termination of a technology-related contract expensed in the fourth quarter of 2023. Marketing expenses decreased due to the timing of services performed. Professional services decreased due primarily to a $1.5 million expense related to renewal of the core vendor contract during the fourth quarter of 2023. State/municipal business and use taxes increased primarily due to an increase in total 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 December 31,2024 September 30,2024 December 31,2023 $ % $ % (Dollars in thousands) Compensation and employee benefits $            24,236 $            24,367 $            24,758 $   (131) (0.5) % $   (522) (2.1) % Occupancy and equipment 4,742 4,850 4,784 (108) (2.2) (42) (0.9) Data processing 4,020 3,964 4,630 56 1.4 (610) (13.2) Marketing 405 128 698 277 216.4 (293) (42.0) Professional services 663 490 2,266 173 35.3 (1,603) (70.7) State/municipal business and use taxes 1,180 1,249 909 (69) (5.5) 271 29.8 Federal deposit insurance premium 829 824 847 5 0.6 (18) (2.1) Amortization of intangible assets 399 399 593 — — (194) (32.7) Other expense 3,066 3,019 3,238 47 1.6 (172) (5.3) Total noninterest expense $            39,540 $            39,290 $            42,723 $     250 0.6 % $  (3,183) (7.5) % Income Tax Expense Income tax expense increased $2.8 million during the fourth quarter of 2024 to $4.4 million compared to $1.6 million for the third quarter of 2024. The increase in income tax expense during the fourth quarter of 2024 compared to the prior quarter was primarily due to the above-referenced additional tax expense of $2.4 million related to the BOLI restructuring during the fourth quarter of 2024. Income tax expense increased $4.1 million in the fourth quarter of 2024 compared to same period in 2023 due to higher pre-tax income during the fourth quarter of 2024 and the additional tax expense of $2.4 million related to the BOLI restructuring during the fourth quarter of 2024. The following table presents the income tax expense and related metrics and the change for the periods indicated: Quarter Ended Change December 31,2024 September 30,2024 December 31,2023 Quarter Over Quarter Prior Year Quarter (Dollars in thousands) Income before income taxes $         16,330 $         13,066 $           6,577 $        3,264 $           9,753 Income tax expense $           4,402 $           1,643 $              344 $        2,759 $           4,058 Effective income tax rate 27.0 % 12.6 % 5.2 % 14.4 % 21.8 % Dividends On January 22, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per share. The dividend is payable on February 20, 2025 to shareholders of record as of the close of business on February 6, 2025. Earnings Conference Call The Company will hold a telephone conference call to discuss this earnings release on Thursday, January 23, 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 January 30, 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 branch network of 50 banking offices 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. 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, and labor shortages, a 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; 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 regulatory capital or other rules; effects on the U.S. economy resulting from the implementation of policies proposed by the new presidential administration, including tariffs, mass deportations and tax 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 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 Fintech 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; 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 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) December 