Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q1 2025 Earnings Presentation
41 slides from Heritage Financial's earnings presentation, Apr 24, 2025
Slide 1: Investor Presentation Q1 2025
INVESTOR PRESENTATION Q1 2025
Slide 2: Forward-looking statements
2 This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believes," "expects," "anticipates," "estimates," “forecasts,” "intends," “plans,” “targets,” “potentially,” “probably,”
Slide 3: Heritage Financial Corporation Overview
HERITAGE FINANCIAL CORPORATION OVERVIEW
Slide 4: Overview
4 OVERVIEW General Overview Nasdaq symbol HFWA Stock price(2) $21.88 Market capitalization(2) $744 million Institutional ownership(2) 81.2% Headquarters Olympia, WA # of branches 50 Year established 1927 Q1 2025 Financial Highlights Assets $7.1 billion Deposits $5.8 billion Loans receivable $4.8 bil
Slide 5: Company Strategy
5 COMPANY STRATEGY Allocate capital to organically grow our core banking business Ÿ Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and Portland markets as well as other key markets including our recent branch openings in Eugene, Oregon and Boise, Idaho and l
Slide 6: Profitability Improvement Measures
6 PROFITABILITY IMPROVEMENT MEASURES 2023 TOTAL 2024 TOTAL Q1 2025 GRAND TOTAL Quarterly Impact Investments Sold (Book Value) $161.8 $296.4 $60.9 $519.1 Weighted Average Book Yield of Sales 2.41% 2.23% 2.60% 2.33% Investments Purchased $140.7 $33.1 $28.2 $202.0 Weighted Average Book Yield of Purchas
Slide 7: Strong and Diverse Economic Landscape
7 $113,456 $94,748 $86,463 $78,770 Median household income 4.1% 3.5% 9.9% 5.0% 0.3% 9.7% 3.8% 7.3% 13.3% 4.0% 2.4% 8.8% Seattle MSA Portland MSA Boise MSA USA Unemployment rate 2025-2030 Projected Population Growth 2025-2030 Projected Median Household Income Growth STRONG AND DIVERSE ECONOMIC LANDSC
Slide 8: Loans and Deposits by Location
8 LOANS AND DEPOSITS BY LOCATION MSA = Metropolitan or Micropolitan Statistical Area Location based upon branch or office location Loans by MSA Seattle WA $2,336 49.0% Portland OR-WA $705 14.8% Mount Vernon WA $261 5.5% Olympia WA $186 3.9% Yakima WA $101 2.1% Bellingham WA $183 3.9% Other $993 20.8
Slide 9: Potential Growth Opportunities
9 POTENTIAL GROWTH OPPORTUNITIES Map obtained from S&P Global Market Intelligence Certain locations of bank headquarters overlap on the map Financial information as of the most recent quarter publicly available Excluding banks with pending mergers and acquisitions • Long-term goal to build a Pacific
Slide 10: Historical Growth Organic and Acquisitive
10 $1,712 $3,651 $3,879 $4,113 $4,238 $5,553 $6,615 $7,432 $6,980 $7,175 $7,106 $7,130 $1,747 $1,079 $15.02 $15.68 $16.08 $16.88 $20.63 $22.10 $22.85 $24.34 $22.73 $24.44 $25.40 $25.85 $10.73 $11.41 $11.86 $12.70 $13.54 $15.07 $15.77 $17.19 $15.66 $17.40 $18.22 $18.70 Organic Assets Acquired Assets
Slide 11: Growth Strategy
11 GROWTH STRATEGY YEAR ACTIVITY 2013 • Acquired Valley Community Bancshares - $254MM in assets • Acquired Northwest Commercial Bank - $65MM in assets 2014 • Merged with Washington Banking Company - $1.7B in assets 2015 • Added a commercial banking team in Seattle, Washington • Formed Capital Market
Slide 12: Financial Update
FINANCIAL UPDATE
Slide 13: Loan Portfolio
13 LOAN PORTFOLIO Loan Portfolio Composition $196 $171 $165 $167 $344 $375 $403 $393$294 $414 $479 $453 $693 $718 $843 $851$937 $959 $1,003 $985 $1,587 $1,698 $1,909 $1,916 Consumer Residential real estate Construction & land development Commercial and Industrial (C&I) Owner-occupied CRE Non-owner o
Slide 14: Line of Credit Utilization
14 Construction Commitments $686 $769 $682 $666 $294 $414 $479 $453 $392 $355 $203 $213 Outstanding Balance Available Credit 2022 2023 2024 Q1 2025 LOC Utilization Rates 29.8% 28.2% 29.7% 30.7% 42.9% 53.8% 70.2% 68.0% 31.1% 31.1% 31.6% 32.3% Utilization Rate - Consumer LOCs Utilization Rate - Constr
Slide 15: Commercial Loan Exposure
15 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 03/31/25 Real estate, rental and leasing $2,070 4.5 Health care and social assistance 335 4.3 Accommodation and food services 187 5.1 Retail trade 151 4.7 Construction 155 4.8 Other services (except Pu
Slide 16: Changes in Loans Receivable
16 CHANGES IN LOANS RECEIVABLE $4,802 $96 $(80) $(47) $(6) $4,765 Loans receivable at December 31, 2024 Loans originated Prepayments Maturities / Payoffs Net advances/ payments Loans receivable at March 31, 2025 $4,336 $626 $(177) $(136) $153 $4,802 Loans receivable at December 31, 2023 Loans origin
