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

About this update from Heritage Financial Corporation

Second Quarter 2024 Highlights Net income was $14.2 million , or $0.41 per diluted share, for the second quarter compared to $5.7 million , or $0.16 per diluted share, for the first quarter. The second quarter results include a loss on sale of securities of $1.9 million , or $0.04 per diluted share. Loans receivable increased $104.5 million , or 2.4% (9.5% annualized), during the second quarter. Net interest margin was 3.29% for the second quarter compared to 3.32% for the first quarter. Cost of total deposits was 1.34% for the second quarter compared to 1.19% for the first quarter. Noninterest expense to average total assets was 2.21% for the second quarter compared to 2.29% for the first quarter. Declared a regular cash dividend of $0.23 per share on July 24, 2024 . Announced CEO succession plan, with Bryan McDonald named as President of Heritage Financial Corporation and as Chief Executive Officer of Heritage Bank effective July 1, 2024 ; Jeff Deuel will continue as Chief Executive Officer of Heritage Financial Corporation until May 6, 2025 . OLYMPIA, Wash. , July 25, 2024 /PRNewswire/ -- Heritage Financial Corporation (Nasdaq GS: HFWA) (the "Company"), the parent company of Heritage Bank (the "Bank"), today reported net income of $14.2 million for the second quarter of 2024 compared to $5.7 million for the first quarter of 2024 and $16.8 million for the second quarter of 2023. Diluted earnings per share for the second quarter of 2024 were $0.41 compared to $0.16 for the first quarter of 2024 and $0.48 for the second quarter of 2023. In the second quarter of 2024, the Company incurred a pre-tax loss of $1.9 million on the sale of investment securities due to the strategic repositioning of its balance sheet, which decreased diluted earnings per share by $0.04 for the quarter. The Company sold $38.7 million in investment securities with an estimated weighted average book yield of 2.73%. The proceeds from sales were used to fund loan growth for the quarter. Jeff Deuel , Chief Executive Officer of the Company, commented, "We are pleased with our accomplishments for the second quarter including recognizing strong loan growth and we are seeing greater benefit from our ongoing expense management measures. Although we continue to experience modest margin compression, we expect our strategies will result in improved profitability as we transition into a more normalized rate environment." Financial Highlights The following table provides financial highlights at the dates and for the periods indicated: As of or for the Quarter Ended June 30 , 2024 March 31 , 2024 June 30 , 2023 (Dollars in thousands, except per share amounts) Net income $ 14,159 $ 5,748 $ 16,846 Pre-tax, pre-provision income(1) $ 17,263 $ 8,260 $ 21,780 Diluted earnings per share $ 0.41 $ 0.16 $ 0.48 Return on average assets(2) 0.80 % 0.33 % 0.95 % Pre-tax, pre-provision return on average assets(1)(2) 0.98 % 0.47 % 1.22 % Return on average common equity(2) 6.75 % 2.73 % 8.19 % Return on average tangible common equity(1)(2) 9.74 % 4.07 % 12.04 % Adjusted return on average tangible common equity(1)(2) 10.76 % 9.34 % 12.04 % Net interest margin(2) 3.29 % 3.32 % 3.56 % Cost of total deposits(2) 1.34 % 1.19 % 0.61 % Efficiency ratio 69.4 % 83.0 % 65.5 % Adjusted efficiency ratio(1) 67.1 % 68.9 % 65.5 % Noninterest expense to average total assets(2) 2.21 % 2.29 % 2.32 % Total assets $ 7,059,857 $ 7,091,283 $ 7,115,410 Loans receivable, net $ 4,481,396 $ 4,378,429 $ 4,204,936 Total deposits $ 5,515,652 $ 5,532,327 $ 5,595,543 Loan to deposit ratio(3) 82.2 % 80.0 % 76.0 % Book value per share $ 24.66 $ 24.43 $ 23.39 Tangible book value per share(1) $ 17.56 $ 17.36 $ 16.34 (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 $75.9 million , or 40.0%, to $113.8 million at June 30, 2024 from $189.6 million at March 31, 2024 primarily due to an increase in loans. Total investment securities decreased $71.9 million , or 4.2%, to $1.66 billion at June 30, 2024 from $1.73 billion at March 31, 2024 . As previously discussed, the Company sold $38.7 million in investment securities at a loss of $1.9 million as part of its ongoing strategic balance sheet repositioning, in addition to which there were investment maturities and repayments of $33.6 million during the second quarter of 2024. The following table summarizes the composition of the Company's investment securities portfolio at the dates indicated: June 30, 2024 March 31, 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 $ 12,474 0.8 % $ 13,417 0.8 % $ (943) (7.0) % Municipal securities 69,720 4.2 71,955 4.2 (2,235) (3.1) Residential CMO and MBS 446,468 26.9 476,742 27.5 (30,274) (6.4) Commercial CMO and MBS 378,768 22.8 409,468 23.7 (30,700) (7.5) Corporate obligations 11,384 0.7 11,191 0.6 193 1.7 Other asset-backed securities 12,434 0.7 13,737 0.8 (1,303) (9.5) Total $ 931,248 56.1 % $ 996,510 57.6 % $ (65,262) (6.5) % Investment securities held to maturity, at amortized cost: U.S. government and agency securities $ 151,146 9.1 % $ 151,110 8.7 % $ 36 — % Residential CMO and MBS 