Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q2 2025 Earnings Presentation
41 slides from Heritage Financial's earnings presentation, Jul 24, 2025
Slide 1: Investor Presentation Q2 2025
INVESTOR PRESENTATION Q2 2025
Slide 2: Forward Looking Statements
FORWARD LOOKING STATEMENTS 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,” “p
Slide 3: Heritage Financial Corporation Overview
HERITAGE FINANCIAL CORPORATION OVERVIEW
Slide 4: Overview
OVERVIEW General Overview Nasdaq symbol HFWA Heritage Location Stock price(2) $25.31 (2) Market capitalization $863 million Spokane Institutional ownership(2) 83.9% Headquarters Olympia, WA # of branches 50 Year established 1927 Q2 2025 Financial Highlights Assets $7.1 billion Deposits $5.8 billion
Slide 5: Company Strategy
COMPANY STRATEGY Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and Allocate capital to organically grow Portland markets as well as other key markets including our recent branch openings in Eugene, our core banking business Oregon and Boise, Idaho and loa
Slide 6: Profitability Improvement Measures
PROFITABILITY IMPROVEMENT MEASURES Balance Sheet Repositioning The Company has completed investment sales over the past several quarters as part of strategic repositioning of the balance sheet. Estimated annualized profitability improvements assumes all proceeds invested to fund new loans or investm
Slide 7: Strong and Diverse Economic Landscape
STRONG AND DIVERSE ECONOMIC LANDSCAPE $113,456 13.3% $94,748 $86,463 Seattle MSA 9.9% 9.7% $78,770 8.8% Portland MSA 7.3% Boise MSA 4.3% 4.4% 4.2% 3.2% 3.5% 2.4% USA 0.3% Unemployment rate 2025-2030 Projected 2025-2030 Projected Median Median Population Growth Household Income Growth household incom
Slide 8: Loans and Deposits by Location
LOANS AND DEPOSITS BY LOCATION Loans by MSA Deposits by MSA Yakima WA Bellingham WA Longview WA Oak Harbor WA Olympia WA $554 $187 $102 $183 $152 Olympia WA 2.6% 9.6% Yakima WA 3.9% 2.1% 3.8% Eugene OR $499 $226 $80 8.6% 3.9% Mount Vernon WA 1.7% $258 Mount Vernon WA Boise ID Bellingham WA 5.4% $332
Slide 9: Potential Growth Opportunities
POTENTIAL GROWTH OPPORTUNITIES • Long-term goal to build a Pacific Northwest ("PNW") regional commercial community bank; potential opportunities for M&A and production team lift-outs in WA, OR and ID. • Significant number of banks remaining in HFWA footprint; further consolidation is expected. – 12
Slide 10: Historical Growth Organic and Acquisitive
HISTORICAL GROWTH ORGANIC AND ACQUISITIVE Acquired $26.16 Merged with $25.85 Washington Banking Company $1.7B in assets Puget Sound Bancorp $639MM in assets $25.40 Premier Commercial Bancorp $440MM in assets $24.44 $24.34 $22.85 $22.73 $22.10 $20.63 $18.70 $18.99 $18.22 $17.19 $17.40 $16.88 $16.08 $
Slide 11: Growth Strategy
GROWTH STRATEGY Bank Acquisitions and Team Additions YEAR ACTIVITY • Acquired Valley Community Bancshares - $254MM in assets 2013 • Acquired Northwest Commercial Bank - $65MM in assets 2014 • Merged with Washington Banking Company - $1.7B in assets • Added a commercial banking team in Seattle, Washi
Slide 12: Financial Update
FINANCIAL UPDATE
Slide 13: Loan Portfolio
LOAN PORTFOLIO Loan Portfolio Composition $1,909 $1,916 $1,940 $1,698 $1,587 $959 $1,003 $985 $1,015 $937 $851 $843 $831 $693 $718 $344 $294 $375 $414 $403 $479 $393 $453 $384 $433 $196 $171 $165 $167 $172 2022 2023 2024 Q1 2025 Q2 2025 Consumer Residential real estate Construction & land developmen
Slide 14: Line of Credit (LOC) Utilization
LINE OF CREDIT ("LOC") UTILIZATION LOC Utilization Rates 70.2% 68.0% 64.7% 53.8% 42.9% 32.3% 33.9% 31.1% 31.1% 31.6% 32.5% 29.8% 29.7% 30.7% 28.2% 2022 2023 2024 Q1 2025 Q2 2025 Utilization Rate - Consumer LOCs Utilization Rate - Construction LOCs Utilization Rate - C&I LOCs Construction Commitments
Slide 15: Commercial Loan Exposure
COMMERCIAL LOAN EXPOSURE Health care and social assistance Commercial Business Loans by Industry Exposure 9.0% Accommodation and food services Industry Amount WARR at 4.9% 06/30/25 Retail trade Real estate, rental and leasing $2,106 4.5 4.0% Health care and social Construction 342 4.3 assistance 4.3
Slide 16: Changes in Loans Receivable
CHANGES IN LOANS RECEIVABLE Change in loans - Q2 2025 $140 $(59) $4,765 $4,775 $(51) $(20) Loans receivable at Loans originated Prepayments Maturities / Payoffs Net advances/ Loans receivable at March 31, 2025 payments June 30, 2025 Change in loans - Q1 2025 $96 $4,802 $4,765 $(80) $(47) $(6) Loans