Slide 17: CRE Office
17 CRE OFFICE CRE Office Loans by Size Size WARR(2) # of Loans Total Balance(1) Average Balance Per Loan(1) >$10 Million 3.3 5 $ 75,187 $ 15,037 $5-$10 Million 4.0 15 94,011 6,267 $2-$5 Million 4.6 47 135,925 2,892 <$2 Million 4.6 459 266,805 581 TOTAL 4.3 526 $ 571,928 $ 1,087 Quality of CRE Office
Slide 18: Nonaccrual Loans and Net Charge-offs
18 Net charge-offs (recoveries) on loans to average loans, annualized (0.03)% (0.01)% 0.06% 0.00% 0.00% 0.22% 0.00% 0.03% 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 (0.10)% 0.00% 0.10% 0.20% 0.30% Nonaccrual Loans $6 $4 $4 $4 Nonaccrual loans Nonaccrual loans to loans receivable 2022 202
Slide 19: Criticized Loans
19 CRITICIZED LOANS $135 $150 $179 $178 $60 $65 $64 $60 $69 $80 $111 $114 Substandard - nonaccrual Substandard - accrual Special mention 2022 2023 2024 Q1 2025 Criticized Loans by Loan Segment Commercial & industrial 26.7% Owner- occupied CRE 18.6% Non-owner occupied CRE 33.2% Residential real estat
Slide 20: Allowance for Credit Losses on Loans
20 ACL on Loans $42,986 $47,999 $52,468 $52,160 1.06% 1.11% 1.09% 1.09% ACL on loans ($) ACL on loans / Loans (%) 2022 2023 2024 Q1 2025 ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOANS $52,468 $(710) $424 $(7) $(15) $52,160 December 31, 2024 Change in loan balance Change in collective rate Change in ra
Slide 21: Criticized Loans and Net Charge-off History
21 CRITICIZED LOANS AND NET CHARGE-OFF HISTORY Criticized Loans to Total Loans 3.63% 3.79% 6.50% 4.81% 3.34% 3.45% 3.73% 2.19% 2.05% 3.47% 2.63% 1.96% 2.32% 2.66% Heritage Peer Median 2018 2019 2020 2021 2022 2023 2024 Net Chargeoffs to Average Loans 0.06% 0.09% 0.07% 0.01% (0.03)% (0.01)% 0.06% 0.0
Slide 22: Deposits
22 Average Deposit Balances and Cost of Total Deposits $6,322 $5,706 $5,618 $5,526 $5,555 $5,675 $5,715 $5,744 0.11% 0.69% 1.34% 1.19% 1.34% 1.42% 1.39% 1.38% 1.70% 1.89% 2.02% 1.98% 1.92% 0.17% 1.03% 1.90% Average deposits Cost of total deposits Cost of int-bearing deposits 2022 2023 2024 Q1 2024 Q
Slide 23: Deposit Composition
23 DEPOSIT COMPOSITION Customer Deposits by Relationship Size $805 $349 $1,383 $1,494 $1,814 Over $10MM $5MM-$10MM $1MM-5MM $250K-$1MM Less than $250K Consumer Accounts vs. Business Accounts 25% 58% 17% Consumer Commercial CDs Insured vs. Uninsured 40% 60% Insured Uninsured Deposit portfolio as of M
Slide 24: Investment Portfolio
24 Investment Balances and Investment Yield $2,098 $1,874 $1,468 $1,731 $1,659 $1,572 $1,468 $1,414 $1,203 $178 $33 $33 $28 2.48% 3.02% 3.33% 3.30% 3.38% 3.34% 3.29% 3.34% Portfolio yield New purchases 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 INVESTMENT PORTFOLIO Portfolio Duration 4.9
Slide 25: Investment Cashflows
25 $37 $36 $37 $45 $55 $56 $42 $56 $41 $33 $28 $56 $26 $25 $26 $34 $44 $46 $32 $47 $32 $24 $19 $48 $11 $11 $11 $11 $11 $10 $10 $9 $9 $9 $9 $8 Interest Principal Q2 2025 Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Q1 2027 Q2 2027 Q3 2027 Q4 2027 Q1 2028 INVESTMENT CASHFLOWS Investment cashflows(1
Slide 26: Investment Portfolio
26 INVESTMENT PORTFOLIO HTM Investment by Type US government and agencies 19.9% Residential CMO and MBS 35.7% Commercial CMO and MBS 44.4% Available for sale ("AFS") and held to maturity ("HTM") investment securities percentages are based on fair value as of March 31, 2025 unless otherwise noted Str
Slide 27: Net Interest Margin
27 Net Interest Margin 3.33% 3.56% 3.31% 3.29% 3.27% 3.30% 3.36% 3.44% 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 NET INTEREST MARGIN Quarterly Change in Net Interest Margin 3.36% 0.08% (0.03)% (0.02)% —% 0.05% 3.44% QTD Q4 2024 Loans Investments Interest earning deposits Deposits Borrow
Slide 28: Loan Maturity and Repricing
28 Adjustable Rate Loans - Repricing Schedule $1,065 $157 $195 $166 $238 $347 $117 6.89% 4.30% 3.99% 5.69% 6.21% 6.10% 4.97% 6.93% 6.68% 6.50% 6.32% 6.51% 6.38% 6.71% Floating and Adjustable Rate Loans Wtd Avg Rate (1) Wtd Avg Rate if Repriced (2) < 3 Months 3 - 12 Months 1 - 2 Years 2 - 3 Years 3 -
Slide 29: Profitability Trends
29 PROFITABILITY TRENDS ROAA and Adjusted ROAA(1) 1.12% 0.86% 0.61% 0.33% 0.80% 0.63% 0.66% 0.79% 1.12% 0.99% 0.88% 0.77% 0.89% 0.87% 0.99% 0.97% ROAA Adjusted ROAA (1) 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Noninterest Expense/Avg. Assets 2.06% 2.33% 2.22% 2.29% 2.21% 2.18% 2.20% 2.