256,742 15.5 262,359 15.2 (5,617) (2.1) Commercial CMO and MBS 319,454 19.3 320,537 18.5 (1,083) (0.3) Total $ 727,342 43.9 % $ 734,006 42.4 % $ (6,664) (0.9) % Total investment securities $ 1,658,590 100.0 % $ 1,730,516 100.0 % $ (71,926) (4.2) % Loans receivable increased $104.5 million , or 2.4%, to $4.53 billion at June 30, 2024 from $4.43 billion at March 31, 2024 . New loans funded in the second quarter of 2024 and first quarter of 2024 totaled $166.7 million and $101.7 million , respectively. Loan prepayments increased slightly during the second quarter of 2024 to $48.5 million , compared to $39.1 million during the prior quarter. Non-owner occupied CRE increased $56.9 million , or 3.3%, due primarily to new loan production of $40.7 million during the second quarter of 2024 and advances on outstanding commitments. Residential real estate loans increased $27.0 million , or 7.0%, due primarily to residential loan purchases. Commercial and industrial loans increased $19.1 million , or 2.5%, due primarily to new loan production of $62.8 million during the quarter, offset by pay downs on outstanding commitments. The following table summarizes the Company's loans receivable, net at the dates indicated: June 30, 2024 March 31, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Commercial business: Commercial and industrial $ 779,495 17.2 % $ 760,391 17.2 % $ 19,104 2.5 % Owner-occupied commercial real estate ("CRE") 953,518 21.0 951,583 21.5 1,935 0.2 Non-owner occupied CRE 1,759,605 38.8 1,702,665 38.4 56,940 3.3 Total commercial business 3,492,618 77.0 3,414,639 77.1 77,979 2.3 Residential real estate 413,358 9.1 386,357 8.7 27,001 7.0 Real estate construction and land development: Residential 80,451 1.8 84,081 1.9 (3,630) (4.3) Commercial and multifamily 378,695 8.4 372,532 8.4 6,163 1.7 Total real estate construction and land development 459,146 10.2 456,613 10.3 2,533 0.6 Consumer 167,493 3.7 170,556 3.9 (3,063) (1.8) Loans receivable 4,532,615 100.0 % 4,428,165 100.0 % 104,450 2.4 Allowance for credit losses on loans (51,219) (49,736) (1,483) 3.0 Loans receivable, net $ 4,481,396 $ 4,378,429 $ 102,967 2.4 % Total deposits decreased $16.7 million , or 0.3%, to $5.52 billion at June 30, 2024 from $5.53 billion at March 31, 2024 . Certificates of deposit increased $103.5 million , or 13.3%, to $883.2 million at June 30, 2024 from $779.7 million at March 31, 2024 primarily due to transfers from non-maturity deposit accounts as customers moved balances to higher yielding accounts. Average total deposits increased $29.2 million to $5.56 billion for the second quarter of 2024, from $5.53 billion for the first quarter of 2024. The following table summarizes the Company's total deposits at the dates indicated: June 30, 2024 March 31, 2024 Change Balance % of Total Balance % of Total $ % (Dollars in thousands) Noninterest demand deposits $ 1,599,367 29.0 % $ 1,637,111 29.5 % $ (37,744) (2.3) % Interest bearing demand deposits 1,487,670 27.0 1,552,584 28.1 (64,914) (4.2) Money market accounts 1,098,821 19.9 1,099,983 19.9 (1,162) (0.1) Savings accounts 446,583 8.1 462,974 8.4 (16,391) (3.5) Total non-maturity deposits 4,632,441 84.0 4,752,652 85.9 (120,211) (2.5) Certificates of deposit 883,211 16.0 779,675 14.1 103,536 13.3 Total deposits $ 5,515,652 100.0 % $ 5,532,327 100.0 % $ (16,675) (0.3) % Total borrowings were $500 million at June 30, 2024 and March 31, 2024 . Federal Reserve Bank ("FRB") Bank Term Funding Program borrowings totaling $400 million matured in May 2024 and were replaced with $400 million in borrowings from the Federal Home Loan Bank ("FHLB") during the second quarter of 2024. Total stockholders' equity increased $2.9 million , or 0.3%, to $850.5 million at June 30, 2024 compared to $847.6 million at March 31, 2024 due primarily to $14.2 million of net income recognized for the quarter, partially offset by $8.1 million in dividends paid to common shareholders and $4.4 million in common stock repurchases. On April 24, 2024 , the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common stock or approximately 1.7 million shares. The new stock repurchase program superseded 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 . During the second quarter of 2024, the Company repurchased 240,153 shares. 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 June 30, 2024 . The following table summarizes the capital ratios for the Company at the dates indicated: June 30 , 2024 March 31 , 2024 Stockholders' equity to total assets 12.0 % 12.0 % Tangible common equity to tangible assets (1) 8.9 8.8 Common equity tier 1 capital ratio (2) 12.6 12.6 Leverage ratio (2) 10.1 10.0 Tier 1 capital ratio (2) 13.0 13.0 Total capital ratio (2) 13.9 13.9 (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 1.13% at June 30, 2024 compared to 1.12% at March 31, 2024 . During the second quarter of 2024, the Company recorded a $1.5 million provision for credit losses on loans, compared to a $1.7 million provision for credit losses on loans during the first quarter of 2024. The provision for credit losses on loans during the second quarter of 2024 was primarily driven by loan growth during the quarter. During the second quarter of 2024, the Company recorded a $202,000 reversal of provision for credit losses on unfunded commitments compared to a $312,000 reversal of provision for credit losses on unfunded commitments during the first quarter of 2024. The reversal of provision for credit losses on unfunded commitments during the second quarter of 2024 was due primarily to a decrease in the unfunded exposure on loans and an increase in utilization rates. 