31,2024 September 30,2024 December 31,2023 Assets Cash on hand and in banks $             58,821 $             78,068 $             55,851 Interest earning deposits 58,279 97,504 169,122 Cash and cash equivalents 117,100 175,572 224,973 Investment securities available for sale, at fair value (amortized cost of $835,592, $909,023 and $1,227,787, respectively) 764,394 852,779 1,134,353 Investment securities held to maturity, at amortized cost (fair value of $623,452, $661,696 and $662,450, respectively) 703,285 719,400 739,442 Total investment securities 1,467,679 1,572,179 1,873,795 Loans receivable 4,802,123 4,679,479 4,335,627 Allowance for credit losses on loans (52,468) (51,391) (47,999) Loans receivable, net 4,749,655 4,628,088 4,287,628 Premises and equipment, net 71,580 72,500 74,899 Federal Home Loan Bank stock, at cost 21,538 16,993 4,186 Bank owned life insurance 111,699 127,248 125,655 Accrued interest receivable 19,483 20,102 19,518 Prepaid expenses and other assets 303,452 296,190 318,571 Other intangible assets, net 3,153 3,552 4,793 Goodwill 240,939 240,939 240,939 Total assets $       7,106,278 $       7,153,363 $       7,174,957 Liabilities and Stockholders' Equity Non-interest bearing deposits $       1,654,955 $       1,682,219 $       1,715,847 Interest bearing deposits 4,029,658 4,026,273 3,884,025 Total deposits 5,684,613 5,708,492 5,599,872 Borrowings 383,000 382,000 500,000 Junior subordinated debentures 22,058 21,985 21,765 Accrued expenses and other liabilities 153,080 166,372 200,059 Total liabilities 6,242,751 6,278,849 6,321,696 Common stock 531,674 534,917 549,748 Retained earnings 387,097 383,127 375,989 Accumulated other comprehensive loss, net (55,244) (43,530) (72,476) Total stockholders' equity 863,527 874,514 853,261 Total liabilities and stockholders' equity $       7,106,278 $       7,153,363 $       7,174,957 Shares outstanding 33,990,827 34,153,539 34,906,233 HERITAGE FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts) Quarter Ended Year Ended December 31,2024 September 30,2024 December 31,2023 December 31,2024 December 31,2023 Interest Income Interest and fees on loans $          64,864 $          64,138 $          57,092 $        247,472 $        217,284 Taxable interest on investment securities 12,510 13,472 14,488 54,972 58,509 Nontaxable interest on investment securities 146 159 300 651 1,854 Interest on interest earning deposits 1,440 2,048 2,382 6,617 6,818 Total interest income 78,960 79,817 74,262 309,712 284,465 Interest Expense Deposits 19,972 20,256 14,338 75,069 39,350 Junior subordinated debentures 512 541 553 2,139 2,074 Securities sold under agreement to repurchase — — 5 — 153 Borrowings 4,713 6,062 5,495 23,140 17,733 Total interest expense 25,197 26,859 20,391 100,348 59,310 Net interest income 53,763 52,958 53,871 209,364 225,155 Provision for credit losses 1,183 2,439 1,424 6,282 4,280 Net interest income after provision for credit losses 52,580 50,519 52,447 203,082 220,875 Noninterest Income Service charges and other fees 2,892 2,788 2,804 11,285 10,966 Card revenue 1,849 2,134 1,944 7,752 8,340 Loss on sale of investment securities, net (3,903) (6,945) (10,005) (22,742) (12,231) Gain on sale of loans, net — — 36 26 343 Interest rate swap fees 357 — — 409 230 Bank owned life insurance income 256 860 654 2,967 2,934 Gain on sale of other assets, net 23 1,480 — 1,552 2 Other income 1,816 1,520 1,420 6,224 8,079 Total noninterest income (loss) 3,290 1,837 (3,147) 7,473 18,663 Noninterest Expense Compensation and employee benefits 24,236 24,367 24,758 98,527 100,083 Occupancy and equipment 4,742 4,850 4,784 19,289 19,156 Data