Slide 30: Profitability Trends
30 $81.9 $61.8 $43.3 $81.8 $70.9 $62.9 Net income Adjusted Net income (1) 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 $5.7 $14.2 $11.4 $11.9 $13.9 $13.6 $15.6 $15.7 $17.9 $17.0 PROFITABILITY TRENDS ROAE, ROATCE(1) and Adjusted ROATCE(1) Net Income and Adjusted Net Income(1), in millions 1
Slide 31: Capital Ratios
31(1) Represents a non-GAAP financial measure (2) Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports CAPITAL RATIOS Equity Ratios 11.4% 11.9% 12.2% 12.4% 8.2% 8.8% 9.0% 9.3% Stockholders' equity to total assets (GAAP) Tangible common equity to tang
Slide 32: Liquidity Position
32 LIQUIDITY POSITION (1) Includes FHLB borrowing availability of $1.35 billion at March 31, 2025 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.20 billion Liquidity position at March 31, 2025: • Sufficient liquidity to cover
Slide 33: Shareholder Return
SHAREHOLDER RETURN
Slide 34: Total Shareholder Return
34 TOTAL SHAREHOLDER RETURN Stock Summary(2) Ticker HFWA Exchange Nasdaq Stock price $21.88 Market capitalization (in millions) $743.8 Dividend yield (regular dividend only) 4.39 % Average Daily Volume (3 month) Average daily volume (shares) 208,082 Average daily volume ($000s) $4,553 52-Week High a
Slide 35: Appendix - Reconciliation of Non-GAAP Financial Measures and Quarterly Financial Statistics
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND QUARTERLY FINANCIAL STATISTICS
Slide 36: Non-GAAP Financial Measures
36 NON-GAAP FINANCIAL MEASURES Dollars in thousands 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Adjusted Net Income and Adjusted Return on Average Assets ("ROAA"): Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Exclude (gain) loss on sale of inves
Slide 37: Non-GAAP Financial Measures
37 NON-GAAP FINANCIAL MEASURES 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Return on Average Tangible Common Equity ("ROATCE") and Adjusted ROATCE: Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Add amortization of intangible assets 2,750 2,434 1,
Slide 38: Non-GAAP Financial Measures
38 NON-GAAP FINANCIAL MEASURES 2022 2023 2024 Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Diluted Earnings per Share and Adjusted Diluted Earnings per Share: Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Exclude (gain) loss on sale of investment securities, net
Slide 39: Tangible Book Value Per Share
39 2016 2017 2018 2019 2020 2021 2022 2023 2024 Tangible Book Value Per Share: Total stockholders' equity (GAAP) $ 481,763 $ 505,305 $ 760,723 $ 809,311 $ 820,439 $ 854,432 $ 797,893 $ 853,261 $ 863,527 Exclude intangible assets (126,403) (125,117) (261,553) (257,552) (254,027) (250,916) (248,166) (
Slide 40: Non-GAAP Financial Measures
40 NON-GAAP FINANCIAL MEASURES Q1 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Efficiency Ratio and Adjusted Efficiency Ratio Total noninterest expense (GAAP) $ 40,370 $ 39,096 $ 39,290 $ 39,540 $ 41,383 Net interest income (GAAP) $ 51,530 $ 51,113 $ 52,958 $ 53,763 $ 53,690 Total noninterest income (GAAP)
Slide 41: Quarterly Financial Statistics
41 As of Period End or for the Three Months Ended March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 March 31, 2025 Profitability: Net income $ 5,748 $ 14,159 $ 11,423 $ 11,928 $ 13,911 Adjusted net income(1) $ 13,627 $ 15,638 $ 15,740 $ 17,872 $ 16,979 Diluted earnings per share $ 0.