Slide 17: CRE Office
CRE OFFICE Quality of CRE Office Portfolio: • 81.0% of loans have recourse to owner • 51.3% of loans are owner occupied CRE Office Loans by Industry Type Other Services which are considered to have a lower (except Public Accommodation risk profile Administration) and Food Services 3.1% 1.0% • 24.7%
Slide 18: Nonaccrual Loans and Net Charge-Offs
NONACCRUAL LOANS AND NET CHARGE-OFFS Nonaccrual Loans 0.21% 0.15% 0.10% 0.08% 0.09% $10 $6 $4 $4 $4 2022 2023 2024 Q1 2025 Q2 2025 Nonaccrual loans Nonaccrual loans to loans receivable Net charge-offs (recoveries) on loans to average loans, annualized 0.30% 0.22% 0.20% 0.10% 0.03% 0.03% 0.04% 0.06%
Slide 19: Criticized Loans
CRITICIZED LOANS $213 $179 $178 $150 $135 $114 $111 $114 $69 $80 $89 $60 $65 $64 $60 $6 $4 $4 $4 $10 2022 2023 2024 Q1 2025 Q2 2025 Substandard - nonaccrual Substandard - accrual Special mention Criticized Loans by Loan Segment Criticized Loans by Collateral Type Consumer 0.7% Other CRE 17.7% Constr
Slide 20: Allowance for Credit Losses (ACL) on Loans
ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOANS Change in ACL on Loans - Q2 2025 $814 $20 $52,529 $52,160 $(36) $(429) March 31, 2025 Change in loan balance Change in collective Change in rate and Individually evaluated June 30, 2025 rate balance loans ACL on Loans 1.11% 1.09% 1.09% 1.10% 1.06% $52,468
Slide 21: Criticized Loans and Net Charge-Off History
CRITICIZED LOANS AND NET CHARGE-OFF HISTORY Criticized Loans to Total Loans Proactive Credit Management 6.50% • Heritage proactively 4.81% downgrades loans that 3.63% 3.79% 3.73% 3.74% are experiencing financial 3.34% 3.45% difficulty. 3.47% 2.82% • Criticized loans(1) to total 2.19% 2.05% 2.63% 2.3
Slide 22: Deposits
DEPOSITS Average Deposit Balances and Cost of Total Deposits $6,322 $5,706 $5,618 $5,761 $5,555 $5,675 $5,715 $5,744 $5,779 1.93% 2.02% 1.98% 1.92% 1.94% 1.90% 1.89% 1.03% 1.34% 1.39% 1.34% 1.42% 1.39% 1.38% 1.40% 0.17% 0.69% 0.11% 2022 2023 2024 2025 YTD Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Aver
Slide 23: Deposit Composition
DEPOSIT COMPOSITION Deposit portfolio as of June 30, 2025: Consumer Accounts vs. Business • Majority of deposits are to customers with relationships of $1 Accounts million or less. • Uninsured deposits at 41% of total deposits. 12% of uninsured deposits are public deposits that are 100% pledged. 17%
Slide 24: Investment Portfolio
INVESTMENT PORTFOLIO Investment Balances and Investment Yield $2,098 $1,203 $1,874 $178 $1,659 $1,572 $1,468 $1,468 $1,414 $1,346 $1,346 $33 $28 $85 $56 3.33% 3.36% 3.38% 3.34% 3.29% 3.34% 3.38% 3.02% 2.48% 2022 2023 2024 2025 YTD Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Portfolio yield New purchases
Slide 25: Investment Cashflows
INVESTMENT CASHFLOWS Investment cashflows(1) are estimated to be $543 million through Q2 of 2028. Q3 2025 $31 $11 $42 Q4 2025 $30 $11 $41 Q1 2026 $38 $11 $49 Q2 2026 $27 $10 $37 Q3 2026 $27 $10 $37 Q4 2026 $23 $10 $33 Q1 2027 $47 $9 $56 Q2 2027 $34 $9 $43 Q3 2027 $25 $9 $34 Q4 2027 $20 $8 $28 Q1 202
Slide 26: Investment Portfolio
INVESTMENT PORTFOLIO AFS Investment by Type HTM Investment by Type Commercial Corporate Commercial CMO and MBS 39.8% obligations 1.5% CMO and MBS 44.9% Other asset-backed securities 1.0% US government and agencies 1.8% US government and agencies Municipal 20.2% securities 7.6% Residential Residentia
Slide 27: Net Interest Margin
NET INTEREST MARGIN Quarterly Change in Net Interest Margin 0.05% 0.02% 0.06% 3.51% 3.44% (0.01)% (0.05)% QTD Q1 2025 Loans Investments Interest earning Deposits Borrowings QTD Q2 2025 deposits Net Interest Income $219,385 $225,155 $209,364 $108,673 $51,113 $52,958 $53,763 $53,690 $54,983 2022 2023
Slide 28: Loan Maturity and Repricing
LOAN MATURITY AND REPRICING Adjustable Rate Loans - Repricing Schedule Fixed Rate Loans - Maturity Schedule 6.93% 6.70% 6.52% 6.44% 6.35% 6.31% 6.17% 5.37% 6.88% 5.13% 5.09% 5.21% 4.99% 6.13% 6.17% 4.70% 5.93% 4.43% 5.06% $1,306 $1,055 4.30% 4.26% $382 $341 $194 $245 $215 $197 $166 $179 $137 $148 $1
Slide 29: Profitability Trends
PROFITABILITY TRENDS ROAA and Adjusted ROAA(1) 1.12% 0.99% 1.00% 0.99% 1.03% 0.97% 0.88% 0.89% 0.87% 1.12% 0.86% 0.80% 0.79% 0.74% 0.63% 0.66% 0.70% 0.61% 2022 2023 2024 2025 YTD Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 ROAA Adjusted ROAA (1) Noninterest Expense/Avg. Assets 2.33% 2.35% 2.36% 2.34% 2.