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 June 30, 2024 March 31, 2024 June 30, 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 $ 49,736 $ 976 $ 50,712 $ 47,999 $ 1,288 $ 49,287 $ 44,469 $ 1,856 $ 46,325 Provision for (reversal of) credit losses 1,470 (202) 1,268 1,704 (312) 1,392 1,988 (79) 1,909 Net recoveries (net charge-offs) 13 — 13 33 — — 33 (49) — (49) Balance, end of period $ 51,219 $ 774 $ 51,993 $ 49,736 $ 976 $ 50,712 $ 46,408 $ 1,777 $ 48,185 Credit Quality The percentage of classified loans to loans receivable increased to 1.8% at June 30, 2024 , compared to 1.6% at March 31, 2024 . Classified loans include loans rated substandard or worse. The increase was due primarily to the downgrade of a single $15.1 million commercial and multifamily construction loan to substandard from special mention. Total loans designated as special mention decreased by $8.5 million to $93.7 million at June 30, 2024 , compared to $102.2 million at March 31, 2024 . The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated: June 30, 2024 March 31, 2024 Balance % of Total Balance % of Total (Dollars in thousands) Risk Rating: Pass $ 4,356,425 96.1 % $ 4,255,750 96.1 % Special Mention 93,694 2.1 102,232 2.3 Substandard 82,496 1.8 70,183 1.6 Total $ 4,532,615 100.0 % $ 4,428,165 100.0 % Nonaccrual loans to loans receivable were 0.08% and 0.11% at June 30, 2024 and March 31, 2024 , respectively. Changes in nonaccrual loans during the periods indicated were as follows: Quarter Ended June 30 , 2024 March 31 , 2024 June 30 , 2023 (Dollars in thousands) Balance, beginning of period $ 4,792 $ 4,468 $ 4,815 Additions 549 593 — Net principal payments and transfers to accruing status (483) (269) (185) Payoffs (769) — — Charge-offs (263) — — Balance, end of period $ 3,826 $ 4,792 $ 4,630 Liquidity Total liquidity sources available at June 30, 2024 were $2.41 billion . This includes on- and off-balance sheet liquidity. The Company has access to FHLB advances and the FRB Discount Window. The Company's available liquidity sources at June 30, 2024 represented a coverage ratio of 43.7% of total deposits and 116.1% of estimated uninsured deposits. The following table summarizes the Company's available liquidity: Quarter Ended June 30 , 2024 March 31 , 2024 (Dollars in thousands) On-balance sheet liquidity Cash and cash equivalents $ 113,757 $ 189,647 Unencumbered investment securities available for sale (1) 926,822 708,378 Total on-balance sheet liquidity $ 1,040,579 $ 898,025 Off-balance sheet liquidity FRB borrowing availability $ 278,632 $ 71,300 FHLB borrowing availability (2) 943,492 1,384,631 Fed funds line borrowing availability with correspondent banks 145,000 145,000 Total off-balance sheet liquidity $ 1,367,124 $ 1,600,931 Total available liquidity $ 2,407,703 $ 2,498,956 (1) Investment securities available for sale at fair value. (2) Includes FHLB total borrowing availability of $1.34 billion at June 30, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3 .19 billion. Net Interest Income and Net Interest Margin Net interest income decreased $417,000 , or 0.8%, during the second quarter of 2024 compared to the first quarter of 2024 due primarily to an increase of $2.6 million in interest expense offset partially by a $2.2 million increase in interest income. Net interest margin decreased three basis points to 3.29% during the second quarter of 2024 from 3.32% during the first quarter of 2024. The cost of interest bearing deposits increased 19 basis points to 1.89% for the second quarter of 2024 from 1.70% for the first quarter of 2024. 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 14 basis points to 4.93% for the second quarter of 2024, compared to 4.79% for the first quarter of 2024. The yield on loans receivable, net, increased 11 basis points to 5.52% during the second quarter of 2024 compared to 5.41% during the first quarter of 2024 due primarily to higher rates on new and renewed loans. The impact to loan yield from recoveries of interest and fees on loans classified as nonaccrual was three basis points during the second quarter of 2024, compared to no impact during the first quarter of 2024. The yield on taxable securities increased nine basis points to 3.38% during the second quarter of 2024 compared to 3.29% during the first quarter of 2024 due primarily to sales of lower yielding investments during the first and second quarters of 2024. Net interest income decreased $4.7 million , or 8.4%, during the second quarter of 2024 compared to the second quarter of 2023 and the net interest margin decreased 27 basis points to 3.29% from 3.56% 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 June 30, 2024 March 31, 2024 June 