processing 4,020 3,964 4,630 14,899 17,116 Marketing 405 128 698 988 1,930 Professional services 663 490 2,266 2,515 4,227 State/municipal business and use taxes 1,180 1,249 909 4,889 4,059 Federal deposit insurance premium 829 824 847 3,260 3,312 Amortization of intangible assets 399 399 593 1,640 2,434 Other expense 3,066 3,019 3,238 12,289 14,306 Total noninterest expense 39,540 39,290 42,723 158,296 166,623 Income before income taxes 16,330 13,066 6,577 52,259 72,915 Income tax expense 4,402 1,643 344 9,001 11,160 Net income $          11,928 $          11,423 $             6,233 $          43,258 $          61,755 Basic earnings per share $               0.35 $               0.33 $               0.18 $               1.26 $               1.76 Diluted earnings per share $               0.34 $               0.33 $               0.18 $               1.24 $               1.75 Dividends declared per share $               0.23 $               0.23 $               0.22 $               0.92 $               0.88 Average shares outstanding - basic 34,109,339 34,322,069 34,902,029 34,465,323 35,022,247 Average shares outstanding - diluted 34,553,139 34,658,674 35,084,635 34,899,036 35,258,189 HERITAGE FINANCIAL CORPORATION FINANCIAL STATISTICS (Unaudited) (Dollars in thousands) Average Balances, Yields, and Rates Paid: Year Ended December 31, 2024 2023 Average Balance Interest Earned/ Paid AverageYield/Rate (1) Average Balance Interest Earned/ Paid AverageYield/Rate (1) Interest Earning Assets: Loans receivable, net(2)(3) $ 4,485,531 $  247,472 5.52 % $ 4,155,722 $  217,284 5.23 % Taxable securities 1,653,295 54,972 3.32 1,937,603 58,509 3.02 Nontaxable securities(3) 18,425 651 3.53 63,051 1,854 2.94 Interest earning deposits 125,036 6,617 5.29 129,807 6,818 5.25 Total interest earning assets 6,282,287 309,712 4.93 % 6,286,183 284,465 4.53 % Noninterest earning assets 850,759 853,841 Total assets $ 7,133,046 $ 7,140,024 Interest Bearing Liabilities: Certificates of deposit $    857,079 $ 36,922 4.31 % $    491,653 $ 14,554 2.96 % Savings accounts 451,528 920 0.20 543,096 701 0.13 Interest bearing demand and money market accounts 2,640,487 37,227 1.41 2,771,981 24,095 0.87 Total interest bearing deposits 3,949,094 75,069 1.90 3,806,730 39,350 1.03 Junior subordinated debentures 21,910 2,139 9.76 21,615 2,074 9.60 Securities sold under agreement to repurchase — — — 32,976 153 0.46 Borrowings 456,448 23,140 5.07 369,665 17,733 4.80 Total interest bearing liabilities 4,427,452 100,348 2.27 % 4,230,986 59,310 1.40 % Noninterest demand deposits 1,669,301 1,899,317 Other noninterest bearing liabilities 182,121 191,679 Stockholders' equity 854,172 818,042 Total liabilities and stockholders' equity $ 7,133,046 $ 7,140,024 Net interest income and spread $  209,364 2.66 % $  225,155 3.13 % Net interest margin 3.33 % 3.58 % (1) 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 $3.6 million and $3.3 million for the year ended December 31, 2024 and 2023, respectively. (3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis. HERITAGE FINANCIAL CORPORATION FINANCIAL STATISTICS (Unaudited) (Dollars in thousands) Nonperforming Assets and Credit Quality Metrics: Quarter Ended Year Ended December 31,2024 September 30,2024 December 31,2023 December 31,2024 December 31,2023 Allowance for Credit Losses on Loans: Balance, beginning of period $         51,391 $         51,219 $         46,947 $         47,999 $         42,986 Provision for credit losses on loans 1,104 2,705 1,670 6,983 4,736 Charge-offs: Commercial business (4) (2,560) (543) (2,953) (719) Consumer (92) (85) (166) (538) (586) Total charge-offs (96) (2,645) (709) (3,491) (1,305) Recoveries: Commercial business 48 72 30 855 1,372 Consumer 21 40 61 122 210 Total recoveries 69 112 91 977 1,582 Net recoveries (charge-offs) (27) (2,533) (618) (2,514) 277 Balance, end of period $         52,468 $         51,391 $         47,999 $         52,468 $         47,999 Net charge-offs (recoveries) on loans to average loans receivable, net annualized — % 0.22 % 0.06 % 0.06 % (0.01) % December 31,2024 September 30,2024 December 31,2023 Nonperforming Assets: Nonaccrual loans: Commercial business $            3,919 $            4,301 $            4,468 Consumer 160 — — Total nonaccrual loans 4,079 4,301 4,468 Accruing loans past due 90 days or more 1,195 5,347 1,293 Total nonperforming loans 5,274 9,648 5,761 Other real estate owned — — — Nonperforming assets $            5,274 $            9,648 $            5,761 ACL on loans to: Loans receivable 1.09 % 1.10 % 1.11 % Nonaccrual loans 1,286.30 % 1,194.86 % 1,074.28 % Nonaccrual loans to loans receivable 0.08 % 0.09 % 0.10 % Nonperforming loans to loans receivable 0.11 % 0.21 % 0.13 % Nonperforming assets to total assets 0.07 % 0.13 % 0.08 % HERITAGE FINANCIAL CORPORATION QUARTERLY FINANCIAL STATISTICS (Unaudited) (Dollars in thousands, except per share amounts) Quarter Ended December 31,2024 September 30,2024 June 30,2024 March 31,2024 December 31,2023 Earnings: Net interest income $         53,763 $         52,958 $         51,113 $         51,530 $         53,871 Provision for credit losses 1,183 2,439 1,268 1,392 1,424 Noninterest income (loss) 3,290 1,837 5,246 (2,900) (3,147) Noninterest expense 39,540 39,290 39,096 40,370 42,723 Net income 11,928 11,423 14,159 5,748 6,233 Pre-tax, pre-provision net income (1) 17,513 15,505 17,263 8,260 8,001 Basic earnings per share $              0.35 $              0.33 $              0.41 $              0.17 $              0.18 Diluted earnings per share $              0.34 $              0.33 $              0.41 $              0.16 $              0.18 Average Balances: Loans receivable, net (2) $    4,665,113 $    4,555,090 $    4,415,790 $    4,303,394 $    4,233,743 Total investment securities 1,530,348 1,622,011 1,704,607 1,832,011 1,861,587 Total interest earning assets 6,314,736 6,327,485 6,241,936 6,244,138 6,269,805 Total assets 7,149,294 7,182,921 7,106,791 7,092,452 7,140,876 Total interest bearing deposits 4,011,793 3,997,496 3,916,977 3,868,890 3,849,067 Total noninterest demand deposits 1,703,357 1,677,984 1,638,262 1,657,132 1,772,261 Stockholders' equity 868,308 857,799 843,438 846,947 813,383 Financial Ratios: Return on average assets (3) 0.66 % 0.63 % 0.80 % 0.33 % 0.35 % Pre-tax, pre-provision return on average assets (1)(3) 0.97 0.86 0.98 0.47 0.44 Return on average common equity (3) 5.46 5.30 6.75 2.73 3.04 Return on average tangible common equity (1)(3) 7.81 7.62 9.74 4.07 4.69 Adjusted return on average tangible common equity (1)(3) 11.59 10.42 10.74 9.34 10.21 Efficiency ratio 69.3 71.7 69.4 83.0 84.2 Adjusted efficiency ratio (1) 64.4 65.2 67.1 68.9 70.4 Noninterest expense to average total assets (3) 2.20 2.18 2.21 2.29 2.37 Net interest spread (3) 2.70 2.63 2.62 2.70 2.84 Net interest margin (3) 3.39 3.33 3.29 3.32 3.41 (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, net 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 December 31,2024 September 30,2024 June 30,2024 March 31,2024 December 31,2023 Select Balance Sheet: Total assets $    7,106,278 $    7,153,363 $    7,059,857 $    7,091,283 $    7,174,957 Loans receivable, net 4,749,655 4,628,088 4,481,396 4,378,429 4,287,628 Total investment securities 1,467,679 1,572,179 1,658,590 1,730,516 1,873,795 Total deposits 5,684,613 5,708,492 5,515,652 