Slide 30: Profitability Trends
PROFITABILITY TRENDS ROAE, ROATCE(1) and Adjusted ROATCE(1) 14.92% 12.76% 14.94% 11.40% 11.59% 11.21% 11.59% 10.53% 10.74% 10.42% 8.52% 11.15% 7.31% 7.62% 7.81% 7.85% 10.08% 9.74% 9.22% 7.55% 6.75% 6.51% 6.03% 5.46% 5.57% 5.06% 5.30% 2022 2023 2024 2025 YTD Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 RO
Slide 31: Capital Ratios
CAPITAL RATIOS Equity Ratios 12.2% 12.4% 12.6% 11.4% 11.9% 9.0% 9.3% 9.4% 8.8% 8.2% 2022 2023 2024 Q1 2025 Q2 2025 Stockholders' equity to total assets (GAAP) Tangible common equity to tangible assets(1) Regulatory Capital Ratios(2) 14.0% 14.1% 13.3% 13.6% 13.6% 12.8% 12.9% 12.0% 12.2% 12.2% 10.0% 1
Slide 32: Liquidity Position
LIQUIDITY POSITION Liquidity position at June 30, 2025: • Sufficient liquidity to cover estimated uninsured deposits of $2.4 billion. • Access to brokered deposits of $765 million per internal company policy. Liquidity Sources 116.2% 112.6% 103.1% 109.3% 100.4% $2,525 $2,542 $2,408 $2,379 $145 $2,34
Slide 33: Shareholder Return
SHAREHOLDER RETURN
Slide 34: Total Shareholder Return
TOTAL SHAREHOLDER RETURN (2) Diluted EPS and Adjusted Diluted EPS(1) Stock Summary Ticker HFWA $2.31 $0.53 Exchange Nasdaq $0.51 $2.01 $0.49 Stock price $25.31 $1.80 $2.31 $0.45 $0.45 Market capitalization (in millions) $863.2 Dividend yield (regular dividend only) 3.79 % $1.75 $0.41 $0.40 $1.24 Ave
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
NON-GAAP FINANCIAL MEASURES 2022 2023 2024 2025 YTD Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Adjusted Net Income and Adjusted Return on Average Assets ("ROAA"): Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 26,126 $ 14,159 $ 11,423 $ 11,928 $ 13,911 $ 12,215 Exclude (gain) loss on sale of investment
Slide 37: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 2022 2023 2024 2025 YTD Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Return on Average Tangible Common Equity ("ROATCE") and Adjusted ROATCE: Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 26,126 $ 14,159 $ 11,423 $ 11,928 $ 13,911 $ 12,215 Add amortization of intangible asset
Slide 38: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 2022 2023 2024 Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Diluted Earnings per Share and Adjusted Diluted Earnings per Share: Net income (GAAP) $ 81,875 $ 61,755 $ 43,258 $ 14,159 $ 11,423 $ 11,928 $ 13,911 $ 12,215 Exclude (gain) loss on sale of investment securities, net 2
Slide 39: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 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) (254,0
Slide 40: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Efficiency Ratio and Adjusted Efficiency Ratio Total noninterest expense (GAAP) $ 39,096 $ 39,290 $ 39,540 $ 41,383 $ 41,085 Net interest income (GAAP) $ 51,113 $ 52,958 $ 53,763 $ 53,690 $ 54,983 Total noninterest income (GAAP) $ 5
Slide 41: Quarterly Financial Statistics
QUARTERLY FINANCIAL STATISTICS As of Period End or for the Three Months Ended June 30, September 30, December 31, March 31, June 30, 2024 2024 2024 2025 2025 Profitability: Net income $ 14,159 $ 11,423 $ 11,928 $ 13,911 $ 12,215 (1) Adjusted net income $ 15,638 $ 15,740 $ 17,872 $ 16,979 $ 18,141 Di