30, 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) $ 4,415,790 $ 60,608 5.52 % $ 4,303,394 $ 57,862 5.41 % $ 4,145,556 $ 53,623 5.19 % Taxable securities 1,685,795 14,156 3.38 1,810,709 14,834 3.29 1,989,297 14,774 2.98 Nontaxable securities (3) 18,812 165 3.53 21,302 181 3.42 71,803 520 2.90 Interest earning deposits 121,539 1,653 5.47 108,733 1,476 5.46 90,754 1,154 5.10 Total interest earning assets 6,241,936 76,582 4.93 % 6,244,138 74,353 4.79 % 6,297,410 70,071 4.46 % Noninterest earning assets 864,855 848,314 845,455 Total assets $ 7,106,791 $ 7,092,452 $ 7,142,865 Interest Bearing Liabilities: Certificates of deposit $ 838,285 $ 9,128 4.38 % $ 733,816 $ 7,671 4.20 % $ 421,451 $ 2,483 2.36 % Savings accounts 453,099 190 0.17 475,075 230 0.19 551,201 157 0.11 Interest bearing demand and money market accounts 2,625,593 9,135 1.40 2,659,999 8,487 1.28 2,782,353 5,967 0.86 Total interest bearing deposits 3,916,977 18,453 1.89 3,868,890 16,388 1.70 3,755,005 8,607 0.92 Junior subordinated debentures 21,874 539 9.91 21,800 547 10.09 21,577 499 9.28 Securities sold under agreement to repurchase — — — — — — 39,755 63 0.64 Borrowings 500,230 6,477 5.21 500,660 5,888 4.73 417,896 5,078 4.87 Total interest bearing liabilities 4,439,081 25,469 2.31 % 4,391,350 22,823 2.09 % 4,234,233 14,247 1.35 % Noninterest demand deposits 1,638,262 1,657,132 1,900,640 Other noninterest bearing liabilities 186,010 197,023 183,250 Stockholders' equity 843,438 846,947 824,742 Total liabilities and stockholders' equity $ 7,106,791 $ 7,092,452 $ 7,142,865 Net interest income and spread $ 51,113 2.62 % $ 51,530 2.70 % $ 55,824 3.11 % Net interest margin 3.29 % 3.32 % 3.56 % (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 $971,000 , $809,000 and $726,000 for the second quarter of 2024, first quarter of 2024 and second 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 $8.1 million to $5.2 million during the second quarter of 2024 from a loss of $2.9 million during the first quarter of 2024. The increase was due primarily to the reduction of loss resulting from the sale of investment securities recognized in the second quarter of 2024 compared to the prior quarter. Noninterest income decreased $2.0 million from the same period in 2023 due primarily to a $1.9 million pre-tax loss on the sale of investment securities during the second quarter of 2024. Card revenue declined modestly due to a reduction in card activity as non-maturity deposit balances have declined. 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 June 30 , 2024 March 31 , 2024 June 30 , 2023 $ % $ % (Dollars in thousands) Service charges and other fees $ 2,817 $ 2,788 $ 2,682 $ 29 1.0 % $ 135 5.0 % Card revenue 1,930 1,839 2,123 91 4.9 (193) (9.1) Loss on sale of investment securities (1,921) (9,973) — 8,052 (80.7) (1,921) (100.0) Gain on sale of loans, net — 26 101 (26) (100.0) (101) (100.0) Interest rate swap fees 52 — 115 52 — (63) (54.8) Bank owned life insurance income 931 920 837 11 1.2 94 11.2 Gain on sale of other assets, net 49 — — 49 — 49 100.0 Other income 1,388 1,500 1,423 (112) (7.5) (35) (2.5) Total noninterest income (loss) $ 5,246 $ (2,900) $ 7,281 $ 8,146 (280.9) % $ (2,035) (27.9) % Noninterest Expense Noninterest expense decreased $1.3 million , or 3.2%, during the second quarter of 2024 from the first quarter of 2024 due primarily to a decline in compensation and employee benefits. Compensation and employee benefits declined due primarily to severance costs resulting from staff reductions of $1.1 million recognized during the first quarter of 2024 offset partially by an increase in salary expense due to annual merit increases in base pay. Occupancy and equipment declined due primarily to a decrease in maintenance costs related to winter weather conditions experienced in the first quarter of 2024. Data processing increased during the quarter due to a non-recurring $230,000 refund recognized in the first quarter of 2024 related to a contract termination. Noninterest expense decreased $2.2 million , or 5.4%, during the second quarter of 2024 compared to the same period in 2023, primarily due to a decrease in data processing and other expense. Data processing decreased primarily due to a decline in ongoing costs resulting from prior technology-related contract renewals and terminations. Other expense decreased due to a decrease in customer account loss expense and a reduction in employee related expenses which included additional expenses in the second quarter of 2024 related to newly added teams. Compensation and employee benefits decreased due to a reduction in full-time equivalent employees to 748 at June 30, 2024 from 813 at June 30, 2023 . 