5,532,327 5,599,872 Noninterest demand deposits 1,654,955 1,682,219 1,599,367 1,637,111 1,715,847 Stockholders' equity 863,527 874,514 850,507 847,580 853,261 Financial Measures: Book value per share $            25.40 $            25.61 $            24.66 $            24.43 $            24.44 Tangible book value per share (1) 18.22 18.45 17.56 17.36 17.40 Stockholders' equity to total assets 12.2 % 12.2 % 12.0 % 12.0 % 11.9 % Tangible common equity to tangible assets (1) 9.0 9.1 8.9 8.8 8.8 Loans to deposits ratio 84.5 82.0 82.2 80.0 77.4 Regulatory Capital Ratios:(2) Common equity tier 1 capital ratio 12.0 % 12.3 % 12.6 % 12.6 % 12.9 % Leverage ratio 10.0 9.9 10.1 10.0 10.0 Tier 1 capital ratio 12.4 12.7 13.0 13.0 13.3 Total capital ratio 13.3 13.6 13.9 13.9 14.1 Credit Quality Metrics: ACL on loans to: Loans receivable 1.09 % 1.10 % 1.13 % 1.12 % 1.11 % Nonaccrual loans 1,286.3 1,194.9 1,338.7 1,037.9 1,074.3 Nonaccrual loans to loans receivable 0.08 0.09 0.08 0.11 0.10 Nonperforming loans to loans receivable 0.11 0.21 0.18 0.17 0.13 Nonperforming assets to total assets 0.07 0.13 0.12 0.10 0.08 Net charge-offs (recoveries) on loans to average loans receivable, net(3) 0.00 0.22 0.00 0.00 0.06 Criticized Loans by Credit Quality Rating: Special mention $       110,725 $         99,078 $         93,694 $       102,232 $         79,977 Substandard 68,318 71,977 82,496 70,183 69,757 Other Metrics: Number of banking offices 50 50 50 50 50 Deposits per branch $       113,692 $       114,170 $       110,313 $       110,647 $       111,997 Average number of full-time equivalent employees 751 749 748 765 803 Average assets per full-time equivalent employee 9,520 9,590 9,501 9,271 8,893 (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 CORPORATIONNON-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. December 31,2024 September 30,2024 June 30,2024 March 31,2024 December 31,2023 Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: Total stockholders' equity (GAAP) $       863,527 $       874,514 $       850,507 $       847,580 $       853,261 Exclude intangible assets (244,092) (244,491) (244,890) (245,311) (245,732) Tangible common equity (non-GAAP) $       619,435 $       630,023 $       605,617 $       602,269 $       607,529 Total assets (GAAP) $    7,106,278 $    7,153,363 $    7,059,857 $    7,091,283 $    7,174,957 Exclude intangible assets (244,092) (244,491) (244,890) (245,311) (245,732) Tangible assets (non-GAAP) $    6,862,186 $    6,908,872 $    6,814,967 $    6,845,972 $    6,929,225 Stockholders' equity to total assets (GAAP) 12.2 % 12.2 % 12.0 % 12.0 % 11.9 % Tangible common equity to tangible assets (non-GAAP) 9.0 % 9.1 % 8.9 % 8.8 % 8.8 % Shares outstanding 33,990,827 34,153,539 34,496,197 34,689,843 34,906,233 Book value per share (GAAP) $            25.40 $            25.61 $            24.66 $            24.43 $            24.44 Tangible book value per share (non-GAAP) $            18.22 $            18.45 $            17.56 $            17.36 $            17.40 HERITAGE FINANCIAL CORPORATIONNON-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, which excludes certain non-recurring items is useful in measuring performance of the Company's ongoing business operations by removing the volatility of these non-recurring items. Quarter Ended December 31,2024 September 30,2024 June 30,2024 March 31,2024 December 31,2023 Return on Average Tangible Common Equity, annualized: Net income (GAAP) $         11,928 $         11,423 $         14,159 $           5,748 $           6,233 Add amortization of intangible assets 399 399 421 421 593 Exclude tax effect of adjustment (84) (84) (88) (88) (125) Tangible net