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 June 30 , 2024 March 31 , 2024 June 30 , 2023 $ % $ % (Dollars in thousands) Compensation and employee benefits $ 24,448 $ 25,476 $ 24,781 $ (1,028) (4.0) % $ (333) (1.3) % Occupancy and equipment 4,765 4,932 4,666 (167) (3.4) 99 2.1 Data processing 3,785 3,537 4,500 248 7.0 (715) (15.9) Marketing 244 211 441 33 15.6 (197) (44.7) Professional services 795 567 751 228 40.2 44 5.9 State/municipal business and use taxes 1,160 1,300 1,054 (140) (10.8) 106 10.1 Federal deposit insurance premium 812 795 797 17 2.1 15 1.9 Amortization of intangible assets 421 421 623 — — (202) (32.4) Other expense 2,666 3,131 3,712 (465) (14.9) (1,046) (28.2) Total noninterest expense $ 39,096 $ 40,370 $ 41,325 $ (1,274) (3.2) % $ (2,229) (5.4) % Income Tax Expense Income tax expense increased $716,000 during the second quarter of 2024 to $1.8 million compared to $1.1 million for the first quarter of 2024. The increase in income tax expense during the current quarter compared to the prior quarter was primarily due to an increase in pre-tax income during the second quarter of 2024. The effective tax rate declined during the second quarter of 2024 compared to the prior quarter due to recognition of a discrete tax expense item related to restricted stock awards in the first quarter of 2024 and a reduction in forecasted pre-tax income which caused a downward adjustment to the annualized effective tax rate. Income tax expense decreased during the second quarter of 2024 compared to the second quarter of 2023 due to lower pre-tax income during the second quarter of 2024. The effective tax rate declined due to lower pre-tax income which increased the impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits. The following table presents the income tax expense and related metrics and the change for the periods indicated: Quarter Ended Change June 30 , 2024 March 31 , 2024 June 30 , 2023 Quarter Over Quarter Prior Year Quarter (Dollars in thousands) Income before income taxes $ 15,995 $ 6,868 $ 19,871 $ 9,127 $ (3,876) Income tax expense $ 1,836 $ 1,120 $ 3,025 $ 716 $ (1,189) Effective income tax rate 11.5 % 16.3 % 15.2 % (4.8) % (3.7) % Dividends On July 24, 2024 , the Company's Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable on August 21, 2024 to shareholders of record as of the close of business on August 7, 2024 . Earnings Conference Call The Company will hold a telephone conference call to discuss this earnings release on Thursday, July 25, 2024 at 10:00 a.m. Pacific time . To access the call, please dial (833) 470-1428 -- access code 281184 a few minutes prior to 10:00 a.m. Pacific time . The call will be available for replay through August 1, 2024 by dialing (866) 813-9403 -- access code 638306. 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 "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 our 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 generally, and in the financial services industry, nationally or in our local market areas, other markets where our lending relationships, or other aspects of our 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 or terrorism; 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 effects of recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short-period of time that resulted in a number of bank failures; the impact of recent bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; the extensive regulatory framework that applies to us; potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election; 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; risks related to climate change and the negative impact it may have on our customers and their businesses; severe weather, natural disasters, widespread disease or pandemics; credit and interest rate risks associated with our business, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits; the concentration of large deposits from certain clients, who have balances above current Federal Deposit Insurance Corporation insurance limits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; the overall health of local and national real estate markets; concentrations within our loan portfolio; the level of nonperforming assets on our balance sheet; disruptions, fraudulent activity, 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, including as a result of 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; the composition of our executive management team and our ability to attract and retain key personnel; effects of critical accounting policies and judgments or new and revised accounting policies, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; 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.heritagebanknw.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) June 30 , 2024 March 31 , 2024 December 31 , 2023 Assets Cash on hand and in banks $ 55,469 $ 52,947 $ 55,851 Interest earning deposits 58,288 136,700 169,122 Cash and cash equivalents 113,757 189,647 224,973 Investment securities available for sale, at fair value (amortized cost of $1,022,211 , $1,087,789 and $1,227,787 , respectively) 931,248 996,510 1,134,353 Investment securities held to maturity, at amortized cost (fair value of $642,051 , $649,001 and $662,450 , respectively) 727,342 734,006 739,442 Total investment securities 1,658,590 1,730,516 1,873,795 Loans receivable 4,532,615 4,428,165 4,335,627 Allowance for credit losses on loans (51,219) (49,736) (47,999) Loans receivable, net 4,481,396 4,378,429 4,287,628 Premises and equipment, net 73,218 74,092 74,899 Federal Home Loan Bank stock, at cost 22,303 4,303 4,186 Bank owned life insurance 126,420 125,615 125,655 Accrued interest receivable 19,855 19,898 19,518 Prepaid expenses and other assets 319,428 323,472 318,571 Other intangible assets, net 3,951 4,372 4,793 Goodwill 240,939 240,939 240,939 Total assets $ 7,059,857 $ 7,091,283 $ 7,174,957 Liabilities and Stockholders' Equity Non-interest bearing deposits $ 1,599,367 $ 1,637,111 $ 1,715,847 Interest bearing deposits 3,916,285 3,895,216 3,884,025 Total deposits 5,515,652 5,532,327 5,599,872 Borrowings 500,000 500,000 500,000 Junior subordinated debentures 21,912 21,838 21,765 Accrued expenses and other liabilities 171,786 189,538 200,059 Total liabilities 6,209,350 6,243,703 6,321,696 Common stock 541,294 544,636 549,748 Retained earnings 379,714 373,629 375,989 Accumulated other comprehensive loss, net (70,501) (70,685) (72,476) Total stockholders' equity 850,507 847,580 853,261 Total liabilities and stockholders' equity $ 7,059,857 $ 7,091,283 $ 7,174,957 Shares outstanding 34,496,197 34,689,843 34,906,233 HERITAGE FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts) Quarter Ended Six Months Ended June 30 , 2024 March 31 , 2024 June 30 , 2023 June 30 , 2024 June 30 , 2023 Interest Income Interest and fees on loans $ 60,608 $ 57,862 $ 53,623 $ 118,470 $ 104,073 Taxable interest on investment securities 14,156 14,834 14,774 28,990 29,431 Nontaxable interest on investment securities 165 181 520 346 1,106 Interest on interest earning deposits 1,653 1,476 1,154 3,129 2,126 Total interest income 76,582 74,353 70,071 150,935 136,736 Interest Expense Deposits 18,453 16,388 8,607 34,841 13,135 Junior subordinated debentures 539 547 499 1,086 981 Securities sold under agreement to repurchase — — 63 — 110 Borrowings 6,477 5,888 5,078 12,365 6,844 Total interest expense 25,469 22,823 14,247 48,292 21,070 Net interest income 51,113 51,530 55,824 102,643 115,666 Provision for credit losses 1,268 1,392 1,909 2,660 3,734 Net interest income after provision for credit losses 49,845 50,138 53,915 99,983 111,932 Noninterest Income Service charges and other fees 2,817 2,788 2,682 5,605 5,306 Card revenue 1,930 1,839 2,123 3,769 4,123 Loss on sale of investment securities, net (1,921) (9,973) — (11,894) (286) Gain on sale of loans, net — 26 101 26 150 Interest rate swap fees 52 — 115 52 168 Bank owned life insurance income 931 920 837 1,851 1,546 Gain on sale of other assets, net 49 — — 49 2 Other income 1,388 1,500 1,423 2,888 4,530 Total noninterest income (loss) 5,246 (2,900) 7,281 2,346 15,539 Noninterest Expense Compensation and employee benefits 24,448 25,476 24,781 49,924 50,317 Occupancy and equipment 4,765 4,932 4,666 9,697 9,558 Data processing 3,785 3,537 4,500 7,322 8,842 Marketing 244 211 441 455 843 Professional services 795 567 751 1,362 1,379 State/municipal business and use taxes 1,160 1,300 1,054 2,460 2,062 Federal deposit insurance premium 812 795 797 1,607 1,647 Amortization of intangible assets 421 421 623 842 1,246 Other expense 2,666 3,131 3,712 5,797 7,036 Total noninterest expense 39,096 40,370 41,325 79,466 82,930 Income before income taxes 15,995 6,868 19,871 22,863 44,541 Income tax expense 1,836 1,120 3,025 2,956 7,238 Net income $ 14,159 $ 5,748 $ 16,846 $ 19,907 $ 37,303 Basic earnings per share $ 0.41 $ 0.17 $ 0.48 $ 0.58 $ 1.06 Diluted earnings per share $ 0.41 $ 0.16 $ 0.48 $ 0.57 $ 1.06 Dividends declared per share $ 0.23 $ 0.23 $ 0.22 $ 0.46 $ 0.44 Average shares outstanding - basic 34,609,900 34,825,471 35,058,155 34,717,685 35,083,133 Average shares outstanding - diluted 34,919,395 35,227,138 35,126,590 35,127,407 35,348,268 HERITAGE FINANCIAL CORPORATION FINANCIAL STATISTICS (Unaudited) (Dollars in thousands) Average Balances, Yields, and Rates Paid: Six Months Ended June 30 , 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) $ 4,359,592 $ 118,470 5.46 % $ 4,092,769 $ 104,073 5.13 % Taxable securities 1,748,252 28,990 3.33 1,998,268 29,431 2.97 Nontaxable securities(3) 20,057 346 3.47 77,317 1,106 2.88 Interest earning deposits 115,136 3,129 5.47 87,086 2,126 4.92 Total interest earning assets 6,243,037 150,935 4.86 % 6,255,440 136,736 4.41 % Noninterest earning assets 856,584 847,195 Total assets $ 7,099,621 $ 7,102,635 Interest Bearing Liabilities: Certificates of deposit $ 786,050 $ 16,799 4.30 % $ 386,026 $ 3,707 1.94 % Savings accounts 464,087 420 0.18 576,046 299 0.10 Interest bearing demand and money market accounts 2,642,796 17,622 1.34 2,805,645 9,129 0.66 Total interest bearing deposits 3,892,933 34,841 1.80 3,767,717 13,135 0.70 Junior subordinated debentures 21,837 1,086 10.00 21,539 981 9.18 Securities sold under agreement to repurchase — — — 41,469 110 0.53 Borrowings 500,445 12,365 4.97 282,502 6,844 4.89 Total interest bearing liabilities 4,415,215 48,292 2.20 % 4,113,227 21,070 1.03 % Noninterest demand deposits 1,647,697 1,984,200 Other noninterest bearing liabilities 191,516 186,553 Stockholders' equity 845,193 818,655 Total liabilities and stockholders' equity $ 7,099,621 $ 7,102,635 Net interest income and spread $ 102,643 2.66 % $ 115,666 3.38 % Net interest margin 3.31 % 3.73 % (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 $1.8 million and $1.5 million for