income (non-GAAP) $         12,243 $         11,738 $         14,492 $           6,081 $           6,701 Tangible net income (non-GAAP) $         12,243 $         11,738 $         14,492 $           6,081 $           6,701 Exclude loss on sale of investment securities, net 3,903 6,945 1,921 9,973 10,005 Exclude gain on sale of premises and equipment (23) (1,480) (49) — — Exclude tax effect of adjustment (815) (1,148) (393) (2,094) (2,101) Exclude BOLI restructuring costs included in BOLI Income 508 — — — — Exclude tax expense related to BOLI restructuring $           2,371 $                 — $                 — $                 — $                 — Adjusted tangible net income (non-GAAP) $         18,187 $         16,055 $         15,971 $         13,960 $         14,605 Average stockholders' equity (GAAP) $       868,308 $       857,799 $       843,438 $       846,947 $       813,383 Exclude average intangible assets (244,302) (244,706) (245,106) (245,536) (246,022) Average tangible common stockholders' equity (non-GAAP) $       624,006 $       613,093 $       598,332 $       601,411 $       567,361 Return on average common equity, annualized (GAAP) 5.46 % 5.30 % 6.75 % 2.73 % 3.04 % Return on average tangible common equity, annualized (non-GAAP) 7.81 % 7.62 % 9.74 % 4.07 % 4.69 % Adjusted return on average tangible common equity, annualized (non-GAAP) 11.59 % 10.42 % 10.74 % 9.34 % 10.21 % 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 December 31,2024 September 30,2024 June 30,2024 March 31,2024 December 31,2023 Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized: Net income (GAAP) $         11,928 $         11,423 $         14,159 $            5,748 $            6,233 Add income tax expense 4,402 1,643 1,836 1,120 344 Add (subtract) provision for (reversal of) credit losses 1,183 2,439 1,268 1,392 1,424 Pre-tax, pre-provision income (non-GAAP) $         17,513 $         15,505 $         17,263 $            8,260 $            8,001 Average total assets (GAAP) $    7,149,294 $    7,182,921 $    7,106,791 $    7,092,452 $    7,140,876 Return on average assets, annualized (GAAP) 0.66 % 0.63 % 0.80 % 0.33 % 0.35 % Pre-tax, pre-provision return on average assets (non-GAAP) 0.97 % 0.86 % 0.98 % 0.47 % 0.44 % The Company believes that presenting an adjusted efficiency ratio, which excludes certain non-recurring items is useful in measuring operating income and expenses by removing the volatility of these non-recurring items. Quarter Ended December 31,2024 September 30,2024 June 30,2024 March 31,2024 December 31,2023 Adjusted Efficiency Ratio : Total noninterest expense (GAAP) $         39,540 $         39,290 $         39,096 $         40,370 $         42,723 Net interest income (GAAP) $         53,763 $         52,958 $         51,113 $         51,530 $         53,871 Total noninterest income (GAAP) $            3,290 $            1,837 $            5,246 $          (2,900) $          (3,147) Exclude (gain) loss on sale of investment securities, net 3,903 6,945 1,921 9,973 10,005 Exclude gain on sale of premises and equipment (23) (1,480) (49) — — Exclude BOLI restructuring costs included in BOLI Income 508 — — — — Adjusted total noninterest income (non-GAAP) $            7,678 $            7,302 $            7,118 $            7,073 $            6,858 Efficiency ratio (GAAP) 69.3 % 71.7 % 69.4 % 83.0 % 84.2 % Adjusted efficiency ratio (non-GAAP) 64.4 % 65.2 % 67.1 % 68.9 % 70.4 % SOURCE Heritage Financial Corporation WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM? 440k+ Newsrooms & Influencers 9k+ Digital Media Outlets 270k+ Journalists Opted In

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