the six months ended June 30, 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 Six Months Ended June 30 , 2024 March 31 , 2024 June 30 , 2023 June 30 , 2024 June 30 , 2023 Allowance for Credit Losses on Loans: Balance, beginning of period $ 49,736 $ 47,999 $ 44,469 $ 47,999 $ 42,986 Provision for credit losses on loans 1,470 1,704 1,988 3,174 3,701 Charge-offs: Commercial business (312) (77) — (389) (161) Consumer (238) (123) (144) (361) (297) Total charge-offs (550) (200) (144) (750) (458) Recoveries: Commercial business 518 217 38 735 89 Consumer 45 16 57 61 90 Total recoveries 563 233 95 796 179 Net recoveries (charge-offs) 13 33 (49) 46 (279) Balance, end of period $ 51,219 $ 49,736 $ 46,408 $ 51,219 $ 46,408 Net charge-offs (recoveries) on loans to average loans receivable, net(1) — % — % — % — % 0.01 % (1) Annualized. June 30 , 2024 March 31 , 2024 December 31 , 2023 Nonperforming Assets: Nonaccrual loans: Commercial business $ 3,826 $ 4,792 $ 4,468 Total nonaccrual loans 3,826 4,792 4,468 Accruing loans past due 90 days or more 4,296 2,628 1,293 Total nonperforming loans 8,122 7,420 5,761 Other real estate owned — — — Nonperforming assets $ 8,122 $ 7,420 $ 5,761 ACL on loans to: Loans receivable 1.13 % 1.12 % 1.11 % Nonaccrual loans 1,338.71 % 1,037.90 % 1,074.28 % Nonaccrual loans to loans receivable 0.08 % 0.11 % 0.10 % Nonperforming loans to loans receivable 0.18 % 0.17 % 0.13 % Nonperforming assets to total assets 0.12 % 0.10 % 0.08 % HERITAGE FINANCIAL CORPORATION QUARTERLY FINANCIAL STATISTICS (Unaudited) (Dollars in thousands, except per share amounts) Quarter Ended June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 June 30 , 2023 Earnings: Net interest income $ 51,113 $ 51,530 $ 53,871 $ 55,618 $ 55,824 Provision for (reversal of) credit losses 1,268 1,392 1,424 (878) 1,909 Noninterest income (loss) 5,246 (2,900) (3,147) 6,271 7,281 Noninterest expense 39,096 40,370 42,723 40,970 41,325 Net income 14,159 5,748 6,233 18,219 16,846 Pre-tax, pre-provision net income (1) 17,263 8,260 8,001 20,919 21,780 Basic earnings per share $ 0.41 $ 0.17 $ 0.18 $ 0.52 $ 0.48 Diluted earnings per share $ 0.41 $ 0.16 $ 0.18 $ 0.51 $ 0.48 Average Balances: Loans receivable, net (2) $ 4,415,790 $ 4,303,394 $ 4,233,743 $ 4,201,554 $ 4,145,556 Total investment securities 1,704,607 1,832,011 1,861,587 1,992,303 2,061,100 Total interest earning assets 6,241,936 6,244,138 6,269,805 6,363,043 6,297,410 Total assets 7,106,791 7,092,452 7,140,876 7,212,732 7,142,865 Total interest bearing deposits 3,916,977 3,868,890 3,849,067 3,841,148 3,755,005 Total noninterest demand deposits 1,638,262 1,657,132 1,772,261 1,859,374 1,900,640 Stockholders' equity 843,438 846,947 813,383 821,494 824,742 Financial Ratios: Return on average assets (3) 0.80 % 0.33 % 0.35 % 1.00 % 0.95 % Pre-tax, pre-provision return on average assets (1)(3) 0.98 0.47 0.44 1.15 1.22 Return on average common equity (3) 6.75 2.73 3.04 8.80 8.19 Return on average tangible common equity (1)(3) 9.74 4.07 4.69 12.90 12.04 Adjusted return on average tangible common equity (1)(3) 10.76 9.34 10.21 13.62 12.04 Efficiency ratio 69.4 83.0 84.2 66.2 65.5 Adjusted efficiency ratio 67.1 68.9 70.4 64.8 65.5 Noninterest expense to average total assets (3) 2.21 2.29 2.37 2.25 2.32 Net interest spread (3) 2.62 2.70 2.84 2.95 3.11 Net interest margin (3) 3.29 3.32 3.41 3.47 3.56 (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 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 June 30 , 2023 Select Balance Sheet: Total assets $ 7,059,857 $ 7,091,283 $ 7,174,957 $ 7,150,588 $ 7,115,410 Loans receivable, net 4,481,396 4,378,429 4,287,628 4,219,911 4,204,936 Total investment securities 1,658,590 1,730,516 1,873,795 1,894,392 2,030,826 Total deposits 5,515,652 5,532,327 5,599,872 5,635,187 5,595,543 Noninterest demand deposits 1,599,367 1,637,111 1,715,847 1,789,293 1,857,492 Stockholders' equity 850,507 847,580 853,261 813,546 819,733 Financial Measures: Book value per share $ 24.66 $ 24.43 $ 24.44 $ 23.31 $ 23.39 Tangible book value per share (1) 17.56 17.36 17.40 16.25 16.34 Stockholders' equity to total assets 12.0 % 12.0 % 11.9 % 11.4 % 11.5 % Tangible common equity to tangible assets (1) 8.9 8.8 8.8 8.2 8.3 Loans to deposits ratio 82.2 80.0 77.4 75.7 76.0 Regulatory Capital Ratios: (2) Common equity tier 1 capital ratio 12.6 % 12.6 % 12.9 % 12.9 % 12.8 % Leverage ratio 10.1 10.0 10.0 9.9 9.9 Tier 1 capital ratio 13.0 13.0 13.3 13.3 13.2 Total capital ratio 13.9 13.9 14.1 14.1 14.1 Credit Quality Metrics: ACL on loans to: Loans receivable 1.13 % 1.12 % 1.11 % 1.10 % 1.09 % Nonperforming loans 1,338.7 1,037.9 1,074.3 1,531.7 1,002.3 Nonaccrual loans to loans receivable 0.08 0.11 0.10 0.07 0.11 Nonperforming loans to loans receivable 0.18 0.17 0.13 0.12 0.16 Nonperforming assets to total assets 0.12 0.10 0.08 0.07 0.10 Net charge-offs (recoveries) on loans to average loans receivable, net(3) 0.00 0.00 0.06 (0.11) 0.00 Criticized Loans by Credit Quality Rating: Special mention $ 93,694 $ 102,232 $ 79,977 $ 72,152 $ 84,623 Substandard 82,496 70,183 69,757 62,653 58,653 Other Metrics: Number of banking offices 50 50 50 50 51 Deposits per branch $ 110,313 $ 110,647 $ 111,997 $ 112,704 $ 109,717 Average number of full-time equivalent employees 748 765 803 821 813 Average assets per full-time equivalent employee 9,501 9,271 8,893 8,785 8,786 (1) See Non-GAAP Financial Measures section herein. (2) Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. (3) Annualized. HERITAGE FINANCIAL CORPORATION NON-GAAP FINANCIAL MEASURES (Unaudited) (Dollars in thousands, except per share amounts) This earnings release contains certain financial measures not presented in accordance with 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 non-GAAP measures used in this earnings release to the comparable GAAP 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. June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 June 30 , 2023 Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: Total stockholders' equity (GAAP) $ 850,507 $ 847,580 $ 853,261 $ 813,546 $ 819,733 Exclude intangible assets (244,890) (245,311) (245,732) (246,325) (246,920) Tangible common equity (non-GAAP) $ 605,617 $ 602,269 $ 607,529 $ 567,221 $ 572,813 Total assets (GAAP) $ 7,059,857 $ 7,091,283 $ 7,174,957 $ 7,150,588 $ 7,115,410 Exclude intangible assets (244,890) (245,311) (245,732) (246,325) (246,920) Tangible assets (non-GAAP) $ 6,814,967 $ 6,845,972 $ 6,929,225 $ 6,904,263 $ 6,868,490 Stockholders' equity to total assets (GAAP) 12.0 % 12.0 % 11.9 % 11.4 % 11.5 % Tangible common equity to tangible assets (non-GAAP) 8.9 % 8.8 % 8.8 % 8.2 % 8.3 % Shares outstanding 34,496,197 34,689,843 34,906,233 34,901,076 35,047,800 Book value per share (GAAP) $ 24.66 $ 24.43 $ 24.44 $ 23.31 $ 23.39 Tangible book value per share (non-GAAP) $ 17.56 $ 17.36 $ 17.40 $ 16.25 $ 16.34 HERITAGE FINANCIAL CORPORATION NON-GAAP FINANCIAL MEASURES (Unaudited) (Dollars in thousands, except per share amounts) The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company's ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated. The Company believes that presenting an adjusted return on tangible common equity ratio, 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 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 June 30 , 2023 Return on Average Tangible Common Equity, annualized: Net income (GAAP) $ 14,159 $ 5,748 $ 6,233 $ 18,219 $ 16,846 Add amortization of intangible assets 421 421 593 595 623 Exclude tax effect of adjustment (88) (88) (125) (125) (131) Tangible net income (non-GAAP) $ 14,492 $ 6,081 $ 6,701 $ 18,689 $ 17,338 Tangible net income (non-GAAP) $ 14,492 $ 6,081 $ 6,701 $ 18,689 $ 17,338 Exclude loss on sale of investment securities, net 1,921 9,973 10,005 1,940 — Exclude gain on sale of branch including related deposits, net — — — (610) — Exclude tax effect of adjustment (403) (2,094) (2,101) (279) — Adjusted tangible net income (non-GAAP) $ 16,010 $ 13,960 $ 14,605 $ 19,740 $ 17,338 Average stockholders' equity (GAAP) $ 843,438 $ 846,947 $ 813,383 $ 821,494 $ 824,742 Exclude average intangible assets (245,106) (245,536) (246,022) (246,663) (247,278) Average tangible common stockholders' equity (non-GAAP) $ 598,332 $ 601,411 $ 567,361 $ 574,831 $ 577,464 Return on average common equity, annualized (GAAP) 6.75 % 2.73 % 3.04 % 8.80 % 8.19 % Return on average tangible common equity, annualized (non-GAAP) 9.74 % 4.07 % 4.69 % 12.90 % 12.04 % Adjusted return on average tangible common equity, annualized (non-GAAP) 10.76 % 9.34 % 10.21 % 13.62 % 12.04 % 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 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 June 30 , 2023 Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized: Net income (GAAP) $ 14,159 $ 5,748 $ 6,233 $ 18,219 $ 16,846 Add income tax expense 1,836 1,120 344 3,578 3,025 Add (subtract) provision for (reversal of) credit losses 1,268 1,392 1,424 (878) 1,909 Pre-tax, pre-provision income (non-GAAP) $ 17,263 $ 8,260 $ 8,001 $ 20,919 $ 21,780 Average total assets (GAAP) $ 7,106,791 $ 7,092,452 $ 7,140,876 $ 7,212,732 $ 7,142,865 Return on average assets, annualized (GAAP) 0.80 % 0.33 % 0.35 % 1.00 % 0.95 % Pre-tax, pre-provision return on average assets (non-GAAP) 0.98 % 0.47 % 0.44 % 1.15 % 1.22 % 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 June 30 , 2024 March 31 , 2024 December 31 , 2023 September 30 , 2023 June 30 , 2023 Adjusted Efficiency Ratio : Total noninterest expense (GAAP) $ 39,096 $ 40,370 $ 42,723 $ 40,970 $ 41,325 Net interest income (GAAP) $ 51,113 $ 51,530 $ 53,871 $ 55,618 $ 55,824 Total noninterest income (GAAP) $ 5,246 $ (2,900) $ (3,147) $ 6,271 $ 7,281 Exclude (gain) loss on sale of investment securities, net 1,921 9,973 10,005 1,940 — Exclude gain on sale of branch including related deposits, net — — — (610) — Adjusted total noninterest income (non-GAAP) $ 7,167 $ 7,073 $ 6,858 $ 7,601 $ 7,281 Efficiency ratio (GAAP) 69.4 % 83.0 % 84.2 % 66.2 % 65.5 % Adjusted efficiency ratio (non-GAAP) 67.1 % 68.9 % 70.4 % 64.8 % 65.5 % View original content: https://www.prnewswire.com/news-releases/heritage-financial-announces-second-quarter-2024-results-and-declares-regular-cash-dividend-302206393.html SOURCE Heritage Financial Corporation

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